Good morning, and thank you for joining our conference call to discuss TE Connectivity's first quarter results and our outlook for the second quarter of fiscal 2026. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts.

During this call, we will be providing certain forward-looking information, and we ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning.

We ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at te.com.

Finally, during the Q&A portion of today's call, due to the number of participants, we're asking everyone to limit themselves to one question, and you may rejoin the queue if you have a second question. Let me now turn the call over to Terrence for opening comments.

Thank you, Sujal. I also want to thank everyone for joining us today, and I also want to thank those of you who attended our investor day last quarter.

Before I get into details on the slide, I do want to frame today's call around the key messages that we shared at the event in November and are reinforced by our first quarter results as well as our outlook. Briefly, we conveyed several key tenets of our strategy and business model.

First, that we have been investing and have broadened our growth drivers to benefit from secular trends that are driven by the increased needs by our customers around data and power connectivity. Second, our co-creation engineering model ensures product innovation, and that, coupled with our global supply chain investments, will drive value for our customers.

Lastly, that we will capitalize on the growth and the investments to drive margin expansion with double-digit earnings per share growth and a continued strong cash generation model. Our first quarter results and our expectations going forward reinforce these key messages that we conveyed.

We delivered over 20% sales growth in the first quarter, with growth in both segments by driving content growth above market. We had record orders of over $5 billion, and this was growth of more than $1 billion versus the prior year.

This order growth was across our businesses. This growth is being driven by new program awards from our customers, demonstrating the operations and engineering mode that we outlined.

Our sales growth and order momentum reinforces the broadening that we talked about at our investor day. We also have improved our operating resilience through localization of our supply chain.

Our teams continue to execute well despite ongoing macro unevenness to deliver record adjusted operating margins and earnings per share in the first quarter, along with strong cash generation. Lastly, we outlined a long-term through-cycle target of 6 to 8 points of annual average growth.

With the momentum that we're seeing, we expect to deliver growth in fiscal 2026 that is ahead of this target. With that as a backdrop, let's get into the slides that we sent out, starting with slide three, and I'll discuss first quarter results and our guidance for the second quarter of fiscal 2026.

Our first quarter sales were $4.7 billion, growing 22% on a reported basis and 15% organically year over year, with growth in both segments. Both segments contributed to our sales being above guidance.

As I mentioned, we saw orders increase to a record level of over $5 billion, and our book-to-bill was 1.1, reinforcing our momentum, and I'll provide more color on orders as I get into the next slide. We delivered record adjusted earnings per share of $2.72, which was above guidance and increased over 30% versus the prior year due to strong execution by our teams.

Adjusted operating margins were 22%, and this was an increase of 180 basis points over last year. We also continue to demonstrate our strong cash generation model with free cash flow above $600 million, and we returned 100% of our free cash flow to shareholders in the quarter while continuing to support investments for future growth.

As we look forward, we are expecting our second quarter sales to be $4.7 billion, reflecting an increase of 13% year over year on a reported basis and 6% organically. We expect adjusted earnings per share to be around $2.65, and this is 20% growth year over year.

Sequentially, we expect our Industrial Solutions segment to grow, and this will be partially offset by transportation's typical auto seasonality trends that we see globally. With that as a quick overview of results, let's turn to slide four so I can get into more detail on our order trends.

In the quarter, we saw orders increase by over $1 billion versus the prior year to $5.1 billion. By geography, we saw double-digit organic order growth in all regions on a year-over-year basis.

At our investor day, we discussed our engineering-centric design model and focus on the need for more data and power connectivity to create value for our customers that will also translate into value for our owners. Our momentum in the key applications continue, whether that is secular growth in AI, the positioning of TE for power connectivity in the utility space, or the data connectivity needed for next-generation vehicles as a key driver of content growth for our transportation businesses.

Getting into orders by segment, in the industrial segment, orders grew over 40% versus the prior year, with essentially every business posting double-digit growth versus the prior year. We see ongoing momentum in digital data networks, energy, as well as AD&M.

In our automation and connected living business, we are seeing recovery in the factory automation applications, with organic sales growth in all regions, both year over year and sequentially. I meant orders growth, not sales growth.

