Q4 2021 Amphenol Corp Earnings Call

January 26, 2022

Hello, and welcome to the fourth-quarter earnings conference call for Amphenol Corporation. Following today's presentation, there will be a formal question and answer session. Until then, all lines will remain in a listen-only mode.

At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to 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 fourth quarter 2021 conference call, our fourth quarter and full-year results were released this morning. I will provide some financial commentary and then Adam will give you an overview of the business as well as current trends then we will take questions.

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. In addition, all data discussed during this call will be on a continuing operations basis, unless otherwise noted.

The company closed the fourth quarter with record sales of $3 billion and $27 million and GAAP and adjusted diluted EPS of 72 cents, and 70 cents respectively.

We are very proud that the fourth quarter represents the first time in Amphenol history that we achieved quarterly sales in excess of $3 billion.

Fourth-quarter sales were up 25% in US dollars and in local currencies and up 18% organically.

Compared to the fourth quarter of 2020, the significant sales increase was primarily driven by the robust growth in the IT data, communications, industrial, mobile networks, commercial air, automotive and broadband markets, including contributions from the company's acquisition program.

Sequentially sales were up 7% in US dollars and organically and 8% in local currencies.

For the full year 2021, sales were a record $10.876 billion, which were up 26% in US dollars, 25% in local currencies and 18% organically compared to 2020.

Orders for the quarter were $3 billion $278 million, which is up 30% compared to the fourth quarter of 2020 and up 9% sequentially, resulting in a strong book to bill ratio of 1.08 to 1.

Breaking down fourth-quarter sales into our two segments. The interconnect segment, which comprised 96% of our sales was up 25% in US dollars, while the cable segment was up 22% in US dollars.

Breaking down full-year sales into our two segments. The interconnect segment was up 27% in US dollars in the cable segment was up 21% US dollars.

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

GAAP and adjusted operating income was $593 million and $608 million, respectively in the fourth quarter of 2021.

And GAAP operating margin was 19.6%, which decreased by 50 basis points compared to the Q4 of 2020 and by 70 basis points relative to the third quarter of 2021.

Fourth-quarter 2021 GAAP operating income included $15 million of acquisition-related cost related to the Halo acquisition, which closed during the fourth quarter.

Excluding these costs, the fourth quarter 2021 adjusted operating margin was 20.1%, which decreased by 50 basis points compared to the fourth quarter of 2020, and by 20 basis points relative to the third quarter of 2021.

The year over year decrease was primarily driven by the impact of the more challenging commodity and supply chain environment together with a slight margin dilution of acquisitions. And these impacts were partially offset by the normal operating leverage on higher sales levels as well as the lower negative cost impacts from the pandemic.

On a sequential basis, the slight decrease in the adjusted operating margin was due to the continued challenging commodity and supply chain environment, which has not yet fully offset by pricing and other actions.

For the full year 2021, GAAP operating margin was 19.4% and adjusted operating margin was 20%.

The 80 basis point increase in adjusted operating margin as compared to 2020 was primarily driven by the normal operating leverage on higher sales volumes as well as the lower negative cost impacts, resulting from the pandemic and these benefits were partially offset by the more challenging commodity and supply chain environment experienced in 2021 as well as the.

Current margin dilutive effect of the acquisitions we made during the year.

From a segment standpoint, operating margin in the interconnect segment was 22.1% in the fourth quarter of 2021 and operating margin in the cable segment was 2.4%.

Our margins in the cable segment continued to be particularly impacted by the ongoing and significant increase in commodity and logistics costs, which have not yet been offset by pricing actions.

Given the dynamic overall cost and supply chain environment, we are very proud of the company's operating performance.

Our team's ability to effectively manage through all of these many challenges is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster high-performance action-oriented culture.

The company's GAAP effective tax rate for the fourth quarter was 18.8% in the adjusted effective tax rate was 23.8%, which compared to 21.7% and 24.5% in the fourth quarter of 2020, respectively.

The slightly lower adjusted tax rate in the quarter reflected the year to date true-up of a full-year adjusted effective tax rate from the expected 24.5% to a slightly lower 24.3%, as a result of a slightly more favorable mix of income for the full year.

For the full year 2021, the company's GAAP effective tax rate was 20.6% and the adjusted effective tax rate was 24.3%, which compared to 20.5% and 24.5% in 2020, respectively.

In 2022, we expect our adjusted effective tax rate to be approximately 24.5%.

GAAP diluted EPS was a record 72 cents in the fourth quarter, an increase of 26% compared to 57 in the prior-year period and adjusted diluted EPS was also a record 70.

And an increase of 23% compared to 57 cents in the fourth quarter of 2020.

For the full year GAAP diluted EPS was $2.51.

A 28% increase from $1.96 in 2020. And adjusted diluted EPS was [inaudible], in 2021, an increase of 33% compared to 2020.

This was an excellent result, especially considering the significant cost supply chain and other operational challenges the company faced in 2021.

Operating cash flow in the fourth quarter was a record $464 million or 106% of adjusted net income and net of capital spending.

Our free cash flow was also a record $379 million or 87% of adjusted net income.

For the full year 2021, operating cash flow was $1.524,000,000 or 90% of adjusted net income and net of capital spending our free cash flow for 2021 was $1 billion $167 million or 75% of adjusted net income.

From a working capital standpoint inventory days days sales outstanding and payable days were 80, 71 and 56 days respectively.

All of which were within our normal range. And we're especially pleased with our team's focus on all elements of working capital management, which resulted in a significant reduction of the company's inventory days from the third quarter.

During the quarter the company purchased repurchased 2.1 million shares of the common stock at an average price of $81.

Bringing total repurchases during 2021 to $9.3 million in shares or $662 million.

When combined with our normal quarterly dividend, total capital returned to shareholders in 2021 was more than $1 billion.

Total debt at December 31st was $4.8 billion and net debt was $3.6 billion.

Total liquidity at the end of the quarter was $2.9 billion, which included cash and short term investments on hand of $1.2 billion plus availability under our existing credit facilities.

For the quarter and full year 2021 GAAP EBITDA was [inaudible] and $26 million and $2.6 billion, respectively. At the end of 2021, our net leverage ratio was one four times.

Lastly, as noted in the press release effective January 1st, 2022, we have aligned our businesses into three new reportable segments.

We will report results for these new segments as well as comparable historical financial data starting in the first quarter of 2022.

I will now turn the call over to Adam who will provide some finance some commentary on current market trends.

Well, thank you very much Craig and I would like to also extend my welcome to all of you here.

Here on the phone today and hopefully it's not too late for me to wish you and your families all a happy new year.

I also led to just express my wishes that everybody here on the call that together with your family your friends and your colleagues are all managing to stay safe and healthy in particular amidst the omicron wave that's occurring in many areas of the country.

As Craig mentioned, I'm going to highlight some of our fourth quarter and in particular of our full-year achievements. I will discuss our trends and progress across our served markets and then I'll make a few comments on our outlook in the first quarter and of course, we'll have time for Q&A thereafter.

With respect to the fourth quarter, we're truly proud to have finished the year with record sales and adjusted earnings per share in the fourth quarter, both of which were significantly above the guidance that we gave just 90 days ago.

Sales grew by a very strong 25% in US dollars and in local currencies, reaching a new record of $3,027,000,000. On an organic basis, our sales increased by 18% driven in particular by robust growth in the IT Datacom mobile networks industrial and automotive end markets and I'll talk through each of those.

Markets here in a moment.

The company booked a record $3 billion $278 million in orders in the fourth quarter, which represented another strong book to Bill of 1.08 to one.

To one.

Despite the many operational challenges, we and others continue to face, including ongoing cost increases related to commodities supply chain and other pressures our adjusted operating margins in the quarter reached a very strong 21%.

Adjusted diluted EPS was a new record 70.

And represented robust growth of 23% from prior year and excellent demonstration of our organizations continued strong execution.

And as Greg mentioned, we generated record operating and free cash flow in the quarter of $464 million and $379 million, respectively. Both of which are clear reflection of the quality of the company's earnings.

At the end of this quarter, I am extremely proud of our team.

As this quarter's results once again reflect the discipline and the agility of our entrepreneurial organization, who continued to perform very well amidst a very challenging environment.

We're also very pleased that in the quarter, we announced on December 1st, the acquisition of Halo technology limited for a purchase price of approximately $715 million.

Halo is a leading provider of active and passive fiber optic interconnect components for the communications infrastructure markets with expected sales this year of approximately $250 million.

Halo's product offerings are highly complementary to our existing high speed fiber optic interconnect solutions.

And represent a significant long term growth opportunity for Amphenol in particular with customers that are it datacom mobile networks and broadband markets.

We're especially excited that Halo significantly bolsters, our position in active fiber optic interconnect products.

Which is a technology with truly high growth potential as customers around the world are upgrading their networks to support the acceleration of high-speed data traffic.

Halo is an agile supplier of these important products to a wide variety of customers across these communications infrastructure markets.

Its unique technology and service offering enabled them to realize strong operating results.

I'm just very excited to welcome the highly talented and entrepreneurial Halo team to the Amphenol family and look forward to great things from them in the future.

We also announced on December 1st, the closing of the sale of the MTS test and simulation business to Illinois tool works or ITW.

We remain extremely pleased with the entirety of the MTS acquisition, which as you'll all recall was announced last year in the fourth quarter, meaning 2020.

With the disposition of test and simulation to ITW. We have now acquired one of the leading sensor companies in the industry further strengthening our broad offering of high technology sensors were very proud of the performance of the MTS sensors team during their first three quarters as part of the Amphenol family and we look forward to them.

Driving outstanding value for many years to come.

I remain very confident that our acquisition program will continue to create great 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 the full year of 2021. I can just say it was an extremely successful year for Amphenol. Despite the many operational and cost challenges that we faced.

We expanded our position in the overall market growing sales by a very strong 26% in US dollars and 18% organically.

Reaching a new sales record of $10,876,000,000.

I would just note that in fact over the past two years, both of which have been impacted by the COVID-19 pandemic.

We've grown our sales by more than 32% from our 2019 levels, which is a great confirmation of the value of the company's diversification and the agility of our management team in every environment.

Our full-year 2021 adjusted operating margins reached 20%, which was an increase of 80 basis points from last year from 2020, despite the multiple pressures on margins that we experienced around the world.

And this strong level of profitability enabled us to achieve record adjusted diluted earnings per share of $2.48.

We generated operating and free cash flow of $1,524,000,000 and $1,167,000,000, respectively, again excellent confirmations of the company's superior execution and disciplined working capital management.

We also put that cash to work with our acquisition program that created great value in 2021 with seven new companies added to the Amphenol family.

MTS Sensors, Halo, Positronic, El cab, unlimited services Cablecom and Euro Micron have collectively expanded our position across a broad array of technologies and markets.

While bringing outstanding and talented individuals into the amphenol family and thereby strengthening our organization.

We're excited that these acquisitions represent expanded platforms for the company and its future performance.

In addition, as Craig noted in 2021, we bought back over 9.3 million shares under our share buyback program and increased our quarterly dividend by 38% representing a total return of capital to shareholders of just over $1 billion for the year.

So while there continues to be a high level of volatility in the overall environment in 2021 as we enter 2022, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long term performance.

Now, let me turn to the performance of the company across our served markets. And I would just note that we remain very pleased that the company's balanced and broad end-market diversification continues to create value for Amphenol with no single end market representing more than 25% of our sales in 2021.

And that market industrial being really one of our most diversified markets across the segments within industrial.

We believe that this diversification mitigates the impact of the volatility of individual end markets.

While continuing to expose us to the leading technologies wherever they may arise across the electronics industry.

Now turning to the military market. Military represented 10% of our sales in the fourth quarter and 11% of our sales for the full year of 2021. Our sales grew from prior year by 6% in US dollars in the fourth quarter as we benefited from acquisitions. On an organic basis, our sales did moderate.

By about 4% driven by reduced sales related to airframe applications and ground vehicles.

Sequentially, our sales increased slightly as we had expected coming into the quarter.

For the full year of 2021, sales to the military market grew by 13% in US dollars, and 4% organically. Reflecting our leading market position and strong execution across virtually all segments of the military market. Together with the benefits of the MTS sensors and positronic acquisitions completed earlier in the year.

in the year.

