Operator:

Hello, and welcome to the Second Quarter Earnings Conference Call for Amphenol Corporation. 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.

Adam Norwitt:

Well, thank you very much, Craig, and I'd like to extend my welcome to all of you here on the phone today. And I hope that you and your family friends and colleagues are enjoying a very nice summer so far. As Craig mentioned, I'm going to highlight a few of our achievements in the second quarter. I will spend the few moments to review our recently closed and announced acquisitions. I'll talk about our trends and progress across our served markets, and then we'll make some comments on our outlook for the third quarter. And of course, we'll have some time for questions at the end. Our results in the second quarter were stronger than expected exceeding the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew from prior year by 18% in US dollars and 19% in local currencies, reaching a new record $3.61 billion. On an organic basis, sales increased by a strong 11% with growth in IT datacom, defense, commercial air, mobile networks, mobile devices and automotive, only slightly offset by moderations in the broadband and industrial markets. Importantly, the company booked record orders of $4.061 billion, representing a robust book-to-bill of 1.12:1. I would just note here that, our bookings were particularly strong from IT datacom customers focused on artificial intelligence or AI. Adjusted operating margins reached a record 21.3% in the second quarter, a strong 90 basis point increase from last year's second quarter. And adjusted diluted EPS grew 22% from prior year to a record $0.44. We also generated strong operating and free cash flow in the quarter of $664 million and $528 million, respectively, both clear demonstrations of the high quality of the company's earnings. And finally, as Craig mentioned, we announced this morning a 50% increase in the company's quarterly dividend to $0.165 per share, effective with our October dividend payment. Just want to say how proud I am of our team here this quarter as the results that they drove once again reflect the strength of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. As you know, our M&A team has once again been very busy of late. I'm very pleased to announce that on May 21, we closed the previously announced acquisition of CIT, previously called Carlisle Interconnect Technologies. I'm very excited to welcome the talented CIT team to the Amphenol family, and we really look forward to realizing the benefits of the combined breadth of our company's highly complementary product solutions, which will enable us to offer our customers an expanded array of innovative technologies across the important commercial air defense and industrial markets. In addition, we're pleased to have signed a definitive agreement to acquire Lutze. Lutze is a leading provider of harsh environment cable and cable assembly solutions for high-technology applications in the industrial markets. This acquisition includes two businesses, Lutze US based in North Carolina and Lutze Europe based in Germany. In May, we did close on the acquisition of Lutze U.S., which has annual sales of approximately $75 million. And we expect to close on Lutze Europe, which has annual sales of approximately $100 million, by the end of the third quarter of 2024. That's this quarter here. The Lutze acquisition is a great complement to our broad offering of high-technology interconnect products for the worldwide industrial market and, in particular, strengthens our range of value-add interconnect products. Finally, just last week, we announced an agreement to acquire the mobile networks-related businesses of CommScope for a purchase price of $2.1 billion. We're really excited to be acquiring CommScope's Outdoor Wireless Networks or OWN and Distributed Antenna Systems or DAS businesses. These businesses provide exciting mobile network solutions with advanced technologies in the areas of base station antennas and related interconnect solutions as well as distributed antenna systems. I just want to mention that, we're especially encouraged that the businesses that we're acquiring really make up the former Andrew Corporation portfolio of products, a company with a rich history of innovation and technology in the wireless industry. These businesses are expected to generate revenues of approximately $1.2 billion with EBITDA margins of approximately 25% in 2024. This represents operating margins in the high teens, including our current estimate of post acquisition-related amortization. We really look forward to supporting customers who are developing next-generation wireless networks around the world, with these advanced solutions, as well as with our own existing complementary interconnect products. Most importantly, we look forward to welcoming the approximately 4,000 employees of these businesses around the world. There's no doubt in my mind that these talented individuals will make great future Amphenolians. As we welcome these outstanding new teams to Amphenol, and we look forward to the future closings of Lutze Europe and CommScope OWN and DAS, we remain confident that Amphenol's acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions and successfully bring these new companies into Amphenol, remains a core competitive advantage for the company. Now turning to our trends across our served markets, I would just comment that we're very pleased that the company's end market exposure remains highly diversified balanced and broad. This diversification continues to create great value for Amphenol, enabling us to participate across all areas of the global electronics industry, while not being disproportionately exposed to the risks associated with any given market or application. So with that said, the defense market represented 11% of our sales in the quarter Sales in this market grew from prior year by a strong 14% in US dollars and 10% organically, driven by broad-based growth across most segments within the defense market. Sequentially, our sales increased by 9%, which was a bit better than our expectations coming into the quarter, driven in part by the earlier-than-anticipated closing of CIT. Looking to the third quarter, we expect sales to increase in the mid-single-digit range from the second quarter levels, including the benefit of acquisitions. And we remain encouraged by the company's strengthened position in the defense market, where we continue to offer the industry's widest range of high-technology interconnect products. Amidst today's highly dynamic geopolitical environment, countries around the world are expanding their investments in both current and next-generation defense technologies, thereby increasing the long-term demand potential for Amphenol. With the addition now of CIT's highly complementary products to our portfolio, we're better positioned than ever to support our customers with new products and the capacity to supply them wherever they may be needed. The commercial aerospace market represented 5% of our sales in the quarter. We had another strong quarter with sales increasing by a robust 60% in US dollars and 9% organically from prior year, as we benefited from the addition of CIT during the quarter, as well as continued progress in expanding our content on next-generation commercial aircraft. Sequentially, our sales grew by 46% in US dollars from the first quarter, as we benefited from the addition of CIT. On an organic basis, our sales were flat sequentially which was a bit better than we had anticipated coming into the quarter. Looking into the third quarter, we expect sales to increase in the mid-40% range as we benefit particularly from a full quarter of CIT sales. I'm truly proud of our team working in the commercial air market. Now with the addition of CIT, we offer the broadest range of high-technology interconnect products to our customers in this important area. With the ongoing growth in travel and thus the demand for jet liners, our efforts to strengthen our product offering while diversifying our market position into next-generation aircraft are paying real dividends. We continue to see great long-term opportunities for expansion of our technology offering to this important market and look forward to realizing the benefits of our growth initiatives for many years to come. The industrial market represented 24% of our sales in the quarter and sales in the second quarter did grow 9% in US dollars from prior year, as we benefited from acquisitions. On an organic basis, sales declined by 5%, as we saw moderations in most segments on a year-over-year basis of the industrial market. Sequentially, sales grew by a better-than-expected 7% from the first quarter, driven primarily by acquisitions but our organic sales were up slightly on a sequential basis. Looking at the third quarter, we expect sales to grow in the mid-single-digit range sequentially, driven by the benefit of our recent acquisitions. While the industrial market certainly has been experiencing a pause as customers and distributors have adjusted their demand levels, we are encouraged to see some early signs of momentum growing in certain areas of the industrial market. In addition, with the additions this quarter of CIT and Lutze US, we now have an ever broaden – an even broader range of products and capabilities to offer customers across the diversified industrial market. I'm confident that our long-term strategy to expand our high-technology interconnect antenna and sensor offerings both organically and through complementary acquisitions has positioned us to capitalize on the many electronic revolutions that will no doubt continue to occur across the industrial market. This creates opportunities long-term for our outstanding team working in this market. The automotive market represented 21% of our sales in the quarter and sales grew 6% in US dollars and 5% organically, driven by strength across newer automotive applications. Sequentially, our sales moderated by 4% from the first quarter, which was in line with our expectations coming into the quarter. I would note that we did see some incremental softening of demand in Europe in the quarter. As vehicle manufacturers there moderated their production volumes and that was offset by a more favorable performance in North America and Asia. For the third quarter, we do expect sales to be slightly down from these levels, as certain automakers have slowed their summer production schedules. I'm truly proud of our team working in the automotive market. Our continued outperformance is yet another confirmation of the benefit of our team's focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. And this includes electrified drivetrains as well as a multitude of other exciting applications. We look forward to benefiting from our strong position in the automotive market for many years to come. The mobile devices market represented 8% of our sales in the quarter and sales grew by 6% in US dollars and 7% organically as strength in smartphones and wearables more than offset moderations in sales related to laptops. Sequentially, our sales increased by 9% which was much better than our expectations for a mid-single-digit decline and we really did see sequential growth across all segments of the mobile devices market, which was encouraging. Looking into the third quarter, we anticipate sales to increase by approximately 20% from the second quarter levels, as customers prepare for year-end new product launches. While mobile devices will always remain Amphenol's most volatile of end markets, our outstanding and agile team remains well positioned to capture any opportunities for incremental sales that may arise in 2024 and beyond. Our leading array of antennas interconnect products and mechanisms continues to enable a broad range of next-generation mobile devices, thereby positioning us well for the long term. The mobile networks market represented 4% of our sales in the quarter and sales grew by 13% in US dollars and 7% organically, as we did see the beginning of a recovery in our sales to network operators and wireless equipment manufacturers after a number of quarters of demand moderation. Sequentially, sales in the quarter increased by a strong 22% which was much better than our expectations coming into the quarter. Looking to the third quarter, we do expect some moderation from the strong second quarter levels on traditional summer seasonality. We're encouraged by the recent strengthening in the mobile networks market, as operators ramp up their investments in next-generation systems. Our team remains focused on realizing the benefits of our long-term efforts to expand our position in next-generation equipment and networks around the world. Now with the pending acquisition of the OWN and DAS businesses from CommScope, we look forward to participating even more strongly in these next-generation networks for years to come. The IT datacom market represented 24% of our sales in the quarter. Sales in the second quarter grew by a very strong 57% in US dollars and 56% organically, driven by the continued acceleration in demand for our products used in next-generation AI data centers. While the vast majority of this growth did result from our expanding position in AI Interconnect, we were encouraged to also see some improvements in base IT datacom demand. On a sequential basis, sales increased by a strong 29% from the first quarter, substantially better than our expectations coming into Q2. Looking into the third quarter, we expect sales to grow modestly from these elevated second quarter levels. We're more encouraged than ever by the company's position in the global IT datacom market. Our team continues to do an outstanding job securing future business on next-generation IT systems, particularly those enabling AI. Indeed, the revolution in AI has created a unique opportunity for Amphenol. Given our leading high-speed and power interconnect products. With machine learning driving a more intensive usage of these highest technology of interconnect products, we're very well positioned for the future. And whether high-speed power or fiber optic interconnect our products are critical components in these next-generation networks and this creates a continued long-term growth opportunity for Amphenol. Finally, the broadband market represented 3% of our sales in the quarter and sales did decline by 17% in US dollars and organically from prior year, as broadband operators continued to reduce their procurement levels. On a sequential basis, sales were flat as we had anticipated. And looking into the third quarter, we expect a further moderation of sales sequentially. Regardless of this current muted demand environment, we do remain encouraged by the company's continued strong position in the broadband market, and we look forward to continuing to support our service provider customers around the world. As they eventually increase their spending to increase network coverage and bandwidth in support of the proliferation of high-speed data applications to homes and businesses. Now, turning to our outlook, and assuming the continuation of current market conditions as well as constant currency exchange rates. For the third quarter, we expect sales in the range of $3.7 billion to $3.8 billion and adjusted diluted EPS in the range of $0.43 to $0.45. This would represent sales growth of 16% to 19% and adjusted diluted EPS growth of 10% to 15%, compared to the third quarter of 2023. As is our usual practice, this guidance does not include acquisitions, which have not yet closed but does include CIT and Lutze US, both of which are currently operating below the corporate average level of profitability. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment while continuing to grow Amphenol's market position and driving sustainable and strong profitability over the long term. And finally, I just want to take this opportunity here to thank our entire global team for what were truly outstanding efforts here in the second quarter. And with that, operator, we'd be more than happy to take any questions.

Wamsi Mohan:

Yes. Thank you so much. Adam, really impressive order growth over here. Big, big numbers. Can you just talk about how much of that was driven by AI? Are you seeing a lot of new programs kick in? And how do we square that with your expectation of a moderate increase here in IT datacom for the third quarter? Thank you.

Operator:

Thank you. Our next question is from Amit Daryanani with Evercore. You may go ahead.

Adam Norwitt:

Thank you very much, Amit. I mean, look, the answer is all of the above. I mean at the end of the day, there are folks who are spending money to build AI data centers. And those tend to play down to the chip companies. And I think what's unique about AI is these systems are so much more complicated, there's so much more technology embedded in them that, in fact, we are working through the stack of that entire chain in making sure that our products are doing the right thing at each level. And so I think from that perspective, it's a little bit unique compared to traditional IT datacom, where we work with just OEMs or just service providers. I say here, we work with companies up and down the stack and in significant ways, let me say that. In terms of the growth over prior year, I mean, you've characterized our growth, which is just over $300 million on a year-over-year basis. And I think what I -- how I described that was the vast majority of that growth really came out of AI. And we've been careful not to just put specific numbers. In fact, it's not always easy to tell what is exactly AI and what is exactly not AI. And so we've tried to be a little bit more directional about those numbers. And I think we've been consistent about that from really the beginning of the sort of advent of this revolution. But I think you can safely say, it's the vast majority of our growth on a year-over-year basis. And then on a sequential basis, just to give another data point, I would say that the strong majority of our growth on a sequential basis, but not all of it. And we were encouraged on a sequential basis as well to see some growth in the base IT demand, which has been a long time coming. I think we all know, I mean that was not the easiest of markets over the last, I don't know, six to eight quarters. And it's encouraging for us to finally see meaningful growth from that sort of base IT investments, which we always expected would when they come. But no doubt about it, the vast majority of year-over-year, the strong majority of our sequential growth has come out of AI.

Samik Chatterjee:

Hi. Thanks for taking my question. Adam, I'm actually going to switch gears here and ask you about the acquisition of CommScope particularly in terms of when you think about mobile networks and you mentioned you're starting to see somewhat of a cyclical sort of spending recovery from your customers. But I think investor perception generally for that mobile networks business has been that service providers don't really need to spend massively until we get to 6G. So maybe if you can sort of outline why now, why now the acquisition, how you're thinking about sort of the outlook for the next few years? And what drove sort of -- what drove the decision here to double down on this mobile networks business. Thank you.

Operator:

Thank you. The next question is from Luke Junk with Baird. You may go ahead.

Adam Norwitt:

Yeah. Thanks very much Luke. Yeah. Look starting with orders. I mean, we were encouraged actually, I think I can't tell you how long it's been but to have a positive book-to-bill in the industrial market and not just like 101:1. It was like a decently positive book-to-bill that we had in industrial. So that I would say is encouraging sign number one. I would say encouraging sign number two is that we saw with our distributors in particular on a sequential basis. But even on a year-over-year basis, growth in demand from our distributors, the demand they put upon us. And that's a great early indication that the kind of inventory corrections that were happening with the end customer and in the distribution channel those seem to be largely behind us. And I never want to be the guy to call a bottom, let me say that. But I'm encouraged that we actually had meaningful growth on a sequential basis in distribution from the first quarter, and when I say meaningful I'm talking about high-teens kind of growth rate on a sequential basis from distribution. And that's broadly from distribution, but also from the distribution that is within industrial. So I think those are good signs. If you look at our guide here for the third quarter, yes, we were on a year-over-year basis in the second quarter organically down, but we were actually up slightly sequentially in industrial. And then our guide for the third quarter would have us be kind of flattish sequentially on an organic basis. I mean, I talked about the fact that we will grow but that growth is really driven by the new acquisitions. So look this is not to say that all is perfect in industrial, but I think the cognition of the orders and the behavior of distributors those are two pretty good early signs. And as we get into the third quarter 90 days from now and we see how that goes, we'll certainly try to be able to give everybody a little bit more visibility to whether that is in fact happening. The last thing I would say is you mentioned geographical. There's no doubt that the industrial trends are diverging geographically. So we actually saw organic growth in the quarter on a sequential basis in North America and Asia and we saw continued organic declines in Europe. And so I think Europe is certainly not out of the woods right now, but it's encouraging that we see this in distribution. North America has maybe a little bit more distribution than Europe does and to see also the growth that we're seeing now in Asia.

Asiya Merchant:

Great. Thank you for taking my question. Just double click on operating margins, really strong here in the comm segment. As you continue to see AI momentum here, how should we think about both incremental operating margins going forward? And just broadly EBIT margins going forward? Thank you.

Operator:

Thank you. Our next question is from Joe Spak with UBS. You may go ahead.

Craig Lampo :

Sure. Yes. No, I think this is just to start with the EPS accretion part. We haven't called that out, because I think it's a little bit far into the future to start calling out EPS accretion and certainly will be EPS accretive. It's a very its strong profitability. Adam mentioned in his prepared remarks, this is high teens operating margin, assuming kind of the amortization we would expect based on our current estimates post-acquisition. So, certainly, we would expect a good level of EPS accretion after the acquisition. In regards to the 25% EBITDA, there's certainly no synergies. We're not anticipating any synergies. We don't talk about synergies typically as you know our approach when acquiring companies and bringing them into the Amphenol family is we don't try to make significant changes. We kind of -- we essentially enable the businesses to expand margins while helping them do so as part of Amphenol. And that will be our continued playbook in addition to -- as we bring CommScope and we ultimately closed the Andrew's business there. So I wouldn't say that this 25% is -- that's what we view it as right now. I'm not going to talk so much about it's still part of CommScope's business and we're not going to necessarily talk so much about kind of what their expectations are and they're going to continue to report on this business and we'll let them do so.

Guy Hardwick :

Hi. Good afternoon.

Guy Hardwick :

Hi. Thanks Adam for the background on Andrew Core. Just a question. Why so long to close? Because I think it's -- by your timetable is looking like a 10, 11 months to close compared to say four months of CIT?

Operator:

Thank you. The next question is from Scott Graham with Seaport Research. You may go ahead.

Adam Norwitt:

Yes. I mean, I don't know what restructuring charge you're talking about. We did talk about a $70 million acquisition-related charge, which is acquisition expenses, which includes the money that we pay to various advisers who help us do the deal together with some amortization of backlog and things like that. This is not a restructuring charge. You usually will not hear Amphenol talking about restructuring. Relative to auto, I think, what I mentioned is that we do see -- in particular, I would say, in Europe that some of the demand expectations for our customers going to the third quarter are a little bit more muted. But our guide is this is not a severe change in the volumes. It's just a very modest change here in the third quarter.

Andrew Buscaglia:

Hey, guys. I wanted to check on mobile devices. Correct me, if I'm wrong, I think you said you're guiding that up 20% sequentially. And presumably there's some renewed optimism around, that's being driven by an upgrade cycle of devices. Can you talk about first off, can you confirm that and then secondly, how do you in past cycles tend to participate in upgrade cycles that this work to do on – is it earlier on, later on or how does that play out in line?

Operator:

Thank you. Our next question is from Mark Delaney with Goldman Sachs. You may go ahead.

Adam Norwitt:

Well, thanks very much, Mark. I mean look, you can imagine that we are very serious in both our diligence but also in our interactions with the people. And the bigger the company, the more people you're going to want to interact with. I mean it's pretty linear from that perspective. And so we had a very, very significant review and diligence with both CIT and these businesses from CommScope, which we will just refer to here as Andrew. And both from a diligence integrity of the numbers but also from a cultural perspective, I mean, on one side, in terms of integrity, Carlisle and CommScope are both great companies. They're public companies. They report great numbers. So I think, yes, we do enormous financial diligence around them. But I think the starting point is also, these are public companies with audited financials from extremely reputable big four auditing firms. As opposed to sometimes, you buy family companies and you almost have to sort of do a ground-up audit of them. And you don't have to do that kind of work here. But the cultural aspects, getting to know the people, understanding are they passionate about becoming part of Amphenol, do they believe in the business, do they see the potential, are they -- do they feel even liberated by being part of an interconnect company in the case of CIT, or being able to be a stand-alone business in the case of Andrew, this is really important because we always preserve the management. And we're not going to buy a company like this, if we hear from the management team that they're not committed to being part of our company going forward. And I can tell you that both inside CIT and Andrew, the folks are extremely passionate, extremely excited to be part of the Amphenol organization. Now, relative to margins, I mean, we've been making acquisitions for many, many, many years, as you know, Mark. And at the end of the day, we don't have just one recipe for how do companies improve their operating margins to bring up to at or above our corporate average. We believe that there are no sacred cows. Margin is price minus cost. And we seek to expose them to their sister and brother companies around the world, so that they can see some of the ways that other Amphenolians have gone about improving their companies in due course. And I think both the folks at CIT and in Andrew, and they have different levels of profitability, by the way, CIT is a lower profitability today, Andrew is actually operating at really nice levels of profitability. But we see with both of them long-term great opportunities, both on the top line and on the bottom line. And how that's going to happen, these are exciting businesses with lots of different inputs and outputs. And I'm very confident that the team will find a way, and we'll certainly help them do that.

Will Stein:

Okay. Great. Thanks for taking my question. Adam, congrats on all the deals you've announced recently, some really big ones in some storied companies, with Andrew in particular. And it sort of forces me to wonder about management's bandwidth to deal with all these and to potentially continue to look at deals. I know that you've added, I think, a new layer of management, that might have been several years ago, to facilitate potentially adding in bigger acquisitions. We're starting to see something like that. But I wonder whether you have the management bandwidth to continue to look at new deals and to do even more. Or perhaps, you're going to have to put a pause on deals for a while. Thank you.

Operator:

Thank you. Our next question is from Steven Fox with Fox Advisors. You may go ahead.

Adam Norwitt:

Yeah. Look Steve I think it's early. We've just signed the deal and we're obviously going to go through a regulatory process here. And then once we get through that we'll certainly be very thoughtful about the company. But what I would say is this, I mean Amphenol has been in RF connectors from the beginning. I mean we invented the world's first off connector back in 1941. Andrew was really the innovator of antenna technology, one of the innovators in antenna technology for mobile networks. And I think the combination of those two rich legacies ultimately is going to create enormous value for our customers. And I can tell you having talked already to several of those customers, they feel very excited about Amphenol as a home for this important partner for them.

Michael Anastasiou:

This is Michael on for Joe. So, previously you guys adjusted like AI revenues are probably annualizing around $800 million, and there's probably a path to $1 billion or so for next year. Can you just provide any color on customers like CapEx ramp required to support this AI growth? And if you could provide any clarity on how margins compare versus the rest of the portfolio would greatly appreciate it. Thank you.

Craig Lampo:

And just from a margin perspective, we wouldn't call out any significant difference in the AI product line is certainly margin accretive, but not so -- not meaningfully different from the rest of the portfolio of products that we have. And it's a good business and we want all of our businesses to continue to grow and provide margin contribution which we expect that will happen.

Saree Boroditsky:

Hi. Thanks for fitting us on. Just kind of going back to the industrial commentary. You talked about distribution growing meaningfully sequentially. Do you have a sense of underlying demand getting better? Or is this just the end of destocking. Thank you.

Operator:

And I'll now turn the call back over to Mr. Norwitt for any closing remarks.

Craig Lampo:

Thank you.

Operator:

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions]. 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, and you may begin.

R. Norwitt:

Well, thank you very much, Craig, and I'd like to extend my warmest welcome to all of you here from beautiful Wallingford, Connecticut, where spring is certainly in the air. As you know as is typical, I'm going to highlight some of our achievements in the first quarter. I'll then discuss our trends and our progress across our diversified markets. Finally, I'll comment on the outlook for the second quarter. And of course, we'll have time for questions.

Operator:

[Operator Instructions] Our first question is from Amit Daryanani with Evercore.

R. Norwitt:

Well, thanks very much, Amit, and really appreciate the question. Look, we're really excited about the renewed and really revolutionary investments that are being made in AI right now. I mean I have to confess that I am a consumer of these products. I've been using them. It's amazing. Last night, my wife made me tacos because, of course, it's Tuesday, and she went on ChatGPT. And she said, "Give me a great taco recipe." And it's just unbelievable what you can do for these things.

Luke Junk:

Just hoping you could help us unpack a little bit more the uptick in orders and book-to-bill being positive this quarter. Just particular areas of strength that are driving that and maybe areas that are still lagging at this point?

Saree Boroditsky:

I wanted to dig in more on the Carlisle, CIT, acquisition. It's relatively large. It was held by a commercial roofing company before. So what's the opportunity here being under your ownership? And where do you see potential to improve margins?

Wamsi Mohan:

Adam, maybe back to this AI topic a little bit. Thanks for all the color you shared. Clearly, Amphenol has been in this space for a long time, and you continue to push the envelope both in terms of data speeds and signal integrity issues. So can you just talk about how you're seeing pricing evolves, maybe generation to generation? What's been the history there? How are you anticipating that given the higher value and kind of much more sort of transmitting 800 gigs instead of 400 gig speeds. So clearly, there's value in there, but the density of applications is becoming more complicated and the unit volumes are also growing kind of order of magnitude, higher.

R. Norwitt:

Well, thanks, Wamsi. A lot wrapped up in that question. I mean, look, I guess to the very end of your question, I'm not going to get out ahead of myself and try to give a guidance about this revolutionary thing into 2025. As you know, we give guidance for the quarter ahead of us, and then we try to make sure we're maximizing our position of whatever the market will bring us long term. .

Mark Delaney:

I'm hoping to better understand how Amphenol is thinking about capital allocation for the rest of the year, especially with the pending Carlisle Interconnect transaction. Is the M&A funnel still active? And with the new repurchase authorization you announced this morning, but also the potential cash usage for M&A., so just Carlisle, how active might the company be on buybacks this year?

Steven Fox:

I was just wondering on the auto markets, the 17% growth you talked about. I know you highlighted communications. And I know you guys don't like to count cars per se, but can you just sort of provide some color on the backdrop you're settling into right now and into Q2? And what exactly would you call out as sort of leading products that you're especially doing well on right now?

Operator:

Our next question is from Samik Chatterjee with JPMorgan.

R. 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.

William Stein:

I'm going to ask yet another on AI. We understand that the 3 main connector vendors in the space, Amphenol and 2 others have very solid positions, very good technical capabilities. I'm wondering if you can talk about the competitive dynamics among the 3 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.

Operator:

Our next question is from Asiya Merchant with Citigroup.

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.

Andrew Buscaglia:

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?

Operator:

And our last question comes from Joe Giordano with TD Cowen.

R. Norwitt:

Yes. Look, I may let Craig comment on the margins, except I mean, it's an easy answer. It's just like look, we make margins based on selling value to customers. If we can create value for our customers, then usually there's value for us to be had there. And I think that's basically what I would say in this respect. Relative to scaling and working with our customers, I mean, you can imagine that we have very intensive discussions with our customers in every market. Here, because of the economics behind it, because of the pressure on our customers and the big vision, you can imagine that we're having even more intensive discussions.

Operator:

Thank you. And I'll now turn the call back over to Mr. Norwitt for any closing remarks.

Craig Lampo:

Thank you.

Operator:

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. 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 introduce your conference host, Mr. Craig Lampo, you may begin.

Adam Norwitt:

Well, Craig, thank you very much and I'd like to extend my welcome to everybody on the phone here today. And I hope it's not too late to wish all of you a happy New Year here from Wallingford, Connecticut. As Craig mentioned, I'm going to highlight some of our achievements in the fourth quarter and also for the full year of 2023. I'll then discuss our trends and progress across our served markets. I'll make some comments on our outlook for the first quarter, and then, of course, we'll have time for questions. Our results in the fourth quarter were stronger than expected, exceeding the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew by 3% in U.S. dollars, 2% in local currencies, reaching $3.327 billion. On an organic basis, our sales did decline by just 1%, with growth in commercial air, defense, automotive and IT Datacom markets offset by declines across our other end markets. The company booked $3.164 billion in orders in the fourth quarter. This was a 10% growth versus prior year and flat to last quarter, but did represent a book-to-bill of 0.98:1. We're very pleased to have delivered record adjusted operating margins of 21.2% in the quarter, a clear reflection of our team's outstanding execution and these margins increased 30 basis points from prior year and 40 basis points sequentially. Adjusted diluted EPS reached $0.82 in the quarter, representing a growth of 5% from prior year. I have to say that we were especially pleased that the company generated record operating and free cash flow of $842 million and $739 million, respectively, in the fourth quarter both just really clear reflections of the quality of the company's earnings. I come out of the fourth quarter, extremely proud of the Amphenol team. Our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the challenging and dynamic environment. We're also pleased that we announced this morning that we closed four acquisitions in the quarter, really in November and December. Based in Ohio, TPC Wire & Cable is a value-added provider of harsh environment, cable and cable assemblies for applications across the industrial market and this includes particularly factory automation and heavy equipment and TPC has annual sales of roughly $110 million. On headquartered in New Hampshire and with annual sales of approximately $90 million, Airmar is a leading provider of sensors for the recreational marine, commercial fishing and industrial markets. LID technologies based in Toulouse France has annual sales of approximately $40 million and LID is a high-technology supplier of sensor products to the industrial and automotive markets with a focus on tire pressure monitoring and the telematics associated with that. We also closed on the previously announced acquisition of PCTEL, a leading global provider of antennas for a broad array of markets, including in particularly the Internet of Things or industrial IoT market. PCTEL generated in 2023, approximately $85 million in sales. As we welcome these outstanding new teams to Amphenol, I remain confident that our acquisition program will continue to create great value for the company. In fact, our acquisition program was very successful in 2023 and our pipeline of prospective deals remain strong as we enter the new year. Indeed, we continue to see interesting near-term potential opportunities to bring outstanding and complementary organizations into the Amphenol family. Our ability to identify and execute upon acquisitions and then to successfully bring these companies into the Amphenol family remains a core competitive advantage for the company. As our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now turning to the full year of 2023, despite the demand challenges that we did experience in certain end markets in the year, I have to say that the Amphenol team delivered another successful year of performance. Amidst significant organic declines in the communications end markets due to inventory builds in 2022 as well as the more recent moderations in demand in the industrial market. Our team was able to deliver overall sales that were only slightly down from prior year. This was a testament to the breadth and diversification of the company as well as our team's ability to capitalize in real time on opportunities for incremental sales across the entirety of our markets. Our full year 2023 adjusted operating margin of 20.7% was flat with our last year record levels in 2022 despite the organic sales decline. This excellent performance by our team allowed us to deliver adjusted diluted EPS of $3.01 which was just slightly above prior year levels. We also generated record operating and free cash flow of $2.529 billion and $2.160 billion, respectively, both confirmations of the company's superior execution and disciplined working capital management. Our acquisition program, which I just discussed really created a great value throughout the year with 10 new companies contributing annualized sales of more than $600 million joining Amphenol in 2023. These new acquisitions enhanced our position across a broad array of technologies while bringing outstanding and talented individuals into the Amphenol organization. We're excited that these companies represent expanded platforms for the company's future performance and have deepened our already strong bench of leaders around the world. In addition, in 2023, we bought back over 7 million shares under our share buyback program, and increased our quarterly dividend by 5%, and that represented a total return of capital to shareholders of nearly $1.1 billion. So while there continues to be a high level of volatility across the overall market environment in 2023, as we enter 2024, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long-term performance. Now turning to the trends and our progress across our served markets. I would just comment that we remain very pleased that the company's end market exposure is still highly diversified, balanced and broad with no end market representing more than 25% of our sales in 2023. This market diversity helps to insulate us from the effect of any given market volatility, while also exposing us to the exciting revolutions happening across the electronics industry. Turning first to the defense market. Our sales represented 12% of our total in the fourth quarter and 11% for the full year 2023. Fourth quarter sales once again grew strongly from prior year, increasing by 18% in U.S. dollars and 17% in local currency. On an organic basis, sales in the defense market increased by 15%, with broad-based growth across virtually all defense applications, particularly strong in naval, helicopters, communications and airframe applications. Sequentially, our sales increased by a better-than-expected 4% from the third quarter. For the full year 2023, sales in the defense market grew by 20% in U.S. dollars in local currency and by 18% organically. This reflected our operational execution, as well as broad strength across most segments of the defense market, and that particularly related to naval, aircraft engine, helicopter, communications and space-related applications. Looking ahead, we expect sales in the first quarter to decline in the mid-single digits sequentially, and we remain very encouraged by the company's strengthened position in the defense market, where we continue to offer the industry's widest range of high-technology interconnect products. Amidst today's dynamic geopolitical environment, countries around the world are expanding their investments in both current and next-generation defense technologies, thereby increasing the long-term demand potential for Amphenol. We are well positioned to accelerate our new product development and increase our capacity to support this demand long into the future. The commercial air market represented 3% of our sales in the quarter and 4% of our sales for the full year 2023. In the fourth quarter, our sales grew by a very strong 25% in U.S. dollars and 23% in local currency and organically, and this was driven by broad-based strength across all aircraft applications. Sequentially, our sales grew by 1% from the third quarter, which was actually ahead of our expectations for a modest seasonal decline. For the full year 2023, sales increased by a very robust 36% in U.S. dollar local currency and organically, reflecting our strong design-in positions on a broad range of platforms, as well as broad-based demand across all aircraft applications. Looking into the first quarter, we expect sales to remain at these lofty fourth quarter levels. I'm truly proud of our team working in the commercial air market. With the ongoing recovery in travel and thus demand for jetliners, our efforts to strengthen our breadth of high-technology interconnect products, while diversifying our market position into next-generation aircraft are paying real dividends. We continue to see great long-term opportunities for expansion of our technology offering to this important market and look forward to realizing the benefits of those growth initiatives for many years to come. The industrial market represented 23% of our sales in the quarter and 25% of our sales for the full year. Our sales in the fourth quarter did decline by 4% in U.S. dollars, 5% in local currencies and 12% organically as growth that we realized in oil and gas, rail mass transit and marine applications was more than offset by moderations in demand in other segments, including battery and electric heavy vehicles, building automation, transportation and heavy equipment. In addition, our sales into the industrial distribution channel continued to be more muted than they were a year ago. On a sequential basis, sales grew by 1%, but that was driven primarily by acquisitions that we did close in the quarter. For the full year 2023, sales were flat in U.S. dollars in local currency and declined by 7% organically as the contribution from acquisitions was offset by weakness in instrumentation, battery and EV, and electric heavy vehicles, factory automation and heavy equipment applications in particular. Looking into the first quarter, we expect sales to remain at these levels as the benefit of recent acquisitions offset the modest organic sequential decline. Despite this near-term demand pause driven in particular by elevated inventory levels, both in the distribution channel as well as in certain end markets, I remain proud of our outstanding global team working in the industrial market. We are very excited by the additions of TPC, Airmar, LID and PCTEL, each of which adds complementary new interconnect sensor and antenna technologies to our industrial product offering. And I'm confident that our long-term strategy to expand our high-technology interconnect antenna sensor offering, both organically and through complementary acquisitions has positioned us to capitalize on the many revolutions that will no doubt continue to occur across the industrial electronics market. The automotive market represented 24% of our sales in the quarter and 23% of our sales for the full year. Sales in the fourth quarter grew by a robust 16% in U.S. dollars and 15% in local currency, and on an organic basis, our sales to the automotive market increased by 12%. That was really driven by broad-based strength across most automotive applications, including electric and hybrid electric vehicles. Sequentially, our automotive sales increased by 8%, which was better than our expectations coming into the quarter. For the full year 2023, I'm pleased that our sales increased by a strong 12% in U.S. dollars, 13% in local currency and 12% organically, and that reflected broad strength across the automotive market, including, in particular, next-generation electronics, for example, electric and hybrid drivetrains. Looking into 2024, we expect a high single-digit sequential seasonal moderation in sales in the first quarter from these levels. I'm truly proud of our team working in the automotive market. Their performance in 2023 is yet another confirmation of the benefits of their focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. It's really a multitude of applications, including electrified drivetrains, but not just that, many other applications. We look forward to benefiting from that strong position for many years to come. The mobile devices market represented 11% of our sales in the quarter and 10% of our sales for the full year 2023. Our fourth quarter sales moderated by 3% in U.S. dollars, local currency and organic as robust growth in smartphones was once again more than offset by declining sales into tablets, laptops and wearables. Sequentially, our sales increased by 9%, which was much better than our expectation coming into the quarter for a high single-digit decline. For the full year 2023, sales in the mobile devices market declined by 12% in U.S. dollars and 10% organically as strong growth in smartphones was more than offset by declines in other mobile device applications. Looking into the first quarter, we do anticipate a typical seasonal sequential decline of approximately 35%. While mobile devices will always remain one of our most volatile of markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2024 and beyond. Our leading array of antennas, interconnect products and mechanisms continues to enable a broad range of next-generation mobile devices, which positions us well for the long term. The mobile networks market represented 3% of our sales in the quarter and 4% of our sales for the full year. Sales in this market declined from prior year by 26% in U.S. dollars, 27% in local currency and 34% organically, as we continue to manage through a broad-based reduction in spending by network operators and wireless equipment manufacturers. Sequentially, our sales decreased by 6%, which was in line with our expectations. For the full year, sales declined by 26% from prior year and 32% organically driven by the spending reductions that we've discussed throughout the year. Looking ahead, we expect a modest increase in sales from these fourth quarter levels. And despite this more challenging short-term wireless investment environment, our team continues to work aggressively to realize the benefits of our efforts, to expand our position in next-generation 5G equipment and networks around the world. When customers once again drive renewed wireless investments, we look forward to benefiting from the increased potential that comes from our position with both equipment manufacturers and mobile service providers. The information technology and data communications market represented 20% of our sales in the quarter and 19% of our sales for the full year. We're very pleased that our sales in the fourth quarter returned to growth compared to prior year, with sales in U.S. dollars and local currency increasing by 6% and organically by 5%. Sequentially, our sales increased by a much better-than-expected 6%. As we continue to benefit from our strong presence with AI data center customers as well as some overall improved demand. For the full year 2023, our sales in the IT Datacom market declined 13% in U.S. dollars and organically as strong demand for AI-related applications was more than offset by inventory adjustments that we saw amongst our traditional IT Datacom applications. Looking ahead, we do expect in the first quarter a mid single-digit sequential seasonal decline in sales. I have to say coming out of what was a challenging year in the overall IT Datacom market that we're more encouraged than ever by the company's position in this space. Our team continues to do an outstanding job securing future business on next-generation IT systems, particularly those enabling artificial intelligence. Indeed, the revolution in AI has created a unique opportunity for Amphenol given our leading high-speed power and fiber optic interconnect products. With machine learning driving a more intensive usage of these highest technology interconnect products, we are very well positioned for the future. This creates a continued long-term growth opportunity for Amphenol. The broadband communications market represented 4% of our sales in the quarter and 4% for the year. Sales in the fourth quarter were down 31%, in U.S. dollars and 32% organically, as broadband operators continued to moderate their procurement levels. On a sequential basis, sales did decline by 12%, which was worse than our expectations coming into the quarter when we anticipated more of a modest increase. For the full year 2023, sales were down by 7% in U.S. dollars and organically, driven by the continued pause in broadband operator spending. Looking ahead, we expect sales in the first quarter to increase modestly from these levels. Regardless of the current demand dynamics, we do remain encouraged by the company's strengthened position in the broadband market. We look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high-speed data applications to homes and businesses. And finally, turning to our outlook. There's no doubt that the current economic environment remains somewhat uncertain. Assuming the continuation of these current market conditions and also assuming constant exchange rates, for the first quarter, we expect sales in the range of $3.4 billion to $3.1 billion and adjusted diluted EPS in the range of $0.71 to $0.73. This would represent sales growth of 2% to 4% and adjusted diluted EPS growth of 3% to 6% compared to the first quarter of 2023. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow Amphenol's market position, while driving sustainable and strong profitability over the long term. And finally, I just want to take this opportunity to thank our entire global team around the world, including all of those who work across our factories, touch our products, and ultimately deliver to our customers what they need. I'm just truly grateful for all of their outstanding efforts both here in the fourth quarter, but moreover, for the entirety of 2023, without them, we wouldn't be able to make it happen like we do. And with that, operator, we'd be very happy to take any questions.

