Littelfuse, Inc.

Good day, everyone, and welcome to the Little Fuse third quarter 2024 earnings conference call. Today's call is being recorded. At this time, I will turn the call over to Head of Investor Relations, David Kelly. Please proceed.

Good morning, and welcome to the Little Fuse third quarter 2024 earnings conference call. With me today are Dave Heinzman, President and CEO, and Minal 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 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.

Thank you, David. Good morning and thanks for joining us today. Let's start with highlights on slide four. In the third quarter, our performance was ahead of our expectations with sales at the high end of our guidance range and earnings exceeding our guidance range. The strength of our third quarter results are a testament to our experienced teams and our strong track record and commitment to execution. We demonstrated the resiliency of our diversified businesses We navigated an ongoing difficult environment with agility while driving sequentially higher profitability across our three business segments. We once again delivered strong free cash flow and our balance sheet remains well positioned to support our long-term growth strategy. We leveraged our unique technology positioning while partnering with our global customer base to again generate meaningful new business wins in the quarter. We also continue to benefit from robust design and activity given our broad exposure to secular themes across our end markets. In the quarter, we saw a continuation of cautious customer ordering patterns and challenging in-market conditions. As we see these trends continuing and given our typical observed seasonality, we expect fourth quarter sales to be sequentially lower than our third quarter levels. Beyond the current dynamic macro environment, We remain confident in our long-term growth strategy and our ability to drive top-tier shareholder value seen on slide five. MENA will provide additional color on our financial performance and outlook, but I want to thank our global teams for their dedication, hard work, and meaningful accomplishments in the third quarter. Before diving into our specific in-market exposures and design activity, I wanted to highlight a few key market and inventory trends. Starting with passive electronics, we believe candle partner inventories have mostly returned to healthy levels, while customer design activity remains solid. In the third quarter, we continued to observe cautious order patterns from our customers, a reflection of ongoing muted demand trends. We observed particular weakness in Europe and China, while book-to-bills softened from the prior quarter. We observed similar trends across our protection semiconductor product lines, where order patterns broadly stabilized in the quarter, but have yet to meaningfully recover from recent levels. Now let's turn to our end markets and design activity, starting with electronics on slide six. Third quarter electronics market trends were broadly unchanged from the second quarter. Consumer products, appliances, and building technology demands continued to be subdued. Medical sales remained solid in the quarter, while demand for AI-driven applications and broader data center was again robust. Regardless of near-term trends, electronics in-market design and activity remained healthy, and we delivered another strong win rate across a broad set of applications in the quarter. We see significant opportunity for design win conversion to meaningful order growth once in demand begins to recover, and we remain confident in our ability to drive long-term above market growth. Turning to our electronics in-market design wins in the quarter, we secured a fused win for a data center application in North America, continuing to build on our momentum in this expanding market. We also secured meaningful gaming wins for customers in China and North America. We delivered several medical wins across multiple regions in the corridor, led by a defibrillator application for a customer in North America that will utilize our power semiconductor expertise. We also secured business for a European appliance application that will utilize our switch product portfolio. Finally, we secured a win for a telecom application in India, which demonstrates the global reach of our electronics expertise. Moving on to transportation in markets and design wins on slide seven. Our passenger vehicle exposure again benefited from our global scale, balanced technology offering, and strong customer relationships. In the third quarter, we observed global passenger vehicle production declines, but delivered content growth despite ongoing pruning activities. We observed continued growth in China as we leveraged our core low voltage technology expertise We deliver meaningful expansion with local OEMs on both internal combustion and electric vehicles. We observed weaker vehicle production trends in North America and Europe, as well as slowing EV production growth. We are seeing solid low-voltage demand from customers that has shifted recent production plans in favor of increasingly advanced internal combustion and hybrid vehicles. Our third quarter sales were also impacted