Hello, and welcome to the Second Quarter 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. 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 second quarter 2024 conference call. Our second quarter 2024 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. In addition, as a result of our recently announced two-for-one stock split effective on June 11, 2024, all share and per share data discussed on this earnings call is on a split-adjusted basis. The company closed the second quarter with record sales of $3.610 billion and GAAP record adjusted diluted EPS of $0.41 and $0.44, respectively. Second quarter sales were up 18% in US dollars, 19% in local currencies, and 11% organically compared to the second quarter of 2023. Sequentially, sales were up 11% in US dollars, in local currencies, and up 8% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $4.061 billion, up 33% to the prior year and up 21% sequentially, resulting in a strong book-to-bill ratio of 1.12:1. GAAP operating income and operating margin were $699 million and 19.4%, respectively, which included $70 million of acquisition-related costs primarily associated with the CIT acquisition. Excluding these costs, adjusted operating income was $769 million, resulting in a record adjusted operating margin of 21.3% in the second quarter of 2024. On an adjusted basis, operating margin increased by 90 basis points from the prior year quarter and 30 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by strong operating leverage on higher sales volumes, which was partially offset by the dilutive impact of acquisitions completed in the prior 12 months. On a sequential basis, the modest increase in adjusted operating margin reflected a strong conversion on the higher sales levels partially offset by the dilutive impact of acquisitions made in the second quarter, particularly CIT, which is currently operating well below the company's average profitability levels. We are very proud of the company's operating margin performance in the second quarter, which reflects continued strong execution by our teams. Breaking down second quarter results by segment compared to the second quarter of 2023: Sales in the Harsh Environment Solutions segment were $1.046 billion, an increase of 18% in US dollars and 1% organically, and the segment operating margin was 24.8%. Sales in the Communications Solutions segment were $1.445 billion, increased by 24% in US dollars and 23% organically; segment operating margin was 24.3%. Sales in the Interconnect and Sensor Systems segment were $1.119 billion, an increase of 12% in US dollars and 7% organically; segment operating margin was 18.2%. The company's GAAP effective tax rate for the second quarter was 20.4% and the adjusted effective tax rate was 24%, which compared to 21.9% and 24% in the second quarter of 2023 respectively. We continue to expect our adjusted effective tax rate to be at 24% in the third quarter and for the full year of 2024. GAAP adjusted EPS was $0.41 in the second quarter, up 11% compared to the prior year period. On an adjusted basis, diluted EPS increased 22% to a record $0.44 compared to $0.36 in the second quarter of 2023. Operating cash flow in the second quarter was $664 million or 120% of adjusted net income and, net of capital spending, our free cash flow was $528 million or 95% of adjusted net income. We are pleased to have continued to deliver a strong cash flow yield in the quarter despite our slightly increased levels of CapEx. I would note that while our second quarter capital spending was higher than the first quarter, it was still within our normal range. We continue to expect somewhat elevated levels of capital spending in the coming couple of quarters as we invest to support the growth we are seeing in the defense and IT datacom markets. From a working capital standpoint, inventory days, days sales outstanding, and payable days were 84, 69, and 56 days respectively, all within normal levels. During the quarter, the company repurchased 3.1 million shares of common stock at an average price of approximately $62. When combined with our normal quarterly dividend, total capital return to shareholders in the second quarter of 2024 was more than $320 million. Total debt at June 30 was $5.4 billion and net debt was $4.1 billion, and total liquidity at the end of the quarter was $4.3 billion, which included cash and short-term investments on hand of $1.3 billion plus availability under our existing credit facilities. Excluding acquisition-related costs, second quarter 2024 EBITDA was $900 million, and at the end of the second quarter of 2024, our net leverage ratio was 1.2 times. As a result of the $1.5 billion US bond offerings completed earlier in the second quarter and the subsequent closing of CIT in May, we expect quarterly interest expense net of interest income earned on cash on hand to be approximately $45 million in the third quarter. The company is in a very strong financial position and we continue to be well-positioned to fund future opportunities as they arise. In particular, we are well positioned to fund the pending acquisition of the own and DAS businesses of CommScope for a purchase price of $2.1 billion, which we expect to close by the end of the first half of 2025. We will fund this acquisition through cash on hand and debt. Finally, as mentioned in today's earnings release, the company's Board of Directors has approved a 50% increase in the company's quarterly dividend to $0.165 per share, effective preferred payments beginning in October of 2024. I will now turn it over to Adam, who will provide some commentary on current market trends.