Looking ahead, we expect sales in the first quarter to increase slightly from these fourth-quarter levels and we continue to be excited by the strength of the company's position in the military market.

As militaries around the world continue to accelerate the adoption of next-generation technologies, our industry-leading breadth of high technology interconnect and sensor products positions the company strongly across essentially all major defense programs. And this gives us confidence for our long term performance.

The commercial aerospace market represented 2% of our sales in the fourth quarter and as well for the full year of 2021.

Sales in the quarter grew 27% in US dollars, 6% organically as we benefited from the beginnings of a recovery in procurement to support growing aircraft production as well as from the contributions from our recent acquisitions.

Sequentially, we are pleased that our sales grew a robust 15% from the third quarter, which was in line with our expectations coming into the quarter.

We are pleased that our sales grew a robust 15% from the third quarter, which was in line with our expectations coming into the quarter.

For the full year, sales declined by 10%, reflecting the significant impact of the ongoing pandemic on travel in aircraft production.

Looking into the first quarter, we expect a sequential moderation in sales from these levels.

Regardless of the challenges in the [inaudible] market in both 2020 and 2021, our team working in this market remains very committed to leveraging the company's strong interconnect and sensor technology positions across a wide array of aircraft platforms and next-generation systems integrated into those airplanes.

As personal and business travel continues to recover from the pandemic [impact of Lowe's,] we look forward to benefiting as jet manufacturers expand their production and in turn their procurement of our products.

The industrial market represented 25% of our sales in the fourth quarter and for the full year. And sales in this market significantly exceeded our expectations coming into the quarter, increasing by a very strong 42% in US dollars and 25% organically from prior year.

We experienced robust strength in essentially all segments of the industrial market with particular strength in battery and heavy electric vehicle transportation rail mass transit factory automation and heavy equipment as well as oil and gas.

On a sequential basis, our sales increased by 2%, which was significantly better than our expectation for a sequential moderation as we saw broad-based strength.

For the full year 2021, sales in the industrial market grew by a very strong 46% in US dollars and 27% organically as we saw again broad-based growth across virtually all market segments of the global industrial market.

Looking to the first quarter of 2022, we do expect a sequential moderation in sales from these very strong fourth-quarter sales levels.

Our outstanding Global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market.

I remain confident that our long term strategy to expand our high technology interconnect antenna and sensor offerings, both organically as well as through complementary acquisitions has positioned us to capitalize on the many revolutions happening across the industrial electronics market. We look forward to realizing the benefits of this strategy.

For many years to come.

The automotive market represented 19% of our sales in the fourth quarter and 20% for the full year 2021.

Sales in automotive were actually much stronger than we had anticipated coming into the quarter with revenue growing by a very strong 18% in US dollars and 16% organically versus prior year. And this was driven particularly by strength of our sales into hybrid and electric vehicle applications as well as our sales to customers in Asia.

Asia.

Sequentially, our automotive sales increased by a very strong 10% well above our prior expectations for a high single-digit decline as we saw strong demand from customers in anticipation of improving production volumes in the first quarter.

For the full year 2021, our sales to the automotive market increased by a strong 47% in US dollars and 41% organically, reflecting the continued recovery of the automotive market as well as our expanded position in next-generation electronics integrated into cars. Including in particular electric and hybrid drive trains.

Grid Drivetrains.

Looking into the first quarter, we expect a high single-digit sequential moderation in sales from these very lofty levels that we achieved in the fourth quarter.

I remain extremely proud of our team working in the automotive market who has demonstrated.

An incredible degree of agility and resiliency in both driving a significant recovery from the reduced sales levels in 2020, while also expertly navigating the myriad of supply chain challenges that struck the entire automotive industry. During the course of this year, we look forward to benefiting from their efforts long into the future.

Long into the future.

The mobile devices market represented 14% of our sales in the fourth quarter and 12% of our sales for the full year of 2021.

Our sales to mobile device customers declined from prior year by 5% in US dollars and 6% organically. As declines in products incorporate into smartphones more than offset the growth that we did realize in wearable devices laptops tablets.

Sequentially, our sales increased by a better than expected 14% driven by higher sales to smartphones and wearable devices.

For the full year 2021, sales in the mobile devices market increased by 4% in US dollars and 2% organically as we benefited from growth in our products used in laptops and wearables offset in part by a moderation of sales related to smartphones and tablets, which as you will recall

were particularly strong during 2020 with all of the work from home and studying from home dynamics.

That were there early on in the pandemic.

Looking into the first quarter, we anticipate a typical seasonal sequential decline of approximately 35%.

While mobile devices will always remain one of our most volatile markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales.

That may arise in 2022 and beyond. Our leading array of antennas interconnect products and mechanisms continue to enable a broad range of next-generation mobile devices, which positions us well for the long term.

The mobile networks market represented 5% of our sales in the quarter and for the full year.

And we're very pleased that sales in mobile networks increased from prior year by a very strong 36% in US dollars and 28% organically. And this was with growth, particularly from our sales the mobile network operators in support of their next-generation 5G network build-outs.

Sequentially, our sales increased by a higher than expected 7%.

For the full year of 2021, our sales to the mobile networks market grew by 12% from prior year and 7% organically.

Looking into the first quarter of 2022, we do expect sales to moderate from these very strong levels.

Our team continues to work aggressively to realize the benefits of our long term efforts and expand our position in next-generation 5G equipment and networks around the world. As customers continued to ramp up their investments into 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.

Our unique position with both equipment manufacturers and mobile service providers.

The information technology and data communications market represented 22% of our sales in the fourth quarter and 21% of our sales for the full year.

Sales in the fourth quarter and [19 Datacom] were much stronger than expected rising by 53% in US dollars and 49% organically from prior year as we benefited from broad-based demand for our industry-leading high-speed power and fiber optic solutions.

While we saw strength really across server networking and storage applications.

We experienced especially robust growth from web service providers and other data center operators in the quarter.

Sequentially, our sales grew by 10%, which was significantly higher than our expectations, which had been coming into the quarter for us.

Of a slight decline.

We do believe our sales growth benefited from some modest pull-in of demand from the first quarter as customers prepared for potential supply chain issues related to Chinese new year.

For the full year 2021, our sales to the IT datacom market grew by a very strong 26% in US dollars and 24% organically as we continued to benefit from our strong technology solutions and leading position across a broad array of applications.

Again, sales to web service providers were a significant contributor to our full-year growth in 2021.

Looking ahead, we do expect a high single-digit moderation in the first quarter, reflecting the very robust demand in the fourth quarter. Nevertheless, we are excited by our strength in technology position, especially with the addition of halos active and passive fiber optic interconnect products.

I remain encouraged by the company's outstanding position in the global IT Datacom market.

Our OEM and service provider customers continue to drive their equipment and networks to ever-higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power.

We look forward to realizing the benefits of our leading position for many years to come.

And finally, the broadband market represented 3% of our sales in the quarter and 4% for the full-year sales.

Sales increased by 14% in US dollars and 2% organically from prior year as we benefited from increased spending by cable operators as well as the contributions from our recent acquisitions.

On a sequential basis, sales grew by a better than expected 10%.

For the full year of 2021, sales to the broadband market grew by 9% in US dollars and 1% organically.

Looking ahead, we expect sales to increase in the low double digits from these levels as we benefit from the addition of Halo's product sales into the broadband market.

We remain encouraged by the company's position with broadband customers and we look forward to continuing to support our service provider customers around the world.

All of whom are working to increase their bandwidth to support the expansion of high-speed data applications to both homes and businesses.

Yeah.

Now turning to our outlook. The current market environment, no doubt remains highly uncertain with significant continuing supply chain and inflationary challenges as well as the impact of the ongoing pandemic.

Assuming that conditions do not meaningfully worsen and also assuming constant exchange rates. For the first quarter, we expect sales in the range of $2,690,000,000 to $2,750,000,000 as well as adjusted diluted EPS in the range of 59 cents to 61 cents.

This guidance represents very strong sales growth over prior year of 13% to 16% as well as adjusted diluted EPS growth of 13% to 17% compared to the first quarter of last year.

Finally, I just want to note as we described in our press release effective January 1st of this year, we have aligned our business units into three newly formed division harsh environment solutions, communications solutions, and interconnect and sensor systems.

This new alignment will allow us to further scale our business beyond the $10 billion sales level that we crossed last year very.

Very importantly, this alignment further strengthens our unique and strong Amphenol in culture of entrepreneurship, while reinforcing the accountability of our 130 general managers around the world. We look forward to providing more financial detail about these reportable segments at the time of our April earnings release.

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I come away from this quarter still so 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.

In addition, our entire organization remains committed to delivering long term sustainable value.

All while prioritizing the continued safety and health of each of our employees around the world and most importantly, I'd just like to close by taking this opportunity to once again, thank the entire Amphenol team, in particular, I'd like to extend my thanks to all of our factory workers around the world.

While many of us have been able to work from home on occasion during these last two pandemic impacted years, I'm just so inspired by the dedication of our factory workers, who never worked a single day at home and it was just a phenomenal thing to see in the results that we saw in the fourth quarter really are.

Really geat credit to their and our entire Amphenol organization's dedication.

And with that, operator, we'd be very happy to take any questions that you may have.

Thank you. The question and answer period will now begin. Please limit to one question per caller. Our first question is from Amit Gary Anthony.

With Evercore, you may go ahead.

Thanks for taking my question.

Adam, as I think about the demand.

That you're seeing.

There's also some worry out there that you might be or should be versus end demand [inaudible], if I think about

24% growth in December, your guide would imply a very healthy 14%.

growth in margin if you compare that to me are difficult.

I'd love to get any perspective, you haven't done the growth that you see.

If it's truly end demand do you think there's a bit of it.

build happening at the customer level, and then maybe as a way to think about this is going to be a growth vectors direct versus the channel. That would be helpful too.

Yes, well, thanks, so much Amit and happy new year.

Look we don't have perfect visibility into as you know our OEM customers in there and their warehouses and how much inventory, they're holding but there's no doubt about it that across the electronics industry and I guess across really all industries.

Customers have probably gotten a little more gun shy because of supply chain challenges. At the same time I can tell you there is robust demand and I think if you take a market like the automotive industry.

As one example. To go out and buy a car today, it's not an easy thing. I know Craig.

To go out and buy a car today, it's not an easy thing I know Craig.

Went out and recently bought a car and he shared with me that there was nothing to buy.

The choices that one has when one is willing and ready to go out and buy something is just not there still today. And so whether it whether there is a mismatch of components that ultimately is creating difficult deeper end customers to ship things and that can create some challenges across their supply chain.

That may very well be but the end demand by end consumers for things like cars, for things like semiconductors, for things like high-speed data.

This end demand still seems relatively robust.

As it relates to the channel.

As you know very well distribution represents for us, I think this year. It was about 17 or so percent of our sales, which was a little tick up from years past when it was 15%, 16% and we saw very strong demand from distribution through the course of the year and I wouldn't say that we've seen any inventory build to the contrary I would say that probably .

Inventories are a little bit lighter inside distribution, reflecting the strength of the pull-through of demand.

What does that mean here going into the first quarter?

No doubt about it. There remains a lot of volatility, there remain a lot of supply chain challenges.

But I'm sure that whatever comes along our team is going to be very agile and nimble to jump on any opportunities to ship products like we were in the fourth quarter.

Thank you. The next question is from Matt Sheerin with Stifel. You may go ahead.

Yes. Thank you and good afternoon.

I just wanted to talk about the upside that you saw across several end markets.

The upside that you saw across several end markets.

At a time when a lot of your peers are even missing numbers or you're talking about peak revenue opportunities that they missed as a result. And I'm wondering whether Amphenol its unique operating model, when you've got many operating units running on their own, does that put you added advantage in a market like this?

And then just as a follow up regarding your inventory reduction.

Are you expecting to build in some markets because of the supply chain issues?

Well, Matt. Thank you very much. I mean this is a question that is you know is very close to my heart.

The simple answer to your question is yes, we do believe that our unique operating model creates

Creates a competitive advantage in the marketplace because of the agility, the reactivity and the flexibility that it instills at every level of the company I mentioned in my prepared remarks that we have taken this step effective January 1st.

