Christopher Glynn: Thanks. Good morning Dave, Meenal, Trish. Dave, I was intrigued by your comment around accelerating rate of new business wins, design-in activity. Is there any way to quantify that, maybe ratios or otherwise? Is it oriented more to your actual win rates or proliferation of opportunities? Thank you.
David Heinzmann: Yes, I think it’s kind of — obviously, we track design and activity as a key metric across all of our businesses. So, we made kind of general statements about that where we’re seeing those design-in activities, I think particularly on the electronics side. But overall, if you look back over the last couple of years, engineers and our customers’ engineers have spent an awful lot of time on redesigns to get better sources to keep their operations running and things like that, which kind of backed up some of the new design activity that they wanted to do. Well, that’s free back up, but the engineers are very engaged in that. We’re seeing a lot of activity there. So, increases in activities and design in and design wins for things like renewable energy, power conversion types of applications.
So, on the industrial side of things, quite robust. Also on the pass car side, we don’t share every quarter what we’re doing on design wins there, but we’re actually a bit ahead of where we were last year in design wins. We had a robust year last year in overall pass car design wins and we’re actually a bit ahead of that this year. So, we feel good about the activity. And it’s easy for us sometimes to kind of internally get turn in towards the challenge of the near term, but the reality is the bulk of our activities and our people are focused on the long-term gains, and we’re seeing really good progress there.
Christopher Glynn: Great. And then a follow-up. On the Dortmund acquisition, I know closing is a little way out, but any kind of indication on the scale of investment or run rate even in generic terms like small, medium, large?
David Heinzmann: So, obviously, that’s an acquisition that hasn’t closed yet. And it being a maybe an atypical acquisition for us in some ways, it’s an area where we’re really focused on supporting and accelerating our activities in the power semiconductor for industrial applications, power conversion, renewable energy, these sorts of areas. And so we have agreed upon with Elmos a capacity sharing application over the next few years as they move some of their products out to other facilities, we’ll begin the activity of porting in some of our designs and developing new products that we launch within that fab during that transition period. So, it will be a meaningful impact to our power semi business over the next several years. As a company, I would say it’s more of a small sort of investment that really — it’s really focused on solidifying that power semi portion of our business.
Christopher Glynn: Great. Thanks for that.
Trisha Tuntland: Appreciate your questions Chris. We’ll take our next caller please.
Operator: Thank you. Next, we’ll go to Matt Sheerin with Stifel. Your line is now open.
Trisha Tuntland: Good morning Matt.
Matt Sheerin: Yes, thanks. Good morning everyone. I do have a few follow-up questions. Just on the inventory correction within electronics, Dave, could you give us an idea of what the inventory days at your distribution partners look like and what the book-to-bill looks like?
David Heinzmann: Yes. And let’s start with kind of days. And normal for us kind of on average across both our broad line distributors and high service distributors, normal for us would be in that mid-teens weeks of inventory. And so that’s kind of normal. Right now, I’d say we’d be running three to four weeks heavy on that. That’s less than we were a couple of quarters ago, and we’re seeing month-by-month reductions in that inventory level. So, it’s kind of going as expected, I believe there. So we’re working our way through that, and I think that will be a positive.
Matt Sheerin: Are there — do you know what the point-of-sale or POS sell-out numbers look like relative to your sell-in? Is that starting to soften as well?
David Heinzmann: Yes, there’s pockets of it, right? So there’s areas where the POS is hanging in there really well, and there are pockets of applications where that’s softer. So kind of our view of how things are going is based upon what we see as current POS levels. So, underlying POS remains pretty good. So we continue to kind of watch that carefully.
Matt Sheerin: Okay. Thank you. And your book-to-bill is still negative, I imagine?
David Heinzmann: Our book-to-bill is below 1, and that’s a combination, right, of a couple of things. One is this inventory destocking that’s taking place. The other is, as we’ve worked our way back, our lead times on almost all products are now — have moved to pre-COVID levels of kind of normalized lead-times. So, every time we pull those back, that drops orders. And so that kind of — between those two things, certainly, it’s running below one.
Matt Sheerin: Got it. Okay. And just a couple of modeling questions, Meenal. It looks like sort of backing in based on your EPS and revenue guide, it looks like operating margin is going to be sort of in the low 15% range with lower gross margin sequentially. From an OpEx standpoint, are there any plans to reduce costs? Or are you going to hold steady here based on where you were?
