Amphenol Corporation

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 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, so you may begin.

Thank you. Good afternoon, everyone. This is Craig Lampo, Amphenol CFO and I'm here together with Adam Norwood, our CEO. We would like to welcome you to our second quarter 2019 conference call. Our second quarter 2019 results were released this morning. I will provide some financial commentary on the quarter and then Adam will give an overview of the business as well as current trends and then we will take questions. As a reminder, we may refer in this call to certain non-GAAP financial measures. and may make certain forward-looking statements, so please refer to the relevant disclosures in our press release for further information. The company closed the second quarter with sales of $2 billion, $15 million, and with GAAP and adjusted diluted EPS of $0.93 and $0.92, respectively. Sales were up 2% in U.S. dollars and up 4% in local currencies compared to the second quarter of 2018. From an organic standpoint, excluding both acquisitions and currency, sales in the second quarter decreased 1%. Sequentially, sales were up 3% in U.S. dollars and in local currency and 1% organically. Bringing down sales into our two segments, our cable business, which comprised 4% of our sales, was down 19% in U.S. dollars and down 17% in local currencies compared to the second quarter of last year. The interconnect business, which comprised 96% of our sales, was up 3% in U.S. dollars and 5% in local currencies compared to last year. Adam will comment further on trends by market in a few minutes. Adjusted operating income was $408 million for the second quarter of 2019 and adjusted operating margin was 20.3%, which is down 30 basis points compared to the second quarter of 2018. Compared to the first quarter of 2019, adjusted operating margins increased 20 basis points. From a segment standpoint, in the cable segment, margins were 9.7%, which is down compared to 13.2% in the second quarter of 2018, primarily driven by volume as well as to a lesser extent product mix. In the interconnect segment, margins were a strong 22.2% in the second quarter of 2019, which is down slightly compared to 22.4% in the second quarter of last year. This strong performance is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high-performance, action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in an increasingly uncertain market environment. Through the careful fostering of this culture and the deployment of our strategies to both existing and acquired companies, our management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance in the future. Interest expense for the quarter was approximately $30 million, which compares to $26 million last year, and as discussed in our prior earnings call, this increase is due primarily to higher average interest rates as a result of the first quarter bond issuance and higher average debt levels. The company's adjusted effective tax rate was approximately 24.5% for the second quarter of 2019 compared to 25.5% in the second quarter of 2018. The adjusted effective tax rate excludes the impact of the excess tax benefit associated with stock option exercises and the tax effect of acquisition-related costs incurred in both periods. The company's GAAP effective tax rate for the second quarter of 2019 includes the items just mentioned. including the items just mentioned, with approximately 21.3% compared to 24.7% in the second quarter of 2018. Adjusted net income was a strong 14% of sales in the second quarter of 2019. On a GAAP basis, diluted EPS grew 2% in the second quarter to 93 cents compared to 91 cents in the second quarter of 2018. And adjusted diluted EPS grew 2% to 92 cents in the second quarter of 2019, from $0.90 in the second quarter of 2018. Orders for the quarter were $2.19 billion, which was flat compared to the second quarter of 2018, resulting in a book-to-bill ratio of 1 to 1. The company continues to be an excellent generator of cash. Cash flow from operations was $322 million in the second quarter, or approximately 114% of adjusted net income. From a working capital standpoint, inventory, accounts receivable, and accounts payable were approximately $1.3 billion, $1.7 billion, and $815 million, respectively, at the end of June. In inventory days, day sales outstanding, and payable days were 83, 75, and 53 days, respectively, all within the normal range. The cash flow from operations of $322 million was along with borrowings of $400 million from our commercial paper programs, proceeds from the exercise of stock options of $66 million, and cash, cash equivalents, and short-term investments on hand of approximately $10 million out of translation. We're used primarily to fund acquisitions of approximately $357 million to repurchase approximately $249 million of the company's stock, to fund net capital expenditures of $74 million dollars, to fund dividend payments of $69 million, and to fund the purchases of minority interest related to a previous acquisition of $21 million. During the quarter, the company repurchased 2.6 million shares of stock at an average price of approximately $94 under the $2 billion three-year open market stock repurchase plan. As mentioned in today's earnings release, the company's board of directors has approved a 9% increase in the quarterly dividend on the company's common stock from 23 to 25 cents per share. The increase is effective for payments beginning in October. At June 30th, cash and short-term investments were approximately $1 billion, the majority of which is held outside of the U.S. At June 30th, the company had issued approximately $1.3 billion under its U.S. and Euro commercial paper programs. The company's cash and availability under our credit facilities totaled approximately $2.2 billion. Total debt at June 30th was approximately $4 billion and net debt was approximately $3 billion. The second quarter of 2019 adjusted EBITDA was approximately $500 million. From a financial perspective, this was another excellent quarter. Before I turn the call over to Adam, I would like to make a brief comment relative to our 2019 guidance. Our current guidance for the second half of 2019 reflects a significant reduction in our sales expectations for the communications equipment-related markets, together with a reduced outlook by customers in the industrial and automotive markets. This reduction in organic sales is partially offset by the new acquisitions announced today. Adam will comment further in a moment. I would also note that the Amphenol management team is reacting quickly to this reduction in expected demand by initiating actions to adjust the cost structure of our impacted operations to current demand levels. Our EPS guidance includes the cost of these actions, which are primarily reflected in the third quarter. EPS guidance also reflects the lower than company average initial operating margins of our new acquisitions. I will now turn it over to Adam, who will provide an overview of the business and comment on current trends.