Transportation orders increased 11% versus the prior year and grew in all businesses. In our automotive business, orders grew year over year, and sequentially from the fourth quarter to the first quarter, we saw our normal seasonal trends that follow auto production.

Commercial transportation organic orders grew both year over year and sequentially, indicating ongoing market improvements in both Asia and in Europe. With that as an overview of the orders, let's get into the quarterly segment results, and I'll start with our industrial segment, which is on slide five.

Our sales in the industrial solutions segment grew 38% in the quarter and 26% on an organic basis year over year, reinforcing the broadening of growth within the segment. Digital Data Networks had another outstanding quarter, where the business grew 70% year over year, and our AI revenue was higher than our expectations.

Our customers continue to award us new programs, and the orders that we received are creating backlog for the second half of this year and into 2027. We now expect our AI revenues in fiscal 2026 to be a couple hundred million dollars higher than our view 90 days ago, with growth expected across every hyperscale customer.

To support this acceleration, we continue to increase our investment in our digital data networks business, and Heath will talk more about this in his section. Turning to automation and connected living, the business grew 12% organically year over year, with growth in each region, and we continue to expect recovery in the general industrial markets as we move through the year.

In our energy business, our sales grew 88%, including the Richards acquisition, which enables us to capitalize on strong growth opportunities in the U.S. utility market.

Organically, sales increased 15%, driven by continued increased investments by customers in grid hardening and renewable applications. What was nice this quarter is we saw strong growth both in the United States as well as in Europe.

In our AD&M business, sales grew 11% organically, driven by growth across both commercial aerospace and defense applications. In these markets, we continue to see favorable demand trends coupled with ongoing supply chain improvements that are helping to support the growth.

In our medical business, we grew 5% organically, which was in line with what we expected. At the segment level, if you look at margins, the industrial segment adjusted operating margins expanded by over 500 basis points to 23%, driven by strong operational performance and the benefits of higher volume.

With that as a summary of industrial solutions, please turn to slide 6 and I'll get into transportation solutions. Our sales in the transportation segment grew 10% in the quarter, as well as 7% organically year over year.

Our auto sales grew 7% organically in the first quarter, driven by content growth in Asia and in Europe. Our growth over market was at the high end of our 4 to 6 point range in the first quarter, and as we shared with you in Investor Day, we expect our content growth to be balanced between data connectivity, e-mobility, as well as electronification trends in the car.

Our current quarter results show the contributions from data connectivity applications in our results, which are growing across all powertrain platforms. We continue to benefit from our strong global position and localization strategy, and our growth over market in this quarter was driven by China and Europe.

As we look forward, our view of auto production in fiscal 2026 remains consistent at roughly 88 million units, which is down slightly versus the last year. Turning to commercial transportation, we saw strong organic growth of 16% year over year, and this growth was driven by Asia and in Europe.

After two years of cyclical declines in the commercial transportation market, we're now seeing recovery in the M markets outside the United States and expect to benefit from our leading global position and content growth driven by architectural changes. In our sensors business, sales were essentially flat, which was in line with our expectations.

On the margin side for the transportation segment, the team delivered adjusted operating margins above 21%, which was in line with our expectations. With that overview, let me hand it off to Heath.

He'll get into more details on the financials and our expectations going forward.

Thank you, Terrence, and good morning, everyone. Please turn to slide 7.

For the quarter, we achieved record adjusted operating income of over $1 billion, with an adjusted operating margin of 22%, driven by strong operational performance by our teams. GAAP operating income was $963 million and included $6 million of acquisition-related charges, $10 million of restructuring, and other charges, and $57 million of amortization expense.

As I said last quarter, I continue to expect restructuring charges in fiscal '26 to be roughly $100 million. Adjusted EPS was $2.72 and GAAP EPS was $2.53 for the quarter and included restructuring, acquisition, and other charges of 4 cents and amortization expense of 15 cents.

The adjusted effective tax rate was approximately 22% in Q1, and we expect Q2 to be at this level as well. We continue to expect the full-year tax rate to be approximately 23%, which is similar to last year.

Importantly, as always, we anticipate our cash tax rate to be well below our adjusted ETR. Now if you turn to slide 8.

