Q1 2020 Earnings Call

Hello, and welcome to <unk> first quarter earnings conference call for Ethanol Corporation.

Following today's presentation, there will be a formal question answer session until then all lines will remain the listen only mode at the request as a 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 that posters, maybe get.

Thank you very much.

Good afternoon, everyone. This is Craig Lampo, Amphenols, CFO and I'm here with Adam Norwitt, our CEO, we would like to welcome you to our first quarter 2020 conference call.

As a reminder, during the call we may refer to certain non-GAAP financial measures and May make certain forward looking statements. So please refer to develop and disclosures in our press release for further information.

Before I review the financial performance for the quarter I'd like to say a few words.

Well, thank you very much Craig and first and foremost.

I wanted to express my hope to anybody that's you're on the phone today you are your family your friends and your colleagues are all staying safe and healthy amid the current held at night chain quite.

As Greg mentioned I'm going to comment on the current environment I'll discuss also some of our highlights in the first quarter. I'll, then turn it over to Craig to provide further detail on our financial performance and.

And then finally, Oh I'll come back to me to discuss the trends in progress across our served markets and I'll make a few comments about.

The future.

No question that we're living in truly unprecedented times as the club at 19 pandemic has impacted all of that's around the world and really extraordinary ways.

Yeah, what amphenol, our first priority from the earliest days that's been to ensure the safety and well being of an employer of supplier or customer.

The many communities in which we operate around the world.

I'm sure. That's pandemic has also partly impacted many of you I'm I'm here today, just like it has really everyone around the world.

Our company began to see the impact from the outbreak at the time of the government restrictions that will impose quite China, starting with the shutdown of hot on January 20 Threerd.

While we don't have any facilities in blue on.

Our team successfully navigated an unprecedented three weeks shutdown.

Our 50 manufacturing operations in China.

Just wanted to mention here, how truly proud I am a bond higher China team.

Well, we're able to returned to full production level by the beginning of March substantially earlier than originally expected.

As the club at 19 virus has continued to spread around the world.

But all the entire global team has been focused on executing amid very challenging market conditions and quickly evolving government measures to control depend.

Oh, well clearly prioritizing the safety and the health of our more than 75000 employees around the world.

Did that and we early on proactively to significant measure to protect our employees, which is ultimately enable us as a company to continue to operate Rockwood and.

I'm truly proud to be Amphenol organization, who despite these unprecedented condition.

Continued to execute as ethanol in always do including by supporting our communities around the world when they need us to most.

We have donated hundreds of thousands of map the local hospital reconditioned machine to produce our own thats about dedicated threed printer to help make based she'll take.

Significantly expanded our production of components used in ventilators, another critical equipment and ramped up the capacity of our high speed and power products to support the expanded bandwidth needs around the world and these are just a few of the many many initiatives that had been taken by our more than 200 and.

Many operations around the World I just wanted to take this opportunity to thank each and every one of our amphenol employees around the world for their dedication resolve agility and focus amidst the most challenging an uncertain.

Now turning to the first quarter as I'm sure you all well know due to the wide spread disruption caused by the cope at nights in pandemic on February 24th we went through our first quarter guidance that had been issue. That's the time of our January earnings are really.

Despite this I'm very proud of the results that the company ultimately achieve in this uniquely challenging quarter.

Our sales reached 1.862 billion.

A reduction of 5% in U.S. dollar versus prior year, 9% organically.

That was driven by lower sales in the mobile devices mobile networks, I see datacom automotive and industrial market.

These declines largely related to the coded 19 disruptions in China, including in particular, the approximately three weeks shutdown of all of our manufacturing operations in that country.

I'm very pleased that the company book 2.150 billion in orders in the first quarter and that represented.

Book to Bill of 1.15 to one the highest level in the modern history Corporation.

And despite the significant disruptions to our operations in the quarter adjusted operating margin held up very well, reaching 17%.

Amphenol financial position is extremely strong with operating cash flow of 384 million in the first quarter supporting the company's excellent liquidity, which includes a substantial 2.4 billion in cash cash equivalents at quarter end, Greg will give more details on this in a few moments.

Just like to close by saying I'm extremely proud of our team and that our performance. This quarter. Once again reflects the discipline and agility of our entrepreneurial organization as we continue to perform well I mean, it's truly unprecedented challenges related to the cove it doesn't seem quite good.

And with that I'll turn it over to Craig to review, our financial performance and then come back in a few moments to talk about a and market right place.

Thanks, a lot of them.

So at that I'm just reviewed the company close the first quarter with sales of 1 billion dangerous $62 million with GAAP and adjusted diluted EPS of 79 cents and 71 cents respectively.

Sales were down 5% U.S. dollar and 4% in local currencies compared to the first quarter of 2019 and from an organic standpoint, excluding both acquisitions and currency impacts sales in first quarter decreased 9%.

She quenching sales were down 13% U.S. dollars in local currency and organically.

Breaking down sales into our two segments.

The interconnect business, which comprises 96% ourselves was down 5% U.S. dollars and 4% local currencies compared to last year.

Our cable business, which comprised 4% of where sales were down 13% in U.S. dollars any 11% most currencies compared to the first quarter of last year.

Adam will comment further on trends by market in few minutes.

Operating income was $317 million for the first quarter of 2020.

And operating margin was 17%, which was down 310 basis points compared to the first quarter 2019.

Compared to the first the fourth quarter of 2019 operating margin decreased 300 basis points.

The reduction in operating margins reflected a negative conversion rate higher than our typical 40% downside conversion.

This elevated conversion was primarily driven by the impact on the first quarter of the code at 19 pandemic production in productivity, particularly due to the various government restrictions that limit our ability to adjust payroll costs.

From a segment standpoint, and the interconnect segment margins were 19.1% in the first quarter 2020, well it was down compared to 22% for both the first and fourth quarters in 2019.

And the cable segment margins were 7.6%, which is down with appeared to 11% for first quarter 2019, and 10% fourth quarter 2018.

Despite the year over year and sequential operating margin decline. We are proud at this quarter's performance given the unprecedented challenges created by the co. The 19 pandemic.

Our team's ability to minimize the negative margin impact.

From this crisis as a direct result on the strength commitment of the company's entrepreneurial management team, which continues to foster a high performance actually argue culture, and thereby maximize both growth and profitability in an uncertain market environment.

Interest expense for the quarter was $29 million, which compared to $39 million and the first quarter last year.

And the company's adjusted effective tax rate was 24.5% for both the first quarter of 2020 and 2019, respectively.

The adjusted effective tax rate for the first quarter 2020, excluding any discrete tax benefit of $20 million into refunds in certain non U.S. tax jurisdictions, and the resulting adjustment to deferred taxes.

As well as an excess tax benefit of $10 million associated with stock option exercises during the quarter.

The adjusted effective tax rate for the first quarter 2019 excludes the impact of acquisition related costs, partially offset by the impact of Maxim excess tax benefit associated with stock option exercises during the quarter.

The company's GAAP effective tax rate for the first quarter 2020, including the items, just mentioned was 15.9% compared to 22.8% first quarter 2019.

Adjusted net income was a strong 12% of sales in the first quarter 2020, another confirmation of the strength of the Companys financial performance.

On a GAAP basis diluted EPS declined by 9% in the first quarter Tonight to 79 cents compared to 87 cents in the first quarter of 2019.