Amit Daryanani:

Thanks. Good afternoon everyone. One question for me would be, can you sense on the weakness on the industrial market space you talked about seeing softness there, a little bit of inventory sell, I'm curious, is that stable versus what you saw like do you feel like it's getting worse as you head into 2024? And then you can talk about it, do you see the [technical difficulty]

Operator:

Next question comes from Asiya Merchant from Citigroup. You may go ahead.

Adam Norwitt:

Yes. Well, thank you very much, and welcome to our call. I look forward to getting to meet you in person. We're really excited about the progress that the company has made in AI. And I just want to reflect on one aspect, which is that AI is not new to us. While the world over the course of the last year has sort of woken up to AI with the advent a year ago, November of ChatGPT and the sort of revolution of generative AI. Our team has been working on the interconnect architecture surrounding AI for a long, long time. And so it is only now that maybe there is this acceleration almost, you could call it even a kind of revolution or a goldrush around AI, but we've been building the capability, building the product capability, building the manufacturing capability and capacity to support that for a long time. And I think this year, one of the ways that we were able to maybe even get a disproportionate share of some of the more urgent demand was that we were very quick to flex our capacity in favor of customers who needed products and when they needed it. And I think our team has always showed the ability to have that agility in reacting to upticks of demand. And I think that this AI is no different. I'm really proud of our team and how they've done that. Looking forward, it's still too early to say, what does that, look like over the long-term. But there's no question in my mind that AI seems like something that is not such a small deal. It seems like something where there are real economics behind it, where large companies are making significant investments into AI and where ultimately our architecture, our interconnect architecture is a very critical component together with the chips that you alluded to. Now relative to shortages of chips, that's -- I mean, we hope that there are significant investments in chip manufacturing, because in our industrial business, we do supply a lot of interconnect products that go into the industry for semiconductor manufacturing. I don't think that we've necessarily seen that as a governor on our output or on our customers' demand right now. But we'll see. It's not something that would directly impact except that maybe customers, if they couldn't get enough chips, they would moderate their overall construction. But we haven't seen that yet. And I think our team is just doing a fabulous job dealing with the surge in demand that we saw this year. And it came at a time when overall IT demand was down. But in fact, some of the products were very different products. So it wasn't just that we were able to reallocate capacity from IT products that were not being consumed as much into these. There was a lot of new stuff that we had to do. And I think we did a really great job executing on that.

Luke Junk:

Great. Thanks for taking the question. Adam, just hoping you could comment on pricing dynamics into 2024, especially in which parts of the portfolio might look at as more normal with respect to price downs this year versus areas of the business that could be a laggard in that respect? And then the related question would just be, how you're feeling about delivering productivity of your supply chain and your operations to offset any price downs you might face this year. Thanks Adam.

Operator:

Next question comes from Wamsi Mohan from Bank of America. You may go ahead.

Adam Norwitt:

Well, thank you very much, Wamsi. Well, you're asking me to do a tough thing, which is to talk about the next two years, in a very volatile space, which is communication. I think that's hard to say what will be the overall growth across communications. I would tell you, we see great opportunities across each of those areas with different things going on because remember, communications, not just IT datacom, it includes mobile networks. It includes mobile devices and obviously, broadband and I think there's different stuff going on in each of those areas. If you talk just about IT datacom, which is the biggest part of our communications business, I mean there is no doubt that, as I mentioned earlier, these investments in AI, I think we're in early days on this. I think that there are going to be more and more developments around the real kind of creation of new economic models around AI and then the investments to support that. That's already been broadly talked about. You've heard folks talking about pretty significant investments in these next-generation systems. And again, the interconnect products are a really integral part of those systems. So, I think on that front, I'm not getting out too ahead of my skis to say that I think at least specific to AI in IT datacom, I would expect over the coming couple of years. to see some great opportunities. I don't know about the base of IT Datacom over the next two years. I couldn't -- I can barely give you a 90-day kind of a very inaccurate guidance for mobile devices. I think that on wireless, we're going through a cycle, which is a typical cycle where they invest in a new type of a standard they wait to see and by day, I mean the service providers, the operators, they wait to see how does that settle out, how do customers take it? Are customers willing to pay more for the functionality that's delivered by that? And then there starts usually another round of the investments around that. And I think we're in that low period right now. I couldn't tell you when that low period will inflect and become more investment. But I can tell you, for sure, that in the coming years, there will need to be more investments around 5G and ultimately 6G and all the wireless networks because the vast majority of people connecting to the Internet are doing it not on a connection like a Cat 5 cable or in an office, they're doing it on a wireless basis, while they're moving around the world. And so that network is going to have to keep up with the data traffic that continues to expand kind of on an unabated basis. And then finally, broadband. Broadband is an area where I think there is a lot of push in countries like ours and others to ensure that there is both the capacity and the coverage for broadband access because it's viewed not as a luxury, but rather as a necessity that folks can have broadband access. And so I think long term, there's good opportunities there as well. Relative to China, I think I'm very happy to see that the sort of geopolitics of China and the U.S. seems to be the pendulum is swinging towards a more moderate phase. There's more people talking and all of that. And we're encouraged by that. I think the world is a better place when countries are talking rather than arguing, and I think that's a good thing. I think there's a lot written about the Chinese macro environment, and I'm not the expert to sort of go off on that. But what I will say is that in those areas of the electronics industries, where we support in China, places like the automotive industry, places like the industrial market, we continue to see great opportunities, and our team continues to do a fabulous job of capitalizing on those opportunities for the domestic market. And we feel really good about the position that we have as a company who is, of course, a global company but who operates through our unique organizational approach as a local company in that environment. And being the best of both worlds at a time like this when the world is somewhat uncertain, is a really good advantage for Amphenol.

Samik Chatterjee:

Hi. Happy New Year, and thanks for taking my question. I guess, Adam, I wanted to see if you can share your thoughts around organic growth opportunities for the company in 2024 related to inorganic growth. You have a strong pipeline of revenue from the acquisitions you've closed that you're on boarding, maybe share your thoughts about how you think about the rest of the business growing, whether they are more positive related to negatives in 2024. And what is the average sort of growth average expected of the acquisitions that you closed more recently for 2024? Thank you.

Operator:

And our next caller is Andrew Buscaglia with BNP. You may go ahead.

Adam Norwitt:

Thank you very much, Andrew. Yes, I think what I said in my remarks is that we saw growth in AI, and we saw also growth in the underlying business. So I think over the last couple of quarters, I've described that are all of our upside, all of our sequential growth really did come from AI. I think that this quarter, it's some of each, which is actually really encouraging for us that we've seen maybe what 1 could call a bottoming of the underlying IT demand. Are we continuing to make progress in AI? Do we see continued acceleration opportunities? Yes, I wouldn't say that every quarter, it's going to accelerate in lockstep like it did over the course of Q2 and Q3 but for sure, we see opportunities long-term to be generating sales related to AI that are greater than we are today.

Mark Delaney:

Yes. Good afternoon. Thanks very much for taking my question and Happy New Year to all of you as well. Automotive has been a fast-growing market for the company. However, several auto OEMs have been seen EV sales and they said they're going to rethink how fast they want to shift their production towards EVs. And so I'm hoping to better understand if you think that will create any meaningful near to intermediate-term challenges for Amphenol that could limit the company's growth of market or perhaps lead to some inventory destocking? Thanks.

Operator:

Our next caller is William Stein with Truist Securities. You may go ahead.

Adam Norwitt:

Well, thank you so much. I think what you're alluding to is PCTEL and the fact that they have a very small test and measurement business and really wonderful people, wonderful products, but that's not why we bought PCTEL. And just -- you'll recall, we've acquired companies in the past, some of which are not purely the things that we were looking to acquire. And we're always very sensitive that we're never going to put ourselves in a competitive situation with our customers. And really PCTEL is known for their antenna technologies, which are fabulous. Not to say a bad word about their team that works in test and measurement, but we're not adopting a strategy to go after system-level products. In terms of our aperture for M&A, I mean we just see fabulous opportunities. I mentioned it in my prepared remarks. I think we have demonstrated an ability to acquire companies really across the board from a size perspective. We've demonstrated the ability to acquire a lot of companies and to process those effectively. And our small little headquarters team here, they may have been a little bit busier than normal over the last year with these 10 acquisitions. But the beauty is because of our organizational structure now having 14 groups across three global divisions, we have the wherewithal to make sure that those acquisitions get really their due attention when they become part of Amphenol. And I think the near-term pipeline remains a very robust pipeline, and we look forward to taking advantage of that. We will always remain a very disciplined buyer as we have forever. I am willing to walk away at the very last moment, if I have to, if something we find is not to our liking. We'll always pay a reasonable price, a fair price for great companies. We may not always be the highest priced buyer, but I think we are often the best buyer because of our effectiveness, our willingness to work aggressively to get things done. And the fact is our organizational structure allows those newly acquired companies to become part of Amphenol in a very unobtrusive fashion. They joined seamlessly. They come in and on day one. They just keep operating like they were doing on all the days before. And that is a relatively low-risk approach to acquisition, because we're not going in and just over -- just sort of having these kind of convulsive restructurings of the company, where you run the risk of destroying what you didn't even know you had. So we look forward to continuing to have great acquisitions in the future, but we're not going to be a kind of a system-level company. We know what we are. We're an interconnect company. There are wonderful opportunities for interconnect products to be expanded, both organically and through acquisition going forward, lots of really attractive companies out there, and we'll continue to position ourselves so the ones that match with us, the ones that go through our really rigorous kind of Rubicon of deciding whether or not to buy them, we'll be in a good position to execute on those over the near, medium and long term.

Chris Snyder:

Thank you. I wanted to follow up on some of the earlier conversation on AI. So it sounds like book-to-bill for AI moderated sequentially, maybe after some early outsized orders just given the company's foundation in that market. So I guess the question is, do you think that this moderation is a single quarter phenomenon? Or would you expect that to persist for multiple quarters? Because it does seem like the top line is still continuing to grow sequentially? Thank you.

Operator:

Our next call is Joseph Giordano with TD Cowen. You may go ahead.

Craig Lampo:

About earlier that our book-to-bill was 0.95:1 for the quarter. Operator do we have another question.

Steven Fox:

Hi, good afternoon. I guess broadly speaking, the latest round of acquisitions were around sensors, antennas and assemblies I was just curious, like, Adam, your updated thoughts on your M&A focus by technology, especially in the context of what looks like gross margins that are now at the 33% level. I guess some of these products have lower gross margins, some have higher. I don't know if there's a mix impact that's influencing the gross margin now with the M&A. But just broadly speaking, when you -- the general buckets of technology that you look at, what is your thinking of what you've done and where you need to go now? Thanks.

Operator:

And our last question comes from Matt Sheerin with Stifel. You may go ahead.

Adam Norwitt:

Great. Thanks so much, Matt. Look, I hope what you say is the case. We certainly hope that there is a refresh. Look, I think we've talked about this year and even a little bit last year, that the strength that we've seen in phones this year, which was more than offset, in particular, by things like laptops and tablets. It had to do with the clear fact that during the pandemic and when everybody went to work from home and study from home, there was an enormous rush to buy new devices, which caused a surge and really kind of upset the normal replacement cycle of those products. And so I guess that one could expect that if everybody bought a bunch of stuff in 2020 and 2021 and if those things tend to last three, four, five years, that eventually you would hope to see a little bit of a refresh. I don't know -- I can't tell you I have any information to support that. I'm sure you're getting your information from even wiser sources than I would have. Relative to the content, we do see great content opportunities in these devices as they get more complex, as they get more different wireless standards that they have to support as they have higher speeds, as they have more fine pitch and more precision inside of them, all of these create opportunities for Amphenol long term. We've always said about the mobile device market, and that includes tablets and laptops and the like, that to the extent that there is a premium on the hardware of the product, that can create opportunities for Amphenol over the long-term. And I think that will. Whether that's related to AI or not, that I can't necessarily connect those dots, but for sure, people are going to need new devices in the future, and we'll be happy to enable the interconnect products across those devices. Well, operator, if that was our last question, I guess I'd like to take this opportunity to thank everybody here today for spending a little bit of your time with us. I wish that you all have a good continuation of your winter wherever you may be. And we look forward to talking to all of you just 90 days from now. Thanks so much.

Operator:

And this concludes today's conference. Thank you for participating. You may disconnect at this time, and have a great rest of your day.

Operator:

Hello. And welcome to the third quarter Earnings Conference Call for Amphenol Corporation. 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 objection, you may disconnect at this time. I would now like to introduce today’s conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, Craig, thank you very much, and I'd like to extend my welcome to everybody on the phone here today, and I hope that you're all having an enjoyable fall so far. It's a pleasure here in Wallingford to see the beautiful orange and red hues out of our windows. As Craig mentioned, I'm going to highlight our third quarter achievements, then discuss our trends and progress across our diversified end markets, and then I'll comment on our outlook for the fourth quarter and for the full year of 2023. Turning to the third quarter, our results in the third quarter were better than expected. As we exceeded the high end of our guidance in sales and adjusted diluted earnings per share, sales declined by 3% in U.S. dollars and local currencies, reaching just under $3.2 billion, with growth in the commercial air, military, and automotive end markets, as well as contributions from our acquisitions, which were more than offset by moderations in the mobile networks, mobile devices, IT Datacom, broadband, and industrial end markets. On an organic basis, sales declined by 5%, but sales did increase sequentially by 5% from second quarter levels. We're pleased that the company booked orders of $3.164 billion, and that represented a book-to-bill of 0.99 to 1. I'm especially encouraged that our orders in the third quarter did exceed prior year levels, and that's an encouraging sign going forward. Profitability was very strong in the quarter. We generated adjusted operating margins of 20.8%, and that was down just 20 basis points from prior year. Sequentially our margins improved by 40 basis points, and as Craig already mentioned, these operating margins in the third quarter reflected just outstanding execution by our global management team, who continued to manage dynamically and effectively, even in the face of moderating sales. Adjusted diluted EPS in the quarter was $0.78, and that declined just 3% from prior year, and increased by a strong 8% on a sequential basis. Then finally, we're very pleased with the company's cash flow generation in the quarter with operating and free cash flow of $618 million and $544 million respectively in the third quarter, clear demonstrations of the high quality of Amphenol's earnings. I come out of this quarter extremely proud of the Amphenol's team, and I'll just say that our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the dynamic and challenging environment. Our acquisition team has been extremely busy this year so far, and I'm really pleased that since our last earnings call, we've closed on three acquisitions, Connor Manufacturing, Q Microwave, and XMA Corporation. In addition, we've signed an agreement to acquire PCTEL. Since its headquarters in Illinois, Connor is a global manufacturer of power interconnect products, including especially high voltage bus bars for the automotive and industrial markets with annual sales of approximately $100 million. Based in California, Q Microwave is a designer and manufacturer of mission critical radio frequency components utilized in military platforms with annual sales of approximately $20 million. And based in New Hampshire, XMA is also a provider of RF components for the military as well as the IT Datacom market with annual sales of approximately $15 million. We're very pleased that we signed a definitive agreement to acquire PCTEL. PCTEL is a leading global provider of antennas for a broad array of markets, as well as purpose-built industrial IoT products and testing measurement solutions. We expect the PCTEL transaction to close by early 2024. I'm very excited to welcome the Conner, Q Microwave, and XMA teams to Amphenol, and I certainly look forward to welcoming the PCTEL team once that deal closes. Most importantly, I remain confident that our acquisition program will continue to create great value for the company. In fact, our ability to identify and execute upon acquisitions and then to successfully bring these companies into our entrepreneurial organization, this remains a core competitive advantage for Amphenol. Now, turning to our serve markets, we're very pleased that the company's end-market exposure remains highly diversified, balanced, and broad, and that creates great value for the company, particularly amidst these dynamic times. So, turning to each of our serve markets, the military market represented 11% of our sales in the quarter. Sales grew from prior year by a very strong 26% in U.S. dollars and 22% organically, and this was really driven by broad base strength across virtually every segment of the military market. Sequentially, our sales grew by 3%, which was better than our expectations coming into the quarter. And as we look into the fourth quarter, we expect sales to remain roughly at these robust third quarter levels, and for the full year 2023, we expect a high-teens increase in sales from prior year. With the acquisition last quarter of both Q Microwave and XMA, we further broadened our industry leading RF product offering into this important defense market. And in general, we remain encouraged by the company's strengthened position across the defense industry, where we continue to offer the market's widest range of high technology interconnect products. Amidst today's dynamic geopolitical environment, countries around the world are expanding their investments in both current and next generation defense technologies, thereby increasing the long-term demand potential for Amphenol. We're going to continue to accelerate our new product development while also increasing our capacity, and thus are well-positioned to support this increased demand long into the future. The commercial aerospace market represented 4% of our sales in the quarter, had another really strong quarter with sales increasing by a very robust 40% from prior year and 37% organically. And this was driven by broad-based strength across all aircraft applications. On a sequential basis, sales did decline by just 1%, and that was a bit better than our expectations coming into the quarter. As we look into the fourth quarter, we now expect a modest seasonal sequential decline in sales. And for the full year 2023, we expect sales to increase in the mid 30% range compared to 2022. I'm truly proud of our team working in the commercial air market. With the ongoing recovery and travel and thus demand for jetliners, our efforts to strengthen our breadth of high technology interconnect products while diversifying our market position into next generation aircraft are paying real dividends. We look forward to realizing the benefits of these initiatives for many years to come. The industrial market represented 24% of our sales in the quarter. Sales in the quarter did decline by 6% in U.S. dollars and 13% organically as growth in medical, oil and gas and rail mass transit applications was more than offset by declines in other segments of the industrial market. I did want to highlight that our sales into the distribution channel were particularly soft in the third quarter as many distributors have taken steps to reduce their inventory positions in the industrial market. Sequentially sales declined by 4% from the second quarter, which was somewhat worse than our expectations coming into the quarter. Looking into the fourth quarter, we expect sales to moderate slightly from these third quarter levels. And for the full year 2023, we expect sales to be roughly flat versus prior year as some organic moderations are offset by the benefit of our acquisitions. Despite this near-term demand pause in the industrial market, I continue to remain so proud of our outstanding global team working in this important area. They continue to pursue growth opportunities across the many exciting segments of this truly diverse market. And I remain confident that our long-term strategy to expand our high technology interconnect, antenna and sensor offering, both organically and through complementary acquisitions, has positioned us to capitalize on the many revolutions that will no doubt continue to occur across the industrial electronics market. The automotive market represented 23% of our sales in the quarter, and sales grew by a very robust 13% in U.S. dollars and 12% organically. This was driven by broad-based strength across most automotive applications, including electric and hybrid electric vehicle platforms. Sequentially, our sales increase by 7% from the second quarter, and this was much better than our expectations that we had coming into 3Q. For the fourth quarter, we expect sales to remain roughly at these levels, and for the full year 2023, we expect sales to increase by approximately 10% compared to prior year. I'm really proud of our team working in the automotive market. Their performance so far this year is yet another confirmation of the benefits of their focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles, including electrified drivetrains, as well as a multitude of other exciting new applications. With the addition of Connor to the Amphenol family, we now have an even broader array of products for global electric vehicle manufacturers, and we look forward to benefiting from this position for many years to come. The mobile device market represented 10% of our sales in the quarter and our sales moderated by 20% in U.S. dollars and 18% organically, as strong growth in smartphones was more than offset by declining sales of products that are incorporated into laptops, tablets, and wearables. On a sequential basis, our sales increased by a much stronger than expected 25%, and that was really driven by higher than expected sales in smartphones and wearables. Looking to the fourth quarter, we expect sales to moderate in the high single digits sequentially. As strong growth in smartphones, we expect to be more than offset by continued declines in laptops and wearables. For the full year, we anticipate sales to decline in the mid-teens compared to 2022. While there's no question that mobile devices remains our most volatile and market, our team once again in the third quarter did an outstanding job of capitalizing on opportunities to realize incremental sales. Their agility and ability to adjust resources in real time with the changing levels of demand continues to create value for Amphenol. As we head into the end of 2023, our team stands poised as always to leverage their leading array of antennas, interconnect products, and mechanisms to capture any opportunities for incremental sales that may arise this year and beyond. The mobile networks market represented 3% of our sales in the quarter. Sales declined by 35% in U.S. dollars and 43% organically as we continued to manage through a broad base reduction in spending by network operators and wireless equipment manufacturers. On a sequential basis, our sales declined by 6%, which was a bit worse than our expectations coming into the quarter. For the fourth quarter, we expect sales to decline in the mid to high single digits sequentially, and for the full year, we anticipate moderation sales in the sort of mid 20% range versus 2022. Despite this more challenging short-term wireless investment environment, our team continues to work aggressively to realize the benefits of our efforts to expand our position in next generation 5G equipment and networks around the world. When customers once again drive renewed investments in these next generation systems, we look forward to benefiting from the increased potential that comes from Amphenol's unique position with both equipment manufacturers and mobile service providers. The IT datacom market represented 20% of our sales in the quarter, and while sales did decline by 12% in U.S. dollars and organically from prior year, our performance in the quarter was actually much better than we'd expected 90 days ago. In fact, on a sequential basis, our sales increased by a strong 13% in the third quarter, much better than previous expectations. The growth in our sales from the second quarter was driven by an accelerating surge in demand from customers who are making significant investments in AI data centers. We also continued to see robust orders for AI related applications, a confirmation of our team's success in positioning Amphenol as a leader in the complex interconnect systems that support alternative intelligence or artificial intelligence. As we look towards the fourth quarter, we expect sales to remain at these third quarter levels, and for the full year 2023, we expect the mid-teens decline in sales compared to prior year. While we've certainly had to manage through the inventory adjustments in the broader IT market, I am more encouraged than ever by the company's position in the global IT datacom industry. This revolution in AI is creating a true and unique opportunity for Amphenol, given our leading high-speed and power interconnect products. With machine learning applications driving a more intensive usage of our highest technology interconnect products, we're very well-positioned for the future. In addition, our team just continued to do an outstanding job developing leading high-speed power and fiber optic interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance. This creates a continued long-term opportunity for the company. Finally, the broadband market represented 5% of our sales in the quarter, and sales were down 8% in U.S. dollars and organically as broadband operators continued to moderate their procurement levels. On a sequential basis, sales were down by 6% in line with our expectations coming into the quarter. For the fourth quarter, we expect the modest sequential increase in sales, and for the full year 2023, we expect sales to decline in the mid-single digits from prior year. Regardless of the current demand dynamics, we remain encouraged by the company's position in the broadband market. We look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high-speed data applications to homes and businesses. In addition, we're very well-positioned to benefit from the broad array of government-funded initiatives, particularly in North America, thereby giving us confidence for the future. Now, turning to our outlook, there's no question that the current economic environment remains uncertain, and assuming market conditions do not meaningfully worsen, and also assuming constant exchange rates. For the fourth quarter, we expect sales in the range of $3.090 billion to $3.150 billion, and adjusted diluted EPS in the range of $0.75 to $0.77. This would represent a sales decline of 3% to 5%, and an adjusted diluted EPS decline of 1% to 4% compared to prior year. Our fourth quarter guidance also represents an expectation for full-year sales of $12.317 billion to $12.377 billion, and full-year adjusted diluted EPS of $2.94 to $2.96. This outlook represents full-year sales and adjusted EPS declines of 2% and 1% to 2%, respectively. I'm very confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current dynamic environment, and to continue to grow Amphenol's market position while also driving strong profitability. In addition, I just want to reiterate that our entire Amphenol team around the world remains committed to delivering long-term sustainable value. And I would like to finally take this opportunity to thank each and every one of our 90,000 employees around the world for their truly outstanding efforts here in the third quarter. And with that operator, we'd be very happy to take any questions.

Amit Daryanani:

Thanks a lot. I guess, Adam, maybe for you, I hope you can just talk a little bit about, what are you hearing from your customers broadly? And really on the industrial side, given the ongoing macro-voluntary, I hope you talk about the distributors side is somewhat weaker, but what are you hearing from the OEM or the trend that OEM is much different than what you're seeing in the channel? And how do you see that kind of pan out maybe into December quarter and beyond that, especially if you think about the inventory normalization?

Operator:

Thank you. Our next question is from Chris Snyder with UBS. You may go ahead.

Adam Norwitt:

Thanks very much, Chris. Appreciate it. Look, I think we're really excited about where we are with our customers in AI. And I'll just put some historical perspective on this. I mean, we've been working on the innovation of products that ultimately support AI for many, many years. This is not like, all of a sudden, something like ChatGPT shows up in the newspaper and we started frantically developing products. We've been working with customers for a long time on the type of products that uniquely are required for an AI processing system. And we talked a little bit about this 90 days ago, but the nature of an AI system, the fact that it is a neural network based system, where you have these very high power chips that all have to talk to each other across a fabric like architecture, just means that there's a uniquely larger component of interconnect to allow those shifts to ultimately talk to each other. And the requirements of that, those interconnect products, both from a speed, a latency perspective, not even to mention the significant power requirements that go into these AI data centers, which consume dramatically higher levels of power, and thereby require higher technology, higher efficiency types of power interconnect to ensure that these AI data centers aren't just chewing up all the electricity in America, for example. These are really challenging and exciting opportunities where we've been investing in new product development for many, many years. It's clearly ramping. I talked about the fact that really, I would say all of our sequential growth from Q2 to Q3 came from AI. And as you recall, we had already a decent amount of AI business in the second quarter. And we don't split that out. We already talked about end markets, and we don't necessarily talk about every little sub component of that. But I would just tell you that it's a very significant opportunity for the company long-term, medium-term, and short-term as it's really driving that sequential growth that we've seen both in the second quarter and then the follow on sequential growth that we got here in the third quarter. What is the long-term of AI going to be? I don't think anybody knows the answer to that. But I think we all know that it's going to change a lot of things. And there's no doubt that the investments that are being put into these AI data centers, which are not -- these are not amounts that are for the faint of heart. They're going to really have dramatic impact on a lot of the ways that we interface and interact with and use data networks and data systems. And we're just really excited to be able to play our portion of that to enable these next generation systems. As it relates to the kind of non-AI and the inventory correction that we certainly have talked about for nearly four quarters, I would tell you that as we look into the fourth quarter, I think we feel that it's largely behind us, that inventory correction. Now, you could also say that some of the AI investments are “cannibalizing” some of the non-AI investments. I think there's plenty of people discussing from that vein. But I think the inventory positions have become much healthier today. And now it's all about investing in this exciting new revolution of AI and figuring out how to do that in effective fashion. And from an interconnect perspective, we're really standing right there in the front of the line, making sure that our customers have what they need.

Luke Junk:

Good afternoon. Thanks for taking the question. Adam, you've done what I would consider to be a few higher degree of difficulty deals in the past couple of years, namely a public company and MTS and heavier cost work with RFS. And now another public company in your agreement to acquire PCTEL. Just wondering how much new muscle, if you will, the organization has grown, in terms of integrating deals like this, especially public companies. And just what it might mean for the acquisition funnel going forward in terms of the prospects that you're looking at? Thank you.

Operator:

Thank you. The next question is from Andrew Buscaglia with BNP Paribas. You may go ahead.

Adam Norwitt:

Yes. Nice to meet you too, Andrew.

Adam Norwitt:

Yes. Well, Andrew, thanks again and welcome to the, welcome to the call here. Not so often we get a new analyst. So, it's a pleasure to have you here. Look, the automotive market is a really exciting one for the company. I'm just so proud of our team working in the automotive market, results that they've driven in what has not been an easy environment, quite the contrary. Growing last quarter by 12% organically, I mean, you will recall that last year we grew by 29% organically in a market that was essentially flat to down in units. And if you look at the long-term performance of our automotive company over the nearly 15 years that I've been CEO, I still remember very well, my first quarter is CEO. And, by the way, this is my 60th of these earnings calls as CEO. In my first one of those, we had an automotive business that was 5% and our overall sales were $660 million that quarter. So, that's $33 million, $35 million, and here we are this quarter at close to $3.2 billion in our automotive market, 23% of sales. And I think we've just done a fabulous job over those years, not of taking market share out of the hands of incumbents, but of enabling new electronic systems as they were adopted in cars over that decade and a half. And I think you've just seen a collection of revolutions in the automotive industry, the most prominent and most recent of which being the electrification of vehicles. But that's not the only thing. I mean, there's so many new systems being put into these cars. And each time there's an opportunity for us to intersect those with high technology interconnect sensors and antennas. And I think our team's done a great job of that. How is that going to go into 2024? Again, I think I said this already on the call, nine days from now we'll try to give everybody a decent sense of where we think at least the beginning of 2024 is headed. But I say no reason to say that we will not continue to maintain our outperformance that we have been so consistently delivering really over a decade and a half during this time period. I'm just really proud of our team working on automotive and I'm really pleased with the broad array of technologies for all these exciting new applications in the car.

Wamsi Mohan:

Yes. Thank you so much. Adam or Craig, I was wondering if you could talk about some of the puts and takes on operating margins as we look out over the next quarter. At the midpoint of the revenue guide, you would be absorbing almost $24 million of decremental margins of operating profit and you're also absorbing impact of M&A from three new deals and three prior deals. So when we look at your guide, it's clearly reflecting a much better outlook than that. So A, is the assumption around decremental margins, still the same as historical or have you made changes in the business that's creating less lower decremental margins? And B, as we think about sort of that operating guide, which is so resilient, what are some of the other drivers that are enabling you to do that? Thank you.

Operator:

Thank you. Our next question is from Samik Chatterjee with JPMorgan. You may go ahead.

Adam Norwitt:

Yes, well, thank you very much, Samik. I mean, look, I think we just talked about the auto market and we've been consistently outperforming the overall auto, whatever you want to call it, unit volumes or whatever markets that you want to talk about. I guess when we talk about orders from year-over-year perspective, more broadly in the company, yes, we were this quarter on a year-over-year basis higher in our orders than last year, and that was the first time in four quarters. And I think that that should translate eventually to year-over-year growth. I think we've guided for next quarter in a certain way, and we're going to keep fighting for that and we'll guide for the first quarter at the same time when we come to that 90 days from now, and you can imagine that our team is very focused on returning to growth, and we don't love having it be down this quarter. We don't like having it be down next quarter, and we don't like having it be down last quarter either, and there's a whole Amphenol team around us that's fighting for that. When you look across our end markets, one of the beauties of the diversification of the company is that we have end markets which are growing substantially already, and we have others though which are down because of the various reasons that we've talked about. And so, when you think about, for example, IT datacom which was down quite significantly last quarter, I think it was something like 20%, 24% or so, and then this quarter down 12%, I think at our current guidance, that would be pretty close to prior year, plus or minus. And so that's a sign, I think, of that returning to the growth trajectory that we would for sure look forward to seeing across the company.

Mark Delaney:

Yes. Good afternoon and thank you very much for taking my question. I have one on mobile networks. Do you think 6G is needed for that business to reaccelerate, or can other opportunities like Open RAN, Industrial 5G, and Wireless 5 Band to be enough for the catalyst, and perhaps some combination of those along with the inventory reductions?

Operator:

Thank you. The next question is from Will Stein with Truist Securities. You may go ahead.

Adam Norwitt:

Yes, well, thanks very much, and look, we're really excited about the PCTEL acquisition, and PCTEL, we've known them for many, many years as a really broad and very successful antenna company, probably a little too small to be a public company, and that's certainly one thing I would say. And yes, they have a small test and measurement business, but we're really excited about this company, and we look forward to working to bring it to its closure, and I probably wouldn't say more about it given that we've just signed the deal.

Steven Fox:

Hi, good afternoon. I was wondering if I could get a little bit more color on the smaller M&A deals that you did during the course of the series on RF, it seems Adam, you already have such a great position in RF. I can't imagine what else you need to acquire. And then secondly, on busbars, which it seems like busbars, it's a sleepy technology that's getting more attention lately. Can you talk about why you did those deals? Thanks.

Operator:

Thank you. Our next question is from Matt Sheerin with Stifel. You may go ahead.

Adam Norwitt:

Yes. Thanks very much, Matt. I think you correctly stated the case here, which is, we've actually had a pretty good year in smartphones and our team's done a fabulous job there. But no doubt there's been a digestion period in the other devices in particular, the devices like tablets and laptops and the like. And I think what we've seen over this pandemic impacted kind of last four years is there was an unusual surge and a kind of disruption of the normal buying patterns of these devices, because when everybody got sent home either to work or to study or however they wanted to interact, they had to get new devices to do that. And there was just a massive surge in the consumption of those devices at the end of the day. And I think there's still a digestion from that. What is it going to be next year? I mean, look, I have a hard time guiding this market 90 days out. I'm generally wrong when I do that, and I certainly wouldn't get ahead of my speed and try to guide it for next year. But of course, at some point, that digestion of that surge of demand for those kind of devices, you would hope would normalize and I would expect that it would normalize that. I mean, I know for sure my own devices, I'm probably getting them. I run them a little longer than most, because we're pretty cost conscious here at Amphenol. But even a couple of my devices, I'm starting to think about whether I need to get a new one.

Unidentified Analyst:

Hey, good afternoon. This is Michael on for Joe.

Unidentified Analyst:

So recently, there's been a few like noteworthy EV and like semi-plant construction or equipment delays. So we're just curious on how like the cadence of these projects influence internal decision making or guidance, whatnot?

Adam Norwitt:

Well, operator, I think that's our last question. And once again, on behalf of Craig and I and our whole 90,000 team around the world, we'd like to just thank everybody for your time today. We wish you all the best and wish that you and your families all stay safe. Thanks so much.

Operator:

Thank you for attending today's conference. And have a nice day.