Our results reflect the business model performance that I shared with you a couple months ago at our Investor Day event. We are seeing broadening of growth that Terrence mentioned, 30%-plus incremental margins on that sales growth, double-digit EPS growth, and a strong cash generation model with balanced capital returns.

Sales of $4.7 billion were up 22% on a reported basis and 15% on an organic basis year over year. Adjusted operating margins were 22.2% in the first quarter, expanding 180 basis points year over year.

Adjusted earnings per share were $2.72, up 33% year over year, driven by sales growth and margin expansion. Turning to cash flow, cash from operations was $865 million and free cash flow was $608 million, with roughly 100% return to shareholders through share buybacks and dividends.

Our cash generation and healthy balance sheet give us continued optionality with uses of capital to support investments for future growth, both organically and through M&A. With the order momentum Terrence mentioned, we are increasing our capital expenditure this year to support the growing pipeline of customer awards for AI programs.

We now expect capex to be closer to 6% of our sales this year, and we feel strong about our cash generation model and continue to expect at least 100% free cash flow conversion for fiscal '26. Before I turn it over to questions, let me reinforce that we continue to execute well in both segments, and our Q1 results reflect a strong start to fiscal '26.

For the full year, we are set up to deliver sales growth that is ahead of our through-cycle growth target, while expanding operating margins and very strong earnings per share growth. With that, let's open it up for questions.

Thank you, Tiffany. Can you please give the instructions for the Q&A session?

Hey, good morning, guys.

Good morning, Scott.

Everything was pretty positive, and when you guys are spending more money, that's usually a good sign as well. I just wanted to lead off with the AI stuff because, again, it still is the elephant in the room.

It sounds like if I heard you right, which I think I did, you're taking up your forecast by a couple hundred million from where you were at Analyst Day. I just wanted to confirm that, but more importantly, I just wanted to address the scaling of those revenues.

How is— can you walk us through the kind of linkage between the capacity adds and the scaling and how you expect that to improve margins as that capacity seasons, even if you can't be specific numbers, just some reference points and historically when you've added capacity for growth like this? Thanks.

Sure, Scott, and Happy New Year, and I appreciate the question. Just so we're all aligned about what we said at Investor Day, we did talk about getting to a $3 billion of AI revenue out a couple of years, and we're certainly on track to achieve this.

Versus 90 days ago, when we shared the number, we do think the number for this year will be $200 million more than what we just shared. What's nice is this year we're going to have growth across all hyperscaler customers.

That's something that we all know, the capex trend that's happening in cloud capex, to make that happen. The other thing is as we continue to build the momentum, the orders that we just talked about were very strong, and certainly DDN played a part in that strength, and as I said in the comments, some of that’s layered out later in the year.

On the scaling, let's face it, we have been scaling. When you look at the growth that we've had around where we positioned ourselves with our hyperscaler customers, we've been scaling very nicely.

Let's face it, these programs are big programs, and the time base to scale. Some of the awards we got in the first quarter are for later this year into 2027.

Feel that the teams will have it and continuing to be coming in with good margins on it like we have been doing. We have been improving the margins in IS across all the businesses, it's not just AI, but certainly we're benefiting from the volumes as we bring these in, and that's why you see some of the margin improvement that we're getting, both from the benefit of the ramp of the AI volumes as well as all the businesses improving their margin going forward, and that’s how that strong growth that we talked about in the pre-read comments.

Thank you, Scott.

Yes, good morning, and thank you very much for taking my question. I was hoping you could double-click on order trends, both sequentially and year over year, and what that implies for revenue by end market going forward.

I ask in part to better understand the Q2 revenue guidance of about 4.7 billion compared to orders that were over 5.1 billion at a record high, and maybe if you can speak to the duration of orders and if that's changing at all. Thank you.

Sure. Thanks, Mark.

Like I said in the comments, our orders were a record at over $5 billion, and it was a billion dollars of order growth. The one thing that's important is it was very broad-based.

While we had very strong orders in DDN, if you exclude the DDN orders, our orders were up double digits across TE. That's the broadening growth we talked about.

Industrial orders were up in four to five businesses, double digits as well. We have seen strengthening of orders here.

Now, that is continued momentum in DDN for AI applications and also energy, which let's face it, they were big growth drivers for us last year. We're also continuing to see ADM orders accelerate, and they are typically in aerospace and defense a little bit longer lead time.

