TE Connectivity Ltd

Everyone, thank you for standing by and welcome to the TE Connectivity third quarter earnings call for fiscal year 2026. At this time, all lines are in a listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press one to raise your hand. To withdraw your question, press one again. 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, Sujal Shah. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's third quarter results and outlook for our fourth quarter of fiscal 2026. 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 and 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 on the investor relations portion may rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments.

Good morning, everyone, and thank you for joining us. And before I get into the details on the slides, I do want to frame today's call around a couple key takeaways. Our strategic positioning around the accelerating data and power trend continues to drive broad-based outperformance, and we are at the intersection of the largest technology and infrastructure investment cycle that's taken place around the world. We also continue to benefit from continued market momentum driven by both secular growth trends as well as positive cyclical market inflections and we'll click down on these during today's call. As we outlined at our investor day earlier this year, we expect our strategy to deliver broad-based growth while driving sustained margin expansion and double digit earnings growth. As we progress through this year, We have continued to execute against this strategy and our third quarter results and outlook provide further evidence that our strategy is working. Our positioning is creating opportunities across multiple long-term growth drivers as increasing data and power requirements are reshaping our customers' architectures. And this is where our interconnect technologies are essential. Investments in AI infrastructure continue to drive strong growth in both our digital data networks and energy businesses. Further secular trends including electrification, automation and increasing compute at the edge applications are driving growth across our aerospace and defense, automation and connected living, automotive and commercial transportation businesses. These investments are expanding our opportunities across both our segments and reinforce our confidence in TE's long-term growth outlook. The strength of these trends is reflected in our record order performance with double digit order growth in every business across both segments. For the full fiscal year, we now expect sales to grow approximately 15%, representing more than $2.5 billion of incremental revenue in 2026, while delivering margin expansion and earnings per share growth above 20%. Importantly, our record order momentum and growing backlog provide increasing visibility into continued broad-based growth as we move into next year, reinforcing our strategy and our ability to compound earnings that create long-term value for our owners. So with that as a quick overview, I'd ask you to turn to slide three to review our third quarter results and our outlook for the fourth quarter. In the third quarter, sales were $5.2 billion, and they increased 14% on a reported basis and 12% organically over last year. Our order momentum continues to increase, which resulted in record order levels of $5.7 billion, growing 27% versus the prior year, as well as 7% on a sequential basis. And as I normally do, I'll provide more details on sales and orders in the next few slides. We delivered 22% earnings per share growth to a record adjusted earnings per share of $2.94 and adjusted margins expanded 90 basis points, reflecting the continued execution of our teams while also delivering for our customers. You know, in this growth environment, the other thing that we're proud of, we continue to demonstrate the strength of our cash generation model. Year to date, we've generated approximately $2.2 billion of free cash flow, will continue to make investments to support future growth in both engineering as well as manufacturing capacity. In addition to the organic investments, today we signed an agreement to acquire Astrodyne TDI, which is a bolt-on acquisition that broadens our portfolio of power and filter products for mission-critical applications that'll be part of our industrial segment. and Heath will click down with some additional details about this acquisition that we're excited about in his section. Looking forward, we expect our fourth quarter sales of approximately $5.25 billion, which will increase 11% versus the prior year. And we expect to deliver adjusted earnings per share of approximately $3.05. For the full year, we expect to deliver growth of 15% in sales and 23% in adjusted EPS year over year. So let's get into orders. And if you could please turn to slide four, I'll click down into the order trends we're seeing. Orders increased over $1 billion year over year to a record of $5.7 billion in the quarter. And the order momentum was in both segments, which reinforces the breadth of our growth. The industrial segment continues at strong momentum with orders increasing 36% versus the prior year. These record industrial orders were driven by increasing momentum in AI along with strong growth in every business. And just to give you the flavor of the momentum, in our digital data networks business, year-to-date our orders are up over 70% versus last year. And in our energy, aerospace, and defense, and automated connected living, all have 20% order growth year-to-date. Turning to transportation, segment orders increased 19% versus the prior year, reflecting continued content growth in both automotive and commercial transportation. We saw double-digit year-over-year order