Q2 2021 Amphenol Corp Earnings Call
[music].
Okay.
Hello, and welcome to the second quarter earnings Conference call for Amphenol Corporation.
Following today's presentation, there will be of formal question and answer session.
Until then all lines will remain in a listen only mode.
At the request of the company today's conference is.
Being recorded.
If anyone has any objections you may disconnect at this time.
Now I would like to introduce today's conference host Mr. Craig Lampo, Sir you may begin.
Thank you very much good afternoon, everyone. This is Craig Lampo, Amphenol, CFO and I'm here together with Adam Norwood, our CEO.
We would like to welcome you to our second quarter 2021 conference call.
Second quarter of 2021 results were released this morning, I will provide some financial commentary and then Adam will give an overview of the business as well as current trends and then well take some questions.
As a reminder of during the call we may refer to certain non-GAAP financial.
As yours and May make certain forward looking statements. So please refer to the relevant disclosures in our press release for further information.
In addition, all day to discuss during this call will be on a continuing operations basis, unless otherwise noted.
The company closed the second quarter with record sales of 2 billion 6 range exceeding.
The $54 million.
And GAAP and adjusted diluted EPS of <unk>, 59, and 61, respectively.
Sales were up 34% in the U S dollars, 30% in local currencies and 22% organically compared to the second quarter of 2020.
Sequentially sales were up 12% on U S dollars and.
The level of currencies and 7% organically.
Orders for the quarter were a record 3 billion of $120 million, which was up 58 per cent compared to the second quarter of 2020 and up 40.
<unk> thousand 14% sequentially, resulting in a very strong book to bill ratio of 1.18 to 1.
And in the breaking down sales into our 2 segments. The interconnect segment, which comprised 96 per cent of our sales was up 34% in U S dollars and 30% in local currencies compared to the second quarter of last year.
Our cable segment, which comprised 4% of our sales was up 22, 7% in U S dollars and 24% in local currencies.
Compared to the second quarter of last year.
Adam will comment further on trends by market in a few minutes.
GAAP and adjusted operating income were $476 million and $532 million, respectively. In the second quarter of 2021.
GAAP operating income includes $55 million of.
The action severance restructuring and certain other.
Non cash costs related to the MTS acquisition.
And the company also incurred $74 million related to the extinguishment of outstanding MTS Senior notes that in accordance with GAAP was recorded as an increasing the goodwill on the second quarter, and therefore had no impact on the second quarter earnings.
Excluding these acquisition related costs adjusted operating margin was 20%, which increased by a strong 200 basis points compared to the second quarter of last year and increased by 40 basis points sequentially.
The year over year improvement in adjusted operating margin was primarily driven by normal operating leverage on the higher.
Those volumes and a lower cost impacts from the COVID-19 pandemic.
Partially offset by the impact of the challenge of commodity and supply chain environment that we experienced in this year's quarter.
The sequential increase in adjusted operating margin was driven by the normal conversion on the increased sales levels partially.
The offset by the impact of the MTS sensors business, which is currently operating below of the Companys average operating margin.
From a segment standpoint in the interconnect interconnect segment margins were 22% in the second quarter of 2021, which increased from 20% in the second quarter of 2020 and increased 50 basis points sequentially.
<unk>.
In the cable segment margins were 6.1%, which decreased from 9.4% in the second quarter of 2020, and 8.8% in the first quarter.
These lower margins in the cable segment are directly related to the rapid increases in the prices of certain commodity and logistics logistics costs, which we have not yet been.
Been able to offset with pricing actions.
Given the dynamic market environment, we are very proud of the company's performance our teams ability to effectively manage through the the current market challenges is a direct result of the strength and commitment of the Companys entrepreneurial management team, which continues to foster of high performance.
<unk> action oriented culture.
The company's GAAP effective tax rate for the second quarter was 17, 5%, which compared to 27% in the second quarter of 2020.
On an adjusted basis effective tax rate was 24, 5% in the second quarter of both 2021 and 2020.
GAAP diluted EPS was <unk> 59, an increase of 40% compared to the 42 cents in the.
Prior year period, and adjusted diluted EPS was a record 61.
An increase of 53% compared to 40 in the second quarter of 2020.
The company continues to be an excellent generally.
<unk> of cash operating cash flow was 400 of $11 million in the second quarter or 109% of adjusted net income and net of capital spending our free cash flow was $307 million or 81% of adjusted net income.
From a working capital standpoint inventory days days sales outstanding and payable days were 80.
$85, 71% of 60 days, respectively, all excluding the impact of acquisitions in the quarter and within our normal range.
During the quarter the company repurchased 2.5 million shares of common stock for approximately $167 million at an average price of approximately $67.
At the end of the quarter total debt was $5.2 billion and net debt was $4 billion.
Total liquidity at the end of the quarter was $2.3 billion, which included cash and short term investments on hand of $1.2 billion plus availability under our existing credit facilities.
Second quarter 2021.
Non-GAAP EBITDA was $597 million on our net leverage ratio was 1.6 times.
On a pro forma basis after giving effect of the sale of MTS test and simulation business net leverage at June 30 of 2021 would have been 1.3 times.
As previously discussed due.
Due to the pending sale of the MTS test and simulation business that business is being reported as a discontinued operation and therefore, it's expected results are excluded from our Q3 guidance. In addition in conjunction with the divestiture of the test and simulation business. The company will incur certain additional cash tax related and other acquisition related costs in the third.
