Amphenol Corporation

Hello, and welcome to the first quarter 2026 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.

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol CFO, and I'm here together with Adam Norwood, our CEO. We would like to welcome you to our first quarter 2026 conference call. Our first quarter results were released this morning and I will provide some financial commentary and then Adam will give an overview of the business and current market trends. And then of course, we'll take your questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements. So please refer to the relevant disclosures in our press release for further information. The company closed the first quarter of 2026 with record sales of $7.6 billion and GAAP and adjusted lewd EPS of $0.72 and $1.06 respectively. First quarter sales were up 58% in U.S. dollars, 57% in local currencies, and 33% organically compared to the first quarter of 2025. Sequentially, sales were up 18% in U.S. dollars and in local currencies and up 4% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $9,435,000,000, up a strong 78% compared to the first quarter of 2025, and up 12% sequentially, resulting in another very strong book-to-bill ratio of 1.24 to 1. This impressive book-to-bill was driven by robust bookings in all of our end markets, with every end market having a positive book-to-bill this quarter. GAAP operating income was $1.8 billion in the quarter, and gap operating margin was 24%. Gap operating margin included $249 million of acquisition-related costs, primarily related to the acquisition of Comscope, which closed at the beginning of January. These acquisition-related costs included $179 million of non-cash amortization related to the value of acquired backlog and inventory step-up costs, as well as a $70 million charge related to external transaction costs. Excluding acquisition-related costs, adjusted operating income and adjusted operating margin were $2.1 billion and 27.3% respectively. On an adjusted basis, operating margin increased by a strong 380 basis points from the prior year quarter and was down 20 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by robust operating leverage on the significantly higher sales volumes, which more than offset the dilutive impact of acquisitions. On a sequential basis, the decrease in adjusted operating margin was primarily driven by the dilutive impact of acquisition, partially offset by robust operating leverage on the higher organic sales volumes. I am very proud of the company's operating margin performance in the first quarter, which reflects continued strong execution by our team. Breaking down the first quarter results by segment compared to the first quarter of 2025, sales in the communication solution segment were $4.5 billion and increased by 88% in U.S. dollars and 47% organically, and segment operating margin was 30.6%. Sales in the harsh environment solution segment were $1.7 billion and increased by 34% in U.S. dollars and 23% organically, and segment operating margin was 28%. Sales in the interconnect and sensor systems segment were $1.4 billion, an increase by 23% in U.S. dollars and 17% organically, and segment operating margin was 20.2%. The company's gap effective tax rate for the first quarter was 42.7%, and the adjusted effective tax rate was 27%, which compared to 22.7% and 24.5% in the first quarter of 2025, respectively. As is our typical practice, our adjusted tax rate excludes the tax effect of acquisition-related costs and the excess tax benefit from stock options compensation, as well as other discrete tax items. Specifically, the first quarter includes $130 million tax accrual related to the previously disclosed tax matter in China. The company recently received unfavorable tax determinations from certain relevant tax authorities in China in this accrual, together with the $100 million accrual the company booked in the fourth quarter of 2025, covers the full amount of the tax payment notices received. In addition, as a result of this matter, together with the continued shift in income to higher tax jurisdictions amidst the company's high levels of growth, the company increased its effective tax rate to 27% in the first quarter. and expects that rate to remain for the remainder of 2026. The recent developments with respect to the China tax matter also resulted in the company reassessing certain tax-related assumptions applied to prior period results, not subject to the China tax inquiries. This reassessment resulted in an adjustment to our tax provision of $160 million, which is recorded in the first quarter. The $130 million accrual together with $160 million additional tax provision had been excluded from the company's first quarter of 2026 adjusted tax rate and adjusted diluted EPS. Gap diluted EPS was 72 cents in the first quarter of 24% compared to the prior year period. And on an adjusted basis, diluted EPS was a record $1.06 and increased by 68% compared to 63 cents in the first quarter of 2025. This was an outstanding result. Operating cash flow in the first quarter was $1.1 billion, or 120% of net income, and free cash flow was $831 million, or 89% of net income. These were strong results for first quarter, which typically has somewhat softer cash generation. We continue to expect strong cash flow generation in 2026, with free cash flow conversion remaining within our typical range over time. From a working capital standpoint, inventory days, day sales outstanding, and payable days were all within our normal range. During the quarter, the company repurchased 1.3 million shares of common stock at an average price of approximately $140. And when combined with our normal quarterly dividend, total capital return to shareholders in the first quarter of 2026 was approximately $485 million. Total debt at March 31st was $18.7 billion. and net debt was $14.2 billion. Total liquidity at the end of the quarter was $7.6 billion, which included cash and short-term investments on hand of $4.6 billion plus availability under existing credit facilities. As previously noted, we expect quarterly interest expense net of interest income to be approximately $200 million for the remainder of 2026. First quarter, 2026 EBITDA was $2.3 billion, and our net leverage ratio was 1.6 times at the end of the first quarter. We are very pleased with the company's financial position. 