Q3 2020 Amphenol Corp Earnings Call
Hello, and welcome to the third quarter earnings Conference call for Amphenol Corporation following.
Following today's presentation, there will be a formal question and answer session.
Then all lines will remain in a listen only mode at the request.
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 good after.
Good afternoon, everyone. This is Craig Lampo, Amphenols, CFO and I'm here together with Adam Norwitt our CEO.
We would like to welcome you to our third quarter 2020 conference call as a reminder.
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 the relevant disclosures in our press release for further information.
The company closed the third quarter with record sales of $2.323 billion and record GAAP and adjusted diluted EPS of one dollar and 12 cents and $1.99 cents respectively.
Sales are up 11% in us dollars and up 10% in local currencies compared to the third quarter of 2019.
Sales in the third quarter increased by 9% organically.
Sequentially sales were up 17% in U.S. dollars and 15% in local currencies and organically.
Breaking down sales into our two segments, the interconnect business, which comprised 96% of our sales was up 11% in us dollars and 10% in local currencies compared to the third quarter of last year.
Our cable business, which comprised 4% of our sales was up 2% in us dollars and 5% in local currencies compared to the third quarter of last year.
Adam will comment further on trends by market in a few minutes.
Operating income was $476 million in the third quarter of 2020.
Operating margins were 20.5%.
Which was up a very strong 250 basis points sequentially and up 80 basis points compared to the third quarter of 2019.
The strong sequential improvement in margins reflected a healthy conversion on the higher sales levels as well as an expected significant reduction in the impact of covert related costs.
The year over year improvement in operating margin reflected a strong conversion on the higher sales levels.
From a segment standpoint in the interconnect segment margins were 22.4% in the third quarter of 2020, which increased from 21.7% in the third quarter of 2019, and 20% in the third quarter and the sorry in the second quarter of 2020.
In the cable segment margins were 10.7%, which increased from 10.2% in the third quarter of 2019.
And 9.4% in the second quarter of 2020.
Given the unprecedented challenges related to the closed at 19 pandemic, we're extremely proud of this quarter's performance.
Our team's ability to manage through all the impacts of this crisis is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high performance action oriented culture in which has enabled us to capitalize on opportunities and maximize profitability.
Any uncertain market environment.
Interest expense for the quarter was $28 million, which was down from $30 million in the third quarter of last year.
The company's GAAP effective tax rate for the third quarter of 2020, including excess tax benefit of $11 million associated with stock option exercises during the quarter was 22.1% compared to 24.5% in the third quarter of 2019.
Excluding the excess tax benefit just mentioned the company's adjusted effective tax rate was 24.5% for both the third quarter of 2020 and 2019.
Adjusted net income of.
$336 million was 14% of sales in the third quarter of 2020, another confirmation of the strength of the company's financial performance.
On a GAAP basis diluted EPS increased by 22% to one dollar and 12 cents in the third quarter of two to 2020 compared to 92 cents in the third quarter of 2019.
Adjusted diluted EPS increased by 15% to $1.09 in the third quarter of 2020 from 95 cents in the third quarter of 2019.
Orders for the quarter were $2 billion $275 million, which was up 9% compared to the third quarter of 2019 and up 15% sequentially, resulting in a book to bill ratio of point 90 to one.
The company continues to be an excellent generator of cash cash flow from operations with a strong $398 million in the third quarter or 119% of adjusted net income.
Our free cash flow was $330 million or 98% of adjusted income.
From a working capital standpoint inventories and accounts receivable and accounts payable were $1.4 billion $1.9 billion and 1.1 billion respectively. At the end of September.
And inventory days days sales outstanding and payable days were 70, 972, and 61 days respectively.
All improved from the second quarter levels and all within our normal range.
During the third quarter, our cash flow from operations of $390 million, along with proceeds from the exercise of stock options of $104 million.
Were used primarily to repurchase 1.9 million shares of the company's stock for $202 million or an average price of $108.
Fund dividend payments of $75 million fund net capital expenditures of $68 million on acquisitions.
On acquisitions of $50 million and fund.
And fund net purchases of short term investments of $9 million.
As mentioned in todays earnings release, the company's board of Directors has approved a 16% increase in the quarterly dividend on the company's common stock from 25 cents to 29 cents per share.
This increase is effective for payments beginning in January of 2021.
At September Thirtyth cash and short term investments were $1.5 billion. The majority of which is held outside of the U.S.
Total debt at September Thirtyth was $3.8 billion with no maturities you for the third quarter of 2021 and net debt at September Thirtyth was $2.4 billion.
Total cash on hand, plus the remaining availability under our credit facilities was 4 billion at the end of the quarter.
And third quarter EBITDA was $568 million in their pro forma net leverage ratio was 1.2 times.
I will now turn it back to Adam who will provide some commentary on current trends.
Well, Craig Thank you very much and I'd like to extend my welcome to everybody here today.
At the time of our third quarter earnings release, and first and foremost I hope that all of you on the call here today.
Other with your family or friends and your colleagues are staying safe and healthy throughout the pandemic.
As Craig mentioned I'm going to highlight some of our achievements in the third quarter and most importantly discuss the trends and progress across our served markets. I'll then make a few comments on our outlook for the fourth quarter as well as for the full year of 2020.
With respect to the third quarter and amidst what has been clearly an unprecedented and volatile year I'm truly proud that we at Amphenol achieved record sales and adjusted earnings per share in the third quarter.
Realizing levels significantly above our guidance that we issued just 90 days ago.
Sales reached $2.323 billion, an increase from prior year of 11% in us dollars, 10% in local currencies and 9% organically.
This strong growth was driven by increases in mobile devices to Datacom industrial military broadband and the automotive markets and was offset partially by declines in the commercial air and mobile networks markets.
We are particularly proud to have achieved a very robust 17% sequential growth from the second quarter, which was significantly higher than our original expectations as Craig mentioned the company booked $2.275 billion in orders and that represented a book to Bill of 0.98 to one.
Now despite experiencing some continued operational challenges related to the pandemic, we generated excellent operating margins of 20.5% in the third quarter and this was a full 250 basis point increase from our second quarter levels.
Just want to say that the Companys financial position remains extremely strong with our operating cash flow of $398 million and that was particularly notable given the stronger than expected sequential growth from the second quarter.
And we continue to leverage the financial strength to return capital to our shareholders. Both through our repurchase last quarter of 1.9 million shares of the company's stock as well as the board of directors approval of a 16% increase in our quarterly dividend that we're announcing today.
I am extremely proud of the Amphenol team no question in my mind that the record results. This quarter clearly demonstrate the true value of the agility the discipline and the drive of our entrepreneurial organization.