Adjusted diluted EPS declined 20% to 71 cents in the first quarter 2020 from 89 cents in the first quarter of 2019.

As Adam mentioned orders for the quarter, where to buy in $150 million, which was up 7% compared to the first quarter 2019 results in the record book to Bill ratio of 1.15 to one.

Despite the extremely challenging environment. The company continues to be an excellent generally those cash.

Cash flow from operations was 308 84 million in the first quarter or 177% of adjusted net income.

And that of capital spending of $61 million, our free cash flow was $323 million or 149% of adjusted net income.

From a working capital standpoint inventory accounts receivable and accounts payable were 1.3 dog and 1.5 billion and $817 million respectively. At the end of March.

And inventory days days sales outstanding and payable days were 90, 275, and 57 days respectively.

Well, yes, so in detail with both within our normal range, Yes, I watch slightly elevated due to the lower sales levels in the first quarter, which were driven primarily by the extended shutdown in the production in China as well as the production challenges and other parts of the world.

Due to the current crisis, we do expect inventory days to remain somewhat elevated well sales levels are depressed, let's come back down to normal levels business returns to a more typical pattern.

The covert 19, transgenic created significant uncertainty X X significant economic uncertainty and volatility in the credit in capital markets. During the first quarter 2020.

As a result as mentioned in our earnings release.

That's a caution in late March the company practically Bard 1.25 billion under our 2.5 billion revolving credit facility.

In addition, due to the significant volatility in the commercial paper markets. The company decided to reduce its reliance on the public commercial paper markets and as such approximately half of the proceeds for the revolving credit facility was allocated to repay amounts due under our commercial paper program.

During the first quarter or cash flow from operations up $384 million, along with net proceeds from our various credit facility. The 1.36 billion proceeds from our recently completed bond offering a $400.

And proceeds from the exercise of stock options of 30 million for use primarily you repurchased $257 million of the company stock at an average price of approximately $96.

Foundry payments under our commercial paper programs of $250 million.

On dividend payments of $74 million net capital expenditures of $60 million when acquisitions of $16 million and fun distributions to in purchase of non controlling interests of $8 million.

At March 31st cash and short term investments were $2.4 billion of which 1.4 billion was held in the U.S.

This elevated level of cash was driven by $400 million on hand, some proceeds of the February bond offering which was subsequently used to fund the 400 million dollar bond maturity I do people first.

And the previously noted draw down about credit facilities and exit for excess of our current or expect to cash needs in order to fund the decision to reduce our reliance on what commercial paper market and to provide a cash buffer during this period of extreme market volatility.

At March 31st it was $1.36 billion outstanding under our credit facilities as well as Andre and $78 million about in commercial paper demanding that will come due in April and be repaid with cash on hand.

As a result total debt at March 31st was 5.1 billion.

And that that Martially persist 2.7 billion, which was unchanged from the net debt level as of December 31st 2019.

Total cash on hand, as well as the remaining availability under our credit facilities was $3.6 billion out the ended the quarter, which leaves the company had very strong liquidity position.

The first quarter 2020, EBITDA was $403 million in a pro forma net leverage ratio was 1.4 times.

In summary, although this was certainly a much more challenging quarter quarter thing, we had anticipated coming into the year. We finished the quarter any position of girls real financial strength.

And with a very strong balance sheet and liquidity position.

We believe this financial strength, coupled with the company's broad market and geographic diversity positions us well for the current mark volatile environment, which is characterized by moderating demand and continued uncertainty across global markets.

And with that I'll now turn it over to Adam will provide some commentary on current market trends.

Well, thank you very much Craig.

Craig just mentioned the value that we see in the company's balance and broad end market diversification and I can tell you.

But that value is even more Claire in times like we are living today.

In the quarter no single end market represented more than 21% of ourselves.

Lets diversification continues to mitigate the impact of the volatility of individual end markets and geography.

I'll also exposing up to leading technologies wherever they may arise cross electronics industry and this is just a great up in the dynamic than unpredictable environments like we are experiencing today.

Now turning to our end market the military market represented 14% of our sales in the quarter sales again grew very strongly from prior year, increasing by a bit less than expected, 18% in the first quarter and this was driven by growth across virtually all segments of the military markets, including in particular.

Her helicopters, they military vehicles and avionics applications.

Sequentially.

<unk> decreased by 5% from the fourth quarter.

Looking now into the second quarter, we expect sales decreased from the first quarter level at certain of our facilities that support military customers are operating with reduced staffing as a result of governmental restrictions related to the code at 19 pandemic.

Nevertheless, our team focused on the military market has worked hard for many years to strengthen our position across the market, while increasing our capacity to serve customers really in all segments of the military market.

The company's continued strong performance is a great reflection of the results of those efforts.

Given the ongoing favorable military spending environment. Our team continues to solidify our leadership position by ensuring the execute on the demand that we see in support of the many next generation technologies that are required for modern military hardware.

The commercial aerospace market represented 5% of our sales in the quarter.

And our sales were down slightly as production volumes declined and its overall demand from commercial aircraft manufacturers began to experience the negative impact of the cobot 19 crisis late in the quarter.

Sequentially, our sales decreased by 10% from the fourth quarter, which was a bit more than we had expected coming into the first quarter.

There's little doubt that the commercial air market has been significantly impacted by the rapid an unprecedented reduction in air travel around the world.

Accordingly, we do expect a further reduction themselves as customer shutdowns and reduced demand for air travel impact overall aircraft production volumes.

Regardless of the difficult environment that we're seeing in the commercial or market today, our team working in this market remain committed to leveraging the company's strong technology position across a wide array of aircraft platforms and next generation system integrated into those airplanes and that but there's a positions us very well for the long term.

Industrial market represented 21% of our sales in the quarter.

Sales in the industrial market declined by approximately 3%.

Growth in medical instrumentation alternative energy and better related applications together with contributions from our acquisitions completed last year were offset by declining sales related to heavy equipment rail mass trends that oil and gas as well as other segments.

On a sequential basis sales in the industrial market were down more than we expected by about 4% in the fourth quarter and that's reflected in particular, the China hope at 19 related shutdown.

I'd like to take this opportunity to highlight just how proud we are of our team working in the medical segment of our industrial market.

Who is ramping up our production of sensors connectors and a wide variety of interconnect assemblies.

In support of countless applications that are providing medical treatment for cobot 19 patients.

Looking into the second quarter, we expect industrial markets remained relatively stable as increases in production in China are offset by lower lower sales and other geography was related to some of the restrictions on production that we're now seeing.

We remain very pleased with the company's broad position on the worldwide industrial market.

And through both our acquisition program as well as our organic innovation.

We have developed the very broad array of products across a diversified range of exciting segments within this market.

We're proud of the company's long term success in the industrial market and we look forward to realizing the benefits.

Our efforts for many years took home.

The automotive market represented 19% of our sales in the quarter.

Were weaker than we had expected coming into the quarter due to both the China shutdown in February as well as coded 19 related shut down by automotive customers in other parts of the world later in the quarter.

Sales declined by 8% in U.S. dollar and 6% in local currency and sequentially, our automotive sales decreased by 13%.

As we look towards the second quarter, we do expect sales to further reduce customer shutdowns continues to impact demand.

And as the number of our automotive plants are restricted from full operations in certain countries.

At this time, it's very difficult to predict exact timing in nature.

Of the automotive market recovery.

Nevertheless, and regardless of this extremely challenging period for the automotive market, we're very confident in our long term position.

