Everyone, thank you for standing by, and welcome to the TE Connectivity First Quarter Earnings Call for Fiscal Year 2026. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number 1 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, Sujil Shah. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's first quarter results and our outlook for the second quarter of fiscal 2026. 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, and we ask you to review the sections of our press release, and the accompanying slide presentation will 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. Let me now turn the call over to Terrence for opening comments.

Thank you, Sujal, and I also want to thank everyone for joining us today, and I also want to thank those of you who attended our investor day last quarter. before i get into details on the slide i do want to frame today's call around the key messages that we shared at the event in november and are reinforced by our first quarter results as well as our outlook and briefly we conveyed several key tenants of our strategy and business model first that we have been investing and have broadened our growth drivers to benefit from secular trends that are driven by the increased needs of our by our customers around data and power connectivity. Second, our co-creation engineering models ensures product innovation and that coupled with our global supply chain investments will drive value for our customers. And lastly, that we will capitalize on the growth and the investments to drive margin expansion with double-digit earnings per share growth and a continued strong cash generation model. Our first quarter results and our expectations going forward reinforce these key messages that we conveyed. We delivered over 20 percent sales growth in the first quarter with growth in both segments by driving content growth above market. We had record orders of over five billion dollars and this was growth of more than one billion dollars versus the prior year and this order growth was across our businesses. This growth is being driven by new program awards from our customers demonstrating the operations and engineering mode that we outlined our sales growth and order momentum reinforces the broadening that we talked about at our investor day we also have improved our operating resilience through localization of our supply chain our teams continue to execute well despite ongoing macro unevenness to deliver record adjusted operating margins and earnings per share in the first quarter along with strong cash generation and lastly we outlined a long-term through cycle target of six to eight points of annual average growth with the momentum that we're seeing we expect to deliver growth in fiscal 2026 that is ahead of this target so with that as a backdrop you know let's get into the slides that we sent out starting with slide three and i'll discuss first quarter results and our guidance for the second quarter of fiscal 2026 our first quarter sales were 4.7 billion dollars growing 22 percent on a reported basis and 15 percent organically year over year with growth in both segments and both segments contributed to our sales being above guidance as i mentioned we saw orders increase to a record level of over five billion dollars and our book to bill was 1.1 reinforcing our momentum and i'll provide more color on orders as i get into the next slide we delivered record adjusted earnings per share of two dollars and 72 cents which was above guidance and increased over 30 percent versus the prior year due to strong execution by our teams adjusted operating margins were 22 percent and this was an increase of 180 basis points over last year we also continue to demonstrate our strong cash generation model with free cash flow above 600 million dollars and we returned a hundred percent of our free cash flow to shareholders in the quarter while continuing to support investments for future growth as we look forward we are expecting our second quarter sales to be 4.7 billion dollars reflecting an increase of 13 year-over-year on a reported basis and six percent organically we expect adjusted earnings per share to be around two dollars and 65 cents and this is 20 growth year over year sequentially we expect our industrial solution segment to grow and this will be partially offset by transportation's typical auto seasonality trends that we see globally so with that as a quick overview of results let's turn to slide four so i can get into more detail on our order trends in the quarter we saw orders increased by over one billion dollars versus the prior year to 5.1 billion dollars by geography we saw double digit organic order growth in all regions on a year-over-year basis at our investor day we discussed our engineering centric design model and focus on the need for more data and power connectivity to create value for our customers that will also translate into value for our owners Our momentum in the key applications continue, whether that is secular growth in AI, the positioning of TE for power connectivity in the utility space, or the data connectivity needed for next-generation vehicles as a key driver of content growth for our transportation businesses. Getting into orders by segment, in the industrial segment, orders grew over 40% versus the prior year, with essentially every business posting double-digit growth versus the prior year. We see ongoing momentum in digital data networks, energy, as well as AD&M. In our automation and connected living business, we are seeing recovery in the factory automation applications with organic sales growth in all regions, both year over year and sequentially. And I meant orders growth, not sales growth. Transportation orders increased 11% versus the prior year and grew in all businesses. In our automotive business, orders grew year over year, and sequentially from the fourth quarter to the first quarter, we saw our normal seasonal trends that follow auto production. Commercial transportation organic orders grew both year over year and sequentially, indicating ongoing market improvements in both Asia and in Europe. So with that, as an overview of the orders, let's get into the quarterly segment results. And I'll start with our industrial segment, which is on slide five. Our sales in the industrial solution segment grew 38% in the quarter and 26% on an organic basis year over year, reinforcing the broadening of growth within the segment. Digital data networks had another outstanding quarter, with a business grew 70% year over year, and our AI revenue was higher than our expectations. Our customers continue to award us new programs, and the orders that we've received are creating backlog for the second half of this year and into 2027. We now expect our AI revenues in fiscal 2026 to be a couple hundred million dollars higher than our view 90 days ago, with growth expected across every hyperscale customer. To support this acceleration, we continue to increase our investment in our digital data the networks business. And Heath will talk more about this in his section. Turning to automation and connected living, the business grew 12% organically year over year with growth in each region. And we continue to expect recovery in the general industrial markets as we move through the year. In our energy business, our sales grew 88%, including the Richards acquisition, which enables us to capitalize on strong growth opportunities in the U.S. utility market. Organically sales increased 15 percent driven by continued increased investments by customers in grid hardening and renewable applications and what was nice this quarter is we saw strong growth both in the United States as well as in Europe. In our ADNM business sales grew 11 percent organically driven by growth across both commercial aerospace and defense applications in these markets we continue to see favorable demand trends coupled with ongoing supply chain improvements that are helping to support the growth and in our medical business we grew five percent organically which was in line with what we expected at the segment level if you look at margins the industrial segment adjusted operating margins expanded by over 500 basis points to 23 percent driven by has strong operational performance and the benefits of higher volume. So with that as a summary of industrial solutions, please turn to slide six and I'll get into transportation solutions. Our sales in the transportation segment grew 10% in the quarter as well as 7% organically year over year. Our auto sales grew 7% organically in the first quarter driven by content growth in Asia and in Europe. Our growth over market was at the high end of our four to six point range in the first quarter and as we shared with you in investor day we expect our content growth to be balanced between data connectivity e-mobility as well as electronification trends in the car our current quarter results show the contributions from data connectivity applications in our results which are growing across all powertrain platforms we continue to benefit from our strong global position and localization strategy and our growth over market in this quarter was driven by China and Europe. As we look forward, our view of auto production in fiscal 2026 remains consistent at roughly 88 million units, which is down slightly versus the last year. Turning to commercial transportation, we saw strong organic growth of 16% year over year, and this growth was driven by Asia and in Europe. You know, after two years of cyclical declines in the commercial transportation market, we're now seeing recovery in the end markets outside the United States and expect to benefit from our leading global position and content growth driven by architectural changes. In our sensors business, sales were essentially flat, which was in line with our expectations.

