Hello. And welcome to the third quarter Earnings Conference Call for Amphenol Corporation. Following today’s presentation, there will be a formal question-and-answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today’s conference is being recorded. If anyone has any objection, you may disconnect at this time. I would now like to introduce today’s conference host, Mr. Craig Lampo. Sir, you may begin.

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol’s CFO, and I am here together with Adam Norwitt, our CEO. We would like to welcome you to our third quarter 2023 conference call. Our third quarter 2023 results were released this morning. I will provide some financial commentary and then Adam will give an overview of the business and current trends, and then we will take questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements. So please refer to the relevant disclosures in our press release for further information. The company closed the third quarter with sales of $3.199 billion in GAAP and adjusted diluted EPS of $0.83 and $0.78, respectively. Third quarter sales were down 3% in U.S. dollars and low-income currencies and 5% organically compared to the third quarter of 2022. Sequentially sales were up 5% in U.S. dollars, local currencies, and organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were $3.164 billion, which was flat compared to the third quarter of 2022, and up 4% sequentially, resulting in a book-to-bill ratio of 0.99 to 1. GAAP operating income was $658 million in the third quarter of 2023, which included $9 million of acquisition-related transaction costs. Excluding these costs, adjusted operating income was $667 million. GAAP and adjusted operating margins were 20.6% and 20.8% respectively in the third quarter. On a GAAP basis, operating margin was down 10 basis points compared to the third quarter of 2022 and increased by 30 basis points sequentially. On an adjusted basis, operating margin decreased by just 20 basis points compared to the third quarter of 2022, but increased by 40 basis points sequentially. This modest year-over-year decreased and…

Well, Craig, thank you very much, and I'd like to extend my welcome to everybody on the phone here today, and I hope that you're all having an enjoyable fall so far. It's a pleasure here in Wallingford to see the beautiful orange and red hues out of our windows. As Craig mentioned, I'm going to highlight our third quarter achievements, then discuss our trends and progress across our diversified end markets, and then I'll comment on our outlook for the fourth quarter and for the full year of 2023. Turning to the third quarter, our results in the third quarter were better than expected. As we exceeded the high end of our guidance in sales and adjusted diluted earnings per share, sales declined by 3% in U.S. dollars and local currencies, reaching just under $3.2 billion, with growth in the commercial air, military, and automotive end markets, as well as contributions from our acquisitions, which were more than offset by moderations in the mobile networks, mobile devices, IT Datacom, broadband, and industrial end markets. On an organic basis, sales declined by 5%, but sales did increase sequentially by 5% from second quarter levels. We're pleased that the company booked orders of $3.164 billion, and that represented a book-to-bill of 0.99 to 1. I'm especially encouraged that our orders in the third quarter did exceed prior year levels, and that's an encouraging sign going forward. Profitability was very strong in the quarter. We generated adjusted operating margins of 20.8%, and that was down just 20 basis points from prior year. Sequentially our margins improved by 40 basis points, and as Craig already mentioned, these operating margins in the third quarter reflected just outstanding execution by our global management team, who continued to manage dynamically and effectively, even in the face…

The question-and-answer period will now begin. Please limit to one question per follower. Amit Daryanani with Evercore. Your line is open.

Thanks a lot. I guess, Adam, maybe for you, I hope you can just talk a little bit about, what are you hearing from your customers broadly? And really on the industrial side, given the ongoing macro-voluntary, I hope you talk about the distributors side is somewhat weaker, but what are you hearing from the OEM or the trend that OEM is much different than what you're seeing in the channel? And how do you see that kind of pan out maybe into December quarter and beyond that, especially if you think about the inventory normalization?

Amit, thank you very much. Yes, I think when we look at the industrial market, I mean, the beauty of our industrial business is we have a very broad presence across, really every segment of the industrial market. And we did see some of those segments actually performing very strongly. I highlighted that we saw a very robust growth in oil and gas and rail mass transit, so strong growth in medical applications, heavy equipment, another one. But then there's other segments of the market where, which were down. And I think some of those have been pretty widely reported areas like factory automation, alternative energy, which seems to be having a little bit of a pause in the investment cycle for a variety of reasons. But by and large, our OEM business was only modestly down. And it was really the bigger impact here was the impact from the distribution channel, who it turns out, feels that they have a little bit too much inventory right now. And we started to see some signs of that maybe coming into the quarter. And I think it maybe accelerated a little bit through the quarter. And our guidance as we look out into the fourth quarter certainly incorporates a continued adjustment by our distributors in particular, as well as some on the OEM side as well. And that's what's envisioned in our sort of modest sequential moderation that is implied in our guidance. How long will that last? We certainly, 90 days from now, we'll try to give a good sense of what it looks like at least in the first quarter of next year. I would expect that it's hard to predict. But the underlying electrification and electrification of the industrial market broadly, that has not slowed down. I think,…

Thank you. Our next question is from Chris Snyder with UBS. You may go ahead.