Third quarter, which will not be included in income from continuing operation and therefore are not included in our guidance.
I will now turn the call over to Adam who will provide some financial some commentary on current market trends.
Well, thank you very much Craig and I would like to extend my welcome to all.
All of you here on the call today and.
I hope that you your family friends and colleagues continue to stay safe and healthy and indeed are able to enjoy the summer so far.
As Craig mentioned I'm going to highlight some of our achievements in the second quarter I will then get into a discussion of the trends in our turns on progress across our served markets.
Markets.
Some commentary on our outlook for the third quarter and then of course, we will have time for questions at the end.
Our results in the second quarter were substantially better than expected as we exceeded exceeded the high end of our guidance in sales and adjusted diluted earnings per share.
I've already mentioned our sales.
Grew a very strong 34% in U S dollars on <unk>.
30% in local currencies, reaching a new record of $2.654 billion.
On an organic basis, our sales increased by 22% with growth driven in particular by the automotive military industrial and broadband markets as well as contributions from the company's acquisition.
Acquisition program.
We're very pleased to of booked record orders in the quarter of 3 billion of $120 million and that represented a very strong book to bill of 118 to 1.
Despite facing operational challenges in certain geographies related to the ongoing pandemic as well as continued increases in.
Costs related to commodities and supply chain pressures, we were very pleased to deliver very strong adjusted operating margins of 20.0% in the quarter.
This was the 200 basis point increase from last year's levels of end of <unk>.
40 basis point improvement sequentially.
Adjusted diluted.
<unk> grew a very significant 53% from prior year to another new record of 61 cents and just just in the outstanding reflection of our continued strong execution and for.
Finally, the company generated operating and free cash flow of $411 million and $307 million, respectively in the second quarter.
I just can't emphasize enough how proud I am of our organization around the world.
These results once again reflect the discipline and agility of our entrepreneurial organization as we have continued to perform well amidst a very dynamic and challenging environment.
<unk> been pleased the debt in the quarter, we closed on the acquisition of Unlimited services unlimited based on Oconto, Wisconsin, but also with operations in Mexico and has annual sales of approximately $50 million.
This is of great manufacturer of cable assemblies for the industrial market, primarily with the particular.
First on heavy vehicles.
The addition of unlimited broadens our already strong position in value add interconnect products that are integrated into a wide array of industrial applications.
As we welcome this outstanding new team to Amphenol I remain very confident that our acquisition program will continue to create.
Focus on value for the company and.
In fact, our ability to identify and execute upon acquisitions and then to successfully bring these new companies into Amphenol remains a core competitive advantage for the company.
Now turning to our served markets I just would comment once again.
<unk> growth leads we are that the company is broad and balanced end market diversification continues to create real value for us.
We believe that ultimately this diversification mitigates the impact of the volatility of individual end markets, while also giving us broad exposure to leading technologies and the innovation.
<unk> of those technologies wherever they may arise across the broad scope of the electronics industry.
Now turning to the military market the military market represented 11% of our sales in the quarter.
And as expected sales grew a strong 45% from the Covid impacted prior year second quarter.
And we're up 30% organically and this was really driven by broad strength across virtually all segments of the military market.
On a sequential basis sales increased by 12% also very strong.
As we look into the third quarter. We remains we expect sales to remain at these current elevated levels.
And we continue to be very excited by the strength of our position in the military market and that position is really based upon our industry, leading breadth of high technology interconnect and now sensor products together with our support of essentially all major military programs. This gives us great confidence for our long term performance.
Its important area.
The commercial air market represented 2% of our sales in the quarter sales.
Sales grew by 7% versus prior year really with the benefit of the contributions of our recent acquisitions on an organic basis sales were a day were down by about 14% as the.
<unk> in the aircraft market continued to experience declines in demand for new aircraft production.
Sequentially. However, our sales did increase by better than expected <unk>, 19%.
And that's really from the benefit of the MTS acquisition as well as some organic.
<unk> as.
As we look ahead, we expect.
The slight seasonal moderation in sales in the third quarter, which we would typically see in commercial air.
And regardless of the ongoing difficult environment our team working in this commercial aerospace market remains committed to leveraging the company's strong interconnect and sensor technology position across a wide array of aircraft platform.
The commercial arms and next generation systems that are integrated into those planes.
As personal and business travel continues to recover from the pandemic, we look forward to jet manufacturers beginning to expand their production levels.
The industrial market represented 27% of our sales in the quarter.
Platform on our performance in the second quarter and industrial was really much stronger than expected with sales increasing by 54% in U S dollars and 28% organically.
This growth was broad based across most areas of the worldwide industrial market.
And was driven in particular by organic strength in the transportation.
<unk> battery and heavy electric vehicle Marine and energy generation segments together with the contributions from our acquisitions that have been completed over the past year.
On a sequential basis sales increased by a very strong 26% from the first quarter.
Really with the benefit of acquisitions as well as strong.
<unk> performance.
Looking into the third quarter, we expect sales to remain at these elevated levels. Despite what would typically be a seasonally lower quarter.
I can't say enough how proud I am of our team working on the industrial market and we've had of long term strategy to expand our high technology.
Organic interconnect antenna and sensor offering both organically as well as through complementary acquisitions and debt strategy has positioned us strongly with industrial customers around the world who are accelerating their adoption of electronics the.
The acquisition of unlimited services further bolsters, our leading value.
