APH - NYSE

Hello, and welcome to the First Quarter 2025 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's CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our first quarter 2025 conference call. Our first quarter '25 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 will take 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 2025 with record sales of $4,811 million and GAAP and record adjusted diluted EPS of $0.58 and $0.63, respectively. First-quarter sales were up 48% in U.S. dollars, 49% in local currencies and 33% organically compared to the first quarter of 2024. Sequentially, sales were up 11% in U.S. dollars, 12% in local currencies and 6% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $5,292 million, up a strong 58% compared to the first quarter of 2024 and up 6% sequentially, resulting in a book-to-bill ratio of 1.1 to 1. GAAP operating income was $1,025 million in the quarter and GAAP operating margin was 21.3%. GAAP operating income included $105 million of acquisition-related costs primarily related to the acquisition of the Andrew Business from CommScope, which closed at the beginning of February. Excluding these acquisition-related costs, adjusted operating income in the first quarter of 2025 was $1,130 million, resulting in a record adjusted operating margin of 23.5%. On an adjusted basis, operating margin increased by 250 basis points from the prior year quarter and 110 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by strong operating leverage on the higher sales volumes, which was modestly offset by the dilutive impact of acquisitions. On a sequential basis, the increase in adjusted operating margin reflected strong conversion on the higher sales levels as well as meaningful progress on profitability improvement initiatives on certain acquisitions. I am very proud of the company's record operating margin performance in the first quarter, which reflects continued strong execution by our teams. Breaking down first quarter results by segment compared to the first quarter of 2024, sales in the Harsh Environment Solutions segment were $1,268 million and increased by 38% in U.S. dollars and 8% organically and segment operating margin was 24.5%. Sales in the Communication Solutions segment were $2,414 million, and increased by 91% in U.S. dollars and 73% organically and segment operating margin was 27.4%. Sales in the Interconnect and Sensor Systems segment were $1,129 million and increased by 5% in U.S. dollars and 6% organically and segment operating margin was 18.1%. The company's GAAP effective tax rate for the first quarter was 22.7% and the adjusted effective tax rate was 24.5%, which compared to 16.7% and 24% in the first quarter of 2024, respectively. We continue to expect our adjusted effective tax rate to be approximately 24.5% for the full year 2025. GAAP diluted EPS was $0.58 in the first quarter, up 32% compared to the prior year period. And on an adjusted basis, diluted EPS increased 58% to a record $0.63 compared to $0.40 in the first quarter of 2024. This was an excellent result. Operating cash flow in the first quarter was $765 million or 104% of net income and free cash flow was $580 million or 79% of net income. An excellent result considering the growth we have experienced. We expect to again have somewhat elevated levels of capital spending in the second quarter as we continue to invest to support the significant growth we are seeing in the IT datacom market. And as we have discussed previously, we have worked with certain customers to support these investments in a variety of ways. From a working capital standpoint, inventory days, days sales outstanding and payable days were 80, 69 and 59 days, respectively, all within normal levels. During the quarter, the company repurchased 2.7 million shares of common stock at an average price of approximately $68. When combined with our normal quarterly dividend, total capital returned to shareholders in the first quarter of 2025 was approximately $380 million. Total debt on March 31st was $7.2 billion and net debt was $5.5 billion. Total liquidity at the end of the quarter was $4 billion, which included cash and short-term investments on hand of $1.7 billion plus availability under our existing credit facilities. Excluding acquisition-related costs, first quarter 2025 EBITDA was $1,319 million. At the end of the first quarter of 2025, our net leverage ratio was 1.2 times. As a result of the closing of the acquisition of Andrew, we now expect quarterly interest expense, net of interest income earned on cash on hand to be approximately $70 million, which is reflected in our second-quarter guidance. We are very pleased that the company's financial conditions remain strong by any measure. 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 it's a pleasure to welcome you all here on a beautiful Spring day in Wallingford, Connecticut. The daffodils are popping, the tulips are up, and we're very excited to report to you on -- at the time of Amphenol's earnings here in the first quarter. I'm going to highlight our first quarter achievements, discuss some trends and progress across our served markets and then make some comments on our outlook for the second quarter and, of course, we'll have time for some questions. So, turning to the first quarter, Craig just reviewed, we really drove excellent performance in Q1. Our results were much stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Sales grew from prior year by 48% in U.S. dollars, 49% in local currencies, reaching a new record of $4,811 million. And on an organic basis, we're very pleased that our sales increased by a very strong 33% with growth -- with growth across most of our served markets. As Craig alluded to, we booked record $5,292 million in orders in the first quarter, which was a very healthy book-to-bill of 1.1 to 1 and orders grew by a very strong 58% from prior year and were up 6% sequentially. I would just comment that our orders were really strong across the board with all of our end-markets reaching book-to-bills of at least 1 to 1. We're particularly pleased to have delivered record adjusted operating margins of 23.5% in the quarter. This was up 250 basis points from prior year and 110 basis points sequentially. There's no doubt that the superior profitability is a direct result of the outstanding execution of the Amphenol teams around the world. Adjusted diluted EPS grew 58% from prior year to reach a new record of $0.63. And then finally, we converted our earnings into cash, generating strong operating cash flow of $765 million and free cash flow of $580 million in the quarter, both clear reflections of the quality of the company's earnings. I just cannot express enough my pride in our team for this quarter's results. These results 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, as we announced on February 3, we're also excited that we completed the acquisition of CommScope's OWN and DAS businesses, which we are now calling by the company's original name of Andrew. We're actually very proud to bring back this storied brand, which stretches back to the company's original founding by Victor Andrew in 1937. The acquisition of Andrew brings Amphenol an industry-leading portfolio of innovative and advanced RF antenna and interconnect technologies for the communications networks market. I'm especially excited that we get to welcome the nearly 4,000 talented employees of Andrew to the Amphenol family and I look forward to further supporting our customers who are developing next-generation wireless networks around the world. As we announced at the time of the closing in February, the Andrew Business was expected to generate full-year sales of $1.3 billion and approximately $0.06 of accretion to Amphenolian 2025. We're very pleased with the performance of the Andrew team in their first few months as Amphenolians. And accordingly, we now anticipate that the acquisition will add approximately $0.09 to our earnings this full year. During the quarter, we also closed on the acquisition of LifeSync, a leading provider of interconnect products for medical applications with annual sales of approximately $100 million. As we welcome the outstanding Andrew and LifeSync teams to Amphenol, we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions and then successfully bring these new companies into Amphenol remains a core competitive advantage for the company. As our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now, turning to the trends across all of our served markets. I would just note, as usual, that we're very pleased with the company's end-market exposure because it's -- it remains highly diversified, balanced and broad. I would just note that this diversification continues to create great value for the company because it enables us to participate across all areas of the global electronics industry, while not being overly or disproportionately exposed to the volatility of any given market or application. So, turning first to the defense market. Our