Q4 2024 Amphenol Corp Earnings Call
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Hello and welcome to the fourth quarter earnings conference call for Amphenol Corporation.
Following today's presentation, there will be a formal question and answer session.
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 turn the conference host over to your host, Mr. Craig Lampo. Sir, you may begin.
Thank you very much and good afternoon everyone. This is Craig Lampo, Amphenol CFO and I'm here together with Adam Norwitt, our CEO. We would like to wish everyone a Happy New Year and welcome you to our fourth quarter 2024 conference call.
Our fourth quarter and full year 2024 results were released this morning. I will provide some financial commentary and then Adam will give an overview of the business and current market trends. Then we will of course 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.
The company closed the fourth quarter of 2024 with record sales of $4,318,000,000 and record gap in adjusted diluted EPS of $0.59 and $0.55, respectively.
Fourth quarter sales were up 30% in U.S. dollars and in local currencies, and up 20% organically compared to the fourth quarter of 2023.
Sequentially, sales were up 7% in U.S. dollars in local currencies and organically.
Adam Norwitt: Adam will comment further on Transway Market in a few minutes.
Adam Norwitt: For the full year 2024, sales were $15,223,000,000, up 21% in U.S. dollars and in local currencies, and up 13% organically compared to 2023.
Adam Norwitt: Orders in the quarter were a record $5 billion and $14 million, up 58% compared to the prior year, and up 14% sequentially, resulting in a strong vote-to-bill ratio of 1.16 to 1.
Adam Norwitt: For the full year, orders were $16,835,000,000, up 37% compared to 2023, resulting in a book-to-bill ratio of 1.11 to 1.
Adam Norwitt: GAAP operating income was $954 million and included $12 million of acquisition-related costs in the quarter, primarily related to the pending acquisition of the Andrew business from Comscope.
Adam Norwitt: Gap operating margin was a record 22.1 percent which increased 140 basis points and 180 basis points compared to the fourth quarter of 23 and the third quarter of 24 respectively.
Adam Norwitt: Excluding these acquisition related costs, adjusted operating income in the fourth quarter of 24 was 966 million dollars resulting in a record adjusted operating margin of 22.4 percent.
Adam Norwitt: On an adjusted basis, operating margin increased by 120 basis points from prior year quarter and 50 basis points sequentially.
Adam Norwitt: The year-to-year increase in adjusted operating margin is primarily driven by strong operating leverage on higher sales volumes, which was partially offset by the diluted impact of acquisitions.
Adam Norwitt: On a sequential basis the increase in adjusted operating margins reflected strong conversion on the higher sales levels.
Adam Norwitt: For the full year of 2024, GAAP operating income was $3,157,000,000, which included $146,000,000 of acquisition related costs.
Adam Norwitt: Full year gap operating margin was 20.7%, an increase of 30 basis points compared to 2023.
Adam Norwitt: Excluding acquisition related costs, full year 2024 adjusted operating income was $3,303,000,000 resulting in an adjusted operating margin of 21.7% also a record.
Adam Norwitt: Compared to 2023, adjusted operating margin increased 100 basis points, which was primarily driven by the strong operational performance on the higher sales levels, partially offset by dilutive impact of acquisitions.
Adam Norwitt: I am very proud of the company's record operating margin performance in the fourth quarter and for the full year, which reflects continued strong execution by our teams.
Adam Norwitt: Breaking down the fourth quarter results by segment compared to the fourth quarter of 2023, sales in the harsh environment solutions segment were $1,262,000,000 and increased by 40% in US dollars and 8% organically and segment operating margin was 24.2%.
Adam Norwitt: Sales in the communications solution segment were $1,928,000,000 and increased by 43% in U.S. dollars and 42% organically and segment operating margin was 26%.
Adam Norwitt: Sales in the interconnect and sensor system segment were $1,128,000,000 an increase by 4% in U.S. dollars and 3% organically and segment operating margin was 18.6%.
Adam Norwitt: Breaking down full year results by segment compared to the full year 2023.
Adam Norwitt: Sales in the harsh environment solutions segment were $4,417,000,000 and increased by 25% in U.S. dollars and 4% organically and segment operating margin was 24.7%.
Adam Norwitt: Sales in the communication solution segment were $6,324,000,000 an increase by 29% in U.S. dollars and 27% organically, and segment operating margin was 24.8%.
Adam Norwitt: Sales in the interconnect and sensor system segment were $4,482,000,000 an increase by 9% in U.S. dollars and 4% organically, and segment operating margin was 18.4%.
Adam Norwitt: The company's GAAP effective tax rate for the fourth quarter was 17.4% and the adjusted effective tax rate was 24%, which compared to 22% and 24% in the fourth quarter of 2023, respectively.
Adam Norwitt: For the full year, 2024, the company's gap effective tax rate was 18.9%, and the adjusted effective tax rate was 24%, which compared to 20.7% and 24% in 2023, respectively.
Adam Norwitt: We currently expect a half point increase in our effective tax rate in 2025 compared to 2024, bringing our tax rate to 24.5%. This is primarily driven by our expectation of a slightly less favorable income mix in 2025, and our first quarter guidance assumes this higher 24.5% tax rate.
Thank you.
Adam Norwitt: GAAP diluted EPS was a record $0.59 in the fourth quarter, up 44% compared to the prior period. And on an adjusted basis, diluted EPS increased 34% to a record $0.55 compared to $0.41 in the fourth quarter of 2023. This was an excellent result.
Adam Norwitt: from $1.55 in 2023, and just the diluted EPS with a record $1.89 in 2024, an increase of 25% from $1.51 in 2023.
Adam Norwitt: Operating cash flow in the fourth quarter was a record $847 million, or 114% of net income. And net of capital spending, or free cash flow, was $648 million, or 87% of net income.
Adam Norwitt: This was an excellent result, especially considering that our capital spending was somewhat elevated in the quarter due to investments we are making in support of the strong growth we are seeing in ITDataCom and defense markets.
Adam Norwitt: We expect to continue to have somewhat elevated levels of capital spending in the first quarter as we continue to invest to support the significant growth we are seeing in the IT data com market particularly related to AI applications.