Of creating the three operating divisions of the company and the purpose of this is to ensure the long term scalability of that unique operating model, making sure that every one of our 130 general managers around the world has reports to somebody who has the bandwidth to support them in every way that.

We need to drive collaboration to stimulate them to exceed beyond levels that they ever thought they could do. And that is really the magic of the Amphenol operating model. When I joined the company 23 years ago. We were just some general managers reporting to our then CEO Martin Lafleur.

And it was when we were about to reach $2 billion in sales that we created the first concept of a grouping of those general managers again to ensure the appropriate spans of control of the appropriate attention in the stimulation of all of the value that comes from inside the company and that group model. We eventually became seven operating groups.

And as we have evolved, it became very clear that to continue fostering that unique operating model, we needed to create more operating groups and I can't have 12 of them reporting to me and that's why we create now this concept of the divisions, but at the end of the day, all of our jobs is to enable those 130

general managers around the world because that is ultimately what makes this company special and why we are able to succeed in really good times and bad and in particular in volatile times like today. In terms of inventory I mean, I think we're very proud of the work of our team and actually reducing our inventory in the fourth quarter, even with the

7% sequential increase in sales and bringing our inventory days basically to a normal level at the end of the year in a time period, where there is so much supply chain chaos.

And as you can imagine in the first quarter that maybe days would go up with the sequential sales.

That we have guided. But this is a phenomenal reflection of the fact that these 130 general managers. They are not just responsible for sales they're not just responsible for gross margin. They are responsible for the entirety of their businesses every line item of the P&L every line item of the cash flow every line item.

Of the balance sheet and that allows them to really perform in challenging times like today.

Thank you. Our next question is from [Samak] Chatterji with JPMorgan, you may go ahead.

Okay.

Hi. Thanks for taking my question. I guess I'm wondering.

I'm looking back and you typically also provided some color on the full-year expectations in Boston.

You, maybe if you can comment on the thinking behind not providing a full year guide. And if you can share how you're thinking about the sustainability of the growth rate that you have in 1Q through the remainder of the year. And any thoughts on margins just to give us some guide points about how to think about the [year].

I mean look very simply put we remain in a once in a century global pandemic. I know we hear live in Connecticut, where we have just gone through the omicron wave that omicron waived is probably going to other places around the world, including places in which we manufacture products and it doesn't.

Doesn't seem prudent at this point to try to get out ahead of our skis on guessing where a pandemic is going to strike and could potentially impact.

Impact our customers anywhere in the world.

Our customers anywhere in the world.

In such an environment, we don't think it's prudent to give guidance beyond the quarter that we've given and that includes guidance on margins on sales by market and all the other aspects.

Yeah.

Thank you. The next question is from Will Stein with Truest Securities. You may go ahead.

Great. Thanks for taking my question. Congrats on the very good results and outlook I have a question about the new segments and operating structure that you highlighted.

Adam, several years ago you forecasted this to some degree you said that at some point you might need to add a new layer of management. So now we're seeing it.

Several years ago.

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Forecasted this to some degree you said that at some point you might need to add a new layer of management. So now we're seeing it.

But the question I have is about how this compares to the current organization and in particular, the current end markets, where we still have the same end market disclosure.

At least on the earnings call and will those in fact roll up to segments so that we can use one to forecast the other?

Or are these sort of orthogonal constant revenue?

And maybe along with that.

From a management perspective.

Remind us, did the end markets have business leaders, one end market or is that just is the end market discussion?

For our understanding and analysis of not the way the company is managed internally, sorry for that compound question, but thank you. So well number one, you have a memory like a steel trap as always.

Number two, I think you essentially answered your question in certain ways here.

<unk>.

We organized our company, not by markets and so our 130 general managers are each responsible for a certain distinct type of product across the extraordinary array of products that we see in the interconnect as we define broadly interconnect products from connectors to value add cable assemblies.

Printed circuit assemblies to sensors to antennas, and just the tens and tens and tens of thousands.

Of different types of products that we make and ultimately because our general managers are responsible for manufacturing and design.

And quality and everything.

It is really a product focus that each of them have.

And as you know, we've talked for many years that one of our strategies that had been so successful is the way that we diversify the company. We design products maybe initially for a customer in a certain market, but then we work very aggressively and collaboratively across the company to proliferate that product across all markets that we can see it. So an example is high-speed products.

Markets that we can see so an example is high speed products.

Originally high-speed products were developed for IT applications for things like core routers and the like but as high-speed data starts to proliferate into other areas. For example, a fighter jet now our team in high speed would work collaboratively with the team who is maybe more focused.

In the defense market to make sure that we're creating the broadest product offering for those customers and so what that ends up meaning is that many of our general managers work across multiple markets. Some of them are focused some are not depending on the type of product and at the end of the day the divisions that we.

Now, we'll report as reportable segments, they will each sell into multiple of our markets and the markets won't map to the divisions as it were but we will provide disclosure.

On what markets are in which division, but you're going to end up finding that most of our markets are serviced by both by all three of those divisions. And we'll continue to guide by end market as we have done historically, we will not be guided by division, but we will be giving similar till we give today financial

information revenue income information at the segment level.

And so but nothing will change from a guidance perspective in terms of how we talk about guidance. And we're not going to change the transparency that we give to all of you with all of our end markets.

Thank you. The next question is from Mark Delaney with Goldman Sachs. You may go ahead.

Good afternoon, and thanks very much for taking the question.

If you could talk a bit about how to think through conversion margins at the EBIT level going forward.

Understandably you mentioned a few headwinds in terms of M&A in supply chain that impacted the fourth quarter on a year over year basis. So I'm curious if you should think of it.

It's possibly a better than typical conversion margins this year as you have more opportunity to offset some of those challenges and system. So maybe above the historical conversion margin levels for 2022. Thank you.

Yes, thanks, Mark.

I just wanted to start with just saying that we really are actually proud of kind of what we achieved here and for the full year 2021, and for the fourth quarter being at 21% and 20% for the full year.

It's a really challenging year from a cost and supply chain perspective. The team really did a, I think outstanding job of kind of navigating that as the year really continue to progressively get worse in regards to just the underlying costs.

With that, the organization was seeing and to be able to kind of navigate that through pricing and other actions. I think that the team did a pretty.

Outstanding job of doing that which ultimately resulted in the results we have today. As we look into the fourth to the first quarter kind of implied in our guidance, I know we don't per se.

Talk about our guide to specific EBIT.

EBIT numbers, but our implied guidance would reflect actually some level of progress need in the first quarter in regards to pricing and other actions.

in the first quarter in regards to pricing and other actions.

So that, so you could see that really is kind of the sequential conversion typically on a.

Lower revenue level, especially going from Q4 to Q1, where we have high single-digit 10% sequential reduction in revenue, we would see typically kind of high twenty's, even 30% kind of negative conversions and an implied guide there is closer to the kind of mid-twenties.

Sequential conversion, that's even including some negative impact from a conversion perspective related to two to Halo in regards to [inaudible]. They are around our company.

Company average, but that does certainly bring with it the normal conversion level.

So so I think from that perspective, we are seeing some positive momentum as we move into the first quarter. And I don't think I'll talk past the first quarter at this point. Obviously, the team continues to work hard at improving the bottom line and kind of we'll see what happens with the underlying environment.

But I am confident as we saw in 2021 that the team has done.

A good job and we'll continue to do, I think a very good job of navigating this very difficult environment.

Thank you. The next question is from [inaudible] Mohan with Bank of America. You may go ahead.

Hi, yes. Thank you.

Adam, Craig you both mentioned commodity logic and logistics cost several times.

And you noted that you're taking ongoing price actions.

When do you expect these actions to fully offset? I guess, Craig mentioned, partly in 1Q you are making progress.

But if these costs stayed.

Relatively fixed let's say.

Given the price actions that you've taken across your portfolio. When should we think that you would be able to mitigate the entire amount? And secondarily, would you say that these pricing actions that you've taken are broad-based across the entire portfolio? Are there areas like auto, which typically take longer to have price discussions?

And price increases filter through.

Sort of behind the curve.

And maybe if you could just characterize Adam like what percent of the portfolio maybe have seen price increases. Thank you.

Thanks a lot, I think in regards to when our pricing actions could fully offset. I mean this is kind of a theoretical question because it's difficult to say ultimately what's going to happen to underlying environment. I think to assume that the underlying environment is going to stay exactly where it is today.

It is a little bit unrealistic, so whether or not it gets better gets worse, but I could tell you that again as I mentioned a minute ago that the team is doing.

I think a good job and we are starting to see progress here in the first quarter.

So I'm not really sure I can tell you exactly when that would be but I would tell you that we are confident that.

Based on some of the progress we are starting to make here in the first quarter that were starting to make some headway on it given the current environment, but we're sitting here again.

Continuing to a pandemic continue into an

Economic environment that's a bit uncertain. So for me, to kind of try to predict when we're going to completely offset the current cost environment is just not something that I guess I'm prepared to do. And then just wanted a relative to our pricing strategy in the.

Every customer every market, every region, every circumstance is different. Pricing is an art, not a science.

You can bet that every one of our 130 general managers has us at the forefront of their mind.

We also know that we.

There are some markets where it's easier to raise price, for example, in distribution you just sort of announce a price list increase in there.

And there are others where it's more challenging and where you have maybe longer-term contracts or where there is just not.

People are not accustomed to the concept and so there's a real process of educating customers of being transparent with them and ultimately bringing them around to the understanding that what you are talking to them about is reasonable. And especially that it is reasonable in light of your company's steadfast support for them, which is something where I think we saw.

I think we stand on very solid ground, we were there for our customers through the pandemic, we were there for them when maybe others we're not through the supply chain crisis. And so all things being equal should position us well to be able to ask nicely of our customers.

That.

That they should share in that. Also, our markets have a lot of different time cycles to them. Some of them are very short cycle markets, where there's really no price change others are longer cycle markets.

But they should share in that also our markets are have a lot of different time cycles to them. Some of them are very short cycle markets, where there's really no price change others are longer cycle markets.

To give you a percent of all where we've been able to achieve pricing, I couldn't even do it. You know we don't have one computer system that can sort of push a button and split that out but I think we're having increasing success. Craig alluded to that as well. It is a hard job. It's a job that is ultimately the responsibility of our general managers who are best

positioned to know what costs are going up and then who themselves sit in front of the customers and have those very difficult negotiations I think we're going to continue to make good progress over the course of this year. When ultimately we fully offset of this. Craig said is a theoretical question does not so easy for us to answer.

Thank you. The next question is from Nick Todorov with Longbow Research, you may go ahead.

Thanks, I appreciate it and good afternoon guys.

Sorry, another pricing question, maybe for Graig, is there a way to break for us the headwind from supply chain versus M&A in 2021?

I ask because 2021 was pretty busy for you from an M&A perspective for you.

Yeah, I mean, I would say that if you look at our tenant overall conversion for 2021, it was probably actually pretty close to what our target is on an organic basis.

That's because we had some benefit from some pandemic costs offset by some supply chain-related costs, and then kind of the difference.

That is related to our acquisitions, which did bring with them at least currently a lower operating margin, which over time, we believe that we should be able to get out to the company average. So I think that's the way to think about it I think that.

Again, we're very proud of the ability to really actually, Adam alluded to.

Our two year increase in revenue over it's kind of through through a pandemic and their supply chain and recall crisis.

Of over 32% and the reality, it is actually our EPS our earnings actually increased by that roughly that same amount and will be even higher than that slightly.

I think that typically we want to have a slightly higher EPS increase and I think that given the fact that we've done a really good job of kind of offsetting some of these costs I think ultimately.

We were able to really continue to increase our earnings over that two year period.

At a rate that's slightly under where we would have hoped from an organic perspective, but actually, very I think respectable and very actually yes, I am very proud of considering all the costs that existed over the last couple of years here.

Thank you. The next question is from Steven Fox with Fox Advisors. You may go ahead.

Thanks. Good afternoon.

I guess I was just wondering respectfully looking at the last few quarters the company has.

Sort of look for moderation in industrial and IT Datacom and it's continued to perform a lot better than you guys were thinking.

