Q4 2022 Amphenol Corp Earnings Call
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.
Good afternoon, everyone. This is Craig Lampo, Amphenol, CFO and I'm here together with Adam Norway to our CEO .
We'd like to wish everyone, a happy new year and welcome you to our fourth quarter 2022 conference call.
Our fourth quarter and full year 2022 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 and.
In addition, all prior year comparative data discussed during this call is on a continuing operations basis.
The company closed the fourth quarter with sales of $3.239 billion, and GAAP and adjusted EPS of <unk> 82, and 78 cents respectively.
Fourth quarter sales were up 7% in U S dollars, 11% in local currencies and 8% organically compared to the fourth quarter of 2021.
Sequentially sales were down by 2% in U S dollars, 1% in local currencies and 2% organically.
Adam will comment further on trends by market in a few minutes.
For the full year 2022 sales were a record $12 billion $623 million, which were up 16% in U S dollars, 19% in local currencies and 15% organically compared to 2021.
Orders in the quarter were $2 billion 884 million, which was down 12% compared to the fourth quarter of 2021, and 8% sequentially, resulting in a book to bill ratio of <unk> 29 to one.
This was driven by lower bookings in the communications related markets.
For the full year orders were 12.925 billion, resulting in a book to bill ratio of one point or two of the ones.
GAAP and adjusted operating income were $666 million and $676 million, respectively in the fourth quarter of 2022.
GAAP and adjusted operating margin were 26% and 29% respectively in the fourth quarter.
On a GAAP basis operating margin increased by 100 basis points compared to the fourth quarter of 'twenty, one and decreased by 10 basis points sequentially.
GAAP operating margin for the fourth quarter included approximately $10 million of acquisition related costs.
On an adjusted basis operating margin increased by 80 basis points compared to the fourth quarter of 'twenty, one and decreased by 10 basis points sequentially.
On a sequential basis, the slight decrease in adjusted operating margin reflected normal downside conversion on the lower sales levels.
For the full year 2022, GAAP operating margin was 25% adjusted operating margin was 27%.
When compared to 2021 adjusted operating margin increased by 770 basis points, which was primarily driven by normal operating leverage on the higher sales volumes as well as the benefit of the pricing actions.
Given the overall cost and supply chain headwinds we experienced in 2022, we're very proud that our adjusted operating margin equals our previous full year record operating margin set in 2018.
Breaking down fourth quarter and full year results by segment and the harsh environment solutions segment sales were $795 million and $333.107 billion in the fourth quarter and full year of 2022, respectively.
Compared to the prior year fourth quarter segment sales increased 10% in U S dollars and 12% organically.
Compared to the full year 2021 segment sales increased by 13% in U S golf dollars, 15% organically.
Segment operating margin was 25, 7% and 25, 8% in the fourth quarter and full year of 2022, respectively.
And the communications solutions segment sales were $1 $436 million and $5 billion $652 million in the fourth quarter and full year of 2022.
Compared to the prior year fourth quarter segment sales increased 1% in U S dollars and organically compared to the full year 2021 segment sales increased by 17% in U S dollars and 13% organically.
Segment operating margin was 22, 2% and 22% in the fourth quarter and full year 2022.
In the interconnect and sensor systems segment.
Sales were $1 billion 8 million and $3.863 billion in the fourth quarter and full year of 2022.
Compared to the prior year fourth quarter segment sales increased 14% in U S dollars and 17% organically.
Compared to the full year 2021 segment sales increased by 17% in U S dollars and 18% organically.
Segment operating margin was 19, 2% and 18, 5% in the fourth quarter and full year 2022.
The company's GAAP effective tax rate for the fourth quarter was 19, 2% in the adjusted effective tax rate was 24, 5%, which compared to 18, 8% and 23, 8% in the fourth quarter of 2021, respectively.
For the full year 2022, GAAP effective tax rate was 22, 3% and adjusted effective tax rate was 24, 5%, which compared to 26% and 24, 3% in 2021.
In 2023, we expect our adjusted effective tax rate to be approximately 24%.
Yes.
GAAP diluted EPS from continuing operations was <unk> 82 in the fourth quarter, an increase of 14% compared to 72 cents.
In the prior in the prior year period, adjusted diluted EPS was <unk> 78.
An increase of 11% compared to the 70 cents in the fourth quarter of 'twenty. One this was an excellent result.
For a full for the full year GAAP diluted EPS from continuing operations was $3.06, a 22% increase from $2 51 and 2021.
Adjusted diluted EPS was $3 in 2022, a 21% increase from 2048 in 2021.
Operating cash flow in the fourth quarter was a record $705 million of our 147% of adjusted net income.
And net of capital spending our free cash flow was a record $613 million or 127% of adjusted net income.
We are pleased to have delivered a cash flow yield at these strong levels.
For the full year 2022, operating cash flow was a record $2 billion $175 million or 117% of adjusted net income.
And net of capital spending our free cash flow for 2022 was a record $1.796 billion or <unk>, 96% of adjusted net income a very strong result.
From a working capital standpoint inventory days days sales outstanding and payable days were 80, 673% and 54 days respectively.
During the quarter the company repurchased two 3 million shares of common stock at an average price of approximately $75, bringing total repurchases during 2022 to $9 9 million shares or assemblies or <unk> $31 million.
When combined with our normal quarterly dividend total capital returned to shareholders in 2022 was more than one $1 2 billion.
Total debt at the <unk> on December 31 was $4 $6 billion in net debt was $3 $1 billion.
Total liquidity at the end of the quarter was a very strong $4 1 billion, which included cash and short term investments on hand of $1 4 billion plus availability under our existing credit facilities.
Fourth quarter and full year, 2022, EBITDA was $798 million and $3 1 billion, respectively. At the end of the fourth quarter of 2022, our net leverage ratio was 1.0 times.