Well, thank you very much, Craig, and I'd like to extend my welcome to all of you here on the phone today. I hope that you and your family, friends, and colleagues are enjoying a very nice summer so far. As Craig mentioned, I'm going to highlight a few of our achievements in the second quarter. I will spend a few moments reviewing our recently closed and announced acquisitions. I'll talk about our trends and progress across our served markets, and then we'll make some comments on our outlook for the third quarter. Of course, we'll have some time for questions at the end. Our results in the second quarter were stronger than expected, exceeding the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew from the prior year by 18% in US dollars and 19% in local currencies, reaching a new record $3.61 billion. On an organic basis, sales increased by a strong 11% with growth in IT datacom, defense, commercial air, mobile networks, mobile devices, and automotive, only slightly offset by moderations in the broadband and industrial markets. Importantly, the company booked record orders of $4.061 billion, representing a robust book-to-bill of 1.12:1. I would just note here that our bookings were particularly strong from IT datacom customers focused on artificial intelligence or AI. Adjusted operating margins reached a record 21.3% in the second quarter, a strong 90 basis point increase from last year's second quarter. Adjusted diluted EPS grew 22% from the prior year to a record $0.44. We also generated strong operating and free cash flow in the quarter of $664 million and $528 million, respectively, both clear demonstrations of the high quality of the company's earnings. As Craig mentioned, we announced this morning a 50% increase in the company's quarterly dividend to $0.165 per share, effective with our October dividend payment. I just want to say how proud I am of our team here this quarter, as the results they drove once again reflect the strength of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. As you know, our M&A team has once again been very busy of late. I'm very pleased to announce that on May 21, we closed the previously announced acquisition of CIT, previously called Carlisle Interconnect Technologies. I'm very excited to welcome the talented CIT team to the Amphenol family, and we really look forward to realizing the benefits of the combined breadth of our company's highly complementary product solutions, which will enable us to offer our customers an expanded array of innovative technologies across the important commercial air defense and industrial markets. In addition, we're pleased to have signed a definitive agreement to acquire Lutze. Lutze is a leading provider of harsh environment cable and cable assembly solutions for high-technology applications in the industrial markets. This acquisition includes two businesses: Lutze US based in North Carolina and Lutze Europe based in Germany. In May, we closed on the acquisition of Lutze US, which has annual sales of approximately $75 million. We expect to close on Lutze Europe, which has annual sales of approximately $100 million, by the end of the third quarter of 2024. The Lutze acquisition is a great complement to our broad offering of high-technology interconnect products for the worldwide industrial market and, in particular, strengthens our range of value-add interconnect products. Finally, just last week, we announced an agreement to acquire the mobile networks-related businesses of CommScope for a purchase price of $2.1 billion. We're really excited to be acquiring CommScope's Outdoor Wireless Networks or OWN and Distributed Antenna Systems or DAS businesses. These businesses provide exciting mobile network solutions with advanced technologies in the areas of base station antennas and related interconnect solutions as well as distributed antenna systems. I just want to mention that we're especially encouraged that the businesses we are acquiring really make up the former Andrew Corporation portfolio of products, a company with a rich history of innovation and technology in the wireless industry. These businesses are expected to generate revenues of approximately $1.2 billion with EBITDA margins of approximately 25% in 2024. This represents operating margins in the high teens, including our current estimate of post-acquisition-related amortization. We really look forward to supporting customers who are developing next-generation wireless networks around the world with these advanced solutions, as well as with our own existing complementary interconnect products. Most importantly, we look forward to welcoming the approximately 4,000 employees of these businesses around the world. There's no doubt in my mind that these talented individuals will make great future Amphenolians. As we welcome these outstanding new teams to Amphenol, and we look forward to the future closings of Lutze Europe and CommScope OWN and DAS, we remain confident that Amphenol's acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions and successfully bring these new companies into Amphenol remains a core competitive advantage for the company. Now turning to our trends across our served markets, I would just comment that we're very pleased that the company's end market exposure remains highly diversified, balanced, and broad. This diversification continues to create great value for Amphenol, enabling us to participate across all areas of the global electronics industry, while not being disproportionately exposed to the risks associated with any given market or application. The defense market represented 11% of our sales in the quarter. Sales in this market grew from the prior year by a strong 14% in US dollars and 10% organically, driven by broad-based growth across most segments within the defense market. Sequentially, our sales increased by 9%, which was a bit better than our expectations coming into the quarter, driven in part by the earlier-than-anticipated closing of CIT. Looking to the third quarter, we expect sales to increase in the mid-single-digit range from the second quarter levels, including the benefit of acquisitions. We remain encouraged by the company's strengthened position in the defense market, where we continue to offer the industry's widest range of high-technology interconnect products. Amidst today's highly dynamic geopolitical environment, countries around the world are expanding their investments in both current and next-generation defense technologies, thereby increasing the long-term demand potential for Amphenol. With the addition now of CIT's highly complementary products to our portfolio, we're better positioned than ever to support our customers with new products and the capacity to supply them wherever they may be needed. The commercial aerospace market represented 5% of our sales in the quarter. We had another strong quarter with sales increasing by a robust 60% in US dollars and 9% organically from the prior year, as we benefited from the addition of CIT during the quarter, as well as continued progress in expanding our content on next-generation commercial aircraft. Sequentially, our sales grew by 46% in US dollars from the first quarter, as we benefited from the addition of CIT. On an organic basis, our sales were flat sequentially which was a bit better than we had anticipated coming into the quarter. Looking into the third quarter, we expect sales to increase in the mid-40% range as we benefit particularly from a full quarter of CIT sales. I'm truly proud of our team working in the commercial air market. Now with the addition of CIT, we offer the broadest range of high-technology interconnect products to our customers in this important area. With the ongoing growth in travel and thus the demand for jetliners, our efforts to strengthen our product offering while diversifying our