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Connecting the electronics world, the corporation is a primary producer of connectors and cables such as fiber optics and coaxial cables in the U.S.

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Amphenol Corporation designs, produces, and markets electrical, electronic, and fiber-optic connectors, which are used to transmit signal and power. In addition to connectors and connector systems, the company sells circuit boards, antennas, and power cables. Amphenol’s clients include automotive, broadband communication, and information technology companies.

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Amphenol (APH): Company Profile, Stock Price, News, Rankings

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Amphenol

amphenol

Hello, and welcome to the third 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 third quarter 2025 conference call. Our third quarter 2025 results were released this morning. I will provide some financial commentary, then Adam will give an overview of the business and current market trends. Of course, we will take your 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 third quarter of 2025 with record sales of $6,194,000,000, a record GAAP and adjusted EPS of $0.97 and $0.93, respectively. Third quarter sales were up 53% in U.S.

dollars, 52% in local currencies, and 41% organically compared to the third quarter of 2024. Sequentially, sales were up 10% in U.S. dollars and local currencies, and up 9% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $6,111,000,000, up a strong 38% compared to the third quarter of 2024, and up 11% sequentially, resulting in a book-to-bill ratio of 0.99 to 1. GAAP and adjusted operating income were both $1,702,000,000 in the quarter, and operating margin was a record 27.5%. On an adjusted basis, operating margin increased by a strong 560 basis points from the prior year quarter, and 190 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by strong operating leverage on significantly higher sales volumes, which was only 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 further progress on profitability improvement on acquired businesses. I'm extremely proud of the company's record operating margin performance in the third quarter, which reflects continued strong execution by our team. Breaking down third quarter results by segment compared to the third quarter of 2024, sales in the communication solution segment were $3,309,000,000 and increased by 96% in U.S. dollars and 75% organically. The segment operating margin was 32.7%. Sales in the harsh environment solution segment were $1,516,000,000 and increased by 27% in U.S. dollars and 19% organically, and the segment operating margin was 27.1%. Sales in the interconnect and sensor systems segment were $1,369,000,000 and increased by 18% in U.S. dollars and 15% organically, and the segment operating margin was 20%.

The company's GAAP effective tax rate for the third quarter was 23.5%, and the adjusted effective tax rate was 27%, which compared to 21.4% and 24% in the third quarter of 2024, respectively. The increase in our adjusted effective tax rate this quarter is due to some shift in income mix to higher tax jurisdictions during 2025. The third quarter includes an adjustment to bring the year-to-date taxes to 25.5% adjusted effective tax rate, which resulted in a $0.03 impact to our third quarter EPS. Our fourth quarter and full-year guidance assumes this higher 25.5% tax rate, and we expect this higher tax rate to continue into 2026. GAAP diluted EPS was a record $0.97 in the third quarter, up 102% compared to the prior year period, and on an adjusted basis, diluted EPS increased 86% to a record $0.93 compared to $0.50 in the third quarter of 2024.

This was an outstanding result. Operating cash flow in the third quarter was $1,471,000,000, or 117% of net income, and free cash flow was $1,215,000,000, or 97% of net income. Also an excellent result. From a capital standpoint, inventory days, days sales outstanding, and payable days were all within a normal range. During the quarter, the company repurchased 1.4 million shares of common stock at an average price of approximately $109, and when combined with our normal quarterly dividend, total capital return to shareholders in the third quarter of 2025 was approximately $354 million. As noted in the earnings release, the company has increased its quarterly dividend by 52% to $0.25 per share, effective for payments beginning in January of 2026. Total debt on September 30th was $8.1 billion, and net debt was $4.2 billion.

Total liquidity at the end of the quarter was $10.9 billion, and this included cash and short-term investments on hand of $3.9 billion, plus availability under our existing credit facilities, including the $4 billion term loan facility recently put in place in anticipation of the CCS acquisition. Third quarter 2025 EBITDA was $2 billion, and our net leverage ratio was 0.7x at the end of the quarter. As of September 30th, the company had no outstanding borrowings under its revolving credit facility or its commercial paper programs. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Thank you very much, Craig, and thank you to everybody for taking the time to join our call today. I hope that all of you are having an enjoyable fall. I can tell you it's a beautiful day here in Connecticut.

I'm going to highlight our achievements in the third quarter. I'll discuss our trends and progress across our served markets, and then comment on our outlook for the fourth quarter and the full year. Of course, we'll have time for questions thereafter. There's no doubt that our results in the third quarter were much stronger than expected, exceeding the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew from prior year by a very strong 53% in U.S. dollars and 52% in local currencies, reaching a new record $6,194,000,000 and nearly $6.2 billion. On an organic basis, sales increased by a very strong 41%, the same level that we actually achieved in the second quarter, and this was driven by double-digit organic growth in all but one of our end markets.

We're very pleased that the company booked a record $6,111,000,000 in orders in the third quarter, and that represented a book-to-bill of 0.99 to 1. Orders grew by a very strong 38% from prior year and were also up 11% sequentially. I have to say that we're particularly pleased to have delivered record operating margins of 27.5% in the quarter, an increase of 560 basis points from our prior year adjusted operating margin and 190 basis points sequentially. This strong profitability is a direct result of the outstanding execution of the Amphenol team around the world, all of whom continue to manage extremely well in a very dynamic environment. As Craig mentioned, our adjusted diluted EPS also grew a very strong 86% from prior year, reaching a new record of $0.93.

