Q1 2024 TE Connectivity Ltd Earnings Call

January 24, 2024

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Ladies and gentlemen, thank you for standing by and welcome to the TE Connectivity First Quarter Results Call for Fiscal Year 2024. At this time, all lines are in a listen-only mode.

Ladies and gentlemen, thank you for standing by and welcome to the T connectivity first quarter results call for fiscal year 2024 at this time all lines are in a live.

And the only mode. Later, we will conduct a question and answer session. If you'd like to ask question. During this time simply press the star followed by the number one on your telephone keypad, if you'd like to withdraw your question. Please press the star followed by the one once again.

Later, we will conduct a question and answer session.

If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone.

If you'd like to withdraw your question, please press the star followed by the one once.

For now, I'd like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah. Please go ahead.

Sujal Shah: Now, let's turn the conference over to our host Vice President of Investor Relations <unk> Shah. Please go ahead.

Sujal Shah: Good morning, and thank you for joining our conference call to discuss TE Connectivity's first quarter 2024 results and outlook for our second quarter.

Sujal Shah: Good morning, and thank you for joining our conference call to discuss T. E connectivity <unk> first quarter 2024 results and outlook for our second quarter.

Sujal Shah: With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts.

Sujal Shah: With me today are Chief Executive Officer, Terrence Curtin and Chief Financial Officer Heath Mitts.

Sujal Shah: 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.

Sujal Shah: During this call we will be providing certain forward looking information.

Sujal Shah: I 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.

Sujal Shah: 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 that address the use of these items.

Sujal Shah: Press release and related tables, along with the slide presentation, can be found on the investor relations portion of our website at te.gov.

Sujal Shah: On the Investor Relations portion of our website at <unk> Dot com.

Sujal Shah: 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.

Sujal Shah: 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 can you may rejoin the queue. If you have a second question.

Sujal Shah: Now let me turn the call over to Terrence for opening comments.

Sujal Shah: Now, let me turn the call over to tariffs for opening comments.

Terrence R. Curtin: Thank you, Sujal, and we appreciate everybody joining us today, and I do also want to wish everybody a Happy New Year.

Tariffs: Thank you and we appreciate everybody joining us today and I do also want to wish everybody a happy new year.

Tariffs: As we normally like to do before we get into the slides I do want to take a moment to discuss our performance this quarter along with what we're seeing in our markets versus our last call 90 days ago.

Terrence R. Curtin: As I normally like to do before we get into the slides, I do want to take a moment to discuss our performance this quarter along with what we're seeing in our markets versus our last call 90 days ago.

Terrence R. Curtin: We continue to be in a slow global economic environment,

Tariffs: We continue to be in a slow global economic environment.

Terrence R. Curtin: Against this backdrop, the performance of our markets is largely consistent with our expectations, and it resulted in our first quarter sales being in line with our guidance of flat revenue growth.

Tariffs: Against this backdrop the performance of our markets is largely consistent with our expectations and it resulted in our first quarter sales being in line with our guidance of flat revenue growth.

Terrence R. Curtin: Our transportation segment once again grew year over year driven by content growth.

Tariffs: Our transportation segment once again grew year over year driven by content growth.

Terrence R. Curtin: And this offset the declines that we saw in our industrial and communications segment.

Tariffs: And this offset the declines that we saw in our industrial and communications segments.

Terrence R. Curtin: Our team's execution was strong in the quarter with 20% year-over-year adjusted earnings per share growth, and this was driven entirely by adjusted operating margin expansion to 19%.

Tariffs: Our team's execution was strong in the quarter with 20% year over year adjusted earnings per share growth and this was driven entirely by adjusted operating margin expansion to 19% and this was on flat sales.

Terrence R. Curtin: And this was on plat sales.

Tariffs: This margin performance demonstrates we are successfully executing on a number of structural margin improvement levers across our segments.

Terrence R. Curtin: This margin performance demonstrates we're successfully executing on a number of structural margin improvement levers across our segment.

Tariffs: Those leverage drove margin expansion through the second half of last year and a resulting in a further step up of margin performance, particularly in our transportation segment.

Terrence R. Curtin: Those levers drove margin expansion through the second half of last year and are resulting in the further step up of margin performance, particularly in our transportation segment.

Tariffs: We expect to deliver strong margin expansion this year that will be driven by our transportation and communications segments based on what we're currently seeing in our markets.

Terrence R. Curtin: We expect to deliver strong margin expansion this year that will be driven by our transportation and communications segments based on what we're currently seeing in our market.

Terrence R. Curtin: And just as important is the quality of our earnings, and you see this in our record first quarter free cash flow of $570 million.

Tariffs: And just as important as the quality of our earnings and you'll see this in our record first quarter free cash flow of $570 million, which build on the strong cash performance from last year and that we expect will continue.

Terrence R. Curtin: which builds on the strong cash performance from last year and that we expect will continue.

Terrence R. Curtin: During the quarter, we deployed approximately a billion dollars of capital, that included returning $600 million to shareholders, as well as $350 million to acquire Schaffner.

During the quarter, we deployed approximately $1 billion of capital that included returning $600 million.

Tariffs: To shareholders as well as $350 million to acquire schaffner.

Terrence R. Curtin: and Shatner expands our product portfolio in factory automation.

Tariffs: <unk> expands our product portfolio and factory automation.

Tariffs: Our cash generation model continues to give us both confidence and opportunities to return capital to shareholders, while supporting ongoing bolt on M&A activities.

Terrence R. Curtin: Our cash generation model continues to give us both confidence and opportunities to return capital to shareholders while supporting ongoing bolt-on M&A activities.

Terrence R. Curtin: So let me now share what we're seeing in our market since our call 90 days ago.

Tariffs: So let me now share what we're seeing in our market since our call 90 days ago.

Terrence R. Curtin: As I mentioned already, on an overall basis, markets are playing out as we expect.

Tariffs: As I mentioned already on an overall basis markets are playing out as we expected.

Terrence R. Curtin: And we also had orders growth of 4% year over year, and this was across all three segments.

Tariffs: And we also had orders growth of 4% year over year and this was across all three segments.

Terrence R. Curtin: We are seeing sales growth across the majority of our businesses, but we do have a few business units that are continuing to be impacted by inventory, the stocking by our customers, and we'll highlight these during the call.

Tariffs: We are seeing sales growth across the majority of our businesses, but we do have a few business units that are continuing to be impacted by inventory destocking by our customers and will highlight these during the call.

Tariffs: Our view of the transportation end markets remain unchanged from our prior view with global auto production expected to grow slightly this year.

Terrence R. Curtin: Our view of the transportation end markets remain unchanged from our prior view, with global auto production expected to grow slightly this year.

Terrence R. Curtin: And while we're seeing some puts and takes in production by region, China production and EV adoption is stronger, and this is offsetting some weakness in Europe and in North America.

Tariffs: And while we're seeing some puts and takes in production by region.

Tariffs: China production in EV adoption is stronger and this is offsetting some weakness in Europe and in North America.

Terrence R. Curtin: In our industrial solutions segment, three out of our four businesses continue to have growth momentum, and we expect to continue to see sequential growth in each of these three businesses as we go forward.

Tariffs: In our industrial solutions segment three out of our four businesses continue to have growth momentum and we expect to continue to see sequential growth in each of these three businesses as we go forward.

Tariffs: You see our strong positioning in renewable energy in both solar and wind applications.

Terrence R. Curtin: You see our strong positioning in renewable energy in both solar and wind applications.

Terrence R. Curtin: Commercial air sales continue to grow as production increases for both single and twin aisle platforms.

Commercial layer sales continue to grow as production increases for both single and twin aisle platforms and.

Terrence R. Curtin: and our medical business is benefiting from increases in interventional procedures.

Tariffs: And our medical business is benefiting from increases in interventional procedures.

Terrence R. Curtin: When you compare versus 90 days ago, the one market where we've seen incremental weakness is in our industrial equipment business.

Tariffs: When you compare versus 90 days ago, the one market, where we've seen incremental weakness is in our industrial equipment business.

Tariffs: Destocking began a few quarters ago in this business and we now expect it to continue into the second half of this fiscal year.

Terrence R. Curtin: The stocking began a few quarters ago in this business, and we now expect it to continue into the second half of this fiscal year.

Terrence R. Curtin: And lastly, in our communication segment, we continue to see the stocking, which is really nice. It's now just occurring in pockets.

Tariffs: And lastly in our communications segment, we continue to see Destocking, but truly nice it's now just occurring in pockets.

Terrence R. Curtin: and we do expect to see growth in the second half of this year in our communications segment driven by our WINS and artificial intelligence program.

Tariffs: And we do expect to see growth in the second half of this year and our communications segment driven by our wins on artificial intelligence programs.

Tariffs: Sure.

Terrence R. Curtin: As we look forward, our long-term value creation model remains unchanged and is centered around three pillars.

Tariffs: As we look forward, our long term value creation model remains unchanged and is centered around three pillars.

Terrence R. Curtin: The first is our portfolio is strategically positioned around secular growth trends, including growth in electric vehicles, adoption of renewable energy, and applications for cloud and artificial intelligence, just to name a few.

Tariffs: The first is our portfolio is strategically positioned around secular growth trends, including growth in electric vehicles adoption of renewable energy and applications for cloud and artificial intelligence just to name a few.

Terrence R. Curtin: Second, we have operational levers to enable margin expansion despite a slow economic environment.

Tariffs: Second we have operational levels levers to enable margin expansion, despite a slow economic environment.

Tariffs: The drivers in comp is strong operational execution, including footprint consolidation.

Terrence R. Curtin: The drivers encompass strong operational execution, including footprint consolidation,

Terrence R. Curtin: Portfolio optimization benefits and price actions that we implement to offset higher input costs.

Tariffs: Portfolio optimization benefits and price actions that we implemented to offset higher input costs.

Tariffs: And third we've established a strong cash generation model to return capital to shareholders, while investing in bolt on M&A opportunities.

Terrence R. Curtin: And third, we've established a strong cash generation model to return capital to shareholders

Terrence R. Curtin: while investing in bolt-on M&A opportunities.

Tariffs: So with that as an overview, let me get into the slides and I'd ask you to turn to slide three and I'll discuss some of the additional highlights for the first quarter and our outlook for the second quarter and then he will provide more details in his section.

Terrence R. Curtin: So with that as an overview, let me get into the slides, and I'd ask you to turn to slide three, and I'll discuss some of the additional highlights for the first quarter and our outlook for the second quarter, and then Heath will provide more details in his section.

Terrence R. Curtin: Our first quarter sales were $3.83 billion, which was in line with our guidance, as I mentioned.

Tariffs: Our first quarter sales were $3 83 billion, which was in line with our guidance as I mentioned.

Terrence R. Curtin: In transportation, we saw 5% organic growth driven by content expansion in our auto business.

Tariffs: In transportation, we saw 5% organic growth driven by content expansion and our auto business.

Tariffs: In industrial we saw growth in aerospace defense, and Marine medical and energy, which was more than offset by weakness I talked about in industrial equipment.

Terrence R. Curtin: In industrial, we saw growth in aerospace, defense, and marine, medical, and energy, which was more than offset by weakness I talked about in industrial equipment.

Tariffs: And finally in communications it was down as we expected, but we are well positioned for growth in the second half driven by AI applications.

Terrence R. Curtin: And finally, in communications, it was down as we expected, but we are well positioned for growth in the second half driven by AI applications.

Tariffs: Yes.

Tariffs: Adjusted earnings per share was ahead of our guidance at $1 84, and this was up 20% versus the prior year.

Terrence R. Curtin: Adjusted earnings per share was ahead of our guidance at $1.84, and this was up 20% versus the prior year.

Terrence R. Curtin: Adjusted operating margins were 19%, and these were up 290 basis points year-over-year, driven by strong operational performance.

Tariffs: Adjusted operating margins were 19% and these were up 290 basis points year over year, driven by strong operational performance.

Terrence R. Curtin: And the margin performance was the driver of our EPS being ahead of guidance.

Tariffs: And the margin performance was the driver of our EPS being ahead of guidance.

Terrence R. Curtin: As we look forward to the second quarter, we're expecting our second quarter sales to increase over the first quarter to $3.95 billion.

Tariffs: As we look forward to the second quarter, we're expecting our second quarter sales to increase over the first quarter to 395 billion with the sequential growth being driven by the industrial segment.

Terrence R. Curtin: with the sequential growth being driven by the industrial segment.

Terrence R. Curtin: Partially offset by a slight decline in transportation.

Tariffs: Partially offset by a slight decline in transportation.

Tariffs: Adjusted earnings per share is expected to be around $1 82, and this will be up 10% year over year in the second quarter with approximately 200 basis points of adjusted operating margin expansion versus the prior year.

Terrence R. Curtin: Adjusted earnings per share is expected to be around $1.82, and this will be up 10% year-over-year in the second quarter, with approximately 200 basis points of adjusted operating margin expansion versus the prior year.

Speaker Change: So to move away from the financials for a second.

Speaker Change: So to move away from the financials for a second before I get into orders.

Speaker Change: Before I get into orders I do want to highlight that we were pleased to be included in the Dow Jones sustainability index this quarter for the <unk> consecutive year.

Speaker Change: I do want to highlight that we were pleased to be included in the Dow Jones Sustainability Index this quarter for the 12th consecutive year.

Speaker Change: This designation continues to demonstrate TE's dedication to sustainable business practices that do provide value to our customers and that they expect and are aligned with our commitment to our owners.

Speaker Change: This designation continues to demonstrate te's dedication to sustainable business practices that do provide value to our customers and that they expect and are aligned with our commitment to our owners.

Operator: Thanks for watching!

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the TE Connectivity First Quarter Results Call for Fiscal Year 2024.

Speaker Change: So now let's talk about orders and I'd ask you to turn to slide four.

Speaker Change: So now let's talk about orders, and I'd ask you to turn to slide four.

Operator: At this time, all lines are in a listen-only mode.

Speaker Change: At the total company level, we had orders of $3.8 billion, and this was up 4% year over year and consistent with our expectations.

Speaker Change: At the total company level, we had orders of $3 8 billion.

Operator: Later, we will conduct a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone. If you'd like to withdraw your question, please press the star followed by the number one again. For now, I'd like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah.

Speaker Change: And this was up 4% year over year and consistent with our expectations and what was really nice. This is the first time since after the Covid crisis in 2001, we've seen all three segments have year over year order growth.

Speaker Change: And what was really nice, this is the first time since after the COVID crisis in 2001, we've seen all three segments have year-over-year order growth.

Sujal Shah: Please go ahead. Good morning, and thank you for joining our conference call to discuss TE Connectivity's first quarter 2024 results and outlook for our second quarter. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts.

Speaker Change: We continue to see stability in our overall order levels with year over year growth in each of the segments and with backlog remained at near record levels and this gives us confidence in our second quarter outlook.

Speaker Change: We continue to see stability in our overall order levels with year-over-year growth in each of the segments and with backlog remaining at near-record levels, and this gives us confidence in our second quarter outlook.

Sujal Shah: 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 that address the use of these items.

Speaker Change: Transportation orders grew 4% year over year and reflects stability and overall global vehicle production.

Speaker Change: Transportation orders grew 4% year-over-year and reflect stability in overall global vehicle production.

Speaker Change: In the first quarter, auto production came in a little bit over 22 million units, and we saw stronger production in China. That all set some of the weakness in Europe and North America.

Speaker Change: In the first quarter auto production came in a little bit over 22 million units and we saw stronger production in China that offset some of the weakness in Europe and North America.

Sujal Shah: The press release and related tables, along with the slide presentation, can be found on the investor relations portion of our website at te.gov. 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.

Speaker Change: Going forward, we expect global auto production to be roughly 21 million units per quarter as we move through this fiscal year.

Speaker Change: In our industrial segment, we saw growth in orders both year over year as well as sequentially.

Speaker Change: The order strength is driven by our AD&M medical and energy businesses, and we saw the weakness in industrial equipment and markets, and this was across all regions of the world.

Speaker Change: The order strength was driven by our <unk> medical and energy businesses and we saw the weakness in industrial equipment end markets and this was across all regions of the world.

Now, I will turn the call over to Terrence for opening comments.

Thank you, Sujal, and we appreciate everybody joining us today, and I do also want to wish everybody a Happy New Year. As I normally like to do before we get into the slides, I do want to take a moment to discuss our performance this quarter along with what we're seeing in our markets versus our last call 90 days ago.

Speaker Change: And in our communication segment, our orders grew 3% year-over-year, and like I said earlier, we do see the stocking by our customers now only occurring in pockets in certain applications.

Speaker Change: And in our.

Speaker Change: <unk> segment orders grew 3% year over year and like I said earlier, we do see destocking by our customers now only occurring in pockets in certain applications.

We continue to be in a slow global economic environment. Against this backdrop, the performance of our markets is largely consistent with our expectations, and it resulted in our first quarter sales being in line with our guidance of flat revenue growth. Our transportation segment once again grew year over year, driven by content growth, and this offset the declines that we saw in our industrial and communications segment.

Speaker Change: So with that as an orders overview, let me now get into the year over year segment results that we saw in the quarter and Thats on slides five through seven of your slide deck.

Speaker Change: So with that as an orders overview, let me now get into the year-over-year segment results that we saw in the quarter, and that's on slides five through seven of your slide deck, and you can see the details on those slides.

Speaker Change: And you can see the details on those slides.

Speaker Change: So starting with transportation.

Speaker Change: So starting with transportation,

Speaker Change: Overall, the segment had sales growth and it was up 5% organically year over year, driven by our auto business.

Speaker Change: Overall, the segment had sales growth, and it was up 5% organically year-over-year driven by our auto business.

Speaker Change: Our auto business grew 8% organically, with 13% growth in Asia and 7% growth in Europe, and this more than offset a decline in North America.

Speaker Change: Our auto business grew 8% organically with 13% growth in Asia, and 7% growth in Europe, and this more than offset a decline in North America.

Our team's execution was strong in the quarter with 20% year-over-year adjusted earnings per share growth, and this was driven entirely by adjusted operating margin expansion to 19%, on plate sales. This margin performance demonstrates that we're successfully executing on a number of structural margin improvement levers across our segment. Those levers drove margin expansion through the second half of last year and are resulting in the further step-up of margin performance, particularly in our transportation segment. We expect to deliver strong margin expansion this year that will be driven by our transportation and communications segments based on what we're currently seeing in our market.

Speaker Change: Our performance continues to be driven by content growth from our leading global position in electric vehicles, as well as electronification trends within the vehicle.

Speaker Change: Our performance continues to be driven by content growth from our leading global position in electric vehicles as well as electronic vacation trends within the vehicle.

Speaker Change: Our global outlook for electric vehicle growth is unchanged and it is important to note that over two thirds of EV production will occur in Asia.

Speaker Change: Our global outlook for electric vehicle growth is unchanged, and it's important to note that over two-thirds of EV production will occur in Asia.

Speaker Change: We are very well positioned to capitalize on this growth due to our strong content and share in local Chinese OEM platforms that is driven by our innovation.

Speaker Change: Overall, our growth will continue to be driven by content outperformance that leverages our leading global position in the auto market.

Speaker Change: Overall, our growth will continue to be driven by content outperformance that leverages, our leading global position in the auto market.

And just as important is the quality of our earnings, and you see this in our record first quarter free cash flow of $570 million, which builds on the strong cash performance from last year and that we expect will continue. During the quarter, we deployed approximately a billion dollars of capital, that included returning $600 million to shareholders, as well as $350 million to acquire Schaffner, which expands our product portfolio in factory automation.

Speaker Change: In our commercial transportation business, we saw a 1% organic sales growth and this was driven by Asia and it was partially offset by declines here in North America.

Speaker Change: In the commercial transportation business, we saw 1% organic sales growth, and this was driven by Asia, and it was partially offset by declines here in North America.

Speaker Change: And in our sensors business, about half of the sales decline that you see on the slide was driven by the portfolio optimization efforts we've been talking to you about, where we're continuing to organically exit lower margin and lower growth products.

Speaker Change: And in our sensors business about half of the sales decline that you see on the slide was driven by the portfolio Optimist optimization efforts, we've been talking to you about where we're continually to organically exit lower margin and lower growth products.

Speaker Change: The rest of the decline in sensors was driven by weakness in sensor applications in industrial markets, partially offset by growth in automotive applications.

Speaker Change: The rest of the decline in sensors was driven by weakness in sensor applications and industrial markets, partially offset by growth in automotive applications.

Our cash generation model continues to give us both confidence and opportunities to return capital to shareholders while supporting ongoing bolt-on M&A activities. So, let me now share what we're seeing in our market since our call 90 days ago. As I mentioned already, on an overall basis, markets are playing out as we expect. And we also had orders growth of 4% year over year, and this was across all three segments. We are seeing sales growth across the majority of our businesses, but we do have a few business units that are continuing to be impacted by inventory, and the stocking by our customers, and we'll highlight these during the call.

Speaker Change: For the transportation segment adjusted operating margins were nearly 21%.

Speaker Change: For the transportation segment, adjusted operating margins were nearly 21%.

Speaker Change: We expect transportation segment margins to run approximately at our 20% target margins for the rest of this year.

Speaker Change: As you know, we've been driving several improvement actions in our operation.

Speaker Change: As you know we've been driving several improvement actions in our operations.

Speaker Change: We have been able to optimize our factory footprint through our restructuring programs and are getting cost savings from these actions.

Speaker Change: We have been able to optimize our factory footprint through our restructuring programs and theyre getting cost savings from these actions.

Speaker Change: We're also seeing improvement in our EV product margins as volumes increase.