When this crisis is behind US we look forward to once again benefiting from a long term and consistent strategy of expanding our range of interconnect sensor and then kind of products, both organically and through acquisitions, which enable a wide array of onboard electronics <unk> across a diversified range of vehicle.

Made by auto manufacturers across the world.

The mobile devices market represented 10% of our sales in the corridor.

Our sales to mobile device customers were significantly impacted by the three week shutdown and subsequent month long ramp up of production in China.

Sales in the mobile devices market declined by 20% from prior year and by greater than expected, 43% from the fourth quarter of 2019.

Although the first quarter was very difficult for our team working in the mobile devices market I'm, just so proud that they were able to fully recover our production levels by early March and as we look towards second quarter, we do expect ourselves mobile device customers increased from this first quarter levels.

Regardless of the cope with 19 related disruption the first quarter, our long term position in the mobile devices market remains very robust.

Our leading array of antennas interconnect products and mechanism continues to enable a broad range of next generation mobile devices.

And while there is no doubt that this market will always be one of our most volatile our outstanding and agile team is poised as always to capture any opportunity from our customers that arises in 2020 and into the future.

The mobile networks market represented 7% of our sales in the quarter.

Sales decreased as expected from prior year by 14% and U.S. dollar and 31% organically as we were impacted by reduced demand from wireless Oems.

As you discussed extensively last year, the U.S. government restrictions on sale to certain Chinese Institute ultimately resulted in many operator and OEM customers reassessing, both their build out plans and inventory levels, leading to lower demand for products.

In addition, the China shutdowns related to the Cobot 19 crisis also impacted our sales in the first quarter in the mobile networks market.

On a sequential basis, our sales actually increased 6% from the fourth quarter and that was driven by higher sales to mobile network service providers.

Given the continued disruptions related to the cobot 19 crisis as well as the ongoing U.S. government restrictions that I just discussed we anticipate sales in the second quarter to be similar to those levels that we realized in the first quarter.

Regardless of the continued challenges in the mobile networks market, we're confident in the company's long term position in this important and exciting industry.

Our team continues to work aggressively to expand our opportunities with next generation equipment and networks.

And its customers plan for these advanced systems, we look forward to benefiting from the increase potential that comes from our unique position with both equipment manufacturer and mobile service providers around the world.

I was just mentioned in addition, but as we all know global communications systems are being stretched by the radical shift and work in education practice is due to the coke making crisis.

These factors create a significant long term expansion potential for the company.

The information technology and data communications market represented 20% of our sale in the corridor.

Sales in the first quarter were weaker than expected due to the impact of the China shutdowns and the subsequent ramp back up to full production.

Sales declined by 4% in U.S. dollar and 10% organically from prior year.

As the contributions from the Charles industry is an ex gig acquisitions completed last year.

Together with stronger sales of server related products were offset by the impact of the production shutdowns in particular in China.

Sequentially, our sales declined by 12% from the fourth quarter.

I would mention that we did see a significant uptick in orders in the first quarter from a wide array of customers in the I.T. datacom market.

We believe the surgeon activity is related to our customers efforts and our customers customers efforts to increase bandwidth system in support of new demands related to the cobot 19 crisis. This includes the increase in online video communication streaming services and gaming among others.

We're well positioned to support these initiatives due to our team continued effort at developing industry, leading products across a wide array of technologies, including in particular high speed and power products.

And while we do expect sales to increase in the second quarter due to these strong orders I would mention that we continue to face production challenges in many geography.

It's a covered 19 related government restrictions.

Nevertheless, we remain very encouraged by the company's strong technology position in the global IC Datacom market.

Our customers around the world continue to drive their equipment ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and process or power.

In turn our team remains singularly focused on enabling.

That's continuing revolution in IC datacom through their ongoing development of a wide range of next generation technologies.

The broadband market represented 4% of our sales in the quarter.

Sales decreased by 10% from prior year spending levels from broadband operators continue to moderate.

On a sequential basis sales decreased by greater than expected, 11% from the fourth quarter.

We expect sales in the second quarter inquiries as customers seek to quickly upgrade capacity in their networks.

To support the significant increase in demand for bandwidth that I discussed earlier.

Our team is working very hard amid the number of operational challenges to support these upgrade in capacity.

Now turning to our outlook.

Given the significant uncertainty related to the covert 19 crisis, we believe it's prudent to withdraw our full year sales and heap yet.

At this time and will not be providing a specific sales and EPS outlook for the coming corridor.

With that said, we do expect sales and EPS in the second quarter to be lower than our first quarter level.

This expectation is related to weaker demand in certain markets due to the overall economic environment.

As well as certain operational restrictions that we're experiencing in several countries related to the government measure that had been implemented to reduce the spread of coated 19.

In some cases these restrictions have limited our ability to adjust our resorts is in line with the volume declines we are experiencing resulting an elevated pop in several of our businesses as we take action to comply with government mandates, while also ensuring the safety and health of our employees.

Nevertheless, despite all these challenges you can rest assured that the team of amphenol in around the world is fighting hard to secure the Companys overall performance, all well dedicating ourselves to protect the safety and health of our more than 75000 employees.

Around the world.

So now I would summarize while the first quarter of plenty plenty has been uniquely challenging I come away extremely proud of our team's performance.

It is an unprecedented global pandemic, the amphenol organization it continued to execute extraordinarily well.

In fact, it is in times of crisis like we're all facing today that the amphenol in culture demonstrates its true value.

The company a strong performance is a direct reflection of our distinct and consistent competitive advantages.

Our leading technology are increasing positioning with customers and diverse markets a worldwide presence.

Lean and flexible cost structure are highly effective acquisition program and our agile entrepreneurial management team.

And I would just like to take the final opportunity to recognize and thank the entire amphenol organization around the world.

For their focus on protecting our people and their communities their dedication to supporting our customers and their agility in the face of uncertainty all of which helps to create value for all of our stakeholders and at this time, operator, we'd be very happy to take any questions, but there may be.

Thank you speakers and the question and answers and we'll now begin.

Our first question comes from Amit Daryanani from Evercore, Let me ask your question.

[laughter].

Thank you for the time, guys and I hope it wasn't amphenol than the family are safe and healthy as well I'll just six to one question out of do you think structurally anything is different today worse is pretty cold it for amphenol that would prevent the company from getting back to this 20% operating margin or the incremental margin even <unk>.

About once things eventually normalize and I guess, what I, just think of what the cost optimization and things you have talked about up does that actually inherently lower the revenue run rate you need to get to that 20% operating margin target.

Yeah on it looks structurally we are not different than we have been either in good times are bad and and you know well. This is an organization in many respects. The purpose built for crisis like we see today, the agility of and the flexibility of our organization and.

Times of change has always been really the hallmark of of Amphenol performance and so for sure. This crisis.

Is in many ways different from the prior prices whether that was the tech collapse of 2001, the financial crisis of 2009. Because this is also a crisis where health of people is that issue and so Craig mentioned I think very astutely that.

Our conversion margin going into the into first quarter were were higher negative conversion margin because you're dealing with the fact that government shutting down certain production or limiting production. You also have employees, where we've you know we're taking steps to ensure the safety of our people in some of the stuff have.

<unk> for the time being not the greatest effect.

On productivity or on efficiency in all those things that that you have grown to expect about but no doubt about it the structural capability of the company organizational the cultural capability of the company to achieve the margins that that we achieved just 90 days ago in the fourth quarter that doesn't change whatsoever no.