I also wanted to make a few comments on interest expense as I mentioned last quarter due to the rising interest rate environment. Our interest expense has increased primarily as a result of our floating rate commercial paper, which represents approximately 14% of our total debt outstanding at the end of the year based on current and near term expected interest rates and debt.
Level, we expect 2023 quarterly interest expense to be approximately $40 million, which is reflected in our first quarter guidance.
I will now turn it over to Adam who will provide some commentary on current market trends as well as the recently completed acquisition this month.
Thank you very much Craig.
Welcome to all of you to our first earnings call of 2023, and I Hope, it's not too late to us as well all of you a happy new year and to those of you who celebrate the lunar new year.
As you all a happy year of the rabbit.
As Craig mentioned I'm going to highlight our fourth quarter and full year 2022 achievements, including some discussion about the acquisitions that we mentioned in our press release I will then discuss our trends and progress in our served markets and then make some comments on our outlook for the first quarter and then of course, we'll have time for questions.
At the end.
So turning to the fourth quarter our results in the fourth quarter were stronger than expected exceeding the high end of our guidance in sales and adjusted diluted earnings per share sales grew by 7% in U S dollars and 11% in local currencies, reaching $3 $239 million on an organic.
Nick basis, our sales increased by 8% and that was driven by robust growth in the broadband commercial air automotive and military end markets and I'll give some more details about those markets in a few moments.
The company booked $2.884 billion in orders in the fourth quarter, representing a book to Bill of <unk> 89 to one and this negative book to Bill was driven by order reductions in several of the communications related markets as certain customers adjusted demand in light of excess inventory that they had built up throughout <unk>.
'twenty two.
We're especially pleased to have delivered another quarter of resilient and strong profitability with adjusted operating margins, reaching 29% an 80 basis point increase from prior year. We achieved these results. Despite the continued wide range of challenges around the world adjust.
Adjusted diluted EPS as Craig mentioned was 78.
Presenting robust growth of 11% from prior year and that's just another excellent reflection of our organization's continued strong execution.
Finally, the company generated record operating and free cash flow in the quarter of $705 million and $613 million, respectively clear reflection of the quality of the company's earnings.
I am extremely proud of our team around the world and our results. This quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst a challenging and dynamic environment.
We're also pleased to announce that we closed the acquisition of control measure regulation group of <unk> just here in January .
<unk> is based in France, and has annual sales of approximately $75 million.
There are manufacturer of a broad array of cable assemblies and complex interconnect assemblies for the industrial market with a particular focus on heavy equipment engine applications.
This acquisition further expands our offering of high technology value added interconnect products and the diversified industrial market.
In addition, we're pleased to have signed an agreement for the acquisition of the North American hybrid and fiber optic cable and cable assemblies as well as the global infrastructure antenna business of RFS at the end of the fourth quarter.
Based just down the street from US here in Maryland, and Connecticut, RFS is a provider of interconnect and antenna products for the mobile networks market with expected sales of approximately $100 million in 2023. This.
This acquisition, which we anticipate will close by the end of the second quarter and thus is not included in our guidance expanse amphenol as product offering and presence with mobile network service providers, who are continuing to invest in their next generation <unk> networks.
As we welcome the outstanding CLR team to Amphenol and look ahead to welcome the RFS team once that transaction closes we remain confident that our acquisition program will continue to create great value for the company our.
Our ability to identify and execute upon acquisitions and successfully bring these new companies into Amphenol remains a core competitive advantage for the company.
I just want to make a few comments about 2022.
I will just say the 2022 was another very successful year for Amphenol we.
We expanded our position in the overall market growing sales by 16% in U S dollars, 19% in local currencies and 15% organically, reaching a new sales record of $12 $623 million in.
In fact over the past three very dynamic years, we're proud to have grown our sales by more than 50% from our 2019 levels actually 53% to be exact.
Great reflection of the company's diversification and agility in these truly dynamic times.
Our full year 2022, adjusted operating margins reached 27% and that was an increase of 70 basis points from 2021, the strong level of profitability enabled us to achieve record adjusted diluted EPS of $3.
Finally, we generated record operating and free cash flow of $2 billion $175 million and $1 billion $796 million respectively.
Clear confirmation of the company's superior execution and disciplined working capital management.
Our acquisition program again created value this year with two new companies added to the Amphenol family in 2022, and one added here already in 2023.
<unk> NPI and ICA holdings have expanded our position across a broad array of technologies, particularly in the industrial market, while bringing outstanding and talented individuals into the amphenol families.
We're excited that these acquisitions as well as the RFS acquisition, which we expect to close at the end of the second quarter represent expanded platforms for the company's future performance.
We also bought back in 2022, almost 10 million shares under our share buyback program and increased our quarterly dividend by 5% representing as Craig detailed a total return of capital to shareholders of just over $1 $2 billion for the year.
Finally, and really importantly, especially in today's dynamic environment, we come out of 2022, and a uniquely robust financial position with the lowest leverage in highest liquidity and availability, we have seen really in modern times.
And while there continues to be a high level of volatility in the overall market environment in 2022, as we enter 2023, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long term performance.
I'd like to spend a little bit of time to talk about our trends and progress across our served markets and I would just comment that we remain very pleased that our balanced and broad end market diversification continues to create real value for the company with no single end market, representing more than 25% of our sales in the year of 2022.
We believe this diversification mitigates the impact of the volatility of individual end markets, while continuing to expose us to leading technologies wherever they may arise across the electronics industry.
Turning first to the military market. This market represented 10% of our sales in the fourth quarter and 9% of our sales for the full year.
In the quarter grew strongly from prior year, increasing by 11% in U S dollars and 13% in local currencies and on an organic basis sales increased by 12% with broad based growth across virtually all applications, but particularly military vehicles space and airframe.
Sequentially, our sales increased by a better than expected 11%.
