Hello and welcome to the Amphenol Corporation's call. Following today's presentation, there will be a formal question- and- answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.
Great, thank you very much. Good morning, everyone. I'm Craig Lampo, Amphenol's Chief Financial Officer. We are very excited to welcome you all to join us for this special conference call to discuss the acquisition that we announced this morning. 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 disclosures in our press release for further information. I trust that you have all read the press release we issued today announcing the transaction, which is posted on the IR section of our website. This morning, we would like to share with you why we see CCS as a strategic, highly complementary fit within our existing product portfolio, and then we look forward to taking your questions. I would now like to turn the call over to Adam Norwitt, our CEO.
Craig, thank you very much, and I'd like to wish everybody good morning to those of you joining us on this most exciting of days for Amphenol. We really appreciate your time today, especially as it comes less than two weeks after our second quarter earnings call. I'm very pleased that we announced this morning that Amphenol has signed a definitive agreement to acquire the Connectivity and Cable Solutions segment, or CCS, from CommScope for $10.5 billion, subject to customary post-closing adjustments. We're very excited by this important acquisition, as CCS is an iconic business with innovative technology and product capabilities, as well as a broad IP portfolio that's supported by the business's robust R&D capabilities. In particular, we look forward to adding CCS's high-technology and highly complementary fiber optic interconnect products to Amphenol's existing product range.
Following the closing of this acquisition, we will be able to offer our customers a broad array of copper and fiber optic interconnect solutions for the data center and communications networks market. In addition, CCS's building connectivity offering opens up a largely unpenetrated market to Amphenol, and that is advanced interconnect products used in next-generation factories and commercial buildings around the world. The CCS acquisition is very complementary to Amphenol's current product offerings, with the business operating in three unique end markets as three distinct businesses, and that includes a data center connectivity solutions business, a broadband connectivity business, and a building connectivity infrastructure business. The data center connectivity solutions business represents approximately 40% of CCS sales and is currently seeing very robust growth driven by applications that support customers in the IT data com market, in particular for AI.
CCS's data center solutions are highly complementary to Amphenol's already strong offerings in the IT data com market, and that includes fiber optic cables and cable assemblies, optical distribution equipment, fiber panels, passive optical devices, and fiber cable raceways. This business, in particular, has a rich legacy of innovation stretching back to its origins as ADC Communications. The broadband connectivity business represents approximately 35% of CCS sales and helps us to expand both our product offering as well as our customer reach into a broad array of traditional and next-generation broadband service providers. CCS offers a wide array of fiber optic interconnect solutions, as well as other related cable and interconnect products that are highly complementary to Amphenol's existing capabilities in the communications networks market. This business was essentially the core of the original CommScope and has a storied history dating back to its founding by Frank Drendel in 1976.
Finally, the building connectivity infrastructure business represents approximately 25% of CCS sales and offers new capabilities to Amphenol for the growing building infrastructure market. Products in this business support connectivity for new factory and commercial building construction, as well as technology upgrades for existing facilities that are adopting smart manufacturing and smart building solutions. This is largely a new area of the industrial market for Amphenol, and we look forward to the opportunity to sell additional existing Amphenol products into this important and exciting market segment. The building connectivity business also has a rich legacy of innovation stretching back to its origins as Systemax. Based on CommScope's current outlook, the CCS business is expected to generate 2025 sales of approximately $3.6 billion, with EBITDA margins of 26%.
As part of Amphenol, we would expect CCS to have operating margins in the high teens, which is similar to the Andrew business when we acquired it earlier this year. The deal is expected to be accretive to Amphenol's earnings in the first year post-closing and to deliver further growth in the future, driven by strong growth in the data center business, as well as healthy growth in the broadband and building connectivity business. As far as transaction terms, we intend to finance this acquisition through a combination of debt and cash on hand, and we have obtained committed financing to fund the transaction, and at close, we expect to continue to have a very healthy net leverage ratio at or slightly below two times EBITDA.
