Earnings Call Transcript - LFUS Q2 2025

Operator, Operator

Good day, everyone, and welcome to the Littelfuse Second Quarter 2025 Earnings Conference Call. Today's call is being recorded. At this time, I will turn the call over to the Head of Investor Relations, David Kelley. Please proceed.

David Lee Kelley, Head of Investor Relations

Good morning, and welcome to the Littelfuse Second Quarter 2025 Earnings Conference Call. With me today are Greg Henderson, President and CEO; and Abhi Khandelwal, Executive Vice President and CFO. This morning, we reported results for our second quarter, and a copy of our earnings release and slide presentation is available on 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 2 for our disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today'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 on the Investor Relations section of our website. I will now turn the call over to Greg.

Gregory N. Henderson, President and CEO

Thank you, David, and thank you to everyone for joining us today. I want to start this morning with highlights of our second quarter and then provide an update on the progress we're making on our strategic priorities. We're in the early process of capitalizing on our numerous growth and operational enhancement opportunities. An important milestone in this process was the hiring of our new CFO, Abhi Khandelwal, this quarter. Abhi joins us from IDEX Corporation, and he brings more than 2 decades of financial and operational leadership. He has significant experience in driving strategic growth, both organic and acquisitions as well as in scaling operations. Abhi has already had a significant impact in his first month at Littelfuse. I look forward to continuing our partnership as we focus on scaling our business for long-term growth, enhanced profitability, and best-in-class shareholder returns. In the second quarter, we demonstrated broad-based strength across our businesses, delivering revenue growth of 10% relative to the prior year. Our performance reflects our leadership position in safe and efficient electrical energy transfer, the ongoing meaningful technology evolutions in front of us, and the fact that our customers deeply value our trusted and essential capabilities. Across our segments, we observed continued momentum in the second quarter. Our Electronics segment benefited from improved demand for passive electronics and protection products. In our Transportation segment, we delivered broad-based growth, while our strong Industrial segment performance reflects our unique market and customer positioning. Our end markets continue to move to higher power and higher energy density, and we are leveraging our market leadership and unique product portfolio to help our customers solve increasingly complex challenges. Supporting this, our second quarter book-to-bill again tracked above 1, while our bookings exited the quarter at the highest run rate since the first half of 2022. We expect our solid growth performance to continue into the third quarter. Our second quarter earnings results also exceeded the high end of our prior guidance range, reflecting strong execution. Abhi will discuss specific results in more detail shortly, but I want to thank our teams for their hard work and dedication. With that, I wanted to update everyone on the specific progress we're making on each of our strategic priorities that I highlighted last quarter. Our first strategic priority is to enhance our focus to better capitalize on future growth opportunities. Our teams are sharpening their focus on higher voltage and higher energy density applications as our customers are pushing for higher power next-gen solutions. This evolution is leading to complex safety and efficiency challenges, and our products are increasingly important to solving these challenges at the architecture level. Importantly, this transition is happening across all of our end markets, and we are seeing the benefits of our heightened focus on these expanding opportunities in real-time. Let me provide you with an example in enterprise computing, where the industry is transitioning from 5-volt to higher power 48-volt capabilities for single cable combined power connectivity interfaces. This evolution requires more advanced and unique safety and