Q3 2024 Amphenol Corp Earnings Call
Hello, and welcome to the third 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.
Speaker Change: 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.
Craig Lampo: Thank you very much.
Craig Lampo: Good afternoon, everyone. This is Craig Lampo, Amphenol, CFO and I'm here together with Adam Norwood, Our CEO, we would like to welcome you to our third quarter 2024 conference call. Our third quarter results were released this morning, and I will provide some financial commentary and then Adam will give an overview of the business and current market trends and then of course.
Craig Lampo: We will take questions.
Craig Lampo: 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.
Craig Lampo: In addition, as a result of our previously announced two for one stock split completed in June of this year all share and per share data discussed on this earnings call is on a split adjusted basis.
Craig Lampo: The company closed the third quarter of 2024 with record sales of $4 billion and $39 million and record GAAP and adjusted diluted EPS of 48 cents and 15, respectively.
Craig Lampo: Third quarter sales were up 26% in U S dollars and in local currencies and 15% organic when you compare it to the third quarter of 2023.
Craig Lampo: Sequentially sales were up 12% in U S dollars, 11% in local currencies and 8% organically.
Speaker Change: Adam will comment further on trends by market in a few minutes.
Speaker Change: Orders in the quarter were a record $4.412 billion up 39% compared to the prior year and up 9% sequentially, resulting in a strong book to bill ratio of 1.09 to one.
GAAP operating income was $819 million and included $64 million of acquisition related costs in the quarter, primarily related to C. A T.
Speaker Change: GAAP operating margin was 23%.
Speaker Change: Excluding these costs adjusted operating income was $883 million, resulting in a record adjusted operating margin of 21, 9% in the third quarter of 2024.
Speaker Change: On an adjusted basis operating margin increased by 110 basis points from the prior year quarter, and 60 basis points sequentially.
Speaker Change: The year over year increase in adjusted operating margin was primarily driven by strong operating leverage on higher sales volumes, which was partially offset by the dilutive impact of acquisitions completed in the prior 12 months.
Speaker Change: On a sequential basis the increase in adjusted operating margin reflected strong conversion on the higher sales levels, partially offset by the dilutive impact of acquisitions, and particularly C. I T, which closed during the second quarter.
I am very proud of the company's operating margin performance in the third quarter, which reflects continued strong execution by our teams.
Speaker Change: Breaking down the third quarter results by segment compared to the third quarter of 2023 sales in the harsh environment solutions segment were 1 billion ones, you're at $94 million, an increase by 35% in U S dollars and 3% organically and <unk>.
Speaker Change: Segment operating margin was 23, 8%.
Speaker Change: Sales next communication solutions segment were $1 $685 million, an increase by 32% in U S dollars and 30% organically and segment operating margin was 25, 6%.
Speaker Change: And sales in the interconnect and sensor systems segment was 1 billion wondering $69 and increased by 12% in U S dollars and 6% organically segment operating margin was 18, 8%.
Speaker Change: The company's GAAP effective tax rate for the third quarter was 21, 4% in the adjusted effective tax rate was 24%.
Speaker Change: That's compared to 18, 2% and 24% in the third quarter of 'twenty three.
Speaker Change: GAAP diluted EPS was a record 48 cents in the third quarter up 17%.
Speaker Change: Compared to the prior year period and all of that.
Speaker Change: That basis diluted EPS increased 28% to a record 50 cents compared to 39 cents in the third quarter of 'twenty three.
Speaker Change: Operating cash flow in the third quarter was $704 million or 117% of net income and net of capital spending our free cash flow was $476 million of 79% of net income and.
Speaker Change: And as expected our capital spending was somewhat elevated in the quarter due to investments we are making to support the strong growth, we are saying and it datacom and defense markets.
Speaker Change: In the fourth quarter, we expect to continue to have somewhat elevated levels of capital spending to further support our growth in these markets.
Speaker Change: From a working capital standpoint inventory days days sales outstanding and payable days were 80, 769, and 59 days, respectively, all within normal levels.
Speaker Change: During the quarter the company repurchased two 7 million shares of common stock at an average price of approximately $65 and when combined with our normal quarterly dividend total capital returned to our shareholders in the third quarter of 2024 was $308 million.
Speaker Change: Total debt on September 30th was $5 5 billion and net debt was $3 9 billion and total liquidity at the end of the quarter was $4 $6 billion, which included cash and short term investments on hand of $1 $6 billion plus availability under our existing credit facilities.
Speaker Change: In addition, we expect quarterly interest expense net of interest income earned on cash on hand to be approximately $45 million in the fourth quarter of 'twenty four.
Speaker Change: Excluding acquisition related costs third quarter, 2024, EBITA was $1.030 billion and at the end of the third quarter of 2024 net leverage ratio was 1.0 times.
Speaker Change: I will now turn the call over to Adam who will provide some commentary on current market trends.
Adam Norwood: Well, thank you very much Craig and thank you all for joining our call here on a very beautiful fall day in Wallingford, Connecticut, and I hope that all of you are enjoying a very nice fall so far.
Adam Norwood: As Craig mentioned I'm going to highlight our achievements here in the third quarter and in particular, I will discuss the trends and progress across our served markets.
Adam Norwood: And then I'll comment on our outlook for the fourth quarter and full year 2024 and of course, we'll have some time at the end for questions.