What was nice in the industrial segment, and I know we've talked to all of you about it, is we're continuing to see market improvement in our ACL business. That was across all regions.

Certainly we're seeing more in factory automation applications, and we're going to continue to see growth as we go through the year in ACL. When you look at transportation, and this comes into a little bit to your second part of your question, in transportation, our orders are reflecting what we see in production patterns.

Year over year, orders were very strong. Clearly our first quarter is the strongest auto production quarter of the year, but then we do have a 3 million-unit production decline quarter one to quarter two.

When we look at that, that's really when you look at the guide, you see that we're going to be up double digits in industrial as we go quarter one to quarter two, but that will be partially offset by auto production in the world, which will be down about 3 million units. That's really when you look at the order momentum, which is very strong, we do have some automotive production changes that happen here that normally happen that you'll see reflected in our guide.

Thank you, Mark. We have the next question, please.

Good morning, thanks for taking my question. I just want to go back to the AI discussion for a bit and hoping you folks can provide some color on what is driving the uptick in AI revenue expectations for the year.

Is it just more the existing programs are doing better, or you see a better narrative around share gains? I'd love to just understand what's driving the uptick here, and then maybe if I just extend that, can you elaborate on what investments TE needs to make to meet this growing demand, both from a capex and opex perspective?

Thank you. Sure, Amit, and Happy New Year.

I'll take the first half and I'll let Heath take the second half. I think the first thing you have to be is we have, and the orders reflect that, new program awards, and they're with the hyperscalers is the way you should think about it.

Even on some of that backlog, those programs will ramp here over the next couple of quarters and really be bigger in quarter three and quarter four than what's happening now. They do extend out a little bit, and what's nice, and I said it to Scott's question, is it's across the hyperscalers.

We're going to have growth across the hyperscalers this year. It is a mix of some programs continuing to ramp, but also new programs with the customers that will ramp in the second half.

Heath, why don't you talk about the investments that you commented on?

Sure. As you can imagine, as we're winning these programs, the ramps are fairly aggressive in terms of the time window to get up to speed and deliver on their production schedule.

We are, when we talk about increasing our CapEx investments, we're really talking about specific program wins. The timing of those, we're going to have to spend money over the next couple of quarters to support the production of those in the later part or the second half of our fiscal year and certainly into '27.

As we're stacking up these programs, we're just trying to be transparent that the fact that there is specific tooling involved, and most of that's going into existing production facilities that we have throughout Asia and a little bit in North America. We feel good about our ability to ramp.

Our teams have shown the ability to ramp quickly, but we're just continuing the acceleration of that, and that's going to require us to take up our CapEx number for this year. All is feeling good.

As you would know, we would not be spending that money if we didn't have revenue and profits tied to it.

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

Yes, thank you. Good morning.

Just to stay on the AI topic, I guess, maybe, Terrence, could you share some granularity of these programs? Are NVIDIA-centric, or are they TPU or other ASIC-centric?

Any color on signal versus power, just to give us some sense of what the content maybe split is across those and what you're seeing in your orders. Thank you so much.

First off, being, as we've talked with many of you, if not all of you, we aren't going to talk at the customer level. Like I said, Wamsi, to the earlier question, these are hyperscaler programs, and it's where has driven our growth to date, and I think you can assume it's going to be a continuation of that growth with those customers.

It is across power and data and signal. Like you spent time with us in November, it is broad across both spectrums as we move to the next generation architectures that we're working on.

What's really good is the momentum that we've had with our hyperscale customers is just continuing, and you see it in the orders.

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

Good morning. Thanks for taking the question.

Terrence, hoping we could just double-click on the trends you're seeing within ACL, especially in the industrial trends. Sounds like you're feeling a bit better, maybe quite a bit better than 90 days ago.

Heath, in terms of the incremental margin story in industrial solutions, is this strength something that we should think about just as an incremental margin driver as well? Thank you.

No, first off, your comments are fair. We've been very much in a mode of, and I would say there's two businesses I would put in there, not only ACL, but our industrial transportation business.