sales -- defense sales represented 9% of our sales in the quarter and grew from prior year by a strong 21% in U.S. dollars and 14% organically. This was essentially driven by broad-based growth across virtually all segments within the defense market and importantly across all geographies. Sequentially, sales grew by 2%, which was a bit better than our expectations coming into the quarter. As we look into the second quarter, we expect sales to increase in the high-single-digit range sequentially. And we remain encouraged by the company's leading position in the defense market, where we continue to offer the industry's widest range of high-technology products. Amidst the current and very dynamic geopolitical environment, countries around the world are expanding their spending on both current and next-generation defense technologies. With our investments in the development of a broad array of new interconnect products as well as the capacity to build them, we are well-positioned to capitalize on this long-term demand potential. The commercial aerospace market represented 5% of our sales in the quarter and sales increased by a strong 106% in U.S. dollars as we benefited from the addition of CIT. On an organic basis, sales declined modestly by 3% from prior year as procurement volumes from jetliner customers moderated. Sequentially, our sales moderated by 4% from the fourth quarter, which actually was a bit better than we had expected coming into the quarter. And as we look into the second quarter, we expect our sales to remain roughly at similar levels as in the first quarter. I'm truly proud of our team working in the commercial air market. With the ongoing growth in demand for airliners, our efforts to expand our product offering, both organically and through our acquisition program have paid real dividends. In particular, I would just tell you we're very encouraged by the progress of the CIT team as part of Amphenol. And we look forward to further capitalizing on our expanded range of product solutions long into the future. The industrial market represented 20% of our sales in the quarter and our sales increased by 20% in U.S. dollars and 6% organically as we continue to see improvements across the diversified industrial market. In particular, organic growth in the medical, instrumentation, alternative energy and rail mass transit markets more than offset moderations in heavy equipment and factory automation. In addition, our organic growth was driven by expansions in Asia and North America and Europe was down just slightly, a bit better than it had been in the prior quarters. On a sequential basis, sales were up 1% from the fourth quarter, which is better than we had expected coming into the quarter. Looking into the second quarter, we expect sales in the industrial market to remain at roughly these levels. I would tell you that we remain encouraged by the company's strength across the many diversified segments of this important market. While demand in Europe has been challenging, I am confident that our long-term strategy to expand our high-technology interconnect antenna and sensor offering, both organically and through complementary acquisitions has positioned us better than ever to capitalize on the many electronic revolutions that will no doubt continue to occur across the industrial market. This creates exciting opportunities for our outstanding team working in this important area. The automotive market represented 16% of our sales in the quarter and sales were slightly down by 2% in U.S. dollars and just barely down 1% organically as growth in North America and Asia was more than offset by a moderation of sales in Europe. Sequentially, our sales were down by 3% from the fourth quarter, but this was better than our expectations and it reflected really strong execution by our team working in the automotive market. For the second quarter, we expect a slight sequential moderation in sales. Despite some near-term challenges, I remain proud of our team working in the automotive market. And while the market is no doubt uncertain, our team continues to be focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. We look forward to benefiting from our strong position in the automotive market for many years to come. Now as I noted last quarter, we have combined our broadband and mobile networks markets into a new market that we will call communications networks. Our sales in this market primarily go to telco operator and OEM customers across the global communications industry. So, the communications network market represented 10% of our sales in the first quarter and sales grew from prior year by 107%, driven primarily by the addition of Andrew to the Amphenol family. On an organic basis, though sales did increase by 11% from prior year as we benefited from increased spending by communication network operators as well as wireless equipment manufacturers. Sequentially, our sales in the first quarter grew by 81% that was driven by the Andrew acquisition. And on an organic basis, our sales moderated by 4%, which was better than we had expected. We had come into the quarter expecting a mid-teens sequential decline. Looking into the second quarter, we expect sales to increase in the high-teens range sequentially as we benefit from the full-quarter addition of Andrew. With our expanded range of technology offerings following the acquisition of Andrew, we are well-positioned with both service provider and OEM customers across the global communication networks market. Our deep and broad range of products, coupled with an expansive manufacturing footprint have positioned us to support customers wherever they are around the world. And as those customers continue to drive their systems to ever higher levels of performance, we look forward to supporting them for many years to come. The mobile devices market represented 7% of our sales in the quarter and our sales grew by 20% in U.S. dollars and organically from prior year as strong growth in smartphones, laptops and wearables was only partially offset by a moderation in sales related to tablets. Sequentially, our sales declined by a better-than-expected 26% compared to the typically seasonally stronger fourth quarter. We do believe that some of this outperformance in the first quarter was driven by a slight pull-in of demand from certain customers. Looking to the second quarter, we expect sales to moderate in the high-teens as customers adjust production in preparation for product launches in the second half of 2025. 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 capture incremental sales in the quarter. I'm confident that with our leading array of antennas, interconnect products and mechanisms designed in across a broad range of next-generation devices, we are well-positioned for the long term. And now turning to the IT datacom market, it represented 33% of our sales in the quarter and sales in the first quarter grew by a very strong 133% in U.S. dollars and 134% organically. And that was really driven by continued acceleration in demand for our products used in artificial intelligence applications, together with continued robust growth in our base IT datacom business. On a sequential basis, sales increased by 34% from the fourth quarter, substantially better than our expectation for a mid-single-digit increase. This growth was driven by sales of AI-related products as well as growth in our base IT datacom business. Looking ahead, we expect sales to increase further from these first quarter levels in the high-single-digit range as investments in AI-related data centers as well as the underlying IT investments continue to accelerate. Look, we're more encouraged than ever before by the company's position in the global IT datacom market. Our team has simply done an outstanding job securing future business on next-generation IT systems, particularly those enabling AI. The revolution in artificial intelligence continues to create a unique opportunity for Amphenol, given our leading high-speed and power interconnect products. And whether high-speed power or fiber-optic interconnect, our products are critical components in these next-generation networks, and this creates a continued long-term growth opportunity for Amphenol. Now, turning to our guidance and, of course, assuming current market conditions as well as constant exchange rates, for the second quarter, we expect sales in the range of $4,900 million to $5 billion and adjusted diluted EPS in the range of $0.64 to $0.66. This would represent sales growth of 36% to 39% and adjusted diluted EPS growth of 45% to 50% compared to the second quarter 2024. 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 our market position, while driving sustainable and strong profitability over the long term. And finally, I'd like to take this opportunity to thank our entire global team of Amphenolians for their truly outstanding efforts here in the first quarter. And with that, operator, we'd be very happy to take whatever questions there may be.

