Ladies and gentlemen, thank you for standing by and welcome to the TE Connectivity First Quarter Earnings Call for Fiscal year 2020. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah. Please go ahead.

Good morning and thank you for joining our conference call to discuss TE Connectivity's first quarter 2020 results. With me today are Chief Executive Officer, Terrence Curtin; and Chief Financial Officer, Heath Mitts. During this call, we will be providing certain forwarding 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. 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. Also within the industrial segment we have broken out sales for our medical business separately from industrial equipment. On slide 17 and on our website you will see eight quarters of historical revenue for the medical business and industrial equipment for your reference. There is no change to our segment reporting or those numbers. Due to the large number of participants on the Q&A portion of today's call, we're asking everyone to limit themselves to one question to make sure we can give everyone an opportunity to ask questions, during the allotted time. We are willing to take follow-up questions, but ask that you rejoin the queue if you have a second question. Now, let me turn the call over to Terrence for opening comments.

Thank you, Sujal and thank you everyone for joining us today to cover our first quarter results as well as our increased outlook for fiscal 2020. As I normally do before we get into the slides, I do want to frame out some of the key points that Heath and I bring out during today's call. First is that things are playing out as we expected when we provided our original guidance to you 90 days ago. Our expectations of markets in fiscal 2020 is essentially unchanged. Our order patterns are indicating stability and the distribution [indiscernible] as we talked about for few quarters is trending as we expect. In addition to the things playing out I am also very pleased with our execution in the first quarter. And this is against the continued challenging market backdrop. We delivered revenue above the guidance midpoint and adjusted earnings per share above the high end of guidance driven by strong operational execution across our segments. Based upon our strong first quarter we are raising our full-year guidance to reflect the out performance in the first quarter and we're maintaining a view of the second half that is consistent with our guidance that we gave you 90 days ago. And then finally there are two things that we talked about with you and we're focused on within this market backdrop that we're operating in. First is we're going to continue to focus on content growth that will enable out performance versus the underlying end markets that we position TE around and we are continuing to benefit from these secular trends across our businesses. The second key thing is that we continue to improve our earnings powered by executing on cost actions and footprint consolidation plans which we will expect to generate higher margins…

Thank you Terrence and good morning everyone. Please turn to slide 8 where I will provide more details on the Q1 financials. Adjusted operating income was $502 million with an adjusted operating margin of 15.8%. GAAP operating income was $471 million and included $24 million of restructuring and other charges and $7 million of acquisition charges. We continue to expect fiscal 2020 restructuring charges to be similar to fiscal ‘19. Adjusted EPS was $1.21 down 6% year-over-year as Terrence mentioned on a 5% sales declined adjusted EPS declined at a similar rate demonstrating our ability to execute on multiple levels to drive earnings performance. GAAP EPS was $0.07 for the quarter but that included a tax related charge of $1.05 which was related to the impact of the Swiss tax reform that we had talked to you about last summer. This was a non-cash charge. We also had restructuring acquisition and other charges of $0.09. The adjusted effective tax rate in Q1 was 18.6% and for the full year we continue to expect an adjusted effective tax rate around 18 to 18.5 that's unchanged from our prior review from 90 days ago. Importantly we expect our cash tax rate to stay well below our reported ECR for the full year. Now if you turn to slide 9, sales of 3.2 billion we're down 5% year-over-year on both the reported and organic basis. Currency exchange rates negatively impacted sales by 43 million versus the prior year. Adjusted operating margins were 15.8 as expected as Terrence mentioned we expect margin expansion from the first half to the second half of the year as we see benefits of sales growth and the cost actions we've initiated over the past year. I continue to be pleased with the progress we are making and driving improvements to our cost structure. The team is executing well but we still have work to do on our footprint optimization plan as discussed in the past this is a multi-year journey but I feel like we're on the track. In the quarter cash from continuing operations was $411 million, up 25% year-on-year. Free cash flow is $243 million and we returned $297 million to shareholders through dividends and share repurchases in the quarter. Our balance sheet remains strong and we expect cash flow to remain strong which provides us the flexibility to utilize cash to support organic growth investments to drive long-term sustainable growth while also allowing us to return capital to shareholders and continue to pursue bolt-on acquisitions. We are seeing the benefits of the levers in our business model to help mitigate the impacts on weaker sales on our margin and EPS performance and as you should expect we will continue to balance our structural cost actions with our long-term growth investments to ensure sustainability in our business model. So with that I'll turn back to Terrence to cover guidance.