And now you're sort of calling for the same thing again. I just stepping back and looking at the past versus going forward. Is there anything different in your thinking now that you're seeing in the markets or just still trying to be conservative? And any other risks you would point out that maybe we should appreciate. Thanks.

Well, thanks, so much Steve and good afternoon to you and no disrespect at all taken I think it's a very good question.

We come into every corridor in this very uncertain and relatively volatile environment.

And try to give you in our entire investor base.

The best assessment that we can give on the basis of what we're hearing from our customers and on the basis of how.

What we're seeing in supply chain and our operations and all of that.

And I think we have outperformed in industrial and IT Datacom. And we were really pleasantly surprised last quarter. I mean, this was a very significant outperformance that we achieved here in the fourth quarter, I think maybe a little bit less outperformance, but still very strong in the third quarter.

Are we going to outperform what we have guided in the first quarter in IT Datacom and industrial?

I'm not going to say that right now, but you can imagine our team is a very hungry team who really takes a real make it happen attitude.

And tries to do everything we can and ultimately their goal is not just to maximize revenues. So that we can report higher revenues, but their goal is to make sure that we're there for our customers when they need us.

And in particular, we're there for our customers when others are not there for them because we believe that these two years have really created an opportunity for us.

To solidify our position with customers in a way that we actually weren't able to do prior to this real crisis over these last two years and so whenever we hear from a customer that they.

That they need something desperately because others are not able to get it to them.

That's where our 130 general managers spring into action with even more vigor and energy than they have before.

And because we see that as something that's able to create a long term platform of sustainable strength with our customers that will create dividends for many years to come.

And so what does that ultimately mean here for the first quarter, we're trying to give the best guidance that we can in light of what we see today and what is still a highly uncertain environment.

But there's no doubt about it that the Amphenol team is going to fight hard for every possible opportunity to deliver whatever upside is available to us.

Thank you. The next question is from Luke Young with Baird. You may go ahead.

Good afternoon, I had a bigger picture question this afternoon, Adam.

As Amphenol becomes the larger company with sales of course exceeding $10 billion for the first time this year. Does that alter your approach to M&A at all either in terms of the companies that you're targeting or your ability to integrate deals of all sizes? And I suppose the new segment structure could also play into this.

Specifically, you've done two fairly large deals now in an eight-month window in the form of MTS and Halo. Does it say something about the future direction of the company or am I just reading too much into your recent deals?

No, look it's a great question.

I think when we talk about scaling the company.

We really think about that in every aspect. Most importantly, we think about making sure that we preserve secure and evolve that unique operating culture and that we can scale the company amidst that operating culture.

That's really step one but every other aspect of what we do also needs to scale and that includes our M&A program.

I find it really interesting over the course of my coming close to quarter of a century that I've been with this company 23 years. I started in Amphenol as an M&A intern. So I've been deeply involved in our M&A program. All the way back to 1998, and we have said consistently from that time that we would expect that

Over the long term, acquisitions would roughly represent about a third of our growth.

And that's been the case when we were less than $900 million revenue company. When I joined all the way to today when we are close to an $11 billion revenue company. And what is interesting, I've referred to these last two years through the cycle and Craig referred to that as well we grew by roughly 32% through that cycle.

And our organic growth was just over 20% during that time, which tells you that even in a pandemic and even with the size and scale of the company as it is we've been able to still have acquisitions represent a third of the company's growth and how do you do that well the arithmetic is pretty straightforward as the company.

The company grows, either you have to make more acquisitions of the same size or you have to make acquisitions of bigger size and the fact is I think we've done all of the above. And so when we look at what we've done here with the MTS acquisition, our first-ever public company.

When we look at the acquisition at the end of the year of Halo. You know these are not insignificant sized acquisitions, yes, we didn't defocus ourselves from making also the really unique enabling tuck-in acquisitions companies like Positronic and EL-CAB.

And euro Micron and cable con and the like and unlimited services. So we will continue to make acquisitions of all sizes. Now with the new division alignment. It actually opens even further the aperture of the types of deals that we may be able to execute upon because part of what we're doing.

It is creating the bandwidth in our leadership team such that they can devote more time to things like driving collaboration, working with key customers and also making acquisitions. And with the size of these divisions. It would make just as easy as we bring in a $50 million company with the general manager and we say.

You are now just part of Amphenol nothing changes. We can do that with $1 billion company one day, if we find the appropriate company and so the range of acquisitions, the scale, the range of the scale of acquisitions that we can make I think is really limitless. The opportunity and the resources that we have to devote to executing on those.

And also making sure that they're successful once we bring them in is also really expanded by this new alignment and so we see no reason to think amidst this what is still a very highly fragmented market that we participate in that M&A can't continue to be a driver like it has been for already more than two decades so far.

Sure.

Thank you. The next question is from Chris Snyder with UBS, you may go ahead.

Thank you. I just wanted to follow up on the previous commentary around the M&A strategy.

This would be the range of acquisitions widened than maybe the average size pushes higher to kind of achieve that one-third growth coming from M&A target.

Is there any impact on the multiples that the company is willing to pay or maybe has to pay to go after these larger acquisitions? Or is there

Willing to pay or maybe has to pay to go. After these larger acquisitions is there.

any maybe increased challenges or difficulty integrating these larger businesses into the broader Amphenol. Thank you.

Thanks so much, Chris. I mean look simply put I don't think it does have an impact on the multiple I mean.

I will just tell you that you take the MTS acquisition as an example, and we announced just.

Last quarter that we closed on the disposition of the test and simulation business. The net multiple that we ended up paying for one of the most precious assets in the industry. Of some of the most highest technology sensors that there is was not a double-digit multiple.

When all was said and done. And I think that is a real testament to our ability to navigate a very challenging and very complex acquisition processed our first ever public company, our first-ever concurrent disposition of an asset and in the end, we get a phenomenal organization with some of the best technology.

In the industry. Amazing people and we do that in for a single-digit multiple. So I think I think that is a confirmation of the fact that big does not necessarily equal more expensive.

And in terms of the integration.

We are never going to relax on the various simple principles that we have always applied to acquisitions large and small. We look for three things when we look for acquisitions. We look for great people with great products and great position and it's the first criteria. The great people that is for us the true litmus test of whether we will.

Or will not buy a company. And if it does not have those great people. We walk away every day of the week and by having those great people that means that there are people that we can rely upon and we bring them into our organization, especially as its newly aligned and we let them go do their thing and all we do is we opened doors for them for new opportunities that can.

Only come by being part of a company as broad as global and as strong as Amphenol and so we think if anything else if anything.

As we have grown as we've scaled the company, it's added momentum to really what it has been a flywheel effect of our acquisition program over many years.

Thank you. The next question is from Joseph Spak with RBC capital markets. You may go ahead.

Thanks, I wanted to focus on your automotive business for a second. You outperformed production by an incredible 40%. This year and I was wondering if you could maybe distill that down into how much do you think of that came from from mix and some of the broader trends in automotive versus pursue share gains and maybe re-centre.

Us for what.

Obviously, that's not sustainable at that level, but like what's a more reasonable go forward.

Not in any given period, but over time sort of outgrowth over the coming years, given the trends you see in that segment.

Well, thanks so much, Joe and I haven't actually done the math, because we don't follow so much.

What is production and what is not production we care about the applications that these next-generation technology applications, but no doubt about it. Our team did a phenomenal job this year.

And in particular did a phenomenal job in capitalizing on new applications.

I would just point to something like the electrification trend, where we just had fabulous growth in electrified applications.

Really outperforming and taking more than our fair share of the opportunities in that space. And that's always been our long term strategy in automotive, we're not trying to take business out of the pockets of those who have it already.

That's not a great approach and automotive, but rather we look for these sort of technological innovations and those new adoptions of electronics and then we aggressively pursue those with our with our agile entrepreneurial team and I think that that's that's been really successful here in this year.

If I look over the course of kind of the last I would call it 13 years since I've been CEO, which really goes back to the low watermark of our automotive business I mean, we've consistently outperformed in automotive, but by a very significant margin kind of year in and year out.

What does that mean in terms of a go forward outperformance.

Go forward outperformance.

I have never put numbers on this. But we would certainly expect that our team would be able to continue to outperform overall units and what that translates into for content versus share versus new applications.

I'll let you who has a much bigger expert in this market than me kind of suss out those numbers, but we clearly believe that we can continue to outperform.

Okay.

Thank you. Our next question is from Jim Suva with Citigroup. You may go ahead.

Thank you very much. As we wrap it up a lot of my questions have been answered. I just wanted to ask one about the new segment reporting and kind of your ERP system.

Your company has been very well known as being very lean and mean and goodwill controls and folding in everything. So I was just wondering I assume this doesn't mean like a new ERP system that doesn't mean, a lot more layers of management earlier in the call you mentioned layers of management or somebody mentioned that.

I'm not sure that's what you meant as opposed to just more oversight and communication, but can you talk to us about ERP system? Because you've done a lot of M&A. Now you're talking about new reporting and sometimes people wonder about risk there, but I kind of viewed as providing us more information and not more cost in a new ERP system or if you can clarify that would be great.

Thank you.

Jim. It's a fabulous question and we do appreciate it the answer is a very hard no. I mean we run 130 ERP systems around the company each of our general managers is responsible for their own ERP systems. Craig has a fabulous and very simple off the shelf consolidation software that works over the web and the fact.

We now align those businesses into divisions does not change our computer system whatsoever.

And yes, I mean I think it was.

It was.

I believe Will who asked the question alluded to.

The [concept] of a layer. I mean we have appointed three new presidents of these divisions.

Which is technically a layer, but it's not a layer of bureaucracy like you would see in many organizations I mean in terms of the cost of doing this it's nothing at all I mean, that's a very marginal incremental investment because the staff at these divisions. It is effectively ahead of.

The division with the financial controller to buy his or her side.

So it's, this is not building infrastructure and building layers and bureaucracy, far from it. It's just creating the bandwidth across our leadership team, across what is now 12 group general managers and those three divisions, whereby the 130 general managers can be enabled. We can drive them.

We can set aggressive goals, work with them on solving problems when they're small enough to solve and capitalize on opportunities. When they are small enough and early enough to capitalize on to capture.

And that's been the Amphenol style ever since.

I was a general manager just reports of the CEO but as we've grown you cannot just have 130 people reporting to one that doesn't work you lose the benefit of being part of a broader Amphenol and then become just a holding company and that's not what we are we're not at all a holding company, in fact, there is a close.

Interaction, close collaboration of synthesis across those 130 entrepreneurial general managers, we have a term for it. We call it a collaborative entrepreneur and that's really when we say in Amphenol and that's really what we mean. So this is not at all creating new computer systems, new layers, new cost rather it's

Enabling and ensuring the scalability of our unique entrepreneurial structure for many many years to come as we past 10 billion here and sales.

Thank you. The next question is from David Kelley with Jefferies. You M may go ahead.

Good afternoon, Adam and Craig. Thanks for squeezing me in. I was hoping to get some color on our recent gross margin trends in light of some of the unique moving part inflation supply chain. You've also done several acquisitions and then longer-term

You've been at 32% historically. Is that the right way to think about core gross margins for the core business?

Yeah.

Yes. Thanks, David and gross margins is always kind of sometimes a difficult thing to specifically look at with our business. I mean over time, maybe it's the trending of it is more.

Applicable, but certainly in any quarters, it's kind of difficult just because of the, our markets do bring them with them different gross margins and also different operating expense levels.

So that's why we really just don't look at gross margins or measure ourselves based on the gross margin level, we really look at kind of an operating margin level I think.

You kind of need to look at it as.

It is ultimately that operating margin and that trending over time and certainly over the last 10 years, we've had

Certainly a strong performance and growth of that operating margin level, and that's kind of what you kind of need to focus on.

I think 10, 20, 50 basis points 100 basis point movement in our gross margin isn't necessarily unexpected given strength in maybe a mobile device market.

Or industrial market, which bring very different gross margins or a sensor business tends to have higher gross margins and higher SG&A. So I really just wouldn't so much focus. We do tend to get these questions quite a bit but it's really the operating margins that ultimately we measure ourselves on. We drive our performance on an and ultimately I think we should probably focus more on.

Thank you and our last question comes from Joe Giordano with Cowen. You may go ahead.

