Littelfuse, Inc.
Q1 2021 Earnings Call Transcript

Published: 28 Apr 2021

[Operator:]

Good day everyone and welcome to the Littelfuse First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker for today, Trisha Tuntland, Head of Investor Relations. You may proceed.

[Trisha Tuntland:]

Good morning and welcome to the Littelfuse first quarter 2021 earnings conference call. With me today are Dave Heinzmann, President and CEO; and Meenal Sethna, Executive Vice President and CFO. This morning we reported results for our first quarter and a copy of our earnings release and slide presentation is available in the Investor Relations section of our website.

[Dave Heinzmann:]

Thank you, Trisha. Good morning and thanks for joining us today. On February 23, we shared our five-year growth strategy summarized on Slide 4. This is ultimately a continuation of the journey we started several years ago. We continue to build our strategy around the structural growth teams of a sustainable, connected and safer world. These are multi-decade teams, which are stronger today than ever before and continue to expand the need for our innovative, reliable solutions. We have positioned ourselves to drive significant content and share gains and targeted high growth end markets, which will deliver long-term double-digit revenue growth, best-in-class profitability and top-tier shareholder returns. Now let's turn to Slide 5. We are off to a strong start this year, building on strength in the prior two quarters, driven by our strong execution, commitment to customers and our ability to manage supply chain challenges. During the first quarter, we saw continued demand recovery across a number of our end markets. We achieved first quarter sales of $464 million, representing record revenues for us and a 34% increase over last year. We delivered adjusted operating margin of 17.1% within target range and adjusted EPS of $2.67, which is 107% growth year-over-year. Meenal will provide additional color on our strong financial performance. The swift demand recovery has caused some broad challenges across Littelfuse's and our customer supply chains, including supply chain disruptions and shortages and logistics constraints.

[Meenal Sethna:]

Thanks, Dave. Good morning, everyone and thanks for joining us today. So let's start with Slide 10. We continued our momentum from the back half of last year as our first quarter results were well above expectations on both sales and earnings. Sales of $464 million were up 34% versus last year and up 16% sequentially as we saw the continued recovery across most of our end markets.

[Dave Heinzmann:]

Thanks, Meenal. In summary on Slide 13, we began this year delivering strong performance within an ongoing dynamic market environment. Demand remains healthy, but we continue to manage supply chain and COVID-related challenges. Our sound business fundamentals enable us to effectively operate during challenging times, overcoming supply-chain disruptions, flexing capacity and mitigating cost impacts to our performance. We have a strong track record of successfully integrating these activities with our strategic initiatives as we empower a sustainable, connected and safer world for our customers and their end customers. I'm confident our company is well positioned for continued long-term profitable growth. With that, I will now turn the call over to Trisha.

[Trisha Tuntland:]

Thanks, Dave. For participants, Meenal and Dave are in separate locations. So feel free to direct your questions to one or the other of them. , please assemble the Q&A roster.

[Operator:]

Our first question comes from the line of Nick Todorov with Longbow. Your line is open.

[Nick Todorov:]

Good morning, Dave and Meenal. Dave, I guess you guys deviate from rest of your peers by calling out some inventory builds where everyone else is dismissing it. I think at the end of the day, investors appreciate your honesty, but I guess for the first question, what evidence do you see of inventory build maybe versus strong content gains as electric vehicles and electrification and also our factory automation and all these trends are going on? And also can you parse out potentially, how much was your content growth in automotive, I think you talked about potentially being last quarter twice as much as your long-term range due to favorable mix. So just wanted to appreciate any thoughts there? Thank you.

