Everyone, thank you for standing by and welcome to the TE Connectivity Second Quarter Earnings Call for Fiscal Year 2025. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Sujol Shaw. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's second quarter results and our outlook for our third quarter of fiscal 2025. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts. During this call, we will be providing certain forward-looking information and we ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning. We ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables along with the slide presentation can be found on the investor relations portion of our website at te.com. Finally, during the Q&A portion of today's call, due to the number of participants, we're asking everyone to limit themselves to one question, and you may rejoin the queue if you have a second question. Now, let me turn the call over to Terence for opening comments.

Thanks, Sujal, and thank you, everyone, for joining us today. As you're all well aware, we continue to be in a dynamic global environment that has gotten more complex over the past month due to trade dynamics. As Heath and I will cover on today's call, we are performing well and continue to execute on what we can control to deliver strong financial performance as is evident in our second quarter results we published this morning. But before I get into the quarter details and our guidance, I want to begin by sharing how the recent tariff announcements are impacting us and the actions that we're taking to navigate these impacts. I think it's first very important to start by framing TE's business and how global we are. First, it's important to highlight that three quarters of our sales are outside the United States, and we've invested to manufacture close to our customers to be aligned with their supply chains. A second key point is that our manufacturing strategy was developed by working with our customers and has resulted in over 70 percent of our production being localized within each region. When you think about combining the first point of how much of our sales are outside the United States combined with the second point of our manufacturing and our localization strategy, it does result in a small percentage of our sales being impacted by current tariffs with more of the impact being seen in our industrial segment than in our transportation segment for those products that are impacted we have already been working with our customers to minimize the impact we are implementing a combination of mitigation actions this will include sourcing changes by both te as well as our customers as well as where sourcing changes are not possible we will be implementing price actions we will continue to monitor changes to trade policy but due to the mitigation levers i just laid out we do not expect tariffs to have a meaningful impact on our third quarter earnings based upon what is enacted currently and heath will get into more details in his section about the tariff levers i feel our teams are well positioned to navigate this dynamic environment around us to deliver on the value proposition for our owners and our customers our performance and momentum to consistently execute on our business model is reinforced by the current year results which include our strong second quarter and guidance for the third quarter. When we step back from some of the noise, we are hitting on all cylinders as a company. We're growing in line with our business model. Adjusted operating margins are running at the 19 plus percent range. We continue to demonstrate our cash generation model, and we have a strong balance sheet that enables us to continue our balanced capital deployment strategy. So with that as an overall backdrop, and I'm sure we'll cover more in the Q&A, I'd like to get into the presentation, which starts with slide three, and I'll discuss some of the highlights and guidance for the third quarter of fiscal 25. Our second quarter sales were above got into $4.1 billion, and this was up 5% organically and 4% on a reported basis year over year. You know, these results were driven by double-digit growth in our industrial solution segment and what we saw there was very broad based in that growth we had record adjusted earnings per share of two dollars and ten cents and this was ahead of our guidance and up 13 percent versus the prior year adjusted operating margins were 19.4 percent of 90 basis points over last year driven by strong operational performance in both of our segments And the overall expansion was driven by a 260 basis point increase in the industrial segment. Our orders were $4.25 billion, and these were up 6% on both a year-over-year and a sequential basis. And this supports our outlook for the sequential growth into the third quarter. And I'll get into more details on the order levels in a little bit. We delivered strong free cash flow of $1.1 billion in the first half of this year with approximately $1 billion returned to shareholders, and we also announced a 9% increase to our dividend, and this reinforces our strong cash generation model. I also want to highlight that in April, we closed on the Richards acquisition in the industrial segment, and we deployed $2.3 billion related to that acquisition. As we look forward, we are expecting our third-quarter sales to increase sequentially to $4.3 billion, and this will be up 5% organically year-over-year. Our guidance includes a Richards acquisition, as well as two points of pricing related to tariff recovery. Adjusted earnings for shares expected to be around $2.06. This will be up 8% year-over-year. So, if you could, I'd appreciate if you could turn to slide four, and I'll get into more details on the order trends. In the quarter, we saw orders grow to $4.25 billion, and we had a book-to-bill of 1.02. In the transportation segment, our orders were flat versus the prior year, and we had growth in Asia of 18 percent in transportation. That was offset by declines in Europe and North America. The global auto market continues to be uneven by region, and you see the strength of our Asia position in both our orders as well as sales, which is helping to cover weak Western auto markets. Sequentially, we saw orders growth in all business and transportation. In the industrial segment, we continue to see strong order momentum with 13% year-over-year growth and 4% growth sequentially. sequentially, and this growth reflects ongoing strength in artificial intelligence applications, as well as strength in our energy and AD&M businesses. Another thing I would like to highlight is that for the first three weeks of April, we continue to see stable order patterns and a book to build greater than one, which further supports our Q3 guidance. Now let me discuss year-over-year segment results, and I'll start with transportation on slide five. Our auto business was flat organically in the second quarter with growth in Asia of 16% being offset by declines in western regions of 11%. Our sales growth in Asia outperformed a 5% increase in Asia car production and reinforces our strong position in that region. As we look forward, we expect our global content growth to be at the low end of our four to six point range for the second half of our year while we do expect global auto production to decline this year we anticipate electronification across all powertrains to be a key driver for our growth of our market in the second half and as we talked before it'll be driven by software-defined vehicle architecture and the related proliferation of data connectivity in the car we also continue to expect 20 growth in hybrid and electric vehicle production with roughly 80 percent of that production occurring in asia where we're strongly positioned and we produce locally turning to the commercial transportation business the five percent organic decline was as we expected and driven by market weakness in europe and north america that was partially offset by growth in asia we continue to expect this market to be slow next quarter with sales looking a lot like the second quarter and in our sensors business the sales decline was driven by weakness in the broader industrial markets in europe and north america for the transportation segment overall our teams continue to execute well in a slow environment reflected by adjusted operating margins that remained above 20 percent in the second quarter now let's turn over to the industrial solution segment i asked you to turn to slide six and you just start with that the segment had very nice growth this quarter of 17 percent you know that growth was driven by our digital data networks which grew nearly 80 percent organically with increasing ramps from hyperscale platforms we now expect revenue from artificial intelligence applications to be above 700 million dollars in fiscal 2025 reflecting strong program ramps and leadership and multiple hyperscale ai platforms across the customer base. In automation and connected living, it was nice to see that the unit returned to growth in the quarter with 2% organic growth and you know just I would tell you it was broad-based. For the third quarter, we are expecting sales to be roughly flat to the second quarter in our ACL business. In aerospace defense and marine, our sales were up 11% and organically, driven by growth across commercial aerospace, defense, and space applications. In these markets, we continue to see favorable demand trends coupled with ongoing supply chain recovery, and we see the momentum in these markets continuing. And in our medical business, we did decline 14% in the quarter due to the inventory normalization by our customers that we've been talking to you about. But a key for this business is we did see double-digit sequential growth in this business as we expected. And let me wrap up with energy where we saw 8% sales growth organically driven by continued momentum and grid hardening and renewable applications with double-digit growth in the United States. The Richards acquisition enables us to capitalize on strong growth opportunities in the North American utility market. I would like to welcome the employees of Richards to the TE team and look forward to the value they will create as we strengthen our position in north america together now let me turn to margins in this segment you know in the industrial segment adjusted operating margins expanded 260 basis points to 17.9 as the teams executed well on the strong sales volumes i am pleased with the progress that we're making on our margin journey in this segment so with that as an overview let me hand it over to Heath. We'll get more detail in the financials, tariffs, and our expectations going forward.

