Amphenol Corporation

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 like to turn the conference host over to your host, Mr. Craig Lampo. Sir, you may begin.

Thank you very much, and good afternoon, everyone. This is Craig Lampo, Amphenol CFO, and I'm here together with Adam Norritt, our CEO. We would like to wish everyone a Happy New Year and welcome you to our fourth quarter 2024 conference call. Our fourth quarter and full year 2024 results were released this morning. I will provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then we will, of course, take questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements, so please refer to the relevant disclosures in our press release for further information. The company closed the fourth quarter of 2024 with record sales of $4,318,000,000 and record GAAP and adjusted diluted EPS of 59 cents and 55 cents, respectively. Fourth quarter sales were up 30% in U.S. dollars and in local currencies, and up 20% organically compared to the fourth quarter of 2023. Sequentially, sales were up 7% in U.S. dollars in local currencies and organically. Adam will comment further on trends by market in a few minutes. For the full year of 2024, sales were $15,223,000,000, up 21% in U.S. dollars and in local currencies, and up 13% organically compared to 2023. Orders in the quarter were a record $5 billion and $14 million, up 58% compared to the prior year, and up 14% sequentially, resulting in a strong book-to-bill ratio of 1.16 to 1. For the full year, orders were $16,835,000, up 37% compared to 2023, resulting in a book-to-bill ratio of 1.11 to 1. Gap operating income was $954 million and included $12 million of acquisition-related costs in the quarter, primarily related to the pending acquisition of the Andrew business from Comscope. Gap operating margin was a record 22.1%, which increased 140 basis points and 180 basis points compared to the fourth quarter of 23 and the third quarter of 24, respectively. Excluding these acquisition related costs, adjusted operating income in the fourth quarter of 24 was $966 million, resulting in a record adjusted operating margin of 22.4%. On an adjusted basis, operating margin increased by 120 basis points from prior year quarter and 50 basis points sequentially. The increase in adjusted operating margin was primarily driven by strong operating leverage on higher sales volumes, which was partially offset by the diluted impact of acquisitions. On a sequential basis, the increase in adjusted operating margins reflected strong conversion on the higher sales levels. For the full year of 2024, GAAP operating income was $3,157,000,000, which included $146,000,000 of acquisition-related costs. Full year gap operating margin was 20.7%, an increase of 30 basis points compared to 2023. Excluding acquisition-related costs, full year 2024 adjusted operating income was $3,303,000,000, resulting in an adjusted operating margin of 21.7%, also a record. Compared to 2023 adjusted operating margin increased 100 basis points, which was primarily driven by the strong operational performance on the higher sales levels partially offset by dilutive impact of acquisitions. I am very proud of the company's record operating margin performance in the fourth quarter and for the full year, which reflects continued strong execution by our teams. Breaking down the fourth quarter results by segment compared to the fourth quarter of 2023, sales in the harsh environment solution segment were $1,262,000,000 and increased by 40% in U.S. dollars and 8% organically, and segment operating margin was 24.2%. Sales in the communication solution segment were $1,928,000,000 and increased by 43% in U.S. dollars and 42% organically, and segment operating margin was 26%. Sales in the interconnect and sensor system segment were $1,128,000,000, an increase by 4% in U.S. dollars and 3% organically, and segment operating margin was 18.6%. Breaking down full year results by segment compared to the full year 2023, Sales in the harsh environment solution segment were $4,417,000,000 and increased by 25% in U.S. dollars and 4% organically, and segment operating margin was 24.7%. Sales in the communication solution segment were $6,324,000,000 and increased by 29% in U.S. dollars and 27% organically, and segment operating margin was 24.8%. Sales in the InterConnect and segment operating margin was 18.4 percent. The company's gap effective tax rate for the fourth quarter was 17.4 percent, and the adjusted effective tax rate was 24 percent, which compared to 22 percent and 24 percent in the first quarter of 2023, respectively. For the full year 2024, the company's GAAP effective tax rate was 18.9%, and the adjusted effective tax rate was 24%, which compared to 20.7% and 24% in 2023, respectively. We currently expect a half-point increase in our effective tax rate in 2025 compared to 2024, bringing our tax rate to 24.5%. This is primarily driven by our expectation of a slightly less favorable income mix in 2025, and our first quarter guidance assumes this higher 24.5% tax rate. Gas diluted EPS was a record 59 cents in the fourth quarter, up 44% compared to the prior period, and on an adjusted basis, diluted EPS increased 34% to a record 55 cents compared to 41 cents in the fourth quarter of 2023. This was an excellent result. For the full year, GAAP diluted EPS with a record $1.92, a 24% increase from $1.55 in 2023, and adjusted diluted EPS with a record $1.89 in 2024, an increase of 25% from $1.51 in 2023. Operating cash flow in the fourth quarter was a record $847 million, or 114% of net income. And out of capital spending, our free cash flow was $648 million, or 87% of net income. This was an excellent result, especially considering that our capital spending was somewhat elevated in the quarter due to investments we are making in support of the strong growth we are seeing in IT Datacom and defense markets. We expect to continue to have somewhat elevated levels of capital spending in the first quarter, as we continue to invest to support the significant growth we are seeing in the IT data comm market, particularly