[Dave Heinzmann:]

Sure, so let's start with kind of the inventory situation, and yes, we try to be as open with whatever information we have on inventory. In our fourth quarter earnings call, you heard us talk about the fact that we were seeing some of our automotive customers actually build some inventory during the fourth quarter. So we talked about that, and that was part of our outperformance in the fourth quarter. We did not see so much of that during the first quarter in automotive from the standpoint, really kind of our sell-through to customers matched up pretty well with the content increases we were seeing, particularly with the mix of vehicles being heavy on the luxury vehicle side as OEMs certainly diverted supply chains to make sure they supported their most profitable product lines, as well as EV vehicles. So the content - you asked about the content story. We saw content growth of somewhere between 8% and 10% during the first quarter. So very, very much well above our expected long-term and that's because of that mix of vehicles being produced. Other inventory areas we see while historically we often talk about our electronics distribution channels and inventory builds there and how they impact the business. But we have not seen inventory build at our distribution partners. Inventory there continues to be quite lean. However, we certainly do see some evidence that contract manufacturers and some OEMs. There is some evidence clearly they are where they can building up inventories to assure supply during a potential disrupted and supply chain environment. So, we don't see kind of the normal buildup at the distribution customers, but we do see a little bit at the OEM and contract manufacturing level. So, I hope that helps.

[Nick Todorov:]

Yes, that helps a lot, Dave. I really appreciate it. Maybe as a follow-up to that, what kind of measures are you taking to minimize the risk from double booking and excess inventory building. We've heard some other semi and component manufacturers adopt different policies. I wonder what type of measures are you taking if any?

[Dave Heinzmann:]

Yes, so that's an area of course, yes particularly if you start reaching constrained capacities, you want to make sure when you are shipping product, your shipping product to customers you actually need it for shipping product out right away as opposed to building inventory. So it's in everybody's best interest for us to focus on that, which we do, and we'll push back and challenge at times as we get orders on that to make sure we're producing products that are - go into end products and move through the supply chain rapidly. So there are measures we take. We do sometimes we increase lead times to push orders a little further out at times. We also increase the window of non-cancelable orders. So we are kind of mandating then that as the customers' order near term, that they can’t cancel them. So there are actions like that that are kind of normally taken. But the primary thing is really just working with customers and making sure we're having those discussions and challenges on. Do you really need these products for shipping or are you building inventory? And we do that to the best of our ability.

[Nick Todorov:]

If I can sneak one more from Meenal, Meenal can you give us some color sequentially, if we look between the gross margin and the implied operating margins. I guess, there are lots of puts and takes. We have lower tax rate and then but a full quarter of Hartland, higher stock comp, I guess is there a number you can direct us to in terms of year-over-year flow through for the operating margin. And also, how should we think about the trajectory of gross margin and OpEx going forward? Thanks.

[Meenal Sethna:]

Yes, so in terms of the - I'll say the general headwinds as we talk about the second quarter, two buckets. In general, first and second quarter, we talked about the input costs, inflationary costs, really for us the bulk of that is coming out of higher freight costs that we're seeing inbound and outbound, as well as increased commodity costs. I mentioned in the first quarter, that's running about 250 basis points to 300 basis points across each one of our segments. And in the second quarter, that's continuing actually even a little bit of a higher rate on a year-over-year basis so, definitely a big headwind for us. On top of that, when you look at things sequentially, I mentioned in my prepared comments that there is about a $0.42 impact on EPS. Some of that really coming out of the higher stock compensation, about half of that coming out of the higher stock compensation sequentially. So net-net, we expect that our flow through in the second quarter, year-over-year second quarter will be better than the first quarter but not. I talked about in the past our target flow through range is being say in the mid 30s. I wouldn't expect it to be that high.

[Trisha Tuntland:]

Thanks for your questions, Nick. We will take our next caller, please.

[Operator:]

Our next question comes from the line of Karl Ackerman with Cowen. Your line is open.

[Karl Ackerman:]

Good morning, everyone. Two questions from mentioned across to Meenal, for the first one. So, I understand there are rising freight rates and shipping costs as well as I think some currency headwinds that you may have not called out this quarter. But I guess I would have thought gross margins would be relatively flat in June versus I think the implied step down of 200 plus basis points? And so I guess with many of your larger peers raising prices across the distribution channel and lead times extending, maybe instead of raising prices, are you able to sign longer term volume agreement with your customers?