Hey, guys. Thanks for squeezing me in here, we kind of pick the most so I just wanted to.

Touch on the orders. I mean I think everyone understands that there's a pretty good underlying demand across a lot of these.

A lot of these markets, but there does seem to be in and not just with your results, but others like a scrambling to order stuff in the fourth quarter.

As you think about the underlying demand and what the orders look like right now like entering January, do you feel like book to Bill goes below one again at some point over the next couple of quarters? I know, we're not doing full-year guidance, but just can you kind of compare orders to underlying demand.

Yes, I think so. We're, it's hard for us to give a prognosis on what our book to Bill is going to be. We had a very strong book to bill in the year. We finished with a strong book to Bill. It is clear that our customers want to give us orders. What that book to Bill will be going forward is actually really hard to predict.

Well. Operator, I think if that's all of our questions.

Later, I think if thats all of our questions.

Sure.

I'd like to just extend my appreciation to everybody on the phone here for spending your precious time with us. I wish you all the best as you start the year and most importantly, just hope that all of you are able to stay safe and healthy and we look forward to hearing from you.

Precious time with Us I wish you all the best as you start the year and most importantly, just hope that all of you are able to stay safe and healthy and we look forward to hearing from you.

Again in just 90 days. Thanks so much and happy new year again, Thank you, everybody, bye-bye.

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

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Hello, and welcome to the fourth quarter earnings Conference call for Amphenol Corporation. Following today's presentation, there will be a formal question and answer session.

Till then all lines will remain in a listen only mode.

At the request of the company today's conference is being recorded if anyone has any objections you may disconnect at this time.

I would now like to introduce today's conference host Mr. Craig Lampo, Sir you may begin.

Thank you very much good afternoon, everyone. This is Craig Lampo, Amphenol, CFO and I'm here together with Adam Norwood, our CEO we.

I'd like to welcome you to our fourth quarter 2021 conference call, our fourth quarter and full year results were released this morning, I will provide some financial commentary and then Adam will give you an overview of the business as well as current trends then we will take questions.

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 and additional data discussed during this call will be on a continuing operations basis, unless otherwise noted.

The company closed the fourth quarter with record sales of $3 billion and $27 million and GAAP and adjusted diluted EPS of <unk> 72, and 70, respectively.

We are very proud that the fourth quarter represents the first time in Amphenol history that we achieved quarterly sales in excess of $3 billion.

Fourth quarter sales were up 25% in U S dollars and in local currencies and up 18% organically.

Compared to the fourth quarter of 2020, the significant sales increase was primarily driven by the robust growth in the data communications industrial mobile networks commercial air automotive and broadband markets, including contributions from the Companys acquisition program.

Sequentially sales were up 7% in U S dollars and organically and 8% in local currencies.

For the full year 2021 sales were a record $10 $876 million, which were up 26% in U S dollars, 25% in local currencies and 18% organically compared to 2020.

Orders for the quarter were $3 $278 million, which is up 30% compared to the fourth quarter of 2020 and up 9% sequentially, resulting in a strong book to bill ratio of one <unk> to one.

Britain down fourth quarter sales into our two segments. The interconnect segment, which comprised 96% of our sales was up 25% in U S dollars, while the cable segment was up 22% in U S dollars.

Breaking down full year sales into our two segments. The interconnect segment was up 27% in U S dollars in the cable segment was up 21% in U S dollars.

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

GAAP and adjusted operating income was $593 million $608 million, respectively in the fourth quarter of 2021 and.

GAAP operating margin was 19, 6%, which decreased by 50 basis points compared to the Q4 of 2020 and by 70 basis points relative to the third quarter of 2021.

Fourth quarter 2020, non-GAAP operating income included $15 million of acquisition related cost related to the Halo acquisition, which closed during the fourth quarter.

Excluding these costs the fourth quarter 2021, adjusted operating margin was 21%, which decreased by 50 basis points compared to the fourth quarter of 2020, and by 20 basis points relative to the third quarter of 2021.

The year over year decrease was primarily driven by the impact of the more challenging commodity and supply chain environment together with a slight margin.

<unk> of acquisitions.

These impacts were partially offset by the normal operating leverage on higher sales levels as well as the lower negative cost impacts from the pandemic.

On a sequential basis, the slight decrease in adjusted operating margin was due to the continued challenging commodity and supply chain environment, which has not yet fully offset by pricing and other actions.

For the full year, 2021% GAAP operating margin was 19, 4% and adjusted operating margin was 20%.

The 80 basis point increase in adjusted operating margin as compared to 2020 is primarily driven by the normal operating leverage on higher sales volumes as well as the lower negative cost impacts, resulting from the pandemic and these benefits were partially offset by the more challenging commodity and supply chain environment experienced in 2021 as well as the.

Current margin dilutive effect of the acquisitions, we made during the year.

From a segment standpoint operating margin in the interconnect segment was 22, 1% in the fourth quarter of 2021 and operating margin in the cable segment was two 4%.

Our margins in our cable segment continued to be particularly impacted by the ongoing and significant increase in commodity and logistics costs, which have not yet been offset by pricing actions.

Given the dynamic overall cost and supply chain environment, we are very proud of the company's operating performance.

Our team's ability to effectively manage through all of these many challenges as a direct result of the strength and commitment of the Companys entrepreneurial management team, which continues to foster high performance action oriented culture.

The company's GAAP effective tax rate for the fourth quarter was 18, 8% in the adjusted effective tax rate was 23, 8%, which compared to 21, 7% and 24, 5% in the fourth quarter of 2020, respectively.

The slightly lower adjusted tax rate in the quarter reflected a year to date true up with a full year adjusted effective tax rate from net expected 24, 5% to a slightly lower 24, 3%. A result, as a result of a slightly more favorable mix of income for the full year.

Yes.

For the full year 2021, the company's GAAP effective tax rate was 26% and the adjusted effective tax rate was 24, 3%, which compared to 25% and 24, 5% in 2020, respectively.

In 2022, we expect our adjusted effective tax rate to be approximately 24, 5%.

GAAP diluted EPS was a record 72 cents in the fourth quarter, an increase of 26% compared to 57 in the prior year period.

And adjusted diluted EPS was also a record 70.

And an increase of 23% compared to 57 in the fourth quarter of 2020.

For the full year GAAP diluted EPS was $2 51.

A 28% increase from $1 96, 2020, and adjusted diluted EPS was 2048, and 2021, an increase of 33% compared to 2020.

This was an excellent result, especially considering the significant cost supply chain and other operational challenges the company faced in 2021.

Operating cash flow in the fourth quarter was a record $464 million or 106% of adjusted net income and net of capital spending.

Free cash flow was also a record $379 million or 87% of adjusted net income.

For the full year 2021, operating cash flow was $1 $524 million or <unk>, 98% of adjusted net income and net of capital spending our free cash flow for 2021 was $1 billion $167 million or 75% of adjusted net income.

From a working capital standpoint inventory days days sales outstanding and payable days were 80, $71 56 days, respectively, all of which were within our normal range and we are especially pleased at our team's focus on all elements of working capital management, which resulted in a significant reduction of the company's inventory days from the third quarter.

During the quarter the company purchased repurchased two 1 million shares of common stock at an average price of $81.

Bringing total repurchases during 2021% to $9 3 million shares or $662 million.

When combining excuse me when combined with our normal quarterly dividend total capital returned to shareholders in 2021 was more than $1 billion.

Total debt at December 31 was $4 8 billion and net debt was $3 6 billion.

Total liquidity at the end of the quarter was $2 9 billion, which included cash and short term investments on hand of $1 $2 billion plus availability under our existing credit facilities.

For the quarter and full year 2021, GAAP EBITDA was <unk> hundred $26 million and $2 6 billion respectively.

At the end of 2020, when our net leverage ratio was one four times.

Lastly, as noted in the press release effective January one 2022, we have aligned our businesses into three new reportable segments.

We will report results for these new segments as well as comparable historical financial data starting in the first quarter of 2022.

I will now turn the call over to Adam who will provide some finance some commentary on current market trends.

Well, thank you very much Craig and I would like to also extend my welcome to all of you here.

Here on the phone today and hopefully it's not too late for me to wish you and your families all a happy new year.

I also want to just express my wishes that everybody here on the call that together with your family your friends and your colleagues are all managing to stay safe and healthy in particular amidst the omicron wave that's occurring in many areas of the country.

As Craig mentioned I'm going to highlight some of our fourth quarter and in particular of our full year achievements I will discuss our trends and progress across our served markets and then I'll make a few comments on our outlook in the first quarter and of course, we will have time for Q&A thereafter.

With respect to the fourth quarter were truly proud to have finished the year with record sales and adjusted earnings per share in the fourth quarter, both of which were significantly above the guidance that we gave just 90 days ago.

Sales grew by a very strong 25% in U S dollars and in local currencies, reaching a new record of $3 $27 million on an organic basis, our sales increased by 18% driven in particular by robust growth in the it Datacom mobile networks industrial and automotive end markets and I'll talk to each of those.

Markets here in a moment.

The company booked a record $3 $278 million in orders in the fourth quarter, which represented another strong book to bill of one to one.

Adjusted diluted EPS was a new record 70.

And represented robust growth of 23% from prior year and excellent demonstration of our organization's continued strong execution.

Just at the end of this quarter I am extremely proud of our team.

This quarter's results once again reflect the discipline and the agility of our entrepreneurial organization, who continued to perform very well amidst a very challenging environment.

We're also very pleased that in the quarter, we announced on December one the acquisition of payload technology limited for a purchase price of approximately $715 million.

Halo is a leading provider of active and passive fiber optic interconnect components for the communications infrastructure markets with expected sales this year of approximately $250 million.

Halos product offerings are highly complementary to our existing high speed in fiber optic interconnect solutions and represent a significant long term growth opportunity for amphenol in particular with customers that are it datacom mobile networks and broadband markets.

We are especially excited that halo significantly bolsters, our position in active fiber optic interconnect products.

Which is a technology with truly high growth potential as customers around the world are upgrading their networks to support the acceleration of high speed data traffic.

Halo as an agile supplier of these important products to a wide variety of customers across these communications infrastructure markets with unique technology and service offering enabled them to realize strong operating results.

I'm just very excited to welcome the highly talented and entrepreneurial halo team to the Amphenol family and look forward to great things from them in the future.

We also announced on December <unk>, the closing of the sale of the MTS test and simulation business to Illinois tool works or ITW.

We remain extremely pleased with the entirety of the MTS acquisition, which as Youll. All recall was announced last year in the fourth quarter, meaning 2020.

<unk> outstanding value for many years to come.

Now turning to the full year of 2021 I can just say it was an extremely successful year for amphenol. Despite the many operational and cost challenges that we faced.

We expanded our position in the overall market growing sales by a very strong 26% in U S dollars and 18% organically.

<unk>, a new sales record of $10 $876 million.

I would just note that in fact over the past two years, both of which have been impacted by the COVID-19 pandemic.

We've grown our sales by more than 32% from our 2019 levels, which is a great confirmation of the value of the company's diversification and the agility of our management team in every environment.

Our full year 2021, adjusted operating margins reached 20%, which was an increase of 80 basis points from last year from 2020, despite the multiple pressures on margins that we experienced around the world.

And this strong level of profitability enabled us to achieve record adjusted diluted earnings per share of $2 48.

We generated operating and free cash flow of $1 $524 million and $1 billion $167 million, respectively, again excellent confirmations of the company's superior execution and disciplined working capital management.

We also put that cash to work with our acquisition program that created great value in 2021 with seven new companies added to the Amphenol family.

MTS sensors Halo positronic El cab unlimited services cable con and Euro micron have collectively expanded our position across a broad array of technologies and markets.

Bringing outstanding and talented individuals into the amphenol family and thereby strengthening our organization.

We're excited that these acquisitions represent expanded platforms for the company and its future performance.

In addition, as Craig noted in 2021, we bought back over nine 3 million shares under our share buyback program and increased our quarterly dividend by 38% representing a total return of capital to shareholders of just over $1 billion for the year.

So while there continued to be a high level of volatility in the overall environment in 2021 as we enter 2022, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long term performance.