For the full year 2022 sales grew by 4% in U S dollars, 6% in local currencies, and 4% organically, reflecting our operational execution as well as strength in space related unmanned aerial vehicles ground vehicles and avionics applications.
Looking ahead, we expect sales in the first quarter to grow slightly from these fourth quarter levels and we continue to be excited by the strength of the company is positioned in the defense market.
Where we offer the industry's broadest array of high technology interconnect products as.
As the geopolitical environment has become more dynamic militaries around the world are expanding their investments in next generation technologies, thereby increasing the demand potential we look forward to supporting this increased demand with our expanded range of interconnect and sensor products as well as our significant investments in new capacity.
We have made in recent years.
The commercial aerospace market represented 3% of our sales in the fourth quarter as well as for the full year of 2022 and.
And in the quarter, our sales grew by a very strong 33% in U S dollars and 38% in local currency and organic as we benefited from the continued recovery in the commercial air market.
Sequentially, our sales grew by 13% from the third quarter, which was well ahead of our expectations coming into the quarter.
For the full year of 2022 sales increased by 36% in U S dollars, 40% in local currency and 36% organically, reflecting our strong design in positions on a broad range of platforms as well as the ongoing recovery in demand for aircraft.
Looking into the first quarter of 'twenty three we expect now a modest sequential moderation in sales.
I just wanted to say how grateful I am to our team that's working in the commercial air market over the last three years, they've performed really well amidst the truly volatile demand environment and.
And with the ongoing recovery in travel and thus and demand for jetliners, our team's efforts to strengthen our breadth of high technology interconnect and sensor products, while diversifying our market position, including into next generation aircraft are now paying real dividends, we look forward to realizing the benefits of this in 2023 and beyond.
And.
The industrial market represented 25% of our sales both in the fourth quarter and for the full year and sales in the quarter grew by 7% in U S dollars, 12% in local currency and 7% organically from the prior year fourth quarter.
This growth was driven in particular by sales into alternative energy battery and electric heavy vehicle factory automation oil and gas and medical applications.
On a sequential basis sales were down by just 1%, which was a bit better than our expectations.
For the full year of 2022 sales grew by a strong 14% in U S dollars, 19% in local currency and 13% organically and we really had broad based growth across virtually all segments of the global industrial market.
And looking into the first quarter, we expect sales in the industrial market to be roughly at the same level as we achieved here in the fourth quarter.
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 and through complementary acquisitions has positioned us to capitalize on the many revolutions happening across the industrial electronics market.
To that end. The addition of <unk> further strengthens our position, particularly in the important heavy equipment segment and we look forward to realizing the benefits of this strategy for many years to come.
The automotive market represented 21% of our sales both in the fourth quarter and for the full year and we had another great quarter in automotive with sales growing by a strong 21% in U S dollars and 31% in local currency and organic.
Our growth was broad based but was once again, particularly robust in hybrid and electric vehicle applications.
On a sequential basis, our automotive sales increased by 5%, which was above our prior expectations.
For the full year of 2022, I am very pleased that our sales increased by a strong 22% in U S dollars and 29% in local currency and organic.
Reflecting broad strength across our automotive markets, including in particular in next generation electronics, including electric and hybrid Drivetrains.
Looking into 2023, we expect a high single digit sequential moderation of sales in the first quarter from these high levels, driven, especially by seasonal moderation of sales in Asia.
I remain extremely proud of our team working in the automotive market that continue to manage through a dynamic overall environment. All while remaining focused on driving new design wins with customers, who are implementing a wide array of new technologies into their vehicles.
In particular, our long term efforts of expanding our range of next generation Interconnects incorporated into electric and hybrid electric vehicles has enabled amphenol to expand our position with a broad range of customers and thereby created further potential for the future.
The mobile devices market represented 12% of our sales in the quarter and 11% of our sales for the full year 2022, our sales in the quarter declined from prior year by 11% in U S dollars, 7% in local currency and organically and this was driven by reduced sales of <unk>.
Products incorporated in smartphones laptops tablets and Wearables.
Sequentially, our sales declined as we had expected by 10% as demand was impacted by a pull forward or pull forward of demand into the third quarter as we previously discussed 90 days ago.
For the full year 2022 sales in this market increased by 3% in U S dollars and 5% organically as growth in smartphones and Wearables was somewhat offset by a moderation in tablets coming off the high levels of the pandemic.
We are pleased with this performance amidst a market with generally muted demand in 2022.
As we look into the first quarter of 'twenty, three we anticipate a seasonal sequential decline of approximately 35%.
And while mobile devices will always remain one of our most volatile of markets are outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2023 and beyond our leading array of antennas interconnect products and mechanisms continues to enable a broad range of next generation mobile.
Devices, which positions us well for the long term.
The mobile networks market represented 4% of our sales in the quarter and 5% for the full year of 2022 sales in the quarter declined from prior year by 8% in U S dollars, 6% in local currency and 12% organically as we experienced a pause in demand from operators after a number of quarters.
Of strong growth.
Sequentially, our sales declined by a higher than expected 17%.
For the full year 'twenty two sales grew by 8% from prior year and 3% organically as we saw increased demand for products used in next generation <unk> equipment.
Looking ahead, we expect a high single digit sequential reduction in sales in the first quarter as operators continued to moderate their investments.
Our team continues to work aggressively to realize the benefits of their efforts to expand our position in next generation <unk> equipment and networks around the world.
And as customers continue their investments in new systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers.
We're also excited by the pending acquisition of the hybrid fiber optic cable in antenna assets of RFS, which will further broaden our product offering for this important market.
The information technology and data communications market represented 19% of our sales in the quarter and 21% of sales for the full year.
Sales in the fourth quarter declined by 6% in U S dollars, 5% in local currency and 8% organically from prior year as many customers reduce their demand after five consecutive quarters of robust double digit growth.