Now turning to the trends across our served markets I would just comment that as we've seen this year, so far ethanol balanced and broad end market diversification is uniquely valuable asset, especially in times of heightened economic uncertainty.
As many of our markets begin to recover in the third quarter, we were able to quickly capitalize on the growth opportunities in those markets, while still retaining our broad exposure to new opportunities and new technology developments across all areas of the electronics industry.
The military market represented 12% of our sales in the third quarter.
Sales in this market increased by 6% from prior year driven in particular by growth in military vehicles Naval space Communications and airframe applications.
Sequentially, our sales increased by a strong 30% as we recovered from the impact of production restrictions.
That hit certain of our facilities related to government measures implemented in the second quarter to control the COVID-19 pandemic.
Looking into the fourth quarter, we expect sales to increase slightly from these levels and for the full year 2020, we expect a low single digit increase in sales from prior year.
This full year performance reflects our leading market position and strong execution offset in part by the impact of the pandemic related production restrictions we experienced in the first half of 2020.
Im very proud of our team working in the military market around the world. They have maintained a singular focus on ensuring that our defense industry customers of uninterrupted access to our leading high technology interconnect products, which are crystal which are critical to our customers equipment. We are in.
We are encouraged both by the accelerating adoption of electronics in these systems together with the overall favorable defense spending environment.
The investments that we've made over the last several years in both new technologies and capabilities to produce them at volume have positioned us very strongly to be able to capitalize on these trends for many years to come.
The commercial aerospace market represented 2% of our sales in the third quarter.
Sales were down by 40% of very significant level as the commercial aircraft market. Once again experienced unprecedented declines in demand for new aircraft due to the pandemic related disruptions to the global travel industry.
Sequentially, our sales were a bit better than expected rising 4% from the second quarter.
As we look ahead, though we expect to commercial air market to continue to be negatively impacted by the significant reduction in demand for air travel, which is occurring around the world. Accordingly, we expect an approximately 20% sequential reduction in our sales to this market in the fourth quarter and for the full year.
2020, we expect to roughly 35% decline from prior year due to the unprecedented demand disruptions that our customers are experiencing.
No question that these are difficult times for the entire travel industry and that that's having a serious impact on the market for commercial airplanes in the near term never.
Nevertheless, our team remains committed to leveraging the company's strong technology position across a wide array of aircraft aircraft platforms and next generation systems integrated into those airplanes and we remain well positioned when this market eventually does return to growth.
The industrial market represented 22% of our sales in the quarter and our sales to the industrial market exceeded our expectations, increasing by 21% in us dollars and 18% organically a very strong performance.
This robust growth was driven especially by the instrumentation medical industrial battery heavy equipment alternative energy and rail mass transit segments really a broad base of growth that we saw in the industrial market.
Although we had expected sales to be modestly lower than the second quarter, we actually realized 11% sequential growth during the third quarter, a very strong performance.
Looking into the fourth quarter, we expect a modest decline from these third quarter sales levels.
Nevertheless for the full year 2020, we expect a low double digit increase in sales from 2019 levels and outstanding performance given the overall market environment.
I am truly proud of our team working in the industrial market.
Whether enabling the growth in volumes of a wide array of medical equipment.
Managing through significant increases in demand for semiconductor capital equipment.
We're executing on unprecedented demand for next generation batteries, our global organization has reacted quickly to ensure that our customers around the world are fully supported regardless of the many operational challenges that have arisen throughout the cove in 19 pandemic.
As we look towards long term I'm confident that our performance through this crisis has positioned us very strongly for the future.
And importantly, we continue to drive our leading development of next generation interconnect sensor and antenna products in support of our customers in the industrial market, who in turn are accelerating their adoption of next generation technologies.
The automotive market represented 17% of our sales in the third quarter.
After a truly challenging second quarter during which the global automotive industry was deeply impacted by the COVID-19 pandemic. We were very pleased to have seen a very strong recovery here in the third quarter with results much better than we had originally anticipated coming into the quarter.
Our teams for outstanding execution led to an increase in sales from prior year by 4% in us dollars and 1% organically well ahead of our expectations.
Sequentially, our sales increased by truly significant 78% from the second quarter as our team was able to execute quickly on a recovery in demand from automotive customers in all regions.
Looking now into the fourth quarter, we expect automotive sales to further increase in the mid single digits from these levels for the.
For the full year 2020, we expect a low double digit reduction in sales, which does reflect a severe and sudden pandemic related downturn in demand from other automotive Oems that we saw in the first half.
I am extremely proud of our team working in the automotive market, who is clearly demonstrated both agility and resiliency in realizing these strong sequential growth levels and.
In fact, our performance through this crisis makes me even more confident in our long term prospects in the automotive market we.
We've continued to expand our range of interconnect sensor and antenna products, both organically and through acquisitions, all with the goal of enabling a wide array of onboard electronics across a diversified range of vehicles made by auto manufacturers around the world. This.
This consistent strategy will no doubt continue to benefit us as the automotive market recovers.
The mobile devices market represented 16% of our sales in the quarter and our sales to mobile device customers increased by a stronger than expected 25% from prior year.
Driven in particular by increased sales of products incorporated into laptops tablets, and Wearables and this was offset in part by slightly lower year over year sales to smartphones.
Sequentially, our sales increased by a much stronger than expected, 37% and this was driven by higher sales across all the products that we serve.
Looking to the fourth quarter, we expect a slight increase from these already strong third quarter levels and for the full year, we anticipate sales to grow in the low double digits from 2019 and I would just note that this is well above our original expectations as we came into the year before we were.
Hit with the pandemic.
While mobile devices will always remain one of our most volatile markets. Our outstanding agile team is poised as always to capture any opportunities for incremental sales that may arise during the fourth quarter or beyond.
Our leading array of antennas interconnect products and mechanisms continues to enable a broad range of next generation mobile devices and this positions us well for the long term.
The mobile networks market represented 6% of our sales in the quarter and sales decreased as we had expected from prior year by 19% in us dollars and 21% organically drew.
Driven by lower sales to wireless operators as well as some continued impact from the US government restrictions on certain Chinese entities that we have previously discussed.
On a sequential basis, our sales reduced by 9% on overall lower spending by both operators and Oems.
Looking into the fourth quarter, we expect to further seasonal sales reduction of approximately 25% related to both Oems and service providers and for the full year, we expect to high teens reduction in sales, which reflects the impact of the U.S. government restrictions as well as the COVID-19 pandemic.
Regardless of the near term 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 opportunity with next generation equipment and networks.
As customers ramp up investment of these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers around the world.