Operator:

Hello. And welcome to the Second Quarter Earnings Conference Call for Amphenol Corporation. 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 objection, you may disconnect at this time. I would now like to introduce today’s conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, thank you very much, Craig, and I’d like to extend my welcome to all of you here on the phone today on this beautiful summer day here in Wallingford, Connecticut. And I do hope that all of you on the call, together with your family, friends and colleagues are enjoying a little bit of your summer thus far. As Craig mentioned, I am going to highlight some of our achievements in the second quarter. I will then spend a moment to discuss our trends and the progress across our served markets and make some comments on our outlook for the third quarter, and then obviously, we will have time for questions at the end. With respect to the second quarter, our results were better than expected as we exceeded the high end of our guidance in sales and adjusted diluted earnings per share. Sales declined 3% in U.S. dollars and 2% in local currency reaching $3,054 million, with growth in commercial air, military and automotive end markets, as well as contributions from our acquisitions, slightly more than offset by moderations in the mobile networks, IT datacom and mobile devices segments. On an organic basis, sales did decline by 4%. We are very pleased that the company booked orders in the quarter of $3.44 billion, which represented a book-to-bill of 1:1. As Craig described, our margins in the quarter, adjusted operating margins were 20.4%, which was down 30 basis points from prior year, but which improved by 30 basis points from the first quarter sequentially. I am very pleased that our margins in the second quarter once again reflected outstanding execution by our global management team, who continue to quickly adjust to changing demand and costs amidst these very dynamic times. Adjusted diluted EPS in the quarter of 72% -- $0.72 declined 4% from prior year but increased 4% from the sequential prior quarter. We also generated strong operating and free cash flow of $536 million and $442 million in the second quarter, yet another demonstration of the high quality of the company’s earnings. I am extremely proud of the Amphenol team around the world. Our results this quarter once again reflect the strength of our Amphenolian entrepreneurial organization, as we continue to perform well amidst a very dynamic and challenging environment. We are pleased to announce today that we closed the previously announced acquisition of the North American cable and global base station antenna business of RFS. Despite some current moderation in the mobile networks market, we remain excited about the long-term prospects of RFS as part of the Amphenol family. We now expect this acquisition to generate roughly $30 million of sales in the second half of 2023. In addition, we are pleased that just in the last few days, we closed on the acquisition of EBY Electro. EBY is based in the state of New York in the U.S. with annual sales of approximately $15 million. And EBY is a designer and distributor of terminal block interconnect products to the North American industrial market. The addition of EBY further expands our offering of high technology interconnect products into the diversified industrial market. As we welcome these outstanding new teams to Amphenol, we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions, and successfully bring these new organizations into the Amphenol organization remains a core competitive advantage for us. Now turning to the trends and progress across our served markets. We are very pleased that the company’s end market exposure remains highly diversified, balanced and broad. In particular, in hits these very dynamic times, Amphenol’s end market diversification continues to create great value for the company. The military market represented 12% of our sales in the quarter and sales in this market grew by a very strong 21% in U.S. dollars and 19% organically, and this was really driven by broad-based growth across most segments within the defense market. Sequentially, our sales increased by a better-than-expected 8%. Looking into the third quarter, we expect sales to remain at these robust second quarter levels. I just have to say that we remain very encouraged by the strength of the company’s position in the defense market, where we continue to offer the industry’s widest range of high technology interconnect products. Amidst today’s highly dynamic geopolitical environment, countries around the world are expanding their investments in both current and next-generation defense technologies, thereby increasing the long-term demand potential for Amphenol. We continue to make targeted investments to expand our capacity and look forward to supporting this increased demand with our broad product offering. Turning to the commercial aerospace market. This market represented 4% of our sales in the quarter and we had another very strong quarter with sales increasing by a robust 40% in U.S. dollar and organically from prior year, as we benefited from both the continued recovery in global aircraft production, as well as our ongoing efforts to expand our position within this market. Sequentially, our sales grew 9% from the first quarter, which was much better than expectations coming into Q2. We are also very pleased that in the second quarter, our commercial air business was able to reach its highest ever level of quarterly sales. Looking to the third quarter, we expect sales to moderate slightly from these strong second quarter levels and I am just truly grateful to our team working in the commercial air market. With the ongoing recovery in travel and thus demand for jetliners, our efforts to strengthen our breadth of high technology interconnect products, while diversifying our market position into next-generation aircraft are paying real dividends and we look forward to realizing the benefits of these initiatives in 2023 and beyond. The industrial market represented 26% of our sales in the quarter and sales in this market were flat in U.S. dollars and local currencies, but did decline by 7% organically, as growth in medical, transportation, oil and gas, alternative energy and rail mass transit segments was more than offset by moderations across the other segments of the industrial market together with lower sales to the distribution channel. On a sequential basis, sales declined 3% from the first quarter, which was somewhat worse than our expectations. This reflected some incremental slowing of demand from certain customers, in particular, in factory automation and heavy equipment. Looking into the third quarter, we expect sales to moderate slightly from these second quarter levels. Nevertheless, and despite this positive demand, I am very proud of our outstanding global team working in the industrial market. They continue to pursue growth opportunities across the many distinct segments of this exciting and truly diverse market. I remain confident that our long-term strategy to expand our high technology interconnect antenna and sensor offering, both organically and through complementary acquisitions has positioned us to capitalize on the many revolutions that continue to occur across the industrial electronics market. We look forward to realizing the benefits of this strategy for many years to come. The automotive market represented 23% of our sales in the quarter and sales in this market grew 9% in U.S. dollars and 11% organically. This was really driven by broad-based strength across most automotive applications, including electric and hybrid electric vehicle applications. Sequentially, our sales increased by 7% from the first quarter and this was slightly better than our expectations coming into Q2. For the third quarter, we expect sales to be roughly at the same level as we achieved here in the second quarter and I am just really proud of our team working in automotive. Their performance so far this year is yet another confirmation of the benefits of their focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles and this includes electrified drivetrains, as well as a multitude of other exciting applications. The mobile device market represented 8% of our sales in the quarter and our sales did moderate by 8% in U.S. dollars and 6% organically in the second quarter, as strength in smartphones and related products was more than offset by declines in tablets and wearables. Sequentially, our sales increased by 3%, which was substantially better than our expectation for a mid-teens decline that we had coming into the quarter. As we now look into the third quarter, we anticipate sales to increase sequentially in the mid-teens from these second quarter levels on seasonal strength. While there’s no question that mobile devices remains our most volatile of end markets, our team once again in the second quarter did an outstanding job of capitalizing on opportunities to realize incremental sales. Their agility and ability to adjust resources in real time with the changing levels of demand continues to create value for Amphenol. As we head into the second half of 2023, our team stands poised as always to leverage our leading array of antennas, interconnect products and mechanisms to capture any opportunities for incremental sales that may arise this year and beyond. The mobile networks market represented 4% of our sales in the quarter. Sales declined by 24% in U.S. dollars and 32% organically as we manage through the expected and broad-based weakness in spending by network operators and wireless equipment manufacturers. Sequentially, our sales in the second quarter declined by 6%, which was a touch better than our expectations coming into the quarter. Looking to the third quarter, we now expect sales to remain at roughly similar levels as we achieved here in the second quarter. Look, there’s no doubt that it’s a challenging short-term wireless investment environment. But nevertheless, our team continues to work aggressively to realize the benefits of our efforts to expand our position in next-generation 5G equipment and networks. With now the addition of RFS together with our already broad array of products, when customers once again drive renewed wireless investments, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The IT datacom market represented 18% of our sales in the quarter and while sales did decline by 24% in U.S. dollars and organically from prior year, our performance in the quarter was actually better than we had expected 90 days ago. In fact, on a sequential basis, sales increased by 6%, which was in excess of our expectations for sales to be flat. This sequential uptick in sales was driven by a surge in demand from customers accelerating their investments in AI-focused systems or alternative intelligence -- artificial intelligence, which offset somewhat weaker demand in more traditional markets. We also saw robust orders for AI-related applications, which is a strong affirmation of our team’s success in positioning Amphenol as a true leader in the interconnect systems that support AI. Looking to the third quarter, we expect sales to increase modestly from these second quarter levels. While we are continuing to manage through the inventory adjustment in the broader IT market, we are more encouraged than ever by the company’s position in this important space. Whether enabling the current surge in AI-related installations or the broader range of Internet-enabling networks, our team has done an outstanding job developing leading high speed, power and fiber optic interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance. This creates a continued long-term opportunity for Amphenol. The broadband market represented 5% of our sales in the quarter and sales were flat from prior year and up just 1% organically as broadband operators tempered their procurement levels. On a sequential basis, sales declined by 2%, which was modestly better than our expectations. Now looking into the third quarter, we do expect a mid-single-digit sequential decline in sales as operators moderate their spending following several quarters of strong demand and investments. Regardless of this momentary pause in demand, we do remain encouraged by the company’s strengthened position in the broadband market and we look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high speed data applications to homes and businesses. In addition, there remains a significant amount of government funded initiatives, particularly in North America, which gives us confidence for the future of the broadband market. Now turning to our outlook and assuming the current market environment does not meaningfully worsen and also assuming constant exchange rates. For the third quarter, we now expect sales in the range of $3.040 billion to $3.100 billion and adjusted diluted EPS in the range of $0.72 to $0.74. This would represent a sales decline of 6% to 8% and an adjusted diluted EPS decline of 8% to 10% compared to the third quarter of 2022. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow our composition while driving sustainable and strong profitability over the long-term. Finally, and really most importantly, I’d like to take this opportunity to thank the entire Amphenol team around the world for their truly outstanding efforts here in the second quarter. And Operator, at this time, we would be very happy to take any questions that there may be.

Luke Junk:

Good afternoon. Thanks for taking the question. Adam, given all of the attention on AI recently. Just was hoping you can help us better understand the materiality to Amphenol based on what you look, so far amid what you are calling the surge, I guess. Quantitatively, I am thinking in terms of percentage of sales, either relative to IT datacom or maybe even relative to the company, overall? And then qualitatively, just any perspective on sizing the longer opportunity -- longer-term opportunity from your point of view given what’s clearly very early innings right now and just understanding how it’s scaling in the business near term would be very helpful? Thank you.

Operator:

Thank you. The next question is from Samik Chatterjee with JPMorgan. You may go ahead.

Adam Norwitt:

Yeah. Thank you very much, Samik. I think we talked at least last quarter about the fact that we started to see some signs of a little bit of -- some early signs of a little bit of inventory in the industrial market including with our distributors. And no doubt about it, when we look at our results here in the second quarter, where we weren’t in U.S. dollars flat, but organically, we were down by 7%. There is some element of that which comes from distributors managing a bit more of their inventory across the industrial market. And then there are a few segments of the industrial market where I think it’s been well reported that there’s a bit of softness in area like factory automation, on a year-over-year basis, something like instrumentation, where even if there’s been this euphoria around semiconductor capital equipment, for example, there have also been pockets of that market where you have seen real pullbacks in CapEx. I think it’s a market where long-term, there’s a great degree of optimism about the long-term in semiconductor equipment, but there are some short-term vacillations that have been going on in the last quarter or two. Those are areas that maybe I would highlight. I think that our position in industrial remains very broad. We continue to have parts of the industrial market that are performing extremely well. In fact, we saw great growth in areas like rail mass transit, alternative energy, even oil and gas, believe it or not, medical continues to be a very strong area for us. And a credit to our team for never going kind of all in on any one segment of the industrial market, but rather continuing that long-term drive to be as present as possible with the broadest range of products as possible. And to the extent that -- to your question about how long that cycle, may be hard for me to guess. I mean I think we have had similar questions about IT datacom in the past. Here, I think, you have certainly some correction that is happening with distributors, whether that is a one quarter, two quarter, three quarter, hard for me to guess and we will certainly let you know as soon as we have a better view of that.

Mark Delaney:

Yes. Good afternoon and thank you for taking my question. Is there anything in particular that has been helping gross margins such as price/cost mix or the integration of acquisitions or the gross margin in 2Q was at the highest in about five years, even as a handful of end markets are still soft. So I am hoping to better understand what may be positively impacting margins and then any color you can see on how to expect either gross or EBIT margins to trend going forward?

Operator:

Thank you. The next question is from Abdullah Khan with Evercore. You may go ahead.

Adam Norwitt:

Yeah. Thank you very much, Abdullah. Honestly, we don’t have a good read on the auto OEM inventory, whether that’s overbuilt or whether they are taking it down. I think what we know is that what our customers are taking from us and what we are able to support them with, and in the quarter, we were able to have a very strong -- yet another very strong quarter in automotive, growing by 9% in U.S. dollars and 11% organically. And I think that’s just a testament to our team’s continued success in developing new products that go on new applications in the car. And so, to the extent that there is some vacillation that should come, if automakers decide to take more inventory or less inventory if they sell more cars or less cars, I mean, these are kind of things that are what they are. But what we can control is our position on these new applications on things like electrified drivetrains, on things like advanced safety, on things like advanced communication and so many other new applications going into cars. I mean I just got a new car recently and I still after a couple of weeks haven’t figured out half of what the darn thing can do. And it just reminds me how many new systems are put into these cars, how many new applications and how much content for new products that weren’t previously in a car. And we are seeing products being sold into cars that in the past, we were selling things that went into computers or to other advanced systems and all of a sudden they are being repackaged and repurposed to go into these cars where the continued growth in content is really explosive. And so I don’t know, was inventory going down a little bit this quarter when we were going up 11% organically, maybe others have a better read on that than we do. But for sure, we continue to see strong momentum in automotive, and I think next quarter, we have once again a strong outlook in this market, and that’s after several years of real outperformance to any comparable measure.

Wamsi Mohan:

Yes. Thank you so much. Adam, I know you mentioned it’s a hard market to nail down seasonality, but if you think about seasonality in mobile devices and where you are guiding to in the mid-teens, that’s the lowest level since 2016. It’s at least 15 points below what you typically guide, or well, typically achieve anyway and when I sort of look at even 2016, that was a year where 2Q grew in the mid-teens, and you were coming off a much stronger base. So can you help us think through maybe what you are seeing today in terms of what seasonality it feels as though, at least from what we hear, at least on the PC side, there is a sequential improvement. So just wondering what the puts and takes are that you are seeing that’s causing you to guide to good mid-teens over here? Thank you.

Operator:

Thank you. The next question is from Matt Sheerin with Stifel. You may go ahead.

Adam Norwitt:

Yeah. Thanks very much, Matt. No doubt about it, our team working in the military aerospace market or defense market, as I actually call it a lit bit often these days, is doing a great job. And it’s interesting, we track, I don’t know, kind of 10 or a dozen different sub-segments of that market. And about three quarters or even closer to like eight out of 10 of those markets grew in very strong double digits on a year-over-year basis last quarter, with just a couple of them a little bit lower performance. And it just reflects the real breadth of our position and the breadth of investments that countries around the world are making in new defense technologies. I mean, look, I look every day at what’s happening with the tragedy in Ukraine. I looked with some anxiety at some of the other geopolitical tensions that are around the world. At the same time, I think, we at Amphenol look in the mirror and we feel very positive about the role that our team is directly playing in ensuring that the free people of the world get to remain free. And that reactivity of our team to grow by 19% organically on a year-over-year basis in a market with a product set that is not an easy product set to scale. I mean, these are products that are very complex to manufacture. They require an immense amount of qualifications and adherence to standards. They are very vertically integrated. And so to flex one’s capacity in this market as we have done is really an extraordinary and one that is not lost on our customers in terms of our ability to really do what it takes and our willingness to invest when need be and to flex whenever possible to satisfy this really kind of existential demand that we are seeing in many cases. As I look forward in the defense market, I think, for better or for worse, I think, we are in an era today of more anxiety, more dynamics where more and more the nations that are allied with our country, with the Europeans and others are having to invest more significantly than ever before in next-generation defense technologies. And is the broadest manufacturer of those products, both having the broadest product line in the deepest technologies, we are ready and able to support that as much as possible. We will see, I mean, we are guiding here in the third quarter to a kind of similar levels in what is traditionally a softer third quarter from a seasonality perspective and our team stands ready to react whenever needed. And every day we watch the pictures coming from Ukraine and while we have a tear in one eye, we also have a pride in our belly of the part that we are doing to help those people stay free.

Steven Fox:

Thanks. Good afternoon, Adam. I was just hoping to circle back a little bit more on the industrial markets. I mean the macro data is looking worrisome, but I am trying to understand how much of your sales on to like factory plant floors is under pressure, maybe where there’s some good signs and how long of a decline you are thinking looking at that just industrial factory sales? Thanks.

Operator:

Thank you. The next question is from Chris Snyder with UBS. You may go ahead.

Adam Norwitt:

Yeah. Thanks so much, Chris. I mean, look, these are really hard products to make, let’s start from that. To have a high speed interconnect product, be it a cable assembly, an IO connector, a backplane connector, a cable backplane system, whatever it may be, these are extraordinarily complicated products to make where the underlying technology to make them take years to develop, the manufacturing processes are extremely challenging to make these things. And so you are correct, there is a very small universe of companies and we have strong competitors, there’s no doubt about it, who we respect, no question. But it is a relatively confined universe of companies who ultimately have put in the decades. And I call it really decades of investments in the engineering competency, the test and the validation of those products and all of those things, which ultimately allow one to make a reliable product that can support these next-generation complicated AI learning systems. Our position, look, we are the world leader in high speed interconnect technology. That’s something that we are very proud of and that we continue to be very carefully building upon over the years and that position, I think, is a robust one for as AI investments continue.

Joe Giordano:

Hey. Good afternoon, guys. Just curious if you can give some color or kind of update on how your mix in auto regionally has shifted over time. Just given the growth that you have had over the last several years? Just commentary like you expect 3Q to be kind of similar to 2Q, but production is supposed to be down sequentially like 5%. So I am just curious if some of that is just content you are winning or some of that is regional shifts and you are participating more in faster growth markets than you used to, just any color there would be helpful?

Operator:

Thank you. And our last question comes from Will Stein with Truist Securities. You may go ahead.

Adam Norwitt:

Yeah. Thanks very much, Will. Look, I think, I mentioned in my prepared remarks that, while we do see a temporary pause. I mean, we have had really strong growth in broadband over the last year. I mean, last year alone, we grew by 62% in U.S. dollars and 38% organically, and yes, I mean, in the second quarter, we were flat and we guided it to be a little bit down sequentially in the third quarter. But no doubt about it, we are benefiting not just from the demand for customers around the world for higher speed connectivity to their homes and businesses, but also from the government funding that is going into this. And in particular, you mentioned RDOF, there’s also BID [ph]. Both of these initiatives in North America are very significant, and by the way, long overdue from my perspective. I mean we live in a world where connectivity to the Internet becomes not just a nice thing to have, but it is really -- it is a kind of thing that you must have, it’s like electricity and access to water and indoor plumbing, having the plumbing to the Internet is critical. You try to look for a job if you don’t have the Internet. Try to apply for a government benefit if you don’t have access to the Internet. It’s essentially impossible these days. And so I think it’s a really noble cause that is there to build access some of the remotest areas of our country, so that all people can have equal access to high speed, low latency Internet and all what comes along with that. And we are very happy to play our part in that, and to benefit from that over the long-term and this temporary pause that is going on right now, I think, is just that. And we look forward over -- in the coming years as that money does necessarily get spent by governments, as well as by the private sector that will be a strong participant and enabler of the broadband revolution.

Adam Norwitt:

Well, thank you all so much for your time today. We appreciate everybody’s time on this hot summer day and I hope it’s not too late to wish all of you a nice summer. And I hope that you will have a little bit of chance to get some downtime as we get into the end of July and August, and we look forward to speaking to all of you in the fall in just 90 days. Thanks so much.

Operator:

Thank you for attending today’s conference and have a nice day.

Operator:

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. 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 turn – introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, Craig, thank you very much, and allow me to extend my welcome to all of you on the phone here today. And I hope you all are all enjoying a lovely spring so far. As Craig mentioned, I'm going to highlight some of our achievements here in the first quarter. I'll then discuss our trends and progress across our served markets, and then make some comments on our outlook for the second quarter. And then, of course, we'll have time for some questions at the end. With respect to the first quarter, our results were stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Our sales grew from prior year by 1% in U.S. dollars and 3% in local currency, reaching $2.974 billion. On an organic basis, our sales increased by 1%, with growth in commercial air, broadband, military, automotive and industrial markets, largely offset by declines in the IT datacom, mobile networks and mobile devices markets. The company booked just under $2.9 billion in orders in the quarter, representing a book-to-bill of 0.97:1. Our operating margins, adjusted operating margins in the quarter reached 20.1%, and that was a 10 basis point increase from last year's levels. As Craig just mentioned, we achieved a still very robust level of profitability despite the ongoing cost challenges around the world, as well as declining volumes in many of our communications markets, and this is just an excellent reflection of the strength of our company's execution in these very dynamic times. Adjusted diluted EPS grew 3% from prior year to $0.69, and we generated strong operating cash flow of $532 million and $436 million, respectively, in the quarter, all clear demonstrations of the high quality of Amphenol's earnings. I'm just extremely proud of our global team of Amphenolians around the world. The company's results this quarter once again reflects the discipline and agility of our uniquely entrepreneurial organization as we continue to perform well in a very dynamic and challenging environment. Now turning to our progress across our various served markets, I would just comment that we remain very pleased that our end market exposure is still highly diversified, balanced and broad. This diversification continues to create great value for Amphenol because it enables us to participate across all areas of the worldwide electronics industry, while not being disproportionately exposed to the risk associated with any given market or application. So with that said, the military market represented 11% of our sales in the quarter. And sales in this market grew from prior year by a strong 15% in U.S. dollars and 16% organically. And this was really driven by broad-based growth across most segments within the defense market. Sequentially, our sales increased by 2%, which was in line with our expectations coming into the first quarter. And as we look into the second quarter, we expect sales to increase modestly from these first quarter levels. We remain very encouraged by the strength of the company's position in the defense market, where we continue to offer the industry's broadest range of high-technology interconnect products. As the geopolitical environment has become certainly more dynamic, nations around the world are expanding their investments in next-generation defense technologies, thereby increasing the long-term demand potential. We look forward to supporting this increased demand with our wide array of interconnect and sensor products, together with our expanded capacity, resulting from the investments that we've made in recent years. The commercial aerospace market represented 4% of our sales in the quarter, and sales increased by a strong 42% from prior year and 44% organically as we benefited from the continued recovery in global aircraft production. And while aircraft production may not yet be back to the levels that it was before the pandemic, we are very pleased that after several very challenging years in this market, our team has driven our sales essentially back to pre-crisis levels, a really great achievement. Sequentially, our sales grew by a much better-than-expected 15% from the fourth quarter. And as we look into the second quarter, we expect sales to remain at these first quarter levels. I'm just so grateful to our team who works in the commercial air market. With the ongoing recovery in travel and thus demand for jetliners, our efforts to strengthen our breadth of high-technology interconnect products, while diversifying our market position into next-generation aircraft, are paying real dividends. And we look forward to realizing the benefits of these initiatives here in 2023 and beyond. The industrial market represented 28% of our sales in the quarter. And our sales in this market grew from prior year by 11% in U.S. dollars, 14% in local currency and 5% organically. This growth was driven, in particular, by sales into traditional and alternative energy generation, heavy equipment, rail mass transit, factory automation and medical applications, together with contributions from our acquisition program. On a sequential basis, sales were up 2% from the fourth quarter, which was a bit better than our expectations. And as we look into the second quarter, we expect sales in the industrial market to remain at similar levels as we saw here in the first quarter. Our outstanding global team working across the industrial market, continues to find new opportunities for growth across the many distinct segments of this exciting and truly diverse market. I remain confident that our long-term strategy to expand our high technology interconnect antenna and sensor offering both organically and through complimentary acquisitions has positioned us to capitalize on the many revolutions that are happening around the industrial electronics market. We look forward to realizing the benefits of this strategy for many years to come, the automotive market represented 22% of our sales in the quarter, and sales in the first quarter grew 9% in U.S. dollars and 14% organically with our growth supported once again by strength of our sales into electrified vehicle applications, together with other products sold into a wide array of new electronic systems in cars. While sales in Asia were slightly down from prior year, we realized strong growth in North America and Europe in the automotive market. Sequentially, our sales declined by 5% from the fourth quarter, which was a bit better than our expectations coming into the quarter, and that just reflected strong execution by our team in reacting to opportunities with customer demand. For the second quarter, we expect a modest sequential increase in sales from these levels. And I just have to say that I remain truly impressed by our team working in the automotive market. They continue to grow our global position by remaining focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. In particular, our long-term efforts at expanding our now comprehensive range of next generation interconnect products that are incorporated into electrified vehicles has enabled us to expand our position with a wide range of customers, all of whom are pursuing carbon neutral driving solutions and that creates further potential for the business. The mobile devices market represented 9% of our sales in the quarter, and sales declined by 15% from prior year as growth in smartphones was more than offset by declining sales into laptops, tablets, and wearables. Sequentially, our sales declined by a slightly better than expected 31% from the fourth quarter. And as we look into the second quarter, we do expect a further mid-teen sales decline from these first quarter levels. There's no question that the mobile devices market remains one of our most volatile. Nevertheless, our outstanding and agile team has adjusted their resources in real-time with the changing levels of demand and stands poised as always to capture any opportunities for incremental sales that may arise in 2023 and beyond. Our leading array of antennas, interconnect products and precision mechanisms continues to enable a broad range of next-generation mobile devices, which positions us well for the long-term. The mobile networks market represented 4% of our sales in the quarter. Sales declined from prior year by 19% in U.S. dollars and 17% organically as operators and equipment manufacturers reduced their demand after several quarters of stronger consumption. Sequentially, our sales in the first quarter were down by 11% from the fourth quarter, which was a bit more than we had expected coming into the quarter. And now as we look into the second quarter, we do expect a further low double-digit sequential decline in sales as operators further moderate their spending. Our team continues to work aggressively to realize the benefits of our efforts to expand our position in next-generation 5G equipment, as well as the networks being constructed around the world. And while there is currently seemingly a pause in the investment cycle when customers once again drive renewed construction of these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology and data communications market represented 17% of sales in the quarter, and sales did decline by 21% in U.S. dollars and organically as both service providers and equipment manufacturers moderated their demand in light of still significant levels of inventory across the market. On a sequential basis, sales declined 17% from the fourth quarter, which was a touch better than our expectation of 20% down coming into the quarter. And as we look towards the second quarter, we expect sales to remain roughly at these first quarter levels. Regardless of this current correction in demand largely due to inventory, we remain encouraged by the company's outstanding position in the global IT datacom market. Our team's just done an outstanding job developing leading high speed, power and fiber optic interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance. With exciting new applications, including in particular alternative intelligence or AI, together with the continued growth in overall data traffic, we're confident that we'll be able to realize the benefits of our leading position in this important market for many years to come. And finally, the broadband communications market represented 5% of our sales in the quarter. Sales grew by a very strong 17% from prior year and 18% organically as we experienced a significant increase in demand from cable operators for a wide range of our products. This growth was driven by increased network build-outs as well as our customers preparing for new government supported spending on expanded broadband coverage, particularly here in North America. On a sequential basis, sales declined by 15%, slightly worse than our expectations coming into the quarter. As we look into the second quarter, we anticipate a mid-single digit sequential moderation of sales from these first quarter levels as broadband operators temper their procurement levels. Nevertheless, we remain encouraged by the company’s strong and expanded position in the broadband market and we look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high speed data applications to homes and businesses. Now turning to our outlook. The current economic environment remains for sure dynamic and highly uncertain. In addition, we do expect reduce demand to continue in the second quarter across the communications related markets. Assuming market conditions do not meaningfully worsen, and also assuming constant exchange rates. For the second quarter, we expect sales in the range of $2.890 billion to $2.950 billion and adjusted diluted earnings per share in the range of $0.66 to $0.68. This would represent a year-over-year sales decline of 6% to 8% and adjusted diluted EPS decline of 9% to 12% again compared to the second quarter of prior year. Nevertheless, I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow our market position while driving sustainable and strong profitability over the long-term. Finally, I would be remiss if I didn’t take this opportunity to offer my true gratitude to our entire global team around the world for their outstanding efforts here in the first quarter. And operator with that, we’d be very happy to take any questions.

Amit Daryanani:

Yes. Thanks a lot. Good afternoon, everyone. Adam, I hope you could expand a bit more on the communication segment softness that you’re seeing. I think we’ve talked about the IT datacom softness for a few quarters, now it sounds like maybe it’s incrementally there on the mobile network side as well. Would love to get your perspective if you think this is more demand driven or inventory driven issue, and then from your vantage point, what do you think is the duration of this softness of correction as you go forward? Thank you.

Operator:

And our next question comes from Wamsi Mohan with Bank of America. You may go ahead.

Adam Norwitt:

Yes. Thanks very much, Wamsi. Look, I don’t think that the communications markets and the dynamics that I just discussed, which are quite unique in each of them. We’re talking about one dynamic in IT datacom and different in mobile networks, a different again in devices, and yet again in broadband. I wouldn’t say that that is an indicative or leading indicator for a broad economic situation. Quite contrary, we’ve given guidance for next quarter for all of our markets. And I don’t think that that guidance reflects a kind of a broad economic slowdown, quite the contrary. Relative to China, I mean, I’m glad you asked the question. It was just early last month when China changed its visa policies and as soon as the news came out that visas were reenacted literally that day we booked our flights and Craig and I were in China at the very first day of April, and what a pleasure it was. I can’t tell you to be three years away from our team in China who just did such a phenomenal, phenomenal job over these three very challenging years. In particular, over last year, which was particularly challenging in certain places, including in Shanghai. I tell you, I had the opportunity to meet some of our factory workers who went into a bubble in Shanghai for more than six weeks in one case. And just to be able to see them and to be honest, to like hug them and thank them for all what they did on behalf of the company during that time period was just a tremendous, tremendous satisfaction for me. Not to mention Craig and I, somehow we didn’t gain weight with all the food that we ate over that week of visiting 21 of our operations in China. But the trends in China, I tell you being there on the ground, this does not seem like a place that is going into deep recessions. Infrastructure investments continue apace. You see new rails for high speed trains next to virtually every highway you go on. And what I was most impressed by was our own operations and what they have done during this time period when nobody was visiting them. And it’s a credit to how we are organized as a company that we don’t have just subsidiary factories that are relying on a whole infrastructure outside of China to function, but rather we have standalone entrepreneurial organizations like we do around the world run by general managers and their teams and what amazing work they did over this time, driving growth in technology, developing new products for the China market, not relying on Western countries or engineers who may be subject to government restrictions that can be applied from anywhere that you think of, but rather developing native capabilities inside of Amphenol. Also, many of our Chinese operations had during that time for a variety of reasons, the incentive to set up operations outside of China, and doing that while still not being able to travel, going to a place like Vietnam or to India or to Thailand or even Mexico and setting up satellite factories on behalf of their customers who wanted to have China Plus One or something like that. It was just really exceptional to see that. And another reminder of what really makes this company special. Are there trends in China? Are there macro issues, long-term things like population growth or lack thereof? Sure. Are there geopolitics that are sitting kind of at the highest levels between Beijing and Washington? Sure they are. But I can tell you, when you go on the ground, you meet with the people there, you get really encouraged as I do everywhere that I go around Amphenol, from the U.S. to Mexico to India, to Western Europe, and now finally being able to go back to China, and I look forward to going back again soon.

Samik Chatterjee:

Hi thanks for taking my question. Adam, just wanted to see if I can get some of your thoughts about how you’re thinking sort of for the second half of the year with the guidance that you have for 2Q, the first half, you’re going to be down a bit year-over-year. But the orders have now stabilized. Is that giving you a bit more visibility into the opportunities for growth or the opportunity for the aggregate company to grow in the second half or maybe even for the full year, any thoughts there? Thank you.

Operator:

And our next question is from Steven Fox with Fox Advisors. You may go ahead.

Adam Norwitt:

Yes. Well, thanks so much, Steve. I mean, look, we’ll see how the year goes. As I just said to Samik, I have no idea, and certainly, I’m not going to talk about what the full year earnings will be. But what I did say just now, I think really resonates when you bring up 2009. Because -- whether it was 2009 or even 2001, and you’re probably one of the few people on the call who’s been closely associated and following us since that time, and I certainly have been in the company for that time or longer, the way that Amphenolians manage through dynamics is to just face it up. We don’t kind of punt it. We don’t say, "Well, the good times are going to come," or, "let’s wait another quarter, let’s wait a third quarter and then we have to play catch-up and get behind kind of the curve of the cost." Rather, we see what orders we have, we see what our customers want. And if we have too few or too many resources, we make adjustments rapidly. And that gets reflected then in the profitability of the company. And as you know very well, what distinguished our company, whether it was in 2009, 2001 or in that sort of COVID environment of early in 2020 was from peak to trough, our margins declined just 300 basis points during very, very significant downturns in demand. Now we are certainly not with our guidance in the second quarter, guiding to such kind of cataclysm as we all saw in 2009. But at the same time, it’s a dynamic world. And so our playbook hasn’t changed whatsoever. Even if the size of the company is significantly bigger than it was in 2009 and categorically bigger than it was in 2001, our sort of modus operandi is the same that culture of entrepreneurship, which is, today, represented across 130 general managers, and maybe in 2009, it was like 50 and in 2001, it was like 20, it’s still the same way to deal with it. These GMs are out with customers every day. They’re listening to them. They’re immediately coming back, reacting in real time to adjust resources accordingly. And then once -- if you have less orders, less demand, you take out cost, but then you go out and you take market share. And that’s the approach of Amphenol. It has been my entire 25 years in this company, and it will be for as long as I can secure that. So who knows what it’s going to be this year. We certainly don’t aspire to have a reduction in our EPS. But if demand is softer than it was last year, we’ll manage through it.

Operator:

Our next question is from Luke Junk with Baird. You may go ahead.

Adam Norwitt:

Luke, well, thank you very much. I’m glad you emphasize this. I mean, this 27% downside conversion margin for an organization that is already making pretty robust margins is really phenomenal. And by any measure, it’s a reflection of that quick reactivity that I was discussing earlier. Luke, I would be lying if I told you our folks working in that market are happy to have a little bit of a downturn to kind of to use your phrase, catch their breath. Nobody likes dealing with this. But we do it. It is what it is. Like it’s – we don’t sort of punt reality. It just is what it is. At the same time though, what’s interesting is while we’re making sure that the financial strength of the company is stays as robust as it did, and again, the 27% convergent margin that you mentioned is a great indicator of that. We are working on an extraordinary array of next generation technologies. Just because customers have some extra inventory doesn’t mean they don’t have an enormous amount of next generation things that they’re trying to achieve. And you mentioned, and I think I alluded to, AI as one of those, I mean, these are the kind of revolutions that drive kind of quantum leaps in the demands of our customers for processor power, for speed as it relates to data transmission and networking, all of which creates demands on the equipment for next generation high speed interconnect for the fiber optics and for the high efficiency power interconnect that’s so important to sustaining the operating expenses and let alone the carbon footprint of these massive processors that are going into these enormous data centers. And so we haven’t slowed down at all as it relates to developing and designing next generation products together with our customers. And you could actually argue that in certain cases we’ve had to accelerate those efforts as customers have gotten into competitive situations with others on things like AI, machine learning and alike. And that’s the kind of carrying water on both shoulders that is an Amphenol in trait as well. It’s not something necessarily. I emphasize so much. But we talk a lot in the company about driving with one foot on the gas, one on the brake, carrying water on both shoulders. Sometimes you got to go out and cut costs at the very same time as you’re ramping up engineering support for next generation systems. And being able to do that, having the mindset and the agility to do that is I think a very unique trait that is resident inside our organization. And that includes within all of those working across IT datacom.

Chris Snyder:

Thank you. I wanted to ask on IT datacom, obviously that’s been a segment that’s been I guess the most impacted so far by inventory digestion. I think in Q1 you guys said it was down about 17% sequentially. And if I heard it right, it sounds like the subsegment is going to be actually be flat sequentially in Q2. And I know there’s seasonality involved, but does that indicate that subsegment is moving past maybe the bulk of some of the inventory, digestion headwinds that have impacted the segment over the last three, four quarters now? Thank you.

Operator:

Our next question is from William Stein with Truist Securities. You may go ahead.

Adam Norwitt:

Thanks very much, Will. I wouldn't point out any significant geographical distinction across the communications markets. I mean remember that a lot of these communications products they do get that – a lot of them still get made in Asia, especially on the device side and a good portion of the – at least the OEM products of the IT datacom. So you can imagine that in Asia, that's having a worse situation overall for the company. And sure enough in Asia, our – we did not have as robust performance in the quarter as we did in North America and Europe overall and that's driven a lot by that. But otherwise, I wouldn't say that there's any sort of end customer geographic changes here. Relative to hyperscale versus the equipment manufacturers, again, I don't think there's a real distinction because ultimately the hyperscale people are also customers for the equipment manufacturers in many cases. And I think that that overall inventory position is fairly broad across both areas of that market.

Mark Delaney:

Yes. Good afternoon. Thanks for taking the question. I was hoping to touch a little bit more on supply chain and what it might mean for your own free cash flow generation. Given demand softer, do you think supply chain stabilizing enough that perhaps you can take inventory down and lead to better free cash flow here?

Operator:

And our last question today comes from Guy Hardwick with Credit Suisse. You may go ahead.

Adam Norwitt:

Hi, Guy.

Adam Norwitt:

Yes. Well, thanks very much, Guy. I mean the fact is as industrial is at least this quarter our largest segment, it was 28% of our sales. At the same time, industrial is far and away our most diversified market. I mean there's really not a correlation amongst the various segments within Industrial, except that they all represent harsh environments where our customers are trying to push new electronics deeper and deeper into some of the harshest of environments to an offshore wind mill, into a semiconductor factory, into an operating theater, onto a train going 400 kilometers an hour and everything in between. In terms of the segments, I wouldn't say that necessarily factory automation is the largest. It's a significant segment, but we have strong sales in the areas like heavy equipment and medical, instrumentation, which includes things like semiconductor manufacturing into electric vehicles, heavy electric vehicles and battery. All times of – types of energy generation and that includes both alternative energy, but also traditional energy extraction and generation, rail mass, transit, things like marine and entertainment? I mean, and you can tell these are not markets that correlate with one another. So if we're going to have one of our markets be a little bit bigger than the others, and in this case, still just 28% of sales, this would be the one that you'd want to have that. And we're just really excited by the progress that we've made in our industrial market over a very long time period. If I go back to 20 years ago, I mean this was a relatively small business that we didn't really have a close touch with where it went. It all went through distribution. And we had just fabulous leadership in our industrial business over that time who really drove a very much an application and segment-based approach to developing new products, application-specific, technology-specific products. At the same time, as we made a number of great acquisitions over many years, and we continue to make great acquisitions across the industrial market that have ultimately positioned us for this just multitude of revolutions going on as electronics gets pushed deeper and deeper into harsher and harsher environments. And so it's not just one or another piece of that, and we're just really excited about the ongoing strength of our industrial market, which has just been a fabulous asset for the company for many years, and I believe will remain so for many years to come.

Michael Anastasiou:

Good afternoon guys. Thanks for taking my question. Looking at the capital deployment side, you had a couple deals announced at the beginning of the year. Can you just describe how CRM and RFS into the overall strategy? And on the broader front, what end markets or adjacencies, do you see the most opportunity inorganically for the year? Thank you.