Sequentially, our sales declined by 11% as we had expected coming into the quarter.
For the full year of 2022, our sales in the it datacom market grew by a strong 18% in U S dollars, 19% in local currency and 14% organically as we continued to benefit from our leading technology solutions and design in positions across a wide array of applications.
Looking ahead, we expect a roughly 20% sequential decline in sales in the first quarter as.
As our OEM and web service customers continued to moderate their demand levels.
Regardless of this current demand pause we remain encouraged by the company's outstanding position in the global it Datacom market.
Our team has done an excellent job developing leading high speed power and fiber optic interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance.
We look forward to realizing the benefits of that leading position in this important market for many years to come.
Finally, the broadband market represented 6% of our sales in the quarter and 5% of our sales for the full year 2022.
Sales increased by a very strong 79% in U S dollars, 82% in local currencies and 64% organically.
As we experienced a significant increase in demand from cable operators for a wide range of our products.
On a sequential basis sales grew by a much better than expected 19%.
For the full year of 2022 sales grew by 62% in U S dollars, 38% organically as we benefited from strong demand from broadband service operators, who are bolt upgrading and expanding their data networks as well as from the Halo acquisition completed last year.
Looking ahead, we expect sales to decline in the low double digits from these levels.
Due to seasonal adjustments from from customers.
We remain encouraged by the company's expanding position in the broadband market 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 proliferation of high speed data applications to homes and businesses.
And in certain cases in furtherance of government programs to expand broadband.
Now just in summary, I want to comment on our outlook. The current economic environment remains highly uncertain and in addition, as we did discuss earlier, we have seen certain customers and the communications markets reduced our demand is the normalized inventory levels.
Assuming market conditions do not meaningfully worsen and also assuming constant exchange rates for the first quarter. We expect sales in the range of $2 $840 million to $2.900 billion and adjusted diluted EPS in the range of 65 to 67.
This would represent a sales decline of 2% to 4% and adjusted diluted EPS of flat to down 3% compared to the first quarter of 'twenty two.
I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow our market position, while driving sustainable and robust profitability over the long term and finally I'd like to take this opportunity to thank our entire team.
The world for their truly outstanding efforts here in the fourth quarter and for the full year of 2022 and with that operator, we'd be very happy to take any questions.
Thank you the question and answer period will now begin please limit to one question per caller.
Our first question is from Guy Hardwick with Credit Suisse. You May go ahead.
Hi, good afternoon.
Good afternoon.
I think I'll leave the questions on guidance two quarters off to after me, but Adam just one.
I speak to investors about amphenol.
They pushed back initially set another company that well that's why isn't this company exposed to commodity price deflation, if it's selling components to the electronics industry.
What would you what would be your pushback on that and maybe if you could talk about some of the content drivers and connectors and other products.
Yes, well, thanks, so much guy and I think what youre, referring to is kind of Moore's law, which says that over time, whether it's every 18 months or some approximation thereof.
That electronics tend to get.
Doubling of the performance for the given price.
And I think that that is true in electronics that if you look at what we the devices that we used today the networks that we you'd say, we get so much more out of those things given the increase or even in certain cases, not increase of what we pay for those things today.
Today and so it comes down then to innovation and are we as a company innovating developing products that are enabling our customers' applications and allowing our customers to sell value and so you mentioned commodity and we don't view our products as a commodity actually we view them as a very precious piece of jewelry almost.
That the interconnect products that we make from connectors to value add interconnect sensors antennas. These are highly critical components that go into very complex systems everything from from mobile devices, all the way up to fighter Jets and everything in between.
And they represent also a very high risk and relatively low value as a percentage of the total bill of materials and thus if you can embed technology. If you can embed value. If you can be there for your customers well then your customers will be willing to share with you some of the value that they're able to realize on the sale of.
The end product.
And so the difference between kind of a standard commodity is something that you see the price trading on an exchange somewhere and ours is just a chasm of distance between them because our products are enabling technology, they're very much application specific we're selling hundreds of thousands if not millions of <unk>.
Different product to tens of thousands of customers and millions of different applications around the world and if our product doesn't work that small little thing in the system. Then ultimately the system itself doesn't perform for its customers and so it's up to us to develop innovative new technologies on a consistent basis.
To be able to execute on behalf of our customers to do that with high quality high reliability with a breadth of products. So customers can come to us all at once and if we can do that consistently then we're able to realize good margins. While also controlling the cost on our side and that's another piece of this which is that at the end of the day in March.
<unk> is price minus cost and so we have to control the price by selling value to our customers. We have to control the cost by ensuring that every element of cost is controlled and treated as if it was coming out of our own pockets and that comes really from the entrepreneurial organization. The 130 general managers around the world.
All treat the company's money as if it were their own and the fact that we don't have cost centers in the company, we have a tiny little headquarters.
And so that that control on costs together with selling value through technology ultimately allows us to realize robust margins on a consistent basis.
Thank you. Our next question is from Amit <unk> with Evercore you May go ahead.
Thanks, a lot for taking my question.
Yes, Adam.
Can you talk a little bit more about the March quarter guide.
You folks are talking about revenues being down double digit sequentially and.
I don't want you to repeat all the segment discussion with you started talking about two times normal seasonality.
Can you just talk about what all the warranty segments that are performing worse than what you would expect them to.
Can be due to the normal seasonal environment.
Mark do you think it's more demand weakness and inventory adjustment by our customers. Thank you.
Thanks, so much Amit.
A little bit of static on the line, but I think I heard the question well.
Look our guidance that we've given here and I think I talked a lot about by each segment, but let me just put a finer point on this if you just take two of our end markets and the guidance that I discussed and that's mobile devices. It data com, which are two of our largest communications markets those represent about two thirds collectively.