Thank you. I wanted to ask on the IT datacom market. It came in much better than what you guys were expecting three months ago. It sounds like a big part of that is the AI demand search that you referenced, Adam. So, can we maybe just talk about how the AI business is ramping? If there's anything you could provide to us around the size of the business today and any sort of outlook that we could think about into next year, because it does sound like the orders remain quite robust. And then, just kind of staying on IT datacom, any update on the broader, the non AI part of the business. Do you feel like that piece is kind of gotten through the inventory correction that's been going on since really, I guess, the back half of last year? Thank you.

Thanks very much, Chris. Appreciate it. Look, I think we're really excited about where we are with our customers in AI. And I'll just put some historical perspective on this. I mean, we've been working on the innovation of products that ultimately support AI for many, many years. This is not like, all of a sudden, something like ChatGPT shows up in the newspaper and we started frantically developing products. We've been working with customers for a long time on the type of products that uniquely are required for an AI processing system. And we talked a little bit about this 90 days ago, but the nature of an AI system, the fact that it is a neural network based system, where you have these very high power chips that all have to talk to each other across a fabric like architecture, just means that there's a uniquely larger component of interconnect to allow those shifts to ultimately talk to each other. And the requirements of that, those interconnect products, both from a speed, a latency perspective, not even to mention the significant power requirements that go into these AI data centers, which consume dramatically higher levels of power, and thereby require higher technology, higher efficiency types of power interconnect to ensure that these AI data centers aren't just chewing up all the electricity in America, for example. These are really challenging and exciting opportunities where we've been investing in new product development for many, many years. It's clearly ramping. I talked about the fact that really, I would say all of our sequential growth from Q2 to Q3 came from AI. And as you recall, we had already a decent amount of AI business in the second quarter. And we don't split that out. We already talked about end…

Thank you. The next question is from Luke Junk with Baird. You may go ahead.

Good afternoon. Thanks for taking the question. Adam, you've done what I would consider to be a few higher degree of difficulty deals in the past couple of years, namely a public company and MTS and heavier cost work with RFS. And now another public company in your agreement to acquire PCTEL. Just wondering how much new muscle, if you will, the organization has grown, in terms of integrating deals like this, especially public companies. And just what it might mean for the acquisition funnel going forward in terms of the prospects that you're looking at? Thank you.

Yes, Luke. Thanks. It's actually a really great question. I mean, if I go back, everybody on the phone will recall that it was the beginning of 2022 when we evolved our organization and created now three global divisions, which are reportable segments. And then under those global divisions, initially 12 and now 13 operating groups. And each of those operating groups is run by just an outstanding group general manager. I think in my career, I was a general manager, then I was a group general manager myself before I came here to headquarters nearly 17 years ago. And those group general managers run very significant businesses. They're deeply involved in the operations of the company and they're deeply involved in the identification, the assessment and ultimately the welcoming of these new companies to Amphenol. And we now have just a broader platform of extraordinarily capable individuals. I've talked many times about how I view kind of my priorities as a CEO of this company. And I view them really twofold. One is to be the protector of our culture, that unique entrepreneurial culture that I believe is really second to none in its value and its impact on our results. And the second is to ensure the scalability of that culture so that we can grow as a company really in perpetuity. And, I joined a quarter of a century ago, we were less than a billion dollars in sales, but the culture was identical. It was general managers around the world who have full authority to run their businesses and ultimately can be held accountable. Therefore, today we've gone from when I joined the company less than 20 to today around 130 of those general managers and we've scaled the organization in support of that. And that's…

Thank you. The next question is from Andrew Buscaglia with BNP Paribas. You may go ahead.

Hey, guys. Nice to meet you and thanks for taking my question.

Yes. Nice to meet you too, Andrew.

So, yes, So, I want to start off with the automotive market, just given the size of it, you definitely some skittishness with investors heading into the quarter into year-end. On two areas, within North America, you got the worker strike, what's the ripple effect on that? And then, just weakness in China, China auto too. But you guys continue to outperform. So, I'm just -- my question is, when peaking around the corner, do you have concerns that you guys can maintain, your out-performance relative to the overall market? And can you kind of dig into some of the details around what you're hearing from customers in each of the markets?