Thank you, Terrence, and good morning everyone. Please turn to slide seven. For the quarter, adjusted operating income was $805 million with an adjusted operating margin of 19.4%. GAAP operating income was $748 million and included $12 million of acquisition-related charges and $45 million of restructuring and other charges. For the full year, our view of restructuring is unchanged at around $100 million. Adjusted EPS was $2.10 and GAAP EPS was $0.04 for the quarter and included a one-time non-cash tax charge of $1.91 due to change in tax law as well as restructuring, acquisition, and other charges of $0.14. cents our beat versus guidance was driven by strong operational performance in both segments the adjusted effective tax rate was approximately 22 cents in q2 and we expect both the third quarter and the second half adjusted tax rate to be in the 24 to 25 range the higher tax rate will result in a six cent sequential headwind to eps in the third quarter for the full year the adjusted tax rate is expected to be roughly 24 percent and as a reminder the increase versus the prior year is primarily related to the impact of the pillar to global min tax and jurisdictional mix of our earnings importantly and as always we anticipate our cash tax rate to be well below our adjusted ETR now if you start turn to slide 8 sales of 4.1 billion we're up five percent organically year over year adjusted operating margins were 19.4 percent in the second quarter expanding 90 basis points year over year adjusted earnings per share were two dollars and ten cents a company record and up 13 percent year over year driven by revenue growth and margin expansion turning to cash flow cash from operations was 653 million and free cash flow was 424 million through the first half of the fiscal year cash flow is 1.1 billion we continue to expect our free cash flow conversion to be over 100 this year while we are in a dynamic environment i feel comfortable with where we are as a company and our ability to effectively navigate through this our cash generation and healthy balance sheet position us well and provides us optionality with uses of capital. Through the first half of this fiscal year, we returned approximately $1 billion to shareholders, and as Terrence mentioned, we recently made an announcement to raise our dividend by 9%. And also as Terrence mentioned, earlier this month, we deployed $2.3 billion of cash for the Richards acquisition in our energy business. All this activity demonstrates the strength of our balance sheet and the confidence we have in our cash generation model. We will continue to monitor the environment as we make decisions on capital deployment going forward now we had a couple of other details on our third quarter guidance that terence shared first we are including richards which contributes roughly 70 million to sales and is roughly neutral to adjust to dps including the impact on financing the second item i want to cover is the tariff impact that is factored into our q3 guidance For those products that are affected by enacted tariffs, we estimate a cost impact of approximately 3% of sales. We anticipate that about one-third of this impact will be mitigated by sourcing changes by TE and our customers, and we expect to recover the vast majority of the remaining two-thirds of the tariff impact through pricing actions, which will represent about two points of price related to tariff recovery in the third quarter these are the actions that we can control the direct impact we will continue to work with our customers as they evolve their supply chain strategies before I turn it over to questions let me reinforce that we are executing well to deliver strong results and then position the company to successfully navigate the current dynamic environment so with that let's open up the questions Ellie can you