protection solutions while meeting the increasingly demanding data rate and electromagnetic compatibility requirements. In the second quarter, we worked with a market leader to develop a next-gen semiconductor protection solution. Our solution supports higher power and data rates at faster charging speeds and will begin shipping in the third quarter. Broadly, our heightened focus on the secular trends across our end markets will continue to drive expanded new business opportunities. We are seeing meaningful traction in our pipeline, and year-to-date, our new business opportunity funnel is up double digits. Our second strategic priority is to provide more complete solutions for a broader set of our customers. Customers deeply value our capabilities, and our scale is a significant advantage. Yet we can further harness our unique and market-leading product portfolio to help more of our customers solve complex challenges around safe and efficient power transfer. To support this opportunity, we are further aligning our technology capabilities and our sales structure to better serve our customers with our full product portfolio. We are also leveraging our collaborative product development, engineering, and testing processes to better support our broad customers as they drive ongoing product innovations. As an example, last quarter, we discussed the meaningful role we play in data center advancements. We are seeing an accelerating pipeline of opportunity as we have been expanding our go-to-market strategy. I'm pleased to announce several new data center design wins in the second quarter with market leaders ranging from a global digital infrastructure provider to a leading compute platform player. Our second quarter wins range from liquid cooling to on-board and power distribution applications, and position us well for continued strong data center sales growth. Last quarter, we also discussed our opportunities in the rapidly growing grid storage market. Today, I wanted to discuss the broader sustainable grid ecosystem where we are building momentum globally. In the second quarter, we won a design with a leading player in green hydrogen, where we will provide high-speed, high-voltage industrial fuses. Our solution enables pairing to the grid and plays a critical role in reliable renewable energy transfer. We also work with a solar supplier to develop a next-gen micro-inverter. Our solution enables compatibility with higher power solar panels and improved battery integration. Broadly, we observed strong renewables and grid storage sales growth in the second quarter, and we see continued momentum as these markets transition to higher power solutions. Turning to our third strategic priority. We see an opportunity to drive further operational excellence while enhancing long-term profitability as we grow. We can better leverage areas of best-in-class operating practices and apply those across our businesses. We can also further optimize our operating structure to support our growth opportunities and enhance long-term performance. In the second quarter, we established a new global operations team that will focus on driving best-in-class operational capabilities across our global sites. Led by this team, we are in the process of establishing and driving best practices with a heightened emphasis on safety, quality, delivery, cost, and inventory. While this is a long journey, we have begun applying this enhanced focus to some of our North American factories. We saw early benefits of these efforts in the quarter, reflected in our second quarter transportation operational performance. Taking a step back, we delivered a strong second quarter, and we are well positioned to drive continued growth into the third quarter. We are seeing the benefits of our flexible operating model and global footprint that is closely aligned to our customers and their supply chains. We will continue to work closely with our customers and partners through an evolving environment to deliver on the meaningful opportunities in front of us. Finally, while we have made significant progress to date, we remain focused on our strategic priorities as we aim to position and ultimately scale our company with the goal of delivering long-term best-in-class performance. With that, I will hand the call over to Abhi.