<unk> abilities in this important market and we look forward to realizing the benefits of this strategy for many years to come.
The automotive market represented 20% of our sales in the quarter and I can just say that sales were higher than our expectations growing of very strong 134%.
Add keep us dollars and 117% organically as our team was able to execute strongly in the face of a robust and broad recovery in the automotive market.
In particular, we once again drove very strong growth of our products used in electric and hybrid electric vehicles this quarter.
Which confirms again for us our global teams long term efforts at designing and high voltage and other interconnect and sensor products into these important next generation platforms.
Despite an increase in production disruptions among our automotive customers due to the widely reported global supply chain.
The issues, we were able to achieve a small sequential increase on our sales, which was a bit better than we had expected coming into the quarter.
No doubt about it though there continues to be a range of widely reported the supply chain challenges that are rising within the industry. The automotive industry and this is impacting overall demand from vehicle manufacturer.
As the around the world.
Accordingly, as we look towards the third quarter, we do expect of modest sequential decline in our sales.
I remain extremely proud of our team working in the automotive market the.
The continued to demonstrate a high degree of agility and resiliency in both driving a significant recovery.
<unk> last year has reduced production levels, while expertly navigating the myriad of supply chain challenges that the entire automotive industry is still facing we look forward to benefiting from their efforts long into the future.
Turning to the mobile devices market that market represented 10% of our sales.
Operating from in the quarter.
Our sales to customers in the mobile devices market declined from prior year by 4% in U S dollars, 6% organically as declines in handsets on laptops more than offset growth in Wearables I would just remind you that last year's second quarter did include a significant.
<unk> and sequential recovery in really of catch up from the Covid impacted first quarter of 2020, which made the comparison versus prior year of little more challenging.
Sequentially, our sales fell by 6% from the first quarter, which was modestly better than our expectations.
Looking to the third quarter.
<unk>, we now expect an approximately 25% increase in sales from these second quarter levels as we benefit from the seasonally typical of higher demand in the mobile device market as customers launch a range of new products.
While mobile devices remains the most volatile of amphenol and markets are outstanding.
Ending an agile team is poised as always to capture any opportunities for incremental sales that may arise in the second half of 2021 and beyond our leading array of antennas interconnect products and mechanisms continues to enable a broad range of next generation mobile devices, thereby positioning us well for the long.
Long term in this exciting market.
The mobile networks market represented 5% of our sales in the quarter sales were flat to prior year and down 4% organically the sales to both Oems and wireless service providers moderated.
On a sequential basis, however, our sales increased.
<unk> by 5%.
Compared to the first quarter, which was in line with our expectations coming into the second quarter.
And as we look towards the third quarter, we expect a further increase in sales as mobile networks customers ramp up their investments in next generation networks.
Our team around the world continues to.
The work aggressively to realize the benefits of our efforts at expanding our position in the such next generation networks and the equipment that populates them around the world and as customers ramp up these investments of such advanced systems. We look forward to bedding benefiting from the increased potential that comes from our unique position.
<unk> with both the equipment manufacturers and mobile service providers.
The information technology and data communications market increased by 21% in the second quarter sales in the second quarter rose by 5% in U S dollars on 3% organically from the very significant levels.
<unk> in last year's second quarter.
Our strength this quarter was driven in particular by robust sales to web service providers, which was partially offset by some weakness in sales to networking equipment Oems.
Sequentially, our sales grew a very strong 20% from the first quarter, which significantly outperformed.
Formed our original expectations.
Looking now into the third quarter, we expect sales to increase modestly from these very high levels.
We remain very encouraged by the company's outstanding position in the global it Datacom market.
Our OEM and web service provider customers around the world continue to drive there.
Equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power in.
In term in turn our team is singularly focused on enabling this continuing revolution in it datacom with industry, leading high speed power and fiber optic interconnect.
The connect products and we look forward to realizing the benefits of our leading position for many years to come.
Turning finally to the broadband market. This market represented 4% of our sales in the quarter and sales increased by 12% from prior year and were flat organically as we benefited from.
Our recent acquisition of cable Con.
On a sequential basis sales increased by 7% from the first quarter, which was a bit lower than we had anticipated coming into the quarter.
For the third quarter, we expect sales to moderate from current levels as operators Digest, the really high levels of spending.
That the that they have exhibited over the recent quarters for.
On regardless of this more muted outlook, we continue to look forward to supporting our broadband service operator customers around the world all of whom are working to increase their bandwidth to support the expansion of high speed data applications to homes and businesses.
Now turning to our outlook and I would just note that given the current dynamic market environment and of course, assuming no new material disruptions from the COVID-19 pandemic as well as constant exchange rates in.
In the third quarter, we expect sales in the range of $2 billion $640 million to $2.
$700 million and adjusted diluted EPS in the range of 60 to 62.
This would represent sales growth of 14% to 16% and adjusted diluted EPS growth of 9% to 13% compared to the third quarter of last year.
I remain confident in the.
Of our outstanding entrepreneurial management team to adapt to the continued challenges in the marketplace and to capitalize on the many opportunities to grow our market position and expand our profitability.
I'll, just say that our entire organization remains committed to delivering long term and sustainable.
Ability of value all while prioritizing the continued safety and health of each of our employees around the world and.
And most importantly, I would like to take this opportunity to once again, thank the entire global Amphenol team for their truly outstanding efforts here in the second quarter and with that operator, we'd be very happy to take any.
<unk> that there may be.