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 hope it's not too late to extend my welcome to all of you on the call today from a beautiful spring day here in Wallingford, Connecticut. As Craig mentioned, I'm going to highlight some of our achievements in the quarter with our very strong start here to the year in 2026. I'll talk about our trends across our SERP markets. Then I'll comment on our outlook for the second quarter. And of course, we'll have time for questions at the end. Look, I just want to say that our organization, the Amphenol organization, drove outstanding performance here in the first quarter. Our results were stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Our sales grew from prior year by 58% in U.S. dollars, 57% in local currency, reaching a new record of $7.6 billion. On an organic basis, our sales increased by a very strong 33%, with growth across nearly all of our served markets. And I'll talk about those markets here in a few moments. The company booked a record $9.4 billion in orders in the first quarter, and that represented a robust book-to-bill of 1.24 to 1. Orders grew by a very strong 78% from prior year and were up 12% sequentially. I'm very pleased that our order growth in the quarter was broad-based, with all of our end markets realizing book-to-bills of at least 1%, And this was driven in particular by strength in IT Datacom, defense, commercial air, and industrial. We're also pleased to have delivered adjusted operating margins of 27.3% in the quarter, an increase of 380 basis points from prior year, and down just 20 basis points sequentially. These impressive results were achieved despite the margin diluted impact of the CommScope acquisition in the quarter. I would just add though that we're very pleased with the CommScope acquisition, and we do expect the business's performance to continue to improve as part of the Amphenol family. Adjusted diluted EPS grew 68% from prior year and reached a new record of $1.06. And finally, as Craig mentioned, the company generated operating cash flow of $1.1 billion and free cash flow of $831 million in the quarter both clear reflections of the quality of the company's earnings. I can't express enough how proud I am of our team here in this very strong start to 2026. Our results this quarter once again reaffirm the value of the drive, discipline, and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. Now, turning to our served markets, I just want to comment that we're pleased that the company's end market exposure remains diversified, balanced, and broad. And this diversification continues to create great value for Amphenol, enabling us to participate across all areas of the global electronics industry, all while not being disproportionately exposed to the volatility of any given application or market. I will say that there's no doubt that with the extraordinary investments being made in artificial intelligence or AI, coupled with our team's outstanding work in capturing a significant share of this unique interconnect opportunity, that this has resulted in the IT datacom market in the quarter representing just over 40% of our sales. Nevertheless, we remain committed to continuing to broaden our portfolio across markets, customers, applications, and products, as we build on the company's momentum and we further strengthen Ampel's position across all areas of the global electronics industry. The defense market in the quarter represented 8% of our sales, and sales grew from prior year by a strong 44% in U.S. dollars and 25% organically. And I will say this is driven by a really broad-based growth across virtually all segments of the defense market and all of our served geographies. Sequentially, sales grew by 2%, which was in line with our expectations coming into the quarter. And as we look into the second quarter, we expect sales in the defense market to increase in the high single-digit range sequentially. 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 increasing their investments in both current and especially next-generation defense technologies. With our expanded product offerings, both in discrete connectors as well as value-add interconnect, as well as the significant capacity expansions we've made in recent years, we're positioned better than ever to capitalize on this long-term demand trend. The commercial air market represented 4% of our sales in the quarter, and sales in this market increased by 22% in US dollars and 20% organically from prior year. And that was really driven by broad-based strength across commercial aircraft manufacturers. Sequentially, our sales moderated by 3% from the fourth quarter, which was better than our expectations coming into the quarter. As we look to the second quarter, we expect a slight sequential a slight further sequential moderation in sales. I'm truly proud of our team working in the Comair market. With this ongoing growth in demand for next-generation aircraft, our efforts to expand our product offering both organically and through our acquisition program continues to pay real dividends. And 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 20% of our sales in the quarter, and our sales to industrial increased by 52% in U.S. dollars and 16% organically, as we continue to see accelerating demand across most segments of the diversified industrial market. In fact, virtually all of those areas of the industrial market that we service grew organically in the quarter, and we also saw organic growth in all three major geographies. On a sequential basis, our sales were up 29% from the fourth quarter as we benefited from the addition of CommScope's building connectivity business. Organically, sales were up a strong 6% from the fourth quarter, better than our expectations as we entered the quarter. Looking into Q2, we expect sales in the industrial market to increase in the high single digits from these already strong first quarter levels. I would just comment that we remain encouraged by the company's strength across the many diversified segments of the important industrial market. And with the