Adam Norwood: Our results in the third quarter were really strong and actually stronger than expected and exceeding the high end of our guidance in sales and adjusted diluted earnings per share.
Adam Norwood: Sales grew from prior year by a very strong 26% in U S dollars and in local currencies, reaching a new record of $4 billion $39 billion, we're very proud to have that new sales record.
Adam Norwood: On an organic basis, our sales did increase by 50%, 15% driven by growth in the it Datacom mobile networks mobile devices commercial air and defense end markets and I'll talk about those details in a few moments.
Adam Norwood: The company also booked record orders of 4.412 billion, representing a robust book to Bill of one quite Oh nine to one.
This was also driven especially by continued strength in the it datacom market.
Adam Norwood: Or just bringing margins reached a new record 21, 9% in the quarter and this represented a 110 basis point increase from last year's third quarter.
Adam Norwood: Adjusted diluted EPS grew 28% from prior year to reach a new record 50 cents here in the third quarter.
Adam Norwood: And then finally, we generated operating and free cash flow of $704 million and 476 million respectively. In the quarter and this is yet another clear demonstration of the high quality of the company's earnings.
Adam Norwood: Just have to say I'm extremely proud of the amphenol team our results. This quarter once again reflect the strength of our entrepreneurial organization as we continue to outperform in any environment.
Adam Norwood: Now just here in early October were very pleased to have closed on the previously announced acquisition of let's say Europe.
Adam Norwood: Let's say, it's based in Germany with annual sales of approximately $100 million and it's a leading provider of harsh environment cable and cable assembly solutions for diverse applications in the industrial markets.
Let's say Europe acquisition.
Adam Norwood: As a great complement to our broad offering of high technology interconnect products for the worldwide industrial market and together with Lutz you are let's say U S. It strengthens our range of value add interconnect products for this very important market.
Adam Norwood: In addition, we remain excited about the pending acquisition of the Andrew businesses from Commscope and we now expect that transaction to close in the first quarter of 2025.
Adam Norwood: We remain confident that our acquisition program will continue to create great value for amphenol, our ability to identify and execute upon acquisitions and then to successfully bring these new companies into the Amphenol family remains a core competitive advantage for the company.
Adam Norwood: Now turning to our served markets are once again pleased that the company's end market exposure remains highly diversified balanced and broad.
Adam Norwood: This diversification no question continues to create great value for amphenol, because it enables us to participate across all areas of the global electronics industry, while not being disproportionately exposed to the volatility of any given market or applications.
Adam Norwood: Now starting out with the defense market. It represented 11% of our sales in the quarter and sales grew from prior year by a strong 16% in U S dollars and 8% organically.
This was driven by growth across really most segments of the defense market with contributions, especially from space aircraft in avionics communications and ground vehicle applications.
Sequentially, our sales grew by 4%, which was in line with our expectations coming into the quarter.
Adam Norwood: As we now look into the fourth quarter, we expect sales in the defense market to increase moderately from these third quarter levels and for the full year 2024, we expect a mid teens increase in sales.
We remain encouraged by the company's strengthening position in the defense market, where we continue to offer the industry's widest range of high technology interconnect products.
Adam Norwood: Amidst the current dynamic geopolitical environment countries around the world are expanding their spending on both current and next generation defense technologies.
Adam Norwood: With our investments in the development of a broad array of new products as well as very importantly, the capacities to build those products, we are well positioned to capitalize on this long term demand potential.
Adam Norwood: The commercial air market represented 6% of our sales in the quarter and we had another strong quarter in commercial air with sales increasing by 123% from prior year in U S dollars and 12% organically as we benefited from the addition of C. I T.
Adam Norwood: Which we closed back in the second quarter as well as continued progress in expanding our content on next generation commercial aircraft.
Adam Norwood: Compared to the second quarter sales increased by 37% sequentially and were up slightly on an organic basis, and this was modestly lower than our expectation coming into the quarter.
Adam Norwood: Looking to the fourth quarter, we expect a high single digit increase in sales and for the full year 2024, we expect sales to increase by more than 80% from last year driven by the addition of C T as well as robust organic growth.
Adam Norwood: I'm truly proud of our team working in the commercial air market with the ongoing growth in demand for jetliners, our efforts to strengthen our product offering while diversifying our market position into next generation aircraft are paying real dividends.
Adam Norwood: We continue to see great long term opportunities for the expansion of our technology offering into this important market and look forward to realizing the benefits of our growth initiatives for many years to come.
Adam Norwood: The industrial market represented 23.
Adam Norwood: 23% of our sales in the quarter.
Adam Norwood: And sales in the quarter grew by 24% in U S dollars from prior year as we benefited from acquisitions on an organic basis, our sales were flat as growth in alternative energy instrumentation medical and rail mass transit solutions was offset by reduced demand in factory automation.
Adam Norwood: Equipment transportation and oil and gas.
Adam Norwood: Sequentially, our sales did increase by 9% from the second quarter and were up by 3% organically, which was somewhat better than our expectations coming into the quarter.
Adam Norwood: While we are encouraged to see stronger growth in North America, and Asia demand in Europe did again slow this quarter.
Adam Norwood: Accordingly, looking into the fourth quarter, we do expect sales to moderate from these third quarter levels and for the full year 2024, we expect sales to grow in the low double digits with the benefit of acquisitions, partially offset by an organic moderation of sales.