Thank you.
Participants we will now begin our question please be reminded that the questioners.
Okay.
No.
First question is from Wednesday.
The question of Bank of America.
Sir Your line is now open.
Yes. Thank you.
Adam can you talk about what youre seeing as far as inventory levels go, particularly on the channel in the industrial where you expect that low teens growth quarter on quarter, you grew almost double that.
If you could give.
And so we're.
Thanks, Dan that'd be great. Thank you.
Thank you very much from Z I mean.
We've talked about this in the past that we don't have necessarily perfect visibility into the inventory in particular of our OEM and service provider customers.
As far as the channel is concerned we have not seen any.
Some of the real changes in the inventory levels. In fact, it appears that for the vast majority of our distributors in particular with respect to the industrial market you know they want to ship it out as soon as we can get it to them.
There is clearly a very significant and demand across really many segments of the industrial.
The market and you know I mentioned earlier that we saw growth across virtually every segment of the industrial market and whether that was in and marine applications in industrial batteries and electrification of industrial vehicles and transportation heavy equipment factory automation.
We saw even growth in areas like oil and gas, where we haven't seen so much growth in the past the instrumentation, where we've continued to see very robust performance over over a long time period. So I wouldn't say that the across the industrial market, we've seen necessarily any any worrisome inventory trends.
I think that more broadly across the whole company.
Again, maybe the only area, where you know you hear talk of of inventory issues acutely is that theres not a lot of inventory of cars on lots right now.
And so I don't know what that means through the whole chain, but for sure.
Inventories of vehicles are extremely low by by any measure and I think there's a lot of supply chain issues that are going on around the automotive industry that I'm sure others will ask about and many have spoken about and reported about but by and large we see inventory is relatively healthy.
Dealer and Kia.
Our next question is from Amit.
With Evercore.
Sir Your line is now open.
Perfect. Thanks, a lot of good afternoon.
Well I guess my question is around the supply chain dynamics as well most of them understand how is it on to the hey, How's the playing out for Amphenol from operate.
Operations from a P&L basis, what's the impact of the revenue and margins that can be from the supply chain issues and then beyond the operating challenges.
I'd love to understand does this create an opportunity for you over time to win new customers to have new share gain and if so where are the which segments of adoption of these bigger.
Yeah, well thank you very.
Net.
Look I mean, the current supply chain environment, and certainly not for the faint apart and I think our agility as an organization that unique entrepreneurship of of what we call Amphenol ins around the world.
In many ways is an ideal approach to deal with.
On the supply chain environment that is so broadly disrupted and where new things pop up every day and so could we have shipped a little bit more in certain cases I'm sure. We probably could've did it cost us money and in many cases I'm sure. It did.
To put a number on that it's not easy for us to do but I can tell you that it's more than zero.
And I think for sure the cost of the supply chain, whether that's freight and logistics, whether thats the cost of commodities the availability of certain things that a lot of stuff went on over the course of this quarter there was floods in Germany.
Yeah, there was there were challenges.
Challenges with various countries there were some COVID-19 related things that were happening in particular in places like Southeast Asia.
So our general managers all of 125 of them each of them had to deal with a unique set of challenges and they had to tailor make their approach to.
Many of exactly what they were facing it wasn't that we had to sort of process. All of this and the sort of corporate way back machine and then issue of bunch of edict to say here's what we should do it was really dealt with on a on an individual case by case basis in the moment and that kind of moment by moment management is a real premium and the time like.
And as it relates to your second question or the second part of your question for sure. If we are satisfying the needs of our customers better than our competitors are doing in a time when they need us the most when they have robust demand from their customers when they're facing a much broader array of <unk>.
The challenges because of the fortunate for US we don't buy a ton of semiconductors, when we buy a little bit here on there, but but we have a lot of customers who are facing really ex substantial kind of shortages in certain semiconductors and when we can help them. For example, the redesigning of system to change of chip that they can't get supportive.
Applied for designing debt and all of a sudden that redesign requires them to completely redesign and interconnect system. Our team does it in 1 case, we did this in 5 days of customer came to us that they had the totally change the design of the system otherwise they wouldn't have a chip for a year. They redesigned it our team went completely redesign the system.
Of the re days later sent them samples and they came to us with big orders thereafter, so those of the kind of situations that are popping up more and more on I think long term customers don't forget if you were there for them when the when they need the do the most.
Thank you now over the next.
On <unk> from Jim Suva, Citigroup investment research.
Your line is now open.
Thank you and congratulations to you and your team for all of the hard work during the challenging times.
I wanted to ask a question kind of on raw material and input costs and of course, we've seen them all.
Question for Skyrockets.
Does that mean your sales people need to be more active or change terms or do you have like indexing into your contracts when raw materials go up a lot I assume some of your contracts for a very long term of nature or do you hedge it out with some financial instruments I'm just kind of curious because.
Kind of it's pretty unprecedented the copper steel and aluminum.
<unk> costs have recently been moving a lot. Thank you so much.
Well. Thank you so much Jim and no doubt about it I mean, there are certain dynamics, which 1 could call unprecedented I think.
This debt unprecedented inflationary environment.
The certain commodities, we were able to deliver exactly 20% operating adjusted operating margins here in the quarter, which I think is a testament to the hard work of our team around the world each of whom is facing a different set of challenges, but no doubt about it if you're a general manager in Amphenol, we don't tie their hands and say.
Say, you're only in charge of this or your own the in charge of that.