Craig Lampo:

And Michael, just to clarify, just to avoid any confusion, RFS, since we have not closed on it yet, is not included in our guidance and it wouldn't be included in guidance until we close.

Craig Lampo:

Thanks, everybody.

Operator:

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. Following the 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 today. [Operator Instructions] I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, thank you very much, Craig. And welcome to all of you to our first earnings call of 2023 and I hope it's not too late to wish as well all of you a Happy New Year and to those of you celebrate the Lunar New Year, wish you all a happy year of the rabbit. As Craig mentioned, I'm going to highlight our fourth quarter and full-year 2022 achievements, including some discussion about the acquisitions that we mentioned in our press release. I’ll then discuss our trends and progress in our served markets and then make some comments on our outlook for the first quarter, and of course, we'll have time for questions at the end. Looking to the fourth quarter, our results in the fourth quarter were stronger-than-expected. Exceeding the high-end of our guidance in sales and adjusted diluted earnings per share. Sales grew by 7% in U.S. dollars and 11% in local currencies, reaching $3.239 billion. On an organic basis, our sales increased by 8% and that was driven by robust growth in the broadband, commercial air, automotive and military end markets. And I'll give some more details about those markets in a few moments. The company booked $2.884 billion in orders in the fourth quarter, representing a book-to-bill of 0.89:1, and this negative book-to-bill was driven by order reductions in several of the communications related markets as certain customers adjusted demand in light of excess inventory that they had built up throughout 2022. We're especially pleased to have delivered another quarter of resilient and strong profitability with adjusted operating margins reaching 20.9% and 80 basis point increase from prior year. We achieved these results despite the continued wide range of challenges around the world. Adjusted diluted EPS, as Craig mentioned were $0.78, representing robust growth of 11% from prior year and that's another excellent reflection of our organization's continued strong execution. Finally, the company generated record operating free cash flow in the quarter of $705 million and $613 million, respectively, clear reflections of the quality of the company's earnings. I'm extremely proud of our team around the world and our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the challenging and dynamic environment. We're also pleased to announce that we closed the acquisition of Control Measure Regulation Group or CMR just here in January. CMR is based in France and has annual sales of approximately $75 million and they're a manufacturer of a broad array of cable assemblies and complex interconnect assemblies for the industrial market with a particular focus on heavy equipment engine applications. This acquisition further expands our offering of high technology, value-added interconnect products in the diversified industrial market. In addition, we're pleased to have signed an agreement for the acquisition of the North American hybrid and fiber optic cable and cable assembly, as well as the global infrastructure antenna business of RFS at the end of the fourth quarter. Based just down the street from us here in Meriden, Connecticut, RFS is a provider of Interconnect and Antenna products for the mobile networks market with expected sales of approximately $100 million in 2023. This acquisition, which we anticipate will close by the end of the second quarter and thus is not included in our guidance, expands Amphenol’s product offering and presence with mobile network service providers, who are continuing to invest in their next generation 5G networks. As we welcome the outstanding CMR team to Amphenol and look ahead to welcome the RFS team once that transaction closes, we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions and successfully bring these new companies into Amphenol remains a core competitive advantage for the company. I just want to make a few comments about 2022. And I would just say that 2022 was another very successful year for Amphenol. We expanded our position in the overall market, growing sales by 16% in U.S. dollars, 19% in local currencies and 15% organically reaching a new sales record of $12.623 billion. In fact, over the past three very dynamic years, we're proud to have grown our sales by more than 50% from our 2019 levels, actually 53% to be exact, a great reflection of the company's diversification and agility in these truly dynamic times. Our full-year 2022 adjusted operating margins reached 20.7% and that was an increase of 70 basis points from 2021. This strong level of profitability enabled us to achieve record adjusted diluted EPS of $3. Finally, we generated record operating and free cash flow of $2.175 billion and $1.796 billion respectively, clear confirmations of the company's superior execution and disciplined working capital management. Our acquisition program again created value this year with two new companies added to the Amphenol family in 2022 and one added here already in 2023. CMR, NPI and ICA Holdings have expanded our position across a broad array of technologies, particularly in the industrial market, while bringing outstanding and talented individuals into the Amphenol family. We're excited that these acquisitions, as well as the RFS acquisition, which we expect to close at the end of the second quarter, represent expanded platforms for the company's future performance. We also bought back in 2022 almost 10 million shares under our share buyback program and increased our quarterly dividend by 5%, representing as Craig detailed a total return of capital to shareholders of just over $1.2 billion for the year. Finally and really importantly, especially in this today's dynamic environment, we come out of 2022 in a uniquely robust financial position with the lowest leverage and highest liquidity and availability we've seen really in modern times. And while there continued to be a high level of volatility in the overall market environment in 2022, as we enter 2023, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long-term performance. I'd like to spend a little bit of time to talk about our trends and progress across our served markets, and I would just comment that we remain very pleased that our balanced and broad end market diversification continues to create real value for the company with no single end market representing more than 25% of our sales in the year of 2022. We believe this diversification mitigates the impact of the volatility of individual end markets, while continuing to expose us to leading technologies wherever they may arise across the electronics industry. Turning first to the military market, this market represented 10% of our sales in the fourth quarter and 9% of our sales for the full-year. Sales in the quarter grew strongly from prior year, increasing by 11% in U.S. dollars and 13% in local currencies and on an organic basis sales increased by 12% with broad-based growth across virtually all applications, but particularly military vehicles, space and airframes. Sequentially, our sales increased by a better-than-expected 11%. For the full-year 2022, sales grew by 4% in U.S. dollars, 6% in local currencies and 4% organically, reflecting our operational execution, as well as strength in space related unmanned aerial vehicles, ground vehicles and avionics applications. Looking ahead, we expect sales in the first quarter to grow slightly from these fourth quarter levels and we continue to be excited by the strength of the company's position in the defense market, where we offer the industry's broadest array of high technology Interconnect products. As the geopolitical environment has become more dynamic, militaries around the world are expanding their investments in next generation technologies, thereby increasing the demand potential. We look forward to supporting this increased demand with our expanded range of Interconnect and Sensor products, as well as our significant investments in new capacity that we have made in recent years. The commercial aerospace market represented 3% of our sales in the fourth quarter, as well as for the full-year 2022. And in the quarter, our sales grew by very strong 33% in U.S. dollars and 38% in local currency and organic. As we benefited from the continued recovery in the commercial air market. Sequentially, our sales grew by 13% from the third quarter, which was well ahead of our expectations coming into the quarter. For the full-year 2022, sales increased by 36% in U. S dollars, 40% in local currency and 36% organically, reflecting our strong design in positions on a broad range of platforms, as well as the ongoing recovery in demand for aircraft. Looking into the first quarter of ’23, we expect now a modest sequential moderation in sales. I just want to say how grateful I am to our team that's working in the commercial air market. Over the last three years, they performed really well amidst a truly volatile demand environment. And with the ongoing recovery in travel and thus in demand for jetliners, our team's efforts to strengthen our breadth of high technology Interconnect and Sensor products, while diversifying our market position, including into next generation aircraft are now paying real dividends. We look forward to realizing the benefits of this in 2023 and beyond. Industrial market represented 25percent of our sales both in the fourth quarter and for the full-year and sales in the quarter grew by 7% in U.S. dollars, 12% in local currency and 7% organically from the prior year fourth quarter. This growth was driven in particular by sales into alternative energy, battery and electric heavy vehicle, factory automation, oil and gas and medical applications. On a sequential basis, sales were down by just 1%, which was a bit better than our expectations. For the full-year 2022, sales grew by a strong 14% in U.S. dollars, 19% in local currency and 13% organically, and we really had broad-based growth across virtually all segments of the global industrial market. And looking into the first quarter, we expect sales in the industrial market be roughly at the same level as we achieved here in the fourth quarter. Our outstanding global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market. I remain confident that our long-term strategy to expand our high technology Interconnect, Antenna and Sensor offerings, both organically and through complementary acquisitions, has positioned us to capitalize on the many revolutions happening across the industrial electronics market. To that end, the addition of CMR further strengthens our position, particularly in the important heavy equipment segment. And we look forward to realizing the benefits of this strategy for many years to come. The automotive market represented 21% of our sales, both in the fourth quarter and for the full-year and we had another great quarter in automotive sales growing by a strong 21% in U.S. dollars and 31% in local currency and organic. Our growth was broad-based, but was once again particularly robust in hybrid and electric vehicle applications. On a sequential basis, our automotive sales increased by 5%, which was above our prior expectations. For the full-year 2022, I'm very pleased that our sales increased by a strong 22% in U.S. dollars and 29% in local currency and organic, reflecting broad strength across our automotive markets, including in particular in next generation electronics, including electric and hybrid drivetrains. Looking into 2023, we expect a high single-digit sequential moderation of sales in the first quarter from these high levels, driven especially by a seasonal moderation of sales in Asia. I remain extremely proud of our team working in the automotive market. They continue to manage through a dynamic overall environment all while remaining focused on driving new design wins with customers, who are implementing a wide array of new technologies into their vehicles. In particular, our long-term efforts that expanding our range of next generation Interconnects incorporated into electric and hybrid electric vehicles has enabled Amphenol to expand our position with a broad range of customers and thereby created further potential for the future. The mobile devices market represented 12% of our sales in the quarter and 11% of our sales for the full-year 2022. Our sales in the quarter declined from prior year by 11% in U.S. dollars and 7% in local currency and organically, and this was driven by reduced sales of products incorporated into smartphones, laptops, tablets and wearables. Sequentially, our sales declined as we had expected by 10% as demand was impacted by a pull forward of demand into the third quarter as we it discussed 90-days ago. For the full-year 2022, sales in this market increased by 3% in U.S. dollars and 5% organically, as growth in smartphones and wearables was somewhat offset by a moderation in tablets coming off the higher levels of the pandemic. We are pleased with this performance amidst the market with generally muted demand in 2022. As we look into the first quarter of ’23, we anticipate a seasonal sequential decline of approximately 35%. And while mobile devices will always remain one of our most volatile markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2023 and beyond. Our leading array of Antennas, Interconnect products and mechanisms continues to enable a broad range of next generation mobile devices, which positions us well for the long-term. The mobile networks market represented 4% of our sales in the quarter and 5% for the full-year 2022. Sales in the quarter declined from prior year by 8% in U.S. dollars, 6% in local currency and 12% organically as we experienced the pause in demand from operators after a number of quarters of strong growth. Sequentially, our sales declined by a higher-than-expected 17%. For the full-year ’22, sales grew by 8% from prior year and 3% organically as we saw increased demand for products used in next generation 5G equipment. Looking ahead, we expect a high single-digit sequential reduction in sales in the first quarter as operators continue to moderate their investments. Our team continues to work aggressively to realize the benefits of their efforts to expand our position in next generation 5G equipment and networks around the world. And as customers continue their investments in these systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. We're also excited by the pending acquisition of the hybrid and fiber optic cable and antenna assets of RFS, which will further broaden our product offerings for this important market. The information technology and data communications market represented 19% of our sales in the quarter and 21% of sales for the full-year. Sales in the fourth quarter declined by 6% in U.S. dollars, 5% in local currency and 8% organically from prior year as many customers reduced their demand after five consecutive quarters of robust double-digit growth. Sequentially, our sales declined by 11% as we had expected coming into the quarter. For the full-year 2022, our sales in the IT datacom market grew by a strong 18% in U.S. dollars, 19% in local currency and 14% organically as we continue to benefit from our leading technology solutions and design and positions across a wide array of applications. Looking ahead, we expect a roughly 20% sequential decline in sales in the first quarter as our OEM and web service customers continue to moderate their demand levels. Regardless of this current demand pause, we remain encouraged by the company's outstanding position in the global IT datacom market. Our team has done an excellent job developing leading high speed, power and fiber optic Interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance. We look forward to realizing the benefits of that leading position in this important market for many years to come. Finally, the broadband market represented 6% of our sales in the quarter and 5% of our sales for the full-year 2022. Sales increased by a very strong 79% in U.S. dollars, 82% in local currencies and 64% organically as we experienced a significant increase in demand from cable operators for a wide range of our products. On a sequential basis, sales grew by a much better-than-expected 19%. For the full-year 2022 sales grew by 62% in U.S. dollars and 38% organically, as we benefited from strong demand from broadband service operators, who are both upgrading and expanding their data networks, as well as from the Halo acquisition completed last year. Looking ahead, we expect sales to decline in the low double-digits from these levels, due to seasonal adjustments from customers. We remain encouraged by the company's expanding position in the broadband market and we look forward to continuing to support our service provider customers around the world, all of whom are working to increase their bandwidth to support the proliferation of high-speed data applications to homes and businesses. And in certain cases in furtherance of government programs to expand broadband. Now just in summary, I want to comment on our outlook. The current economic environment remains highly uncertain. In addition, as we did discuss earlier, we have seen certain customers in the communications markets reduce their demand as they normalize inventory levels. Assuming market conditions do not meaningfully worsen and also assuming constant exchange rates. For the first quarter, we expect sales in the range of $2.840 billion to $2.900 billion and adjusted diluted EPS in the range of $0.65 to $0.67. This would represent a sales decline of 2% to 4% and adjusted diluted EPS of flat to down 3%, compared to the first quarter of ’22. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow our market position, while driving sustainable and robust profitability over the long-term. And finally, I'd like to take this opportunity to thank our entire team around the world for their truly outstanding efforts here in the fourth quarter and for the full-year of 2022. And with that, operator, we'd be very happy to take any questions.

Guy Hardwick:

Hi, good afternoon.

Guy Hardwick:

I think I'll leave the questions on guidance to callers after me. But Adam, just when I speak to investors about Amphenol, they push back initially, if they don't know the company that well, that's why isn't this company exposed to commodity price deflation if it's selling components to the electronics industry. What was your -- what would be your pushback on that? And maybe if you could talk about some of the content drivers in connectors and other products?

Operator:

Thank you. Our next question is from Amit Daryanani with Evercore. You may go ahead.

Adam Norwitt:

Thanks so much, Amit. There's a little bit of static on the line, but I think I heard the question well. Look, our guidance that we've given here, and I think I talked a lot about by each segment, but let me just put a finer point on this. If you just take two of our end markets and the guidance that I discussed and that's mobile devices and IT datacom, which are two of our largest communications markets, those represent about two-thirds collectively of the implied sequential reduction in sales from the fourth quarter to the first quarter. And I think we talked about in IT datacom that we clearly see a, sort of, reduction in orders from customers, because of elevated inventory levels. And there may be some demand layered into that, as well as our customer -- as the end customers, kind of, pause their build-outs, but we shouldn't forget one thing about IT datacom. We shouldn't forget that this is a market, first of all, that since 2019, we've grown that market by more than 70% during that time period that our customers have had to increase their output and their construction of their networks in order to satisfy a true explosion of demand for the Internet. And I think the underlying drivers of that, whether that be a video over the Internet or the use of certain tools that we didn't ever use before, the data traffic on the Internet is not dropping. I think what we are seeing is maybe a pause and a kind of realignment because these companies went real gangbusters for a number of years. But the structural increase of data traffic over the Internet in the broadest sense, that's something that we believe, and I think we're in good company believing that we'll continue for a long time to come. On mobile devices, I think we talked about the fact that during the course of the pandemic, there was a real surge in mobile device demand, as people had to detach from their offices and go home, things like tablets, things like computers, upgrades of phones and the like. Let alone the fact that everybody had a lot of disposable income to buy new things in their ears and on their wrists and otherwise. And I think there's been some relaxation of demand that's well reported, and you yourself have talked a lot about that in a variety of reports here in 2022. And regardless of that, our team did a fabulous job this year, driving 5% organic growth in 2022. But we're reacting to the demand that we hear from our customers. We're not losing share. Quite the contrary. But the demand expectations of our customers here in the first quarter really result in the guidance that we've given. So I would maybe point to those two markets, most particularly, which represent just roughly two-thirds of the sequential decline in our outlook.

Matt Sheerin:

Yes, thanks. Good afternoon and Happy New Year, everyone. Adam, it's just a question regarding the industrial markets. In addition to your acquisitions, you've been growing really well organically. And there was some concern that those industrial markets typically lag some of the other markets like consumer and datacom. There's also concerns about inventory build, but it sounds like you're relatively optimistic in terms of the drivers across those diversified markets. So any color you can give on your outlook there would be great?

Operator:

Thank you. Our next question is from Samik Chatterjee with JPMorgan. You may go ahead.

Craig Lampo:

Great. Thanks, Samik, and Happy New Year to you. Yes, I think that if you think about our margin, I mean, I think I'd start off by just saying how proud we are of the margins performance that we've had in 2022. We really have, ultimately -- I mean, throughout 2022, we really done, I think, a great job of just expanding our margins, even sequentially converting, kind of, higher than our normal conversion with the cost actions, with the pricing actions we've had to take. And thus -- and really hitting our 21% in Q3, which is kind of a timing of record and really 20.9% in Q4 and then 20.7%, which matches the record of 2018. So I'm really happy with certainly achieving those. And as we guide here into the first quarter, we're guiding down, I'd say, above seasonal and then we talked about -- Adam just talked about that in response to a previous question. And I think if you, kind of, look at the markets, we've always said that our markets don't really drive kind of our margins. So we don't have significant margin differences of a significant range within our markets, except for broadband, we've talked about before, which was our old cable business. But other than that, I think the markets are similar operating margins and drive similar conversion level. So I wouldn't really talk about that as being a place where it's driving a change in the way our overall conversions would look. We talked about decrementals and kind of that close to 30% range. We're kind of seeing a little -- even slightly less than that as we're guiding here into the first quarter. And I think that just goes to the management team and how well they have done in regards to responding to some of these areas where we have seen some headwinds from a demand perspective in IT data, which is declining at above normal rate typically. And then in the first quarter, they're taking great actions that obviously are reflected in our guide and not necessarily impacting our normal conversion. And mobile devices, they're used to these types of decrementals and headwinds in terms of their first quarter and certainly, they're taking them. So I think that -- and this is really not a different story than we've had over many years where we're able to manage, you know, regardless of the demand environment, we're able to manage their operating margins and really do a great job of expanding our margins when we see demand increases, which we've done here in 2022. And then here in Q1, where we see a little bit of headwind in certain of our markets, taking the actions that really need to be taken in regards to protecting our bottom line. And I think that agility of the organization is really going to -- shining through again. And I think that's just no different from what we've seen historically. And I wouldn't expect any difference in terms of whatever comes here in 2023. And regardless, I think I feel really comfortable with how the team will perform.

Mark Delaney:

Yes. Good afternoon and thank you very much for taking the question. Could you speak please to what Amphenol has seen in the China market, both how it's been tracking recently, given the COVID dynamics and also whether you're expecting demand in China to pick up materially over the course of this year given reopening?

Operator:

Thank you. Our next question is from Steven Fox with Fox Advisors. You may go ahead.

Adam Norwitt:

Yes. Well, thanks so much, Steven. Happy New Year to you as well. Look, we're really excited about this business. I mean, we have a business in fiber optics, we have a business in hybrid cable, we have a business in antennas. But no doubt about it, RFS brings us a much, much stronger position from a technology perspective, from a capacity perspective and from a channel into certain markets. And we've always been really excited about the mobile networks market. And one of the unique things about Amphenol is, I think I've said this many times, is that we sell to the OEMs. We're one of the leading interconnect suppliers to the world's leading OEMs who make mobile networks equipment, but we also sell to the service providers and to the operators. And that actually is an evolution of our long-term position with the broadband service providers where we know how to work with service providers. And today, we work with service providers in broadband, we work with them in the IT datacom market, we work with them in broadband -- I mean, in mobile networks. And anywhere where now providers are our customers and not just OEMs making equipment. And I think RFS really allows us to take a step function growth in the strength of our position there with service providers. And doing that at a time where we're still, I believe, in the early innings of the 5G investments in the network, let alone what happens when 5G exists for all of our other markets. And we're big believers on the kind of structural potential of both the build-out of the 5G networks that are happening around the world, as well as what it means to have low latency, ultra-high bandwidth ubiquitous data traffic for all of our end markets. And after 5G will come, 6G and then there will come 7G, and you and I will probably still be floating around when we're talking about 10G one day, Steve. But now, we're really excited about RFS and look forward to them. I look forward to getting to the regulatory process. And again, we expect to close it at the end of the second quarter. And thus, it's not in our guide here in the first quarter, but it is certainly in our long-term strategy.

Jim Suva:

Hi, Adam, you and your team have been through many similar cycles. And I wanted to focus a little bit on the communications commentary you gave about a little bit of inventory digestion or some pauses or things like that? Just curious, in past cycles, have you seen these last kind of one to two quarters or multiple, multiple quarters from when you sit there, it seems like this is one segment that is taking a little bit of a downshift, not that structurally you're losing share problems with it, but more of a cyclical nature if I understand your comments correctly? Thank you.

Operator:

Thank you. Our next question is from Luke Junk with Baird. You may go ahead.

Adam Norwitt:

Well, thanks to you and Happy New Year as well. Look, you said it, I mean, we have definitely outperformed in the automotive market for a pretty long time period here, quite a number of quarters, and I'm just really proud of our team. There weren't always easy years, I mean, clearly, 2020 was a tough year. Even 2019 was a challenging year. But we never kind of threw in the towel during that time period. We never said let's go cut back on new product investment or let's retrench, let's reorganize, quite the contrary. In fact, we continue to work with customers around the world on next-generation applications. And those next-generation applications, everything from passenger connectivity and power applications to high-voltage applications in the car to communications around Antennas and the like. we are now really realizing the benefits of that over the last couple of years. And in terms of the channel, we don't really see the channel and the inventory in the channel as being a big driver of the demand. I think the driver of the demand has been the rapid adoption of new electronic systems, in particular, electrification of cars, but not exclusively electrification. And so when I think about the key factors that can be plus or minus in the future, well, sure, at some level, the number of cars being sold matters. But more importantly is the content of electronics and the content of new systems in those cars in the future. And if that content continues to move up and to the right and if we continue to do a pretty decent job of getting some or more than our fair share of that, then I think there's good potential for our automotive business in the long-term. I would not get out in front of my skis here and tell you that 29% organic growth is going to be our perpetuity or 41% that we achieved in 2021. But we're very confident in our -- in the strength of our position.

Will Stein:

Great, thanks. I'd love to hear about how the backlog changed during the quarter, and in particular, the duration of the backlog and perhaps it relates to lead times somewhat, whether you're seeing customers still place orders in excess of lead times to the degree that has been a pattern? Thank you.

Operator:

Thank you. Our next question is from Chris Snyder with UBS. You may go ahead.

Adam Norwitt:

Yes. Thanks very much, Chris. I mean, look, resiliency connectivity, I think there's been a lot of things that have shifted. We've just been through a once in a several-generation pandemic. Hopefully, we are sort of at the tail end of it. I know our team in China certainly hopes that in the fourth quarter. But I think it has changed everything. It's touched everything. Let me say that, whether it's dramatically changed everything. But no doubt, resiliency and ability of a company to be there for its customers regardless of what comes along. That is definitely more in the consideration of our customers than ever before, and that plays very well into our approach. Our approach has never been to put all our eggs in one basket to build these massive campuses. We have 250 facilities around the world. Some people think we're crazy to have that many factories, but part of it is risk. Part of it is making sure that we're close to our customers, and we're not putting all of our eggs in one basket. And we have a pretty fragmented manufacturing footprint all over the world with low-cost operations in all three of the major regions in continents. And I'll tell you that, that enabled us during this time period to take share from maybe some of our competitors, who are either smaller or more concentrated and thus, we're stricken by these kind of unpredictable impediments that came along during the pandemic and the supply chain crisis. And relative to connectivity, and I'm going to sort of put a little stab on what your implication is there, I mean, communications, the Internet, the ability to stay in touch with people, that has clearly been a dramatic shift in this pandemic. And we look at our position in our communications markets and the phenomenal growth that we've had, and I mentioned the IT datacom market for us growing 70% during that time period. But also, mobile devices grew by nearly 25% over those same three years. And that's just a reflection of this kind of now demand for people to have a multitude of ways of communicating and connecting with each other. And that's something as we seek to sort of enable the electronics revolution, that's the phrase I always use, there's no doubt about it that we're living in revolutionary times. And that creates a real structural and long-term opportunity for Amphenol.

Wamsi Mohan:

Thank you. Hey, Adam, notwithstanding the comments you made on IT datacom earlier that might also apply to mobile devices. You specifically called out mobile device kind of mean reverting from abnormal COVID-driven level. So does that imply we should expect some seasonal growth for 2023? And more broadly, is visibility, maybe ex mobile devices, beginning to improve at all in your markets?

Operator:

Thank you. Our next question is from David Kelley with Jefferies. You may go ahead.

Craig Lampo:

Yes. Thank you, David. I think that, certainly, the cost environment is, in some ways, a little bit different than it probably was as we, kind of, entered the year here. I think there are certain places where it has improved, there’s other places, honestly, where it probably hasn't improved. But I mean, certainly, on certain commodities, we've seen some level of relief in certain parts of the business without a doubt. But places like energy, places like the labor, certainly, logistics has gotten a little better, but I would say energy and labor is certainly very -- sill continues to be a headwind in many places. So I'd say, on balance, it probably has made some improvements from a commodity perspective. I think that what does that mean from a cost perspective in 2023? It's tough to tell our margin perspective. I mean, there's no doubt that in a normal environment, you would expect some pricing headwinds from your customers. And whether or not they will start in certain places to try to come back to pricing, we'll certainly do our best to -- as we always do to -- as we add value to our customers to ensure that we're keeping that fair margin. But as costs come down, I would expect in some places for pricing to have some headwind. But I would expect that ultimately a balance to happen where we were able to protect our margins and continue to have strong margins. It really wouldn't -- I wouldn't think change from a profitability perspective. And in a normal environment, prior to the pandemic when inflation was kind of at a normal pace and the demand environment was normal, that's -- you did have that kind of normal balance. And I expect that, ultimately, over time, we'll see that again. And whether or not that happens in ‘23, that's a little bit too early to predict. But I think we are in a better place, both on the price and a cost perspective, than we certainly were a year ago.

Michael Anastasio:

Happy New Year. Thanks for taking my question. Could you just quantify the impact of price in 2022 overall? And if there's any areas that were strong in particular? And what are your expectations for the upcoming year? A - Craig Lampo Yes. I was kind of I was saying before, I mean, certainly, we did have some pricing kind of momentum in 2022. Honestly, I couldn't even tell you what exactly the impact the price was on our top line. We don't -- unfortunately, our systems aren't capable of even providing that information. I would say it's somewhere kind of in maybe low single digits, but it's a very difficult thing to even have to provide. So -- and honestly, it really wouldn't provide us with any help in regards to how we run our business. So it's not something we're necessarily focused on. But certainly, there was some pricing in 2022. We've talked about that and without a doubt there was. I mean, again, as I mentioned before, in a normal environment, pricing would be, I would say, more of a headwind than a tailwind and ‘22 was a slight tailwind, I would say. And I know it's tough to say whether we'll be in 2023 as the cost environment maybe levels off a bit. But ultimately, whatever it is, I know I'm really not so concerned. I think that the team has continued to do a great job of managing cost, managing price and ultimately ensuring at the end of the day, we're getting paid for the value we provide to our customers.

Adam Norwitt:

Well, thank you so much. And again, we'd like -- Craig and I would like to, on behalf of our entire team around the world, express our gratitude to each of you for the confidence you put in us. And we wish you all the best and look forward to speaking with you just a short 90-days from now. Thank you, everybody. Happy New Year again, and stay safe.

Operator:

Thank you for attending today's conference, and have a nice day.

Operator:

Hello, and welcome to the Third Quarter Earnings Conference Call for Amphenol Corporation. Following the presentation, there will be a question-and-answer session. Until that, you remain in a listen-only mode. At the request of the company, today's conference is being recorded today. [Operator Instructions]. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, thank you very much, Craig, and allow me to extend my welcome to all of you on the phone here today. And I certainly hope that all of you are having an enjoyable fall. Here we are in beautiful Wallingford, Connecticut, with the leaves turning a wonderful autumn hue. I'm going to highlight our third quarter achievements. I'll then spend a little time to discuss the trends and our progress across our served markets. And then finally, I'll comment on our outlook for the fourth quarter and the full year of 2022. And of course, we'll have time for some questions at the end. Turning to the third quarter. Our results in the third quarter were much stronger than expected and exceeded the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew a very strong 17% in U.S. dollars and 21% in local currencies, reaching a new record of just under $3.3 billion. On an organic basis, sales increased by 18%, with broad-based growth across most of our served markets as well as contributions from the company's acquisition program. The company booked orders of $3.151 billion, representing a book-to-bill, as Craig mentioned, of 0.96 to 1. I would say that despite this slightly negative book-to-bill, the company's order backlog remains very robust. We are pleased to deliver strong profitability in the quarter, with adjusted operating margins reaching 21.0%, a 70 basis point increase from prior year and a 30 basis point increase from prior quarter. We achieved these results despite the continued wide range of operational, inflationary and supply chain challenges around the world. Adjusted diluted EPS grew strongly from prior year, increasing by 23% to a new record of $0.80, and just really an excellent reflection of our organization's continued strong execution here in 2022. Finally, the company generated record operating and free cash flow of $576 million and $457 million, respectively, here in the third quarter. I just want to say how proud I am of our entire organization around the world. Our results this quarter once again reflect the discipline and agility of Amphenol's entrepreneurial team as we continue to perform well amidst what is no doubt a very dynamic and challenging environment. We're also pleased to announce that we closed the acquisition of Integrated Cable Assembly Holdings, or ICA, in September, based in North America and with annual sales of approximately $90 million. ICA manufactures a broad array of cable assemblies for a diversified range of applications, particularly in the industrial market. This acquisition further expands our offering of high-technology value-added interconnect products in the industrial market. As we welcome this outstanding new team to the company, we remain confident that our acquisition program will continue to create great value for Amphenol. In fact, our ability to identify and execute upon acquisitions and successfully bring these new companies into the Amphenol family remains a core competitive advantage for the company. Now turning to the trends and our progress across our served markets. I would just comment that we're very pleased that the company's broad and balanced end market diversification continues to create value for Amphenol. Importantly, and I've mentioned this many times before, our diversification mitigates the impact of the volatility of individual end markets, while also exposing us to leading technologies wherever they may arise across the electronics industry. And these are both very important benefits, in particular, in today's dynamic market environment. I would also just mention that in the third quarter, each of our eight end markets grew organically and some of them in double digits organically. So starting with the military market. That market represented 9% of our sales in the third quarter. Sales in this market grew 1% in U.S. dollars and 3% organically, which was a bit lower than our expectation heading into the quarter. On an organic basis, growth in space-related, ground vehicles and avionics applications was offset by moderations of sales of products used in communications, rotorcraft and engine applications. Sequentially, sales declined by just about 1%. As we look into the fourth quarter, we expect a high single-digit sequential sales increase in the military market. And for the full year 2022, we now expect a low single-digit increase in sales from last year's levels. We continue to be very pleased with the strength of the company's broad position in the defense electronics market. As militaries around the world increase their adoption of a wide array of next-generation technologies in the face of what is no question an increasingly volatile geopolitical landscape, our team managing our leading range of interconnect and sensor products continues to position the company strongly for the future. The commercial aerospace market represented 2% of our sales in the quarter. Sales grew a very strong 36% versus prior year and 42% organically, driven by broad-based strength across all aircraft applications. Compared to the second quarter, our sales declined just a slight 1%, which was actually better than our expectations coming into the quarter. As we look to the fourth quarter, we expect a modest decline in sales versus the third quarter levels. But for the full year 2022, we expect sales to increase a very strong 30% compared to prior year. Our team is justifiably proud to have now realized four consecutive quarters of strong growth in the commercial air market, a clear sign of their resilience and of the continued recovery in the global air travel industry. Going forward, we look forward to benefiting from the company's strong interconnect and sensor technology positions across a wide array of aircraft platforms and next-generation systems being integrated into those airplanes. The industrial market represented 25% of our sales in the third quarter. Sales increased by 11% in U.S. dollars and 13% organically. Our growth was broad-based across most segments of the worldwide industrial market, including battery and heavy electric vehicles, factory automation, alternative energy, heavy equipment, medical, oil and gas, and building automation. Sequentially, our sales actually increased by 2% from the second quarter, which was a bit better than our expectations coming into the quarter. Looking to the fourth quarter, we expect a modest sequential sales decline. And for the full year 2022, we expect a mid-teens increase in sales from prior year. Our results in the industrial market this quarter confirm once again that our outstanding global team working in this important market continues to find new opportunities for growth across the many segments of the exciting industrial electronics market. I remain confident that our long-term strategy to expand our high-technology interconnect antenna and sensor offering, both organically and through complementary acquisitions, has positioned us well to capitalize on the many technology revolutions happening across the industrial market. To that end, the addition of ICA further strengthens our position across a number of exciting segments within this important end market, and we look forward to realizing the benefits of this strategy for many years to come. The automotive market represented 20% of our sales in the quarter, and sales in the third quarter grew by a very strong 27% in U.S. dollars and 37% organically, driven by broad-based strength across most automotive applications and particularly strong growth once again in sales to electric and hybrid electric vehicle applications. Sequentially, our sales increased by 4% from the second quarter, which was much better than our expectations. For the fourth quarter, we expect sales to remain roughly at these levels. And for the full year 2022, we expect sales to increase by approximately 20% compared to last year, driven by our expanded position in next-generation electronics and electrical systems being integrated into cars. I remain extremely proud of our team working in the automotive market. They continue to manage well through a challenging overall environment, all while remaining focused on driving new design wins with customers, who are implementing a wide array of new technologies into their vehicles. Our continued outperformance is a direct result of their excellent efforts. The mobile devices market represented 12% of our sales in the quarter, and our sales to customers in this market increased by 13% in U.S. dollars and 15% organically. And this was driven by strong growth in sales of products incorporated into smartphones, wearables and laptops. Sequentially, our sales increased by a much stronger-than-expected 43%, driven by higher sales across virtually all product categories that we serve. As we have seen periodically in the past, we do believe that some small portion of this robust demand in the third quarter may have been pulled forward from the fourth quarter. Accordingly, we expect a low double-digit sequential decline in sales from these strong third quarter levels. For the full year, we anticipate sales to grow modestly from our strong 2021. I'm very proud of our team working in the mobile devices market, as they continue to execute strongly in the face of an ever dynamic demand for our leading array of antennas, interconnect products and mechanisms that are integrated into a wide range of next-generation mobile devices. And no question that this team remains poised as always, to capture any opportunities for incremental sales that may arise here in 2022 or beyond. The mobile networks market represented 5% of our sales in the quarter, and sales increased by a strong 19% versus prior year and 15% organically as growth in our sales to mobile service providers was only partially offset by a moderation of sales to equipment manufacturers. On a sequential basis, our sales increased by 9%, which was better than our expectations. For the fourth quarter, we expect a low double-digit sequential sales reduction after our very strong third quarter. And for the full year 2022, sales are expected to grow in the high single digits. We're encouraged by our strengthening performance in the mobile networks market. As operators continue to ramp up their investments in next-generation systems, our team remains focused on realizing the benefits of our long-term efforts to expand our position in next-generation 5G equipment in networks around the world. The information technology and data communications market represented 22% of our sales in the quarter. Sales in the third quarter rose from prior year by 16% in U.S. dollars and 11% organically. This was driven by increased demand for products in servers and networking applications, and that was only partially offset by some declines in storage-related products. Sequentially, our sales did decline by 3%, albeit better than our expectation coming into the quarter. We believe that this begins to reflect some of the expected inventory corrections that we've discussed in the past by our IT datacom customers. As we look towards the fourth quarter, we expect a low double-digit decline in sales from these third quarter levels as customers continue to moderate their demand and adjust their inventory levels. For the full year 2022, however, we expect very strong high-teens sales growth compared to prior year. We remain encouraged by the company's outstanding position in the global IT datacom market. Our team has done just an outstanding job developing leading high-speed power and fiber optic interconnect products that are enabling our OEM and web service provider customers, who continue to drive their equipment and networks towards ever higher levels of performance. We look forward to realizing the benefits of that leading position in this important market for many years to come. And finally, the broadband market represented 5% of our sales in the third quarter. Sales in this market increased by a very robust 65% in U.S. dollars and 46% organic, as we experienced strong demand from cable operators for a wide range of our products. On a sequential basis, sales increased by 2%, which was better than our expectation coming into the third quarter. Looking towards the fourth quarter, we expect sales to increase moderately from these strong third quarter levels. And for the full year 2022, we expect sales to increase by more than 50% from prior year, and that includes both robust organic growth as well as the benefit of acquisitions. We look forward to continuing to support our broadband service provider customers around the world with our expanded range of high-technology products. These products have become even more critical as our customers increase the bandwidth and capacity of their networks to support the expansion of high-speed data applications to homes and businesses. And this is in certain cases, and furtherance of government-funded programs to expand broadband. Now turning to our outlook. There is no doubt that the current economic environment remains highly uncertain and increasingly dynamic. Assuming market conditions do not meaningfully worsen and also assuming constant exchange rates, for the fourth quarter, we expect sales in the range of $3.09 billion to $3.15 billion, and adjusted diluted earnings per share in the range of $0.73 to $0.75. This would represent sales growth of 2% to 4% and adjusted diluted EPS growth of 4% to 7% versus the fourth quarter of 2021. Our fourth quarter guidance represents also an expectation for full year sales of $12.474 billion to $12.534 billion and full year adjusted diluted EPS of $2.95 to $2.97. This outlook would represent full year sales and adjusted EPS growth of 15% and 19% to 20%, respectively. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current dynamic environment, and to continue to grow our market position while driving strong profitability. In addition, I just have to say that the entire Amphenol team around the world remains committed to delivering long-term sustainable value. And I would be remiss if I did not take this opportunity here to thank each and every 1 of our Amphenolian team members around the world for their truly outstanding efforts here in the third quarter. And with that, operator, we'd be very happy to take any questions.