by pruning associated with our passenger vehicle sensor product line. Taking a step back, we expect continued global passenger vehicle production declines in the fourth quarter. However, we are seeing continued innovations and content expansion opportunities as we remain a key global partner to OEMs and Tier 1 suppliers, pushing for electronification and next-generation electrification advancement. Regarding our commercial vehicle exposure, our pruning and pricing actions continued to bear fruit despite continued soft in-market conditions in the quarter. Into the fourth quarter, we see soft in-demand trends persisting, driven by construction and agriculture markets. We remain confident in our ability to execute in an ongoing difficult commercial vehicle environment. We are encouraged by design inactivity and traction with our broad customer base. Long-term, we are well positioned to deliver innovations across our broad commercial vehicle exposures, including material handling, agriculture and construction equipment, and heavy-duty truck and bus markets. In the quarter, we secured meaningful new transportation business across both passenger and commercial vehicle end markets. In passenger vehicles, we secured a meaningful current sensor opportunity with a customer in South Korea. We also delivered multiple low-voltage fuse winds for local OEMs in China. We secured multiple winds for onboard charging applications across China and Europe that will utilize our extensive circuit protection offering. Finally, we secured a meaningful solar sensor application wind for a customer in Europe. In commercial vehicles, we secured several winds highlighted by construction equipment business for customers in Japan and North America that will utilize our broad switch product offering. We also delivered a low voltage wind for an agriculture equipment application in Europe. Finally, we won circuit protection business for a specialty vehicle application for a customer in North America. Turning to slide eight, industrial markets and design activity. In the third quarter, we observed continued soft demand trends, including weakness for industrial equipment and factory automation applications, charging infrastructure, motor drives, and renewables. We are seeing an outsized impact across our power semiconductor business, where we have meaningful industrial in-market exposure. Yet we are continuing to drive strong industrial safety growth, given our leadership position as an innovator in this niche market. We are also benefiting from rebounding HVAC demand, albeit at a moderate pace to date. Looking forward, we believe current soft in-demand conditions will persist through year end. We remain confident in our niche positioning in a highly attractive and growing industrial end market, supported by ongoing infrastructure spend, increasing electrical efficiency requirements, advancements in automation, and global commitments to decarbonization. In the third quarter, we secured a renewable solar application opportunity in Europe that will utilize our semiconductor product offering, as well as a solar opportunity that leverages our broad circuit protection capabilities. We also secured semiconductor business for a motor drive application in Europe in the quarter. We secured business for a commercial HVAC opportunity in North America that we utilize our temperature sensor offering. Further showcasing the diversity of our industrial expertise and reach, we delivered a meaningful circuit protection win for an EV bus charging opportunity in Europe, as well as a mining application for a leading customer in North America. Across our businesses, we continue to strive for operational excellence while driving innovations across our diverse set of end markets for our broad customer base. We remain well-positioned to execute through cycles and deliver long-term, double-digit annual revenue growth, driven by our ongoing design wind 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. Please turn to slide 10 to start with details on our third quarter results. Revenue in the quarter was $567 million, down 7% versus last year in total and organically. The product line pruning actions we discussed reduced sales about 2%, in line with our expectations in the prior quarter. Gap operating margins were 15.5%, adjusted operating margins finished at 15.9%, and adjusted EBITDA margins were 21.7%, up 320 and 310 basis points sequentially. Third quarter margins benefited from sequential sales growth as well as strong associated incrementals. Foreign exchange and commodities also had an 80 basis point favorable impact to margins relative to our expectations. Third quarter gap diluted earnings per share was $2.32 and adjusted diluted EPS was $2.71. Our third quarter GAAP effective tax rate was 25% and adjusted effective tax rate was 24%. Our tax rate was slightly lower than expected due to a favorable deduction. Please turn to slide 11 for updates on capital allocation. We continue to deliver strong cash generation year to date. In the quarter, operating cash flow was $80 million and we generated $65 million in free cash flow. Year to date, We generated $157 million in free cash flow, yielding a 103% conversion rate. We've continued