Earnings Call Transcript - APH Q4 2025

Operator, Operator

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.

Craig Lampo, CFO

Great. Thank you so much. Afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. I would like to wish everyone a Happy New Year and welcome you to our 2025 conference call. Our fourth quarter 2025 results were released this morning. I'll provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then 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. Please refer to the relevant disclosures in our press release for further information. The company closed 2025 with record sales of $6.4 billion and GAAP and adjusted diluted EPS of $0.97 and $0.93, respectively. The fourth quarter sales were up 49% in US dollars, and 37% organically compared to 2024. For the full year 2025, sales were approximately $23.1 billion, up 52% in US dollars, 51% in local currencies, and 38% organically compared to 2024. We are very encouraged by our orders in the quarter, which were a record $8.4 billion, up a strong 68% compared to 2024 and up 38% sequentially, resulting in a very strong book-to-bill ratio of 1.31 to one. This impressive book-to-bill in the quarter was primarily driven by robust bookings in the IT datacom market related to AI applications. For the full year, orders were $25.4 billion, up 51% compared to 2024, resulting in a book-to-bill ratio of 1.1 to one. GAAP operating income was $1.7 billion in the quarter, and GAAP operating margin was 26.8%. Excluding acquisition-related costs, adjusted operating margin was 27.5% and adjusted operating income was $1.8 billion, respectively. On an adjusted basis, operating margin increased by a strong 510 basis points from the prior year quarter and was flat sequentially.

Adam Norwitt, CEO

Well, thank you very much, Craig, and I also would like to offer my best New Year's wishes to all of you here. Craig and I are here in the winter wonderland of Wallingford, Connecticut, and it's a real pleasure to talk to you about our fourth quarter and full year achievements. I'll highlight some of those achievements, and then, as Craig mentioned, I'm going to discuss the trends across our served markets. We'll make some comments on the outlook for the first quarter, and then, of course, we'll have time for questions. Turning to the fourth quarter, there's no doubt that Amphenol had a strong finish to a very successful 2025. With sales and adjusted diluted earnings per share in the fourth quarter both exceeding the high end of our guidance. Sales grew by 49% in US dollars and 48% in local currencies, reaching a new record of $6.439 billion. And on an organic basis, our sales increased by 37%, with robust growth across nearly all of our served markets. As Craig mentioned, we booked a record $8.4 billion of orders in the fourth quarter, which represented a very strong book-to-bill of 1.31 to one. These orders grew by 68% from the prior year and were up 38% sequentially. We're also pleased in the quarter to have delivered adjusted operating margins of 27.5% in the quarter, which matched our record-setting margins in the third quarter and which represented an increase of 510 basis points from the prior year. This superior profitability is a direct result of the outstanding execution of the Amphenol team around the world. Our adjusted diluted EPS in the quarter grew by 76% from the prior year, reaching a new record of 97¢. Finally, the company generated record operating and free cash flow in the fourth quarter, $1.7 billion and $1.5 billion, respectively. Both clear reflections of the quality of the company's earnings.

Craig Lampo, CFO

Breaking down fourth quarter results by segment. Compared to 2024, Sales and Communication Solutions segment were $3.4 billion and increased by 78% in US dollars and 60% organically. Segment operating margin was 32.5%. Sales in a Harsh Environment Solutions segment were $1.7 billion and increased by 31% in US dollars and 21% organically. And segment operating margin was 27.6%. Sales in Interconnect and Sensor Systems segment were $1.4 billion, increased by 21% in US dollars and 16% organically. And segment operating margin was 20.1%. For the fourth quarter, the company's GAAP effective tax rate was 26.9%, which compared to 17.4% in the prior year. For the full year 2025, GAAP effective tax rate was 23.1%, which compared to 18.9% in 2024. On an adjusted basis, the effective tax rate of 25.5% for both the fourth quarter and full year, compared to 24% in the prior year periods.

Adam Norwitt, CEO

Our ability to identify and execute upon acquisitions and then to successfully bring these companies into Amphenol remains a core competitive advantage. And there's no doubt that as our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now turning to the full year 2025, 2025 was a uniquely successful year for Amphenol. We expanded our position in the overall market, growing our sales by 52% in US dollars, 51% in local currency, and 38% organically, reaching a new sales record of $23.1 billion. We are very proud to have more than doubled Amphenol's revenues in the past four years. A great reflection of our organization's ability to navigate market dynamics while capitalizing on the broad array of opportunities arising across the electronics industry. Our full year 2025 adjusted operating margin reached a record 26.2%, and that was a robust increase of 450 basis points from the prior year.