Well, thank you very much, Craig, and welcome to all of you on our call today. As a customer, I'm going to highlight a few of our achievements here in the second quarter. I'll then talk about our trends and our progress across our diversified served markets. And then finally, I'll make some comments on our outlook for the third quarter and full year 2019. And, of course, we'll have some time at the end for questions and answers. As Craig just detailed, our results in the second quarter were within the company's guidance, and that's despite a clear increase in market uncertainty that we saw during the quarter. Sales grew by 2% in U.S. dollars and 4% in local currencies, reaching just over $2 billion, in fact $2 billion and $15 million. The company booked $2 billion and $19 million in orders, representing essentially a book-to-bill of one-to-one for the quarter. Adjusted operating margins were again very strong in the quarter, reaching 20.3%. Also, the company generated healthy operating cash flow, $322 million in the second quarter, which is yet again an excellent reflection of the quality of the company's earnings. I'd like to also just note that I'm very pleased that the Board of Directors just yesterday approved a 9% increase in the company's quarterly dividend to $0.25 per share, which effective with the October payment. I'm very proud of the Amphenol management team. The results this quarter were just another clear reflection of the agility and discipline of our entrepreneurial organization around the world, as we perform well amidst both a very dynamic electronics industry and a volatile demand environment, all while driving outstanding operating performance for the company. Very pleased to announce today that we completed four outstanding acquisitions just in the last several weeks, which collectively represent approximately $150 million of annualized sales and which we acquired for a total purchase price of approximately $280 million. First, CONEC, which we completed in late June, is a provider of high-technology connectors for the industrial market with annual sales of approximately $80 million. CONIC is based in Lippstadt, Germany, and its products are sold into a wide array of applications in the industrial market, including factor automation, instrumentation, and many, many others. This company represents an outstanding complement to our already broad array of interconnect solutions for industrial applications. COPEC, which also closed in late June, is a manufacturer of RF passive interconnect components for the broadband markets. COPEX products are sold primarily to Amphenol as a vendor to us, together with a very small amount of sales to outside customers. The company is based in Hong Kong with manufacturing operations in Shenzhen, China. Bernrichter, which we completed just here in July, is a manufacturer of leading-edge interconnect assemblies primarily for the medical market, with annual sales of approximately $30 million. Based in Wipfers, Germany, Vern Richter's products are sold into a variety of applications for medical equipment made by customers in Europe as well as in North America. This great company strengthens our already successful medical interconnect products offering while also improving our position in value-add assemblies for the European medical market. And then finally, just last week, late last week, in fact, we closed the acquisition of the GJM Group, GJM is a provider of cable assemblies for the automotive market based just outside of Barcelona, Spain. It is of approximately $40 million, manufactures cable assemblies for complex applications within passenger vehicles, and represents an excellent complement to our already broad value-add offerings for the worldwide automotive market. As we welcome these outstanding new teams to the Ampanol family, We remain very confident that our acquisition program will continue to create great value for the company. In fact, so far this year, we've already acquired seven great businesses, which collectively represent annualized revenues of approximately $470 million. But even more importantly, we've strengthened Amphenol with these new, strong management teams, their complementary market positions, and the capabilities they offer. thereby creating platforms for future expansion as well as performance improvement. No question that our acquisition program clearly remains a core competitive advantage for Amphenol. Now, before I get into reviewing the details of our performance by end market, I would like to comment on some recent market developments over the last quarter that have impacted our outlook heading into the second half here of 2019. First, following the restrictions that were placed on sales to Huawei by the U.S. government, there has been a significant increase in uncertainty across the communications equipment markets as many customers are grappling with potential changes in China demand. This has resulted in certain customers reducing their outlooks for the second half of 2019. Second, there has also been a moderation of demand expectations in both the industrial and automotive markets, including in both Europe and Asia in particular, as customers no longer expect a step-up in sales in the second half, which they previously had been anticipating. Finally, and no doubt related to these two dynamics, our distributors have also moderated their expectations for demand for our products, reflecting both the reduced and market demand as well as their elevated inventory levels. We have reflected these lower demand levels in our outlook, and I'll discuss the specific impact of these changes in each of the relevant markets in a few moments. But before I do that, I just want to say that I'm very proud of our teams working in these affected markets, who are around the world quickly adjusting their costs while equally importantly redeploying their resources to ensure that Amphenol is well positioned regardless of the market environment. And look, I mean, ultimately, This is the ultimate reflection of Amphanolian agility. Now, turning to our trends and progress across our served markets, I would just note that we continue to be very pleased with the value created by the company's balanced and broad end market diversification. In fact, in the second quarter, once again, no market represented more than 20% of our sales. You know, very importantly, that market diversification helps to mitigate the impacts of the volatility of individual end markets, while also serving to expose us to leading technology innovations wherever they may arise across the electronics industry. Now, starting out with the military market, that market represented 12% of our sales in the quarter, and sales grew by a better than expected 18% in U.S. dollars and 19% organically. This very strong growth was broad-based, but was driven in particular by growth in military vehicles, naval applications, avionics, as well as communications equipment. Sequentially, our sales increased by 7%. Looking ahead, we expect sales in the military market in the third quarter to again increase from these second quarter levels. And for the full year 2019, we now expect to achieve high teens sales growth in this very important market. This This represents an upgrade to our outlook provided last quarter. I remain extremely proud of Amphenol's team working in the military market. As demand for military interconnect products continues to accelerate, given both the robust government spending levels as well as the acceleration of adoption of new technologies, our organization has done an outstanding job reacting to meet these elevated levels of demand while also gaining market share. We simply have the broadest range of interconnect products together with the strongest and most international manufacturing footprint, and this positions us very strongly for the long term. The commercial aerospace market represented 5% of our sales in the quarter, and sales in the second quarter came in stronger than expected, growing 11% in U.S. dollars and 13% organically as we capitalized on continued strong demand for next-generation jetliners. Sequentially, our sales were down just slightly from the first quarter. Looking into the third quarter, we expect a slight moderation of sales given typical summer seasonality, but regardless, we now expect a low double-digit increase in sales in the commercial air market for the full year of 2019, and this represents an improvement from our prior expectations. We remain very encouraged by the company's strong technology position and across a wide array of aircraft platforms, as well as the next-generation systems that are integrated into such airplanes. And we look forward to benefiting from that position for many years to come. The industrial market represented 20% of our sales in the quarter. Sales in the second quarter were down by 3% in U.S. dollars and 8% organically, as growth in factory automation, industrial battery, and medical applications decreased. was offset by reductions in heavy equipment, instrumentation, and alternative energy. Sales to distribution were also softer on a year-over-year basis. On a sequential basis, sales increased by 2% from the first quarter. We're very excited about the recent additions of both Connick and Bernrichter, which strengthen our position in the European industrial market in particular, across a range of exciting segments, including medical, factor automation, instrumentation, and many other applications. As we look into the third quarter, we expect sales in the industrial market to increase from these second quarter levels as we benefit from the additions of our new acquisitions together with modest sequential organic growth. And while we do anticipate growth in the high single digits for the full year, As I mentioned earlier, we now do not expect to grow organically for the full year, as both our distributor and OEM customers no longer foresee a step-up in demand in the second half. Regardless of this organic moderation demand that we've recently seen, we remain very encouraged by the company's leading position in the industrial interconnect and sensors market. Through both our successful acquisition program as well as our innovation initiatives, we've developed a very broad array of products across a diversified range of exciting segments within the global industrial market. We're proud of the success, and we look forward to realizing the benefits of our efforts in the industrial markets for many years to come. The automotive market represented 19% of our sales in the quarter. Sales in the automotive market were about as expected in the second quarter, with sales flat to prior year in U.S. dollars and down 3% organically. This organic moderation of sales was related primarily to the European market, and to a lesser extent, North America. Sequentially, our automotive sales increased by 4%. As we look into the third quarter, we expect sales to moderate slightly from these levels. And for the full year 2019, we now expect sales growth in the low single digits, which is a slight reduction from our prior expectations. As I alluded to earlier, while we came into the second quarter expecting a step up in demand in the automotive market in the second half, based on our current input from customers, we no longer expect any meaningful organic increase in sales here in the second half of 2019. This relates primarily to subdued vehicle production expectations for Europe and Asia. Regardless of this more muted outlook for the full year, The company's position in the automotive market is as strong as ever. We continue to work with a wide array of customers around the world to design in our broadening portfolio of interconnect sensor and antenna products into their next generation vehicles. In addition, we're working on many advanced technologies with customers around the world, including next generation electrified drive trains, autonomous driving systems, and many others. And with the acquisition of GJM further expanding our product range and customer reach, we believe we've built an excellent base for future performance. The mobile devices market represented 12% of our sales in the quarter. Sales were slightly lower than expected in the second quarter, growing 4% from prior year, as growth in smartphones, laptops, and wearables was partially offset by a reduction in sales related to tablets and production-related products. Looking into the third quarter, we expect demand to increase moderately from these levels as customers begin to ramp up their new platforms. And for the full year 2019, we continue to expect a roughly 30% reduction in sales from prior year, as we discussed extensively during last quarter's call. As always, our team will remain poised to capitalize on any incremental demand opportunities that may arise as the year progresses. I remain encouraged by Ampel's position in the mobile devices markets. Our team is continuing to work on a wide array of next-generation mobile devices, including smartphones, laptops, tablets, wearables, and many other accessories. And we're confident that in the long term, this market will continue to be a positive contributor to the company's overall performance. Most importantly, our team working in the mobile devices market remains just simply the most agile at reacting to the inevitable changes that occur in in this very exciting space, thereby securing both our market position and financial performance. The mobile networks market represented 9% of our sales in the quarter, and our performance was a bit better than expected in the second quarter, with sales increasing by 9% in U.S. dollars and flat organically, as we benefited from the contributions from the Charles Industries acquisition that we announced last quarter. On an organic basis, our sales increased to OEMs, but were offset by a continued moderation of demand from wireless service providers. And sequentially, sales grew by a strong 17% from the first quarter with those contributions from Charles. Looking into the third quarter and the second half of 2019, we now anticipate a significant sequential reduction of sales as a result of the dynamics that I addressed earlier in the call. And for the full year 2019, we now expect sales to be flat to prior year in U.S. dollars, but down in the high single digits organically, as benefits from the Charles acquisition are offset by a moderation in demand from both OEM and operator customers in the second half of 2019. Regardless of this more challenging situation that emerged here in the second quarter, we remain very confident in the long-term outlook for our mobile networks business. Our leading-edge interconnect and antenna solutions have positioned the company strongly with OEM and operator customers really in all geographies. As those customers plan for 5G and other network upgrades, we look forward to benefiting from our robust position as a partner with those customers. And this creates a significant long-term expansion potential for Amphenol. The information technology and data communications market represented 19% of our sales in the quarter. As we had expected coming into the second quarter, sales were slightly down from prior year as growth in networking-related products was more than offset by reductions of sales of products sold into servers and storage hardware. Sequentially, sales were up slightly from the first quarter with the addition of Charles Industries. Looking into the third quarter, we now expect a significant sequential reduction in sales, resulting from those dynamics I addressed earlier. And for the full year 2019, we now anticipate a mid-to-high single-digit decline from prior year. Regardless of these current market dynamics, our OEM and service provider customers across the IT Datacom market are continuing to push their systems and networks to higher levels of performance. Our ability to enable such performance through our next-generation high-speed fiber optic power and other interconnect solutions has enabled Amphenol to be a leader in this market, and we're confident that we will continue in that position into the long term. And then finally, the broadband market represented 4% of our sales in the quarter. Sales in the second quarter reduced by a greater than expected 15% from prior year, as spending by operators in the broadband market continued to moderate. On a sequential basis, sales were down by roughly 3%. Looking ahead, we expect sales to increase modestly from these levels in the third quarter. However, for the full year 2019, we now do expect sales to be down in the high single digits from prior year on reduced capital investments by broadband operators. Regardless of this more muted outlook in the broadband market, we remain encouraged by the company's continually expanding range of products for the broadband market, together with our strong position with customers around the world. The acquisition of COPEC, while small, brings in-house our capabilities for RF passive interconnect devices and represents yet another strengthening of our product offering. So in summary, I would just say that I'm very pleased, actually, with the company's performance in the second quarter, in particular given this heightened level of uncertainty that emerged during the quarter. The Amphenol organization has clearly continued to execute very well in this dynamic marketplace. In particular, our long-term, dual-pronged approach of growing both organically and through our successful acquisition program has resulted in us expanding our market position while strengthening the company's financial performance. The company's superior performance is a direct reflection of Amphenol's distinct competitive advantages. Our leading technology, our increasing position with customers across our diverse end markets, broad worldwide presence, a lean and very flexible cost structure, and a highly effective acquisition program, together most importantly with Amphenol's agile entrepreneurial management teams. Now, turning to our outlook, as I mentioned earlier, we have moderated our outlook in the second half due to the dynamics affecting the communications equipment, industrial, and automotive markets, which include as well the effects of reduced demand from our distributors. Based on these factors and considering the heightened level of uncertainty in the overall economy and, of course, assuming constant exchange rates, we now expect the following results. For the third quarter, We expect sales in the range of $1,960,000,000 to $2,000,000, and adjusted diluted EPS in the range of $0.86 to $0.88. This represents a sales reduction versus prior year of down 6% to down 8%, and a decrease versus prior year adjusted diluted EPS of 11% to 13%. For the full year 2019, we now expect sales in the range of $7,920,000,000 to $8 billion, with adjusted diluted EPS in the range of $3.56 to $3.60. For the full year, this represents sales and adjusted diluted EPS declines of 2% to 3% and 5% to 6% respectively. Regardless of this reduction in our outlook, the ethanol management team looks forward to driving further strength into the future. Our team is reacting quickly to align costs with the level of demand reflected in this outlook, all while aggressively pursuing a diverse array of growth opportunities. This is the essence of the Agile Amphanolian culture as embodied by our outstanding management team. And that team, coupled with our deep technology position with customers across our markets and complemented by our successful acquisition program, positions the company very strongly for the future. And with that, operator, we'd be happy to take any questions that there may be.

