The operator welcomes listeners to the third quarter earnings conference call for Amphenol Corporation and introduces the conference host, Craig Lampo. Lampo, along with CEO Adam Norwitt, discusses the company's third quarter results, including sales, EPS, and orders. They also mention non-GAAP financial measures and make forward-looking statements. Sales were down compared to the previous year but up sequentially. Operating income and margins are also discussed.

In the third quarter of 2022, the company's operating margin was down on a GAAP basis, but increased on an adjusted basis. This was mainly due to recent acquisitions operating below the corporate average. However, the company's organic operating margin remained strong due to cost adjustments and pricing actions. The harsh environment solution segment saw a 12% increase in sales, while the communication solutions segment saw a 16% decline. The interconnect and sensor system segment had a 5% increase in sales. The company's GAAP effective tax rate was 18.2%, while the adjusted effective tax rate was 24.0%.

In the third quarter of 2023, the company's GAAP diluted EPS increased by 4% and adjusted EPS decreased by 3%. Operating cash flow and free cash flow were strong, and working capital levels were within normal ranges. The company's Board of Directors approved a 5% increase in the quarterly dividend and the company repurchased 1.7 million shares of common stock. Total debt and net debt were at $4.3 billion and $2.6 billion respectively, and total liquidity was $5 billion. EBITDA was $784 million and the net leverage ratio was 0.8 times. The company's financial condition remains strong. Adam Norwitt will provide commentary on current market trends.

The speaker is discussing the company's achievements in the third quarter, including exceeding their sales and earnings expectations. Despite a 3% decline in sales, there was growth in certain end markets and acquisitions. The company also saw an increase in orders compared to the previous year. Profitability was strong, with adjusted operating margins of 20.8%. Adjusted diluted EPS declined by 3% from the previous year but increased by 8% sequentially. The speaker attributes this success to the outstanding execution of the global management team.

Amphenol had a strong quarter, with high quality earnings and a demonstration of the company's discipline and agility. They have closed on three acquisitions since the last earnings call and have signed an agreement to acquire PCTEL. The acquisitions include Connor Manufacturing, Q Microwave, and XMA Corporation, with annual sales of approximately $100 million, $20 million, and $15 million respectively. The PCTEL transaction is expected to close by early 2024. The CEO is excited to welcome these new teams to Amphenol and is confident that their acquisition program will continue to create value for the company.

Amphenol's ability to identify and successfully integrate acquisitions is a key competitive advantage for the company. Their end-market exposure is well-diversified and balanced, providing value in dynamic times. The military market saw a 26% increase in sales, driven by strength across all segments. Amphenol's recent acquisitions have further expanded their RF product offering in this market. The company is well-positioned to meet the increasing demand for defense technologies. The commercial aerospace market also had a strong quarter with a 40% increase in sales.

Sales in the aircraft market showed broad-based strength and only declined by 1% on a sequential basis. The company expects a modest seasonal decline in sales for the fourth quarter and a 30% increase in sales for the full year of 2023. The team's efforts to diversify into next generation aircraft are paying off. Sales in the industrial market declined by 6% in US dollars and 13% organically, with softness in the distribution channel. The company expects sales to moderate in the fourth quarter and be flat for the full year of 2023. Despite this, the company remains proud of its team and their pursuit of growth opportunities in this diverse market.

Amphenol's long-term strategy to expand their high technology offerings has positioned them to take advantage of the ongoing revolutions in the industrial electronics market. The automotive market, which accounted for 23% of their sales, saw a strong 13% growth in sales, driven by new design wins and the addition of Connor to their product portfolio. The mobile device market, which represented 10% of sales, saw a decline due to declining sales in laptops, tablets, and wearables, but this was offset by strong growth in smartphones and wearables. Overall, the company expects sales to remain steady in the fourth quarter and increase by 10% in 2023.

In the fourth quarter, Amphenol expects sales to moderate in the high single digits due to declines in laptops and wearables, offset by strong growth in smartphones. For the full year, sales are expected to decline in the mid-teens compared to 2022. The mobile networks market represented 3% of sales in the quarter, with a 35% decline in U.S. dollars and 43% decline organically. Despite this, Amphenol's team is poised to capitalize on opportunities for incremental sales and is working to expand their position in next generation 5G equipment. They anticipate benefiting from increased investments in these systems in the future.

The IT datacom market accounted for 20% of the company's sales in the quarter, with a 12% decline in sales from the previous year. However, the company's performance was better than expected, with a 13% increase in sales from the previous quarter. This was driven by a surge in demand for AI data centers and orders for AI-related applications. The company expects sales to remain at the current level for the fourth quarter and a mid-teens decline for the full year. The company is well-positioned in the global IT datacom market due to its high-speed and power interconnect products. The broadband market, which accounted for 5% of sales, saw an 8% decline in sales due to moderate procurement levels from broadband operators.

The company's sales were down 6% sequentially, but they expect a modest increase in the fourth quarter and a mid-single digit decline for the full year. They are confident in their position in the broadband market and anticipate benefits from government-funded initiatives. The current economic environment is uncertain, but assuming no significant changes, they project a sales decline of 3-5% and an EPS decline of 1-4% for the fourth quarter. For the full year, they expect a 2% decline in sales and a 1-2% decline in adjusted EPS. The management team is capable of adapting to challenges and driving growth and profitability. The company remains committed to delivering long-term value.

The speaker thanks their employees for their hard work in the third quarter and opens the floor for questions. A question is asked about the current state of the industrial market and how it may affect the company's performance in the future. The speaker responds by stating that while some segments of the market are performing well, others are down, particularly in the distribution channel where there is an oversupply of inventory. However, overall, the OEM business has only seen a modest decline.