We expect no change to our credit rating as a result of this transaction, and we expect the transaction to close in the first half of 2026, subject to the approval of CommScope shareholders, as well as customary regulatory approvals and closing conditions. As you all know, we closed on the acquisition of the Andrew business from CommScope earlier this year. Simply put, Andrew has given us the opportunity to become deeply acquainted with the outstanding technology and deep bench of talent within CommScope, and we are simply thrilled to now be acquiring CommScope's remaining interconnect businesses. Collectively with Andrew, these businesses will add nearly $5 billion in annual sales to Amphenol with attractive margins.
As previously mentioned, we expect the CCS acquisition to be nicely accretive in the first year post-closing, and we are confident that both CCS and Andrew will make significant long-term contributions to our future growth and performance. I'd like to take this opportunity to really thank the leadership team at CommScope, as well as the team within CCS, for just extraordinary integrity and hard work as we worked with them on executing on this transaction. In particular, I look forward to welcoming CCS's more than 15,000 talented employees to the Amphenol family. Finally, I'd like to thank all the Amphenolians around the world for their continued hard work, focus on execution, and service to our customers. Without our entire team's diligence and commitment, we would not be in the position that we are today to execute on this exciting and highly complementary acquisition.
With that, Craig and I would be very happy to take any questions that you may have.
Thank you, Mr. Norwitt. The question- and- answer period will now begin. Please limit yourself to one question per caller. To ask a question, please press Star, followed by One on your telephone keypad now. If you change your mind, please press Star, followed by Two. When preparing to ask your question, please ensure that your device is unmuted locally. We have a question from Asiya Merchant with Citi. Please go ahead.
Great, thank you, and thank you for taking my question. Adam, Craig, if I may, is there any revenue overlap between the companies? I know you talked about the incremental on the building connectivity, just so we can address if there's any revenue overlap and how you're thinking about handling if there is one. If I may also, if there's any cost synergies that you expect to realize post the acquisition. Thank you.
Thank you very much, Asiya. Look, we're really excited about this acquisition in particular because of the complementary technologies that CCS offers to Amphenol, and there's a very, very minimal amount of products where we kind of sell similar products to each other. That's a very, very minimal aspect of this deal. When you think about cost synergies, you know, we always value companies on what we're getting, on the state of the company before, and we don't make valuations using the word synergy. In fact, inside Amphenol, it's a running joke that that word synergy is not something that any of us use inside of Amphenol. Do we expect the business to perform long-term in a way that is maybe even better than they have in the past as part of Amphenol? For sure.
I think when we think about that, it's not a question of cost synergies, but rather every time a new company comes into Amphenol, we open up opportunities for them to both grow faster and oftentimes to make more money. We've seen that with the recent acquisitions that we've made. Some of the really foundational recent large acquisitions like CI T and Andrew, and we've talked about how those companies are performing even better than they were at the time and that we're really pleased with their performance. There's one thing about our approach to acquisitions that has always been a little bit different. We don't go into an acquisition saying we're going to parachute a bunch of people in, we're going to hire a bunch of consultants, we're going to go restructure, reorganize, change how those companies operate. Rather, we work with existing management, the fabulous people.
I got to tell you, I mean, CCS has extraordinary talent inside that. We learned about how talented some of the folks are with the Andrew acquisition, and then getting to know the CCS team in the recent months has given us even more confidence that this is a team of people who, as part of Amphenol, can really drive outstanding performance. Do we anticipate quote unquote cost synergies? That's not how we think about it. Do we anticipate this company to perform at higher levels in the future as part of the Amphenol family? There's no question about that.
Thank you. Our next question comes from the line of Andrew Buscaglia with BNP Paribas . Please go ahead, Andrew.
Hey, good morning, everyone.
Good morning. Good morning, Andrew.
I just wanted to touch on what this brings to your portfolio in terms of fiber optics. Clearly, there's been somewhat of a debate with the transition from copper to fiber coming at some point with AI-driven data centers. Can you talk about how you see that transition playing out and maybe how CommScope's CC S assets give you somewhat of an advantage as that occurs?