to drive working capital improvements, 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 $630 million of cash on hand and net debt to EBITDA leverage of 1.6 times. Given the strength of our balance sheet, we'll 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 $17 million of capital to shareholders via our cash dividend. Year to date, we've returned $91 million of capital to shareholders, $50 million through cash dividends, and $41 million through opportunistic share repurchases. We'll remain disciplined in our capital allocation strategy as we strive to maximize long-term shareholder value. Please turn to slide 12 for our product segment highlights, starting with the electronics product segment. Reported and organic sales were down 12% versus last year. Sales across passive products were approximately flat versus last year, while semiconductor products declined 21%. Operating margins in the quarter were 16.1%, while EBITDA margins finished at 22.6%. Margins improved 100 basis points sequentially, reflecting our continued focus on execution. Moving to our transportation product segment on slide 13, reported and organic sales were down 3%. Sales were negatively impacted 5% versus last year from pruning actions we've been undertaking spread across our commercial vehicle business and our passenger vehicle sensor product line. Across our passenger vehicle business, sales declined 7% organically. Within commercial vehicles, sales for the quarter came in flat organically as pricing and volume were offset by ongoing end market weakness and pruning acts. For the segment, operating margins were 13.7% and EBITDA margins finished at 19% in the quarter. margins improved 470 and 460 basis points sequentially, led by continued focus on pricing actions, operational improvements, and a more favorable than expected currency impact. We believe our solid year-to-date margin progress reflects our strong focus on pricing, pruning initiatives, and structural cost actions, as well as our balanced global positioning with customers. On slide 14, Industrial product segment sales increased 7% reported inorganically, growing for the first time since last year. In the quarter, we benefited from strong industrial safety demand, continued HVAC volume recovery, solid data center momentum, and favorable mix. Operating margins finished at 19.3%, and EBITDA margins were 23.8%. These represented improvements of 790 and 780 basis points sequentially. We continue to drive strong execution, offsetting soft end demand conditions. Favorable currency movements also benefited margins versus our expectations in the quarter. Please move to slide 15 for the forecast. We expect typical seasonality with fourth quarter sales sequentially down from the third quarter. Following on to Dave's earlier comments, demand trends remain muted across a number of our end markets, and more recently, we've seen additional weakening across certain industrial end markets and global passenger car production. With these assumptions, we expect fourth quarter sales in the range of $510 to $540 million. This includes about a 2% headwind from product pruning versus last year. We're projecting fourth quarter EPS to be in the range of $1.90 to $2.10 and includes a tax rate of about 14%. At current foreign exchange and commodity rates, we're expecting a $0.05 headwind to EPS versus the prior year. Please turn to slide 16 for additional full year 2024 color. For the full year, we expect our product line pruning actions to reduce total sales about 2% and reduced transportation sales growth about 5% versus last year. We are seeing mitigating currency and commodity headwinds. At current rates, we expect those to be net neutral to sales and about a 20 cent headwind to EPS. We've delivered solid transportation and industrial segment margin progression through the year, reflecting our strong positioning with customers, continued operational execution, and ongoing traction with structural initiatives. We're also proud of the margin resiliency of our electronics product segment through this challenging environment. With these undercurrents, we are narrowing our company operating margin outlook for 2024. We expect to finish at about 13%, consistent with estimates we provided in July, reflecting our continued focus and execution on operational initiatives. Across our segments, we expect electronics operating margins for the full year in the mid-teens, industrial operating margins in the low-teens, and we expect transportation to finish in the high single digits for the year. On other modeling items, we are 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 strategies. We are estimating a full-year tax rate of about 21.5%, and we expect to invest about $90 million in capital expenditures. We continue to execute through a challenging environment while delivering strong cash generation. We believe our actions coupled with our diverse technology offering and broad customer relationships will drive best-in-class profitability, leading to top-tier value creation for our stakeholders. In closing, I want to thank the Global Little Fees team for their tireless efforts and unwavering dedication. And with that, I'll turn it back to Dave for some final comments.