The information technology and data communications market represented 21% of our sales in the quarter.
Sales in the third quarter once again much better than we had anticipated rising from prior year by a very strong 24% in us dollars and 21% organically.
This growth was really driven from increased demand for data traffic continued to prompt both our OEM and service provider customers to increase their demand across virtually all segments of the two datacom market.
Sequentially sales were down by less than expected 10%.
Our extremely strong second quarter.
As we look towards the fourth quarter, we expect a mid teens sequential decline from these very strong third quarter levels and for the full year 2020, we expect sales to increase in the low teens, reflecting the significant upside in demand we experienced in both the second and third quarters offset in part by the pandemic related to disrupt.
Once we saw in the first quarter.
Our team working in support of the it Datacom market is clearly distinguish themselves. This year reacting quickly to capitalize on unprecedented demand for our industry, leading high speed and power products at.
At the same time, we have not slowed down our efforts to further develop our broad range of industry, leading interconnect products in support of data communications networks around the world.
Indeed, we remain very encouraged by the company's strong technology position in the global IC Datacom market, our customers continue to drive their equipment ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power and turn our team remains singularly focused.
On enabling this continuing revolution.
Datacom.
The broadband market represented 4% of our sales in the quarter sales increased by 5% from prior year, driven by stronger demand for home installation related equipment from broadband operators.
On a sequential basis sales increased by a stronger than expected, 13% as our customers continued to upgrade their networks in support of the increased demand for high speed data.
We expect sales in the fourth quarter to moderate from these levels on typical end of the year seasonality and for the full year 2020, we expect sales to be roughly flat with prior year and this reflects the pandemic related disruptions, we experienced in certain geographies offset by increased investments by our customers.
He is in support of higher bandwidth demand.
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Now turning to our outlook.
For the future while our performance in the third quarter was very strong theres still remain significant uncertainties in the global market related to the COVID-19, pandemic, which does appear to be worsening in some regions of the world.
Assuming no new material disruptions from the pandemic as well as constant exchange rates for the fourth quarter. We expect sales in the range of $2 billion $160 million to $2 billion $200 million.
And adjusted diluted EPS in the range of 98 cents to one dollar.
This represents both sales and adjusted diluted EPS growth versus prior year of flat to up 2%.
Our fourth quarter guidance also represents an expectation for full year sales of $8.333 billion to $8.373 billion and full year adjusted diluted EPS of $3.59 to $3.61.
This outlook represents sales growth versus prior year of 1% to 2% and an adjusted diluted EPS decline of 3% to 4%.
The expected decline in our earnings relates directly to the significant cost and disruptions associated with the COVID-19 pandemic that the company faced particularly during the first half of 2020.
Now let me just say that I am extremely pleased by Amphenols performance in the third quarter, especially our teams' achievement of these new quarterly records in both sales and earnings.
Most importantly, I remain very confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability.
I just want to assure you that our entire organization remains committed to fighting hard to secure the Companys financial performance all.
All well dedicating ourselves wholeheartedly to protecting the safety and health of each of our employees around the world.
And as a final note I would just like to take this opportunity here today to thank every one of our amphenol ends around the world for their outstanding efforts here in the third quarter and with that operator, we'd be very happy to take any questions.
Thank you.
Question and answer period will now begin please.
Please be reminded the questionnaires are only allowed to ask one question.
[music].
Our first question is from Amit Daryanani from Evercore. Your line is.
Your line is open.
Thank you and congrats on the strong execution your guys.
I guess my question is really when I look at the strength. We saw in September quarter. I think it was one of the largest b to C and how to you guys in a few years.
I guess, Adam could you just touch upon what surprised you and drove the upside versus 90 days ago. It wasn't just better end demand or did you see inventory build happier customers or perhaps as more allocation shift that came we always have competition can execute but it would be helpful to get some context on what drove this impressive 10, 11% growth.
And so how would you characterize that because the question I keep getting asked today is why are we seeing a follow ups will follow through with this growth in the December quarter Guide.
Sure well. Thank you very much on that look I think you listed a few factors and I think there is a little bit of each of them in the third quarter with maybe the exception that I can't tell you that we saw any inventory build.
Of significance or that we had at least visibility too in the quarter, but no question in several of our markets demand was much stronger than we had anticipated I think we outperformed maybe.
Maybe some of our peers in certain of those areas, where we were able to capitalize on the demand in a faster fashion.
So you take the example of mobile devices, where we came into the quarter expecting a relatively modest sequential growth.
Mobile devices is always a market thats very hard to anticipate but our team drove 37% sequential growth in mobile devices and that came both from from volume demands from our customers, but also from the fact that there were there were instances, where our customers couldn't get everything they needed from other.
Our folks and they could get it from us and I think thats something that we have demonstrated in many years in the past our teams have done standing agility and reacting to unexpected levels of demand. We clearly did not anticipate coming into the quarter that we would have such significant sequential growth in automotive and in fact to have grown.
On a year over year basis in automotive after that just a very very challenging second quarter that we all saw what was a real testament again to the agility of our team to satisfy what was unexpected levels of demand, but look as you look at our guide for the fourth quarter and I know you as.
You mentioned DAVA why does that what is going on with that guide. We do this as we always have done we talk to our customers and this is a bottoms up approach to how we forecast there are certain markets, where there were real surges in demand earlier in the year. It Datacom. Another example of that where we've guided to date.
Come to be down.
In kind of the mid teens in the fourth quarter. It was down a lot less than we anticipated here in the third quarter. There was a real surge in demand for data bandwidth for bandwidth upgrades in support of data traffic to support all of the work from home and study from home.
And this requirements around the world related to the pandemic and.
And thats normally not a market that would be down by so much in the fourth quarter, but it's also normally not a market that would would have grown so much in the second and third quarters. So we've done our best year amidst this environment to take everything that our customers say, we add that up to the to the outlook that we've given you and knowing full well.
Well that there we are not out of the woods relative to the pandemic. There is still a pandemic going on it is in fact worsening in certain areas and I think our customers are sensitive to that and our team is prepared if theres no. Some further surprise further operational challenges that will come but we think this is ed.
It's a very very strong outlook relative to the extraordinary strength that we saw here in the third quarter.
Thank you. Our next question is coming from.
From Baird. Your line is open.
Yes, good afternoon, guys. Thanks for taking the question Mike.
My question is on the auto business and I'm just curious in the wake of Covance, whether you're seeing a shift in focus to your auto customers.
Given your engineering, rather relationships just wondering if anything has shifted in terms of focus related to electrification audit kind of miss driving or similar and as far as you can see.