Yeah, thanks very much, Andrew. We're really excited about this part of CCS. This is a very broad business, and as I said in my prepared remarks, it gives us great exposure across IT data com, communication networks, and the industrial market. The fundamental thing that excites us here is their strength in fiber optics. Amphenol has had a fiber optic offering, there's no doubt about it. When you think about CommScope, this is really just a real shift for us in terms of our competency and capabilities once we bring them into the Amphenol family. Their long legacy, and I mentioned it stretches back all the way to early days with ADC Communications, which was a real innovation leader in fiber optic interconnect, back decades and decades ago.
CommScope has just done a fabulous job harnessing that technology, adapting it, innovating, continuing to drive those technologies forward, having everything from the cable to the interconnect, the connectors, cable assemblies, complex cable assemblies, fiber management systems, and the like, which has positioned them to take advantage of what's happening in data centers in particular, but also in communication networks.
When we think and we fast forward to once we bring this company into Amphenol, we'll be able to go to customers who are outfitting their next-generation data centers, whether those be for AI or in general accelerated computing, and being able to offer them a total solution from the highest speed copper interconnect solutions, where we are really today organically having built up an exceptional position there, taking more than our fair share of the investments that are happening, to the power interconnect, where Amphenol has a fabulous position, a long legacy of innovation, going all the way back to our industrial and military products in power technology, and now with the broadest possible offering of fiber optic interconnect. That really allows us to support customers in every aspect of their architecture, and I think those are all going to be strong components of that architecture going forward.
The fact that a customer can come to us with this sort of proverbial one throat to choke and say, you know, be there with us however our system evolves, however we decide to outfit our architecture, whether it's scale up or scale out or whatever people talk about, we'll be there with our customers in a very fundamental way with leading technologies. That's what's so exciting for us with this transaction. I just really want to commend the team at CCS who, through thick and thin, has never ceased investing in technology. That was ultimately the thing for us which was so important about this acquisition and so attractive to us. We're really excited to be able to proceed with that, and we're really excited for the future with this broad product offering.
Thank you. Our next question comes from the line of Samik Chatterjee with JPMorgan. Please go ahead, Samik.
Thank you, and hi, Adam and Craig. Good morning to both of you. I'll keep it simple. In terms of the debt leverage position that this leaves you with, I haven't covered Amphenol that long, but my model says this will probably be the highest that you've been. Any thoughts in terms of the priority going forward in terms of capital allocation? What levels of debt leverage are you more comfortable with on an ongoing basis, and what would that sort of roadmap to getting in that range look like? Thank you.
Yes, thanks, Samik. Appreciate the question. Actually, this is not certainly the highest level we will have been at. There are certainly times in the history of the company we've been higher, especially, you know, back after the TCS acquisition and otherwise where we've even been a little bit higher than this. There is no doubt in the recent past we've certainly been, you know, slightly below one, slightly above one kind of range. We were in the mid ones on a net leverage basis, I think 1.6 or so, when we did the FCI acquisition. Now we'll be just slightly higher than that, you know, slightly under two, maybe two at the most, which is still a very healthy leverage level. It certainly doesn't do anything in terms of the health of the company's balance sheet.
We generate a significant amount of cash flow, $1.1 billion in the most recent quarter, and we continue to expect to generate significant cash flow as we move forward here as we continue to grow. This certainly doesn't do anything in terms of how we think about our capital allocation strategy. We're very comfortable being at a little higher level. We're not going to do anything to harm our current credit rating. I would expect that as we move forward, we'll bring that down over time, even continuing to do, you know, the M&A as we've continued to do it in the past.
Certainly nothing maybe of this scale in the near term, but we have plenty of capacity to still do more as we continue to generate cash flow as we will bring the leverage levels maybe back down over time into the kind of range that we've been historically at. I don't really think this is going to really do much to our capital, really anything from a capital deployment strategy perspective. I think, just based on the cash flow we generate, that you'll see some deleveraging relatively quickly over the future after we close the deal.
Thank you. Our next question comes from Wamsi Mohan with Bank of America. Wamsi, please go ahead.
Hi, thanks for taking my question. It's Rupalu filling in for Wamsi today. Adam, can you talk about the relative growth rates of the data center, broadband, and building infrastructure parts of the business, and how do you plan to invest in each, and how will Amphenol help grow the business in each segment? Thank you.