Now, let me turn to the performance of the company across our served markets and I would just note that we remain very pleased that the company's balanced and broad end market diversification continues to create value for amphenol with no single end market, representing more than 25% of our sales in 2021.

That market industrial being really one of our most diversified markets across the segments within industrial.

We believe that this diversification mitigates the impact of the volatility of individual end markets, while continuing to expose us to the leading technologies wherever they may arise across the electronics industry.

Now turning to the military market military represented 10% of our sales in the fourth quarter and 11% of our sales for the full year of 2021, our sales grew from prior year by 6% in U S dollars in the fourth quarter as we benefited from acquisitions on an organic basis, our sales did moderate.

<unk> by about 4%.

Driven by reduced sales related to airframe applications and ground vehicles sequentially.

Sequentially, our sales increased slightly as we had expected coming into the quarter.

For the full year 2021 sales to the military market grew by 13% in U S dollars, and 4% organically, reflecting our leading market position and strong execution across virtually all segments of the military market together with the benefits of the MTS sensors in posit tronic acquisitions completed earlier.

<unk> in the year.

Looking ahead, we expect sales in the first quarter to increase slightly from these fourth quarter levels and we continue to be excited by the strength of the company's position in the military market.

As militaries around the world continue to accelerate their adoption of next generation technologies, our industry, leading breadth of high technology interconnect and sensor products positioned the company strongly across essentially all major defense programs and this gives us confidence for our long term performance.

The commercial aerospace market represented 2% of our sales in the fourth quarter and as well for the full year of 2021.

Sales in the quarter grew 27% in U S dollars, 6% organically as we benefited from the beginnings of a recovery in procurement to support growing aircraft production as well as from the contributions from our recent acquisitions.

Sequentially, we were very pleased that our sales grew a robust 15% from the third quarter, which was in line with our expectations coming into the quarter.

For the full year sales declined by 10%, reflecting the significant impact of the ongoing pandemic on travel in aircraft production.

Looking into the looking.

Looking into the first quarter, we expect a sequential moderation in sales from these levels.

Regardless of the challenges in the <unk> market in both 2020 and 2021 our team working in this market remains very committed to leveraging the company's strong interconnect and sensor technology positions across a wide array of aircraft platforms and next generation systems integrated into those airplanes.

As personal and business travel continues to recover from the pandemic impacted Lowe's, we look forward to benefiting as jet manufacturers expand their production and in turn their procurement of our products.

The industrial market represented 25% of our sales in the fourth quarter and for the full year and sales in this market significantly exceeded our expectations coming into the quarter, increasing by a very strong 42% in U S dollars and 25% organically from prior year.

Experienced robust strength in essentially all segments of the industrial market with particular strength in battery and heavy electric vehicle transportation rail mass transit factory automation and heavy equipment as well as oil and gas.

On a sequential basis, our sales increased by 2%, which was significantly better than our expectation for a sequential moderation as we saw broad based strength.

For the full year 2021 sales in the industrial market grew by a very strong 46% in U S dollars and 27% organically as we saw again broad based growth across virtually all market segments of the global industrial market.

Looking into the first quarter of 2022, we do expect a sequential moderation in sales from these very strong fourth quarter sales levels.

Our outstanding Global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market.

I remain confident that our long term strategy to expand our high technology interconnect antenna and sensor offerings, both organically as well as through complementary acquisitions.

Positioned us to capitalize on the many revolutions happening across the industrial electronics market. We look forward to realizing the benefits of this strategy for many years to come.

The automotive market represented 19% of our sales in the fourth quarter and 20% for the full year of 2021.

Sales in automotive were actually much stronger than we had anticipated coming into the quarter with revenue growing by a very strong 18% in U S dollars and 16% organically versus prior year and this was driven particularly by strength of our sales into hybrid and electric vehicle applications as well as our sales to customers in.

Asia.

Sequentially, our automotive sales increased by a very strong 10% well above our prior expectations for a high single digit decline as we saw strong demand from customers in anticipation of improving production volumes in the first quarter.

For the full year 2021, our sales to the automotive market increased by a strong 47% in U S dollars and 41% organically, reflecting the continued recovery of the automotive market as well as our expanded position in next generation electronics integrated into cars, including in particular electric and.

Drivetrains.

Looking into the first quarter, we expect a high single digit sequential moderation in sales from these very lofty levels that we achieved in the fourth quarter.

I remain extremely proud of our team working in the automotive market.

Demonstrated.

Incredible degree of agility and resiliency in both driving a significant recovery from the reduced sales levels in 2020, while also expertly navigating the myriad of supply chain challenges that struck the entire automotive industry. During the course of this year, we look forward to benefiting from their effort.

Long into the future.

The mobile devices market represented 14% of our sales in the fourth quarter and 12% of our sales for the full year of 2021.

Our sales to mobile device customers declined from prior year by 5% in U S dollars and 6% organically as declines in products incorporate into smartphones more than offset the growth that we did realize in wearable devices laptops and tablets.

Sequentially, our sales increased by a better than expected, 14% driven by higher sales to smartphones and wearable devices.

For the full year 2021 sales in the mobile devices market increased by 4% in U S dollars and 2% organically as we benefited from growth in our products used in laptops and wearables offset in part by a moderation of sales related to smartphones and tablets, which as you will recall we are particularly.

Strong during 2020 with all of the work from home and studying from home dynamics that were there early on in the pandemic.

Looking into the first quarter, we anticipate a typical seasonal sequential decline of approximately 35%.

While mobile devices will always remain one of our most volatile markets.

Outstanding an agile team is poised as always to capture any opportunities for incremental sales that may arise in 2022 and beyond our leading array of antennas interconnect products and mechanisms continue to enable a broad range of next generation mobile devices, which positions us well for the long term.

The mobile networks market represented 5% of our sales in the quarter and for the full year.

And we're very pleased that sales in mobile networks increased from prior year by a very strong 36% in U S dollars and 28% organically and this was with growth growth, particularly from our sales the mobile network.

<unk> operators in support of their next generation <unk> network build outs.

Sequentially, our sales increased by a higher than expected 7%.

For the full year 2021, our sales to the mobile networks market grew by 12% from prior year and 7% organically.

Looking into the first quarter of 2022, we do expect sales to moderate from these very strong levels.

Our team continues to work aggressively to realize the benefits of our long term efforts and expanding our position in next generation <unk> equipment and networks around the world as customers continued to ramp up their investments into 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.

The information.

<unk> technology and data communications market represented 22% of our sales in the fourth quarter and 21% of our sales for the full year.

Sales in the fourth quarter, and 90 Datacom were much stronger than expected rising by 53% in U S dollars and 49% organically from prior year as we benefited from broad based demand for our industry, leading high speed power and fiber optic solutions.

While we saw strength really across server networking and storage applications.

We experienced especially robust growth from web service providers and other data center operators in the quarter.

Sequentially, our sales grew by 10%, which was significantly higher than our expectations, which had been coming into the quarter for us.

The slight decline.

We do believe our sales growth benefited from some modest pull in of demand from the first quarter as customers prepared for potential supply chain issues related to Chinese new year.

For the full year 2021, our sales to the it datacom market grew by a very strong 26% in U S dollars and 24% organically as we continued to benefit from our strong technology solutions and leading position across a broad array of applications.

Again sales to web service providers were a significant contributor to our full year growth in 2021.

Looking ahead, we do expect a high single digit moderation in the first quarter, reflecting the very robust demand in the fourth quarter. Nevertheless, we are excited by our strength in technology position, especially with the addition of Halo as active and passive fiber optic interconnect products.

I remain encouraged by the company's outstanding position in the global it Datacom market, our OEM and service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power.

We look forward to realizing the benefits of our leading position for many years to come.

And finally, the broadband market represented 3% of our sales in the quarter and 4% for the full year sales.

Sales increased by 14% in U S dollars and 2% organically from prior year as we benefited from increased spending by cable operators as well as the contributions from our recent acquisitions.

On a sequential basis sales grew by a better than expected 10%.

For the full year of 2021 sales to the broadband market grew by 9% in U S dollars and 1% organically.

Looking ahead, we expect sales to increase in the low double digits from these levels as we benefit from the addition of halos product sales into the broadband market.

We remain encouraged by the company's position with broadband customers and we look forward to continuing to support our service provider customers around the world.

All of whom are working to increase their bandwidth to support the expansion of high speed data applications to both homes and businesses.

Now turning to our outlook the current market environment, no doubt remains highly uncertain with significant continuing supply chain and in place or had challenges as well as the impact of the ongoing pandemic.

The conditions did not meaningfully worsen and also assuming constant exchange rates for the first quarter. We expect sales in the range of $2 billion $690 million to $2 billion $750 million as well as adjusted diluted EPS in the range of 59 to 61.

This guidance represents very strong sales growth over prior year of 13% to 16% as well as adjusted diluted EPS growth of 13% to 17% compared to the first quarter of last year.

Finally, I just want to note as we described in our press release effective January 1st of this year, we have aligned our business units into three newly formed division harsh environment solutions Communications solutions, and interconnect and sensor systems.

This new alignment will allow us to further scale our business beyond the $10 billion $10 billion sales level that we crossed last year very.

Very importantly, this alignment further strengthens our unique and strong amphenol in culture of entrepreneurship, while reinforcing the accountability of our 130 general managers around the world. We look forward to providing more detail financial detail about these reportable segments at the time of our April earnings release.

<unk>.

In addition, our entire organization remains committed to delivering long term sustainable value all while prioritizing the continued safety and health of each of our employees around the world and most importantly, I'd just like to close by taking this opportunity to once again, thank the entire amphenol team in particular.

I'd like to extend my thanks to all of our factory workers around the world.

While many of us have been able to work from home on occasion. During these last two pandemic impacted years.

So inspired by the dedication of our factory workers, who never worked a single day at home and it was just a phenomenal thing to see in the results that we saw in the fourth quarter really are a great credit to their and our entire amphenol organization's dedication.

And with that operator, we'd be very happy to take any questions that you may have.

Thank you that question and answer period will now begin please limit to one question per caller. Our first question is from Amit Gary at me.

With Evercore you May go ahead.

Thanks for taking my question.

Yes.

Adam as I think about the demand.

You're seeing obviously.

Some worry out there that you might be always shipping, which is end demand to some degree if I think about <unk>.

24% growth in December you guided implying a very healthy 14.

Some go to market if you compare that to me are difficult.

Any perspective, you havent done the growth that you see.

If it's truly end demand.

Inventory build happening at the customer level, and then maybe as a way to think about this is going to be a growth vectors direct which is the channel that would be helpful too.

Yes, well, thanks, so much Amit and happy new year.

Look we don't have perfect visibility into as you know our OEM customers in there and their warehouses and how much inventory, they're holding but there is no doubt about it that across the electronics industry and I guess across really all industries.

Customers have probably gotten a little more gun shy because of supply chain challenges at the same time I can tell you. There is robust demand and I think if you take a market like the automotive industry as one example.

To go out and buy a car today, it's not an easy thing I know Craig.

Went out and recently bought a car and he shared with me that there was nothing to buy.

The choices that one has when one is really willing and ready to go out and buy something is just not there still today and so whether whether there is a mismatch of components that ultimately is creating difficult deeper end customers to ship things and that can create some challenges across their supply chain.

It may very well be but the end demand by end consumers for things like cars for things like semiconductors for things like high speed data.

This end demand still seems relatively robust.

As it relates to the channel.

As you know very well distribution represents for US I think this year. It was about 17 or so percent of our sales, which was a little tick up from years past when it was 15% 16%.

Very strong demand from distribution through the course of the year.

And I wouldn't say that we've seen any inventory build to the contrary I would say that probably inventories are a little bit lighter inside distribution, reflecting the strength of the pull through of demand.

Does that mean here going into the first quarter.

No doubt about it there remains a lot of volatility there remain a lot of supply chain challenges.

But I'm sure that whatever comes along our team is going to be very agile and nimble to jump on any opportunities to ship products like we were in the fourth quarter.

Thank you. The next question is from Matt Sheerin with Stifel. You May go ahead.

Yes, Thank you and good afternoon.

I just wanted to talk about.

The upside that you saw across several end markets.

Time, when a lot of your peers are even missing numbers or youre talking about.