market position into next-generation aircraft are paying real dividends. We continue to see great long-term opportunities for expansion of our technology offering to this important market and look forward to realizing the benefits of our growth initiatives for many years to come. The industrial market represented 24% of our sales in the quarter and sales in the second quarter did grow 9% in US dollars from prior year, as we benefited from acquisitions. On an organic basis, sales declined by 5%, as we saw moderations in most segments on a year-over-year basis of the industrial market. Sequentially, sales grew by a better-than-expected 7% from the first quarter, driven primarily by acquisitions but our organic sales were up slightly on a sequential basis. Looking at the third quarter, we expect sales to grow in the mid-single-digit range sequentially, driven by the benefit of our recent acquisitions. While the industrial market certainly has been experiencing a pause as customers and distributors have adjusted their demand levels, we are encouraged to see some early signs of momentum growing in certain areas of the industrial market. In addition, with the additions this quarter of CIT and Lutze US, we now have an even broader range of products and capabilities to offer customers across the diversified industrial market. I'm confident that our long-term strategy to expand our high-technology interconnect antenna and sensor offerings both organically and through complementary acquisitions has positioned us to capitalize on the many electronic revolutions that will no doubt continue to occur across the industrial market. This creates opportunities long-term for our outstanding team working in this market. The automotive market represented 21% of our sales in the quarter and sales grew 6% in US dollars and 5% organically, driven by strength across newer automotive applications. Sequentially, our sales moderated by 4% from the first quarter, which was in line with our expectations coming into the quarter. I would note that we did see some incremental softening of demand in Europe in the quarter. As vehicle manufacturers there moderated their production volumes, that was offset by a more favorable performance in North America and Asia. For the third quarter, we do expect sales to be slightly down from these levels, as certain automakers have slowed their summer production schedules. I'm truly proud of our team working in the automotive market. Our continued outperformance is yet another confirmation of the benefit of our team's focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. This includes electrified drivetrains as well as a multitude of other exciting applications. We look forward to benefiting from our strong position in the automotive market for many years to come. The mobile devices market represented 8% of our sales in the quarter and sales grew by 6% in US dollars and 7% organically as strength in smartphones and wearables more than offset moderations in sales related to laptops. Sequentially, our sales increased by 9%, which was much better than our expectations for a mid-single-digit decline, and we really did see sequential growth across all segments of the mobile devices market, which was encouraging. Looking into the third quarter, we anticipate sales to increase by approximately 20% from the second quarter levels, as customers prepare for year-end new product launches. While mobile devices will always remain Amphenol's most volatile end markets, our outstanding and agile team remains well positioned to capture any opportunities for incremental sales that may arise in 2024 and beyond. Our leading array of antennas, interconnect products, and mechanisms continues to enable a broad range of next-generation mobile devices, thereby positioning us well for the long term. The mobile networks market represented 4% of our sales in the quarter and sales grew by 13% in US dollars and 7% organically, as we did see the beginning of a recovery in our sales to network operators and wireless equipment manufacturers after a number of quarters of demand moderation. Sequentially, sales in the quarter increased by a strong 22%, which was much better than our expectations coming into the quarter. Looking to the third quarter, we do expect some moderation from the strong second quarter levels on traditional summer seasonality. We're encouraged by the recent strengthening in the mobile networks market, as operators ramp up their investments in next-generation systems. Our team remains focused on realizing the benefits of our long-term efforts to expand our position in next-generation equipment and networks around the world. Now with the pending acquisition of the OWN and DAS businesses from CommScope, we look forward to participating even more strongly in these next-generation networks for years to come. The IT datacom market represented 24% of our sales in the quarter. Sales in the second quarter grew by a very strong 57% in US dollars and 56% organically, driven by the continued acceleration in demand for our products used in next-generation AI data centers. While the vast majority of this growth did result from our expanding position in AI Interconnect, we were encouraged to also see some improvements in base IT datacom demand. On a sequential basis, sales increased by a strong 29% from the first quarter, substantially better than our expectations coming into Q2. Looking into the third quarter, we expect sales to grow modestly from these elevated second quarter levels. We're more encouraged than ever by the company's position in the global IT datacom market. Our team continues to do an outstanding job securing future business on next-generation IT systems, particularly those enabling AI. Indeed, the revolution in AI has created a unique opportunity for Amphenol. Given our leading high-speed and power interconnect products. With machine learning driving more intensive usage of these highest technology interconnect products, we're very well positioned for the future. 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. Finally, the broadband market represented 3% of our sales in the quarter and sales did decline by 17% in US dollars and organically from the prior year, as broadband operators continued to reduce their procurement levels. On a sequential basis, sales were flat as we had anticipated. Looking into the third quarter, we expect a further moderation of sales sequentially. Regardless of this current muted demand environment, we do remain encouraged by the company's continued strong position in the broadband market, and we look forward to continuing to support our service provider customers around the world as they eventually increase their spending to enhance network coverage and bandwidth in support of the proliferation of high-speed data applications to homes and businesses. Now, turning to our outlook, and assuming the continuation of current market conditions as well as constant currency exchange rates. For the third quarter, we expect sales in the range of $3.7 billion to $3.8 billion and adjusted diluted EPS in the range of $0.43 to $0.45. This would represent sales growth of 16% to 19% and adjusted diluted EPS growth of 10% to 15%, compared to the third quarter of 2023. As is our usual practice, this guidance does not include acquisitions that have not yet closed but does include CIT and Lutze US, both of which are currently operating below the corporate average level of profitability. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment while continuing to grow Amphenol's market position and driving sustainable and strong profitability over the long term. Lastly, I want to take this opportunity to thank our entire global team for truly outstanding efforts in the second quarter. With that, operator, we'd be more than happy to take any questions.