Speaker Change: And in our sensors business, we have been driving margin expansion improvement through portfolio optimization, which I mentioned earlier.

Speaker Change: And in our sensors business, we have been driving margin expansion and improvement through portfolio optimization, which I mentioned earlier.

Our view of the transportation end markets remains unchanged from our prior view, with global auto production expected to grow slightly this year. And while we're seeing some puts and takes in production by region, Chinese production and EV adoption are stronger, and this is offsetting some weakness in Europe and in North America. In our industrial solutions segment, three out of our four businesses continue to have growth momentum, and we expect to continue to see sequential growth in each of these three businesses as we go forward. You can see our strong position in renewable energy in both solar and wind applications. Commercial air sales continue to grow as production increases for both single and twin-aisle platforms, and our medical business is benefiting from increases in interventional procedures.

Also I'd like to highlight that our teams are continuing to effectively manage pricing to offset higher input costs.

Speaker Change: Also, I'd like to highlight that our teams are continuing to effectively manage pricing to offset higher input costs.

Speaker Change: We've been talking to you about all these actions, and I'm pleased with you that the team's successfully executing on them and delivering the strong results that you see.

Speaker Change: We've been talking to you about all of these actions and I am pleased with you that the team successfully executing on them and delivering on the strong results that you see.

Speaker Change: So with that as a backdrop of transportation, let's move to the industrial segment.

Speaker Change: And in this segment, sales were down 5% organically in the first quarter.

Speaker Change: And in this segment sales were down 5% organically in the first quarter.

Speaker Change: But we did see growth in three of our four businesses, and we expect to see continued sequential growth in AD&M, medical, and energy as we go into quarter two.

Speaker Change: But we did see growth in three of our four businesses and we expect to see continued sequential growth in ADM medical and energy as we go into quarter two.

Speaker Change: In the first quarter, our AD&M sales were up 13% organically, with increased production of both single and twin aisle platforms in the commercial air market.

Speaker Change: In the first quarter, our <unk> sales were up 13% organically with increased production of both single and twin aisle platforms in the commercial air market.

When you compare versus 90 days ago, the one market where we've seen incremental weakness is in our industrial equipment business. The overstocking began a few quarters ago in this business, and we now expect it to continue into the second half of this fiscal year. And lastly, in our communication segment, we continue to see growth, which is really nice. It's now just occurring in pockets, and we do expect to see growth in the second half of this year in our communications segment driven by our WINS and artificial intelligence programs. As we look forward, our long-term value creation model remains unchanged and is centered around three pillars. The first is that our portfolio is strategically positioned around secular growth trends, including growth in electric vehicles, adoption of renewable energy, and applications for cloud and artificial intelligence, just to name a few. Second, we have operational levers to enable margin expansion despite a slow economic environment.

Speaker Change: And medical sales in the quarter were up 16% organically.

Speaker Change: In medical, sales in the quarter were up 16% organically, driven by ongoing increases in interventional procedures.

Speaker Change: Driven by ongoing increases in interventional procedures.

Speaker Change: And in our energy business, we saw growth in renewable applications and these were partially offset by slower utility demand in Europe.

Speaker Change: And in our energy business, we saw growth in renewable applications, and these were partially offset by slower utility demand in Europe.

Speaker Change: And finally, you can see on the slide and the industrial equipment business, our sales were down 26% organically.

Speaker Change: And finally, you can see on the slide, in the industrial equipment business, our sales were down 26% organically.

Speaker Change: and in this business we're seeing that the stocking that began a little bit later in the cycle so we expect this inventory digestion to continue and this is a trend that is similar to what you've been hearing from other companies.

Speaker Change: And in this business, we are seeing the destocking that began a little bit later in the cycle. So we expect this inventory digestion to continue and this is a trend that is similar to what <unk> been hearing from other companies.

Speaker Change: From a margin perspective, for the industrial segment, adjusted operating margins were 15%.

Speaker Change: From a margin perspective for the industrial segment adjusted operating margins were 15% with the impact from the volume decline in industrial equipment.

Speaker Change: With the impact from the volume decline in industrial equipment,

Speaker Change: And we expect to continue to see segment margins running in the mid-teens until the stocking environment improves.

Speaker Change: And we expect to continue to see segment margins running in the mid teens until this destocking environment improves.

Speaker Change: So let me turn to communications.

The drivers encompass strong operational execution, including footprint consolidation, Portfolio optimization benefits, and price actions that we implement to offset higher input costs. And third, we've established a strong cash generation model to return capital to shareholders while investing in bolt-on M&A opportunities. So with that as an overview, let me get into the slides, and I'd ask you to turn to slide three, and I'll discuss some of the additional highlights for the first quarter and our outlook for the second quarter, and then Heath will provide more details in his section. Our first quarter sales were $3.83 billion, which was in line with our guidance, as I mentioned.

Speaker Change: Organic sales were down 17% year-over-year, and we expect the second quarter sales to be similar to the first quarter level.

Speaker Change: Organic sales were down 17% year over year, and we expect the second quarter sales to be similar to the first quarter level.

Speaker Change: Starting in our third quarter, you will begin to see favorable year-on-year growth in this segment.

Speaker Change: Starting at our third quarter, you will begin to see favorable year on year growth in this segment.

Speaker Change: We are well positioned to grow and our artificial intelligence programs are now expecting $200 million of contribution in fiscal 'twenty four from AI applications.

Speaker Change: We are well positioned to grow in artificial intelligence programs and now expecting $200 million of contribution in fiscal 24 from AI applications.

Speaker Change: And in these applications for artificial intelligence, you know, let's face it, we're focused on providing high speed, low latency connectivity to meet the needs of the artificial intelligence workload.

Speaker Change: And in these applications for artificial intelligence, let's face it we're focused on providing high speed low latency connectivity to meet the needs of the artificial intelligence workloads and as we've mentioned to you before we generate 50% more content and an accelerated compute AI platform versus traditional compute servers.

Speaker Change: And as we've mentioned to you before, we generate 50% more content in an accelerated compute AI platform versus traditional compute servers.

Speaker Change: Also, we continue to work closely with the cloud customers as well as leading semiconductor companies to ensure reference designs that call out our solutions.

Speaker Change: Also we continue to work closely with the cloud customers as well as leading semiconductor companies to ensure reference designs or call out our solutions.

In transportation, we saw 5% organic growth driven by content expansion in our auto business. In industrial, we saw growth in aerospace, defense, and marine, medical, and energy, which was more than offset by the weakness I talked about in industrial equipment. And finally, in communications, revenue was down as we expected, but we are well positioned for growth in the second half driven by AI applications. Adjusted earnings per share was ahead of our guidance at $1.84, and this was up 20% versus the prior year. Adjusted operating margins were 19%, and these were up 290 basis points year-over-year, driven by strong operational performance. And margin performance was the driver of our EPS being ahead of guidance. As we look forward to the second quarter, we're expecting our second quarter sales to increase over the first quarter to $3.95 billion, with the sequential growth being driven by the industrial segment, although partially offset by a slight decline in transportation.

Speaker Change: On the margin front for the segment adjusted operating margins were 18, 7% and they were up 170 basis points. Despite the decline in sales.

Speaker Change: On the margin front for the segment, adjusted operating margins were 18.7% and they were up 170 basis points despite the decline in sales.

Speaker Change: Our teams are executing extremely well and we now believe we will be able to maintain the high teens margin in this segment as we move through this year.

Speaker Change: Our teams are executing extremely well, and we now believe we'll be able to maintain the high team margin in this segment as we move through this year.

Speaker Change: So with that as an overview of performance, let me turn it over to Heath to get into more details on the financials and our expectations going forward.

Heath Mitts: Well, thank you, Terrence, and good morning, everyone. Please turn to slide eight, where I will provide more details on the first quarter financials.

Heath Mitts: Well, thank you Terrence and good morning, everyone. Please turn to slide eight where I will provide more details on our first quarter financials.

Heath Mitts: Adjusted operating income was $731 million with an adjusted operating margin of 19.1%.

Heath Mitts: Adjusted operating income was $731 million with an adjusted operating margin of 19, 1%.

Heath Mitts: Gap operating income was $698 million and included $8 million of acquisition-related charges and $25 million of restructuring and other charges.

Heath Mitts: GAAP operating income was $698 million and included $8 million of acquisition related charges and $25 million of restructuring and other charges.

Heath Mitts: For the full year, our expectations are unchanged, and we continue to expect fiscal 24 restructuring charges to be approximately $100 million, which is well below the levels we have been running in prior years.

Heath Mitts: For the full year, our expectations are unchanged and we continue to expect fiscal 'twenty for restructuring charges to be approximately $100 million, which is well below the sales I'm, sorry, well below the levels, we have been running in prior years.

Adjusted earnings per share is expected to be around $1.82, and this will be up 10% year-over-year in the second quarter, with approximately 200 basis points of adjusted operating margin expansion versus the prior year. So let's move away from the financials for a second before I get into orders.

Heath Mitts: Going forward, we expect that restructuring charges will be driven by actions to improve efficiency around future bolt-on acquisition.

Heath Mitts: Going forward, we expect that restructuring charges will be driven by actions to improve efficiency around future bolt on acquisitions.

I do want to highlight that we were pleased to be included in the Dow Jones Sustainability Index this quarter for the 12th consecutive year.

Heath Mitts: Adjusted EPS was $1.84 and GAAP EPS was $5.76.

Heath Mitts: Adjusted EPS was $1 84, and GAAP EPS was $5 76.

This designation continues to demonstrate TE's dedication to sustainable business practices that do provide value to our customers and that they expect and are aligned with our commitment to our owners. So now, let's talk about orders. I'd ask you to turn to slide four. At the total company level, we had orders of $3.8 billion, and this was up 4% year over year and consistent with our expectations.

Heath Mitts: For the quarter, which included a benefit of nearly $4 related to a one-time non-cash, non-U.S. tax benefit, a change in the Swiss tax rate, and the impact of intercompany transactions.

Heath Mitts: For the quarter, which included a benefit of nearly $4 related to a onetime noncash non U S tax benefit a change in Swiss tax rate and the impact of intercompany transactions.

Heath Mitts: Additionally, we had restructuring, acquisition, and other charges of seven cents.

Heath Mitts: Additionally, we had restructuring acquisition and other charges of seven.

Heath Mitts: The adjusted effective tax rate was 21.2% in Q1, slightly higher than our guidance due to an increase in the Swiss tax rate that I just mentioned.

Heath Mitts: The adjusted effective tax rate was 21, 2% in Q1 slightly higher than our guidance due to an increase and this was tax rate that I just mentioned.

And what was really nice, this is the first time since after the COVID crisis in 2001 that we've seen all three segments have year-over-year order growth. We continue to see stability in our overall order levels with year-over-year growth in each of the segments and with backlog remaining at near-record levels, and this gives us confidence in our second quarter outlook. Transportation orders grew 4% year-over-year and reflect stability in overall global vehicle production. In the first quarter, auto production came in at a little bit over 22 million units, and we saw stronger production in China. That all sets some of the weakness in Europe and North America. Going forward, we expect global auto production to be roughly 21 million units per quarter as we move through this fiscal year.

Heath Mitts: For the second quarter and for the full year, we now expect our adjusted effective tax rate to be approximately 21%.

Heath Mitts: And importantly, as always, we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year.

Heath Mitts: And importantly, as always we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year.

Heath Mitts: Now, let's turn to slide nine.

Heath Mitts: Now let's turn to slide nine.

Heath Mitts: Sales of $3.83 billion were flat on a reported basis and down 1% on an organic basis year over year.

Heath Mitts: Sales of 383 billion were flat on a reported basis and down 1% on an organic basis year over year.

Heath Mitts: Adjusted operating margins were 19.1% in the first quarter, expanding 290 basis points year-over-year despite flat sales.

Heath Mitts: Adjusted operating margins were 19, 1% in the first quarter, expanding 290 basis points year over year, Despite flat sales.

Heath Mitts: As Terrence mentioned earlier, this was driven by margin expansion in our transportation and communications segments.

Heath Mitts: And as Terrence mentioned earlier this was driven by margin expansion in our transportation and communications segments.

Heath Mitts: Adjusted earnings per share was $1.84, up roughly 20% year over year, driven by the strong margin expansion.

Heath Mitts: Adjusted earnings per share was $1 84 up roughly 20% year over year, driven by the strong margin expansion.

In our industrial segment, we saw growth in orders both year over year as well as sequentially. The order strength is driven by our AD&M medical and energy businesses, and we saw weakness in industrial equipment and markets, and this was across all regions of the world. And in our communication segment, our orders grew 3% year-over-year, and like I said earlier, we do see stocking by our customers now only occurring in pockets in certain applications.

Heath Mitts: Turning to cash flow, cash from operations was $719 million. Free cash was a first quarter record of $570 million.

Heath Mitts: Turning to cash flow cash from operations was $719 million free cash was a first quarter record of $570 million.

Heath Mitts: Also in the quarter, we deployed roughly $600 million to shareholders through share buybacks and dividends and also utilized roughly $350 million for the Schaffner acquisition.

Heath Mitts: Also in the quarter, we deployed roughly $600 million to shareholders through share buybacks and dividends and also utilize roughly $350 million for the Schaffner acquisition.

Heath Mitts: Our long-term capital strategy remains unchanged, which is to return approximately two-thirds of free cash flow to shareholders and use one-third for acquisitions over time.

Heath Mitts: Our long term capital strategy remains unchanged, which is to return approximately two thirds of free cash flow to shareholders and use one third for acquisitions over time.

So with that as an overview of orders, let me now get into the year-over-year segment results that we saw in the quarter, and that's on slides five through seven of your slide deck, and you can see the details on those slides. So starting with transportation, overall, the segment had sales growth, and it was up 5% organically year-over-year, driven by our auto business. Our auto business grew 8% organically, with 13% growth in Asia and 7% growth in Europe, and this more than offset a decline in North America. Our performance continues to be driven by content growth from our leading global position in electric vehicles, as well as electronification trends within the vehicle. Our global outlook for electric vehicle growth is unchanged, and it's important to note that over two-thirds of EV production will occur in Asia.

Heath Mitts: Before I turn it over to questions. Let me reinforce some of the key points that we discussed today and share how we're thinking about our performance and what we expect to be a slow macro environment.

Heath Mitts: Before I turn it over to questions, let me reinforce some of the key points that we discussed today and share how we are thinking about our performance in what we expect to be a slow macro environment.

Heath Mitts: We are continuing to take action on the things we can control to improve our financial performance, and you see this reflected in our strong results for Q1 as well as our expectations going forward.

Heath Mitts: We are continuing to take actions on things, we can control to improve our financial performance and you see this reflected in our strong results for Q1 as well as our expectations going forward.

Heath Mitts: On the top line, we continue to benefit from secular growth trends, and you see this in the outperformance we are delivering versus some of our key markets we serve.

Heath Mitts: On the topline we continue to benefit from secular growth trends and you see this in the outperformance we are delivering versus some of our key markets we serve.

Heath Mitts: Sure.

Heath Mitts: You have been seeing the benefits of our global leadership position in electric vehicles, but other growth applications like artificial intelligence are just getting started.

Heath Mitts: Below the top line, we are successfully executing on multiple operational levels levers, which have been discussed earlier on this call.

Heath Mitts: Below the top line, we are successfully executing on multiple operational levers, which have been discussed earlier on this call.

We are very well positioned to capitalize on this growth due to our strong content and share in local Chinese OEM platforms that is driven by our innovation. Overall, our growth will continue to be driven by content outperformance that leverages our leading global position in the auto market. In the commercial transportation business, we saw 1% organic sales growth, and this was driven by Asia, and it was partially offset by declines here in North America. And in our sensors business, about half of the sales decline that you see on the slide was driven by the portfolio optimization efforts we've been talking to you about, where we're continuing to organically exit lower margin and lower growth products. The rest of the decline in sensors was driven by weakness in sensor applications in industrial markets, partially offset by growth in automotive applications.

Heath Mitts: As we move forward, our focus continues to be on margin expansion and earnings growth despite the slow macro environment.

Heath Mitts: As we move forward our focus continues to be on margin expansion and earnings growth. Despite the slow macro environment.

Heath Mitts: Finally, we remain excited about the opportunities we have ahead of us to drive value creation for all stakeholders. And with that, let's open up the call for questions.

Heath Mitts: Finally, we remain excited about the opportunities we have ahead of us to drive value creation for all stakeholders and with that let's open up the call for questions.

Speaker Change: Thank you. Can you please give the instructions for the Q&A session?

Speaker Change: Can you please give the instructions for the Q&A session.

Speaker Change: Thank you. At this time I would like to remind everyone to ask a question. Please press the star followed by the one on your telephone.

Speaker Change: Thank you at this time I would like to remind everyone to ask a question. Please press the star followed by the one on your telephone keypad.

Speaker Change: In order to have time for all questions, each participant is limited to one

In order to have time for all questions. Each participant is limited to one question if you'd like to ask a follow up question. Please press the star followed by the one once again.

Speaker Change: If you'd like to ask a follow-up question, please press the star followed by the 1.

Speaker Change: Our first question comes online with Mark Delaney.

Speaker Change: Our first question comes from the line of Mark Delaney from Goldman Sachs. Please go ahead with your question.

Mark Delaney: Please go ahead with your question.

Mark Delaney: Yes, good morning. Thanks very much for taking the question. Can you speak in more detail about what is better or worse than you'd previously been anticipating with respect to the quarter and outlook? And on the broader topic of what areas are changing versus your prior views, do you still think your auto business can outgrow auto production by a mid-single-digit percent, or do shifting EV production plans from auto OEMs impact that?

Mark Delaney: Yes, good morning, and thanks very much for taking the question can you speak in more detail about what is better or worse than you had previously been anticipating with respect to the quarter and outlook and on the broader topic of what areas are changing versus your prior views do you still think your auto business can outgrow auto production by mid single digit percent or the shifting EV production plant from auto Oems impact that.

For the transportation segment, adjusted operating margins were nearly 21%. We expect transportation segment margins to run approximately at our 20% target margins for the rest of this year. As you know, we've been driving several improvement actions in our operation. We have been able to optimize our factory footprint through our restructuring programs and are getting cost savings from these actions. We're also seeing improvement in our EV product margins as volumes increase. And in our sensors business, we have been driving margin expansion through portfolio optimization, which I mentioned earlier. Also, I'd like to highlight that our teams are continuing to effectively manage pricing to offset higher input costs. We've been talking to you about all these actions, and I'm pleased with you that the team is successfully executing on them and delivering the strong results that you see.

Speaker Change: Hey, Mark. Thanks for the question. Let me start with the first part. You know, as we said on the call, things overall pretty much came in as we expected here in the first quarter. And when you think of the top line, I think really the two moving parts we saw, one was that was better and one was that was a little worse. And the one that was better was we saw actually auto production was a little stronger. It was a little bit over 22 million units. And, you know, that's really driven out of China. And you all know the great China position we have and, you know, certainly capitalized on it. So that was a little bit better.

Speaker Change: Hey, Mark Thanks for the question, let me start with the first part.

As we said on the call things overall pretty much came in as we expected here in the first quarter and when you think of the topline I think really the two moving parts. We saw one that was better than one was up was a little worse than the one that was better wells. We saw actually auto production was a little stronger it was a little bit over 22.

Speaker Change: 2 million units and Thats really driven out of China and you all know the great China position we have.

Speaker Change: And you'll certainly capitalize on that so that was a little bit better.

Speaker Change: The area that was a little bit worse is in our industrial equipment business. You know, we highlighted back in our September quarter that we started to see some of the stocking. I would say that got incrementally worse, both through our channel partners. We saw that, which is where, you know, we indirectly touch customers. And, you know, we also saw that get a little bit deeper in Europe, probably to call out a region a little bit. So they were on the top line, what was a little bit better or worse. On the bottom line, and I know Heath talked about it and I talked about it, you know, margin performance by our team was better. And it was both in transportation and communications. And that drove the EPSB. And, you know, we had a little bit of a higher tax rate that the margin covered that.

Speaker Change: The area that was a little bit worse as in our industrial equipment business. We highlighted back in our September quarter that we start to see some destocking I would say that got incrementally worse, both through our channel partners. We saw it which is where we indirectly touch customers.

So with that as a backdrop for transportation, let's move to the industrial segment. And in this segment, sales were down 5% organically in the first quarter. But we did see growth in three of our four businesses, and we expect to see continued sequential growth in AD&M, medical, and energy as we go into quarter two. In the first quarter, our AD&M sales were up 13% organically, with increased production of both single and twin aisle platforms in the commercial air market. In medical, sales in the quarter were up 16% organically, driven by ongoing increases in interventional procedures. And in our energy business, we saw growth in renewable applications, but this was partially offset by slower utility demand in Europe. And finally, you can see on the slide, in the industrial equipment business, our sales were down 26% organically, and in this business, we're seeing that stocking began a little bit later in the cycle, so we expect this inventory digestion to continue, and this is a trend that is similar to what you've been hearing from other companies. From a margin perspective, for the industrial segment, adjusted operating margins were 15%. With the impact of the volume decline in industrial equipment, and we expect to continue to see segment margins running in the mid-teens until the stocking environment improves. So, let me turn to communications.

Speaker Change: We also saw it get a little bit deeper in Europe, probably to call out a region a little bit.

Speaker Change: So they were on the top line, what was a little bit better or worse on the bottom line and I know Heath talked about and I talked about our margin performance.

Speaker Change: Foremost by our team was better and it was both in transportation and communications and that drove the EPS beat and we had a little bit of a higher tax rate at the margin cover covered that.

Speaker Change: The second part of your question around auto content outperformance.