Well. Thanks, so much look look I think that that shift towards new drive trains towards autonomous other new technologies that are going into the car. I mean, we have continued to see that for many years I wouldn't necessarily say that weve seen an acute change in Detroit.
Injector of.
Of of that evolution here in 2020 due to due to Cove. It I think what we saw in the third quarter was customers really scrambling to get back in into their production levels and customers probably buying more cars than people anticipated there seems to have developed.
Some degree of of pent up demand for automotive production have heard anecdotes about inventory levels being low that it's difficult to get a pickup truck in Michigan and things like this and I'm sure. Luke you know you're closer to this market than than we are and you know very well some of those dynamics, but.
But there is no question that there is real demand from customers.
And they continue to drive new programs that have been in the pipeline but.
But is the pandemic itself responsible for a kind of distinct shift I wouldn't say that is now I would also just add that our team around the world has done a fabulous job in positioning ourselves in these new platforms, while we havent forsaken the the traditional drive train.
The internal combustion engines and otherwise we continue to to support our customers who are manufacturing. These would still represent the vast majority of vehicles that are being produced around the world, but our team has has done such a great job on developing new products expanding our relationship with customers really in all geographies.
Such that to the extent there is an acceleration of that shift I think ethanol is well positioned to benefit from it.
Thank you next question is coming from Mark Delaney from Goldman Sachs.
Yes. Good afternoon. Thanks for taking my question and congratulations on the.
Three key results.
I'm going to better understand EBIT margin I mean that there have been some constraints the company was facing.
Acquired company.
That that came in initially at lower margin and in some extra costs around dead covert to haven't weighed on margins earlier this year, but the company had very strong EBIT margin for the third quarter. So I wanted to better understand to what extent are still high.
Headwinds that the company is trying.
Trying to contend with.
Clearly on an overall basis was able to overcome those but but are there still any any challenges around integrating new assets or.
If it costs that are that are so.
Drag to EBIT margins and perhaps if you could talk about it with with with them.
Going forward and you mentioned there is still some increasing KOVA cases, so anything we need to be thinking about yeah around cofan weighing on margin dealer in fourq or potentially for next year. Thank you.
Great. Thanks, Mark Thanks for the question no I mean, no doubt we are really proud of the our ability to achieve these strong operating margins of 20.5% here in the in the third quarter and 250 basis point improvement over Q2 or at 18% and certainly points even over last year, when when Kobe really wasnt.
Thanks, So certainly very proud of that amount as I did mentioned in my prepared remarks, we did have strong conversion on our on our higher kind of sales levels.
Certainly you know had a benefit from a profitability perspective, but it also reflected sequentially our expected reduction in coffee related costs in the quarter. I mean, we certainly still are experiencing since turbulence in the business related to.
David and the cost of that creates but certainly its it is at a much much lower level than it was in the first and second quarter, but theres no doubt there still is some costs that we are experiencing the team is doing an outstanding job of navigating that and minimizing that to the extent possible, but there are certainly also puts and takes with.
Then within the PS now and that you know as an example, there's other costs such as T. Any as an example that does have some offsetting impact at this lower level of Cove at cost so.
What I would say is from a net impact in the third quarter really that that covidien related and kind of these puts and takes some you know talking about really didn't have a meaningful impact and in the third quarter on our margins. So you mentioned acquisitions.
Acquisition impact I would say that we although we continue to spend time on that this year certainly due to the pandemic, we haven't been able to make certainly the progress that we would hope to have made and this year related to some of the acquisitions. We acquired a 19. So I wouldn't say that really have has had so much of impact in the third quarter, either if you kind of look at year over year, it's really more.
That does leverage on the sales increase and in going forward. Thanks.
I think that I would expect kind of our normal.
Conversion, you know on the upside and downside that 25, 30%.
On the downside, which I think you know what I would expect and that assumes.
Certainly that we don't have this resurgence that that of significance in the pandemic certainly if we do have additional costs are going to work hard to continue to mitigate those but I'm certainly very proud of what the team has done so far to do that and in what.
Keep an eye on that in the future, but again right.
So outstanding performance here in the quarter the teams on a fantastic job navigating all these all these things that are happening.
The world.
Thank you next question is from Wamsi Mohan.
Bank of America. Your line is open.
Yes. Thank you.
If we step back to pre co Ed at the beginning of the year you pop that he would do about $8.3 billion in revenue and 380 NPS.
You expect fairly similar revenue EPS is about 40 cents lower for the year is all but differential just incremental costs associated with co Ed and if so should we expect that next year, we should see faster EPS growth as your conversion margins lower call on the call with headwinds as you did in the in the third quarter.
And if I could.
In the fourth quarter mobile devices. Adam you had mentioned in Threeq you that you are slightly down on smartphones and laptops tablets and Wearables drove the growth I was wondering if those similar comments also hold for the fourth quarter guidance. Thank you.
Yeah. Thanks, Wamsi I would say that you know all that differential really as the covert related costs that we incurred in the first half and if you kind of look at the first half year over year from a EPS versus a perspective and kind of that conversion on those those sales differentials that really has all the cobi related costs and then we talked about that in the last couple of quarters.
So as we go into 2021, we're not giving guidance here, but certainly we would expect.
At this point based on at least our guidance for Q4 that those costs are would not be in there, but again, we had talked about a minute ago about these potential and resurgence as throughout the world. So now we'll give our guidance in January and certainly what well talk about what we expect there, but it is all Kobe related and we're real happy to be kind of that.
Those pre govan profitability levels here in the third quarter and draw again proud of what the team's done thus far.
Wamsi just a short.
Answer to your second question.
I mean, when it's hard enough to forecast mobile devices the loan to forecast it.
Based on the individual components of it.
I wouldn't think anything is categorically different in the fourth quarter than the third quarter, but we have anyways, a hard time to forecast in general So I wouldn't get too far out ahead of myself, and saying, which individual segments are going to be strong in the fourth quarter.
Thank you next question is from semi chatterji from Jay.
From JP Morgan Your line is open.
Great. Thank you. Thanks for taking my question I just wanted to.
Kind of ask you on a more broad level and I think you've touched on this a couple of things specifically to how customers are responding to the risk of a second weve you on the pandemic and what are you baking in in terms of your guidance for the fourth quarter revenue for that because the reason I ask because we've seen a bit more volatility in the order trends youre and what in hindsight looks.
Like you had a strong one Q auto crane moderating into Q2 should we expect something no to repeat if you have a second weve in Threeq and Fourq you have to see.
Yeah. Thanks, Thanks, so much samik.
I don't know that anybody is.
Handicapping in their production plans.