Adam Norwitt: For the full year 2024, operating cash flow was a record $2,815,000,000 or 116% of net income. In net of capital spending, our free cash flow was $2,157,000,000 in 2024 or 89% of net income, a strong result.
Adam Norwitt: From a working capital standpoint, inventory days, days sales outstanding, and payable days were 80, 68, and 58 days respectively, all within our normal levels.
Adam Norwitt: During the quarter, the company repurchased 2.4 million shares of common stock at an average price of approximately $70. And when combined with our normal quarterly dividend, total capital returned to shareholders in the fourth quarter of 2024 was $368 million and $1,280,000,000 for the full year of 2024.
Adam Norwitt: Total debt on December 31st was 6.9 billion dollars and net debt was 3.6 billion dollars and total equity at the end of the quarter was 6.3 billion dollars which included cash in short-term investments on hand of 3.3 billion plus availability under our existing credit facilities.
Adam Norwitt: Until the previously announced acquisition of the Andrew business from Comscope closes, we expect quarterly interest expense net of interest income earned on cash on hand to be approximately 45 million dollars, which is reflected in our first quarter guidance.
Adam Norwitt: We continue to expect the Comscope acquisition to close in the first quarter of 2025.
Adam Norwitt: Excluding acquisition related costs, cost fourth quarter and full year 2024 EBITDA was $1,137,000,000 and $3,902,000,000 respectively. At the end of the fourth quarter of 2024, our net leverage ratio was 0.9 times.
Adam Norwitt: We are very pleased that the company's financial condition remains strong by any measure.
Adam Norwitt: I will now turn the call over to Adam who will provide some commentary on current market trends.
Speaker Change: Well, thank you very much, Craig, and I hope it's not too late to wish everybody here on the call a Happy New Year.
Speaker Change: from Frozen, Wellingford, Connecticut. And I hope all of you are able to stay warm on this very chilly but beautiful winter day. As Craig mentioned, I'm going to highlight some of our achievements in the fourth quarter and the full year. I'll then discuss our trends across our serve markets.
Speaker Change: And then I'll comment on our Outlook for the first quarter, and of course we'll have time for questions.
Speaker Change: With respect to the fourth quarter, the company had a very strong finish to a successful 2024, with sales and adjusted diluted earnings per share both exceeding the high end of our guidance here in the fourth quarter.
Speaker Change: Sales grew by 30% in U.S. dollars and local currencies, reaching a new record of $4,318,000,000. And on an organic basis, our sales increased by a very strong 20%, with growth across virtually all of our served markets.
Speaker Change: The company booked just over $5 billion in orders in the fourth quarter, also a new record for the company, and representing another strong book-to-bill of $116 to $1.
Speaker Change: Orders grew by a very strong 58 percent from prior year and were also up 14 percent sequentially.
Speaker Change: These strong orders were once again driven primarily by data center demand related in particular to artificial intelligence or AI investments by a number of our large customers.
Speaker Change: We're pleased to have delivered record adjusted operating margins of 22.4% in the quarter, an increase of 120 basis points from prior year and 50 basis points sequentially. I would just say that this superior profitability is a direct result of the outstanding execution of the Amphenol team around the world.
Speaker Change: adjusted diluted EPS in the quarter grew by 34% from prior year and reached a new record of 55 cents
Speaker Change: Finally, the company generated record operating cash flow of $847 million, as well as free cash flow of $648 million in the fourth quarter, both clear reflections of the quality of the company's earnings.
Speaker Change: I just have to say that I can't express enough my pride in the Amphenol team. Our results this quarter once again reaffirmed the value of the discipline and agility of our entrepreneurial organization as we have continued to perform well amidst a very dynamic environment.
Speaker Change: Now turning to the full year of 2024, I just want to say that this was a truly successful year for Amphenol. We expanded our position in the overall market, growing sales by 21% in US dollars and local currency, and 13% organically, reaching a new sales record of $15.2 billion.
As we cross $15 billion in sales in 2024,
Speaker Change: Our organization is proud that we have grown ourselves by 40% just in the last three years. And it's a great reflection of our organization's ability to navigate market uncertainties while capitalizing on the broad array of opportunities arising across the electronics industry.
Speaker Change: Our full year 2024 adjusted operating margins reached a record 21.7%, an increase of a full 100 basis points from prior year. And this strong level of profitability enabled us to achieve record adjusted diluted EPS of $1.89.
Speaker Change: And finally, we generated record operating cash flow of $2,815,000,000 and free cash flow of $2,157,000,000, clear confirmations of the company's superior execution and disciplined working capital management.
Speaker Change: Also very pleased that our acquisition program again created great value in 2024. We completed the acquisition of Carlyle Interconnect Technologies, our largest ever, together with the acquisition of Luce US and Europe.
Speaker Change: These acquisitions have collectively added annualized sales of more than $1 billion to the company, while enhancing Amphenol's position across a broad array of technologies and bringing outstanding and talented individuals into our family.
Speaker Change: In addition, as previously announced, in July we signed the acquisition for the Andrew Businesses from CommScope.
Speaker Change: This outstanding acquisition, which we still expect to close here in the first quarter of 2025, will also strengthen the company's position in the global communications market while adding incredible technologies and team members to Amphenol.
Speaker Change: We returned substantial cash to shareholders in 2024, buying back 11.1 million shares under our share repurchase program and increasing our quarterly dividend by 50% and this represented a total return of capital to shareholders of nearly 1.3 billion dollars.
Speaker Change: As we enter 2025, I remain excited about the opportunities ahead of us. Our agile entrepreneurial organization has created a new position of strength from the company from which we can continue to drive superior long-term performance.
Speaker Change: Now turning to the trends and our progress across our diversified served markets, I would just comment that we're very pleased that the company's end market exposure remains highly diversified, balanced, and broad.
Speaker Change: This diversification continues to create great value for Amphenol because it enables us to participate across all areas of the global electronics industry, all while not being disproportionately exposed to the volatility of any given market or application.
Speaker Change: So turning first to the defense market, this market represented 10% of our sales in the quarter and 11% of our sales for the full year 2024.
Speaker Change: Sales in the fourth quarter grew strongly from prior year, increasing by 16% in U.S. dollars in local currency.