Mark Delaney :

Yes. Thank you very much for taking question. In terms of the comments about a more challenging and dynamic environment that the company is expecting, is that more observing that there's the potential for business conditions to deteriorate given macroeconomic factors or is that consistent with the recent moderation in incoming orders that Amphenol has already seen in the third quarter and perhaps has continued or even accelerated in the fourth quarter to date?

Operator:

Thank you. The next question is from Samik Chatterjee with JPMorgan. You may go ahead.

Adam Norwitt :

Yeah. No, thank you very much, Samik. Listen, we always come out of the quarter and we try to give our best estimate of what the next quarter is going to be on behalf of everybody here. And it's a credit to our team that we've been able to outperform that, and you can bet that we're always going to try to outperform that. But it's not -- I mean, we do our best job here of doing that. And we shouldn't -- you shouldn't just say, well, Amphenol is conservative and they're naturally going to beat it. I mean there's no doubt that the world, as we see it from a macro and market standpoint, it is more dynamic. There are pockets -- more pockets of uncertainty. There are macro dynamics that are going on now. But all that being said, the underlying electronics revolution that has for us, always been a great platform for our outperformance. This continues to go unabated. Our position, our technology position continues to be broader than ever before. We've made 20 acquisitions since the beginning of 2019, each of which have added to our company in new capabilities, in new breadth, new access to customers in new geographies. So our company is well positioned to capitalize if there are opportunities for upside. And we'll certainly seek to take advantage of any of those that do come, but in the context that it is a world today that is clearly more uncertain than it was before. And I don't have to, I think, tell everybody here on the phone that you can get that by looking just at the front page of the Wall Street Journal on a daily basis. Are we always going to try to outperform what we are, but I'm not going to tell you that this quarter is the same as every other quarter that we're always going to outperform, and we're going to beat our guidance by as much as we did last quarter. We're going to work really hard to do that all the time, and we're going to navigate whatever environment comes our way.

Chris Snyder :

Thank you. So margins have realized a pretty nice sequential improvement both over the last 2 quarters. I know at least part of that is price cost catch-up. What is the expectation on price cost into Q4 and early 2023 to the extent you have visibility on price in the backlog and where inventory costs are running at? And kind of with that, does the guided drop in Q4 operating margins really just reflect the volume deleverage into the fourth quarter? Thank you.

Operator:

Thank you. The next question is from David Kelley with Jefferies. You may go ahead.

Adam Norwitt :

Thanks very much, Gavin. Look, we're really proud of the automotive performance here. I mean, if you just look over several quarters, we've had real strong double-digit organic growth in automotive now for eight quarters in a row, which is really excellent and clearly outperforming. I think that, as I mentioned in my prepared remarks, we've seen strong growth being driven by, in particular, everything related to electrification, but not exclusively that. We've also seen robust growth and everything related to passenger connectivity, to safety, new electronic systems in cars, all this sort of extraordinary array of content that's being put into this generation and next generation of cars that has created a great opportunity for Amphenol. Both together with our interconnect products, our sensors, our antennas and that entire array of what we broadly refer to as interconnect products. In terms of the behavior of the customers and the outlook over the next 12 months, I mean it's hard for me to give kind of an outlook for the next 12 months. I think others have a better sense of what -- whatever the industry outlook will be, what inventories are both at dealerships and in the supply chain. But -- and for us, what's more important is the content that we see with customers, which continues to grow. In terms of inventories, I couldn't tell you that we have a perfect sense of what the inventories are with our customers, either at the end customers or at the OEM or in the supply chain. But we haven't seen real indications of abnormalities. And so orders continue to be at a good level. We continue to have strong performance and customers seem to want really a lot of our products as we saw in the third quarter. And as would be implied in our guidance also in the fourth quarter, which would make the full year of 2022 just a really exceptional year in automotive on the back of a year in 2021, which was itself also quite strong.

Amit Daryanani :

Good afternoon. Thanks for taking my question. I guess -- my question is around the calendar '22 performance, the midpoint achieved in December. You would end up being about 15% top line growth, give or take organically. And I think 1 of the peers, Adam, everyone has a lot of this growth is driven by inventory build that looks like to reverse in a more pronounced manner into '23. I know you don't track this quantitatively, but maybe qualitatively, you can talk about, when you think about the growth you've achieved in '23, how does that you think in end market and share gain driven versus inventory build that might start to reverse and if you've seen any of that happen? Thank you.

Operator:

Thank you. The next question is from Steven Fox with Fox Advisors. You may go ahead.

Adam Norwitt :

Thanks so much, Steve. I'm glad you asked about ICA. It's really a great company. And you mentioned all the cables, some of the acquisitions we've done. I mean, if I think back since 2019, we've done 20 acquisitions since that time, about five of those acquisitions were kind of diversified cable assembly acquisitions. I think we've made like three center acquisitions. We've made four fiber optics acquisitions. We've made six acquisitions of just connector companies. We've had one MilAero value-add company, one automotive, and that sort of makes up the 20. And each of those really helps us to broaden our position with customers, expanding our capability and making sure that we can cover every corner of the electronics industry on a worldwide basis. And ICA really goes towards all of those. ICA is a North America-based company, which I think is a very opportune thing right now. They have factories across the U.S. as well as in Mexico, servicing a real diversified range of applications across primarily the industrial market. Everything from electrified industrial vehicles to types of things that are used in factories, factory automation, to instrumentation, and I could go on and on and on because it's a very fragmented and diversified customer base. And what they bring us really is a real local presence close to customers where sometimes value-add interconnect proximity can be a real asset actually. Because if you're in an area where there's a lot of companies building things, designing things, and you can be their sort of neighbor and supporter and partner, that allows you to get in very early in the design cycle. And then if you have the breadth of Amphenol, if you have the access to low-cost manufacturing, low-cost sourcing of Amphenol, all of a sudden, you can turn that early involvement into a perpetuity and a strong long-term partnership. And that's something that we at Amphenol have been very successful in, in the past whenever we bought companies that maybe have a really nice proximity to a certain customer base, but a customer base who themselves is also globalizing. Not to mention the last thing, I'll say about ICA is, it's just great people. I mean, our company is made up of individuals, general managers around the world, who are entrepreneurs. And every time we bring in a company like an ICA, I'm just really amazed by the strength and the character and the entrepreneurship of the individuals that have joined as part of Amphenol. And I think at ICA, that's certainly the case. And we look forward to growing with customers where they're a little stronger than we were, to bring them into new customers, to helping them on connector technology, where we have a lot more to offer to give them a more total solution to customers and on and on. I mean there's so many levers of value that you have in these acquisitions, and we fully intend to take advantage of as many of them as possible with the team at ICA.

Luke Junk :

Yeah. Thanks for taking question. Maybe a bit of a bigger picture structural question. Adam, just wondering, is there anything inherent in the new segment structure of the company that could help with the margin? I'm thinking versus past cycles. If we do, in fact, go into a broader macro downturn, especially anything anecdotally, I think it would be helpful to illustrate the dynamic. I'm thinking enabling shared resources, identifying growth opportunities or things similar to that.

Operator:

Thank you. Our next question is from Wamsi Mohan with Bank of America. You may go ahead.

Adam Norwitt :

Sure. Thanks so much, Wamsi. Well, it's two questions, but I will say they're a little bit related, and let me say why. Look, if you look at our mobile devices market, it's been, as always, 1 of our most volatile markets. And I think if you go back over the last decade, we've had at least two fourth quarters, which were down in the kind of mid- to high teens on a sequential basis. So our outlook for this quarter being down sequentially low double digits, it's not a foreign concept to us that once in a while, you'll have a fourth quarter that will be down. I mean what we always think about in mobile devices, the one sure thing, and that's in a market where there are very few sure things is that the second half typically is quite significantly above the first half. And here, our guidance would imply that in the second half, we're still up north of 30% in the second half compared to the first half. So very robust and relatively normal kind of feel between the first and the second semester of 2022. I did mention that the -- we saw -- at the end of the quarter, really, a very strong demand in mobile devices pulls from customers. And why was that? You could come up with a number of different theories. I mean my own theory is that if you think about mobile devices, which are still today primarily manufactured in China, there was not only just holidays in China, but there were some other events going on over the last -- over the first few weeks of October in China. And it wouldn't surprise me if maybe some customers were preparing for both those holidays as well as the various political meetings that happened in the country, and that may have led to a little bit of pull forward, as I alluded to, and that is also reflected in this guidance. I mean, look, relative to China, I think it's a tale of two cities here. One is, if you read the papers and if you watch everything, obviously, at the highest levels of the government, there's a lot of tension. And you would be blind not to recognize that there's a lot of political tension. There's various policies being enacted by the U.S. and there's various things that are happening in China that are all interpreted in that way, that there is some tension. At the same time, on the street, on the ground, it is pretty stable and kind of business as usual. We haven't seen funny things happening that 1 would sort of fear over the last few years. Our operations are running really great, and we continue to make great progress with local customers who need our technologies. And I think it comes back to something I've talked about in the past, which is that we operate globally as a local company everywhere that we operate. If you think about it, we're in 40 or more countries around the world. And each of our operations of those countries is run by general managers, who are from that place. And they run their business as if it was a local business, albeit with the backdrop of support, the resources and the capabilities and the breadth of a global Amphenol. And nowhere is that more true than in China, where our entrepreneurial management team there has just done a phenomenal, phenomenal job of making sure that customers know that they get local support, from local teams, local engineers, local quality engineers. This is not ex patriots. This is not us taking American technology and porting it over there to support. It is all locally developed and locally supported. And thus, in their times of need, our customers come to us when we can solve their problems. And that's what they do in the world over. And so while the headlines in the papers are what they are, I can tell you that on the ground, our team continues to operate very effectively and successfully across China. The one last thing I'll say, I'm sure in your question about China is embedded a question maybe about how COVID is going there. I'm just so proud of how our team has navigated the restrictions that were associated with zero COVID over the course of this year. Those were much more acute towards the end of the first quarter and into the second quarter, in particular in Shanghai, where our team just did a fabulous job. But there are still occasionally some little restrictions that are popping up. And our team has a fabulous playbook for it. And we don't have all our eggs in one basket anywhere in the world, and that includes in China. And so we have a very diversified and broad set of facilities around the country, such that we're not susceptible to a total impact if 1 place has a shutdown or another. So I would say it's very stable. I certainly hope that the world's governments can all get along. That's something that I personally hope for all of our sakes, but for Amphenol's position in China, we remain very robust, and we're very confident of the future.

Jim Suva :

Thank you. I have a question about strategy for either Adam or Craig. With interest rates higher and Craig gave some good details about interest expense that we should model for Q4 and going forward. I didn't know if that included any additional Fed raise next month or not. But the bigger strategy question is, does this make it so your use of capital you are looking to pay down debt a little bit more or higher returns on capital versus how you look at M&A or stock buybacks a little more, you start to balance things a little bit differently with higher interest rates, but just let us know about strategically if it impacts things at all in your decision tree. Thank you.

Operator:

Thank you. Our next question is from Joseph Spak with RBC Capital Markets. You may go ahead.

Adam Norwitt :

Yeah. So I think just your little housekeeping question, I think -- I don't think it would have changed the book-to-bill with FX. Look, relative to M&A and the funnel, and we have a great pipeline of acquisitions. As I mentioned, over -- since the beginning of 2019, we've closed 20 deals through quite a cycle, I will say. I mean if you think about the cycle in which we've done that, this has been quite a cycle. And I think the compelling story of joining the Amphenol organization being part of something that is really special. It's something that we continue to tell to companies around the world, and we continue to find good reception to that. Does it become a kind of a buyer's market, for example, are sellers a little more skittish and were willing to sell. I'd be a little careful about in kind of overestimating the impact of the macro on the decision-making of sellers, many of whom are making the one decision in their life to do this. So in my experience, sellers are not kind of looking at what the S&P 500 is doing. They are looking at what the 10-year treasury is doing or looking at what FX rates are doing in that moment. When they think about selling, should they sell, should they not sell, and at what value. Can it impact on the margin, the current environment, what others are willing to pay for deals, and we're a very financially strong company. Maybe that could. I would hope that there's good reason among the universe of buyers around valuations. But we don't normally see just because macro shifts, a dramatic change in the M&A landscape. We have a fabulous funnel. We have a fabulous track record. We have a fabulous organizational culture that's really attractive to companies. I think all of those things will serve us well and will ensure that over the long term, we'll continue to find great companies become part of Amphenol. And I'll continue to be completely unable to predict when that's going to happen. But we're happy to have gotten one deal done here this quarter, and I'm confident over the long term we'll have some more.

William Stein :

Thank you for taking my question. Adam, I don't normally ask about -- I guess it doesn't normally get a ton of attention, the broadband end market, but the growth has been very strong and for a while now. I wonder if you can comment as to longer-term trends here. We've heard some other component suppliers talk about this end market looking strong for more than just a couple of quarters. We hear about cable MSOs and carriers making pretty significant spending commitments. And I wonder if you're seeing that dynamic and whether that's reflected in really substantial backlog there or if that might be overstating things. Thank you.

Operator:

Thank you. Our next question is from Joe Giordano with Cowen. You may go ahead.

Craig Lampo :

Joe, thanks for the question. I actually wouldn't really call out any market that really has significantly lower margins. I mean some have lower gross margins, but then lower SG&A, and we talked about the structure being a little bit different depending on the market. But from an operating margin perspective, honestly, I wouldn't say that there's much of a significant difference. I mean, you see that there's some differences in our operations. Our segments have a little bit of a difference. But from a market perspective, I really wouldn't call that out. I mean broadband, which is really some -- it used to be more the cable business, and it really isn't only the cable business anymore, because some of the acquisitions we've done in that space that's really broadened our portfolio out in that market. And it's actually somewhat of the reason why we've seen some of this big growth historically was lower margin, but I wouldn't even call that out as some of this big growth has been -- having lower margins associated with it. So long-winded answer to your question is, I really wouldn't call out any particular markets.

Matt Sheerin:

Thank you. Thanks, Adam and Craig for all the details so far. My final question here is just on the aerospace market, where you've had some nice momentum over the last few quarters, still below where you were pre pandemic, but it looks like you've got really strong backlog. So could you talk about the momentum you're seeing there, Adam, and the content opportunity going forward?

Operator:

Thank you. And I'll now turn the call back over to Mr. Norwitt for any closing remarks.

Operator:

Thank you for attending today's conference, and have a nice day.

Operator:

Hello, and welcome to the second quarter earnings conference call for Amphenol Corporation. [Operator Instructions]. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Richard Norwitt:

Well, Craig, thank you very much, and I hope that all of you on the call here today are enjoying the summer so far, and most importantly, your family, your friends and your colleagues are all still managing to stay safe and healthy. As Craig mentioned, I'm going to highlight some of our achievements in the second quarter. And then I'm going to discuss our trends and progress across our served markets. I'll then make a few comments on our outlook for the third quarter. And then finally, we'll, of course, have time for questions. As Craig just went over, our results in the second quarter were much better than expected. We exceeded the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew a very strong 18% in U.S. dollars and 21% in local currencies, reaching a new record of $3.137 billion. On an organic basis, our sales increased by 18%, supported by robust growth across nearly all of our end markets as well as contributions from our acquisition program, which was partially offset by the strengthening U.S. dollar. Company booked record orders of nearly $3.450 billion, and that represented a continued positive book-to-bill of 1.1:1. We're especially pleased to deliver strong profitability in the quarter with operating margins reaching 20.7%, and that's 70 basis point increase from both prior year and prior quarter, and we achieved these operating results despite facing a wide range of operational, inflationary and supply chain challenges as well as the COVID shutdowns in China that Craig mentioned. Adjusted diluted EPS grew a strong 23% from prior year to a new record of $0.75, another excellent reflection of our continued strong execution. And then finally, we're very pleased that the company generated record operating and free cash flow in the quarter of $543 million and $452 million respectively. I just want to say how proud I am of our team around the world. Our results this quarter once again reflect the strength of Amphenol's entrepreneurial organization, who has continued to perform very well amidst a highly dynamic and challenging environment. We're very pleased to have announced in the quarter that we closed on the acquisition of NPI Solutions based in Morgan Hill, California, and with annual sales of approximately $65 million. NPI is a manufacturer of cable assemblies and complex interconnect assemblies for the industrial market with a particular focus on customers in the semiconductor equipment and test and measurement markets. The addition of NPI expands our already broad position in value-add interconnect for these important and high potential markets. As we welcome this outstanding new team to Amphenol, I remain confident that our acquisition program will continue to create great value for the company. In fact, our ability to identify and execute upon acquisitions and successfully bring those companies into Amphenol remains a core competitive advantage for the company. Now turning to our progress across our served markets. I would just note once again how pleased we are that our end market exposure remains highly diversified, balanced and broad. No doubt about it, during these very dynamic times, that market diversification continues to create great value for the company. The military market represented 9% of our sales in the quarter. Sales declined by 2% from prior year but were flat organically, with moderations in our sales into naval and military vehicle applications, offset by growth in space, avionics and UAVs. Sequentially, our sales increased by 3%, which was in line with our expectations coming into the quarter. As we look into the third quarter, we expect sales to increase modestly from these second quarter levels, and we continue to be very pleased with the strength of the company's broad position across the military market. As militaries around the world continue to adopt a wide array of next-generation defense technologies, our industry-leading breadth of high-technology interconnect and sensor products positions the company strongly across all major defense programs. This gives us great confidence for our long-term performance. The commercial aerospace market represented 3% of our sales in the quarter, and our sales increased by a very strong 32% from prior year and 36% organically as we benefited from the continued recovery in global aircraft production. Sequentially, our sales grew 11% from the first quarter, which was actually much better than the expectations that we had coming into the quarter. Looking into the third quarter, while we do expect a seasonal low double-digit sequential decline in sales, we anticipate continued and substantial growth from prior year. We're very encouraged to have driven another quarter of strength in the commercial air market, which is quite a welcome development after 2 extremely challenging years in the air travel industry. As personal and business travel continues to recover, we look forward to benefiting from the company's strong interconnect and sensor technology position across a wide array of aircraft platforms and next-generation systems integrated into those planes. I'm particularly proud of our team working in commercial air, who really have persevered throughout the downturn, and we are now once again realizing the fruits of their long-term labors. Industrial market represented 26% of our sales in the second quarter. Sales in the quarter grew 13% in U.S. dollars and 15% organically, and this was driven by broad-based strength across most of our industrial end markets, including especially the battery and electric heavy vehicle applications, oil and gas, medical and rail mass transit. On a sequential basis, our sales increased by a better-than-expected 8% from the first quarter. Looking into the third quarter, we expect sales to roughly remain at these very robust second quarter levels. I have to say that our results this quarter confirm once again that our outstanding global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market. I remain confident that our long-term strategy to expand our high-technology interconnect, antenna and sensor offering, both organically and through complementary acquisitions, has positioned us well to capitalize on the many revolutions happening across the industrial electronics market. To that end, the addition of NPI Solutions further strengthens our position in the important semiconductor and test and measurement equipment interconnect markets. We look forward to realizing the benefits of this long-term strategy for many years to come. The automotive market represented 20% of our sales in the quarter. Sales in the second quarter grew 23% in U.S. dollars and 29% organically, and this was driven by broad-based strength across most automotive applications, with particular strength once again in sales into electric and hybrid electric vehicle applications. Sequentially, our sales increased by 6%, which was much better than our expectations coming into the quarter when we had anticipated a modest sequential decline. For the third quarter, we now expect a moderate sequential decline in sales as customers continue to manage through a wide array of supply chain challenges in the global automotive market. I remain extremely proud of our team working in the important and dynamic automotive market. They continue to manage through a difficult supply chain environment, all while remaining focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. Our continued outperformance is a direct result of their excellent efforts. The mobile devices market represented 9% of our sales in the quarter. Our sales increased by 7% in the second quarter as strength in smartphones and laptops were somewhat offset by a moderation of sales of products incorporated into tablets. Sequentially, our sales declined by a better-than-expected 6% versus the first quarter. Looking now into the third quarter, we anticipate sales to increase by more than 20% compared to the second quarter levels on typical seasonal strength. I remain very proud of our team working in the mobile devices market. In particular, amidst the COVID-related disruptions in China that occurred early in the quarter, our outstanding and agile team once again delivered strong results. Most importantly, they continue to design our leading array of antennas, interconnect products and mechanisms into a wide range of next-generation mobile devices. And they remain, as always, poised to capture any opportunities for incremental sales that may arise this year and beyond. The mobile networks market represented 5% of our sales in the quarter, and sales grew from prior year by 9% in U.S. dollars and 6% organically as strength from products sold to network operators, together with the benefit of acquisitions, more than offset a moderation of our sales to wireless equipment manufacturers. Sequentially, our sales in the second quarter grew by a slight 1%, but that was better than our expectations coming into the quarter. Looking to the third quarter, we now expect to grow moderately from the second quarter levels. We're encouraged by the company's continued strength in our sales into the mobile networks market. As operators ramp up their investments in next-generation systems, our team remains focused on realizing the benefits of our long-term efforts to expand our position in next-generation 5G equipment and networks around the world. The information technology and data communications market represented 23% of our sales in the quarter. Sales were stronger than expected, rising by a very robust 31% in U.S. dollars and 26% organically from prior year. Our team really just executed well in fulfilling broad-based strength across server and networking applications, including with web service providers. Sequentially, our sales increased by 11% in the second quarter, which was better than our expectations. Looking to the third quarter, we expect sales to moderate from these very strong second quarter levels. Nevertheless, we remain encouraged by the company's outstanding position in the global IT datacom market. Both our OEM and web service provider customers continue to drive their equipment and networks to ever higher levels of performance really in order to manage the dramatic increases in demand for bandwidth and processor power. We look forward to realizing the benefits of that leading position in this important market for many years to come. Finally, the broadband market represented 5% of our sales in the quarter. Sales grew by a very strong 57% in U.S. dollars and 28% organically as broadband spending levels increased and as we benefited from our recent acquisitions. Our growth in broadband was particularly strong in North America. On a sequential basis, sales increased by a much better-than-expected 14% from the first quarter. As we head into the third quarter, we do expect sales to the broadband market to decline moderately from these levels. But we look forward to continuing to support our broadband service provider customers around the world with our expanded range of high-technology products. As our customers increase the bandwidth and capacity of their networks to support the expansion of high-speed data applications to even more homes and businesses, these products have become even more critical. Now turning to the company's outlook. There's no doubt that the current market environment remains highly uncertain with ongoing supply chain and inflationary challenges as well as some continued disruptions from the COVID-19 pandemic. Assuming those conditions do not meaningfully worsen and also assuming constant exchange rates, for the third quarter, We Expect Sales In The Range Of $3.040 billion to $3.100 billion, and adjusted diluted EPS in the range of $0.73 to $0.75. This would represent strong sales growth of 8% to 10% and adjusted diluted EPS growth of 12% to 15% compared to the third quarter of 2021. I just want to say that I remain confident in the ability of our outstanding Amphenol management team to adapt to the many opportunities and challenges in the marketplace and to continue to grow our market position while expanding the company's profitability. In addition, our entire organization remains fully committed to delivering long-term sustainable value, all while prioritizing the continued well-being of each of our employees around the world. And finally, and most importantly, I would like to take this opportunity to thank that entire Amphenol team for their truly outstanding efforts here in the second quarter. And with that, operator, we'd be very happy to take any questions that there may be.

Mark Delaney:

Congratulations on the strong results. I just wanted to better understand the guidance. I think 3Q revenue is typically up sequentially, and the company guided it down just a touch at the midpoint of guidance. I'm hoping to better understand are you seeing any slowdown in customer demand perhaps because of some of the macroeconomic conditions? Or is this more about sales coming off of a very high base and still being at a very good overall level?

Operator:

Our next question is from Amit Daryanani with Evercore.

Richard Norwitt:

Thanks so much, Amit. Look, I think we read the papers and what's the news like everybody does. But what we really listen to is our customers. And I think you saw in the second quarter, our customers gave us still very robust orders, and we executed on the orders that we had. And thereby, we were able to deliver the upside that we did here in the second quarter. I think if I look across the end markets, if any market has some customers who are saying maybe there's a little bit of a breathing -- a little -- taking a breath, for example, and we have very strong demand in the IT datacom market. I talked about the fact that IT datacom, we expect to see a little moderation in the third quarter. And I think that's a bit of a reflection of some customers taking some breathing, so to speak, after really, really strong demand. But have we seen broadly across areas like industrial, automotive, aerospace, impacts of the macroeconomic? I mean we really haven't at this stage. I will say this, the Amphenol team, we're not in the business, and we don't view it as our business, to try to guess where the economy is going. Can there be one day a recession? I mean there's lots of people who are much more expert than I am who are probably going to make prognosis about that, and we won't get in the business of doing so. But what we are doing always inside our company is making sure that we're prepared either way. And I've used that term before in this forum of driving with one foot on the gas and one foot on the brake. And that's just the Amphenolian way. We are going to have our foot heavy on the accelerator, capitalizing on this great backlog that we have, capitalizing on the wonderful position we've built with customers, capitalizing on the new technologies that we're enabling next-generation applications with our customers. But we're always going to have a foot covering the brake in case we see something different coming our way. And then our general managers, 130 of them around the world, will quickly take action to adjust our resources to react to whatever dislocations can come in the marketplace and, thereby, to both preserve the financial strength of the company while ensuring that we can continue to grow our market position in any economic environment. And that's where we stand today. Is there going to be, because of the Fed or because of whatever geopolitics or because of whatever reason, some macroeconomic slowdown or some shock? We don't know. And in all honesty, we don't try to spend a lot of time wondering about that. We talk to our customers. And when we see something change, we'll react with the type of speed that everybody has been accustomed to from the Amphenolian organization.

Wamsi Mohan:

Adam, I was wondering if you might be able to comment on what you're seeing on the ground in China. Clearly, in the second quarter, there were lockdowns for a couple of months and then a recovery from there. But just from a demand perspective, can you maybe share any color on how those months transpired from a demand, and if you're seeing any real snapback in demand, especially in light of the view that there are some stimulus programs underway? And maybe if you can share some context on what you've seen in the past from such initiatives, how that might have benefited Amphenol?

Operator:

And our next question is from Matt Sheerin with Stifel.

Craig Lampo:

Matt, this is Craig. Thanks for the question. Yes. No, it's a great question. I mean we're really proud of the achievement we had here in the second quarter. 20.7%, really strong operating margins. And obviously, we capitalized on the strong demand environment, but the team really did an outstanding job really navigating, I think, the environment around cost and inflation, supply chain, all of these things that clearly have put pressure on margins. And we talked about coming into the year how we started -- have been starting to see some impact of the pricing actions that we have been taking. We had strong margins in the first quarter. We talked about coming into the second quarter here, expecting some additional traction related to pricing. And as I mentioned in my prepared remarks, I think, at this point, coming into the second quarter, we really have, we believe, had a meaningful progress on really offsetting a good portion of the inflation and supply chain and other costs that we've seen over the past year. We do expect actually some additional progress here in the third quarter. And I think our guidance does reflect that on -- our guidance at the revenue line and being a little bit lower sequentially and our EPS being kind of basically flat, which would represent an implied continued progress on margin, which is partially due to continued pricing actions that we continue to take. Well, where we are in that journey in terms of will we be at the end of it at the end of the third quarter? I don't necessarily know that I would say that. But I'm not sure what's going to happen with inflation. I mean that continues to be a big question mark. I mean, the cost environment continues to be very dynamic. So I think as we have done, as we will continue to do, our general managers have done an outstanding job just raising prices commensurate with the cost environment, and we'll continue to do that. And I'm really proud of the team for the progress we've already made.

Steven Fox:

Could you talk a little bit more about the wireless device markets? I know you mentioned it's looking seasonal. It sounded like it's on the low end of seasonal, so from an end market standpoint. And also, can you touch on how you're looking at content this year versus maybe last year, where maybe you're doing better or different types of technologies that you're leveraging into new phones or in tablets, et cetera?

Operator:

Our next question is from Samik Chatterjee with JPMorgan.

Richard Norwitt:

Thank you very much, Samik. Look, industrial has been a really strong market for us here for quite some time period. I'm just so proud of our team in industrial. If I look back, I mean, this is, I think, something like our ninth consecutive quarter of double-digit growth in industrial, and that has included some really wonderful acquisitions that we've made, both on interconnect and sensors and antennas. And today, the breadth of where we sell industrial products per se is broader than it's ever been before. I mean if you think about where kind of industrial is, it can be everything from a high-speed train to an offshore oil platform to an alternative energy, solar farm or wind mill. It can be in heavy equipment. It can be in building architecture and HVAC systems. It can be sensing for a wide variety of things. I mean, you can imagine where you can put like a sensor and an antenna and a connector to like to check the weather, you can put these things on tall buildings all the way down to tiny bird houses. I mean you name it, there's going to be so many different places where industrial products can go. And all along, what ties them together is this unique, harsh environment packaging of the products, be they interconnect, be they sensors, be they antennas. We think it's a great place to make acquisitions. And the fact that industrial is today something like 26-or-so percent of our sales doesn't at all give us pause because it's also our broadest, most diversified market of all of our end markets in terms of the applications and the variability of those applications. So far from it. I mean, we just completed the acquisition of NPI this last quarter. NPI sells harsh environment, complex interconnect assemblies that are used in a very specific part of the industrial market in particular, which is the semiconductor capital equipment and the test and measurement equipment market. This is a great space to be for the long term. I mean just look at some of the legislative priorities in our country and in many others and the trends for many years into the future, that seems like a very good place to be, but so does electrification of heavy equipment. So does something like alternative energy, and all with that is entailed. And so we're very committed to the industrial market. If we see great acquisitions that come along that expand both our product technology and our position across some of these segments, we're not going to shy away from them.

Luke Junk:

Another question, broader business but more of a company-specific standpoint. So although you're not seeing in the business, yet there are, of course, these broader signs of rising economic risks overall, other callers have highlighted. What I'm wondering, Adam, is if you could comment on your conversations with your general managers right now given the backdrop, and specifically, any contingency planning they might be doing at present for their businesses to find growth and protect earnings in what could be a more challenging environment from here? In other words, the brake side of the gas and brake dynamic that you spoke to earlier?

Operator:

Our next question comes from Nick Todorov with Longbow Research.

Richard Norwitt:

Yes. Well, look, I think our peers are doing very well, too, I think relative to our bookings. Actually, bookings across the quarter were fairly linear. It wasn't that we saw a big spike early and it tailed off later, vice versa. Actually, orders were pretty consistent across the 3 months of the quarter, which was encouraging to see actually. And relative to our end markets and the booking trends of the end markets without going sort of one by one, again, I would say that we had good strength across virtually all of our markets, especially our kind of what I refer to as our longer-cycle markets where we saw still great bookings, military, commercial air, industrial, automotive. We saw really strong bookings in broadband as well. And I think that's a great reflection of some of the planning of broadband customers right now. We're really working on expanding the capacity and also the breadth of the networks. There's a lot going on around opening up the opportunities in rural America, for example, with broadband access. And our team is really on the front lines of supporting our customers in those initiatives. I think the one market where, again, bookings were still strong but where maybe we started to see towards the end of the quarter a slight moderation is IT datacom. And I talked about that earlier. I think we are seeing some -- maybe in the third quarter, a little bit of digestion of the strong consumption that some of our customers have had there. We hear a little bit about touches of inventory in that space as well, which is not surprising given the extremely strong demand that we've seen in that space, but nothing of any cataclysmic variety here. I mean the IT datacom market remains very, very strong. But as we've said in our guidance, we would anticipate in the third quarter to see a little bit of a moderation there. So overall, I think there's really strong bookings. And I got to give a call out to our salespeople around the world, they do the toughest job there is there. And it's just amazing how they continue to support customers and ultimately generate the bookings that we've seen.

James Suva:

Adam, on your prepared comments, you mentioned the auto sector, how it outperformed this quarter, which is great. But then you mentioned that you expect it to decline, I think you said moderately for the Q3 outlook. Has something changed there? Because the supply constraints have kind of been ongoing for a long time and you think that maybe we've stabilized or gotten a little bit better with those. But I'm just kind of wondering about the outperformance was fantastic, but kind of why kind of a little bit of a downtick for the outlook.

Operator:

Our next question is from William Stein with Truist Securities.

Craig Lampo:

Yes. Thanks, Will. I appreciate the question. Listen, as I mentioned before, we're certainly super proud of the results here in the second quarter in regards to the profitability. In regards to -- I'll parse this question now into a couple of different pieces. In regards to FX, although clearly there's translation impacts on both the top and bottom line in regards to currency, it typically doesn't have a meaningful impact on our margins. So certainly, there could be some small impacts here or there, but nothing that would call out as being a meaningful impact. So I would say, currency hasn't really impacted -- doesn't really impact our conversion as you think about it in any meaningful way. As it relates to our pricing and input cost inflation, we've been -- we certainly had pressure. Last year, as you remember, Q1 of '21, that was kind of stepped down a bit, certainly a larger negative conversion in the first quarter of '21. And as the year progressed, as we kind of were chasing that with pricing, we were able to neutralize the incremental worsening of the inflationary environment, but I wouldn't tell you that we ever kind of got back to neutral from a Q1 '21 perspective. And I think what we're seeing is that we're seeing in the first half of this year a bit of a catch-up from the first half of last year. And that's why when I said I think that at this point we've been able to kind of offset a meaningful amount of that inflation, I mean a meaningful amount kind of that's happened over the last 12 months. So the conversion, the strong sequential conversion you see here in the second quarter is really kind of catch up, I would say, for pricing -- for inflation that we've seen over the course of the last year, and that will continue to hopefully catch up on as we expect to here in the third quarter. So it's kind of been a journey, and pricing typically is behind cost a bit. And that's what we've seen here into '21 and coming in here into '22. But I think at this point, pricing is starting to catch up to cost, and that's really reflective of the strong conversions that you see. Now we're not guiding here in the fourth quarter and full year. I mean we don't know what inflation is going to do and all that. But you can guarantee that our general managers are close to their costs, and they're continuing to have conversations with the customers. And if the environment continues to either level out or, ultimately, the inflation continues to increase, we're going to take the appropriate action, both on the cost and on the top line.

David Kelley:

You noted touches of inventory build in IT datacom. Just curious if you're seeing any signs of build in any of the pockets of industrials land. Or is the demand appetite there still strong enough to absorb the incremental order strength you're seeing?

Operator:

Our next question is from Joseph Spak with RBC Capital Markets.

Richard Norwitt:

Yes. Thanks so much, Joe. Look, we're very sensitive to the -- all the geopolitical issues around, that includes the potential energy issues that are coming in Europe. And no doubt about it, we're putting a lot of real-time thought into what that means for ourselves and also what it means for our customers and for the end demand. We have not heard a lot of direct evidence of the behavior that you're talking about. I mean we've heard people sort of third hand, fourth hand, like you've just said here. But I can't tell you that we've had a big flood of customers coming up and saying, "Hey, we're going to try to produce everything while it's still warm outside." Could that happen? Would it surprise me? I guess it wouldn't totally surprise me. And I think there's going to be a lot of creative efforts that people are going to have to take here as we head into the winter months in Europe to offset what may very well be a very challenging energy availability and cost situation. And I know that if I look at what our teams are doing today while it's still hot outside, there's a lot of efforts ongoing to prepare ourselves and to make sure that we are not caught kind of cold, so to speak, this winter in Europe. And that's in Germany, that's in Eastern Europe, that's to some extent in France and, to some extent, in even the U.K., Scandinavia, where maybe there will be availability, but it might be very, very expensive. And so what are we doing right now? And you can do a lot of things actually, it turns out. Maybe there were some projects that you had to increase insulation and the ceiling of your buildings. Maybe you had some things on the shelf to put in heat exchangers in factories and things like that. Maybe you had already started construction of solar panels on certain rooftops in certain countries. All things that we've been doing and have been doing and maybe would even accelerate a little bit as we come into this year. So there's a whole host of solutions to this. Inside our company, those are going to be very, very site-specific under the purview of our general managers. It's not that we're going to make some big, dramatic kind of corporate decision about how are we going to offset the potential risk of energy availability in Europe. But you can bet that there's a lot of activities going on. And so I can extrapolate from that, that probably our customers are doing the same. And does that mean putting inventory in place? Or does that mean taking a lot of the steps internally that one can take to insulate oneself literally and metaphorically, from the challenges? I guess that customers are going to be looking at all those options.

Joseph Giordano:

So I just want to touch again on price. I mean, so you had -- obviously very strong in the quarter, driving the leverage there. And next quarter guide is for down revenues a little bit sequentially but up margins. So I guess that keeps reading out. Just curious as to like the runway of the ability to keep driving price. And if we start seeing orders start to kind of like normalize or maybe directionally moderate a bit, lead times start to normalize, like historically, when you look back, how long have you been able to drive price positive? And like what are the conditions that make that harder to do?

Operator:

And our last question is from Chris Snyder with UBS.

