Amphenol Corporation

Hello and welcome to the second 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 so much. Good afternoon, everyone. This is Craig Lampo, Amphenol CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our second quarter 2026 conference call. Our second quarter 2026 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, and then 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 second quarter of 2026 with record sales of $8.8 billion and gap in diluted EPS of $1.37 and $1.35 respectively. Second quarter sales were up 55% in US dollars, 54% in local currencies, and 30% organically compared to the second quarter of 2025. Sequentially, sales were up 15% in U.S. dollars and in local currencies and up 13% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $10,732,000,000, up a strong 94% compared to the second quarter of 2025 and up 14% sequentially, resulting in another very strong book-to-bill ratio of 1.23 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. Gap operating income was $2.6 billion in the quarter and gap operating margin was 29.5%. Gap operating income included $24 million of non-cash amortization of acquired backlog related to the CommScope acquisition. Operating income also included and $80 million or four cents per share net benefit related to the recovery of IEPA tariffs. Excluding the acquisition related costs, but including the tariff recovery benefit, adjusted operating income and adjusted operating margin were $2.6 billion and 29.8% respectively. On an adjusted basis, operating margin increased a strong 420 basis points from the prior year quarter, and 250 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by robust operating leverage on significantly higher sales volumes and to a lesser extent, the tariff recovery benefit, which more than offset the margin dilutive impact of recent acquisitions. On a sequential basis, the increase in adjusted operating margin reflected the strong conversion on the higher sales levels as well as progress on profitability improvement actions at recent acquisitions including in particular CommScope and to a lesser extent the tariff recovery benefit. I'm very proud of the company's operating margin performance in the second quarter which reflects continued strong execution by our team. Bringing down second quarter results by segment compared to the second quarter of 2025, Sales in the communication solutions segment were $5.4 billion and increased by 85% in U.S. dollars and 42% organically. Segment operating margin was 33.6%. Sales in the harsh environment solutions segment were $1.9 billion and increased by 28% in U.S. dollars and 22% organically. And segment operating margin was 30.1%. Sales in the interconnect and sensor systems segment were $1.5 billion, an increase by 17% in U.S. dollars and 13% organically, and segment operating margin was 21%. The company's GAAP effective tax rate for the second quarter was 25.3%, and the adducted effective tax rate was 27%, which compared to 18.3% and 24.5% in the second 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 option compensation, as well as other discrete tax items. GAAP diluted EPS was $1.37 in the second quarter, up 59% compared to the prior year period. On an adjusted basis, diluted EPS was a record $1.35 and increased by 67%. compared to 81 cents in the second quarter of 2025. This was an outstanding result. Operating cash flow in the second quarter was $1.6 billion or 88% of net income and free cash flow was $1.2 billion or 68% of net income. An excellent result considering the growth we have experienced. From a working capital standpoint, inventory days, day sales outstanding and payable days were all within our normal ranges. During the quarter, the company repurchased 1.5 million shares of common stock at an average price of $1.141. When combined with our normal quarterly dividend, total capital return to shareholders in the second quarter of 2026 was approximately $515 million. Total debt at June 30th was $18.8 billion and net debt was $13.4 billion. Total liquidity at the end of the second quarter was $8.4 billion. which included cash and short-term investments on hand of $5.4 billion plus availability under our existing credit facilities. Second quarter, 2026 EBITDA was $3 billion and our net leverage ratio was 1.3 times at the end of the quarter. And 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 first, I hope that all of you on the call today, together with your family, friends, and colleagues, are enjoying a wonderful summer so far. As Craig mentioned, I'm going to highlight some of our achievements here in the second quarter. I'll talk about our trends and our serve markets, make some comments on our outlook for the third quarter, and then, of course, we'll have some time for questions at the end. With respect to the second quarter, I'm just really proud of the NFL organization who drove excellent performance once again here in the second quarter of 2026. Our results were stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. As Craig mentioned, our sales grew from prior year by a very strong 55% in U.S. dollars and 54% in local currencies, reaching a new record for the company of $8.8 billion. On an organic basis, our sales also increased by a strong 30%, with all but one of our end markets experiencing robust organic growth. The company booked a record $10.7 billion in orders in the second quarter, representing a book to bill of 1.23 to 1. Orders grew by a very strong 94% from prior year and were up 14% sequentially. and with the significant acquisition of CommScope, I'd also just point out that our orders also grew organically by 63% from prior year. We're also very pleased to have delivered record adjusted operating margins of 29.8% in the quarter, which was an increase of 420 basis points from prior year and 250 basis points sequentially. Excluding the benefit of net tariff refunds, our operating margins still reached nearly 29%. This strong profitability is a direct result of the outstanding execution of the Amphenol team around the world, all of whom continue to manage well in a challenging environment. Adjusted diluted EPS grew 67% from prior year, reaching a new record of $1.35. And then finally, the company generated strong operating and free cash flow of $1.6 billion and $1.2 billion, respectively, both clear reflections of the quality of the company's earnings. I just can't overstate my pride in the Amphenol team. 