Thanks, Jamil. Our better than expected third quarter results are a testament to the strong execution of our global team. We believe our innovative solutions and deep customer relationships will continue to drive strong design win momentum and further position us to deliver long-term above-market growth shown on slide 17. Our well-positioned balance sheet and strong cash generation provide us with considerable flexibility as we prioritize thoughtful but disciplined acquisitions in attractive end markets. All in, we remain confident that we are on a path to double-digit annual revenue growth through cycles. We will also maintain our unwavering focus on execution as we remain on track to deliver meaningful long-term earnings leverage. I want to again thank our global LittleFuse team for their unwavering effort and commitment to customers. With that, I will now turn the call back to the operator for Q&A.

Thank you. The floor is now open for questions. 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. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Your first question comes from the line of Luke Junk of Baird. Your line is open.

Good morning. Thanks for taking the questions. Dave, for starters, just hoping you could parse out the 4Q guidance assumption at a high level in electronics specifically between seasonal factors and with still some weakening on the power semi side. And I'd just be interested in terms of clues as we look into maybe early next year as well through the lens of what you're seeing specifically in power semi orders as well. Thank you.

Thanks, Luke. So we kind of have two different situations going on in the electronic segment. So we have our passives. And I would throw in our protection semiconductor and kind of lump into that area. Where I would say is generally our channel partner inventories are healthy. They've kind of worked through accesses there. In-demand point of sales is reasonably stable. So we see that pretty good. So we see kind of normal seasonality hitting us in that portion of the business going into the fourth quarter. And we kind of expect kind of normalization as we go into next year. On the power semiconductor portion of that business in that segment, as you know, it's heavily kind of geared towards the industrial applications with also some medical as well. where we're seeing kind of maybe the bigger challenge is the slowing industrial demand, really particularly out of Europe, which is a strong part of our power semiconductor business. So things in like machine automation, activities and things like that that have slowed meaningfully. And so therefore we see that kind of pulling back maybe more than normal seasonality because of in-market demand softness there. I wish I could give you great clarity on when we see that improving out in 2025. Right now, the visibility is pretty challenging, kind of geopolitical dynamics going on. So we don't have a lot of visibility on that. At the end of the day, we kind of feel like we're finding the bottom there in that portion of the business. and then looking for end market improvement over the course of 2025.

In terms of book-to-bill, would that suggest that, I think you had said it was maybe closer to one in July. Did that backslide at all in the quarter, would you say, Dave, on the core semi?

Yeah, as we talked about in the prepared remarks, our overall electronics book-to-bill softened a little bit as we kind of headed into Q4. What I would say, again, Got a bit of a tale of two sides of that segment. On the passives products and the protection products, it's running just slightly under one. So near parity, but just slightly under that. A little softer on the power semiconductor portion of that. Again, other than the industrial applications, we're seeing POS being reasonably stable.

Got it. And then for my fellow, you know, just hoping you could help us square the upside that we saw in transportation and industrial margins this quarter, just with where full year guidance implies things shaking out in the fourth quarter. Just anything temporary in 3Q we should be adjusting for, maybe currency impacts or whatnot. And then just kind of looking into... 2025, any reason that we shouldn't view these stronger 3Q margins as suggesting just a higher floor for margins in both transportation and industrial moving into next year? Thank you.

Sure. Thanks, Luke. And so on your questions on both transportation and industrial, I would say for both of those segments, we feel good about the actions we have been taking, the progress we're making. We've talked about different for transportation versus industrial, but we've got strong conviction on the sustainability of the margins, as we've seen from the past few quarters. I would say Q3 for both segments included a few one-offs, first starting with foreign exchange. We have a very heavy Mexico presence in both of those segments, and with some weaker peso, we saw a nice tailwind from foreign exchange, about 200 basis points on margin for both of the segments. So that was a tailwind, and whether or not that continues from that perspective remains to be seen. Even when you take that out of the equation, we had some good mix coming through from the transportation and industrial side. Some of that was one-off, and that also maybe helped us a little bit more in the third quarter than we were expecting. But I'd say overall, as we look, Q4 going into 2025, we're making good progress. We expect to continue to make progress in 2025 with margin expansion, and we're taking the actions around that, whether that's around footprint, cost reduction, and of course, you know, good, some recovery on volume growth that we think that will really help drive the margin expansion into next year.

Thank you for that. I'll go ahead and leave it there. Thanks for your questions, Luke.

Your next question comes from the line of Matt Sheeran of Stiefel. Your line is open.

Yes, thanks. Good morning. So just another question, Dave, regarding the semiconductor business and the weakness that you're seeing. It sounds like the inventory within passives within the channel or normal POS is more stable. Can you give us a sense of what the inventory days in the channel look like for the semiconductors, the MOSFET business, and And how long do you think that's going to take to normalize?

Yeah. So first of all, in the power semiconductor portion of our business, we have less distribution exposure. It's a bit more even mix between direct and distribution in the power semi portion of our business. What I would say is we don't see a lot of excess inventories in our channel partners on power semis. We do think industrial customers, end customers, perhaps have some inventory overhang, both on the component side and maybe finished goods side as well, which I think is adding to the dampening in the industrial segment there. It's not like in passives a year or so ago. It's really about driving inventory down in the channel. It's a little less of that dynamic in the power semiconductor side where it's a bit more related to you know, the demand side and perhaps, you know, excess inventories that end customers.

