Amphenol Corporation

Hello and welcome to the fourth quarter 2025 earnings conference call for Amphenol Corporation. Following today's presentation, there will be a formal question and answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Great. Thank you so much. Good afternoon, everyone. This is Craig Lampo, Ampinoth CFO, and I'm here together with Adam Norwit, our CEO. We would like to wish everyone a happy new year and welcome you to our fourth quarter of 2025 conference call. Our fourth quarter of 2025 results were released this morning. I will provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then we will take your questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements. Please refer to the relevant disclosures in our press release for further information. The company closed the fourth quarter of 2025 with record sales of $6.4 billion and gap in adjusted diluted EPS of $0.97 and $0.93, respectively. The fourth quarter sales were up 49% in US dollars, 48% in local currencies, and 37% organically compared to the fourth quarter of 2024. Sequentially, sales were up 4% in US dollars and in local currencies, and up 3% organically. Adam will comment further on trends by market in a few minutes. For the full year of 2025, sales were approximately $23.1 billion, up 52% in US dollars, 51% in local currencies, and 38% organically compared to 2024. We were very encouraged by our orders in the quarter, which were a record $8,431,000,000, up a strong 68% compared to the fourth quarter of 2024, and up 38% sequentially, resulting in a very strong book-to-bill ratio of 1.31 to 1. This impressive book-to-bill in the quarter was primarily driven by robust bookings in the IT datacom market related to AI applications. We have seen customers open their order window a bit in certain cases, which helped to drive these strong bookings. For the full year, orders were $25.4 billion, up 51% compared to 2024, resulting in a book-to-bill ratio of 1.1 to 1. Gap operating income was $1.7 billion in the quarter, and gap operating margin was 26.8%. Gap operating margin included $47 million of acquisition related costs, primarily for external transaction costs and the amortization of acquired backlog. Excluding acquisition related costs, adjusted operating margin and adjusted operating income was 27.5% and $1.8 billion, respectively. On an adjusted basis, operating margin increased by a strong 510 basis points from the prior year quarter and was flat sequentially. The every year increase in adjusted operating margin was primarily driven by robust operating leverage on the significantly higher sales volumes, which was only modestly offset by the diluted impact of acquisitions. For the full year 2025, GAAP operating income was $5.9 billion and included $181 million of acquisition-related costs. Excluding these costs, adjusted operating income was $6.1 billion in 2025. For the full year, GAAP operating margin and adjusted operating margin reached annual records of 25.4% and 26.2% respectively. On an adjusted basis, operating margin increased 450 basis points compared to 2024, primarily driven by strong operational performance on the significantly higher sales volumes, which again was only modestly offset by the dilutive impact of acquisitions. I'm extremely proud of the company's operating margin performance in the fourth quarter and for the full year of 2025, both of which reflect continued strong execution by the team. Breaking down fourth quarter results by segment compared to the fourth quarter of 2024, sales in the communication solution segment were $3.4 billion and increased by 70% in U.S. dollars and 60% organically. Segment operating margin was 32.5%. Sales in the harsh environment solution segment were $1.7 billion and increased by 31% in U.S. dollars and 21% organically, and segment operating margin was 27.6%. Sales in interconnect and sensor system segment were $1.4 billion and increased by 21% in U.S. dollars and 16% organically, and segment operating margin was 20.1%. Bringing down full-year results by segment compared to 2024, sales in the communications solution segment were $12.1 billion, an increase by 91% in U.S. dollars and 71% organically, and segment operating margins was 31.1%. Sales in the harsh environment solution segment were $5.9 billion, an increase by 33% in U.S. dollars and 17% organically, and segment operating margins was 26.2%. And sales in the interconnected sensor system segment were $5.2 billion, an increase by 15% U.S. dollars and 13% organically. The segment operating margin was 19.5%. For the fourth quarter, the company's GAAP effective tax rate was 26.9%, which compared to 17.4% in the fourth quarter of 24. And full year 25, GAAP effective tax rate was 23.1%, which compared to 18.9% in 2024. On an adjusted basis, the effective tax rate of 25.5%, both for the fourth quarter and full year, which compared to 24% in the prior year periods. As we discussed last quarter, the increase in our adjusted effective tax rate in 25 was due to some shift in income mix to higher tax jurisdictions. For modeling purposes, you should assume that this higher tax rate of 25.5% continues into 2026. As our typical practice, our adjusted tax rate excludes the tax effect of any acquisition-related costs, as well as excess tax benefit from stock option compensation, as well as other discrete tax-related items. Specifically, in