please give the instructions for the q a session we are now opening the floor for question and answer session if you'd like to ask a question please press start followed by one on your telephone keypad your first question comes from scott davis from marius you're not your line is hey uh good morning parents and he's been suicidal uh congrats on the numbers and on all this.

It's encouraging. I have to ask on the tariff stuff, just because it's so topical right now and what people are focused on. But, you know, there's another kind of concern that people have, and that is an anti-American sentiment in the supply chain that perhaps certain regions may favor local suppliers versus, you know, U.S. suppliers. You know, Talk through us, and I guess the other kind of natural question is that it sounds like it's easier to get price within your auto contracts. Is that because specifically in your auto contracts, it allows for changes in pricing if there's tariffs? I just want some clarity on that. But I'm more interested really in the geopolitical challenges and what that does perhaps to the U.S. company like T. So twofold.

Well, let me take the second part first, Scott, on the pricing. The tariff impact that we have is much more in our industrial segment than our transportation segment. Because of our global scale and how much we make in the region, the tariff impact that we even talk about is much more in our industrial segment where you have more fragmentation and a little bit where you're crossing borders. So when you look at it, there will be elements where we will be doing surcharges for tariffs and transportation. But in the numbers he highlighted, the vast majority relates to our industrial segment. And, you know, we've been working with our automotive customers for that part on mitigation sourcing, how do we do supply differently, as well as moving tools. So I want to make sure that's clear. On your anti-American sentiment, I think there's a couple things that are important that our teams are viewed very locally. When you think about how our business model works, it is local teams designing at the design centers. It's also manufacturing and sourcing that's done from a localization, so you get that feel that's very local. We are an extremely global company. Yes, we have American executives at the top, but when you look at really what our customers see, it is very much driven down into those local markets, whether that is in China, whether that's in Germany, whether that's in Japan, whether that's Brazil, everywhere. And localization has always been a big part of our strategy, that how we do business. As you see in our China auto results, as well as China overall, we have good traction. We have not seen anti-American sentiment around what we do, but it is certainly something we always keep in front of us, and it's something that we've run locally for a long time, and it's why that tariff amount is as low as it is, because we've always said we want to be tied to the design center locally as well as to the supply chain locally, and we don't export things from the United States elsewhere to the world. I think that's the key element when you look at it. These tariff impacts are really where, for what we do in the United States, which is about 4 billion of our 16 plus billion dollars of revenue, it really is things that we bring in from scale from elsewhere in the world. And we'll have to look at, do we move some of that tooling to be much more local here as we work through our mitigation strategies.