What a second wave will be what the magnitude of a second wave can be and more importantly, what are the consumer reactions to that and what are the governmental reactions to whatever second wave will be we certainly are not trying to guess across all those variables what that can do.
But as I pointed out in my prepared remarks, we're we're very sensitive to the fact that there may be further disruptions and to us it's not about preparing yourself by saying well I'm going to add inventories subtract inventory or otherwise, it's making sure that your entire organization is on their toes.
His remaining nimble agile reactive and prepared physically psychologically for whatever may come our way and I think thats, where the amphenol team has really excelled this year.
It's not that we guessed, which way the trajectory of the pandemic was going to come and thus we were able to achieve these results.
It's that we were ready regardless of how it came and I think the third quarter is just a wonderful indication of that.
We didnt come into the quarter anticipating for example that mobile devices, we grow 37% sequentially or anticipating that automotive would grow 78% percent sequentially or that our military business would be up 30%.
But we were ready in case it were to happen because our team was able to flex so what do our customers how are you.
How are customers integrating a second wave into their expectations.
I actually don't know maybe some are maybe some are not but how we approach. This is we take what our customers tell us and then we're ready regardless are we going to be right at the numbers that we have guided year hard to say that's the best that we can tell right now but this.
If this year has taught us anything it's to expect the unexpected and to be ready regardless of what comes our way and I think thats, what the amphenol team, where we sit today here in the third week of October we're ready for whatever comes along we continue to prioritize the health of our people that's been number one by the way throughout this that's what's.
Enabled us to support our customers. That's what's allowed US to then drive these strong results and we're going to continue to do that and if more demand comes we'll satisfied and thus less demand comes we'll react to that as well.
Thank you next question is from Nick Dot drawn from Longbow Research. Your line is open.
Hi, guys and congrats on the results as well just wanted to go back to the mobile markets.
Just wanted to see a reference a common Adam I think you made last quarter that you guys are poised to capture any incremental opportunities in 2020.
So what I'm hearing from you is that you're not necessarily seeing any contribution towards just your low double digit growth from the mobile smartphone space, specifically I just wonder if anything changed here as we go into the fourth quarter and we know that some of the bills have been delayed has anything changed in your position or you're right.
But maybe the smart.
Markets in how you play that federal [noise].
Yes, I mean look I think what I've always said and I said that last quarter and I think I, probably said it again here. This quarter is this is a hard market to forecast and to the extent that demand is higher than we anticipate we are very much. Our team is very much poised to capitalize upon that and that's exactly what we did is here in the third.
Third quarter, and while it's true that on a year over year basis, our growth came not from necessarily smartphones, but rather from things like laptops, and tablets and wearables and otherwise.
In the fourth quarter, it may very well be a different situation, we'll see as it comes we did grow sequentially across all of those products, including strong double digit sequential growth in our sales of products that go into smartphones and so our team is for sure capitalizing on on whatever.
Incremental demand there may be in smartphones and and when we talk about the incremental performance that we had in this quarter again growing 37% sequentially. Instead of just a modest growth some of that upside was in fact coming also from smartphones, even if that didnt represent growth on a year over year base.
Yes.
Thank you. Our next question is from Jim Suva from Citigroup investment Research. Your line is open.
Thank you very much and good job at really adjusting to that dynamic world.
I had was a little unique question I haven't asked before on focused on a much more hasn't changed much and that was the book to bill.
Normally this quarter has been above one.
Normally the company has seen above one book to Bill Obviously, you had you crushed your expectations in a positive way for revenue EPS this quarter, because some of that play into the book to Bill or why wouldn't we see a book to Bill given your results and also the outlook, which were stronger than expected I'm just trying to triangulate around that like is there.
Is there was there inventory restocking going on that maybe you don't feel comfortable is going to continue or I'm, just trying to triangulate good book to bill versus your strong results and outlook and all the commentary.
Sure. Thanks, Tim will look one thing I would just say about the book to Bill I mean 0.9 to one is pretty close to one.
On a year to date basis. If you include our very strong book to Bill that we had in the first quarter. Our book to Bill year to date is 1.04 to one which is very very strong.
Compared to two maybe other years.
But look look.
Does that what does that mean for the fourth quarter I think we've already talked about what the how weve gone about coming up.
Coming up with our fourth quarter guidance I think these are strong bookings they far exceeded what we thought coming into the quarter and the fact that the book to build a little bit below one is I think just a reflection that some customers placed upon us as much stronger orders early in the year and there are some markets, where the lead times are little bit longer places like military.
For example.
Where we have very substantial order books that were we're shipping out of but I wouldn't read anything abnormal into that I think last year in the third quarter. Our book to Bill was kind of one to one so considering that this is a year, where very little is normal actually I'd say, a 0.98 to one book to Bill is pretty normal.
Compared to last year.
When all is said and done.
And again you know, we we shipped so strongly in the corridor and so the fact that we were able to execute on the backlog that we had had we not executed on that we'd be talking about a positive book to bill and.
And so I think these were very strong bookings, but but there was shipments were even stronger.
Thank you. Our next question is from Matt Sheerin from Stifel. Your line is open.
Yes, Thanks, Hello, Adam and Craig My question.
My question is on the defense and aerospace markets on on the military side, you talked about seeing returned to growth, but it sounds like there is still some kobin related constraints. There so would love some commentary there and on the aerospace segment, where you're guiding down again are you getting a sense at all that we're at a bottom.
There are any signs of stabilization.
Well, thanks, very much Matt look I think in the mill on the military side, we clearly had a lot of constraints in the second quarter and that was reflected in our performance in the second quarter.
Okay.
We have to go back a little bit and understand we've been dealing with a very very robust military market. You'll recall 2019, we grew 23% in military which is really a substantial in that market and net 23% in military required us to step up quite significantly.
Our capacity expansions in support of this very very strong levels of demand.
And so as we came into two co bid there was still strong demand, but then we lost a lot of production in the second quarter because of the various shutdowns in places like the U.S. in places like Mexico Places like India, and otherwise in Europe as well as.
And getting that back so rapidly is not as easy in the military market. When we were already running at very high levels of capacity now I can tell you. This we are supporting our customers in an outstanding fashion, we have not disappointed we have not let down customers, we're not creating any problems for our customers.
But overall you know we are running here again in the third quarter. It at a very high level of production.
Relative to capacity and there's still a significant demand that is out there.
So when does that return to growth I think our outlook for the full year to be in the kind of low single digits is a reflection of strong performance, where theres, one quarter, where we really lost a fair bit of production in that corridor now relative to commercial air I don't I can't be the one to call a quote unquote bottom here.
