Earnings Call Transcript - LFUS Q1 2025

Operator, Operator

Good day, and welcome, everyone, to the First Quarter 2025 Littelfuse Earnings Call. Please note, this call is being recorded. And it is now my pleasure to turn it over to the Head of Investor Relations, David Kelley. You may begin.

David Kelley, Head of Investor Relations

Good morning, and welcome to the Littelfuse first quarter 2025 earnings conference call. With me today are Greg Henderson, President and CEO; and Meenal Sethna, Executive Vice President and CFO. Yesterday, 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. 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 yesterday'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 in the Investor Relations section of our website. I will now turn the call over to Greg.

Greg Henderson, President and CEO

Thank you, David, and thank you to everyone for joining us this morning. It's a pleasure to speak with all of you today, my first earnings call as CEO of Littelfuse. For those of you who are new to Littelfuse, I joined our Board two years ago and previously spent 10 years in Analog Devices where I had the responsibility for the automotive and energy, communications, and aerospace businesses. Since taking on my current role in February, I've been getting to know our global teams on a deeper level. I've also spent time connecting with and listening to many of our customers, suppliers, and partners. I joined Littelfuse excited about our capabilities, and three months into the role, I am deeply energized by the opportunity ahead. With that, I wanted to start by sharing three key observations. One, we are leaders in developing smart solutions that enable safe and efficient electrical energy transfer. Our customers deeply value our capabilities and our market leadership is a significant asset. Because of this, we have built great brand equity across our products, offering broad multi-technology capabilities for our customers. As our end markets are moving to higher power and higher energy density, our customers are facing increasingly complex safety and efficiency challenges. As a result of this trend, our trusted and essential technologies are more frequently part of our customers' architectures. Let me provide you two examples of the role we play in our customer solutions. First, in the rapidly growing grid storage market, we are a key supplier from the rapid container levels to the power conversion systems sent through the grid. With increasing power demand and the simultaneous push to lower operating costs, grid storage systems require increasingly sophisticated and thoughtful circuit protection strategies. We are a leader in high-speed fuses that are essential to enabling higher voltage trading. We're also a key provider of arc-flash and ground-fault protection within the cabinet and power conversion systems that reduce the risk of catastrophic failure. Finally, our sensor and switch technologies are essential to temperature sensing and the safeguarding of short circuits. A second example is our key role in data center advancements, where we are benefiting from our leading position as a passive electronics and protection supplier with high value and power semiconductor and switching capabilities. Our hyperscaler and infrastructure customers are evolving to higher power and current density solutions, and we are helping them develop safer and more efficient systems. We are innovating with our customers for multiple data center applications, including on the rack and power supply as well as at the power distribution level and for data center cooling. Across these applications, we leverage our leading fuse, switching, sensing, and power semiconductor capabilities to provide integrated solutions. Importantly, in the quarter, we delivered key data center design wins for circuit protection and power distribution solutions and for megawatt-capable power semiconductor devices for use in grid transfer switches. Now, my second key observation is that we have a highly talented and motivated team and a well-positioned and flexible global operating model, both of which are essential to winning more customers. From my conversations, I have found our teams have a passion to win and they are invested in our technologies, our company, and our customers. Our teams are often embedded with our customers, partnering on the design of next-generation solutions. We also have strong manufacturing and operating capabilities across our global footprint. We are often located in regions with our customers and our supply chain, and we are well-positioned to execute through a complex and evolving tariff and economic environment. Our global teams and operating models are competitive advantages, providing us the opportunity to strengthen our long-term position with customers. Finally, my third observation, our strong profitability and cash generation provide a solid foundation for long-term success. We have a history of resilient and strong profitability, which reflects the unique value proposition of our trusted and essential products. We also benefit from the diverse nature of our end market exposure. Importantly, we are a strong cash generator, while our balance sheet provides us significant flexibility. Our financial strength positions us to continue capitalizing on leading organic and inorganic growth opportunities. Going forward with our customers requiring higher power and energy density solutions, we can further leverage our expanding content opportunities to drive long-term profitability enhancements. Now, I wanted to spend a few minutes highlighting our first quarter results and provide some insights into what we are seeing into the second quarter amid an uncertain environment. First, I am proud of our global teams, who worked hard to deliver strong results that exceeded our expectations. In the quarter, we delivered solid sequential growth in our passive electronics and protection business, while our industrial segment continues to drive strong results. In our transportation segment, our teams worked hard to deliver solid margin expansion despite soft end market conditions. In the quarter, we observed improved book-to-bill across all our businesses, with total Littelfuse book-to-bill tracking above 1, reflecting our technology capabilities and our customer position. Our teams executed well through the first quarter, and we entered the second quarter with momentum and a strong backlog. Given growing trade and market uncertainty, we are working closely with our customers and partners to monitor potential demand risk in the second half. We have a history of navigating through challenging and fluid backdrops such as the supply chain shortages that emerged following COVID. We have a flexible operating model, and we have invested to align our footprint closer to our customers and their supply chain. We have built a strong tariff playbook that will help us navigate an uncertain environment. Taking a step back, while we’re focused on executing through the current environment, I’m excited about our long-term opportunities. I am also confident that we are positioning ourselves to deliver best-in-class shareholder value. Before turning the call over to Meenal to provide additional color on our financial performance and outlook, I wanted to address our recent CFO transition plan announcement. On behalf of everyone at Littelfuse, we want to thank Meenal for her many contributions over her 10 years of leadership at the company. Meenal has been a key driver in Littelfuse's growth and profitability expansion. And thanks to her guidance, we enter our next phase of growth with the financial strength and flexibility to capitalize on our numerous opportunities. I look forward to partnering with Meenal through the transition phase as our search process for our next CFO is underway. With that, I will hand the call over to Meenal.