Thanks Heath, let me get into our guidance and I'll get into the second quarter which is on slide 10. As I mentioned earlier our markets are playing out as we expected we laid out for you 90 days ago driven by the order patterns that we’ve see in quarter one that I covered earlier we do expect second quarter revenue $3.1 billion to $3.3 billion and adjusted earnings per share of $1.22 to $1.28 per share At the midpoint this represents declines on reported sales of 6% overall and organic sales of 5% year-over-year and reflects the weakness in the end markets and the ongoing effects of destocking in the distribution channel. We do expect grow sequentially from the first quarter of the second in both sales and adjusted earnings per share and that is a view that gives confidence about stabilization. By segments, we do expect transportation solutions to be down low single-digit organically and it's mainly going to be driven by the weakness in the commercial transportation market and with mid-single digit declines in global auto production. Industrial solution is expected to be down low single digits organically with continued market weakness and industrial equipment being partially offset by growth in medical, defense and energy. And in communications we expect to be down low teens organically driven by continued inventory destocking and the distribution channel. So please turn to slide 11 and let me get into the full-year guidance. As I covered earlier we expect full year sales of $13.05 billion at midpoint and this will represent year-over-year declines in reported sales of 3% and on an organic basis 2%. We are continuing to expect year-over-year headwinds of approximately $0.30 from currency exchange and tax rates and note that most of the year-over-year tax that will occur…

Thank you Amy, could you please give instructions for the Q&A session?

Thank you. [Operator Instructions] Your first question comes from the line of Wamsi Mohan with Bank of America. Wamsi, your line is open.

Thank you. Terrence nice performance in a pretty tough end market here. So can you maybe talk a little bit, in a little bit more detail what your assumptions are for the year for the various end markets with some color on geographic performance as well. Thank you.

Sure. Thanks Wamsi and yes during the call I used the word stable a lot. I also said challenging. So your question is very fair. There's markets that have been strong and are going to continue to be strong. There are medical, certainly defense, energy and you heard that a lot and they're in our industrial segment but when I use the word stable it really says some of the supply chain things are working off like we saw in distribution but there are still markets that are challenging. Auto production we expect to be down mid single-digit. I talked about that around the 21 million units a quarter end and we reposition ourselves on content will help get us down to closer to flat on the year versus a negative production environment. The industrial transportation space certainly that space is one where North America heavy truck rolled over and we're being impacted by that. But we do expect that margin to be down high single digits for the year because of also how we're positioned in China. You got your six emissions, you also have strong content name we have in that market and that's going to buffer to us a nice separation there. The other area that I would say that I think is going to be continued to be challenging is the factory automation and industrial equipment market. That's a market that clearly been impacted by capital spending on the planet. Our business both has the underlying market, it's going to continue to be challenged. And but we also have some inventory to stocking. So, how I would frame and similar to how we framed it 90 days ago was we don’t see a [indiscernible], our market really gets a lot better this year. We see some…

Okay. Thank you, Wamsi. We have the next question, please.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Christopher, your line is open.

Thank you, good morning. Just wondering if you're seeing any interesting changes in the cadence around design cycles in electric vehicles China and then you come to mine versus the baseline expectations for the development of that market?

Now, thanks for your question. And when you look at it, what's intriguing is we've always talked to you about electric vehicles and electric vehicle production, how are we go from about a little bit over 6 million units, sorry. It's over 9 million units. And this year's going to be a really one that's driven by Europe. China we sort of view in hybrid and electric vehicles many of you know I include plugin hybrids and hybrids in that number. It's not a pure NEV number just that it's the broader thing. And really what we're seeing is we're seeing a year where China will be sideways. They had some of the Stimulus/Formal from a production where Europe is going to be the real growth driver. And you've seen it with the CO2 regulations. We aren’t seeing any changes in designs. We are still over the opinion if you take the two mega trends that we have in automotive or around electric vehicles as well as autonomy features. Our customers are prioritizing electric vehicles ahead of our autonomy. We're going to benefit from both of those trends which I think is a unique proposition that we have. But the electric vehicle trend is helping drive the content that's what I talked about and we are not seeing any change in design cycles at all. If anything, they are trying to get their designs done at quicker rates than traditional combustion engines.