We came into this quarter thinking that our sales would sequentially be down in fact, they were not we were up a little bit sequentially, but what we hear from our customers for the fourth quarter is clearly that it will be down and that's why I talked about that outlook of being down about about 20%.
We'll see how the year comes it's a very difficult time period, I would wear it to call. It an unprecedented disruption in demand in that market. Because this is demand that has disrupted not just because of production problems, but the end customers are just not using the product right now.
And you just look at any area of the travel industry and.
And you do not have demand and how that ultimately filters through to the aircraft unit demand going forward I think it's too early to tell regardless our team will be ready, we continue to support our customers around the world and ultimately one day there will be.
We are recovering this demand and our team will be well positioned to take care of it until such time, you can bet that everybody working in commercial or in Amphenol is doing what they have to do it to deal with lower volumes cutting costs reallocating resources re dedicating technologies to other markets all the sort of standard playbook of Amphenol entrepreneurial general manager.
Sure and they're doing that in spades right now.
Thank you. Our next question is from Joseph Spak from RBC capital markets. Your line is open.
Thanks, Good afternoon, everyone.
Wanted to dive a little bit deeper into high voltage connectors for electric vehicles because.
Clearly you've said you've mentioned that the tailwind for you and we're now seeing more programs coming to market and even more being quoted so now that you have a little bit more experience here can you break down what the source of that tailwind and is it a number of connector is going up or is it.
Is it the same number of factors, but a higher dollar content or is it both or any additional color you can provide on that now that we are.
Deeper into the electrification move would be helpful.
Sure well. Thanks, Thanks, very much so look I think.
We've talked about and I know many others have talked about the fact that the interconnect architecture and electric vehicle is very very different from that which is in a typical internal combustion engine vehicle and that starts with the reality that you're moving power around the car at very high voltage and that requires.
A degree of technology in the interconnect that is just very different than what we saw in traditional cars and when you have a more complex technology. When you have a technology that carries with it more risk that it has to be a good connector.
Of course, that's going to.
That's going to have an implication that that product should have you know all things being equal more value to it now is every electric car designed the same no is every hybrid car design. The same no ads every internal combustion engine cars designed the same for sure not and so you can say you know a specific model.
It is going to have X more content than another specific model, but all things being equal the interconnect system inside and TV car.
Can have more value is that because there's more connectors, while there's certainly more high voltage connectors.
And those high voltage connectors again in general should have have greater technology embedded in them than it typically low voltage connector or cable assembly that goes into a car. So I think that that's the you know the it's a pretty straight forward actually dynamic.
Now the real rubber meets the road so to speak in are you working with the breadth of customers do you have the right technology do you have that proven track record in high voltage products, maybe not in cars for example in industrial and military like we do.
And do you have the relationships with customers, where you can promote those products to those customers I think there our team has done a really good job of that and they've done a good job really in all the regions to make sure that customers understand that great legacy that amphenol has in high voltage products outside of the automotive industry.
Coupled with our ability to service the automotive industry, which has its unique requirements in terms of fulfilling the demands of customers. So I think it's it's a very positive for the long term for the company and I think we've been taking good advantage of that also here in the relatively shorter term.
Thank you next question is from Chriss Snyder from you.
Your line is open.
Thank you for the time can you unpack the auto segment a bit you reported sales up nearly 80% sequentially and while auto production is recovering quite sharply. It seems like you guys outperformed production by a pretty wide margin during the quarter.
So was this outgrowth of the reflection of maybe low OEM component inventories at the start of the quarter share gains from Amphenol.
Or maybe potential inventory building by the Oems during the quarter as there could be concerns of another cobot supply chain disruption as we head into the winter.
Yeah. Thanks, so much look.
I don't know about the inventory that you mentioned you know it doesn't doesn't appear to me that there is a massive amount of inventory being built was their low dealer inventory coming into the quarter for sure and is that driving automakers to try to ramp up their production levels I think thats very very clear.
Where did our team do a great job to react to the demand that was put upon us by our customers I think that did but.
But look I think it's a little too early to say what the overall market is going to be here I I don't pay much heed to the to the various consultant reports that are put out there I think we'll see it when we see it what the overall demand is.
But but you know this is an industry that really just shut down almost for a quarter or at least for a month or two in that corridor.
And restarting into an environment, where there seems to be some end demand for cars.
People onetime cars and trucks and that's your views and all of those things and so I think it's natural that there's a desire to to quickly ramp back up and how much of our gain came because of end volumes. How much came b because of share gains how much came because of readjusting to more.
Normalized inventory levels.
It's it's hard for us to know what the various components of that would be.
Thank you. Our next question is from clean coal Mac from Morgan Stanley. Your line is open.
Yes. Thank you Adam can you discuss just the M&A environment I mean, certainly the here there's been a lot of external factors and all our targets to navigate around its wells internally. So just how you're seeing things today and as business does start to kind of stabilize at that does that change in terms of what the.
Actionable from an M&A perspective.
Yes, thanks very much Craig.
I think we've talked about this during the more acute phase of the pandemic and what for US has been a real advantage is we view M&A as a very long term process of developing and incubating relationships keeping in touch.
Vela being a sense of mutual trust and awareness.
Companies that we would be interested one day and inviting into the amphenol family and because of that we've been able to do that even with the social distancing and the inability to travel and so our pipeline remains very strong.
Relationships with the companies that weve been developing for a long time remain very robust and current.
But at the same time I think if you're an entrepreneur and you are.
You may think twice about selling in an environment like this because there is still a lot of uncertainty and so the fact that we've completed this year just to acquisitions are both relatively small last year. You know we completed nine acquisitions its not surprising given that were in that kind of once in a lifetime pandemic.
Now I.
I fully believe that as the world normalizes whatever normal Shelby.
That our acquisition program will remain a really strong value creator for the company and the fact of our performance during the pandemic the resilience of Amphenol, our ability to capitalize on opportunities to manage through this pandemic in a way that we have becomes only a great asset in those discussions that we continued to her.
With potential acquisition targets and makes amphenol incrementally a more attractive home.
For these companies for their organizations.
And so long term I actually think this might turn into a positive in terms of the wherewithal that we have to to ultimately complete. These acquisitions now when are we going to close on the next acquisition you know well I'm woefully unable to predict that there's so many factors that go into when somebody ultimately signs on.
The dotted line, but I'm I'm confident that over the long term this will be a real great part.
Part of how amphenol grows over.
Over the long term acquisitions have represented roughly a third of our growth and we see no reason to think that that should change going forward.
Thank you. Our next question is from Shawn Harrison from Loop capital. Your line is open.
Hi, good afternoon everybody.