Meenal Sethna, Executive Vice President and CFO

Thank you, Greg. I appreciate your kind words, and good morning, everyone, and thanks for joining us today. Please turn to Slide 6 to start with details on our first quarter results. Revenue in the quarter was $554 million, up 4% versus last year in total and up 3% organically, exceeding the high end of our guidance range. Sales to Elmos Semiconductor as part of our Dortmund capacity sharing agreement contributed 2% to sales growth, while foreign exchange was a 1% headwind. GAAP operating margins were 12.7%. Adjusted operating margin finished at 14.2% and adjusted EBITDA margins were 20.1%. Adjusted operating margins expanded 320 basis points versus the prior year period, reflecting both strong operational performance and conversion on sales growth. First quarter GAAP diluted earnings was $1.75 and adjusted diluted earnings was $2.19, up 24% versus the prior year period and exceeding the high end of our guidance range. Our first quarter GAAP effective tax rate was 27%, and adjusted effective tax rate was 26%, in line with our expectations. Please turn to Slide 7 for updates on capital allocation. We delivered strong cash generation in the first quarter, and our balance sheet positions us well amid a dynamic environment. Operating cash flow was $66 million in the quarter, and we generated $43 million in free cash flow, driving free cash conversion of 98%. We ended the quarter with $619 million of cash on hand and net debt to EBITDA leverage of 1.3 times. Our balance sheet and history of strong cash generation provide significant flexibility, positioning us well to effectively navigate through economic uncertainty. This has been the case during COVID and subsequent supply chain disruptions, and we're confident we remain well-situated in the current dynamic environment. In the first quarter, we returned $45 million to shareholders, $17 million via our cash dividend and $27 million via share repurchases. We will continue to prioritize our free cash flow for strategic acquisitions, and we'll continue to return capital to our shareholders through our dividend and share buyback. Please turn to Slide 8 for our product segment highlights, starting with the Electronics Products segment. Sales for this segment were up 6% versus last year and up 3% organically. Sales from the Dortmund capacity sharing agreement contributed 4% to growth. Sales across passive products were up 13% organically, while semiconductor products declined 5% in the quarter. Our strong passive product sales growth in the quarter reflects pockets of end demand recovery and improved orders from channel partners. Within our semiconductor products exposure, we observed continued softness across power semiconductors that more than offset improved demand for our protection products. Operating margins in the quarter were 15.2%, up 220 basis points versus the prior year period, while adjusted EBITDA margin finished at 22.1%. Our teams executed well in the quarter as we delivered strong volume conversion on both our passive and protection products. Moving to our Transportation Products segment on Slide 9. Segment organic sales declined 4% for the quarter. In the passenger car business, sales declined 6% organically. Passenger car sales were negatively impacted by global cargo declines and associated regional mix with particular softness in Europe and North America as well as planned auto sensor pruning actions. We offset these declines in part with growth in China. Commercial vehicle sales for the quarter were down 2% organically and were negatively impacted by continued end market softness. For the segment, operating margins were 11.7% for the quarter, up 220 basis points versus the prior year period, while adjusted EBITDA margins finished at 17.1%. In the quarter, our focus