Both of them were in a multi-year downturn, and we continue to see, and we started to see it last year, improvement in orders. It's nice to see them broaden out across all regions in ACL, certainly in ICT, industrial transportation.

It's really in Asia and Europe still. With the momentum we're seeing, with what we're hearing from our customers, we do view more momentum is there.

You saw on the slide we grew 12%. Orders were strong.

The one thing I would say when we look at ACL for us, it is around the factory automation and the CapEx side of our industrial business. Places around residential HVAC where we play in, as well as appliances, continue to be soft.

We're seeing the CapEx side of it, and we're seeing it broadly across all regions. That's whether that's Asia, China, Europe, North America.

It's nice to see some of the cyclical pain we had for a couple years behind us. As these businesses come up, let's face it, we've talked to you about, hey, they are better profit pools naturally.

They will also benefit our margin as they recover.

Luke, on your incremental margins, as we talked about in our business model in terms of our flow-through, certainly both segments, I'm confident, will be at their 30%-plus flow-through on their growth for FY26. For the industrial segment, certainly the volume growth at these levels is helping a lot.

We are able to get volume leverage on this kind of scale. I would still tune into the 30%-plus, but there'll be quarters when we're well out ahead of that for sure.

All right, thank you, Luke. Can we have the next question, please?

Hi, thanks and good morning, everyone. Just within DDN, two quick questions.

I guess you're talking about continued AI growth. With the total revenue flattish quarter over quarter, would suggest the not AI slowed, or it's even really down, I guess, quarter over quarter.

Maybe you could help us understand what's going on there? Then even with the AI portion raised, it seems like you might actually be at a run rate higher than the level you just raised to.

I'm just wondering, is that constrained by some of the capacity, or would you classify that as just some conservatism? Thanks.

No, Joe, a couple of things. We grew AI programs from quarter four to quarter one sequentially.

There was growth sequentially there. Also we expect our industrial solutions segment to grow sequentially quarter one to quarter two.

Certainly we have the production decline in automotive. Feel very good about the momentum.

Like I said, the orders that we have set up for quarter three and quarter four, which is where the bulk of the increase that I talked about, the $200 million, is really will come as these programs ramp and into 27. Feel very good about the momentum.

The orders reflect it. The DDN orders were up 70% year over year in the quarter, which is very strong.

Continue to feel that the momentum we have is strong. I don't think it has anything to do with capacity constraints.

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

Hi, thanks for taking my question, and happy new year, Terrence and Heath. Maybe just staying with the AI theme, but more a question on the supply chain and what you're seeing on that front in terms of either tightness on the components or inflation thereof.

I'm just wondering what you're seeing overall from that perspective in the supply chain, and if that is the driver of why the hyperscalers are giving you a bit more forward visibility with the orders for the new programs, or do you think it's just the complexity? Is it more the complexity of the new programs that's driving these sort of longer-dated orders?

Any color there would be helpful. Thank you.

First off, our customers are expecting ramps that are very fast. When you look at this, you're really talking about program launches that will happen later in the year.

In our supply chain, honestly, where do we feel and what we procure? We are able to procure what we need to procure.

There is inflation around things that are metal-related. That's not just the AI supply chain.

That's everywhere around us, and our teams are doing the appropriate pricing to make sure we get recovery on that. From that viewpoint, that inflation is being passed through.

Just that they're looking out, they're reserving capacity for the programs. These are very specific programs to a customer.

These are not generic components that we're making here. This is very specific to a program.

What's nice is our team continues with the momentum to get these wins with our hyperscale customers, and they're just giving us some visibility to make sure the ramps occur.

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

Oh, great. Thanks for taking my question.

Just DRAM prices have really skyrocketed. Do you have any direct impact to that?

If not, do you also see any risk to auto production because of potential supply issues there? Any thoughts on that risk and issue?

For the memory that obviously is out there that you talk about, we don't buy significant memory that impacts our supply chain, and that's what we're very much focused on. When we talk to our customers right now, there is nothing related to memory that we see slowdowns that are happening that are impacting our customers in our discussions.

I think what's really important is how we continue to service our customers. What's been really nice, and you see the growth over market that we delivered is across all three of the levers.

The memory situation is not impacting us at all, and our teams are doing a really good job doing the growth above market in transportation.