[Meenal Sethna:]

Sure, in terms of we didn't comment on for our outlook on gross margin versus operating margin, but what I would say is the headwinds that we're seeing right now are largely around gross margin. So that is part of the challenge, and I just mentioned on with the last question that from a year-over-year basis, we're even seeing an increased elevated headwind in the second quarter versus the first quarter in terms of those headwinds coming through. But I would also say, keep in mind that, while there's a number of puts and takes going on in terms of costs, whether that's in gross margin or OpEx, year-over-year we are also seeing some OpEx increases and we had talked about that actually at our last quarter earnings call, just the fact that we are starting to see a little bit of discretionary spend pickup. We really weren't spending much last year, but as things are improving in pockets. We are seeing a little bit more discretionary spend pickup, and also areas like variable compensation has gone up, that's largely going to run through OpEx as well. So that's, just I want to give you a mix between things going on in gross margin versus OpEx. And then as part of - as part of our overall actions I had commented that we are taking a number of actions including productivity. Of course, we have ongoing productivity actions going on at our manufacturing and supply chain sites that help mitigate some of these headwinds, as well as some pricing actions. I would say probably a little heavier weighted where we can versus long-term contracts which are a little bit more difficult on pricing structures versus where you've got maybe a shorter-term contract, no contracts in distribution, that type of area.

[Karl Ackerman:]

Sure. I think that I guess dovetails into my second question, which Dave and/or Meenal you may be take this, but I think you referenced in your prepared remarks and also during the Analyst Day, the IXYS subsidiary has an overly complex supply chain, they're working to simplify that. I'd appreciate hearing your thoughts in terms of perhaps actually bringing incremental wafer capacity in-house given that there are well known shortages of wafers on the processes. Thanks.

[Dave Heinzmann:]

Yes, I'll take that Karl. And it's a reasonable question if there are shortages impacting the semiconductor world, can we bring some of that in-house to kind of help offset that. For the most part where the primary shortages are in the semiconductor space are not in the areas where we have a heavy focus. There are some small exceptions even where we have some constraints on our own sensor products, where we're buying in processors or microcontrollers for those sensor assemblies and had some challenges and shortages there that we're working through. There are some cases there on some of the MCUs where we can do those internally and we are doing work to qualify them to kind of help support that. So there are some areas where we can do that, but it takes a lot of time to do - to accomplish that.

[Trisha Tuntland:]

Thanks for your questions, Karl. We'll take our next caller, please.

[Operator:]

Our next question comes from the line of Matt Sheerin with Stifel. Your line is open.

[Matthew Sheerin:]

Good morning, everyone. I just - I know the another question regarding the strong bookings we're seeing Dave in on the component side, you did talk about book-to-bill above 1.0, could you be more specific and maybe compare that to what you saw a quarter ago, is it higher than what you've seen previously?

[Dave Heinzmann:]

Sure. Yes, Matt. We were not quoting a specific number, because quite candidly the number doesn't mean a lot right now as bookings are extending way out, I think, like, it's a very large number. It's slightly up from what we saw a quarter ago. So, bookings are quite strong and as I talked about earlier, we see some of that evidence of double booking and even some work to try to build inventories at contract manufacturing and OEMs like that. The reality is that the distribution partners have not been able to build inventory, they would love to build some inventory at a higher level, but it's just everything that we ship to them, they sell through. So, we remain in a pretty lean inventory situation at our distribution partners.

[Matthew Sheerin:]

Okay and then Meenal, you talked about some price actions. I would have thought that you'd be more successful, particularly given that you've got a high percentage of component revenue through distribution and we're hearing that distributors are able to pass those prices along. So, is there - is that kind of a lag effect in terms of that impact to operating margin within the electronics? Do you think it's sort of bottoms out here or really depends on the cycle and depends on input costs, et cetera?

[Meenal Sethna:]

Sure. So, on the pricing actions, Matt, we did, to your point, we did start putting pricing actions in the first quarter. And as I mentioned on the previous question, yes, definitely on those - on the distribution side across our segments. We'll definitely see a better impact of that coming through in the second quarter, which is why I had made the comment that the flow-through will improve a little bit there.

[Matthew Sheerin:]

Okay. But lastly - go ahead.

[Dave Heinzmann:]

Matt, on that, through traditional customers and distribution, of course, we have passed through a couple of different price increases, which will begin to flow through. We try to be a bit respectful and not drop it on effective today that we'd like to give a little bit of notice to our end customers that kind of build some strong relationships there, where we have the LTI it's a little bit more challenging in areas like automotive and things. However, what you do find is when you're negotiating or renegotiating LTIs during the course of the year in this kind of environment, you may positively impact the trend over the next couple of years.