on profitability initiatives again drove solid margin expansion despite soft demand conditions. We are continuing to drive initiatives, including leveraging best practices throughout the company as we continue our margin expansion progress. On Slide 10, Industrial Products segment sales grew 16% organically for the quarter. First quarter sales benefited from strong renewables, data center, and HVAC growth as well as favorable pricing. Segment operating margins finished at 15.3% in the quarter, expanding 880 basis points versus prior year levels. Adjusted EBITDA margins were 18.5% in the quarter. We again delivered solid margin performance, driven by execution and strong conversion on volume growth. Please move to Slide 12 for the forecast. During the first quarter, book-to-bill improved across all of our businesses, and we entered the second quarter with a strong backlog. We continue to work closely with our customers and partners to monitor ongoing trade dynamics and potential second half demand shift. We have a strong tariff mitigation playbook that we've been deploying over the past several weeks. We continue to work closely with our customers on various solutions to mitigate tariff impacts by flexing our global footprint, evaluating sourcing and logistics options, and implementing pricing actions as necessary. Based on our actions and current policies enacted, we do not expect tariffs to have a material impact on our second quarter earnings. With that in mind, our second quarter guidance incorporates current market conditions, trade policies, and foreign exchange rates as of today. We expect second quarter sales in the range of $565 million to $595 million. We're projecting second quarter EPS to be in the range of $2.10 to $2.40, which assumes a tax rate of between 23% and 25%. At current FX and commodity rates, we are expecting a $0.15 benefit to EPS versus the prior year. Our second quarter has historically included higher stock compensation expenses due to certain retirement provisions. With some changes in our program, the impact will now be spread evenly across the second and third quarters. In the second quarter, these provisions had an unfavorable $0.10 EPS impact sequentially to Q1 and a negative 50 basis point effect on margins. Moving to Slide 13, let me add some additional details on our full year 2025. We continue to expect about a 2% total sales growth stemming from our Dortmund multiyear capacity sharing arrangement. We also continue to expect a neutral impact to EPS. As a reminder, we acquired the Dortmund fab from Elmos Semiconductor in late December. At current rates, we expect foreign exchange and commodities will represent a 1% tailwind to sales and a $0.40 benefit to earnings per share. On other modeling items, we are assuming $58 million in amortization expense and $35 million in interest expense, about two-thirds of which we expect to offset through interest income from our cash investment strategy. We're estimating a full year tax rate of between 23% and 25%. And we also expect to invest $90 million to $95 million in capital expenditures. I want to reinforce that we've navigated complex landscapes over the past several years. We're benefiting from the work we've done over the years to diversify our end markets, broaden our customer mix, and align our supply chain closer to our customers. We are well prepared to navigate through uncertain times with our experienced team and a strong balance sheet. In closing, it's been an honor to serve as CFO of Littelfuse over these last 10 years. I would like to thank our talented global teams for their passion and achievements we've driven together. I look forward to working with Greg and the leadership team over the next several months to ensure a smooth transition. And with that, I'll turn it back to Greg.