Thank you, Mr. Norwitt. [Operator Instructions] We have a question from Andrew Buscaglia with BNP Paribas. Please go ahead.

Hi, good morning, guys.

Good morning, Andrew.

The question is around, you can imagine, around tariffs. You guys are a very global company, and I know a lot of your business is somewhat strategically set up, I think, for a situation like this. But I'm wondering what, you have to have some incremental costs you're factoring in, and I would expect. And can - I identify what market those would be in, and what is embedded in your Q2 guide, and anything we should model in thereafter?

Yes well, thank you very much, Andrew. And I'm not surprised to get a question on tariffs. Look, our organization, and you alluded to it in many ways, is purpose built for a time like this. Its purpose built in the sense that, we push down through the organization, through our entrepreneurial organization, the authority, all the levers of running these businesses and then we can hold those folks accountable. And that's the sort of Amphenolian entrepreneurship. And at a time, when you have such a dynamic new policy environment like tariffs. And everybody talks about tariffs here, but there's various measures being taken, by a variety of governments around the world. And without expressing any opinions about those measures, they are what they are. And so it's really up to our organization, wherever they may be, to number one, work in every possible way, to mitigate the impact of those tariffs. And then to the extent that we can't fully mitigate it, to work with our customers to pass on to them, the pricing impacts of these tariffs. We are very local company around the world. We have more than 300 facilities in more than 40 countries. And our general principle, is that we support our customers close to where they are in whatever region. But look, to the extent that there are some impacts of these tariffs, is there some pressure to some of our general managers that, they have to work with customers, to find a way to pass that on? Of course that's happening. And I wouldn't say that it's specific to one, or another of our end markets. And I'd say that, there's a slight. Let's say that there's a slight impact on pricing as we go into the second quarter, and our team's going to work really well to moderate whatever impact could be on the bottom line. And I think implicit in our guidance, is that our margins are still very strong in the second quarter. So that must not be a tremendous impact.

Thank you. Our next question comes from Amit Daryanani with Evercore ISI. Please go ahead.

Good afternoon, everyone. Thanks for taking my question. I guess, Adam, you folks had really sizable upside in the March quarter revenue numbers. And some of it, maybe a couple hundred million is from Andrew's, but rest of it seems organic. Can you just spend some time on what is enabling this size of organic beat? And given the discussion you said on tariffs, how do you get comfort that there wasn't a high degree of revenue getting pulled in into the March quarter, because of customers potentially trying to avoid the tariff scenario? Thank you.