And on the margin side for the transportation segment, the team delivered adjusted operating margins above 21 percent which was in line with our expectations you know with that overview let me hand it off to heath he'll get into more details on the financials and our expectations going forward thank you terrence and good morning everyone please turn to slide seven for the quarter we achieved record adjusted operating income of over one billion dollars with an adjusted operating margin of 22 percent driven by strong operational performance by our teams gap operating income was 963 million and included 6 million of acquisition related charges 10 million of restructuring and other charges in 57 million of amortization expense as i said last quarter i continued to expect restructuring charges in fiscal 26 to be roughly 100 million adjust eps was two dollars and 72 cents and gap eps was two dollars and 53 cents for the quarter and included restructuring acquisition and other charges of four cents and amortization expense of 15 cents the adjusted effective tax rate was approximately 22 percent in q1 and we expect q2 to be at this level as well we continue to expect the full year tax rate to be approximately 23%, which is similar to last year. Importantly, as always, we anticipate our cash tax rate to be well below our adjusted ETR. Now, if we turn to slide eight, our results reflect the business model performance that I shared with you a couple months ago at our Investor Day event. We are seeing broadening of growth that Terrence mentioned, 30% plus incremental margins on that sales growth, double-digit EPS growth, and a strong cash generation model with balanced capital returns sales of 4.7 billion were up 22 percent on a reported basis and 15 percent on an organic basis year over year adjusted operating margins were 22.2 percent in the first quarter expanding 180 basis points year over year adjusted earnings per share were two dollars and 72 cents up 33 percent year over year driven by sales growth and margin expansion. Turning to cash flow, cash from operations was $865 million, and free cash flow was $608 million, with roughly 100% return to shareholders through share buybacks and dividends. Our cash generation and healthy balance sheet give us continued optionality with uses of capital to support investments for future growth, both organically and through M&A. With the order momentum Terrence mentioned, we are increasing our capital expenditure this year to support the growing pipeline of customer rewards for AI programs. We now expect CapEx to be closer to 6% of our sales this year, and we feel strong about our cash generation model and continue to expect at least 100% free cash flow conversion for fiscal 26. Before I turn it over to questions, let me reinforce that we continue to execute well in both segments and our q1 results reflect a strong start to fiscal 26. for the full year we are set up to deliver sales growth that is ahead of our through cycle growth target while expanding operating margins and very strong earnings per share growth with that let's open it up for questions thank you tiffany can you please get the instructions for the Q&A session.