Yes. Well, Andrew, thanks again and welcome to the, welcome to the call here. Not so often we get a new analyst. So, it's a pleasure to have you here. Look, the automotive market is a really exciting one for the company. I'm just so proud of our team working in the automotive market, results that they've driven in what has not been an easy environment, quite the contrary. Growing last quarter by 12% organically, I mean, you will recall that last year we grew by 29% organically in a market that was essentially flat to down in units. And if you look at the long-term performance of our automotive company over the nearly 15 years that I've been CEO, I still remember very well, my first quarter is CEO. And, by the way, this is my 60th of these earnings calls as CEO. In my first one of those, we had an automotive business that was 5% and our overall sales were $660 million that quarter. So, that's $33 million, $35 million, and here we are this quarter at close to $3.2 billion in our automotive market, 23% of sales. And I think we've just done a fabulous job over those years, not of taking market share out of the hands of incumbents, but of enabling new electronic systems as they were adopted in cars over that decade and a half. And I think you've just seen a collection of revolutions in the automotive industry, the most prominent and most recent of which being the electrification of vehicles. But that's not the only thing. I mean, there's so many new systems being put into these cars. And each time there's an opportunity for us to intersect those with high technology interconnect sensors and antennas. And I think our team's done a great job of that. How is that going to go into 2024? Again, I think I said this already on the call, nine days from now we'll try to give everybody a decent sense of where we think at least the beginning of 2024 is headed. But I say no reason to say that we will not continue to maintain our outperformance that we have been so consistently delivering really over a decade and a half during this time period. I'm just really proud of our team working on automotive and I'm really pleased with the broad array of technologies for all these exciting new applications in the car.

Thank you. The next question is from Wamsi Mohan with Bank of America. You may go ahead.

Yes. Thank you so much. Adam or Craig, I was wondering if you could talk about some of the puts and takes on operating margins as we look out over the next quarter. At the midpoint of the revenue guide, you would be absorbing almost $24 million of decremental margins of operating profit and you're also absorbing impact of M&A from three new deals and three prior deals. So when we look at your guide, it's clearly reflecting a much better outlook than that. So A, is the assumption around decremental margins, still the same as historical or have you made changes in the business that's creating less lower decremental margins? And B, as we think about sort of that operating guide, which is so resilient, what are some of the other drivers that are enabling you to do that? Thank you.

Thanks, Wamsi. I appreciate the question. I think if you look at our profitability in 2023 and certainly here in the third quarter and I'll talk about the fourth quarter in a minute or two. I wouldn't say there's certainly no changes in regards to how we think about decremental margins in the long-term, but 2023, a few things have happened and certainly we've done a great job of. Number one, we're benefiting a bit from pricing and no particular order here, but we're certainly benefiting a bit from pricing that we did last year in 2022 and we did a call, we talked a bit about the work we did last year, the catch up with the inflationary environment that kind of by the third quarter into the fourth quarter of last year, the majority of the work we were pretty much back to kind of where we wanted to be and expected to be from a balance between price and cost perspective. So, we're certainly still benefiting on a year-over-year basis from that. In addition, I think we've just executed very well, certainly some of the markets that we've seen a reduction from and certainly communications markets, ID datacom being the biggest of them. We certainly have done a really great job of kind of offsetting some of those declines just from just great execution. And if you actually look at the over year-over-year margins and you take out some of the acquisitions impacts, we actually are well under those decremental margins that we typically would target. But I'd say, those are one of the two kind of bigger things that really are impacting it. I mean, 20.8% here in the third quarter is not quite a record, but certainly given the market mix in terms of the challenges that we've had from the ups and downs of a growth price perspective, not mix of margin from a market, because we don't have a significant margin range from a market, but just the mix of the growth that we've had, the ups and downs, it really has -- really been a, I think, great execution on the team's part to be able to manage that. So, as we look forward into the fourth quarter, I think our implied guidance would be that we continue to have these strong margins into the fourth quarter and that are offsetting some of the acquisitions that do clearly have lower than average margin levels and that we're working to get up to the company average over time, but no doubt we're really proud of it. I think the longer term kind of decremental margins haven't changed from this 30%, but I think this year, given a few of the factors I mentioned, I think has really benefited us and certainly we're proud of it. And these are the margins we should be at these revenue levels and we're going to continue to strive to do better.

Thank you. Our next question is from Samik Chatterjee with JPMorgan. You may go ahead.