Peak revenue opportunities that they missed as a result, and im wondering whether <unk> unique operating model when you've got many operating units running on their own does that put you added advantage in a market like this and then just as a follow up regarding your inventory reduction.

Are you expecting to build in some markets because of the supply chain issues.

Well, Matt. Thank you very much I mean this is a question that is very close to my heart.

The simple answer to your question is yes, we do believe that our unique operating model Cree.

Creating the three operating divisions of the company and the purpose of this is to ensure the long term scalability of that unique operating model, making sure that every one of our 130 general managers around the world.

As reports to somebody who has the bandwidth to support them in every way that we need to drive collaboration to stimulate them to exceed beyond levels that they that they ever thought they could do and that is really the magic of the amphenol operating model when I joined the company 23 years ago, we were just.

Some general managers reporting to our then CEO Martin Lafleur.

And it was when we were about to reach $2 billion in sales that we created the first concept of a grouping of those general managers again to ensure that appropriate span of control of the appropriate attention in the stimulation of all of the value that comes from inside the company and that group model. We eventually became seven operating groups.

And as we have evolved it became very clear that to continue fostering that unique operating model, we needed to create more operating groups and I can't have 12 of them reporting to me and that's why we create now this concept of the divisions, but at the end of the day all of our jobs is to enable those 130 general manager.

Around the world because that is ultimately what makes this company special and why we're able to succeed in really good times and bad and in particular in volatile times like today in terms of inventory.

I think we're very proud of the work of our team and actually reducing our inventory in the fourth quarter, even with a 7% sequential increase in sales and bringing our inventory days basically to a normal level at the end of the year in a time period, where there's so much supply chain chaos.

And you can imagine in the first quarter that maybe it would go up with the sequential sales.

That we have guided but this is a phenomenal reflection of the fact that these 130 general managers theyre not just responsible for sales. They are not just responsible for gross margin they're responsible for the entirety of their businesses every line item of the P&L every line item of the cash flow every line item of the ban.

<unk> sheath and that allows them to really perform in challenging times like today.

Thank you. Our next question is from stomach Chatterji with Jpmorgan you May go ahead.

Okay.

Hi, Thanks for taking my question I guess.

I'm looking back and you typically also provided some color on the full year expectations in Boston.

<unk> you.

Maybe if you can comment on the thinking behind not providing a full year guide.

If you can share how you're thinking about the sustainability of the growth rate that you have in <unk> through the remainder of the yield and any thoughts on margins just to give us some guide points about how to think about the yield.

I mean look at it very simply put we remain in a once in a century global pandemic.

We are here live in Connecticut, where we've just gone through the omicron wave that omicron wave is probably going to other places around the world, including places in which we manufacture products and it doesn't seem prudent at this point to try to get out ahead of our skis on guessing where a pandemic is going to strike and could potentially.

Impact.

<unk>.

Our customers anywhere in the world.

In such an environment, we don't think it's prudent to give guidance beyond the.

The quarter that we've given and that includes guidance on margins on sales by market and all the other aspects.

Thank you. The next question is from will Stein with Truest Securities You May go ahead.

Great. Thanks for taking my question Congrats on the very good results and outlook I have a question about the new segment operating structure that you highlighted.

Adam.

Several years ago, you sort of.

Forecasted this to some degree you said that at some point you might need to add a new layer of management. So now we're seeing it.

The question I have is about how this compares to the current organization and in particular, the current end markets, where we still have the same end market disclosure.

At least on the earnings call and will those in fact roll up to segments. So that we can use one to forecast the other or are these sort of orthogonal constant revenue.

And maybe along with that.

Management perspective.

Remind us did the end markets have business leaders, one end market or is that just is the end market discussion.

Understanding and analysis of not the way the company is managed internally sorry for that compound question, but thank you.

Well number one you have a memory like a steel trap as always and number two I think you essentially answered your question in certain ways here.

Look.

We organize our company not by markets.

So our 130 general managers are each responsible for a certain distinct type of product across the extraordinary array of products that we see in the interconnect as we defined broadly interconnect products from connectors to value add cable assemblies.

Printed circuit assembly is to sensors to antennas and just the tens and tens and tens of thousands.

Of different types of products that we make and ultimately because our general managers are responsible for manufacturing and design and quality and everything.

It is really a product focus that each of them have and as you know we've talked for many years that one of our strategies that had been so successful is the way that we diversify the company as we design products, maybe initially for a customer in a certain market, but then we work very aggressively and collaboratively.

Across the company to proliferate that product across all markets that we can see so an example is high speed products.

<unk> high speed products were developed for it applications for things like core routers and the like but as high speed data starts to proliferate into other areas. For example, a fighter jet now our team in high speed would work collaboratively with the team who is maybe more focused in.

Now, we'll report as reportable segments, they will either sell into multiple of our markets and the markets won't map to the divisions as it were but we will provide disclosure.

On what what markets are in which division, but youre going to end up finding that most of our markets are serviced by.

By all three of those divisions and we'll continue to guide by end market as we have done historically, we will not be guiding by division, but we will be giving similar till we give today financial information revenue income information at.

At the segment level.

And so but nothing will change from a guidance perspective in terms of how we talk about guidance and we're not going to change the transparency that we give to all of you with all of our end markets.

Thank you. The next question is from Mark Delaney with Goldman Sachs. You May go ahead.

Yes, good afternoon, and thanks very much for taking the question I was hoping you could talk a bit about how to think through conversion margins at the EBIT level going forward.

Understandably you mentioned a few headwinds in terms of M&A in supply chain that impacted the fourth quarter on a year over year basis. So I'm curious if you should think of it.

Possibly a better than typical conversion margins. This year as you have more opportunity to offset some of those challenges and systems. So maybe above the historical conversion margin levels for 2022. Thank you.

Yes, Thanks, Mark no no doubt.

Wanted to start with just saying that we really are actually proud of kind of what we achieved here and for the full year 2021, and for the fourth quarter being at 21% and 20% for the full year.

It's really challenging year from a cost and supply chain perspective, the team really did a I think outstanding job of kind of navigating that as the year really continued to progressively get worse in regards to just the underlying costs.

With that the organization was seeing and to be able to kind of navigate that through pricing and other actions I think the team did a pretty outstanding job of doing that which ultimately resulted in the results. We have today as we look into the fourth to the first quarter kind of implied in our guidance I know we don't per se.

Talk about our guide to specific EBIT.

EBIT numbers, but.

Our implied guidance would reflect actually some level of.

Progress made in the first quarter in regards to pricing and other actions.

So that so you could see that really is kind of the sequential conversion typically on a.

Lower revenue level, especially going from Q4 to Q1, where we have high single digit 10% sequential reduction in revenue, we would see typically kind of high twenty's, even 30% kind of negative conversions and an implied guide there is closer to the kind of mid twenties <unk>.

Sequential conversion thats, even including some some negative impact from a conversion perspective related to Halo in regards to take as they are around our company average, but that does certainly bring with normal conversion level. So so I think from that perspective, we are seeing some positive momentum.

We move into the first quarter and I don't think ill talk past the first quarter at this point obviously the team continues to work hard at improving the bottom line and kind of we'll see what happens with the underlying environment.

As well, but I am confident as we saw in 2021 that the team has done a good job and we'll continue to I think a very good job of navigating this very difficult environment.

Thank you. The next question is from <unk> Mohan with Bank of America. You May go ahead.

Hi, yes. Thank you.

Adam Craig you, both mentioned commodity logic and logistics cost several times.

And you noted that youre, taking ongoing price actions.

When do you expect these actions to fully offset I guess, Craig mentioned, partly in <unk>, you are making progress but.

If these costs stayed relatively fixed let's say.

Given the price actions that you've taken across your portfolio. When should we think that you will be able to mitigate the entire amount and secondarily would you say that these pricing actions that you've taken are broad based across the entire portfolio are there areas like auto, which typically takes longer to have price discussion.

The planned price increases filter through.

Sort of behind the curve.

And maybe if you could just characterize Adam like 1% of the portfolio maybe have seen price increases. Thank you.

Okay. Thanks, a lot I think in regards to when our pricing actions could fully offset I mean, this is kind of a theoretical question because it's difficult to say ultimately what's going to happen to underlying environment I think to assume that the underlying environment is going to stay exactly where it is today.

As a little bit unrealistic, so whether or not it gets better gets worse, but I could tell you that again as I mentioned a minute ago that the team is doing.

Well good job and we are starting to see progress here in the first quarter.

So I'm not really sure I can tell you exactly when that would be but I would tell you that we are confident that based on some of the progress. We are starting to make here in the first quarter that were starting to make some headway on it.

Given the current environment, but we're sitting here again.

Continuing into a pandemic continue into <unk>.

Economic environment, that's a bit uncertain. So for me to kind of try to predict when we're going to completely offset the current cost environment is just not something that I guess I prepared to do and then just wanted a relative to our pricing strategy.

<unk>.

Every customer every market every region every circumstance is different pricing is an art, it's not a science.

You can bet that every one of our 130 general managers has this at the forefront of their mind, we also know that.

There are some markets, where it's easier to raise price for example in distribution you just sort of announce a price list increase.

There are others, where its more challenging and where you have maybe longer term contracts or where there's just not a.

People are not accustomed to the concept and so theres, a real process of educating customers of being transparent with them and ultimately bring them around to the understanding that what you are talking to them about as reasonable and especially that it is reasonable in light of your company's steadfast support for them, which is something where I think.

We stand on very solid ground, we were there for our customers through the pandemic, we were there for them when maybe others, we're not through the supply chain crisis and so.

All things being equal should position us well to be able to ask nicely of our customers.

<unk>.

With.

To give you a percent of all where we've been able to achieve pricing I couldnt. Even do it you know we don't have one computer system that can sort of push a button and split that out but I think we're having increasing success Craig alluded to that as well. It is a hard job. It's a job that is ultimately the responsibility of our general managers.

Who are best positioned to know what costs are going up and then who themselves sit in front of the customers and have those very difficult negotiations I think we're going to continue to make good progress over the course of this year. When ultimately we fully offset of this Craig said is a theoretical question that's not so easy for us to answer.

Thank you. The next question is from Nick Todorov with Longbow Research you May go ahead.

Thanks, I appreciate it and good afternoon guys.

Sorry, another pricing question, maybe for Greg Greg is there a way to break for us the headwind from supply chain versus M&A in 2021, because 2021 was pretty busy for you from an M&A perspective for you.

Yeah, I mean, I would say that if you look at our overall conversion for 2021, it was probably actually pretty close to what our target is on an organic basis.

That's because we had some benefit from some pandemic costs offset by some supply chain related costs, and then kind of the difference.

Is it related to our acquisitions, which which did bring with them at least currently a lower operating margin, which overtime. We believe that we should be able to get out to the company average. So I think that's the way to think about it I think that.

We're very proud of the ability to really actually Adam alluded to our two year increase in revenue over it's kind of through through a pandemic and their supply chain call crisis.

Of over 32% and the reality is is actually our EPS our earnings actually increased by that roughly that same amount and will be even higher than that slightly so.

That typically we want to have a slightly higher EPS increase and I think that given the fact that we've done a really good job of kind of offsetting some of these costs I think ultimately we.

We were able to really continue to increase our earnings over that two year period.

At a rate that is slightly under that we would have hoped from an organic perspective, but actually very I think respectable and very actually I'm very proud of considering all the costs that existed over the last couple of years here.

Thank you. The next question is from Steven Fox with Fox Advisors, You May go ahead.

Thanks, Good afternoon.

I guess I was just wondering respectfully looking at the last few quarters. The company has.

Look for a moderation in industrial and it Datacom and it's continued to perform a lot better than you guys were thinking.

And now you're sort of coming through the same thing again, I, just stepping back and looking at the past versus going forward is there anything different in your thinking now that youre seeing in the markets or just still trying to be conservative and any other risks you would point out that maybe we should appreciate it. Thanks.

Well, thanks, so much Steve and good afternoon to you and no disrespect at all taken I think its a very good question.

We come into every corridor in this very uncertain and relatively volatile environment.

Try to give you in our entire investor base.

Best assessment that we can give on the basis of what we're hearing from our customers and on the basis of how.

What we're seeing in supply chain and our operations and all of that.