The company converted those earnings into record operating and free cash flow in the quarter of $1,471,000,000 and $1,215,000,000, respectively, both clear demonstrations of the quality of the company's earnings. Finally, I'm very pleased that our board has approved a 52% increase in the company's quarterly dividend to $0.25 per share. I just can't express enough my pride in the Amphenol team. I would just say that our results this quarter once again reaffirm the value of the passion, discipline, and agility of our entrepreneurial organization as we continue to drive superior performance. Now, as we announced in mid-August, we're very excited that we signed a definitive agreement to acquire Trexon for approximately $1 billion in cash. Trexon is a leading provider of high-reliability interconnect and cable assemblies, primarily for the defense market, and expects to generate 2025 sales and EBITDA of approximately $290 million and 26%, respectively.

We're very excited about the incremental potential that Trexon's capabilities will bring to Amphenol, and we look forward to welcoming the entire Trexon team to the Amphenol family. We continue to expect this acquisition to close by the end of the fourth quarter. We're pleased as well to announce that we closed on the acquisition of Rochester Sensors earlier in the third quarter. Based in the Dallas, Texas area, and with annual sales of approximately $100 million, Rochester is a leading manufacturer of highly engineered application-specific liquid-level sensors for the industrial market, with a particular focus on propane, heavy vehicle, and refrigeration. The company has a strong and long-respected brand in the sensor industry and no doubt will be a great complement to our already broad sensor offering. In addition, we remain excited about the pending acquisition of the CCS business from CommScope.

Given our good progress on the path towards closing, we now expect to close CCS by the end of the first quarter of 2026, about a quarter sooner than originally anticipated. We remain confident that our acquisition program will continue to create great value for Amphenol. In fact, it is our ability to identify and execute upon acquisitions and then to successfully bring these new companies into the Amphenol family that remains a core competitive advantage for the company. Now, turning to our trends across our served end markets, I would just note that we continue to be very pleased that the company's end market exposure remains diversified, balanced, and broad. This diversification continues to create great value for the company, enabling us to participate across all areas of the global electronics industry, while not being disproportionately exposed to the volatility of any given market or application.

The defense market represented 9% of our sales in the quarter, and sales grew from prior year by a strong 29% in U.S. dollars and 23% organically. This is really driven by robust growth across virtually all segments of the defense market, with contributions in particular related to space, naval, communications, and ground vehicle applications. Sequentially, our sales grew by 8%, which was higher than our expectations coming into the quarter. Looking into the fourth quarter, we expect a mid-single-digit increase in sales from these already lofty third-quarter levels. For the full year 2025, we expect sales to increase by more than 25%. I would just note that this outlook does not include any impact from the Trexon acquisition. We remain encouraged by the company's leading position in the defense interconnect market, where we offer the industry's widest range of high-technology products.

Amidst the current dynamic geopolitical environment, countries around the world continue to expand their investments into both current and next-generation defense technologies. With our existing offerings, as well as the complementary capabilities that Trexon will bring, we're positioned better than ever to capitalize on this long-term demand trend. The commercial aerospace market represented 5% of our sales in the quarter. Sales increased by 17% from prior year and 16% organically, as we benefited from increasing production levels of our customers, together with our continued progress in expanding our content on next-generation commercial aircraft. Sequentially, our sales grew by 7% from the second quarter, which was better than our expectations coming into the quarter. Looking into the fourth quarter, we expect a mid-single-digit sales increase from these third-quarter levels.

For the full year 2025, we expect sales to increase in the high 30% range from last year, helped by the acquisition of CIT back in 2024. I'm truly proud of our team working in the commercial air market. With the ongoing growth and demand for jetliners, our efforts to expand our product offering both organically and through our acquisition program continue to pay real dividends. In particular, I just want to mention that we're very pleased with the progress of the CIT team, who's now completed more than a full year as part of the Amphenol family. We look forward to further capitalizing on our expanded range of product solutions for the commercial air market long into the future. The industrial market represented 18% of our sales in the quarter, and sales in this market grew by 21% in U.S. dollars and 11% organically.

That was really driven by organic growth in all three geographies. In particular, our organic growth was driven by strong performance in factory automation, medical, instrumentation, industrial electric vehicles, and our heavy equipment segments. On a sequential basis, sales grew by 5% from the second quarter, which was better than our expectations coming into the quarter. As we look into the fourth quarter, we expect sales to moderate slightly from these third-quarter levels. For the full year 2025, we expect our sales to grow by approximately 20%, reflecting both strong organic growth as well as the benefit of acquisitions. We remain encouraged by the company's strength across the many diversified segments of this important market. As demand continues to recover, I'm confident in our long-term strategy to expand our high-technology interconnect antenna and sensor offering both organically as well as through complementary acquisitions.

Indeed, with the acquisition of Rochester Sensors, we have further broadened our sensor offering for the industrial market. That strategy has really enabled Amphenol to capitalize on the many electronic revolutions that are taking place across the diversified industrial market, thereby creating continued opportunities for our outstanding team working in this important area. The automotive market represented 14% of our sales in the quarter, and sales in the third quarter grew by 13% in U.S. dollars and 12% organically, as we once again drove growth in all regions. Sequentially, our sales grew by 8% from the second quarter, which was actually much better than our expectations coming into the quarter. That really reflected the ability of our team to quickly execute on a wide range of opportunities around the world. For the fourth quarter, we expect a moderate sales decline from these third-quarter levels.