Richard Norwitt:

Thanks so much, Chris. And look, it's a great question to squeeze in. I mean you pointed out, I mean we are, over just a very short time period, nearly 50% bigger. And it's just an outstanding testament to the organization that they've been able to flex the company in such a difficult environment. I mean let's not forget, we're 50% bigger, which, in a normal environment, would be a challenge to increase our capacity, to expand our footprint, to hire the people, to put in place whatever equipment is necessary, to do all of that. But to do it in a pandemic, to do it in a supply chain crisis, to do it in an inflationary environment, I think, is just the best testament to the Amphenolian entrepreneurs around the world that have made this company special. So do we see capacity constraints today? I think we've battled through them all. I mean have there been challenges over the course of these couple of years? Like you cannot imagine. I mean, really, like you cannot imagine personal, professional for everybody through the pandemic. I mean it's not for the faint of heart, but it is right down the pipe for what Amphenol general managers do every day. I mean, every single day, every one of those 130 general managers, they're fighting so many different challenges, so many different barriers that pop in front of them. And they're not bemoaning it. They're not hiring consultants to help them manage it. They're not going to some corporate bureaucracy to sort of find the answer. They're looking at their own window and they're making it happen with their teams. And then when they need help, they come to us. We collaborate across the company. We deal with it. We work the problem. And I think the result speaks, in my mind, for itself. Through those challenges, through all the tribulations here of these recent years to expand the company by 50% -- or close to 50% is something that I think our team is really justified to be proud of. And I appreciate you bringing that up here at the end. Well, I think that is our last question. And so with that, I'd really like to wish everybody a great finish to the summer. I hope all of you get a little bit of chance to spend some time with your family and, hopefully, enjoying some of this wonderful weather that we've been having here in Connecticut. And we look forward, Craig and I, to speaking with all of you here in just another 90 days. Thanks so much.

Operator:

Thank you for attending today's conference, and have a nice day.

Operator:

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation [Operator Instructions]. 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.

Adam Norwitt:

Well, thank you very much, Craig, and it's my pleasure also to welcome everybody here for our first quarter earnings call. And first and foremost, I hope that everybody here today, together with your family, friends and colleagues are managing to stay safe and healthy as the world comes to some degree of normalcy. Again, I also wanted to just offer our thoughts to the people of Ukraine, who are obviously going through this very difficult time period with the unfortunate war. While we don't have operations in the Ukraine, we do have many employees of Ukrainian descent and our hearts are clearly with them together with their families and friends. As Craig mentioned, we wanted to highlight or I'm going to highlight some of our first quarter achievements. I'll then spend a few moments to discuss our trends and our progress across our served markets. And then finally, I'm going to comment on our outlook for the second quarter. And of course, we'll then have time for questions at the end. As Craig mentioned, we drove results in the first quarter that were substantially beyond our original expectations, exceeding the high end of our guidance in sales as well as adjusted diluted earnings per share. Sales grew a very strong 24% in US dollars and 25% in local currencies, reaching $2.952 billion. And on an organic basis, our sales increased by 17% with growth across nearly all of our end markets and that was driven particularly by double digit growth in the IT datacom, commercial air, industrial, automotive and broadband markets, and I'll talk about each of those in a few moments. The company booked a record $3.441 billion in orders in the first quarter, and this represented another very strong book-to-bill this time 1.17:1. And despite continuing to face substantial inflationary pressures and supply chain disruptions, our operating margins reached 20.0% in the quarter, which was a 40 basis point increase from last year's levels. We're very encouraged by the strong profitability performance for the company, and we see that as a clear sign that our local management teams are successfully managing through this challenging cost environment. Diluted EPS in the quarter grew a robust 29% from prior year to $0.67, again, an excellent reflection of our continued strong execution. The company also generated strong operating and free cash flow in the quarter of $351 million and $274 million, and that's despite all of the challenges that Craig alluded to. And again, another clear reflection of the high quality of the company's earnings. I'm just very proud of our team this quarter. These results once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well in a very dynamic and challenging environment. Now turning to our end markets. I would just comment that we continue to be very pleased that our end market exposure remains highly diversified, balanced and broad. And in particular, amidst these very dynamic times, this market diversification continues to create great value for Amphenol. Now starting with our military market represented 10% of our sales in the quarter. Sales grew by 7% from prior year and were up 1% organically with growth in space and avionics applications somewhat offset by moderations in our sales on to UAVs, naval and military vehicles. Sequentially, our sales decreased by 2%, which was just a hair below our expectations coming into the quarter. And looking now into the second quarter, we expect sales in the defense market to increase modestly from these first quarter levels. We continue to be very pleased with the strength of the company's position in the defense market, a market that has renewed importance given the current geopolitical environment. As militaries around the world continue to accelerate their adoption of next generation technologies, our industry leading breadth of high technology interconnect and sensor products positions the company strongly across essentially all major military programs. This gives us great confidence for our long term performance. The commercial air market represented 3% of our sales in the quarter. And sales in commercial air increased by a strong 42% from prior year and 28% organically as we benefited from the continued recovery in global aircraft production. Sequentially, our sales grew by a better-than-expected 8% from the fourth quarter. And as we look into the second quarter, while we do expect a sequential moderation of sales compared to these first quarter levels, we anticipate another quarter of year-over-year growth in commercial air. After two very challenging years in the air travel industry, we're encouraged by the strengthening of our ComAir business. As personal and business travel continues to recover, we look forward to benefiting from the company's strong interconnect and sensor technology position across a wide array of aircraft platforms as well as the next generation systems that are integrated into those planes. The industrial market represented 25% of our sales in the quarter, and we drove another quarter of excellent performance in the industrial market. Sales grew 31% in US dollars and 20% organically, and this was driven by robust growth across most of the segments within the industrial market. But we did see particular strength in battery and electric heavy vehicle applications, factory automation and oil and gas, as well as the benefits of several of the acquisitions that we've done over the last year. On a sequential basis, sales were down just 1% from the fourth quarter, which was better than our expectations coming into this quarter. Looking into the second quarter, we expect sales in the industrial market to increase moderately from current levels. So this first quarter confirmed once again that our outstanding global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market. I remain confident that our long term strategy to expand our high technology interconnect antenna and sensor offering, both organically and through complementary acquisitions, has positioned us well to capitalize on the many revolutions happening across the industrial electronics market. We look forward to realizing the benefits of this strategy for many years to come. The automotive market represented 20% of our sales in the quarter, and sales grew by 17% in US dollars and organically with our growth, driven once again by the strength of our sales into electric and hybrid electric vehicle applications. Sequentially, sales increased by 5% from the fourth quarter which is actually much better than our expectations of a high single digit decline. And this just reflected strong execution by our team working in the automotive market. For the second quarter, we expect a modest sequential decline in sales as customers manage through a wide array of supply chain challenges in the global automotive market. I remain extremely proud of our team working across the automotive market. They continue to manage through a difficult supply chain environment all while remaining laser focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicle platforms. Our continued outperformance is a direct result of that team's excellent efforts. The mobile devices market represented 10% of our sales in the quarter. Sales increased by 7% from prior year, with strength in tablets, smartphones, wearables as well as laptops. Sequentially, our sales decline was less than we had expected, declining 27% from the fourth quarter. As we look into the second quarter, we now anticipate a low double digit sequential sales decline from these levels, driven by typical seasonality, as well as by some impact from the recent COVID-related shutdowns that have been occurring and continue to occur in China. There's no question that mobile devices remains our most volatile of end markets. Nevertheless, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2022 and beyond. Our leading array of antennas, interconnect products and mechanisms continues to enable a broad range of next generation mobile devices, positioning us well for the long term. The mobile networks market represented 5% of our sales in the first quarter and sales in this market grew from prior year by a stronger-than-expected 14% in U.S. dollars and 5% organically as strength from products sold directly to network operators, together with the benefit of acquisitions more than offset a moderation of our sales to equipment OEMs. Sequentially, our sales in the first quarter were flat to the levels that we achieved in the fourth quarter. As we look into the second quarter, we expect a modest decline from these first quarter levels. Nevertheless, we're encouraged to see continued strength in our sales to the mobile networks market. As operators continue to ramp up their investments in next-generation systems, our team remains focused on realizing the benefits of our efforts to expand our position in next-generation 5G equipment and networks around the world. We look forward, especially to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology and data communications market represented 22% of our sales in the quarter. Sales were stronger than expected in IT datacom, rising by a very robust 41% in US dollars and 35% organically from prior year as our teams capitalized on broad based strength across server and networking applications. And in particular, we saw continued robust growth of our sales to web service provider and data center operator customers. We were pleased that sales moderated by just 2% sequentially in the first quarter, which was better than our expectations coming into Q1. Looking to the second quarter, we expect sales to increase in the mid-single digits from these first quarter levels as customer demand continues to grow in IT datacom. We remain encouraged by the company's outstanding position in this important market. Our OEM and web service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power. We look forward to realizing the benefits of our leading position for many years to come. The broadband market represented 5% of our sales in the quarter. And sales in this market also grew by a very strong 47% from prior year and 12% organically, as broadband spending levels increased and as we benefited from our recent acquisitions. On a sequential basis, sales increased by a much better-than-expected 30% from the fourth quarter. And we're pleased, in particular, to start to see some progress in pricing actions across this market. In the second quarter, we expect sales to the broadband market to increase modestly from these levels. And we look forward to continuing to support our broadband service provider customers around the world with our expanded range of high technology products. As our customers increase the bandwidth and capacity of their networks to support the expansion of high speed data applications to both homes and businesses, our products have become even more critical. Now turning to our outlook for the second quarter. The current market environment remains highly uncertain with ongoing supply chain and inflationary challenges being in many ways exacerbated by both the war in Ukraine, as well as the continued impact of the pandemic, which is causing shutdowns in certain geographies, most notably in China. Assuming conditions do not meaningfully worsen and also assuming, of course, constant exchange rates, for the second quarter, we expect sales in the range of $2.890 billion to $2.950 billion and adjusted diluted EPS in the range of $0.66 to $0.68. These expectations would represent strong sales growth of 9% to 11% and adjusted diluted EPS growth of 8% to 11% versus the second quarter of last year. I just have to say that I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges that are still present in the marketplace and to continue to grow our market position while expanding the company's profitability. In addition, our organization remains committed to delivering long term sustainable value, all while prioritizing the continued safety and health of each of our employees around the world. And I'd just like to take this opportunity at the end here to thank all of those employees, more than 90,000 of them around the world, the entire Amphenol team, for their truly outstanding efforts here in the first quarter. And with that, operator, we'd be very happy to take any questions that there may be.

Amit Daryanani:

My question is really around -- and I'm hoping, Adam, you would just elaborate on what are the impacts you're seeing out of the China lockdown maybe on two fronts. So one is, how are you thinking about that impacting your supply, your demand environment coming out of China? And secondly, do you think this is really resulting in customers perhaps deciding to hold on to more inventory for longer versus trying to get back to just-in-time models if that's the discussion as being happen with your customers?

Operator:

The next question is from Mark Delaney with Goldman Sachs.

Adam Norwitt:

I mean, look, I don't know that we've seen any meaningful difference in the M&A environment. I would tell you the M&A environment is very robust. Our pipeline is as strong as ever. As you know, over the last two and half years, we closed on a large number of deals, including last year, just the extraordinary progress that we made in our M&A program with very significant deals like MTS and at the end of the year, Halo, as well as the number of wonderful tuck-in companies, tuck-in deals that then ultimately strengthen our position across a wide array of our end markets. And I think that we continue to see among companies that we talk to, I don’t know if it's a general willingness -- increased willingness, but our reputation is a wonderful home for their companies, that continues to strengthen over time. And so there's no doubt about it that our phone continues to ring. We continue to to create that sort of organic pipeline of acquisitions. And not a week goes by where Craig and I don't hear of some new company that we had never heard of. At the same time, we have very high standards. And so to the point that if companies are kind of coming out of the wood work, we're not just saying yes to every one of these. We hold very, very high standards around our acquisition program. And that includes looking for great people with great products who have complementary market position. And that is never going to be something that we compromise and nor do we ever compromise on valuation because at the end of the day, whether the stock market is higher or the stock market is low, we pay fair value for great companies. And we pay a value that’s really based on what they have delivered and not what the company can become as part of Amphenol. In terms of our willingness to do larger deals, I would just let our history speak almost for itself here. I mean, for sure, we have the wherewithal to do an enormous number of deals, and that includes deals large and small. I would say that the evolution of our organization, one of the benefits of that is really also opening up the bandwidth across the company so that we have capacity to either do more deals or bigger deals, both of which we kind of arithmetically need to do if we want acquisitions to continue to represent roughly a third of our growth over the long term, which is what we continue to target. So I think the M&A landscape remains a very positive driver for Amphenol. And I think the strategy of complementing our superior organic growth with adding excellent companies is something that has created enormous value for the company past and we'll continue to do so going forward.

Unidentified Analyst:

This is Manmohan on for Samik Chatterjee. I just wanted to ask like the way we were thinking and where some of the investors you were talking to, like we were expecting you to have a higher than -- higher headwinds in terms of margins compared to your peers, but you have -- but the results were a little contrary to that with better operating margins than peers, both for current quarter as well as for the next quarter. So is there like the expectations were there due to the decentralized way of functioning the centralized hedging activity was lesser. So what exactly is things that we are missing here? Is this entirely due to better success with price increases or some other dynamics here at work?

Operator:

Next question is from Steven Fox with Fox Advisors.

Adam Norwitt:

And Steve, you're never missing any boats. So I wouldn't say that. Look, we're just -- our IT datacom business and the operations within Amphenol who are serving that end market have just done a phenomenal job over the last two years on several fronts. Number one, it's developing the products that our customers need. And I think the innovation in this market is so critical because our customers are under enormous pressure, enormous pressure to satisfy this kind of unquenchable thirst among consumers for bandwidth, and at the other side, the kind of unquenchable thirst for power that these data centers create. And so where we've seen the real innovations is happening around high speed interconnect across the board, as well as in the power interconnect that goes to drive the efficiency of these systems in a way that ultimately these data centers don't become such [positive] of energy. And I think on both of those fronts, we just continue to see this immutable march forward and drive for customers to really push the limits of technology, and that's something where our engineers are just really excelling. Whether it's designing the latest high speed interconnects such that we can stretch the ability of copper interconnect far beyond what people ever thought was possible and thereby saving both cost as well as power consumption and the design resources of our customers to designing really complex power interconnects that ultimately reduce the power consumption of these data centers and make them more efficient. There's a lot of work going on there. At the same time, coupled with those great products, has been our consistent, and I will say, really consistent through this whole cycle of the pandemic, ability to satisfy the needs of our customers even when those needs change dramatically in a moment's notice. And that responsiveness and the fact that we never let our customers down, while others were consistently letting them down, has meant that our customers come to us more and more and give to us maybe a disproportionate share of their needs because they know that we're there for them when they need us the most. I remember so clearly, in the second quarter of 2020 going all the way back to kind of the beginning of the pandemic, when everybody started going on to video calls and video meetings and the bandwidth just kind of exploded and people were watching over-the-top video at home, Netflix and other things like that. And our customers came to us with not just marginal increases in demand but multiples of increase of demand, and we just figured out a way to make it happen. And that's the entrepreneurial reactivity of Amphenol that we talk about so often. And I think the customers in IT datacom have been real beneficiaries of that. And we've been recognized by our customers, not just with more share but with more supplier awards than I can remember in my entire career, over this time period, recognition from those customers, both OEMs and service providers that Amphenol really differentiated ourselves in terms of our reactivity and our reactions. What's that market going to be going forward? I think the demand for bandwidth does not seem to abate. Are we always going to grow by 35% organically in the quarter? I don't know that I would go out and commit to that. But I think our team has done a great job positioning us to outperform for a long time to come.

Nick Todorov:

Adam, I think you mentioned that you're starting to see some progress on pricing in the broadband market. I know that has been one of the most difficult ones to get the pricing through. Can you please help us unpack there a little bit? What is causing that change? And what are you able to do in terms of offsetting the impact of inflation that you're seeing there and maybe generally across the business?

Operator:

Next question is from Jim Suva with Citigroup.

Adam Norwitt:

And I would use the same adjectives as you that it is a sad situation what is happening in Ukraine, tragic in many respects. But I would also tell you that we're proud of the role that our company has played, both in supporting refugees coming from the Ukraine and some of the neighboring countries where we have operations. Not only supporting them monetarily but also providing jobs to some. I mean, this has been a real initiative by our team to support these people who have really had their livelihoods crushed. And at the same time, I think we've all witnessed the power of defense and that some of these new technologies that we have talked about for so many years have real importance in people's lives to keep a country safe in the face of what I think many would consider unreasonable aggression. So I wouldn't want to comment on specific conversations that we have in the defense industry. You can imagine that that's not something that we would want to do. But I think we're encouraged for the long term to see that many countries are waking up to the fact that maybe the defense budgets should be calibrated a little bit better to the level of threat that may very well exist in the world in order to keep the peace loving people of the world more secure. And that can translate into overall spending and it can translate long term into an acceleration of adoption of technologies. I've talked for a long time about the kind of difference in the defense industry between the more tactical defense spending and the more strategic defense spending. And I think, Jim, you've covered us probably as long as anyone and you've heard that theme before. And I think what we're seeing here is, no doubt about it, a shift of market and relatively rapid shift in the focus of countries, especially those countries in NATO towards an emphasis of strategic defense. And whenever you start talking about strategic defense, you immediately start to talk about technology. You talk about radar, you talk about missile defense. You talk about all of the things that electronics can do to protect people in their homes and in their sovereign nations. And I think Amphenol has played a leading role over the years in being an enabler of those kind of next-generation electronic defense systems. And so to the extent that this tragic and unfortunate conflict does drive an even greater focus among NATO countries. We certainly sit as the leader in the military interconnect market in a position to really help those countries to help the companies that are supporting that initiative in really adopting next-generation technology to protect all of the citizens of these sovereign countries.

Wamsi Mohan:

Appreciate the new segment disclosures. It seems like the operating margins here are ranging from 17% to 26% based on the segment. Can you talk about what is driving the dispersion there? Because in your 10-K, you do report most of these -- all three of these segments more or less cover all of your end markets. And you gave some color about the products too, but would love to hear from you, Adam. But maybe what is it that's driving that delta in margins? And as you think about M&A, is there a propensity to lean towards one versus another segment?

Adam Norwitt:

And relative to your question on M&A, Wamsi, no question, we have a propensity to look for acquisitions across every one of our markets and across all of our 3 now segments as we call them. We're not at all going to kind of direct our resources strategically towards one or another. They all have -- it's an equal opportunity resource for all of them. And to the extent that we find strong acquisitions with the criteria that I alluded to earlier, we're very aggressive and happy to make those acquisitions regardless of which segment it's in.

Luke Junk:

I have maybe what's a part backward and forward-looking question. And specifically, Adam, I'm wondering if there's any color on bookings or orders in your auto business specifically you could share after obviously a very big increase in that business in 2021 and here in the first quarter as well. I looked back a couple of months ago to the 10-K, you included some language on the overall business is stating that the increase in the company's backlog was with the significant sales increase given the significant sales increase in auto specifically. How should we think about that backlog and orders relative to that end market?

Operator:

The next question is from William Stein with Truist Securities.

Adam Norwitt:

I don't think we put an exact number on the COVID shutdowns, and we don't plan to I think we -- it's not like a massive impact. It's also hard to count it. I mean every day it's changing a little bit, but there's certainly some impact, And I think I mentioned earlier, we see it most in the mobile devices, but we see it in a few other markets as well, like automotive and IT datacom and industrial. In terms of the linearity of bookings, our first quarter, we saw pretty good strength through the quarter. I mean, February is a short month of sort of Chinese New Year, but we finished the quarter really strong and bookings in March were really strong indeed. And April, we're still three days away from the end, so I couldn't even give you a number if I wanted to, but we'll see how it goes here in April. I mean would I expect a 1.17:1 book-to-bill here in the second quarter? I don't think I would expect that. I didn't expect it coming into the first quarter and we had very strong bookings. But I don't expect that here in the second quarter, but we'll see. I think customers still have quite a propensity to give us business new and existing, and that's translating into very robust orders for quite a number of quarters here.

Chris Snyder:

I wanted to follow up on the prior commentary around customers more so valuing diversification in their supply chain, which certainly screens positive for a global leader like Amphenol. But my question is where is this dynamic filling up and where would you expect to show up? Is it just the rate of share gains maybe helping with some of these pricing negotiations? Or could you even help facilitate M&A for maybe some of your smaller competitors who might be on the opposite side of that equation?

Operator:

Next question is from David Kelley with Jefferies.

Adam Norwitt:

No doubt about it. Our team working and industrial market has just been consistently outstanding in their performance. I mean, since the kind of acute phase of COVID in Q1 of 2020, at least in Asia, we've posted consistently strong double-digit year-over-year growth every quarter since then. So we just did our eighth straight quarter in industrial of strong double-digit growth, and it's really a testament to their efforts. And as you pointed out, it's a very broad market. It's everything from advanced medical equipment to next-generation agricultural equipment, to high-speed rail, to semiconductor manufacturing equipment, to heavy equipment, to electrification of heavy vehicles and battery technology, battery storage, where we see just a lot of opportunities to enable a real myriad of customers who are developing next-generation energy storage systems and they want our sensors, they want our connectors. They want everything. I mean these applications are really all over the place. And they all go on somewhat different cycles, I should say. But at the end of the day, they have one thing in common, which is it is the adoption of electronics into harsh environments, into areas where those electronics otherwise should not really be able to operate. And that is a legacy that we have of many, many decades of building up the capability of packaging interconnect and sensors for harsh environments, which now means putting highly computerized autonomous driving systems on tractors, and now means putting next-generation sensor technologies and alternative energy devices and monitoring of wind mills and things like this. I mean, I could go on and on and on. And amidst the uncertain global macro, you have the certainty of the continued onward and upward march of the adoption of electronics. So I'm not going to say that we're going to grow every quarter here in perpetuity by these outstanding amounts. No, I mean, I wouldn't expect that we're going to grow by 31% every quarter going forward. But I do believe that the opportunity to outperform here remains very strong and that the breadth of our industrial product technologies is really second to none, and I think that positions us well for the future.

Joe Spak:

Maybe just to go back to one of the other questions about in the end markets and sort of being pretty well split across all the new segments. Is the implication also that the growth you've laid out for the entire company organic and second quarter, like is that also evenly split by the new reporting segments? Is there any sort of color in terms of how we should think about the segment performance would be helpful?

Operator:

Our last question comes from Joe Giordano with Cowen.

Adam Norwitt:

I mean I don't know that there's a significant impact, Joe, from kind of the hot potato of people crossing semiconductors back and forth and deciding where they should put their -- which vehicles they should put them in and thereby which they should sell and prioritize. I mean, look, if our customers are building higher content cars, is that a good thing? Yes, I guess that would certainly be a good thing. But that should be a good thing for everybody in the market. And I think would that drive specifically our outperformance? I don't know that, that would necessarily be the case. I think really what we see, and I'll just reiterate it again, is we see just an acceleration of the adoption of next-generation systems across all vehicles, and that includes the electrified drivetrains that we mentioned, but not exclusively that. It's next-generation infotainment, next-generation communication, it's next-generation comfort, passenger comfort, it's next-generation connectivity in the cars, it's everything from sensors that keep the HVAC systems running better and being safer for the people inside. I mean, you think about like going through a respiratory-borne illness pandemic and all of a sudden, car companies want to have better HVAC filtration and sensing inside their cars. And that's a great new application that may not have existed kind of in the past. And so I think that's the bigger driver here than just that some car companies are making more tactical decisions about which models to produce based on constrained availability of certain components. Well, thank you very much to everybody. I think that's our last question. And I do want to take this opportunity, once again, to thank you all for spending a few of your precious time -- a few of your precious minutes with us today and wish you all the best, and we look forward to seeing everybody again either over the course of this quarter or at the latest 90 days from now. Thanks so much, everybody.

Operator:

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions]. At the request of the company, today's conference is being recorded, if anyone has any objection, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, thank you very much, Craig, and I'd like to also extend my welcome to all of you here on the phone today. And hopefully, it's not too late for me to wish you and your family is all a happy new year. I also want to just express my wishes that everybody here on the call together with your family, your friends and your colleagues are all managing to stay safe and healthy, in particular, amidst the Omicron wave that's occurring in many areas of the country. As Craig mentioned, I'm going to highlight some of our fourth quarter and, in particular, our full year achievements. I'll discuss our trends and progress across our served markets, and then I'll make a few comments on our outlook in the first quarter. And of course, we'll have time for Q&A thereafter. With respect to the fourth quarter, we're truly proud to have finished the year with record sales and adjusted earnings per share in the fourth quarter, both of which were significantly above the guidance that we gave just 90 days ago. Sales grew by a very strong 25% in U.S. dollars and in local currencies reaching a new record of $3.27 billion. On an organic basis, our sales increased by 18%, driven in particular by robust growth in the IT datacom, mobile networks, industrial and automotive end markets. And I'll talk to each of those markets here in a moment. The company booked a record $3.278 billion in orders in the fourth quarter which represented another strong book-to-bill of 1.08:1. Despite the many operational challenges we and others continue to face, including ongoing cost increases related to commodities, supply chain and other pressures, our adjusted operating margins in the quarter reached a very strong 20.1%. Adjusted diluted EPS was a new record $0.70 and represented a robust growth of 23% from prior year, an excellent demonstration of our organization's continued strong execution. And as Craig mentioned, we generated record operating and free cash flow in the quarter of $464 million and $379 million, respectively, both of which are clear reflection of the quality of the company's earnings. Just at the end of this quarter, I'm extremely proud of our team. As these quarter's results once again reflect the discipline and the agility of our entrepreneurial organization who continued to perform very well amidst a very challenging environment. We're also very pleased that in the quarter, we announced on December 1, the acquisition of Halo Technology Limited for a purchase price of approximately $715 million. Halo is a leading provider of active and passive fiber optic interconnect components for the communications infrastructure markets with expected sales this year of approximately $250 million. Halo's product offerings are highly complementary to our existing high-speed and fiber optic Interconnect solutions and represent a significant long-term growth opportunity for Amphenol, in particular with customers in our IT datacom, mobile networks and broadband markets. We're especially excited that Halo significantly bolsters our position in active fiber optic Interconnect products, which is a technology with truly high-growth potential as customers around the world are upgrading their networks to support the acceleration of high-speed data traffic. Halo is an agile supplier of these important products to a wide variety of customers across these communications infrastructure markets, whose unique technology and service offering enables them to realize strong operating results. I'm just very excited to welcome the highly talented and entrepreneurial Halo team to the Amphenol family and look forward to great things from them in the future. We also announced on December 1, the closing of the sale of the MTS Test & Simulation business to Illinois Tool Works or ITW. We remain extremely pleased with the entirety of the MTS acquisition, which as you all recall, was announced last year in the fourth quarter, meaning 2020. With the disposition of Test & Simulation to ITW, we have now acquired 1 of the leading sensor companies in the industry, further strengthening our broad offering of high-technology sensors. We're very proud of the performance of the MTS sensors team during their first 3 quarters as part of the Amphenol family, and we look forward to them driving outstanding value for many years to come. I remain very confident that our acquisition program will continue to create great value for the company. And in fact, our ability to identify and execute upon acquisitions and then to successfully bring these new companies into Amphenol remains a core competitive advantage for the company. Now turning to the full year of 2021. I can just say it was an extremely successful year for Amphenol despite the many operational and cost challenges that we faced. We expanded our position in the overall market, growing sales by a very strong 26% in U.S. dollars and 18% organically reaching a new sales record of $10.876 billion. I would just note that, in fact, over the past 2 years, both of which have been impacted by the COVID-19 pandemic, we've grown our sales by more than 32% from our 2019 levels, which is a great confirmation of the value of the company's diversification and the agility of our management team in every environment. Our full year 2021 adjusted operating margins reached 20%, which was an increase of 80 basis points from last year from 2020 despite the multiple pressures on margins that we experienced around the world. And this strong level of profitability enabled us to achieve record adjusted diluted earnings per share of $2.48. We generated operating and free cash flow of $1.524 billion and $1.167 billion, respectively, again, excellent confirmations of the company's superior execution and disciplined working capital management. We also put that cash to work with our acquisition program that created great value in 2021 with 7 new companies added to the Amphenol family. MTS Sensors, Halo, Positronic, LCAB, Unlimited Services, CableCon and Euromicron, have collectively expanded our position across a broad array of technologies and markets while bringing outstanding and talented individuals into the Amphenol family and thereby strengthening our organization. We're excited that these acquisitions represent expanded platforms for the company's future performance. In addition, as Craig noted, in 2021, we bought back over 9.3 million shares under our share buyback program and increased our quarterly dividend by 38% representing a total return of capital to shareholders of just over $1 billion for the year. So while there continues to be a high level of volatility in the overall environment in 2021, as we enter 2022, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long-term performance. Now let me turn to the performance of the company across our served markets. And I would just note that we remain very pleased that the company's balanced and broad end market diversification continues to create value for Amphenol with no single end market representing more than 25% of our sales in 2021, and that market, industrial being really one of our most diversified markets across the segments within industrial. We believe that this diversification mitigates the impact of the volatility of individual end markets while continuing to expose us to the leading technologies wherever they may arise across the electronics industry. Now turning to the military market. Military represented 10% of our sales in the fourth quarter and 11% of our sales for the full year of 2021. Our sales grew from prior year by 6% in U.S. dollars in the fourth quarter as we benefited from acquisitions. On an organic basis, our sales did moderate by about 4% driven by reduced sales related to airframe applications and ground vehicles. Sequentially, our sales increased slightly as we had expected coming into the quarter. For the full year 2021, sales to the military market grew by 13% in U.S. dollars and 4% organically, reflecting our leading market position and strong execution across virtually all segments of the military market, together with the benefits of the MTS Sensors and Positronic acquisitions completed earlier in the year. Looking ahead, we expect sales in the first quarter to increase slightly from these fourth quarter levels, and we continue to be excited by the strength of the company's position in the military market. As militaries around the world continue to accelerate their adoption of next-generation technologies, our industry-leading breadth of high-technology Interconnect and Sensor products positions the company strongly across essentially all major defense programs, and this gives us confidence for our long-term performance. The commercial aerospace market represented 2% of our sales in the fourth quarter and as well for the full year of 2021. Sales in the quarter grew 27% in U.S. dollars and 6% organically as we benefited from the beginnings of a recovery in procurement to support growing aircraft production as well as from the contributions from our recent acquisitions. Sequentially we're very pleased that our sales grew a robust 15% from the third quarter, which was in line with our expectations coming into the quarter. For the full year, sales declined by 10%, reflecting the significant impact of the ongoing pandemic on travel and aircraft production. Looking into the first quarter, we expect a sequential moderation in sales from these levels. Regardless of the challenges in the com air market in both 2020 and 2021, our team working in this market remains very committed to leveraging the company's strong Interconnect and Sensor technology positions across a wide array of aircraft platforms and next-generation systems integrated into those airplanes. As personal and business travel continues to recover from the pandemic impacted lows, we look forward to benefiting as jet manufacturers expand their production and, in turn, their procurement of our products. The industrial market represented 25% of our sales in the fourth quarter and for the full year, and sales in this market significantly exceeded our expectations coming into the quarter increasing by a very strong 42% in U.S. dollars and 25% organically from prior year. We experienced robust strength in essentially all segments of the industrial market with particular strength in battery and heavy electric vehicle, transportation, rail mass transit, factory automation, heavy equipment as well as oil and gas. On a sequential basis, our sales increased by 2%, which was significantly better than our expectation for a sequential moderation as we saw broad-based strength. For the full year 2021, sales in the industrial market grew by a very strong 46% in U.S. dollars and 27% organically as we saw again broad-based growth across virtually all market segments of the global industrial market. Looking to the first quarter of 2022, we do expect a sequential moderation in sales from these very strong fourth quarter sales levels. Our outstanding global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market. I remain confident that our long-term strategy to expand our high-technology Interconnect Antenna and Sensor offerings, both organically as well as through complementary acquisitions has positioned us to capitalize on the many revolutions happening across the industrial electronics market. We look forward to realizing the benefits of this strategy for many years to come. The automotive market represented 19% of our sales in the fourth quarter and 20% for the full year 2021. Sales in automotive were actually much stronger than we had anticipated coming into the quarter, with revenue growing by a very strong 18% in U.S. dollars and 16% organically versus prior year, and this was driven particularly by strength of our sales in the hybrid and electric vehicle applications as well as our sales to customers in Asia. Sequentially, our automotive sales increased by a very strong 10%, well above our prior expectations for a high single-digit decline as we saw strong demand from customers in anticipation of improving production volumes in the first quarter. For the full year 2021, our sales to the automotive market increased by a strong 47% in U.S. dollars and 41% organically, reflecting the continued recovery of the automotive market as well as our expanded position in next-generation electronics integrated into cars, including, in particular, electric and hybrid drivetrains. Looking into the first quarter, we expect a high single-digit sequential moderation in sales from these very lofty levels that we achieved in the fourth quarter. I remain extremely proud of our team working in the automotive market, who has demonstrated an incredible degree of agility and resiliency in both driving a significant recovery from the reduced sales levels in 2020, while also expertly navigating the myriad of supply chain challenges that struck the entire automotive industry during the course of this year. We look forward to benefiting from their efforts long into the future. The mobile devices market represented 14% of our sales in the fourth quarter and 12% of our sales for the full year of 2021. Our sales to mobile device customers declined from prior year by 5% and in U.S. dollars and 6% organically as declines in products incorporated into smartphones more than offset the growth that we did realize in wearable devices, laptops and tablets. Sequentially, our sales increased by a better-than-expected 14%, driven by higher sales to smartphones and wearable devices. For the full year 2021, sales in the mobile devices market increased by 4% in U.S. dollars and 2% organically as we benefited from growth in our products used in laptops and wearables, offset in part by a moderation of sales related to smartphones and tablets which, as you will recall, were particularly strong during 2020 with all of the work from home and study from home dynamics that were there early on in the pandemic. Looking into the first quarter, we anticipate a typical seasonal sequential decline of approximately 35%. While mobile devices will always remain 1 of our most volatile markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2022 and beyond. Our leading array of antennas, interconnect products and mechanisms continue to enable a broad range of next-generation mobile devices, which positions us well for the long term. The mobile networks market represented 5% of our sales in the quarter and for the full year. And we're very pleased that sales in mobile networks increased from prior year by a very strong 36% in U.S. dollars and 28% organically. And this was with growth, particularly from our sales to mobile network operators in support of their next-generation 5G network buildouts. Sequentially, our sales increased by a higher-than-expected 7%. For the full year 2021, our sales to the mobile networks market grew by 12% from prior year and 7% organically. Looking into the first quarter of 2022, we do expect sales to moderate from these very strong levels. Our team continues to work aggressively to realize the benefits of our long-term efforts at expanding our position in next-generation 5G equipment and networks around the world. As customers continue to ramp up their investments into these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology and data communications market represented 22% of our sales in the fourth quarter and 21% of our sales for the full year. Sales in the fourth quarter in IT Datacom were much stronger than expected, rising by 53% in U.S. dollars and 49% organically from prior year as we benefited from broad-based demand for our industry-leading high-speed power and fiber optics solutions. While we saw strength really across server, networking and storage applications, we experienced especially robust growth from web service providers and other data center operators in the quarter. Sequentially, our sales grew by 10%, which was significantly higher than our expectations, which had been coming into the quarter of a slight decline. We do believe our sales growth benefited from some modest pull-in of demand from the first quarter as customers prepared for potential supply chain issues related to Chinese New Year. For the full year 2021, our sales to the IT datacom market grew by a very strong 26% in U.S. dollars and 24% organically as we continue to benefit from our strong technology solutions and leading position across a broad array of applications. Again, sales to web service providers were a significant contributor to our full year growth in 2021. Looking ahead, we do expect a high single-digit moderation in the first quarter, reflecting the very robust demand in the fourth quarter. Nevertheless, we're excited by our strengthened technology position especially with the addition of Halo's active and passive fiber optic interconnect products. I remain encouraged by the company's outstanding position in the global IT datacom market. Our OEM and service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power. We look forward to realizing the benefits of our leading position for many years to come. And finally, the broadband market represented 3% of our sales in the quarter and 4% for the full year, sales increased by 14% in U.S. dollars and 2% organically from prior year as we benefited from increased spending by cable operators as well as the contributions from our recent acquisitions. On a sequential basis, sales grew by a better-than-expected 10%. For the full year 2021, sales to the broadband market grew by 9% in U.S. dollars and 1% organically. Looking ahead, we expect sales to increase in the low double digits from these levels as we benefit from the addition of Halo's product sales into the broadband market. We remain encouraged by the company's position with broadband customers and we look forward to continuing to support our service provider customers around the world, all of whom are working to increase their bandwidth to support the expansion of high-speed data applications to both homes and businesses. Now turning to our outlook. The current market environment, no doubt, remains highly uncertain with significant continuing supply chain and inflationary challenges as well as the impact of the ongoing pandemic assuming that conditions do not meaningfully worsen and also assuming constant exchange rates. For the first quarter, we expect sales in the range of $2.690 billion to $2.750 billion as well as adjusted diluted EPS in the range of $0.59 to $0.61. This guidance represents very strong sales growth over prior year of 13% to 16% as well as adjusted diluted EPS growth of 13% to 17% compared to the first quarter of last year. Finally, I just want to note, as we described in our press release, effective January 1 of this year, we have aligned our business units into 3 newly formed divisions, Harsh Environment Solutions, Communication Solutions and Interconnect and Sensor Systems. This new alignment will allow us to further scale our business beyond the $10 billion sales level that we crossed last year. Very importantly, this alignment further strengthens our unique and strong Amphenolian culture of entrepreneurship, while reinforcing the accountability of our 130 general managers around the world. We look forward to providing more detail -- financial detail about these reportable segments at the time of our April earnings release. I come away from this quarter still so confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability. In addition, our entire organization remains committed to delivering long-term sustainable value, all while prioritizing the continued safety and health of each of our employees around the world. And most importantly, I'd just like to close by taking this opportunity to once again thank the entire Amphenol team. In particular, I'd like to extend my thanks to all of our factory workers around the world. While many of us have been able to work from home on occasion during these last two pandemic impacted years, I'm just so inspired by the dedication of our factory workers who never worked a single day at home and it was just a phenomenal thing to see. And the results that we saw in the fourth quarter really are a great credit to their and our entire Amphenol organization's dedication. And with that, operator, we'd be very happy to take any questions that you may have.