growth across all three of the transportation businesses, supporting our competence in continued market outperformance driven by where we positioned ourselves on content. We are running a book to bill of 1.1, both in the quarter as well as year to date. Our orders have not only translated into strong growth this year, but also have resulted in a record backlog position. And this backlog position is a strong growth indicator as we move into our fiscal 2027. Now let me click down into the segment results and I'll start with the industrial segment that is on your slide five. In the third quarter, our industrial solution sales grew 22% on a reported basis and 21% organically year-over-year, with broad-based growth, as you see on the slide, across the segment, led by over 30% organic growth in both our DDN and energy businesses. We are uniquely positioned at the intersection of the accelerating data and power investment cycle. What differentiates our industrial segment is the breadth of our participation across the AI infrastructure, with AI driving demand not only for high speed and power connectivity in and around the rack, but also for the energy infrastructure required to bring power to the data center. This positions both our DDN and energy businesses to benefit as AI infrastructure continues to scale, while the rest of our industrial portfolio continues to benefit from broader secular growth trends. In digital data networks, our teams delivered another very strong quarter growth, with sales increasing 34% year-over-year and up $100 million sequentially, which was aligned with our expectations, and we expect DDN to deliver the full-year growth we talked about last quarter. In data connectivity, we continue to see increasing demand as AI architectures evolve towards engenic workloads, driving greater deployment of CPUs and networking, which increases the addressable market for high-speed copper connectivity. In optical, we see additional long-term growth opportunities beyond what we have outlined in Investor Day. Through the Ram Photonics acquisition, we strengthened our optical roadmap with fiber-attached connectivity and we are encouraged by our customer engagement around this future growth opportunity. In our day-to-day business, we also see growing opportunities in power connectivity as our customers evolve their architecture. We have deep expertise in material science, thermal management, safety, and reliability challenges associated with moving to higher voltage connectivity. As the industry moves towards higher voltage architectures, we are well positioned to support our customers evolving connectivity requirements. Turning to energy, We saw very strong sales growth and our organic sales increased a very strong 33% driven by continued investment across grid hardening where utilities continue to modernize aging infrastructure for increased power needs as well as data center build-outs. Our AI opportunity extends beyond the rack. Data center build-outs are driving significant investment across the power infrastructure and we provide the connectivity solutions that enable generation, Transmission and Distribution Infrastructure, which gives us the unique position I highlighted earlier. Turning to our Automation and Connected Living business, sales increased 16% and 14% on an organic basis with growth across every region. Versus 90 days ago, we are seeing additional indicators of both cyclical growth as well as content outperformance. We now expect this market to grow high single digits this year, and with our strong position in automation, we expect to outperform the end market. In aerospace and defense, our business grew 12%, which reflects the continued strength in both the commercial aerospace as well as what we're seeing in the defense markets, where our data connectivity and power products are essential to next generation platforms. In our medical business, our team delivered sales as we expected. And at the segment level, turning to margins, industrial segment adjusted operating margins expanded 70 basis points to nearly 23%, reflecting continued strong execution by our teams. Now let me turn to our transportation solution segment, and that will be on slide six. In the third quarter, our transportation solution segment grew 7% on a reported basis and 5% organically year over year. Growth was driven by content outperformance in our end markets, particularly in Asia, our leading global position, as well as our customer co-creation model. In automotive, sales increased 5% on a reported basis and 3% organically. We continue to deliver growth above the market due to content drivers despite a decline in vehicle production. Data connectivity in the vehicle continues to be a significant driver, along with electrification of the powertrain where we benefit largely in Asia and software-defined vehicle architectures. We expect our full-year content outperformance to be in our four to six point range for both this year as well as longer term. Turning to our commercial transportation business, sales increased 20% on a reported base, as well as 18% on an organic basis. We continue to see improving cycle trends across regions and market verticals while delivering significant growth above the market through new program wins, further electrification of trucks in Asia, and strong execution across all regions. In our sensors business, Our performance was as we expected. And at the segment level and looking at margins, the transportation team delivered adjusted operating margins of 21%, demonstrating the resiliency of the execution by our transportation team. So with that as a click down on the segment performance, let me turn it over to Heath to get more details on the financials and our expectations going forward.