At this time I would like to remind everyone to ask a question press star then the number one on your telephone keypad. In order to have time for all questions each participant is limited to one question.

Your first question comes from the line of Scott Davis with melius research your line is open hey uh good morning guys congrats good morning scott um everything was pretty positive uh and when you guys are spending more money that's usually a good sign uh as well but um i just wanted to lead off with the ai stuff because again it's it's still is the elephant in the room i mean it sounds like if i heard you right which i think i did. You're taking up your forecast by a couple hundred million from where you were at Analyst Day. I just wanted to confirm that. But more importantly, I just wanted to address the scaling of those revenues. Can you walk us through the kind of linkage between the capacity adds and the scaling and how you expect that to improve margins as that historically when you've added capacity.

Yeah, sure, Scott. And Happy New Year. And I appreciate the question. And just so we're all aligned about what we said at Investor Day, we did talk about getting to a $3 billion of AI revenue out a couple of years. And we're certainly on track to achieve this. And versus 90 days ago, when we shared the number, we do think the number for this year will be $200 million more than what we just shared and what's nice is this year we're going to have growth across all hyperscaler customers and that's something that we all know the capex trend that's happening in cloud capex to make that happen the other thing is as we continue to build the momentum you know the orders that we just talked about were very strong and certainly ddn played a part of that and that strength and as i said in the comments some of that's layered out later in the year on the scaling you know let's face it we have been scaling so when you look at the growth that we've had around where we positioned ourselves with our hyperscale customers we've been scaling very nicely you know let's face it these programs are big programs and the time base to scale some of the awards we got in the first quarter you know are for later this year into 2027 feel that the teams will have it and continuing to be coming in with you know good margins on it like we have been doing you know we have been improving the margins in is across all the businesses so it's not just ai but certainly we're benefiting from the volumes as we bring these in and that's why you see some the margin improvement that we're getting both from the benefit of the ramp of the ai volumes as well as all the businesses improving their margin um going forward and that's you saw that strong growth that we talked about in the pre-read comments okay thank you scott we have the next question please your next question comes from the line of mark delaney with goldmissacks your line is open.