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

Hi, good morning. Hey, Guy.

The commercial transportation business was pretty stronger than people expected. Was that down to easy comparatives?

I know in the slide deck you said that growth driven by Asia and Europe, but in terms of order momentum, what would you say the outlook is for commercial transportation for the rest of the year?

Guy, let's face it, last year's first quarter was an easier compare. That is, when you look at that growth rate, it is benefiting from that.

What I would tell you when we look at the first quarter and we even look at the year, and we talked about it a little bit last year towards the end of the year, we continue to see in places like China, in Europe, in India, whether it's truck builds, construction equipment builds, have improved. When you look at it, the growth over market, you sit there, has been strong.

When we look at the year, we think global truck builds will be up 200 basis points, and we feel very confident we'll outgrow that for the year. The real wildcard we still have to watch is North America.

North America truck market is still negative, and I think that's probably the one toggle switch that we have to continue to keep an eye on, because we aren't seeing as much order improvement there yet. Outside the United States, it has actually shown a pickup around the world, and certainly we're hoping as we move through the year that we can get some of that uptick in the North American production environment as well.

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

Oh great, thanks for taking my question. Just wanted to double click on the EPS guide, slightly down versus sales which were flat.

Are these some below the operating income items that we should consider here? Just related to that, the incremental operating margins, I think you guys are guiding to continue to be strong here.

Just given the momentum in the business, trying to understand what could be drivers for further expansion in those incrementals. Thank you.

Asya. I'd say Q1 to Q2 in terms of just that, I think there's four or five cents of higher tax and higher interest expense between the two quarters.

That's probably your major bridging item if you're just thinking about that. In terms of the incrementals, we feel good about being at 30% or better, and as we work our way through the quarters this year, I don't see anything that would derail that.

Certainly volume is important, and there's no doubt that we've done a pretty good job. There's always more to do, but we've done a pretty good job of reducing our operating footprint, which has the effect of reducing some of our fixed costs, particularly in Western Europe.

As that's coming, and you throw volume on top of that, that is certainly lending itself to the incremental flow-throughs. That has the effect, as we talked about in the analyst day, of improving our operating margins.

We've seen that happen if you look at consistently over the last several years in most quarters, that's the effect. We feel good about where we're going to land for this full year, even with some of the incremental investments that we need to make.

All right, thank you, Asiya. Can we have the next question, please?

Hey, good morning, guys. Hey, Joe.

Can you touch on, like we've just seen, metal prices exploding here, copper, gold, silver. Can you talk about implications for you guys in terms of procurement, in terms of needing to pass costs on and what the customer acceptance of that has been?

Yeah. Hey, Joe, this is Heath.

You are absolutely correct. We are seeing pressure, inflationary pressure on the metals specifically.

That category is our largest purchase category, the team is hyper-focused. We've made investments, as we talked about at the analyst day, with some of the supply chain investments that we've made to get more scale and leverage purchases.

That has helped, and that team has a very strong pipeline of opportunities to find ways to reduce those costs. There's no doubt that as the spot market goes up, we feel that.

Now it has the effect of us very quickly passing that on through price or through other mechanisms that we can use to source. We're not going to use it as an excuse on our margins or our flow-through math.

We're feeling it right now, and it will factor into some of the elements we do with pricing.

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

Hi, just to follow up on some of the supply chain questions from two aspects. Just to clarify, when you're passing them through, are you able to pass the higher cost of metals through on a similar timeline as you have in the past?

The real question is, when you think about supply chain and your capacity, the good news is you're seeing, like you said, a broadening of demand while AI is still growing really fast. How do you feel about just being able to keep up from a capacity standpoint as we go through this year and into next fiscal year?

Thanks.

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

I'll take the first half. We have improved over the years in terms of our ability, let's say our agility or nimbleness to pass on pricing on these inflationary measures more quickly.

I would say, there's certain things that go through distributors and channel that are a little bit easier to pass on prices more quickly. There's other things that we reopen discussions with when we have OEM direct discussions.

It's front and center to the team, and we don't expect any significant time lapse as those discussions commence with the inflationary pressures that we're feeling.

On the capacity, Steve, first off, at Investor Day we highlighted areas where we had added capacity. The AI ramps are really program ramps that are very specific to those programs with those customers because we do that direct.