Thank you. The question-and-answer period will now begin. Our first question is from Wamsi Mohan with Bank of America. Please go ahead.

Yes. Thank you so much. Adam, really impressive order growth over here. Big, big numbers. Can you just talk about how much of that was driven by AI? Are you seeing a lot of new programs kick in? And how do we square that with your expectation of a moderate increase here in IT datacom for the third quarter? Thank you.

Yeah. Well, thank you very much, Wamsi. Look, we were very encouraged by the orders this quarter. And as I mentioned, our 1.12 book-to-bill, far and away, the biggest driver of that was a very significant book-to-bill that we saw in the IT datacom market. No doubt about it, I mean there's a significant portion of that that is being driven by AI. And this is existing programs that we've already won, new programs that we are winning, a really broad array of momentum that we have across AI. I’m just so proud of our team, who is leveraging our leading position in high-speed and power to continue winning in these extraordinarily complex systems. Regarding your question on the third quarter and the guide related to our sales, we shouldn't forget, these are some of the most complex interconnect products ever built that we are making in many cases. They have to be that way because of what our end customers are trying to achieve with AI is really phenomenal. The phenomenal array of growth of these next-generation models that are being trained, the intensity of the interconnect, the requirements of both speed, high—ultra-high-speed, ultra-low latency, the complexity of these systems, because you're effectively having to connect every GPU or TPU or whatever it may be to every other one in order to create this sort of fabric-like network. There is an enormous amount of technology involved in these things. And we've talked about also in the past that for some of these systems, it requires also some meaningful investments upfront. While our CapEx last quarter was kind of in line with our normal historical, I think Craig did mention that we continue to expect some elevated CapEx here in the second half. The orders that we're getting from customers in many ways have slightly opened the order aperture to give us more confidence in extending ourselves in those investments in order to ensure that these significant new products, with all the challenges associated with them, that we're building the right capacities to do that. I'm not talking about massive extensions in these order apertures, but these are not necessarily just orders for the next quarter alone. As we look at our order book, we look at our backlog related to AI, it gives us confidence not just for the quarter ahead but for a long term to come.

Thank you. Our next question is from Amit Daryanani with Evercore. You may go ahead.

Yes, good afternoon everyone. Thanks for taking my question. I guess I'll stick to the AI theme. Adam, maybe there's obviously a lot of focus on what does the AI opportunity really mean for Amphenol. So, I'm wondering if you could spend some time just framing on how do you see this opportunity playing out for you? Is it bigger with hyperscalers or semiconductor companies for you? And is there a way to think about maybe how much of the incremental, let's say, $300 million of revenues you had in June was AI driven versus not? Thank you.