Of the implied sequential reduction in sales from the fourth quarter to the first quarter and I think we talked about in it datacom that we clearly see.
Sort of reduction in orders from customers because of elevated inventory levels and there may be some demand layered into that as well as our customer at the end customers kind of paused their build outs, but we shouldnt forget one thing about it datacom, we shouldnt forget that this is a market first of all that since.
2019, we've grown that market by more than 70% during that time period that our customers have have had to increase their output and their construction of their networks in order to satisfy a true explosion of demand for the Internet and I think the underlying dry.
Rivers of that whether that be video over the internet or the use of certain tools that we didn't ever used before.
The data traffic on the Internet is not dropping I think what we're seeing is maybe a pause.
Realignment because these companies weren't real gangbusters for a number of years.
The structural increase of data traffic over the internet in the broadest sense, that's something that we believe and I think we're in good company, believing that will continue for a long time to come on mobile devices.
I think we talked about the fact that during the course of the pandemic. There was a real surge in mobile device demand is as people had to detached from their offices and go home things like tablets things like computers upgrades of phones and alike. Let alone. The fact that everybody had a lot of disposable income to buy new things and their ears and on the risks and otherwise.
And I think theres been some relaxation of demand <unk> reported a new yourself have talked a lot about that in a variety of reports here in 2022, and regardless of that our team did a fabulous job this year driving 5% organic growth in 2022, but we're reacting to the demand that we hear from.
Our customers were not losing share.
Quite the contrary.
But the demand expectations of our customers here in the first quarter really results in the guidance that we've given so I would maybe point to those two markets, most particularly which represent just roughly.
Roughly two thirds of the sequential decline in our outlook.
Thank you. Our next question is from Matt Sheerin with Stifel. You May go ahead.
Yes, thanks, good afternoon, and happy new year everyone.
I know, it's just a question regarding the industrial markets.
In addition to your acquisitions, you've been growing really well organically.
There was some concern that those industrial markets typically lags some of the other markets like consumer and Datacom Theres also concerns about inventory build but it sounds like you're relatively optimistic in terms of the drivers across diversified markets. So.
Any color you can give on your outlook there would be great.
Yes, thanks, so much fat and happy new year bacteria.
No look our industrial market has been a real bright spot for us over these three years and I just mentioned how it datacom since 2019 has grown by 70% our industrial business has actually grown by more than 90% during that time period, and we've added some amazing acquisitions across interconnect and sensors, but we've also driven really.
About that I think they are quite different markets. There are a lot of very different demand drivers and if you think about what are the underlying drivers of demand in industrial.
Think about the things that are in the headlines today things like investments in infrastructure things like electrification things like de Carbonization, which includes everything from infrastructure to support electrification, which includes things like alternative energy generation.
Which includes things like natural gas conversion and pipelines and we've actually seen funny enough like strong performance in both our alternative energy business, but also our oil and gas business.
So those are really showing really strong momentum right now and I wouldn't think that any of those correlate necessarily to a consumer or datacom world is there inventory in the supply chain of industrial.
I don't have good evidence to say, yes, or no to that.
I am sure if you looked at a variety of publicly traded.
Balance sheets, you may see some evidence of in some evidence of not.
We do look at our distribution channel in there I think inventories are healthy they're not crazy I mean, there may be up a touch or two but not not out of whack to the overall demand environment.
Industrial is going through a true revolution, and when you think about everything from electrification electrons vacation all the underlying drivers that I talked about I think we've done a fabulous job and our team in that area has done a fabulous job, both organically as well as identifying and bring into the amphenol family great companies like like CMS This quarter.
And many others over the last three or four years.
Put the company in a strong position going forward.
Thank you. Our next question is from stomach chatter G with J P. Morgan you May go ahead.
Hi, Hi, Adam Craig Thanks for taking my question and happy New year.
I guess question I had was more on the margins you had pretty robust margins in the fourth quarter, but as you sort of looking in terms of the end market outlooks in some of this sub seasonal sort of trajectory starting off the yield how should we think about the puts and takes on the margin.
Also in relation to solve the acquisitions that you've done recently.
What sort of impact on the margin with that have how resilient these sort of.
Margin levels at this point. Thank you, okay, Thanks, and happy new year to you.
I think that.
Think about our margin.
I would start off by just saying how proud we are of the margins.
Performance that we've had in 2022, we really have ultimately it throughout 2022 really done I think a great job of just expanding our margins even.
Sequentially converting kind of higher than our normal conversion.
The cost actions with the pricing actions that we've had to take in industrial and really hitting our 21% in Q3, which is a kind of tying a record in really 29% in Q4 and in 2000.
Seven which matches the record for 2018, so I'm really happy certainly achieving those and as we guide here into the first quarter, we're guiding down in <unk> above.
Above seasonal and then we talked about that I just talked about that in response to a previous question.
I think if you look at the markets. We've always said that our markets don't really drive kind of our margins and we don't have significant margin differences of a significant range within our markets except for broadband we've talked about before.
Which was our old cable business, but other than that I think the other markets are similar operating margins.
Drive similar conversion level, so I wouldn't really talk about that as being a place where it's driving a change in the way. Our overall conversions look we talk about deca.
Decrementals and kind of close to 30% range, where we're kind of seeing a little even slightly less than that as we're guiding here into the first quarter and I think that just goes to the management team and how well they have done in regards to responding to some of these areas, where we have seen some headwinds from a demand perspective.
Data, which is declining at above normal rate typically in the first quarter Theyre, taking great actions that obviously are reflected in our guide and when not.
<unk> sector impacting our normal conversion in mobile devices are used to these types of decrementals and headwinds in terms of their first quarter and certainly they are taking them. So I think that.
This is really not not a different story than we've had over many years, where we're able to manage.
Regardless of the demand environment were able to manage our operating margins and really do a great job.