Speaker Change: On an organic basis, sales increased by 9 percent, with broad-based growth across virtually all defense applications, and this included in particular space, ground vehicles, avionics, airframe, and communications.
Speaker Change: Sequentially, our sales increased by 4%, which was in line with our expectations coming into the quarter.
Speaker Change: For the full year 2024, our sales grew by 15% in U.S. dollars and local currency and by 9% organically and this reflected our superior operational execution together with growth across really all segments of the defense market.
Speaker Change: I would just note here that our growth in 2024 was particularly strong in Europe, and that reflected our broad and leading position across the many countries there who are increasing their defense spending.
Speaker Change: Looking into the first quarter, we expect sales to remain roughly at these levels. And we remain encouraged by the company's leading position in the defense interconnect market, where we continue to offer the industry's widest range of high-technology products.
Speaker Change: With our investments in the development of a broad array of new products, as well as in the capacities to build them around the world, we're well positioned to capitalize on this long-term demand potential.
Speaker Change: The commercial air market represented 6% of our sales and for the full year 2024. And in the fourth quarter, sales grew by a strong 137% in U.S. dollars and local currency. And on an organic basis, our sales increased by 18% from prior year. And this was really driven by broad-based strength with virtually all commercial aircraft manufacturers.
Speaker Change: Sequentially, our sales grew as expected by 7% from the third quarter.
Speaker Change: For the full year 2024, our sales increased by 86% in U.S. dollars and local currency as we benefited from the acquisition of CIT as well as from strong underlying growth in the market.
Speaker Change: And, in fact, organically, our sales increased by 15% from prior year, and that really did reflect a robust design and position on a broad range of jetliner platforms.
Speaker Change: Looking into the first quarter, we expect sales to moderate in the high-mid-high single-digit range sequentially.
Speaker Change: I'm just really proud of our team working in the commercial air market. With the ongoing growth and demand for aviation, our efforts to expand our product offering both organically and through our acquisition program are paying real dividends.
Speaker Change: We continue to see great long-term opportunities for our technology offering in this important market, and we look forward to realizing the benefits of our growth initiatives for many years to come.
Speaker Change: Now turning to the industrial market, this market represented 23% of our sales in the fourth quarter and 24% for the full year 2024.
Speaker Change: Our sales in the quarter grew by 26% in U.S. dollars and local currency from prior year.
Speaker Change: And on an organic basis, we were pleased that sales grew by 6% from prior year with growth in instrumentation, alternative energy, battery and electric heavy vehicles, medical, as well as rail mass transit applications.
Speaker Change: On a sequential basis, our sales grew by 3%, which was better than our expectations coming into the quarter.
Speaker Change: For the full year 2024, sales grew by 14% in U.S. dollars and local currency as we benefited from the impact of our acquisitions.
Speaker Change: Organically, sales declined by 2% from prior year as strength in rail mass transit, alternative energy, and medical applications were more than offset by moderations in other markets.
Speaker Change: Looking into the first quarter of 2025, we now expect sales to decline in the low single digits from these fourth quarter levels.
Speaker Change: You know, demand did moderate in particular in Europe this year, but we remain encouraged by the company's strength across the many diversified segments of this important market.
Speaker Change: As demand now begins to improve, I'm confident that our long-term strategy to expand our high-technology interconnect, antenna, and sensor offering, both organically and through complementary acquisitions.
Speaker Change: has positioned us to capitalize on the many electronics revolutions that will no doubt continue to occur across the industrial market.
Speaker Change: The automotive market represented 18% of our sales in the quarter and 20% of our sales for the full year.
Speaker Change: Sales in the fourth quarter were down by 3% in U.S. dollars, local currencies, and organic. And that was really driven particularly by lower demand from European customers, which more than offset organic growth in North America and Asia.
Speaker Change: Sequentially, our automotive sales increased by 1%, which was a bit better than our expectations coming into the quarter.
Speaker Change: For the full year 2024, our sales increased by 6% in U.S. dollars and local currencies and by 4% organically. And this was driven particularly by strong performance in North America and Asia, which was partially offset by reduced demand in Europe.
Speaker Change: Looking into the first quarter of 2025, we expect a seasonal moderation in sales from this quarter's levels.
Speaker Change: I just want to say that I'm really proud of our team working in the automotive market. While there are clearly some uncertainties in the market, in particular in Europe,
Speaker Change: Our team remains focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles, and this includes everything from electrified drivetrains,
Speaker Change: to a whole multitude of other exciting applications that we're working on. And we look forward to benefiting from our strong position in the automotive market for many years to come.
Speaker Change: The mobile devices market represented 10% of our sales in the quarter and 9% of our sales for the full year.
Speaker Change: In the fourth quarter, our sales grew by a robust 15% in U.S. dollar, local currency, and organically, as strong growth in smartphones, laptops, and wearables was only partially offset by a moderation in sales into tablets.
Speaker Change: Sequentially, our sales increased by 7%, which was much better than our expectations coming into the quarter.
Speaker Change: And for the full year, I'm really pleased that our sales in the mobile devices market increased by 11% in U.S. dollars and organically. And this was driven by growth in virtually all mobile device applications.
Speaker Change: As we look into the first quarter of 2025, we do anticipate a typical seasonal sequential decline in the sort of mid 30% range.
Speaker Change: I'm very proud of our team who's working in the always dynamic and volatile mobile devices market as their agility and reactivity have once again enabled us to capture incremental sales here in the fourth quarter.
Speaker Change: And I'm confident that with our leading array of antennas, interconnect products, and mechanisms designed in across a broad range of next generation mobile devices, that we're positioned very well for the long term.
Speaker Change: The ITdatacom market represented 27% of our sales in the fourth quarter and 24% of our sales for the full year.
Speaker Change: And this was driven by the continued acceleration demand for our products used in AI applications together with continued growth in our base IT datacom business.
Speaker Change: On a sequential basis, sales increased by 17% from the third quarter, substantially better than our expectations coming in to the quarter. This sequential growth was driven essentially by growth in AI-related applications.
Speaker Change: For the full year 2024, our sales in the ITDataCom market grew by a very strong 57% in U.S. dollars
and 56% organically.