Thank you very much, Amit. The answer is all of the above. I mean at the end of the day, there are folks who are spending money to build AI data centers. Those tend to play down to the chip companies. I think what's unique about AI is these systems are so much more complicated, and there's so much more technology embedded in them that we are working through the stack of that entire chain in making sure that our products are doing the right thing at each level. From that perspective, it's a little bit unique compared to traditional IT datacom, where we work with just OEMs or just service providers. I say here we work with companies up and down the stack in significant ways. In terms of the growth over the prior year, I mean, you've characterized our growth, which is just over $300 million on a year-over-year basis. Most of that growth really came out of AI. We've been careful not to put specific numbers. In fact, it's not always easy to tell what is exactly AI and what is exactly not AI. You can safely say, it's the vast majority of our growth on a year-over-year basis. On a sequential basis, I would say that the strong majority of our growth also came from AI, but not all of it. We were encouraged to see some growth in the base IT demand, which has been a long time coming. It was not the easiest market over the last 6 to 8 quarters. It's encouraging to finally see meaningful growth from that sort of base IT investments, which we always expected would come.

Thank you. Our next question is from Samik Chatterjee with JPMorgan. You may go ahead.

Hi. Thanks for taking my question. Adam, I'm actually going to switch gears here and ask you about the acquisition of CommScope, particularly in terms of when you think about mobile networks. You mentioned you're starting to see somewhat of a cyclical sort of spending recovery from your customers. But I think investor perception generally for that mobile networks business has been that service providers don't really need to spend massively until we get to 6G. Maybe if you can sort of outline why now, why now the acquisition, how you're thinking about the outlook for the next few years? And what drove the decision here to double down on this mobile networks business? Thank you.

Yes. Well, thank you very much, Samik. From a vernacular perspective, we'll call this Andrew. So it's not to confuse anybody, because we're not buying all of CommScope; we're buying the mobile networks business from CommScope, which is essentially Andrew that was acquired by them in 2007. Andrew is just a fabulous company. I mean as I mentioned in my prepared remarks, it's a fabulous organization with a rich legacy of technology and an outstanding enabler of all generations. I mean they go back all the way to 1G and 2G and 3G and 4G and now 5G as a core partner in enabling those next-generation networks. Yes, for the last year or 1.5 years, we've seen more muted demand in mobile networks. We're encouraged to see that now. I’m not going to tell you that we're smart enough to have timed this announcement exactly when we started to see that market turn; I think that's more coincidental. This is a company that we have admired for a long time. The why now, I think is not necessarily that there is a 'now.' It just happened that this was the right time for them and for us in how these discussions go. But the long term, I will say this: the long term for mobile networks is something that we do believe in as a component of the broad diversified presence that we have across the electronics industry. The fact is, all these things that we're talking about: be they AI or next-generation communications or mobile devices or whatever, we are accessing these by and large through mobile networks today, not through fixed line. By the way, we cover fixed line; we still have our broadband business as a way to be present whenever people are getting Internet through a cable or otherwise. We want to be present in a high-technology way as a partner to our customers in every way that people are accessing data. Over the long term, there's no doubt in my mind that the highest growth way people are going to access data is in a disconnected fashion through mobile networks. Yes, there's 5G today, where there's still a lot of work to be done to build that out. There will be a 6G, there will be a 7G, there will be an 8G. I've been in the company long enough to have watched these generations unfold, and we want to be a participant in that. Doubling down, I mean sure, this is going to significantly expand our position in the mobile networks market, which I would argue today is somewhat underrepresented at 4% of our sales last quarter. This is not doubling down for all of Amphenol; after we make this acquisition, mobile networks may represent somewhere in the high single digits roughly of our sales. I would also contextualize that over the last 18 months; we’ve made, we've now completed 12 acquisitions and we've signed two others, Lutze Europe and now Andrew to be closing in the future. We’ve made these acquisitions across the range of Amphenol’s served markets. So this is a strategic acquisition from a product technology perspective. It’s great from a global customer relationship perspective. It’s great for overall Amphenol and what it brings, not to mention that the 4,000 people that one day will join our organization—many of whom have worked for the company all the way back when it was in fact Andrew—are going to make fantastic Amphenolians in the future.

Thank you. The next question is from Luke Junk with Baird. You may go ahead.

Thank you for taking the question. Adam, maybe a near-term question, but you mentioned in your prepared remarks that, of course, you've been seeing a pause in the industrial markets that you were encouraged by some early signs of momentum in the quarter. Could you just double check on what you're seeing in some of those areas, be it geographically or by end market? And maybe if you could frame it up with what you're seeing in terms of orders as a leading indicator, that would be helpful as well? Thank you.