Yes, good morning. Thank you very much for taking my question. I was hoping you could double-click on order trends, both sequentially and year-over-year, and what that implies for revenue by end market going forward. And I ask in part to better understand the QQ revenue guidance of about $4.7 billion compared to orders that were over $5.1 billion at a record high. And maybe if you can speak to the duration of orders and if that's changing at all. Thank you.

Sure. Now, thanks, Mark. And like I said in the comments, our orders were a record at over $5 billion and that it was a billion dollars of order growth. The one thing that's important is it was very broad-based. You know, while we had very strong orders in DDN, if you exclude the DDN orders, our orders were up double-digit across TE. So that's the broadening growth we talked about. And, you know, in industrial orders, we're up in four to five businesses, double digits as well. So we have seen strengthening of orders here. Now, that is continued momentum in DDN for AI applications and also energy, which, let's face it, they were big road drivers for us last year. We're also continuing to see ADM orders accelerate. And, you know, they are typically in the aerospace and defense a little bit longer lead time. And what was nice in the industrial segment, and I know we've talked to all of you about it, is we're continuing to see market improvement in our ACL business. And that was across all regions. Certainly, we're seeing more in factory automation applications. And we're going to continue to see growth as we go through the year in ACL. When you look at transportation, and this comes into a little bit to the second part of your question, And, you know, in transportation, our orders are reflecting, you know, what we see in production patterns. So, you know, year-over-year, orders were very strong. Clearly, our first quarter is the strongest auto production quarter of the year. But then we do have a 3 million unit production decline quarter one to quarter two. And when we look at that, that's really when you look at the guide, you see that we're going to be up double digits and industrial as we go quarter one to quarter two but you know there will be partially offset by auto production in the world which will be down about 3 million units so that's really when you look at the order momentum which is very strong we do have some automotive production changes that happen here that normally happen that you'll see reflected in our guide okay thank you mark we have the next question please.

Your next question comes from the line of Amit Daryanani with Evercore. Your line is open.

Good morning. Thanks for my question. I just want to go back to the AI discussion for a bit. I'm hoping you folks can provide some color on what is driving the uptick in AI revenue expectations for the year. Is it just more that the existing programs are doing better or you see a better narrative around share gains. I'd love to just understand kind of what's driving the uptick here, and then maybe if I just extend that, can you elaborate on what investments TEE needs to make to meet this growing demand, both from the CapEx and OpEx perspective?

Sure, Ahmed, and happy new year. So I'll take the first half. I'll let Heath take the second half. I think the first thing you have to be is, you know, we have, and the orders reflect that new program awards and they're with the hyperscalers is the way you should think about it and even on some of that backlog those programs will ramp here over the next couple of quarters and really be bigger in quarter three and quarter four than what's happening now so they do extend out a little bit and you know what's nice and i said it to scott's question is you know it's across the hyperscalers so we're going to have growth across the hyperscalers this year you know it is a mix of some programs continuing to ramp but also new new programs with the customers that will ramp you know in the second half keith why don't you talk about the investments that you

commented on sure you know i mean the uh as you can imagine as we're winning these programs the ramps are fairly aggressive in terms of the time window to get up to speed um and deliver on their production schedule so we are you know when we talk about increasing our capex investments We're really talking about specific program wins and the timing of those, you know, we're going to have to spend money over the next couple of quarters to support the production of those in the later part or the second half of our fiscal year and certainly into 27. So as we're stacking up these programs, we're just trying to be transparent that the fact that there is specific tooling involved, and most of that's going into existing production facilities that we have throughout Asia and a little bit North America. So, you know, we feel good about our ability to ramp. Our teams have shown the ability to ramp quickly, but we're just continuing to do the acceleration of that, and that's going to require us to take up our CapEx number for this year. But all is feeling good. As you would know, we would not be spending that money if we didn't have revenue and profits tied to it. Okay, thank you, Amit. Can we have the next question, please?

Your next question comes from the line of Wamsi Mowen, with Bank of America. Your line is open.