Speaker Change: as we benefited from strong demand for AI-related applications, as well as growth in our non-AI IT datacom business.
Speaker Change: Looking ahead, we expect a further mid-single-digit sequential increase in sales in the first quarter as investments in AI-related data centers continue to accelerate.
Speaker Change: We are more encouraged than ever by the company's position in the global IT datacom market.
Speaker Change: Our team continues to do an outstanding job securing future business on next-generation IT systems, particularly those enabling AI. This revolution in AI continues to create a unique opportunity for Amphenol given our leading high-speed and power interconnect products.
Speaker Change: And really whether high-speed, power, or fiber optic, our products are critical components in these next-generation networks, and this creates a continued long-term growth opportunity for Amphenol.
Now, turning to the broadband and the mobile networks markets.
Speaker Change: I just want to note that with the pending acquisition of the Andrew businesses from Comscope.
Speaker Change: that effective in the first quarter of 2025 and going forward, we will combine the broadband and mobile networks markets into one market that we will refer, going forward, to as the communications network market.
Speaker Change: The broadband market represented 3% of our sales in the fourth quarter and 3% for the full year 2024.
Speaker Change: Sales in the fourth quarter grew by 10% in U.S. dollars and 11% in local currency and organic as demand from broadband operators improved.
Speaker Change: On a sequential basis, our sales increased by a very strong 14%, which was well ahead of our expectations for actually a high single-digit sales decline.
Speaker Change: For the full year 2024, sales in the broadband market were down by 11% in U.S. dollars, local currency and organically, and that was driven really by a moderation in broadband operator spending.
Speaker Change: The mobile networks market represented 3% of our sales in the fourth quarter and 3% for the full year 2024.
Speaker Change: Sales in the fourth quarter increased by prior year by a strong 25% in U.S. dollars and local currency and 21% organically, as we benefited from increased spending by mobile network operators as well as wireless equipment manufacturers.
Speaker Change: Sequentially, our sales decreased by 4%, but this was much better than our expectations coming into the quarter.
Speaker Change: And for the full year 2024, sales grew by 11% from prior year and 5% organically. And this was driven by a strengthening in the mobile networks market, in particular in the second half of the year.
Speaker Change: So now looking ahead to the first quarter, we expect the newly named communications networks market to see a mid-teens decline in sales from these strong fourth quarter levels.
Speaker Change: And as a reminder, this guidance excludes the impact of acquisitions that have not yet closed, and therefore excludes the impact of the Andrew acquisition that we still expect to close in the first quarter.
Speaker Change: I would just say that we're very well positioned with customers across the communications networks market and we look forward to continuing to support our OEM and service provider customers in 2025 and beyond.
Speaker Change: Our teams around the world are working aggressively to realize the benefits of our efforts to expand our position in next-generation technologies.
Speaker Change: And we look forward to the increased potential that comes from Amphenol's unique position with both equipment manufacturers and mobile service providers.
Speaker Change: As we look forward to welcoming the Andrew team to Amphenol, we remain poised to further build on our position as mobility technology innovation continues to accelerate.
Thank you.
Speaker Change: This guidance would represent sales growth from the first quarter of 2024 of 23 to 26% and adjusted diluted EPS growth of 23 to 28%.
Speaker Change: And I would just reiterate here that I remain confident in the ability of our outstanding management team
Speaker Change: to adapt to the many opportunities and challenges in the current environment.
Speaker Change: and to continue to grow Amphenol's market position while driving sustainable and strong profitability over the long term.
Speaker Change: And finally, I would like to take this opportunity to thank our entire global team around the world for their truly outstanding efforts here in the fourth quarter and in the full year 2024. And with that, operator, we'd be happy to take any questions.
Speaker Change: In late January we only certainly it's in the year just be curious to hear your what's your number one which number one radar opportunities for amphenol in 'twenty five.
Speaker Change: As much of course as are the new CIO impending Andrew acquisitions, but what about a below the radar opportunity either end market or operationally that you're excited about in the coming years. Thank you.
Speaker Change: Well look thank you very much I mean, I would burn the next five hours. If I started to talk about all of the little bits and bobs of opportunities that we face and so I'm going to punt a little bit on that but just to tell you one thing which is that we see across the company.
Speaker Change: So much opportunity with the revolution in electronics.
Speaker Change: I was just a couple of weeks ago out in Las Vegas at the consumer Electronics show and I know for a lot of people going to CES is kind of a chore and they dread it they spend their whole Christmas holiday dreading.
Speaker Change: During the first week of January to roam around the crowded crowded I always of CES for me. It's the most exciting thing on Earth to go and I think I'd burn nearly 30000 steps in one day wandering the hallways looking at this extraordinary array of what's going on in the World and you know there.
Speaker Change: One thing that we see in our business and you saw unfold display in Las Vegas, which is the real convergence of of all of these things that have been going on things like robotics and next generation vehicles and next generation consumer devices Iot and the like.
Speaker Change: And converging that with now this revolution and accelerated computing.
Speaker Change: The combination of the device and product innovation with the acceleration of compute power that really is AI for me, that's going to unlock opportunities across our industry that we never could have imagined before.
Speaker Change: And when I spent those 30000 steps in my half day of walking the burning out my shoe leather at CES I just saw this over and over and over again and so I I am really excited about that convergence and I'm really excited about what that's going to create the.
Speaker Change: No new industries that are going to come out of this accelerated compute and that convergence with the amazing developments around product technology that we as a company are enabling across all of our end markets.
Speaker Change: Thank you our next question comes from.
Speaker Change: Samekh Chatterji with J P. Morgan your line is open.
Samekh Chatterji: Oh, hi, Thanks for taking my question.
Speaker Change: I don't know if I can just ask you one on the data.
Speaker Change: Connectors, particularly theres been a lot of news reports about the complexity of the connectors that you had manufacturing for Dci systems.
Speaker Change: If you can talk about the implications of the complexity increase that you're seeing there in terms of both market share for amphenol and how that trends long term with the increasing complexity to vis vis sort of the need for customers to look at some of the debit of simplification over time, and how does that sort of impact to your content opportunity.