Greg Henderson, President and CEO

Thanks, Meenal. Our team is working hard with the goal to further leverage our strengths and sharpen our strategic playbook. We are focused on executing through a dynamic environment, but we're not losing sight of our strategic priorities. Before opening the call up for questions, I wanted to briefly preview our go-forward strategic priorities. One, we will enhance our focus to better capitalize on future growth opportunities. We will develop a more structured approach to evaluating the secular opportunities across our evolving end markets. We will also better leverage our strong global teams and their insights into the meaningful technology evolutions that are in front of us. Strategic acquisitions will remain an important pillar of our growth strategy, and we will further align our growth goals with opportunities that enhance our long-term technology position. Two, we will provide more complete solutions for a broader set of our customers. While we are doing this in areas today, a couple of which I highlighted earlier, we can further leverage our diverse capabilities across more of our customers. To accomplish this, we are taking a more collaborative approach across our businesses. We are viewed as market leaders, but we can further harness our unique product portfolio position to help more of our customers solve complex challenges around safe and efficient power transfer. And three, we see an opportunity to continue driving operational excellence and enhance long-term profitability as we grow. While we have a history of resilient profitability through cycles, we can better leverage areas of best-in-class practices and apply those across our businesses. We will further optimize our operating structure to support our long-term growth priorities and enhance performance. We will look forward to sharing more about our strategic purposes in coming quarters. In closing, I want to again thank our global teams for their hard work and unwavering commitment to Littelfuse and our customers. Operator, we are ready to begin the Q&A.

Operator, Operator

Your first question comes from the line of Luke Junk with Baird. Your line is now open.

Luke Junk, Analyst

Good morning, and thanks for taking the question. Greg, great to talk to you on your first call here. Hoping we could start with the topic of the day in terms of tariffs and specifically, if we can unpack the assumption that's embedded into guidance for the second quarter, hoping specifically to parse out some of the geographic impacts in terms of the price recovery that you're anticipating and then also maybe some of the more durable ways that you're avoiding or working around tariff impacts altogether relative to the tariff playbook that you mentioned as well? Thank you.

Greg Henderson, President and CEO

Yeah. Thank you, Luke. Good morning. Maybe I'll start by just saying Littelfuse, over the last years, has been focusing on building a flexible and asset-light operating model. And we've had a strategy of moving our manufacturing and our supply chains closer to our customers, and we continue to do that. So we have been diversifying our footprint and doing more local for local manufacturing. And that's been a trend that we've been on, that we will continue. In addition, I would say we've been working with our customers to mitigate tariffs as much as possible, managing ship-to locations, managing where we supply things from them. So this is a trend that we will continue with. We expect to continue this trend of diversification and adding resiliency to our supply chain. And then with that, I'll hand over to Meenal, and she can give a little bit more detailed context on the details of how it's affecting our business and our outlook.

Meenal Sethna, Executive Vice President and CFO

Sure. Thanks, Greg. Hey, Luke. To expand on what Greg mentioned, our primary focus is on working closely with our customers. We've been looking at sourcing and product changes, as well as logistics improvements. Additionally, we've made adjustments in our manufacturing footprint, which is beneficial. We have a team across various functions and businesses that regularly meets to discuss recent developments and take action based on tariff announcements and customer needs. Overall, the efforts we've made lead us to believe that tariffs will not significantly impact our earnings in the second quarter. We've put in a lot of work, and when needed, we are using pricing strategies to mitigate possible effects on earnings. In terms of our sales distribution, about $800 million comes from the United States, with China accounting for 15% of that. Our Electronics segment feels the greatest impact, and we are taking steps to mitigate these effects while adjusting pricing as necessary. Moreover, 60% of our products are sourced from Mexico, aligning regionally with our customers, and over 90% of these products fall under USMCA or other agreements, resulting in minimal tariffs. We are prepared to adjust pricing there as well if needed.

Luke Junk, Analyst

Got it. I appreciate all that detail. Looking near term at what happened in the first quarter, Greg or Meenal, the question could be for both of you. I'm hoping to understand how we might bridge the operating margin sequentially in electronics. Specifically, if we consider an underlying basis, excluding the Dortmund facility, the incrementals were very strong sequentially. How should we think about this in relation to the fourth quarter comparison, any external strength in the first quarter, or cost actions that may be more permanent beyond just the benefit of volume leverage? Thank you.