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. We're very excited that we completed two acquisitions during the second quarter, Elcom and Wilder Technologies. Elcom is based in Lino, Italy, and has annual sales of approximately $150 million. It's a leading manufacturer of complex interconnect solutions and high-voltage cable assemblies for the industrial, defense, and commercial aerospace market. And Wilder Technologies is based in Washington State here in the U.S., and has relatively modest annual sales of approximately $15 million. But Wilder is a key supplier to Amphenol for high-performance test and measurement solutions for our high-speed interconnect applications for the IT datacom market and really helps us to strengthen our extraordinary capabilities in high-speed products. I'd also like to take this opportunity to congratulate the CommScope team on their outstanding performance so far. I'm truly proud of what this team has achieved after now being part of the Amphenol family for two full quarters. Indeed, we now expect CommScope to deliver 4.6 billion of sales and 30 cents of accretion for the full year 2026. And this represents a significant upgrade from our previous expectations of 4.1 billion and 15 cents. I remain very confident that our acquisition program will continue to create great value for Amphenol. Our ability to identify and execute upon acquisitions and successfully bring these new companies into our family remains a core competitive advantage for the company. Now, turning to our served markets, I would just comment that we're very proud of Amphenol's broad and balanced end market exposure. Our diversification continues to create great value for the company, enabling us to participate across all areas of the global electronics industry each of which creates significant future opportunities for expansion. We remain committed to continuing to broaden our portfolio across markets, geographies, customers, applications, and products as we build on the company's momentum to further strengthen the company's position long into the future. Turning first to the defense market, this market represented 8% of our sales in the quarter Sales grew from prior year by a robust 37% in U.S. dollars and 24% organically. And this was really driven by broad-based growth across nearly all areas of the defense market. Sequentially, our sales increased by 7%, which was in line with our expectations coming into the quarter. As we look into the third quarter, we expect sales to increase in the low double-digit range from these second quarter levels. We remain very 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 interconnect solutions. Amidst the current dynamic geopolitical environment, there's no doubt that countries around the world are increasing their investments into both current and next generation defense technologies. With our expanded product offerings, as well as the significant capacity expansions that we continue to make, were positioned better than ever to capitalize on this long-term demand trend. The commercial air market represented 4% of our sales in the quarter. Sales increased by 22% in U.S. dollars and 21% organically from prior year, a very strong performance. So we benefited from increased aircraft production volumes coupled with our company's continued progress in expanding content on next-generation commercial aircraft. Sequentially, our sales grew by 6% from the first quarter, which was actually significantly stronger than our expectations coming into the quarter for a slight moderation. Looking towards the third quarter, we expect sales to be up modestly from these second quarter levels. I'm truly proud of our team working in the commercial air market. With the ongoing growth and demand for next generation aircraft, our efforts to expand our product offering both organically as well as through our acquisition program continue to pay real dividends. 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. Sales in this market grew 56% in US dollars and 18% organically as we saw continued strong demand across the diversified industrial market and as we benefited once again from the addition of CommScope's building connectivity business. On an organic basis, virtually all of our industrial segments grew in the quarter. We also saw double digit growth in all three geographies. On a sequential basis, sales grew by a much better than expected 13% from the first quarter. As we look into the third quarter, we do expect sales to be roughly at the same elevated levels as we saw here in the second quarter. We're very excited by the company's renewed strength across the many diversified segments of this important industrial market. With the acquisition of Elcom, we have further added to our value-add interconnect capabilities for European industrial customers. and over the long term, I'm confident in our strategy to expand our high technology interconnect antenna and sensor offerings, both organically and through complimentary acquisitions. This