Brady Corp

NYSE:BRC

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. [Operator Instructions] 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 billion 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 billion, up a strong 58% compared to the first quarter of 2024 and up 6% sequentially, resulting in a book-to-bill ratio of 1.1:1. GAAP operating income was $1.025 billion 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 billion, 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 billion and increased by 38% in U.S. dollars and 8% organically, and segment operating margin was 24.5%. Sales in the Communications Solutions segment were $2.414 billion 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 billion 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 31 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 billion at the end of the first quarter of 2025, our net leverage ratio was 1.2x. 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 Daffodills 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 billion. And on an organic basis, we're very pleased that our sales increased by a very strong 33% with growth across most of our served markets. As Craig alluded to, we booked record $5.292 billion in orders in the first quarter, which was a very healthy book-to-bill of 1.1:1. 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 1:1. 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 Amphenol in 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 sale -- 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 Jet liner 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 and 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. 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 now 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 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 expansion in 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 support 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 into 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 $4.9 billion 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 of 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.

[Operator Instructions] We have a question from Andrew Buscaglia with BNP Paribas.

The question is around you could 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 -- can you identify what markets 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. It's purpose built in the sense that we push down through the organization, through our entrepreneurial organization, the authority, all of 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. And we are a 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 is 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.

Our next question comes from Amit Daryanani with Evercore ISI.

I guess, Adam, you folks had really sizable upside in the March quarter revenue numbers and some of it, maybe a couple of 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 just had 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 going to avoid the tariff scenario?

Well, 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. Now, 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.

Our next question comes from Joe Spak from UBS.

Adam, I was wondering in prior quarters, within the Industrial business, I think some of the commentary was Europe was a little bit of the 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 2 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. It's 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 Daffodils or 2 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.

Our next question comes from the line of Luke Junk with Baird.

Adam, maybe more of a philosophical question for you today. Just reflecting on 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 the 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?

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 have 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.

What 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 has 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, an acquisition. It's happened because our team has 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 9 quarters, we've made, I think, close to 15 acquisitions. And those acquisitions have also been across all of our end markets, including our 2 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.

Our next question comes from Samik Chatterjee from JPMorgan.

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 optic solution in the future that moves away from connections on the backplane to a certain extent. How do we -- how should we think about the longer-term implications of that in terms of connectivity or connectivity content on that platform?

Yes. Thanks very much, Samik. Look, relative to our organic growth, and we've tried to give guidance here for the second quarter. It's a very 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 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, is such that we're in a great position for them for the long term.

Now 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's the 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 theirselves.

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 products 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.

Our next question comes from Asiya Merchant from Citigroup.

Congratulations on a great quarter. Adam, if you can just double-click a little bit on the non-AI 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 this strength is coming from? Is it specific regions, customers? How to think about that and visibility just looking ahead?

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. 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 2/3 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 and 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, the 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.

Our next question comes from Joe Giordano from TD Cowen.

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 devices, and 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 if 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 chain 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.

Our next question comes from William Stein from Truist.

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.

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 strong execution, I believe we're really well positioned to maybe modestly even exceed that historical 25% target again here 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 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.

Our next question comes from Mark Delaney from Goldman Sachs.

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 hyperscaler, 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 and 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?

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 subtiers 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 is 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.

Our next question comes from Saree Boroditsky from Jefferies.

I appreciate all the end market color that you've given so far. I wanted to just drill down into what you're seeing within Industrial on the factory automation side, just given that this is one area where maybe there's been some concerns on a pause in investment or maybe some reshoring. So just any color there would be really helpful.

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 closed 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 down by 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 bloom here.

Our next question comes from Steven Fox from Fox Advisors.

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 contributing and some of the strategies behind that?

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 copper, 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, 5 or so, 6 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 those 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.

Our next question comes from Wamsi Mohan from Bank of America.

Adam, can you talk a little bit about the order linearity in IT datacom? It 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.

Thanks very much, Wamsi. I mean, look, in terms of order linearity, you made one comment, which is 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. And 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 -- for training and for inference. And so I think one could say that, let's say, 2/3 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.

Our next question comes from Guy Hardwick from Freedom Capital Markets.

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 push down the responsibility for managing these issues down to them because it does seem to be like 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 so successfully into the Amphenol family. And how is it -- how have we 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 and 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 a tariff, there are every day 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 along came a thing called COVID, along came a thing called the supply chain crisis. Along came a 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 out and make it happen. And what does that mean specifically with tariffs? It's quite interesting because we talk so 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 logistics 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, hey, we're going to raise every price by X 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 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 it's that ability to tailor make the actions of the company in such a highly fine-tuned fashion at the general manager 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. that 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 actions are 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 have gotten, here we are delivering in 1 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 say, 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.

Our next question comes from Scott Graham from Seaport Research.

I was just wondering with the uncertainty that's out there, the IMF lowering its economic forecast, the word 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 9 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 2 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.

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 is 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.

This concludes today's call. Thank you for joining. You may now disconnect your lines.