Amit Daryanani:

Thanks for taking my questions. I guess, Adam, as I think about the demand vectors that you're seeing, there's obviously some worry out there that you might be over shipping versus end demand in some big rate. If I think about 24% growth in December, your guide is implying a very healthy 14%, 15% growth in March. I think your compare is actually difficult. I'd love to get any perspective you have in terms of the growth that you're seeing, if it's truly end demand or you think there's a bit of an inventory build happening at the customer level and then maybe as a way to think about this in terms of your growth vectors direct versus the channel, that would be helpful, too.

Operator:

The next question is from Matt Sheerin with Stifel. You may go ahead.

Adam Norwitt:

Well, Matt, thank you very much. I mean this is a question that, as you know, is very close to my heart. I mean the simple answer to your question is yes, we do believe that our unique operating model creates a competitive advantage in the marketplace because of the agility the reactivity and the flexibility that it instills at every level of the company. I mentioned in my prepared remarks that we have taken this step effective January 1 of creating the three operating divisions of the company. And the purpose of this is to ensure the long-term scalability of that unique operating model, making sure that every one of our 130 general managers around the world has reports to somebody who has the bandwidth to support them in every way that we need to drive collaboration, to stimulate them to exceed beyond levels that they ever thought they could do and that is really the magic of the Amphenol operating model. When I joined the company 23 years ago, we were just some general managers reporting to our then CEO, Martin Loffler. And it was -- when we were about to reach $2 billion in sales that we created the first concept of a grouping of those general managers, again, to ensure the appropriate span of control, the appropriate attention and the stimulation of all of the value that comes from inside the company. And that group model, we eventually became seven operating groups. And as we have evolved, it became very clear that to continue fostering that unique operating model, we needed to create more operating groups, and I can't have 12 of them reporting to me, and that's why we create now this concept of the divisions. But at the end of the day, all of our jobs is to enable those 130 general managers around the world because that is ultimately what makes this company special. And why we're able to succeed in really good times and bad and in particular, in volatile times like today. In terms of inventory, I mean I think we're very proud of the work of our team and actually reducing our inventory in the fourth quarter, even with a 7% sequential increase in sales and bringing our inventory days basically to a normal level at the end of the year in a time period where there's so much supply chain chaos. And you can imagine in the first quarter that maybe days would go up with the sequential sales that we have guided. But this is a phenomenal reflection of the fact that these 130 general managers, they're not just responsible for sales. They're not just responsible for gross margin. They're responsible for the entirety of their businesses. Every line item of the P&L, every line item of the cash flow, every line item of the balance sheet, and that allows them to really perform in challenging times like today.

Samik Chatterjee:

Thanks for taking my question. I guess I'm more -- I'm looking back and you've typically also provided some color on the full year expectations in the past. And you -- maybe if you can comment on the thinking behind not providing a full year guide? And if you can share how you're thinking about the sustainability of the growth rate that you have in 1Q through the remainder of the year and any thoughts on margins. Just to give us some guide points about how to think about the year?

Operator:

The next question is from Will Stein with Truist Securities. You may go ahead.

Adam Norwitt:

Well, number one, you have a memory like a steel trap as always. And #2, I think you essentially answered your question in certain ways here. Look, we organized our company not by market. And so our 130 general managers are each responsible for a certain distinct type of product across the extraordinary array of products that we see in the interconnect, as we define broadly interconnect products from connectors to value-add cable assemblies, printed circuit assemblies to sensors, to antennas and just the tens and tens and tens of thousands of different types of products that we make. And ultimately, because our general managers are responsible for manufacturing and design and quality and everything, it is really a product focus that each of them have. And as you know, we've talked for many years that one of our strategies that has been so successful is the way that we diversify the company is we design products maybe initially for a customer in a certain market. But then we work very aggressively and collaboratively across the company to proliferate that product across all markets that we can see. So an example is high-speed products. Originally high-speed products were developed for IT applications, for things like core routers and the like. But as high-speed data starts to proliferate into other areas, for example, a fighter jet. Now our team in high speed would work collaboratively with the team who is maybe more focused in the defense market to make sure that we're creating the broadest product offering for those customers. And so what that ends up meaning is that many of our general managers work across multiple markets. Some of them are focused, some are not, depending on the type of product. And at the end of the day, the divisions that we now will report as reportable segments, they will each sell into multiple of our markets and the markets won't map to the divisions as it were. But we'll provide disclosure on what markets are in which division, but you're going to end up finding that most of our markets are serviced by all three of those divisions.

Adam Norwitt:

And we're not going to change the transparency that we give to all of you with all of our end markets.

Mark Delaney:

Yes, good afternoon and thanks very much for taking the question. I was hoping you could talk a bit about how to think through conversion margins at the EBIT level going forward. Very understandably, you mentioned a few headwinds in terms of M&A and supply chain that impacted the fourth quarter on a year-over-year basis. So I'm curious if you should think it's possible you have better than typical conversion margins this year as you have more opportunity to offset some of those challenges and some maybe above the historical conversion margin levels for 2022? Thank you.

Operator:

The next question is from Wamsi Mohan with Bank of America. You may go ahead.

Craig Lampo:

Thanks, Wamsi. I think in regards to when our pricing actions could fully offset, I mean, this is kind of a theoretical question because it's difficult to say ultimately what's going to happen to the underlying environment. I think to assume that the underlying environment is going to stay exactly where it is today is a little bit unrealistic. So whether or not it gets better or gets worse. But I could tell you that, again, as I mentioned a minute ago that the team is doing I think a good job, and we are starting to see progress here in the first quarter. So I'm not really sure I can tell you exactly when that would be. But I would tell you that we are confident that based on some of the progress we're starting to make here in the first quarter that we're starting to make some headway on it given the current environment. But we're sitting here again in continuing pandemic, continuing into economic environment that's a bit uncertain. So for me to kind of try to predict when we're going to completely offset the current cost environment is just not something that I guess they're prepared to do.

Operator:

The next question is from Nick Todorov with Longbow Research. You may go ahead.

Craig Lampo:

Yes. I mean I would say that if you look at our kind of overall conversion for 2021, it was probably actually pretty close to what our target is on an organic basis. That's -- we had some benefit from some pandemic costs offset by some supply chain-related costs. And then kind of the difference that is related to our acquisitions, which did bring with them at least currently a lower operating margin, which over time, we believe that we should be able to get up to the company average. So I think that's the way to think about it. I think that again, we're very proud of the ability to really actually Adam alluded to our 2-year increase in revenue over kind of through a pandemic in the supply chain, we call crisis and of over 32%. And the reality is, actually, our EPS, our earnings actually increased by that -- roughly that same amount a little bit even higher than that slightly. So I think that typically, we want to have a slightly higher EPS increase. And I think that given the fact that we've done a really good job of kind of offsetting some of these costs, I think, ultimately, we were able to really continue to increase our earnings over that 2-year period at a rate that's slightly under that we would have hoped from an organic perspective, but actually very, I think, respectable and very actually I'm very proud of considering all the costs that existed over the last couple of years here.

Steven Fox:

Thanks. Good afternoon. I guess I was just wondering, respectfully, looking at the last few quarters, the company has sort of look for a moderation in industrial and IT datacom and it's continued to perform a lot better than you guys were thinking and now you're sort of calling for the same thing again. Just stepping back and looking at the past versus going forward, is there anything different in your thinking now that you're seeing in the markets or just still trying to be conservative and any other risks you would point out that maybe we should appreciate? Thanks.

Operator:

The next question is from Luke Junk with Baird. You may go ahead.

Adam Norwitt:

No. Luke, it's a great question. I think when we talk about scaling the company, we really think about that in every aspect. Most importantly, we think about making sure that we preserve, secure and evolve that unique operating culture and that we can scale the company amidst that operating culture. That's really step one. But every other aspect of what we do also needs to scale and that includes our M&A program. And I find it really interesting. Over the course of my -- coming close to quarter of a century that I've been with this company 23 years, I started in Amphenol as an M&A intern. So I've been deeply involved in our M&A program all the way back to 1998. And we have said consistently from that time that we would expect that over the long term, acquisitions would roughly represent about 1/3 of our growth -- and that's been the case when we were a less than $900 million revenue company when I joined, all the way to today when we were close to an $11 billion revenue company. And what is interesting, I've referred to these last two years through the cycle, and Craig referred to that as well, we grew by roughly 32% through that cycle, and our organic growth was just over 20% during that time, which tells you that even in a pandemic and even with the size and scale of the company as it is, we've been able to still have acquisitions represent 1/3 of the company's growth. And how do you do that? Well, the arithmetic is pretty straightforward. As the company grows, either you have to make more acquisitions of the same size or you have to make acquisitions a bigger size. And the fact is, I think we've done all of the above. And so when we look at what we have done here with the MTS acquisition, our first-ever public company. When we look at the acquisition at the end of the year of Halo, these are not insignificant sized acquisitions yet we didn't defocus ourselves from making also the really unique enabling tuck-in acquisitions, companies like Positronic and LCAP and Euromicron and CableCon and the like and unlimited services. So we will continue to make acquisitions of all sizes. Now with the new division alignment, it actually opens even further the aperture of the types of deals that we may be able to execute upon because part of what we're doing is creating the bandwidth in our leadership team such that they can devote more time to things like driving collaboration, working with key customers and also making acquisitions. And with the size of these divisions, it would make just as easy as we bring in a $50 million company with the general manager, and we say you're now just part of Amphenol, nothing changes. We can do that with a $1 billion company one day if we find the appropriate company. And so the range of acquisitions, the scale -- the range of the scale of acquisitions that we can make, I think, is really limitless. The opportunity and the resources that we have to devote to executing on those and also making sure that they're successful once we bring them in is also really expanded by this new alignment. And so we see no reason to think amidst this, what is still a very highly fragmented market that we participate in, that M&A can't continue to be a driver like it has been for already more than two decades so far.

Christopher Snyder:

Thank you. I just wanted to follow-up on the previous commentary on M&A strategy. So as does the range of acquisitions widen and maybe the average size pushes higher to kind of achieve that 1/3 growth coming from M&A target. Is there any impact on the multiples that the company is willing to pay or maybe has to pay to go after these larger acquisitions? And are there any maybe increased challenges or difficulty integrating these larger businesses into the broader Amphenol? Thank you.

Operator:

The next question is from Joseph Spak with RBC Capital Markets. You may go ahead.

Adam Norwitt:

Well, thanks so much, Joe, and I hadn't actually done the math because we don't follow so much what is production and what is not production. I mean we care about the applications that these next-generation technology applications. But no doubt about it, our team did a phenomenal job this year and in particular, did a phenomenal job in capitalizing on new applications. And I would just point to something like the electrification trend where we just had fabulous growth in electrified applications really outperforming and taking more than our fair share of the opportunities in that space. And that's always been our long-term strategy in automotive. We're not trying to take business out of the pockets of those who have it already. That's not a great approach in automotive. But rather we look for the sort of technological innovations and those new adoptions of electronics, and then we aggressively pursue those with our agile entrepreneurial team. And I think that, that's been really successful here in this year. If I look over the course of kind of the last, call it, 13 years since I've been CEO, which really goes back to the low watermark of our automotive business. I mean we've consistently outperformed in automotive by a very significant margin, kind of year in and year out. And what does that mean in terms of a go-forward outperformance I've never put numbers on this, but we would certainly expect that our team would be able to continue to outperform overall units and what that translates into for content versus share versus new applications. I'll let you -- who is a much bigger expert in this market than me kind of sets out those numbers. But we clearly believe that we can continue to outperform.

James Suva:

Thank you very much. As we wrap it up, a lot of my questions have been answered. I just want to ask 1 about the new segment reporting and kind of your ERP system. Your company has been very well known as being very lean and mean and good controls and folding in everything. So I was just wondering, I assume this doesn't mean like a new ERP system, it doesn't mean a lot more layers of management earlier in the call, you mentioned layers of management or somebody mentioned that. I'm not sure that's what you meant as opposed to just more oversight in communication. But can you talk to us about ERP system because you've done a lot of M&A. Now you're talking about new reporting and sometimes people wonder about risk there. But I kind of view it as just providing us more information and not more cost and then not a new ERP system. If you could clarify that would be great. Thank you.

Operator:

The next question is from David Kelley with Jefferies. You may go ahead.

Craig Lampo:

Yes. Thanks, David. Gross margin is always kind of sometimes a difficult thing to specifically look at with our business. I mean, over time, maybe it's the trending of it is more applicable. But certainly, in any quarters, it's kind of difficult just because of the -- our markets to bring them with them different gross margins and also different operating expense levels. And so that's why we really just don't look at gross margins or measure ourselves based on the gross margin level. We really look at kind of an operating margin level. I think what you kind of need to look at is ultimately that operating margin, and that's trending over time. And certainly over the last 10 years, we've had a certainly a strong performance and growth of that operating margin level, and that's kind of what you kind of need to focus on. I think 10, 20, 50 basis points, even 100 basis point movement in our gross margin isn't necessarily unexpected, given strength in maybe a mobile device market or industrial market, which brings very different gross margins or a Sensor business tends to have higher gross margins and higher SG&A. So I really just wouldn't so much focus. We do tend to get these questions quite a bit, but it's really the operating margins that ultimately, we measure ourselves on. We drive our performance on. And ultimately, I think you should probably focus more on.

Joseph Giordano:

Hey guys, thanks for squeezing me in here. We kind of picked through most. I just wanted to touch on the orders. I mean I think everyone understands that there's a pretty good underlying demand across a lot of these markets. But there does seem to be not just with your results, but others like a scrambling to order stuff in this fourth quarter. Like as you think about the underlying demand and what the orders look like right now, like entering January, do you feel like book-to-bill goes below 1, like at some point over the next couple of quarters? I know we're not doing full year guidance, but just can you kind of compare orders to underlying demand?

Craig Lampo:

Thank you, everybody. Bye-bye.

Operator:

Hello, and welcome to the Third Quarter Earnings Conference Call for Amphenol Corporation. 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. Thank you, sir. You may begin.

Adam Norwitt:

Well, thank you very much, Craig, and like to extend my welcome to everybody here on the phone today. And I hope that all of you had an enjoyable and healthy summer and are staying dry here if you're in the Northeast today. As Craig mentioned, I'm going to highlight some of our achievements here in the third quarter. I will discuss the trends and our progress across our served markets. And then finally I'll make some comments on our outlook for the fourth quarter and for the full year of 2021. And of course we'll have time at the end for questions. As Craig went over, our results in the third quarter were substantially better than we had expected coming into the quarter. We exceeded the high end of our guidance in sales, as well as an adjusted diluted earnings per share. Our sales grew a very strong 21% in U.S. dollars and 20% in local currencies reaching a new record $2.818 billion. On an organic basis, our sales increased by 13% with broad-based growth across most of our served markets, as well as contributions from the company's acquisition program. Orders in the quarter were robust, again, more than $3 billion, $3.016 billion. And this represented another strong book-to-bill at 1.07:1. That despite the many operational challenges that we've continued to face throughout the quarter, including continued cost increases related to commodities, supply chain and other logistics pressures. We were very pleased to deliver robust operating margins of 20.3% in the quarter. And as Craig detailed, that was a 30 basis point sequential improvement. Our EPS – adjusted diluted EPS grew strongly from prior year increasing by 18% to a new record $0.65. And that's just an excellent reflection once again of our organizations continued strong execution. The company generated operating and free cash flow of $328 million and $238 million in the third quarter. And we're very pleased that the Board of Directors just approved yesterday an increase in our dividend of 38% effective in January of next year. Coming out of this quarter, I'm just extremely proud of our team around the world. These results once again reflect the discipline as well as the agility of our entrepreneurial organization, as we continued to perform well, amidst a very dynamic and challenging environment. Now turning to our trends and progress across our served markets. We're very pleased that the company broadened balanced and market diversification continues to create value for Amphenol. Very importantly, our diversification mitigates the impact of the volatility of individual and markets, while also at the same time, exposing us to leading technologies wherever they may arise across the electronics industry. And these are both important benefits, especially amidst such a dynamic market environment. Turning first to the military market. This market represented 10% of our sales in the third quarter. Sales grew by 7% from prior year and declined by 4% organically, which was a little bit lower than our expectation heading into the quarter. On an organic basis, growth in ordinance, airframe and space-related products was more than offset by moderations of our sales of products that were used in vehicle, naval and communications applications. Sequentially, sales declined by about 3%. Looking into the fourth quarter, we now expect a slight sequential sales increase. And for the full year of 2021, this would imply a mid-teens increase in sales from last year's levels. We continue to be excited by the strength of Amphenol position in the military market as defense customers around the world continue to adopt next generation technologies at an increasing pace. Our industry leading breadth of high technology, interconnect and sensor products positions the company strongly across essentially all major defense programs. And this gives us confidence for our long-term performance. The commercial aerospace market represented 2% of our sales in the quarter. Sales were flat compared to prior year and declined by about 19% organically as the benefit of our recent acquisitions was offset by continued declines in demand from aircraft manufacturers. As expected coming into the quarter, our sales declined by about 3% sequentially. Looking into the fourth quarter, we're happy that to now expect the mid-teens increase in sales compared to these levels. And for the full year 2021, this would imply a roughly 10% sales decline compared to last year, a clear reflection of the pandemic related headwinds that have impacted the travel industry and thus the commercial aircraft market during the COVID-19 pandemic. Regardless of this challenging environment so far our team working in the commercial aerospace market remains committed to leveraging the company's strong interconnect and sensor technology position across a wide array of airplane platforms and next generation systems integrated into those aircraft. As personal and business travel continues to recover from the pandemic impacted lows, we do look forward to benefiting as jet manufacturers expand their production and in turn expand their procurement of our components. The industrial market represented 26% of our sales in the quarter. Sales increased by a very strong 44% in U.S. dollars and 24% organically. This excellent growth was broad-based across most segments of the worldwide industrial market, including in particular, the battery and heavy electric vehicle, factory automation, oil and gas, rail mass transit, heavy equipment, alternative energy and instrumentation segments together with the contributions from our recent acquisitions. On a sequential basis, sales increased by 4% from the second quarter, which was much better than our expectations coming into the quarter. Looking into the fourth quarter, we expect sales to moderate from these levels. But for the full year of 2021, we expect sales to increase more than 40% from prior year, a very strong performance. I remain extremely proud of our global team working in the industrial market. Our long-term strategy to expand our high technology interconnect antenna and sensor offering both organically and through complementary acquisitions has positioned the company to capitalize on the many revolutions that are occurring across the industrial electronics market. We look forward to realizing the benefits of the strategy for many years to come. The automotive market represented 19% of our sales in the quarter. And despite the widely reported challenges across the automotive market, our sales actually came in higher than expectations in the quarter growing a strong 31% in U.S. dollars and 26% organically. This strong performance reflected our automotive teams, excellent execution in the face of numerous supply chain challenges as well as robust growth of our products used in electric and hybrid electric vehicles. This was another clear confirmation of our global teams long-term efforts at designing and high voltage and other interconnect and sensor products into these next generation platforms. On a sequential basis, sales were flat compared to the second quarter. The widely reported supply chain challenges in the auto industry continued to impact demand from vehicle manufacturers around the world. Accordingly, we do expect in the fourth quarter, a high single digit sequential moderation in sales. For the full year 2021, this implies sales will increase by more than 40% compared to last year driven by our expanded position in next generation electronics integrated into cars, including in particular those electric and hybrid drive trains. I remain extremely proud of our team working in the automotive market, who has continued to demonstrate a high degree of agility and resiliency in both driving a significant recovery from last year’s reduced sales levels, while also expertly navigating the myriad of supply chain challenges that the entire automotive industry is facing. We look forward to benefiting from their efforts long into the future. The mobile devices market represented 13% of our sales in the quarter. And our sales in this market declined from prior year by 5% as modest growth in sales of products incorporated into smart phones and laptops was more than offset by declines in wearables and tablets. Sequentially, sales increased by a stronger than expected 36% driven by higher sales across virtually all product categories that we serve. Looking into the fourth quarter, we expect a continued mid to high single digit increase in sales from these third quarter levels. And for the full year, we anticipate sales to grow modestly from 2020, which is in fact, an impressive achievement given last year’s robust demand. I remain very proud of our team working in the mobile devices market. Their unique agility continues to enable the company to react quickly to changing demand in this most volatile of markets. With our leading array of antennas, interconnect products and mechanisms enabling a broad range of next generation mobile devices. We're positioned well for the long term. Turning to mobile networks market. This market represented 5% of our sales in the quarter and sales increased by 11% from prior year and 7% organically. And this sales growth was really driven by our sales to mobile service providers, which was offset by a small moderation of sales to OEMs. On a sequential basis, our sales increased just slightly, which was largely in line with our expectations coming into the quarter. For the fourth quarter, we expect another slight sequential increase in sales. As mobile networks customers continue to ramp up their investments in 5G and other next generation networks. And for 2021, this would imply that our sales would grow by approximately 10%. Our team continues to work aggressively in the mobile networks market to realize the benefits of our efforts to expand our position in next generation 5G equipment and networks around the world. As our customers ramp up their investments into these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology in datacom market represented 22% of our sales in the quarter. Sales in this market rose from prior year by a very strong 28% in U.S. dollars and 26% organically. And this is driven by increased demand from OEMs and in particular increased demand from web service providers. Sequentially, our sales grew by a better than expected 10% from second quarter levels. As we look into the fourth quarter, we do expect a slight decline from these elevated levels. And for the full year of 2021, we expect sales to increase in the low 20% range. We remain encouraged by the company's outstanding position in the global IT data datacom market. Our OEM and service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power. In turn, our team remained highly focused on enabling this continuing revolution and IT datacom with industry leading high speed, power and fiber optic interconnect products. We look forward to realizing the benefits of that leading position for many years to come. And finally, the broadband market represented 3% of our sales in the quarter. Sales declined by 5% from prior and 10% organically as cable operator procurement moderated. On a sequential basis, sales decreased by a slightly better than expected 3%. For the fourth quarter, we now expect a further moderation in sales from these levels and for the full year 2021, we anticipate that sales will grow in the mid single digits. Despite this more challenging environment in the broadband market, we continue to look forward to supporting our service provider customers around the world. All of them are working to increase their bandwidth to support the expansion of high-speed data applications to homes and to businesses. Now turning to our outlook. There's no question that the current market environment remains highly uncertain with significant supply chain and inflationary challenges, as well as the ongoing pandemic given this and assuming constant exchange rates. For the fourth quarter, we expect sales in the range of $2.690 billion to $2.750 billion and adjusted diluted EPS in the range of $0.61 to $0.63. This would represent year-over-year sales growth of 11% to 13% and adjusted diluted EPS growth of 7% to 11%. Our fourth quarter guidance represents an expectation for full year sales of $10.540 billion to $10.600 billion and full adjusted diluted EPS of $2.39 to $2.41. This outlook represents full year sales and adjusted EPS growth of 23% and 28% to 29% respectively. I remain confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability. In addition, our entire organization remains committed to delivering long-term sustainable value all while prioritizing the continued safety and health of each of our employees around the world. Most importantly, I'd like to take this opportunity to once again, thank the entire Amphenol team for their truly outstanding efforts here in the third quarter. And with that operator, we'd be very happy to take any questions.

Amit Daryanani:

Thanks a lot and good afternoon. Adam, there's been a fair amount of talk, a lot of talk maybe around just supply chain challenges, inventory build and everything else. Yes, love to get your perspective, what are you seeing from that basis across your customer base? Are you starting to see your order the demand start to moderate a bit of customers being less eager to expedite orders or anything you're seeing variation between the channel and OEM demand trends? Just anything you see from that basis would be helpful.

Operator:

And our next question is from Steven Fox from Fox Advisors. You may go ahead.

Adam Norwitt:

Yes. Well, thanks so much, Steve. I mean no doubt about it. It’s been a very, very strong year and I would almost say a very strong couple of years for our team work in the IT datacom market. I mean not forgetting that last year, we grew in that market by 15%. And this year, continuing to exceed our expectations with sales in this quarter in particular are growing by 28% and 10% sequentially. So no question about it. And I think when I look into the fourth quarter, we’re coming from very elevated levels of demand. And we’re not guiding to like a catastrophic reduction. We’re talking about a modest sequential decline in the fourth quarter, which I think given the overall environment, given the overall demand from our customers and in particular customers in web service where we’ve seen just really strong growth and whether you call them cloud or web service providers and we’ve seen outstanding growth in that business over the last couple of years. And once in a while, you could have a moderation. There could even be a little bit of seasonality that could come into that. So I don’t think that this fourth quarter guide is at all a turnaround in that business. It would still by the way in the fourth quarter reflect very, very strong year-over-year growth in that IT datacom market. And in the end, I think would be a very, very strong year for that market, for our teamwork in that market.

Wamsi Mohan:

Yes. Thank you. Adam, you guys have done a tremendous job maintaining profitability through so many difficult cycles. As you look at the cycle here, and through 2021, how much would you say your ability to raise prices has offset some of these inflationary pressures? And as you look into 2022, it sounded from some of the comments, especially in cable, that there was room to raise pricing some more to catch up. If you could just characterize sort of 2021, 2022 from ability to sort of recapture some of that, potential inflationary elements and how you think about it into 2022. That’d be great. Thank you.

Adam Norwitt:

I would just add Wamsi to that one important principle here, pricing is an art, it’s not just you issue a price increase and off it goes. And the beauty of how we’re organized is that we’re not making those pricing decisions here at headquarters, rather we have 125 general managers around the world, and those general managers are best suited to make the right decision around pricing, because they know the strength of their own position. They know their competitive position. They know their technology position. And they also can go to a customer and say, look, I have tried everything else. And the only remaining thing I can do is raise the price to you. And then it’s a genuine, it’s a reasonable discussion. And it’s one that’s grounded in fact, and basis as opposed to in corporate policy. And I think that’s why we’ve always been maybe a little bit more successful in moderating the impacts of these, because our general managers have every tool available to them. All of the functions, all of the inputs are part of their responsibility. And thus, they’re able to go out and make it happen. And just because the cost of materials is up, or the cost of logistics is up, it does not give absolution to an Amphenol general manager for their performance, not in our company. I mean no matter what the cycle is, we have absolute standards for performance and they have to hit that and they’ll figure it out. And if that means, having those tough discussions with customers, then that’s what they’re going to do.

Joe Cardoso:

Thank you. This is Joe Cardoso on for Samik. So broader question, I guess, the setup and guidance for 3Q seems there very similar to what we are seeing now for 4Q. However Amphenol was able to outperform the high end of the guide in terms of both revenue and earnings in 3Q. I guess can you help investors understand why they shouldn’t expect a similar level of outperformance this time around, for example, are there headwinds around supply and costs intensifying or were there any materials surprises you would point out in 3Q that are not sustainable into 4Q? Any color around the puts and takes there as would be appreciated. Thank you.

Operator:

And our next question is from William Stein with Truist Securities. You may go ahead.

Adam Norwitt:

Thanks so much, Will. I mean relative to our lead times, I mean, it should not be surprising that maybe we have a little bit of extra lead times now than we would have had a year ago. It is a very constrained environment. Sometimes even just getting materials in from overseas, if you need to have to do that, whatever there’s just a lot of sort of sand in the gears of the global supply chain and that can lead to extra lead times. Also I’ve talked about our orders, maybe not even because of our own lead times, but just customers opening up the aperture of their order window a little bit longer and that has led to some of the higher levels of orders that we’ve seen in addition to just overall robust demand. As it relates to expedite requests, I don’t know that I can give you a good read on that more thoroughly or systematically across the company. I mean we continue to have some customers who really need product. I mean to the extent that we are using a material that is really constrained, and there are certain cases of that, I continued to see the odd expedite request here and there. I don’t know that I have a good read on whether it’s less or more the same. I mean I guess I would say it’s kind of the same over the last 90 days. Nothing that I would take note of really.

Mark Delaney:

Yes. Good afternoon, and thanks very much for taking the question. I was hoping to get an update on what the company has seen in China both from a demand and an operational perspective. There’s been a number of headlines around companies having a more difficult time operating in China things like electricity, shortages, certain materials constraints. And I’m hoping you could elaborate on what Amphenol seeing there. Thank you.

Operator:

And our next question comes from Nik Todorov with Longbow Research. You may go ahead.

Adam Norwitt:

Yes. Thanks. Thanks very much, Nik. Look, this is a long story for us, which is that we’ve been growing our automotive business for more than a decade through a consistent strategy of growing both organically and through acquisitions, into new electronics applications, new applications in the car. Throughout the course of that time, we expanded our product offering from simple connectors and cable assemblies to sensors and antennas, complex center assemblies and the like. And through it all, our strategy has not been to just take share out of incumbents, but rather to participate in the expansion of electronics in the automotive market. And that expansion of electronics has really accelerated throughout that time. As I highlighted in my prepared remarks, one area of expansion for electronics has been across the electrification of vehicles, both electric and hybrid vehicles, where we've leveraged our strong legacy and high voltage capabilities to really be a strong participant in that area. And that's been a great growth driver for us for many quarters. And that included in the quarter that just completed. Have we seen expedites in the automotive market? I would actually say we've seen this quarter and last quarter more of the opposite of expedites. We've seen that customers have pushed out demand because of supply shortages that they're seeing from other types of commodities. You mentioned semiconductors as one example, as opposed to expedites that of customers pulling in. And – but for those other supply chain shortages, I'm sure automotive business would have been even more robust than it was.

Luke Junk:

Good afternoon, everyone. Adam, I've got another auto question. This one may be a little bigger picture. A lot of the discussion around your business these days is around EVs and rightly so. But what I wanted to ask you about is knock on effects that you're seeing on some other factors, some of the industry have talked about a so-called Tesla halo, i.e., the fact that consumer expectations for tech in the vehicle are just simply much higher in an EV. And I'm wondering as you look across your business and the growth that you're seeing, both right now and over the few years, how does this accelerated proliferation of technology inside the vehicle plates, the company strengths and positioning relative to electrification?

Operator:

And our next question is from Jim Suva of Citigroup. You may go ahead.

Adam Norwitt:

Yes. Thanks Jim. Yes, there's no doubt that the profitability of the cable segment is at the lowest level it's been in certainly in my memory. And I think, but when we talk about it being unprecedented, I think we're also in an unprecedented environment from a cost perspective. And especially as it relates to things that impact that segment, which are things like logistics and things like certain commodity costs that have always had a more of a significant impact on that segment. We've talked about commodities and cost environment impacting that segment more. And when you're in a more unprecedented environment where the costs have just increased so quickly and so significantly. And then you're in a market where it's not as easy to overnight increase prices, even in an precedent cost environment due to the competitive dynamics and other factors within those – within that market, that it just becomes an unfortunate situation that it does have a more significant impact in the short-term here. There's no doubt that the team is working hard on pricing actions, and we're confident that there will be successful over some period of time. Don't forget this is 4% of the company right now. It's relatively small, but for the businesses that are you involved in dealing with this that's – this is impactful for them as it is for any other operations. So it's not that it's not meaningful, but it certainly has a lower impact on the overall company, but there's no doubt as the new management team is extremely focused on this. We are optimistic that over some not so long-term period of time and this shorter term, we'll be able to get these margins back up. Whether or not it's next quarter or the quarter after, I think time will tell, but we are optimistic that it will. We are on the lower end of the scale in terms of profitability in this market. And it will improve over those coming quarters.

Chris Snyder:

Thank you. So I have another one on auto. I mean, the company was up over 20% organic against the backdrop of high teens declines and auto production. So very, very substantial levels of outgrowth. I understand all powertrains are seeing content gains, but this outgrowth inflection we've seen over the last year kind of really lines up with ramping EV production. So I guess the question is, would you guys be able to provide maybe what percentage of auto revenues are coming from high voltage today? So we could try to kind of see how that's lining up against EV units?

Operator:

Our next question is from David Kelley with Jefferies. You may go ahead.

Adam Norwitt:

Yes. Well, thanks very much, David. I mean, you said it the industrial market is for us a very, very diversified range of segments. Now, everything from medical to heavy vehicles, to oil and gas, things like marine, factory automation that the battery and heavy electric vehicles, alternative energy. I mean, even an area like building automation where we've seen a lot of strong growth. I mean, what I think really unique here in the third quarter was virtually every one of those segments grew in the quarter. So, you don't always see that usually there's some sort of counter cyclicality across one or another of those segments, and we thought really strong performance across all of them. And when I think about why the company has really done such an excellent job in industrial, I mean, I'd point to a few factors. Number one is, our strategy for many years has been to build out a range of products that make us more important to customers across the industrial world. And again, remembering that what ties those products together is that they're all harsh environments solutions. So whether they be discreet connectors of value add interconnect assemblies center, antennas, or the like. These are all products that have to be ruggedized. They have to be fit to an environment that maybe as an ultra clean environment in an operating theater, or maybe an ultra dirty environment in an oil and gas drilling setup, or in an alternative energy on an offshore windmill or something like that. So all of these have just really uniquely challenging environments around them and what we see in common across these customers and where a lot of our growth has come from. This is really the second factor is that customers across the industrial market are adopting electronics at an increasing pace. So the same discussion that we add in the auto market, just a few moments ago, we see that really broadly across the industrial market as customers adopt next generation electronic systems and put those systems into tougher and tougher environments. I would also say that the industrial market is a very fragmented market from a competitive perspective. And so while for sure we're taking advantage of new things in this market like we are in automotive. I think there's also the fact that we continue to gain position against competitors who either don't have the breadth of offering, don't have the geographical position to support customers on a global basis. Don't have the diverse and resilient footprint that has been able to support those customers during the pandemic or during all the other disruptions that have come along and thereby customers have come increasingly to us to solve their problems, and we've not disappointed them. And that creates a positive feedback loop. So it's a market that I think we're very excited about. I think our team working in this market is just doing a great job. If you look into the fourth quarter for sure, you can look at that fourth quarter kind of through the prism of saying, well, we're guiding it to be down slightly. But in fact, on a year-over-year basis, it's going to be an outstanding fourth quarter as well. So, I think the team just continues to excel, and we're very excited about the industrial market for many years to come.

Joe Giordano:

Hey, good afternoon guys. Adam, you've articulated your position in overall views of operating in China many times on these calls. But I don't want to give you the chance to do it again, just in light of the ramp ups intentions. And is it more challenging for companies to do business? Like I understand how you guys are positioned there. It clearly works. You have to on the margins, think about things slightly different as to how you deploy capital or how you do incremental – grow incrementally in a region like that. Is how increasing escalation here impacted the way you do things?

Operator:

And our last question comes from Joseph Spak with RBC Capital Markets. You may go ahead.

Adam Norwitt:

Thanks Joe very much. Look, I think we've seen a lot of challenges and I talked a little bit about this earlier. But – and those challenges have included in China, a few power shortages. But I think like I described, luckily for us, our approach is to not put all our eggs in one manufacturing basket. And so while we've had maybe an odd power shortage in one location or another. It hasn't had a meaningful impact on the company. And our local team is doing a fabulous job of mitigating any impact that there could be of such shortages. It gives everybody something else to think about in a time where there's a lot going on.

Adam Norwitt:

Well, thank you so much. And I'd like to just extend my best wishes to everyone here on the phone. Thank you so much for taking the time with us. And we will talk to you after the holiday season. So I will be the first to wish everybody a happy holiday season and a happy and successful end of the year. And we'll talk to you in 2022. Thanks so much.

Operator:

And this concludes today's conference. Thank you for participating. You may disconnect at this time.

Operator:

Hello and welcome to the Second Quarter Earnings Conference Call for Amphenol Corporation. 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. Now, I would like to introduce today’s conference host, Mr. Craig Lampo. Sir, you may begin.