Okay, thank you.

Thanks, Scott.

Thank you, Scott. Can we have the next question, please?

Your next question comes from the line of Mark Delaney from Goldman Sachs. Your line is now open.

Yes, good morning. Thank you very much for taking my question. I'm hoping to better understand how tariffs are affecting your outlook by end market, and to what extent that's informed by your recent customer conversations and order patterns, including in April.

And importantly, as you think about how tariffs are affecting your views by end market, what gives you confidence that there isn't a material amount of pull-in sales occurring in the near term due to tariffs thanks yeah so hey mark let me let me talk about the pulling question and then i'll get into some of the market dynamics um first of you know while there were discussions with customers about maybe thinking about hey do do they pull some things forward i would tell you they were just scenario planning we did not see anything meaningful whether it be from our direct customers or distribution customers so when you look at it i think in an environment where lead times are relatively normal there is inventory available because we've been through the supply chain elements as well as uncertainty it's not something where people say hey i want to pull things forward and we did not see pull-ins meaningfully as i said on the call our orders have been remaining stable there are a lot of customer discussions of how do you work through the mitigation strategies where you do have tariffs and our teams have continued to work with our customers on the things that they have choices they can make we also have things that we're proposing to say how do we work through to say how do you do as much as you can to localize to eliminate it i also have to be very honest with you we are a small part of the bomb some of our customers have bigger things they have to figure out we are not involved in all those discussions we're just trying to figure out how do we help them and we're very much running the business on what we see in our orders and these customer discussions and when we look at you know what i said on the call and let me just recap it a little but you know in industrial there's areas we just see momentum that continues to crank you know ddn the ai ramps you know what we see those ramps have accelerated we told you in the call that we expect that to be over 700 million dollars versus 600 million um we just told you last quarter in energy you know the growth factors around hardening and renewables we continuously further strengthening there richards will add to that in aerospace and defense continues to crank along the space applications continue to crank along we really haven't seen no pauses there and then one bright spot that i would say in the quarter in our acl business it finally returned to growth but we're taking a view due to what's going on that we think that's going to stay flat line. And then in transportation, we just sort of view, we don't view ICT and sensors to improve near term with the dynamics going on. And in automotive, we do expect auto production to go down sequentially. We do expect auto production to be down 5% year over year. And that's going to be the trends continue that we saw in the second quarter. Growth in Asia, declines in the West that are probably pushing, you know, closer to 10%. So, you know, it's still a very mixed environment. I think those feel right based upon what we're seeing and do view their balance. But it isn't everything is just going up. And I think our team's operating well in this uneven environment. And hopefully that gives you flavor of how recapping the markets that we see today.

Okay. Thank you, Mark. Can we have the next question, please?

Your next question comes from the line of Amit Duryanani from Evercore ISI. Your line is now open.

Good morning, everyone. I just have a question on the margin expansion, and, you know, I think you've seen some really good margin expansion over the last few quarters, in fact, the last couple of years. As you go forward, can you just talk about if margin expansion and the EPS growth can sustain, especially if we end up in a more difficult, choppy end-market environment? Just hoping you'd flush out, you know, margin expansion vectors that peak and leverage across both transport and industrial segments, and how much of that going forward do you think is demand versus self-help driven?

Well, Amit, this is Heath. I'll take this. You know, obviously, I think we've covered in the first half hour here of this call, you know, some of the volatility in the markets. You know, we do have some markets that are growing nicely. We have some that are kind of more stable, and we have some that are weak. You add it all up, and it's a fairly even or uncertain market, if you will. We're not getting a lot of support there at the aggregate level. However, we have, over the last several years, as you're aware, reduced our manufacturing footprint. And we have taken sites offline, and this is part of our localization strategy that is aligned with where our customers want us to be and in markets where we can also then get scale and get leverage. So I do feel good about our ability to continue to ramp margins. it is a huge focal point here um the you know the over the next year or so the the bigger jump is going to be continue to be in the industrial segment as industrial you know continues its journey and that's a combination of a variety of factors a lot of that is uh volume and continued uh rationalization of locations but um i continue to see that our transportation business has been operating between 20 and 21 percent here for the last several quarters. I feel good about where they can be. Obviously, Terrence just outlined softer markets there, and so our ability to hold our head there above the 20 percent line feels like the right place to be until we can get back into a situation where we're growing the top line. So we've got a series of different operational levers that we're pulling um in terms of protecting both uh margins and growing in the industrial segment as well as the the you know how that converts into eps so uh you know our our business model contemplates um you know where we sit today and where we had a good quarter we have our outlook for the third quarter is good we look to finish strong in fyi 25 and then jump into 26 with that without a lot of certainty of what these markets are going to do okay thank you amit can i have the next question please our next question comes from the line of one team from bank of america

