Amphenol Corporation 2026 Q3 Earnings Call

Good afternoon, everyone. This is Craig Lampo, Amphenol CFO, and I'm here together with Adam Norwitt, our Chairman and CEO. We would like to welcome you to our third quarter 2026 conference call. Our third quarter 2026 results were released this morning. I will provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then we will take your questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements, so please refer to the relevant disclosure in our press release for further information. In addition, as a result of our recently announced two-for-one stock split effective on September 3rd of 2026, all share and per share data discussed on this earnings call will reflect that split.

The company closed the third quarter of 2026 with record sales of $10.2 billion in GAAP and adjusted diluted EPS of $0.79 and $0.80 respectively. Third quarter sales were up 65% in U.S. dollars and in local currencies, and 37% organically compared to the third quarter of 2025. Sequentially, sales were up 17% in U.S. dollars and in local currencies, and up 16% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $12.17 billion, up a strong 99% compared to the third quarter of 2025 and up 13% sequentially, resulting in another very strong book-to-bill ratio of 1.19:1. This impressive book-to-bill was driven by robust bookings in most of our end markets, with positive book-to-bill in all but one of our end markets this quarter.

GAAP and adjusted operating income were both approximately $3 billion in the quarter, and GAAP and adjusted operating margin were 29.5% and 29.7% respectively. On an adjusted basis, operating margin increased by a strong 220 basis points from the prior year quarter and declined a modest 10 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by robust operating leverage on the significantly higher sales volumes, which more than offset the margin dilutive impact of recent acquisitions. On a sequential basis, the slight decrease in adjusted operating margin was driven by a meaningfully larger benefit from tariff recoveries in the second quarter. Excluding these benefits, our adjusted operating margin improved by approximately 70 basis points, reflecting strong conversion on higher sales levels, as well as continued progress on profitability improvement at recent acquisitions, in particular CommScope.

I am very proud of the company's operating margin performance in the third quarter, which reflects continued strong execution by our team. Breaking down third quarter results by segment compared to the third quarter of 2025, sales in the communications solutions segment were $6.6 billion and increased by 99% in U.S. dollars and 51% organically, and segment operating margin was 33.1%. Sales in the harsh environment solutions segment were $2 billion and increased by 35% in U.S. dollars and 29% organically, and segment operating margins was 30.1%. Sales in the interconnect and sensor systems segment were $1.6 billion, increased by 17% in U.S. dollars and 11% organically, and segment operating margin was 20%. The company's GAAP effective tax rate for the third quarter was 27.4%, and the adjusted effective tax rate was 27%, which compared to 23.5% and 27% in the third quarter of 2025, respectively.

As is our typical practice, our adjusted tax rate excludes the tax effect of acquisition-related costs and the excess tax benefit from stock option compensation, as well as other discrete tax items. GAAP diluted EPS was a record $0.79 in the third quarter, up 61% compared to the prior year period, and on an adjusted basis, diluted EPS was a record $0.80 and increased by 74% compared to $0.46 in the third quarter of 2025. This was an outstanding result. Operating cash flow in the third quarter was $2.1 billion, or 102% of net income, and free cash flow was $1.6 billion, or 80% of net income, an excellent result considering the growth we have experienced. From a working capital standpoint, inventory days, day sales outstanding, and payable days were all within our normal ranges.

During the quarter, the company repurchased 3 million shares of common stock at an average price of approximately $81. When combined with our normal quarterly dividend, total capital return to shareholders in the third quarter of 2026 was approximately $553 million. As noted in the earnings release, the board of directors approved an increase to the company's quarterly dividend by 20% to $0.15 per share, effective for payments beginning in January of 2027. As also noted in the earnings release, the company's board of director approved a new three-year $4 billion stock repurchase plan, which will become effective on January 1st of 2027. The company expects to complete the remaining purchases under existing stock repurchase plan by December 31st of 2026. Total debt at September 30th was $17.9 billion, and net debt was $12.6 billion.