Of expanding our margins when we see demand increases, which we've done here in 2022, and then here in Q1, where we see a little bit of headwinds in certain of our markets, taking the actions that really need to be taken in regards to <unk>.
Protecting our bottom line and I think that agility of the organization is really shining through again and I think that's just no different from what we've seen historically and I wouldn't expect any difference in terms of whatever comes here in 2023.
Regardless, I think I feel real comfortable with how the team will perform.
Thank you. Our 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 could you speak please toward amphenol as seen in the China market. Both how its been tracking recently given the Covid dynamics and also whether you are expecting demand in China to pick up materially over the course of this year given reopening.
Yes, thanks, very much Mark and look I'm glad you break bring up China, because I want to just give a real shout out to our team in China Q4 in China was a funky quarter you came in with zero carbon and you left with 100% covered.
And that that created a lot of challenges operationally and the fact that we were able not only to deliver on our commitments in the quarter, but to actually exceed our guidance in the quarter was just a real testament to our entire global organization, but in particular to our team in China, who just managed.
Through this well while protecting our people as best you can in a country, where basically everybody got COVID-19.
It was really phenomenal and I'm just so proud of what they were able to do during that time period.
Look our business in China, we have a great business in China.
Our China business is very much a business for the local region for the customers who want to buy in those regions and we have done such a great job over the years, despite geopolitics and all of that.
Being a truly local company and this gets to kind of our organization, which I think I've used the term before that we have an organization. That's really purpose built for whatever the world order is going to be in and Thats. An organization of people who are made up of local nationals. All over the all over the world people from India in India people from China, and China people from <unk>.
<unk> in France.
And that allows us to really tailor our operations to the requirements of that of that region of the country and we've certainly done that in China over over these last several very dynamic years.
In terms of whether we expect a kind of a demand rebound in China I don't know I think it's a little early to say that.
But whatever comes will come and I think we're poised and positioned that if there is some rebound if there is an increase in consumer spending or whatever on whatever kind of products. There is no doubt in my mind that our team will be there to capture more than our fair share if that if that should so occur I mean, they've demonstrated here in the fourth quarter.
That nothing can stop them and I'm very confident that whatever comes along we will take full advantage of that if risks materialize, if some impediments should come along.
This is a team that's pretty battle hardened, so im pretty confident they'll do a great job.
Thank you. Our next question is from Steven Fox with Fox Advisors, You May go ahead.
Hi, good afternoon, and happy new year.
Just wondering Adam if you could talk a little bit more about the.
The business, you're acquiring from RFS team.
Like it's a bit of a game changer for you guys in terms of product and how you might be able to compete against some larger players in antennas et cetera.
Well, thanks, so much David happy New year to you as well look we're really excited about this business I mean, we have a business in fiber optics, we have a business in hybrid cables, we have a business in antennas, but no doubt about it RFS brings us a much much stronger position from a technology perspective from a capacity perspective and from a.
Channel into certain markets and we've always been really excited about the mobile networks market and one of the unique things about amphenol as I've I think I've said. This many times is that we sell to the Oems were one of the leading interconnect suppliers to the world's leading Oems.
Make mobile networks equipment, but we also sell to the service providers into the operators in that that actually is an evolution of our long term position with the broadband service providers, where we know how to work with service providers and today, we work with service providers in broadband we worked with them in the it datacom market, we worked with them and broad.
Band and mobile networks and anywhere we're now providers.
Providers are our customers and not just Oems, making equipment and I think RFS.
Allows us to take a step function growth.
And the strength of our position there with service providers and doing that at a time, where we're still I believe in the early innings of the <unk> investments in.
In the network, let alone what happens when <unk> exists for all of our other markets and we're big believers on on the kind of structural potential of both the build out of the <unk> networks that are happening around the world as well as what it means to have low latency ultra high bandwidth ubiquitous.
Data traffic for all of our end markets.
And after <unk> will come to <unk> and then they will come <unk>.
And I will probably still be floating around when we're talking about <unk> one day, Steve but now we're really excited about RFS and look forward to them look forward to getting through the regulatory process and again, we expect to close at the end of the second quarter and thus it's not in our guide here in the first quarter, but it is certainly in our long term strategy.
Thank you. Our next question is from Jim Suva with Citigroup you May go ahead.
Hi, Adam you and your team have been through many similar cycles and I wanted to focus a little bit on the communications commentary you gave about a little bit of inventory digestion or some pauses or things like that just curious in past cycles have you seen these last kind of.
One to two quarters or multiple multiple quarters from when you sit there. It seems like this is one segment that is taking a little bit of a downshift not that structurally you are losing share stuff.
With a bit more of a cyclical nature, if I understand your comments correctly. Thank you.
Thanks, So much Jim I would love to be able to extrapolate from sort of past experience to today, but.
But I would tell you that I don't know that at least in my in my history, which is by the way 25 years this year and the company.
To live through a time period like we've just gone through in the last three years and what that has done to the dynamics of the market from a pandemic to our supply chain crisis to an explosion of data traffic that came out of the pandemic and shutdowns and work from home and all of those various things the transformation of how people consume entertainment.
<unk> and media and information.
So I don't know that there is a good template for the kind of the what has happened in the it datacom market over the last three years.
And thus it would be hard for me to say do I expect this to be a one quarter two quarter or whatever kind of.
Adjustment and thus, we don't run our business that way.
Factors as it is what it is right now and we adjust in real time or resources to accommodate the level of demand that we see from each of our operations. We have 131 operations around the world right now roughly and each of them have their own set of customers some of whom have demand that is growing and others of whom in that <unk>.
<unk> those who work in this market, where maybe demand is moderating somewhat they don't make a guess and say well is that going to be a one two to three quarter thing and thus what should I do they just say my customer needs as much and I'm going to go out and adjust my resources and real time and that that real time re activity and agility that Craig.