[Matthew Sheerin:]

And just lastly on automotive and the outlook for down a sequential quarter, which is not - not out of line with what other suppliers have been talking about. How much has that related to - there is some seasonality and the inability for those customers to improve production versus any kind of rescheduling or any correction of inventories that you talked about - basically having visibility into a couple of quarters ago?

[Dave Heinzmann:]

Yes. We see that it's really all reflected on the builds - on the build schedules with our customers. Weekly we're seeing different customers are having to shut down for periods of time that impacts that. So, it's really driven by the car build and particularly our core customers that are getting hit by some of the shortages, not ours but other shortages.

[Trisha Tuntland:]

Thanks, Matt. We'll take our next caller, please.

[Operator:]

Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.

[Christopher Glynn:]

Thanks. Maybe I'll direct the first one to Dave. A lot of times when supply chains are challenged, your global footprint, manufacturing and fulfillment position you for a little share gain, so I am wondering with all the topsy-turvy out there right now, if there is some structural competitive opportunities that might start to click if they're not already?

[Dave Heinzmann:]

Yes, Chris. That's a great question and it's clearly part of our long-term strategy because we don't have an overly capital-intensive business. We do have as part of our strategy to try to make sure we have the ability to flex up when we get these spikes in demand because history has shown us when we're able to perform better than our competitors, not all of that share gain in the near term sticks, but some of it does and ultimately help that, and we clearly are seeing that, where there are cases where we're able to outperform competitors and that gives us an advantage right now, and some piece of that will carry over as you move through the supply chain challenges.

[Christopher Glynn:]

Okay. Do you feel like you're running on the upward curve of realizing that wherewithal that you've had established for some time?

[Dave Heinzmann:]

Yes. I think we're kind of in the position we normally are and seeing that. So, we're gaining some business right now that we wouldn't have gotten without the shortages. There is no doubt about that. And a piece of that will stick. And as needed, we continue to add capacity ourselves. But most of the work we're doing right now in capacity is targeted for what we're looking forward to be prepared for the next couple of years, not so much next quarter.

[Christopher Glynn:]

Okay. Meenal, just curious if you could detail the equity investment gain what triggered that I think it was about $7 million.

[Meenal Sethna:]

Yes, we have. This has been an investment we've had for a long time in a public company that came with an acquisition years ago and under the new accounting rules from a few years back, we are now required to mark-to-market that every quarter and because it's a public company that's what really drives the volatility in the gain loss every quarter.

[Christopher Glynn:]

Okay. If I could sneak one more in the - I think this portfolio - technology portfolio simplifying that was a big part of your integration I think to narrow focus on the most scalable technologies. So, wonder if you could provide an update on that holistic process?

[Dave Heinzmann:]

Yes, I can. I can take that. Yes, clearly there were product lines within the IXYS family when we acquired it that we didn't see as long-term strategic drivers for the business. And so we have worked our way through the bulk of that activity where we have either, in some cases we've sold, some cases we've shutdown pieces of that business, where today what we're manufacturing in the IXYS - the former IXYS power semiconductor business are the core products that we expect to continue to be producing and building on as we move forward. So the bulk of that pruning and trimming is done and behind us.

[Trisha Tuntland:]

Thanks, Chris. We'll take our next caller, please.

[Operator:]

Our next question comes from the line of David Williams with Loop Capital. Your line is open.

[David Williams:]

Good morning, thanks for taking the question. Just want to ask maybe on the second half visibility, how you see that, obviously the automotive sector is challenging and the disruptions are giving you some difficulty reading that. But how do you think about your second half visibility and where maybe could we see some upside or maybe some downside as we think about the second part of the year?

