TE Connectivity Ltd

Everyone thank you for standing by and welcome to the TE Connectivity fourth 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 star 1 to raise your hand. To withdraw your question press star 1 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 fourth quarter and full year results for fiscal 2026 along with the outlook for our first quarter of fiscal 2027. 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 of our website at te.com. 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 and you may rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments.

Good morning and thank you everyone for joining us and before I get into the slides and the details of our results and expectations going forward I do want to make some overall comments. TE is positioned around the accelerating data and power trends that are driving significant growth for us today and creating opportunities for strong growth in the years ahead. As I mentioned last quarter, our products and technology are at the intersection of some of the largest technology and infrastructure investments taking place around the world, and you'll see the benefits in our results and our outlook during this call. Our fourth quarter performance above guidance was a good finish to the year. And full 2026 fiscal financial results demonstrate strong execution by our team in delivering $2.6 billion of sales growth, which is an increase of 15% year over year, along with adjusted earnings per share growth of 24%. The sales and earnings performance was coupled with another year of strong cash generation while continuing to invest in expanding capacity and engineering resources to support future growth. We also made bolt-on acquisitions that expand our addressable market in both optics as well as power filtering. So let me click down on the trends and how these are showing up in our results. You are all familiar with the investments taking place in AI infrastructure. Our digital data networks business is benefiting from increasing data and power connectivity requirements, including growing networking demand as AI architectures evolve. At the same time, our energy business supports the electrical infrastructure needed to power these data centers. And the TER opportunity extends from the grid all the way to the chip. and together DDN and Energy accounted for approximately half of our organic sales growth in fiscal 2026. But AI is also moving beyond the data center into physical AI applications. As intelligence moves to the edge of the network, more machines and devices need increased computing. That in turn leads to more connectivity so information can be processed and decisions can be made in real time. We're seeing this in factory automation, intelligent vehicles, battery electric storage, and industrial and humanoid robots. And TE is well positioned to benefit from these emerging applications. And just as importantly, the breadth of our growth extends well beyond AI. We're driving strong content growth in automotive and commercial transportation and benefiting from continued strength in commercial aerospace and defense, as well as our other businesses. Across all of our markets, the need for increasing data and power requirements is creating opportunities for additional connectivity content, reinforcing growth across the portfolio. And while I'm excited about our positioning and opportunities tied directly to AI, we're also benefiting from broader trends outside of AI as they contributed the other half of our sales growth this past year. So with that as a quick backdrop around trends, Let's get into the presentation and I'd ask you to go to slide three and I'll get into fiscal fourth quarter results as well as the full year and our guidance for the first quarter of fiscal 2027. In the fourth quarter, we delivered another quarter of double digit sales growth that was ahead of our guidance. Sales were $5.3 billion and this was an increase of 13% organically year over year and both segments delivered strong growth. Orders were $6.1 billion, growing 29% versus the prior year. And I'll get into more details on both the sales and the orders on the next few slides. Against the sales growth, we delivered 21% EPS growth with adjusted earnings per share of $3.14 and adjusted margins expanded 100 basis points over the prior year. and we had strong free cash flow generation of $1.2 billion with approximately 800 million returned to our shareholders. Now let me touch upon full year fiscal results quickly. And across the board, we achieved record sales orders, adjusted operating margins, EPS and free cash flow. So just a really strong year. For the full year sales were nearly $20 billion Growing 15% on a reported basis and 12% on an organic basis. And we achieved order levels of over $22 billion and are entering fiscal 2027 with record backlog levels. Adjusted earnings per share increased 24% to $11.52. And adjusted operating margins expanded 120 basis points year over year to 22%. We continue to demonstrate the cash, the strength of our cash generation model, and Heath will get more into this in his section. As we look ahead to fiscal 2027 and our outlook for the first quarter of 2027, we are expecting sales of $5.35 billion. And this is an increase of 15% year over year on both a reported and an organic basis. And the growth again will be broad based. We expect adjusted earnings per share to be around $3.30, and this will be growing 21% over last year's levels. The other thing I want to highlight is that when we look at the trends in our markets and customer programs and backlog, we are expecting another year of double digit organic sales growth in fiscal 2027, and we expect that'll be similar to the 12% organic growth levels we had in 2026. So at this point, I'd like to talk about orders and I'd ask you to turn to slide four where you can see the details on the slide. Order momentum remains strong and increased 6% sequentially and nearly $1.4 billion year over year to $6.1 billion in the quarter with orders increasing double digits in both segments. The industrial segment continued its momentum with orders increasing 47% versus the prior year. While the strongest growth was in DDN, every business had over 20% order growth year over year in the fourth quarter in the segment. In our transportation segment, orders increased 13% versus the prior year. And this reflects continued content growth in both automotive and commercial transportation. along with a continued improvement in the commercial transportation and market in North America. Our book to bill of 1.14 along with our backlog position are strong indicators of growth as we start our new fiscal year. Now let me get into the segment results and I'll start with the industrial segment which is on slide five. In our fourth quarter, our industrial solution sales grew 20% on both a reported and on an organic basis year over year, with ongoing momentum and broad-based growth across the segment. Sequentially, segment sales increased close to 10% with growth in all of our businesses, including 17% sequential growth in DDM. In digital data networks, we delivered another strong year performance in fiscal 2026, with orders growing by roughly 70% for the full year, driven by our strong position with our hyperscale customers. We expect this