your line is now open uh yes thank you good morning um terence can you address how you're thinking now about content growth for the year uh given your commentary on on production trends getting worse and obviously it's been a slower start in the first half of the year from from from a content perspective, and a quick clarification for Heath, if I could. The 3% of cost impact that you're noting for next quarter, how much of that is direct impact from tariffs versus your own cost increases or maybe operations or logistics or just in managing these tariffs? And how should we think about it going forward as well?

Yeah, Wamsi, I'll take both of those just for ease. First off, being on auto production, I think the one thing that we've talked to you all about with content this year is, you know, with Europe being extremely weak, Europe is our strongest content region historically. And when you look at European production this year, like last quarter, it was down basically 10%. That has pressured our content, and we had about a two-point outperformance in this past quarter over production. Age is very strong, so we're feeling a little bit uneven by region and just that different regions have different content levels. As I said on the call, as we look through the remainder of the year, you know, we're expecting to be at that low end of the four to six. We have ramps that are going on in Asia that we feel very good about. We talked about to your last quarter, some of them, you know, the data momentum around data connectivity in the car. I know years ago it was a lot about electrified powertrain. the data connectivity growth and the programs that we've run around the world as people get ready for autonomy and software defined you need ethernet architecture in the car to really make this happen and that's what we mean by data connectivity that's going to be the element that allows us to get it up to the low end of the four to six but right now we are being impacted by europe being weak and being our higher content per vehicle region is creating a little bit of headwind of what you see overall. On your second part of your question that I'll just jump right on to, when you look at the impacts that we have there, the tariff costs that we have, that 3% of sales, they are things and most of what we have due to our localization is just where we source something, could be something from Germany or Japan that we bring over here that we have scale advantage on that create the tariff impact so it is tariff surcharge and that's based upon the tariffs that are enacted today okay thank you wamsi we have the next question please your next question comes from the line of luke jump of baird your line is now

great thank you for taking the question um terence hoping you can maybe just parse out what you're seeing in automation and connected living between those two sub segments the inflection this quarter Or should we think that automation within that is also inflecting? And maybe if you could also comment just what you're seeing geographically across those two parts of the business, including maybe indirect tariff impacts and picking appliances in China especially.

Yeah, certainly. So when you look at it, appliance, you know, has been growing and, you know, continued to grow. And I would tell you that's been growing pretty much in all regions. the big area that we were running behind was in the automation side of it and what we saw in the quarter loop which was really nice and took the entire unit up to growth overall was we saw orders started to pick up you saw in europe they started to inflect upward certainly saw them also inflect upward in Asia North America was steady so right now when you look at them you know the order trend started to show an inflection point right now what we're assuming with everything going on with tariffs and this is capital goods and we sort of have an outlook that we expect our sales to sort of stay where they were in the second quarter because we'd like to see that momentum stick a little bit longer just knowing to what's going on on the tariff uncertainty and this is one of the markets where when we talk about impacted by tariffs you do have a lot of supply chain crossover that happens because of the fragmentation here so we've probably taken a more conservative view than the orders we saw but it is something right now hopefully we can tell you next quarter we continue to see momentum in the orders from what we saw just this last quarter okay thank you Luke leave the next question please your next question

comes from the line of Sameek Chatterjee from J.P. Morgan. Your line is now open.

Hi. Thanks for taking my question, and good morning, everyone. Hi. Hopefully you can hear me. If I can just ask you on the AI momentum that you're seeing on that front, I know the first three months of this year, there's been a lot of concern from investors about sort of pullback from customers in relative to their sort of spend on data centers and expansion of data centers as well as new bids. But maybe if you can clarify what's driving the higher guide on your front, are you seeing some of the orders come in much higher than expected or was this more about you being conservative initially with the numbers and raising it with more higher visibility and just any more color on what you're hearing from the customer there primarily just in the backdrop of the investor concerns we're hearing?