related to AI applications. For the full year 2024, operating cash flow was a record $2,815,000,000, or 116% of net income. In net of capital spending, our free cash flow was $2,157,000,000 in 2024, or 89% of net income, a strong result. From a working capital standpoint, inventory days, day sales outstanding, and payable days were 80, 68, and 58 days, respectively, all within our normal levels. During the quarter, the company repurchased 2.4 million shares of common stock and an average price of approximately $70. And when combined with our normal quarterly dividend, total capital returned to shareholders in the fourth quarter of 2024 was $368 million and $1,280,000,000 for the full year of 2024. Total debt on December 31st was $6.9 billion and net debt was $3.6 billion. And total liquidity at the end of the quarter was $6.3 billion, which included cash and short-term investments on hand of $3.3 billion, plus availability under our existing credit facilities. Until the previously announced acquisition of the Andrew business from Comscope closes, we expect quarterly interest expense, net of interest income earned on cash on hand, to be approximately $45 million, which is reflected in our first quarter guidance. We continue to expect the Comscope acquisition to close in the first quarter of 2025. Excluding acquisition-related costs, fourth quarter and full year 2024 EBITDA was $1,137,000,000 and $3,902,000,000 respectively. At the end of the fourth quarter of 2024, our net leverage ratio was 0.9 times. We are very pleased that the company's financial condition remains strong by any measure. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Well, thank you very much, Craig. And I hope it's not too late to wish everybody here on the call a Happy New Year from frozen Wellingford, Connecticut. And I hope all of you are able to stay warm on this very chilly but beautiful winter day. As Craig mentioned, I'm going to highlight some of our achievements in the fourth quarter and the full year. I'll then discuss our trends across our served markets, and then I'll comment on our outlook for the first quarter. And, of course, we'll have time for questions. With respect to the fourth quarter, the company had a very strong finish to a successful 2024, with sales and adjusted diluted earnings per share both exceeding the high end of our guidance here in the fourth quarter. Sales grew by 30% in U.S. dollars and local currencies, reaching a new record of $4,318,000,000. And on an organic basis, our sales increased by a very strong 20%, with growth across virtually all of our served markets. The company booked just over $5 billion in orders in the fourth quarter, also a new record for the company, and representing another strong book-to-bill of 116 to 1%. Orders grew by a very strong 58% from prior year and were also up 14% sequentially. These strong orders were once again driven primarily by data center demand related in particular to artificial intelligence or AI investments by a number of our large customers. We're pleased to have delivered record adjusted operating margins of 22.4% in the quarter, an increase of 120 basis points from prior year and 50 basis points sequentially. I would just say that this superior profitability is a direct result of the outstanding execution of the Amphenol team around the world. Adjusted diluted EPS in the quarter grew by 34% from prior year and reached a new record of 55 cents. Finally, the company generated record operating cash flow of $847 million, as well as free cash flow of $648 million in the fourth quarter, both clear reflections of the quality of the company's earnings. I just have to say that I can't express enough my pride in the Amphenol team. Our results this quarter once again reaffirm the value of the discipline and agility of our entrepreneurial organization, as we have continued to perform well amidst a very dynamic environment. Now, turning to the full year of 2024, I just want to say that this was a truly successful year for Amphenol. We expanded our position in the overall market, growing sales by 21% in U.S. dollars in local currency and 13% organically, reaching a new sales record of $15.2 billion. As we crossed $15 billion in sales in 2024, Our organization is proud that we have grown our sales by 40% just in the last three years. And it's a great reflection of our organization's ability to navigate market uncertainties while capitalizing on the broad array of opportunities arising across the electronics industry. Our full year 2024 adjusted operating margins reached a record 21.7%, an increase of a full 100 basis points from prior year. And this strong level of profitability enabled us to achieve record-adjusted diluted EPS of $1.89. And finally, we generated record operating cash flow of $2,815,000,000 and free cash flow of $2,157,000,000, clear confirmations of the company's superior execution and disciplined working capital management. Also very pleased that our acquisition program again created great value in 2024 We completed the acquisition of Carlyle Interconnect Technologies, our largest ever, together with the acquisition of Lutze U.S. and Europe. These acquisitions have collectively added annualized sales of more than $1 billion to the company, while enhancing Ampel's position across a broad array of technologies and bringing outstanding and talented individuals into our family. In addition, as previously announced, in July we signed the acquisition for the Andrew businesses from CommScope. This outstanding acquisition, which we still expect to close here in the first quarter of 2025, will also strengthen the company's position in the global communications market while adding incredible technologies and team members to Amphenol. We returned substantial cash to shareholders in 2024. buying back 11.1 million shares under our share repurchase program and increasing our quarterly dividend by 50%. And this represented the total return of capital to shareholders of nearly $1.3 billion. As we enter 2025, I remain excited about the opportunities ahead of us. Our agile entrepreneurial organization