Terrence R. Curtin: Hi, Luke, thanks for the question. I think when you look at it, I think one of the things we got to start with is what’s happening with input cost and certainly we are not seeing a massive inflationary environment, but we’re also not seeing a massive deflationary environment. Copper very important from a conductor and important connector and important moving both data and power around vehicle or any application, it’s still up year-over-year. Certainly other things, we have freight down, but net-net, we’re still seeing a pretty net neutral world. When it comes to input cost and you know how hard we worked to recover the inflationary costs and some of the things that help the margin that we’re talking about today.
But very honestly, we’re talking to our customers about where the costs are and as we went through this our strategy has always been with our customers to recover the cost and that’s what we did. So, I think there will be an element, we’ll be very driven on where the input costs at will dictate pricing. And that’s been our approach and we’ve been very consistent as we communicate that to you across all our businesses.
Sujal Shah: Okay. Thank you, Luke. Can we have the next question, please?
Operator: And the next question comes from the line of Shreyas Patil from Wolfe Research. Please go ahead with your question.
Shreyas Patil: Hi, thanks so much for taking my question. I guess maybe following up on the last question. Maybe just to clarify, do you feel that if we were to eventually get to maybe a normalization of pricing, I think typically For TEL, you see price downs of maybe 1% or 2%. At the moment, it appears maybe pricing is up 1%, there’s enough restructuring or other cost actions where you can still sustain that 20% margin that you’re talking about going forward? And then maybe also just curious how to think at a high level about the relative profitability in the auto business between the EV and kind of existing ICE product? Just as we think about if potentially there were to be some kind of slowdown globally in EV adoption? Thanks so much.
Terrence R. Curtin: Sure. Couple of things. Yes, no, First off being, in whatever our normal environment is assuming there’s deflation we can drive certainly there would be productivity we would want to get back to our customers to make sure they’re competitive. That was the environment we always articulate when we said we would be around 20% margin. So we never said when we’ve always talked to you about this, we need price increase to get to our 20% margin. The pricing we’ve done is to recover cost in a pretty dramatic inflationary environment over the past two to three years and we did it on a lag. So, it did impact our margin early on when we saw the acceleration. So, I don’t think that we start seeing deflation again materials, you could see a little bit of price back, but we’re not there yet.
And I’m sure we’ll continue to talk about it. On ICE vehicles versus EV vehicles, I think there’s two elements we have to be honest about. Half of our content that is on an electric vehicle is the same content that is on ICE vehicle. So, the profitability of those products are same whether it’s an ICE vehicle or an electric vehicle because that’s a low voltage architecture that carries over and doesn’t drive the powertrain. For the element that is the high power products, we’ve been scaling that up and what we’ve said is we’re going to continue to move the profitability of those product lines up to the segment average. We’ve made tremendous progress. It’s still at lower scale than the ones that go over 85 million vehicles. But the progress that the team made has also been the contributor to where our margin is in Transportation.
So, the team has done a nice job as we scale that versus when we were just investing and there were very few electric vehicles made. So, we saw the opportunity to increase there but the gap is closed significantly.
Sujal Shah: All right. Thank you, Shreyas. Can we have the next question, please?
Operator: Thank you. Our next question comes from the line of Asiya Merchant from Citigroup. Please go ahead with your question.
Asiya Merchant: Great. You guys have done a great job on margins. And most of the questions on that have been answered. If I could just talk about your free cash flow generation, how we should think about that going forward given margins are expected to be here at this level? And any thoughts you can have on M&A as you guys think about it for the remainder of the fiscal year? Thank you.
Heath Mitts: Sure. First of all, thank you for the question on cash flows, always near and dear to my heart. We did have a good start to the year with our free cash flow which was further momentum from the strong free cash flow we had in FY2023 and sets us up well on the balance sheet side. As we — our guidance for the year which is really not a specific number for cash but it’s really unchanged which is that we feel good about the 100% cash conversion to net income that we had achieved largely in FY2023 and how we maintain that momentum moving forward. So, we’ve done some things and sometimes we had flat working capital at different periods of time but the rigor is there and our ability to maintain particularly payables receivables inventory levels in addition to our CapEx spending and then what we have to fund for restructuring tends to be the different levers that we that we pull.