Well, thank you. Thank you very much, Amit. I mean look, the first thing I want to say, is you kind of alluded to it in your question. And this is a very, very strong organic performance in the quarter, and it's a testament to the ability of our team, to execute on this level of demand from customers. It is not easy. I mean, if you think about some of these markets, I mean, the most acute one. IT datacom growing 134% on a year-over-year basis, 34% sequentially. I mean that's an enormous amount of effort, by our teams to ramp up in the face of that level of customer demand. And I just can't stop thanking them for all of their efforts. Now to your question on a pull in. I mentioned in my prepared remarks that we saw a slight pull-in in mobile devices. But that was really the only place, where we saw any signs of anything that was very specific to a pull in. And is that related to tariffs? I mean, I know folks have written nice reports about that, present company included. And so maybe in that market, there was a little, again I would classify that as a slight pull in of demand, and we've reflected that as well in our outlook in the second quarter for mobile devices. But if you look at our outlook in some of the other markets, in particular IT datacom, where we still have a very strong outlook as we head into the second quarter, I would tell you that our customers are not pulling in. They're working very hard to equip as much as they can. These advanced computing data centers related to AI, and also responding to demand on the base IT datacom business that is there. The only other area that one could think about, as a potential would there a little bit of pull in, would be in distribution. But honestly, I can't tell you that we saw anything meaningful there. In fact, our overall distribution business from Q4 to Q1, it was up a little bit, but it didn't show any sort of anomaly that would lead one to think that that, was a pull in demand. No, look Amit, I mean at the end of the day this was a quarter of tremendous execution, by our team. We've done a fabulous job to position ourselves, to capitalize and take more than our fair share, of a lot of exciting revolutions going on around the electronics industry. And then our team just delivered by executing, which was not hard work, but was very impressive, which was very hard work and it was very impressive.

Thank you. Our next question comes from Joe Spak from UBS. Please go ahead.

Thanks so much. Adam, I was wondering, in prior quarters within the industrial business, I think some of the commentary was, Europe was a little bit of a laggard. I'm wondering, if anything has sort of changed there, if you're seeing - any sort of further green shoots in Europe within that segment. And then, while you're on that business as well, if you're seeing any sort of change in order patterns in North America, or in Asia given some of the new tariff policies?

Yes well, thanks very much, Joe. Look, I think I alluded to the fact that industrial, we're encouraged. We've had two straight quarters of 6% organic growth overall, but that has been really driven by North America and Asia. And that was clearly the case last quarter. That was the case again this quarter. If we want to say, is there a little bit of a green shoot from Europe? I would say that the European rate of decline, is much lower this quarter. Just slightly down actually, on an organic basis year-over-year in Europe in industrial, and on a sequential basis. Actually, we did start to see growth in Europe. So yes, I mean, green shoot here in spring, with all the beautiful flowers outside of our windows. Sure I guess, there's a daffodil or two in Europe as well. In terms of order patterns. Look, we had a positive book-to-bill in industrial. Not our strongest book-to-bill, by the way. I'd say our strongest book-to-bill was in defense. That's clearly not related to tariffs, I should tell you. That's just a robust demand across the defense market globally. But we had a strong book-to-bill in industrial. And I think, it's a sign more of, maybe a few of these greener shoots. And maybe an occasional flower popping up here in the spring. But it's a little early to tell. I mean still, Europe is down year-over-year slightly. And as we go through the course of this year, we'll see whether we see that improving further.

Thank you. Our next question comes from the line of Luke Junk with Baird. Luke, please go ahead.

Good afternoon. Thanks for taking the question, Adam, maybe more of a philosophical question for you today. Just reflecting and the fact that IT datacom has had just such incredible growth, rising to 33% of sales this quarter, maybe even up another couple of points into next quarter. Just how you think about that, relative to an exposure being that big as a percentage of the company. If I think historically, maybe individual markets have gotten up to kind of at most 25% or so, both maybe from a capital allocation standpoint going forward, if it has any implications. And maybe also from just a risk management standpoint, and thinking about the diversity that you like to drive in the model? Thank you.

Well, Luke, that's a philosophical question that's very close to my heart, because as you know, what I love about our company, and I still love, especially in this quarter, is the breadth and balance of our exposure, across the electronics industry. And that's been a great asset for Amphenol long-term. And while it hasn't driven capital allocation specifically, I would say, and I've said this many times. That we would never make an acquisition, if that acquisition ended up driving a dramatic overexposure and upsetting that breadth and balance of the market. But I've never said is the following. We would capitalize on every growth opportunity that, is available to us in the electronics industry. And no matter what revolution is happening, across my whole now more than 26 years in the company. We have always, with the full drive of the Amphenol organization, sought to take advantage of that. And it just so happens that today, in this revolution that is called AI, and all what is going on around that, that our team's done a fabulous job of capturing a disproportionate share, of what is a truly unique revolution in the electronics industry. I would put it, on the scale of kind of electrification. On the scale of the Internet, when it was first being built out, on the scale of when the personal computer, and the sort of democratization of computing that, happened many years ago. And I think, the acceleration of computing and its manifestation in these extraordinary investments being made in AI, machine learning, generative AI and the like, is another one of those sort of moments in the development of the electronics industry, which is a unique opportunity. And in this case, moreover, it is a revolution that creates for our industry a disproportionate opportunity, because of the unique nature of the architecture, and the intensity of the interconnect solutions that are associated with that architecture. And so when you stack that all together, it's a great revolution. It's a more interconnected, intensive revolution. And we've taken more than our fair share of that. The result has been that our IT datacom business, has grown very robustly. Do I think that that upsets the breadth and balance of Amphenol? Not at all. This hasn't happened, because of a capital allocation decision and acquisition. It's happening, because our teams done a phenomenal job, and we're never going to shy away from organic growth opportunities, even if it means that a market, for at least right now, is at this size. Now also, I would think back and think about the fact that in the last nine quarters, we've made, I think close to 15 acquisitions. And those acquisitions have also been across all of our end markets, including our two largest acquisitions, CIT and Andrew, one of which has a big exposure to the defense and commercial air and industrial market, and the other one to our, as we now call it, communications networks market. So we're constantly trying to make sure that, the company has that breadth and balance. And I think where we've exercised our balance sheet, to make these acquisitions, those have always been in furtherance, of a really wonderful balance in the company. So we feel great about this, I think philosophically or otherwise. And we're not going to shy away. We're certainly not going to turn down orders from customers, and we're not going to try not to win everything possible.