Adam Norwitt:

Well, thank you very much, Craig. And I’d like to extend my welcome to all of you here on the call today. And I hope that you, your family, friends and colleagues continue to stay safe and healthy and indeed are able to enjoy the summer so far. As Craig mentioned, I’m going to highlight some of our achievements in the second quarter. I’ll then get into a discussion of the trends, and our trends and progress across our served markets. I’ll make some commentary on our outlook for the third quarter. And then, of course, we’ll have time for questions at the end. Our results in the second quarter were substantially better than expected, as we exceeded the high-end of our guidance and sales and adjusted diluted earnings per share. Craig already mentioned our sales grow very strong 34% in U.S. dollars and 30% in local currency is reaching a new record of $2.654 billion. On an organic basis, our sales increased by 22% with growth driven in particular by the automotive, military, industrial and broadband markets, as well as contributions from the company’s acquisition program. We’re very pleased to book record orders in the quarter of $3.120 billion, and that represented a very strong book-to-bill of 1.18 to 1. Despite facing operational challenges in certain geographies related to the ongoing pandemic as well as continued increases in costs related to commodities and supply chain pressures. We were very pleased to deliver very strong adjusted operating margins of 20.0% in the quarter. This was a 200 basis point increase from last year’s levels, and a 40 basis point improvement sequentially. Adjusted diluted EPS grew very significant 53% from prior year to another new record of $0.61 and just an outstanding reflection of our continued strong execution. And then, finally, the company generated operating and free cash flow of $411 million and $307 million respectively in the second quarter. I just can’t emphasize enough how proud I am of our organization around the world. These results once again reflect the discipline and agility of our entrepreneurial organization. As we have continued to perform well amidst, what is a very dynamic and challenging environment? Very pleased that in the quarter we closed on the acquisition of Unlimited Services. Unlimited based in Oconto, Wisconsin, but also with operations in Mexico and has annual sales of approximately $50 million. This is a great manufacturer of cable assemblies for the industrial market primarily, with a particular focus on heavy vehicles. The addition of unlimited broadens our already strong position in value-add interconnect products that are integrated into a wide array of industrial applications. As we welcome this outstanding new team to Amphenol, I remain very confident that our acquisition program will continue to create great value for the company. In fact, our ability to identify and execute upon acquisitions, and then to successfully bring these new companies into Amphenol remains a core competitive advantage for the company. Now turning to our served markets, I just would comment once again, how pleased we are that the company is broad and balanced, and market diversification continues to create real value for us. We believe that ultimately, this diversification mitigates the impact of the volatility of individual end markets, while also giving us broad exposure to leading technologies and the innovations of those technologies, wherever they may arise across the broad scope of the electronics industry. Turning to the military market, the military market represented 11% of our sales in the quarter. And as expected sales grew a strong 45% from the COVID impacted prior year second quarter, and were up 30% organically and this was really driven by broad strength across virtually all segments of the military market. On a sequential basis, sales increased by 12%, also very strong. As we look into the third quarter, we remains – we expect sales to remain at these current elevated levels. And we continue to be very excited by the strength of our position in the military market. And that position is really based upon our industry leading breadth of high technology interconnect and now sensor products. Together with our support of essentially all major military programs, this gives us great confidence for our long-term performance in this important area. The commercial air market represented 2% of our sales in the quarter. Sales grew by 7% versus prior year really with the benefit of the contributions of our recent acquisitions. On an organic basis, sales were declined – were down by about 14%, as the commercial aircraft market continued to experience declines in demand for new aircraft production. Sequentially, however, our sales did increase by better than expected 19%. And that’s really from the benefit of the MTS acquisition as well as some organic progress. As we look ahead, we expect a slight seasonal moderation in sales in the third quarter, which we would typically see in commercial air. And regardless of the ongoing difficult environment, our team working in this commercial aerospace market remains committed to leveraging the company’s strong interconnect and sensor technology position across a wide array of aircraft platforms and next generation systems that are integrated into those planes. As personal and business travel continues to recover from the pandemic, we look forward to jet manufacturers beginning to expand their production levels. The industrial market represented 27% of our sales in the quarter, and our performance in the second quarter and industrial was really much stronger than expected with sales increasing by 54% in U.S. dollars and 28% organically. This growth was broad-based across most areas of the worldwide industrial market, and was driven in particular by organic strength in the transportation, battery and heavy electric vehicle, marine and energy generation segments, together with the contributions from our acquisitions that have been completed over the past year. On a sequential basis, sales increased by very strong 26% from the first quarter, really with the benefit of acquisitions as well as strong organic performance. Looking into the third quarter, we expect sales to remain at these elevated levels, despite what would typically be a seasonally lower quarter. I can’t say enough how proud I am of our team working in the industrial market. And we’ve had a long-term strategy to expand our high technology, interconnect, antenna and sensor offering both organically as well as through complementary acquisitions. And that strategy has positioned us strongly with industrial customers around the world, who are accelerating their adoption of electronics. The acquisition of Unlimited Services further bolsters our leading value-add capabilities in this important market and we look forward to realizing the benefits of this strategy for many years to come. The Automotive market represented 20% of our sales in the quarter. And I just say that sales were higher than our expectations, probably a very strong 134% in U.S. dollars and 117% organically, as our team was able to execute strongly in the face of a robust and broad recovery in the automotive market. In particular, we once again drove very strong growth of our products used in electric – hybrid electric vehicles this quarter, which confirms again for us our global team’s long-term efforts at designing in high voltage and other interconnect and sensor products into these important next generation platforms. Despite an increase in production disruptions among our automotive customers, due to the widely reported global supply chain issues, we were able to achieve a small sequential increase in our sales, which was a bit better than we had expected coming into the quarter. No doubt about it, though, there continued to be a range of widely reported supply chain challenges that that are rising within the automotive industry and this is impacting overall demand from vehicle manufacturers around the world. Accordingly, as we look towards the third quarter, we do expect a modest sequential decline in our sales. I remain extremely proud of our team working in the automotive market. They continue to demonstrate a high degree of agility and resiliency in both driving a significant recovery from last year as reduced production levels. While expertly navigating the myriad of supply chain challenges that the entire automotive industry is still facing. We look forward to benefiting from their efforts long into the future. Turning to the mobile devices market, that market represented 10% of our sales in the quarter. Our sales to customers in the mobile devices market declined from prior year by 4% in U.S. dollars and 6% organically, as declines in handsets and laptops more than offset growth in wearables. And I would just remind you that our last year second quarter did include a significant sequential recovery and really a catch up from the COVID impacted first quarter of 2020, which made the comparison versus prior year a little more challenging. Sequentially, our sales felt by 6% from the first quarter, which was modestly better than our expectations. Looking to the third quarter, we now expect an approximately 25% increase in sales from these second quarter levels as we benefit from the seasonally typical higher demand in the mobile device market as customers launch a range of new products. While mobile devices remains the most volatile of Amphenol end markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in the second half of 2021 and beyond. Our leading array of antennas, interconnect products and mechanisms continues to enable a broad range of next generation mobile devices, thereby positioning us well for the long-term in this exciting market. The mobile networks market represented 5% of our sales in the quarter. Sales were flat to prior year and down 4% organically. The sales to both OEMs and the wireless service providers moderated. On a sequential basis, however, our sales increased by 5% compared to the first quarter, which was in line with our expectations coming into the second quarter. And as we look towards the third quarter, we expect a further increase in sales as mobile networks customers ramp up their investments in next generation networks. Our team around the world continues to work aggressively to realize the benefits of our efforts at expanding our position in such next generation networks and the equipment that populates them around the world. And as customers ramp up these investments of such advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology and data communications market increased by 21% in the second quarter. Sales in the second quarter rose by 5% in U.S. dollars and 3% organically from the very significant levels in last year’s second quarter. Our strength this quarter was driven in particular by robust sales to web service providers, which was partially offset by some weakness in sales to network equipment OEMs. Sequentially, our sales grew a very strong 20% from the first quarter, which significantly outperformed our original expectations. Looking now into the third quarter, we expect sales to increase modestly from these very high levels. We remain very encouraged by the company’s outstanding position in the global IT data comm market. Our OEM and web service provider customers around the world continue to drive their equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power. In turn, our team is singularly focused on enabling this continuing revolution in IT data comm, with industry-leading high-speed, power, and fiber-optic interconnect products. And we look forward to realizing the benefits of our leading position for many years to come. Turning finally to the broadband market, this market represented 4% of our sales in the quarter and sales increased by 12% from prior year and were flat organically as we benefited from our recent acquisition of Cabelcon. On a sequential basis, sales increased by 7% from the first quarter, which was a bit lower than we had anticipated coming into the quarter. For the third quarter, we expect sales to moderate from current levels, as operators digest the really high levels of spending that they have exhibited over the recent quarters. And regardless of this more muted outlook, we continue to look forward to supporting our broadband service operator customers around the world, all of whom are working to increase their bandwidth to support the expansion of high-speed data applications to homes and businesses. Now, turning to our outlook, and I would just note that given the current dynamic market environment, and of course, assuming no new material disruptions from the COVID-19 pandemic, as well as constant exchange rates. In the third quarter, we expect sales in the range of $2.640 billion to $2.700 billion, and adjusted diluted EPS in the range of $0.60 to $0.62. This would represent sales growth of 14% to 16%, and adjusted diluted EPS growth of 9% to 13% compared to the third quarter of last year. I remain confident in the ability of our outstanding entrepreneurial management team to adapt to the continued challenges in the marketplace and to capitalize on the many opportunities to grow our market position and expand our profitability. I can just say that our entire organization remains committed to delivering long-term and sustainable value, all while prioritizing the continued safety and health of each of our employees around the world. And most importantly, I’d like to take this opportunity to once again, thank the entire global Amphenol team for their truly outstanding efforts here in the second quarter. And with that, operator, we’ll be very happy to take any questions that there may be.

Wamsi Mohan:

Yes, thank you. Adam, can you talk about what you’re seeing as far as inventory levels go, particularly in the channel in industrial where you expect that low-teens growth quarter on quarter? You grew almost double that. If you could give us some sense of where things stand, that’d be great. Thank you.

Operator:

Thank you. Now, our next question is from Amit Daryanani of Evercore. Sir, line is now open.

Adam Norwitt:

Yeah, well, thank you very much, Amit. Look, I mean, the current supply chain environment is certainly not for the faint of heart. And I think our agility as an organization that, that unique entrepreneurship of what we call Amphenoleans around the world, in many ways, is an ideal approach to deal with a supply chain environment that is so broadly disrupted, and where new things pop up every day. And so, could we have shipped a little bit more in certain cases? I’m sure we probably could have. Did it cost us money? In many cases, I’m sure it did. To put a number on that is not easy for us to do. But I can tell you that it’s more than zero. And I think, for sure, the cost of the supply chain, whether that’s freight and logistics, whether that’s the cost of commodities, the availability of certain things, a lot of stuff went on over the course of this quarter. There was floods in Germany. There were challenges with various countries. There were some COVID-related things that were happening in particular in places like Southeast Asia. So our general managers, all 125 of them, each of them had to deal with a unique set of challenges. And they had to tailor make their approach to exactly what they were facing. It wasn’t that we had to sort of process all of this in this sort of corporate wayback machine, and then issue a bunch of edicts to say, here’s what we should do. It was really dealt with on an individual case-by-case basis in the moment. And that kind of moment-by-moment management, it is a real premium in a time like this. And, as it relates to your second question or the second part of your question, for sure, if we are satisfying the needs of our customers, better than our competitors are doing in a time when they need us the most, when they have robust demand from their customers, when they’re facing a much broader array of supply chain challenges, because fortunate for us, we don’t buy a ton of semiconductors. We buy a little bit here and there. But we have a lot of customers who are facing really existential kind of shortages in certain semiconductors. And when we can help them, for example, they’re redesigning a system to change a chip that they can’t get support of. They’re redesigning that. And all of a sudden, that redesign requires them to completely redesign an interconnect system. Our team does it. In one case, we did this in 5 days. A customer came to us, said they had to totally change the design of their system. Otherwise, they wouldn’t have a chip for a year. They redesigned it. Our team went, completely redesigned the system, 5 days later, sent them samples. And they came to us with big orders thereafter. So those are the kind of situations that are popping up more and more. And I think long-term customers don’t forget if you were there for them when they needed you the most.

Jim Suva:

Thank you, and congratulations to you and your team for all the hard work during the challenging times. I wanted to ask a question kind of on raw material and input costs. And, of course, we’ve seen them all kind of skyrocket. Does that mean your sales people need to be more active or change terms or do you have like indexing into your contracts when raw materials go up a lot? I assume some of your contracts are very long-term in nature or do you hedge it out with some financial instruments? I’m just kind of curious, because it’s pretty unprecedented that copper, steel or aluminum, resins and costs have recently been moving a lot. Thank you so much.

Operator:

Thank you. Now, our next question is from Mark Delaney from Goldman Sachs. Sir, your line is now open.

Adam Norwitt:

Well, thanks so much, Mark. I’ll let Craig talk about the margins in a second. But I can just tell you, our early impressions of the company are very, very positive. I mean, we said and I think I mentioned last quarter, that MTS, the Sensors business is run by a team that we know well. And in particular, the person leading that organization is just a phenomenal, phenomenal leader who has an extraordinary organization underneath him. And the way that they have embraced being part of Amphenol is just truly rewarding for all of us in the company. We’ve known them for a long time. This was not a new acquaintance that we made through this process, but rather we’ve known them all the way back to when they were part of a family-owned company that ultimately MTS acquired. Our customers have received this extremely well. We’ve become more important to customers across the markets, whether that be industrial, military, commercial air and automotive. I continue to be just amazed by the uniqueness and the depth of the technology that we acquired in this business, force, vibration, sensors, pressure sensors, position, just a variety of products that really operate at the harshest of environments and with the highest of performance. In terms of being able to sell more complete solutions, I can tell you that there’s already early activities, real collaborative activities ongoing across the company, with people within our interconnect businesses, working together, getting to know the MTS Sensors organization, creating the sort of fiber of the relationships that ultimately can lead long-term to really collaborative success in the various markets that we serve. So all early returns for MTS, including their absolute performance, which is coming out a little bit better than we had thought in the quarter. All early returns are favorable. And I’ll let Craig maybe comment specifically on the margin.

Operator:

Thank you. Now, our next question is from William Stein from Truist.

Adam Norwitt:

So thanks very much, Elliot. I think you correctly termed that it is a very volatile market on a quarter-to-quarter basis. And as I mentioned in my prepared remarks, are year-over-year – the year-over-year performance in the market was significantly impacted by the strength that we had a year-ago in the second quarter, which was really a catch up from the significant COVID impacts that we saw in the first quarter of 2020. This is not a market I’d like to get out ahead of my skis on in terms of several quarters out and giving a prognosis. But what I can say is that our position in the mobile market is an extremely strong position, we continue to have a unique ability to react quickly to customers when they need us the most. And that includes sometimes when our competitors aren’t able to support the customers, in particular, when they’re launching new products. Our guidance for the third quarter being up about 25% or so on a quarter-to-quarter basis is a strong outlook. And I think not inconsistent, if you look over a long time period with a kind of second quarter to third quarter trajectory. What it will be in the quarters thereafter, again, I’m not going to get ahead of my skis and giving a prognosis on mobile devices over the long-term. But the content opportunity, as you say, there’s no reason to think that the content opportunity with these devices as they become more complicated as they have different feature sets, as they support different types of communication standards in them. Those have usually been in the past strong drivers of content in mobile devices and we have no reason to believe that that would change in the future.

Joseph Giordano:

Can you guys hear me?

Joseph Giordano:

Hey, good afternoon, guys. Just curious on IT-Datacom, I mean, you guys came in so much stronger than your initial view last quarter. Just curious, how would you categorize that from like within market dynamics, just the overall spending in the industry was significantly better, where you guys picking up specific share anywhere? How would you categorize that outperformance relative to your initial view?

Operator:

Thank you. Now, our next question is from Chris Snyder of UBS. Sir, your line is now open.

Adam Norwitt:

Yeah, I mean, look I don’t know how it’s going to look in the future, but for sure, over the course of the last year, and we shouldn’t forget Q2 of last year was almost the nuclear winter for the automotive industry. But over the last year, our team working in industrial, working in automotive has clearly done an outstanding job of supporting customers when they needed us the most, and in certain cases doing that because some competitors could not rise to the occasion. So I think that there has been for us some outperformance relative to the industry. I think as well, we clearly have seen an acceleration of the adoption of electronics across the automotive industry, across the many, many segments of the industrial market, this kind of electronification of everything, if you will. And, it’s not just EVs and it’s not just batteries for those EVs. We’re really seeing so many examples of traditionally mechanical fuel based hydraulic, converting to an electronic control, electronic functionality. And each time that happens, that’s a new inflection point whereby if we can step in with the right types of interconnect products, the right types of sensors, leading edge products, if we can do that in a timely fashion, we can have it available for the customers when they need it, when they’re seeing also an increase in their end demand that positions us very well. And so, I think, all of the factors that you mentioned have all come together in a very positive fashion to ultimately lead to us having the growth that we realized this quarter, as well as the positive outlook that we see in the third quarter, and I would hope also beyond. What does that mean for the long-term? Typically, the adoption of electronics is a one-way ratchet. It’s not that people adopt a new electronic system, and then one-day go back to a mechanical system. That’s not really how the evolution of electronics operates. And so, I think, long-term, it gives me some encouragement to see that there has been an acceleration and that kind of step function adoption of electronics, you would hope would continue to create the opportunities for the long-term.

David Kelley:

Hi, good afternoon, Adam and Craig. I always ask the automotive question, but the organic growth really stands out. So you referenced electrification as a driver, we’re seeing EV auto sales really start to inflect and actually reach some scale now. Is there any way to quantify the contribution for you and then even taken a step back just more broadly in autos. Just curious, if you’re seeing any customers start to build some inventories? You reference the below dealer inventory levels, so with some planning for the medium-term, just curious if you’re seeing that in the market?

Operator:

Thank you. Next question is from Joseph Spak from RBC Capital Markets. Sir, your line is now open.

Adam Norwitt:

Yeah, well, Joe, again, no problem to get another auto question. I should say that you and David could probably co-teach the master class together. But look one maybe thing I would mention, you alluded to regional in automotive, and actually we saw really strong performance across all of the regions where we operate. And I would tell you actually that our business now regionally is more balanced than ever before is roughly equal size between Asia and Europe, and just to tick lower in North America. So that’s quite a transformation. If you think about it over a decade, when at one point, our business was kind of two-thirds in Europe, and maybe a fifth in North America and the rest in Asia. So we’ve made really great progress in Asia. And I would also say that in Asia, we’ve made great progress also in the electrification in EVs, where our teams just done a fabulous job. Relative to your question do luxury cars have more content, for example, than a lower end car? I think the answer to that is absolutely, yes. That’s always been the case, I think that will always be the case. But what are the differences that we have seen, and that’s not just the difference of this year or last year, but maybe over the last kind of half a decade or so. As we have seen that more and more automakers are equipping their lower end cars with a greater degree of electronic functionality than they did in the past. The traditional approach for automakers to just stop their high-end cars with every possible feature to test out electronics in those cars to put the newest thing there first, and then maybe it would trickle down to the low-end more fleet-type cars, or maybe it wouldn’t. But I tell you, you get any car of any size now and it’s going to have features in it that you never would have imagined before even in like the smallest kind of Fiat 500 or something like that. You’re going to see just a real array of electronics functionality. So, for sure, $100,000 car is always going to have more content as a $30,000 car. But I don’t know that the intensity of electronics in that $100,000 is so many multiples more than it is on that maybe $30,000 car, in the past that would have been quite a different intensity of the electronic value in the car. So what does that mean for long-term? Our companies selling more high value trucks and luxury cars today, and maybe they’ll sell more low value cars in the future that that I don’t have a good read on, but I think there’s electronics opportunities across all these types of cars.

Samik Chatterjee:

Hi, thank you, and good afternoon, Adam and Craig. I guess, I have a more quick one, just trying to get a better handle on the difference between orders and your revenue guide for the next quarter. I mean, when I look at the difference now it’s about $400 million last quarter, I think when you guided the difference was about $300 million. So just kind of wondering, is that more of a supply concern and securing supply? Or are you getting orders with longer lead times from your customers just kind of getting trying to get a better handle of what you’re trying to bake in there, and if it’s conservative at all. And then, I think in conjunction with that, I think one thing that I wanted to understand is broadly across your businesses. If you’re just kind of feeling that the supply constraints are getting tougher, or are they getting easier to navigate at this point? Thank you.

Operator:

Thank you. Next question is from Luke Junk from Baird. Sir, your line is now open.

Adam Norwitt:

Well, I mean, the last part of your question I’ll answer first, which is I think we’ve pursued this business very aggressively over a long time period. We shouldn’t forget that the whole concept of a high-voltage system in a car is not new. In fact, our teams have been working on development of specific automotive capable high-voltage interconnect systems for, I don’t know, the whole time I’ve been CEO. And I’ve been CEO for nearly 13 years now. So I think that’s not a new development. I don’t think EVs are a new thing, hybrids aren’t a new thing. But they’re growing. And I think they’re reaching – I don’t know if you want to call it an inflection point. Someone mentioned that term earlier. But for sure, the adoption of these vehicles is accelerating on a global basis, even if they still represent a relatively modest proportion of the overall vehicle market. I mean, the vast majority of cars sold today are still combustion engine cars. But to your point, we have I think in EVs a proposition maybe that we didn’t have in traditional automotive, which is that we’ve been making high-voltage connectors for a very, very long time. I mean, if you think about the legacy of Amphenol over the nearly 9 decades that our company has been in business, we were early on a leader in the innovation and development of power interconnect that’s used in military, aerospace, industrial applications. And that came with unique proprietary technologies, in particular around the efficient and safe transmission of high-voltage power across an interconnect system that requires a very unique contact technology that we have developed over many, many years. And so, early on, and when I say early on, this is a dozen years ago or more when we were really working early on in these hybrid electric vehicles, we were already repackaging our high-voltage interconnect technologies from the military and industrial into a more of an automotive type interconnect interface and otherwise. And so, that gave us a very strong position. So it’s not new to us to be making high-voltage products. And to the extent that there are more traditional incumbents who are pure automotive companies, who may not have had that rich legacy of high-power, high-voltage interconnect, we could, on occasion, have an advantage. Granted they have an advantage with the breadth that they work in that market. So it’s not that this is a kind of a clear path to world domination in the EV market. I mean, we have a lot of competition and we respect them a great deal. But if anything, I think our outperformance in automotive over many years, and in particular, over the recent years, there has been a not insignificant component of that, which has been us realizing the benefits of our position in high-voltage products.

Adam Norwitt:

Hello, operator, do we have any more questions, please?

Adam Norwitt:

Okay. Well, thank you very much. And we apologize everybody. There appears to have been a communications issue with the provider here. And we apologize if anybody did not, was not able to have their questions answered. Of course, you can feel free to reach out to our Investor Relations team, to Craig and Sherri. But let me just take this moment to thank all of you again for your time here in this summer and we’re very proud again of the company’s results over the course of this second quarter. And we look forward to finishing the second half, also in the third quarter strongly as we go into 2021. And I want to take this opportunity also to wish each of you that you have a little bit of rest as the summer continues and come back recharged when we talk to each other 90 days from now. Thank you all so much and we’ll talk to you soon.

Operator:

Thank you. And, ladies and gentlemen, thank you for attending today’s conference call, and have a nice day.

Operator:

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions]. 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.

Adam Norwitt:

Well, thank you very much, Craig, and I'd like to also extend my welcome to everybody on the call here today. And I certainly hope that you, your family, your friends and all of your colleagues are continuing to stay safe and healthy. As Craig mentioned, I'm going to highlight some of our achievements in the first quarter. I'll then discuss our trends and our progress across our diversified served markets. And then finally, I'll make a few comments on our outlook for the second quarter. And of course, we'll have time for Q&A at the end. Our results in the first quarter were substantially better than we had expected coming into the quarter as we exceeded the high end of our guidance in sales as well as adjusted diluted earnings per share. Sales grew a very strong 28% in U.S. dollars and 25% in local currencies. And on an organic basis, sales increased by 23%. And we had organic growth in nearly all of our end markets and driven particularly by growth in the automotive, mobile devices, industrial and IT datacom markets. And I'll talk about each of those markets in a few moments. Craig mentioned, we booked record orders in the quarter of $2.734 billion, and that represented a very strong book-to-bill of 1.15:1. Despite continuing to face a range of operational challenges related to the ongoing pandemic as well as increased costs related to commodities and supply chain pressures, our operating margins were very healthy in the quarter, reaching 19.6%, which was a 260 basis point increase from last year's levels. Craig mentioned our adjusted diluted EPS grew a very robust 49% from prior year, which is again an excellent reflection of the Amphenol organization's strong execution. We generated operating and free cash flow of $321 million and $243 million in the first quarter, respectively, both clear reflections of the high quality of the company's earnings. I just want to say how proud I am of our team this quarter. And our results once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the very dynamic and challenging environment. And I'd like to make a few comments on our acquisitions in the quarter. As you can tell, our small acquisition team here in Wallingford was very busy in the first quarter, closing 3 additional acquisitions since our last earnings release and bringing our total number of acquisitions closed this year to 5. First, as we announced on April 7, we were very pleased to close on the acquisition of MTS Systems earlier than originally anticipated. Also, as previously announced, we had signed an agreement to sell the MTS test and simulation business to Illinois Tool Works for a sale price of $750 million. And that is -- that remains subject to certain post-closing adjustments and excludes transaction-related expenses. We expect this sale to close following the receipt of all required regulatory approvals. We're really excited to welcome the talented MTS Sensors team to the Amphenol family. We especially look forward to the strength of the combined breadth of our company's highly complementary sensor product portfolios, which, we believe, will enable us to offer our customers an expanded array of innovative technologies across multiple end markets. We expect the MTS Sensors business to add approximately $350 million of sales and $0.05 in adjusted diluted earnings per share in the first 12 months after closing. More importantly, though, we look forward to realizing the long-term benefits of the opportunities created by the collective strengths of Amphenol and MTS Sensors for many years to come. We're truly excited about this significant acquisition, which ultimately has positioned Amphenol as one of the broadest and most diversified sensor companies in the industry. In addition to the MTS acquisition, we also closed on 2 other small acquisitions during the first quarter. In February, we acquired Euromicron, a manufacturer of highly engineered fiber optic interconnect solutions for the mobile networks and IT datacom markets. Based in Germany, with annual sales of approximately $25 million, Euromicron represents a great addition to our interconnect product offering for customers across the European communications market. And then in March, we completed the acquisition of Cabelcon from Corning Inc. Cabelcon, which also has sales of approximately $25 million, is a Denmark-based designer and manufacturer of high-technology connectors and interconnect assemblies, primarily for customers in the European broadband market. As we welcome these outstanding companies to the Amphenol family, I remain confident that our acquisition program will continue to create great value for Amphenol. Our ability to identify and execute upon acquisitions and then to successfully bring these new companies into Amphenol remains a core competitive advantage for the company. Now turning to our trends across our served markets. I would just comment that we remain very pleased that the company's balanced and broad end market diversification continues to create great value. We believe this diversification mitigates the impact of the volatility of individual end markets while continuing to expose us to leading technologies wherever they may arise across the electronics industry. This diversification has become ever more valuable given the many market dynamics related to the COVID-19 pandemic. Now turning first to the military market. The military market represented 11% of our sales in the quarter. And as we had expected coming into the quarter, sales grew by 3% from prior year and were essentially flat organically with growth in naval, unmanned aerial vehicles, communications and vehicle ground systems, offset by declines or flat performance in other applications. Sequentially, our sales were modestly down by about 3%. Looking into the second quarter, we expect sales to grow in the low double digits from these first quarter levels as we benefit from the addition of MTS Sensors together with the increased demand for interconnect products. We're especially excited by the addition of the sensors products of MTS to our military product offering. Together with our already leading interconnect products as well as our broad exposure across virtually all defense programs, we look forward to supporting the continued adoption of next-generation electronics into a wide array of military hardware. The commercial aerospace market represented 2% of our sales in the quarter. And not surprisingly, and as expected, sales were down significantly, declining by 47% from prior year as the commercial aircraft market continued to experience unprecedented declines in demand for new aircraft due to the ongoing pandemic-related disruptions to the global travel industry. Sequentially, our sales were a bit better than expected, moderating by just 3% from the fourth quarter. And looking into the second quarter, we do expect a sequential improvement in sales as we benefit from our recently completed acquisitions. Regardless of the ongoing challenging environment in commercial air, our team working in this market remains committed to leveraging the company's strong interconnect and sensor technology position across a wide array of aircraft platforms and next-generation systems integrated into those airplanes. The industrial market represented 24% of our sales in the quarter. Sales in industrial in the first quarter were better than expected, growing a very strong 33% in U.S. dollars and 33% organically. This was driven by robust growth in battery and electric heavy vehicle applications, rail mass transit, heavy equipment, instrumentation, factory automation, alternative energy and medical, really a broad performance across many of the segments. On a sequential basis, sales grew by a better-than-expected 6% versus the fourth quarter. Looking into the second quarter, we expect the industrial market to once again grow in the low teens versus the first quarter. And as we benefit from the addition of MTS Sensors, while continuing to gain momentum in many segments of the industrial market. The acquisition of MTS Sensors has expanded our range of sensors sold into the industrial market, adding position, vibration, force and shock sensors that are used in a wide array of industrial applications. Together with our existing sensor operations, we now have a diversified range of sensors supporting virtually all of the segments of the industrial market that we serve. I remain truly proud of our team working across the industrial market around the world. Our high-technology interconnect antenna and sensor offering positions us strongly with customers who are accelerating their adoption of electronics, no matter the application. The automotive market represented 22% of our sales in the quarter, and sales in this market were also much stronger than we expected, growing 52% in U.S. dollars and 44% organically, as our team was able to execute strongly in the face of a robust and broad recovery in the automotive market. In particular, we saw very strong growth of our products that are used in electric and hybrid electric vehicles in the quarter. A great confirmation of our global team's long-term efforts at designing in high-voltage and other interconnect and sensor products into these important next-generation platforms. Sequentially, our sales increased by 6% from the fourth quarter. Now as has been widely reported, there are a variety of supply chain challenges facing the automotive industry. Accordingly, as we look towards the second quarter, we do expect a modest sequential decline in sales as the global supply chain disruptions temporarily impact certain pockets of new vehicle production. I'm extremely proud of our team working in the automotive market. They have really demonstrated their agility and resiliency through these most turbulent times and thereby, have secured the company's position with our customers across the automotive market. We look forward to benefiting from their efforts long into the future. The mobile devices market represented 12% of our sales in the quarter. Sales in this market increased by a better-than-expected 51% from prior year, with strength across all product types, including particularly in wearables and laptops. Sequentially, our sales declined by 35%, which was a bit better than our expectations coming into the quarter and is within the typical range of first quarter seasonality that we have seen traditionally in the mobile devices market. Looking at the second quarter, we anticipate a further high single-digit sequential sales decline, which is also not atypical for this market in the second quarter. While mobile devices will always remain one of our most volatile markets, our outstanding and uniquely agile team is poised as always to capture any opportunities for incremental sales that may arise in 2021 and beyond. Our leading array of antennas, interconnect products and mechanisms continues to enable a broad range of next-generation mobile devices, thereby positioning us well for the long term. Now turning to the mobile networks market. This market represented 6% of our sales in the quarter, and sales did grow from prior year by 4% in U.S. dollars and 1% organically, as strength from products sold to OEMs was offset in part by a moderation of our sales to network operators. We were encouraged, though, to realize a better-than-expected sequential growth of 19% in the mobile networks market in the quarter as mobile network operators increased their spending on next-generation networks. Looking to the second quarter, we do expect a modest increase in sales from these first quarter levels, helped by the addition of Euromicron, which expands our offering for mobile networks operators in Europe and positions us well to support future network upgrades. Our team continues to work aggressively to expand our position in next-generation equipment and systems around the world. And as our customers ramp up the investment of these advanced networks, we look forward to benefiting from the increased potential that comes from our unique position with both original equipment manufacturers as well as mobile network service providers. The information technology and data communications market represented 19% of our sales in the quarter. Sales in the quarter were stronger than expected, rising 25% in U.S. dollars and 24% organically from prior year, really on broad-based strength across networking, storage and server applications. While we had expect sales to decline coming out of the fourth quarter, we were pleased to realize actually a sequential growth of 6% as customers continue to increase their demand for our high-technology products, use service providers and in data centers around the world. Looking to the second quarter, we expect a further increase of sales in the mid-single digits from these levels as customer demand continues to accelerate. We remain very encouraged by the company's outstanding technology position in the global IT datacom market. Our customers around the world, no doubt about it, are continuing to drive their equipment to ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power. In turn, our team remains singularly focused on enabling this continuing revolution in IT datacom with our unique, high-speed, power and other interconnect products. Finally, the broadband market represented 4% of our sales in the quarter, and sales grew by a very strong 16% from prior year as broadband spending levels remained elevated. On a sequential basis, sales grew slightly from the fourth quarter. We do expect a high-teens sequential sales increase in the second quarter as customers continue to upgrade the capacity of their networks to support the significant increase in demand for bandwidth and as we benefit from our recent acquisitions, including Cabelcon. The addition of Cabelcon expands our offering for broadband customers in the European market, which enables us to provide a more diversified range of products for their next-generation networks and the related upgrades. We look forward to continuing to offer this expanded product offering to broadband service operators around the world, all of whom are working to increase bandwidth to support the expansion of high-speed data applications to homes and businesses. Now turning to our outlook, and given the current still dynamic market environment as well as assuming no new material disruptions from the COVID-19 pandemic and constant exchange rates. For the second quarter, we now expect sales in the range of $2.415 billion to $2.475 billion and adjusted diluted EPS in the range of $0.53 to $0.55. This would represent strong sales growth of 22% to 25% and adjusted diluted EPS growth of 33% to 38% compared to the second quarter of last year. And I would just note that the second quarter of last year, as you will recall, was already a strong recovery quarter for the company coming out of the first quarter. I remain confident in the ability of our outstanding management team to adapt to the ongoing challenges that are in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability. The entire Amphenol organization remains committed to delivering long-term sustainable value, all while prioritizing the continued safety and health of each of our employees around the world. And most importantly, I'd like to just take this opportunity to thank the entire Amphenol team for their truly outstanding efforts here in the first quarter. And with that, operator, we'd be happy to take whatever questions there may be.

Christopher Snyder:

I guess my question is on supply chain. If you look across the end markets, just given the really -- or the stronger-than-expected growth, did you see any inventory building across any of the end markets? And then kind of staying on that supply chain, as we look into Q2, the top line guidance seems a bit light relative to the Q1 orders and the 1.15 book-to-bill. I mean is there an implication here that deliveries may be pushed out to the right a little bit, just given all the supply chain disruptions we're seeing?

Operator:

Now our next question is from Wamsi Mohan of Bank of America.

Adam Norwitt:

Well, Wamsi, it's a great question. And it's still a proposed infrastructure plan, obviously. So I take everything with a grain of salt, in particular, with the political system that we have now in the U.S. But look, I think we have a lot of our businesses that do stand to play a role in upgrading the infrastructure of the U.S., especially because infrastructure is being defined, as I would think it should be, in a very broad sense. It's not just roads and highways and bridges and tunnels and airports, which would stimulate demand for a wide variety of products that we sell into heavy equipment and otherwise. But infrastructure means the domestic capacity to produce electronic components in certain cases. Infrastructure means bandwidth. Infrastructure means access to data, access to devices. And I think that all of these things ultimately today have a common thread, and that is that the adoption of electronics and, in turn, our ability to enable that adoption of electronics, plays a significant role in the upgrade of those various "elements" of infrastructure. And so whatever the -- ends up coming out of kind of the sausage factory at Washington, if you will, there's no question to me that electronics is going to play a significant role in helping this country to upgrade its infrastructure in the broadest sense. And I think we're very well positioned across our end markets to play some constructive role in that.

Amit Daryanani:

I guess my question is really around, Adam, when I look at your growth rates for the first half of this year, they're about 25% or so. Much of this, I assume, is a cyclical market recovery. But I'm wondering if you could actually talk about if Amphenol is seeing share gains pick up as well in the first half of the year, especially as I imagine that your peers have not been able to ramp up capacity as quickly as demand has come back. And if that's true going forward, could that enable you to grow at a larger premium to the underlying industry growth rate and share gains become bigger for you, hopefully?

Operator:

Now our next question is from James Suva of Citigroup Investment Research.

Adam Norwitt:

Thank you very much, Jim. I mean, look, our criteria for acquisitions has always started with two things, and that's people and the products, in other words, the technology that those companies have. And so the very first test for us is, are we acquiring a company that has people who have passion, drive, integrity and entrepreneurial spirit that we think will fit into the Amphenol organization. And then second, do they have unique enabling technologies that ultimately solve real problems for their customers. And then when we found those companies, we don't focus on either growth or on improvement in operating performance. We try to do both of those things. And our acquisition program, which has been so successful over so many years, has really been successful because we were able to find ways to accelerate the growth of those companies and find ways to improve their operating performance. And so I would say that the 3 acquisitions that we're talking about today, of course, MTS being far and away bigger than Euromicron or Cabelcon, they all share that great potential, both from a top line growth perspective, taking advantage of being part of Amphenol, taking advantage of being part of a global company with strong partnership, preferred supplier relationships with customers across all of our end markets, but also being part of a company that has access to low-cost manufacturing when appropriate, who has access to collaborative initiatives across the company from a technology or sourcing perspective that ultimately can help to drive better operating performance. And so I would say, with these 3 companies, we think that they all have great growth and profitability improvement potential, despite their very different scales.

Matthew Sheerin:

A question, Craig, regarding your commentary about some cost headwinds weighing somewhat on your margins. Could you quantify that in terms of maybe what in terms of basis points you've seen? And is that just an issue that you see persisting over the next couple of quarters that we're hearing from other suppliers as well?

Adam Norwitt:

And Matt, I would just add to that a little color. There are certain parts of this, which are pretty significant cost differences in commodities, for example. I mean, they're all very well reported. And the way that Amphenol operates is we have close to 125 general managers around the world, and each of them is really tuning their operation in light of the costs that are hitting them, in particular. So you take an example, a general manager in our cable business, which has a very high component of material cost, very significant in our cable segment, there's not a choice, but to go and work with customers and to make sure you take a leadership position in adjusting price to account for those commodity prices. And we would certainly expect that others in the industry would have that same dynamic. And that's just one example of how it goes. But the beauty is that these general managers have every tool available to them to adjust, whether it's from the price you sell to the customer, to every element of cost are all in the power of the general managers. And when you see a sudden increase in some of these things, it can take a short while to work through it. But Craig and I are confident that over time, our team is going to manage this, as they always have.