Q1 2022 Amphenol Corp Earnings Call
Hello, and welcome to the first 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.
Request of the company today's conference is being recorded.
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.
Good afternoon, everyone. This is Craig Lampo, Amphenol, CFO and I'm here together with Adam Norway to our CEO .
We would like to welcome you to our first quarter 2022 conference call.
Our first quarter results were released this morning, I will provide some financial commentary and then Adam will give an overview of the business and current trends then we will take questions.
As a reminder, during the call we may refer to certain non-GAAP financial measures and make certain forward looking statements. So please refer to the relevant disclosures in our press release for further information.
In addition, as previously announced effective January one 2022, we aligned our businesses into three new reportable segments effective for the first quarter of 2022, we are reporting results for these new segments as well as the relevant comparable historical financial data.
The company closed the first quarter with sales of $2.952 billion and GAAP and adjusted diluted EPS of <unk> 68, and 67 cents respectively.
First quarter sales were up 24% in U S dollars, 25% in local currencies and 17% organic Ganic Lee compared to the first quarter of 2021.
The significant sales increase was driven by double digit organic growth in the I T data communications commercial air industrial automotive and broadband markets as well as contributions from the company's acquisition program.
Sequentially sales were down by just 2% in U S dollars and in local currencies and down 4% organically.
Adam will comment further on trends by market in a few minutes.
Orders for the quarter were a record $3 billion $441 million, which is up 26% compared to the first quarter of 2021 and up 5% sequentially, resulting in a strong book to bill ratio of one 107 to one.
GAAP and adjusted operating income was $590 million in the first quarter.
And operating margin was a strong 20% in the first quarter of 2022, which increased by 40 basis points compared to the prior year quarter.
Sequentially adjusted operating margins declined by only 10 basis points, which is significantly better than we typically see in the first quarter.
The year over year increase in operating margin was primarily driven by normal operating leverage on higher sales volumes as well as the benefit of ongoing pricing actions.
These benefits were partially offset by the impact of a more challenging commodity and supply chain environment together with a slight margin dilution of the acquisitions completed over the past year.
On a sequential basis, the slight decrease in adjusted operating margin.
It's a normal conversion on the lower sales volumes slightly offset by the benefit of ongoing pricing actions, which became effective in the quarter.
Given the dynamic overall cost and supply chain environment. We are very proud of the company's operating performance our teams ability to effectively manage through the myriad of challenges around the world as a direct result of the strength of the Companys entrepreneurial culture, which continues to foster a high performance action oriented manner.
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GAAP diluted EPS was <unk> 68 cents in the first quarter, an increase of 28% compared to 53 cents in the prior year period, and adjusted diluted EPS was <unk> 67 cents, an increase of 29% compared to the 52 cents in the first quarter of 2021.
This was an excellent result, especially considering the significant costs supply chain and other operational challenges the company continued to face during the quarter.
The company's GAAP effective tax rate for the first quarter. It was 23, 8% and the adjusted effective tax rate was 24, 5%, which compared to 23, 9% and 24, 5% in the first quarter of 2021, respectively.
Bringing down first quarter results into our three new segments.
Relative to the first quarter of 2021 sales in the harsh environment solutions segment were $728 million and increased 16% in U S dollars and organically.
Operating margins in the quarter for the segment was 25, 2%.
Sales in the communications solutions segment was $3 billion or.
Alright, $1.320 billion and increased 28% in U S dollars and 21% organically.
Operating margin in the quarter for the segment was 21, 4%.
Sales in our interconnect and sensor systems segment.
$904 million and increased 25% in U S dollars and 13% organically and operating margin in the quarter for the segment was 17, 7%.
Operating cash flow in the first quarter was $351 million or 83% of adjusted net income.
Net of capital spending our free cash flow was $274 million or 65% of adjusted net income.
Cash flow in the quarter was a bit lower than we would normally expect even though it is typically a weaker first quarter, primarily due to a higher than normal increase in inventory level levels driven by the continued challenging supply chain environment.
From a working capital standpoint days sales outstanding.
<unk> days were 74, and 57 days, respectively, both within a normal range.
Inventory days were 88, which are slightly elevated due to the normal Q1 seasonality as well as the challenging supply chain reasons just mentioned.
Our management teams are focused on reducing these inventory levels, although given the challenging environment. This may take a couple of quarters.
During the quarter the company repurchased two 6 million shares of common stock at an average price of $78 and when combined with our normal quarterly dividend total capital returned to shareholders in the first quarter of 2022 was more than $320 million.
Total debt at March 31 was $4 9 billion and net debt was $3 $6 billion in total liquidity at the end of the quarter was $2 $9 billion, which included cash and short term investments on hand of $1 $3 billion plus availability under our existing credit facilities.
First quarter 2022, GAAP EBITDA was $699 million and at the end of the first quarter of 2022, our net leverage ratio was one three times.
I will now turn the call over to Adam who will provide some commentary on current market trends.
Well, thank you very much Craig and it's my pleasure to also to welcome everybody here for our first quarter earnings call.
And first and foremost I hope that everybody here today together with your family friends and colleagues are managing to stay safe and healthy as the world comes to some degree of normalcy again I also wanted to just offer our thoughts to the people of Ukraine, who are obviously going through this very difficult time period with the unfortunate war.