Speaker Change: Richard deterioration basis that would be helpful. If you could talk about those drivers. Thank you.
Speaker Change: Yeah, Thanks, very much stomach I it was a little broken, but I think I got the gist of your question.
Speaker Change: Look the complexity is a great thing for Amphenol.
Speaker Change: And we've talked about this already a number of times.
Speaker Change: With this advent and with the development and the acceleration of the investments in AI, but what is really unique about these systems is is the fact that these these.
Speaker Change: These chips the processors have to all talk to each other to make the complex calculations and the probability calculations that ultimately creates a learning model or a neural network of machine learning whatever whatever it is you want to call. It and our products are an integral part of that connectivity of linking chips to chips and then link.
Speaker Change: Them across the various devices in the data center.
Speaker Change: We are is that complex. It is by definition because the products have to all talk to each other and so then it's a question of can we solve our customers' problems with the highest speed lowest latency interconnects that enabled those those chips to talk to each.
Speaker Change: Each other to make those calculations amongst themselves and to do that using the lowest possible amount of energy because I think nobody.
Speaker Change: You cannot pick up an article about AI without also hearing in the same breath about the challenges around the power supply.
Speaker Change: For these for these networks as they are being built out.
Speaker Change: And the beauty of the products that we supply as they accomplished both.
Speaker Change: They are enabling the high speed, enabling the LOE date, and see but also doing that with a much more significant reduction in power then you would get from certain other.
Speaker Change: Certain other architectures and but for US we're agnostic to how customers go about architect thing these products as long as they continue to make investments broadly across the board in these new a architectures, which just are by definition going to have a more intensive content of interconnect products.
Speaker Change: For our industry, and where amphenol, we're confident we'll be able to gain more than our fair share of that opportunity.
Speaker Change: Thank you. Our next question comes from Amit sorry.
Speaker Change: Sorry, Anna with Evercore Your line is open.
Anna: Hey, good.
Speaker Change: Good afternoon, Thanks for taking my question.
Speaker Change: Adam I'm, hoping you can just maybe talk a little bit more about the AI team and maybe what the pocket didn't talk about is just the the durability of growth you've seen on the AI front would be helpful. I think you know 5 billion of orders at extremely impressive maybe you can just touch on whats the duration of this book how does that convert to revenues and then really related to AI you folks had a really nice shot out from Nvidia on the earnings call recent.
Speaker Change: Lee.
We clearly are working very closely with them but.
Speaker Change: Typically when we see traditional smartphones the switches everything else Youre content typically goes up as you go from Gen. One to Gen. Two gen. Three would that hold true for AI as well or is there something different here.
Speaker Change: Yeah, well, thanks very much Amen.
Speaker Change: Yeah.
Speaker Change: We are very pleased with the company's position on these next generation systems that I've talked about the fact that we're working with really players up and down the stack.
Speaker Change: From folks who are who are actually making the investments themselves in these data centers all the way down to folks who are designing the chips and the systems around those chips and everything in between and we're really proud of our position and the breadth of our position.
Speaker Change: And I think the best of them.
Speaker Change: That position and the strength of our products.
Speaker Change: Is really a very durable position in as much as there is not a backwards trend in performance.
Speaker Change: Performance of these systems is a one way ratchet and as we continue to enable and pushed the limits of the performance of the programs that further strengthens our position.
Speaker Change: Across that entire stack of the investments now are we going to win 100% of everything of course, not I mean, we have great competitors in some of those competitors actually our licensed partners in certain cases.
Speaker Change: But I would say that with amphenol is leading position in high speed and power products.
Speaker Change: Puts us certainly in a position to gain more than our fair share of that.
Speaker Change: We're very pleased for any any positive comments, we get I will continue my trend of not making any comments about any customers.
Speaker Change: But what I will say is that as our customers think about the generational shifts in the performance increases in their products.
We will have a very prominent role with them and helping to enable those generational changes whether theyre looking for more performance, whether they are looking for more power efficiency, whether theyre looking to embed more complexity into those systems. Those are all areas, where we are already deeply at the table and a real partnership.
Speaker Change: With all of our customers as they push the limits of this very very exciting revolution in AI.
Speaker Change: Thank you. Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.
Mark Delaney: Yes, good afternoon, and thank you for taking my question and congratulations on the record profitability.
Mark Delaney: <unk>, an AI, if I could and you spoke a bit already around very robust demand that the company has seen I am hoping to doubleclick a bit on the supply side, if I could please and as amphenol is shipping products to support Nexgen AI servers and racks can you comment more on how that ramp is going and whether or not amphenol has encountered any yield or supply issues that may be gaining in Europe.
Mark Delaney: <unk> to meet demand and if there are any constraints, maybe you could share what the current status is thank you.
Speaker Change: Okay, well, thanks, very much Mike I appreciate your comments I mean look when our customers choose amphenol theyre doing this for a variety of reasons theyre doing it because we have the <unk>.
Speaker Change: Proverbial better mousetrap that our product has the capabilities and the abilities to satisfy the needs that they have and whether that's high speed low latency more efficient power or the like but theyre also doing it because they have.
Speaker Change: That they have.
Speaker Change: Kind of a confidence.
Speaker Change: In the execution machine that our entrepreneurial organization has created and let's if you step back for a moment and think about what makes our company special it is really that decentralized entrepreneurial organization with nearly 140 general managers around the world who each have the full authority in Macau.
Speaker Change: The ability to tailor their individual businesses in such a way that they meet customer demands we've talked for years about the unique ability of our team working in mobile devices to capture incremental opportunities when when maybe our competitors fall down and we did that again last quarter as you saw outperforming our.
Speaker Change: Patients coming into the quarter and I would just tell you that the wide array of folks working inside of Amphenol on these AI ramp ups, which are very significant ramp ups theres no doubt about it I mean, you have only to look at the public cap Capex spendings of some of the big companies, who are outfitting. These data centers to know.
These are very very significant and not for the fans of heart. There is no doubt about it very challenging products very challenging ramp up schedules, but no question. Our customers are always happy to work with Amazon that unique agility are we perfect at all times and of course, we're not but are we always there.
Speaker Change: Sure.