For the full year 2025, we expect sales to increase in the mid to high single-digit range from 2024. I remain very proud of our team working in this important market. While there are no doubt many areas of uncertainty in the global automotive market, 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 strengthened position in the automotive market for many years to come. The communications networks market represented 11% of our sales in the quarter. Sales grew from prior year by 165% in U.S. dollars and a strong 25% organically, as we benefited from the ANDREW acquisition that we completed earlier this year, as well as from increased spending by both communications network operators and equipment manufacturers.

Sequentially, our sales grew by 8% from the second quarter, which was better than our expectation for sales to remain flat. As we look into the fourth quarter, we do expect sales to decline in the low teens range on normal seasonality. For the full year 2025, we expect more than 130% growth driven by the acquisition of ANDREW, together with robust organic growth. With our expanded range of technology offerings following the acquisition of ANDREW earlier this year, we're well positioned with both service provider and OEM customers across the global communications networks market. Our deep and broad range of products, coupled with an expansive manufacturing footprint, have positioned us to better support customers around the world. As those customers continue to drive their systems to higher levels of performance, we look forward to enabling these important networks for many years to come.

The mobile device market represented 6% of our sales in the quarter, and sales moderated by 3% in U.S. dollars and organically, as growth in wearables, as well as basically flat sales enhanced year-over-year, was more than offset by moderations in sales related to laptops and tablets. Sequentially, our sales did grow by 18% from the second quarter, which was much better than our expectations coming into the third quarter. As we look into the fourth quarter, we expect sales to increase modestly from these levels. For the full year 2025, we expect sales to grow in the low single-digit range compared to 2024. I remain very proud of our team working in the always dynamic mobile devices market, as their agility and reactivity have 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 mobile devices, we're well positioned for the long term. Finally, the IT Data Comm market represented 37% of our sales in the quarter. Sales in the quarter grew by a very strong 128% in U.S. dollars and organically, and that was driven by the continued acceleration in demand for our products used in artificial intelligence applications, together with continued robust growth in our base IT Data Comm business. I'm really proud of our team's outstanding execution here in the third quarter, as we were once again able to significantly outperform our expectations in this very exciting market. On a sequential basis, sales increased by 13% from the second quarter, and that was substantially better than our expectation for mid to high single-digit decline.

This outperformance is actually driven both by sales of AI-related products as well as by growth in our base IT Data Comm business. As we look towards the fourth quarter, we expect sales to increase slightly from these very strong third-quarter levels. For the full year of 2025, we expect our IT Data Comm sales to more than double compared to prior year. We are more than ever encouraged by the company's position in the global IT Data Comm market. There's no doubt that our team has done an outstanding job securing future business on next-generation systems with a broad array of customers. The revolution in AI continues to create a unique opportunity for Amphenol, given our leading high-speed and power interconnect products.

Whether high-speed power or fiber optic interconnect technologies, our products are critical components in these next-generation systems, and that creates a continued long-term growth opportunity for the company. Turning to our outlook, and obviously assuming the continuation of current market conditions as well as constant exchange rates, for the fourth quarter, we now expect sales in the range of $6 billion-$6.1 billion and adjusted diluted EPS in the range of $0.89-$0.91. This would represent a sales increase of 39% to 41% and an adjusted diluted EPS increase of 62% to 65% compared to prior year fourth quarter. Our fourth quarter guidance also represents an expectation for full-year sales of $22,660,000,000-$22,760,000,000 and full-year adjusted diluted EPS of $3.26-$3.28. This outlook represents full-year sales and adjusted EPS increases of 49% to 50% and 72% to 74% respectively.

There's no doubt that 2025 has been a very strong year for Amphenol thus far. 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 thereby continue to grow our market position, all while driving sustainable and strong profitability through this year and into the long term. Finally, I'd like to take this opportunity once again to thank our entire global team for what were truly incredible efforts here in the third quarter. They worked unbelievably hard to deliver this level of growth and performance, and I'm truly grateful to each and every one of them. With that, operator, we'd be very happy to take any questions that there may be.

Thank you, Mr. Norwitt. The question and answer period will now begin. Please limit to one question per caller. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We have a question from Steve Fox from Fox Advisors. Please go ahead, Steve.

Hi, good afternoon. Thanks for taking my question. As you guys mentioned, your margins are quite impressive and another record. I was wondering if you could zero in on the incrementals a little bit from two aspects. One is the harsh environment and communications incrementals were 40%. Obviously, volumes are helping, but what else is helping produce that? Secondly, it seemed like you mentioned, Adam, there's a lot of product complexity. We just saw a lot of your products at OCP last week. How does that either help or make it harder to deliver these types of incrementals as you get into next-generation data centers, aerospace, things like that? Thank you.