Abhishek Khandelwal, Executive Vice President and CFO

Thank you, Greg, and to everyone joining us today. I'm excited to have joined this great organization as we scale our business for the next growth phase of Littelfuse. One month into the role, I've been working with Greg and our leadership team as we build on our strategic priorities. I see opportunities to enhance our secular growth momentum, further optimize our portfolio, and strengthen our talent as we drive medium- to long-term returns. With that, please turn to Slide 7 to start with details on our second quarter results. As Greg mentioned, we exceeded the high end of our guidance range for revenue and adjusted EPS. Going forward, comparisons I will discuss will be relative to the prior year, unless stated otherwise. Revenue in the quarter was $613 million, up 10% in total and up 6% organic. The Dortmund acquisition contributed 2% to sales growth, while FX was a 1% tailwind. Adjusted EBITDA margin finished at 21.4%, up 280 basis points. Our solid margin expansion reflects strong conversion on higher sales growth, improved operational performance, as well as the benefit due to the timing of tariff collections and payments. Second quarter adjusted diluted earnings were $2.85, up 45%, and exceeded the high end of our guidance range. This reflects solid sales growth across our segments as well as margin expansion across our Transportation and Industrial segments. Please note, our second quarter adjusted effective tax rate was 23%, in line with our expectations. Please turn to Slide 8 for updates on capital allocation. We delivered strong cash generation in the second quarter. Operating cash flow was $82 million, and we generated $73 million in free cash flow. Year-to-date, we have generated $115 million of free cash flow, yielding a strong 114% conversion rate. We ended the quarter with $685 million of cash in hand and net debt-to-EBITDA leverage of 1.1x. In the quarter, we returned $17 million to shareholders via our cash dividend. We will continue to prioritize our cash flow for organic investments and strategic acquisitions. We will also continue to return capital to our shareholders through our dividend as well as strategic share buybacks. Please turn to Slide 9 for our segment highlights. Starting with the Electronics Products segment. Sales for the segment were up 10% versus last year and up 4% organically. The Dortmund acquisition contributed 4%, while FX contributed 1 point to growth. Sales across passive products were up 14% organically, while semiconductor products declined 5% in the quarter. Our strong passive product sales growth in the quarter reflects improved orders from channel partners and increased demand from OEM customers. Within our semiconductor products exposure, we observed continued soft power semiconductor demand that offset improved protection product volumes. Adjusted EBITDA margin of 21.6% was flat versus the prior year. Favorable year-over-year volume leverage on our passive and protection product sales growth was offset by lower power semiconductor volumes. Moving to our Transportation Products segment on Slide 10. Segment sales increased by 6% as organic sales increased 4% for the quarter, while FX contributed 2 points to growth. In the passenger car business, sales increased 3% organic. Passenger car sales increased across North America, Europe, and China as we benefited from share gains and growth in global car builds. Commercial vehicle sales for the quarter increased 5% organically and benefited from market share gains despite ongoing soft end market conditions. For the segment, adjusted EBITDA margin of 20.5% was up 610 basis points. In the quarter, we benefited from volume leverage, while our focus on profitability initiatives continued to drive improved operational performance. On Slide 11, Industrial Products segment sales grew 17% organically for the quarter. Second quarter sales benefited from strong grid storage, renewable, data center, industrial safety, and HVAC growth. Adjusted EBITDA margin was 22.1% in the quarter, up 610 basis points. Our strong margin performance reflects improved volume leverage and solid operational execution. Please move to Slide 12 for the forecast. We entered the third quarter with a strong backlog and remain well positioned to deliver continued growth as we focus on driving operational excellence. With that in mind, our third quarter guidance incorporates current market conditions, trade policies, and FX rates as of today. We expect third quarter sales in the range of $610 million to $630 million, which assumes 6% organic growth at the midpoint and 2 points of growth stemming from our Dortmund acquisition. We are projecting third quarter EPS to be in the range of $2.65 to $2.85, which assumes a 38% flow-through at the midpoint. Third quarter guidance also assumes an unfavorable impact from stock and variable comp of $0.31 and a $0.12 headwind from a prior year favorable mark-to-market and a higher adjusted effective tax rate. At current FX and commodity rates, we're expecting an $0.08 headwind to EPS versus the prior year. Moving to Slide 14. Let me add some additional details on our full year 2025. We continue to expect 2% total sales growth stemming from our Dortmund acquisition with a neutral impact to EPS. At current rates, we expect FX and commodities will represent a 1% tailwind to sales and a $0.14 benefit to EPS. On other modeling items, we are assuming $58 million in amortization expense and $35 million in interest expense, about 2/3 of which we expect to offset through interest income from our cash investment strategies. We're estimating a full year tax rate between 23% and 25%. We also expect to spend $90 million to $95 million in capital expenditures. In closing, our second quarter results reflect our unique technology positioning, flexible operating model, and solid execution. As we look forward, we have a strong business model and balance sheet, and we will maintain our financial discipline and focus on shareholder returns. We will continue to build on our strategic priorities to scale our business and drive long-term value. With that, operator, please open the call for Q&A.

Operator, Operator

Your first question comes from Luke Junk of Baird.

Luke L. Junk, Analyst

Greg or Abhi, maybe to start, if you could just help us to put the margin upside in both Transportation and Industrial, just in context relative to history, both recent history and some of the longer-term targets that have been out there. Transportation, in particular, the company has had a long-held 15% margin target. You're right there this quarter. Just how should we square current trends with what the historical context has been for that business operating wise? And then, Abhi, I think you mentioned some tariff timing impacts to margins. If you could just clarify what that was.