Speaker Change: You know, I said on the pre-remarks that we do believe EV production is going to be up about 25% this year. It's really going to be driven. You know, two-thirds of EVs are made in Asia. That's our largest region in automotive for our revenue, and we're going to continue to capitalize on it. So while there are some places in North America and Europe you hear maybe the growth rates won't be as high, Asia has been making up for it, and we'll get the 4% to 6% outperformance that we always talk to you about. We feel good about that.

Speaker Change: I said on the remarks that we do believe EV production is going to be up about 25%. This year, it's really going to be driven two thirds of evs are made in Asia.

Speaker Change: That's our largest region in automotive for our revenue and we're going to continue to capitalize on it. So while there are some places in North America and Europe you here maybe.

Speaker Change: Maybe the growth rates won't be as high Asia had been making up for it and we'll get the 4% to 6% outperformance that we always talked about we feel good about that.

Speaker Change: Okay, thank you, Mark. Can we have the next question, please?

Speaker Change: Okay. Thank you Mark can we have the next question. Please.

Speaker Change: Thank you. Our next question comes from line of <unk> Mohan from Bank of America. Please go ahead with your question.

Speaker Change: Our next question comes from the line of Wamsi Mohan from Bank of America. Please go ahead with your question.

Wamsi Mohan: Yes, thank you. Good morning. Terrence, maybe just to follow up on your point about very strong margins, right? You really had very standout margins, both at

Mohan: Thank you. Good morning parents, maybe just to follow up on your point about very strong margins right you really had very standout margins both at.

Organic sales were down 17% year-over-year, and we expect second quarter sales to be similar to first quarter levels. Starting in our third quarter, you will begin to see favorable year-on-year growth in this segment. We are well positioned to grow in artificial intelligence programs and are now expecting $200 million in contribution in fiscal 24 from AI applications. And in these applications for artificial intelligence, you know, let's face it; we're focused on providing high speed, low latency connectivity to meet the needs of the artificial intelligence workload. And as we've mentioned to you before, we generate 50% more content in an accelerated compute AI platform versus traditional compute servers. Also, we continue to work closely with cloud customers as well as leading semiconductor companies to ensure reference designs that call out our solutions.

Wamsi Mohan: Gross margin level and operating margin level. Can you maybe parse a little bit about the impact that you saw from these actions you have taken? I think you alluded to a series of those restructuring, footprint, EV mix, and so on. And what do you think is sustainability of that and how that translates into segment margins for the rest of the year?

Mohan: Gross margin level and the operating margin level can you, maybe parse a little bit about that.

Mohan: The impact that you saw from from these actions you have taken I think you alluded to.

Mohan: Theories of those restructuring footprint.

Mohan: Mix and so on and what do you think the sustainability of that and how that translates in the segment margins for the rest of the year.

Wamsi Mohan: Hey, Wamsi, thanks for the question. I'm going to let Heath take that. Sure. Wamsi, you know, listen, we've talked here for a while about some of the journey that we've been on. And we've taken some outsized restructuring charges over the past few years. Many of you have pointed out. That's not lost on us. But we're starting to see, in a more meaningful way, some of that footprint consolidation coming to the benefit of our margins and obviously translates into earnings. And most of that you do see in gross margins. So, you know, Terrence and Nikoli mentioned execution, which we include footprint in there. There's also portfolio optimization moves that we've made in terms of jettisoning low margin product lines. And, you know, you'll continue to see a little bit of that as we move forward. Last year, we talked a lot about the price actions that we put in place and those have stuck. And we continue to be very diligent on that. And then, quite candidly, in some of our businesses where we see stability versus where we've been running in the last few years, that really creates an operating environment where you can take advantage of lower cost structures.

Speaker Change: Hey, <unk>. Thanks for the question I'll, let heath take that sure.

Speaker Change: Well.

Heath Mitts: Listen there is we've talked here for a while about some of the journey that we've been on.

Heath Mitts: And we've taken some outsized restructuring charges over the past few years.

Many of you have pointed out that's not lost on us.

Heath Mitts: But we're starting to see in a more meaningful way some of that footprint consolidation.

On the margin front for the segment, adjusted operating margins were 18.7%, and they were up 170 basis points despite the decline in sales. Our teams are executing extremely well, and we now believe we'll be able to maintain the high team margin in this segment as we move through this year. So with that as an overview of performance, let me turn it over to Heath to get into more details on the financials and our expectations going forward.

Heath Mitts: Into China to the benefit of our of our margins and obviously translates into earnings and most of that you do see in gross margins.

Heath Mitts: Tariffs on the call you mentioned execution, which we include footprint and there is also portfolio optimization moves that we've made in terms of jettisoning.

Heath Mitts: Low margin product lines.

Heath Mitts: Youll continue to see a little bit of that as we move forward last year, we talked a lot about the price actions that we've put in place in those of stock.

Heath Mitts: Well, thank you, Terrence, and good morning, everyone.

Heath Mitts: Please turn to slide eight, where I will provide more details on the first quarter financials. Adjusted operating income was $731 million, with an adjusted operating margin of 19.1%. Gap operating income was $698 million and included $8 million of acquisition-related charges and $25 million of restructuring and other charges. For the full year, our expectations are unchanged, and we continue to expect fiscal 24 restructuring charges to be approximately $100 million, which is well below the levels we have been running in prior years. Going forward, we expect that restructuring charges will be driven by actions to improve efficiency around future bolt-on acquisitions.

Heath Mitts: And we continue to be very diligent on that and then quite candidly in some of our businesses, where we see stability versus where we've been running in the last few years.

Heath Mitts: That's really creates an operating environment, where you can take advantage of lower cost structures.

Speaker Change: And I think it's important as we think about, you know, the volatility that we've had over the last several years that is starting to stabilize and where we play as part of many supply chains out there when we start seeing, you know, order patterns that are a little bit more consistent with our suppliers performing more consistently, it allows us to run our factories more consistently and you certainly saw that.

Heath Mitts: And I think it's important as we think about the volatility that we've had over the last several years that is starting to stabilize where we play as part of many of the supply chains out there when we start seeing order patterns that are a little bit more consistent with our suppliers performing more consistently.

Heath Mitts: Allows us to run our factories more consistently and you certainly saw that.

Speaker Change: The first quarter was probably a little overheated in transportation because of the tick up in auto production north of 22 million units. But even as we bring down that to closer to the 21 million unit a quarter level, we still feel confident that we can run at the target margins for that segment, transportation being target margins of roughly 20%. So, you know, we are making that statement on this call here today. For the communications segment, we have been able to, I'll say, improve the margins on a little bit lower revenue. We're not committing that we're going to be at 20% here yet, which is the target margins for communications at these revenue levels. But as things tick up, you should continue to see us in the high teens from an operating margin perspective.

Heath Mitts: The first quarter was probably a little overheated in transportation.

Heath Mitts: Because of the tick up in auto production North of 22 million units.

Heath Mitts: Adjusted EPS was $1.84, and GAAP EPS was $5.76. For the quarter, which included a benefit of nearly $4 related to a one-time non-cash, non-U.S. tax benefit, a change in the Swiss tax rate, and the impact of intercompany transactions. Additionally, we had restructuring, acquisition, and other charges of seven cents. The adjusted effective tax rate was 21.2% in Q1, slightly higher than our guidance due to an increase in the Swiss tax rate that I just mentioned. For the second quarter and for the full year, we now expect our adjusted effective tax rate to be approximately 21%. And importantly, as always, we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year.

Heath Mitts: But even as we bring down.

Heath Mitts: That should be closer to the 21 million units a quarter level, we still feel confident that we can run at the target margins for that segment of transportation being target margins of roughly 20%.

Terrence R. Curtin: that do provide value to our customers and that they expect and are aligned with our commitment to our owners. So now, let's talk about orders, and I'd ask you to turn to slide 4.

So.

Heath Mitts: We are making that statement on this call here today for the communications segment.

Terrence R. Curtin: At the total company level, we had orders of $3.8 billion, and this was up 4% year over year and consistent with our expectations. And what was really nice, this was the first time since after the COVID crisis in 2001 that we've seen all three segments have year-over-year order growth. We continue to see stability in our overall order levels, with year-over-year growth in each of the segments, and with backlog remaining at near record levels. This gives us confidence in our second quarter outlook. Transportation orders grew 4% year-over-year and reflect stability in overall global vehicle production. In the first quarter, auto production came in at a little bit over 22 million units, and we saw stronger production in China. That will offset some of the weakness in Europe and North America.

Heath Mitts: <unk> been able to.

Speaker Change: I will say.

Speaker Change: Improve the margins on a little bit lower.

Speaker Change: Revenue, we're not committing that we're going to be at 20% here, yet which is the target margins for communications at these revenue levels. This things tick up you should continue to see us in the high teens from an operating margin perspective.

Speaker Change: And then industrial. Industrial is running in the mid-teens, and we would expect it to run in the mid-teens throughout the rest of this year. There's a couple things at play there. Obviously, the elongated destocking situation in our industrial equipment business, which is not just the largest piece of that segment, but also the most profitable piece, does have the impact. And we've talked about that in the last couple of quarters. And then when you start layering in acquisitions, that does have a dilutive impact. And the acquisitions are a terrific opportunity for the growth of that business, an opportunity that it presents for our stakeholders at the same time. Bringing a deal in, it generally comes in with diluted margins that we have to absorb, and that's no different than with the Schaffner acquisition that we bring into it. So when you add all that up, Wamsi, we feel good. That as we move through the year, our operating margins at the TE level will have an 18 handle in front of it. You know, plus or minus, we'll be humming better than we did in 2023 and feel good about the opportunities to move forward from that as we continue our journey.

Speaker Change: And then industrial industrial is running in the mid teens and we would expect it to run in the mid teens throughout the rest of this year Theres a couple of things that play there obviously, the elongated destocking situation in our industrial equipment business.

Heath Mitts: Now let's turn to slide nine. Sales of $3.83 billion were flat on a reported basis and down 1% on an organic basis year over year. Adjusted operating margins were 19.1% in the first quarter, expanding 290 basis points year-over-year despite flat sales. As Terrence mentioned earlier, this was driven by margin expansion in our transportation and communications segments. Adjusted earnings per share was $1.84, up roughly 20% year over year, driven by strong margin expansion.

Speaker Change: Which is not just the largest piece of that segment, but also the most profitable piece.

Speaker Change: Does have the impact and we've talked about that last couple of quarters and then when you start layering in acquisitions.

Speaker Change: That does have a dilutive impact in the acquisitions are terrific opportunity for the <unk>.

Terrence R. Curtin: Going forward, we expect global auto production to be roughly 21 million units per quarter as we move through this fiscal year. In our industrial segment, we saw growth in orders both year over year as well as sequentially. The order strength is driven by our AD&M medical and energy businesses, and we saw weakness in industrial equipment and markets, and this was across all regions of the world. And in our communication segment, our orders grew 3% year over year. And like I said earlier, we do see stocking by our customers now only occurring in pockets in certain applications. So with that as an overview of orders, let me now get into the year-over-year segment results that we saw in the quarter, and that's on slides five through seven of your slide deck. And you can see the details on those slides. So, starting with transportation.

Speaker Change: The growth of that business and opportunity that it presents for our our stakeholders at the same time, bringing a deal in.

Speaker Change: It generally comes in with diluted margins that we have to absorb and that's no different than with the schaffner acquisition that we bring into it. So when you add all that up <unk>, we feel good that as we move through the year, our operating margins at the <unk> level, we will have in 2018 handle in front of it.

Turning to cash flow, cash from operations was $719 million, and free cash was a first quarter record of $570 million. Also, in the quarter, we deployed roughly $600 million to shareholders through share buybacks and dividends and also utilized roughly $350 million for the Schaffner acquisition. Our long-term capital strategy remains unchanged, which is to return approximately two-thirds of free cash flow to shareholders and use one-third for acquisitions over time.

Speaker Change: Plus or minus will be will be better.

Speaker Change: Better than we did in 2023 and feel good about the opportunities to move forward from that as we as we continued on our journey.

Speaker Change: Alright. Thank you one Z wave next question please.

Speaker Change: Alright, thank you Wamsi. Can we have the next question please?

Speaker Change: Thank you. Our next question comes from the line of Amit <unk> from Evercore. Please go ahead.

Speaker Change: Thank you. Our next question comes from the line of Amit Daryani from Everton, England.

Before I turn it over to questions, let me reiterate some of the key points that we discussed today and share how we are thinking about our performance in what we expect to be a slow macro environment.

Speaker Change: Yes.

Amit Daryani: Thanks a lot. Good morning everyone. I guess my question really is around, there's been a fair bit of worry around what end demand trends look like on a broader level. And I understand your commentary and what you're seeing is very stable compared to a lot of the semiconductor companies I think right now. But I'm hoping you can talk and help us understand, you know, orders in December quarter are down sequentially in aggregates, especially in transport and CIS. Is that a concern that perhaps that second derivative is starting to shift negatively? I'd love to understand how do you think about orders being down sequentially versus your broader commentary that things are fairly stable? Thank you.

Speaker Change: Yes.

Amit: Thanks, a lot good morning, everyone.

Amit: I guess my question really is around there's been a fair bit of worry on what end demand trends look like.

Terrence R. Curtin: You know, overall, the segment had sales growth, and it was up 5% organically year-over-year driven by our auto business. Our auto business grew 8% organically, with 13% growth in Asia and 7% growth in Europe, and this more than offset a decline in North America. Our performance continues to be driven by content growth from our leading global position in electric vehicles as well as electronification trends within the vehicle. Our global outlook for electric vehicle growth is unchanged, and it's important to note that over two-thirds of EV production will occur in Asia.

We are continuing to take action on the things we can control to improve our financial performance, and you see this reflected in our strong results for Q1 as well as our expectations going forward.

Amit: On a broader level and I understand your commentary on what Youre seeing is very stable compared to a lot of the semiconductor companies that thing right now.

Amit: Im hoping you can talk and help us understand.

On the top line, we continue to benefit from secular growth trends, and you see this in the outperformance we are delivering versus some of our key markets we serve. You have been seeing the benefits of our global leadership position in electric vehicles, but other growth applications like artificial intelligence are just getting started. Below the top line, we are successfully executing on multiple operational levers, which have been discussed earlier on this call.

Amit: Orders in December quarter or down sequentially in aggregate, that's being put on <unk>.

Speaker Change: Is that a goodwill that perhaps the second derivative is starting to ship negatively I'd love to understand how do you think about orders being down sequentially versus your product commentary that things are fairly stable.

Speaker Change: Thank you.

Speaker Change: Yeah, sure, Amit. Thank you for the question. And a couple of things. First off being our orders were up in all the segments year over year by 4%. And I think you also not only have to look at orders, but we continue to have a backlog that's about $6 billion. So I think we've communicated pretty consistently, you know, we expect as the environment gets better, that backlog will work down. I'll tell you, we aren't seeing cancellations. So I know some of the semi companies talk about that. But we have to realize our products are very different than semiconductors. Lead times are a lot shorter. And really the element during COVID was we couldn't hit our lead times consistently. We did not really extend lead time.

Speaker Change: Yeah sure Amit. Thank you for the question and then a couple of things first.

Terrence R. Curtin: We are very well positioned to capitalize on this growth due to our strong content and share in local Chinese OEM platforms that is driven by our innovation. Overall, our growth will continue to be driven by content outperformance that leverages our leading global position in the auto market. In the commercial transportation business, we saw 1% organic sales growth, and this was driven by Asia, and it was partially offset by declines here in North America. And in our sensors business, about half of the sales decline that you see on the slide was driven by the portfolio optimization efforts we've been talking to you about, where we're continually trying to organically exit lower margin and lower growth products. The rest of the decline in sensors was driven by weakness in sensor applications in industrial markets, partially offset by growth in automotive applications.

Speaker Change: First off being orders were up in all the segments year over year by 4%.

As we move forward, our focus continues to be on margin expansion and earnings growth despite the slow macro environment.

Speaker Change: And I think you're also not only have to look at orders, but we continue to have a backlog that's about $6 billion. So I think we've communicated pretty consistently we expect as the environment gets better that backlog will work down.

Finally, we remain excited about the opportunities we have ahead of us to drive value creation for all stakeholders.

Speaker: And with that, let's open up the call for questions.

Speaker Change: Tell you, we arent seeing cancellations so.

Speaker: Thank you. Can you please give the instructions for the Q&A session?

Speaker Change: So I know some of the semi companies talk about that but we have to realize our products are very different in semiconductors lead times, a lot shorter and really the element. During COVID-19 was we couldnt hit our lead times consistently we did not really extend lead times.

Speaker: Thank you. At this time, I would like to remind everyone to ask a question. Please press the star followed by the number on your telephone. In order to have time for all questions, each participant is limited to one. If you'd like to ask a follow-up question, please press the star followed by the number 1.

Speaker Change: So, when we look at the orders in the quarter, like I said on the call, they came in where we expected except for, you know, hey, industrial equipment was a little weaker. Otherwise, they came in where we thought they would be, you know, coupling the orders with the backlog.

So when we look at the orders in the quarter like I said on the call. They came in where we expected except for yohe industrial equipment was a little weaker otherwise they came in where we thought they would be coupling the orders with the backlog.

Mark Delaney: Our first question comes online from Mark Delaney.

Speaker: Please go ahead with your question. Yes, good morning. Thanks very much for taking the question. Can you speak in more detail about what is better or worse than you'd previously been anticipating with respect to the quarter and outlook?

Speaker Change: And, you know, I think, you know, you can continue to expect we're probably going to backlog below one as the backlog continues to work down to get a little bit more normalized with service levels improving.

Terrence R. Curtin: For the transportation segment, adjusted operating margins were nearly 21%. We expect transportation segment margins to run approximately at our 20% target margins for the rest of this year. As you know, we've been driving several improvement actions in our operation. We have been able to optimize our factory footprint through our restructuring programs and are getting cost savings from these actions.

Speaker Change: And I think you can.

Speaker Change: We continue to expect we're probably going to backlog below one as the backlog continues to work and to get a little bit more normalized with service levels improving.

Speaker: And on the broader topic of what areas are changing versus your prior views, do you still think your auto business can outgrow auto production by a mid-single-digit percent, or do shifting EV production plans from auto OEMs impact that? Hey Mark. Thanks for the question. Let me start with the first part. You know, as we said on the call, things overall pretty much came in as we expected here in the first quarter. And when you think of the top line, I think really the two moving parts we saw, one was better, and one was a little worse. And the one that was better was we saw actually that auto production was a little stronger. It was a little bit over 22 million units.

Speaker Change: I think from the backdrop.

Speaker Change: I think from the backdrop, you know, when we think about transportation, you know, we do expect global auto production to come down from a little bit over 22 million units in the first quarter to 21, and we think it'll run at 21 million units for the year per quarter for the rest of this year to get to about 85 million units in total.

Speaker Change: When we think about transportation and we do expect global auto production to come down from a little bit over 22 million units in the first quarter to 21.

Speaker Change: We think it will run at 21 million units for the year.

Terrence R. Curtin: We're also seeing improvement in our EV product margins as volumes increase. And in our sensors business, we have been driving margin expansion through portfolio optimization, which I mentioned earlier. Also, I'd like to highlight that our teams are continually trying to effectively manage pricing to offset higher input costs. We've been talking to you about all these actions, and I'm pleased with you that the team is successfully executing on them and delivering the strong results that you see. So with that as a backdrop for transportation, let's move to the industrial segment. And in this segment, sales were down 5% organically in the first quarter. But we did see growth in three of our four businesses, and we expect to see continued sequential growth in AD&M, medical, and energy as we go into quarter two. In the first quarter, our AD&M sales were up 13% organically, with increased production of both single and twin-aisle platforms in the commercial air market. In medical, sales in a quarter were up 16% organically, driven by ongoing increases in interventional procedures.

Speaker Change: Per quarter for the rest of this year to get to about 85 million units in total.

Speaker Change: Industrial, you see sequential order increase, which really is being driven by AD&M Medical and Energy, you know, so you're continuing to see that, and that supports why we believe we're going to have industrial solution segment revenue increase. And, you know, in communications, what's nice is we are seeing stability, even though there are some pockets around enterprise applications, pure telecom applications, we aren't seeing a slowdown in artificial intelligence and cloud, but there are some pockets out there in the telecom and the enterprise that are still working some things off, but it feels like there's light at the end of that tunnel.

Speaker Change: In industrial you see sequential order increase which really is being driven by ADM medical and energy.

We're continuing to see that and that supports why we believe we're going to have industrial.

Speaker: And, you know, that's really driven out of China. And you all know the great Chinese position we have and, you know, certainly capitalize on it.

Speaker Change: Solutions segment revenue increase and <unk> communications, what's nice is we are seeing stability, even though there are some pockets around enterprise applications pure telecom applications, we aren't seeing a slowdown in artificial intelligence and cloud, but there are some pockets out there in the telecom and enterprise.

Speaker: So that was a little bit better. The area that was a little bit worse was in our industrial equipment business. You know, we highlighted back in our September quarter that we started to see some of that stocking. I would say that got incrementally worse, both through our channel partners. We saw that, which is where, you know, we indirectly touch customers. And, you know, we also saw that get a little bit deeper in Europe, to call out a region a little bit. So they were on the top line, what was a little bit better or worse. On the bottom line, and I know Heath talked about it, and I talked about it, you know, margin performance by our team was better.

Speaker Change: That are still working some things off but it feels like there is light at the end of that tunnel.

Speaker Change: So, I think the last thing is, you know, our guide for the second quarter is going up to $3.95 billion of revenue, and it's really based upon both the orders of 3.8 plus the backlog that we see, and I think we've laid out how we're thinking about the world for the rest of the year.