Okay, thank you Chris. We have the next question, please.

Yes. Your next question comes from Craig Hettenbach with Morgan Stanley. Craig, your line is open.

Yes, thank you. Terrence, can you provide an update just on the automotive sensor design pipeline and any particular sensor types from that you're seeing traction within automotive?

And so, a couple of things, Craig thanks for the question. First of all when you look at our centered results, you see really 75% of our sensors business from a revenue is still sort of pointed that heavy vehicle as well as the industrial markets and some of our growth we sold this quarter looks very much similar to what we saw in our industrial equipment and commercial transportation and our core connector products. But our auto sensor revenue was flat. So, it's certainly getting our performance versus the mid-single digit declines we're talking about. And the ramps are continuing to happen as we thought. Would be an impact by a slower environment. But the traction we talked to you about in the pipeline we've talked to you about continues to remain intact. And right now it's really all about production is impacting, why we're not seeing more growth other than flat in that market.

Okay. Thank you, Craig. We have the next question, please.

Your next question comes from the line of David Leiker with Baird. David, your line is open.

Good morning. This is Erin Welcenbach on for David. So, a follow-up question on the sort of the EV and autonomy discussion. There's been some talk in the industry about architectural changes. What are you seeing with respect to EV and autonomy trends and how did these architectural changes impact content growth for TE?

Thanks, Erin. And I will build on the question I talked about earlier. So, 1) is we feel very good about our content growth opportunities. And our content growth opportunity, you have to realize all starts where power need to go in the car, where does signaling need to be in the car as well as when you do for autonomy data and data's belong that is really the latecomer. But when you deal with power and you go to an electric vehicle architecture, you're dealing with different power rhythm at 12 volt or a 48 volt system that we filled with or changing to. So, it's what gives us confidence around is 4% to 6% and as I said for us bigger driver will be electrification. We also will benefit from autonomy as the data network in the car continues to evolve and architecture in a car always evolves. Our OEM customers are the ones that control the architecture. It's important to how they differentiate and it's something that you own and they typically don't let a tier 1 control lab. But when you look at as those three building blocks go and what we see we continue to encourage how that architecture gets evolved and where we're positioned globally. If you think about my discussion earlier about electric vehicles, the trends and then the number of units made into world are going to be more in Asia and in Europe. And we are leading position in those markets and we're working with the largest OEMs on those. So, nothing has changed around how we think about architecture, where do we play. And what's really nice about here, we benefit from both and electric vehicle is more in the front of the brand our OEM customers while autonomy has slipped back a little bit. And feel very good about the 4% to 6% we talked to you about.

Okay. Thank you, Erin. We have the next question, please.

Your next question comes from the line of Jim Suva with Citi Investment. Jim, your line is open.

Thank you, very much. Can you talk a little bit about the trends that happened in your sensor business maybe on a year-over-year perspective? It looks like they may have taken a little bit of a stepdown compared to September year-over-year. And then, maybe the content on automobiles that you're seeing now, I believe you typically viewed long-term content growth of kind of 4% to 6% range, kind of where we're sitting at kind of for this quarter in the outlook. Thank you.

Sure Jim, thanks Jim. First off, on the sensory question, I'll probably repeat what I said a little bit earlier. In the quarter for sensors, we did have our growth was reflective about the 75% we have in industrial equipment and commercial vehicle. What we saw on those markets are very similar than what we saw on our connector businesses which really drove the revenue being down double digit. In auto, we were flat and that shows the content and the ramps that we're getting. And then secondly Jim, the separation around the content growth we saw in the quarter and as we're guiding for the year is pretty much right on top of the 4% to 6% and it's as these continue to get adopted and the other trends I could add to the vehicles, you're going to see we expect that automotive will be basically flat to slightly down in a minus single digit production environment and that's where our guide is.