We don't have operations in the Ukraine, we do have many employees of Ukrainian descent, and our hearts are clearly with them together with their families and friends.
As Craig mentioned, we wanted to highlight Oh I'm going to highlight some of our first quarter achievements. I'll then spend a few moments to discuss our trends and our progress across our served markets and then finally I'm going to comment on our outlook for the second quarter and of course, we'll then have time for questions at the end.
As Craig mentioned, we drove results in the first quarter that were substantially beyond our original expectations exceeding the high end of our guidance in sales as well as adjusted diluted earnings per share sale.
Sales grew a very strong 24% in U S dollars 20, and 25% in local currencies, reaching 2.952 billion and.
And on an organic sale on an organic basis, our sales increased by 17% with growth across nearly all of our end markets and that was driven particularly by double digit growth in the it datacom commercial air industrial automotive and broadband markets and I'll talk about each of those in a few moments.
The company booked a record $3 billion $441 million in orders in the first quarter and this represented another very strong book to build this time $1 17 to one.
And despite continuing to face substantial inflationary pressures and supply chain disruptions are operating margins reached 20.0% in the quarter, which was a 40 basis point increase from last year's levels. We're very encouraged by the strong profitability performance for the company and we see that as a clear sign.
And that our local management teams are successfully managing through this challenging cost environment.
Diluted EPS in the quarter grew a robust 29% from prior year to 67 again, an excellent reflection of our continued strong execution.
The company also generated strong operating and free cash flow in the quarter of 351 and $274 million and that's despite all of the challenges that Craig alluded to and again another clear reflection of the high quality of the company's earnings.
I'm, just very proud of our team this quarter.
These results once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well in a very dynamic and challenging environment.
Now turning to our end markets I would just comment.
We continue to be very pleased that our end market exposure remains highly diversified balanced and broad and in particular amidst these very dynamic times. This market diversification continues to create great value for amphenol.
Now starting with our military market represented 10% of our sales in the quarter sales grew by seven 7% from prior year and were up 1% organically with growth in space and avionics applications somewhat offset by moderations in our sales onto Uavs naval and military vehicles.
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Sequentially, our sales decreased by 2%, which was just a hair below our expectations coming into the quarter.
And looking out into the second quarter, we expect sales in the defense market to increase modestly from these first quarter levels.
We continue to be very pleased with the strength of the companys position in the defense market.
A market that has renewed importance given the current geopolitical environment 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 military programs. This gives us great confidence for our long term performance.
The commercial air market represented 3% of our sales in the quarter and sales in commercial air increased by a strong 42% from prior year and 28% organically as we benefited from the continued recovery in global aircraft production.
Sequentially, our sales grew by a better than expected, 8% from the fourth quarter.
And as we look into the second quarter, while we do expect a sequential moderation of sales compared to these first quarter levels, we anticipate another quarter of year over year growth in commercial air.
After two very challenging years in the air travel industry.
We're encouraged by the strengthening of our calm air business as personal and business travel continues to recover we look forward to benefiting from the company is strong interconnect and sensor technology position across a wide array of aircraft platforms as well as the next generation systems that are integrated into those planes.
The industrial.
Real market represented 25% of our sales in the quarter and we drove another quarter of excellent performance in the industrial market sale.
Sales grew 31% in U S dollars and 20% organically and this was driven by robust growth across most of the segments within the industrial market, but we did see particular strength in battery and electric heavy vehicle applications factor automation and oil and gas.
As well as the benefits of several of the acquisitions that we've done over the last year.
On a sequential basis sales were down just 1% from the fourth quarter, which was better than our expectations coming into this quarter.
Looking into the second quarter, we expect sales in the industrial market to increase moderately from current levels.
So this first quarter confirm once again that 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 offering both organically and through complementary acquisitions has positioned us well 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 20% of our sales in the quarter and sales grew by 17% in U S dollars and organically.
With our growth driven once again by the strength of our sales into electric and hybrid electric vehicle applications.
Sequentially sales increased by 5% from the first fourth quarter, which is actually much better than our expectations of a high single digit decline and this just reflects strong execution by our team working in the automotive market.
For the second quarter, we expect a modest sequential decline in sales as customers manage through a wide array of supply chain challenges in the global automotive market.
I remain extremely proud of our team working across the automotive market. They continue to manage through a difficult supply chain environment. All while remaining laser focused on driving new design wins with customers, who are implementing a wide array of new technologies into their vehicle platforms. Our continued outperformance is a dearth.
Direct result of that team's excellent efforts.
The mobile devices market represented 10% of our sales in the quarter sales increased by 7% from prior year with strength in tablets smartphones and wearables as well as laptops.
Sequentially. Our sales decline was was less than we had expected declining 27% from the fourth quarter.
As we look into the second quarter, we now anticipate a low double digit sequential sales decline from these levels driven by typical seasonality as well as by some impact from the recent COVID-19 related shutdowns that have been occurring and continue to occur in China.
There's no question that mobile devices remains our most volatile of end markets.
Les are outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2020 , two and beyond our leading array of antennas interconnect products and mechanisms continues to enable a broad range of next generation mobile devices positioning us well.
For the long term.
The mobile networks market represented 5% of our sales in the first quarter.
In this market grew from prior year by a stronger than expected, 14% in U S dollars and 5% organically as strength from products sold directly to network operators together with the benefit of acquisitions more than offset a moderation of our sales to equipment Oems.