Thank you. The question and answer period will now begin. The first question is coming from Amit Daryanani with Evercore. Your line is now open.

Yep. Thanks a lot. Good afternoon, guys. I have two questions. I guess the first one, Adam, when I look at the revenue reduction in the back half of $230 million or so, maybe $300 million with a deal factored in, how much of that do you think is really attributed to you know, tariff, the tariff outlook or the U.S. government putting restrictions on certain Chinese entities, kind of things that are driving that, versus driven by just lower end demand and things like industrial markets that might be a little bit more segregated from that, perhaps.

Sure. Well, thanks very much. Good afternoon, Amit. I think the way we think about this reduction in the back half is roughly two-thirds of that reduction is coming from the communications and markets. And You know, of that communications end market, I would say, you know, you can call it, you know, somewhere around half or a little bit more is maybe related to the specific restrictions that were put in place, the direct and indirect effects of those, and maybe the rest is a more broad market and distribution element. And then, you know, of the remaining, call it roughly third, I would say that that's, you know, relatively balanced between industrial and automotive. Yeah.

That's really helpful. I guess, Craig, if I hold you to what the industry comments, you talked about undertaking a swift cost reduction plan. I don't know if you guys normally take these as a one-time charge. So perhaps help me understand when I think about margins going down in Q3, which you're implying mid-19%, you know, 80 basis points down, sequentially operating margins, that's my math. How much of that is really driven by these cost reduction initiatives that, you know, most companies would call as a one-time, but you're not? versus just revenue deleverage in the model?

Yes. Thanks, Simon. And, you know, as you know, we don't call these types of things out, you know, in normal course, so this is something that we do include and we hold ourselves accountable as our general managers hold themselves accountable for the results. But in regards to the amount, so I'm not going to probably talk about specific amounts, but what I would say is if you look kind of sequentially at kind of our implied conversion there's a few things that kind of are happening. And, you know, the acquisitions clearly have some impact from a growth perspective. They're contributing, you know, a certain amount. And, you know, those are contributing, I would say, an operating margin lower than the average of the company today. And, you know, certainly over time we do expect to get those up, but they will not contribute to the level that we would expect as a normal kind of conversion going into the third quarter. The other thing that's happening is, you know, is these costs related to these restructuring kind of charges that are in these results. And, you know, I would say that you could probably back into that number by effectively understanding that the implied conversion, if you take out those restructuring charges, is essentially within our normal range. It's not anything really much different than that. So if you kind of backed into that, you can kind of get to that number. But we really don't want to start calling out charges because we do hold ourselves basically accountable. And then in the fourth quarter, our implied conversion would be pretty strong going into the fourth quarter as we kind of go into that quarter. I guess one other point that I would say is that if you actually look at our year-over-year kind of implied conversion coming from Q3 of 18 to Q3 of 19. What you'd see actually if you take out the impact of those seven acquisitions that we now have that all are effectively an average under our kind of average operating margin is that you would actually see that we really are also converting on the downside with quite a significant decline organically in the third quarter, kind of in a normal range. I have to say the management team really has done a great job of ensuring that the bottom line is protected, even while taking certain cost actions that are going to be impacting the bottom line in the third quarter to ensure that, you know, going forward, we really are in a good position from a cost perspective to be able to come out of, you know, in the current demand environment.