So if something happened during this crisis that that ultimately allows us to do even better well look let's let Intel.

But I will say that we are always striving for strong conversion margin on the upside and moderating those conversion margins on the downside even in an environment like today, where where there are very very different dynamic.

Thank you. Our next question is from Wamsi milling of Bank of America, you May ask a question.

Ah yes. Thank you Adam can you maybe comment on the pace and cadence of new design activity.

You mentioned significant headwinds and mobile devices or that you witnessed in the quarter given that a lot of fit is kinda centric, but given this disruption in travel and continued disruption or are you seeing are anticipating resulting push outs of product launches and mobile devices. Thank you.

Thanks, very much lumpy.

Look I think without commenting on any specific programs I would tell you that that our customers in all of our markets and that includes mobile devices I think theres an adjustment period to this new way of working we're all working and I'm sure. All of you on the phone here today are working in a way that.

Is very different than you had worked in the top sitting in your office is meeting in conference rooms, and now we are all experts on video calls and and are working remotely and somehow trying to replicate the collaboration and the interaction that you can't really do in person, but that you can seek to replicate.

You know through all these different tools that were well using and as it relates to developing new products launching new products no doubt about it but you know customers had to sort of adjust to that but I will tell you. Our teams are working on new programs with customers and again, not just in mobile devices, but but but.

Overall, the level of interaction with customers now that everybody has kind of figured out the technology and figured out how to work in this way I think that that level of interaction continues really unabated and in many ways I will tell you personally.

My ability to interact with customers when I'm not flying you know $500. The year, it's amazing I can visit a number so many customers from just the comfort of my desk here with the TV screen in a camera and that that is and I know that technology existed before but you know we all like to touch.

Bill and these people in person and shake hands and I think we've had to adopt very rapidly to this new environment and I believe this new environment actually creates wonderful opportunity when we'll learn a lot from it and.

Again specific the individual launches I think there were some sort of early.

Last month periods that customers have but by and large what we see is to the extent that our customers have access to their manufacturing facilities that they can produce simple volumes, but we still see an enormous amount of activity with customers around the world.

Thank you next question is from create cat, Matt from Oregons talent you May ask your question.

Yes. Thank you I'm just a question on the book to Bill, which was very strong I know this particularly in markets like con and medical that are helping but also kind of customers as they look to mitigate supply chain concerns and so just curious to get a little bit more context, and how you feel like kind of the shape of those bookings are in relative to kind of what.

Demand you're seeing is.

Yeah, well. Thanks. Thank you very much Craig I mean look let's go back a little bit when we think about these bookings are there were very strong I mean, the strongest book to bill in our history and one of the strongest order quotas are tied Craig mentions up 7% year over year.

Our original guidance for the quarter would have had us I think at the high end around 2 billion and you know we booked orders of 2 billion won 50. So that would have been about you know seven 8%, which would have been a strong book to bill no doubt about it. So I think some element of the strong book to Bill is just the.

Actions that we had in the quarter and there was another element of that book to Bill, which is really increased demand in certain areas and pretty sudden increase in demand whether it's in the wide range of medical products that our team is working on whether that's in anything related to bandwidth and community.

Occasions, and I I talked about that in my prepared remarks, as well that that we see no actually sequential increase in sales in a number of those areas.

Now the third category that you alluded to is our customers, placing orders to secure position and prevent again supplies and those kind of otherwise get in line.

Hi, there, maybe some of that but I would put that kind of in the distant third position of those those three factors that I've just three bids we haven't seen really things like double ordering or frantic kind of ordering just to kind of get a place in like that.

That's not where we've seen and [noise].

I think we have seen order that we can't satisfied because of production requirements. Obviously, when you book 2 billion more than a EUR 2 billion won 50 and you ship 1 billion. It 60. There are some orders that you book that you couldn't get out because of some of the restriction, but I don't think this is customers really.

Having that kind of panicked by because of shortages.

I think orders.

Just a great reflection.

Oh, the rest of the importance that we play in the technologies of our customers and and the importance in turn.

Of our customer.

In the things that matter right now today I mean, I will just say one thing I mean, we have worked in datacom market in mobile devices market for so long as you know very well Craig and.

We have always.

Done, it's phenomenal job reacting to our customers reacting to their needs.

And you know those devices they were supporting so many different applications from video over the Internet no, helping helping a social media all the various things that we're driving demand for things like mobile devices things like I'd say it datacom.

I will tell you our team today works with a different purpose because those system that used to be for gaming and for video are now for educating kids and without the system. My kids would not be going to school today, we would not be able to function as a corporation hospital would not be able.

To communicate with the families of the patients who they cannot bid physically because of all of the restrictions you. Her wonderful stories about the use of tablet computers to allow families to tragically meet their loved ones, sometimes for the last time, indeed, very very critical story.

And I was just said that you know our our team around the world feels a sense of purpose around this and making sure that we can satisfy the requirements that our customers have and we're fighting really hard to do that and so the strong order I think they're more a reflection of the urgency of the purpose and our team is going to find a way no matter what.

To to really support those customers.

Thank you. Our next question comes from Matt Sheerin.

Hi fall you May ask question.

Yes, Thank you and good afternoon, Adam and Craig.

Adam relative to the operational restrictions you're facing outside of China can you give us an idea of what your utilization or production levels are now where you're seeing the biggest issues and relative to that are you expecting similar cost headwinds as you saw last quarter or is it too early to tell given a fluid situation.

Yeah. Thanks, Thanks, so much Matt I mean look the first quarter was largely about the sort of unprecedented very clear shutdown in China Chinese new year came and it was on than February 10, when essentially you were allowed to reopen and by the way reopened with a lot of.

Challenges because the government put forth a very very detailed very detailed.

Requirements for you to reopen your factory, including things like you had to have enough face masks for every employee <unk> to change their mouth three times a day and you had to have 14 days of stock and they would come an audit do you have enough base mass so and you haven't up disinfectant solution temperature checking devices. All these things a very rigorous.

Process to reopen.

I will say the rest of the world has not been necessarily as clear as what we saw in China, which is not surprising I mean every country does things our own way and that is what it is not for us to chips to judge that but rather to react to it and so we we operate as you know and close to 40 countries.

Around the world and.

Every country has a little bit of a different approach and even here in the United States, where we operate in the number of locations. We have very significant workforce in the you up.

Every state has a little bit of a different nuance to that what our exempted businesses what are essential business. So how does that all defiance and so our team around the world has been reacting to that to.

To those restrictions, making sure that we are when we already central that we're able to operate making sure that our employees are kept to say Unfortunately, we learned a lot in China, a lot and our Chinese team has been so helpful in to all of our other operation in making sure that we can stay open as.

Much of the governments will allow us as much as they possibly will allow us by putting in place the for the appropriate protective measures for employees and that's been a real critical aspects of staying open where weve been able to do so which is by the way the vast majority of places.

It is making sure that we can protect our employees and demonstrate to our people first that it's a safe workplace and second demonstrate that through the local governments to in most cases calm and audit.

If your people don't believe they're coming to a safe workplace, they're not going to calm. This is a scary scary virus and there's no doubt about it that you need to make sure that the place of work is almost safer than the home of our people. That's that's actually our months written side of Amphenol make the workplace safer than the home.

