Amphenol Corporation

Hello and welcome to the first quarter 2025 earnings conference call for Amphenol Corporation. Following today's presentation, there will be a formal question and answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol CFO, and I'm here together with Adam Norritt, our CEO. We would like to welcome you to our first quarter 2025 conference call. Our first quarter 25 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, and then we will 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 first quarter of 2025 with record sales of $4,811,000,000 in GAAP and record adjusted diluted EPS of $0.58 and $0.63, respectively. First quarter sales were up 40% in U.S. dollars. 49% in local currencies, and 33% organically compared to the first quarter of 2024. Sequentially, sales were up 11% in US dollars, 12% in local currencies, and 6% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $5,292,000,000, up a strong 58% compared to the first quarter of 2024, and up 6% sequentially, resulting in a book-to-bill ratio of 1.1 to 1. Gap operating income was $1 billion and $25 million in the quarter, and gap operating margin was 21.3%. Gap operating income included $105 million of acquisition-related costs, primarily related to the acquisition of the Andrew business from Comscope, which closed at the beginning of February. Excluding these acquisition-related costs, adjusted operating income in the first quarter of 2025 was $1,130,000,000 resulting in a record adjusted operating margin of 23.5%. On an adjusted basis, operating margin increased by 250 basis points from the prior year quarter and 110 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by strong operating leverage on the higher sales volumes which is modestly offset by the dilutive impact of acquisitions. On a sequential basis, the increase in adjusted operating margin reflected strong conversion on the higher sales levels, as well as meaningful progress on profitability improvement initiatives on certain acquisitions. I am very proud of the company's record operating margin performance in the first quarter, which reflects continued strong execution by our teams. breaking down first quarter results by segment compared to the first quarter of 2024. Sales in the harsh environment solution segment were $1,268,000,000 and increased by 38% in U.S. dollars and 8% organically. And segment operating margin was 24.5%. Sales in the communication solution segment were $2,414,000,000 and increased by 91% in U.S. dollars and 73% organically. and segment operating margin was 27.4%. Sales in the interconnect and sensor system segment were $1,129,000,000 and increased by 5% in U.S. dollars and 6% organically, and segment operating margin was 18.1%. The company's gap effective tax rate for the first quarter was 22.7%, and the adjusted effective tax rate was 24.5%, which compared to 16.7% and 24%. in the first quarter of 2024, respectively. We continue to expect our adjusted effective tax rate to be approximately 24.5% for the full year 2025. GAAP diluted EPS was 58 cents in the first quarter, up 32% compared to the prior year period. And on an adjusted basis, diluted EPS increased 58% to a record 63 cents compared to 40 cents in the first quarter of 2024. This was an excellent result. Operating cash flow in the first quarter was $765 million or 104% of net income and free cash flow was $580 million or 79% of net income. An excellent result considering the growth we have experienced. We expect to again have somewhat elevated levels of capital spending in the second quarter as we continue to invest to support the significant growth we are seeing in the IT Datacom market. And as we have discussed previously, we have worked with certain customers to support these investments in a variety of ways. From a working capital standpoint, inventory days, day sales outstanding, and payable days were 80, 69, and 59 days respectively, all within normal levels. During the quarter, the company repurchased 2.7 million shares of common stock at an average price of approximately $68. When combined with our normal quarterly dividend, total capital return to shareholders in the first quarter of 2025 was approximately $380 million. Total debt on March 31st was $7.2 billion and net debt was $5.5 billion. Total liquidity at the end of the quarter was $4 billion, which included cash and short-term investments on hand of $1.7 billion plus availability under our existing credit facilities. Excluding acquisition-related costs, first quarter 2025 EBITDA was $1,319,000,000. At the end of the first quarter of 2025, our net leverage ratio is 1.2 times. As a result of the closing of the acquisition of Andrew, we now expect quarterly interest expense, net of interest income earned on cash on hand, to be approximately $70 million, which is reflected in our second quarter guidance. We are very pleased that the company's financial conditions remain 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 it's a pleasure to welcome you all here on a beautiful spring day in Wellingford, Connecticut. The daffodils are popping, the tulips are up, and we're very excited to report to you at the time of Amphenol's earnings here in the first quarter. I'm going to highlight our first quarter achievements, discuss some trends and progress across our served markets, and then make some comments on our outlook for the second quarter. And of course, we'll have time for some questions. So turning to the first quarter, Craig just reviewed, we really drove excellent performance in Q1. Our results were much stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Sales grew from prior year by 48% in US dollars, 49% in local currencies, reaching a new record of $4,811,000,000. And on an organic basis, we're very pleased that our sales increased by a very strong 33%, with growth across most of our served markets. Craig alluded to it, we booked a record $5,292,000,000 in orders in the first quarter, which was a very healthy book to bill of 1.1 to 1. Orders grew by a very