They have every lever to pull in order to ultimately meet their obligations to reach their performance objectives, and so that means when all of your input prices have gone up youre going to figure a way out of debt and sometimes when.
They go up very quickly that makes it hard and no doubt about it we've seen relatively quick increases in a lot of different input costs and again, not just commodities, but also of the cost of freight and other logistics.
And that sometimes there can be a little bit of of delay if that comes in so fast but by and large.
Our our interactions with customers the sort of contracts or programs that we have the with them generally they're not indexed and as you know, we generally don't hedge hedge.
<unk> either in the reason, we don't hedges, because then youre kind of detached from the reality of the moment when you want to have discussions with customers and those.
Those discussions with customers for sure are ongoing because when you have such significant increases in the input costs, we're going to do everything in our power to offset those costs with our own management redesigning the products changing suppliers pitting our suppliers against each other reducing overhead and reducing.
<unk> every aspect, but sometimes there is only the option to pass that price debt cost increase onto your customer and we do that very thoughtfully every market is a little bit different how that works but.
Our customers know that we don't do that lightly we don't take that initiative lightly but ultimately.
Lee you, sometimes do have to pass the price on and I can tell you of our sales teams around the world together with our operating teams are working hand in hand to make sure that we've done everything possible before we go into a customer and asked for them to share in the pain of these increases but.
Such severe and sudden increases ultimately then pricing does become very important and I think our team is working that its hard work, there's no doubt about it.
But I think our team is making really good progress in the in that front and again, it's very market dependent it's very region dependent.
But there is no 1 I would want more.
When you have the general manager, who knows her business front to back to be the 1 who sits in front of the customer and decides is this now of the right moment to ask that customer to share in the challenges that we're facing.
Thank you now our next.
Or that is from Mark Delaney from Goldman Sachs.
Sir Your line is now open.
Hi, Yes, good afternoon, and thanks for taking the question I was hoping to talk about MTS and perhaps you can share some of your early impressions of the company and what opportunities you may be seen to.
And not only sell of the MTS sensors.
Question is on a standalone basis, but combined it into full solutions for some of your other product lines.
On a related note with MTS, Craig I think you said the margins are still below corporate average maybe talk about when you see that getting back on line with the Amphenol average. Thank you.
Well, thanks, so much a mark of I'll, let Craig talk about.
Sensors in the second but I can just tell you. Our early impressions of the company are very very positive I mean, we said and I think I mentioned last quarter. The MTS sensors business is run by a team that we know well and in particular the person leading that organization is just a phenomenal phenomenal.
The murder, who has an extraordinary organization underneath him.
The fact, the way that they have embraced being part of Amphenol is just truly rewarding for all of us in the company, we've known them for a long time. This was not a new acquaintance that we've made through this process, but rather we've known them all the way back to when they were part of a family owned company debt.
Ultimately.
The leader he has acquired.
Our customers have received this extremely well we have become more important to customers across the markets whether that be industrial.
Military commercial air on automotive I continue to be just amazed by the the uniqueness of the depth of the technology.
The Miami that we acquired in this in this in this business force vibration.
<unk>.
Pressure sensors position, just a variety of products that really operate at the harshest of environments and with the highest the performance.
In terms of being.
Able to sell a more complete solutions I can tell you that there is already early activities really collaborative activities ongoing across the company with people within our interconnect businesses working together getting to know the MTS sensors organization, creating the sort of fiber of the relationships that ultimately.
<unk> can lead long term to really collaborative success.
In the various markets that we serve so all all early returns for MTS, including their absolute performance, which is coming out of little bit better than we had thought in the quarter. All early returns are favorable and I'll, let Craig maybe comment specifically.
On the on the margin, yes, Mark no. Thanks for the question on on the margin is as you mentioned I did I have mentioned in the past that there mid teens profitability.
When we acquired them.
As Adam mentioned, where we were just really happy with the progress they've made and kind of all aspects honestly of the business.
From.
From a from a profitability perspective, we always say that profit ultimately is is it really just the the byproduct of the value that you bring to your kind of your customers and there is no doubt that this company brings a lot of value.
To all of their customers and we believe that there is plenty of opportunity.
Throughout the business to be able to increase.
That profitability in the business I would tell you the endless even in the second quarter I would say, we have seen green shoots I guess of progress in that area.
Timing of it will take ultimately to get them to the company average of or beyond is certainly on.
Time will be will.
We will be told in the future here on that and we're not necessarily going to try to estimate.
At this time because every every acquisition is different and.
And that's the task that need to happen.
The different differentiating amount of time, but I would tell you that that the for second quarter here. The first quarter that we've had them in as part of Amphenol, We've certainly seen some progress in that area and certainly areas of opportunity.
In the future and we're I would say that we're even more optimistic than we were optimistic and early on that that they will be able to ultimately get to that target that we have for them to be at the company average and you know and hopefully of beyond in the future.
Yeah.
Thank you now on our next question is from Williams.
<unk> from true.
Hi, This is Elliott Smith on for will I wanted to ask about.
The mobile devices in market.
I know it can be quite volatile quarter to quarter, but.
Can you speak to what you are seeing now and potential.
So the over the next several quarters in terms of the end market content trajectory and potential growth.
Thanks, very much Elliot.
I think you correctly term debt. It's a it is a very volatile market on a quarter to quarter basis, and as I mentioned in my prepared remarks.
Our year over year.