Mentioned earlier, which which by the way was reflected in our margins in the fourth quarter and is also reflected in our margins in the first quarter. That's how we run the business, we'll react to whatever the demand environment is and we're not going to try to trip over ourselves trying to guess how long it is but what I know is this long term the demand for data the dim.
<unk> for our products, leading edge high speed fiber optic power products, that's going to be a very robust demand long term and so we will come through this adjustment that our customers are going through and we will come out of it a stronger company than ever and we will continue to have a very robust technology position in the future.
Thank you. Our next question is from Luke Young with Baird. You May go ahead.
Good afternoon, and thanks for taking the question and happy new year.
<unk> strong level each of the past two years and I know, it's always hard to parse out, but do you get the sense that channel inventory of your products has influenced the outgrowth at all and maybe just more importantly, as you look forward what do you see as the key factors plus or minus versus history that could influence your ability to grow strongly above market again in 2020.
Thank you.
Thanks to you and happy new year as well.
You said it I mean, we have definitely outperformed in the automotive market for for a pretty long time periods are quite a number of quarters and I'm just really proud of our team now there werent always into years I mean, clearly 2020 was a tough year, even 2019 was a challenging year, but we never kind of throwing the towel during that time.
Period, we never said, let's go cut back on new product investment or let's retrench, let's reorganize.
Quite the contrary in fact, we continue to work with customers around the world on next generation applications and those next generation applications everything from passenger connectivity.
And power applications to high voltage applications in the car to communications around antennas and the like.
We are now really realizing the benefits of that over the last couple of years.
And.
In terms of the channel, we don't really see the channel and the inventory in the channel as being a big driver of the demand I think the driver of the demand has been the rapid adoption of new electronics systems in particular, our electrification of cars, but not exclusively electrification and so when I think about the key factors that can be plus.
Minus in the future well sure at some level the number of cars being sold matters, but more importantly is the content of electronics in the content of new systems and those cars in the future and if that content continues to move up into the right and if we continue to do a pretty decent job of getting some or more than our fair share of that.
Now that I think there's good potential for our automotive business in the long term.
I would not get out in front of my skis here and tell you that 29% organic growth is going to be our perpetuity or a 41% that we achieved in 2021.
But we're very confident in.
And the strength of our position.
Thank you. Our next question is from will Stein with Truest Securities You May go ahead.
Great. Thanks, I'd love to hear about how the backlog change during the quarter and in particular, the duration of the backlog and.
Perhaps it relates to lead time somewhat whether youre seeing customers.
Still place order.
Orders in excess of lead times to degree that has been.
Thank you.
Thanks, so much well I mean look we.
We obviously had in the fourth quarter.
A lower book to Bill at point 89.
I would just point out that over the course of this year, we still have a positive book to Bill of 102, and if you look over the last two years.
We've actually booked in the last two years $25 billion in orders and we've shipped $23 5 billion in sales. So we've added $1 5 billion to our backlog during that time and we have today still a very robust backlog I think we talked about last quarter that we probably saw about a three week expansion of our backlog and I.
We're probably still roughly in that ballpark right now.
We're around a three week or so beyond what maybe it was in the past and when I say the past like 2020, maybe year end.
And that's a really strong position at the same time, there is no doubt about it that the kind of acute phase of the supply chain crisis in the kind of multiplicity of pressures that was put on our customers across really all of our markets. I think we're beyond the acute phase of that supply chain crisis I'm not going to tell you like it's totally in the rearview mirror like there is still.
Little little things that people have to deal with.
But I would I would not be surprised if our customers kind of normalize a little bit more there their lead times across the board in one of the things that happened during the course of the pandemic and the supply chain crisis that Kim thereafter.
We were doing a great job I mean, we support our customers through the time, we did not meaningfully have to extend our lead times, but customers were sort of taking a one size fits all approach and several of the markets.
And that led I think them to certainly in the communications market to maybe end up ordering a little bit more than than they were then they were going to do I would also 0.1 other thing out here just in the fourth quarter.
With a relatively low book to bill compared to historical levels actually that was really concentrated in our communications markets and we saw a book to bill outside of the communications markets, which was basically one to one in the fourth quarter.
It's also gives us some confidence that there is still a robust demand for our products, but I don't think.
In terms of the normalization I would expect some normalization.
That whole cliche of just in time versus just in case, maybe customers long term will have a little bit more order windows.
But I think we sit in a really good position here.
Thank you. Our next question is from Chris Snyder with UBS you May go ahead.
Thank you.
So the company has taken a lot of share coming out of the pandemic and there was a bit of a heightened focus on resiliency and connectivity from the customer base again coming out of the pandemic.
Be interested to hear how you think about those two drivers as the macro seemingly will normalize here at some point. Thank you.
Yes, thanks, very much Chris I mean look.
William C connectivity I think theres been a lot of things that have shifted.
We've just been through a once in a several generation pandemic.
Really we are sort of at the tail end of it I know our team in China is certainly hope that in the fourth quarter.
But I think it has changed everything gets touched everything let me say that whether it's dramatically changed everything but no doubt resiliency and ability of a company to be there for its customers regardless of what comes along.
That is definitely more in the consideration of our customers than ever before and that plays very well into our approach. Our approach has never been to put all our eggs in one basket to build these massive campuses. We have we have 250 facilities around the world. Some people think we're crazy to have that many factories, but part of it is.
Risk part of it is making sure that we're close to our customers and we're not putting all of our eggs in one basket and we have a pretty fragmented manufacturing footprint all over the world with low cost operations in all three of the major regions in continents, and I will tell you that that enabled us during this time period to take share from maybe.
Some of our competitors, who either smaller or more concentrated and thus were stricken by these kind of unpredictable impediments that came along during the pandemic and the supply chain crisis, and now relative to connectivity and I'm going to sort of.