Thank you very much, Rupalu. There's no doubt that right now the data center business is growing faster than the other two businesses, but all the businesses are growing at this stage, and we see great long-term growth opportunities for all of them. Our investment approach, as you know well and certainly Wamsi knows well, has not been to sort of pick and choose winning markets, but rather to invest everywhere where we see opportunities across the electronics industry. The beauty of, I think, CommScope as a steward of this business has been that they have continued to invest in new technology consistently across all of these businesses.
We look forward to continuing to do the same and maybe even ramping that up a little bit over time as we see further opportunities to take this technology portfolio really across to customers across all of our end markets to the extent that those technologies find a home there. We see great opportunities in each of these businesses for growth. We see great opportunities to continue to help them to find new technologies, innovate as they always have been. This is a company with a truly rich history of innovation, and we intend to accelerate that, not to decelerate it. We're very excited really about all the businesses here.
Thank you. Our next question comes from Steven Fox with Fox Advisors. Please go ahead.
Hi, good morning. A couple of questions, if I could, Adam. I guess just on the traditional Systemax business, it's probably a leading brand even versus what you guys are doing in the data center. Can you talk about how you maybe go to market now with Systemax and how that helps sales synergies? I had a follow-up, if I could.
Yeah, thanks so much, Steve. Look, we're really excited. You point out, and you know this business well. I mean, Systemax is a leading brand in building connectivity, whether that goes into data centers, whether that goes into factory automation, whether that goes into next-generation smart buildings and the like. It's a fabulous, fabulous brand and a fabulous reputation and one that the company has continued to invest in, as I just talked about. You know, how they go to market, they go to market in a very wide variety of ways, including with some distributors that we haven't worked as much with in the past.
This whole world of building construction, factory automation, we have a great business, as you know, in factory automation interconnect, but it has nothing to do with the products that they're selling that really go into the infrastructure of those buildings as opposed to in the equipment that operates in those buildings. If you think about our factory automation business going to robotics, automation machines, and the like, which require a wide array of interconnect solutions, all of those products ultimately have to be connected to the internet. That's the beauty. That's how a smart factory operates. What the folks at CCS do, and that does stretch back to that Systemax heritage, is they connect all of those connected devices to the internet through the infrastructure of the building. That's an exciting, exciting place for us.
We look forward to having that more comprehensive offering to customers who are really outfitting next-generation factories and next-generation buildings with all the things. I mean, I just think about, you know, we're in this old building, as you know, in Wallingford, Connecticut. Despite the scale of our company, we don't intend to change our beautiful old, you know, I think I called it shabby chic at our last earnings call. We are putting a few things in here, you know, HVAC so that we can have a little more efficient and not waste as much money, you know, Wi-Fi hotspots and the like.
When you look around, even in our old shabby building, and you start putting up a new device here, a camera there, a temperature sensor there, a Wi-Fi hotspot there, there's one thing in common with all of those, which is that the backbone of that, which has to continually be upgraded, is really these products that come out of the building connectivity solutions business of a company like CCS. They're working through channels we haven't had as much access to into end customers who are not making the equipment, but rather really figuring out how to configure these buildings. That's a really exciting place for us because I also believe that somewhere across Amphenol, we have products in the company that could find also an incremental home across that market channel. That's something that we're excited for.
Thank you. Our next question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Yes, good morning, and thank you for taking my question. I'm hoping to better understand how Amphenol plans to integrate the CCS acquisition. You've historically had the companies you acquire run pretty independently, give them a lot of autonomy. I realize this worked quite well for Amphenol. I'm curious, since this one's a bit larger than what you've done, I think 15,000 or so employees per the press release, do you envision doing this one at all differently? Maybe talk about how integrating it may fit with some of the go-to-market solutions potential that you mentioned, Adam. Thanks.
Yeah, thanks very much, Mark. I mean, look, you put your finger on something that's really critical to why we've been very successful as an acquirer for so many years. This is, I think, our 16th acquisition over the last three years, which have also included, to date, our two largest, which was CIT and Andrew. Our playbook here is very simple, and it's the same whether it's a small family-run company, a medium-sized business, a larger business like CIT or Andrew, or an even larger business, as is the case with CCS , which is we bring them into Amphenol, and we don't "integrate" them, especially because these companies that we acquire, our first criteria, our very first criteria for any company that we look to acquire is the people.