And, Ahmed, I would just add maybe one thing here, which really gets to a core part of how we think about running the business and We've talked about this in the past, that in good times, we run the business as if we're driving a car with one foot on the gas and one foot on the brake. And we don't change that mindset when all of a sudden you have reductions in the outlook of the demand. We're continuing to drive with one foot on the gas and one foot on the brake. And what does that ultimately mean is that these kind of cost reduction actions are just par for the course. This is a normal type of behavior. It's why we hold ourselves accountable for it. It's why we hold our general managers accountable for that. That when you're growing, you should also grow with the understanding that one day you may have to take certain steps that will be on the other side of growth, where there's a different cycle that comes along. And that kind of mindset of driving with one foot on the gas and one foot on the brake really ultimately shows its strength in times like this. There's no doubt. I mean, are we happy to have less demand coming from certain of our end markets? Of course not. We much prefer to have everything moving up and to the right. But it is part of life. It's part of business, and it's part of working in a very dynamic environment that we all operate in today. And I think in such an environment, that mindset, that agility, the accountability mindset, of the Amphenol management team is really purpose-built for a time period like we are finding ourselves in here right now. And that's why, as Craig says, we feel very, very good about this outlook on a year-over-year basis, and we feel very optimistic about how that's going to position the company going forward.

Thank you. Our next question is coming from William Stein with SunTrust. Your line is now open.

Great. Thank you for taking my questions. First, you talked about lower outlook, at least partly owing to the banned entities. Adam, is there anything in there that we should read into aside from Huawei? And many of your semiconductor peers have talked about discovering that perhaps not all of their products are covered by this ban and being able to ship them. more and more as the quarter went on. Are you seeing the same dynamic?

Yeah, well, I think, look, we should also recognize that this is not the first time that the U.S. Department of Commerce has put in place restrictions or put a company on the entities list. This happened a number of years ago with ZTE, who is albeit a smaller customer. It was a very similar dynamic. And so our team knew exactly what we could and couldn't do, and we were very aggressive at complying with the law, which we knew very, very well. And so as many have reported, this is not a ban on shipments by American companies. It's a ban on export of know-how and technology from the United States. And so from that perspective – it does not ban one from supporting from outside without the integration of American technology. I would also just point out that, as you know very well, we have always taken an approach of supporting our customers, the vast majority of the support of our customers coming in the regions where those customers are located. And that has been an approach that we've taken for many, many years, which has insulated us from some of the trade dynamics has also allowed us to strengthen our position with customers by having local teams in their localities really working with them. And so when this became the issue, this restriction, you know, we have local teams who are not reliant upon kind of a matrixed organization that relies on, you know, American engineers or American know-how in every case. Now, all that being said, you can only ship as much as a customer wants to have. And so, you know, there can also be instances when there are such restrictions where they don't necessarily have everything that they need, and thus they don't need stuff from you. And so that's a different aspect of that dynamic. But I'm really proud of our team, how they've dealt with all of the trade dynamics that we've been facing for now more than a year. I mean, this has been more than a year where there's been turbulence in the trading environment. And our team has just done a fabulous job of adjusting in real time to whatever impediments come along to our business. And, again, it gets to what I referred to earlier. You know, we really believe that how our company is organized, that unique entrepreneurial approach to management where we have general managers who are fully accountable and we vest in them the authority, we empower them to make really real-time decisions, that that structure is really purpose-built for this slightly more dynamic environment that we all find ourselves in.

Thank you for that. One more if I can. Has the company ever acquired a supplier before, as you've announced today, and maybe confirm my understanding as a result of the majority of the revenue of that company being derived from Amphenol, it's not really a revenue builder for you, but instead a cost reducer so you could take out those stacked margins? there and what it tells us about the company's M&A strategy. I don't think there's any meaningful change here, but I think it's new or at least unusual.

Yeah, actually, it's not the first time we've acquired a supplier. We've done that over the years a few times. Sometimes they were a very small supplier where it was not even meaningful. Other times it was a little bit bigger. I think out of an abundance of of transparency we talked about, but this company, Kopec, which is a great company. It's been a long-term supplier for us. And, you know, when you acquire a supplier, it's not just that kind of margin stack-up that you described. I mean, our suppliers don't make a lot of margin necessarily with us. So that is not necessarily what you're doing. But what you are doing is you're taking control of technology when you feel that that technology is really core to you. So I can tell you a number of years ago, we acquired a supplier in Malaysia. We acquired another supplier in China years ago, which became really a real asset for the company from a next-generation technological development perspective. And I would say that COPAC, you know, while there is a little bit from the margin, it's not so meaningful. It's really a technology – our ability to shape the technological development by having, in that case, the real vertical integration. It doesn't mean a change in our acquisition strategy. We are not becoming more or less vertically integrated. We are not shifting towards going out and acquiring ourselves through the supply chain. This is a unique company, created a unique opportunity for us, and one that we felt really made a lot of sense. And I don't think it represents at all a shift in where we would think about acquiring for the future.

Thank you. Our next question is coming from Craig Hentenbeck with Morgan Stanley. Your line is now open.

Yes, thank you. Just, Adam, on the knock-on effect with the uncertainty around comm equipment and other customers from a demand perspective in China, any visibility into kind of as the quarter progressed for you or how you're thinking about into the back half, like what signals you're looking for that, you know, some of this demand might come back into play?

Yeah, I mean, look, just knock on the fact it's a little hard to pin down, but I can tell you what we saw during the quarter was while there's been a lot reported about the puts and takes in the trade negotiations, no doubt about it, a restriction that was placed on one of the world's largest, if not the largest, communications equipment player a little bit changed the game. And so I think that we have seen – customers, equipment manufacturing customers, who have themselves faced more uncertainty in the China market in particular for whatever reason. I mean, I'm not going to get into or try to guess what all the various dynamics at play are, but just let it be said that they have seen more dynamics in that market, which caused some uncertainty for them. which thereby forced them to assess, really, their demand plans, look at their inventory positions, look at all what they have in terms of their expectations. And that has really been the result that we have seen across the communications equipment market. In terms of, you know, when does that change, I would say the whole trade dynamic is really too early to call. I mean, every day there seems to be a report one way or another – You know, one day there's a positive, the next day there's a negative. I am certainly not going to be the one who's going to predict when the resolution is. I will be the one to applaud that there is a resolution. I believe that the world's two largest economies should not be in a trade battle, and hopefully that that will be resolved. And I understand there's real issues that are being addressed, and I'm very hopeful that those issues will be addressed, but I'm not going to predict neither the timing nor the ultimate resolution of those issues.