Hi, Sean cleared the clarification, if I may and then just a question on kind of the bookings when the equity does the guidance reflect any kind of incremental entity.
Entity list headwinds for Amphenol and then on the bookings linear you could just kind of talk about the upside you saw was is something where it spiked mid quarter end of quarter, then tailed off in October or just kind of how linear.
The quarter was after you guys initially guided during July.
Yeah, I mean look relative to the end of the list I think as we said a year ago, it's not that like on one day may 19th everything shut off and so there is a process of this.
That you know overtime, you know the impact can grow a little bit and I think we continue to see that relative to the linearity of the quarter.
Look I I think it shouldn't come as a terrible surprise that as we got farther from the acute phase of the pandemic, which was really in the second quarter that there was some strengthening over the course of the quarter and typically in the third quarter September would be a really strong month and.
I think this year was not different from other years and the respect that the quarter finished a bit stronger than it started.
Thank you. Our next question is from deeper Robinson from Wells Fargo. Your line is open.
Hi, good afternoon.
My question is on the buyback.
Looks like some of the deal potential Adam based on your comments it looks.
Looks like the deals essentially being pushed out which then clearly leave some room for further buybacks to happen.
Steven about thing.
Can you comment on that plus Greg you mentioned, there is a big gap.
Any of this 1.5 billion cash held outside the U.S.
Can you help us understand how much is in the U.S. and how that can influence share buybacks I hear about that.
Sorry about that potential.
And also if you don't mind can you comment on how much cash we need cooperation.
Thank you.
Yeah. Thanks, Steve I would just to that point of that they kept the cash outside of the U.S. and how that impacts our buybacks I would say it really doesn't have any impact on what buybacks. We do we have plenty of liquidity in the U.S. outside of the U.S. So it's it really has no impact on our on our buyback rhythm in terms of.
The amount of cash, we have and whether or not and then doing less M&A or more M&A has an impact on our on our buybacks I mean honestly I would say that we have.
Pretty strong balance sheet very strong balance sheet, we have had a very strong balance sheet for a long time I would say that regardless of the M&A that we've had over a period of time, we've been able to have a pretty balanced capital deployment rhythm in regards to our share return of capital to shareholders and our M&A.
We always say that we prefer to do M&A to the extent possible but.
But the reality is is that wearable that typically do all of the three because of such a strong balance sheet. The amount of cash flow, we generate we generate almost a billion dollars of free cash flow. This year. So I wouldn't say that you know doing less M&A is necessarily going to have us accelerate our buyback. We've we've done 1.6 out of the 2 billion.
Under our buyback program. So we're well on track to to finish our buyback program in the allotted time, which.
Which which certainly we're we're on pace for so I wouldn't necessarily say that we wouldn't per say accelerate that M&A will continue to be a significant part of our strategy as Adam just mentioned the timing is certainly unpredictable and ER, but there's no doubt that we have a great pipeline and we have.
Certainly the capital to fund that.
Thank you next question is from Steven Fox from Fox Advisors. Your line is open.
Thanks, Good afternoon, Adam I was just wondering if you could talk a little bit about the industrial market guidance that you gave I understand the conservatism, but the strength in Q3 was really good I think it was better than you thought and it was so broad why the slight decline is in terms of expectations for Q4. Thanks.
Thanks, So much Steve I mean look no doubt about it third quarter for our industrial market was really strong and it came on the heels of a second quarter that also surpassed our expectations and you remember in the second quarter. The real driver was the strength in medical and this quarter. It was a it was more broad.
Including medical but not only including medical.
And so it was really quite a bit outperforming we anticipated we came into the third quarter anticipating that sales would actually be a little bit down on a sequential basis. In fact, they grew by 11%. So the very very strong outperformance and as we look into the fourth quarter in the fourth quarter traditionally.
He there can be some seasonal moderation in the industrial market in certain years.
Together with the fact that we had this very very strong.
The surge in demand in particular related to medical in the second and third quarters I think the it's a very natural that there would be a slight easing of that.
Into the fourth quarter, but all that being said even with this outlook in the fourth quarter on a year over year basis, we would expect to be growing in a pretty strong fashion in the fourth quarter and that our full year outlook still.
Still to grow in the low double digits is a very very strong outlook for a year, where you out a global pandemic, which did have certain impacts on the overall industrial market and it's a credit to our team to really quickly redeploy our resources.
Interconnect products value add interconnect and sensors to those areas of the industrial market, where there was indeed strength this year.
It's interesting I look in the third quarter you know, we we service I don't know, it's like a dozen or so different and the segments of the industrial market and I talked about the ones that were up but we had also some that were down.
You can imagine that a segment like an oil and gas was not very strong here in the third quarter. We had other areas that were also not very strong in the third quarter, but those were more than offset by by the really excellent demand that we saw in the segments that I already discussed so I think it's a very favorable outlook actually for the.
Fourth quarter and for the full year.
And we're just really pleased with how our team working in the industrial market has capitalized on the breadth of opportunities some of which were really unexpected as we came into 2020.
Thank you. Your next question is from William Stein from True Security. Your line is open.
Thanks, and thanks for squeezing me in.
Adam I'm, hoping.
I'm, hoping we can address the mobile networks and market. We normally think of amphenol as a company that finds growth even when the end markets are exhibiting Ed. This is an end market that's come through.
Some changes in the last couple of years with the rollout of Fiveg last year, there was a pretty big rollout. This year there was as well.
And yet were seeing last year revenue was flat in this end market. This year, we're looking at down double digits.
Is there something that's preventing the company from exhibiting it's sort of normal pattern of finding growth even if its even its end markets aren't cooperating either a change in who you can and can't sell two or a change in technology that works against you in some way thanks for any update.
Area.
Thanks, So much well look I think the easiest explanation.
Explanation in the simplest thing here is if you look at this year and last year. What has been the biggest change that has impacted us and we've talked about it are in fact, you know that there are some customers. So we traditionally sold to who this year, we're selling less to and even into the latter part of.
Last year, we were selling less to and this is related to the department of commerce restrictions on the certain entities in China that we've talked about I think thats the biggest story here.
Now.
On an overall basis is capital spending with our operator customers for example, going up or going down yeah. It remains to be seen for the year.
But I think there was one thing which is that as we got into the pandemic. There was a rush to expand bandwidth and I'd.
And I think in certain respects that rush to expand bandwidth came at the expense of.
Of the capacity and coverage that often times is a bigger driver of just the end nodes of the mobile network investment, which can drive our mobile networks business and so when you look at the growth that we've had an eye to Datacom. For example, some of that growth is coming alternately.