Meenal Sethna, Executive Vice President and CFO

Sure. Thanks, Luke. Yeah, in general, when we look at the sequential versus the fourth quarter for electronics, I want to say there wasn't anything out of the ordinary coming through there. We've always talked about the fact that for the electronics segment that return to growth is really important for us. We see very, very strong operating leverage when we do have a return to growth. And we saw — as you saw in the prepared remarks, both in our passive electronics business as well as the protection side of our semiconductor business, we saw some nice sequential growth Q4 to Q1. And really that's — I'd say, that's the biggest driver. In terms of other areas around whether it's manufacturing, supply chain, we've been doing well around managing all of this. The tariff noise that's going on, we have had in general across the company, been looking at cost structures, and we have done some work around taking out costs as well. But I would say the big part is really that seeing that nice sequential growth.

Luke Junk, Analyst

Got it. As my last question, I would like to take a broader view, Greg. Could you update us on the data center aspect and the additional opportunities, particularly those related to AI awards? I’m interested in understanding the significance of data center exposure for the business. You mentioned it in relation to industrial, but I believe there is also considerable exposure in electronics. Additionally, regarding the AI engagements, can you share the significance and the partners you are collaborating with? Should we assume you are working with some of the larger hyperscalers? Thank you.

Greg Henderson, President and CEO

Yeah. I think one of the key focuses I have had, as I mentioned, was over the last months was to get out and visit customers and try to understand kind of how they see us and how we're positioned. And this data center is one that I've learned we have a really strong position with our customers. And I think the trend I talked about — the big picture trend that I talked about, where architectures are moving to higher voltage and higher current is happening in the data center space. And I think the challenge is when you go to this higher voltage, higher current architectures, the protection becomes a much bigger deal. And it's a much more challenging problem to protect the equipment, to protect people. If you go above 48-volt architectures in the data center, for example, you can have arcs and so now you have fire. And I think one of the interesting things that's happening in data center is that we've been participating in this electrification trend, and we're participating in this trend to go to higher voltage and higher current. The first place we really did was in the automotive market, which all went to 400-volt and 800-volt architectures. Now we're working with the leaders in the data center space that are looking at taking these automotive architectures into the data center. And so that's a significant change and it provides a big content opportunity for us. So that's in the core safety and protection, but we also participate in other parts of the business, you mentioned HVAC, for example. In our Industrial business, HVAC business has been strong and actually a big driver for that has been in data center. So it's an important part of our business. It's growing. We will continue to focus on it more. And as these mega trends go, it's going to even play more towards our strengths.

Luke Junk, Analyst

Got it. I appreciate all the color. I'll leave it there for now. Thank you.

Greg Henderson, President and CEO

Thanks for your questions, Luke.

Operator, Operator

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

Christopher Glynn, Analyst

Thanks. Good morning, everyone. Meenal, it has been great working with you, and we'll talk to you next week at our conference. And, Greg, I'm looking forward to working with you. Just a quick question about the tariff issue. Are you following a list price method or a surcharge method for pricing?

Meenal Sethna, Executive Vice President and CFO

It varies, actually. We're doing both depending on the customers, what we typically do, but that the answer is it depends on the customers.

Christopher Glynn, Analyst

Okay. And then on the power semis, are you seeing any rays of light? Or is it pretty static? Or is it actually weakening a bit more and masked by protection recovery?