Thanks, Steve. Yeah, no, listen, we're super proud, obviously, of our results this quarter and specifically the profitability we were able to achieve here in the third quarter after coming off of a really strong quarter, actually, in the second quarter, you know, at 25.6%. This 27.5% profitability for the company is something that certainly took a lot of work and I think really is driven by certainly a few factors. Number one, obviously, we're growing quickly. We had a really great quarter from a growth perspective, and we're continuing to execute in order to leverage that into strong profitability. I think that's what you saw in the quarter. The other part of it is our acquisitions also are doing really well. I mean, you mentioned the [HES] segment. That's kind of where the CIT business sits.

I would tell you that business is performing very well and certainly is contributing to the margins and the conversion margin that you just mentioned in your question. I think the overall profitability of the company is kind of hitting on all cylinders. It's the execution related to the growth of the company, in addition to the acquisitions that we're starting to see real progress on from a profitability perspective. These are things that we're certainly proud of. I think that certainly the value we're adding to our customers, the technology that we're bringing to the table here is being reflected in these margins, and that's kind of the results you're seeing here and these really great results.

Thank you, Craig. Steve, thank you for the question, and thanks for stopping by the booth at OCP. We really appreciate that.

Look, you saw a slice of our products there, which certainly reflect an increasing complexity, primarily related to the IT Data Comm market. There's no doubt that as interconnect products have become more fundamental to the performance of the systems, the networks into which they're incorporated, there is more being demanded of those products. They become more complex, whether those are higher speed products, whether those are high-power products. To make those products, to design those products, to innovate around those products, to develop the manufacturing processes to make these and to ramp those products up at scale and at the speed that our customers in the market would like to have, this is not a trivial task whatsoever. I'm just so proud of our team for really working over many, many years to build the fundamental building blocks that have ultimately allowed us to be so successful.

I would also say this, it's not confined to that market. We see interconnect products across all of our end markets becoming increasingly high technology, having increasing complexity around them. Whether you're talking about in the defense market, in commercial aerospace, where we can now offer a broader suite of value-add interconnect products to our customers, in part because of the CIT acquisition and what that brought. If you look at the Trexon acquisition that we announced this quarter, which brings us into even more advanced, complex interconnect assemblies for customers in the defense market, we see that across the industrial market as well, the automotive market, and certainly in the communications networks with the complexity of the products, the antenna products, the interconnect products that came along with the ANDREW acquisition. I would tell you that today, more than ever before, customers recognize the importance.

They rely upon the technology value of interconnect products, and they represent a bigger hurdle for many of our customers, one that we can solve. You asked, interestingly, that question around margin out of the same breath as that question around product complexity. I don't think the two are unrelated. Yes, it's hard to do that. If you are creating more value for your customers through the technology of your product, by creating that value, then maybe those customers will be willing to share some small part of that value also with you that's embedded in that complex technology of the products. I think that's something that Amphenol is, that we certainly as a company are seeing more of today than ever before.

Thank you. Our next question goes to the line of Amit Daryanani with Evercore. Please proceed.

Good afternoon, everyone. Thanks for taking my question. Adam, last quarter, I think we talked about $150 million of AI performance in the June quarter was driven by our execution, and that resulted in, I think, you focused initially guiding IT Data Comm revenues down mid-single digits or so. As you think of the better performance you just had in that segment, I think you focused that it's up 13%. How much of that do you think was driven by the traditional IT Data Comm markets doing well versus AI? If there's a way to parse that out, it would be really helpful. How do you feel about the broader inventory levels in the AI ecosystem as you wrap this year getting to calendar 2026? Thank you.

Thank you very much, Amit. I appreciate the question. If you think about our performance in the third quarter, I'd say it's pretty balanced. I can't get super granular about this. You never know on exactly the margins of what product does it exactly go into. I would say our impression is that it's pretty balanced, our upside in the quarter between AI-related and then more traditional data comm. Relative to inventory, we don't see any signs of anything abnormal. There's no doubt, in the third quarter, we obviously beat our expectations, and there was clearly more demand from our customers, and we were able to satisfy that demand.

Even though we came out of the second quarter with, as you talked about it, maybe shipping a little bit ahead to what our customer demand was anticipated, the demand got better here in the third quarter, and our team was able to flex to really react to that, both on the AI as well as the more traditional IT Data Comm side.

Thank you. Our next question goes to the line of Guy Hardwick from Barclays Capital. You may proceed.

Hi, Guy. Good afternoon, Adam, and team. Obviously, with so much of the incremental growth coming from IT Data Comm, it's natural for investors to kind of fret about major architectures in AI. Can you kind of allay any concerns about Amphenol content on, say, the Kyber architecture due to coming 2027 versus the Oberon architecture?

Yeah, thanks very much, Guy. I'm not going to talk about specific customers and specific architectures. There's a lot of different design activity going on. What I can tell you is this: why we have been so successful in establishing ourselves as a leader in this unique and high-value architecture of interconnect products in accelerated compute, AI, machine learning, however you want to term it, is a very long-term, multi-decade build-up of our capabilities on high-speed and also power products. Also, commensurate with that, building up the capabilities to make these advanced products and to ramp those products up when our customers need them. Those capabilities have enabled us to continue to win with customers up and down the stack of the AI ecosystem. People want to talk about one or another platform, but there are lots of things going on in AI.

We treasure our relationships with each of those customers, and we work directly with customers up and down the stack, from the folks who are really the service providers all the way down through the equipment manufacturers, the data center builders, and down through to the folks who are designing and specifying the chip-based architecture. I can tell you that we have a strong position today, and we have a strong position in future platforms, really up and down that stack.