Hi. Good afternoon. Thanks for taking my question. I guess on a more broader level, Adam, you have a fairly diversified business and there are many puts and takes in terms of where the different markets are. Some are recovering, some are still at a lower level, but you've managed to grow orders year-over-year, as you pointed out, despite that dynamic here. I'm just wondering like how should we translate that into thinking about the order growth translating into revenue growth in the near term. More curious, because your revenue numbers for the last couple of quarters have been above the order number, but the guide seems to be more in line with what you reported for orders. So, how should we think about the opportunity to return to revenue growth since orders are already higher year-over-year? Thank you.

Yes, well, thank you very much, Samik. I mean, look, I think we just talked about the auto market and we've been consistently outperforming the overall auto, whatever you want to call it, unit volumes or whatever markets that you want to talk about. I guess when we talk about orders from year-over-year perspective, more broadly in the company, yes, we were this quarter on a year-over-year basis higher in our orders than last year, and that was the first time in four quarters. And I think that that should translate eventually to year-over-year growth. I think we've guided for next quarter in a certain way, and we're going to keep fighting for that and we'll guide for the first quarter at the same time when we come to that 90 days from now, and you can imagine that our team is very focused on returning to growth, and we don't love having it be down this quarter. We don't like having it be down next quarter, and we don't like having it be down last quarter either, and there's a whole Amphenol team around us that's fighting for that. When you look across our end markets, one of the beauties of the diversification of the company is that we have end markets which are growing substantially already, and we have others though which are down because of the various reasons that we've talked about. And so, when you think about, for example, IT datacom which was down quite significantly last quarter, I think it was something like 20%, 24% or so, and then this quarter down 12%, I think at our current guidance, that would be pretty close to prior year, plus or minus. And so that's a sign, I think, of that returning to the growth trajectory that we would for sure look forward to seeing across the company.

Thank you. The next question is from Mark Delaney with Goldman Sachs. You may go ahead.

Yes. Good afternoon and thank you very much for taking my question. I have one on mobile networks. Do you think 6G is needed for that business to reaccelerate, or can other opportunities like Open RAN, Industrial 5G, and Wireless 5 Band to be enough for the catalyst, and perhaps some combination of those along with the inventory reductions?

Hey, Mark, Good to hear your voice. Look, I think 6G will come one day, but we still haven't even invested totally in 5G. So, when I think about how the mobile networks market tends to go. And I've been around long enough working in the wireless market, long enough that I've seen 1G, 2G, 3G, 4G, and now 5G, and I have a decent sense of how that works. Generally what happen is there's an initial investment of that new generation. And then the operators digest and figure out the economics of it, because these are significant investments that they make. And if they can't figure out how to monetize that incremental investment, that's a challenge. I think the 5G, there's a lot of work going on to figure out how to monetize that. But I think there's a separate question. And that is, yes, this is a tough period for the wireless market. You've seen all the releases over the last several days, and the capital spending of the big operators here in the U.S, which is all down in the kind of 20% to 30% range, the equipment manufacturers in some cases down even more in this region at least, and certainly our business down on an organic basis as it was by 43%,. And I think we're in that digestion period of that new technology, but there's still a very modest proportion of the build out that has become truly 5G. And I don't know what the number is, is it 15%, is it 20%, but it's certainly not 50%, it's certainly not 60%, 70%, 80%. I mean, we're still, I believe, in the early innings of the 5G, and I think people are just taking kind of a third inning stretch on this right now…

Thank you. The next question is from Will Stein with Truist Securities. You may go ahead.

Great. Thanks for taking my questions, and congrats on the strong results and good outlook. Adam, I'm wondering if you can comment on the test and measurement part of PCTEL. You had this situation with a prior acquisition where there was a test and measurement equipment business bundled into it, which at the time you said did not fit in the portfolio. I wonder if it fits in this case?

Yes, well, thanks very much, and look, we're really excited about the PCTEL acquisition, and PCTEL, we've known them for many, many years as a really broad and very successful antenna company, probably a little too small to be a public company, and that's certainly one thing I would say. And yes, they have a small test and measurement business, but we're really excited about this company, and we look forward to working to bring it to its closure, and I probably wouldn't say more about it given that we've just signed the deal.

Thank you. The next question is from Steven Fox with Fox Advisors. You may go ahead.

Hi, good afternoon. I was wondering if I could get a little bit more color on the smaller M&A deals that you did during the course of the series on RF, it seems Adam, you already have such a great position in RF. I can't imagine what else you need to acquire. And then secondly, on busbars, which it seems like busbars, it's a sleepy technology that's getting more attention lately. Can you talk about why you did those deals? Thanks.