The speaker believes that the current slowdown in the industrial market will continue for the next 90 days, but the overall trend of increased electrification and use of electronics in the industrial market is still strong. The company has a broad range of products and is well positioned for future growth in the industrial market. The speaker does not view the slowdown as a major concern and expects to have a better understanding of the market in 90 days. The company is confident in their position in the industrial market.

The speaker discusses the strong performance of the IT datacom market, particularly in regards to AI demand. They highlight their long-term involvement in developing products for AI and the unique requirements for AI processing systems. The speaker also mentions the importance of interconnect components for allowing chips to communicate in an AI system.

The company is investing in new products for AI data centers, which have high speed, latency, and power requirements. This is a significant opportunity for the company and has driven sequential growth in the second and third quarters. The long-term impact of AI is uncertain, but it is expected to have a significant impact on data networks and systems. The company is excited to play a role in enabling these next generation systems.

The speaker discusses the recent acquisitions made by the company, including a public company and MTS, and how these deals have helped the company grow and become more efficient in integrating such deals. The speaker also mentions the creation of three global divisions and 13 operating groups, each led by a capable general manager, which has helped the company successfully navigate these acquisitions.

The CEO of Amphenol discusses his career and the company's growth over the years. He emphasizes the importance of the company's unique entrepreneurial culture and his role in protecting and scaling it. He also mentions the company's acquisition program and how it has contributed to their growth.

Amphenol has a history of successful acquisitions, including their first public company and their recently announced second public company. They have the financial means and organizational capabilities to continue making acquisitions, but they will always stay disciplined and true to their principles, only acquiring companies with great people, product technology, and market positions. The acquisitions of Conner, Q Microwave, and XMA exemplify this criteria and they are confident they will do the same with PCTEL.

The company's CEO is proud of the team's performance in the automotive market, which has not been easy. Last quarter, they grew by 12% organically, and the previous year they grew by 29% despite a flat to down market. The CEO has been with the company for 15 years and has seen the automotive business grow from 5% to a significant portion of the company's overall sales. This is his 60th earnings call as CEO.

Wamsi Mohan asks about the potential impact on operating margins in the next quarter, given the expected decremental margins of $24 million and the impact of recent M&A activity. He notes that the company's guidance suggests a more positive outlook than these factors would indicate.

The speaker is asked about the assumption around decremental margins and if there have been changes in the business that have affected them. The speaker explains that while there have been no major changes in how they think about decremental margins in the long-term, there have been some factors that have positively impacted their profitability in 2023, such as pricing adjustments and strong execution in offsetting declines in certain markets. They also mention that their year-over-year margins are lower than expected due to these factors.

Adam, the speaker, discusses the company's third quarter performance and mentions that despite challenges in the market, they have achieved a 20.8% margin, which is not a record but still impressive. He also mentions that they expect to maintain strong margins in the fourth quarter, offsetting lower margin acquisitions. The speaker acknowledges that the company's order growth has been positive, despite a diverse market, and discusses how this may translate into revenue growth in the near future. He notes that while recent revenue numbers have been higher than orders, the company's guidance aligns more closely with their reported orders.

Adam Norwitt, CEO of Amphenol, discussed the company's opportunity to return to revenue growth despite orders being higher year-over-year. He mentioned the company's consistent outperformance in the auto market and how this quarter's orders were higher than last year's. He also stated that the company is focused on returning to growth and the team is fighting for it. Norwitt acknowledged that certain end markets, such as IT datacom, have been down but expects them to return to growth in the future.

Craig Lampo, a representative for a mobile network company, was asked about the potential impact of 6G on the business. He stated that while 6G may come in the future, the focus is still on investing in and monetizing 5G. Currently, the wireless market is facing challenges and undergoing a period of digestion as operators figure out the economics of 5G. However, only a small proportion of the build out has become truly 5G, so there is still room for growth and monetization. Lampo believes that the industry is still in the early stages of 5G and companies are working to figure out how to make more money from the system.

The speaker discusses the increasing demand for data and the role of AI, video, and other bandwidth-heavy applications in driving this demand. They mention their son's ability to game on the go and highlight their company's unique position in working with operators and OEMs. They express confidence in the long-term potential of the mobile networks market, despite a tough quarter and year. The next question is about the test and measurement aspect of PCTEL.

The speaker discusses the recent acquisition of PCTEL and their excitement about the company's antenna business. They also mention smaller M&A deals in RF and busbars, which will add to their already strong position in the market. These acquisitions will bring additional capabilities to their products and they have high expectations for their success in the long-term.

The speaker, Adam, discusses the company's mobile device business and highlights the strength in smartphones and wearables, but weakness in PCs and notebooks. He mentions that some suppliers in the supply chain are seeing signs of recovery and asks if there is visibility into next year regarding the refresh cycle and other factors.

Adam Norwitt, CEO of Amphenol, acknowledges the company's success in the smartphone market but also notes a digestion period for other devices like tablets and laptops due to a surge in demand during the pandemic. He is unable to provide guidance for next year but expects the demand for these devices to normalize eventually. The delay in EV and semi-plant construction and equipment has not significantly impacted the company's decision-making or guidance.

The speaker discusses how individual announcements do not have a big impact on the overall business, but mentions the semiconductor capital equipment market as a potential exception. They attribute a slowdown in sales to a pause in capital spending by larger semiconductor manufacturers, but remain optimistic about the EV market. The call concludes with thanks from the two speakers and a wish for safety for all attendees and their families.

This summary was generated with AI and may contain some inaccuracies.