Thank you. Our next question comes from Samik Chatterjee from JPMorgan. Please go ahead.

Hi. Thanks for taking my question. Hi Adam. Hi Craig. Maybe, Adam, you - in the IT datacom business, just to follow-up on the last question, you now have a significant step-up in the revenue from 4Q to 1Q, and you're guiding to another increase into 2Q. And clearly, a part of - that's a part of the strong organic growth that the total business has as well. How much visibility should we think you have, in terms of that sort of growth continuing sequentially from these high levels versus - vis-a-vis being very dependent on customer product cycles or benefiting for the time being from certain product cycles, for the customers that maybe moderate over time? And then just a longer-term question associated with that. I mean, one of your big customers has talked about adopting something that's more a co-packaged optics solution in the future that, moves away from connections on the back plane, to a certain extent. How do we - how should we think about the longer-term implications of that, in terms of connector, or connectivity content on that platform? Thank you.

Yes. Thanks very much, Samik. Look, relative to organic growth, and we've tried to give guidance here for the second quarter. It's a dynamic world. So we are not giving guidance beyond the second quarter. But I think what we know in IT datacom in general, and as well what we know in the specific portion of IT datacom, which is AI, is we have a very strong position with our customers. I just mentioned in that last - to the last question, not only is this a generational transformation of how compute works, but it's a more interconnect intensive, and we've taken more than our fair share of that. And the breadth of our products, the breadth of our products, which include high-speed products, power products and fiber optic products, is such coupled with our ability, to execute on behalf of those customers. It is such that we're in a great position for them for the long-term. Now could there ever be, could there ever be an air pocket in the overall spending patterns of any of our markets, including IT? Of course, there can be. And that agility of Amphenol, to manage to maximize our position on the upside, and to protect the company, if there ever is a kind of an air pocket. The other thing I'll say about this AI, in particular, and we've said this before, is we have a very broad exposure across up and down the stack, of the folks who are involved in creating this exciting new technology, starting with those who are spending the money, the web service providers, to the OEMs who are making extraordinary products that, we're so privileged to be able to play a role in. And all the way down to the chip manufacturers who are either specifying or, in certain cases, building parts of the systems their-selves. And so that breadth of our exposure, without a disproportionate reliance on one, or another customer is also another important aspect of that. Now look, you asked this final piece about a very specific technology on a very specific customer. I'm not going to answer specific questions, about specific customers and specific technologies, but I will say this, which is that interconnect mix in these new systems play a very significant role. And whether it's copper, whether it's power, copper, high-speed, power, fiber optics, what we care about is that there's more of everything. And that more of everything, and our ability to capitalize and take more than our fair share of that more than everything, in other words, the higher content, that's really what makes me most excited about this opportunity over the long-term.

Thank you. Our next question comes from Asiya Merchant from Citigroup. Please go ahead.

Great, thank you. Congratulations on a great quarter. Adam, if you can just double click a little bit on the portions of the business. I think you called that out that there was strength there. So if you can just kind of elaborate on that a little bit, where the strength is coming from is it specific regions, customers, how to think about that and visibility, just looking ahead? Thank you.

Well, thank you very much, Asiya. And when you talk about non-AI, I assume you're talking about also within IT datacom, but I'll answer it in kind of both ways. So we're very encouraged to see strength, not just in those customers focused on AI, but across all of our IT datacom customers. And I mean really, really strong. I mean I would tell you that of our IT datacom growth on a year-over-year basis. We would say roughly two-thirds of that, has been from AI on a year-over-year basis, and maybe a little more than half of the sequential growth. So that's really outstanding growth of our non-AI related IT datacom business. And I wouldn't specify that, that's one region, or another or one set of customers. It's been a pretty broad piece, and I can a little bit understand that. I mean customers around the world, enterprise, operator and otherwise, are realizing the importance of an IT backbone, and what that can create for you and the value of that, the payback on those investments. And so I think that, that makes a lot of sense. Now if the question is really outside of even IT datacom, look even if you take away this extraordinary performance that we had in IT datacom, and specifically that extraordinary performance that we had with AI. The company still delivered outstanding organic growth on a year-over-year basis, or on a sequential basis. And I think that, that - and if I wanted to put some sort of scale around that. I mean you're talking about high growth in mid-teens kind of organic growth, in an environment like we're facing today. And I think that's just a testament to the fact that, it's not just that the company is winning in AI, but we're winning really across all of our diversified end markets.