Hi. Yes. Thank you. Good morning. Just to stay on the AI topic, I guess, maybe Terrence, could you share some granularity if these programs are NVIDIA-centric or are they TPU or other ASIC-centric in any color on signal versus power, just to give us some sense of, like what the content may be split is across those and what you're seeing in your orders. Thank you so much.

Now, first off being, you know, as we've talked with many of you, if not all of you, you know, we aren't going to talk at a customer level. Like I said, Wamsi, you know, to the earlier question, you know, these are hyperscaler programs. And, you know, it's where that's driven our growth to date. And I think you can assume it's going to be a continuation of that growth those customers. And it is across power and data and signal. You know, like you spent time with us in November, it is broad across both spectrums as we move to the next generation architectures that we're working on. And what's really good is the momentum that we've had with our hyperscale customers is just continuing and you see it in the orders.

Okay, thank you, Wamsi.

Can we have next question please your next question comes from the line of loop junk with baird your line is open uh good morning thanks for taking the question um terence hoping we could just double click on the trends you're seeing within acl especially in the industrial trends sounds like you're feeling a bit better maybe quite a bit better than 90 days ago and heath in terms of the incremental margin story and industrial solutions is this strength something that we should think about just as an incremental margin driver as well thank you no i first off your your comments are are fair you know we've been very much in a mode of you know and i would say there's two businesses open there

not only acl but our industrial transportation business both of them were you know in a multi-year downturn and you know we continue to see and we start to see it last year improvement in orders It's nice to see them broaden out across all regions in ACL. Certainly, you know, in ICT, industrial transportation, it's really in Asia and Europe still. But with the momentum we're seeing, with what we're hearing from our customers, we do view more momentum is there. You know, you saw on the slide we grew 12 percent. Orders were strong. The one thing I would say when we look at ACL for us, you know, it is around the factory automation and the CapEx side of our industrial business. You know, places around residential HVAC where we play in as well as appliances continue to be soft, but we're seeing the CapEx side of it and, you know, we're seeing it broadly across all regions. So whether that's Asia, China, Europe, North America, and it's nice to see some of the cyclical pain we had for a couple years behind us. And as these businesses come up, let's face it, we've talked to you about, hey, they are better profit pools naturally, so they will also benefit our margin as they recover.

And Luke, on your incremental margins, as we talked about, you know, in our business model, in terms of our flow-through, I mean, certainly both segments, I'm confident, will be at their 30%-plus flow-through on their growth for FY26. You know, for the industrial segments, certainly the volume growth at these levels is helping a lot. We are able to get volume leverage on this kind of scale. So, you know, I would still, you know, tune in to the 30% plus, but there'll be quarters when we're well out ahead of that, for sure. All right. Thank you, Luke. Can we have the next question, please?

Your next question comes from the line of Joe Spakes with UBS. Your line is open.

Hi. Thanks, and good morning, everyone. Just within the DN, two quick questions. I guess, you know, you're talking about continued sort of AI growth. So, you know, with the total revenue, you know, flattish quarter over quarter, which suggests the not the end, slow it or the quarter, maybe you could help us understand what's going on there. And then, you know, even with the AI portion raised, it seems like you might actually be at a run rate higher. I'm just wondering, is that sort of constrained by some of the capacity or would you classify that as just some conservatism?

No, Joe, a couple of things. You know, we grew AI programs from quarter four to quarter one sequentially. So that there was growth sequentially there. You know, so and also we expect our industrial solution segment to grow sequentially quarter four, quarter one to quarter two. And certainly we have, you know, the production decline in automotive. So feel very good about the momentum. And, you know, like I said, the orders that we have set up for, you know, quarter three and quarter four, which is where the bulk of the increase that I talked about, the $200 million, is really will come as these programs ramp and into 27. So feel very good about the momentum. The orders reflect it. You know, the DDN orders were up 70% year over year in the quarter, which is very strong. and you know continue to feel that the momentum we have is strong I don't think it has anything to do with capacity constraints okay thank you Joe we have the next question please your next question comes from the line of Samit Chatterjee with JP Morgan your line is open hi thanks for taking my question and happy new year turns and he's maybe seeing on the hi happy new maybe to staying with the AI team, but more a question on the supply chain and what you're seeing on that