Yeah. Thanks very much, Luke. Look, starting with orders, I mean we were encouraged—we haven't had a positive book-to-bill in the industrial market for a while. It was more than just 101:1; it was a decently positive book-to-bill that we had in industrial. So that I would say is encouraging sign number one. I would say encouraging sign number two is that we saw with our distributors, in particular, on a sequential basis, and even on a year-over-year basis, growth in demand from our distributors—the demand they put upon us. That's a great early indication that the kind of inventory corrections that were happening with the end customer and in the distribution channel seem to be largely behind us. I never want to be the one to call a bottom, but I'm encouraged that we actually had meaningful growth on a sequential basis in distribution from the first quarter, and when I say meaningful, I'm talking about high-teens kind of growth rate on a sequential basis from distribution. That growth is broad from distribution but also from the distribution that is within industrial. If you look at our guidance for the third quarter, yes, we were on a year-over-year basis in the second quarter organically down, but we were actually up slightly sequentially in industrial. My guide for the third quarter would have us be kind of flattish sequentially on an organic basis. I talked about the fact that we will grow, but that growth is driven by the new acquisitions. This is not to say that all is perfect in industrial, but I think the cognition of the orders and the behavior of distributors are two pretty good early signs. As we get into the third quarter, 90 days from now and we see how that goes, I will give everybody a little bit more visibility to whether that is in fact happening. You mentioned geography; there's no doubt that industrial trends are diverging geographically. We actually saw organic growth in the quarter on a sequential basis in North America and Asia, while we saw continued organic declines in Europe. So I think Europe is certainly not out of the woods right now, but it's encouraging that we see this in distribution. North America has a little bit more distribution than Europe does, and to see the growth we are seeing now in Asia.

Thank you. Our next question is from Asiya Merchant with Citigroup. You may go ahead.

Great. Thank you for taking my question. Just double click on operating margins, really strong here in the communications segment. As you continue to see AI momentum here, how should we think about both incremental operating margins going forward? And just broadly EBIT margins going forward? Thank you.

Yeah. Thanks a lot for the question. We're really proud of the operating margins here in the second quarter and 21.3% record operating margins; that's obviously including part of the quarter where we have CIT, which is well below the company average, kind of in the low double-digit range. There were a few things happening that contributed to these operating margins. Certainly, in some of the markets that are growing, including IT data market and military, those businesses continue to execute well on the higher growth rates. On the other side of that coin, we have certain markets in certain businesses that are not growing—in industrial, we talked about a little bit. They’re doing a good job protecting their margins. Overall, I wouldn't focus on one particular area, but I think as we continue to grow and drive volume, we should be able to continue to drive our margins up into that kind of 25% targeted conversion margins we talk about. Clearly, CIT will have a bit of an impact here in the third quarter, as you see that in our implied guidance from a sequential perspective. Organically coming into the third quarter, we're still converting very well, excluding the CIT impact, and we feel really good about the margins and the expansion potential as we move forward here in the year.

Thank you. Our next question is from Joe Spak with UBS. You may go ahead.

Thanks so much. I want to go back to Andrew. So, I’m getting the nomenclature right now. Just a couple of quick things. One, the 25% EBITDA margins you sort of highlighted on that deal. I mean, again, just looking at some of the historical looks a little bit higher. I just wanted to understand if you were building in any sort of synergies or anything else into that? Or that's just a forecast? And then two, I noticed in the release you said EPS accretive ex-transaction costs, and I'm sure you're still going through some of the deal amortization and other issues. But you generally run that through. So is it also just straight EPS accretive? Should we expect that?

Sure. Yes. No, I think this is just to start with the EPS accretion part. We haven't called that out, because I think it's a little bit far into the future to start calling out EPS accretion and certainly will be EPS accretive. It's very strong profitability. Adam mentioned in his prepared remarks; this is high teens operating margin, assuming the amortization we would expect based on our current estimates post-acquisition. We certainly expect a good level of EPS accretion after the acquisition. Regarding the 25% EBITDA, there are certainly no synergies; we're not anticipating any synergies. We don't talk about synergies typically, as you know, our approach when acquiring companies and bringing them into the Amphenol family is we don't try to make significant changes. We enable the businesses to expand margins while helping them do so as part of Amphenol. That will be our continued playbook in addition to closing this Andrew business.

Thank you. Our next question is from Guy Hardwick with Freedom Capital Markets. You may go ahead.

Hi, good afternoon.

Good afternoon, Guy.

Hi. Thanks Adam for the background on Andrew Core. Just a question: Why so long to close? Because I think it's—by your timetable, it's looking like a 10 to 11 month close compared to say four months for CIT?

Yes. No, look, I think in any company, there's a regulatory process. They operate in a lot of countries since they sell to mobile network operators around the world. When you have lots of different geographies, that can sometimes cause a longer time period. But there’s nothing more fancy about it than that.

Thank you. The next question is from Scott Graham with Seaport Research. You may go ahead.

Hey, good afternoon. Thank you for taking my questions. I wanted to just understand the nature of the restructuring charge and maybe the payback on that? If I could squeeze in a second one: Adam, you commented that you were seeing some of your automotive manufacturers slowing production. I'm hoping you could elaborate on that. Thanks.