Sequentially, our sales in the first quarter were flat to the levels that we achieved in the fourth quarter.
As we look into the second quarter, we expect a modest decline from these first quarter levels.
We're less we're encouraged to see continued strength in our sales to the mobile networks market.
As operators continue to ramp up their investments in next generation systems. Our team remains focused on realizing the benefits of our efforts to expand our position in next generation five G equipment and networks around the world.
We look forward, especially the benefiting from the increased potential that comes from 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 quarter sales were stronger than expected and it datacom rising by a very robust 41% in U S dollars and 35% organically from prior year.
As our teams capitalized on broad based strength across server and networking applications and in particular, we saw continued robust growth of our sales to web service provider and datacenter operator customers.
We were pleased that sales moderated by just 2% sequentially in the first quarter, which was better than our expectations coming into Q1.
Looking to the second quarter, we expect sales to increase in the mid single digits from these first quarter levels as customer demand continues to grow and it datacom.
We remain encouraged by the company's outstanding position in this important market.
Our OEM and web service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the 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.
The broadband market represented 5% of our sales in the quarter and sales in this market also grew by a very strong 47% from prior year and 12% organically.
As broadband spending levels increased and as we benefited from our recent acquisitions.
On a sequential basis sales increased by a much better than expected, 30% from the fourth quarter and we're pleased in particular to start to see some progress in and pricing actions across this market.
In the second quarter, we expect sales to the broadband market to increase modestly from these levels and we look forward to continuing to support our broadband service provider customers around the world with our expanded range of high technology products.
As our customers increase the bandwidth and capacity of their networks to support the expansion of high speed data applications to both homes and businesses or products have become even more critical.
Now turning to our outlook.
For the second quarter.
The current market environment remains highly uncertain with ongoing supply chain and inflationary challenges being in many ways exacerbated by both the war in Ukraine as well as the continued impact of the pandemic, which is causing shutdowns in certain geographies, most notably in China.
Assuming conditions did not meaningfully worse than and also assuming of course constant exchange rates for the second quarter. We expect sales in the range of $2 billion $890 million to $2.950 billion and adjusted diluted EPS in the range of 66.
68 cents.
These these expectations would represent strong sales growth of 9% to 11% and adjusted diluted EPS growth of 8% to 11% versus the second quarter of last year.
I just have to say that I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges that are still present in the marketplace and to continue to grow our market position, while expanding the company's profitability in.
In addition, our 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 I'd just like to take this opportunity at the end here to thank all of those employees more than 90000 of them around the world the entire amphenol team for their truly outstanding efforts here in the first quarter and with that operator, we'd be very happy to take any questions that they may that there may be.
Thank you that question and answer period will now begin please limit to one question per caller I first question is from Amit.
With Evercore you May go ahead.
Yeah.
Thank you and good afternoon, everyone.
Thank you so much.
My question is really around.
Out of you would just elaborate on what all the impacts you've seen out of the China Lockdown.
So one is how are you thinking about that in fact, New York supply demand environment coming out of China.
Do you think this is resulting in customers, perhaps deciding to hold onto more inventory for longer working is trying to get back to just in time model.
That's the discussions you have with your customers.
Amit. Thank you very much for the question I.
I mean look relative to our own supply and demand. There is no doubt about it that our team is navigating lots of things in China.
I just have to take a moment to to really reflect on how extraordinary they have managed through the first quarter. Because you know some of these these disruptions they already had started well and into the first quarter and the fact that our team was able to drive the results that they did across the board and including in.
<unk> is a real testament to the reactivity of the agility the fortitude of our team there because you know these lockdowns are are really quite quite something we have employees, who are sort of locked in their apartments in Shanghai for four or five weeks.
We have factories that have had to operate and bubbles and things like this and it's just extraordinary how how the team has managed through this but no doubt about it I mean, we see some impact it's not a massive impact here in the quarter, but there is some impact here.
Here in the quarter and I, specifically talked about the impact that we see in mobile devices, which is the one market that has the highest exposure to China. So it wouldnt shouldnt be surprising that thats, one where there's maybe a little more magnitude of impact both with customers and their demand and the supply chain and our own abilities to reach really full.
Levels of production.
But our team is doing a fabulous job and I think that you know they will manage through this and I'm very confident that China as a country is going to manage through this.
No question in my mind relative to customers holding more inventory.
I think that whole concept of just in time.
Has in many ways over the last two years being a little bit replaced by you know two clinically say just in case and no doubt we have customers who are looking at lots of ways to balance risk in their supply chain I think their first choice is not just to put inventory on the shelves, but rather.
Other to look to their supplier partners companies like us and say what can we do to create diversification into supply base such that they don't have all their eggs in one basket and no doubt we've done a lot of work over these couple of years through the pandemic through the supply chain crisis through the logistics crisis, whatever that may be too.
It makes it to demonstrate to our customers and ultimately to deliver to our customers.
Kind of a multiplicity of options of supply, thereby minimized the risk, but beyond that our customers kind of opening up their order window, a little more I think we would say, yes, our customers, putting a little more inventory on the shelf there I can only speak with anecdotal evidence because we don't have great visibility into.
And to the into the warehouses and the inventory levels of our of our OEM our service provider customers. The one where we do have visibility, which is our distribution channel I would actually say that inventory levels. There are even a little low in many of the many of the relationships that we have and certainly not at levels that.