front in terms of either tightness on the components or inflation thereof. I'm just wondering what you're seeing overall from that perspective in the supply chain, and if that is the driver of why the hyperscalers are giving you a bit more forward visibility with the autos for the new programs, or do you think it's just the complexity? Is it more the complexity of the new programs that's driving these sort of longer dated orders? Any color there would be helpful. Thank you.

Well, first off, our customers are, you know, expecting ramps that are very fast. So when you look at this, you're really talking about program launches that will happen later in the year. In our supply chain, honestly, you know, what do we feel and what we procure? You know, we are able to procure what we need to procure. There is inflation around things that metal related you know and that's not just the ai supply chain that's everywhere around us and our teams are doing the appropriate pricing to make sure we get recovery on that and you know from that viewpoint that inflation is you know being passed through and you know just that they're looking out they're reserving you know capacity for the programs these are very specific programs to a customer these are not generic components that we're making here this is very specific to a program and what's nice is our team continues with the momentum to get these wins with our hyperscale customers and they're just giving us

some visibility to make sure the ramps occur okay thank you so make the next question please your next question comes from the line of Colin Lincoln with Wells Fargo your line is open oh great thanks for taking my questions just DRAM prices have, you know, really skyrocketed.

Do you have any direct impact to that? And if not, do you also see any risk to auto production because of potential supply issues there? Any thoughts on that risk and issue? Yeah. For the memory that, you know, obviously is out there that you talk about, you know, we don't buy significant memory. That impacts our supply chain. And, you know, that's what we're very much focused on. um when we talk to our customers right now there is nothing related to memory but we see slowdowns that are happening that are impacting our customers in our discussions and i think what's really important is you know how we continue to service our customers and what's been really nice and you see the growth over market that we delivered us across all three of the levers so you know the memory situation is not impacting us at all um and our teams are doing a really good job you know doing the growth above market and transportation Thank You Colin we have the next question please your next question comes from the

line of Guy Hardwick with Barclays your line is open hi good morning hey guys the results the commercial transportation business was probably stronger than people expected what's that down to easy comparatives I know in the side deck, you said that's growth driven by Asia and Europe, but in terms of order momentum, what would you say the outlook is for commercial transportation for the rest Now, Guy, I mean, let's face it, but last year's first quarter was an easier comparison.

So that is, when you look at that growth rate, you know, it is benefiting from that. But what I would tell you, when we look at the first quarter and we even look at the year, and we talked about it a little bit last year towards the end of the year, we continue to see, you know, in places like China, in Europe, in India, whether it's truck builds, construction equipment builds, have improved. And when you look at it, you know, the growth over market you sit there has been strong. When we look at the year, you know, we think global truck build will be up 200 basis points, and we feel very confident we'll outgrow that for the year. The real wild part we still have to watch is North America. You know, North America truck market is still negative, and I think that's probably the one toggle switch that we have to continue to keep an eye on because, you know, we aren't seeing as much order improvement there yet but outside the United States it has actually shown a pickup around the world and certainly we're hoping as we move through the year that we can get some of that uptick in the North American production environment as well okay thank you guys we have the next question please your next question comes from the line of Asaya Merchant with Citi your line is open oh great thanks for taking my question just wanted to just double

click on the EPS guide you know slightly down versus sales which were flat so are these some below the operating income items that we should consider here and you know just related to that the incremental operating margins I think you guys are guiding to continue to be strong here just given the momentum in the business looking just trying to understand what could be drivers for further expansion in those incrementals thank you yeah i see the um i'd say q1 to q2 in terms of just that i mean i think there's you know four or five cents of higher you know of tax and higher