strong 58% from prior year and were up 6% sequentially. I would just comment that our orders were really strong across the board with all of our end markets reaching book to bills of at least one to one. We're particularly pleased to have delivered record adjusted operating margins of 23.5% in the quarter. This was up 250 basis points from prior year. and 110 basis points sequentially. There's no doubt that this superior profitability is a direct result of the outstanding execution of the Amphenol teams around the world. Adjusted diluted EPS grew 58% from prior year to reach a new record of 63 cents. And then finally, we converted our earnings into cash, generating strong operating cash flow of 765 million and free cash flow of 580 million in the quarter, both clear reflections of the quality of the company's earnings. I just cannot express enough my pride in our team for this quarter's results. These results once again reaffirm the value of the drive, discipline, and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. Now, as we announced on February 3rd, we're also excited that we completed the acquisition of CommScope's OWN and DAS businesses, which we are now calling by the company's original name of Andrew. We're actually very proud to bring back this storied brand, which stretches back to the company's original founding by Victor Andrew in 1937. The acquisition of Andrew brings Amphenol an industry-leading portfolio of innovative and advanced RF and TANNA and interconnect technologies for the communications networks market. I'm especially excited that we get to welcome the nearly 4,000 talented employees of Andrew to the Amphenol family, and I look forward to further supporting our customers who are developing next-generation wireless networks around the world. As we announced at the time of the closing in February, the Andrew business was expected to generate full-year sales of $1.3 billion and approximately $0.06 of accretion to Amphenol in 2025. We're very pleased with the performance of the Andrew team in their first few months as Amphenolians, and accordingly, we now anticipate that the acquisition will add approximately $0.09 to our earnings this full year. During the quarter, we also closed on the acquisition of LifeSync. a leading provider of interconnect products for medical applications with annual sales of approximately $100 million. As we welcome the outstanding Andrew and LifeSync teams to Amphenol, we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions and then successfully bring these new companies into Amphenol remains a core competitive advantage for the company. As our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now, turning to the trends across all of our served markets, I would just note, as usual, that we're very pleased with the company's in-market exposure because it remains highly diversified, balanced, and broad. I would just note that this diversification continues to create great value for the company because it enables us to participate across all areas of the global electronics industry while not being overly or disproportionately exposed to the volatility of any given market or application. So turning first to the defense market, our defense sales represented 9% of our sales in the quarter and grew from prior year by a strong 21% in US dollars and 14% organically. This was essentially driven by broad-based growth across virtually all segments within the defense market and, importantly, across all geographies. Sequentially, sales grew by 2%, which was a bit better than our expectations coming into the quarter. As we look into the second quarter, we expect sales to increase in the high single-digit range sequentially, and we remain encouraged by the company's leading position in the defense market. where we continue to offer the industry's widest range of high technology products. Amidst the current and very 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 interconnect products, as well as the capacity to build them, we're well positioned to capitalize on this long-term demand potential. The commercial aerospace market represented 5% of our sales in the quarter, and sales increased by a strong 106% in US dollars as we benefited from the addition of CIT. On an organic basis, sales declined modestly by 3% from prior year as procurement volumes from Jetliner customers moderated. Sequentially, our sales moderated by 4% from the fourth quarter, which actually was a bit better than we had expected coming into the quarter. And as we look into the second quarter, we expect our sales to remain roughly at similar levels as in the first quarter. I'm truly proud of our team working in the commercial air market. With the ongoing growth and demand for airliners, our efforts to expand our product offering, both organically and through our acquisition program, have paid real dividends. In particular, I would just tell you we're very encouraged by the progress of the CIT team as part of Amphenol, and we look forward to further capitalizing on our expanded range of product solutions long into the future. The industrial market represented 20% of our sales in the quarter, and our sales increased by 20% in U.S. dollars and 6% organically, as we continue to see improvements across the diversified industrial market. In particular, organic growth in the medical instrumentation, alternative energy, and rail mass transit markets more than offset moderations in heavy equipment and factory automation. In addition, our organic growth was driven by expansions in Asia and North America, and Europe was down just slightly, a bit better than it had been in the prior quarters. On a sequential basis, sales were up 1% from the fourth quarter, which is better than we had expected coming into the quarter. Looking into the second quarter, we expect sales in the industrial market to remain at roughly these levels. I would tell you that we remain encouraged by the company's strength across the many diversified segments of this important market. While