Gregory N. Henderson, President and CEO

Sure. Thanks, Luke. This is Greg. I'll just start. Just maybe I'll take them one at a time. So starting with our Transportation segment. I think as we mentioned in the prepared remarks, one of the key areas that we're focusing on is scaling our operational excellence. And actually, we've been working on focusing on that inside of our Transportation business. So strategically, we kind of have 2 initiatives in Transportation. One is that we're strategically focused on diversifying our portfolio, so diversifying our market exposure. So we have a strong exposure, as you know, to passenger cars and maybe traditional transportation like heavy trucks. But we have a strategy to try to diversify. So we're winning new designs in more diversified areas, things like agriculture and other customers that we don't penetrate today. But also we have a focus on scaling our operational excellence. And so this is one of the areas that it's still in early innings for us, but we're working on optimizing our factory performance, taking some of our best-in-class capabilities and scaling them across our factories. And we saw meaningful improvement in our transportation margin in the quarter because of that, and Abhi can give some more color to that. In industrial, I would say that we continue to have positive revenue growth and margin. And I would say a lot of the performance in Industrial is related to the markets we're playing in. So we're continuing to play in the focus of energy storage, data center, industrial safety; we have strong growth in HVAC. So in our Industrial business, I would say that our top line growth and our focus on high-value markets is also driving the performance there. And maybe I'll hand it to Abhi to see if he has more color on that.

Abhishek Khandelwal, Executive Vice President and CFO

Yes, it's a pleasure to speak with you, and I'm looking forward to our partnership. Regarding Transportation, I want to highlight a couple of points. First, the quarter showed a 4% organic growth which indicates strong operating leverage reflected in our margins. Additionally, as Greg mentioned, we've made significant improvements in our operational execution, which remains one of our strategic priorities. As we progress, we will continue to enhance that area. It's important to note that Transportation margins may fluctuate due to seasonal sales variations from quarter to quarter. However, I believe that, in the long run, there is potential for an increase in margins within the Transportation segment. We will refine the specifics as we approach the latter part of the year and further develop our strategy. Now, concerning Industrial, we are very pleased with the quarter's performance, both in terms of revenue and profits. This reflects the consistent narrative of organic growth leading to strong operating leverage, as evidenced by our margins. Industrial finished the quarter with an operating margin close to 19%. As we observe an organic growth rate of 17%, we will be reinvesting some of the margin gains back into the business to support ongoing growth. Overall, we are satisfied with our results, and the efforts surrounding our third strategic priority in operational execution are becoming apparent across the company.

Luke L. Junk, Analyst

Be great to meet you in this context as well. Just on the tariff timing impacts, yes, could you just clarify what you mentioned in the script as well?

Abhishek Khandelwal, Executive Vice President and CFO

Yes, absolutely. Look, what I said in the script is something that basically comes down to the timing of the realization of price versus when we incurred the cost in the quarter. So what really that means is if you think about it sequentially, right, in Q2, we had about a $0.15 benefit or tailwind that will become a headwind in Q3. So really, all it is, is timing between the quarters in terms of the timing of price realization versus cost that we incur in the P&L. So that's what I meant by that. There's about a $0.15 good guide in Q2. That's going to reverse itself on Q3 and be a bad guide sequentially.

Luke L. Junk, Analyst

Okay. Understood. That's helpful. Second, maybe just a little bigger picture, Greg, but really strong results within Industrial quarter. Historically, this has been a smaller just because of the size of the business, somewhat an uneven segment for the company historically. As you come into the company, is your perception of the business different? I guess I'm thinking, especially your priority around aligning the company's technology capabilities and sales structures. Could that have a sort of outsized impact on the Industrial segment specifically, Greg?

Gregory N. Henderson, President and CEO

Yes. I think we're really excited about the Industrial segment. Our overall strategy focuses on the safe and efficient transfer of electrical energy and supporting our customers' shift to higher power, high-voltage current, which fits well with significant trends in the Industrial sector. We've concentrated on markets leading this transition and developed technology accordingly. For instance, solar and grid storage are key areas making strides in this transition. Some of the technology from our Industrial business has become an integral part of our data center solutions. We cater to data center clients from two angles: one being industrial infrastructure customers that handle tasks like bringing power into the data center and managing cooling, which is part of our Industrial business, and the other being products from our Industrial division that directly serve hyperscalers moving towards next-generation high-voltage architecture. Overall, we believe the Industrial sector presents growth opportunities for us. Abhi mentioned that it's not only a high-growth area but also one with good margins, and we plan to keep investing here. The Industrial segment aligns well with our strategy, and I expect to see positive outcomes in both revenue and profits from this segment.