Adam Norwood: With the additions this year of C. I T and let's say, we now have an even broader range of products and capabilities to offer customers across the diversified industrial market.
I'm 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 electronic evolutions that will no doubt continue to occur across the industrial market and this creates exciting opportunities for outstanding team.
Adam Norwood: Working around the world.
Adam Norwood: The automotive market represented 19% of our sales in the quarter and sales grew by 4% in U S dollars and were flat organically.
Adam Norwood: Similar to the industrial market, while we did grow in North America and Asia in the automotive market our sales in Europe declined from prior year.
Adam Norwood: Sequentially, our sales increased by 4% from the second quarter, which was a bit better than our expectations coming into Q3.
Adam Norwood: For the fourth quarter, we expect sales to decline modestly from the third quarter levels and for the full year of 2024, we expect sales to increase in the mid single digit rain range compared to prior year.
Adam Norwood: I remain proud of our team working in the automotive market.
Adam Norwood: Well there are some areas of the automotive market that have shown some signs of slowing our team remains focused on driving new design wins with customers, who are implementing a wide array of new technologies into their vehicles.
Adam Norwood: These include electrified drivetrains as well as a multitude of other exciting applications.
Adam Norwood: And we look forward to benefiting from our strong position in the automotive market for many years to come.
Adam Norwood: The mobile devices market represented 10% of our sales in the quarter.
Adam Norwood: Sales increased by 18% in U S dollars and 17% organically and this was really driven by broad based strength across applications in the mobile devices market.
Adam Norwood: Sequentially, our sales increased by a much stronger than expected, 38% and that was driven also by higher sales across all segments of the mobile devices market.
Adam Norwood: Looking to the fourth quarter, we expect our sales to remain at these higher levels and for the full year, we anticipate sales to be up in the high single digit range compared to 2023.
Adam Norwood: I'm very proud of our team working in the always dynamic mobile devices market as their agility and reactivity have once again enabled us to capture incremental sales in the quarter.
Adam Norwood: I'm confident that with our leading array of antennas interconnect product and mechanisms designed in across a broad range of next generation mobile devices, we are well positioned for the long term.
Adam Norwood: Yeah.
Adam Norwood: Yeah.
Adam Norwood: The mobile networks market represented 3% of our sales in the quarter and sales grew by a strong 22% in U S dollars and 19% organically as we continued to see a recovery in demand from both mobile network operators as well as wireless equipment manufacturers.
Adam Norwood: On a sequential basis, our sales increased by 1%, which was a bit better than our expectations coming into the quarter.
Adam Norwood: For the fourth quarter, we now expect sales to decline seasonally in the mid teens and for the full year, we anticipate sales to grow in the high single digit range versus last year.
Adam Norwood: We're encouraged by the recent strengthening in the mobile networks market.
Adam Norwood: As operators ramp up their investments in next generation systems. Our team remains focused on realizing the benefits of our long term efforts to expand our position in next generation equipment and networks around the world.
With the pending acquisition of the Andrew businesses from Commscope, we look forward to participating even more strongly in these networks for many years to come.
Adam Norwood: The it datacom market represented 25% of our sales in the quarter.
Adam Norwood: Sales of 19 Datacom grew in the quarter by a very strong 60% in U S dollars and 59% organically and this was driven by the continued acceleration of demand for our products used in artificial intelligence applications.
Together with robust growth in our base ICEE Datacom business.
On a sequential basis sales increased by 15% from the second quarter substantially better than our expectations coming into the third coming here coming into the quarter.
Adam Norwood: As we look towards the fourth quarter, we do expect a further mid single digit sequential increase from the third quarter levels.
Adam Norwood: For the full year 2024, we expect sales in it datacom to grow by more than 50% compared to 2023.
Adam Norwood: I have to say that we're more encouraged than ever by the company's position in the global IC Datacom market or our team is just doing an amazing job around the world and securing future business on next generation <unk> systems, particularly those enabling AI.
Adam Norwood: No doubt that this revolution in AI has created a unique opportunity for the interconnect industry and for Amphenol, given our leading high speed and power interconnect products.
Adam Norwood: Whether high speed power or fiber optic interconnect our products are critical components. In these next generation networks and this continues to create a long term growth opportunity for amphenol.
Adam Norwood: Finally, the broadband market represented 3% of our sales in the quarter and sales were down by 15% in U S dollars and 14% organically as broadband operators continued to moderate their procurement levels.
Adam Norwood: On a sequential basis sales were down 3%, which was roughly in line with our expectations coming into the quarter.
Adam Norwood: For the fourth quarter, we expect a further high single digit reduction in sales and for the full year 2024, we expect a mid teen sales declined from prior year.
Adam Norwood: Regardless of this current more muted demand environment, we remain encouraged by the company's position in the broadband market and we look forward to continuing to support our service provider customers around the world when they resume growing their investments to expand bandwidth and coverage to their enterprise and consumer customers.
Adam Norwood: Now turning to our outlook and obviously, assuming the continuation of current market conditions as well as constant exchange rates.
Adam Norwood: For the fourth quarter, we expect sales in the range of $3.950 billion to $4 billion and $50 million and adjusted diluted EPS in the range of 48 to 50.
Adam Norwood: This would represent a sales increase of 19% to 22% and an adjusted diluted EPS increase of 17% to 22% compared to the fourth quarter of 2023.