Understood. And then just second question, the strength in the military market, can you just talk about, I would expect at some point maybe it decelerates from these levels, but just anything from a program, you know, and I know you've talked about before the content increases and things like that, but certainly that's a standout on the positive side. And if you can give us maybe a little bit more context around some of the drivers you're seeing there.

Sure. No, thanks very much. I mean, look, we're really pleased and proud of our military business. I mean, you know well this business has been a part of Amphenol for essentially the entire history of the company and even before because part of it came through even predecessor companies years and years ago. And we have been just the interconnect innovator in the military market. And so, yes, today you have a robust spending environment. you also have just an acceleration of the adoption of new technologies. And that's a trend, that technology adoption is a trend that we've seen really across the applications. You know, whether you're talking about next-generation fighter jets, whether you're talking about communications systems, munitions, naval applications, I mean, there is without a doubt a clear acceleration of the adoption of technology across the military. As the military looks to get more functionality with less cost, less manpower, whatever they're looking to achieve. And no question, it's also – it's a world geopolitically where there's not a kind of monolithic mission of the military, and thus there's a real diversity of where the spending is happening, and not just in the United States, but really in all the regions in which we participate in the military. You know, will it always grow in the kind of high teens as we've guided it to go this year? You know, certainly we wouldn't expect it always to grow at that rate. And, you know, at one point it will not grow at that rate. But I do believe that when you look at our position in the military market, the breadth of our position, when you look at our track record in particular this year and last, in being able to satisfy the demands of our customers, which is not an easy task. And when you look ultimately at the long-term plans of the military to adopt next-generation technologies, we feel very good about this market for the long term. Ultimately, what that long-term growth rate will be, will there be ups and downs? For sure, there will be ups and downs. But I think all of those dynamics that I just addressed give one reason to feel confident for the long term.

Thank you. Our next question is coming from Mark Delaney with Goldman Sachs. Your line is now open.

Yes, good afternoon. Thanks for taking the question. I have one on comms infrastructure more in terms of strategic and competitive standpoint. Can you help us understand if any of the weakness that you're seeing you'd attribute to any increased market share challenges and and kind of related longer-term in COMS infrastructure, just reflect how well you think ethanol is positioned in 5G. Because I know some companies are in different parts of the supply chain and maybe see 5G strength earlier than ethanol would. But just, you know, there's been a few companies, I think, starting to see some strength from 5G and just wanted to better understand how you think ethanol is going to fit into the 5G landscape over the longer term.

Yeah, no, thanks very much, Mark. I mean, look, I would tell you that absolutely we are not only preserving our market share, but I would expect it to be even more than preserved. And we have a fabulous position in the communications infrastructure market, whether that is in the mobile networks market where 5G is more specifically relevant or in the IT datacom market in all of the sort of core, whether that's routers or switches or servers or web service providers or whatever that is. We have an outstanding position. We have invested over many years in developing new products. We've made excellent acquisitions, going all the way back even to the FCI acquisition, which ultimately created for us the broadest platform of products, the broadest range of products across really the price performance curve, which enables us not just to be the supplier and the solution provider for the ultra high-end applications, but really to be a one-stop shop for our customers across all the range of applications that they need, and that's on high-speed products, that's on power products, fiber optics, and many others, RF as well. Specific to 5G, I would tell you that we have an outstanding design and position. Our teams have been working for many, many years. We have a unique position in that we have a broad interconnect offering together with with an antenna offering both on the infrastructure as well as on the devices, which gives us a unique perspective, a very unique perspective on all the changes that are coming with 5G in terms of how the signals are going to be propagated, what the nature of the 5G architecture is going to be. And we've been working with customers for many years on that. You know, have we seen already some benefit from 5G? You know, I think We've seen some early systems, I mean, 5G-ready kind of hardware where we are participating. I can tell you one thing that we have seen, and it should not be surprising. I mean, you look at the mobile networks market in particular, which is a market where there are not so many equipment manufacturers. And when one of those equipment manufacturers ends up kind of in the bull's eye from a geopolitical perspective, it should not be surprising that the operators around the world would take a little bit of a wait and see approach to such a dynamic. You know, one, if one doesn't have to make significant investments in that moment, wouldn't it be a wiser move by such an operator who is really facing significant investments in the long term to sort of see how that all shakes out. And I think we have seen a little bit of that dynamic here with some of our service provider customers in particular where, you know, they take a little bit of a wait and see. They know that there's a lot of turbulence, a lot of dynamics in these discussions. And I think people, those who have the luxury to wait and see may do a little bit of that here. But look, relative to 5G for the long term, We are very, very well positioned, and I would say uniquely well positioned because of the technologies, the breadth of the technologies that we offer, and we look forward over the long term to participating in that.

That's helpful, Adam. For my follow-up question, it is on the topic of inventory destocking, and you talked about that in particular in the channel. One of your competitors reported this morning and talked about typically four to six months in duration when you look back through past cycles. I know you've been in this. This is a long time, and every cycle is unique and has its own characteristics. But any thoughts from Anthony about how long you think inventory destocking in the channel may last for? Thank you.

Well, thank you, Mark. I mean, I have a hard time to get too specific about this. I think, you know, as you say, I take the words out of your mouth. I mean, every cycle is a little bit different. I think we're dealing here with not just inventory destocking, but I think there is a change in demand at the end customer that is also there. And, you know, how did the distributors ultimately react to that? You know, and how long of a time does it take them to manage through that is something that I would be a little hesitant to give a kind of a projection on. But, look, I mean, our teams are standing ready to capitalize to the extent that there is any uptick in demand, no doubt about it. They will be there ready to do so. And I would just make a point here, which is we see this uncertainty, whether that is in the distribution channel, whether that's in the communications infrastructure channel that you alluded to. One thing that we have not seen any slowdown on is the pace of proliferation of electronics, the pace of innovation, the developments that our customers are undergoing. We have not seen at all a slowdown in that activity at To the contrary, I would say that our customers in every one of our markets are working extremely hard to drive innovations that ultimately can satisfy the thirst of the end customers for higher performance in whatever application they may be desiring to use. And I think that the long-term pace of the proliferation of electronics continues from our perspective to accelerate. And so, yes, you know, there are here, there is some enhanced uncertainty in some of these areas, but I think the long-term, the long-term in terms of this adoption of electronics continues to be very, very healthy.

Thank you. Our next question is coming from Matt Sheeran with Stifel. Your line is now open.

Yes, thank you, and hello, Adam and Craig. Question, Adam, is regarding the mobile devices guidance for the quarter and the year. It sounds like you're looking for some sequential growth in Q3, but sort of backing into your roughly 30% down for the year. It looks like a relatively muted back half for mobility relative to what we've seen in last cycles. I know you've talked about demand issues as well as some content issues, but could you drill down a little bit in terms of what you're seeing not just in the smartphone area, but in notebooks and other devices.