No, Samit, thanks for the question. And, you know, I think one of the things that's important in our second quarter, we saw 150% increase in our orders. So these are real orders. Certainly, overall, AI CapEx continues to grow. And certainly, I know some of the players have made different comments. But I think what's important is, you know, these are ramps of programs that we've won. So these are ramps that we're working with our customers on, and the hyperscalers are the ones that we're working with here across our customer base. And the increase that you saw was about $50 million more that we had in the second quarter. So some of the beat that I said was broad-based was due to us being able to ramp quicker for our customers. And then you're going to have the remaining increase into the next couple of quarters. And it's really about ramping quicker on programs we've won and orders coming in with higher demand on it so that's something that we get excited about and i know we talked earlier probably two or three quarters ago about where do we go there you know we're closer to that billion dollar number that you know we'll probably be running at next year in 26 as we continue to have these ramps increase so the momentum is real the programs are real and certainly working hard with our customers make sure we ramp to their needs as they're trying to deploy their ai servers okay thank you simi can we have the next question please your next question comes from the line of joe giordano from td cohen

your line is now open hey guys thanks for taking my job i wanted to talk on the automation side um you know it's good to hear the commentary that europe is getting better i mean arguably off very low levels. In the U.S., I'm curious, like, are you just still seeing kind of a pause in customers wanting to move forward with things until they know what the rules of engagement are from a policy standpoint?

No, I would say there is uncertainty, Joe. Yeah, let's face it, everybody's trying to figure out their supply chains right now. So there is a lot of effort that are going on to say how do i work on supply chains how do i work upon you know what's in front of me so that uncertainty let's face it we we all have the same number of people uh pre-tariff than we have today so you know it does create a distraction of what people work time on i would tell you we did see orders pick up in the united states and automation i think the element that we're just being a little bit cautious with our guide is really it you know it was this was the first quarter in a long time we do worry just as where do people take their capex plans very honestly our capex plans are not changing meaningfully you know we have to ramp ai programs we have other programs we have to ramp uh the facilities we need to build to support those but i do just think the amount of effort going in around how do we make sure we make what we can i think is pretty prevalent across every company as they're trying to figure this out so it does create a little bit of a distraction and another focus area for people to figure out uh real time and typically people that are working uh the automation plans are the same people that are in the manufacturing area trying to figure everything else out on capacity and so forth so uh it's just why we have probably a little bit more of an uncertain tone around it than some of our other markets.

All right. Thank you, Joe. We have the next question, please.

Your next question comes from the line of Sari Boroditsky of Jefferies. Your line is now open.

Hi. Good morning. Thanks for taking the question. Maybe it's turning to medical. Obviously, another tough quarter on D-Stack. You could just update us on channel inventory and how you expect this market to play out for the remainder of the year, and then just a way to estimate what underlying demand is versus what you're seeing in your sales. Thank you so much.

Sure. Yeah. where we position our medical business you know it's around a mid single digit market we did have coming out of covid and our first quarter we expected so that's a december quarter you know we saw customers pull back majorly um around hey all the supply chain inventory what's really nice is you saw about a 20 sequential increase in that business we view that inventory elements over and you're going to continue to see us have a second half sequential improvement over the first half in that business as we work out of that.

Okay, thank you, Sari. Can we have the next question, please?

Your next question comes from the line of Colleen Langan of Wells Fargo. Your line is now open.

Great, thanks for taking my question. I mean, it sounds like you're pretty well positioned on tariff risk, given you're pretty local within region. I guess we'll find out over the next few months how things settle in. But do you think that could be an advantage over time? Or are your competitors, do they all have pretty similar footprints? Yeah, any thoughts there in terms of maybe how that shapes out going forward?

No, well, you know, it's very much competitor by competitor but we do view we're advantaged you know the localization that we've invested in um it has been significant and you know some of the things we did when we invested in restructuring to get things you know we took capacity offline in certain regions of the world to make it much more localized is an advantage you know we do have some competitors that only make in one region of the world some of our mineral and smaller competitors so we very much for you as we deal with our customers and we look at mitigation strategies this is something that can be advantaged as we move forward and as we help work them through it so we have a very positive competitive tone going

through this and you know how do we help our customers work through it and also show we might have more options than others okay thank you Colin we have next question please your next question comes from the line of Christopher Glynn of open heimer your line is now open uh thanks good morning uh a lot of good panoramic hey a lot of good panoramic topics covered uh i was curious about space you know it's a it's a relatively small market but it's scaling just wondering if you could help us understand the scope of that in it is it something that's kind of doubling from a small base or just kind of the contours of of what's going on with space and how that might contribute, you know, over the next couple of years, really.