One would think are reflective of of some sort of risk aversion. So I think customers are doing a lot of things here.
Is the odd customer carrying a little bit more inventory. It wouldn't surprise me if that were the case.
Thank you. The next question is from Mark Delaney with Goldman Sachs. You May go ahead.
Yes, good afternoon, and thank you very much for taking the question, which is about the M&A landscape.
I'm curious to what extent, you're seeing any increased willingness of companies to be acquired are financial markets alright, good absolute levels, but you've seen some pullback recently in valuations that Curt curious if more companies are perhaps willing to be open to an acquisition you could you could you also speak to ethanol willingness to do larger acquisitions.
You've done a few larger ones of late including Halo in MTS and wondering who do you think you need to spend some time digesting those or would you be willing to do a larger acquisition if the opportunity presented itself. Thank you.
Yes, Mark. Thanks. Thanks, so much I mean look I don't know that we've seen any meaningful difference in the M&A environment I would tell you. The M&A environment is very robust our pipeline is as strong as ever.
As you know over the last two and a half years, we closed on a large number of deals.
Including last year.
Extraordinary progress that we've made in our M&A program with very significant deals like MTS and at the end of the year Halo as well as a number of wonderful tuck in companies tuck in deals that ultimately strengthen our position across a wide array of of our end markets and I think that we continue to see.
See among companies that we talk to.
No if it's a general willingness increased willingness, but but our reputation is.
A wonderful home for their companies that continues to strengthen over time and so there is no doubt about it that our phone continues to ring, we continue to to to create that sort of organic pipeline of acquisitions and I know I'm.
Not a week goes by where Craig and I don't hear of some new company that we had never heard of at the same time, you know we have very high standards and so to the to the to the point that you know if companies are kind of coming out of the woodwork.
We're not just saying, yes to every one of these we hold very very high standards around our acquisition program and that includes looking for great people with great products, we have complementary market position.
That is never going to be something that we compromise and nor do we ever compromise on valuation because at the end of the day, whether the stock market is higher than the stock market is low we pay fair value for great companies and we pay a value that is really based on what they have delivered and not what the company can become as part of Amphenol in terms of.
Our willingness to do larger deals I would just let our history speak almost for itself here I mean for sure. We have we have the wherewithal to do an enormous number of deals and that includes deals large and small I would say that the evolution of our organization one of the benefits of that is really also opening up the bandwidth across.
The company, so that we have capacity to either do more deals or bigger deals.
Both of which we kind of Arithmetically you need to do if we want acquisitions to continue to represent roughly a third of our growth over the long term, which is what we continue to target.
So I think the M&A landscape remains a very positive driver for Amphenol and I think the strategy of complementing our superior organic growth without an excellent companies is something that has created enormous value for the company in the past and we'll continue to do so going forward.
Thank you. The next question is from <unk> <unk> with Jpmorgan you May go ahead.
Hello.
This is my movement beat on plus we'll make that as you. Thanks for taking my question.
Just wanted to ask like the VEB would thinking and B some of the investors, who we're talking to like you we would expecting them to have a higher than our hyatt headwinds in terms of margins.
Compared to your peers, but you have but you, but they go there's always would a little contrary to that with better a better operating margin cynthia's, both with current quarter as well as for the next quarter. So is there a lag of the expectations what they do to the decentralized V. A functioning dose and the latest hedging activity was less than.
So what exactly is things that we are missing here is this entirely due to better success of it but I usually increases or some other dynamics here at work.
Yeah, Yeah. Thanks, a lot I appreciate the question I mean, we talked about this a little bit coming into the quarter.
In January .
We certainly saw some pressures from the cost environment as everybody has and I think we did a great job in 2021, you know really protecting against that through pricing and then certainly other actions as well and we talked about in the fourth quarter, where our margins were a bit lower that we did expect coming into the first quarter.
Improvement and profitability is as we've kind of reflected in our guidance and in our implied guidance that our profitability improved from the pricing actions starting to take hold and that's exactly what we saw I think the team has done a fabulous job of it.
And sharing that they were they were taking the actions they needed to where there is no doubt we're in an inflationary environment and Theres a lot of difficult conversations that we're having with customers on a frequent basis. This isn't something that's happening you know.
Just one annually anymore. This is something that's happening on a probably a monthly basis or maybe even sometimes more frequent than that as we continue to see costs rise and I think the team's done a great job of that we don't do any hedging we don't talk up hedging is something that we typically don't do other than maybe FX hedging and things of that nature, but certainly as it relates to.
The costs, we don't do any of that so that certainly has no impact on you know on our margins, but certainly the pricing actions we've taken.
Our customers are starting to take hold here in the first quarter, we're expecting that to continue into the second quarter as it is there in our implied guidance of our margins continuing to improve a bit here into the second quarter and I'm certainly we're all proud of the team I mean, the inflationary environment has gotten worse here in the first quarter and we certainly don't expect it to get any better in the second quarter.
So the ability of our team to continue to protect them not only protect our margins, but certainly to expand the margins a bit and started.
Basically offset more than offset some of the cost environment is certainly a great to see and what we're going to continue to work hard to do the same thing as the inflationary environment continues.
Thank you next question is from Steven Fox with Fox Advisors, You May go ahead.