Adam Norwood: Our fourth quarter guidance represents an expectation for full year sales of $14.855 billion to 14.955 billion as well as full year adjusted diluted EPS of $1 82 to $1 84.
Adam Norwood: Outlook would represent full year sales and adjusted EPS increases of 18% to 19% and 21% to 22% respectively.
Adam Norwood: This has been a very strong year for amphenol, thus far in 'twenty 'twenty, four and 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 strong profitability through this year and into the long term.
Adam Norwood: And finally I'd like to take this opportunity to thank our entire global team for their truly outstanding efforts here in the third quarter. There's no doubt that they worked extremely hard to deliver especially at this level of growth and I'm truly grateful to them.
Adam Norwood: And with that operator, we'd be happy to take any questions.
Speaker Change: Thank you.
Speaker Change: And answer period will now begin please limit to one question per caller. Our first question is from Andrew Buscaglia with BNP you May go ahead.
Speaker Change: Hey, good morning, guys.
Speaker Change: Good morning.
Andrew Buscaglia: So obviously, a very robust quarter for it datacom and even you said slightly better than maybe you expected. So yeah I think last year, you were alluding to it.
Speaker Change: Datacom the non AI portion also starting to improve but could you help us parse out how much of that.
Speaker Change: Sequential improvements from AI versus non non AI.
Speaker Change: Yeah, well Andrew Thanks, so much for the question look I think we did start last quarter being the second quarter to see a little bit of of stronger performance and I would tell you here in the third quarter the underlying I T. Datacom, obviously with the caveat that we are not always exactly.
Speaker Change: Easy to tell what what product goes into what application, but our best assessment of it is that the underlying I'd say datacom market did show actually very very strong growth this quarter no.
Speaker Change: Now I will tell you that oh, roughly the AI the products that we sell into AI represented a bit more than half of our overall year over year growth and about the same in terms of sequential.
Speaker Change: So very strong performance for anything related to AI, we have a very significant position in AI is as you know well.
Speaker Change: But we were encouraged very encouraged to see that the underlying idea datacom demand is growing and there is no doubt that there is today.
Speaker Change: Real rush to equip data centers enterprises consumer service providers with this next generation compute power with all the switching that's associated with that and the like and I think that is driving a bit of a recovery in these products are in quite a significant way for us during the quarter.
Speaker Change: Thank you. Our next question is from Luke Young with Baird. You May go ahead.
Great. Good afternoon. Thanks for taking the question Adam just hoping to double click on your automotive business clearly a very dynamic market right now in terms of overall production volatility you mentioned in Europe, especially EDI moderation et cetera, just given that backdrop do you curious what youre seeing in terms of the bookings pipeline right now.
Especially relative to your ability to continue to drive growth.
Speaker Change: <unk> market at or above the levels, the company's driven historically as the market constraining your growth potential at all right now or the only EMS actually need more help from amphenol in this environment appreciate the perspective.
Speaker Change: Thanks, So much look I mean, a lot to unwrap, there, but let me say this I mean, I'm really proud of our team in automotive I mean on a year to date basis. We've just done a fabulous job of continuing to outperform and navigating what as you term. It is very much. So a dynamic worldwide automotive market. Then these dynamics are are sort of multi.
Speaker Change: Facet of it there is the dynamic of drivetrain choice and I'm not Gonna go go down that rabbit hole, but for sure. The world is talking about this there's also the dynamic of just overall demand in certain geographies and in particular Europe, where.
Speaker Change: It's been widely reported that I'm, probably not the first to say that there are some challenges in the overall European demand and in automotive and we see that on a related basis I think in industrial but what I'm really pleased with is if you look this quarter. We did have still robust growth in Asia, and North America on an organic basis on a year over year basis and.
Speaker Change: That was offset in part at least by you know a moderation in Europe. So to your specific question about content in Amphenol is continuing to outperform we have every confidence that the momentum that we've had in gaining content, enabling new applications with our customers around the world whether those be next generation drivetrains.
Speaker Change: One of those being next generation electronics in cars connectivity communication antennas sensors and the like.
Speaker Change: The breadth of the product offerings that we have the capabilities to fulfill those offerings on a global basis continues to put us in a very strong position with automotive Oems the world over.
Speaker Change: And you know our team just has to navigate those dynamics as they are but the good news is regardless of whether something is made in Europe made in Asia, and North America, regardless of whether something is a full electric vehicle or hybrid or a full internal combustion engine. There is continuing to be up.
Speaker Change: Proliferation of electronics across all of those cars and so it's up to us to make sure that we continue to drive our next generation products into those platforms around the world and I'm confident that our team is well positioned to do that.
Speaker Change: Thank you. Our next question is from Amit <unk> with Evercore you May go ahead.
Speaker Change: Yeah, Thanks, a lot and congrats on a nice quarter I guess, Adam there's been a fair amount of noise around your content. When it comes to AI deployments and if I sort of think of the number you just said about half of the yoga growth as AI driven.
Can you just talk about the breadth of your customer base when it comes to AI deployments and if there's a way to maybe even think about you know how do your revenue stock up hyperscale versus ex view providers and just the breadth of your offering that would be really helpful.
Yeah, Amit. Thanks, so much I mean look we have really an outstanding breath of offering into the it datacom market and in particular into into applications related to AI and I think we've talked about this in the past what's unique about AI is that we're working with customers throughout the entire stack of of the chain.