The year over year performance of the market was significantly impacted by the strength that we had a year ago in the second quarter, which was really a catch up from the significant COVID-19 impacts that we saw on the first quarter of of 2020.
This is not of market I'd like to get out ahead of my skis on in terms.
Potentially on several quarters out and giving a prognosis, but what I can say is that our position in the mobile market is an extremely strong position. We continue to have a unique ability to react quickly to customers when they need us the most and that includes some times when our competitors aren't able to support the customers and.
Of either when they're launching new products, our guidance for the for the third quarter being up about 25% or so on a quarter on quarter basis is the strong outlook and I think not inconsistent if you look over a long time period.
For the kind of second quarter, the third quarter trajectory, what it will be.
Particularly in the quarters thereafter, again, I'm not going to get out ahead of my skis and giving a prognosis on mobile devices over the long term, but the content opportunity as you say there is no reason to think that the content opportunity with these devices as they become more complicated as they have different feature sets as the support different types of communications.
Andrew in them.
Those have usually been in the past are strong drivers of content in mobile devices and we have no reason to believe that that would change in the future.
Thank you our next question.
<unk> from Joe Giordano from Cowen.
Okay. Sir your line is now open.
Can you guys hear me yes.
Yes, Hi, Joe.
Good afternoon guys.
Just curious on it Datacom I mean, you guys.
Came in so much stronger than your initial view last last quarter just curious.
Was that.
How would you categorize debt for Mike maybe the market dynamics, just the overall spending in the in the industry with significantly better of what are you guys picking up specific spin.
The specific share anywhere how would you categorize that outperformance relative to your initial view.
I guess, it's a combination of sort of all of the above.
And our team continues to do a phenomenal job of 90 day to com in particular of phenomenal job, enabling web service providers, whose spending and you can call them web service providers like either you can call them cloud providers whatever on the effect of the service providers.
We're making meaningful and very meaningful investments in high speed data processing in order to enable the explosion of traffic that all of them are seeing and our team has just done an amazing job of reacting to that that increase in demand and we did that over the course of the last year.
When it.
<unk>, who are in more critical and we've talked about this several times last year that our growth in it datacom over the course of of 2000.
The <unk> 'twenty.
I think growing close to 50% for example sequentially in the second quarter and reacting to this.
The the literal explosion of.
It was data traffic, resulting from all of the video meetings and remote work and remote school and all of that.
We made a lot of good friends in that market, but by stepping up and really enabling our customers when they needed us. The most at the same time, if anything we've seen an acceleration in new product development.
As our customers look to really push the limits of the bandwidth of their systems and that involves new interconnect solutions that ultimately can enable that high speed. It involves new power solutions that can help the efficiency I mean, there's so many dynamics that are going on across all of.
Moving to come all of which converge on the need for higher higher performance interconnect products and whether Thats web service providers and video over the Internet, whether that's even like crypto currency and the processor power that's being used in support of the crypto market.
These are all things that are just driving extraordinary.
At the data and for high speed and high efficiency high speed interconnect and high efficiency power interconnect and I can just tell you our team working on both of those areas is done a bang up job to react to this to scale our capacity quickly.
In the face of really unexpected levels of demand in this quarter.
Demand is another example of that we certainly did not expect of 20% sequential growth I think we came into the quarter thinking kind of mid single digits.
That requires you to perform on that it requires you to have enough people and machines on automation and tooling and factory floor space.
A ready.
Quarter with materials and I think our team just did a great job of reacting in the moment here.
Thank you now our next question is from Chris Snyder of UBS.
Sir Your line is now open.
Thank you so in.
Source true in auto have seen a pretty massive inflection in and market out great growth over the last year or so.
It sounds like there's not been much if any.
Any supply chain tailwind here so as of this outgrowth in collection.
Given by share gains or just an acceleration.
In the electronics Revolution, so to speak.
And if so when do we expect a structurally a structurally higher level of end market outgrowth.
Relative to what we're seeing in the years, leading up the COVID-19.
Yes, I mean look I don't know how its going to look in the future.
But for sure over the course of the last the year and we Shouldnt forget Q2 of last year was.
Almost the nuclear winter for the automotive industry, but over the last year our team working in industrial of working in automotive.
As clearly done an outstanding job of supporting.
But putting customers when they needed us the most and in certain cases doing that because some competitors could not rise to the occasion.
So I think that the the there has been for US you know some outperformance.
Relative to the industry I think as well.
We clearly have seen an acceleration of the adoption of electronics across the automotive industry across the many many segments of the industrial market. This kind of electronic vacation of everything if you will and it's not just evs and it's not just batteries for those movies and we really see.
Supporting so many examples of traditionally mechanical fuel based hydraulic converting to <unk>.
Electronic control electronic functionality and each time that happens that's a new inflection point, whereby if we can step in.
If the right types of interconnect products, the right types of sensors, leading edge products. If we can do that on the timely fashion. We can have it available for the customers when they need it when they're seeing also an increase in their end demand.
That positions us very well and so I think I think all of the factors that you mentioned have all come together.
We're in a very positive fashion to ultimately lead to us having the growth the.
We realize this this quarter as well as the positive outlook that we see.
In the third quarter and I would hope I would hope also beyond what does that mean for the long term.
Typically the adoption of electronics is.
Together ratchet it.
It's not debt people adopt the new electronic system and then 1 day go back to of mechanical system.
That's not really how the evolution of electronics operates and so I think long term. It gives me some encouragement to see that there has been an acceleration in that kind.