interest expense between the two quarters so that's probably your your major bridging item if you're just thinking about that. In terms of the incrementals, you know, we feel good about being at 30% or better, and as we work our way through the quarters this year, I don't see anything that would derail that. Certainly volume is important, and there's no doubt that, you know, we've done a pretty good job. There's always more to do, but we've done a pretty good job of reducing our operating footprint, which has the effect of reducing up some of our fixed costs, particularly in Western Europe. And as that's, you know, as that's coming, then you throw a volume on top of that, that is certainly lending itself to the incremental flow-throughs. And it has the effect, as we talked about in the analyst day, of improving our operating margins. And, you know, we've seen that happen.

If you look at consistently our last several years, and most quarters of that the effect so um yeah we feel good about uh where we're going to land uh for this full year even with some of the incremental investments that we need to make all right thank you can we have the next question please your next question comes from the line of joe giordano with pd cohen your line is open hey good morning guys hey um can you touch on like we've just seen like metal prices exploding here copper gold silver like can you talk about implications for you guys in terms of uh procurement in terms of needing to pass costs

on and what the uh you know customer acceptance of that has been yeah hey joe this heath um you are absolutely correct i mean we are seeing uh pressure uh inflationary pressure on the metals specifically um it's that category is our largest purchase category so the team is is uh is is hyper focused we've made investments as we talked about the analyst day with some of the supply chain investments that we've made to get more scale and and leverage purchases so that has helped and that team has a very strong pipeline of opportunities to find ways to reduce those costs. But there's no doubt that as the spot market goes up, we feel that. Now, it has the effect of us very quickly in passing that on through price or through other mechanisms that we can use to source. So we're not going to use it as an excuse on our margins or our flow through math. But yeah, we're feeling it right now.

And it will factor into some of the elements we do with with pricing okay thank you joe we have the next question please your next question comes from the line of stephen fox with fox advisors your line is open hi um just to follow up on some of the supply chain questions from two aspects when you just to clarify when you're passing them through are you able to pass the higher cost of metals through on a similar timeline as you have in the past. And from the big, the real question is, when you think about supply chain and your capacity, the good news is you're seeing, like you said, a broadening of demand while AI is still growing really fast. How do you feel about just being able to keep up from a capacity standpoint as we go through this year and into next fiscal year? Thanks.

Why don't you take the first half? I'll take a second.

Steve, I'll take the first half. On the, you know, we have improved over the years in terms of our ability or, let's say, our agility or nimbleness to pass on pricing on these inflationary measures more quickly. So I would say, you know, there's certain things that go through distributors and channel that are a little bit easier to pass on prices more quickly. There's other things that we reopen discussions with when we have OEM direct discussions. So, yeah, I mean, it's front and center to the team, and we don't expect any significant time lapse as those discussions commence with the inflationary pressures that we're feeling.

Yeah, and on the capacity, Steve, first of all, man, you know, out of yesterday, we highlighted areas where we had added capacity. The AI ramps are really program ramps that are very specific to those programs with those customers because we do that direct. I would tell you elsewhere, you know, we're in a good spot with capacity. You know, we have some areas that are recovering, like we talked about to the earlier question of ACL and ICT, that we have capacity. And we continue to add in areas like energy and aerospace. So, you know, even when we did Richard, Richard is doing very well to its original plan, but, you know, we're adding capacity there to expand for our energy business, as well as making sure we can continue to increase capacity for our aerospace and defense customers, which, you know, that market's been continues to be strong.