Speaker Change: So I think the last thing is our guide for the second quarter is going up to $3 $95 billion of revenue and it's really based upon both the orders of $3 eight plus the backlog that we see.

Speaker: And it was both in transportation and communications that drove the EPSB. And, you know, we had a little bit of a higher tax rate that the margin covered. The second part of your question around auto content outperformance. You know, I said in my pre-remarks that we do believe EV production is going to be up about 25% this year. It's really going to be driven. You know, two-thirds of EVs are made in Asia.

Speaker Change: And I think we've laid out how we're thinking about the world for the rest of the year.

Speaker Change: Okay, thank you, Amit. Can we have the next question, please?

Speaker Change: Okay. Thank you Amit.

Speaker Change: The next question please.

Speaker Change: Thank you. Our next question comes from Christopher Glynn from Oppenheimer. Please go ahead with your question.

Speaker Change: Thank you. Our next question comes from the line of Christopher Glynn from Oppenheimer. Please go ahead with your question.

Terrence R. Curtin: And in our energy business, we saw growth in renewable applications, and this was partially offset by slower utility demand in Europe. And finally, as you can see on the slide, in the industrial equipment business, our sales were down 26% organically. And in this business, we're seeing stocking that began a little bit later in the cycle. So we expect this inventory digestion to continue. And this is a trend that is similar to what you've been hearing from other companies. From a margin perspective, you know, for the industrial segment, adjusted operating margins were 15%.

Christopher Glynn: Thank you. Good morning. Just had a tuning question about some of the channels. So with the industrial equipment organics, pretty steep. You seem to reference just the channel partners. Really, they're curious if you could juxtapose the actual end market on that specifically. And then in auto, any excess inventories in certain regions of the world? Curious.

Christopher Glynn: Thank you good morning.

Christopher Glynn: Tuning question about some of the channels, so with the industrial equipment.

Christopher Glynn: Organics pretty steep you seem to reference just the channel partners really there curious if you could juxtapose the actual end market on that specifically in auto.

Speaker: That's our largest region in automotive for our revenue, and we're going to continue to capitalize on it. So while there are some places in North America and Europe where you hear maybe the growth rates won't be as high, Asia has been making up for it, and we'll get the 4% to 6% outperformance that we always talk to you about.

Christopher Glynn: Any excess inventories in certain regions of the world. So curious.

Speaker Change: Thanks, Chris. And good morning. So let's break this apart because, yeah, in the comments, we do talk about the stocking. We do not see the stocking of our product in the automotive space at all. You know, our service levels are 90% plus on a ship to request, you know, supply chain flowing. And honestly, I think you see it in our results. So in automotive, we do not see the stocking of our product.

Speaker Change: Thanks, Chris and good morning, so let's.

Speaker: We feel good about that.

Speaker Change: Lets break this apart be closed yet and the comments, we do talk about Destocking, we do not see destocking of our product in the automotive space at all.

Speaker: Okay, thank you, Mark.

Terrence R. Curtin: With the impact of the volume decline in industrial equipment, and we expect to continue to see segment margins running in the mid-teens until the stocking environment improves. So let me turn to communications. Organic sales were down 17% year over year, and we expect the second quarter sales to be similar to the first quarter level.

Speaker: Can we have the next question, please?

Wamsi Mohan: Our next question comes from the line of Wamsi Mohan from Bank of America.

Speaker: Please go ahead with your question. Yes, thank you.

Speaker Change: Our service levels are 90% plus on a ship to request.

Speaker: Good morning.

Speaker: Terrence, maybe just to follow up on your point about very strong margins, right? You really had very standout margins, both at the gross margin level and the operating margin level. Can you maybe give a little bit about the impact that you saw from these actions you have taken? I think you alluded to a series of those restructuring, footprint, EV mix, and so on. And what do you think is the sustainability of that and how that translates into segment margins for the rest of the year? Hey, Wamsi, thanks for the question. I'm going to let Heath take that. Sure. Wamsi, you know, listen, we've talked here for a while about some of the journey that we've been on, and we've taken some outsized restructuring charges over the past few years.

Speaker Change: <unk>.

Speaker Change: Supply chain flowing and honestly I think youll see it in our results. So in automotive, we do not see destocking of our.

Speaker Change: <unk>.

Speaker Change: When you come to the distocking that we talk about, and Chris, you said it right,

Terrence R. Curtin: Starting in our third quarter, you will begin to see favorable year-on-year growth in this segment. We are well positioned to grow in artificial intelligence programs and are now expecting $200 million of contribution in fiscal 24 from AI applications. And in these applications for artificial intelligence, you know, let's face it, we're focused on providing high-speed, low-latency connectivity to meet the needs of the artificial intelligence workload.

Speaker Change: When you come to the Destocking that we talked about and Chris you said it right.

Speaker Change: I think you have to think about Te's world and there is the world, where we service our customers directly and then there is the world that we use our distribution partners to cover where we can do directly and in <unk> at the total company level, 80% of what we do we cover directly.

Speaker Change: I think you have to think about TE's world, and there's the world where we service our customers directly, and then there's the world that we use our distribution partners to cover where we can't do directly. And in TE, at the total company level, 80% of what we do, we cover directly, and honestly, our revenue on that 80% in this quarter we just closed was up low single digits.

Speaker Change: And honestly our revenue on that 80% in this quarter. We just closed was up low single digit so that is where our supply change completely tied into our customers and thats an indicator we look at around the stocking.

Heath Mitts: And as we've mentioned to you before, we generate 50% more content in an accelerated compute AI platform versus traditional compute servers. Also, we continue to work closely with cloud customers as well as leading semiconductor companies to ensure reference designs that call out our solutions. On the margin front for the segment, adjusted operating margins were 18.7%, and they were up 170 basis points despite the decline in sales. Our teams are executing extremely well, and we now believe we'll be able to maintain the high team margin in this segment as we move through this year. So with that as an overview of performance, let me turn it over to Heath to get into more details on the financials and our expectations going forward. Well, thank you, Terrence, and good morning, everyone.

Speaker Change: So that is where our supply chain is completely tied into our customer

Speaker Change: and that's an indicator we look at around the stock

Speaker: Many of you have pointed that out. That's not lost on us. But we're starting to see, in a more meaningful way, some of that footprint consolidation coming to the benefit of our margins, and that obviously translates into earnings. And most of that you do see in gross margins. So, you know, Terrence and Nikoli mentioned execution, which we include footprint in there. There are also portfolio optimization moves that we've made in terms of jettisoning low-margin product lines. And, you know, you'll continue to see a little bit of that as we move forward.

Speaker Change: Now, the piece that goes through our channel partners, the piece that goes through our channel partners,

Speaker Change: Now the piece that goes through our channel partners.

Speaker Change: and, you know, they are working down inventory, that was down 14% in the quarter.

Speaker Change: And they are working down inventory that was down 14% in the quarter.

Speaker Change: And that's where you truly see that you see the biggest impacts in industrial equipment. You see it in appliances. You see it also in our data and devices business where those businesses have upward to 50% of their revenue that go through distribution partners to get to their customers.

Speaker Change: And Thats, where you truly see that you see the biggest impacts on industrial equipment you see it in appliances you see it also in our data and devices business, where those business have upwards of 50% of their revenue that go through distribution partners to get to their customers. So that is really where we see the <unk>.

Speaker Change: That is really where we see the stocking occurring. One of the things that was nice this quarter, we saw that that inventory did not go up, leveled off. We do see in appliances, it has improved. I talked about D&D, it's in pockets, and industrials later to the party of the stocking. And I think that will take a little bit longer. But it's also the element that ties back to Amit's question. When we're looking at our direct business levels with our customers, where we touch them directly, we have low single-digit organic growth. You've excluded what goes through the channel partners. And I think we'll continue to have the stocking with us here, especially in the industrial equipment business, and that drives that big decline of organic growth. But that will get behind us at some point. And I think it also shows those areas that Heath talked about, where we're benefiting from electric vehicle, where we benefit from other content drivers. It's really allowing us to basically absorb the stocking we're doing and stay relatively flat.

Speaker Change: Stocking occurring one of the things that was nice this quarter, we saw that that inventory did not go up leveled off we do see in appliances. It has improved I've talked about DMD, it's in pockets and industrials later to the party of the stocking.

Speaker: Last year, we talked a lot about the price actions that we put in place, and those have stuck.

Heath Mitts: Please turn to slide 8, where I will provide more details on the first quarter financials. Adjusted operating income was $731 million, with an adjusted operating margin of 19.1%. GAAP operating income was $698 million and included $8 million of acquisition-related charges and $25 million of restructuring and other charges.

Speaker: And we continue to be very diligent about that. And then, quite candidly, in some of our businesses where we see stability versus where we've been running in the last few years, that really creates an operating environment where you can take advantage of lower cost structures. And I think it's important as we think about, you know, the volatility that we've had over the last several years that is starting to stabilize and where we play as part of many supply chains out there when we start seeing, you know, order patterns that are a little bit more consistent with our suppliers performing more consistently, it allows us to run our factories more consistently, and you certainly saw that.

Speaker Change: And I think that will take a little bit longer but it's also the element tied back to <unk> question. When we're looking at our direct business levels with our customers, where we touch them directly.

Speaker Change: We have low single digit organic growth you've exclude what goes through the channel partners and I think.

Heath Mitts: For the full year, our expectations are unchanged, and we continue to expect Fiscal 24 restructuring charges to be approximately $100 million, which is well below the levels we've been running in prior years. Going forward, we expect that restructuring charges will be driven by actions to improve efficiency around future bolt-on acquisitions. Adjusted EPS was $1.84, and GAAP EPS was $5.76 for the quarter, which included a benefit of nearly $4 related to a one-time non-cash, non-U.S. tax benefit, a change in the Swiss tax rate, and the impact of intercompany transactions. Additionally, we had restructuring, acquisition, and other charges of $0.07. The adjusted effective tax rate was 21.2% in Q1, slightly higher than our guidance due to an increase in the Swiss tax rate that I just mentioned.

Speaker Change: We will continue to have to stocking with us here, especially in the industrial equipment business and that drives that big.

Speaker Change: Decline of organic growth, but that will get behind us at some point and I think it also shows those areas that Heath talked about where we are benefiting from electric vehicle, where we benefit from other content drivers, it's really allowing us to basically absorb the stocking were doing and stay relatively flat.

Speaker: The first quarter was probably a little overheated in transportation because of the tick up in auto production north of 22 million units. But even as we bring down that to closer to the 21 million unit a quarter level, we still feel confident that we can run at the target margins for that segment, transportation being target margins of roughly 20%.

Speaker Change: Okay. Thank you Chris can we have next question. Please.

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

Speaker Change: Thank you. Our next question comes from the line of Chris <unk> from UBS. Please go ahead with your question.

Speaker Change: Thank you. Our next question comes from the line of Chris Snyder from UBS. Please go ahead with your question.

Chris Snyder: Thank you. I wanted to follow up on some of the earlier questions around EV penetration and auto outgrowth.

Chris: Thank you I wanted to follow up on some of the earlier questions around EV penetration and auto outgrowth.

Speaker: So, you know, we are making that statement on this call here today.

Chris Snyder: The Q1 outgrowth came in below target levels, despite still supportive price, what we would consider normalized. It sounds like there's not much de-stocking headwinds in there. So, you know, is there, is this just some pressure from softer EV penetration? Are there mixed headwinds? Is it just that we shouldn't think about this on a one-quarter basis? And then lastly...

Chris: The Q1 outgrowth came in below target levels, despite still supportive price.

Speaker: For the communications segment, we have been able to, I'll say, improve the margins on a little bit lower revenue. But we're not committing that we're going to be at 20% here yet, which is the target margin for communications at these revenue levels. But as things tick up, you should continue to see us in the high teens from an operating margin perspective. And then industrial Industrial is running in the mid-teens, and we would expect it to run in the mid-teens throughout the rest of this year. There are a couple things at play there. Obviously, the elongated destocking situation in our industrial equipment business, which is not just the largest piece of that segment but also the most profitable piece, does have an impact. And we've talked about that in the last couple of quarters. And then when you start layering in acquisitions, that does have a dilutive impact.

Chris: What we would consider normalized it sounds like theres not much destocking headwinds in there so.

Chris: Is this just costco from softer EV penetration are there mixed headwinds is it just that we shouldn't think about this on a one quarter basis.

Heath Mitts: For the second quarter and for the full year, we now expect our adjusted effective tax rate to be approximately 21 percent. And importantly, as always, we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year. Now, let's turn to slide nine. Sales of $3.83 billion were flat on a reported basis and down 1% on an organic basis year over year.

Speaker Change: And then lastly.

Speaker Change: Final quick serve global auto production in the quarter.

Chris Snyder: China took share of global auto production in the quarter. Is it fair to think that that's a headwind to outgrowth because I know it's a lower content exchange than the U.S. and Europe? Thank you.

Speaker Change: Forward.

Speaker Change: What's the outlook because I know, it's a lower content.

Speaker Change: Europe. Thank you.

Speaker Change: Yeah, so a couple of things, Chris.

Speaker Change: Yes, so a couple of things Chris.

Speaker Change: First off, on the content outperformance, I appreciate you saying what I'm going to say.

Speaker Change: First of all on the accounts content outperformance I appreciate you, saying, what I'm going to say.

Speaker Change: Please don't look at it on an individual quarter basis.

Speaker Change: You will see times when it's way ahead. You'll see times when it's behind. And I really think you have to look at it over a period of time because there is interplays between where we are and certainly getting to the OE. So net-net, you will see it. It does get into being on every platform in the world. Those are types of things you're going to get on a quarter a little bit off. You know, we were about 300 basis points of outperformance in the quarter. So it was a little bit below what we said. But also what I said on the call was we expect to be in that four to six range for this year is important.

Heath Mitts: Adjusted operating margins were 19.1% in the first quarter, expanding 290 basis points year-over-year despite flat sales. As Terrence mentioned earlier, this was driven by margin expansion in our transportation and communications segment. Adjusted earnings per share was $1.84, up roughly 20% year-over-year, driven by the strong margin expansion. Turning the cash flow, cash from operations was $719 million, and free cash was a first quarter record of $5

Speaker Change: You will see times when its way ahead, you'll see times when it's behind and I really think you have to look at it over a period of time, because there isn't a plays up between where we are and certainly getting to the OE.

Speaker: And acquisitions are a terrific opportunity for the growth of that business, an opportunity that it presents for our stakeholders at the same time. Bringing a deal in generally comes with diluted margins that we have to absorb, and that's no different than with the Schaffner acquisition that we brought in. So when you add all that up, Wamsi, we feel good. That as we move through the year, our operating margins at the TE level will have an 18 handle in front of them. You know, plus or minus, we'll be humming better than we did in 2023 and feel good about the opportunities to move forward from that as we continue our journey. Alright, thank you Wamsi.

Speaker Change: So net net you will see it does get into being on every platform in the world. Those are types of things youre going to get on a quarter a little bit off we were about 300 basis points of outperformance in the quarter. So it was a little bit below what we said.

Speaker Change: But also what I said on the call was we expect to be in that 4% to six range for this year.

Speaker Change: As important.

Heath Mitts: Also in the quarter, we deployed roughly $600 million to shareholders through share buybacks and dividends and also utilized roughly $350 million for the Schaffner acquisition. Our long-term capital strategy remains unchanged, which is to return approximately two-thirds of free cash flow to shareholders and use one-third for acquisitions over time. Before I turn it over to questions, let me reinforce some of the key points that we discussed today and share how we are thinking about our performance and what we expect to be a slow macro environment. We are continuing to take action on the things we can control to improve our financial performance. And you see this reflected in our strong results for Q1, as well as our expectations going forward. On the top line, we continue to benefit from secular growth trends, and you see this in the outperformance we are delivering versus some of our key markets we serve.

Speaker Change: On your other part of, you know, hey, there's been a lot of noise around EV adoption and production.

Speaker Change: On your other part of Hey, there's been a lot of noise around EV adoption and production.

Speaker Change: Hi.

Speaker Change: Our view of it is the same, and I'm going to stress, as always,

Speaker Change: Our view of its the same and I, just I'm going to stress as always.

Speaker Change: I know sometimes because we hear about U.S. car companies and European car companies, I'm going to ask us to really take it up a level and remember.

Speaker Change: No, sometimes because we hear about U S car companies and European car companies I'm going to ask us to really take it up a level and remember.

Speaker: Can we have the next question, please?

Speaker: Thank you. Our next question comes from the line of Amit Daryani from Everton, England.

Speaker Change: Global car production is what matters to TE.

Speaker Change: Global car production is what matters to TEP.

Speaker Change: There's going to be about 85 million cars made in the planet this year.

Speaker Change: There's going to be about 85 million cars made in the plan at this year the.

Amit Daryanani: Thanks a lot.

Speaker: Good morning everyone. I guess my question really is around what end demand trends look like on a broader level. And I understand your commentary, and what you're seeing is very stable compared to a lot of the semiconductor companies, I think right now.

Speaker Change: The majority of them will be made in Asia.

Speaker Change: And I would also tell you, when you look at EV adoption, two-thirds of EVs are driven in Asia, and this is where our strongest region is.

Speaker Change: And I would also tell you when you look at EV adoption two thirds of Evs are driven in Asia and this is where our strongest region is.

Speaker Change: You know, when you also think about those 20 million electric vehicles, whether that's a full battery electric, a plug-in hybrid, you know, hybrids like a Prius that don't need the plug, you really got to sit there and go, those 20 million units are bigger than USR and automotive production in the United States.

Speaker: But I'm hoping you can talk and help us understand, you know, orders in the December quarter are down sequentially in aggregates, especially in transport and CIS. Is that a concern that perhaps that second derivative is starting to shift negatively? I'd love to understand what you think about orders being down sequentially versus your broader commentary that things are fairly stable. Thank you. Yeah, sure, Amit. Thank you for the question. And a couple of other things.

Speaker Change: When you also think about those 20 million electric vehicles, whether that's a full battery electric or plug in hybrid.

Speaker Change: Hybrids like a prius.

Speaker Change: Don't need to plug.

Heath Mitts: You have been seeing the benefits of our global leadership position in electric vehicles, but other growth applications like artificial intelligence are just getting started. Below the top line, we are successfully executing on multiple operational levers which have been discussed earlier in this call. As we move forward, our focus continues to be on margin expansion and earnings growth despite the slow macro environment. Finally, we remain excited about the opportunities we have ahead of us to drive value creation for all stakeholders. And with that, let's open up the call for questions. Thank you. Can you please give the instructions for the Q&A session?

Speaker Change: You really got to sit there and go those 20 million units are bigger than USR in automotive production in United States. So I really ask us when we think about EV trends it needs to be a global lens.

Speaker Change: So I really ask us when we think about EV trends, it needs to be a global lens.

Speaker Change: And, you know, I was just in China last week. And when you're in China, you see EVs all around you. You can tell by their license plate color. They're green. They're a different color than a normal license plate.

Speaker Change: And I was just in China last week and when you're in China, you see Evs. All around you you can tell by their license plate color Theyre Green there are different color than a normal license plate.

Speaker: First off, our orders were up in all the segments year over year by 4%. And I think you also not only have to look at orders, but we continue to have a backlog that's about $6 billion. So I think we've communicated pretty consistently that we expect as the environment gets better, that backlog will work down. I'll tell you, we aren't seeing cancellations.

Speaker Change: and you see that where that adoption is going and you see it not only full battery electric, you see it in plug-in hybrids and what's great is we have share that is similar with the local OEMs as you do with the multinationals and you see that in our growth and you also see when China production goes up, our revenue is a little bit stronger.

Speaker Change: And you see that where that adoption is going and you see it not only full battery electric you see it and plug in hybrids and.

Speaker Change: And what's great is we have share that is similar with the local Oems as you do with the multinationals and you see that in our growth and you'll also see when China production goes up our revenues a little bit stronger.

Speaker: So I know some of the semiconductor companies talk about that, but we have to realize our products are very different than semiconductors. Lead times are a lot shorter. And really, the element during COVID was that we couldn't hit our lead times consistently.

Operator: Thank you, at this time I would like to remind everyone to ask a question; please press the star followed by the number on your telephone. In order to have time for all questions, each participant is limited to one question. If you would like to ask a follow-up question, please press the star followed by the number 1. Our first question comes from the line of Mark Delaney. Please go ahead with your questions. Yes, good morning, and thanks very much for taking the time to answer my question.

Speaker Change: So, you know, the content of 4% to 6% hasn't changed.

Speaker Change: So the content of 4% to 6% Hasnt changed.

Speaker Change: Our view of, you know, what EV adoption does for our content on a full battery electric, it's about 2x. On a plug-in hybrid or a hybrid, it's about one and a half times our normal $70 that we would have on a nice vehicle. Hasn't changed. And I think what's really great is our global business is really making sure we're bringing the innovation to life and also serving our customers with their innovation to make it happen.

Speaker Change: Our view of what.

Speaker Change: EV adoption does for our content on a full battery electric it's about <unk>.

Speaker: We did not really extend the lead time.

Speaker: So, when we look at the orders in the quarter, like I said on the call, they came in where we expected, except for, you know, industrial equipment was a little weaker. Otherwise, they came in where we thought they would be, you know, coupling the orders with the backlog.

Speaker Change: On a plug in hybrid or a hybrid is about one five times, our normal $70 that we would have on a nice vehicle hasnt changed and I think what's really great is our global business is really making sure we're bringing the innovation to life and also serving our customers with our innovation to make it happen.