the fourth quarter and for the full year of 2025, our adjusted tax rate excludes $100 million discrete tax accrual related to notices received by certain subsidiaries in China from relevant tax authorities challenging certain tax decisions taken over the last eight, over up to an eight-year period. We believe these tax decisions are appropriate and remain engaged in ongoing discussions with the relevant tax authorities. The gap to lose EPS was 93 cents in the fourth quarter, up 58% compared to the prior year period, and on an adjusted basis to lose EPS was a record 97 cents and increased by 76% compared to the 55 cents in the fourth quarter of 2024. This was an outstanding result. For the full year, GAAP and adjusted LULU EPS were both a record $3,034, an increase of 74% and 77%, respectively. Operating cash flow in the fourth quarter was $1.7 billion, or 144% of net income. And free cash flow was $1.5 billion, or 123% of income. And for the full year of 2025, operating cash flow was a record $5.4 billion, or 126% of net income, and free cash flow was a record $4.4 billion, or 103% of net income. Considering the high growth rates we experienced this year, this was a very strong result. From a working capital standpoint, inventory days, day sales outstanding, and payable days were all within the normal range. During the quarter, the company repurchased 1.3 million shares of common stock at an average price of approximately $134. When combined with our normal quarterly dividend, total capital return to shareholders in the fourth quarter of 2025 was approximately $373 million. It was nearly $1.5 billion for the full year of 2025. Total debt at December 31 was $15.5 billion, and net debt was $4.1 billion, which included $7.5 billion from the U.S. bond offering we completed in October in anticipation of the closing of the CCS acquisition. Total liquidity at the end of the fourth quarter was $17.5 billion, which included cash and short-term investments on hand of $11.4 billion, plus availability under existing credit facilities. and $3.1 billion of term loan facilities put in place in anticipation of the CCS acquisition. In early January, the company closed the CCS acquisition, which was funded with cash on hand, primarily resulting from the October 2025 bond deal, as well as the $3.1 billion of term loan facilities. As a result of the acquisition of CCS, we expect 2026 quarterly interest expense net of interest income from cash on hand to be approximately $200 million. which is reflected in our first quarter 2026 guidance. Adjusting for the impact of the CCS acquisition, our net debt at year end would have been $14.7 billion, and our liquidity would have been $6.9 billion, which includes pro forma cash and short-term investments on hand of $3.9 billion. Fourth quarter 2025 EBITDA was $2 billion. and our net leverage ratio was 0.6 times at the end of the quarter. For a former net leverage at the end of 2025, including the CCS acquisition, would have been approximately 1.8 times. As of December 31st, the company had no outstanding borrowings under its revolving credit facility or its commercial paper programs. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Well, thank you very much, Craig. And I also would like to offer my best New Year's wishes to all of you here. Craig and I are here in the winter wonderland of Wallingford, Connecticut. And it's a real pleasure to talk to you about our fourth quarter and full year achievements. I'll highlight some of those achievements. And then as Craig mentioned, I'm going to discuss the trends across our serve markets. We'll make some comments on the outlook for the first quarter. And then, of course, we'll have time for questions. Turning to the fourth quarter, there's no doubt that Amphenol had a strong finish to a very successful 2025, with sales and adjusted diluted earnings per share in the fourth quarter both exceeding the high end of our guidance. Sales grew by 49% in U.S. dollars and 48% in local currencies, reaching a new record of $6,439,000,000. And on an organic basis, our sales increased by 37% with robust growth across nearly all of our served markets. As Craig mentioned, we booked a record 8.4 billion of orders in the fourth quarter, which represented a very strong book to bill of 131 to 1. These orders grew by 68% from prior year and were up 38% sequentially. And while orders were strong across the board, There's no doubt that these robust orders were driven primarily by data center demand related in particular to artificial intelligence investments being planned by a number of our large customers. We're also pleased in the quarter to have delivered adjusted operating margins of 27.5% in the quarter, which matched our record-setting margins in the third quarter, and which represented an increase of 510 basis points from prior year. The superior profitability is a direct result of the outstanding execution of the Amphenol team around the world. Our adjusted diluted EPS in the quarter grew by 76% from prior year, reaching a new record of 97 cents. Finally, the company generated record operating and free cash flow in the fourth quarter, 1.7 billion and 1.5 billion, respectively, both clear reflections of the quality of the company's earnings. I just can't express enough my pride in our team here in the fourth quarter. These results once again reaffirm the value