Hi, Good afternoon, I was wondering if you could drill down a little more into the it Datacom segment.
You know as I mentioned before it's it keeps surprising to the upside for you guys I'm curious like when you what you're seeing during the quarter from both a market standpoint, and then a content standpoint, whether we're missing the boat maybe on market shares or just better content of certain interconnect products or is it all related to.
Spending coming in better than anything I mean, any color there would be helpful. Thanks.
Thanks, Steve so much and Steve you'll never missing any bought so I wouldn't say that.
Look we're just our datacom business and the operations within Amphenol or serving that end market have just done a phenomenal job over the last two years on several fronts number one it's developing the products that our customers need and I think the innovation in this.
Market is so critical because our customers are under enormous pressure.
Normal pressure to satisfy this kind of unquenchable thirst among consumers for bandwidth.
And at the other side, the kind of unquenchable thirst for power that these data centers create and so where we've seen the real innovations is happening around high speed interconnect.
Across the board as well as in the power interconnect that goes to drive the efficiency of these systems in a way that ultimately these data centers don't become such such hogs of energy.
And I think on both of those fronts. We just continue to see this immutable March forward and drive for customers to really push the limits of technology, and that's something where our engineers are just really excelling.
Whether it's designing the latest high speed interconnects, such that we can stretch the ability of copper interconnect far beyond what people ever thought was possible and thereby saving both cost as well as power consumption and the design resources of our customers.
To designing really complex power interconnects.
That ultimately reduce the power consumption of these data centers and make them more efficient.
Theres a lot of work going on there.
At the same time.
Coupled with those great products has been our consistent and I will say really consistent through this whole cycle the pandemic ability.
The ability to satisfy the needs of our customers, even when those needs change dramatically in a moment's notice and that responsiveness and the fact that we never let our customers down while others were consistently letting them down.
Has meant that our customers come to us more and more and give to us maybe a disproportionate share of their needs because they know that we're there for them when they need us the most.
Remember so clearly.
In the second quarter of 2020 going all the way back to kind of at the beginning of the pandemic when everybody started going onto to video calls and video meetings and the bandwidth just kind of exploded and people were watching over the top video at home Netflix and other things like that and in our customers came to us with with not just marginal.
<unk> and demand, but multiples of increase of demand and we just figured out a way to make it happen and that's the entrepreneurial reactivity of Amphenol that we've talked about so often and I think the customers are 90, Datacom had been real beneficiaries of that and we've been recognized by our customers not just with more share but with in a more supplier awards.
And I can remember in my entire career over this time period recognition from those customers, both Oems and service providers.
That amphenol really really differentiated ourselves in terms of our reactivity and our reactions.
What's that market going to be going forward I think the demand for bandwidth does not seem too to abate or are we always going to grow by 35% organically in the quarter.
Don't know that I would go out and commit to that but I think our team has done a great job positioning is positioning us to outperform for for a long time to come.
Thank you next question is from Nick Todorov with Longbow Research you May go ahead.
Yes, good afternoon, everyone and thanks, Thanks for taking the question Adam I think you mentioned that you're starting to see some progress on pricing in the broadband market I know that has been one of the most difficult one to get the pricing true can you. Please help us unpack there a little bit what is causing that change and what are you able to do in terms.
Offsetting the impact of inflation that youre seeing there and maybe generally across the business.
Yeah, Nick Thanks, so much for the question I did make that mentioned and we think there's some portion of our organic growth certainly not the totality, but some portion is a credit to our teams long term and very challenging efforts on pricing I mean, the thing about our traditional broadband business. As you know is it has a very high material content.
But it Hasnt always had a very rational competitive landscape.
And so I think what we're starting to see now is the severity of the inflation has really woken up the other participants in the market that there needs to be some reasonable sharing of that inflation with customers and we've always been at the forefront of that I've said for many many years that we don't let the sunset on on a pricing action.
And from our peers in order to match that and to keep up with these inflationary pressures and I think we've taken maybe even more of a leadership position over the course of the last year or so and we're pleased to see some signs of maybe a little bit more discipline in that market that didn't traditionally have as much discipline.
And it is a market where inflation has a disproportionate impact because of the higher material content, the raw material content things like plastics and metals and the like.
And so we're hopeful it's it's certainly not.
Fully told story here, but we're encouraged to start to see a little bit more progress in pricing.
In that market.
Thank you next question is from Jim Suva with Citigroup you May go ahead.
Thank you very much wallets very sad about the world conflict, that's happening in Russia, and Europe , and such I'm, taking a step back I Wonder are you seeing and having discussions with defense companies.
Companies that are may be doing say electronic radar surveillance smart wear for defense items.
<unk> pick up because with the supply chain issues.
You know it would be tough to simply put in an order and expect it pretty quickly. So I'm wondering if this is kind of a sector that all of a sudden unexpectedly and four sad situations start to see a pretty sharp increase in demand for the defense.
Well. Thank you very much Jim and I would do is the same additives as you that it is a sad situation.
What is happening in Ukraine tragic in many respects, but I would also tell you that we're proud of the role that our company has played Bolton supporting refugees coming from the Ukraine and some of the neighboring countries, where we have operations not only submit supporting the monetary.
But also providing jobs to some I mean this has been a real initiative by by our team to support these people who have really had their livelihoods crushed and at the same time I think we've all witnessed the power of defense and that some.