Greg Henderson, President and CEO

Yeah. Thanks, Chris. Maybe I'll just take a kind of an answer on the power semiconductor business. And one of the things that, again, I was very focused on as I've come here is trying to better understand the value proposition in our semiconductor business, what our position is, our value proposition and where we play. And so I've been out meeting with our customers. And I think one of the things that I have learned and I think is really important when we talk about this Littelfuse capability on safe and efficient energy transfer, our semiconductor business fits right there. And actually, for semiconductors, especially as you go to higher voltage, higher current, Littelfuse is more differentiated. So for very important applications, which are doing high energy transfer, we have a good position in. And for example, in our medical business, we are the market leader in the power stages that transfer energy in the defibrillator. And so this is transferring the energy from the storage to your part, basically, and whether that could be the defibrillator that's in your college gym or the defibrillator that's in the operating room, we're more the market leader in that. And that — our customers value us there because this is a very high energy density application that needs to be done in a very safe and precise manner. So I would say our power semiconductor business has an important place in the market, and the trends moving to higher voltage and higher current are important. That said, I think we look at our market position, and I think there's areas of opportunity for us, both on strategy and execution, and we're focused on that from our overall strategy process. So we will be talking more over the coming months about how we see the semiconductor and where we're going to drive growth and opportunity in that business.

Christopher Glynn, Analyst

Okay. Thank you for that. Considering the current macro backdrop, would you describe it as static or...

Greg Henderson, President and CEO

Are you asking the macro backdrop specific to semiconductors?

Christopher Glynn, Analyst

Yeah, the power semiconductors.

Greg Henderson, President and CEO

Yeah. Look, I think that our power semiconductor business is like our other businesses, and actually there are pockets that we're doing well. So for example, we talked about — in the script, we talked about doing these power transfer switches for data centers. So there's pockets that are doing well, like data center. There are some other pockets like industrial automation that have been a little softer. So I would say that's the — outside of the current macro, larger question about the overall macro outlook, that's what we've been seeing in some of that.

Christopher Glynn, Analyst

Okay. Great. And then on the capital allocation, curious how your acquisition pipeline is looking now? And in the current environment, does that give you personally any pause on making capital allocation decisions for deals?

Greg Henderson, President and CEO

We have a very strong balance sheet that provides us with considerable flexibility, which is a significant advantage for the company. We are constantly evaluating opportunities. However, one of our main focuses is on refining our strategy. We are working to enhance our strategic direction by understanding our market, engaging with our customers, and identifying where major trends are heading. Currently, our priority is on developing this strategy. As we clarify our goals, determine our investment areas, and outline our growth approach, we expect our strategy will incorporate both organic and inorganic growth. M&A will continue to play a vital role in our strategy, and we will share more details about this in the coming months.

Christopher Glynn, Analyst

That's great color. Thank you. And last one for me. Meenal, I just wanted to ask about transportation margins, sustainability here in the low doubles. It's been a little bit lumpy. Fourth quarter was a little lighter and then boom, we're back up in the first quarter. And I think a good chunk of the $0.40 FX and commodities tailwind for this year does reside in transportation, so that may come to bear around your answer.

Meenal Sethna, Executive Vice President and CFO

I'm stepping back to reflect on our progress. We're very satisfied with the improvements we've made, even with some challenges in growth across various markets. We've made significant advances in profitability, with considerable efforts in that area. Over the past several calls, we've highlighted our major focus on pricing and reducing our footprint, especially within the CV sector. Additionally, we've seen benefits from our pruning and cost reduction efforts. Looking ahead to 2025, our focus will continue to be on expanding margins. We see opportunities for sales growth by better utilizing our combined legacy and Carling portfolios, particularly in the EV segment. Furthermore, we're honing in on operational excellence by identifying and sharing best practices from our facilities in Asia to apply in North America or Europe. We're dedicating more attention to this and anticipate further improvements. While we recognize some benefits from foreign exchange, we also see commodity prices increasing, which creates a balance that we are carefully monitoring.

Christopher Glynn, Analyst

Great. Thank you.

Operator, Operator

Your next question comes from the line of David Williams with Benchmark. Your line is now open.

David Williams, Analyst

Hey, good morning. Thanks for taking my questions and, Greg, great to hear from you here on your first call. And certainly, Meenal, we will miss hearing from you each quarter, but thanks for the time.

Meenal Sethna, Executive Vice President and CFO

Thank you.

David Williams, Analyst

I guess, Greg, maybe first from your business that you had over the last month or so. Just curious if you have any color on what you're hearing from your customers in terms of their thoughts on the tariffs and their demand outlook and maybe how they're positioned and just how they're seeing the environment maybe?

