The operator welcomes listeners to the Fourth Quarter Earnings Conference Call for Amphenol Corporation and introduces the hosts, CFO Craig Lampo and CEO Adam Norwitt. The company's fourth quarter and full year 2023 results were released, with sales of $3,327 million and record adjusted diluted EPS of $0.82. Sales were up 3% in U.S. dollars, 2% in local currencies, and down 1% organically compared to the fourth quarter of 2022. Orders in the quarter were $3,164,000,000, up 10% from the previous year. For the full year, orders were $12,267,000,000, resulting in a book-to-bill ratio of 0.98:1. Non-GAAP financial measures and forward-looking statements will be discussed during the call.

In the fourth quarter of 2023, the company saw an increase in GAAP operating income and operating margin, as well as a new quarterly record for adjusted operating margin. This was primarily due to strong operating leverage and pricing actions, partially offset by the dilutive impact of recent acquisitions. For the full year of 2023, both GAAP and adjusted operating margins were consistent with previous records, despite a slight decline in sales. This was attributed to strong operational performance and pricing actions, offset by the impact of acquisitions. The company's team executed well in the quarter, achieving healthy levels of profitability despite global challenges.

In the fourth quarter of 2023, the Harsh Environment Solutions segment had sales of $900 million, a 13% increase in U.S. dollars and 6% increase organically, with an operating margin of 26.5%. The Communications Solutions segment had sales of $1.345 billion, a 6% decline in U.S. dollars and 7% decline organically, with an operating margin of 23.1%. The Interconnect and Sensor Systems segment had sales of $1.082 billion, a 7% increase in U.S. dollars and 2% increase organically, with an operating margin of 18.5%. For the full year, the Harsh Environment Solutions segment had sales of $3.531 billion, a 14% increase in U.S. dollars and 9% increase organically, with an operating margin of 26.7%. The Communications Solutions segment had sales of $4.913 billion, a 13% decline in U.S. dollars and organically, with an operating margin of 21.6%. The Interconnect and Sensor Systems segment had sales of $4.111 billion, a 6% increase in U.S. dollars and 3% increase organically, with an operating margin of 18.3%. The company's GAAP effective tax rate for the fourth quarter was 22% and the adjusted effective tax rate was 24%. GAAP diluted EPS was $0.83, up 1% compared to the prior year, and adjusted diluted EPS increased 5% to $0.82. For the full year, GAAP diluted EPS was a record $3.11, a 2% increase from the previous year, and adjusted diluted EPS was a record $3.01, an increase from $3 in the previous year.

In the fourth quarter of 2023, the company had a record operating cash flow of $842 million and a record free cash flow of $739 million. This was also reflected in their full year results, with operating cash flow of $2.529 billion and free cash flow of $2.160 billion. The company also maintained normal levels in terms of inventory days, days sales outstanding, and payable days. They also returned $1.86 billion to shareholders through share repurchases and dividends. The company's total debt was $4.3 billion and net debt was $2.7 billion, with total liquidity of $4.9 billion. EBITDA for the fourth quarter and full year was $830 million and $3.1 billion, respectively, and net leverage was 0.9 times. The company's financial condition remains strong and the call will now turn to Adam to discuss current market trends.

In the fourth quarter, Amphenol's sales grew by 3% in U.S. dollars and 2% in local currencies, with organic sales declining by 1%. The company also booked $3.164 billion in orders and achieved record adjusted operating margins of 21.2%. Adjusted diluted EPS reached $0.82, representing a 5% growth from the previous year. The company also generated record operating and free cash flow. The CEO expresses pride in the company's performance and announces four recent acquisitions.

The paragraph discusses the recent acquisitions made by Amphenol, a company based in Ohio. These acquisitions include TPC Wire & Cable, Airmar, LID technologies, and PCTEL. Together, these companies have annual sales of over $300 million and specialize in providing products for industrial, marine, and automotive markets. The company's acquisition program has been successful and they continue to see potential opportunities for future deals. Despite challenges in certain end markets, Amphenol has had a successful year of performance.

Despite declines in the communications and industrial markets, the company was able to achieve overall sales that were only slightly down from the previous year. This was due to the company's diversification and ability to capitalize on opportunities. The adjusted operating margin and EPS remained flat compared to the previous year, and the company also generated record operating and free cash flow. The acquisition program added 10 new companies and the company also increased its dividend and bought back shares, resulting in a total return of capital to shareholders of $1.1 billion. The company's management team is confident in their ability to drive superior long-term performance despite market volatility.