Speaker Change: React in real time to redirect resources to make whatever needs to happen happened in support of our customers. No question about it and that that is at the end of the day the greatest value that we offer our customers is that unique amphenol and entrepreneurship and the agility that comes there from and I would tell you I am so proud.
Speaker Change: So proud of our team working on these just really momentous programs and how great of a job that they're doing so far.
Speaker Change: Thank you. Our next question comes from Andrew Buscaglia.
Speaker Change: Okay.
Speaker Change: And our next question comes from.
Speaker Change: <unk> merchant with Citigroup you May proceed.
Speaker Change: Great. Thanks.
Speaker Change: If I can just about the industrial end markets.
Speaker Change: Thank you Adam mentioned that demand trends are improving so if you could just double click on where youre seeing the end market improving linearity.
All of that improvement.
Speaker Change: That would be great. Thank you.
Speaker Change: Yes, Thank you very much Austria, and there seems to be some issue.
Speaker Change: Some connectivity here certainly not using amphenol connectors.
Speaker Change: But if I understand your question where are we seeing the improvements in industrial and first I would just comment that we're very pleased actually that to have for the first I think in seven quarters organic growth in the industrial market growing by 6%, it's not so bad.
Speaker Change: In the quarter and as I mentioned in my prepared remarks.
Speaker Change: That growth would have been even better were not for the fact that we continue to see an organic moderation of our sales in Europe.
Speaker Change: When I think about the markets that showed particular strength of the segments of the market that showed particular strength in the corridor. We're really pleased that we had good growth in areas like medical and rail mass transit alternative energy another area that we saw good organic growth and then actually very encouraging.
Speaker Change: So we saw very robust growth in our industrial instrumentation and that really does include everything from test equipment and things that go into for example, semiconductor manufacturing where you know there was a little bit of a cycle in the semiconductor manufacturing I think we're maybe on the other side.
Speaker Change: Of that cycle, right now and starting to deliver growth. So we're overall encouraged I would say, it's still too early to call a full recovery, especially because the kind of outlook of Europe remains in my mind very uncertain.
Speaker Change: But with the strength that we've seen in Asia and in North America, we come into 2025.
Speaker Change: For sure with a little bit of a better sense and a better sense of confidence than we did coming into 2024.
Speaker Change: Thank you. Our next question comes from Joe Spak with UBS. Your line is open.
Joe Spak: Thanks, Adam I'd recommend getting a comparison acres for next year. So yes.
Speaker Change: The strain on your feet a little bit.
Joe Spak: The.
Joe Spak: Communication solutions margins.
Joe Spak: Really expanded quite meaningfully.
Joe Spak: Over the past year or so.
Joe Spak: Think that trajectory is pretty similar to when I started.
Joe Spak: So can you just help us understand how we should sort of think about profitability here going forward is it sustainable and is AI mix can you just go up margins should mix higher or are there. Some other things to consider whether it's more investment or I know you've mentioned, some higher capex and all that capacity and maybe that starts to rain in the margins.
Joe Spak: Thanks.
Joe Spak: Yes, Thanks, a lot Joe.
Joe Spak: Listen, we're really proud to obviously just the overall profitability of the company and certainly hitting the operating margin levels of 22, 4% for the company is really something that we're extremely proud of as it relates to just that.
Joe Spak: The communication solutions division and their profitability I mean, they grew that that division certainly grew very significantly over the last year.
Joe Spak: Driven by the I T Datacom market NII, specifically not all of that is in that division, but certainly a good portion of it is and when you have growth at that level.
Joe Spak: The conversion typically would be relatively strong and it's not just related to the AI specifically, it's just really related to their businesses.
Joe Spak: Ability to really have strong discipline over our fixed costs and really that drives the leverage in that business. I mean, if you look at the conversion in that in that division and that strong growth is probably in the low thirties.
Joe Spak: <unk> is not abnormal for for a growth rate for our conversion rate and when you grow as much as they did you are you are clearly going to drive operating margin dollars and ultimately drive that percent higher. So you know I would say that's really more driven by just the execution of the team their ability to really drive.
Joe Spak: Control of the fixed costs within within the operations as they continue to grow which is typical to the amphenol agility and what we do we drive the growth, but we always keep an eye on costs and that's really what I think makes the company special and ultimately able to drive strong conversion margin.
Joe Spak: We continue to grow so really strong really happy with the profitability in and but I wouldn't say this has anything specifically to do with with our AI related business. It just really relates to the growth and the real good discipline over costs.
Joe Spak: Okay.
Joe Spak: Thank you. Our next question comes from Andrew Buscaglia.
Speaker Change: With BNP your line is open.
Andrew Buscaglia: Hey, guys, sorry about that I think I got dropped there.
Speaker Change:
Speaker Change: I wanted to touch on hopefully not.
Speaker Change: Any questions that were asked but your.
Speaker Change: President Trump has taken off it wanted to get your take on what you guys are thinking of higher how youre planning for the year as it pertains to the tariff.
Speaker Change: And can you provide some details around percent of products coming from Mexico, Canada, and China, just so we can.
Speaker Change: Try to gauge the risk ahead.
Speaker Change: Yes. Thank you very much and I. Appreciate the question. Obviously, we're we're watching very carefully all of that goes around all of this happening around the world and all of the places that we operate as a global company.
Speaker Change: Specific to tariffs, let me just say this I mean this is not a new topic.
<unk> dealt with tariffs back from the U S back in I think it was 2017.
Speaker Change: Those were tariffs were mostly directed to China, but not not only are China and and I think what we saw in that time as our team did a fabulous job of mitigating the impact of those tariffs through a wide variety of measures. There was not a one size fits all solution.
Speaker Change: Underlying all of that as the backdrop that we tend to make our products in the regions, where our customers buy them not 100%, but we tend to always tried to be close to our customers and.
Speaker Change: Sometimes our customers are making things in regions and shipping them into the U S or into Europe, and we tried to be close to those customers wherever wherever theyre, making them, but if you. If you really get to the essence of why we were why we were so successful in mitigating the last phase of tariffs it come.
Speaker Change: Down to that unique entrepreneurial organization that I mentioned earlier the <unk>.