Thank you. Our next question comes from the line of Luke Junk from Baird. You may proceed.

Good afternoon. Thanks for taking the question. Maybe a simple question, but a more complex answer. Adam, just wondering how you think about book-to-bill at this level of growth. It just seems like at these levels, maybe that becomes a less meaningful metric to look at. I think some of your sales are shorter-term in nature, especially in IT Data Comm, just how that's impacting the book-to-bill measure as well. Thank you.

Thanks, Luke. Actually, it's a very good question. I think you're kind of spot on. With these growth levels, the fact that our bookings grew also in the quarter on a year-over-year basis by 38% and that we had so much upside in the quarter in terms of our revenues to what our expectation was, yet we still managed to have a book-to-bill that was really just under 1. I think it rounds to 0.99, but, I mean, more than $6.1 billion in orders in the quarter. I would say that when we were in the earlier part of the ramp-up, in particular this ramp-up related to IT Data Comm and specifically related to AI, there's no doubt that our book-to-bill was a very strong book-to-bill, in particular because we were making a lot of significant investments, and it was very much on the comm.

Our customers wanted to give us the confidence that we would make those various investments. Now, look, I can't tell you what the cadence of bookings will be here in the fourth quarter. We don't give guidance for bookings for that reason. It's very hard to tell. Maybe it'll be above one or below one, and we shall see. Is it a shorter cycle? What I would say about this IT Data Comm specifically is there's no question that as we've gone through this cycle of the build-out and the ramp-up, our lead times have certainly come down relative to what they were early on as we were building out the capacity. As your lead times come down, that naturally has an impact on your book-to-bill and creates a slightly shorter cycle. I think that's not also totally far off base either, Luke.

Thank you. Our next question comes from the line of Samik Chatterjee from JPMorgan. You may proceed.

Oh, good. Hi, Adam. Thanks for taking my question. Maybe just putting IT Data Comm aside, the recovery and the strong organic growth you had in the other end markets as well, like industrial communication networks, like really strong growth in all of them. Maybe one, how are you sort of overall looking at the landscape relative to 90 days ago? Have things in those underlying end markets improved? What is the visibility? I get that maybe book-to-bill isn't the best metric to look at for IT Data Comm, but what is the visibility of the book-to-bill in those end markets giving you in relation to future demand? Is the visibility improving with the book-to-bill numbers as well there? Thank you.

Yeah, no, thank you very much, Samik. I mean, look, it's hard to say that we don't have a more positive view today than we would have had 90 days ago, really broadly across the company with the performance that we had here in the quarter. Growing sequentially as we did by 10% is really an outstanding performance, especially compared to what our expectations were coming into the quarter. If you look at our performance across really all of our end markets, with the small exception of mobile devices, which was slightly down year over year, all of our end markets were up in double digits organically. Honestly, if you even took IT Data Comm totally out of our performance in the quarter, we would have organic growth in kind of the mid-teens levels, which to me sounds like pretty good performance.

There's no doubt that we feel incrementally positive on the overall landscape. In terms of book-to-bills in the other markets, I would say that we had some favorable book-to-bills. In particular, I would say like defense, we have pretty strong book-to-bill in that market. I'd say others are plus or minus, but certainly not negative. I think we feel incrementally encouraged, and that ultimately goes into our expectations where we look next quarter, for example, in the defense market, commercial aerospace market, those two in particular to be up kind of in the mid-single digits on a sequential basis, which is a very strong finish for each of those areas.

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

Yes, good afternoon. Thank you very much for taking my question. Adam, you mentioned the company saw a better-than-expected strength in the auto market in the third quarter, and you spoke to some of that being a function of Amphenol executing well against opportunities that came up in the quarter. Could you speak a bit more on what some of those opportunities were and what was supporting that strength that the company saw in 3Q? Maybe just give a bit more color on what you're seeing in the auto market for the fourth quarter, please. Thanks.

Thank you very much, Mark. I mean, look, I think our team did well on a global basis in automotive in the third quarter. I mean, growing really sequentially in all regions, growing pretty strongly in all regions on a year-over-year basis, including, by the way, we saw double-digit organic growth in Europe, which is maybe not what one reads in the papers every day. We feel really good about the performance, and I'm really pleased with our team there. You know, look, there's a lot of moving pieces in automotive right now. You hear about lots of different things, different government policies impacting certain automotive demand. You hear about different supply chain things going on, plus or minus, in that area.

As we look into the fourth quarter, taking all of that into account, we expect a sort of modest sequential reduction here in the fourth quarter, which is not totally abnormal. Sometimes we'll see that in a fourth quarter for automotive. Our position is really strong. In addition, I would tell you that we're really pleased to see a kind of growth in that market in new kind of platforms, EVs, where we've had strong performance in our automotive last quarter, but also in traditional and hybrid vehicles around the world. I think it's a pretty broad-based positive view that we had, which I think does contrast with maybe some of the more cloudy things you read about every day in the paper. I try not to read all these cloudy things too often.

Thank you. Our next question goes to the line of Andrew Buscaglia with BNP Paribas. Andrew, your line is open.

Morning, Andrew, or good afternoon, I should say.