Terrence R. Curtin: Can you speak in more detail about what is better or worse than you'd previously been anticipating with respect to the quarter and outlook? And on the broader topic of what areas are changing versus your prior views, do you still think your auto business can outgrow auto production by a mid-single-digit percent, or does shifting EV production plans from auto OEMs impact that? Hey Mark, thanks for the question. Let me start with the first part.

Speaker: And, you know, I think you can continue to expect we're probably going to have a backlog below one as the backlog continues to work down to get a little bit more normalized with service levels improving. I think from the backdrop, you know, when we think about transportation, we do expect global auto production to come down from a little bit over 22 million units in the first quarter to 21, and we think it'll run at 21 million units per year per quarter for the rest of this year to get to about 85 million units in total.

Speaker Change: Okay. Thank you Chris can we have the next question. Please.

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

Speaker Change: Thank you. Our next question comes from the line of Steven Fox from folks Advisors. Please go ahead with your question.

Speaker Change: Thank you. Our next question comes from the line of Steven Fox from Fox Advisors. Please go ahead with your question.

Steven Fox: Hi, good morning. I was wondering if you could just dig into the Schaffner acquisition a little bit more in terms of what it adds to the industrial portfolio and what kind

Steven Fox: Hi, Good morning, I was wondering if you could just dig into the schaffner acquisition, a little bit more in terms of what it adds to the industrial portfolio and what kind of sales.

Terrence R. Curtin: You know, as we said on the call, things overall pretty much came in as we expected here in the first quarter. And when you think of the top line, I think really the two moving parts we saw, one was better, and one was a little worse. And the one that was better was we saw actually that auto production was a little stronger. It was a little bit over 22 million units.

Steven Fox: Sales and margin profile we should expect going forward from it. Thanks.

Steven Fox: Sales and margin profile, we should expect going forward from it.

Speaker Change: Yeah, Thanks, Steve and good morning Heath on idle Ham and egg. This one so first off schaffner.

Speaker Change: Yeah, thanks, Steve, and good morning. And Heath and I will ham and egg this one. So first off, Schaffner, you know, when we talk about bolt-on M&A for us is, you know, where are areas that around areas we really want to be focused on from an application, you know, we view we can drive value for our customers, but also can we acquire things that drive value for you as owners? And, you know, Schaffner is a great example of it. You know, it is going to be in the factory automation space. You know, Schaffner was a Swiss company, and one of the things they do, they're one of the global leaders in electromagnetic filter solutions, and, you know, to keep it simple, it really is how do you have filters that when you're bringing power into factory automation applications through the motors and the drives, you really keep that pure from interference.

Speaker: Industrial, you see a sequential order increase, which really is being driven by AD&M Medical and Energy, you know, so you're continuing to see that, and that supports why we believe we're going to have an industrial solution segment revenue increase. And, you know, in communications, what's nice is we are seeing stability, even though there are some pockets around enterprise applications, pure telecom applications; we aren't seeing a slowdown in artificial intelligence and the cloud, but there are some pockets out there in the telecom and the enterprise that are still working some things out, but it feels like there's light at the end of that tunnel. So, I think the last thing is, you know, our guide for the second quarter is going up to $3.95 billion in revenue, and it's really based on both the orders of 3.8 plus the backlog that we see. And I think we've laid out how we're thinking about the world for the rest of the year. Okay, thank you, Amit.

Speaker Change: When we talk about bolt on M&A for us is where are areas that around areas, we really want to be focused on from an application.

Speaker Change: We can drive value.

Terrence R. Curtin: And you know, that's really driven out of China. And you all know the great Chinese position we have and certainly capitalize on it. So that was a little bit better.

Speaker Change: For our customers, but also can we acquire things that drive value for you as owners.

Speaker Change: Yes, <unk> is a great example of it it is going to be in the factory automation space.

Terrence R. Curtin: The area that was a little bit worse was in our industrial equipment business. You know, we highlighted back in our September quarter that we started to see some destocking. I would say that got incrementally worse, both through our channel partners. We saw it, which is where, you know, we indirectly touch customers. And, you know, we also saw that get a little bit deeper in Europe, probably to call out a region a little bit. So they were on the top line, what was a little bit better or worse.

Speaker Change: There was a Swiss company and one of the things they do there one of the global leaders in electromagnetic magnetic filter solutions.

Speaker Change: Keep it simple it really is how do you have filters at when Youre, bringing power.

Speaker Change: Into factory automation application through the motors and the drive to really keep that pure from interference.

Speaker Change: We already had a product line that did this. It was very much a U.S. product line. With Schaffner, they were strong in Europe, had a nice ASA presence, and it really brings it together that gets us deeper into factory automation.

Speaker Change: We already had a product line that did this it was very much a U S product line with Schaffner. They were strong in Europe had a nice as a presence and it really brings us together that gets us deeper into factory automation.

Terrence R. Curtin: On the bottom line, and I know Heath talked about it and I talked about it, you know, margin performance by our team was better, and it was both in transportation and communications. And that drove the EPS beat.

Speaker Change: The revenue of it is about $40 million a quarter. It is something that we will improve the profitability up to the levels that we say. And Heath, I don't know if you want to add more to it. No, I think, Steve, this is right down the middle of the fairway in terms of how we look at bolt-on deals. And I kind of compare it similar to the earning acquisition that we did in 2022, which was another business that rolled through our industrial equipment business unit within that segment. And, you know, from a, although, you know, it's going to contribute $40 million a quarter or so out of the gate, you know, our focus is obviously driving where the value creation opportunity is. And that's on, you know, getting the cost structure in line with where we would think about things in a TE world, as well as, you know, really focusing on the cash-on-cash return here. You know, it's not going to be. It's not going to be contributing much to EPS in the first year, no different than Ernie did. But following a similar trajectory to Ernie, it does really fit well within our margin expansion strategy and our ability to create cash-on-cash returns for our shareholders. So I'd say, in general, these are the nice size of deals we like to do. And it's a fragmented space still, so there's still opportunity to add things in that space, even if we have to dissolve. You want to, you know, absorb some dilution in the margins at the segment level.

Speaker Change: But revenue of it as about $40 million a quarter.

Terrence R. Curtin: And, you know, we had a little bit of a higher tax rate that the margin covered. The second part of your question around auto content outperformance. You know, I said in my pre-remarks that we do believe EV production is going to be up about 25% this year. It's really going to be driven by, you know, two-thirds of EVs are made in Asia. That's our largest region in the automotive industry for our revenue, and, you know, we're going to continue to capitalize on it. So while there are some places in North America and Europe where you hear maybe the growth rates won't be as high, Asia has been making up for it, and we'll get the 4% to 6% outperformance that we always talk about. We feel good about that. Our next question comes from the line of Wamsi Mohan from Bank of America. Please go ahead with your question.

Operator: Can we have the next question, please?

Speaker Change: It is something that we will improve the profitability up to the levels that we say and Heath I don't know if you want to add more to it no I think Steve. This is right down the middle of the fairway in terms of how we look at bolt on deals and I kind of compare it and similar to the <unk> acquisition that we did in 2022, which is was another.

Operator: Thank you.

Christopher Glynn: Our next question comes from Christopher Glynn from Oppenheimer. Please go ahead with your question. Thank you. Good morning. Just had a tuning question about some of the channels. So with the industrial equipment organics, pretty steep. You seem to reference just the channel partners. Really, they're curious if you could juxtapose the actual end market on that specifically. And then in the auto industry, any excess inventories in certain regions of the world? Cur

Heath Mitts: Industrial another business that rolled through our industrial equipment business unit within that segment.

Heath Mitts: Yes.

Heath Mitts: Sure.

Heath Mitts: Although it's going to contribute.

Heath Mitts: $40 million, a quarter or so out of the gate.

Speaker: Thanks, Chris.

Heath Mitts: Our focus is obviously driving where the value creation opportunity is and thats on.

Speaker: And good morning. So let's break this apart because, yeah, in the comments, we do talk about the stocking.

Heath Mitts: Getting the cost structure in line with with where we would think about things in a <unk> world.

Speaker: We do not see the stocking of our product in the automotive space at all.

Heath Mitts: As well as <unk>.

Speaker: You know, our service levels are 90% plus on a ship to request, you know, keep the supply chain flowing.

Heath Mitts: Uh, yes, thank you, good morning. Terrence, maybe just to follow up on your point about very strong margins, right? You really had very standout margins, both at the growth margin level and at the operating margin level. Can you maybe give a little bit about the impact that you saw from these actions you took? I think you alluded to a series of those, restructuring, footprint, CV, mix, and so on. And what do you think is the sustainability of that and how that translates into segment margins for the rest of the year? Hey Wamsi, thanks for the question. I'm going to let Heath take that.

Heath Mitts: Really focus in on the cash on cash return here.

Heath Mitts: It's not going to be contributing much to EPS in the first year in a different and Ernie did but following a similar trajectory to Ernie.

Speaker: And honestly, I think you see it in our results. So in the automotive industry, we do not see the stocking of our product. When you come to the distribution that we talk about, and Chris, you said it right, I think you have to think about TE's world, and there's the world where we service our customers directly, and then there's the world that we use our distribution partners to cover where we can't do it directly.

Heath Mitts: Does really fit well within our margin expansion strategy and our ability to create cash on cash returns for our shareholders. So I would say in general. It's these are nice nice size of deals we like to do and it's a fragmented space still so there's still opportunity to add things in this space.

Heath Mitts: Even if we have to do so.

Speaker: And in TE, at the total company level, 80% of what we do, we cover directly, and honestly, our revenue on that 80%, in this quarter we just closed, was up low single digits.

Heath Mitts: You wanted to absorb some dilution in the margins at the segment level.

Heath Mitts: Sure. Wamsi, you know, listen, there's, we've talked here for a while about some of the journey that we've been on, and we've taken some outsized restructuring charges over the past few years. Many of you have pointed out that it's not lost on us, but we're starting to see in a more meaningful way some of that footprint consolidation come into play to the benefit of our margins, and obviously translates into earnings. And most of that you do see in gross margins. So, you know, Terrence on the call mentioned execution, which we include footprints in there.

Speaker Change: Okay, thank you, Steve. Can we have the next question, please?

Speaker Change: Okay. Thank you Steve can we have the next question. Please.

Speaker: So that is where our supply chain is completely tied to our customer, and that's an indicator we look at around the stock Now, the piece that goes through our channel partners, the piece that goes through our channel partners, and, you know, they are working down inventory, that was down 14% in the quarter. And that's where you truly see that you see the biggest impact in industrial equipment. You see it in appliances. You see it also in our data and devices business, where those businesses have upward to 50% of their revenue going through distribution partners to get to their customers. That is really where we see the stocking occurring. One of the things that was nice this quarter was that we saw that inventory did not go up, but it leveled off.

Speaker Change: Thank you. Your next question comes from the line of John Judy on iPhone TV Cowen. Please go ahead with your question.

Speaker Change: This question comes from the line of Joe Giordano from TD Cohen.

John Judy: Hey, guys good morning.

Joseph Giordano: Hey, guys. Good morning.

Joseph Giordano: Hey, Joe. Good morning.

John Judy: Hey, Joe Good morning.

Joseph Giordano: Hey, I just want to ask on the AI side within communications. So you mentioned you have like a 50% content lift in these AI type applications. Now, I'm just curious how much of what's being built for AI is simply replacing stuff that otherwise would have been built before AI? So it's like, if you're doing 200 million of AI related content in 2024, is that essentially like replacing what would have been like $133 million of content, you know, of older type stuff in like the world of last year?

John Judy: Hey, I just wanted to ask on the on the <unk>.

John Judy: AI side within communications.

John Judy: So you mentioned you have like a 50% content lift in these AI type of that.

Speaker Change: Yes type applications now I'm, just curious how much of what's being built for AI is simply replacing stuff that otherwise would've been built before AI as it looks like if you're doing $200 million of AI related content. In 2024 is that essentially like replacing what would have been like $133 million of content.

Heath Mitts: There are also portfolio optimization moves that we've made in terms of jettisoning low-margin product lines. And, you know, you'll continue to see a little bit of that as we move forward. Last year, we talked a lot about the price actions that we put in place, and those have stuck. And we continue to be very diligent on that.

Speaker Change: Older type stuff.

Speaker Change: I do.

Speaker Change: We are ahead of last year.

Speaker Change: So, a couple of things, Joe. The way you're talking about it is more cannibalization. You know, that goes into where capital gets deployed. I would say you're still going to see servers deployed that will support AI. What we're trying to really get out there is, you know, what is the increased content to support the workload? So, when you sit there, I won't assume that it completely cannibalizes everything, but what's really nice with the innovation that we bring and how these workloads are set up on the GPUs and the TPUs, it really creates a higher revenue level that we expect as AI continues to ramp. And, you know, when you think about our year, and I said it on the call early on, we think we'll have about $200 million this year of AI revenue. It will continue as program launches occur, build throughout the year, and probably 60 plus percent will be in the second half versus what's in the first half. And, you know, we'll get the growth in our communications segment in the second half of our year.

Speaker: We do see in appliances, it has improved. I talked about D&D, it's in pockets, and industrials later to the party of the stocking. And I think that will take a little bit longer. But it's also the element that ties back to Amit's question. When we're looking at our direct business levels with our customers, where we touch them directly, we have low single-digit organic growth.

Speaker Change: So couple of things Joe.

Speaker Change: You are talking about is more cannibalization that goes into where capital gets deployed I would say youre still going to see servers deployed that will support AI, what we're trying to really get out there is.

Heath Mitts: And then quite candidly, in some of our businesses where we see stability versus where we've been running in the last few years, that really creates an operating environment where you can take advantage of lower cost structures. And I think it's important as we think about, you know, the volatility that we've had over the last several years that is starting to stabilize and where we play as part of many supply chains out there when we start seeing, you know, order patterns that are a little bit more consistent with our suppliers performing more consistently. It allows us to run our factories more consistently, and you certainly saw that. The first quarter was probably a little overheated in transportation because of the tick up in auto production north of 22 million units.

Speaker Change: What is the increased comment to content to support the workload. So when you sit there I won't assume that a completely cannibalize is everything but what's really nice with the innovation that we bring and how these workloads are set up on the Gpus in the Tpa use it really creates a higher.

Speaker: You've excluded what goes through the channel partners.

Speaker: And I think we'll continue to have the stock market with us here, especially in the industrial equipment business, and that drives that big decline in organic growth. But that will get behind us at some point. And I think it also shows those areas that Heath talked about, where we're benefiting from electric vehicles, where we benefit from other content drivers. It's really allowing us to basically absorb the stocking we're doing and stay relatively flat. Okay, thank you, Chris.

Speaker Change: Revenue level that we expect as I continues to ramp and when you think about our year and I've said it on the call early on we think we have about $200 million this year.

Speaker Change: <unk> AI revenue it will continue as program launches occur build throughout the year and probably 60 plus percent will be in the second half versus what's in the first half and we will get the growth in our communications segment in the second half of our here.

Heath Mitts: But even as we bring down that to closer to the 21 million units a quarter level, we still feel confident that we can run at the target margins for that segment, transportation being a target margin of roughly 20%. So, you know, we are making that statement on this call here today. For the communications segment, we have been able to, I'll say, improve the margins on a little bit lower revenue. But we're not committing that we're going to be at 20% here yet, which is the target margin for communications at these revenue levels. But as things tick up, you should continue to see us in the high teens from an operating margin perspective. And then industrial Industrial is running in the mid-teens, and we would expect it to run in the mid-teens throughout the rest of this year. There are a couple things at play there.

Operator: Can we have the next question, please?

Operator: Thank you.

Chris Snyder: Our next question comes from the line of Chris Snyder from UBS. Please go ahead with your question. Thank you. I wanted to follow up on some of the earlier questions around EV penetration and auto outgrowth. The Q1 outgrowth came in below target levels, despite a still supportive price, which we would consider normalized. It sounds like there's not much de-stocking headwinds in there. So, you know, is there, is this just some pressure from softer EV penetration? Are there mixed headwinds? Is it just that we shouldn't think about this on a quarterly basis?

Speaker Change: Okay. Thank you Joe we have the next question please.

Speaker Change: Okay, thank you, Joe. We have the next question, please.

Speaker Change: Thank you. Next question comes from Lionel Samik Chatterjee from J.P. Morgan. Please go ahead with your question.

Speaker Change: Thank you. Your next question comes from line of Patrick <unk> from J P. Morgan. Please go ahead with it.

Speaker Change: Hi, thanks for taking my question.

Speaker Change: Hi.

Patrick: Thanks for taking my question and how can you as well I was actually going to follow up on the previous question on communication.

Speaker Change: I was actually going to follow up on the

Speaker Change: and many more.

Patrick: Now getting into the 100 million contribution from <unk>.

Speaker Change: and now indicating a $200 million. Thank you.

Speaker Change: and many more.

Patrick: Piece of the business you raising that.

Speaker Change: Thank you for raising that. I mean, from 150 million, what's the driver of the raise? Is it more capacity or demand? And then you've talked about a $1 billion.

Patrick: What's the driver of the reason.

Chris Snyder: And then lastly... China took a share of global auto production in the quarter. Is it fair to think that that's a headwind to outgrowth because I know it's a lower content exchange than the U.S. and Europe? Thank you.

Patrick: <unk>.

Patrick: And then you've talked about a $1 billion in Florida.

Speaker Change: Bost, how has that pipeline gone?

Patrick: How has the pipeline continued to expand.

Speaker Change: and as you see that river

Patrick: You see that revenue come through what are the implications on margins for the communications segment. Thank you.

Speaker: Yeah, so a couple of things, Chris. First off, on the content outperformance, I appreciate you saying what I'm going to say. Please don't look at it on an individual quarter basis. You will see times when it's way ahead. You'll see times when it's behind, and I really think you have to look at it over a period of time because there are interplays between where we are and certainly getting to the OE. So, net-net, you will see it.

Speaker Change: So <unk>. Thanks for the question first off mean, when you look at that it is the increase element is demand and wins.

Bost: So, hey, Samik, thanks for the question. First off being, you know, when you look at that, it is the increased element is demand and wins.

Heath Mitts: Obviously, the elongated destocking situation in our industrial equipment business, which is not just the largest piece of that segment but also the most profitable piece, does have an impact. And we've talked about that in the last couple of quarters. And then when you start layering in acquisitions, that does have a dilutive impact.

Bost: To the second part of your question, the billion dollars is in excess of 1.3, so we continue to have momentum on that.

Speaker Change: To the second part of your question to $1 billion is in excess of 1.3. So we continue to have momentum on that.

Bost: And as he sort of said, when we think about margins as that comes in, and we're going to be in the high teens for that segment. So even on a little bit lower revenue than we said before, we're going to be in the high teens this year in the communication segment as that comes in.

Speaker Change: And as he sort of said when we think about margins as that comes in and we're going to be in the high teens for that segment, so even on a little bit lower revenue.

Heath Mitts: And acquisitions are a terrific opportunity for the growth of that business, an opportunity that it presents for our stakeholders, while at the same time, bringing in a deal. It generally comes in with diluted margins that we have to absorb, and that's no different than with the Schaffner acquisition that we brought in. So, when you add all that up, Wamsi, we feel good that as we move through the year, our operating margins at the TE level will have an 18 handle in front of them. You know, plus or minus, we'll be humming better than we did in 2023 and feel good about the opportunities to move forward from that as we continue our journey. All right, thank you, Wamsi.

Speaker: It does get into being on every platform in the world, but those are types of things you're going to get on a quarter a little bit later. You know, we were about 300 basis points of outperformance in the quarter. So it was a little bit below what we said. But also, what I said on the call was that we expect to be in that four to six range for this year. On the other hand, you know, hey, there's been a lot of noise around EV adoption and production. Our view of it is the same, and I'm going to stress, as always, I know sometimes because we hear about U.S. car companies and European car companies, but I'm going to ask us to really take it up a level and remember that global car production is what matters to TE. There's going to be about 85 million cars made on the planet this year.

Speaker Change: We said before we're going to be in the high teens this year.

Speaker Change: In the communication segment as that comes on.

Speaker Change: Okay, thank you, Samik. Can we have the next question, please? Thank you. Our next question comes in line of Luke Junk from Bayard. Please go over the question.

Speaker Change: Okay. Thank you. The next question please.

Speaker Change: Thank you. Our next question comes from the line of Luke Junk from Baird. Please go ahead with your question.

Luke L. Junk: Thank you.

Luke L. Junk: Sorry, Luke, are you there?

Luke L. Junk: Alright look are you there.

Speaker Change: Why don't we go to the next question that will have Luke rejoin thank you.

Speaker Change: Why don't we go to the next question and we'll have Luke rejoin. Thank you. Our next question comes from Matt Sheerin from Stifle. Please go ahead with your question.

Speaker Change: Our next question comes from the line of Matt Sheerin from Stifel. Please go ahead with your question.

Matthew John Sheerin: Yes, thanks. Good morning. Terrence, I wanted to circle back on the industrial subsegments. You really just called out the factory automation, industrial automation area. It's being weak on the destocking, other markets growing, but we are hearing from other suppliers and EMS companies of some slowing demand and inventory issues across pockets of medical and even some of the renewable energy areas. Could you give us a read on what you're seeing in terms of inventory and is that more of a direct to OEM sale so there's not as much noise in the channel?

Operator: Can we have the next question, please? Thank you. Our next question comes from the line of Amit Daryanani from Everton, England. Thanks a lot.

Matthew John Sheerin: Yes. Thanks, Good morning, just I wanted to circle back on the industrial sub segments, you really just called out.

Matthew John Sheerin: The factory automation.