Is this a company run by people who can be true Amphenolians, who can continue to lead their business within our organizational culture, within that very unique, decentralized, autonomous, accountable Amphenolian culture? I tell you, I've spent a lot of time with the leaders of CCS , fabulous, fabulous individuals who are going to be extraordinary Amphenolians in the future. I have no doubt about that. Our plan with CCS is they will come into Amphenol, probably as a group initially. We have built this organization for scalability so that they can be a standalone group. They will for sure interact with their colleagues, and we'll help them to sort of find areas of collaboration in due course where we can ultimately help each other to find new areas, new markets, new product technology collaboration, new places to do manufacturing.
When I look at CIT and Andrew, where obviously we're a little bit farther down the path, we already see just fabulous things happening there, where the same team that was running those companies with the same organization is still running those companies. Yes, inside of both CIT and Andrew, as we've done in the past with FCI, as we've done in the past with MTS and other larger deals, all the way back to TCS 20 years ago, we look to push the accountability down to maybe make sure that there are general managers inside the business who have parts of that business as a full accountability. That's an ongoing evolution that we're already making great progress in with CIT and Andrew, and I'm sure we'll do the same here with CCS in due course.
The fact that it's larger doesn't change our mindset and our approach, which is to rely on the amazing people that come with the deal, to give them the accountability and the authority to work within a business of this size and maybe identify areas where, you know, here you have really three businesses, and who knows, maybe in the future we'll identify that there's more than three businesses within this to be run by general managers, and then kind of let them go out there and make it happen as Amphenolians with the high standards that we hold ourselves to. There's really nothing different about either the criteria that we applied to this, you know, people, product, market position, or the plans that we have for the company once they become part of the Amphenol family. The only difference here is that it's a bit bigger.
I mean, yes, it is certainly the largest acquisition that we've announced to date, which is why we thought it would be helpful to have this call here today. Our playbook doesn't change. As we've scaled the organization, I mean, that's, I think, a very important piece of this. I've talked before about my job as CEO being really to protect the culture of Amphenol and also to ensure that we can scale the company while preserving that very unique Amphenolian culture. We've done that over the years in a very methodical fashion, originally creating the groups that sort of group together some of our general managers. As the company passed $10 billion in size more than three years ago, creating our first division where we have our three global divisions today.
What I said at the time and what I say still today is not only does that allow us to preserve the culture, the general manager-driven culture of Amphenol, but it has allowed us to scale, and it creates amazing flexibility for us. When we make a new acquisition, that acquisition can be a new GM reporting to a group or a new group reporting to a president, or who knows, one day it can be just a new division of Amphenol. I think that flexibility organizationally, all still with the singular focus of preserving and strengthening the Amphenol culture, is really what has allowed us to be prepared to do this fantastic deal today.
Thank you. Our next question comes from Joseph Spak with UBS . Please go ahead, Joseph.
Good morning. Adam, I was wondering if you could talk about any co-package optic capabilities you might be acquiring in this deal. You touched on this a little bit, but is some of this just proactiveness on your end, or the deal rationale here, or were your customers also coming to you asking for a broader package of solutions?
Yeah, thanks very much, Joe. I mean, look, we're buying here a company that has the broadest of fiber optic interconnect capabilities. They're not a chip company, but as you can imagine, you know, once you generate a photon from wherever it generates, it immediately has to start going through interconnect products. I think their strong position and strong track record of innovation around fiber optic interconnect, fiber optic cable, complex fiber optic cable assemblies, fiber management, and all of that, no doubt about it, that puts us in an ever better position with our customers, you know, who are integrating fiber optics into lots of different things, including in the data center. Proactive, I have admired and we have admired this business for many, many years. There's no doubt about it. It's an iconic company. It's a company that has really iconic technologies that we have always admired.