We expect it to be strong as the air framers continue to increase their bills, as well as what's happening in the defense complex, where, you know, that those numbers just keep moving up. okay thank you steve we have the next question please your next question comes from the line of christopher glenn with oppenheimer your line is open uh thanks good morning a question on energy um the the organic comps are pretty notably steeper in the second half um you know i'm wondering how orders new applications maybe even are kind of phasing into that would there be a kind of a growth adjustment period as you normalize into the kind of long-term investor day outlook

or would you settle kind of right into that would you expect no the momentum continues to be very strong um chris it hasn't it hasn't slowed down at all and as i said on my my comments we we've also started to see an uptick in europe um which is an area that you know we've had historical presence in, and our focus has been more in the U.S. But we continue to see nice growth across the businesses, including the ones we bought. And remember, it comes into grid hardening and capacity as the energy network plays out. So as we said at Investor Day, we thought organically we'd be double digit, feel like that's where we'll be this year, on top of the benefit we get on the inorganic piece in the early part of the year and it's nice to see the momentum continue and as I said to Steve how do we continue to make sure the capacity that we're putting in place supports the growth and I feel we're on track on that thank you Chris can we have the next question please your next question comes from the line of William Stein but truest security your line is open great uh thanks for taking my question um i'm hoping to just uh try to further reconcile

the uh outlook with the bookings you know the business trends overall sound like um they're good they're broadening into industrial as you highlighted you had a record bookings quarter very strong book bill i fully recognize that in some end markets the bookings duration is a little longer than typical so the read into the out quarter might not be as um you know as immediate as it usually is but still i'm looking at uh at march quarter guidance that looks a few points below normal seasonality my guess is that this is related to auto production in china which is weaker specifically for evs but can you can you sort of verify and maybe linger on that for a moment for us, please.

Sure, sure, Will, and Happy New Year. You know, when you look at it, you know, there is an element in our second quarter guide that our segments are moving in two different ways, and, you know, IS is going to be up double digits year on year, and, you know, I think everything related to orders, other than some of the AI orders being further out, you know, completely aligned. We do have, you know, a 3 million unit auto production downtick from quarter one to quarter two in automotive. Typically runs around 2 million units in an average year. It's a little bit worse this year, but it all ties in with the 88 million units that we see for the year. So, you know, we do expect, you know, transportation to be down sequentially. That's very just the reality of auto production. And our first quarter was higher than seasonal. There is a little bit that I think as you're looking at compared to seasonal models, our first quarter, which came in well above guidance, was higher than seasonal due to some of the industrial trends. But net net feel very good to where we guided and certainly the momentum that the orders show, or not only just for quarter two, but also as we exit through the year, which gives us a lot of confidence around the momentum not only for quarter two but for the year thank you will can we have the next question please your next question comes from the line of astrayas patel with wolf research your line is open hi uh thanks for for taking my question um maybe if we could just double click on the uh discussion earlier on incremental margins um you know when when i look at the order.

Overall, if I strip out M&A and FX, it looks like incrementals were at 31% in Q1. But between the segments, industrial might have been closer to 40 plus and transportation solutions was in the teens. So I'm just curious, do you expect both segments to converge towards towards that 30% plus figure that you've talked about previously, or should we continue to see industrial running a little bit hotter than that? Thanks.

Yes, Grace. Well, as I stated earlier, I expect, as we're sitting here at the end of our fiscal year, that both segments will be at or better than their incremental flow-through math here, the 30 percent um for the full year in the in a given quarter you can have some noise i think at transportation this quarter was hit with some foreign exchange noise in terms of what what some of that is but um in terms of how it how it impacted their flow through math but it's nothing that i'm i'm uh i'm overly worried about so um i don't know the second half of your question which is does the higher running industrial segment come back down we'll see i mean there were there are some investments that we're making but as i said earlier on a prior question uh at these at these volume levels we would expect uh you know would expect a little bit more outsized to flow through um so we feel good about where both segments are and and how they're what their trajectory is for the year all right thanks treas um i want to thank everybody for joining us this morning for the call.

If you have further questions, please contact Investor Relations at TE. Thanks again and have a nice day.

Today's conference call will be available for replay beginning at 1130 a.m. Eastern Time today, January 21st, on the Investor Relations portion of TE Connectivity's website. That will conclude the conference for today.