TE Connectivity Ltd

press star one on your telephone keypad. And if you would like to withdraw that question, again, press star one. And as a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Sujil Shah. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's first quarter results and outlook for our second quarter of fiscal 2025. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts. During this call, we will be providing certain forward-looking information, and we ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning. We ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables, along with the slide presentation, can be found in the investor relations portion of our website at te.com. As a reminder, we reorganized into a two-segment structure effective with the start of fiscal 2025. transportation solutions, where the end markets remain the same, and industrial solutions, which add to businesses from communications. As we talk about our results today, they will be discussed in the new segment structure. Please refer to our 8-K filed in December for recast financial information under the new structure. Finally, during the Q&A portion of today's call, due to the number of participants, we're asking everyone to limit themselves to one question. You may rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments.

Thank you, Sujal. And I first off want to say Happy New Year to everyone. And thank you for joining our first quarter earnings call. As you all are well aware, we continue to be in an uneven global economy where we see pockets of strengths and pockets of weakness. Global economic uncertainty is creating noise as we think about 2025, but what's key is we're performing well and our focus is to execute on what we can control to drive financial improvement as we move through 2025. Within this backdrop, the results that our team delivered for the first quarter are very straightforward. On the top line, our sales organically were in line with our expectations. Our adjusted operating margin and EPS were records and ahead of our guidance, and our free cash flow was a record for the quarter, all driven by the execution of our teams. Our orders were slightly ahead of our expectations and accelerated both year over year as well as sequentially, which gives us confidence in our guidance for the sequential improvement in our top line in the second quarter and further growth in our industrial solutions segment as we go through the year. The one area that was not in line with our expectations was the impact of a stronger dollar, which will impact us through this year. I am proud of our team's performance and what we control to deliver earnings and free cash flow that were above our expectations. Now, as we expect this environment to remain dynamic, I want to reiterate four key areas that we're focused on. The first one is innovation. And even with the unevenness that we see, our customers are continuing to innovate on next-generation architectures. And what we do from a connectivity and sensing perspective is a key enabler. We are supporting their effort in ramping key programs that drive application growth. And you're going to hear about them, whether they're the secular drivers such as high-speed connectivity for AI programs, hardening and monitoring applications of the energy infrastructure, next generation vehicle architecture, as well as continued ramps to support our AD&M customers. The second thing that's important that we're focused on is making sure we're executing on the operational levers to drive further adjusted margin expansion, and you see this in our first quarter results as well as our guidance. Thirdly, An area that we've been working on a lot and we've invested in is really making sure we benefit from our global manufacturing strategy. And this includes the localizations that we've done, where our customers need China Plus One strategies, and also on the tariff subject, we will deploy our playbook that we exercised during the 2017 tariff cycle, and we're prepared to do so if tariffs are implemented. And the fourth key, and lastly, is continue to drive our strong cash generation model that enables optionality of returning capital owners as well as capitalizing on bolt-on M&A opportunities as they occur. So with that as an overview, I'd like to get into the presentation. If you can move to slide three, and let me discuss some additional highlights and our guides for the second quarter, and then Heath will provide further details. Our first quarter sales were $3.84 billion, which were flat year over year. Adjusted earnings per share of $1.95 was ahead of our guidance and up 6% versus the prior year. And adjusted operating margins were record at 19.4%, up 30 basis points over last year and up in both segments. Orders of $4 billion in the first quarter grew both year over year and sequentially, And as I said earlier, this was slightly better than we expected. This reflects broader growth within the industrial segment, including increased momentum in artificial intelligence programs. We delivered record first quarter free cash flow of $674 million, and this was up 18% year over year, and this demonstrates the high quality of our earnings. And as we look forward, we are expecting our second quarter sales to increase sequentially to $3.95 billion. On a year-over-year basis, we expect to be impacted by unfavorable currency exchange headwinds of over $100 million. Adjusted earnings per share in the second quarter is expected to be around $1.96, which will be up 5% year-over-year, and this includes a $0.06 headwind from currency exchange and tax versus the prior year. Stepping away from the financials for a second, we are pleased to be included in the Dow Jones Sustainability Index this quarter for the 13th year. This designation continues to demonstrate our dedication to sustainable business practices that is expected by our customers and also provides value to our owners. So with that