Craig Lampo, CFO

We also returned substantial cash to shareholders in 2025, buying back nearly 7.5 million shares under our share repurchase program and increasing our quarterly dividend by 52%. This represented a total return of capital to shareholders of nearly $1.5 billion.

Adam Norwitt, CEO

We remain confident that our acquisition program will continue to create great value for the company. As we look into the first quarter, we expect sales to moderate seasonally by approximately 10% on a sequential basis. I remain very proud of our team working in the important automotive market. And while there are always areas of uncertainty in the global automotive market, our organization continues to be focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles.

Operator, Operator

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.

William Stein, Analyst

Congrats on the very strong results and outlook. First, I'd like to ask about the bookings, which was very strong. I think you highlighted a 1.31 book-to-bill. Adam, that I imagine, must have in it some extended duration orders in the backlog. And I wonder whether that's entirely concentrated or mostly concentrated in IT datacom.

Adam Norwitt, CEO

Look, no doubt. We were very encouraged by the bookings as we came out of the year in 2025, and you know, I'll say a couple of things. I mentioned earlier that, in fact, our bookings were really broadly strong across all of our end markets with maybe I think only one exception. Our book-to-bill was at or above one, and then in a few cases, significantly above one. And there was certainly the IT datacom market specifically related to AI investment was a primary driver of this 1.31 book-to-bill and record orders for the company. To achieve orders of more than $8 billion in the quarter was certainly a milestone for all of us. This is not because of getting in line so to speak. I mean, I think our team's done a fabulous job of ramping up.

Amit Daryanani, Analyst

Adam, can you just talk about the breadth of your offerings when it comes to serving these AI infrastructure customers?

Adam Norwitt, CEO

There's no doubt about it that we have worked for a long time. We can now have that conversation across the entirety of the interconnect spectrum. Our customers just want to get a signal from a place to a place. And it's up to us to work with them to figure out the best way to do that.

Luke Junk, Analyst

Adam, could you maybe speak to integration first steps at CommScope?

Adam Norwitt, CEO

You know, the word integration is not a word in the Amphenol lexicon. We don't have expats. Period. We operate our company as a local company. So when we're in France, we're a local French company. When we're in The UK, we're a local UK company. And that focus on being a local provider in the defense market is something that puts us in a really strong position.

Wamsi Mohan, Analyst

Adam, can you just parse the January IT datacom guide of flattish organically excluding CCS?

Adam Norwitt, CEO

Look, in terms of our ongoing growth in AI, there is no doubt that there continues to be a very robust plan of continuing to drive accelerated computing at a very strong level.

Samik Chatterjee, Analyst

Are you seeing any similar trends for the CommScope business?

Adam Norwitt, CEO

I would also just point out, at the time we acquired, we talked about acquiring a company with strong orders and positive book-to-bill.

Andrew Buscaglia, Analyst

Just a quick one on the underlying trends, any surprises in that quarter?

Adam Norwitt, CEO

I mean, there's no doubt about it. I mean, we saw really broad-based strength throughout the year. I'm excited about our continued position.

Steven Fox, Analyst

With the management challenges you've faced, how do you manage new investments?

Adam Norwitt, CEO

What sets us apart is that unique operating culture of Amphenol. And while there are countless challenges, our people are equipped to deal with them.

Mark Delaney, Analyst

Could you speak a bit more on the margin outlook as you move into 2026?

Craig Lampo, CFO

We expect normal kind of operating margins, and we expect to continue managing our costs effectively.

Asiya Merchant, Analyst

How should we think about CapEx investments into 2026?

Craig Lampo, CFO

We ended the year just a bit over 4%, which is in our historic range. We expect capital spending to still be at the upper end of that range.

Joe Spak, Analyst

Any sense of how large the order book looks here going forward for CommScope?

Adam Norwitt, CEO

CommScope has also had a nicely positive book-to-bill over the recent quarters.

Guy Hardwick, Analyst

How do we square the $8.4 billion order figure with the Q1 revenue guidance?

Adam Norwitt, CEO

I'm not gonna guide to what our orders are going to be in a given quarter. But these are really outstanding orders, and they will carry through longer than just here in the first quarter.

Scott Graham, Analyst

Any part of your defense sales that might not be subject to changes in the budget?

Adam Norwitt, CEO

I wouldn't tell you that we take our position in the defense market for granted, but do we have dibs on this market? We got dibs on this market.

Joe Giordano, Analyst

What are the implications of data centers moving towards 800-volt power?

Adam Norwitt, CEO

What comes out of that is more complexity. And so for us, whether it's one type or another, we have the broadest offering in the industry. Well, thank you very much. And again, I'd like to offer my gratitude to everybody here for taking the time with us today. We look forward to seeing you in ninety days.

Craig Lampo, CFO

Thanks, everybody.

Operator, Operator

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