of the discipline and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. We're also very excited in the quarter that we closed on the previously announced acquisition of Trexon. With operations in the US and Europe and with annual sales of approximately 290 million, Trexon's a leading provider of high-reliability interconnect and cable assemblies, primarily for the defense market. We're particularly excited that Trexon further expands our value-add interconnect offering for the defense market, enabling us to offer our customers in this important area a complete solution of high-technology interconnect products, really the broadest in the industry. We look forward to the Trexon team flourishing as part of the Amphenol family. In addition, just here in January, we were excited to have closed on the acquisition of the CCS business from CommScope a bit earlier than we had anticipated. This business, which will be known going forward as CommScope, an Amphenol company, represents a significant expansion of our interconnect capabilities across three of our important end markets. As we discussed last year, CommScope had significant fiber optic interconnect capabilities for the IT Datacom and communications networks markets, as well as a diverse range of industrial interconnect products for the building connectivity market, which will be included in our industrial segment. We look forward to working closely with the CommScope team as they embrace the Amphenol operating culture and are really excited about the potential that this significant acquisition can bring to our company. As previously disclosed, We expect CommScope to generate full year 2026 sales of 4.1 billion and to add 15 cents to Amphenol's 2026 adjusted earnings per share. As we welcome the outstanding CommScope and Trexon teams to the Amphenol family, we remain confident their acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions And then to successfully bring these companies into Amphenol remains a core competitive advantage. And there's no doubt that as our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now turning to the full year 2025, simply put 2025 was a uniquely successful year for Amphenol. We expanded our position in the overall market, growing our sales by 52% in US dollars, 51% in local currency, and 38% organically, reaching a new sales record of $23.1 billion. As we crossed $23 billion in sales in 2025, we're very proud to have more than doubled Amphenol's revenues in the past four years, a great reflection of our organization's ability to navigate market dynamics while capitalizing on the broad array of opportunities arising across the electronics industry. Our full year 2025 adjusted operating margin reached a record 26.2%, and that was a robust increase of 450 basis points from prior year. And this strong level of profitability enabled us to achieve record adjusted diluted EPS of $3.34. an increase of 77% from the 2024 levels. As Craig mentioned, we generated record operating cash flow of 5.4 billion and free cash flow of 4.4 billion. Clear confirmations of the company's superior execution and disciplined balance sheet management. Very proud that our acquisition program again created great value this year. We completed five acquisitions in 2025. including Andrew, our largest acquisition at the time, together with the acquisitions of Trexon, Narda MyTech, LifeSync, and Rochester Sensors. Collectively, these acquisitions have added to Amphenol annualized sales of nearly $2 billion. In addition, as I just mentioned and as we announced earlier this month, we also closed on our largest ever acquisition now, which is the CommScope acquisition. What is in common across all these acquisitions is that they enhance our position across a broad array of end markets and deep enabling technologies, all while bringing outstanding and talented individuals into the Amphenol family. We also returned substantial cash to shareholders in 2025, buying back nearly seven and a half million shares under our share repurchase program, and increasing our quarterly dividend by 52%. This represented a total return of capital to shareholders of nearly $1.5 billion. As we enter 2026, I remain excited about the opportunities ahead of us for Amphenol. Our agile entrepreneurial organization has created a new position of strength for the company from which we can continue to drive superior long-term performance. Now, turning to our served markets, once again, I'm very pleased that the company's end market exposure remains diversified, balanced, and broad. And there's no doubt that that presence that we have across all these end markets creates great value for the company as we're allowed to participate across all areas of the global electronics industry, wherever there may be new revolutions arising, all while not being disproportionately exposed to the volatility of any given application or market. Turning first to the defense market, that market represented 10% of our sales in the fourth quarter and 9% of our sales for the full year 2025. Sales in the fourth quarter grew strongly from prior year, increasing by 44% in U.S. dollars and 43% in local currencies. On an organic basis, sales increased by 29% with broad-based growth across virtually all defense applications. including in particular radar, space, communications, avionics, and unmanned aerial vehicles. Sequentially, sales