[Dave Heinzmann:]

Yes, I think the visibility in the second half is a bit challenging. It's just been such a dynamic time in the last year and kind of folding into this year. Clearly momentum in most parts of our business are quite strong right now and we would expect that momentum to carry us well beyond the second quarter into the second half. I do think the two things that kind of hang out there as question marks would be the supply chain side on auto, the end customer demand is going to continue to be strong as in North America and we know vehicle inventory on the lots is quite low and demand is pretty solid. They are beginning to see some improvement in demand in Europe, and certainly in Asia, it is quite strong. So, if the supply chains can hang a step up, then there could be some progress in the back half of the year, but right now, we kind of see, our view is the semiconductor shortages and things probably are pervasive through the course of the year in auto. The other wildcard is really just the pandemic situation and do we get spikes, do we see disruptions that could still happen in the back half of the year. Customers or contract manufacturers are building inventory, do they reach a level of - that they're comfortable with and slow down their orders. Those are the kinds of things that are out there in the back half. We remain still pretty bullish, but we're cautiously optimistic on the back half.

[David Williams:]

Great. And then maybe if you could just talk a little bit about the demand through the quarter and how you're seeing things I guess through April here. Are the, I guess, cadence of demand trends that you're seeing in line with what your expectations would be? Are you seeing anything maybe any changes in more recent weeks?

[Dave Heinzmann:]

No, we really haven't seen changes. Continue to see very strong demand and bookings through the quarter to date. So, kind of as expected in this environment, we continue to see those orders flow through.

[Trisha Tuntland:]

Thanks, David. We'll take our next caller, please.

[Operator:]

Our next question comes from the line of Luke Junk with Baird. Your line is open.

[Luke Junk:]

Sorry about that, was on mute there. Good morning, Trisha. Probably a couple of questions for Meenal this morning, both margin related. First question, when I ask really a big picture question, which is in light of another strong margin performance this quarter in both electronics and auto, which of course in spite of the current supply chain situation, I'm wondering how much strength we can attribute right now to the underlying fundamentals of those businesses as we think out to your mid-term margin targets and to what extent are the temporary benefits that you talked about last year due to COVID and workforce idling and things of that nature, temporary discretionary type things. Are those starting to come out or is there still a strong effect of that in the P&L right now?

[Meenal Sethna:]

Sure. So, in our Investor Day, back in February, we talked about the long-term margin targets as you mentioned, both electronics and auto are trending to those right now. Yes, there are margin headwinds going on from the supply chain input costs that I talked about. At the same time, I'd also say our - what I call our spending levels are still at a curtailed level right. It's while people are trying to get out of COVID and get out to customers and do some different things I'd say our spending levels are down. So that's why I noted lots of puts and takes going on. I'd say in the quarter still net negative for us. But at the same time, I would say the long-term margin targets that we set out with the high-teens for electronics up 20%, automotive in that mid-teen 14% to 15% range, we still think those are the right long-term targets that we have for those businesses.

[Luke Junk:]

And then, a second margin related question and this is more of a near-term question in terms of industrial, so Meenal you had mentioned in your remarks, right now, we're working through some of the inefficiencies of that new facility that's coming online and of course Hartland came into the numbers this quarter and I'm just wondering as we think about the normalized level of margin in that business right now as that new facility ramps to full productivity and you start to better integrate Hartland, how should we think about sort of the underlying margin trend in industrial specifically right now?

[Meenal Sethna:]

Sure. Yes, good question. I think about it a bit, it is a step function, so the endpoint, we talked about high-teens operating margin target for that business that's unchanged and we talked about that back in February. I'd say the manufacturing transition that I talked about, typical when we move factories, I'd say a little bit exacerbated because of the COVID situation and we really haven't been able to do a lot of things we normally do in person as part of that transfer. But I think that will work itself out during the year that will be a step function up on margins. The end market recovery that I mentioned, some markets like non-residential, mining, oil and gas, I put that as another step function and that I would say will get us into the mid-ish teens range. The Hartland one is going to take a little bit longer. We've always said with acquisitions, no acquisition comes into our portfolio at our target margin range and so we typically assume a two to three-year time frame both on the cost side, but also then really starting to ramp up on revenue synergies that will get the Hartland acquisition embedded in our segment and get us back into that high-teens area.

[Trisha Tuntland:]

Sure. Appreciate your questions, Luke. Thank you.

[Operator:]

Our next question comes from the line of David Kelley with Jefferies.

[David Kelley:]

First question for Dave and wanted to follow up on your auto inventory comments. If we did not see that fourth quarter customer inventory build continue into Q1, are you seeing the work down of the inventories at all right now or customers simply maintaining stock given what feels like solid visibility to demand and production recovery once we get beyond some of these shorter-term disruptions?