Operator: Good morning, everyone. You know, I guess my question really is around what there's been a fair bit of worry about what end demand trends look like on a broader level. And I understand your commentary and what you're seeing is very stable compared to a lot of the semiconductor companies, I think, right now. But I'm hoping you can talk and help us understand, you know, orders in the December quarter are down sequentially in aggregators, especially in transport and GIS. Is that a concern that perhaps that second derivative is starting to shift negatively?

Matthew John Sheerin: Industrial automation area, it's being weak on the Destocking.

Speaker: The majority of them will be made in Asia.

Speaker: And I would also tell you that when you look at EV adoption, two-thirds of EVs are driven in Asia, and this is where our strongest region is.

Matthew John Sheerin: Other markets growing but we are hearing from other suppliers in the EMS companies of some sort.

Matthew John Sheerin: Slowing demand and inventory issues across pockets of medical and even some of the renewable energy areas could you give us a read on what youre seeing in terms of inventory or is that more of a direct to OEM sales. So theres not as much noise in the channel.

Speaker: You know, when you also think about those 20 million electric vehicles, whether that's a full battery electric, a plug-in hybrid, or hybrids like a Prius that don't need the plug, you really have to sit there and go, those 20 million units are bigger than USR and automotive production in the United States. So I really ask us, when we think about EV trends, it needs to be a global lens. And, you know, I was just in China last week. And when you're in China, you see EVs all around you. You can tell by their license plate color. They're green. They're a different color than a normal license plate, and you see where that adoption is going, and you see it not only in full battery electric cars, but in plug-in hybrids. And what's great is we have a share that is similar with the local OEMs as you do with the multinationals, and you see that in our growth, and you also see when Chinese production goes up, our revenue is a little bit stronger.

Speaker Change: Yes, Matt. Thanks for the question couple of things first off being in medical that has a direct sale is very similar to how we serve automotive theres not much. It goes through the channel there not much. It goes Dms is either so where we serve that market is very much the big interventional players of the world.

Terrence R. Curtin: Yeah, Matt. Thanks for the question. A couple of things. First off being in medical, that is a direct sale. It's very similar to how we serve automotive. There's not much that goes through the channel there. Not much that goes to EMSs either. So where we serve that market is very much the big interventional players of the world. And you can see like our growth was double digit, very strong and in line with where interventional procedures are growing double digit. So we don't see that. In the energy where we play in servicing the utilities and on the renewables, I would tell you we saw wind slow a little bit more due to financing than I would say to stocking. But we continue to see acceleration in solar applications. And any weakness that we've seen in the energy business has really been around utility spending, primarily in Europe. We did see a little bit of slowness of utility spending on their energy. We did see a little bit of slowness of utility spending on their grids in Europe. And that's why you saw the growth rate being a little bit low than what we expected to be middle and longer term in that middle, a high single digit.

Terrence R. Curtin: I'd love to understand how you think about orders being down sequentially versus your broader commentary that things are fairly stable. Yeah, sure, Amit. Thank you for the question. And a couple of things.

Terrence R. Curtin: First off, our orders were up in all the segments year over year by 4%. And I think you also not only have to look at orders, but we continue to have a backlog that's about $6 billion. So I think we've communicated pretty consistently that we expect as the environment gets better, that backlog will go down. I'll tell you, we aren't seeing cancellations.

Speaker Change: And you can see like our growth was double digit very strong and in line with where interventional procedures are growing double digit. So we don't see that in the energy, where we play in servicing utilities and on the renewables I would tell you.

Speaker Change: We saw wind could slow a little bit more due to financing and I would say that I would say destocking.

Terrence R. Curtin: So I know some of the semiconductor companies talk about that, but we have to realize our products are very different than semiconductors. Lead times are a lot shorter. And really, the element during COVID was we couldn't hit our lead times consistently; we did not really extend lead times.

Speaker Change: But we continue to see acceleration in solar applications and any weakness that we've seen in the energy business has really been around utility spending primarily in Europe, we did see a little bit of slowness of utility spending.

Speaker: So, you know, the content of 4% to 6% hasn't changed. But our view of what EV adoption does for our content on a full battery electric vehicle is about 2x.

Terrence R. Curtin: So, when we look at the orders in the quarter, like I said on the call, they came in where we expected, except for, you know, industrial equipment was a little weaker. Otherwise, they came in where we thought they would be, you know, coupling the orders with the backlog. And, you know, I think, you can continue to expect we're probably in a backlog below one as the backlog continues to work down to get a little bit more normalized with service levels improving. I think from the backdrop, when we think about transportation, we do expect global auto production to come down from a little bit over 22 million units in the first quarter to 21. And we think it'll run at 21 million units for the year, per quarter for the rest of this year to get to about 85 million units in total.

Speaker: On a plug-in hybrid or a hybrid, it's about one and a half times our normal $70 that we would have on a nice vehicle. Hasn't changed. And I think what's really great is our global business is really making sure we're bringing the innovation to life and also serving our customers with their innovation to make it happen. Okay, thank you, Chris.

Speaker Change: On their grids in Europe, and Thats why you saw the growth rate being a little bit lower than what we expect it to be middle and longer term in that middle to high single digit.

Speaker Change: Okay, thank you, Matt. Can we have the next question, please?

Speaker Change: Okay. Thank you Matt can we have the next question. Please.

Speaker Change: Thank you. Our next question comes from the line of William Stein from Truist Securities. Please go ahead.

Speaker Change: Thank you. Our next question comes from the line of William Stein from <unk> Securities. Please go ahead with your question.

Operator: Can we have the next question, please?

William Stein: Great. Thanks for taking my question. I think you all have done a very good job on the margins this quarter, posting some pretty solid upside. And you've explained it a little bit, but I'm hoping you can linger on this a little bit more.

William Stein: Thanks for taking my question I think you all have done a very good job on the margins this quarter.

Operator: Thank you.

Steven Fox: Our next question comes from the line of Steven Fox from Fox Advisors. Please go ahead with your question. Hi, good morning. I was wondering if you could just dig into the Schaffner acquisition a little bit more in terms of what it adds to the industrial portfolio and what kind of sales and margin profile we should expect going forward from it. Thanks.

William Stein: Posting some pretty solid upside ive explained a little bit but.

William Stein: You can linger on this a little bit more.

William Stein: We know you had these aspirational goals, you had

William Stein: We know you had these aspirational goals you had this.

William Stein: significantly better than expected or better than guided

William Stein: Significantly better than expected or better than guided.

Speaker: Yeah, thanks, Steve, and good morning. Heath and I will ham and egg this one.

William Stein: And maybe that's sort of the question that I have. Is this a matter of having achieved some goals earlier than you expected? Some things you thought might take several quarters wound up being realized earlier? Or are we just looking at a higher level of profitability and we'll continue to see some improvement from this point? And what changed? You know, you've been pursuing these, all the things you talked about, you've been pursuing them for a while. Suddenly we get this upside. Did something change in this regard in the quarter? Thank you.

William Stein: Quarter and maybe that's the that's sort of the question that I have.

Speaker: So first off, Schaffner, you know, when we talk about bolt-on M&A for us, it's, you know, where are areas around areas we really want to be focused on from an application standpoint, we view we can drive value for our customers, but also can we acquire things that drive value for you as owners? And, you know, Schaffner is a great example of that. You know, it is going to be in the factory automation space. You know, Schaffner is a Swiss company, and one of the things they do, they're one of the global leaders in electromagnetic filter solutions. And, you know, to keep it simple, it really is how do you have filters that when you're bringing power into factory automation applications through the motors and the drives, you really keep that pure from interference.

William Stein: Is this a matter of having achieved some goals earlier than you expected. Some things you thought might take several quarters wound up being realized earlier.

Terrence R. Curtin: In industrial, you see sequential order increases, which really is being driven by AD&M Medical and Energy. So you're continuing to see that, and that supports why we believe we're going to have an industrial solution segment revenue increase. And in communications, what's nice is we are seeing stability, even though there are some pockets around enterprise applications, pure telecom applications. We aren't seeing a slowdown in artificial intelligence and the cloud, but there are some pockets out there in the telecom and enterprise that are still working some things out, but it feels like there's light at the end of that tunnel. So I think the last thing is our guide for the second quarter is going up to $3.95 billion in revenue. And it's really based upon both the orders of 3.8 plus the backlog that we see. And I think we've laid out how we're thinking about the world for the rest of the year. Okay, thank you, Amit.

William Stein: Or are we just looking at a higher level of profitability and will continue to see some improvement.

William Stein: From this point and what what changed you've been pursuing these all the things you've talked about you've been pursuing them for awhile suddenly we get this upside.

William Stein: Change in this regard in the quarter. Thank you.

Speaker Change: Sure. Well, listen, I think, you know, certainly we went into the quarter expecting auto production builds of about 21 million units, and we stated that last quarter. We came in north of 22 million, and it shows that when you get the cost structure, the fixed cost base, and, you know, the number of rooftops in the right number, that you can really leverage that incremental volume. And that's really what we saw on the transportation side within the auto business there. So, you know, as we come back. Down to about 21 million units, a quarter production, global production, we do expect to be able to hold to that target margins. But, you know, there's a lot of different levers involved there. It's getting the cost structure right, and then obviously having a more stable environment to be able to plan towards and deliver towards. And, you know, all of those things came together nicely in the quarter, but I feel good about these volume levels that we'll be able to hold to our target margins. And I think that's just part of this journey that we've been on.

William Stein: Sure.

Speaker Change: Well listen I think.

Speaker Change: Certainly we went into the quarter expecting auto production builds of about 21 million units and we stated that last quarter.

Speaker Change: <unk> north of $22 million and it shows that when you get the cost structure of the fixed cost base.

Speaker: We already had a product line that did this, but it was very much a U.S. product line. With Schaffner, they were strong in Europe, had a nice ASA presence, and it really brings it all together that gets us deeper into factory automation. The revenue for it is about $40 million a quarter. It is something that we will improve the profitability up to the levels that we say. And Heath, I don't know if you want to add more to it. No, I think, Steve, this is right down the middle of the fairway in terms of how we look at bolt-on deals. And I kind of compare it to the earnings acquisition that we did in 2022, which was another business that rolled through our industrial equipment business unit within that segment.

Speaker Change: And.

Speaker Change: The number of rooftops in the right location in the right to the right number that you can really leverage that incremental volume and Thats really what we saw on the transportation side within the auto business there.

Operator: Can we have the next question, please? Thank you. Our next question comes from the line of Christopher Glynn from Oppenheimer. Please go ahead with your question. Thank you. Good morning. I just had a tuning question about some of the channels.

Speaker Change: So.

Speaker Change: As we come back down to about 21 million units a quarter production global production, we do expect to be able to hold to that target margins, but there's a lot of different levers involved there is getting the cost structure right. Then obviously, having a more stable environment to be able to plan towards and deliver towards and.

Terrence R. Curtin: So with industrial equipment organics, pretty steep. You seem to reference just the channel partners. Really, they're curious if you could juxtapose the actual end market for that specifically. And then, in the auto industry, any excess inventories in certain regions of the world? Curious. Thanks, Chris, and good morning. So let's break this apart because, yeah, in the comments, we do talk about the stocking. But we do not see the stocking of our product in the automotive space at all.

Speaker Change: All of those things came together nicely in the quarter, but I feel good about these volume levels that we'll be able to hold.

Speaker: And, you know, although, you know, it's going to contribute $40 million a quarter or so out of the gate, our focus is obviously driving where the value creation opportunity is. And that's on, you know, getting the cost structure in line with where we would think about things in a TE world, as well as, you know, really focusing on the cash-on-cash return here. You know, it's not going to be like that.

Speaker Change: Our to our target margins and I think Thats just part of this journey that we've been off.

Speaker Change: If you go back last several years, even coming through the pandemic driven.

Speaker Change: If you go back the last several years, even coming through the pandemic-driven market, we've been running well below 85 million units globally in terms of auto production. And now that we're starting to get back up to that, we're starting to see the benefit. We always said that getting to target margins for our transportation business would require a couple of things, one of which was a bit more volume and market support there. And we're certainly starting to see that. So we're able to get there a little faster. Some of that was market support. Some of it was getting the cost structure in place a little bit faster as we've taken some facilities within our auto world offline in Western Europe and seeing the benefit of that. When you get into communications, we're running a little bit hotter there. But again, it's having that structure in the right place and being able to execute. So I wouldn't call out and get relevant to the size of the segment that can swing out around a little bit. But we feel good about where we are margin wise. And most of this upside that you're referring to is driven out of the transportation.

Speaker Change: <unk>, we've been running well below 85 million units globally in terms of auto production and.

Terrence R. Curtin: You know, our service levels are 90% plus on a ship-to request, you know, the supply chain flowing, and honestly, I think you see it in our results. So in the automotive industry, we do not see the stocking of our product. When you come to the stocking that we talk about, and Chris, you said it right.

Speaker Change: Now that we're starting to get back up to that we're starting to see the benefit we've always said that getting to target margins for our transportation business would require a couple of things one of which was a bit more volume and market support there and we're certainly starting to see that so we're able to get there a little faster some of them.

Speaker: It's not going to be contributing much to EPS in the first year, no different than Ernie did. But following a similar trajectory, it does really fit well within our margin expansion strategy and our ability to create cash-on-cash returns for our shareholders. So I'd say, in general, these are the nice size of deals we like to do.

Speaker Change: That was market sports some of it was getting the cost structure in place a little bit faster as we've taken some some facilities off in within our auto world offline in Western Europe, and seeing the benefit of that when you get into communications, where we.

Terrence R. Curtin: I think you have to think about TE's world, and there's the world where we service our customers directly, and then there's the world that we use our distribution partners to cover where we can't do it directly. And in TE, at the total company level, 80% of what we do, we cover directly. And honestly, our revenue on that 80%, in this quarter we just closed, was up a low single digit. So that is where our supply chain is completely tied to our customers, and that's an indicator we look at around the stock. Now, the piece that goes to our channel partners, and you know they are working down inventory. That was down 14% in the quarter. And that's where you truly see that you see the biggest impacts on industrial equipment. You see it in appliances.

Speaker: And it's a fragmented space still, so there's still opportunity to add things to that space, even if we have to dissolve. You want to, you know, absorb some dilution in the margins at the segment level. Okay, thank you, Steve.

Speaker Change: Around a little bit harder there, but again, it's it's.

Speaker Change: Having that having that structure in the right place.

Speaker Change: Being able to execute so I wouldn't call out and give relevant to the size of the segment that can swing up or add a little bit, but we feel good about.

Operator: Can we have the next question, please? This question comes from the line of Joe Giordano from TD Cohen.

Speaker Change: Where we are margin wise and most of this upside that you are referring to is driven out of the transportation business.

Joseph Giordano: Hey, guys.

Joseph Giordano: Good morning.

Joseph Giordano: Hey Joe.

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

Joseph Giordano: Good morning. Hey, I just want to ask about the AI side within communications.

Speaker Change: Alright, Thank you will equate to the next question. Please.

Speaker Change: Thank you.

Speaker Change: Thank you. We have a question from Luke Junk from Bears once again. Please go ahead.

Joseph Giordano: So you mentioned you have like a 50% content lift in these AI-type applications. Now, I'm just curious how much of what's being built for AI is simply replacing stuff that otherwise would have been built before AI?

Speaker Change: A question from Big chunk from best Once again. Please go ahead with your question.

Speaker Change: Great can you hear me now.

Luke L. Junk: Great. Can you hear me now?

Luke L. Junk: Yeah, we can, Luke. Thanks for coming back home. Okay. Yeah, great. Sorry about the technical issues there. Terrence, just hoping you could comment on your ability to hold the line on neutral pricing in transportation solutions, especially in automotive this year. I guess if we look around the neighborhood, there are some companies talking about getting back to price downs just for itself specifically, if you could talk about some of the factors that are helping you to keep that neutral pricing outlook that you outlined.

Speaker Change: Yes, we had low thanks for coming back.

Terrence R. Curtin: You see it also in our data and devices business, where those businesses have upward to 50 percent of their revenue that goes through distribution partners to get to their customers. So that is really where we see the de-stocking occurring. One of the things that was nice this quarter was that we saw that that inventory did not go up, you know, leveled off.

Speaker Change: Great sorry about the technical issues there Gerry just hoping you could comment on your ability to hold the line on neutral pricing in transportation solutions, especially in automotive this year I guess, if we look around the neighborhood. There are some companies talking about getting back to price Downs, just specifically if you could talk about.

Speaker: So it's like, if you're doing 200 million AI-related content in 2024, is that essentially like replacing what would have been like $133 million of content, you know, of older type stuff in the world of last year? So, a couple of things, Joe. The way you're talking about it is more cannibalization. You know, that goes into where capital gets deployed. I would say you're still going to see servers deployed that will support AI. What we're trying to really get out there is, you know, what is the increased content to support the workload?

Speaker Change: Some of the factors that are helping you to keep that neutral pricing outlook that you outlined earlier.

Terrence R. Curtin: We do see an appliance; it has improved. I've talked about D&D, it's in pockets, and industrials, you know, later to the party of de-stocking, and I think that'll take a little bit longer. But it's also an element that ties back to Amit's question, when we're looking at our direct business levels with our customers, where we touch them directly, you know, we have low single-digit organic growth, you've excluded what goes through the channel partners, and I think, you know, we'll continue to have de-stocking with us here, especially in the industrial equipment business, and that drives that big decline in organic growth, but It's really allowing us to basically absorb the stockings we're doing and stay relatively flat.

Terrence R. Curtin: No. Hey, Luke. Thanks for the question. And I think when you look at it, I think one of the things we got to start with is what's happening with input calls?

Speaker Change: No Hey look thanks for the question I think when you look at it I think one of the things we got to start with is what's happening with input cost.

Terrence R. Curtin: And certainly we are not seeing a massive inflationary environment, but we're also not seeing a massive deflationary environment.

Speaker Change: And certainly we are not seeing a massive inflationary environment, but we're also not seeing a massive deflationary environment.

Speaker: So, when you sit there, I won't assume that it completely cannibalizes everything, but what's really nice with the innovation that we bring and how these workloads are set up on the GPUs and the TPUs, it really creates a higher revenue level that we expect as AI continues to ramp. And, you know, when you think about our year, and I said it on the call early on, we think we'll have about $200 million in AI revenue this year. It will continue as program launches occur, and it will probably be 60 plus percent in the second half versus what's in the first half. And, you know, we'll get growth in our communications segment in the second half of our year.

Speaker Change: Copper very important from a conductor and important connector important moving both data and power around vehicle or any application.

Terrence R. Curtin: Copper, very important from a conductor and important connector, important in moving both data and power around the vehicle or any application. It's still up year over year.

Speaker Change: It's still up year over year.

Terrence R. Curtin: You know, certainly other things, you know, you have freights down, but, you know, net-net, we're still seeing a pretty net-neutral world when it comes to input costs, and you know how hard we worked to recover the inflationary costs. It's some of the things that helped the margin that we're talking about today, but very honestly, we're talking to our customers about where the costs are, and as we went through this,

Speaker Change: Certainly other things you have freights down.

Speaker Change: But net net we're still seeing a pretty net neutral world. When it comes to input cost and you know how hard we work to recover the inflationary costs at some of the things that helped the margins that we're talking about today.

Speaker Change: But very honestly, we're talking to our customers about where the costs are and as we went through this.

Operator: Okay, thank you, Chris. Can we have the next question, please? Thank you. Our next question comes from the line of Chris Snyder from UBS. Please go ahead with your question.

Terrence R. Curtin: Our strategy has always been with our customers to recover the cost, and that's what we did. So I think there will be an element that will be very driven on where are the input costs at will dictate pricing. And that's been our approach, and we've been very consistent as we communicate that to you across all our businesses.

Speaker Change: Our strategy has always been with our customers to recover the cost and that's what we did so I think there will be an element it'll be very driven on where are the input cost that will dictate pricing.

Terrence R. Curtin: Thank you. I wanted to follow up on some of the earlier questions around EV penetration and auto outgrowth. The Q1 outgrowth came in below target levels, despite a still supportive price of what we would consider normalized. It sounds like there's not much de-stocking headwinds in there. So is this just some pressure from softer EV penetration? Are there mixed headwinds?

Speaker: Okay, thank you, Joe.

Operator: We have the next question, please.

Speaker Change: And that's been our approach and we've been very consistent as we communicate that to you across all our businesses.

Operator: Thank you. The next question comes from Lionel Samik Chatterjee from J.P. Morgan.

Samik Chatterjee: Please go ahead with your question. Hi, thanks for taking my question. I was actually going to follow up on the, and many more, and now indicating $200 million. Thank you, and many more.

Speaker Change: Okay. Thank you Luke we have the next question please.

Speaker Change: Okay, thank you, Luke. Can we have the next question, please?

Speaker Change: Thank you. And the next question comes from Shreyas Patil from Wolf Research. Please go ahead.

Speaker Change: Thank you. Our next question comes from <unk> from Wolfe Research. Please go ahead with your question.

Terrence R. Curtin: Is it just that we shouldn't think about this on a quarterly basis? And then lastly... Tell me what your favorite part of the video was. Thanks for watching. Have a great week. We'll see you next week.

Hey, Thanks, so much for taking my question I guess, maybe following up on.

Shreyas Patil: Hey, thanks so much for taking my question. I guess maybe following up.

Speaker: Thank you for raising that. I mean, from 150 million, what's the driver of the raise? Is it more capacity or demand? And then you've talked about $1 billion. Bost, how has that pipeline gone? And as you see that river, So, hey, Samik, thanks for the question. First off, you know, when you look at that, it is the increased element of demand and wins. To the second part of your question, the billion dollars is in excess of 1.3, so we continue to have momentum on that. And as he sort of said, when we think about margins as that comes in, we're going to be in the high teens for that segment. So even on a little bit lower revenue than we said before, we're going to be in the high teens this year in the communication segment as that comes in. Okay, thank you, Samik.