Are you from customers, who also have manage and build wireless networks in support of the bandwidth of their core networks because people are working from home, they're starting from home and there are soaking up bandwidth.
That maybe was not expected for sure. It was not expected and so I think that there's some of that dynamic, but the biggest and probably the most simple explanation to what you've described it.
It is in fact, those department of Commerce restrictions and you know as we head into next year I think.
I think that our team remains a very confident in our position with customers around the world we have.
We have strong position on next generation equipment and.
And we'll we'll see how it goes and we will try to give a good assessment of this market as we come into a as we come in to 2021.
But but no doubt I mean, this has been a little bit more of a challenging market for us here in this year because of those because of those factors that we've discussed.
Thank you. Our next question is from David Kelley from Jefferies. Your line is open.
Hey, good afternoon, Adam and Craig.
Maybe just stepping back from the market specific discussions I was curious if you could talk about just broadly what you're seeing as it relates to demand and order patterns in China are we.
We fully back and let's call it Pico bid levels across your exposures and the region today.
Yeah. It's a great question I would say that our performance in Asia in general and China being the largest factor for us in Asia and for most in Asia was really outstanding in the third quarter on it on a year over year basis and so.
I would say back to pre KOVA then beyond in terms of the demand levels that we've seen and I think that's true in the industrial market I think that's true in the automotive market I think that's true in the communications markets all with the caveat related to the question.
And that will just asked relative to mobile networks, and the and the restricted entities list.
But beyond that I would say that we've seen just great demand and you know it is amazing Craig and I. We have you know a lot of calls and now we do zoom calls or teams or or Google meetings are all of these different video calls with with our with our customers or with our team and.
You do that with people in China, now and they're all sitting around the conference room, together and nobody is wearing masks because the virus is essentially not there.
It is it is being kind of stopped at the border through a very rigorous approach to two.
Quarantining and testing and so I think that that has allowed in particular, China to kind of get back to normal people are going to movies people are going to grocery stores.
People are buying cars people are writing on planes and trains and all of this and we see that on our on our computers grades and I would be lying if I said I didn't have a little bit of a a little bit of jealousy to watch a group of 10 people sitting around the conference room table like we used to be here, but that will come here again, we will get there.
They are in other parts of the world as well, but but it started earlier in China. We are actually two days from now will be exactly nine months. Since we won was shutdown how time does fly here in 2020, and and we all know how tough that was in China in the first.
Corridor shutting everything down every one of our 50 factories every one of our then 35000 people stuck at home for three weeks, the rigor with which the reopening happened and you know we talked back in back in the at the end of the first quarter and the second quarter, how proud we were of.
The speed with which our team was able to implement measures to protect people and thereby secure a more rapid reopening of our operations and I think now here. We are nine months later and things are relatively back to normal in in China and that includes the demand environment and I'm very proud of our team working in China.
All of whom are local and that's one thing I just want to emphasize once again.
How we participate in every market, where we work around the world is with local organizations people who are from that country. So.
To whom we give full authority, we cede to them the entrepreneurial authority to make appropriate decisions for their business on a day to day basis that becomes even more critical in a year like this where we cannot fly in and out of China. We can't go hold People's hands.
We have to sort of talk to them on on video calls communicate with them as best we can but then have confidence that they're making the right decisions to capitalize on whatever opportunities are there in the market and here is where the the unique structure of Amphenol I think has shown its.
Extraordinary agility and strength.
That in the place where the world has become more normal we have and then an extraordinary team of dedicated individuals who can make decisions on the ground to capitalize on success and to deal with challenges and that is in its essence, one of the key values and the really the pillars of.
Why amphenol has been successful for many many decades.
Thank you our next question.
Last question rather for today's from Joe Giordano from Cowen Your line is open.
Hey, guys. Thanks for sneaking me in here.
That's because.
Over here, but I'm curious.
Understanding the nature of your military business and why the shift towards practical and why you guys are able to kind of grow so much faster than budgets.
Process change or does it not changed how do you think about the sizing of your business potentially add a couple of years in a different administration.
Yeah, I mean look I think the our our strength in military at its root comes from two things number one it comes from the fact that we have the deepest and Bruce.
And broadest array of technologies.
In the industry. There is no doubt about it I mean, we are the leader in this industry. We have been in this industry for 100 years.
So our predecessor companies and that strength that we have across all product technologies is so critical but the second piece of it is our ability to execute and I talked about that earlier. The fact that last year, we were able to execute on it really almost unprecedented increase.
It's in demand, 23% sales growth last year that we were able to.
We were able to to continue to support our customers even with all of the disruption that we saw in the second quarter and.
And you know as we look at the broader military market the defense market.
I think you alluded to a shift to tactical I I would actually say a shift from tactical because I've talked about this for quite a while now that the military is of the world and whether that's in our country or in the allies the of the U.S. and other countries.
There was for many years of focus on this kind of whack, a mole of catching stateless actors and.
And that was a very tactical move.
Didnt require necessarily significant investments in military technology that I think has changed quite significantly and we've seen that change happening slowly and maybe one could even say that this year that change has even a little bit accelerated where the real concern for militaries are those that we work with.
It has become a much more strategic concern and at the end of the day strategic military attention.
Leads to the adoption of technology, you're not dealing with trying to hunt down a terrorist needle in a haystack, rather you're trying to create defense systems aggressive systems, whatever those may be two to do battle with very formidable unknown adversaries and I think in that case.
Pace.
The real asset that the military it takes advantage of his technology and so I feel like I'm not going to prognosticate about what elections are going to matter in which countries and how that's going to ultimately directly or indirectly affect military budgets, but what is for sure is that the geopolitical world that we're in today is a different one.
Than we were in five years ago, and certainly 10 years ago, and it's one that I believe is more reliant.
Disproportionately on the innovations of our military customers and thereby our ability to enable those innovations with next generation technologies, so regardless of what election results come.
I actually feel good about the prospects for our business in the military market because of our unique position there and we'll see where reactive we are agile and up market and we'll deal with whatever comes our way, but I think the geopolitics of the moment and which have been building acts.
Actually create a more favorable environment.
Very good well Joe. Thank you for your last question and I would like to just take this opportunity to thank everybody for your time and your attention to amphenol today and most importantly, a sense, we won't get a chance to to talk to most of you until 2021 unbelievably.
I do want to wish everybody that you still stay safe and continued to stay vigilant as we come into the fall we need you all healthy [laughter] and.
I wish you your family or friends and your communities all the best as we come into the into the fall and winter season, and we look forward to speaking to all of you again.
In the new year. Thanks, so much to everybody. Thank you.
Thank you speakers.
Thank you all for attending today's conference and have a nice day.
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