Total liquidity at the end of the third quarter was $8.3 billion, which included cash and short-term investments on hand of $5.3 billion, plus availability under existing credit facilities. Third quarter 2026 adjusted EBITDA was $3.4 billion, and our net leverage ratio was 1.1 times at the end of the quarter. We are very pleased with the company's robust financial position. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Well, thank you very much, Craig, and I'd like to extend my welcome to everybody on the call here today, and I hope you're having an enjoyable fall so far. I have to tell you that here in Wallingford, Connecticut, it's a truly beautiful New England fall day. As Craig mentioned, I'm going to highlight our third quarter achievements and include a few comments about the acquisitions that we announced today. I'll also discuss our trends and progress across our served markets, and I'll make some comments on our outlook for the fourth quarter and the full year 2026. Of course, we'll have time for questions thereafter. With respect to the third quarter, I'm just so proud of our team. They drove truly excellent performance once again in the third quarter.

Our results were significantly stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Our sales grew from prior year by 65% in U.S. dollars and local currencies, reaching a new record, $10.2 billion. On an organic basis, our sales increased by 37%, driven by strong organic growth of more than 20% in five of our seven end markets, and I'll talk about each of those markets in a few moments. The company booked a record $12.2 billion in orders in the third quarter, representing a book-to-bill of 1.19 to 1. Orders essentially doubled from prior year and were up 13% sequentially. As Craig commented, our book-to-bill was positive in nearly all of our end markets. We're also very pleased to have delivered robust adjusted operating margins of 29.7% in the quarter, an increase of 220 basis points from prior year.

This strong profitability is a direct result of the outstanding execution of the Amphenol team around the world, who continued to manage well in a challenging cost environment. Adjusted diluted EPS grew 74% from prior year, reaching a new record of $0.80 per share. We generated record operating and free cash flow in the quarter, $2.1 billion and $1.6 billion, respectively. Another clear demonstration of the quality of the company's earnings. Finally, I'm really pleased that our board of directors has approved a 20% increase in our quarterly dividend to $0.15 a share, as well as the new $4 billion three-year stock repurchase program. I just can't emphasize enough my pride in and my gratitude to the Amphenol team around the world.

Our results this quarter once again reaffirmed the value of the drive, discipline, and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. We're also very pleased that this quarter we announced four acquisitions, one of which closed in the quarter and three of which we signed definitive agreements for and expect to close between now and the end of the first quarter. First, we closed on the acquisition of Empire Electronics at the beginning of September, with 2026 full year revenue expected to reach approximately $320 million. Empire is a leading manufacturer of complex interconnect assemblies for the automotive market, with a particular focus on automotive lighting applications. The company is headquartered in Michigan with approximately 4,800 employees worldwide. This company is included in our interconnect and sensor systems segment.

We are also excited that we signed definitive agreements for the acquisitions of AdvancedPCB, Dexgreen Limited, and Humanetics Sensors. First, AdvancedPCB is a U.S.-based manufacturer of high-technology printed circuit boards for the defense and industrial markets. The company is headquartered in Colorado and expects full year sales of approximately $270 million this year. AdvancedPCB has approximately 800 employees across their six facilities in the U.S. and will be included in our harsh environment solutions segment post-closing. Next, Dexgreen is an Ireland-based provider of fiber optic connectivity products primarily for the European fiber to home applications in the communications network market. With approximately 100 employees, Dexgreen is expected to generate full year 2026 sales of approximately $90 million and will be included in the communication solutions segment post-closing.

Finally, Humanetics Sensors is a leading provider of precision force sensors, specialty fiber optic sensing products, and micro machining solutions for the commercial air, defense, and industrial markets. The company has approximately 350 employees and expects full year 2026 sales of approximately $70 million. This company will be included in our interconnect and sensor system segment post-closing. I just have to say our team was very busy this quarter, but we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute acquisitions, and then very importantly, to successfully bring these new companies into Amphenol remains a core competitive advantage for the company. Now turning to our served markets, I just want to reiterate how proud we are of Amphenol's broad and balanced end market exposure.