Sure, Matt. Thanks very much. I mean, I know we talked a lot about this on the last call, and I would say that, you know, our outlook really hasn't changed in mobile devices and our views that we talked about last quarter haven't changed. But, you know, just to remind, you're correct. I think the second half this year will be relatively muted. It will have a step up. But it will certainly not be the level of step-up that we experienced last year. And you'll recall, I mean, we nearly doubled the business from first half to second half last year. And that makes for a tougher compare going into the second half. I mean, all that being said, I'm very pleased that the team we saw actually growth here in the second quarter on a year-over-year basis, which is just a testament to our team continuing to fight for every opportunity that may be there. In terms of why that demand changed, again, we spoke about that 90 days ago, but it is a combination of architectural changes in certain devices together with some expectation of overall unit volume being down, and I think we see a kind of a sharper year-over-year reduction in smartphones and maybe a more modest change in areas like laptops and tablets and other accessories. Some of the smaller accessories, things like wearables and other accessories, we see even some opportunities for growth this year amidst those more significant reductions that we've seen in the higher volume products.

Okay, great. You just touched on the previous question regarding the 5G opportunity, not just in mobile networks, but you touched on the mobile devices itself. Could you talk about the content opportunity in next generation 5G phones versus the legacy phones or older phones?

Sure. I mean, it's When we think about mobile devices, we've talked about this for a long time. For us, it's all about the complexity of the hardware, and to the extent that the devices themselves, as opposed to the software that those devices act as hosts for, the devices themselves, to the extent that they have innovation in them, to the extent that they have added complexity, that's usually a good trend for Amphenol. So as it relates to 5G, there's no question that, as phones adopt 5G, that may require the phone manufacturers to add complexity to those devices because they have another signal path associated with it. Because, you know, if you think about it, a 5G phone got to also work on a 4G and a 3G and a 2G network, got to also work in Wi-Fi, got to also have Bluetooth and other connectivity standards associated with it. And so it is really just an added signal path in a device. And, you know, many of the architectures that may result in added complexity. I'm not going to say that it's universal because every device is going to have its own unique design associated with it. But clearly having that additional functionality by and large should prove a positive for us. you know, amidst all the other dynamics that come in mobile devices.

Thank you. Our next question is coming from Sean Harrison with Longbow. Your line is now open.

Hi. Afternoon. I wanted to just speak on the M&A environment in that big step up year-to-date in terms of numbers of acquisitions and very reasonable prices, particularly considering the valuation of large steel went out this week at, but Are you seeing more M&A, you know, in sellers willing to, I guess, deal with Amphenol at this point in time, or is it just more timing? I know things come and go, but it seems, you know, seven deals year-to-date, significant revenue contribution at a good valuation. Maybe the macro slowing down means more M&A activity, you know, through the back of the year for you guys.

Yeah, well, thanks very much, John. I mean, I think there's no question that, you know, our program has accelerated this year objectively. We've announced seven new companies to the Antenol family here in the first half of the year. Is that related to the overall market environment? I wouldn't be necessarily so quick to jump to such a conclusion. I mean, I'll tell you that the companies – that we have so far brought into the Amphenol family this year. There's one thing that we're very, very proud of about these seven acquisitions. Virtually all of them are family-founded, family-run companies, where, in fact, the family members, in almost every case, except one or two where there was a natural retirement, have stayed with Amphenol to continue to run those companies together with their organizations. And these companies were not, you know, short necessarily courtships. These were companies that we have been developing relationships with over a long time. And, you know, sometimes the date of closing is a little bit more luck of the draw than anything because there is a certain time period it takes to incubate those relationships. There's a time period it takes to execute on the mechanics of acquisitions and negotiations and all of that. But I just think it really speaks to the strength of our acquisition model that here we are, seven companies that we've acquired this year, all of them family companies, each unique with a unique advantage from a technology perspective, complementary from a market perspective, really across diversified array of our markets and across diversified geographies. I mean, you go back, you know, SSI, which is a family-owned company, You look at companies like Aurora, which is a family-owned company in China. You look at the companies. I mean, these are all just fabulous companies. They're not like Johnny-come-latelys. These are not, you know, investment vehicles for someone. These were real heart and soul companies of founders. And, again, we're just so proud to bring those founders in. You know, the reasonableness of the price, I will tell you, we're not looking to just buy companies on the cheap. We work with these founders over a long time period. We develop a relationship, and we find a meeting of the minds at a price level that ultimately provides fair value to them and ultimately can deliver great returns for Amphenol. And I think this year we've just done an outstanding job of doing so. To the extent are more sellers willing to deal with us, and I would say that the more acquisitions we make, the more successful we are after the acquisition in bringing those companies into the Amphenol family, allowing them to flourish in our special organizational approach, it does for sure strengthen each time incrementally our reputation among sellers. And I can tell you, you know, some of the acquisitions that we announced this quarter, we were not the only one talking to those companies. They had choices for sure. I mean, As you mentioned, I mean, there is a thirst to make acquisitions in the interconnect industry, and sometimes that results in also prices that we wouldn't necessarily pay. But these companies all – we were not the only suitor. And yet they chose to join into the Amphenol family because they believed in the fact that their companies in our culture would have a wonderful future. And I think as we go forward – I think that reputation will continue to precede us and will be an asset for the company for a long time to come.

And then as a brief follow-up, Adam, the weakness in the broadband business, is that solely tied to weaker MSO capexes or something within the portfolio that Amphenol may be lacking in terms of how the technology is shifting in that field?

Yeah, I mean, I would say it's really related to just overall spending and I mean, that market in the broadband market at the MSO, I mean, yes, there has been a lot going on in that space. There's a lot of discussions around content. There's a lot of discussions around distribution. And, you know, our team has a great portfolio of products, and we've augmented that here with the COPAC acquisition, strengthened that for sure. But really, by and large, what we have seen is just overall spending levels being down as the customers in the broadband markets, as MSOs in particular, but not just MSOs, also the satellite and telco side of the delivery, that they grapple with the sort of changing landscape that is there. Ultimately, we have a very strong position in that space, and it's one that long-term we continue to think is a great asset for Amphenol, even if we are seeing incremental weakness there, and that has that has resulted in us downgrading for the year our outlook for the broadband market.

Thank you. Our next question is coming from Deepa Raghavan with Wells Fargo Securities. Your line is now open.

Good afternoon, Adam and Craig. Hey, question for you. Can you comment on your performance by regions, if able to, North America, China versus Europe? Also, with regards to North America and Europe, which are some of the verticals that surprised you versus your plan? China, I guess we can all make a guess, but how about Europe and North America and have a follow-up?

Sure. Well, thank you very much, Deepa. I mean, just to comment broadly, it should not surprise anyone that with the strength that we saw in military and commercial air, which is not a wholly North American business, but it certainly has a strong North American component, that our performance was strongest in North America. From a local currency perspective, that was clearly the strongest. I think Asia was maybe the lowest, as you allude to, and Europe was sort of in the middle of that. In terms of which verticals or which of our end markets, as we would term them, performed in what way on a geographical market, again, I mean, military was strong in all the geographies where we sell, but it's just a little bit disproportionate to North America. I'd say that in automotive, I alluded to the fact that on an organic basis, at least, we saw – weaker performance in Europe, and then a little bit less weak, but still some weakness in North America, kind of flattish performance in Asia. And in the mobile networks market, in fact, we saw strength in North America and, in fact, in Asia, and a little bit weaker in Europe, just to pick a few of them by example.

Got it. Just as a follow-up, can you talk about your automotive outlooks in China? I mean, what are some of the conversations you're having with your clients in terms of recovery in the region? And, you know, if you can also add any commentary on industrial segment outlooks in China. I mean, that's one we don't, you know, we all seem to grapple with. There is some short cycle weakness, but not necessarily showing up at this point in time, but just curious what your thoughts are on automotive industrial outlooks in China. Thank you.