And I think we have outperformed in industrial and I today to come and we were really pleasantly surprised last quarter. I mean, this was a very significant outperformance that we achieved here in the fourth quarter, I think maybe a little bit less outperformance, but still very strong in the third quarter.

Are we going to outperform what we have guided in the first quarter in it datacom in industrial.

I'm not going to say that right now, but you can imagine our team is a very hungry team, who really it takes a real make it happen attitude.

And tries to do everything we can and ultimately there.

<unk> is not just to maximize revenues. So that we can report higher revenues, but their goal is to make sure that we're there for our customers when they need us.

And in particular, where there for market for our customers win when others are not there for them because we believe that these two years have really created an opportunity for us to to.

Our position with customers in a way that we actually weren't able to do prior to this this real crisis over these last two years and so whenever we hear from a customer that they.

They need something desperately because others are not able to get it to them.

We're 130 general managers spring into action with even more vigor and energy than they have before.

And because we see that as something that is able to create a long term platform of sustainable strength with our customers that will create dividends for many years to come.

And so what does that ultimately mean here for the first quarter, we're trying to give the best guidance that we can in light of what we see today and what is still a highly uncertain environment.

But theres no doubt about it that the amphenol team is going to fight hard for every possible opportunity to deliver whatever upside is available to us.

Thank you. The next question is from Luke junk with Baird. You May go ahead.

Good afternoon had a bigger picture question this afternoon Adam.

When it comes to the larger company with sales of course exceeding $10 billion for the first time. This year does that alter your approach to M&A at all either in terms of the companies that you're targeting or your ability to integrate deals of all sizes and I suppose the new segment structure could also play into this.

Basically you've done two fairly large deals now in an eight month window in the form of MTS and Halo does it say something about the future direction of the company or am I, just reading too much into your recent deals.

No look it's a great question.

I think when we talk about scaling the company.

It is really step one but every other aspect of what we do also needs to scale and that includes our M&A program.

And it really interesting over the course of my coming close to quarter of a century that I've been with this company 23 years I started in amphenol as an M&A in turn so I've been deeply involved in our M&A program. All the way back to 90 to 98, and we have said consistently from that from that time that we would expect that.

Over the long term acquisitions would roughly represent about a third of our growth.

And that's been the case, when we were less than $900 million revenue company. When I joined all the way to today. When we are close to an $11 billion revenue company and what is interesting I have referred to these last two years through the cycle and Craig referred to that as well we grew by roughly 32% through that cycle.

Grows either you have to make more acquisitions of the same size or you have to make acquisitions of bigger size and the fact is I think we've done all of the above and so when we look at what we've done here with the MTS acquisition, our first ever public company.

When we look at the acquisition at the end of the year of Halo. You know these are not insignificant sized acquisitions, yes, we didnt defocus ourselves from making also the really unique enabling tuck in acquisitions companies like positronic an L cap.

And euro Micron and cable con.

Like an unlimited services. So we will continue to make acquisitions of all sizes now with the new division alignment. It actually opens even further the aperture of the types of deals that we may be able to execute upon because part of what we're doing is creating the ban.

Within our leadership team such that they can devote more time to things like driving collaboration working with key customers and also making acquisitions and with the size of these divisions. It would make just as easy as we as we bring in a $50 million company with the general manager and we say you are now just part of Amphenol nothing changes.

We can do that with $1 billion company one day, if we if we find the appropriate company and so the range of acquisitions. The scale. The range of the scale of acquisitions that we can make I think is really limitless the opportunity and the resources that we have to devote to executing on those and also making sure that they're successful once we.

Bring them in is also really expanded by by this new alignment and so we see no reason to think amidst this what is still a very highly fragmented market that we participate in that M&A can't continue to be a driver like it has been for already more than two decades, so far.

Thank you. The next question is from Chris Snyder with UBS you May go ahead.

Thank you I just wanted to follow up on the previous commentary around the M&A strategy.

This would be the range of acquisitions widened than maybe the average size pushes higher to kind of achieve that one third growth coming from M&A target.

Are there any impact on the multiples that the company.

Willing to pay or maybe has to pay to go after these larger acquisitions.

Is there any maybe increased challenges or difficulty.

<unk> these larger businesses into the broader amphenol. Thank you.

Thanks, So much Chris I mean look simply put I don't think it does have an impact on the multiple I mean I will just tell you that you take the MTS acquisition as an example, and we announced just.

Last quarter that we closed on the disposition of the test and simulation business. The net multiple that we ended up paying for one of the most precious assets in the industry. Some of the most highest technology sensors that there is was not a double digit multiple.

When all was said and done and I think that is a real testament to our ability to navigate a very challenging and very complex acquisition processed our first ever public company, our first ever concurrent disposition of an asset and in the end, we get a phenomenal organization with some of the best technology.

And the industry Amazing people and we do that in a single digit multiple so I think I think that is a confirmation of the fact that big does not necessarily equal more expensive.

In terms of the integration.

We are never going to relax on the various simple principles that we have always applied to acquisitions large and small we look for three things when we look for acquisitions, we look for great people with great products and great position and it's that first criteria. The great people that is for us the true litmus test of whether we will.

Or will not buy a company and if it does not have those great people. We walk away every day of the week and by having those great people that means that there are people that we can rely upon and we bring them into our organization, especially as its newly aligned and we let them go do their thing and all we do is we opened doors for them for new opportunities that can.

Only come by being part of a company as broad as global and a strong because of amphenol and so we think if anything else if anything.

As we have grown as we've scaled the company. It's added momentum to really what has been a flywheel effect of our acquisition program over many years.

Thank you. The next question is from Joseph Spak with RBC capital markets. You May go ahead.

Hi, Thanks, I wanted to focus on your automotive business for a second you outperformed production by an incredible 40%. This year and I was wondering if you could maybe distill that down into how much you think of that came from from mix and some of the broader trends in automotive versus pursue share gains and maybe re center.

US for what a obviously thats not sustainable at that level, but like what's a more reasonable go forward.

Not in any given period, but over time sort of outgrowth over the coming years, given the trends you see in that segment.

Well, thanks, so much Joe and I hadn't actually done the math, because we don't follow so much.

What is production and what is not production I mean, we care about the applications that these next generation technology applications, but no doubt about it our team did a phenomenal job this year.

And in particular did a phenomenal job in capitalizing on new applications.

And I would just point to something like the electrification trend, where we just had fabulous growth in electrified applications.

Really outperforming and taking more than our fair share of the opportunities in that space.

Always been our long term strategy in automotive, we're not trying to take business out of the pockets of those who have it already.

Not a great approach and automotive, but rather we look for these sort of technological innovations and those new adoptions of electronics and then we aggressively pursue those with our with our agile entrepreneurial team and and I think that that's that's been really successful here in this year.

If I look over the course of kind of the last I would call. It 13 years since I've been CEO , which really it goes back to the low watermark of our automotive business I mean, we've consistently outperformed in automotive, but by a very significant margin kind of year in and year out.

And what does that mean in terms of.

Go forward outperformance.

I have never put numbers on this but we would certainly expect that our team would be able to continue to outperform overall units and what that translates into for content versus share versus new applications.

I'll, let you who has a much bigger expert in this market than me kind of suss out those numbers, but we clearly believe that we can continue to outperform.

Okay.

Thank you. Our next question is from Jim Suva with Citigroup you May go ahead.

Thank you very much as we wrap it up a lot of my questions have been answered I just wanted to ask one about the new segment reporting and kind of your ERP system. Your company has been very well known as being very lean and mean and goodwill controls and folding in everything. So I was just wondering I assume this doesn't.

Meaning like a new ERP system. It doesn't mean, a lot more layers of management earlier in the call you mentioned layers of management or somebody mentioned that im not sure Thats. What you meant as opposed to just more oversight and communication, but can you talk to us about.

P system, because you've done a lot of M&A now youre talking about new reporting and sometimes people wonder about risks there.

Viewed as just providing us more information and not more cost and now the new ERP system. If you could clarify that'd be great. Thank you.

Jim It's a fabulous question and we do appreciate it the answer is a very hard no I mean, we run a 130 ERP systems around the company each of our general managers is responsible for their own ERP systems, Craig has a fabulous and very simple off the shelf consolidation software that works over the web and the fab.

That we now align those businesses into into division does not change our computer system whatsoever, and yes, I mean I think it was.

It was.

Believe will who asked the question alluded to.

Sept of a layer I mean, we have appointed three new presidents of these divisions, which is technically a layer, but it's not a layer of bureaucracy like you would see in many organizations I mean in terms of the cost of doing this.

Nothing at all I mean, that's a very marginal incremental investment because the staff at these divisions. It is effectively ahead of the division with the financial controller by his or her side.

So it's this is not building infrastructure and building layers and bureaucracy far from it it's just creating the bandwidth across our leadership team across what is now 12 group general managers and those those three divisions, whereby the 130 general managers can be enabled we can drive them we can.

Set aggressive goals work with them on solving problems when they're small enough to solve and capitalize on opportunities. When they are small enough and early enough to capitalize on to capture.

And thats been the amphenol style ever since.

It was a general manager just reporting to the CEO and but as we've grown you cannot just have a 130 people reporting to one that doesn't work you lose the benefit of being part of a broader amphenol and then become just a holding company and Thats not what we are we're not at all a holding company in fact, there is a close.

Action close collaboration of synthesis across those 130 entrepreneurial general managers, we have a term for it we call. It a collaborative entrepreneur and that's really when we say in Amphenol and that's that's really what we mean so this is not at all creating new computer systems, new layers, new cost rather it's a.

Enabling and ensuring the scalability of our unique entrepreneurial structure for many many years to come as we past $10 billion year in sales.

Thank you. The next question is from David Kelley with Jefferies. You May go ahead.

Good afternoon, Adam and Craig. Thanks for squeezing me in I was hoping to get some color on recent gross margin trends in.

In light of some of the unique moving part inflation supply chain.

<unk> also done several acquisitions and then longer term.

<unk> been at 32% historically is that the right way to think about core gross margins for the core business.

Yes, Thanks, David.

This margin is always kind of sometimes a difficult thing to you specifically look at with our business I mean over time, maybe it's trending of it is more.

Applicable, but certainly in any quarters, it's kind of difficult just because of the our markets to bring them with them different gross margins and also different operating expense levels and so that's why we really just don't look at gross margins our measure ourselves based on the gross margin level, we really look at kind of an operating margin level I think.

<unk>.

You kind of need to look at is.

Is ultimately that operating margin and that trending over time and certainly over the last 10 years, we've had we've had.

Certainly our strong performance and growth of that operating margin level, and that's kind of what you kind of need to focus on I think.

10050 basis points 100 basis point movement in our gross margin isn't necessarily unexpected given strength in maybe a mobile device market.

Our industrial market, which bring very different gross margins or a sensor business tends to have higher gross margins and higher SG&A. So I really just wouldn't so much focus we do tend to get these questions quite a bit but it's really the operating margins that ultimately we measure ourselves on we drive our performance on an and ultimately I think.

Probably focus more on.

Thank you and our last question comes from Joe Giordano with Cowen You May go ahead.

Hey, guys. Thanks for squeezing me in here, we kind of pick through most I just wanted to.

Touch on the orders I mean, I think everyone understands that there is a pretty good underlying demand across a lot of these.

These markets, but there does seem to be not just with your results, but others like.

Scrambling to order stuff in the fourth quarter like.

As you think about the underlying demand and what the orders look like right now like entering January do you feel like book to Bill goes below one I think at some point over the next couple of quarters and no. We're not doing full year guidance, but just can you kind of compare orders to underlying demand.

Yes, I think so we're it's hard for us to give a prognosis on what our book to Bill is going to be we had a very strong book to bill in the year. We finished with a strong book to Bill. It is clear that our customers want to give us orders what that book to Bill will be going forward is actually really hard to predict.

Well.

Greater I think if thats all of our questions.

<unk>.

We.

Like to just extend my appreciation to everybody on the phone here for spending your precious time with US I wish you all the best as you start the year and most importantly, just hope that all of you are able to stay safe and healthy and we look forward to hearing from you.

Again in just 90 days, thanks, so much and happy new year again, Thank you everybody bye bye.

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

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