The company is pleased with its diversified market exposure, with no single market representing more than 25% of sales. Sales in the defense market grew strongly in the fourth quarter and for the full year, with broad-based growth across various applications. The company expects a decline in sales for the first quarter but remains encouraged by its strong position in the defense market, which is expected to have long-term demand potential due to increased investments in defense technologies worldwide.

The company is well positioned to accelerate new product development and meet increasing demand in the commercial air market. Sales in this market grew by 25% in the fourth quarter and 36% for the full year, driven by strong demand across all aircraft applications. The company expects sales to remain high in the first quarter and sees long-term opportunities for expansion in this market. The industrial market, which represents a significant portion of sales, saw a decline in the fourth quarter due to moderations in demand in certain segments, but the company is still optimistic about long-term growth opportunities in this market.

Sales into the industrial distribution channel were slower compared to the previous year, with a 1% sequential growth primarily due to recent acquisitions. For the full year, sales were flat in U.S. dollars and declined organically by 7%, mainly due to weakness in various applications. Despite this, the company remains confident in their global team and recent acquisitions to capitalize on future opportunities in the industrial market. The automotive market, which represents a significant portion of sales, saw strong growth in the fourth quarter, driven by various applications including electric and hybrid vehicles. Sequentially, automotive sales increased by 8%, exceeding expectations for the quarter.

In 2023, the company saw strong sales growth in the automotive market due to increased demand for next-generation electronics, particularly in electric and hybrid drivetrains. The mobile devices market also saw growth in smartphones, but declines in other devices led to an overall decline in sales for the full year. However, the company remains optimistic about future opportunities in both markets.

The company's sales in the mobile networks market declined by 26% in U.S. dollars and 27% in local currency, but they expect a modest increase in sales in the future. They are working to expand their position in 5G equipment and networks. In the information technology and data communications market, sales increased by 6% compared to the previous year and 6% sequentially. They have a strong presence with AI data center customers and overall demand has improved. Overall, sales in this market declined by 13% for the full year.

The company experienced a decline in sales in the IT Datacom and broadband communications markets due to inventory adjustments and a slowdown in procurement by customers. However, they are optimistic about their position in the AI market and expect a modest increase in sales in the first quarter. They also remain confident in their position in the broadband market and look forward to supporting their customers' efforts to increase network coverage and bandwidth.

The speaker discusses the current economic environment and predicts sales and EPS growth for the first quarter of 2023. They express confidence in their management team and thank their global team for their efforts. The speaker then responds to a question about weakness in the industrial market, stating that there has been some softness and inventory sell-off, but it is stable compared to 90 days ago.

The speaker discusses the company's sales performance for the quarter and notes that it was in line with their expectations. They mention a weaker book-to-bill ratio in the industrial market, but attribute it to a normalization from previous high ratios. They also mention that the industrial market is broad and not heavily reliant on any one segment, but some areas like factory automation and instrumentation have seen reduced demand and distribution channel impacts. The speaker acknowledges that it is too early to predict when these areas will see a rebound in demand and promises to provide updates throughout the year.

In the first quarter, the company expects a modest level of growth, supported by recent acquisitions. However, on an organic basis, there may be a slight decline. The company is excited about its progress in the AI market, which they have been working on for a long time. They have the capability and capacity to support the increasing demand for AI products. The company was able to secure a significant share of the market due to their quick response to customer demand.

The speaker is proud of their team's ability to react quickly to increases in demand, and believes that AI is a significant and growing industry. They mention the potential impact of chip shortages on their business, but state that it has not affected them yet. They credit their team for successfully handling a surge in demand for new products during a time of overall decreased IT demand. The next question comes from Luke Junk of Baird.

Craig Lampo, speaking on behalf of Adam, addresses a question about pricing dynamics in 2024. He explains that in 2023, the company focused on catching up to inflationary increases in costs, but in 2024, the pricing environment will be more balanced and normal. He also mentions that historically, the company does not see significant price increases in a normal cost environment, and a 25% margin is the typical target. Therefore, he expects a similar margin in 2024.