Good afternoon. I wanted to check on, you know, your margins have been great, and you're talking about this kind of higher incremental margin shift. Yet your guidance to get to the midpoint of your guidance, it doesn't imply margins would step down. If you look historically, usually they're flat or up from Q3. I was wondering, are there some dynamics in there that are causing that or anything you want to call out ahead of that?

Yeah, thanks a lot, Andrew. Yeah, no, listen, our fourth quarter kind of guidance here certainly, I think, is actually very strong, both from a top line and the bottom line perspective. I mean, we're guiding down slightly. Our margins in the fourth quarter, kind of implied, are slightly down, but also revenue is slightly down. We're talking about, you know, not a significant, I think, a 2%, I think, on the high-end sequential decline. I guess I wouldn't call out anything too specific. The reality is that at these revenue levels, at these growth levels, there will be some variability in margins. We're going to, you know, I think we talked about our 30% kind of conversion, you know, or approaching 30% on the growth.

I would think, you know, when we have some declines, you're going to see a little bit higher conversion on the decline than you would typically see at these margin levels that we're at. I wouldn't call anything out too specifically. We are, as I've mentioned before, adding some level of cost, you know, kind of given the significant growth we've seen and the inability to necessarily add some costs as quick as you can when you're growing kind of 40% organically or 41% in this quarter. I would say maybe that's having a slight impact, but maybe I would say modest. This implied margins, I think, still would be close to 27%. This is not a significant drop in margin. I think this is still a very good overall profitability for the company. Certainly, we believe sustainable as we continue to grow.

There will be some level of variability for sure.

Thank you. Our next question comes from the line of Wamsi Mohan from Bank of America. You may proceed.

Yes, thank you so much. Adam, can you talk a little bit about the opportunity that you see on the power side as these AI-driven data centers and outstanding op racks that are consuming maybe 2x-3x of a 100 kW rack, which itself used to be a lot lower just a year ago? Maybe you can just address some of the products that are driving that opportunity for you. If I could, Craig, could you just talk about the CapEx trajectory? It was slightly down quarter on quarter. I think you had expected it to be flat. How should we think about the trajectory from here? Thank you so much.

Thanks, [Wamsi]. I'll let Craig talk about CapEx first, and then I'll talk about the power products.

Sure. Thanks, [Wamsi]. Yeah, you know, the capital we spent, I would say we spent in the range of what we expected to spend in the quarter. I mean, there's no precision around exactly what you're going to spend in the quarter. We expected kind of in the ballpark of what we had in the second quarter, and we were slightly under that, but I think still kind of roughly where we expected to be. I think we hadn't really, I haven't mentioned the fourth quarter. I guess I would expect kind of to be in a similar range, maybe slightly higher than we were in the third quarter in the fourth. These are, given the level of growth we've had, given the revenue that we've had, we're kind of growing into our capital spending right now, which we would expect to do.

That's certainly, you know, so we're closer to kind of, again, the higher upper end of that kind of 4% kind of target that we would typically have. That's what we did here in the third quarter. I kind of would expect it, you know, roughly in that range as we move forward, certainly into the fourth quarter here.

Yeah. Look, relative to power, power is a big story here. I'm not saying anything none of any of you don't know. There's no doubt that power in these next-generation architectures is a really fundamental part of the operating of the systems. We've been involved in power connectors essentially since the birth of the company. If you think about our legacy back into military and industrial, high-power, high-voltage, we've been making interconnect products related to really high-power consumption systems for most of the modern history of Amphenol, which means that we have dialed in the knowledge of what it means to be handling so much power, the safety, the efficiency, the throughput of the power, this concept of millivolt drop, and all of that that goes along with it.

We're involved in a very complex way across a lot of different interconnect products, complex interconnect assemblies, bus bars, board-level, circular interconnect, bringing power. As soon as the power gets to the side of a building, we're helping it get all the way around there, all the way until it gets to the board of the chips. As you mentioned, AI is only going to increase in the needs of power. I have to say, I use these tools probably more than most. I am just dived in head and shoulders into using AI. I will admit that once in a while, when I'm doing something pretty complex and it's waiting a little bit, I get a little pang of guilt that I might be using a little more power. I was making immunology models for my daughter who's studying for a test last night.

I see the little thing thinking and know that that's probably burning a few light bulbs of power while doing that. I think our job at Amphenol, our job at Amphenol to do this is to make sure that as little as possible of that energy that comes in the building is lost through the interconnect products, that ultimately our products are the most efficient and the safest so that the maximum amount of electrons can make their way to where they need to go, which is to the GPUs and to the associated things that go on these systems. If we can do a good job at doing that, and we're pretty good at doing that, we've been developing that skill for many decades, our customers are going to keep relying on us to support them. I'm really proud of what our team has done here.

I look forward to more opportunities related to power in the future.

Thank you. Our next question comes from the line of Asiya Merchant from Citigroup. You may proceed.

Great. Thank you very much. Great results here. If I may, Adam, I know you talked a lot about how the interconnects are now creating more value. I think it's pretty well understood on the AI side. I do get questions from investors on the other end markets. You know, where is that extra value that is being created that can sustain the incremental margins that you're talking about? Sort of related to that, how do you think about the competitive dynamics now, whether it's within the IT Data Comm or outside within the other end markets that you participate in? Thank you.