Luke L. Junk, Analyst

Got it. And then jumping off on that on the data center piece specifically, Greg, maybe a multipart question here. You touched on some of the infrastructure side. Can you remind us from an electronics standpoint, where data center exposure is? And I think historically, for the company in total, it's been a good exposure, but not necessarily one of the company's largest; kind of just where is that today? I get the sense that it's growing. And as you lean into new engagements and opportunities on next-gen, higher power type applications, it sounds like some of those things are maybe coming to fruition earlier than expected. Can you just help us understand magnitude of that tailwind?

Gregory N. Henderson, President and CEO

Thank you. From our perspective, we view data center as part of our Electronics segment, and the products within this segment are gaining significant traction in the data center sector. We highlighted some design wins in liquid cooling and onboard applications. Many of our Electronics products, particularly those related to onboard power protection and semiconductor protection, are increasingly utilized in data centers. An interesting trend in the data center market is the shift toward higher energy density across the entire chain. Our Electronics products are generally smaller compared to Industrial products, designed to accommodate more energy in a compact space while ensuring protection. For instance, our surface-mount fuses, over-voltage devices, and semiconductor protection devices are well-suited for this environment. What was the second part of your question, Luke?

Luke L. Junk, Analyst

Yes. So just maybe sizing the data center exposure. Like I said, I think it's been a good exposure historically, but not one of the largest, but it feels like that's growing right now.

Gregory N. Henderson, President and CEO

Yes. Yes. I think what I would say is that data center is materially important to Littelfuse, but I also think it's going to be more important as time goes on. So I think the thing to understand about this, we talked about our second strategic priority about selling more of our complete solutions. And this is really about also how we align our go-to-market so that we're more leveraging our broad capabilities. Interestingly, I talked about some of our industrial products selling straight into data center. So the go-to-market for our data center is right now focusing in our Electronics segment, but we're trying to better scale that go-to-market. So data center is a key kind of early area where we're focusing the scaling of go-to-market to bring more of our portfolio to our customers. And so this is an area where we're building pipeline. We have good design wins, but we also have growing pipeline. And so we will continue to see momentum in that area.

Operator, Operator

The next question comes from Christopher Glynn of Oppenheimer.

Christopher D. Glynn, Analyst

Yes. Just would like to dive into the passenger vehicle share gains kind of point in time. I don't think you called it out last quarter. Obviously, you flipped to positive organic. But is this kind of a midstream activity that's just kind of hitting past the starting line presently?

Gregory N. Henderson, President and CEO

Yes, thanks, Chris. When we consider the passenger vehicle market, it's clear that we hold a strong market position and benefit from significant global exposure. We are active in the North American, Chinese, and European markets, with solid participation in both electric vehicles and traditional internal combustion engine vehicles. This gives us good market coverage and share. Historically, electric vehicles tend to have higher content, which translates to more dollar share for us, but we maintain good share overall. From my view, the share gains are closely tied to our market exposure and positioning, which can fluctuate. It's important to highlight that while the passenger vehicle segment is crucial to our transportation strategy, we also aim to diversify further. This quarter, we've achieved key design wins in sectors like agriculture, which expands beyond our traditional customer base and creates high growth opportunities for us.

Christopher D. Glynn, Analyst

Okay. Great. And then we just talked about the share gain in Transportation. Industrial, you have good market targeting and penetration. Electronics is a little bigger, more diversified. It's tougher to discern how it ties into better capitalizing on future growth and more complete solutions. You talked about BMS and medical in the past. Just wondering how the kind of momentum is playing behind the scenes there overall at Electronics relative to the kind of more visible at the 2 smaller segments.

Gregory N. Henderson, President and CEO

I think it’s important to recognize that we are just beginning to implement this strategy. In all our segments—Electronics, Industrials, and Transportation—we are aiming to be more disciplined and intentional about identifying the growth drivers in each area. We are focusing on the market segments that are expanding and determining where we want to direct our efforts. Specifically, we are concentrating on areas that are transitioning to higher voltage and higher current. For instance, in the Electronics segment, particularly in enterprise computing, there’s a shift from 5 volts to 48 volts. While 48 volts may not seem high compared to 800 volts, it is indeed considered high for this specific application, and we've developed new solutions for semiconductor protection to meet the stringent demands for power density and electromagnetic compatibility. Our goal is to identify opportunities in different markets and subsegments, be it building automation, electronics, medical, or aerospace and defense, where we can take advantage of megatrends in electrification using our technology. You will hear more about this as we continue to develop our strategy in the upcoming quarters.