Speaker Change: That starts.
Speaker Change: It starts with the people have the money and that's the web service providers and you know Theres only a limited universe of those and we're very well positioned with those companies.
Speaker Change: Through the OEM, the people who outfit the data centers, the Oems, who make equipment to sell into those data centers all the way down to the chip companies, who sometimes are creating designs and configurations of those things that are used and I think that comprehensive aspect of our relationships.
Speaker Change: That has really served us well.
Speaker Change: Because it's not about an individual product and individual program or whatever it's about the collective efforts of the industry to build out artificial intelligence in kind of a big way and I think that that collective efforts are happening in so many different aspects you have different types of chips being used.
Speaker Change: Have different architectures being used but what ties them all together from an interconnect perspective is two things they have to be high speed and low latency and you've got to help them use less power and those two things the speed that the speed and latency on one side and the power efficiency on the other or where we come.
Speaker Change: And to play and where we create value for our customers because we have the industry, leading high speed products. The highest operating at the highest speeds. The lowest latency is we have the industry's leading efficient power interconnect products.
Speaker Change: Everything from power connectors Assembly is bus bars, and the like everything that gets power all the way down to these power hungry chips and working on those complex architectures as our engineers have done for many years together with scaling out our capacity and capability on a global basis. So that we can meet this demand has really put us.
Speaker Change: In a strong position with customers the world over and so I wouldn't I wouldn't get hung up on noise of one or another program or configuration I would think much more about the overall opportunity that is here and the fact that we're that we're for sure capturing more than our fair share of that.
Speaker Change: Thank you. Our next question is from stomach chatter G with J P. Morgan you May go ahead.
Hi, Thanks for taking my question and then Adam.
Speaker Change: Congrats on the strong results.
Speaker Change: I guess I'll follow up.
Speaker Change: Question was item you talked in your prepared remarks about your team working hard to win our secured business Tonight to Datacom on next generation systems and can you talk in relation to when you're seeing these robust growth numbers in <unk>.
Speaker Change: What are we seeing in terms of sort of content growth in sort of next generation systems. How much visibility are you getting today in relation to what your content or no sort of bull or unit basis in some cases, it looks like going to a next generation system and how will you position whether that makes judicial system uses more copper or fiber or how do you think.
Speaker Change: The board opportunities on both those fronts. Thank you.
Speaker Change: Yeah. Thanks, very much summit I mean look we've talked in the past about the fact that the unique.
Speaker Change: The architecture of these neural network machine learning AI, whatever you want to call them systems.
Speaker Change: Is that you essentially have to create.
Speaker Change: A very high speed low latency mesh fabric, so that the chips can all talk to each other.
Speaker Change: And I am not an electrical engineer the farthest thing from it.
But I can tell you that it is unbelievable the type of interconnection requirements that are going on these in these systems and and that just means there is greater content and a greater role I mean, we we use this word content, but let me change that to talk about just the role that interconnect.
Speaker Change: And the functioning of these systems because.
Speaker Change: The role of the interconnect becomes really fundamental to weather. These systems can operate if the chips can't talk to each other at a high enough speed and at a low enough latency then to go out and build a complex large language model or whatever other model you're trying to do it. It just takes too long in the end the thing becomes.
Speaker Change: Absolutely before it's even before it's even completed and so the ability to have these rapid calculations and comparisons and probabilities that come across it's just it is in many ways dependent on the interconnect is a link to that.
And thus the content opportunity, regardless of who makes what chip regardless of of how someone chooses to architect that that content has gone up and will continue to go up and we have a very strong position.
Speaker Change: With customers again across that stack that I described earlier you know relative.
Relative to copper and fiber you know the good news for Amphenol as we're present in both and we've made great acquisitions in and been a strong innovator in fiber as well as in copper, but but I think you also know very well that there are advantages to each and when you think about power you you want to use.
Speaker Change: Copper as much as possible because optics as a much higher usage of power and so the value that we can create for our customers is by stretching the capabilities of copper is such that it can meet these ultra high bandwidth demands and that's something we've been doing for more than two decades.
Speaker Change: When I think back on the acquisition of Teradyne connection systems 19 years ago that brought us into a leadership position of high speed over copper back then we were talking about things like five gigabits as being kind of an aspirational or 10 gigabit as an aspirational speed over cocker copper today.
Speaker Change: We're achieving things like 200, then.
Speaker Change: And aspiring to for an 800 and who knows maybe beyond over copper and that's the the incredible value that you can create for customers by stretching the capabilities of copper through your engineering expertise. This is real value that you can create through engineering and technology and I think our teams are doing that.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from <unk> merchant with Citi. You May go ahead.
Great. Thank you for taking my question and congratulations on the results if I can a little bit on Capex I think Greg mentioned, a little bit of an elevated capex here and see if you could help me understand you know how long do we expect this capex run rate to exist at the end of the Capex that you guys are.
Speaker Change: Putting in to support the ITD dotcom crowd. Thank you.
Speaker Change: Yeah. Thanks, Yeah, I think so if you think about kind of our capital spend we talked about this last quarter, a bad and we said we would expect to be kind of elevated for certainly the next couple of quarters being this quarter and and I just kind of reiterated that here in the fourth quarter, we expect to be kind of a little bit elevated levels.