addition of CommScope, we're now seeing new opportunities for growth in the exciting building connectivity market. Over the long term, I'm confident in our strategy to expand our high-technology interconnect antenna and sensor offerings, both organically and through continued complementary acquisitions. This strategy has enabled Amphenol to capitalize on the many electronic revolutions that continue to occur across the diversified industrial market, thereby creating continued opportunities for our outstanding team working in this important space. The automotive market represents 11% of our sales in the quarter. Sales in automotive grew by 7% in U.S. dollars and 2% organically as organic growth in North America and Europe was somewhat offset or partially offset by somewhat softer sales in Asia. Sequentially, our sales declined by 7% from the fourth quarter, which was a bit better than our expectations coming into the quarter. For Q2, we expect sales to increase modestly from these first quarter levels. I remain very proud of our team working in the global automotive market. While there are clearly some areas of demand uncertainty, our team continues to be focused on driving new design wins with customers who continue to increase the content of new electronics being integrated into their next generation 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 12% of our sales in the quarter, and sales in this market grew from prior year by 91% in U.S. dollars, and that was really driven by the additions of Andrew and CommScope. On an organic basis, our sales were flat from prior year, as growth in wireless applications was offset by some moderations in broadband demand. Sequentially, our sales in the quarter grew by 57% from the fourth quarter, driven by the addition of CommScope. On an organic basis, sales were flat to prior year or to prior quarter, which was better than our expectations. As we look into the second quarter, we expect sales to remain at these first quarter levels. With our expanded range of technology offerings following the acquisitions of both CommScope and Andrew, We're very well positioned with both service provider and OEM customers across the communications networks market. Our deep and broad range of products, coupled with our global manufacturing footprint, have positioned us to support customers around the world. As the accelerating volume of data traffic drives demand for expanded and upgraded networks in the future, we look forward to enabling these systems for many years to come. The mobile devices market represented 4% of our sales in the quarter, and sales in this market grew by 2% in U.S. dollars and 1% organically from prior year, as growth in laptops and accessories was somewhat offset by moderating demand in handsets and wearables. On a sequential basis, our sales actually, while declining by 22%, was a better than expected decline compared to the fourth quarter as we had expected. Looking into the second quarter, we expect a modest sales decline from these levels on typical seasonal patterns. I'm very proud of our team working in the always dynamic mobile devices market, as their agility and reactivity has once again enabled us to outperform our expectations in the quarter. I'm confident that with our leading array of antennas, interconnect products, and mechanisms that are designed in across a broad range of next-generation mobile devices, We're well positioned for the long term. And finally, the IT Datacom market represented, as I mentioned earlier, 41% in the fourth quarter. Sales in this market grew by a very strong 99% in U.S. dollars and 81% organically. And this was driven by the continued acceleration in demand for our products used in AI applications, together with continued strong growth in our base IT Datacom business. On a sequential basis, our sales increased by 27% from the fourth quarter, which was substantially better than our expectation for a low double digit increase. On an organic basis, our sequential growth reached 16%, a very strong number. And virtually all of this organic sequential sales growth was driven by growth in AI related products. Looking ahead, we expect a further sequential sales increase in Q2 in the low teams level as investments in AI data centers accelerate and as enterprise and cloud customers continue to expand their demand for traditional IT Datacom products. Just want to say that we're more encouraged than ever by the company's position in the global IT Datacom market. Our team has just done an outstanding job both of securing future business on next generation IT systems with a very broad array of customers. but also in executing on these exciting programs. The revolution in AI continues to create a unique opportunity for Amphenol, given our leading high-speed and power interconnect products. And now with the addition of CommScope, we have the industry's broadest range of high-speed copper, power, and fiber optic interconnect products, all of which are critical components in these next-generation systems and in the next-generation architectures of our customers. This creates a continued long-term growth opportunity for Amphenol. Turning to our outlook and assuming current market conditions as well as constant exchange rates, for the second quarter, we expect sales in the range of $8.1 billion to $8.2 billion and adjusted diluted EPS in the range of $1.14 to $1.16. This would represent strong sales and EPS growth of 43% to 45% and 41% to 43%, respectively, compared to the second quarter of prior year. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow Amphenol's market position, all while driving sustainable and strong profitability for the long term. You know, finally, I want to take this opportunity to thank our entire global team for their truly outstanding efforts here in this very special first quarter. And, you know, in particular, I just want to express my gratitude to the folks working in our factories around the world. This growth doesn't come easy. And the folks working at our factory, those amazing Amphanolians, they continue to amaze me and delight our customers with their extraordinary and hard work. And with that, operator, I'd be very happy to take any questions that there may be.