Christopher D. Glynn, Analyst

Okay. And then last for me. I was just curious, the Electronics margin slightly down sequentially on 9% sequential sales growth. I don't know if stock and variable comp plays in there. It looks like that's a 21% year-over-year drag in the third quarter. Maybe we could level set the context of that third quarter timing as well as the Electronics sequential margins.

Abhishek Khandelwal, Executive Vice President and CFO

Yes. So Chris, this is Abhi. So what I'll say is this. I mean if you look at the Electronics margin profile, what you see in there in the second quarter is really strong drop-through in our passive products and our protection business within our semiconductor product business, which is partially getting offset by deleveraging of power semi business and the acquisition of Dortmund. Now all that said, what we are seeing is improved orders in our power semi. So as we start to see the volume recover over time, what you're going to see is rescaling and solid margin performance coming out of the Electronics segment. But just so we're clear, one more time on the Electronics side, we did see strong drop-through on passive products protection business within our semiconductor product business, which got offset by power semi. On the Q3 question, what I'll tell you is, I think if you look at our guide for Q3 and look at what we've laid out from a true operational execution standpoint, what you're seeing is year-over-year a flow-through of 38% on EBITDA conversion, which is getting offset by 2 things really. Number one is stock and variable comp. And within that, there's 2 pieces. If you recall, on the stock-based compensation for retirement-eligible employees, instead of taking the hit all in Q2, we spread it between Q2 and Q3. So part of the impact in that $0.21 that you see on the page is tied to that. Second piece is the AIP. So if you recall last year, given where the company's performance were, we had to lower the bonus accrual. So this year, what you see in here is the bonus being accrued at 100% or a target. And so that's why year-over-year, you see an impact. And then the other bucket is nothing more than 2 things. There was a mark-to-market good guy last year that won't repeat this year. And then there's the differential in tax rate that's playing a bit of a role on a year-over-year basis. But again, true operational performance is really strong if you look at it on a year-over-year basis, a 38% conversion on the EBITDA line.

Operator, Operator

The next question comes from Saree Boroditsky with Jefferies.

Saree Emily Boroditsky, Analyst

I think we've talked a lot on the call about kind of this focus on growth opportunities. And I know it's early days, but I was just curious if you had any thoughts on what this could add to the top line? And are these opportunities accretive to margins? Or do they need higher investments?

Gregory N. Henderson, President and CEO

Thank you, Saree. To start, we believe there's a significant opportunity to grow and scale the company. Our strategy is focused on the safe and efficient transfer of energy in all three of our markets, and we see potential in that area. Overall, we anticipate top-line growth and are currently developing our long-term models, which we will share in future quarters. Early indicators suggest we have double-digit growth in our opportunity pipeline and are gaining traction in customer engagement as we align our go-to-market approach. We will continue discussing our growth models in upcoming quarters, and we are optimistic about both top-line and bottom-line growth. We recognize there are untapped operational opportunities that we can leverage for operational excellence, and we have already observed some early positive results in that regard. Achieving top-line growth will require some investments, but that's part of our scaling strategy. Abhi, since you’ve been here for a month, feel free to share your thoughts on the situation as well.

Abhishek Khandelwal, Executive Vice President and CFO

Yes, absolutely. I mean, look, first of all, thanks for the question. Pleasure to meet you. I guess I'll tell you, as Greg laid out the strategic priorities, what's really exciting about the journey that we are on is a couple of things. First of all, as we sharpen our focus and go after opportunities that's really going to help us grow our top line, that's the work we're doing right now. And as Greg mentioned, we're going to review that in the fall. But in classic fashion, if you kind of think about our portfolio and think about our business model, right, when you see organic growth, just the way you saw it in Q2, when you start to move that organic needle, what that translates into is bottom line margin expansion and bottom line growth. And that's what we're really excited about. But I think Greg's point in his Page 3 on the slide deck around focusing and capitalizing on future growth opportunities, really providing more broader solutions for our customer and following that with operational execution, I'm really excited about. And I think that will translate into top line growth, bottom line growth over the longer haul. And to Greg's point, in February of next year, we plan to lay that out as part of our 3-year target in terms of what we believe the organic, the inorganic piece is going to convert into over the next 3 years and what that means from a bottom line standpoint.