Chris, I appreciate you using the word panoramic. I don't think I've ever had that on an early school. You know, space is important. So when you sit there and where we serve it is really in our aerospace, defense, and marine, not surprisingly. And one of the things that is nice is where this is where you get a convergence with how the space field has changed, with who actually builds current space vehicles happen. Also, what happens with low-Earth satellites benefit us in space. So it is an area that has morphed a lot. It's an area where, you know, data speeds, things that we talk to you about in AI, similar data speeds you need to continue to work to, and we leverage what we do in our DDM business, but clearly the environment is much different in a space application, and it's where some of the standards that are there and the materials you have to use get very specialized, and it's areas where we excel at. So it has been a driver. It is something you set up very well. It's multiplying at a very quick pace, but it's on a lower base. While you also benefit from redundancy in these applications, but you do have compute that's increasing massively, and that's areas when we look at high speed, high power, and then have to do the packaging that exists in a space application. It is a vector that is a smaller vector in our ADNM space, but a vector that we've been benefiting from, and we expect we're going to continue to talk to you about it.

Okay, thank you, Chris. Can we have the next question, please?

Your next question comes from the line of a CEM merchant of City Group. Your line is now welcome.

Great. Good morning, everyone. Thanks for taking my question. you can if you can just talk a little bit about commercial transportation i think the guide is for it to be kind of flattish um just how we should think about the trajectory of that segment sub segment um as it is higher margins and when we should start to see some recovery in that that could possibly be a positive driver for your transportation segment margin thank you no Certainly.

So, you know, we have told you for numerous quarters now, we see an environment, and when we do commercial transportation, that's Class A truck, that's ag equipment, that's also construction equipment. And, you know, the ag environment has been, you know, tough. Certainly financing has hit some of these markets. And, you know, in Europe and North America, you've seen that softness play out more, while this year we do expect that places like India and China have had increases in unit production. So really, there's catalysts that are out there for Europe and North America, certainly with North America around some of the emission changes that are coming up in 27. How does that all impact with some of the uncertainty? We do think that will create at some point an inflection point and we just don't know if that's going to be you know two quarters out three quarters out right now we we see our business the orders are staying very stable so we've got it into the third quarter stay stable but I do think what you'll get is as some of those emission things play in you will see a more traditional cycle for the class A trucks and your points very valid of you know this does run a higher margin and you'll expect a higher fall through when that volume comes okay thank you asia can we have the next question please our next question comes from the line of joe speck of ubs your line is now open

uh thanks so much everyone um i just wanted to maybe dive in a little bit more to to the industrial orders which which were strong but are you including any of any of the um richard's acquisition in in that growth and i know you sort of made some comments about But, you know, AI as well. So I'm just trying to get a sense of, like, what the underlying organic, like, old core historical orders, industrial orders were. Because, you know, you also made a comment about, I guess, in the U.S., you saw a pickup. But, like, you know, my understanding is a lot of that equipment for factory automation comes from overseas. So it seems like they're, you know, it is going to get more expensive under this regime. So I just want to understand how you're thinking about that sort of order trends there.

No, when you look at our order trends in the industrial segment, pretty much across the board, we had orders growth year over year. So I just want to make sure that when you look at that, you know, that was, you know, across the board, strong order growth. It was in automation. It was in the appliance area. And this would be only where we serve local customers, Joe. So if we're serving a German factory automation player, we would be getting that in our European business, not in our U.S. business. So the growth is very broad. There is no Richard's orders in our orders. We didn't close that until April, so we'll start getting that. And the growth was also, you sit there, you know, it was across the board with europe actually getting closer to zero than where it was before so it was very broad geographically around the world across all the business units and you even saw that in our results sequentially our sales route across all our business units from quarter one to quarter two all right thank you joe we have the next question please your next question comes from the line of Stephen Fox of Fox Advisors.

Your line is now over.