Thank you very much, Asiya. Hopefully, I pronounced your name correctly there. Sorry about that. Look, there's no doubt that, as I mentioned earlier, we see interconnect becoming increasingly embedded with more technology, increasingly complex, and thereby increasingly creating value for our customers across the entire gamut of this wonderful array of markets that we serve. You know, how is that happening and why is that happening? It gets to just the intensity of electronics that our customers are embedding in their products to create more functionality, more value for the end customers. Everything from a combine that is cutting down soybeans or corn in the Midwest now operating as an autonomous vehicle where one driver can drive five of these massive farming machines as opposed to having to have five drivers to do that. Mining equipment, the same, with autonomy, with hybridization of the drivetrains.

Across the defense industry, we just see so much more complex adoption of electronics that thereby then requires a more complex interconnect system. The density, the number of different nodes, the sensors, and the processes that are being associated therewith, all of this adds up together to create a complexity and a need and ultimately an opportunity for us to create value for our customers. We have a lot of competition to your second question and everywhere that we operate. It's up to us to create a sustainable advantage for our company through our technology, number one, through our capability and capacity to build that technology, number two, and then ultimately through our agility, reactivity, and speed.

That last piece of it, that last piece of it comes from that unique Amphenolian culture that I talk till I'm blue in the face about because it ultimately is the nucleus of what makes this company successful. We will always have competition, and we respect those competitors. There are some wonderful companies, large, medium, and small around the world with whom we have really wonderful competition. At the end of the day, if we can develop a better product, if we can build that product at scale, and if we can do that in an agile, fast, and flexible fashion, I believe that we'll continue to be able to win more than our fair share and thereby be able to outperform the market.

We've done that for more than a quarter century, and I have a lot of confidence that we'll be able to do that for many years to come.

Thank you. Our next question comes from the line of Joe Spak from UBS. You may proceed.

Thanks. Good afternoon. I just want to go back to some of the incremental margin commentary from every form, particularly by segments, because I understand growth is really the largest driver here. Is there anything structural between the segments that we think can impact incremental margins? Like, you know, if you look at comm services and harsh environments, you know, similar incrementals this quarter, but comm services grew three times as fast as harsh. Is there some more investment that's needed there? If we think about the interconnect and sensor segment, is there anything that's ultimately preventing that segment from also hitting, you know, 30%+ incrementals if they achieve faster growth? Thanks.

Thanks for the question, Joe. I mean, I think the short answer is I don't think there's anything structural in any of the segments that's limiting them from or enhancing their profitability. I mean, there's no doubt that the ACS segment has had a significant amount of growth. When we talk about kind of adding cost to support kind of 40%+ organic growth, we're talking about also adding cost to support, I think, the 74% organic growth or whatever they had in the quarter. Certainly, there's some of that in that segment that maybe is more than some other segments in terms of adding some of those costs that will catch up a little bit over time. These are modest amounts. These aren't things that are going to have a super meaningful impact on the overall profitability of the segment or on the company.

I think all of the segments have the ability to continue to grow their margins and continue to expand over time. AISS, actually, I would say I'm particularly proud of this quarter, achieving 20% profitability operating margins in the quarter. Just outstanding performance by that segment. Actually, they did achieve, I believe, sequentially about 30% conversion margin in that segment. They absolutely have the capability and the opportunity to continue to do that, I think, in the future. I would say all three of our segments have the opportunity to continue to expand margins. Certainly, the level of growth that each of those have will have some impact on the margin expansion.

Overall, I think this 30%, the kind of targeted long-term target we have here as we come down to normal levels of growth over time, I think we're doing much better than that right now, is something that all of them will contribute to.

Thank you. Our next question comes from the line of William Stein from Truist Securities. You may proceed.

Great. Thanks for taking my question and congrats on the great quarter and outlook. Adam, in the last couple of meetings we had, you discussed incremental automation that you're doing in the IT Data Comm business. I think you noted that it helps you meet high product performance requirements, high quality standards. I think you talked also about time to market and time to volume. Maybe that even helps your print position with customers overall. I'd love to hear any further clarification on that effort, especially if there's anything afoot to extend what you're doing there beyond the IT Data Comm end market, which is where it came up. Thank you.

Thanks very much, Will. Thanks for your kind comments. Yeah, we did talk about this. I think I mentioned this in the past in our quarterly calls, that when I think about the building blocks of our success, I mentioned, you know, it's about having a great product and building the fundamental engineering elements, the technology elements that go into those products. Then it's about how do you make those products at volume, at quality, and ramp those in a time that's expeditious, especially in this kind of, you know, hyper speed, you know, speed of light kind of world that we are in right now. Over the last, you know, I don't know, 10, 15+ years, you know, we've been kind of around in our sort of typical Amphenol decentralized way, developing an enormous amount of in-house capabilities related to automation.

I wouldn't even say that those capabilities started out necessarily related to IT Data Comm. I mean, we were doing a lot of automation in our mobile business and others. No question that as we designed these next-generation products, as the product lifecycle shortened, it became imperative that we have our own capabilities to automate so that we could do that automation in lockstep with the product design and validation, as opposed to design and validate a product, then go outside and ask someone to make an automation machine for you, which could take another year plus. At the end of the day, it comes back and it's not what you wanted. Working hand in hand between our design engineers, our automation engineers has allowed us to really shorten that cycle.