Speaker Change: To drive this you know and support the significant growth we're seeing in both the I T datacom as well as to a certain extent into the defense market as well I mean, we're not giving guidance yet for next year, So I'm not going to necessarily comment specifically on what we expect for capital spend for 2025, but we do certainly you continue to target kind of that 3% to four.
Speaker Change: Percent of sales.
Speaker Change: From a capital perspective, I think nothing structurally has changed over kind of a mid or long term you know from our expectation of capital spend to kind of maintain our business going forward certainly in years, where we're going to see strong growth shows such as 'twenty, one 'twenty 'twenty four here and certainly in other years, we tend to be kind of at the higher end of.
Speaker Change: That that range and in years that we see kind of lower growth that we'd expect to be kind of more than the middle of that range or so so I think that that's how we we expect our capital at this point you know I certainly will talk about 2025 more specifically, if we see elevated levels.
Speaker Change: As we enter the year next year.
Speaker Change: Thank you. Our next question is from Joe Spak with UBS you May go ahead.
Speaker Change: Hi, Thanks, so much harder on maybe two quick ones. One I just wanted to understand in in the aerospace guidance you gave whether.
Speaker Change: You are assuming any impact from from the ongoing strike in and if that's at all significant and then you know last quarter you talked about some industrial green shoots and I know you mentioned today that in North America Asia, Okay. Europe tough just wondering if there's any further sprouting and if youre seeing any impact from any of the China stimulus.
Speaker Change: All of us in our region.
Speaker Change: Yeah. Thanks, Thanks, very much Joe I mean look relative to your first question on aerospace and strikes I mean, like we wish we wish for all of our customers that they are peaceful relations with their workforce.
Speaker Change: And without commenting specifically on any customer I will tell you that our guidance always incorporates all of the information that we have from our customers around the world, including within that market.
Speaker Change: In terms of the industrial Green shoots it's absolutely the case that last quarter. We did talk about seeing some some green shoots in industrial and look I mean this quarter, we did see some sequential growth on an organic basis from prior quarter, but I will say that our view of the trends in Europe are probably a little more muted than maybe they were a quarter ago.
Speaker Change: So I.
Speaker Change: I mean, we're pleased with what we've seen in North America and Asia. We we grew in industrial organically in both regions bolt on a year over year basis and sequentially, but we've probably seen an incremental ticked down in in Europe, and you know what what to look for there I mean, I think we'll have to watch the automotive industry in the industrial.
Speaker Change: The automotive market and industrial market in Europe are fairly tied at the hip as you know well you have a lot of factory automation and machine tool industry is and the like which are somewhat dependent on the investment cycles that come from the the automakers who are such a big component of the European economy.
Speaker Change: And so I think we'll have to watch that and see how it proceeds.
Speaker Change: Look in our in our organization I mean not to be Cavalier about this but like it is what it is like we our team is very used to this scenario, where you know you tighten your belt and you put your head up high and go out and take some business and so to the extent that there is in in Europe.
Speaker Change: A moderation in these places like industrial and automotive you know our team knows how to deal with that we've got a playbook and to the extent that there are opportunities in other geographies will work to capitalize upon those and take more than our fair share as they come along.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question is from Mark Delaney with Goldman Sachs. You May go ahead.
Mark Delaney: Yes, good afternoon, and thank you very much for taking the question EBIT margins came in at a record high even with a full quarter contribution of the Citi acquisition, So I'm, hoping to better understand what led to the margin strength. This past quarter or maybe you can level set us on where margins are running at at.
At this point and if theyre already at the levels, you're targeting and how should investors think about incremental margins going forward. Thank you.
Speaker Change: Yeah, Thanks, Mark Yeah.
We're really really proud of our operating margins here in the third quarter. I mean, you know this year, we really have done a great job of really execution and this really goes without saying here in the third quarter.
Speaker Change: This does Ti T margins I would say you know ultimately we're not going to talk you know so much generically about their margins, but I would say they're still on their journey.
Speaker Change: That really wasn't a strong contributor here in the third quarter to the margin improvement I really the margin improvement here with just the execution of the team and the ability for the team there really just maximize the profitability on the strong growth that we've seen and you know and I think that you know as we go forward.
Speaker Change: Talk about this 25% conversion margin. We've done you know clearly better than that recently I still think over the long term, 25% is kind of the way. We we kind of think about things, but the team really has been executing very well and as you know the strong growth that we've seen over the recent quarters and I would expect as we continue to grow we will continue to be.
But that kind of execute well and.
Speaker Change: And increase those margins as we grow them as it relates to how long, it's going to take us to kind of get C. A T F. The company average.
Speaker Change: We're not going to really talk about so much how long exactly we think but we're certainly very happy with the progress so far and certainly I would say today, even versus 90 days ago, I would say I'm, even more optimistic that they'll ultimately that's that's the I think it will get to that taking the company average, but this is just a great team there they are extremely motivated.
Speaker Change: They're there I'm excited to be part of Amphenol and I think there are there really making some great strides to to take the steps they need to get to those to those you know really great goals.
Speaker Change: Thank you. Our next question is from Guy Hartwig with Freedom capital markets. You May go ahead.
Speaker Change: Alright.
Guy Hartwig: Good afternoon, congratulations on the fantastic Q3 results.
Speaker Change: Yeah.
Speaker Change: Thank you Guy.