There's no doubt. You can never sort of time when something is available to acquire, but we've always made a point of getting to know companies for a long, long time period. As we get to know them, sometimes you have that intersection of an opportunity. We started with CommScope to talk about the Andrew company, which was at the time their wireless asset. That certainly led to the development of even further familiarity that we had with the products and the technologies of CCS . When the time was appropriate for them to consider a transaction around these products, we were well prepared. Does this come from our customers pushing us? Our customers want Amphenol to be as broad as possible to support them in every way. Do I think our customers are going to applaud this transaction? I think they will.
I have every reason to believe that they are happy to have Amphenol have as broad as possible product offering because they know that Amphenol executes. When we look at why we have, why we have taken more than our fair share of a variety of opportunities over the years, it comes down to the intersection of having the best products with being able to execute on behalf of our customers in an agile, flexible, and, you know, my word, Amphenolian fashion. I think that going forward, there's no doubt that our customers will continue to enjoy that Amphenolian flexibility and reactivity, and now with an even broader set of product technologies that we can support them in every way, however they evolve and whatever architecture they choose to adopt.
Thank you. Our next question comes from Luke Junk with Baird. Luke, please go ahead.
Yeah, good morning. Thanks for the technical question. Adam, maybe if we could spend a little time on the broadband business. You know, as you mentioned, it's 35% of sales. It was really the core of the original CommScope from an IP standpoint. Seems like that's a really big TAM that you're selling into there, and maybe some infrastructure dollars behind it as well. Can you talk about, you've got existing broadband assets in the company, just how this fits in incrementally in the opportunities that you see. Thank you.
Yeah, thanks very much, Luke. I mean, look, we're really excited about this. As you point out, it's just over a third of the business. It was the core. If you go back to the history of CommScope, it was a really fabulous entrepreneur, Frank Drendel, who took some assets out of a cable company in 1976, actually. Next year will be the 50th anniversary of the founding of that company. There is a big market there with a lot of investments that are happening. What CommScope or CCS brings to us is really that incremental presence in fiber optic technology, which is a really fundamental part of the future of these high-speed networks. No question about it, the data that folks are consuming at homes, in businesses, at institutions, in governments continues to accelerate.
Whether it is the extraordinary amount of video that, by the way, I watch my kids consuming every day on TikTok and YouTube and all these other things, I just see lots of high-speed connectivity needed just to power my own house, let alone what so many others are doing here. With the CCS coming to be part of Amphenol, it's a great complement to what we offer. We have always been present in that market in a more modest way, essentially with copper products. That is the long legacy of broadband. Today, broadband is far beyond just the traditional broadband operators. You have new players who go straight into fiber, who never were with the kind of traditional coaxial products. You have existing players who are expanding into that.
What we're especially excited about here, beyond just the technology offering of CCS, is the access and the presence with those next-generation customers around the world. That's a really exciting and incremental thing for our company.
Thank you. Our final question today comes from Joe Giordano with TD Cowen. Please go ahead, Joseph.
Hey, good morning, guys.
Morning, Joe.
Just curious, like you've done in past deals where you've taken a larger, like bought an entire company and then kind of divested the pieces that weren't applicable to you. Just curious if there was, now you've essentially bought the majority through two transactions, the majority of this company. Just curious if there was an opportunity to go that route from a financial standpoint.
Yeah, no, I mean, look, you only buy what's available. This was the thing that we always coveted inside of CommScope. We knew this company for a long, long time. I think how this has evolved is a fabulous win-win for both our company and for CommScope. It's been a real pleasure working with them. They have some remaining businesses, which are great businesses, but which have nothing to do with our focus as a company. Through this kind of process of first working with them on Andrew, getting to know them, getting to know their technology, developing a wonderful rapport with the leadership of CommScope, who I have just the highest of regards for, and now continuing with the CCS transaction, I think it's a perfect outcome for both companies.
Thank you. We currently have no further questions, so I'll hand back to Mr. Norwitt for closing remarks.
Thank you very much. Thank you to everybody for, you know, with relatively short notice this time, coming together here early in the morning on Monday. We wish you all the best and hope everybody has a wonderful August and that you get a little bit of time off to enjoy with your family and friends. We look forward to speaking to you at our next earnings call. Thanks so much. Thanks, everybody.
This concludes today's call. Thank you for joining. You may now disconnect your line.