Greg Henderson, President and CEO

Thank you, David. It's undoubtedly a very dynamic time for us, and one of our main priorities is to engage in as many conversations with our customers as possible. To provide some context regarding our business and customer landscape, we experienced a strong book-to-bill ratio in the first quarter, with positive results across all our divisions, and we finished the second quarter with a robust backlog. However, discussions with our customers reveal a certain level of anxiety, particularly concerning the demand forecast for the second half of the year. Some sectors like automotive and personal electronics seem to be experiencing more concern than others. Nevertheless, we are confident in our guidance for the second quarter. We continue to communicate with our customers and, as Meenal mentioned, there are several strategies we can employ to minimize impacts, and we are committed to that. The larger issue pertains to the macroeconomic challenges we all face moving into the second half, and our aim is to manage this by staying connected to our customers, understanding their needs, and focusing on what we can control—our execution and our ability to be flexible and resilient during this time.

David Williams, Analyst

Great color there. Thank you. And then maybe just on the complete solutions side that you mentioned in the script there, we know that's a big value add. But as you kind of think about the opportunity there, is this something you think you can really deploy across the business? Or are there specific areas maybe that you're looking towards maybe first on this complete solution? And then what do you think that benefit could be once you get that strategy really in place?

Greg Henderson, President and CEO

Thank you. Based on my observations and discussions with our teams and customers, I have been really encouraged to learn how our customers perceive us and the value we offer. It's exciting to discover that our customers view us as more essential to their solutions than I had anticipated, and that we are considered a partner in next-generation architecture. I provided examples in the script regarding grid storage and data centers, which highlight our strong partnerships with customers. In those areas where we excel, we are able to leverage a diverse range of technologies from our company. However, I see an opportunity for us to scale those successes further. While I gave specific examples in the data center and grid storage, I believe we can broaden this approach and enhance our engagement with customers. We plan for our business units to collaborate more closely to achieve this goal, which is a key focus strategically. My leadership team and I recognize the potential here, and we will discuss this more in the coming months as we implement our strategy.

David Williams, Analyst

Just one quick last one, if I may. On the passives, are you seeing that any constraints there or lead times expanding? Just curious how the passives business is positioned in terms of inventory and the demand trends there?

Greg Henderson, President and CEO

Yeah. So, maybe I'll start and then Meenal can kind of give a little bit more color. Like I said, we had a very strong 1Q, we had very strong book-to-bill. We entered across all the segments, including the electronic segments and the passive business. We entered 2Q with a strong backlog. So I think from that perspective, we feel good about that. Meenal, you have some other color there?

Meenal Sethna, Executive Vice President and CFO

And I'll add on as we look ahead to Q2, we put up a really good second quarter guide. We feel very, very confident in achieving that. And a good part of that will be the continuation on electronics return to growth.

David Williams, Analyst

Thank you.

Greg Henderson, President and CEO

Thanks for your question, David.

Operator, Operator

The next question comes from David Silver with CL King. Your line is now open.

David Silver, Analyst

Thank you, Greg, for your earlier comments about speaking to customers and collaboration. I have a longer-term question regarding how business wins often stem from extended collaboration with key customers. In the current environment, beyond immediate tactical issues with tariffs, I sense there’s an additional layer of uncertainty. With your intense collaborations on long-term projects, have you noticed any shifts in your customers' attitudes? For instance, are they delaying certain programs or reconsidering their strategies in light of the current tariff and trade policy landscape? Are they reflecting what you mentioned about expanding their footprint and building resilience in their sourcing and supply chains? From a collaborative R&D and product development standpoint, have you heard any changes from your customers?

Greg Henderson, President and CEO

Yeah. Thanks, David. Yeah, I think when we talk to our customers about the kind of like, I call it, current environment and tariffs and the kind of macro uncertainty, I think their focus is a lot with us on kind of what I would call short-term management of that, how do we navigate the tariff environment? And so that's a lot more short-term. If we talk about the longer-term strategic investments and R&D priorities, we really haven't seen significant changes to that, and we're not seeing significant changes to that. And I think the mega trends that we talk about as growth drivers on electrification and on the markets transitioning to higher voltage, higher power, higher current are continuing and we're continuing to focus on that architecting with our customers. I think it helps as well that we're a global company with a global footprint, so we can do those developments and support those customers globally. That really helps. And I guess, finally, and this kind of thing, what I've seen in the past as well is that in these difficult times, how you execute the difficult times is often based on your strategy, your investment. So right now, we see our customers continuing to focus on their strategic goals for their long-term growth drivers. And so we haven't really seen any significant changes in that.