Shreyas Patil: on the last question.

Speaker Change: The last question.

Terrence R. Curtin: Bye. Bye. Bye. Bye. China took a share of global auto production in the quarter.

Shreyas Patil: Maybe just to clarify,

Speaker Change: Just to clarify do you feel that.

Shreyas Patil: I feel that...

Shreyas Patil: were to eventually get to maybe a normalization.

Speaker Change: We werent even.

Terrence R. Curtin: Is it fair to think that that's a headwind to outgrowth because I know it's a lower cost than the U.S. or Europe? Thank you. Yeah, so a couple of things, Chris. First of all, on account of content outperformance, I appreciate you saying what I'm going to say. Please don't look at it on an individual quarter basis.

Speaker Change: Actually get to maybe a normalization.

Shreyas Patil: I think typically...

Speaker Change: Pricing I think typically.

Shreyas Patil: You see price downs of maybe 1% or 2%. At the moment, it appears maybe pricing is up 1%. There's enough restructuring for other cost actions where you can still sustain that 20% margin that you're talking about.

Speaker Change: For Cal you see price downs of maybe one or 2%.

Speaker Change: It appears maybe pricing is up 1% there is enough restructuring or other cost.

Speaker Change: Actions, where you can still sustain that 20% margin that youre talking about.

Terrence R. Curtin: You will see times when it's way ahead. You'll see times when it's behind. And I really think you have to look at it over a period of time because there are interplays between where we are and certainly getting to the OE. So net-net, you will see it. You know, it doesn't get into being on every platform in the world.

Shreyas Patil: Going forward. And then maybe also just curious how to think at a high level about the relative profitability.

Speaker Change: Going forward and then maybe also just curious how to think at a high level about the relative profitability in the.

Shreyas Patil: In the auto business between the EV and kind of existing ICE products, just as we think about if potentially there were to be some kind of slowdown globally.

Speaker Change: The auto business between the EDI and kind of existing ice product just in.

Speaker Change: As we think about if potentially there were to be some kind of slowdown globally.

Terrence R. Curtin: Those are the types of things you're gonna get on a quarter a little bit off. You know, we were about 300 basis points of outperformance in the quarter. So it was a little bit below what we said, but also, what I said on the call was that we expect to be in that four to six range for this year. On the other hand, you know, hey, there's been a lot of noise around EV adoption and production. Our view of it's the same, and I just, I'm going to stress, as always, I know sometimes because we hear about U.S. car companies and European car companies, I'm going to ask us to really take it up a level and remember. Global car production is what matters to TE. There's going to be about 85 million cars made on the planet this year. The majority of them will be made in Asia.

Shreyas Patil: and Evie Adoption. Thanks so much.

Speaker Change: In EV adoption. Thanks, so much.

Speaker Change: Sure. A couple of things. Yeah, no. First off being,

Speaker Change: Sure.

Speaker Change: Couple of things.

Speaker Change: First off being.

Operator: Can we have the next question, please?

Operator: Thank you. Our next question comes in line from Luke Junk from Bayard.

Speaker Change: You know, in whatever a normal environment is, you know, assuming, you know, there's deflation we can drive, certainly there would be productivity, we would want to give back to our customers to make sure they're competitive. That was the environment we always articulated when we said we would be around 20% margin. So we never said, when we've always talked to you about this.

Speaker Change: And whatever a normal environment is.

Luke L. Junk: Please go over the question again.

Luke L. Junk: Thank you.

Speaker Change: Assuming.

Speaker Change: Deflation, we can drive certainly there would be productivity, we would want to get back to our customers to make sure. They're competitive that was the environment. We always articulated when we said we would be around 20% margin. So we never said.

Speaker: Sorry, Luke, are you there?

Operator: Why don't we go to the next question, and we'll have Luke rejoin us.

Operator: Thank you. Our next question comes from Matt Sheerin from Stifle.

Speaker Change: When we've always talked to you about this we need price increase to get to our 20% margin. The pricing we've done is to recover cost.

Speaker Change: We need price increase to get to our 20% margin. The pricing we've done is to recover cost in a pretty dramatic inflationary environment over the past two to three years. And, you know, we did it on a lag. So, you know, it did impact our margin early on when we saw the acceleration. So I don't think, you know...

Matthew John Sheerin: Please go ahead with your question. Yes, thanks.

Matthew John Sheerin: Good morning, Terrence. I wanted to circle back on the industrial subsegments.

Speaker Change: Pretty dramatic inflationary environment over the past two to three years and we did it on a lag so it did impact our margin early on when we saw the acceleration so I don't think.

You really just called out the factory automation, industrial automation area. It's weak in the destocking, other markets growing, but we are hearing from other suppliers and EMS companies of some slowing demand and inventory issues across pockets of medical and even some of the renewable energy areas. Could you give us a read on what you're seeing in terms of inventory, and is that more of a direct to OEM sale so there's not as much noise in the channel?

Speaker Change: If we start seeing deflation again materials, you could see a little bit of price back, but we're not there yet.

Speaker Change: If we start seeing deflation again, materials, you know, you could see a little bit of price back, but we're not there yet. And I'm sure we'll continue to talk about it.

Terrence R. Curtin: And I would also tell you, when you look at EV adoption, two-thirds of EVs are driven in Asia. And this is where our strongest region is. You know, when you also think about those 20 million electric vehicles, whether that's a full battery electric, a plug-in hybrid, you know, hybrids like a Prius that don't need the plug, you really got to sit there and go, those 20 million units are bigger than U.S. are in automotive production in the United States. So I really ask us when we think about EV trends, it needs to be a global lens, and you know I was just in China last week and when you're in China you see EVs all around you you can tell by their license plate color they're green they're a different color than a normal license plate, And you see that where that adoption is going, and you see it not only full battery electric, you see it in plug-in hybrids.

I'm sure we'll continue to talk about it.

Speaker Change: You know, on ICE vehicles versus EV vehicles, I think there's two elements we have to be honest about. Half of our content that is on an electric vehicle is the same content that is on

Speaker Change: On on ice vehicles versus EV vehicles, I think theres two elements, we have to be honest about half of our content that is on an electric vehicle is the same content that is on a new.

Speaker Change: A nice vehicle.

Speaker Change: Nice vehicle.

Matthew John Sheerin: Yeah, Matt.

Speaker Change: So the profitability of those product sets are the same, whether it's an ICE vehicle or an electric vehicle, because that's the low-voltage architecture that carries over and doesn't drive the powertrain.

Speaker Change: So the profitability of those product sets are same whether it's an ice vehicle or an electric vehicles, because that's the low voltage architecture that carries over and doesn't drive the powertrain.

Thanks for the question.

A couple of things. First off, being in medical, that is a direct sale. It's very similar to how we serve automotive. There's not much that goes through the channel there. Not much that goes to EMSs either. So where we serve that market are very much the big interventional players of the world. And you can see that our growth was double digits, very strong and in line with where interventional procedures are growing double digits. But we don't see that. In the energy where we play in servicing the utilities and on renewables, I would tell you we saw wind slow a little bit more due to financing than I would say to stocking, but we continue to see acceleration in solar applications.

Speaker Change: For the element that is the high power products, you know, we've been scaling that up. And what we've said is, you know, we're going to continue to move the profitability of those product lines up to the segment average. We've made tremendous progress. It's still at lower scale than the ones that go over 85 million vehicles. But the progress that the team's made has also been a contributor to where our margin is in transportation. So the team's done a nice job as we scaled that versus when we were just investing and there were very few electric vehicles made. So we still have opportunity to increase there, but the gap is closed significantly.

Speaker Change: For the element that is the high power products, we've been scaling that up and what we've said is we're going to continue to move the profitability of those product lines up to the segment average we've made tremendous progress it's still a lower scale than the ones that go over 85 million vehicles, but the progress that the team has made have also been a contributor.

Terrence R. Curtin: And what's great is we have a share that is similar with the local OEMs as you do with the multinationals, and you see that in our growth. And you also see that when Chinese production goes up, your revenue is a little bit stronger. So, you know, the content of four to six percent hasn't changed. But our view of what EV adoption does for our content on a full-battery electric vehicle is about 2x. On a plug-in hybrid or a hybrid, it's about one and a half times our normal $70 that we would have on a nice vehicle.

Speaker Change: To where our margin is in transportation. So the team's done a nice job as we've scaled that versus when we were just investing and there were very few electric vehicles made so.

Speaker Change: We saw the opportunity to increase there, but the gap has closed significantly.

And any weakness that we've seen in the energy business has really been around utility spending, primarily in Europe. We did see a little bit of slowness in utility spending on their energy. We did see a little bit of slowness in utility spending on their grids in Europe, and that's why you saw the growth rate being a little bit low than what we expected it to be in the medium and longer term in that medium, a high single digit.

Speaker Change: Alright, thank you Shreyas. Can we have the next question please?

Speaker Change: Alright. Thank you <unk> can we have the next question. Please.

Speaker Change: Thank you. Our next question comes from line of ICR.

Speaker Change: Our next question comes from Asiyah Merchant from Citigroup. Please go ahead and read the

ICR: <unk> from Citigroup. Please go ahead with your question.

Asiyah Merchant: Great. You guys have done a great job on margins. And most of the questions on that have been answered. If I could just talk about your free cash flow generation, you know, how we should think about that going forward, given margins are expected to be here at this level. And any, you know, thoughts you can have on M&A as you guys think about it for the remainder of the year?

ICR: Great you guys have done a great job on margins.

ICR: And most of the questions on that have been answered if I could just talk about your free cash flow generation you know, how we should think about that going forward given the margins are expected to be here at this level.

Terrence R. Curtin: It hasn't changed, and I think what's really great is our global business is really making sure we're bringing the innovation to life and also serving our customers with our innovation to make it happen. Okay, thank you, Chris. Can we have the next question, please? Thank you. Our next question comes from the line of Steven Fox from Fox Advisors. Please go ahead with your question.

Matthew John Sheerin: Okay, thank you, Matt.

Operator: Can we have the next question, please?

Operator: Thank you. Our next question comes from the line of William Stein from Truist Securities.

ICR: So you can have on.

William Stein: Please go ahead.

William Stein: Great

ICR: And then as you guys think about it for the remainder of the fiscal year. Thank you.

William Stein: Thanks for taking my question.

Speaker: I think you all have done a very good job on the margins this quarter, posting some pretty solid upside. And you've explained that a little bit, but I'm hoping you can linger on this a little bit more. We know you had these aspirational goals; you did significantly better than expected or better than guided. And maybe that's sort of the question that I have. Is this a matter of having achieved some goals earlier than you expected? Are some things you thought might take several quarters winding up being realized earlier? Or are we just looking at a higher level of profitability, and we'll continue to see some improvement from this point? And what changed? You know, you've been pursuing all the things you talked about. You've been pursuing them for a while.

Speaker Change: Sure. First of all, thank you for the question on cash flow. It's always near and dear to my heart. We did have a good start to the year with our free cash flow, which was further momentum from the strong free cash flow we had in FY23 and sets us up well on the balance sheet side. As we, you know, our guidance for the year, which is really, you know, not a specific number for cash, but it's really unchanged, which is that we feel good about the 100% cash conversion to net income that we had achieved largely in FY23 and how we, you know, maintain that momentum moving forward. So, you know, we've done some things and sometimes we have to flex working capital at different periods of time. But the rigor is there and our ability to maintain particularly, you know, payables, receivables, inventory levels, in addition to our CapEx spending and then what we have to fund for restructuring tends to be the different levers that we pull. But we feel good with where the momentum is relative to that and where we're going to land for the first half of our fiscal year.

ICR: Sure.

Speaker Change: First of all thank you for the question on cash flow is always near and Dear to my heart.

Heath Mitts: I was wondering if you could just dig into the Schaffner acquisition a little bit more in terms of what it adds to the industrial portfolio and what kind of Sales and Margin Profile we should expect going forward from it. Thanks. Yeah, thanks, Steven. Good morning. Heath and I will ham and egg this one.

Speaker Change: We did have a good start to the year with our free cash flow, which was which was further momentum from the strong free cash flow, we had in FY 'twenty, three and sets us up well on the balance sheet side.

Speaker Change: Our guidance for the year, which which is really not a specific number for cash, but its really unchanged, which is that we feel good about the 100% cash conversion to.

Terrence R. Curtin: So first off, Schaffner, you know, when we talk about bolt-on M&A, for us, it's, you know, where are areas that around areas we really want to be focused on from an application point of view? You know, we view that we can drive value for our customers, but also, can we acquire things that drive value for you as owners? And, you know, Schaffner is a great example of that.

Speaker Change: Net income that we had achieved largely in FY2023.

Speaker Change: And how we.

Speaker Change: Maintain that momentum moving forward. So we've done some things and sometimes we have to flex working capital at different periods of time, but the rigors, there and our ability to to maintain particularly pay.

Terrence R. Curtin: You know, it is going to be in the factory automation space. You know, Schaffner is a Swiss company, and one of the things they do, they're one of the global leaders in electromagnetic magnetic filter solutions. And, you know, to keep it simple, it really is how do you have filters that when you're bringing power into factory automation applications through the motors and the drives, you really keep that pure from interference.

Speaker: Suddenly, we get this upside. Did something change in this regard in the quarter? Thank you. Sure. Well, listen, certainly we went into the quarter expecting auto production builds of about 21 million units, and we stated that last quarter. We came in north of 22 million, and it shows that when you get the cost structure, the fixed cost base, and, you know, the number of rooftops in the right number, that you can really leverage that incremental volume. And that's really what we saw on the transportation side within the auto business there. So, you know, as we come back. Down to about 21 million units, a quarter of production, global production, we do expect to be able to hold to that target margin.

Speaker Change: Payables receivables inventory levels. In addition to our Capex spending and then what we have to fund for restructuring.

Speaker Change: Tends to be the different levers that we pull but we feel good with where the momentum is.

Speaker Change: Relative to that and where we're going to land. So the first half of our fiscal year.

Terrence R. Curtin: We already had a product line that did this, and it was very much a U.S. product line with Schaffner. They were strong in Europe, had a nice AESA presence, and it really brings it all together that gets us deeper into factory automation. The revenue for it is about $40 million a quarter. It is something that we will improve the profitability up to the levels that we say. And, Heath, I don't know if you want to add more to it.

Speaker Change: In terms of the M&A environment, the M&A environment,

Speaker Change: In terms of the M&A environment.

Speaker Change: you know it's that's it's that's again largely unchanged it's um it's there's things that are active out there some things are more interesting than others you know the Schaffner deal because it was a Swiss public company it was announced early on and and we got that across the finish line here in December but um you know there's a lot of other things that are more private in nature that are going through various processes that you know uh again things that you know we have to make sure that it's the right strategic fit for us that we're the right owner for it even if it fits our strategy and then that the numbers work and and you know at any given time you probably expect us to be looking at about a half a dozen deals um you know uh not all of those get close to the finish line so but but it is an active environment we have seen as we've moved through the count moved across the the threshold in the in the calendar year that activity is starting to pick up some so I'd like to be able to think that we can get a little bit more out of that as we move through and get uh another deal or two done in our fiscal year but uh as always you have to stay tuned

Speaker Change: That's.

Speaker Change: Again largely unchanged.

Speaker Change: It's there is things that are active out there some things are more interesting than others.

Speaker Change: Chapter deal because it was a Swiss public company. It was announced early on and we got that across the finish line here in December but.

Heath Mitts: No, I think, Steve, this is right down the middle of the fairway in terms of how we look at bolt-on deals, and I kind of compare it to the earnings acquisition that we did in 2022, which was another business that rolled through our industrial equipment business unit within that segment. Although it's going to contribute $40 million a quarter or so out of the gate, our focus is obviously driving where the value creation opportunity is, and that's on getting the cost structure in line with where we would think about things in a TE world, as well as really focusing on the cash-on-cash return here. It's not going to be contributing much to EPS in the first year, no different than Ernie did, but following a similar trajectory to Ernie, it does really fit well within our margin expansion strategy and our ability to create cash-on-cash returns for our shareholders.

Speaker Change: There is a lot of other things that are more private nature that are going through various processes that.

Speaker: But, you know, there are a lot of different levers involved there. It's getting the cost structure right and then, obviously, having a more stable environment to be able to plan for and deliver. And, you know, all of those things came together nicely in the quarter, but I feel good about these volume levels that we'll be able to hold to our target margins. And I think that's just part of this journey that we've been on. If you go back the last several years, even coming through the pandemic-driven market, we've been running well below 85 million units globally in terms of auto production. And now that we're starting to get back up to that, we're starting to see the benefits. We always said that getting to target margins for our transportation business would require a couple of things, one of which was a bit more volume and market support.

Again things that we have to make sure that it's the right strategic fit for us that we're the right owner for it even if it fits our strategy and then that the numbers work.

Speaker Change: And at any given time, we probably expect us to be looking at about a half a dozen deals.

Speaker Change: Not all of those get close to the finish line. So but it is an active environment. We have seen as we move through the count moved across the threshold in the calendar year that activity starting to pick up some so I'd like to be able to think that we can get another deal or two done in our fiscal year, but.

Speaker Change: As always you have to stay tuned.

Speaker Change: Thank you, Asya. Can we have the next question, please?

Speaker Change: Okay. Thank you <unk> can we have the next question. Please.

Speaker Change: We have no further questions at this time.

Asya: We have no further questions at this time.

Speaker Change: I do apologize. We do have one final question from Mr. Colin Lang from Wells Fargo. Please go ahead with your question.

Speaker Change: Okay.

Speaker Change: Do have one final question from Mr. Collin Lang from Wells Fargo. Please go ahead with your question.

Speaker: And we're certainly starting to see that. So we're able to get there a little faster. Some of that was market support, some of it was getting the cost structure in place a little bit faster as we've taken some facilities within our auto world offline in Western Europe and are seeing the benefit of that. When you get into communications, we're running a little bit hotter there. But again, it's having that structure in the right place and being able to execute. So I wouldn't call out and get relevant to the size of the segment that can swing out around a little bit. But we feel good about where we are margin wise. And most of the upside that you're referring to is driven out of transportation.

Speaker Change: Yes.

Colin Lang: Oh, great. Thanks for taking my question. Just want to follow up. You didn't talk about tax. I think you mentioned on the call the rate is about 21% going forward. It's a bit higher than you've seen historically. How should we think about that going forward? Is that a permanent rate? Is that impacting some of the changes on global minimal tax? Or can that be kind of brought down?

Collin Lang: Oh, great. Thanks for taking my question just wanted a follow up you didn't talk about tax I think you mentioned on the call. The rate is about 21% going forward, which is a bit higher.

Heath Mitts: So I'd say, in general, these are the nice size of deals we like to do, and it's a fragmented space still, so there's still opportunity to add things in that space, even if we have to absorb some dilution in the margins at the segment level. Okay, thank you, Steve. Can we have the next question, please? The next question comes on the line from Joe Giordano from TDCohen. Hey guys, good morning. Hey Joe, good morning.

Collin Lang: And you've seen historically.

Collin Lang: How should we think about that going forward is that a permanent rate is that impacting some of the changes on global minimal tax.

Collin Lang: Or can that be kind of brought down over time.

Collin Lang: Well.

Speaker Change: Well, Colin, thanks for the question.

Speaker Change: Colin Thanks for the question.

Speaker Change: <unk>.

Speaker Change: The change from our original guided rate last quarter when as we went into our fiscal year of 20%, we've increased that to 21% and that was very specific to the Swiss tax Swiss tax rate going up.

Speaker Change: The change from our original guided rate last quarter as we went into our fiscal year of 20%, we've increased that to 21%. And that was very specific to the Swiss tax rate going up sooner than what we had anticipated. And so we have to absorb that and put it through our financials as well. As we move forward, there's a lot of moving parts relative to the global minimum tax that different jurisdictions will be enacting at different time periods. Some of those are more meaningful than others. There's some tax planning that you would expect us to have underway that we would think about not just from how things that we can do to work down our ETR, but also probably more importantly, how do we protect ourselves on the cash tax rate? And so there's nothing to report there today because there's a lot of unknowns out there, but there's a lot of activity underway to try to anticipate and look around the corner there. So to answer your question, I think 21% is a good rate to work on going forward, and we'll continue to work it to mitigate any pressures.

William Stein: All right.

Operator: Thank you, Will.

Operator: Can we have the next question, please?

Operator: Hey, I just want to ask about the AI side within communications. So you mentioned you have like a 50% content lift in these AI-type applications. Now, I'm just curious how much of what's being built for AI is simply replacing stuff that otherwise would have been built before AI. So it's like, if you're doing 200 million units of AI-related content in 2024, is that essentially like replacing what would have been like $133 million of content? You know, of the older type stuff in the world of what?

Operator: Thank you.

Speaker Change: Sooner than what we had anticipated and so.

Luke L. Junk: We have a question from Luke Junk from Bears once again. Please go ahead. Okay.

Speaker Change: We.

Speaker Change:

Speaker Change: You have to absorb that and put it through our through our financials as well as we move forward. There's a lot of moving parts relative to the global minimum tax that different jurisdictions will be enacting a different time periods. Some of those are more meaningful than others. There is some tax planning that you would expect us to have under.

Luke L. Junk: Can you hear me now?

Speaker: Yeah, we can do it, Luke.

Speaker: Thanks for coming back home.

Speaker: Okay.