Saree Emily Boroditsky, Analyst

I look forward to having those targets. Maybe just sticking on the subject, you talked in the beginning about some higher voltage solutions, data centers. Maybe just any sense of the competitive environment there and maybe your market share today versus what you think it can be?

Gregory N. Henderson, President and CEO

Yes. Thanks, Saree. Well, I mean, listen, we feel very comfortable with our technology position. And in general, I would say our position is that as the markets move to these higher voltage, higher current, higher power, we are more differentiated. I've met with some of these customers, even the data center customers myself, and they really value Littelfuse's capability there. And I think there's a big part of our capability and brand that plays to our strength there because we have experience and people know, okay, they can count on Littelfuse working in that model. Of course, we have competition. We have competition in all of the markets and places that we play. But I would say, in general, we feel good about our technology and capability. And in general, as we move to these higher energy density applications, our products are more differentiated and also the problem that the customers are facing is more challenging. And so therefore, we are a bigger part of the solution. So in general, that's a good trend for us and for our...

Operator, Operator

Your next question comes from David Williams with Benchmark.

David Neil Williams, Analyst

Congrats on the really solid execution here. I guess maybe first is just kind of thinking about the power semi segment, and you talked about the orders improving there. But when do you think we can see that leverage really return and begin to see some real impact from the power semi side?

Gregory N. Henderson, President and CEO

Yes, thanks, David. To begin, let's focus on our semiconductor business. Approximately 50% of this segment is comprised of our semiconductor protection business, which has been performing well and aligns with our trends in the Electronics sector. The other half pertains to our power semiconductor business, which has faced a soft market recently. We've also encountered some execution challenges in this area. However, there is positive news as we're noticing improvements in power semiconductors. Specifically, our market position in higher energy density solutions remains strong, providing more value to our customers. Additionally, we're witnessing signs of stabilization with improving orders. We expect to see positive momentum in the power semiconductor business moving forward, and we intend to keep focusing on enhancing our execution, with more updates to come in future quarters.

David Neil Williams, Analyst

Great. And then secondly, just on the visibility and maybe how you see the end demand here. Do you feel like what we're seeing in terms of the improvement across your segments, does this feel like an inflection maybe on the end demand side? Or do you think there's some tariff maybe uncertainty that's pulling things forward? Anything that you see that's maybe outside of just that normal inflection in demand that you think is driving this?

Gregory N. Henderson, President and CEO

I believe we mentioned on the call that we experienced solid momentum during the quarter, with a strong backlog and bookings. From our viewpoint, we are noticing improved stability in our end markets. Although we are still navigating a dynamic macro environment, we can say that our visibility has enhanced compared to three to six months ago. We feel more confident about our medium- to near-term outlook than we did earlier, considering the current environment.

Abhishek Khandelwal, Executive Vice President and CFO

Yes, David, I mean, even if I take a step back and kind of think about our Q3 guide, I mean, if you look at it on a year-over-year basis, we are talking about a 9% reported, 6% organic. So again, if we just look at Q3 performance, back to your question, we are expecting a pretty nice 6% organic for the quarter on a year-over-year basis. And all three segments, as I think about all three segments, 2Q to 3Q, I expect Electronics and Industrial to go up sequentially. Now Transportation seasonally is down 2 to 3 due to shutdowns. And then on a year-over-year basis, as I kind of look at our performance, that's a part of this guide across all three segments, you should expect growth.

Operator, Operator

This concludes the question-and-answer session. I'll turn the call to Greg Henderson for closing remarks.

Gregory N. Henderson, President and CEO

Okay. Thank you. While I just want to close, thank you. I appreciate all of you coming and asking questions and support of Littelfuse. It's early innings here for us in our strategy, but we are really excited about the future we're building in the safe and efficient energy transfer. And I look forward to future quarters where we can update you on the progress on our strategy. So thank you very much.

Operator, Operator

This concludes today's conference call. Thank you for joining. You may now disconnect.