I would tell you elsewhere, we're in a good spot with capacity. We have some areas that are recovering, like we talked about to the earlier question of ACL and ICT, that we have capacity, and we continue to add in areas like energy and aerospace.

Even when we did Richards, Richards is doing very well to its original plan, but we're adding capacity there to expand for our energy business, as well as making sure we can continue to increase capacity for our aerospace and defense customers, which, that market continues to be strong. We expect it to be strong as the airframers continue to increase their builds, as well as what's happening in the defense complex where, those numbers just keep moving up.

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

Thanks, good morning. A question on energy.

The organic comps are pretty notably steeper in the second half. I'm wondering how orders, new applications, maybe even are phasing into that.

Would there be a growth adjustment period as you normalize into the long-term investor day outlook, or would you settle right into that? What do you expect?

No, the momentum continues to be very strong, Chris. It hasn't slowed down at all.

As I said on my comments, we've also started to see an uptick in Europe, which is an area that we've had historical presence in, but our focus has been more in the U.S. We continue to see nice growth across the businesses, including the ones we bought.

Remember, it comes into grid hardening and capacity as the energy network plays out. As we said at Investor Day, we thought organically we'd be double digit.

I feel like that's where we'll be this year, on top of the benefit we get on the inorganic piece in the early part of the year. It's nice to see the momentum continue.

As I said to Steve, how do we continue to make sure the capacity that we're putting in place supports the growth? I feel we're on track on that.

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

Great. Thanks for taking my question.

I'm hoping to just try to further reconcile the outlook with the bookings. The business trends overall sound like they're good.

They're broadening into industrial, as you highlighted. You had a record bookings quarter, very strong book-to-bill.

I fully recognize that in some end markets, the bookings duration is a little longer than typical. The read into the outquarter might not be as immediate as it usually is.

Still, I'm looking at March quarter guidance that looks a few points below normal seasonality. My guess is that this is related to auto production in China, which is weaker, specifically for EVs.

Can you verify and maybe linger on that for a moment for us, please?

Sure. Happy New Year.

When you look at it, there is an element in our second quarter guide that our segments are moving in two different ways. IS is going to be up double digits year on year.

I think everything related to orders, other than some of the AI orders being further out, completely aligned. We do have a three million unit auto production downtick from quarter one to quarter two in automotive.

Typically runs around two million units in an average year. It's a little bit worse this year.

It all ties in with the 88 million units that we see for the year. We do expect transportation to be down sequentially.

That's very just the reality of auto production. Our first quarter was higher than seasonal.

There is a little bit of, I think, as you're looking at and compared to seasonal models, our first quarter, which came in well above guidance, was higher than seasonal due to some of the industrial trends. Net-net, I feel very good to where we guided, and certainly the momentum that the orders show, or not only just for quarter two, but also as we exit through the year, which gives us a lot of confidence around the momentum, not only for quarter two, but for the year.

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

Hi, thanks for taking my question. Maybe if we could just double-click on the discussion earlier on incremental margins.

When I look at the quarter overall, if I strip out M&A and FX, it looks like incrementals were at 31% in Q1. Between the segments, industrial might have been closer to 40-plus, and transportation solutions was in the teens.

I'm just curious, do you expect both segments to converge towards that 30%-plus figure that you've talked about previously, or should we continue to see industrial running a little bit hotter than that? Thanks.

Yes, Chris. As I stated earlier, I expect, as we're sitting here at the end of our fiscal year, that both segments will be at or better than their incremental flow-through math here, the 30% for the full year.

In a given quarter, you can have some noise. I think transportation this quarter was hit with some foreign exchange noise in terms of what some of that is, but in terms of how it impacted their flow-through math.

It's nothing that I'm overly worried about. I don't know.

The second half of your question, which is does the higher-running industrial segment come back down? We'll see.

there are some investments that we're making, but as I said earlier on a prior question, at these volume levels, we would expect a little bit more outsized flow-through. We feel good about where both segments are and what their trajectory is for the year.

All right. Thanks, Shreyas.

I want to thank everybody for joining us this morning for the call. If you have further questions, please contact [email protected].

Thanks again and have a nice day.