It has allowed us to make sure that when you have these products that are operating at the highest levels of performance, high speed, for example, you know, that those products are so sensitive. There's such a delicacy and a precision to those products that really they need to be automated in order to ensure the good performance of the product. Now, in terms of going beyond IT, I mean, we've been doing this for a long time as well. As entrepreneurial and decentralized as we are, we also talk about the company as being collaborative entrepreneurship. There's been an enormous amount of collaboration, unstructured, not incented in any funny way. It's not like some matrix structure of an automation corporate team or anything like that. There's a really organic kind of effort around the company to work with each other to see where automation really makes sense.

I would tell you that in every one of our end markets, as products get more complex, as the sort of cost environment changes, as the trade environment changes, whatever, we are adopting automation in places where it really makes sense. Now, are we just saying, you know, from above, thou shalt automate everything? Absolutely not. This is a decision left to our general managers who know their products, who know what their customers need, who know where they make the products, who know the life cycles, and who ultimately own the financial assets that they're creating when they make these automations. Having that push down to 140 general managers, but enabling that through the collaboration across the company, has been a really good recipe. We see a lot of automation around the company, but it's reasonable automation. It's homegrown automation.

It's lower cost automation and thereby allows us to have our cake and eat it too in terms of the flexibility and the low cost of the company.

Thank you. Our next question comes from the line of Joseph Giordano from TD Cowen. You may proceed.

Good afternoon. Thanks for taking my question. This is Michael on for Joe.

Thank you. You mentioned earlier strong year-over-year and sequential performance on the commercial aerospace side, and then mentioned some potential for like content or share gains in that area. Do you mind just diving through the different parts of aerospace or the applications that are related to some of those content gains or share gains? Thank you.

Thank you very much. We're really pleased with our commercial air business, and in particular, the really quantum increase in the breadth of our products that came from the CIT acquisition a year ago. As we have conversations with customers around the global commercial air market, you can imagine we're having conversations at every part of the plane where there's electronics. Today, there's very few parts of a big airplane that don't have some degree of electronics, from the engines to the avionics to the entertainment systems, cabin management systems, safety systems, all the way to something as mundane as a coffee maker or a lavatory. These things all have now electronics on them.

With CIT joining Amphenol, together with our interconnect, our wonderful value-add business that we already had, the connector products, the cable and wire products that CIT brings, and very complex interconnect assemblies as well that we can now do together with them, we really have the broadest product offering of interconnect products for the commercial air market at a time when that technology and the push of electronics into planes continues to grow. I think that just puts us in a very strong position. In addition, I would tell you that our global footprint has been also a great asset because customers are very sensitive to making sure that you can support them around the world.

Now having even a broader footprint, again, with CIT and other steps that we've taken internally, we have not only the right product, not only the right breadth of product, but also the right capability to make those products where our customers need them to be made.

Thank you. Our last question will go to the line of Scott Graham from Seaport Research. Your line is open.

Hey, good afternoon. Great quarter. Thanks for taking my question, squeezing me in. You've answered a lot of the questions I had around incremental margins and their movement. I was just wondering if we can maybe flip the script a little bit and talk about acquisitions. You guys have obviously been very active the last couple of years. To the extent, Adam, that you are able to comment on perhaps what you're missing, your wish list, and does that wish list perhaps include some of the end markets that you have kind of imported with new acquisitions, either newer end markets that we've talked about with the deal flow, or markets where you are already in, but you've really increased your critical mass in them with the deals? Could acquisitions be more tuned toward some of these newer verticals going forward?

Yeah, thanks very much, Scott. M&A is something near and dear to our hearts. There's no doubt that over the last three years, the company has made more acquisitions and also more fundamentally large acquisitions. I don't want to use the word transformative because none of these are at that level that you would say that's a merger of equals or anything like that. We've clearly accelerated the expansion of our offering for our customers across our end markets. At the same time, even with the growth that we have had and the great array of wonderful new companies that we have brought into the Amphenol family or we will soon bring into the Amphenol family in terms of those that haven't closed yet, like CCS and Trexon, there's a lot of opportunity in this industry. This is a highly fragmented industry.

The interconnect industry is just such a wonderful place when you think about the fact that interconnect products go into every place where you have electronics. I mean, we estimate it's a market of more than a quarter trillion dollars in size. Even with our superlative growth this year, we still see a lot of room to grow both organically as well as through our M&A program. Do I have a wish list of companies? I'm certainly not going to articulate names of companies here, but I can tell you this. We look at great companies across all of our end markets. We never put all our eggs in one basket. We don't chase a thing of the moment in M&A. We take a very, very long-term view of our acquisition program. We look for companies. We develop relationships with them for many, many years.

I have been developing certainly relationships with companies since I was an intern in the company 27 years ago. We'll continue to do that, and my team will continue to do that. We take a very, very long view on M&A because, at the end of the day, when we make an acquisition, it's for life. We're not a trader. We're not buying and selling things all the time. If it doesn't work out, we develop long-term relationships, and we're not chasing what's the right thing in the market at that moment. I think that's been a great recipe for us for a long time. It's been a great return on the wonderful cash that we have generated, and it's one where we continue to see great potential for many years to come.

Thank you. We currently have no further questions, so I'll hand back to Mr. Norwitt for closing remarks.

Amphenol (APH) Q3 2025 Earnings Call Transcript

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