[Dave Heinzmann:]

Yes, I think that, there is not perfect visibility that in the auto world with the Tier ones in the OEMs, but our sense is that yes, there were some inventory build that took place in the fourth quarter, perhaps because our ability to deliver outstripped others, they kind of built up that and they're trying to kind of get some level plan there. It didn't - we didn't see it as much in the first quarter, we have not seen it work down, we haven't seen evidence of it being worked down at this point. But, right now, we would say kind of our first quarter demand, our best view is that it matched up pretty well with the past year.

[David Kelley:]

Okay, got it. That's helpful. And I may have missed it, but did you reference commercial vehicle organic growth, I'm assuming, there was an inflection there but was hoping for a bit more color and then maybe how should we think about margin implications in the automotive segment if we do see an uptick in commercial vehicle recovery?

[Dave Heinzmann:]

Yes, commercial vehicle, we talked specifically about passenger car organic growth at 22% and the other piece of that within the segment is commercial vehicle, where we also saw double-digit organic growth in the commercial vehicle portion of our business there. So, healthy growth there from a margin perspective. Both of those businesses are going to tend to operate in that mid-teens range. So really the difference and the split between CVP or auto doesn't drive so much on the bottom line performance, we kind of get similar kind of flow through from both of them but CVP is certainly gaining strength and healthy. But by the way, the commercial vehicle space has the same shortage challenges that you have in the past car world as well that are getting impacted whether its semiconductors or resins and things like that.

[David Kelley:]

Okay, great. Got it. And then last one from me for Meenal, I appreciate the color on some of the sequential input cost trends, things like freight cost, is there anything else we should be thinking about, raw materials come to mind, specifically that could disproportionately impact flow through into the second quarter here?

[Meenal Sethna:]

It's a good question. I think I tried to highlight the biggest ones as part of my comments with the - I mentioned commodities freight and then just on sequential basis. I'd say in the operating margin, the elevated stock compensation expense that we typically have in the second quarter. Beyond that you've heard Dave talk about yes, we are impacted with some of the semi shortages, some of the resin, a number of other input costs coming through, but really I tried to highlight the big ones, and that's really - that moves the needle on our margin right now with the impacts that we're seeing.

[Trisha Tuntland:]

Thanks for your questions, David. We will take our next caller, please.

[Operator:]

Our next question comes from the line of David Silver with CL King. Your line is open.

[David Silver:]

Yes, hey, good morning. My first observation is there are - quite a number of David's on this call.

[Dave Heinzmann:]

There are.

[David Silver:]

About four times false alarm. Okay, thanks for laughing at that. I wanted to maybe ask a question about your China business as a whole. So as of 2020 that's now your largest country market in terms of revenues. So maybe a couple of questions but in this quarter, would you say the sales growth from China was equal to your overall company growth rate or was it greater than the company total itself. And then maybe you're looking out over the medium term, let's say through the end of 2021? I mean how do you see the growth trends in that market progressing through the year. And then maybe I'll just throw out one other thing, but some other companies - that have reported have indicated that in terms of the double booking or the over-ordering. There seems to be a little more of that coming out of that particular market in part just due to fears about how trade policies may develop. So maybe - just a snapshot of what you see out of your China business? Thank you.

[Dave Heinzmann:]

Sure, David. I would say, first of all, you kind of got to ground yourself to a year ago in China where the pandemic started during the first quarter. So clearly the growth rate in China year-over-year comparative is higher than it is for the rest of the world, because it was such a low point last year in the first quarter. So clearly, China is going to show in a percentage standpoint a much higher growth rate in our first quarter versus last year than the other regions of the world because of that. However, if you kind of normalize that rate and say what it looked like through the course of the year. While you're going to get these opposite impact in the second quarter where so much of the rest of the world got impacted and China was starting to turn back on by second quarter. That you'll see that maybe the rest of world was growing faster than China in the second quarter when you do the comparison, but that's really all to do with history on what was taking place last year. We continue to see ongoing strong order rates and demand in all segments of the business out of China and Asia in general, so continues to be quite healthy. From a double bookings standpoint yes, we see double bookings coming out of Asia, but we also see them kind of globally, I think it probably gets elevated from the standpoint in Asia in general. A lot of contract manufacturing is going on out in Asia. So therefore, a lot of the bookings that are flowing through contract manufacturing are showing up there. But I'm not sure we would say that China specifically is driving, the really strong orders are evidence of double booking specifically.