Thank you. Our next question comes from Joe Giordano from TD Cowen. Please go ahead.

Hi guys. Good afternoon. Adam, I'm not sure even how to answer this question, but I think it's worth asking anyway. Like for the commentary you made about pull-ins, and you're not seeing it really much outside of the mobile device. Like how would you know? Like what is the possibility, because I feel like a lot of channel checks that people have done suggest there is pull-in, and then a lot of the public companies who have reported say, there's none. Is it possible that what looks like, the numbers look normal to you like to anyone. So maybe it doesn't feel like pull-in, because the numbers aren't out of whack. But what if like pull-in is looking is appearing like normal demand. Is there a risk of that?

Yes. Look, I think, Joe, your question is really do we - are we confident in what we don't have visibility over. And I would say, look, there are - all we can judge by, is what we see. And we know in mobile device, we saw in mobile devices, there was a slight pull-in. What we know in IT datacom, is that our customers are not only buying our product, but they want more. I mean, if we could have shipped more. And by the way, we shipped a lot more than anybody expected us to ship in the quarter, but they probably would have taken even more. We could have done it. When I look at the other markets, the one place that I would look very carefully at, and I mentioned that earlier, is distribution. And our sales to distribution from Q4 to Q1, which is when you would have expected. Maybe this pull-in, to be happening in anticipation of the policies that were broadly reported, it was a very modest kind of low single-digit sequential growth that, we saw in distribution. Are there things that we don't see, through the supply that could end up whatever in hindsight? Yes, maybe there was a little bit of a pull-in here and there. Yes, I'm not going to say that that's impossible, Joe. So I think that it's hard for me, to kind of say anything categorically. But just on the basis of what we've seen across those areas, where it would be most likely for us to have seen it, we've tried to be specific that we saw it in mobile devices, and we don't think we've seen it. At least we haven't seen the evidence of it, in the other spaces. But that wouldn't mean that, there could be some pull-in, but we just haven't seen the clear evidence of it.

Thank you. Our next question comes from William Stein from Truist. Please go ahead.

Great, thanks for taking my question. Incremental margins were quite a bit stronger than the typical 25%. I'm wondering if maybe it's time to revisit that target, and perhaps think about a higher contribution margin level going forward, something on the order of 30%. I think you even beat that this quarter. But any comment on go-forward profitability, and a metric for us to model it, would be very helpful? Thanks.

Yes. Thanks, Will. Yes, there's no doubt. I mean the team really just has done an excellent job driving margin expansion over time, but especially over the last year here, especially over the last couple of quarters. As you mentioned, our kind of long-term target for conversion, has historically been the 25% level. More recently, we definitely have outperformed that benchmark. And given our continued momentum and a strong institutions, I believe we're really well positioned, to maybe modestly even exceed that historical 25% target again this year, and that's reflected in our guidance. If you look at our implied guidance here in the second quarter, we're guiding to a little bit better than that 25%. With all that being said, the current environment is challenging. There's a lot of cross currents, a lot of things happening. Obviously, tariffs and the like. So we're certainly want to be prudent around, kind of what our expectations are. But there's - we do feel real good about these margins. We're growing pretty significantly. I mean the year-over-year growth, is quite significant. We're at levels of revenue. We're able to really execute well and leverage that. So I think that's right. I think that 25% is something we should continue to be able to exceed with these levels of growth. At least here in the near term, and we'll, at some point, maybe talk about a higher goal of 25% more formally. But at this point in time, I wouldn't necessarily put a measure on that. But there's no doubt we're executing better than that. And I would expect in here in the short to midterm, us to continue to do that as we continue to execute, and grow at the levels that we are right now.

Thank you. Our next question comes from Mark Delaney from Goldman Sachs. You may proceed.

Good afternoon. Thank you very much for taking my question. And congratulations on the strong results, including the record margins. Amphenol's sales and orders were extraordinarily robust in the data center market. That said, there's been several media reports that at least one hyperscale, or if not a few could be slowing the pace of their investments going forward. So I'm hoping to better understand the breadth of the strength that Amphenol has been seeing, has been broad-based, or a little bit more mixed amongst the key hyperscalers? And what's your expectation for the breadth of customer demand in the data center market going forward? Thanks.

Yes. Thanks, Mark. I mean, look, simply put, we've seen really strong performance across the breadth of companies involved in building out AI. So whether that's the hyperscalers, whether that's the OEMs, the sort of sub tiers of those OEMs, or the chip companies who are involved in that. So I wouldn't say that that is so concentrated in that sense. Look, I know there have been a variety of different reports out there, but all what we can tell you is what we hear from our customers, which they need as much as we can get them. And when you look at our guide for Q2, it reflects an incremental performance in that market. And when we - 90 days from now, we'll try to tell you what it looks like in the third quarter. But it is very broad, our position.

Thank you. Our next question comes from Saree Boroditsky from Jefferies. Please go ahead.