Some of these new technologies that we've talked about for so many years.
Of real importance in People's lives to keep the country safe in the face of what I think many would consider unreasonable aggression.
So I wouldn't want to comment on specific conversations that we have in the defense industry. You can imagine that that's not something that we would want to do.
But I think we're encouraged for the long term to see that many countries are waking up to the fact that you know maybe the defense budgets should be calibrated a little bit better to the level of threat that may very well exist in the world in order to keep the peace loving people of the world more secure and that.
Can translate into overall spending and it can translate long term into an acceleration of adoption of technologies.
I've talked for a long time about the kind of difference in the defense industry between.
The more tactical defense spending and the more strategic defense spending and I think Jim you've covered us probably as long as anyone and you've heard that before and I think what we're seeing here is no doubt about it a shift a market and relatively rapid shift in it.
The focus of countries, especially those countries in NATO.
<unk> you know an emphasis of strategic defense.
And whenever you start talking about strategic defense you immediately start to talk about technology, you talked about radar you talk about missile defense you talk about all of the things that electronics can do to protect people in their homes and their and their and their sovereign nations and I think Amphenol has played.
A leading role over the years in being an enabler of those kind of next generation electronic defense systems, and so to the extent that this tragic and unfortunate conflict.
Does it does drive an even greater focus among NATO countries.
We certainly said you know as the leader in the military interconnect market in a position to really help help those countries to help the companies that are supporting that initiative.
And really adopting next generation technologies to protect all of the citizens of these sovereign countries.
Thank you next question is from <unk> Mohan.
With Bank of America, you May go ahead.
Yes. Thank you.
I appreciate the new segment disclosures it seems like the operating margins here.
Here are ranging from 17% to 26% based on the segment.
Can you talk about what is driving the dispersion there because in your <unk>.
10-K, you do report.
Most of these are all three of these segments more or less cover all of your end markets are.
Give some color about the products too, but but would love to hear from you Adam but maybe what is it that that's driving that that delta in margins and as you think about M&A is there a propensity to lean towards one versus the other segments. Thank you.
Yes, Thanks, Ross Yeah, I'll take this one at least the first part of it yeah.
Certainly you're right, we have Oh, there's a range and margins of our segments. I mean, I don't think that's so surprising I mean, we have 130, new businesses and you can't imagine that some of them are above the company average and some of them are certainly below the company average and in our businesses or <unk>.
Typically you know based.
Based on product technologies that they have application across many different markets. I mean, you know, we're very diversified and from market perspective, and one of the things. We tried to do for all of our businesses is to apply our products amongst those proliferate our products amongst all the markets in which they have the you know they they can add value in them.
And that's I think has been a strength of the company and certainly has driven growth over the years. So you know that that's the same as our segments. We didn't you know our segments are in a market focused segments or segments or product focused segments for the most part that does serve many different markets. So so certainly theres no.
Correlation from a market perspective, I guess, the only thing I would mention is that there is no in our communication solutions market. There is the broadband and mobile device markets are typically.
The vast majority of those markets are served by by that segment, but other than those of the rest of the six segments effectively are our broad based amongst all of all of our segments and as it relates to margin as I mentioned that some operations or above in some of the rollout I don't think there's really much to draw from in.
Ms of the.
The profitability from a again from a market or necessarily from a specific business perspective, I think that when I think about this segments clearly over time, we have we spend a lot of time on on the businesses that have a lower profitability, including certainly acquisitions on that.
Interconnect and sensor just sorry sensor systems segment has.
A couple more acquisitions recent acquisitions, and it's specifically MTS, which did drive actually year over year reduction kind of in the margin in that particular business. So as you can imagine we're working as we talked about with those businesses to drive up the profitability over time, but.
But I think that.
We don't have margin or conversion margin targets by segment, but we certainly do and the overall company level that Hasnt changed and we talk about 25% conversion margin as you can imagine the higher profitability businesses are going to convert possibly a little bit higher.
And then the lower profitability businesses, but but ultimately our goal is to drive profitability up as all of our businesses and ultimately all of our segments overtime, but I wouldn't necessarily point out anything specific that's driving you know that's significant margin differences other than that's kind of how the businesses ultimately were segmented for management reporting purpose.
Yeah and relative to your question on M&A Onesie.
No question, we have a propensity to look for acquisitions across every one of our markets and across all of our three now segments as we call them.
We're not at all going to kind of direct our resources strategically towards one or another they all of it's an equal opportunity resource.
For all of them.
And to the extent that we find a strong acquisitions with the criteria that I alluded to earlier.
We're very aggressive and happy to make those acquisitions, regardless of which segment it's in.
Thank you. The next question is from Luke Young with Baird. You May go ahead.
Afternoon, and thanks for taking the question Hefei, maybe lets say part backward and forward looking question and specifically Adam I'm wondering if there's any color on bookings or orders in your auto business, specifically you could share. After obviously, a very big increase in that business in 2021 and here in the first quarter as well, but look back a couple of months ago, the 10-K, including some.
Language on the overall business sustaining that the increase in the company's backlog was led to the.
The significant sales increase given the significant sales increase in auto specifically, how should we think about that backlog and the orders relative to to that end market. Thank you.
Yeah, I mean, it's interesting when we look across all of our end markets in terms of our book to Bill we had pretty strong.