David Silver, Analyst

Thank you. I have a question about your share repurchase activity this quarter. At $27 million, I believe this is the largest buyback spend in a single quarter in several years. How would you characterize this? I'm curious if the activity level in the first quarter is mainly to offset share dilution from share issuance, or if it's more opportunistic based on your share price. Please provide some insights into the first quarter share buyback activity and any implications we should consider given your substantial cash balance. Thank you.

Meenal Sethna, Executive Vice President and CFO

Sure, thanks, David. I'll take a moment to discuss capital allocation further. Greg addressed questions regarding our ongoing focus on mergers and acquisitions. Our primary focus remains on growth, and we will continue investing for organic growth while also evaluating M&A opportunities. We plan to refine our M&A strategy in the coming months, which aligns with our capital allocation approach over the past four years. Returning capital to shareholders through our dividend is our second priority, and we expect to maintain that, with a dividend update set for the second quarter. Regarding share buybacks, we view that as a periodic element of our capital allocation strategy. In addition to our activity in the first quarter, we also repurchased shares in the fourth quarter. Our approach has always been flexible, considering cash deployment opportunities, market conditions, and the need to offset dilution. We have repurchased a significant amount of shares in the past six months, and we will continue to assess this as part of our capital allocation strategy, with no changes at this time.

David Silver, Analyst

Okay. Thank you very much.

Greg Henderson, President and CEO

Thanks for your question, David.

Operator, Operator

There is a follow-up question from the line of Christopher Glynn with Oppenheimer. Your line is now open.

Christopher Glynn, Analyst

Thank you for having me back. I wanted to follow up on the book-to-bill topic. You highlighted several times how positive the results were for all three segments. I'm curious if April showed the same trend or if there was any decline, and if there wasn't a decline, what you think contributes to that despite the obvious challenges your customer base might face in some areas?

Meenal Sethna, Executive Vice President and CFO

So, Chris, maybe I'll just take a step back, I know we've had a lot of comments on book-to-bill Q1 going into Q2, and then we also added in some comments about we're keeping an eye out on the second half. We feel good about our momentum from the first quarter, good book-to-bill, really good momentum going into the second quarter. And I think I said this already, but strong confidence in our ability to deliver on our second quarter. We've even put in a little moderation in there just for some of the unknowns that are out there, which is another reason we feel really good. When we look ahead, Greg even mentioned that we're working closely with our customers. There's a little bit of noise going on everywhere. You read all the same headlines that we're reading. And so we're keeping an eye out on things, both ourselves, but then talking to customers every day. And areas like automotive, a little bit of unknown. They're out there on a daily basis on the personal electronics side, et cetera. So our focus is going to be we're going to continue monitoring. We're going to work closely with our customers. We're going to focus on what we can control. You asked me earlier about our margin expansion and how things are going in transportation. We're focused on margin expansion across all of our segments. And those are the things that we can focus on, we can control. We can adjust costs as necessary, we'll pivot as necessary on that.

Christopher Glynn, Analyst

Thanks, Meenal.

Greg Henderson, President and CEO

Thanks for the follow-up, Chris.

Operator, Operator

Thank you. At this time, there are no further questions. Mr. Kelly, I turn the call back over to you.

David Kelley, Head of Investor Relations

Thanks, everyone. That does conclude our Q&A session today. For reference, we will be attending the Oppenheimer Industrial Growth Conference on May 5, as well as Baird's Global Consumer Technology and Services Conference on June 3. We look forward to seeing many of you at those events. Have a great day, everyone.

Operator, Operator

This concludes today's call. You may now disconnect.