Hi, good afternoon. Thanks for taking the question. I appreciate all the end market color that you've given so far. I want to just drill down into what you're seeing, within industrial and the factory automation side, just given that this is one area where maybe there's been, some concerns on a positive investment, or maybe some reshoring. So just any color there would be really helpful? Thank you.

Thank you very much. I mean, look factory automation has been a tricky market for a few quarters. And last quarter, I think as we close the year, we talked about the fact that we did see, while it was still down on a year-over-year basis. We saw a little bit of sequential growth, and we're like well, we don't know if that's - what that's a real sign of. I would tell you it's still on a year-over-year basis down. Maybe it's some a little bit less than it was in prior year. It is a more European dominated part of the business. The major OEMs and machine builders that make up our factory automation business, tend to be from Europe. And again, while we've seen a little bit of green shoots out of Europe, I think it's still too early to call a total spring gloom here.

Thank you. Our next question comes from Steven Fox from Fox Advisors. Please go ahead.

Hi, good afternoon. Adam, I was just wondering within the context of all that's going on in IT datacom. If you could talk about your transceiver portfolio, and how that's contributed in some of the strategies behind that? Thanks.

Yes. Thanks very much, Steve. I don't think, I would talk so specifically about a very individual product, like you mentioned. But I would say that we have a very broad business in IT datacom, high-speed, cooper, amazing power products. And of course, the optics, both the passive and the active optics, and that's something we've been very thoughtful about over many years. And we've been involved in passive fiber optics for a very, very long time. And it's really over the last, I don't know, five or six years that we also, through the acquisitions of Xgiga and Halo, and other initiatives inside the company have been involved in active optics. And we're very happy with our participation, and our progress that we've made in active optics. And I think, it gets to sort of the breadth of the interconnect solutions that we offer, across all of our end markets. And more and more of interconnect solutions have something going on inside of them, in particular, as you get to like really high speeds under copper, or you get to these really complex active optics products. There's a lot of engineering, a lot of know-how and a lot of challenges in building them. And I think our team has done a really great job, of embracing that and doing a fabulous job of making progress in that space. But to get really deep into the overall market of one thing like that, I probably would defer that. But we're very happy with the company's position, across active and passive optics.

Thank you. Our next question comes from Wamsi Mohan from Bank of America. Please go ahead.

Yes, thank you. Adam, can you talk a little bit about the order linearity in IT datacom, sounds like you weren't able to maybe meet as much of the demand as you would have liked to, although it was a very strong quarter. Do you think there was any increased level of disconnect, between your shipments relative to end product shipments that, could potentially lead to any kind of slowdown in the back half? And you spoke about diversification across multiple vectors, but if you could share maybe any thoughts around split of GPU versus ASICs, where your products are going, or maybe signal versus power, that would be helpful? Thank you so much.

Thanks very much, Wamsi. I mean look, in terms of order linearity, you made one comment, which is we, we weren't able to meet our expectations. We far exceeded in the quarter our - and our customers' expectations of what we could execute, but they still would have taken more, if we could deliver it. So I guess, coming into the quarter, one of the reasons we outperformed, by such a significant margin is our team outperformed. They executed far beyond, what we thought they could do, and far beyond what our customers thought they could do, and that was really a great thing. It's not that we were disappointing customers. In fact, we were pleasing customers here in the quarter. Now would they have taken more? The point is, yes, they would. And I think that's a sign of the fact that there is a robust build-out that is happening right now. In particular, across AI. I mean did that create - do our shipments create a, disconnect in the supply chains of the customers? I don't think nothing that we have seen would lead me to think that there is that kind of disconnect. Again, if folks stop spending money on next-generation generative AI-based data centers, we won't be immune to that. That's when, if there is ever an air pocket around that spending. I'm sure our teams will manage through that in a highly effective fashion, as we always have in the past. But I don't think anything about, how we've been supplying is creating that kind of disconnect. And as it relates to kind of the systems, and our products going into GPUs versus ASIC-based applications, it's a little hard to tell. I mean, obviously, all of the AI-related business, the core of that is, for sure, GPUs. Both for learning - or for training and for inference. And so I think, one could say that, let's say, two-thirds of our growth on a year-over-year basis that ultimately was driven by AI, and the significant position that we have in AI, I guess you would say that that's predominantly related to GPU, or GPU equivalent kind of architectures. Would you then say that, our non-AI business is related more to non-GPU architectures I don't know, I haven't thought about it necessarily in that way But I guess one could sort of say that. Remember that our IT business is a combination of servers, networking and storage systems. And so, to define it just by GPU versus ASIC, I think is only maybe that's only within servers, which is a meaningful portion, but we have a very significant networking business as well. And so there, I don't think that distinction is as relevant to thinking about the makeup of the business.

Thank you. Our next question comes from Guy Hardwick from Freedom Capital Markets. Please proceed.

Hi, good afternoon.

Hi, Guy.

Hi Adam, you alluded to it earlier, but perhaps you can maybe expand on how your general managers and 130-plus businesses now, how they respond in these environments to whether it's tariffs, or supply chain issues? Because obviously, as you said, you pushed down the responsibility for managing these issues down to them, because it does seem to be that a real competitive advantage. And on that point, I mean in terms of tariffs, I believe that some of your U.S. subsidiaries do have offshore manufacturing in China, for example. Just wondering how you - how the company, or the individual businesses cope with these sort of challenges?