demand in Europe has been challenging, I am 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 better than ever to capitalize on the many electronic revolutions that will no doubt continue to occur across the industrial market. This creates exciting opportunities for our outstanding team working in this important area. The automotive market represented 16% of our sales in the quarter, and sales were slightly down by 2% in US dollars and just barely down 1% organically. as growth in North America and Asia was more than offset by a moderation of sales in Europe. Sequentially, our sales were down by 3% from the fourth quarter, but this was better than our expectations, and it reflected really strong execution by our team working in the automotive market. For the second quarter, we expected a slight sequential moderation in sales. Despite some near-term challenges, I remain proud of our team working in the automotive market. While the market's no doubt uncertain, our team continues to be focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. We look forward to benefiting from our strong position in the automotive market for many years to come. Now, as I noted last quarter, we have combined now our broadband and mobile networks markets into a new market that we will call communications networks. Our sales in this market primarily go to telco operator and OEM customers across the global communications industry. So the communications network market represented 10% of our sales in the first quarter, and sales grew from prior year by 107%, driven primarily by the addition of Andrew to the Amphenol family. On an organic basis, those sales did increase by 11% from prior year, as we benefited from increased spending by communication network operators as well as wireless equipment manufacturers. Sequentially, our sales in the first quarter grew by 81%. That was driven by the Andrew acquisition. And on an organic basis, our sales moderated by 4%, which was better than we had expected. We had come into the quarter expecting a mid-teens sequential decline. Looking into the second quarter, we expect sales to increase in the high teens range sequentially. as we benefit from the full quarter edition of Andrew. With our expanded range of technology offerings following the acquisition of Andrew, we're well positioned with both service provider and OEM customers across the global communication networks market. Our deep and broad range of products coupled with an expansive manufacturing footprint have positioned us to support customers wherever they are around the world. And as those customers continue to drive their systems to ever higher levels of performance, we look forward to supporting them for many years to come. The mobile devices market represented 7% of our sales in the quarter, and our sales grew by 20% in U.S. dollars and organically from prior year, as strong growth in smartphones, laptops, and wearables was only partially offset by a moderation in sales related to tablets. Sequentially, our sales declined by a better than expected 26% compared to the typically seasonally stronger fourth quarter. We do believe that some of this outperformance in the first quarter was driven by a slight pull-in of demand from certain customers. Looking into the second quarter, we expect sales to moderate in the high teens as customers adjust production in preparation for product launches in the second half of 2025. I'm very proud of our team working in the always dynamic mobile devices market, as their agility and reactivity has once again enabled us to capture incremental sales in the quarter. I'm confident that with our leading array of antennas, interconnect products, and mechanisms designed in across a broad range of next generation devices, we're well positioned for the long term. And now turning to the IT Datacom market, it represented 33% of our sales in the quarter. And sales in the first quarter grew by a very strong 133% in U.S. dollars and 134% organically. And that was really driven by continued acceleration in demand for our products used in artificial intelligence applications, together with continued robust growth in our base IT datacom business. On a sequential basis, sales increased by 34% from the fourth quarter, substantially better than our expectation for a mid-single-digit increase. This growth was driven by sales of AI-related products as well as growth in our base IT Datacom business. Looking ahead, we expect sales to increase further from these first-quarter levels in the high single-digit range as investments in AI-related data centers as well as the underlying IT investments continue to accelerate. Look, we're more encouraged than ever before by the company's position in the global IT datacom market. Our team has simply done an outstanding job securing future business on next generation IT systems, particularly those enabling AI. The revolution in artificial intelligence continues to create a unique opportunity for Amphenol, given our leading high speed and power interconnect products. And whether high speed, power, or fiber optic interconnect, Our products are critical components in these next-generation networks, and this creates a continued long-term growth opportunity for Amphenol. Now, turning to our guidance and, of course, assuming current market conditions as well as constant exchange rates, for the second quarter, we expect sales in the range of $4 billion, $900 million to $5 billion, and adjusted diluted EPS in the range of $0.64 to $0.66. This would represent sales growth of 36% to 39% and adjusted diluted EPS growth of 45% to 50% compared to the second quarter of 2024. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow our market position while driving sustainable and strong profitability over the long term. And finally, I'd like to take this opportunity to thank our entire global team of Amphanolians for their truly outstanding efforts here in the first quarter. And with that operator, we'd be very happy to take whatever questions there may be.