strong performance to continue into fiscal 2027, as well as longer term. In 2027, we expect to add over $1 billion of DDN revenue, with the vast majority of that from AI applications. and looking at our backlog aging and timing of customer program ramps, we expect that over half of that growth will be in the second half of our fiscal year. I do want to take a moment to talk about AI technology and architecture evolution and how we think about our DDN growth longer term. I can say with confidence that this business will be significantly larger in the next four to five years and beyond than it is today. Our DDM business more than doubled in size the past couple of years. And based upon our momentum that we have with our customers, our product and technology roadmaps, and our design and manufacturing capabilities, we expect to grow well over $1 billion per year over an extended time horizon, implying that this business will double again in the next few years. And we've been increasing our capacity in engineering as well as manufacturing to support The design wins and our expected growth. We still believe we're in the early stages of the AI infrastructure build out, but it's clear that future architectures will require both copper and fiber connectivity. On data connectivity, the shift towards inference and agentic AI is expanding demand for CPUs and networking connectivity. And as workloads evolve, we're seeing intelligence move closer to where the data is generated and decisions are made at the edge of the network. And these trends will enable continued TAM expansion. As we talked to you before, when it comes to power connectivity needed, that's architecture agnostic. And our leadership position allows us to capture additional content as data centers transition to 800 volt direct current, as well as liquid cooling. At the same time, optical increases our addressable market and adds another significant growth opportunity for our DDM business. You know, a great example I want to share with you in our role of next generation connectivity is the recent NVIDIA and Cisco announcement of a new industry specification and next generation high speed optical transceiver technology. It shows how TE is providing key enabling technology to deliver significantly greater performance to 12.8 terabits per second and four times the bandwidth density. This is a hybrid solution that combines both optical technology with a copper interconnect, and I feel it's a good leading indicator of how our customers are using multiple technologies to get to the best engineering solution for the architectures of the future. These types of solutions, combined with our RAM photonics technology that's focused on addressing CPO fiber-attached density and scalability, expands our addressable market for optics on or near the chip. These examples demonstrate the strength of our engineering capabilities, our portfolio, and our customer relationships in next-generation AI infrastructure. So at this point, still staying in industrial solutions, I do want to turn to our energy business. And once again, our team delivered another strong quarter, and it had organic sales growth increasing 12% in the quarter, and this resulted in 18% organic sales growth for the year. As we've talked to you before, the growth that we're seeing is driven by the continued investment across grid hardening, where utilities continue to modernize aging infrastructure for increased power needs, as well as data center build outs, which I discussed earlier. We provide the connectivity solutions that enable generation, transmission and distribution infrastructure. which gives us a unique position. Turning to our automation and connected living business, our sales increased 18% organically in the fourth quarter with growth across every region. We continue to see indicators of both cyclical growth as well as content outperformance, particularly on the factory automation and battery electric storage applications. and in our aerospace and defense business, we grew 16% organically in the quarter, reflecting ongoing strength in both the commercial aerospace and defense markets, where our data connectivity and power products are essential to next generation platforms. Looking at margins in this segment, the segment's adjusted operating margins expanded 40 basis points to over 22%, reflecting continued strong execution of our teams while delivering on the growth for our customers. Now, if you could, I'd ask you to turn to slide six and let me get into transportation solutions performance. In the fourth quarter, our transportation solution sales grew 8% on a reported basis and 7% organically year over year. In automotive, sales increased 6% organically despite a decline in vehicle production. Due to our content drivers, we delivered strong growth above the market in the fourth quarter, which was above our expectations and driven by ongoing strength out of Asia from a content perspective as well as improvement in Europe. The auto growth was also driven by our global leading position and our customer co-creation model. As we look forward, we do expect global vehicle production to be down slightly in fiscal 2027. Continuing the production trends that we saw this past year. We do expect our growth of our market in fiscal 2027 to be in our four to six point range, driven by the three pillars of content growth for us, which is data connectivity in the vehicle, electrification of the powertrain, as well as electronification of the vehicles. The other thing I want to highlight that goes beyond auto applications is we continue to see an exciting opportunity in humanoid robots. And this is where our automotive business is really well positioned to lead and will be supported by capabilities across TE. And when you think about it, our transportation segment provides power and signal connectivity, things needed to charge a robot like charging inlets, while our other business is industrial, contributes high-speed data, as well as connectivity needed for motors and actuation solutions and really the whole basket sets us up well to take advantage of this emerging application. We view these technologies represent up to $500 of potential TE content per humanoid robot. We're also working closely with leading OEMs on next generation designs, positioning us to benefit as this emerging market scales. And I think this is just another great example of how the need for power and data connectivity combined with our broad capabilities enables TE to build additional future growth drivers. Let me turn over to our commercial transportation business, which had very strong sales growth, which increased 18%. And this growth was across all regions, including improving trends in North America. Our team is delivering significant content growth above market through new program wins, further electrification of trucks in Asia, and strong execution across all regions. For the segment on the margin side, the team delivered adjusted operating margins of 21% in the quarter, and this is an increase of 80 basis points versus the prior year and demonstrates the resiliency and the execution of our transportation team. So with that as a wrap up of the segments, let me turn it over to Heath, who will get into more details on the financials and expectations going forward.