Luke L. Junk: Yeah, great.

Luke L. Junk: Sorry about the technical issues there.

Terrence, I was just hoping you could comment on your ability to hold the line on neutral pricing in transportation solutions, especially in the automotive industry, this year.

Luke L. Junk: I guess if we look around the neighborhood, there are some companies talking about getting back to price downs just for themselves specifically. If you could talk about some of the factors that are helping you to keep that neutral pricing outlook that you outlined.

Speaker Change: Way that we would think about not just from <unk>.

Speaker Change: It seems that we can do to work down our ETR, but also.

Terrence R. Curtin: So a couple of things, Joe. The way you're talking about is more cannibalization. You know, that goes into where capital gets deployed. I would say you're still going to see servers deployed that will support AI. What we're trying to really get out there is, you know, what is the increased content to support the workload? So when you sit there, I wouldn't assume that it completely cannibalizes everything.

Speaker Change: Probably more importantly, how do we protect ourselves on the cash tax rate and so there's nothing to report there today.

Speaker: No.

Speaker: Hey, Luke.

Speaker: Thanks for the question. And when you look at it, I think one of the things we have to start with is, what's happening with input calls? And certainly, we are not seeing a massive inflationary environment, but we're also not seeing a massive deflationary environment. Copper, very important as a conductor and an important connector, important in moving both data and power around the vehicle or any application. It's still up year over year.

Speaker Change: Because theres a lot of unknowns out there, but theres a lot of activity underway to try to anticipate and look around the corner. There. So the answer to your question I think 21% is a good rate to work on going forward.

Speaker Change: And we will continue to work it.

Terrence R. Curtin: But what's really nice with the innovation that we bring, and how these workloads are set up on the GPUs and the TPUs, it really creates a higher revenue level that we expect as AI continues to ramp. And, you know, when you think about our year, and I've said it on the call early on, we think we'll have about $200 million in AI revenue this year. It will continue as program launches occur, and it will build throughout the year, and probably 60 plus percent will be in the second half versus what's in the first half. And, you know, we'll get growth in our communications segment in the second half of our year. Okay, thank you, Joe. We have the next question, please. Thank you. The next question comes from the line of Samik Chatterjee from J.P. Morgan. Please go ahead with your question.

To mitigate any pressures.

Speaker Change: All right, thank you, Colin.

Speaker Change: Alright, Thank you Colin.

Speaker Change: Thanks, Colin we appreciate everyone. Joining us. This morning, if you have additional questions. Please contact investor relations at Te.

Speaker Change: Thanks, Colin. We appreciate everyone joining us this morning. If you have additional questions, please contact Investor Relations at TE. Thanks again, and we hope everyone has a nice day.

Speaker: You know, certainly other things, you have freight down, but, net-net, we're still seeing a pretty net-neutral world when it comes to input costs, and you know how hard we worked to recover inflationary costs. It's some of the things that helped the margin that we're talking about today, but very honestly, we're talking to our customers about where the costs are, and as we went through this, our strategy has always been with our customers to recover the costs, and that's what we did.

Speaker Change: Thanks, again, and we hope everyone has a nice day.

Speaker Change: Thank you. Today's conference will be available for replay beginning at 11.30am Eastern Time today, January 23rd.

Speaker Change: Thank you today's conference will be available for replay beginning at 11 30 am Eastern time today January 24th on the Investor Relations portion of Te connectivity website that.

Speaker Change: and the investor relations portion of TE Connectivities.

Speaker Change: will conclude the conversation.

Speaker Change: That will conclude the conference call today, you may now disconnect.

Speaker Change: now.

Speaker Change: Alright. Thanks.

Speaker Change: All right, thanks. Thank you.

Unnamed Speaker: So I think there will be an element that will be very driven by where the input costs are, and that will dictate pricing. And that's been our approach, and we've been very consistent as we communicate that to you across all our businesses.

Speaker Change: [music].

Operator: Hi, thanks for taking my call. I was actually going to follow up on the... now indicating a 200 million. Alright so you've been raising that, I mean, from 150 million. What's the driver of the raise? Is it more capacity or demand?

Luke L. Junk: Okay, thank you, Luke.

Operator: Can we have the next question, please?

Operator: Thank you. And the next question comes from Shreyas Patil from Wolf Research.

Please go ahead. Hey, thanks so much for taking my question. I guess maybe following up on the last question. Maybe just to clarify, I feel that... if we were to eventually get to maybe a normalization. I think typically... You see price drops of maybe 1% or 2%. At the moment, it appears maybe pricing is up 1%. There's enough restructuring for other cost actions where you can still sustain that 20% margin that you're talking about. Going forward. And then maybe also just curious how to think at a high level about the relative profitability in the auto business between the EV and kind of existing ICE products, just as we think about if potentially there were to be some kind of slowdown globally and Evie Adoption. Thanks so much.

Terrence R. Curtin: And then you've talked about a 1 million past, how has that pipeline... And as you see that river, So, hey, Samik, thanks for the question. First off, when you look at that, it is the increased element of demand and wins. To the second part of your question, the billion dollars is in excess of 1.3, so we continue to have momentum on that. And as he sort of said, when we think about margins as that comes in, we're going to be in the high teens for that segment. So even on a little bit lower revenue than we said before, we're going to be in the high teens this year in the communication segment as that comes in. Okay, thank you, Samik. Can we have the next question, please? Thank you. Our next question comes in line from Luke Junk from Bayard. Sorry, Luke, are you there?

Unnamed Speaker: Sure. A couple of things. Yeah, no. First off, in whatever a normal environment is, you know, assuming, you know, there's deflation we can drive, certainly there would be productivity, we would want to give back to our customers to make sure they're competitive. That was the environment we always articulated when we said we would be around 20% margin.

Unnamed Speaker: So we never said it, when we've always talked to you about this. We need a price increase to get to our 20% margin.

Operator: Why don't we go to the next question, and we'll have Luke rejoin. Thank you. Our next question comes from Matt Sheeran from Stifle.

Unnamed Speaker: The pricing we've done is to recover costs in a pretty dramatic inflationary environment over the past two to three years.

Operator: Please go ahead with your question. Yes, thanks. Good morning.

Unnamed Speaker: And, you know, we did it on a lag. So, you know, it did impact our margin early on when we saw the acceleration. So I don't think, you know... If we start seeing deflation again, materials, you know, you could see a little bit of price back, but we're not there yet. And I'm sure we'll continue to talk about it. You know, on ICE vehicles versus EV vehicles, I think there are two elements we have to be honest about. Half of our content that is on an electric vehicle is the same content that is on a nice vehicle. So the profitability of those product sets is the same, whether it's an ICE vehicle or an electric vehicle because that's the low-voltage architecture that carries over and doesn't drive the powertrain.

Terrence R. Curtin: Terrence, I wanted to circle back on the industrial subsegments. You really just called out the factory automation and industrial automation areas. It's weak on destocking, other markets growing, but we are hearing from other suppliers and EMS companies of some slowing demand and inventory issues across pockets of medical and even some of the renewable energy areas. Could you give us a read on what you're seeing in terms of inventory, and is that more of a direct to OEM sale so there's not as much noise in the channel? Yeah, Matt, thanks for the question. There are a couple of things. First off, being in medical, that is a direct sale.

Terrence R. Curtin: It's very similar to how we serve the automotive industry. There's not much that goes through the channel there, not much that goes to EMSs either. So where we serve that market are very much the big interventional players of the world. And you can see that our growth was double digit, very strong. And you know, in line with where interventional procedures are growing double digits. But we don't see that.

Unnamed Speaker: For the element that is the high-power products, you know, we've been scaling that up. And what we've said is, we're going to continue to move the profitability of those product lines up to the segment average. We've made tremendous progress, but it's still at a lower scale than the ones that go over 85 million vehicles. But the progress that the team's made has also been a contributor to where our margin is in transportation.

Terrence R. Curtin: In the energy where we play in servicing utilities and on renewables, I would tell you, we saw wind slow a little bit more due to financing and, I would say, then I would say, stocking. But we continue to see acceleration and solar applications. And any weakness that we've seen in the energy business has really been around utility spending, primarily in Europe. We did see a little bit of slowness in utility spending on their grids in Europe.

Unnamed Speaker: So the team's done a nice job as we scaled that versus when we were just investing and there were very few electric vehicles made. So we still have opportunity to increase there, but the gap is closed significantly. Alright, thank you, Shreyas.

Operator: Can we have the next question, please?

Our next question comes from Asiyah Merchant from Citigroup. Please go ahead and read the question. You guys have done a great job on the margins, and most of the questions on that have been answered. If I could just talk about your free cash flow generation, you know, how we should think about that going forward, given margins are expected to be here at this level. And any thoughts you can have on M&A as you guys think about it for the remainder of the year.

Terrence R. Curtin: And that's why you saw the growth rate being a little bit low than what we expected it to be in the middle and longer term in that middle, the high single digits. Okay, thank you, Matt. Can we have the next question, please? Thank you.

Operator: Our next question comes from William Stein from Shrews Securities. Great, thanks for taking my question. I think you all have done a very good job on the margins this quarter, posting some pretty solid upside. You've explained it a little bit, but I'm hoping you can linger on this a little bit more.

Unnamed Speaker: Sure. First of all, thank you for the question on cash flow. It's always near and dear to my heart. We did have a good start to the year with our free cash flow, which was further momentum from the strong free cash flow we had in FY23 and sets us up well on the balance sheet side. As we, you know, our guidance for the year, which is really, you know, not a specific number for cash, but it's really unchanged, which is that we feel good about the 100% cash conversion to net income that we achieved largely in FY23 and how we maintain that momentum moving forward. So, you know, we've done some things, and sometimes we have to flex working capital at different periods of time. But the rigor is there, and our ability to maintain, particularly, payables, receivables, inventory levels, in addition to our CapEx spending and then what we have to fund for restructuring tends to be the different levers that we pull.

Heath Mitts: You know, we know you have these aspirational goals; you had a significantly better-than-expected or better-than-guided quarter, and maybe that's the that's sort of the question that I have, is this a matter of having achieved some goals earlier than you expected, some things you thought might take several quarters wind up being realized earlier, or are we just looking at a higher level of profitability and will continue to see some improvement from Well, listen, I think, you know, certainly we went into the quarter expecting auto production builds of about 21 million units, and we stated that last quarter. We came in north of 22 million, and it shows that when you get the cost structure, the fixed cost base, and, you know, the number of rooftops in the right number, that you can really leverage that incremental volume.

Unnamed Speaker: But we feel good about where the momentum is relative to that and where we're going to land for the first half of our fiscal year.

Unnamed Speaker: In terms of the M&A environment, the M&A environment, you know it's that's it's that's again largely unchanged it's um it's there's things that are active out there some things are more interesting than others you know the Schaffner deal because it was a Swiss public company it was announced early on and and we got that across the finish line here in December but um you know there's a lot of other things that are more private in nature that are going through various processes that you know uh again things that you know we have to make sure that it's the right strategic fit for us that we're the right owner for it even if it fits our strategy and then that the numbers work and and you know at any given time you probably expect us to be looking at about a half a dozen deals um you know uh not all of those get close to the finish line so but but it is an active environment we have seen as we've moved through the count moved across the the threshold in the in the calendar year that activity is starting to pick up some so I'd like to be able to think that we can get a little bit more out of that as we move through and get uh another deal or two done in our fiscal year but uh as always you have to stay tuned, Thank you, Asya. Can we have the next question, please?

Heath Mitts: And that's really what we saw on the transportation side within the auto business there. So, you know, as we come back down to about 21 million units a quarter of production, global production, we do expect to be able to hold to that target margin. But, you know, there are a lot of different levers involved there.

Heath Mitts: It's getting the cost structure right, and then obviously having a more stable environment to be able to plan for and deliver on. And, you know, all those things came together nicely in the quarter, but I feel good about these volume levels that we'll be able to hold to our target margins. And I think that's just part of this journey that we've been on. If you go back the last several years, even coming through the pandemic-driven market, you know, we've been running well below 85 million units globally in terms of auto production.

Heath Mitts: And now that we're starting to get back up to that, we're starting to see the benefit. We always said that getting to target margins for our transportation business would require a couple of things, one of which was a bit more volume market support there. And we're certainly starting to see that. So we're able to get there a little faster.

Operator: We have no further questions at this time.

Operator: I do apologize. We do have one final question from Mr. Colin Lang from Wells Fargo.

Please go ahead with your question. Oh, great.

Thanks for taking my question. Just want to follow up. I think you mentioned on the call the rate is about 21% going forward. It's a bit higher than you've seen historically. How should we think about that going forward? Is that a permanent rate? Is that impacting some of the changes on global minimum tax? Or can that be kind of brought down?

Heath Mitts: Some of that was market support, some of it was getting the cost structure in place a little bit faster as we've taken some facilities offline within our auto world in Western Europe and seeing the benefit of that. When you get into communications, we're running a little bit hotter there, but again, it's, you know, having that structure in the right place and being able to execute. So I wouldn't call out and get relevant to the size of the segment that can swing around a little bit, but we feel good about where we are margin wise. And most of the upside that you're referring to is driven out of transportation. All right. Thank you, Will. Can we have the next question, please? Thank you. We have a question from Luke Junk from Bayer once again. Please go ahead. Great, can you hear me now? Yeah, we can, Luke. Thanks for coming back on.

Unnamed Speaker: Well, Colin, thanks for the question. The change from our original guided rate last quarter as we went into our fiscal year of 20%, we've increased that to 21%. And that was very specific to the Swiss tax rate going up sooner than we had anticipated. And so we have to absorb that and put it through our financials as well. As we move forward, there are a lot of moving parts relative to the global minimum tax that different jurisdictions will be enacting at different time periods, and some of those are more meaningful than others. There's some tax planning that you would expect us to have underway that we would think about not just things that we can do to work down our ETR but also, probably more importantly, how do we protect ourselves on the cash tax rate?

Luke L. Junk: Okay. Yeah, great. Sorry about the technical issues there.

Terrence R. Curtin: Terrence, just hoping you could comment on your ability to hold the line on neutral pricing in transportation solutions, especially in the automotive industry this year. You know, I guess if we look around the neighborhood, there are some companies talking about getting back to price downs just for sales specifically. If you could talk about some of the factors that are helping you to keep that neutral pricing outlook that you outlined. No, hey Luke, thanks for the question. And I think when you look at it, one of the things we got to start with is what's happening with input calls, and you know certainly we are not seeing a massive inflationary environment, but we're also not seeing a massive deflationary environment. Copper, very important as a conductor, an important connector, important in moving both data and power around the vehicle or any application, it's still up year over year.

Unnamed Speaker: And so there's nothing to report there today because there are a lot of unknowns out there, but there's a lot of activity underway to try to anticipate and look around the corner there. So to answer your question, I think 21% is a good rate to work on going forward, and we'll continue to work on it to mitigate any pressures. All right, thank you, Colin.

Operator: Thanks, Colin.

Operator: We appreciate everyone joining us this morning.

Terrence R. Curtin: You know, certainly other things, you know, yeah, freight's down, but in a net-net world, we're still seeing a pretty net-neutral world when it comes to input costs, and you know how hard we worked to recover inflationary costs. It's some of the things that helped the margin that we're talking about today, but very honestly, we're talking to our customers about where the costs are, and as we went through this... Our strategy has always been with our customers to recover the costs, and that's what we did. So I think there will be an element; it will be very driven by where the input costs are. That will dictate pricing. And that's been our approach, and we've been very consistent as we communicate that to you across all our businesses. Okay, thank you, Luke. Can we have the next question, please? Thank you, and that question comes from Shreyas Patil from Wolf Research. Please go ahead.

Operator: If you have additional questions, please contact Investor Relations at TE. Thanks again, and we hope everyone has a nice day. Thank you. Today's conference will be available for replay beginning at 11.30am Eastern Time today, January 23rd, and the investor relations portion of TE Connectivities will conclude the conversation now. All right, thanks.

Terrence R. Curtin: Hey, thanks so much for taking my question. I guess maybe following up on the last question. Maybe just to clarify. I feel that if we were to eventually get to maybe a normalization of price, I think typically.

Terrence R. Curtin: , Jeff Chisholm, Steven Fox, Steve Margot, Jim Suva, Amit Daryanani, Sherri Scribner, Luke Junk, Joseph Vruwink, David Kelley, Steven Fox, Scott Davis, Alvin Park, going forward. And then maybe also, just curious how to think at a high level about the relative profit in the auto business between the EV and kind of existing ICE products, just as we think about if potentially there were to be some kind of slowdown globally, and Evie Adoption, for a couple things. Yeah, no, first off being, you know, in whatever a normal environment is, you know, assuming, you know, there's deflation, we can drive, certainly there would be productivity, we would want to give back to our customers to make sure they're competitive. That was the environment we always articulated when we said we would be around a 20% margin. So we never said it, when we've always talked to you about this.

Terrence R. Curtin: We need a price increase to get to our 20% margin. The pricing we've done is to recover cost in a pretty dramatic inflationary environment over the past two to three years, and we did it on a lag. So it did impact our margin early on when we saw the acceleration. So I don't think...

Terrence R. Curtin: If we start seeing deflation again in materials, you could see a little bit of price back, but we're not there yet, and I'm sure we'll continue to talk about it. You know, on ICE vehicles versus EV vehicles, I think there's two elements we have to be honest about. Half of our content that is on an electric vehicle is the same content that is on a nice vehicle. So the profitability of those product sets is the same whether it's an ICE vehicle or an EV vehicle because that's a low voltage architecture that carries over and doesn't drive the powertrain. For the element that is the high-power products, you know, we've been scaling that up, and what we've said is, we're going to continue to move the profitability of those product lines up to the segment average. We've made tremendous progress. It's still at a lower scale than the ones that go over 85 million vehicles.

Terrence R. Curtin: But the progress that the team's made has also been a contributor to where our margin is in transportation. So the team did a nice job as we scaled that versus when we were just investing and there were very few electric vehicles made. So we still have opportunity to increase there, but the gap has closed significantly. All right, thank you, Shreyas.

Operator: Can we have the next question, please? Our next question comes from Lionel Assia of Merchant Banking from Citigroup. Please go ahead with the question. Great, you guys have done a great job on margins. And most of the questions on that have been answered.

Heath Mitts: If I could just talk about your free cash flow generation, you know, how we should think about that going forward, given the margins are expected to be here at this level, and any thoughts you can have on M&A as you guys think about it for the remainder of the year. Sure. First of all, thank you for the question on cash flow. It's always near and dear to my heart.

Heath Mitts: We did have a good start to the year with our free cash flow, which was further momentum from the strong free cash flow we had in FY23 and sets us up well on the balance sheet side. Our guidance for the year, which is really not a specific number for cash, but it's really unchanged, which is that we feel good about the 100% cash conversion to net income that we achieved largely in FY23 and how we maintain that momentum moving forward. So, we've done some things, and sometimes we have to flex working capital at different periods of time, but the rigor is there, and our ability to maintain, particularly payables, receivables, inventory levels, in addition to our CapEx spending and then what we have to fund for restructuring tends to be the different levers that we pull, but we feel good with where the momentum is relative to that and where we're going to land for In terms of the M&A environment... You know, it's that it's again largely unchanged. It's It's There are things that are active out there. Some things are more interesting than others. You know, the Schaffner deal because it was a Swiss public company.

Heath Mitts: It was announced early on, and and we got that across the finish line here in December. But, you know, there's a lot of other things that are more private in nature that are going through various processes that, you know, again, things that we have to make sure that it's the right strategic fit for us, that we're the right owner for it, even if it fits our strategy, and then that the numbers work. And, you know, at any given time, you probably expect us to be looking at about a half a You know, not all of those get close to the finish line.

Heath Mitts: So, but it is an active environment. We have seen as we've moved through the count, moved across the threshold in the calendar year, that activity is starting to pick up. So I'd like to be able to think that we can get another deal or two done in our fiscal year. But, as always, you have to stay tuned. Okay, thank you, Asya. Can we have the next question, please? We have no further questions at this time. I do apologise.

Heath Mitts: We do have one final question from Mr. Colin Lang from Wells Fargo. Please go ahead with your question. Great, thanks for taking my question. Just want to follow up. You didn't talk about taxes. I think you mentioned on the call that the rate is about 21% going forward. It's a bit higher than you've seen historically. How should we think about that going forward? Is that a permanent rate? Is that impacting some of the changes on global minimum tax? Or can that be kind of brought down?

Heath Mitts: Well, Colin, thanks for the question. The change from our original guided rate last quarter as we went into our fiscal year of 20%, we've increased that to 21%. And that was very specific to the Swiss tax rate going up sooner than we had anticipated. And so we have to absorb that and put it through our financials as well. As we move forward, there are a lot of moving parts relative to the global minimum tax that different jurisdictions will be enacting at different time periods, and some of those are more meaningful than others.

Heath Mitts: There's some tax planning that you would expect us to have underway that we would think about not just things that we can do to work down our ETR but also, probably more importantly, how do we protect ourselves on the cash tax rate? And so there's nothing to report there today because there are a lot of unknowns out there, but there's a lot of activity underway to try to anticipate and look around the corner there. So to answer your question, I think 21% is a good rate to work on going forward.

Colin Lang: And we'll continue to work to mitigate any pressures. All right, thank you, Colin. Thanks, Colin. We appreciate everyone joining us this morning. If you have additional questions, please contact Investor Relations at TE. Thanks again, and we hope everyone has a nice day. Thank you. Today's conference will be available for replay beginning at 11.30am Eastern Time today, January..., on the investor relations portion of TE Connectivity's conference will conclude the conference, you know. All right, thank you.

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