Book to Bill across really all of our end markets with the exception of mobile devices, where it's always kind of one to one and I think ive broadband was also relatively relatively flat book to bill, but all the other markets had pretty robust.
Book to Bill.
And I would say you know maybe automotive was even a little below the average but still a strong.
More than more than one book to Bill.
I don't know that I would draw any conclusions about automotive.
In the past performance or the trajectory based on those bookings I think what what I would just highlight again is that.
Our performance in automotive has been really consistently outperforming the end market whatever the end market is and you know lots of people take lots of different cuts what is the end market performance units or whatever it is but but for sure you know our growth in this quarter, where we achieved seven.
10% growth that was on the heels of last quarter, where we grew 18% the quarter before 31% the quarter before that was even this kind of a crazy number of more than 100%.
And I, just think that it's a reflection of the dynamics.
I've talked about earlier than before which is the higher content.
What we see on next generation platforms in particular, we've seen a market increase in the adoption of electrification electrified drivetrains and our team has done a fabulous job to position themselves in that area.
And we're doing that really across the globe really broadly from a geographical perspective, and then all the other new electronic systems that are coming into cars.
Where we're not necessarily taking share from out of one's pocket, but we're maybe getting a little more than our fair share of these new things because of our reactivity to the customers and the appropriateness and the breadth of the technologies that we can offer from from the interconnect products connectors value add interconnect products sensors and antennas.
And so I think you know our position in automotive well certainly were not the biggest in the automotive interconnect space far from it.
But I think our performance has really been differentiated because of our ability to really capture a little bit more than our fair share of these new things.
Thank you the next.
Question is from William Stein with Jewish Securities You May go ahead.
Great. Thanks for taking my question and congrats on the good results and outlook.
First I you may have quantified it if you had a I apologize for asking but the.
The impact of the Covid related shutdowns in China that you're seeing if you've already answered that perhaps you could talk about linearity of bookings and whether.
You've seen any perturbations from what's going on in either Ukraine, or China and any erosion into April . Thank you.
Yes, well, thanks very much I don't think we put an exact number on the government shutdowns and we don't plan to.
It's not like a massive impact it's also hard to count. It I mean every day, it's changing a little bit but there is certainly some impact and I think.
I mentioned earlier, we see it most in the mobile devices, but we see it in a few other markets as well like automotive and it Datacom industrial.
In terms of the linearity of bookings.
Our first quarter, we saw pretty good strength through the quarter I mean February is a short month of sort.
Chinese new year, but we finished the quarter really strong and bookings in March were really strong indeed.
April we're still three days away from the yen. So I couldnt, even give you a number if I wanted to but we'll see how it goes here in April .
What I expect a $1 17 to one book to Bill here in the second quarter I don't think I would expect that I didn't expect coming into the first quarter and we had very strong bookings, but I don't expect that here in the second quarter, but we'll see I think customers you still have quite a few.
<unk> to give us business, new and existing and and that's translating into the into very robust orders for quite a number of quarters here.
Thank you. The next question is from Chris Snyder with UBS you May go ahead.
Thank you I wanted to follow up on the prior commentary around customers.
So valuable diversification in their supply chain certainly screens positive for global leader like Amphenol Wasteful question was Where's this dynamic showing up or where would you expect to show up at the shop, because just the rate of share gains maybe helping with some of these pricing negotiations.
Or could it even helps facilitate M&A, perhaps maybe some of your smaller competitors who might be on or.
Opposite side of that equation. Thank you.
Thanks, so much Chris.
It's hard to sort of pinpoint it because at the end of the day well why does a customer give us an order at any given moment I mean, there is an enormous number of factors that go into that all along the spectrum from the technology that we offer the reliability of our delivery to that customer or quality or.
Support the breadth of our relationship obviously the price that's something that no customer wants to ever forget about.
And so as you build over a long term sustainable advantage with customers.
It's all about continuing to just add to each of those factors further reason for customers to place an order to you and not to your competitor and I think over the last two years look over a long time, that's always our focus you know how do we have a little bit better product, how do we have a little bit better quality, how do we have a little bit better credibility of delivery.
We have a more competitive cost.
But by going to low cost countries and the like but what has changed over these two years is there is a new factor that customers are considering and that is risk and I will tell you that over the over many years I've been I'm in my 24th year in this company in my 14th year as CEO .
I think customers under <unk>.
Under accounted for risk in many cases, because it was just easy to say well here's the price and the quality is good and it's the right product and we don't really need to think about all of these kind of black Swan events that may or may not happen and by the way that that was true through earthquake and tsunami that was true through through bulk.
He knows in Iceland, and floods in Thailand, and all these things.
But something about the last two years has caused them really to wake up to think about the real risk of their supply chain and when they do that and they look at the landscape of competitors. They look at a small company and they see risk. They look at a centralized company and they see risk, but when they look at ethanol and they look at our.
Lives very fragmented very global you know, we have more than what something like 250 factories around the world, which is a lot more than most companies of our size there they see not risks, but actually opportunity and.
And I think that that change has been just another factor that didn't exist in the past and where does it manifest I mean, I think it does manifest to some degree in our outperformance and then the continuation of our outperformance as it relates to M&A I think there is actually.
Also an advantage because if you're a small company and you've been through this kind of rubicon of challenges that we have all faced over these couple of years.