Guy Hartwig: I'm, just I mean, obviously.
Speaker Change: Obviously, it's great news that you can close Andrew it's a little bit close them earlier than expected does that mean any antitrust issues that you may have encountered a receding.
Speaker Change: Yeah, well, thanks, very much I mean look we never thought there were going to be any meaningful antitrust issues, but we knew that there would be you know a lot of filings to be done because Andrew off price on a global basis in lots of different geographies and you know you never know how long those things can take.
Speaker Change: And I think we're just encouraged by how the process is going in and that gives us really the confidence to think that it's going to be sometime in the first quarter as opposed to in the first half, but again just to reiterate we never thought there were any substantive antitrust issues, but you know theres always a process to do.
Speaker Change: Thank you. Our next question is from Steven Fox with Fox Advisors, You May go ahead.
Steven Fox: Hi, good afternoon Adam.
Steven Fox: Greg.
Steven Fox: I was wondering if you could step back on the mobile device market. He called out that you're now going to see high single digit growth for the year, which is kind of an interesting data point, even if it's off of a down year in 'twenty. Three can you just sort of talk about what that high single digits is comprised of how much you think its content growth what you think the mark.
Steven Fox: Kids are doing anyway. It implies maybe for next few quarters roughly thank you.
Speaker Change: Yeah, well, thanks, very much Steve I will I'll punt a little bit on your last part of your question because you know I'm not very good at forecasting mobile devices, even in one quarter, let alone. The next several quarters, but but let me say this our team working in mobile devices has just done a fabulous job again this year.
Speaker Change: I mean this is such a phenomenal organization and you know you think about the technologies.
That we're working on things like connectors, obviously antenna is obviously the mechanisms that we that we participate in and there's no doubt that the content in many of these products the breadth of the content continues to expand.
Speaker Change: Back on you know a phrase that I've used for many many years, probably you know almost the entirety of my nearly 16 years here are doing these calls as CEO it at that.
Speaker Change: When when the hardware creates value for the customers than our products can create value for our customers and end and there's no question that you see continued innovations in the things themselves and the devices and those ultimately result in just you know really really Butte.
Speaker Change: For products that are coming out and and our team is is helping to make those those beautiful products and.
Speaker Change: The more functionality that comes in to them.
Speaker Change: The more opportunity there is ultimately for US now look all of that is with the caveat to tell you that this is a very fickle dynamic volatile market and so you know.
Speaker Change: We're guiding the market here in the fourth quarter to stay it is pretty robust levels that we achieved in the third quarter and hopefully I'll be right about that but time has told that I'm, usually not spot on and even guiding in a 90 day period on mobile devices, but there is no doubt I mean.
Speaker Change: And maybe maybe I'm a power user of these mobile devices I mean, I I have them sitting all around me at all times I used car.
Speaker Change: Constantly.
Speaker Change: We have learned I think the extraordinary things that you can do with with mobile devices and how what used to be just a phone becomes a tablet a wearable a horrible device you know the.
Speaker Change: The line get sort of blurred between all of these things, but but ultimately they allow you to communicate and to be productive.
Speaker Change: And I think that our customers continue to push the limits of that productivity and communications such that consumers ultimately want to buy the product.
Speaker Change: So.
Speaker Change: That's where we stand today next year, who knows what it's going to be we still see.
Speaker Change: Thank you. Our next question is from Scott Graham with Seaport Research Partners you May go ahead.
Hey, good afternoon.
Speaker Change: Taking the question and great quarter, I was hoping you would perhaps comment on.
Speaker Change: Next quarters.
In the quarter, and maybe call out which.
Speaker Change: Verticals were maybe stronger versus those which were weaker.
Speaker Change: Yeah, I mean, we we we don't really talk about organic order.
Speaker Change: Like if you're talking about order growth or something like this I mean, our our book to Bill. It is what it is it because when you acquire a company that they have bookings greater than the revenues that still organic book to Bill and I think our strong book to Bill is a total reflection of the companies that we are not not being on prior to being part of Amphenol.
Speaker Change: Thank you. Our next question is from Onesie <unk> Mohan with Bank of America. You May go ahead.
Speaker Change: Yeah. Thank you so much Adam I was wondering if you could maybe comment on the aperture of these orders again like a very strong order number can you talk about maybe one the visibility that you have around these orders and how far out maybe some of these orders are like how much would you have a hotel.
Current quarter versus maybe next are these stretched out even beyond that.
Speaker Change: And that'd be helpful. Thank you.
Adam Norwood: Yeah, well, thanks very much for them as they appreciate the question look I I have mentioned I think last quarter and I'll reiterate it again this quarter that you know these are very strong books books to bill and in particular, we see those strong book to Bill in it Datacom first and probably defense and calm air.
Adam Norwood: To a somewhat lesser extent and theres no doubt that we have seen a bit of the order aperture opening and you know I I would actually relate that also to the fact that we're spending more on capital spending and Craig I already talked about Capex.
Adam Norwood: You can imagine you know when we think about spending a little bit more than we're used to on capital that we work with customers to make sure that we have assurance that the that that capital is going to be used in that assurance often comes in the form of orders that can also come in the form of contributions or guarantees.
Adam Norwood: And so there is some extent of that order aperture, that's a little bit longer than that is there to give us the comfort and security that we'll be making those investments which may be more significant than than is typical.