Okay. Thank you, Jim. We have the next question, please.

Your next question comes from the line of Shawn Harrison with Longbow Research. Shawn, your line is open.

Hi, good morning everyone and my congrats on the solid execution this quarter. I believe you already gave an idea of kind of the range of where you expect communications margins to kind of exit the year on a run rate. I was hoping we could get an update on where you would expect transportation and industrial margins to exit the fiscal year?

Shawn, this is Heath and I appreciate the question. As you mentioned, the CS margins we feel good about our ability to move into the mid-teens in terms of where we see those margins and that's reflective of a lot of the hard work the team is doing to mitigate pretty significant topline pressures in that business. Within industrial, we'll see moderate nominal however you want to say it, margin expansion year-over-year -- that’s a multiyear journey as we've talked about within the industrial business. On the footprint consolidation side, there are in this particular quarter we just finished. Sometimes we do run into situations where we have to spin some money in advance or facility is coming offline to get those transitioned correctly and did not disrupt our customers. So, in a given quarter you can see some movement within those types of activities. But we still expect industrial to see a nominal margin expansion for the year. I think if we look over a multiyear horizon as well as our trajectory into the next couple of years you'll continue to see that we're on plan. Within transportation, we're dealing with a couple of different pieces on the topline pressures that Terrence mentioned earlier particularly on the commercial transportation side which is a very profitable business for us. That being down, certainly has a pinch point for us. And then, but that offset was some of the activities within automotive and some of the footprint moves there. Now these moves as we talked about and prior quarters take a while particularly the ones outside the U.S. to get off line and so you will see more of those savings later in this year and more into FY'21 and '22. But I would expect the transportation to be able to hold roughly where it is, maybe a little bit of expansion as we exit the year.

Okay. Thank you, Shawn. We have the next question, please.

Your next question comes from the line of Deepa Raghavan with Wells Fargo Securities. Deepa, your line is open.

Hey, good morning all.

Hi, Deepa.

Question is on automotive momentum especially in China. Can you help talk about some of maybe give us some examples or just gently just talk through the momentum there? Is there any fundamental recovery beyond just easy comps in that part of the region? And also, how should we think about the plant closures in China just putting a wrench on your outlook if at all just given this corona virus scare. Thanks, very much.

Now, a couple of things, so let me take the second part of your question first. Certainly on the corona virus. It's a very fluid situation, yes China is important and we're very much focused on dealing with the real time and making sure our employees are safe. And that being said, first thing I want to highlight is that we don’t have operations or factories in the Wuhan province or our operations are not in that area. And we are in the middle of the Lunar New Year celebration and that we are running lower shifts right now as we speak. And we're going to continue to run those lower shifts. But the government has extended the Lunar New Year few days and in some of the industrial parts we serve, they are actually shutting in the next week. And we're going to be to everything in compliance with the government. So, net-net it is an uncertainty that we have but we have those uncertainties in many parts of our business every day. On China momentum, we did see production improve in the first quarter. And like I said in some of my comments already, China was a little bit better, I would say that would say that was around automotive production. Europe was a little worse, net-net getting to a neutral point for the year. I think the one thing that we're trying to keep our eyes on is not only what is production but what our end sales in China and end sales while they or not declining as they work, still or not accelerating. So, we still have a view that China will play out as we talked before. But we did see increased momentum before the Lunar New Year celebration which would have got us down to a supply chain was getting better. But we got to continue to watch it and our guidance is sort of in change with where we were 90 days ago.

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

Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark, your line is open.

Yes, good morning and thanks for taking the question. I was hoping the company could quantify where inventory in the channel is relative to historical levels on either at hours or days basis. And when you talk about the restock in distribution or sorry let me rephrase that one. When we talk about better trend into the distribution channel in the second half of the year, or are you assuming restock or just that your shipment to catch up to what the distribution on a sell through basis. Thanks.