as an overview, let me get into the order trends, and you can see that on slide four. In the quarter, we saw orders grow to $4 billion, and our book to build was 1.05. In our transportation segment, orders came in as we expected, while in the industrial segment, orders were up 15% on a sequential basis, supporting our outlook for sequential organic sales growth in the second quarter. In transportation, our auto orders came in as expected, reflecting continued growth in Asia, and offsetting softness in Western car production. When you look at the orders declined for the segment, it was driven by weakness in commercial transportation and sensor and markets. Turning to the industrial segment, all of our business had a book to bill over one and a quarter, and it supports our growth outlook. We are continuing to see sales growth in aerospace, defense, and marine, as well as in energy. And our orders in automation and connected living are indicating stabilization in factory automation and markets. We've also talked to you about our momentum in artificial intelligence applications, and this is continuing. And just to highlight, when you look at our digital data networks business over the last three quarters, our total orders in the last three quarters for this business exceeds $1.5 billion, which sets us up for the growth that we've talked to you about. Now, let me get into year-over-year segment results, and I'll start with transportation on slide five. Our auto business performed as we expected and was down 3% organically in the first quarter, with strong growth in Asia being offset by declines in western regions. As we look forward, we continue to expect global auto production to be down 1% to 2% in fiscal 2025. and we continue to expect our content growth to be at the low end of the four to six point range for the year. While we expect overall auto production to decline this year, we expect continued growth in hybrid and EV production, with now roughly 80% of that production growth this year occurring in Asia, where we are strongly positioned. We also expect further electrification of the vehicles, And realize when you get electrification benefits that's completely powertrain agnostic and we're seeing increased content momentum driven by software defined vehicle architectures which require more data connectivity and drop provide content growth for us. And really to give you. impact of what the momentum we're seeing. And I'll share with you, we just secured over a billion dollars of new design wins with a leading Chinese auto OEM for their next generation platform that is entirely around data connectivity in the car. So let me turn to the commercial transportation. And as you can see on the slide, we wore down 12% organically. As we expected, and this is driven by heavy truck production weakness in Europe and North America, we do expect that demand trend will improve later in this year. And in our sensors business, the sales decline was driven by weakness in the broader industrial markets in Europe and North America. You know, from an adjusted operating margin perspective for the segment, our teams executed very well, and it's reflected by the adjusted operating margins that were 21.3% in the first quarter. Now, with that as an overview of transportation, let me move to the industrial solutions segment on slide six, and this segment grew double digits in the quarter. Starting with our digital data networks business, it grew 50% organically. and our design ones are reflecting increased momentum. We now expect revenue from artificial intelligence applications to be above the $600 million in fiscal 2025, and it reflects strong growth and leadership in multiple hyperscale AI platforms across the customer base. In automation and connected living, and this combines our former industrial equipment and appliance businesses, We declined 5% organically, driven by ongoing weakness in factory automation applications in Western geographies, especially in Europe. One nice thing is that we have seen order patterns begin to reflect stability in this end market, and we've seen increased strength in Asia in the automation area. In AD&M, our sales were up 15% organically, driven by broad growth across commercial airspace, defense, and space applications. In these markets, we continue to see favorable demand trends and ongoing supply chain recovery, and we expect the momentum in these markets to continue. Our medical business in the quarter declined 25%, as we expected. And this resulted from inventory normalization by our customers that we're seeing as the broader medical supply chain has improved. And we do expect that our medical business will show sequential growth as we move throughout this year. And the last market that I want to highlight is our energy business. Sales were up 7% organically driven by strength in all regions and ongoing momentum in utility-scale renewables, along with investments that are being made to support increased power generation needs, as well as hardening of the infrastructure. I also want to highlight that within the quarter, we acquired Harger, which is a North American leader in lightning-protecting and grounding solutions that are foundation to grid reliability and complementary to our existing product set. This acquisition expands our portfolio for grid reliability and connectivity solutions of renewable power, utilities, and industrial power applications, and I welcome the employees of Harger to our TE team. For the industrial segment, adjusted operating margins were 16.8%. They expanded 100 basis points year over year, driven by the higher volume and strong operational performance. We do expect all businesses in the industrial segment to grow sequentially on an organic basis in the second quarter, as I highlighted earlier. Now, with that as an overview of our performance, let me hand it over to Heath, who'll get into more details on the financials and our expectations going forward.