has created a new position of strength from the company. from which we can continue to drive superior long-term performance. Now, turning to the trends and our progress across our diversified 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 because it enables us to participate across all areas of the global electronics industry all while not being disproportionately exposed to the volatility of any given market or application. So turning first to the defense market, this market represented 10% of our sales in the quarter and 11% of our sales for the full year of 2024. Sales in the fourth quarter grew strongly from prior year, increasing by 16% in U.S. dollars in local currency. On an organic basis, sales increased by 9%, with broad-based growth across virtually all defense applications, and this included in particular space, ground vehicles, avionics, airframe, and communications. Sequentially, our sales increased by 4%, which was in line with our expectations coming into the quarter. For the full year of 2024, Our sales grew by 15% in U.S. dollars in local currency and by 9% organically. And this reflected our superior operational execution together with growth across really all segments of the defense market. I would just note here that our growth in 2024 was particularly strong in Europe, and that reflected our broad and leading position across the many countries there who are increasing their defense spending. Looking into the first quarter, we expect sales to remain roughly at these levels. And we remain encouraged by the company's leading position in the defense interconnect market, where we continue to offer the industry's widest range of high technology products. Amidst the current dynamic geopolitical environment, countries around the world are expanding their spending on both current and next generation defense technologies. With our investments in the development of a broad array of new products, as well as in the capacities to build them around the world, we're well positioned to capitalize on this long-term demand potential. The commercial air market represented 6% of our sales and for the full year of 2024. And in the fourth quarter, sales grew by a strong 137% in U.S. dollars and local currency. And on an organic basis, our sales increased by 18% from prior year. And this was really driven by broad-based strength with virtually all commercial aircraft manufacturers. Sequentially, our sales grew as expected by 7% from the third quarter. For the full year, 2024, our sales increased by 86% in U.S. dollars in local currency. as we benefited from the acquisition of CIT, as well as from strong underlying growth in the market. And, in fact, organically, our sales increased by 15% from prior year, and that really did reflect our robust design and position on a broad range of Jetliner platforms. Looking into the first quarter, we expect sales to moderate in the high mid-tie single-digit range sequentially. I'm just really proud of our team working in the commercial air market. With the ongoing growth and demand for aviation, our efforts to expand our product offering both organically and through our acquisition program are paying real dividends. We continue to see great long-term opportunities for our technology offering in this important market, and we look forward to realizing the benefits of our growth initiatives for many years to come. Now turning to the industrial market, this market represented 23% of our sales in the fourth quarter and 24% for the full year 2024. Our sales in the quarter grew by 26% in U.S. dollars in local currency from prior year. And on an organic basis, we were pleased that sales grew by 6% from prior year with growth in instrumentation, alternative energy, battery and electric heavy vehicles, medical, as well as rail mass transit applications. On a sequential basis, our sales grew by 3%, which was better than our expectations coming into the quarter. For the full year of 2024, sales grew by 14% in U.S. dollars in local currency as we benefited from the impact of our acquisitions. Organically, sales declined by 2% from the prior year, as strength in rail mass transit, alternative energy, and medical applications were more than offset by moderations in other markets. Looking into the first quarter of 2025, we now expect sales to decline in the low single digits from these fourth quarter levels. I will say that in 2024, despite the overall market moderation, we did continue to expand our range of products and capabilities in service of the diversified global industrial market. You know, demand did moderate in particular in Europe this year, but we remain encouraged by the company's strength across the many diversified segments of this important market. As demand now begins to improve, I'm 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 electronics revolutions that will no doubt continue to occur across the industrial market. The automotive market represented 18% of our sales in the quarter and 20% of our sales for the full year. Sales in the fourth quarter were down by 3% in US dollars, local currencies, and organic, and that was really driven particularly by lower demand from European customers which more than offset organic growth in North America and Asia. Sequentially, our automotive sales increased by 1%, which was a bit better than our expectations coming into the quarter. For the full year of 2024, our sales increased by 6% in U.S. dollars and local currencies and by 4% organically, and this was driven particularly by strong performance in North America and Asia, which was partially offset by reduced demand in Europe. Looking into the first quarter of 2025, we expect a seasonal moderation in sales from this quarter's levels. Just want to say that I'm really proud of our team working in the automotive market. While there are clearly some uncertainties in the market, in particular in Europe, our team remains focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. This includes everything from electrified drive trains to a whole multitude of other exciting applications that we're working