Now, thanks. So, first of all we assume there is not restock, we assume it's a parity with demand. So, that's the key point and a very good question. When we sit there and what we've looked at, our major channel partners will get book-to-bills above 1.0 again. We talked to them about where it is inventory burn through in their December quarter to get back more in parity. And as we told you at last quarter we thought the first half impact was around a $100 million, we were about halfway through that also the destocking was going to be across in that work. So, what's nice is we're seeing it work out as we thought in the first quarter, it needs to work through in the second quarter. The trend is right on track and we're actually starting to see a pick-up in booking sequentially as I said by 10%. So, it feels like things are moving as expected and the second half if all about getting to parity with demand, not restocking.

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

Your next question comes from the line of Joe Giordano with Cowen. Joe, your line is open.

Hey guys, good morning.

Hi, Joe.

Just curious, given you’re like broad breadth in auto and who you work with and who you compete against. If you had any, what is the BorgWarner Delphi transaction do or not do to the competitive environment in that space?

For us it doesn't really does nothing for us. When you look at those two mergers, you're really dealing with more people dealing with the mechanical side of things. And our customers certainly in some areas there are customers but they would not be major customers. So, for us that's a net-net nothing.

Okay. Thank you, Joe. We have the next question, please.

Your next question comes from the line of David Kelly with Jeffries. David, your line is open.

Good morning, thanks for taking my question. You referenced continued strength in defense. Just wondering if you've seen any incremental softness in aerospace and any impact from the Boeing grounding that we should be think about per modeling?

Yes. So, a couple of things and thanks for the question. Certainly, we do have commercial aerospace business and when we talk about aerospace and defense submarine, that business in our industrial segment, about half of its commercial aerospace and it covers all the commercial aero frame manufacturers, including Boeing. So, the Boeing situation has impact us on that aero frame specifically. It's probably about a half a point headwind to overall TE growth that we're absorbing with the diversity of our portfolio but certainly that market has got weaker due to the production schedule Boeing has laid out. The key I think for us is that's a nice content driver. That it sort of transitory and in my mind and it will impact us this year but when Boeing works through its issues and those planes start get delivered, we'll get a reacceleration on the other side. So, near-term headwind that we would absorb into our guidance probably become a tailwind once they work through the issue with they would be.

Okay. Thank you, David. Go ahead with the next question, please.

Your next question comes from the line of Samik Chatterjee with JP Morgan. Samik, your line is open.

Hi good morning, thanks for taking my question. This is Bharat on for Samik. So, my question is in the communication segment. The expectations heading into 2020 remain for a pickup in hyper scale spending and higher service provider CapEx towards 5G as well. So, can you walk us through expectations for spending from these two verticals, how is that tracking and can there be an upside in outlook for 2020 in the segment overall if the spending ramps through the year. Thank you.

Well for 2020, thank you for the question. We certainly have seen or that segment has been impacted by the distribution channel. I would say cloud spending we have seen an improvement on our orders on the cloud side and certainly that's across many of the cloud providers. And one of the things our team has done a nice job is continue to penetrate and broaden our cloud customer breadth. So, that is an important growth drive for that segment and we continue to improve our positioning there. 5G is a little bit of a different story. 5G is one where in places like Korea you have very dense networks that and laid out and you get more then the use cases that they're developing. In the U.S. 5G is not moving as quick mainly due to the merger between T-Mobile that's out there have sort of delayed how this 5G get invested. And so, I would say we've seen a pause in 5G investment here in the United States that we hope that once that merger's down, the operators will invest and then we'll benefit from those deployments. We do play in 5G though on the infrastructure side, we don’t play on the handset side but it is something that's a good content opportunity as that spending accelerates.

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

Yes. Your next question comes from the line of William Stein with SunTrust. William, your line is open.

Great. Thanks for taking my question. An earlier question addressed automotive networks and one of the things that seemed more prominent this year at CES was the emerging changes in network architecture and cars specifically ECU consolidation and automotive networks transitioning to more sort of hierarchical one with domain controllers. Can you comment on how this might affect revenue and margins and maybe mix of cabling versus connectors? Thank you.