Sure. I mean, I think when we look into the second half, there is clearly in the automotive market, you know, more of a negative sentiment in China than maybe there has been. When I say negative sentiment, I really mean, you know, there was an expectation that the second half would be a little bit more favorable. And I think customers have really, you know, pulled back from that expectation. And at this point, you know, we see really in the second half, you know, no real recovery, at least expected by our customers. You know, all that being said in the automotive market, you know, again, specific to China, there's a lot of great stuff going on. I mean, you look at the innovations that are happening in electric vehicles and other industries, next generation automotive systems, where our company has done a fabulous job of positioning ourselves. I mean, there's no doubt about it that that is a long-term great platform of growth for the company. And our position in Asia in general, and in particular in China, has really strengthened over the recent years. I mean, you will certainly recall, and others on the phone will recall, that our automotive business traditionally was a much more European-dominated business, where effectively, in the past, two-thirds of our business was in Europe and, you know, roughly a third was in North America and then just a little bit in Asia. And today, the picture of that business is much more balanced across those geographies where maybe Europe is just a touch bigger than the other two and the other two geographies are relatively balanced. And that, I think, gives us exposure to those areas. But, you know, when you have a slowdown like the Chinese market has seen, and that's been very, very broadly reported, that now has a little bit more of an impact on us than it would have had in the past. With respect to industrial, I wouldn't say necessarily that we have seen a significant change or moderation of expectations, more specifically to China. I think we've probably seen a little bit more of a moderation of industrial outlook in Europe, together with our distributors where, you know, for us, industrial has a little bit more of a component of distribution to it than maybe some of our other markets. Obviously, automotive, you don't sell much through distribution to the automotive market. And I think so industrial has a little bit different dynamics, I would say, than automotive, which seems to be a little bit more a Europe and a China story. I mean, you know, you ask about China, and maybe I just make a quick comment here with respect to China. I mean, as everybody on the phone knows, I mean, our company has just done a fabulous job over the years of building our position in all geographies, and that's a real testament to, again, how we empower our people worldwide to build their businesses on a local basis. It's no secret that if you read our 10-K, you would see that China – last year represented just over 30% of our sales. But I think it's important to take that also in context, which is that the mobile devices market, which last year for us was roughly 17% of our sales, is essentially fulfilled almost exclusively in China. And so if you take that out, you're then talking about kind of a low to mid teens of our sales in China. And that Some portion of that is for foreign invested companies who are manufacturing products that are sold around the world. And some portion of that is for the domestic market. And, you know, we're really proud of the balance that we have. But it is just important, I think, to take that China in context.

Thank you. Our next question is coming from Wamsi Mohan with Bank of America Maryland. Your line is now open.

Thank you. I'm sorry if I missed this, but would you mind elaborating a little bit on the second half revisions in the IT datacom market? Was it largely in the networking equipment where you saw that, or were you revising that down from an IT datacom perspective, or was it more broad-based with, like, server storage, you know, transmission? Can you give us any color on that? I have a follow-up.

Sure. Thanks very much, Wamsi. I mean, I would say that it is not just in networking. It does include in networking. But, you know, we have seen really moderated outlooks from customers in networking and servers and in storage. So I wouldn't say that it's confined to that. You know, our business is a very, very broad business. We are really the interconnect leader in that space. We have a strong position with customers around the world in all those applications, together with the web service providers that have really emerged over the last, you know, four or five years as an important channel. And I would just say that it's probably more an OEM issue than it is necessarily a web service provider issue. But across the OEMs, I wouldn't say that it's just networking or just service or just storage. It's really... all three of those have some impact.

Okay, thanks for the comment. And then, is there any way to just give us a ballpark on this headwind to margins from M&A versus the cost actions that you're taking, you know, the 50-50, the 25-75, some rough estimate of that so that we can think about what the margin contribution from these deals are. And it seems to me that historically, you know, the largest of deals that you did, like FCI, were dilutive, but more, I mean, at least now in the second half, we're talking about these four deals being, you know, somewhat dilutive to margins. And you mentioned sort of multiple suitors. Should we just think that the market now is such that the returns that were generated prior from acquisitions are no longer possible in the future, just given the more competitive M&A interest from your peers? And is it reasonable to think that, you know, from here forward, no matter, you know, I mean, if it's any meaningful size of revenue, then that's going to be initially dilutive?

No, Wamsi, look, I would actually not say that. I think that when we think about the contribution from our acquisitions, we still feel very, very good about the long-term contribution, the returns from those acquisitions. I mean, look, we paid prices ultimately that were very reasonable prices, but as I said earlier, they were reasonable for the seller and reasonable for the buyer. They were not bid up. I think the point that I was making earlier was that, yes, there were in certain cases, not all of them, in certain cases multiple suitors, but it was really the compelling propositions for those companies to be a part of the Amphenol organization that ultimately was a very, very powerful attraction and not necessarily that we were willing to pay the last penny highest price for every one of those acquisitions. I mean, these sellers in particular, the family owned companies, they deeply care. They deeply care about the future of those companies. Is their organization going to have a future or is it going to get swallowed up into just kind of a big, bad, matrixed organization where you don't even find it later on? And I think that that sort of care that they have for the future of that organization brings to Amphenol a lot of benefits in, you know, quote, unquote, the market for acquisition. We still see fabulous potential in our acquisition program. It's true. I mean, these companies have lower margin. I mean, they're not dilutive per se. They are accretive to the company from an EPS perspective, no doubt about that. Do they have lower margins initially? They do. But do we have a long-term goal that is already well established with the sellers who are remaining with the company that as part of Amphenol, they will over time move those margins up to the company average or maybe better, absolutely. That is the conviction. That is the mission of all those companies as they join Amphenol. And so I think, you know, when Craig was talking about the kind of margin headwind in terms of the lower than average margin of these acquisitions, it's not that they're lower than average in perpetuity. I mean, our goal is obviously not for that to happen. And I think we have a great track record of demonstrating that we can generate excellent returns from these companies, and we have full conviction that we'll continue to do that for the future. I mean, relative to your sort of initial question, I think Craig has been pretty clear about the fact that our conversion margins, you know, if you take out the money that we're spending on taking some of the actions in light of lower volumes, and if you take out the the low average margins of the acquisitions, we really are performing really well from a sequential and a year-over-year conversion margin basis.

Thank you. Our next question is coming from Stephen Fox with Cross Research. Your line is now open.

Hi, good afternoon. Just one question from me, please. You know, Adam, you seem to constantly be able to find ways to reduce costs during tough times, and I would imagine that every time it's a little bit different. So I was wondering if we could get a little bit of color around what you're doing right now, especially since you seem to be accomplishing a lot of tasks very quickly across your business units to offset some of these declines. Thanks.