Yes. Thanks very much, Guy. Look, this is a topic really close to my heart. Because at the end of the day, when we think about why Amphenol is successful, why do we win more than our fair share of these revolutionary opportunities? Why are we, so effective at successfully acquiring so many companies over the year, and bring them to successful to the Amphenol family? And how has it we've been able to navigate dynamics, uncertainty and even very severe disruptions over a very long time period, it all comes back actually to the same basic underlying value of the company, which is that entrepreneurial structure, that culture of what we call Amphenol in entrepreneurship, whereby our general managers who now are 140 strong around the world, they have full authority to run their respective businesses. And then we can hold them these men and women around the world, clearly accountable for their individual performance. And when we say that they have total authority, we really mean it. And we enable them, we liberate them, to make all the decisions that you need to make, on a day-to-day in running a business. And the fact is, even if there were not such a thing called the tariff. There are everyday hundreds of decisions that, have to get made. And the number of those decisions that actually come up to my desk, I can count them on less, than one hand. Let me say it that way. Every day, these folks are making the fundamental decisions about how to run the business. And now along comes a thing called tariffs, or a long came a thing called COVID. Along came a thing called the supply chain crisis, along came the thing called the global financial crisis. I go way back in time, and I say along came a thing called the Internet bubble. And each of these big dislocations, these disruptions to the business, our folks just go and make it happen. And what does that mean specifically with tariffs. It's quite interesting. Because we talk generally about tariffs, but these are very technical specific situations. Every product you sell, you have to have a deep understanding, of who is the customer, what is your position with that customer? Who are the competitors for that product? What is their position? What are their strengths? What is their footprint? And where do you make your product and where can you make your product, and what's the supply chain underlying that? What are the logistic flows of that? So a lot of very specific knowledge that, you want to have about every product that could be subject to tariffs, in order to make the wisest decision. And when I say the wisest decision, I mean, you can easily when tariffs come, just say, hi, we're going to raise every price by ex-percent across the company. Take just a blanket approach, send a letter around the world. We're just going to raise prices. Well, if you do that, there's many cases where you're going to lose the business, because your customer - maybe your competitors have a different footprint than you have. There's other cases where maybe you should have passed on more of the price to your customer, because of the specifics of that individual circumstance. And is that ability to tailor make the actions of the company, in such a highly fine-tuned fashion at the general management level that allows us to manage through, a time like this. Do we have some, to your point, some of our products sold in the U.S. to come from overseas? Sure, we do. Do we have 300 facilities around the world? Do we have general managers, whose hands are not tied to take whatever necessary, to manage through those situations? Absolutely, we do. And so, we're not immune to tariffs. The policies can get worse. The policies can get better. They will be unpredictable. That seems to be, for sure, the case. But there's no doubt in my mind that our organization is the best equipped to manage through that dynamic. And what I'm very proud of, is one thing, is that no matter how big we've got, here we are delivering in one quarter, $4.8 billion of sales. I mean this is very significant. It's nearly twice the size of when I became CEO 16 years ago in a full year. And we're delivering twice that in a quarter. And yet the strength of that entrepreneurial culture today, I can tell you, is better than it's ever been, in the history of the company. We have not only preserved that culture, but we've scaled the company amidst that culture. And so now here you are facing these tariffs. And like I said, I think the company is purpose built for a situation like this. We're not immune to it. There can still be negative impacts. They can be unpredictable, some of them can be very hard to manage. It's hard work for our people, a lot of time, wasted time, some could argue, but it is what it is. And our team faces that in a very unemotional fashion and just makes it happen as Amphenolians.

Thank you. Our next question comes from Scott Graham from Seaport Research. Please go ahead.

Hi, good afternoon. Thanks for taking my question, squeezing me in. It'll be short. I was just wondering with the uncertainty that's out there, the IMF lowering, its economic forecast toward recession in the year, pretty much every day louder, softer, depending on the day. Has your acquisition funnel increased with that uncertainty? Or in other words, are you seeing more whether it's from private equity books, relationships that you have opportunities, across your businesses now in a time of uncertainty?

Yes. Well, thanks very much, Scott, and it's a very nice question. Look, we've had a very successful acquisition program for many, many years. And we've had that in good times and bad. And the one thing that we have never done is tried to time acquisitions for macro cycles. I mean, look, we've made 15 acquisitions in the last nine quarters, and some of those were pretty robust times. And so, are more people selling amidst uncertainty today than maybe they were a year, or two ago. I don't know if that's the case. Are we a more compelling buyer than we've ever been before, because of the strength of our financial position, our reputation as really an acquirer of choice in this industry. And our ability to execute quickly in acquisitions, like we've demonstrated here in these last couple of years. I think we are. I think we have a very robust pipeline. We've had a robust pipeline, and I wouldn't necessarily say that it's a pipeline that's changing, because of the headlines, or whatever the IMF forecast.

Thank you. We currently have no further questions. So I will hand back to Mr. Norwitt, for closing remarks.

Well, thank you all very much. Look, in these uncertain times, nothing is predictable. I can tell you that. I mean, who would have thought, the top movie of the year as Minecraft. But it is a world of dynamic uncertainty. But in that, I'm certain of one thing, that this is an organization that can make it happen in any environment. And I really thank you all for your time today, and we look forward to talking to you again in 90 days. Thank you.

Thank you, everybody.