And then the people will be comfortable and justifiably comfortable in coming yet no. Ultimately what does that mean, what is our utilization I'm sorry to tell you I can't tell you that you know we don't have a central computer system I I, just don't know exactly what utilization is I can tell you that we have a number of fulfill.

Study, but not an enormous number or who are operating at a lower than their capabilities. The number of facilities that are really not producing is relatively small in other countries, where these restrictions have been a little more rigorous I would maybe point to a place like in India or Mexico.

Though and even in those countries. We are operating we're not totally shut down in those countries. We're operating as an essential business, where its appropriate for us to do so in terms of you know the the second quarter I think Craig talked about the fact that we had these extra cost in the first quarter than we would expect to continue.

Either have extra cost in the second quarter and what the extent of those will be it's really hard to predict and that's part of the uncertainty that that is that.

So that is underlying our reluctance to give a specific outlook here in the second quarter.

I don't know.

Like the adds to that.

Yeah, I would just add you know one quick thing to that Adam and I agree with actually everything you just said I think as as we come to answer the as we're coming into the second quarter, though I mean, the first quarter, we had the shutdown in China, which was that three week period and then obviously this the ramp up from that and then really from that from.

What impacted us in other countries really that most meaningful part of that was probably in the second half of March. So you know we're really in the second quarter, that's really in April and the second quarter really seeing more of an impact from all the other countries and you know time will tell ultimately how that.

You resolve itself, but so it's it's a little bit of a different.

Difference between the first quarter second quarter, both actually having though certainly a meaningful increasing costs I'm. Just just of the different you know maybe a little bit of different nature, Pease, who were impacted the quarter with the rest of the countries, which are all doing a little bit, saying things a little bit differently.

Thank you. Our next question comes from Samik Chatterjee from JP Morgan you May ask question.

Hi, Thanks for taking the question I just wanted to follow up on the order trends and you have come and see if that Oh, and if you can kind of has shed anything im comfortable what do you have seen fall order trends early on in Twoq, just because when I kind of compare the strong order trends you have would be lower economic activity.

I mean I would.

Why should I not paying that they shouldn't be some order Clark stone the nine from your customers because otherwise this given kind of the spend do have you would definitely have a very strong robust children. So just help me think about that like I use are you starting to see someone of course, some customers or.

Am I wrong in thinking they should be some don't really.

Yeah, well. Thank you very much a look I think our strong orders in the first quarter I talked a lot about where where those came from.

I think it's a little premature to comment here on the second quarter order trends. It's we're just the just barely three weeks into the quarter and and the it's hard to see I mean, I guess I would say that we the orders which are in areas like IC datacom.

You know those were strong through the end of the corridor.

It wasn't that it was kind of a a thing early on like in February I mean, the orders definitely strengthened through the quarter does that strengthening through the quarter continue here into the second quarter again, I think it remains a little early to say that.

Does that mean that there is an order correction commenting again, we're dealing in the time period of enormous uncertainty, but one thing that's for sure I mean, when I look at the orders in the market, where we probably had the strongest orders, which as I do datacom.

These are not people putting stuff on shelves far from it I mean these are customers trying to get frantically trying to get stuff in the field, so that you and and our children and our parents and have bandwidth that is not a disaster I mean I'll tell you you know I am.

Here in the house with a three kids going to school I mean, I have only to get but one of them brought the you know a second one with them and what everybody is in school at the same time and when I am on my perpetual video calls during the course of the day.

It Ain't the greatest experienced Brady, but because the bandwidth is so constrained in many many places in <unk> you know I am not talking from the most rural the places.

And so there is these these upgrade the the capacity expansion. The bandwidth expansion. These are real thing. This is not customers, just saying I need to buy a bunch of stuff put it on the shelf just in case. These things are going to feel I mean, you think about the medical market. They are there could do.

Thing every possible thing that can they need every sensor that they can get they need every connected that they can get in order to produce lifesaving equipment that needs to save a life like not in six months like yesterday or today or tomorrow. So I think these are this is real demand it I.

I don't personally feel that we're looking at your.

A kind of a supply chain build and people putting stuff in warehouses.

That's a different <unk>, that's a different dynamics and I believe what was that.

Thank you. Our next question comes from Mark Delaney from Goldman Sachs.

Let me ask a question.

Yes, good afternoon Ah. Thanks for letting me ask a question I'm showing a better understand the medical business at Amphenol or maybe some sizing that that business in terms of the percentage of revenue and then you anymore details about how much exposure in terms of revenue and smoke just some of these.

Areas that are going to help support to cover 19 patients like ventilators. Thank you.

Thanks, So much mark I'm like medical part of our industrial market and we haven't specifically split that out but I would just tell you that you know, it's an important part of our industrial market, even though our industrial market doesn't have a dominant segment for sure and you know across industrial it's everything from factory automation rail mass transit.

Heavy equipment.

Instrumentation, and then you know and another important segments and including medical now you know I think our medical business in the recent years, we've done a fantastic job of expanding our position in medical products and that's started really with some acquisitions, we made the years ago, but it wasn't enhance.

An accelerated six and a half years ago. When we entered the sensor markets with our original acquisition. The GE is offense sensor business. It was six and a half years ago, who had a substantial sensor position across medical applications and medical applications, which by the way included a longstanding leadership position in respiratory therapy.

And you know you can imagine that today respiratory therapy is kind of an important part of the medical markets. We've always had a strong position in areas like patient monitoring and imaging and things like <unk> X Ray and C.T. and I'm.

And and and delivery of medications and you know so that sensor business really positions us I believe even stronger than we were before because the sensor become such a critical component and you'll recall when we first got into the sensor market one of the.

Theories and thesis is that we had was that well sensors represented a wonderful compliment and a part of the interconnect system oftentimes. The sensor element was the critical piece of the technological architecture of the products that we were in and while it may not have always.

The highest value as the elements.

It has enormous value as the kinda tip of the spear.

Into that application and into the engineering teams and the importance of the customers.

And I would just say that we saw that and we've seen that over the six year, we see it much more today.

Weve talk and I personally in it that so many medical customers around the world. There's no doubt about it that having that sensor capability a sensor a portfolio that we have built not not just with our original acquisition, but multiple acquisitions after close to eight companies I believe it is now.

That that our position in the medical market not just in terms of size, but the important that we serve to customers in the medical market has really enhance you'll also remember that last year. We made a wonderful acquisition in Germany have a great company called burn Richter.

Real leader in medical market value at interconnect on together with our preexisting companies that are very active and entertainment products in the medical market. So again I'm not answering specifically Mark your question sorry.

Well what is the exact side, but I will just tell you that it's a very important market and segment within the industrial market and it's one where we're very very proud that our technology can play a significant role in helping the world do Battle I hope it.

[music].

Our next question comes from Shawn Harrison from <unk>. Please ask your question.

[noise] I afternoon, everybody.

Good afternoon, Sean.

Uh huh.

Question on capital deployment in terms of.

Thinking this downturn versus 2008 2009, it wasn't really a lot of M&A activity back in that period other than times microwave if I believe.

In the share repurchase activity, you know wasn't really something that amphenol did either and then we had this quarter, where a significant share repurchase and wondering if you could maybe just comment on your view a share repurchases going forward and then also what do you think of the M&A environment in 2020 does it dry up.

Sure. Thanks, Sean.

Yeah I did mention we did purchase this 2.7 million share even during the quarter for the average prices I thought $96 I would note I guess that these repurchases did proceed you know this extreme market volatility that we saw during the quarter and which kind of somewhat as evidenced by that.