increased by 16%, well ahead of our expectations for mid-single-digit growth. For the full year 2025, our sales grew by 30% in U.S. dollars in local currency and by 21% organically. reflecting our superior operational execution, as well as growth across all segments of the defense market. In addition, we're very pleased that our growth in 2025 was really broad-based geographically, reflecting our leading position across the many countries for increasing their defense spending. Looking ahead, we expect sales in the first quarter to increase slightly, largely driven by the benefit of the Trexon acquisition. And we remain encouraged by the company's leading position in the defense interconnect market, where we continue to offer the industry's widest range of high technology products. Amidst the current dynamic geopolitical environment, countries around the world are further expanding their investments into both current and next generation defense technologies. With our existing offerings, as well as the exciting and complimentary capabilities from Trexon, we're positioned better than ever to capitalize on this long-term demand trend. The commercial air market represented 5% of our sales in the quarter and for the full year of 2025. In the fourth quarter, our sales grew by 21% in US dollars and 20% in local currencies. On an organic basis, sales increased by 19% from prior year driven by broad-based strength with virtually all commercial aircraft manufacturers. Sequentially, our sales grew by 10% from the third quarter, well above our expectations coming in 90 days ago. For the full year 2025, sales in the commercial air market increased by 39% in U.S. dollars and 38% in local currency. as we benefited from accelerating demand across aircraft platforms as well as from acquisitions. Organically, our sales increased by 13% from prior year, reflecting our robust design and positions on a broad array of jetliners. Looking into the first quarter, we expect sales to moderate seasonally by approximately 10% on a sequential basis. I'm truly proud of our team working in the commercial air market. With the ongoing growth and demand for aircraft our efforts to expand our product offering both organically and through our successful acquisition program continue to pay real dividends. In particular, I just want to note that we're very pleased with the progress of the CIT team who have truly embraced being part of Amphenol and have driven outstanding results. We look forward to further capitalizing on our expanded range of product solutions for the commercial air market long into the future. The industrial market represented 18% of our sales in the quarter and 19% of our sales for the full year 2025. Our sales grew by 20% in US dollars and 18% in local currencies from prior year. And on an organic basis, we were pleased that sales grew by 10%, driven by relatively broad-based growth across the industrial and markets, in particular medical, alternative energy, e-mobility, heavy equipment and industrial instrumentation applications. We also grew again in all of our major geographic regions. On a sequential basis, sales grew by 2%, better than our expectations. For the full year 2025, sales grew by 21% in U.S. dollars and 20% in local currency, as we benefited from relatively broad-based growth as well as from acquisitions. Organically, sales grew by a strong 10% from prior year. Looking into the first quarter, we expect our sales to increase approximately 20% from these fourth quarter levels, driven by the addition of CommScope's building connectivity business. We remain encouraged by the company's strength across the many diversified segments of this important market. Over the long term, I'm confident in our strategy to expand our high technology interconnect antenna and sensor offering, both organically and through complementary acquisitions. This strategy has enabled Amphenol to capitalize on the many electronic revolutions that continue to occur across the diversified industrial market and thereby create further opportunities for outstanding team working in this important market. The automotive market represented 14% of our sales in the fourth quarter and 15% of our sales for the full year. Sales in the fourth quarter grew by 12% in U.S. dollars and 9% in local currencies and organic. And that was driven by relatively broad-based growth across automotive applications. In addition, we were pleased that once again, we realized growth in all three regions. Sequentially, our automotive sales were flat, but this was better than our expectations coming into the quarter. For the full year 2025, our sales increased by 8% in US dollars and 7% in local currencies and organic, with growth in all three regions. As we look into the first quarter, we do expect a seasonal moderation in sales from this quarter's levels of approximately 10%. I remain very proud of our team working in the important automotive market. And while there are always areas of uncertainty in the global automotive market, Our organization continues to be focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. We look forward to benefiting from our strength and position in the automotive market for many years to come. The communications networks market represented 9% of our sales in the fourth quarter and 10% of our sales for the full year 2025. Sales in this market grew