Being part of a bigger company that gives you more options of where you can make stuff and where you can source stuff and where you can sell stuff that starts to be a pretty compelling the thing to think about if you really truly care about the company that you as an entrepreneur who built and so I think that can also have an advantage I think I think there's advantages that sort.
Go throughout the business and and it's again why we're so religious about our adherence to the culture of Amphenol that unique entrepreneurial culture, which has served us in good times and bad and I think the value of it has been even.
Been more enhanced over these last couple of years. These last couple of years and really ever before.
Thank you next question is from David Kelley with Jefferies. You May go ahead.
Hey, good afternoon, Adam and Craig I was hoping to drill down on industrials you posted another really strong quarter, there and just given your broad exposure can you walk us through how you're thinking about the industrials market growth visibility and what feels like a strong capex capex.
Cycle, but also an uncertain near term global macro and then just curious as your thoughts on the potential magnitude of content outgrowth.
Given what again it feels like and I would argue unprecedented pace of technology transformation currently undergoing and and industrials. Thank you.
Thanks, so much David.
No doubt about it our team working in industrial market has just been.
Consistently outstanding and their performance I mean, since the kind of acute phase of Covid in Q1 of 2020 at least in Asia.
We posted consistently strong double digit year over year growth every quarter. Since then so we're we just did our eighth straight quarter in industrial of strong double digit growth.
I mean, it's really a testament to their efforts.
And as you pointed out it's a very broad market. It's it's everything from advanced medical equipment to next generation agricultural equipment high speed rail to semiconductor manufacturing equipment.
Two two heavy equipment to electrification of heavy vehicles and battery technology battery storage, where we see just a lot of opportunities to enable.
Real myriad of customers, who are developing next generation energy storage systems and they want our sensors. They want our connectors. They want everything I mean these applications are really all over the place and they all go on somewhat different cycles, I should say, but at the <unk>.
End of the day they have one thing in common which is it is the adoption of electronics into harsh environments into areas, where those electronics, otherwise should not really be able to operate and that is a legacy that we have.
Many many decades of building up the capability of packaging interconnect and sensors for harsh environments.
Which now means putting highly computerized autonomous driving systems on tractors and now means putting next generation sensor technologies and alternative energy devices and monitoring of windmills and things like this I mean, I could go on and on and on.
And amidst.
The uncertain global macro you have the certainty of the continued onward and upward March of the adoption of electronics. So am I going to say that we're going to grow every quarter here in perpetuity by these by these outstanding amounts you know no I mean, I wouldn't expect that we're going to grow by 31% every quarter.
Going forward, but I do believe that the opportunity to outperform here remains very strong and that the breadth of our industrial product technologies is really second to none and I think that positions us well for the future.
Thank you next question is from Joe Spak with RBC capital markets. You May go ahead.
Hi, Thank you maybe just to go back to one of the other questions about the.
The end markets and sort of being pretty.
Pretty well split across all the new segments.
Is the implication also that you know the the growth you've laid out for the entire company you know organic in the second quarter is that also evenly split by the new reporting segments was there any sort of color in terms of how we should think about.
The segment performance would be helpful.
Yes, thanks very much.
We're not guiding necessarily to growth by segment I think we gave a lot of details by each of our end markets.
But as you saw this quarter I mean, the growth was pretty balanced.
Process segments that we had really broad growth across the company. So I wouldn't necessarily say that what we would expect by each segment going into the second quarter.
Thank you our last question comes from Joe Giordano with Cowen You May go ahead.
Hey, guys. Thanks.
Although obviously the performance has been really good for a long time relative to peers relative to the market or however, you want to put it.
Just curious like if you were to break down the outperformance in like large buckets as to what's driving it.
Maybe I can leave it open ended there, but I'm also curious as to how much maybe is with production being constrained here and focused on.
S U vs high end Evs like kind of the things that are probably best for you how much of that is driving some of this as well.
Yeah.
I don't know that there's a significant impact Joe from from kind of the hot potato people pausing semiconductors back and forth and deciding where they should put their which vehicles they should put them in and thereby which they should sell and prioritize.
I mean look if if if.
If our customers are building higher content cars is that a good thing yeah, I guess that would certainly be a good thing, but that should be a good thing for everybody in the market.
And I think you know would that drive specifically, our outperformance I don't know that that would necessarily be the case.
I think really what we see and I'll just reiterate it again as we see just an acceleration of the adoption of next generation systems across all vehicles in.
And that includes the electrified drivetrains that we mentioned, but not exclusively that its next generation infotainment. It's next generation communication. Its next generation comfort passenger comfort. Its next generation connectivity in the cars, it's everything from sensors that keep the HVAC.
Systems, running better and being safer for the for the people inside I mean, you think about like going through a respiratory borne illness pandemic and all of a sudden car companies want to have a better HVAC filtration and sensing inside their cars and thats.
That's a great new applications that may not have existed kind of in the past.
And so I think that's the bigger driver here than just that some car companies are making more tactical decisions about which models to produce based on the constrained availability of certain components.
Well. Thank you very much to everybody I think that's our last question and I do want to take this opportunity once again to thank you all for spending a few few of your precious time, a few of your precious minutes with us today and wish you all the best and we look forward to seeing everybody again.
Either over the course of this quarter at the latest 90 days from now thanks, So much everybody. Thank you goodbye.
Thank you for attending today's conference and have a nice day.