The average price with the stock that we that we bought it for during the quarter yeah. The timing of our stock repurchasing certainly does always take a number of factors into account with regard to other cash needs in particular period.

In periods, where we have you know west acquisitions or other repurchases.

You know there could be last German purchases during during that quarter or more share repurchase during the quarter. When we have wouldn't have those lower cash needs. So that you know certainly one of the reasons why we had a little bit higher in the quarter and per Se gives you maybe you feel for the timing of that subsequently we did draw down the revolver.

When that extreme kind of market environment taken stepped place, but those are really independent.

Actions that really had nothing to do with each other and just so happens to occur in same quarter I'm always you're down that they won't want to 5 billion on their under our revolving credit facility and the way our intention would be no with a revolving credit facility to really can you know.

<unk> you know you know what as we generate cash you know as we continue to explore other opportunities with regards to funding as we add that markets become a little bit more.

Stable you know we you know we will you look at when 10, even as early as the second quarter here to start paying down some of those amounts being one of the revolver, but so you know in terms of capital deployment. Yeah. We we do continue to take a flexible on balance approach that has not changed we haven't stopped anything kind of in the form away.

But certainly in this environment, you know where things are a bit it uncertain, we're gonna be very thoughtful about our between then and things like you know share repurchases and not and other things and and it would be very prudent and from that perspective, and I guess I'll, let me be Adam mentioned comment on yeah on the M&A.

Yeah, Thanks, very much Craig I mean.

Well said and I would just relative to the M&A environment, Sean you correctly pointed out that back in 2009 <unk> complete one acquisition early on all times microwave Fabulous company by the way here a 11 years later I can't tell you how happy we are to own it.

We have never been a company that just chases market either up and down.

During the during times a a crisis you know bottom fishing, if you will for prices and other things like that we take a very thoughtful long term approach to our M&A.

Program and that means you know, having long term conversations with people ultimately dating them with the intention one day to get married.

I can tell you that you know in it in a short term market dislocation most people if they don't have to sell probably are not going to wants to sell during a short term market dislocation and probably you don't want to necessarily by during the sharp sort from market. There's location. When you really don't know the fully.

Down to what you're bye.

All that being said what I will tell you the.

During this environment. This is a very very kind of existential environment for many companies.

And a company like ours, who has the financial strength that Craig talked about who has the diversity that we talked about who has the geographical diversity as well the footprint diversity if you will.

Who has that culture and reputation as an acquirer becomes even more attractive destination for companies, who may be going through today, an existential crisis, maybe there are only in one market, maybe they're only in one geography.

And they look kind of over the ledge today at their own exists.

And I think that that is a a time, where if those companies do survive. They may start thinking long term about do I want to do this alone now that I know this kind of a crisis can happen.

And I think the long term prospects are being a real acquire of choice I believe coming out of that can be quite substantial no. What does it mean this year how much of our capital are we going to allocate to watch how much M&A, what we do it's a lot of uncertain to make any prediction on on that front.

But our long term approach to capital deployment, clearly is the priority or new product development M&A and then obviously the dividend the buyback a that because there's always talked about on and we look forward to continue to be they acquire a choice.

The thousands of companies in this industry going forward.

Thank you. My next question comes from Deepa Raghavan from Wells Fargo Securities. Please ask your question.

Hey, good afternoon, I'm going to look ahead and ask about a better times.

Just looking back in history can you talk about which worthy cause you typically see the covering earlier and beat usually take longer to recover and and hypothetically you, let's assume macro forecast. So helpful catch a right and you start to see some recovery sometime in the second half.

Should we think about most of your sales actually being recoverable. So some of them that got pushed out our 10. There also be examples of lost sales within your portfolio. Thank you.

Well, thank you very much steeper and I love that you ask about better Todd. This is a great question than one that is really close to my heart lung.

Which which vertical to recover when.

The answer to that is it depends I mean, you cannot I believe compare the current environment with either 2009 or with 2001. So in 2001, we had many of our markets, which didnt. Even go down you think about the the military market as as one exam.

Ample even the industrial market was still relatively strong than it was really a check bubble that burst and then was followed by the tech collapse and then you know the recovery in 2001 was was not so fast if you'll remember well in 2002 was also not yeah, you're right.

If you then go to the financial crisis, Yeah, we had in the financial crisis is a very severe or in the fourth quarter. After Lehman brothers reduction the man, you'll recall that we quickly adjusted our head count in the fourth quarter of 2008 sales I believe were down something like chip.

10% me adjusted their had come down by 17% in the same corridor and we ultimately secure the profitability at the company in both of those crisis is down by 300 basis points. No. I think this this crisis is a little different because it's our first global pandemic in our lifetimes. It scares people it affects people.

People are afraid to go to work, they're afraid to go to the grocery store. They don't know there was an intense personal insecurities to this crisis, but I will tell you. The two so Pat I don't know if we're in the middle or you know the old Winston Churchill thing you know I don't I I don't know if that this is not the beginning of the end but.

Before the end of the beginning I don't know where we are in this crisis, but no doubt about it it will one day havent beginning a middle and then and I mean, what lies beyond that.

I believe an enormous amount of opportunities lie beyond that.

And I think what we're going to see at the end of this crisis when that that quote unquote normal that you referred to come it will not be the same normal that we all knew under 22nd of January.

There will be differences, we will reevaluate how we work how we live how we learn how we functions and there's one common thread across all of that from our perspective.

Is people are seeing the importance of electronics and everything.

Whether that's electronics for medical equipment, whether that's electronics for communication purposes, you name it safety.

He sees systems building automation I mean, it doesn't take a big leap to start to think of just dozens and hundreds of new applications that will follow ultimately the reckoning that comes out of this very significant disruption that we've all experience here.

I can tell you. This amphenol sits strongly positions for all of those opportunities wherever that may come.

Our organization hundred and 23 general managers around the world each of them functioning their little areas of the electronics World are poised to capitalize on what ever comes along and we're gonna be very proud to do that now look what does that mean for the second half I mean, you know you mention.

And some macro forecast.

In the last 90 days I haven't heard a single forecast it's been correct.

So I don't know what those macro forecasts are really going to be whether there will be an l. shape a V shape of use shape and that's shape I don't you tell me what shape a recovery is going to be better recovery will one day count that I'm sure.

And when that come is is there a catch up of demand I. It's hard to say is there a catch up with demand I mean, we're all sitting in our homes I'm certainly not using a lot of gas right. Now. So I don't know that people are going to go use a bunch more gasoline when they when they get up and catch up to all the gasoline that we the news.

As I haven't filled the tank and my car, but I think a month.

And so you know there's some things that may.

I have disappeared in terms of demand, but there's so many opportunities for new thing that are going to come out of this whole crisis and ultimately I think those things are going to be real positives in the long term.

Not at the second half necessarily commentary, but I'm, telling you I think that's gonna be a lot of good it's going to come out of it.

And our next question comes from Steve Fox Fox advice trees. Please ask your question.

Thanks, Good afternoon, Adam Thanks for all the helpful discussion I guess, so one thing I was left wondering about in terms of your own operations. Once your supply chain you mentioned disruptions with you know running your factories, but can you just talk about your ability to source raw materials or sub components and how that it's been handled in.

How you think it's going to be handled in this quarter. Thank you.