from prior year by 120% in U.S. dollars and 119% in local currency as we benefited from the Andrew acquisition completed earlier last year. Organically, our sales were flat from prior year. On a sequential basis, sales declined as expected by 13% from the third quarter. And for the full year of 2025, our sales to communications networks increased by 134% in US dollars in local currency, and by 13% organically, as we benefited from the addition of Andrew, as well as growth in our products sold into the mobile network operators and wireless equipment manufacturers. As we look towards the first quarter, we do expect a significant, nearly 50% increase in sales, as we benefit from the addition of the CommScope business, which more than offsets the typical seasonal sales declines that we would see here. With our expanded range of technology offerings following the acquisitions of both CommScope and Andrew, we are well positioned with service provider and OEM customers across the global communications networks market. Our deep and broad range of products, coupled with an expansive manufacturing footprint, have positioned us to support these customers wherever they may be. And as customers in this market continue to drive their systems and networks to higher levels of performance, We look forward to enabling them for many years to come. The mobile devices market represented 6% of our sales in the quarter and also for the full year. And in the fourth quarter, our sales moderated by 4% in U.S. dollar, local currency, and organic, as growth in tablets, wearables, and accessories was more than offset by some moderation in sales related to smartphones. On a sequential basis, our sales increased by 6%, which was a bit better than our expectations coming into the quarter. And for the full year 2025, sales in the mobile devices market increased by 5% in US dollar and organic. And that was really driven by growth across virtually all mobile device applications. As is typical in the first quarter, we do anticipate a seasonal decline of some magnitude roughly in the 30% range as we look into the first quarter. But nevertheless, I'm very proud of our team working in the always dynamic mobile devices market, as their agility and reactivity have once again enabled us to capture incremental sales in the quarter. I'm confident that with our leading array of antennas, interconnect products, and mechanisms designed in across a broad range of next generation mobile devices, we're well positioned for the long term. Finally, the IT Datacom market represented 38% of our sales in the fourth quarter and 36% of our sales for the full year. Sales in the fourth quarter grew by very strong, 110% in US dollar and organic, driven by continued strong demand for our products used in AI applications, together with ongoing growth in our base IT Datacom business. On a sequential basis, our sales increased by 8% from the third quarter, which was substantially better than our expectations 90 days ago. This sequential increase was essentially driven by growth in AI-related applications. For the full year 2025, our sales in the IT Datacom market grew by a very strong 124% in U.S. dollars and organic, as we benefited from strong demand for AI-related applications as well as accelerated growth in our non-AI IT Datacom business. As we look ahead, we expect a low double-digit sequential sales increase in the first quarter, driven by the addition of CommScope. And on an organic basis, we're very pleased to anticipate that we will remain at these very elevated levels in the fourth quarter. We're more encouraged than ever by the company's position in the global IT Datacom market. I just can't emphasize enough what an outstanding job our team has done, not only in securing future business on these next generation IT systems with a really broad array of customers, but in executing upon that demand here in 2025. It's no doubt that the revolution in AI continues to create a unique opportunity for Amphenol, given our leading high speed and power interconnect products. With now the addition of CommScope, We have the broadest range of high-speed power and fiber optic interconnect products, all of which are critical components in these next-generation systems. This creates a continued long-term growth opportunity for Amphenol. Turning to our outlook and, of course, assuming the continuation of current market conditions as well as constant exchange rates, for the first quarter, we expect sales in the range of $6.9 billion to $7 billion. and adjusted diluted EPS in the range of $0.91 to $0.93. This would represent significant sales growth from prior year of 43% to 45% and adjusted diluted EPS growth of 44% to 48%. I would note that our Q1 guidance includes approximately $900 million in sales and $0.02 of adjusted EPS accretion from the CommScope acquisition. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges present in the current environment while continuing to grow Amphenol's market position, all while driving sustainable and strong profitability over the long term. Finally, I'd like to take this opportunity to first thank our customers for the trust that they put in us, and also to thank the entire global team of Amphenolians for their truly outstanding efforts here in the fourth quarter and in the full year 2025. And with that, operator, we'd be happy to take any questions.