on. And we look forward to benefiting from our strong position in the automotive market for many years to come. The mobile devices market represented 10% of our sales in the quarter and 9% of our sales for the full year. In the fourth quarter, our sales grew by a robust 15% in U.S. dollar local currency and organically. as strong growth in smartphones, laptops, and wearables was only partially offset by a moderation in sales into tablets. Sequentially, our sales increased by 7%, which was much better than our expectations coming into the quarter. And for the full year, I'm really pleased that our sales in the mobile devices market increased by 11% in U.S. dollars and organically, and this was driven by growth in virtually all mobile device applications. As we look into the first quarter of 2025, we do anticipate a typical seasonal sequential decline in the sort of mid-30% range. I'm very proud of our team who's working in the always dynamic and volatile mobile devices market as their agility and reactivity have once again enabled us to capture incremental sales here in the fourth quarter. And I'm confident that with our leading array of antennas, interconnect products, and mechanisms, designed in across a broad range of next-generation mobile devices. They were positioned very well for the long term. The IT Datacom market represented 27% of our sales in the fourth quarter and 24% of our sales for the full year. Sales in this market grew by a very strong 76% in U.S. dollar, local currency, and organically. And this was driven by the continued acceleration demand for our products used in AI applications, together with continued growth in our base IT Datacom business. On a sequential basis, sales increased by 17% from the third quarter, substantially better than our expectations coming into the quarter. This sequential growth was driven essentially by growth in AI-related applications. For the full year 2024, our sales in the IT Datacom market grew by a very strong 57% in US dollars and 56% organically, as we benefited from strong demand for AI related applications, as well as growth in our non-AI IT Datacom business. Looking ahead, We expect a further mid-single-digit sequential increase in sales in the first quarter, as investments in AI-related data centers continue to accelerate. We are 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. You know, this revolution in AI continues to create a unique opportunity for Amphenol given our leading high-speed and power interconnect products. And really, whether high-speed, power, or fiber optic, our products are critical components in these next-generation networks, and this creates a continued long-term growth opportunity for Amphenol. Now, turning to the broadband and the mobile networks markets, I just want to note that with the pending acquisition of the Andrew businesses from CommScope, that effective in the first quarter of 2025 and going forward, we will combine the broadband and mobile networks markets into one market that we will refer going forward to as the communications network market. The broadband market represented 3% of our sales in the fourth quarter and 3% for the full year of 2024. Sales in the fourth quarter grew by 10% in U.S. dollars and 11% in local currency and organic, as demand from broadband operators improved. On a sequential basis, our sales increased by a very strong 14%, which was well ahead of our expectations for actually a high single-digit sales decline. For the full year, 2024, sales in the broadband market were down by 11% in U.S. dollars, local currency, and organically, and And that was driven really by a moderation in broadband operator spending. The mobile networks market represented 3% of our sales in the fourth quarter and 3% for the full year 2024. Sales in the fourth quarter increased by prior year by a strong 25% in U.S. dollars and local currency and 21% organically, as we benefited from increased spending by mobile network operators as well as wireless equipment manufacturers. Sequentially, our sales decreased by 4%, but this was much better than our expectations coming into the quarter. And for the full year of 2024, sales grew by 11% from prior year and 5% organically. And this was driven by a strengthening in the mobile networks market in particular in the second half of the year. So now looking ahead to the first quarter, we expect the newly named communications networks market to see a mid-teens decline in sales from these strong fourth quarter levels. And as a reminder, this guidance excludes the impact of acquisitions that have not yet closed and therefore excludes the impact of the Andrew acquisition that we still expect to close in the first quarter. I would just say that we're very well positioned with customers across the communications networks market And we look forward to continuing to support our OEM and service provider customers in 2025 and beyond. Our teams around the world are working aggressively to realize the benefits of our efforts to expand our position in next-generation technologies. And we look forward to the increased potential that comes from Amphenol's unique position with both equipment manufacturers and mobile service providers. As we look forward to welcoming the Andrew team to Amphenol, we remain poised to further build on our position as mobility technology innovation continues to accelerate. Now, turning to our outlook and obviously assuming the continuation of current market conditions as well as constant exchange rates, for the first quarter, we now expect sales in the range of $4 billion to $4,100,000,000. and adjusted diluted EPS in the range of $0.49 to $0.51. This guidance would represent sales growth from the first quarter of 2024 of 23% to 26% and adjusted diluted EPS growth of 23% to 28%. And I would just reiterate here that 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 would like to take this opportunity to thank our entire global team around the world for their truly outstanding efforts here in the fourth quarter and in the full year 2024. And with that operator, we'd be happy to take any questions.