strategy has enabled the company to capitalize on the many electronic revolutions that continue to occur across the diversified industrial market, thereby creating further opportunities for our outstanding team. The automotive market represented 10% of our sales in the quarter, Sales in automotive grew 9% in U.S. dollars and 6% organically as we experienced growth in all regions and as we saw pickup in demand for vehicles with electrified drivetrains. Sequentially, our sales grew by 9% from the first quarter, which was much better than our expectations coming into Q2. For the third quarter, we expect sales to remain at these second quarter levels, and we would typically see some summer seasonality. I remain very proud of our team working in the global automotive market. And while there are clearly areas of demand uncertainty around this industry, our team continues to remain laser focused on driving new design wins with customers who are increasing 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 represents 11% of our sales in the quarter. Sales grew from prior year by 55% in US dollars, driven primarily by the addition of CommScope. On an organic basis, sales actually moderated by 6% from prior year, due to demand moderations from both communications network operators and wireless equipment manufacturers. I would just note that CommScope actually grew on a year-over-year basis in communications networks from prior year. Sequentially, our sales in the second quarter grew by 5% from the first quarter, which was a bit better than our expectations coming into the quarter. Looking to the third quarter, we do anticipate that sales will decline in the mid-teens from these second quarter levels. With our expanded range of technology offerings following the acquisitions of both CommScope and Andrew, we are better positioned than ever 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 well to support communications networks customers around the world. As the accelerating volume of data traffic drives long-term demand for expanded and upgraded networks, 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 our sales grew by 17% in US dollars and a strong 14% organically, with growth really in smartphones, laptops, as well as wearable devices. Sequentially, our sales increased by 19%, which was much better than our expectations coming into the quarter, We had actually expected sales to decline in this quarter on a sequential basis. As we look into the third quarter, we anticipate sales to increase roughly in the 20% range compared to the second quarter as we participate in the beginnings of a variety of new program launches for our customers. 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 significantly outperform our expectations in the quarter. I'm confident that with our leading array of antennas, interconnect products, as well as advanced mechanisms, including hinges, that are designed in across a broad range of next-generation mobile devices, we're positioned well for the long term. The IT Datacom market represented 43% of our sales in the quarter, and we once again had a very strong quarter in IT Datacom, growing 89% in US dollars and 63% organically. This was driven by continued acceleration in demand for our products used in artificial intelligence applications, together with robust growth in our base IT Datacom business. On a sequential basis, sales increased by 22% from the first quarter, which was substantially better than our expectation. Virtually all of this growth was driven by sales of AI-related products. Looking into the third quarter, we expect a further sequential sales increase in the mid-teens from these second quarter levels as investments in AI data centers continue to accelerate and as enterprise and cloud customers expand their demand for traditional IT datacom equipment. were more encouraged than ever by the company's position in the global IT datacom market. Our team has done an outstanding job of both securing future business on next generation IT systems with a broad array of customers, but also on executing on these exciting new programs. In addition, I would just comment that the team at CommScope continues to make great progress in further penetrating the IT datacom market with their advanced optical interconnect solutions. and we now expect that the IT Datacom market will represent just a bit less than half of CommScope's total sales for the full year and that compares to about a third of their sales in 2025. The revolution in AI has no doubt created a unique opportunity for Amphenol given our leading high-speed fiber optic and power interconnect solutions. All of these high technology products are critical components in our customers' current and next generation systems. This creates a continued long-term growth opportunity for the company. Now turning to our outlook and of course assuming current market conditions as well as constant currency exchange rates. For the third quarter, we now expect sales in the range of $9.3 billion to $9.4 billion and adjusted diluted EPS in the range of $1.40 to $1.42 cents. This would represent sales growth of 50 to 52% and adjusted diluted EPS growth of 51 to 53% compared to the third quarter of prior year. I would just note that our guidance does not reflect any additional net tariff recoveries which we expect to be immaterial going forward. 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 expand Amphenol's market position while driving sustainable and strong profitability over the long term. Finally, I'd like to take this opportunity to thank our entire global team for what is no doubt just outstanding efforts here in the second quarter. And with that operator, we'd be very happy to take any questions.