Yes. I mean, I don't know what restructuring charge you're talking about. We did talk about a $70 million acquisition-related charge, which is acquisition expenses, which includes the payments to various advisers who help us do the deal together with some amortization of backlog and things like that. This is not a restructuring charge. You usually will not hear Amphenol talking about restructuring. Relative to auto, I think what I mentioned is that we do see—in particular, some of the demand expectations for our customers going into the third quarter are a little bit more muted. However, our guide is that this is not a severe change in the volumes. It’s just a very modest change here in the third quarter.

Thank you. Our next question is from Andrew Buscaglia with BNP Paribas. You may go ahead.

Hey guys. I wanted to check on mobile devices. Correct me if I'm wrong: I think you said you're guiding that up 20% sequentially. And presumably, there's some renewed optimism around that's being driven by an upgrade cycle of devices. Can you talk about first off, can you confirm that, and then secondly, how do you in past cycles tend to participate in upgrade cycles? Is it early on, later on, or how does that play out in line?

Yes. Well, thanks very much, Andrew. I mean look, I think we had a very strong second quarter in mobile devices, much stronger than we anticipated coming into the quarter. Now with a guide of 20% sequential growth on a higher than we had anticipated baseline here in the third quarter, I mean, I think that's a fairly positive view. Is that due to upgrade cycles? Yes, I guess every year in mobile devices there are new releases. These are very short life cycle products. There tend to be new products every year. Whether there's a more significant upgrade cycle—I wouldn’t tell you that that’s necessarily what we're discounting for here. As always, we have a team of folks who work in mobile devices, who are extraordinarily agile, and we've demonstrated over many years of participating in this market that when there are additional sales to be had, we have always been able to capitalize and get more than our fair share of that. We'll see what happens here this year. This is probably a more normal outlook that we would have, and it remains to be seen. To your question of when we would participate: if people are making more devices, then we’ll sell more components to go on those devices. When they build them depends largely on the type of demand they see from their customers. Our job is not to anticipate that but rather to react in real-time when there are changes in the demand. If there are favorable changes, we’ll manage through that and I’m sure we'll do well. If there are not favorable changes, our team will adjust in real-time to preserve the bottom line, and that’s how we've always operated.

Thank you. Our next question is from Mark Delaney with Goldman Sachs. You may go ahead.

Yes. Good afternoon, thank you very much for taking my question. With the CIT transaction and the proposed Andrew deals both over $2 billion and I think the largest Amphenol has done in its history. I was hoping you can help us to better understand if the degree of diligence Amphenol does changes for deals of that size including as you think about cultural fit. How do you think about the ability and your confidence in getting the margin performance and execution to more typical Amphenol levels over time when taking on these larger businesses? Thank you.

Well, thanks very much, Mark. I mean look, you can imagine that we are very serious in both our diligence and in our interactions with the people. The bigger the company, the more people you're going to want to interact with. It’s linear from that perspective. We had a very significant review and diligence with both CIT and these businesses from CommScope, which we will refer to here as Andrew. We engage in diligence on integrity of the numbers but also in cultural perspective. From integrity, Carlisle and CommScope are both great companies. They’re public companies; they report great numbers. The starting point here is that these are public companies with audited financials from reputable big four auditing firms. We value the cultural aspects in learning about the people, understanding whether they are passionate about being a part of Amphenol, do they see the potential, and do they feel liberated by being part of an interconnect company in the case of CIT, or being able to be a stand-alone business in the case of Andrew, this is really important because we always preserve management. We are not going to buy a company like this if we hear from the management team that they’re not committed to being part of our company going forward. I can tell you that both inside CIT and Andrew, the folks are extremely passionate, extremely excited to be part of the Amphenol organization. Relative to margins, we've been making acquisitions for many years, as you know, Mark. We don’t have just one recipe for how do companies improve their operating margins to bring them up to or above the corporate average. There are no sacred cows. Margin is price minus cost. We seek to expose them to their sister and brother companies around the world for them to see some ways that other Amphenolians have improved their companies over time. CIT is a lower-margin player today; Andrew is operating at higher levels of profitability. But we see great long-term opportunities with both on the top and bottom line. How that will happen, these are exciting businesses with lots of different inputs and outputs. I'm very confident the management team will find a way, and we'll support them in this.

Thank you. Our next question is from Will Stein with Truist Securities. You may go ahead.

Okay, great. Thanks for taking my question. Adam, congrats on all the deals you've announced recently, some really big ones, in some storied companies, with Andrew in particular. It sort of forces me to wonder about management's bandwidth to deal with all these, to potentially continue to look at deals. I know that you've added, I think, a new layer of management that might have been several years ago to facilitate adding in bigger acquisitions. We're starting to see something like that. I wonder whether you have the management bandwidth to continue to look at new deals and to do even more or perhaps, you're going to have to put a pause on deals for a while. Thank you.