Okay, good morning. Terrence, I was wondering if you could just more broadly talk about your pricing power going forward from two aspects. One, you know, you sell into a lot of large OEMs that may be feeling, you know, demand pain down the road in addition to like all the tariff questions. And then two, like you mentioned, you know, there's a lot of different types of competitors out there that you may run into, regional, smaller, large, global, otherwise, and just sort of how responsible you think they will be on pricing? Thanks.

Yeah, no, good question, Steve. I think when you look at it, you know, this year before the tariffs hit us, our pricing is neutral at the total TE level. You know, we are price positive in our industrial segment and, you know, just a little negative in the transportation segment. So, you know, one of the things that we've had this year, let's face it, that certain input costs have gone up on certain materials. You know, we've been very disciplined on that, as well as the tariffs that we talked about today. So, you know, I tend to think that the pricing environment will continue to be dictated by where input costs go and also the tariff impacts. And, you know, I feel our team has done a good job managing it um as well as the other things that we can do to help our customers like we talked about you know on the mitigation actions you know are there things we localize move tools on you know the way we have our supply chain set up with our customers is there things we can do together and they're the ideas we're going that are also ways we provide value that's a little bit different than we talked to you about in a certain environment like that so that's the benefit that we have in this uncertain time but i feel good how the teams are managing through the pricing aspects and you know i do think it's different than how we used to do it

all right thank you steve can we have the next question please your next question comes from the line of williams time from truest securities Great.

Thanks for taking my question. But first, I'd say it falls off to hydromatic. The question is about the AI data center business. Industry compacts I see to reflect a pretty meaningful pull-in activity that went on to some degree during calendar Q1, but more so that's sort of accelerating today. I wonder how certain you are about your earlier comment about not seeing meaningful pull-ins.

I wonder what your visibility is to that.

And also, I'm hoping you can comment on the customer concentration or dispersion and any anticipated change in that. Thanks so much.

So, well, on the AI side, you know, we do play across the hyperscalers. We also partner with the other semiconductor companies that would be more of our peers in that space that do some of the signal elements from a semiconductor. So our focus is more on the hyperscaler side. I would say we did not see pull-ins related to this. This has been very much a function of ramping, ramping with our customers on the AI side. What gives us confidence of what they're telling us, as well as how we're working with them together to continue to ramp up, that gives us confidence in the over 700 million. So we did not see pull-in from the AI customers at all.

All right. Thank you, Will. Can we have the next question, please?

Your final question comes from the line of Shreyas Patil of Wolf Research. Your line is now open.

Hey, thanks so much for taking my question. Just maybe to put a finer point on a previous question, how should we think about the pace at which you can get recoveries in the auto end market? I believe in the past we've talked about how it takes longer than industrial, but I'm wondering if you'd expect recoveries to be faster in this scenario. And then maybe just on capital allocation, curious how you're thinking about the priorities there between buybacks and M&A, especially following this Richard's acquisition.

I'll let he take this, but I do wanna stress what I said earlier that the bulk of our tariff exposure is more in our industrial segment than our transportation segment. So I know I said that a couple of times, I wanna make sure that comes through where certainly in the industrial segment, that we have more pricing levers. Keith, things you want to add on capital or that?

I just think on the capital allocation, obviously we did deploy a significant amount of capital with the Richards deal. It was $2.3 billion. So you've seen that, and you'll see that result in a modest amount of increase in our debt levels as well. Having said that, as we look forward, we still feel very confident in our cash generation model. Our ability to generate cash in this environment has been fairly resilient, and we feel good about it. So, you know, an M&A engine is not something you just turn on and off. It's something you have to cultivate over time, and so we're always active in that. Having said all that, you know, there's opportunities to buy our shares as well. So you'll see a balance of that as we go through the year. I don't mean to intend to be too vague here, but deals kind of come in a lumpy format. It's never a linear process in terms of when acquisitions get done, but we have a lot of sticks in the fire right now with that and looking at things, not of the same size as Richards, but still in the bolt-on category of things that we look at. In the meantime, we're in the market every day with share buyback.

All right. Thank you, Shreya. If you have further questions, please contact Investor Relations at TE. I want to thank everybody for joining us this morning, and have a nice day.

Today's conference call will be available for replay beginning at 1130 a.m. Eastern Time today, April 23rd, on the Investor Relations portion of TE Connectivity's website. That will conclude today's conference call. Have a good day.