Adam Norwitt: Yes. I mean just very quickly on industrial. I mean, I think we continue to see the demand in industrial to be somewhat muted. There is no doubt an impact from destocking with distributors. But it’s not just destocking. I think distributors orders themselves are also down. And so, it’s not just that they have too much inventory, but the demand in certain pockets of industrial. I would say, in particular, in places like Europe, maybe to a lesser extent in some parts of Asia and then even to a lesser extent, in North America. With regards to our comments on CapEx, I mean, I talked about it in the context of AI. But you can imagine, we’re growing strongly in a number of our markets, including, in particular, in defense.
We grew last year in Defense by 20%. We grew last quarter by 11% organically. We continue to see strong momentum. And the defense industry uses also extremely high-technology products. We have a very vertically integrated capability and offering to our customers. And usually, you can’t grow by 20% in defense-related products. It’s just impossible to flex. And I think our team has just done a fabulous job of flexing their capacity. But that may require a little bit more. But look, we’re not talking about big numbers here. I mean we said we expect a slight elevation in CapEx. Our CapEx is still very, very reasonable. I think, Craig, it was less than 3% last quarter.
Craig Lampo: Yes.
Adam Norwitt: And so this is not a big deal. We expect to still have very strong and robust free cash flow through the year.
Operator: Thank you. Our next question is from William Stein with Truist Securities. You may go ahead.
William Stein: Great. Thanks for taking my question. I’m going to ask yet another on AI. We understand that the three main connector vendors in the space, Amphenol and two others have very solid positions, very good technical capabilities. I’m wondering, if you can talk about the competitive dynamics among the three of you. And also, the degree to which you can capture some of their share or whether it’s possible, another entrant among the hundreds of connector companies globally could realistically attack this market? Yes. Thank you.
Adam Norwitt: Thanks very much, Will. Look, I’m not going to comment on our peers. I have great respect for them. They’re fabulous companies. What I will say is that we’ve been working in this area for a very, very long time. And as the leader in high-speed interconnect technology, you can imagine that we also have a very robust position here. This is not something that we have just recently developed. This is a very, very long intensive and real leading position in development of those technologies. But I have great respect for all of our competitors. This AI is a great thing for our industry, because it is really a multiple of content, because of the unique architecture of these products. And we’re not going to win 100% of everything, but I can tell you that we certainly get more than our fair share.
In terms of new entrants, I mean, look, there can always be new folks who come along, these are among the hardest products that are made in the interconnect industry. And I think I already spent some time talking about the economics of those products and how those economics mean that as a customer, you want to be very careful to not use a product that cannot meet the requirements that you need in these high-performance systems.
Operator: Thank you. Our next question is from Asiya Merchant with Citigroup. You may go ahead.
Asiya Merchant: Great. Thanks for taking my question and great results. Just incremental gross margins, if I did the calculation here, right, we’re – sorry, operating margins are very strong. Maybe you can talk about how you guys think about the trajectory of those gross – incremental margins as the quarter progresses or as the year progresses, and especially when you think about rolling in a pretty sizable acquisition in the back half, how we should be modeling for that? Thank you.
Craig Lampo: Yes. Thanks, Asiya. Yes. No, we are really proud of the 21% operating margins here in the first quarter. I mean, first quarter typically is the more challenging quarter in the years given the sequential quarter typical decline we have. And certainly, we always do a good job. But this quarter really, I think, is an outstanding quarter from being able to achieve 21% – 30% year-over-year and really sequentially about 30%. And that’s – we did 10 acquisitions last year, as you know, and those acquisitions were significantly under our company average. So when you really pullout and look at the organic conversion on our 6% growth on a year-over-year basis, it’s significantly stronger than the 30% that kind of in the reported numbers.
And sequentially, kind of the same dynamic with the acquisitions we did in the fourth quarter, being well under the average profitability of the company sequentially that conversion really is well under that 30%, kind of in the face. So really strong execution by the team, I mean, the team has done an outstanding job of really not only the teams that are growing, but also the teams that are impacted on the negative side. As you know, our industrial market is more challenged and a few other markets as well. And they’ve just done an outstanding job of controlling costs on the downside as well. So the combination of those two really has just turned into a really strong profitability for the company. I mean as we look forward, taking out CIT, I’ll talk about that in a second.
I would expect that, again, more normal profitability levels on incremental kind of revenue. If we talk about the 25% longer-term target, I would expect more in that normal range as we kind of get into more of the normal cadence from a pricing cost perspective that we’re in right now. But no doubt our teams will continue to manage in a very strong level and do their best to maximize profitability as they have. But I think 25% or so is kind of what I would kind of expect as we kind of go throughout the year. Now when we layer in CIT, when CIT does close, we expect here by the end of Q2, there’s no doubt that business is well under our average company profitability levels currently and there would be some impact on the profitability, on the margins slightly from an operating margin perspective.
And over time, we would certainly work and the team would work as Adam kind of mentioned earlier, to get those back up to the company average. But certainly, in 2024, we would expect some impact on the second half from a profitability perspective from them. But it’s a great team, and certainly, we would expect over time to improve upon that.
Operator: Thank you. Our next question is from Andrew Buscaglia with BNP Paribas. You may go ahead.
Andrew Buscaglia: Hi, good afternoon, guys.
Adam Norwitt: Good afternoon.
Andrew Buscaglia: Yes. Following up on that question, CIT, I think at a great price. As part of a holding company, you guys alluded to maybe not run optimally. But is this integration, is this company a cost-saving story? Or if you look at CIT, their growth, historically, wasn’t all that exciting. Is this more of an opportunity to reaccelerate their growth? Or is it both? And if you could comment like that potential margin dilution in the back half, what might that be at this point?