Adam Norwood: In terms of how far out I mean look we will we will never book anything we don't record any booking that's that's more than a year out in our numbers. That's a that's a sort of like I think even in an accounting rule of some sort of internally.
Adam Norwood: But but you know the vast majority of our orders would be fulfilled within a couple of quarters and I can't tell you or are there some of those the poke out into three quarters out you know occasionally.
Adam Norwood: That could be on an occasional basis, but I would say the vast majority would be within a couple of quarters.
Speaker Change: Thank you and our last question comes from Joe Giordano with TD Cowen You May go ahead.
Joe Giordano: Hey, guys. Thanks for taking my question.
Joe Giordano: Adam you hinted at this and you've done it you said it.
Joe Giordano: Cause historically about.
Joe Giordano: How are you guys motivate your people to go find new business in new markets. If it's not in your current one like I'm just curious what youre doing now in AI.
Joe Giordano: And the money you're spending there and the success you're having like is there an ability to scale that to markets that are not currently using it and.
Joe Giordano: I guess the other side of this you know the people in that sector that are running full tilt to hit to meet demand now like how do you prepare them for times when it's not going to be you know growing 50% a year just to make sure that the business kind of stayed at high levels and when when growth ultimately you know kind of starts to moderate.
Joe Giordano: Yeah, Joe I mean look excellent question I mean first what you'd get to hear with you you're talking about kind of two sides here well, how do you motivate people to get new business, maybe when they don't have it and how do you motivate people to keep working as hard as they do knowing that maybe there can be always volatility and I think that's really the amphenol in way I mean, if you.
Get to the essence of our culture of entrepreneurship.
Joe Giordano: It really boils down to agility reactivity flexibility, which is kind of you know those are three words Academy and the same thing I understand that and and and that just means you're always thinking about it in a in a in a difficult time.
Joe Giordano: We're planting seeds, you're aggressively going out there and finding ways to proliferate your technology into other applications and there may be a multitude of ways of doing that I mean, I still remember you know anecdotally you know the folks in our business, who worked in an oil and gas at the time when the price of oil dropped by <unk>.
Joe Giordano: 60% to 70% from like more than $100 down to $40 and they realized that they weren't necessarily just selling oil and gas connectors. They will they were selling really high voltage high power products.
When does the ultra harsh environment. So how do you go and find a new application for those ultra high voltage ultra harsh environment products that that may not be oil and gas and then lo and behold you do that work for some time you maybe develop some new opportunities for those technologies in the long comes that market recovering.
<unk> once again and now you've got a more stable base you have a kind of a second or third leg.
Joe Giordano: Of the stool by the same token when you're in a really strong market and there's no doubt about it I mean, our folks working in Datacom. They grew 60% on a year over year basis.
Joe Giordano: We have individual operations that grew by a heck of a lot more than that you can imagine. This is hard hard work I mean, I just I I said it earlier in my prepared remarks, but I cannot commend enough our folks working around the world on these products and the sacrifices that they have made personally.
Joe Giordano: Weekend nights travel missing a family our events and the like I mean, it is it's it's humbling to me. Let me tell you to just bear witness to what these folks have done and thereby achieved in which you know I get to talk about just some numbers here.
Joe Giordano: But these guys. These guys have put their heart and soul into the matter, but everybody in amphenol, regardless of where they are they're always putting one foot on the gas and one on the brake there thinking with each investment what if this goes down what is inevitably there is a cycle and they're managing their business. According.
Joe Giordano: So that one day when there is a cycle I mean, we're a diversified company we've been around for you know 92 years, we know that business goes in cycles, and it's our job to maximize our business on the windows cycles are strong and to moderate the impact windows cycles are not strong and I think we've.
Joe Giordano: Australia that over a couple of decades through every cycle, whether those are big cataclysmic cycles like the global financial crisis, the Internet bubble burst and Covid, where we've moderated the impact of this on the downside you know our margins dropping to 300 basis points peak to trough and each of those cycles and we've also done it in those little cycle.
Joe Giordano: The cross business is the Best example, being our mobile devices team who'd probably deals with the cycle three times a year I mean, they are every quarter, having one of these cycles growing massively I mean look they they grew by 38% sequentially and our mobile devices team from Q2 to Q3 and probably in Q1, they're going to go down by.
Joe Giordano: A decent amount at that time, and so there there's no doubt about it and in the it Datacom team. This team who is working on AI. They have also gone through their own cycles, whether it was before COVID-19 coming out of covered when we saw a flood of demand to so that people could could communicate with their with their.
Joe Giordano: Lease and relatives and and all of this.
Joe Giordano: And in all of the stuff that happened through the building of the Internet and thereby the kind of inventory that was built up thereafter, and so I'm very confident in our team that not only are they going to maximize their performance here, but you know when inevitably a cycle comes in I'm I'm, certainly not going to be the one to pick when that cycle will be.
Joe Giordano: Yeah, we will be ready for it as amphenol and always have been.
Joe Giordano: Yeah.
Speaker Change: Thank you and that was our last question I will turn it back to Mr. Norway for any closing remarks.
Well. Thank you very much to all of them and I'm really grateful to have all of you on the phone here today and I wish that you have a great finish to the year and hard to say it but we will talk to you all in 2020 five.
Speaker Change: Thank you very much.
Speaker Change: Thank you for attending today's conference and have a nice day.