Speaker Change: Fact that we don't here at headquarters put out for everybody a mandate to say hey, there there are tariffs coming here's what you have to do here is step one step two step three rather what we do is we tell all of our general managers around the world.
Speaker Change: It's up to them to manage through anything that comes along and impacts their business, including trade policies, including tariffs, including whatever can come along there's a whole host of different government policies that can ultimately.
Speaker Change: Bumping bump into our company and what that means is not that they kind of guess where the policy is going but rather that they make sure that their operations are as agile as possible and you know we run a company that's based on the principle of agility of.
Speaker Change: Ownership, the flexibility of the reactivity and that positions us extremely well when there are these kind of unpredictable situations that are coming.
Speaker Change: We're never going to front run our policy and guess what policy, but we'll be right there ready to react if a policy. It does come about and I can tell you that we were very successful in mitigating any impacts that came back in 2017 by having general managers, who know their products to know their competitors know their cup.
Speaker Change: <unk> have full ability to manufacture their products wherever they need to do so and to change the logistics, if they need to do that and I'm very confident that we'll be in the same position at this time and if anything I would tell you that this time around we're in an even better position because since 2017, we've continued to expand the <unk>.
Speaker Change: <unk> of our company the manufacturing presence of our company around the world.
Speaker Change: New factories in southeast Asia, new capabilities in South Asia, New capabilities in North America in the U S and Mexico, and Eastern Europe, and North Africa, you name. It I mean, we have around the world today, nearly 300 facilities across more than 40 countries and we continue to expand so that we preserve that flex.
Speaker Change: The ability in the event that there are policies that come out that do impact us and our customers and windows policies come out we're first going to get together with our customers, we're going to see what's going on with them what they want us to do and then we're going to react accordingly, and in real time and faster than any other organization can do because of that unique entrepreneur.
Speaker Change: <unk> structure that we have.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from William Stein with True Securities. Your line is open.
William Stein: Great. Thanks for taking my question I'll add my congratulations great results.
Speaker Change: Trying to skew away from AI and instead I want to ask another one about the industrial end market. Adam you talked about some of the stronger areas I wonder about industrial automation, specifically, it's my recollection that that may be more sort of Europe focused and therefore I'm guessing it's.
Speaker Change: Not recovering but in terms of industrial automation are you seeing any improvement there and to the degree. It's still weak is your sense that it's more demand related or inventory overhang related. Thank you.
Speaker Change: Yeah, Thanks, very much well I mean look double clicking down into automation, you're you're very correct that industrial automation tends to be a more Europe centric demand, it's not necessarily where the automation ends up but theres no doubt that the companies that we work with our customers who are creating these automation capabilities.
Speaker Change: They are more Europe centric and they are still more impacted by the overall moderation in demand in Europe. I mean, so look our sales into industrial automation were down organically on a year over year basis, I would say, though that on a quarter to quarter basis, we saw a smidgen of growth in factory automation.
Speaker Change: I don't want to get ahead of my skis on that and tell you that that's a recovery or any other sign but it is a data point and so we'll see I look I I I remain somewhat concerned about Europe with the exception that we have seen very very strong performance in our <unk>.
Speaker Change: Defense and commercial air businesses in Europe, but anything related to industrial and industrial by the way in Europe still has a strong linkage to the overall automotive industry.
Speaker Change: I think the recovery and the timing of that recovery is yet to be really really determined.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Sherry <unk> with Jefferies. Your line is open.
Sherry: Hi, Thanks for fitting me in.
Sherry: So maybe building on some of the margin commentary you obviously saw some nice margin improvement, but you did highlight the dilutive impact of acquisitions in the quarter can you just update us on the integration of acquisitions and margin improvement there and then maybe how organic margins would have performed in the corner. Thanks. So much.
Sherry: Yeah. Thanks, sorry, I appreciate the question Yeah, we had a obviously a really good quarter on the face of our conversion margins have you know kind of in the mid Twenty's conversion on a year over year basis in the 30% sequential conversion, we had going into the fourth quarter, but it as I did mentioned as you point out.
Sherry: That really.
Sherry: Despite the acquisition and dilutive impact of acquisitions, we had those.
Sherry: Conversion so with the acquisitions. These conversion margins were even stronger I wouldn't say sequentially. So much because that's such an acquisition impact sequentially, but really on a year over year basis, and obviously the biggest acquisition on a year over year basis.
Sherry: Fourth quarter was.
Sherry: We're not going to give specific margin information on it but we certainly are very happy with their progress.
Sherry: During the year they are still under the company average margins.
Sherry: So they are still dilutive to the company in regards to our conversion, but certainly accretive on an EPS level and also from the perspective of progress on the margin line. We're happy with the progress. They have made the management team has been outstanding and really just couldn't say really enough.
Sherry: Things positively about how happy we are with the <unk> and the progress of that acquisition, but the margins do have a little bit more to go this takes a little bit of time, and but I think that at the end of the day, we're really optimistic that ultimately we'll get to those company average margins.
Speaker Change: Thank you. Our next question comes from Guy Hardwick with Freedom capital market. Your line is open.
Guy Hardwick: Hi, good afternoon.
Guy Hardwick: I just wanted to ask a question about the defense business, Adam if you could.
Break it up a little bit as you did with industrial.
Guy Hardwick: What's driving the growth beyond just floating improvement military budgets in particular areas, where theres unmanned systems electronic warfare can you maybe talk about some of the drivers behind defense.
Guy Hardwick: I mean look a little bit different from industrial our defense business, which had a very strong performance last quarter and for the full year of both growing by 9% organically I would tell you that it's very broad based in defense. I mean, yes are there different pockets, which are little higher growing to another.
Guy Hardwick: It's like space for example, anything related to space is growing really strong.
Guy Hardwick: Actually we're seeing good strength in vehicles in particular in Europe.
Guy Hardwick: Airframe and growing very strong, but but theres really.
Guy Hardwick: Communications growing strong both in the quarter and the year.
Guy Hardwick: But but it's not as distinguished as it was in industrial where we're sitting in a few markets, which really offset other markets that remain more challenged like like we mentioned to the answer Will's question.
Guy Hardwick: So I think broadly in defence it's.