Okay. Thanks for that. And then at the beginning of your comments, Dave, you talked about some of the margin improvement coming from pricing and working with customers. And I'm just wondering, what is the pricing environment? I would think given the tough demand environment out there that we would see some pricing pressure as volumes come back. Are you seeing that at all?

You know, certainly they've changed from a couple years ago, but we've talked about this in the past, and it really hasn't changed too much for us. First of all, the cost increases we saw over the last two or three years remain there, and so the pricing increases, meaningful ones that we had to put in place two or three years ago, have been pretty resilient. So we're not seeing things pull back from that, so they've been pretty sticky and pretty stable. We have seen kind of a return to more normalized sort of pricing environment. As you know, Matt, price down year over year is a pretty common approach, and we're certainly seeing that in the electronics and a bit in the industrial at a lower level. Quite frankly, we've been taking, on the transportation side, more active actions to drive pricing up to address some of our cost concerns and profitability concerns there. So that's maybe a little less price erosion than normal in transportation. But we're not seeing really abnormal. There might be a couple of products in a couple of markets where we see a bit more challenge. But overall, we're pretty comfortable with what we're seeing. you know, pricing hang in there.

Okay. Okay. That's it for me. Thank you.

Thanks for your questions, Matt. Your next question comes from the line of Christopher Glenn of Oppenheimer. Your line is open.

Thanks. Good morning, Dave. Good morning. Just had a question on, you know, each quarter we hear about a pretty robust list of design wins and good kind of qualitative commentary on the wins. I'm curious, you know, if markets stay flattish, do those, you know, net to growth or do they sort of play to offset, you know, trading older platform wins? Yeah, just curious about that.

Sure. You know, what I would say is design inactivity across all of our segments continues to be pretty solid. So we're not seeing customers back away from designing next generation products and new applications for us. So that design activity continues to be good. We do continue to feel good about outgrowth on the automotive side and also on the commercial vehicle side as those markets stabilize and drive improvement. So we think that gives us growth expansion over time. And on the electronic side, really robust design activity. I will say that conversion from design end to production has been a little slower than kind of typical. We see some cautiousness there as people are making sure they're getting their current products out the door and cleaned up before they're launching new ones. So that conversion is taking maybe a little longer. But we also see that continuing to slowly add to our our growth in addition to market growth there as well. So I think actually signs are pretty positive for us in design activities. Great.

And then I was curious about capital allocation and how your pipeline's looking overall. Is there a good mix of sizes and do you expect activity in 2025? Sure. As you know,

M&A, thoughtful M&A is a critical part of our long-term strategy. And we continue to have a robust funnel of being very active at looking at opportunities. We're looking for properties that will be into the spaces that we think will long-term create better diversification of our markets and be healthy places with good long-term growth trajectories that ultimately drive a higher organic growth pattern for us over time. So continue to be very active in that. But we're also making sure that the opportunities we find are going to yield the returns that we feel are appropriate. And so that can be a little lumpy at times on that. So we don't have anything we're prepared to announce at this point in time, certainly, but I'd be shocked if there isn't some activity over the course of the next 12 months that we don't find some acquisitions to add to the mix, but nothing specific to talk about. Thank you.

Thanks for your questions, Chris.

Your next question comes from the line of Sari Boroditsky of Jefferies. Your line is open.

Hey, good morning. This is Grant Smith on for Sari, and thanks for taking our questions. So from your four-year margin guidance by segment and some of the commentary on the one-time benefits in the third quarter, It seems to imply maybe a sequential step down in transportation and industrial margins in the fourth quarter. I'm just curious on the electronic side, there's some leverage that you can maybe pull to drive some continued sequential margin improvement in that segment, despite the expectation for maybe some lower revenue.

Sure, Grant. I can answer that one. In general, if I take a step back, we typically talk about the factor that drives volume. The quickest and very visible is volume. And so in the case of the third quarter, you know, we were pretty strong in volume and actually our sales in the third quarter were the highest that they had been as we do a four-quarter look back across that. So that definitely helped us in, you know, across some of our businesses from a margin perspective. Similarly, when you take a look at Q3 versus Q4 and our guide down in sales, you know, we are seeing a normal seasonal decline. from a sales perspective. So that volume impact that I talk about goes the other way as we think about the fourth quarter. And that's really, you know, really what's the biggest factor driving that. We, of course, are focused on the things that we can do and what we can control. And we continue to focus on cost reduction activities. Your comments specifically around electronics, we are focusing on on cost reduction and electronics, which includes some footprint work as well as just, frankly, some ongoing cost and restructuring actions that we've been taking. So that is what we're focused on. And as we go into 2025, again, another area for us where we expect to see margin expansion.