The 1 way function of adoption of electronics, you would hope would continue to create opportunities for the long term.
Thank you now our next question is from David Kelley from Jefferies.
Sir your line is now.
Hi.
And of stuttering and Adam and Craig.
Please ask the automotive question, but the organic growth really stands out so you referenced electrification of the driver.
We're seeing EV auto sales really start to inflect and actually reached the scale now is there any way to quantify the contribution for.
Good afternoon, and then even taken a step back just more broadly in autos just curious if youre seeing any customers start to build some inventory as you referenced the low dealer inventory levels.
Some planning for the medium term just curious if you're seeing that in the market.
Yes, I mean look I think.
The organic growth was pretty special David So I don't blame you for asking another automotive question again, I always say you can teach the master class here on the automotive, but yes, 117% organic growth, albeit to a quarter that was a pretty rough quarter of year ago, but still it was really a very very special performance.
Performance in our automotive team.
Is very proud and justifiably proud of what they were able to achieve relative to the contribution of V. I can tell you that.
If you can imagine at the growth of E V was substantially higher than the growth that I just mentioned of the 117%.
And without giving a specific.
Specific amount of the total of our EV business, it's bigger than it used to be.
And it's meaningful it's a meaningful business. It clearly is an area of success for the company.
And it's 1 that we look forward to realizing the.
<unk> benefits from for many years to come.
A lot of the inventory.
I would actually say that what we've seen more of in the automotive market than stockpiling of inventory is.
We've seen customers not wanting to take our product because they all of a sudden can't get.
The balance appropriate semiconductor to finish the vehicle and so we've seen more what I would call push outs of deliveries as opposed to customers just throwing a bunch of stuff in their warehouses now you know could there be some buildup of component of inventory in certain places there could be and we may not see it perfectly but what we have.
The <unk> for sure and that went through the course of the quarter is customers, saying well.
We're going to have to shut down our factory for a couple of weeks and thus we don't need your stuff right now and we've had to react quickly to that and that's actually meant that for US. We ended up with maybe a little bit more of our own finished.
Good it's a little bit more of our own work in progress and we would have liked in the course of the quarter and still with that we were able to achieve that 117% organic growth. So I don't know that thats, a theres a big buildup there could be pockets of it but the more obvious thing that we saw for the quarter, where these where these push outs from from customers.
Have seen get matching components to make the car.
Thank you next question is from Joseph Spak from RBC capital markets. Sir Your line is now open.
Thank you.
I'm going to follow up on on.
For us who couldnt automotive sorry.
So it doesn't sound like you think inventory as of the issue and it sounds like you maybe think you took a little bit of share.
And obviously <unk>, helping.
And I know even in 1 of the comparative global production your geographic exposure, probably helped get all of it because the.
Larger recovery in North America.
Alright.
I guess what on the other factor I'm wondering about is is there a material content per vehicle difference between let's call. It high value vehicles like a like a full size truck in the lower value vehicles.
Because you know that that kind of obviously also helping and as we start thinking about next year maybe.
Erika and you're on the bond recoveries more in those lower volume vehicles.
Yes, well again no no problem to get another auto question I should say that you and David could probably coteach the master class together.
But but look 1 maybe thing I would mention you alluded to regional.
Maybe it's been on automotive and actually we saw really strong performance across all of the regions, where we operate and I would tell you actually that our business now regionally is more balanced than ever before it's roughly equal size between Asia and Europe, and just the tick lower in North America.
So the and that's a that's.
The transformation, if you think about it over a decade when at 1 point of our business was kind of 2 thirds.
In Europe, and maybe a fifth in North America and the rest in Asia. So we've made really great progress in Asia and I would also say that in Asia. We've made great progress also in the electrification in Evs.
It's quite a time, where our team has just done a fabulous fabulous job.
So for your question do do luxury cars have more content for example than a lower end car I think the answer to that is absolutely yes.
That's always been the case I think that will always be the case, but 1 of the differences that we have.
And that's not just the difference of this year or last year, but maybe over the last kind of half a decade or so as we have seen that more and more automakers are equipping their lower end cars with the greater degree of electronic functionality than they did in the past the traditional the.
Traditional approach.
Seeing the for automakers was to just stuff their high end cars with every possible feature the test out of electronics and those cars to put the newest thing there first and then maybe it would trickle down to the to the low end more fleet type cars or maybe it wouldn't.
But I'd tell you you get any car of any size now and it's gonna have features.
Approach that you never would have imagined before even in the smallest of kind of Fiat 500, or something like that youre going to see just a real array of electronics functionality. So so for sure $100000 car is always going to have more content on the $30000 par, but I don't know that.
The intensity of electronics in that 100000 is is.
So many multiples more than it is on that maybe $30000 car and and you know in the past that would have been quite a different intensity of the electronic value in the car. So you know what does that mean for the long term.
The company is selling more high value.
<unk> trucks and luxury cars today, and maybe they'll sell more low value cars in the future of that.
That I don't have a good read on that but I think theres electronics opportunities across all of these types of cars.
Yeah.
Thank you now our next question is from from <unk> <unk> from J P. Morgan.
The Sir your line is now open.
Okay. Thank you and good afternoon on them.
Oh, I guess I have of more quick 1 just trying to get a better handle on the difference between all of those in your revenue guide for the next quarter or I mean, when I look at the different knowledge of our 400 million last quarter and I think.
