Littelfuse, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition of Basler Electric: All-cash transaction valued at ~$350M, net value ~$320M, complements industrial segment, adds grid/utility and data center capabilities.
• Strategic Priorities:
  • Enhance future growth around safe and efficient electrical energy transfer, with Basler acquisition as a key step.
  • Realign sales structure to be customer-centric, moving from product-centric silos to better engage with customers and sell full portfolio.
  • Drive operational excellence in power semiconductors, hiring Dr. Karim Hamed to lead semiconductor business.
• Sales Realignment: Shift from product-based sales teams to customer-focused teams to better sell complete solutions, starting with e-mobility and data center, now across all sales force.

Segment Performance

• Electronics Products: Sales up 18% vs prior year, 12% organic; adjusted EBITDA margin 24% (up 140 basis points). Passive products up 19% organic, semiconductor products up 5% in quarter, with protection product sales strong but power semiconductor demand soft.
• Transportation Products: Segment sales flat YOY, organic sales down 2% but offset by 2% FX contribution; adjusted EBITDA margin 16.8% (down 220 basis points). Impacted by lower volume, higher stock/variable comp, and unfavorable tariff timing.
• Industrial Products: Sales grew 4% organic; third quarter adjusted EBITDA margin 20.7% (down 310 basis points) due to unfavorable mix and higher stock/variable comp, but year-to-date margin up 290 basis points.

Guidance

• Fourth Quarter: Expected sales $570M-$590M (5% organic growth + 2% from Dortmund acquisition); EPS $2.40-$2.60; unfavorable stock and variable compensation impact $0.40, and higher adjusted effective tax rate headwind $0.15.
• Full-Year 2025: Estimated $59M amortization expense, $34M interest expense (2/3 offset by interest income), tax rate 23%-25%, and $80M-$85M capital expenditures.

Risks

• General forward-looking statement risks; specific mention of unfavorable tariff timing impacting Transportation segment margins.

Q: Maybe an apologies, I missed part of the prepared remarks. Maybe if we could start with power semi. I think, Abhi, you mentioned that it did see some growth sequentially despite still being soft year-over-year. Can maybe you just speak to book-to-bill there, kind of the outlook into the fourth quarter in power semi and some of the puts and takes from a demand standpoint and then how you'd expect any improvement to flow to margins as well?

A: Yes. This is Greg. Maybe I'll start and then hand it to Abhi to give a little bit more color. But just kind of zooming out on power semi, and we talked about this before, I think our view on the power semi business is that it is strategically important from a strategic perspective as part of our overall portfolio and part of our safe and efficient transfer of energy, actually, in the example I gave on the battery charging solution in the script, that is a protection solution, and it uses our semiconductor protection, our passive protection, but actually also uses power semiconductors as part of the overall customer solution. And actually, Basler also is a customer of Littelfuse today and actually has a lot of semiconductor content in their solutions for protection relays and in their expectation system. So semiconductors is an important part of our business. But I think as we've said before, we have had some issues internally from kind of an execution perspective. So we talk about our strategic priorities as a company on sharpening our focus and improving our go-to-market and improving our operational performance and actually all 3 of those apply to our semiconductor business as well. So we're working on sharpening the strategy, improving our execution. And so this is going to take some time, but we are on the journey. And maybe I'll give it -- hand it to Abhi to give a little bit more specific color.

Q: Just want to build on the last question on the data center comment. I think I heard up over 50% and up maybe double just on the last question. about the design wins. So I just want to clarify that. And is that like an account of the design win instances or a dollar value? Just trying to think of what that might imply for growth, what the design in to revenue kind of lead time is like? And maybe if we could clarify what the current scope of the data center business is for Littelfuse?

A: Yes. Maybe I'll start with a little clarification. Thank you, Chris, and then I'll hand to Abhi for a little bit more. But just to clarify, right, I think that what we are saying now in the quarter, data center was a meaningful driver of our overall growth. I think that's the first thing I want to say. So that's kind of revenue in the quarter. Design wins being up, it's design wins that are up more 2x on a year-on-year basis. So basically, design wins this year -- design wins year-to-date year-on-year versus a year ago. And we track design wins as when things -- the timing of that varies a little bit, right? So the timing of that varies, so it's a little bit hard to predict just based on that one number. But I would say that data center is one of the faster markets. If you compare to some of our markets like automotive, or industrial, which take longer to go from design win to revenue, data center is probably not surprising, is a relatively faster market. That's what I'll say. And maybe I'll hand to Abhi to give a little bit more color on the relative impact of data center.

Q: Congratulations on the continued progress here. You talked about realigning your sales force and breaking down some of the silos. And just kind of curious if you could provide a little more color there. I mean you talked about be able to engage more deeply with your customers and what that means. But is there a way to kind of quantify what your expectations are and how we can kind of gauge that success?

A: Yes. I mean I think it's hard at this point to quantify, but maybe I'll help explain, right? I think historically, our sales organization was basically aligned with our products. And we had kind of these individual product organizations that had individual sales teams and the sales teams were representing our products. Even though as we've talked about, largely, our products are largely about the safe and efficient transfer electrical energy, we often are selling to the same person at the customer, give lots of examples actually in the script, right? The example I gave on the battery charging application had passive overvoltage protection, semiconductor overvoltage protection, power semiconductor solution and passive circuit protection that comes from at least probably 3 of our business units. And so in the past, we would have had 3 different sales teams trying to call on that customer for that solution if they actually even all call on that customer. So 2 things happened. One, we would miss opportunity because we would be selling a part of our solution as opposed to being able to sell the complete portfolio. So in some cases, we're more cases than not, we were missing opportunity because we weren't bringing the full portfolio. But other cases, we're also stepping on ourselves in front of the customer because we have multiple people. So we've realigned to have the -- this is kind of the fundamental change. The sales team is representing our customer, not our products. And we do believe that this is going to bring progress to us. We did this early on some of our e-mobility business and actually also in our data center business. We already see progress from where we had done that early. We've now done this across the sales force. So this is a change. It does -- you have to -- we're in the process of that reorganization. It is a change that's going to take some time, but we believe it's going to bring significant benefits because it puts us, as I said, first and foremost, we get to sell the portfolio we have more effectively. But secondly, it drives our R&D strategy to be more about where the markets are going and making sure that we're developing the right products for where our lead customers are going. And this is really about focusing on aligning with those market leaders to make sure we're in the right position.