Guy Hardwick: It is a question number one of increased investments.
By a variety of different countries, especially what we're seeing in Europe and then it's the redirection of that spending towards next generation electronics broadly and that's where amphenol is position is really at such a premium because we participate in those next generation electronics to a greater degree than we did in just the general.
Overall military spending.
And I think that's ultimately the equation that results in the strong performance that we saw last year.
Speaker Change: Thank you. Our next question comes from <unk> Mohan with Bank of America. Your line is open.
Mohan: Yes. Thank you.
Speaker Change: There are a lot of moving pieces here in this AI supply chain, if I could go back to that topic, you had record orders, but your capex came down marginally your yields are very good but ODM yields are low and these complex AI systems.
Speaker Change: Can you just help calibrate if investors should think that second half revenues in AI could moderate for amphenol or what kind of visibility do you have into second half growth versus first half, especially given.
Speaker Change: Where you are with Capex and perhaps your capacity.
Matching with ODM ramps.
Speaker Change: Yes.
Yes, thanks, very much Ron Yeah, I mean look I'm not going to try to predict any of our markets.
Speaker Change: Past the guidance that we've given here in the first quarter I would just tell you that our position further.
Speaker Change: These AI build outs is very robust.
Speaker Change: We're making significant investments as we've talked about and yeah sure in a given quarter I mean, there can be lumpiness to capex for a wide variety of reasons.
Speaker Change: Then when you order a certain things when you pay for certain things and the like but I think the orders that we've talked about the very significant book to bill that we have in Datacom in particular related to AI and and the broad array of design wins that we have with customers gives us a great long term confidence.
Speaker Change: Without commenting on.
Speaker Change: Which quarter, it's going to be higher or lower next year I think we've already given guidance about the first quarter that is unseasonably strong I mean, typically our first quarter and it datacom would be down I don't know kind of low to mid single digit decline from the fourth quarter, which is typical seasonality in 19 datacom.
Speaker Change: And here, we are guiding that up.
Speaker Change: Mid single digits, which is quite a differential for a market of that scale.
Speaker Change: And so I think we come into 2025 with a very positive outlook and as we go through the year, we'll try to give you a good sense of how we see that each quarter successively.
Speaker Change: Thank you. Our next question comes from Steven Fox with Fox Advisors. Your line is open.
Speaker Change: Hey, good afternoon, guys just on the auto markets in the mobile devices market. It seems like you guys.
Speaker Change: For the full year on an organic growth basis outgrew what were pretty flattish markets.
Speaker Change: Just curious if you could sort of give us a report card on whether that's sort of par for the course now looking at those numbers or if there was something unusually positive or negative that helped or hurt your growth over market.
Speaker Change: In those areas looking out into 'twenty five.
Speaker Change: Alright. Thanks.
Speaker Change: Thanks, So much Dave for the comment I think you are correct I mean, we've outperformed in both of those markets and I would say that that's not a rarity for us in recent years I mean automotive for example, I think we've outperformed for a number of years or whatever whatever benchmark one wants to use and I think.
Speaker Change: The underlying driver of automotive has always been for more than a decade, the expansion of electronics into cars and thereby the content opportunity that comes to US and then our ability to try to win more than our fair share of that content, whether it's in next generation Drivetrains next generation electronics safety.
Speaker Change: <unk> and the like and.
Speaker Change: Relative to mobile devices. It really comes down to two things one is our position with customers through the breadth of our antenna interconnect and mechanism offering a wide variety of products that we sell into that market.
Speaker Change: Everything from unique antennas to complex interconnect products to mechanical hinges and the like.
Guy Hardwick: And then our ability to execute when customers need us the most and thereby to take a little more than our fair share of that overall business and I think our team has demonstrated time and time again over gosh I'd say the whole of my 16 years, so far as CEO, they've demonstrated that ability to <unk>.
Guy Hardwick: Executing on our team is just a fabulous organization. They continue to have that agility that serves them. So well in mobile devices and you know look every year is different there's a different cadence has a lot of volatility.
Guy Hardwick: But but I don't think there is something unique and in 2024, rather than a continuation of what has allowed us to outperform for many years prior.
Speaker Change: Thank you our last question comes from Scott Graham with Seaport Research. Your line is open.
Scott Graham: Hey, Thank you for squeezing me in congratulations on a strong quarter I also have a question on the auto market and hopefully it's simple.
Speaker Change: With EV production.
Speaker Change: Well above certainly.
Speaker Change: Current and forecast.
Speaker Change: <unk> production over the next five years does that reduce your market opportunity in auto.
Speaker Change: Talked about the fact that evs and ice vehicles, all have growing amounts of content.
Speaker Change: And when you get to an EV and you're converting things that were mechanical or hydraulic into electronic and electrical that creates a great opportunity for our company and I think we've done a fabulous job of capitalizing upon that opportunity around the world and Meanwhile, with with ice vehicles to the extent that there is a tilt to her.
Speaker Change: From Evs to ice you know theres no doubt that ice vehicles will be built to also be more fuel efficient and electronics is a great driver of that fuel efficiency as well new sensors, new interconnect products that go along with that and the vast majority of our automotive business is actually agnostic to that.
Speaker Change: Drivetrain and what it's not agnostic to is is the expansion of electronics in the car and so I think today when you get a new car and I know recently you know we've been shopping for a new car for my mom and you look at these new cars and I mean, there is just of kind of flamboyant array of different Elektra.
Speaker Change: <unk> that you can get even for someone who is not used to sell much electronics in their life like like my mom would be.
Speaker Change: And it's amazing I mean, it's just amazing these are life saving life changing electronics that are being embedded.
Speaker Change: Even even in the type of the car that you know my my 75 year old mom would want to drive and so I think the opportunity ahead of us in automotive remains very very robust.
Mr. Norway: Thank you we have no further questions I would like to turn the call back to Mr. Norway for closing remarks remarks, well. Thank you so much operator and I want to extend again my thanks to all of you on the phone for your attention and support of the company and we very much look forward to talking to everybody.
Speaker Change: 90 days from now take care. Thank you.
Speaker Change: Thank you for attending today's conference and have a nice day.