The speaker, Adam Norwitt, is pleased with the company's record operating levels at the end of the year and believes they are well positioned for 2024. He is proud of the team's execution and expects them to continue at a similar level in the future. When asked about the next two years, Norwitt acknowledges the volatility of the communication market but sees opportunities for growth in various areas including IT datacom and mobile networks. He believes investments in AI will lead to the creation of new economic models and further growth in the industry.

The speaker discusses the potential for significant investments in next-generation systems, with a focus on interconnect products in the AI and IT datacom industries. They also mention the typical investment cycle in the wireless industry and the need for continued investments in 5G and 6G networks to keep up with increasing data traffic. Finally, they mention the importance of broadband access and the push for increased coverage and capacity.

The speaker discusses the long-term opportunities for the company, particularly in China, where there is a more moderate approach to geopolitics. They believe that communication and cooperation between countries is beneficial. They are optimistic about the company's position in the Chinese market, especially in the electronics industries, and are confident in their unique organizational approach. The speaker also mentions the potential for organic growth in 2024 and the positive impact of recent acquisitions. They are unable to provide specific growth expectations for the acquisitions.

The speaker discusses the company's organic growth prospects and how they feel confident about it due to their investments in next-generation technologies and their ability to support customers. They also mention their focus on acquiring companies that can become platforms for future organic growth. The speaker believes that the nearly 30 companies acquired since 2019 will contribute to the company's organic growth potential. The next caller asks about the impact of AI on the IT datacom sector, and the speaker acknowledges that AI has played a role in recent improvements and may continue to do so in the future.

The speaker discusses the growth in AI and underlying business, stating that the company has seen a bottoming of underlying IT demand. They also mention the automotive market's growth and potential challenges due to a slowdown in EV sales, particularly in western markets. However, they note that this is not a global trend and that there is still growth potential in the Chinese market.

The speaker discusses the increasing adoption of electronics in cars, regardless of whether they have an EV drivetrain or not. This trend is seen in Asia, Europe, and North America, and is driven by the desire for more advanced features and functionality. This has led to a growth in demand for interconnect, sensor, and antenna solutions, which the company is well-positioned to provide. In China, the adoption of EVs has reached a point of "escape velocity" and the company has a strong presence in both domestic and international markets. The speaker believes that electronics will continue to be a key area for car companies to focus on in order to increase profitability.

William Stein, a caller from Truist Securities, asks Amphenol CEO Adam Norwitt about the company's strategy for M&A and potential expansion into system-level products. Norwitt responds by mentioning the recent acquisition of PCTEL and clarifies that Amphenol is not pursuing a strategy to compete with its customers. He also highlights the company's successful track record in acquiring companies of various sizes and its ability to effectively integrate them into the organization.

The speaker discusses the company's robust acquisition pipeline and their disciplined approach to buying. They are willing to walk away from deals if they are not to their liking and always pay a fair price for great companies. The company's organizational structure allows for seamless integration of newly acquired companies. They are focused on interconnect products and see opportunities for expansion both organically and through acquisition. The speaker also mentions a recent moderation in book-to-bill for AI, possibly due to early large orders.

Adam Norwitt, CEO of Amphenol, was asked about the company's moderation in the IT Datacom sector and its impact on future quarters. He mentioned that the company had strong bookings in AI-related applications in Q2 and Q3, which led to a book-to-bill ratio of 0.95:1 for the quarter. He also stated that the company's focus on M&A has been around sensors, antennas, and assemblies, and that their gross margins are currently at 33%.

Adam Norwitt, CEO of Amphenol Corporation, discusses the company's recent acquisitions and their impact on gross margins. He explains that the acquired companies produce a variety of interconnect products, and there is no correlation between product type and profit potential. The company is focused on increasing operating margins and only acquires companies with the potential to reach or exceed their industry-leading margins.

The speaker, Adam Norwitt, responds to a question about the potential for a refresh cycle in the PC market. He mentions that Amphenol has seen weakness in tablets and notebooks due to a surge in purchases during the pandemic. He hopes for a potential refresh cycle in the future, but does not have any information to support it.

Amphenol sees great content opportunities in complex and advanced devices, such as mobile devices, tablets, and laptops. They believe that as devices become more advanced, there will be a demand for premium hardware, which will create opportunities for Amphenol. They are confident that they will be able to provide interconnect products for future devices. The speaker thanks the audience for their time and looks forward to speaking with them again in 90 days.

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