Understood. Thank you for that. And then maybe on the industrial side, you posted pretty impressive growth there this quarter. Just curious if you could provide a little bit more on what was the driver of that growth Was it more so data center driven or kind of fairly broad across the categories you mentioned, like data center, industrial safety, and HVAC? Thank you.

Yeah, I would say, like a lot of our peers, industrial can be a bit of a mix on things. Kind of broader-based industrials tend to be a little slower with machine automation and those things particularly slow. Where we saw the growth drivers in our industrial segments where, as you pointed out, we do sell into data center applications there that continue to be robust. We've seen industrial safety, which we've talked about previously as well. It's a nice niche where we have a lot of leadership in that position, and we're seeing that continue to be a growth driver for us. So I think those are pretty strong areas. And HVAC has been, after being down for several quarters, beginning to kind of turn the quarter there and show some growth, although kind of early stages on that, both residential and industrial. We really see opportunities in industrial as a big growth driver for us in the long term.

Got it. Thank you.

Thanks for your questions, Grant.

And your next question comes from the line of David Williams of Benchmark. Your line is open.

Hey, thanks for taking my question. Congratulations on the operating margin improvements. I guess first, maybe David, are you seeing anything in terms of the design win dollar value or any changes that you look kind of maybe across that average win rate? It sounds like things are still robust, but just kind of curious how you're seeing the dollar value of each one of those wins come in. Has it changed meaningfully? Is it about the same? Are you seeing some growth in that ratio?

Sure, and let's start with a backdrop, and I'll use my US terminology. We tend to be a business of singles and doubles, not home runs. So we're winning projects and platforms that are additive over time, right? So we don't get large, bulky sorts of wins. That's just not the nature of how our business operates. So I would not say we've seen really any shift or change in The size of winds or the size of opportunities, they continue to be pretty consistent. The only shift we've seen a little bit is that longer duration in the electronics cycle between design wind to production being a little bit elongated right now. We think that's really more of kind of an environmental situation now. I don't think that's an ongoing. We don't expect that to be the norm over time. So generally, it's pretty stable, I think. I don't see big changes there.

Great. Thanks for the color. And then maybe if you just kind of think about the industrial segment that's been in this elongated balance cycle, do you think this is more of just cautiousness from customers, or do you think it's more demand-driven? And just kind of curious how you see that market in terms of recovery, and is it really Europe where you're seeing the biggest impact, or can you maybe give any color on North America and maybe outside of those regions in terms of how industrial is performing?

Yeah, industrial, I would say. We've talked a lot about Europe and China, by the way, too, where there's softer industrial demand that is certainly kind of showing up there. North America is a bit more stable, I would say. We're not seeing it dropping. It's more of a stable environment. So the kind of shift or the change has been more Europe and Asia dropping. As far as cautiousness and things, I think people are being cautious about investment levels into factories and things like that. At this point in time, interest rates are certainly not necessarily positive for that. We are seeing a little bit in the electronics portion of our business, which also sells into industrial applications, that customers are kind of cautious on orders, so we're getting more late orders you know last minute orders than maybe we typically do typically we see things booked out a little further and they seem tend to be dropping in you know with shorter lead times there which i think demonstrates some of the cautiousness of that and you know i think uh everything else equal a lot of companies are ending their fiscal year at the end of the year they'd prefer to have a little less inventory tied up at the end of the year as opposed to uh you know, where they've operated through the course of the year. I think all those things kind of play a role in that.

Thanks so much.

Thanks for your questions, David. With no further questions, that concludes our Q&A session. I will now turn the conference back over to David Kelly for closing remarks.

Yes, thanks everyone for joining today. We look forward to speaking with you at the November 12th Bayer Global Industrial Conference in Chicago. as well as the December 11th Oppenheimer Midwest Virtual Summit. Thanks again and have a great day, everyone. This concludes today's conference call. You may now disconnect.