Thanks so much, Steve. I mean, look, this is not so much black magic. I mean, I mentioned earlier that the mindset of an ethanol general manager is always to drive with one foot on the gas and one foot on the brake, and I think what that just means is that you scale as it comes. I mean, you build the business always with the understanding that one day you may have to scale it back, and thus you make decisions accordingly. You don't put massive infrastructure that is fixed forever in place. You take a little bit more of a flexible approach. Maybe you lease a building instead of you own the buildings. Maybe you buy not always the number one most expensive machine when all the times are good. Maybe you buy the machine that is the right machine, not always the best machine. When you need people, whether that be salespeople, engineers, or whoever, when you're growing, well, sometimes your people work a little bit harder as opposed to just adding in lockstep the number of people that you need. And then, you know, when it comes to a time like this where the demand is certainly lower than you had expected, well, you're doing the opposite. You're adjusting down and you're doing that in a framework of a cost structure that was built with an eye to doing what you're doing on that day, which is you knew when you built that cost structure that one day you might have to reduce it. And that makes the job of doing that. not nicer, it's not a nice job, but it does make it a little bit more readily available to get done without inflicting just real harm to the organization. And I would just also add here that, you know, when we take this very seriously, there's nothing any of us like doing less than telling someone they don't have a job. But we do that in a very focused fashion. So we have around the world 110, or let's call it now 114, operating units inside of Amphenol. We have many that are actually performing very well, that are growing, that are investing, that are doubling down on executing on behalf of their customers. And we have others who have some more significant impact because of the nature of the products that they sell, the customers to whom they sell it, and the markets that they work in. And, you know, you can imagine that those general managers running those more impacted businesses, you know, they are taking really quick action, and that is really tough action sometimes. It's people. It's working with your vendors to make sure that there's cost reductions. It's sometimes shrinking the footprint of what you have. Sometimes it's moving something. I mean, in Amphenol, everything is fair game. There are no sacred cows. But the ability to do that is actually enabled in the good times, not in the bad times. And I think that's the really important concept from our culture to recognize that those times will come. Business cycles will come. The environment that we see right now is not a shock to anybody. I mean, we would like to not have it, but it is what it is. And we're fortunate that the mindset of the people was that as we were growing strong in those same businesses, they had an eye that one day this would come, and they made decisions accordingly. And, you know, look, it is not something we like to do, but it is something that we know how to do. It is something that is really second nature to that in-the-moment agility of how an Amphanolian general manager operates in his or her business every day.

Great. Thank you so much for that, Collar.

Thanks, Steve.

Our next question is coming from Jim Suva with Citigroup Investment Research. Your line is now open.

Thank you very much, Amphenol and team. I just have one question, and that is on the restructuring actions that you spoke about today. Typically, Amphenol, it's normal, like you said, one foot on the gas, one foot on the brake. And, you know, looking forward optimistically, but being careful for the, you know, puts and takes that could happen with the economy and customers. With that being said, it seems like in your press release and some of the more commentary on this call, you're talking about restructuring a little bit more. Can you help us understand, is that because this kind of the slowdown in demand happened faster, or are you shifting footprint a little bit more effort than in the past? or anything we should kind of think about that? Because you are a much larger company today than, say, a decade ago.

Well, thanks very much, Jim. I mean, I don't know that we're talking about it necessarily more. We've maybe had a few more questions about it, and we're trying to be responsive to those questions. But, I mean, look, was this a more sudden situation? I think there's a portion of what we're seeing here in our outlook that It was a little bit sudden. There was a day where there was a government policy that had a certain impact, and there were some direct and indirect effects that came out of that, and that was really in mid-May. So I think to some extent there was a little bit of a suddenness to some of the changes in the expectation. But, you know, this is not different. You should not think that we're approaching this in a different way than we have in the past. I think, you know, the mention of that, as you alluded to in our press release, I think And Craig commented already very extensively about that. I mean, it's really just to be transparent with everybody, in particular as one looks at the sequential guidance and the profitability performance thereof. So I wouldn't read anything more into it than that. I mean, we're doing what we always do. This is normal course of business. And it's just, you know, you said it and I've said it now two or three times, You know, you've got one foot on the gas and one foot on the brake. And, you know, look, I will just say one last thing about that, which is when times are good, you say, well, you've got one foot on the gas and one foot on the brake. You're making decisions to protect yourself going forward. Well, when the demand is also down, we are also aggressively pursuing growth opportunities. Very aggressively. And that has always been the hallmark of Amphenol through every cycle, whether those be big cycles or small cycles, that, you know, this does not take our eye off the ball of developing products for customers, supporting customers in every geography, and ultimately coming out of any, you know, sort of change in demand environment in a stronger position than we had come into it.

Thanks so much for the details.

Thanks, Jim. Appreciate it.

And the last question is coming with Calvin. Your line is now open.

Hey, guys. Thanks for running over here to get all the questions.

It's our pleasure.

I bet. Just given companies globally kind of responding to the trade tensions and potentially like a shift in overall policies and kind of like retooling supply chains, can you talk about how – attractive M&A is in other jurisdictions now? Are you, like, specifically looking at potentially electronics businesses in, like, Vietnam or places like that where you're seeing increased investment to kind of diversify away from China specifically from some of your customers?

Yeah, so, I mean, I think it's a great question, Joe, and I would just say is the current kind of reordering or however one wants to call it, I mean, I I'm not going to try to predict what this environment is. I know there's something going on. Ultimately, how it's going to turn out is a little bit hard to say. Is it changing our appetite or focus on M&A? I would say no, it's not. I mean, we've always had cats a very, very wide net in our acquisition program, so I wouldn't say that this is causing us to go look at buying companies in Vietnam or going someplace else or diverting our focus away from China. But I would say this. You know, there is something going on in the world. And, you know, I'll let much smarter people than me write about it and talk about it. Whatever it is, if it's a reordering, if it's a sort of a reversion back from globalization towards localization, I mean, whatever it is, again, not really my place to get into the mix of talking about that. But what I can tell you is our organization is really purpose-built to deal with regardless. I mean, over the last number of decades, the way that we have approached building the business out around the world has been to put empowerment behind general managers around the world, enabling them to build comprehensive organizations, local organizations, who can really adapt in real time to both the markets that they serve, to the customers that they work with, to the competitors that they face, and to the geographies in which they operate. And I think that unique, tailor-made approach has worked extremely well in an environment where the world has been, you know, embracing, let's say, globalization. If that changes, it's still a purpose-built organization. Because it is so localized, because we have not dispatched, you know, dozens or even hundreds of expatriates around the world, planted American flags everywhere that we go and said, you know, here, come buy from us because we're American. No, no, far from it. We say work with us because we are local. Work with us because we are the same as you. We are from the same country. We are speaking the same language. We're developing products that you need locally. not that some other country thinks that you need. And so if the world does, in fact, change tack here, which it may or may not, I can tell you that the Amphenol organization stands ready to embrace whichever way that it goes. And I think that, you know, that diversity of our business serves so well in a time like this. We will never run away from the fact that we are headquartered in the United States and we're proud to be an American company, prouder than you can imagine. At the same time, we're very proud to be in Germany. We're very proud to be in Macedonia. We're very proud to be in India. We're very proud to be in China, wherever we operate. And we operate as a global company who is really functioning as a local leader in every place where we go. And the diversity, the span of the business, You know, a business where, you know, I can tell you, aside from, you know, one customer who we spoke about last year in the mobile devices market, where, you know, we didn't have a customer that represented more than 3% of our sales last year. I mean, this is a broad and balanced business in all geographies. And whatever comes our way in this dynamic that you allude to, I can tell you that the Amphanolian organization stands ready to prosper and take advantage of that for the future.

Thanks, Adam.

Thanks so much, Joe. Speakers, that was our last question.

Very good. Well, again, I appreciate everybody taking that extra bit of time today to join us on the call. I wish you all a wonderful summer. I hope you get a little bit of time to rest and be back with your families, and we look forward to getting back together with you here in 90 days. Thanks so much. Bye-bye.

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