But little stab on what your what your implication is there.
Communications the internet the ability to stay in touch with people that has clearly been a dramatic shift.
This pandemic and we look at our position in our communications markets and the phenomenal growth that we've had and I mentioned the it datacom market for us growing 70% during that time period, but also mobile devices grew by nearly 25% over those same three years and that's just a reflection of this kind of now.
Now insatiable demand for people to have a multitude of ways of communicating and connecting with each other.
And that's something as we seek to sort of enabled the electronics Revolution. That's the phrase I always use there's no doubt about it that we're living in revolutionary times and that creates a real structural and long term opportunity for amphenol.
Thank you. Our next question is from <unk> Mohan with Bank of America. You May go ahead.
Alright, thank you.
Notwithstanding the comments you made on it datacom earlier that might also have light of mobile devices.
Specifically called out.
Mobile device.
Had a mean reverting from abnormal choleglobin levels. So does that imply we should expect sub seems low growth for 2023 and more broadly as visibility maybe ex mobile devices beginning to improve at all in your markets.
Yes, thanks very much romsey.
I am not going to get out in front of my skis on trying to give an estimate of what mobile device demand is going to look like this year.
Well embedded guiding it even for the 70 or so days that we've tried to give guidance in a quarter.
Let alone to make some estimate of what its going to look like in the course of the year.
It's hard for me to do that what I do know is there's a lot of new devices.
They're wonderful I'm addicted to mine.
And we have a strong position and so.
I don't I don't take a position otherwise on whether mobile devices is going to have a worse or better performance.
Recently going going through the rest of this year I mean, we tried to give some guidance here in the first quarter, we will see what happens there and then we will try to give some guidance on the second quarter 90 days from now.
Relative to visibility in general.
It's still a fairly uncertain world and so I don't know that there is a dramatic improvement in visibility I mean, we're not giving full year guidance. We don't think it's prudent at this time because there is still a lot of dynamism of lot of uncertainty in the world today.
And so we will see I mean I.
Certainly hope that as we passed the three year Mark on the anniversary I think it's actually three years from day. After tomorrow that Wuhan was shut down and remember it very very well.
And.
You hope that after three years of re normalizes, there's a saying in China is that a pandemic doesn't last more than three years. That's a famous old saying that I think are very old, saying in Chinese and hopefully that is that is really the case and there can be a little bit more normalization, but I think there's still a lot of uncertainty in the world today.
Thank you. Our next question is from David Kelley with Jefferies. You May go ahead.
Hey, good afternoon, Adam and Craig maybe a question on the input cost environment.
We've seen certain commodities pull back in certain areas of energy and labor costs remain elevated and then may be pricing pass throughs might might get tougher in 2023, but if we take a step back can you just talk about the amphenol cost opportunities in 2023.
Yes, Thank you David and good afternoon, as well I think that certainly the cost environment is in some ways a little bit different than it probably was as we kind of entered the year here I think there are certain places where it has improved there's other places honestly were probably hasnt improve but certainly.
On certain commodities, we've seen some some level of relief in certain parts of the business without a doubt, but places like energy places like the labor.
Certainly logistics has gotten a little better, but I would say energy and labor is certainly very still continues to be a headwind.
Many places so I'd say on balance it's probably has made some improvements from a commodity perspective, I think that what does that mean from a cost perspective in 2023, it's tough to tell or a margin perspective, I mean, there's no doubt that in a normal environment, you would expect some pricing headwinds from from your customers and whether or not they.
I will start in certain places to try to come back for pricing will certainly do our best to.
As we always do to as we add value to our customers to ensure that we're keeping a fair margin.
But as costs come down I would expect in some places for pricing to to have some headwind, but I would expect that ultimately a balance to happen, where we were able to protect our margins and continue to have strong margins. It really wouldn't I wouldn't think change from a profitability perspective.
In a normal environment.
Prior to the pandemic.
Inflation was kind of at a normal pace and in the demand environment was normal that you did have that kind of normal balance and I expect that ultimately ultimately over time, we'll see that again and whether or not that happens in 'twenty three and that's a little bit too early to predict but I think we are in a better place both on the price and a cost perspective.
And we certainly were a year ago.
Thank you. Our last question is from Michael <unk> with Cowen You May go ahead.
Happy New year, Thanks for taking my question.
Could you just quantify the impact of price and.
<unk> thousand 22 overall theres any.
Areas that were strong in particular and what are your expectations.
For the upcoming year.
Yes.
I was saying before I mean, certainly we did have some pricing kind of momentum in 2022.
Honestly I couldn't even tell you what exactly the impact of price was on our top line. We are Fortunately are our systems aren't aren't capable of even providing that information I would say, it's somewhere kind of maybe low single digits, but it's a very difficult thing to even have to.
Provide so and honestly it really wouldn't provide us with any help in regards to how we run our business. So it's not something we're necessarily focused on but certainly there was some pricing in 2022, we've talked about that and without a doubt there was I mean again as I mentioned before in a normal environment and pricing would be I would say more of a headwind than a tailwind in 'twenty two is a <unk>.
Slight tailwind I would say and I know, it's tough to say, whether it will be in 2023 years as the cost environment, maybe levels off a bit, but but ultimately whatever it is I know I am really not so concerned I think that the team has continued to do a great job of managing cost and managing price and ultimately ensuring at the end of the day, we're getting paid for the <unk>.
We provide to our customers.
Thank you and there are no further questions I will turn the call back to Mr. Norway for closing remarks.
Well. Thank you so much and again wed like Craig and I would like to on behalf of our entire team around the world to express our gratitude to each of you for the confidence you've put in us and we wish you all the best and look forward to speaking with you just a short 90 days from now. Thank you everybody happy new year again and stay safe. Thank you bye bye.
Thank you for attending today's conference and have a nice day.