Yes, thanks, Steve. I really appreciate the question. Yes, I mean, look, XMA and Q Microwave are fabulous companies. They're certainly at a smaller scale for now you can imagine that we have high expectations for them over the long-term. And you correctly stated, we have really the broadest position in RF interconnect technology. And these companies bring us, just as we've gone a little bit into active optics, these companies bring us a little bit extra in RF that we can offer to our customers, a little bit more conditioning capabilities in the RF interconnect products. And that's something, especially in the mil aero market that we see as being a really important part of our interconnect offering to our customers in mil aero, and I think that's really exciting. Busbars is an area that we've been in for gosh, almost the whole of my career. I remember 23 years ago or so when I was a general manager, and we were making one of our first busbars at the time, and we've been involved in busbars in the telecom industry. We've been involved in bus bars in IT. We've made great acquisitions. You'll recall the acquisition of OXCEL [ph] several years ago, which brought us more into the industrial market. And what we really like about Conner, is Conner brings us really solidly into the busbar market in the automotive market in particular around EVs. And while we have today an outstanding offering of high voltage interconnect products that are used in EVs. There's no doubt that a compliment to that is the busbar systems that are used also to move the energy around the car. And Conner just does a fabulous job there. We're just really excited to have them. And it's a continued expansion of the reach of the interconnect system, making sure that our core technologies that we have, we have them in every one of the end markets where those find favor. And I think Conner is a wonderful piece of that puzzle.

Thank you. Our next question is from Matt Sheerin with Stifel. You may go ahead.

Yes. Thank you and good afternoon, everyone. Adam, I'm hoping you can comment a little further on mobile device business. You called out relative strength in smartphones and wearables, but continued weakness on PCs and notebooks. And we're hearing from some other suppliers and part of the supply chain that things are bottoming there and some of the players in Taiwan are starting to see some signs of a recovery there. Do you have any visibility in terms of your customers as you get into next year in terms of the refresh cycle and other things?

Yes. Thanks very much, Matt. I think you correctly stated the case here, which is, we've actually had a pretty good year in smartphones and our team's done a fabulous job there. But no doubt there's been a digestion period in the other devices in particular, the devices like tablets and laptops and the like. And I think what we've seen over this pandemic impacted kind of last four years is there was an unusual surge and a kind of disruption of the normal buying patterns of these devices, because when everybody got sent home either to work or to study or however they wanted to interact, they had to get new devices to do that. And there was just a massive surge in the consumption of those devices at the end of the day. And I think there's still a digestion from that. What is it going to be next year? I mean, look, I have a hard time guiding this market 90 days out. I'm generally wrong when I do that, and I certainly wouldn't get ahead of my speed and try to guide it for next year. But of course, at some point, that digestion of that surge of demand for those kind of devices, you would hope would normalize and I would expect that it would normalize that. I mean, I know for sure my own devices, I'm probably getting them. I run them a little longer than most, because we're pretty cost conscious here at Amphenol. But even a couple of my devices, I'm starting to think about whether I need to get a new one.

Thank you. Our last question comes from Joe Giordano with TD Cowen. You may go ahead.

Hey, good afternoon. This is Michael on for Joe.

Good afternoon, Michael.

So recently, there's been a few like noteworthy EV and like semi-plant construction or equipment delays. So we're just curious on how like the cadence of these projects influence internal decision making or guidance, whatnot?

Yes. I mean, look, we read all the same papers, and I think, individual plants may be accelerated or delayed at a given time. And I wouldn't think that, an individual announcement doesn't really have a dramatic impact on our overall business. But look, I did talk about in particular one area, which is the semiconductor capital equipment market, which I think if you asked everybody a year ago, and I’d say everybody except for maybe the two of us sitting here, they would have said, oh, this will never, ever have a cycle ever again. And sure enough, here we are this year, and there is a bit of a cycle in semi-cap equipment. We have a really strong position there. We've done a great job to position ourselves long-term as really an interconnect supplier of choice to that market. And clearly, I mentioned earlier that we did see a moderation of our sales into semi-cap equipment as part of our industrial market. I don't think that's because of any individual plant. But I'd say that that is more related to I think a bit of a pause in the capital spending of some of the larger semiconductor manufacturers. EV related, I think we still see that market is pretty strong. We had a really strong performance in our automotive market last quarter. And again, 90 days from now, we'll see what that looks like next year. But I wouldn't necessarily point to any specific things related to EV factories being built or not being built.

Well, operator, I think that's our last question. And once again, on behalf of Craig and I and our whole 90,000 team around the world, we'd like to just thank everybody for your time today. We wish you all the best and wish that you and your families all stay safe. Thanks so much.

Thank you.

Thank you for attending today's conference. And have a nice day.