The 2 quintiles of about 300 million. So just kind of wondering is that from water for supply and so on and to coding supply are you getting all of those with longer lead times from your customers just kind of getting trained on get a bit of a handle on what you're trying to beacon data and there were just tons of it at all and then I think in conjunction with that I think 1 thing that.
When you go to understand is broadly across the businesses. If you just kind of feeling that the supply constraints of getting tougher or are they getting easier to navigate it at this point. Thank you.
Thanks, So first I guess, maybe we have a little bit different numbers in automotive than than what you mentioned.
I think our automotive business.
The 20% of sales it works out to more than half of $1 billion in the quarter and you know with the guidance that I've given it wouldn't be so just similar in the third quarter, So I'm not sure the.
On the numbers that you referred to relative to supply constraints are they getting better.
And are staying the same.
I guess it feels about the same I wouldn't say that it feels that much worse and that there are a few things that may be do feel a little bit worse like like freight the cost of freight is not that great. So the.
Price of the container from Asia to.
Whereas the thought that that's a huge impact on us, but once in a while you do that of your customer does that and you know the.
Have gotten quite a bit more expensive over the recent times, even just the availability of that there's also been a few of sort of funky things that have happened like there were some floods in Germany, which are you know really.
Really tragic and we feel for the people of Germany debt.
The suffered through these just sudden catastrophic floods and you know there's a you know Germany has a pretty decent size of electronics supply chain of vendors and various things like that and we've.
Scene of disruption or to their I talked about the the COVID-19 the COVID-19.
Covid related restrictions that are happening a little bit in southeast Asia.
So I don't know that I would say, it's getting easier that's for sure.
Thank you next question is from Lee <unk> from Baird.
Sir Your line is now open.
Good afternoon, thanks for taking the.
At the Big Picture question. This afternoon, and it's about the competitive landscape in your auto business as we move into what is increasingly an EV world you've made if we look over.
Last 10, 20 years, great inroads growing in Ottawa, and what has been of combustion World of course, where there are a lot of income and players in the world where there are no true in.
The comments with respect to EV powertrains, how does that change the competitive landscape for amphenol. Both in terms of your view of the opportunity set and ultimately how aggressive would you pursue that business.
Well I mean, the last part of your question I'll answer first which is I think we've we've pursued this business very aggressively over a long time period.
We shouldn't forget the the whole concept of of high voltage system in a car is not new in fact, our teams have been working on development of specific automotive capable high voltage interconnect systems for I don't know the whole time I've been CEO and I've been CEO for nearly 13 years now.
So I think that's not a new development I don't think Evs are new thing hybrids in there on new thing, but theyre growing and I think they are reaching I don't know if you want to call. It an inflection point someone mentioned that term earlier, but for sure of the adoption of these vehicles is accelerating on a global basis, even if they still represent a relatively modest.
Modest proportion of the overall vehicle market I mean, the vast majority of cars sold today are still combustion engine cars.
But to your point.
There.
We have I think in Evs.
The proposition maybe that we didn't have in traditional automotive which is that we've.
We've been making high voltage connectors for very very long time, I mean, if you think about the legacy of Amphenol over you know the the nearly 9 decades that our company has been in business.
We were early on a leader in the innovation and development of power interconnect that's used in military.
At aerospace industrial applications and that came with unique proprietary technologies in particular around the efficient and safe transmission of high voltage.
Power across an interconnect system that requires a very unique contact technology that we have developed.
Terry of many many years and so early on and you know when I say early on this is you know a dozen years ago or more when we were really working early on and in these hybrid electric vehicles, we were already re packaging or high voltage interconnect technologies from the military and industrial.
Into.
For a more of an automotive type interconnect interface and otherwise and so that gave us a very strong position. So it's not new to us to be making high voltage products and to the extent that there are more traditional incumbents, who are pure automotive companies, who may not have had debt that rich legacy of high power.
Power of high voltage interconnect, we could know on occasion have an advantage now granted they have an advantage with the breath that they work in that market. So it's not that this is the.
A kind of a clear path to the world domination in the EV market I mean, we have a lot of competition and we respect them a great deal.
But if anything I.
You know our outperformance in automotive over many years and in particular over the recent years. There has been a not non insignificant component of that which has been us realizing the benefits of our long term position in high voltage products.
I think.
Okay.
Yeah.
Hang on.
Yeah.
Yeah.
Yeah.
Yeah.
Excuse me participants of thank you for holding and sorry about the technical issue. We now have Mr. Craig Lampo back on line.
Hmm.
Hello, operator, do we have any more questions. Please.
Thank you for that Mr. Lampo as of now we don't have any questions on.
On queue I'll turn it okay, well amphenol for any closing remarks.
Thank you very much and we apologize everybody there appears to have been of communications issue with the provider here.
We apologize if anybody did not was not able to have their questions answered of course, you can feel free to reach out to our investor relations.
Since the Craig and Cherie, but let me just take this moment to thank all of you again for your time here.
In the summer and we're very proud again of the company's results over the course of of the second quarter and we look forward to finishing the second half also in the third quarter.
<unk> Stanley.
As we go into 2021 and I wanted to take this opportunity also to wish each of you that you have a little bit of rest as the summer continues and come back recharged.
When we talk to each other 90 days from now. Thank you all so much and we'll talk to you soon thank you.
The strong thank you and ladies and gentlemen, thank you for attending today's conference call and have a net.
I see.