Well, thank you, Will. I mean, look, you asked a question that is so close to my heart. I think I've even used this with you before. I view my job as CEO of Amphenol really twofold: to protect the culture of the company, and to scale the company given that culture. Call it to protect and to scale. Not quite like the NYPD: to protect and to serve. Over the last 20 years or so, I think we've done an outstanding job of both of those things. The culture of the company today, across our more than 135 or 137 general managers, that Amphenolian culture of entrepreneurship is stronger today than ever before. The vibrancy and strength of that entrepreneurship is amazing; I see it all over the world as I travel around to meet with our people. We have scaled the company. Two-and-a-half years ago, we took a big step in the company’s evolution with the creation of three divisions run by division presidents. Each of those are reportable segments, and that was a natural evolution that goes back to the beginning of the 2000s when we created our first operating groups. We now have 15 of these operating groups—each roughly $1 billion in size. We have three global divisions. This has created enormous bandwidth for us, both to pursue organic growth opportunities, which are still core to the company, but also to expand our acquisition program. We have continued to open the aperture of both the number and scale of the deals we do. We look back and say we are continuing to expand in both number and size of our acquisitions. This is a reflection of the successful scaling of the Amphenol culture. CIT and Andrew will be in different divisions; they report to different division presidents. You can bet those individuals are working extraordinarily hard on getting to know the companies, doing due diligence, and ultimately bringing them successfully into the Amphenol family. We would not have been able to do this if we hadn’t have evolved the organization. Today, we have almost limitless capability to do that, coupled with a balance sheet that is second to none.

Thank you. Our next question is from Steven Fox with Fox Advisors. You may go ahead.

Hey, good afternoon. Just one more on CommScope. Can you talk, Adam, a little bit from a technology standpoint about how you plan on leveraging all the antenna portfolio you will have, combined, cable assemblies, connectors, etc., as part of one big organization? That would be helpful. Thanks.

Yeah. Look Steve, I think it's early, we’ve just signed the deal, and we're obviously going to go through a regulatory process. Once we get through that, we'll be thoughtful about the company. Amphenol has been in RF connectors from the beginning; we invented the world's first RF connector back in 1941. Andrew was one of the innovators in antenna technology for mobile networks. The combination of those two legacies is going to create enormous value for our customers. I can tell you having talked to several customers; they feel very excited about Amphenol as a home for this important partner for them.

Thank you. Our last question is from Joe Giordano with TD Cowen. You may go ahead.

This is Michael on for Joe. Previously you guys adjusted like AI revenues to probably annualizing around $800 million, and there's probably a path to $1 billion or so for next year. Can you just provide any color on customer CapEx required to support this AI growth? If you could also provide clarity on how margins compare versus the rest of the portfolio, I would greatly appreciate it. Thank you.

Yeah. Thanks very much. Again, we've given some good directional guidance on the scale of this. I talked about the fact that the vast majority of our growth on a year-over-year basis is really growth in AI. There was some AI already a year ago in the second quarter. I think we've talked quite a bit about the order patterns and the potential CapEx required for this. I don't want to repeat myself. What I would say is that the customers want to work with us because of our technology. The performance levels these systems are being run at are so extraordinary that it consistently comes back to do you have that product number one? And do you have the capacity and competency to build that product? The capacity and competency to build is something we’ve demonstrated over years of different revolutions in IT datacom, but it does require significant investments to support this real revolution in AI investments.

And just from a margin perspective, we wouldn't call out any significant difference in the AI product line. It's certainly margin accretive, but not meaningfully different from the rest of the portfolio of products that we have. It’s a good business, and we want all of our businesses to continue to grow and provide margin contribution, which we expect will happen.

Thank you. And our last question comes from Saree Boroditsky with Jefferies. You may go ahead.

Hi. Thanks for fitting us in. Just going back to the industrial commentary, you talked about distribution growing meaningfully sequentially. Do you have a sense of underlying demand getting better? Or is this just the end of destocking? Thank you.

Yes. Thanks very much, Saree. I mean, look, the end of destocking usually just means that end demand starts to match with the demand put on us by the distributors, because it wouldn't be a restocking if you will. If you think about how that would normally go, customers start to reduce demand. Distributors are left with too much inventory; they reduce demand by even more. Once they get to a level they feel good about, then they try to match their end demand with the demand put on us. I don't think that our distributors are necessarily restocking, but probably they're matching what they're seeing. That’s why I say, without saying that industrial is booming here, I think the early signs of positive book-to-bill that we saw together with the sequential and somewhat year-over-year momentum from distributors is a good sign for industrial, but we'll see how it goes through the third quarter and through the end of the year.

And I'll now turn the call back over to Mr. Norwitt for any closing remarks.

Well, thank you very much, we truly appreciate everybody's time today. I do hope that all of you get a little bit of a chance to take some time off this summer, and we look forward to being back with you here in the fall—just 90 days from now. Thank you very much.

Thank you.

Thank you for attending today's conference, and have a nice day.