[David Silver:]

Okay, thank you for that. I had a question here maybe on the current semiconductor shortage and maybe a scenario analysis as it persists. I know you've kind of come at this from a couple different angles. But my general question would be given your strong outlook and everything, I mean how well would you say your company is prepared to deal with - the possibility right that the semiconductor shortage in terms of breadth and duration just turns out to be longer than most people are guessing in other words, worst case scenario? And I'm thinking, not so much about your customers and I'm thinking about your internal capabilities. I know you definitely had some capability of manufacturing, customizing, et cetera. But are you taking any steps or - do you consider it prudent to take any steps to kind of reinforce your internal capabilities to either produce or modify or customize chips in the event that there is a deepening or broadening of the current shortage conditions at various parts of the market? Thank you.

[Dave Heinzmann:]

Yes and certainly, I think maybe three months ago, there were some beliefs that maybe the semiconductor shortage would kind of lessen by kind of mid-year this year. It's not our belief or my belief that we hit that inflection point by mid-year. We're expecting and certainly that impact at least through the year. And although we have some direct impacts of semiconductor shortages, they're relatively small as we're not really large purchasers of semiconductors and for our assemblies. I mentioned during one of the other questions that we do have some opportunities for some of them more simple MCUs to be able to do some of that internally with our own designs. And so certainly prudent, we're working on those things to qualify them. So as you can imagine, we're working to get qualifications, and particularly on the auto side, it's much faster to get qualifications today than it normally is because everyone is interested in trying to get supply taken care of. So certainly some impact there that were - actions we're taking to try to show that up. We are continuing to increase our investments in capacity in our core semiconductor business. That's not such related to that our spaces where the constraints are, but just overall demand continues to be strong and our opportunity to gain share over the coming years is such that we need to be adding capacity to support that. So, we are continuing to beef up our capacity capabilities in our own core semiconductor business.

[David Silver:]

Okay, great. And I'm just going to have one more fast one here, but this will be for Meenal. And would have to do with the repurchase authorization that was just re-upped, I guess, $300 million over three years. And if I go back to February, I mean you were very clear about kind of the criteria for the company's deployment of capital for buybacks and being opportunistic I think, was at the top of the list. And I'm looking at kind of your stock price now? And certainly based on recent earnings trends, I mean the valuations have widened out a bit. And I'm just wondering your thoughts on the optimal use for that authorization over like one to two-year period. In other words, is there a desire to offset options issuance or just maybe how you think maybe in a world where opportunistic might not fit the bill for buyback, just how you think the optimal deployment of that authorization might be? Thank you.

[Meenal Sethna:]

Sure. So just on the authorization itself right, that's something where authorization was expiring at the end of this month. And so, really it's always prudent to make sure you have an authorization in place for those who have known it for a long time. We did change the structure of the authorization really to align to really more our capital allocation philosophy because it's now dollar-based as opposed to share count-based on the structure. So nothing out of the ordinary there, in terms of philosophy, I would say our philosophy, as you mentioned, in February, we tried to articulate that which is still, our primary focus is still around acquisitions and acquisitions that enhance our organic growth and from that perspective right now, we made our Hartland Controls acquisition earlier in the first quarter. And I would say as we look at the landscape today, the markets are definitely lot of activity, we are quite busy, looking at a lot of potential targets and that continues to remain our primary focus. So, as of now I don't - it wouldn't change our philosophy on continuing to be opportunistic, mainly because of the prioritization that we have around capital allocation.

[Trisha Tuntland:]

I appreciate your questions, David. That concludes our Q&A session.

[David Silver:]

Okay. Thank you.

[Trisha Tuntland:]

Thank you for joining us on today's call, and your interest in Littelfuse. We look forward to talking with you during our May and June outreach events. Have a great day.

[Operator:]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.