No, certainly. So first of all it's important that when you say cabling and connectors. We are not a harness maker and so as harnesses get rationalized certainly there are people that are on the large side are going to get more impact than us because as you even get into more consolidated ECU zonal architectures the interconnects get absolutely more complicated which play to the strengths of which we have. So these architectures have continued to evolve whether you go to zonal or you go to centralized compute in a car. These are things that how do you continue to get the connection points, the sensing points around or things that are part of our 4% to 6%. This will continue to evolve our OEM customers will be the ones that make those architectural decisions of what you see at CES and what's really nice is how we engage with our OEM customers on our design we know as those architectural changes are occurring. So when we think about the 4% to 6% that does assume how the architecture will evolve and what's really nice is I remember when we talk about architecture and people just want to talk about [indiscernible] it's really nice that the content trend whether it be electric vehicle or autonomy and compute architecture in the car or things that people are really talking about and that's what we do and that's what's driving some of the growth trends for TE.

Okay. Thank you. We will have the next question please.

Your next question comes from the line of Matt Sheerin with Stifel. Matt, your line is open.

Yes, thanks and good morning regarding your positive commentary Terrence on the medical market in the nice growth there how much of that is adoption of newer technologies and an upgrade cycle if you will versus share gains and I know or assume most of these products came from the Creganna acquisition from 2016. So any commentary on how that acquisition has been going for you. Thanks.

I think when you look at the growth it's a combination of things that we required but also how we continue to bring the capabilities at TE and Creganna has. If you look at that that business that business is approaching $800 million and Creganna was a little bit over $300 million when we bought it and we continue to put the capabilities of TE and Creganna together and we've also have the design center set up where the innovation occurs around interventional devices. What is nice is it is a mix, Matt to your question and also what's nice is it's not just the therapies that were used to today that we all benefit from but it's also about the therapies of the future of other areas in the heart where they want to take interventional procedures where they still can't take them today and that's the innovation that we continue to work on with the largest customers in the world that are focused on this. So it is a combination of new programs, existing programs and what's nice is with what we built we really have the door open with our customers and bringing our engineers and to work on the next-generation therapies that the largest companies medical device companies in the world are working on. So it's really nice it's going to drive the high single digit growth that we talked about today and it's been driving.

Okay. Thank you Matt. Can we have the next question please?

Gentlemen your final question comes from the line of Joseph Spak with RBC Capital Markets. Joseph your line is open.

Hi, thanks for taking the question. Terrence just a bigger picture yesterday we heard a company talk about how as automakers move to new and electric platforms, the connector catalog so to speak is opening up for them because they require these new types of interconnect products and I think you've hinted that the motor could widen as you move towards electrification these new platforms. So just really want to better understand how you think that business evolves as platform shift and maybe an example or two of what you're doing to retain and enhance your competitive positioning with customers.

Well, I think one thing that's important when you deal with electric vehicles and the penetration we have is one of the things around electric vehicles. We have to be honest you're still at even if we get to the 9 million units we have this year it's still a small part of an 84 million market and one of the things both from the relationships that we have you also have to get the global scale to continue to bring the cost points of the electric vehicles down and we knew we were part of that equation. So how do you get to standardization and while certainly different people are driving different technologies over time we still have to get to a vehicle that people can afford but that subsidies won't turn. And when I think about what we have done historically through our global customer range as well the breadth of technology we bring I think we are one of the ones that are best positioned to capitalize on that and also making sure we scale it and that's one of the things that OEM customers and certainly other people still have some challenges how do they scale electric vehicle and we basically view we get to help them do that. So that's the breadth we have. You see it in some of the global OEMs that are calling more platform versus individual model and they are some of the customers that we have very good relationships with and design wings with that we are going to help them solve that problem. And then we can also take it like we do with the rest of our connector portfolio into other areas to make sure that we bring productivity to the electric vehicle as well and getting our margin.

Okay. Thank you Joe. It looks like there is no further questions. So thank you for participating in the call this morning. If you have any other questions please contact Investor Relations at TE. Thank you and –

Thank you everybody.

Ladies and gentlemen your conference will be available for replay beginning at 10:30 AM Eastern today January 29, 2020 on the Investor Relations portion of TE Connectivity's website. That will conclude your conference for today. You may now disconnect.