Meenal Sethna: Yes, great question. So, just circling back, we don’t guide, of course, to operating margins in an individual quarter. But what I would say stepping back from one of the earlier questions, we’re still committed to that high teens margin range we talked about for the year. At the same time, we may have quarters, right? Some might be on the higher end, some may be at the lower end or even below that. So, we know that there’s going to be a balance there. In terms of actions we’re taking or things that we’re doing, especially in the businesses where a lot of discussion on the transitory destocking, we’re absolutely looking at cost, whether it’s interim costs right now, variable costs that we can look at or even just the cost structure as we think about businesses.
So especially across the electronics side, we’ve talked a little bit about on the transportation side. We’ve got work to do around the Carling integration. Dave and I both talked about that. We’re looking at the customer and product line profitability. And absolutely, we’re also looking at cost structure in that business. So, a number of different things going on to make sure that we continue to invest in the business for the future because we know this is transitory. But I’d say also tighten up our cost structure for the environment that we are in today.
Matt Sheerin: Okay. Thanks for that. And I appreciate that you don’t give specific guidance for the year. But I know seasonally, your electronics business is usually down sequentially, and I would expect it to be perhaps more than that with this inventory correction and then transportation kind of same thing. So, in terms of kind of how margins look like in Q4 and when they expect to bottom, would you expect Q4 to be down from Q3 in terms of margins and revenue?
Meenal Sethna: Yes, at this point, right, we gave you the visibility that we have, right? With the Q3 guide talking about really build electronics, we expect Q3 to be sequentially down, a little bit also on the transportation side. A lot of that really coming because of the destocking. After that, I’ll even go back to what Dave made a comment earlier about it’s tough to pinpoint the normal anymore. So we’re not offering a sequential view or really have enough there. But again, I would say in our prepared comments, we talked about destocking going through this year.
Matt Sheerin: Okay. Thank you. And just lastly, on the automotive or transportation margins, which are lowest level in many quarters. Is it really just the matter of the volumes or also getting synergies from the acquisitions and getting costs out and you’re still committed to that mid teams, but it looks like it’s going to take a while to get there. So, what’s the timing of that?
Meenal Sethna: Yes. So, maybe just a little bit more color on Q2 and the past forward for. So, absolutely, in Q2, some of the comments, the destocking that we saw in the commercial vehicle side of the business definitely higher than we were expecting. You saw it in our sales, you see it in the margins. I’d say that was probably a couple of hundred basis point margin impact. So, just flat out right there, we would have been at a — had we been able to take out that destocking, the margins definitely would have trended where we expected. I’d also say the Mexican peso for us because Mexico is such a big footprint, a manufacturing hub for us, we saw a pretty sudden strengthening in the peso last quarter, pretty unexpected and that also hampered margins a bit, maybe 100 basis points.
So, that was a little bit of a color. I’d say outside of those, we would have seen absolute margin projection expected in that trajectory. So I talked about earlier, look, we’re looking at costs. We’re looking at footprint work that we’re doing, which includes some of the activities that Dave mentioned as it related to Carling. We’re also across the automotive business, it’s really been now four years of car build that’s in the upper 70s or lower 80 million build range. So, we’re also looking at the footprint that we have for automotive and maybe scaling that back a little bit. And then I also talked about that customer product line profitability that we’re working on, especially with the newer parts of the business. So, I think the combination of all that, we continue to expect that margin trajectory moving forward, positively moving higher, and we’re still committed to that mid-teens margin range for transportation.
Yes, it will take us maybe a little bit longer than we were expecting given the destocking, but we’re absolutely committed to that.
David Heinzmann: Matt, I think it’s important to take a step back overall, right? And take a look at overall performance of the margin profile in the business through the course of this year, which we still believe to be for the year in the high teens. When we take a look at that versus previous cycles, when we’ve been in the debt of previous cycles, we’ve been in that 14%, 14.5% range. That has improved meaningfully really with our strategy to diversify the mix of the business in the end markets we’re serving, execution across the businesses. And by the way, that’s at a time — we’ve made some sizable acquisitions over the last couple of years, which overall is about 200-point drag on corporate margins. So, seeing that overall improvement even while digesting these sizable acquisitions. So I think, generally, we’re moving off in the ability to execute through the bottom side of the cycle.
Matt Sheerin: Got it. Okay. Thanks for all that. Appreciate it.
Trisha Tuntland: Thanks Matt for your questions. We’ll take our next caller please.
Operator: Next, we’ll go to David Williams with Benchmark.
Trisha Tuntland: Welcome back David.