Thanks, So much Stephen congratulations on your your your new newly found that organization. The we love your logo by them.

Thanks very much.

Steve the look the supply chain very important I mean, we suppliers are really important for up one thing about amphenol that you know very well, we don't have a centralized supply chain, we don't see to put all of our stuff into one vendor and leverage that one vendor we put the responsibility of manager suppliers across all of our mother.

120 general managers around the World, we may share information them do some smart things about that but we're not putting all of our eggs in one basket of a supplier and I can tell you today I'm very grateful for that because there are suppliers, even better in the month of February through the China shutdown.

Our organization was so much quicker than most others to come back to full production their worst suppliers, who were not able to come back you didnt have the where with all the agility capabilities to do what our team was so successful at doing and coming back for production and you know to the extent that any of those which for US usually are very.

Small suppliers created any disruption, we went and help them right away. Our team was there for them supporting those suppliers, we haven't seen anything material in terms of or meaningful I should say, it's a double entendre material or anything real meaningful in terms of the impact from our supply chain I guess, the one thing I would maybe point to is not really.

Suppliers as much as logistics, it's been well reported there are some logistical impediments going on in the world right. Now slate capacities are are quite significantly limited in certain areas and you know our teams done a great job of working collaboratively across the organization to make sure that we're getting.

The product that we need when we need it and getting what our customers need when they need it but you know there's a little bit more work involved in doing that but nothing that was not.

Next question comes from William Stein from Suntrust. Please ask your question.

Great. Thanks for taking my question as it relates to the.

Margin trajectory, we might expect over the current and next couple of quarters.

We understand that the decrementals.

We're a little bit.

Less.

Huh.

Let's say they were little bit worse than what they typically are in a downturn for amphenol because you have some.

More challenging times in adjusting cost switching costs.

When you can't take actions on Ah.

On the employee base given that you know all the things going on with Covance.

And I I wonder, whether we should expect this to.

A relatively quicker.

Resolution, where we could see <unk>, you know a quarter here of better than expected Decrementals because you can align the.

The cost base with the level demand or if we should expect another quarter or two of the.

Sort of current.

More challenging.

Alignment of those two things thank you.

Yeah. Thanks, Thanks for all the questions you know I know, it's definitely I mean, just start off by saying you know I think as a company. We're really proud of the fact that we were still able to achieve these 70% operating margins in the first quarter with all the you know.

Obstacles that that we had the.

Then in the first quarter with China being closed with the other parts. The World you know you know having productivity issues and having you know some of our facilities close I mean, it's in terms of people just the fact that we in that case or June 17% and you know essentially had a sequential quarter kinda convergence Q4 did you want to 40%.

No not so far over our typical 30% downside conversion I think it's just the cutting the teams, but I just kind of one of the start with kind of happy. They think that's really just an important point and that we're really we are proud of now as you know as it relates to kind of going forward and the second quarter and you know, we certainly getting you know.

Aren't giving guidance for the second quarter, Adam We did say that we do expect sales and eat the after the lower in the second quarter. You know so you know with with that being said I said I wouldn't expect profitability or the pressures on our profitability to be meaningfully better and the second quarter than they were first quarter I mentioned before.

That you know in the first quarter, we have just trying to specific event that happened and it really wasn't until they ended the first quarter that really saw the other parts. The world starting to creep you know issues with regards to adding cost or limiting our ability to address costs and that's really what we're seeing you know and.

Bigger way and in the second quarter, and so I think that yeah. We would expect still to have a drag from you know for Matt and you know throughout the second quarter at this point in time I wouldn't expect you know.

Magically different sequential quarter conversions going into the second quarter that now from a first quarter second quarter I would expect kind of maybe normalize conversions, but you know book, but again you know there's there's so many unknowns right now as we kind of come into the second quarter that you know, it's really difficult so to conclude on that.

Yeah.

Thank you. Our next question comes from Jim Suva from Citigroup investment Research you May ask your question.

Thank you so much and great to hear the amphenol team's doing well and you're out positive outlook, which a lot of my questions have been answered for that so I'll just ask one a little bit when we think about guide posts and I've been on the sell side for over 20 years I think back in history in the global financial crisis the worse.

Quarter year over year was down 19% put them back into TEP bubble burst. There was there some times of down 30% year over year I think about this crisis, there corona viruses much different of global plant closures, but then you talked about how positive your team came back in China. So can you give us any.

I close at all about is much different from some of those past historic historical trends, we've seen or the plant closures and coming back to make it much different. It's just you know any guidance or color would be greatly appreciated.

Well, thanks, so much Jim I I mentioned earlier that I I think well you know one can on there they say well there was the global financial crisis, there wasn't a collapse and should we or should we not compare this moment to those I think there is the difference here we have never.

Were working environment, where governments are so deeply impactful and for good reason by the way I mean, I think government need to take a role they have an extraordinary role to play in protecting the help of all of us on the phone and all of the citizens of the world and so just the.

I only I think governments have taken steps to limit interaction that people in there, but I saw this rather the virus and the way. It's happened has been very different China I talked about was a very clear very distinct and by the end of a certain time period, which was not so long I mean, it was at the time it fell.

Like ages, let me tell you those three weeks felt like three years to all of US as we were planning the kind of reentry, but there was a moment in time, where you usually take your people back to work as long as you did certain things to protect them.

And I think in the rest of the world the actions haven't been as clear as the actions were in China.

And that's the coming out of that is also I believe less clear.

And so you know what is that going to look like it will depend it will depend on the country. It will depend on the results. It will depend on you know the sort of.

Her so many times the term you know I read bending are not quicker and all of these the thing.

And it's not dependent on.

The fiber capacity in the market now finally fill them, we can start rebuilding fiber optic equipment back in your 2000, it's not depending on demand coming back because people are not getting foreclosed upon in the mortgage of unemployment and all of those that there's an element obviously I mean unemployment.

Is increasing in many countries are for example, very significantly. So there is an end demand that is related in some ways to this crisis, but not a direct part of the battle against Cobot 19.

When does that in demand come back depends on so many factors what degree of government stimulus that's going to be available to people what what more companies have in terms of support loans are grants or otherwise I mean, there a lot of factors that come into the switch, which makes me feel like to draw that her.

Perfect parallel from both to crisis, what would be maybe that things with parallel kick off again I'd just reiterate one more time from our perspective. It just doesn't matter because our team is ready because we're a purpose built for a time.

Strong demand. We're also purpose built for a time, where demand is very uncertain meant that the agility the flexibility of all of our organization that and really the resiliency.

The organization in the time of of kind of unprecedented in our ability to adapt and to embrace a new environment is I believe second to none and we've got a through this regardless.

Thank you. Our next question comes from Jones pack.

RBC capital markets. Please ask your question.

Hi, Thank you so much Hum I do want to just quickly I guess I'll follow on your last comment and go back to some of the color you gave on the China restarting the lessons learned there because I think that's important and as you mentioned not that was pretty intense it's unclear. If that's followed elsewhere in the world. But you also mentioned you on your place you feel safe and I think there's you know some plants with a decent amount.

Manual labor and lines can be set up with employees close to each other so you might have to do more than as minimum required in certain areas to get that level of comfort. Among your employees. So we think about you know even beyond the second quarter. When there's obviously still going to be some cost because because of the shutdown.

Just productivity not get back to where it was until there is a vaccine is out your view or or does it sort of not matter because to fall on your your your last comments here, maybe demand of snap back to pre coated immediately either.

Yeah, No look it's it's a it's a great questions I mean, I think what you're saying is you know there there is a pretty vaccine and opposed vaccine World then and I I would tend to agree with your there is a pretty vaccine world and or the perspective world.

And the pre vaccine world is going to require you to probably take more aggressive steps to protect your people and I would just point out one thing.

It was for US absolutely clear as right on January 23rd when that shutdown happened.

The.

Pure priority overarching priority of our corporation has to be to protect our people and we do that because it's the right thing to do as a fellow human.

Those 75000 people around the world, but we do it also because it's just good business. If you don't protect your people you see what happens and there have been so many examples around the world you know some well reported another is not the while reported.

The kind of catastrophic effect on a corporation business, if they're not sufficiently protecting that people. So we went over book.

Oh, absolutely went overboard from the very GETCO, making sure that are people were well protected and yes, we have factories, where we have assembly workers.

Who used to work very close together, they're not working close together today when we figured it out we re purposed offices, we've re purpose warehouse and we've struck weve staggered shifts we've done so many things now all of those thing ultimately hurt productivity in the pre buy pre vaccine.

Medium term one necessarily.

I don't think they do not necessarily I mean, you'd be amazed at the resilience and adaptability not just of our management team, but about people on the factory floor and I tell you and I'll just put the plug in here right now.

We have every time for our earnings release the management call.

These people in our factories are the heroes of ethanol today.

Their everyday walking into door of a factory well those non the well those people who can work from home are doing so there's a lot of people who have to go to work every day to do their job and their jobs are so important today like I said I mean, we are building things that go into life saving equipment, we're building things.

Go into.

Mission critical Communications network.

And didn't heroes of our company, we're going in everyday it's our job to protect them regardless of if that means I have to states them out in the factory, regardless of whether that means I have to have the shifts not overlap quite as much in a move to 2% in productivity that they'd because of it but that that's not a consideration at that point I believe that our team.

Going to make it happen, regardless and we're going to always follow that priority right now, which is we got to protect our people and protect them we will.

Thank you. Your next question comes from David Kelley from Jefferies. Sir you May ask your question.

Hi, Good afternoon, a quick question on automotive I believe you mentioned sales declined 8% year over year in the quarter, that's significantly outperformed the market I was just hoping for some color on on your exposure and what you're seeing there are you seeing any step up in content was there anything region specific.

That drove that upside and then just curious if you expect any impact from supply chain timing that might be a headwind coming into the second quarter here. Thank you.

Yeah. Thanks, Thanks, very much David I mean look I think.

We have been outperforming the automotive market for the better part of a decade and I think you know I hate to say outperforming when were down <unk> percent I I don't like that but I guess, maybe it's technically through I mean were down 8%, it's not the greatest thing in the world, but yes is it outperforming or maybe it is and I think our outperform.

And has been because we've just done a great job at capitalizing on new electronic applications in the car I think that this crisis or you know when when all said and done the automotive market is going to return and I think that that constant quest.

For new features and Carlos is going to continue and I I would bet that they're gonna be some new features that may not be unrelated to keeping people say in cars and keeping cars claim and keeping the air clean in cars in so many other things like that so I personally think that the long term.

Automotive market as is the is remains to be a great opportunity in the long term content growth opportunity for Amphenol remains strong.

[noise] thinking your next question comes from Nikolai taught dropped from Longbow.

Asked a question.

Hi, guys. So thanks for taking my question I understand it's more of an arb getting a science, but I would like to hear your assessment.

What downstream inventories look like I understand that thing satellite communications I Nike system as medicals, those orders are going directly to the field, but what about small daughter markets. What is your view on how much current orders are driven by underlying consumption versus inventory positioning.

Yeah I mean.

I think I mentioned earlier, we don't see a lot of customers just putting a bunch of stuff in their warehouses, we don't have perfect visibility the only place where we have visibility inventories in our distribution channel we haven't seen anything abnormal in the inventory amongst our distributors at this point in fact, I'd say you know our distributors are continuing to.

To service their customers you know very vigorously, especially those customers who have you know incremental demand related to the covert 19 battles that are that are going on so I wouldn't say that we see a big mismatch in inventories to the extent that we have visibility.

Thank you Sir our next question comes from Joe Giordano from Cowen Your line is open.

Hey, good afternoon, guys I just wanted to follow up on some of my question, we're talking about on productivity. So yeah. We you mentioned like a pre vaccine close axes. [laughter] you guys. Just think about structurally is is this something fundamental change where the well you saw was 100% capacity is now like 120%.

Like we have to rethink how these facilities long term are laid out do we need to use more automation is there an upward bias on on labor cost to kind of incentivize people to come back.

I just how do you think of that longer term than just what we're seeing right today.

Thanks, So look we don't think about this monolithic late I think that every operation is different in amphenol. That's one of the beauties of the company as we have also an enormous amount of operational diversity across the company. We have some operations were highly automated with others, who are high the manual and they usually tend to be very.

Much tailored to the market that they serve the geography that they serve it.

It is just going to create a new factor for people to consider of course, it as I think it's going to create a new factor for everybody to consider for the rest of our lives and that just means that each of our general managers in managing their operation is going to integrate that into their calculus of what are they going to do to optimize.

The business, but you know look we have.

An expression in Amphenol, no excuses approach to management.

It's a team of people, who just makes it happened we've been through a lot of different stuff over the course of our of our careers. In my career is now 22 years with this company wonderfully and through that time, we have seen so many changes changes in the cost of labor in certain geographies changes.

And where things can be made terrorists I mean, you name it they've been an enormous amount of changes that come along and the fact now that we need to prioritize and secure our locations for the health of the people do I believe that this is gonna have kind of a permanent negative drag on productivity I do.

Not a 11 look in the short term we have a lot of governmental shutdowns were dealing with of course, that's gonna have short term impact search you're paying people not to work and <unk> in the number of places, but and you're doing that by law and also because it's right thing to do and but it's just going to have a structural change.

Two amphenols ability to be a highly productive manufacturing organization and thereby to drive strong returns for the company I don't think it well.

Thank you speakers at this time, we don't have any questions on Q I'm trying to call back team for any closing remarks.

Well. Thank you some out some thank you all for your extended time today, we wanted to give everybody a chance to the hub of the question.

Look I wanted to say just a few words here.

I mentioned earlier you know we're in a we're in a crisis. Unlike any of US I've lived through but there will be a beginning a middle and the damage to this crisis, there's no doubt about it I'm not gonna be the one to predict when does the and calm or when does the beginning of the I'm, Tom but it will come there's no doubt about it.

And what I haven't closed our employees to do and I will encourage all of you as well.

His relish the positives that may come out of that take advantage of the things that we're learning about themselves about how we can work how we can operate and about our fellow people that I think are really some of the wonderful silver lining of what is a true tragedy for many people and well.

Tragedy I'm sure all of you have been touched in somewhere another by that today and we wish that all of you continue to stay safe that your families with colleagues and all they say and I'm sure. One day, we will get the chance to meet all of you in Perth them and you know I look forward certainly the sitting in the office with my colleagues at the mirror.

Lucasian and and regardless of how that's come you can rest assured that the Amphenol management team is there to support all of our stake holder and to make sure that this company than our people remain safe and strong and that our company remains also healthy and strong for the long term. Thank you all very much and we look forward.

They can do again 90 days from now.

Thanks, everybody.

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