Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions]. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo, and you may begin.

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our first quarter 2024 conference call. Our first quarter 2024 results were released this morning and I will provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then we will take questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make some forward-looking statements. So please refer to the relevant disclosures in our press release for further information. The company closed the first quarter with sales of $3.256 billion and adjusted diluted EPS of $0.80. First quarter sales were up 9% in U.S. dollars, 10% in local currencies and 6% organically compared to the first quarter of 2023. Sequentially, sales were down 2% in U.S. dollars, 2% in local currencies and 4% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were $3.348 billion, up 16% compared to the first quarter of 2023 and 66% sequentially, resulting in a book-to-bill ratio of 1.03:1. GAAP and adjusted operating income was $685 million, and operating margin was 21% in the first quarter of 2024. On a GAAP basis, operating margin increased by 110 basis points compared to the first quarter of '23 and 30 basis points compared to the fourth quarter of '23. On an adjusted basis, operating margin increased by 90 basis points from the prior year quarter and decreased by 20 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by strong operating leverage on higher sales volumes, which was partially offset by the dilutive impact of acquisitions completed in the prior 12…

Well, thank you very much, Craig, and I'd like to extend my warmest welcome to all of you here from beautiful Wallingford, Connecticut, where spring is certainly in the air. As you know as is typical, I'm going to highlight some of our achievements in the first quarter. I'll then discuss our trends and our progress across our diversified markets. Finally, I'll comment on the outlook for the second quarter. And of course, we'll have time for questions. Our results in the first quarter were stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. We're very pleased that our sales grew from prior year by 9% in U.S. dollars and 10% in local currencies, reaching $3.256 billion. On an organic basis, our sales increased by 6% with growth in IT datacom, commercial air, automotive, defense and mobile devices markets, somewhat offset by declines in the mobile networks, broadband and industrial markets. And I'll talk about each of those markets here in a few moments. We're very pleased that the company booked $3.348 billion in orders in the first quarter and that, that represented a positive book-to-bill of 1.03:1. Our profitability was very strong in the quarter, and adjusted operating margins reached 21% even in the quarter, a robust 90 basis point increase from last year's levels. And from that profitability, we generated adjusted diluted EPS, which grew 16% from prior year to $0.80. Finally, we generated strong operating and free cash flow of $599 million and $506 million, another clear demonstration of the high quality of the company's earnings. As Craig mentioned, we're very pleased that the Board of Directors has approved a new $2 billion 3-year stock repurchase program, and this represents another important component of the company's balanced capital deployment.…

[Operator Instructions] Our first question is from Amit Daryanani with Evercore.

I guess, Adam, AI, you talked a little bit about AI as well, but it's mainly a big focus for everyone, including investors. So I'm hoping you could maybe, perhaps, help us understand what solutions, what products does Amphenol really sell to the customer base right now when it comes to AI infrastructure? And how does that really differ from what you sell to processor companies versus the cloud providers that are running their own infrastructure? I'd love to just understand that. And if there's any way to put dimensions around how big this business can get for you folks over time would be really helpful.

Well, thanks very much, Amit, and really appreciate the question. Look, we're really excited about the renewed and really revolutionary investments that are being made in AI right now. I mean I have to confess that I am a consumer of these products. I've been using them. It's amazing. Last night, my wife made me tacos because, of course, it's Tuesday, and she went on ChatGPT. And she said, "Give me a great taco recipe." And it's just unbelievable what you can do for these things. And the underlying magic of these systems is just extraordinary computations, creating essentially probability models that are based on comparing everything to everything else. And to do that, you need the chips, whether they'd be GPUs or TPUs or sensor or whatever the chips that there are. They need to be connected to each other in essentially a fabric network. And these calculations and computations and comparisons have to happen virtually at light speed. And thus, that requires an enormous degree of high-speed, low latency interconnect products that are different in their architecture. You have much more use, for example, of cable assemblies than you did in the past using maybe printed circuit boards. You have really direct connecting as close as possible to the chip of those high-speed products. And these are extraordinarily challenging products to build. These are products that we've been working on for so many years. I mean, more than a decade of effort in developing these products. And they're just extremely challenging, extremely high technology and extremely critical to the good performance of those products. But it doesn't just start and end with high speed. I think it's been broadly discussed lately, power and what does power mean for AI? And is there even enough power in the world…

Our next question is from Luke Junk with Baird.

Just hoping you could help us unpack a little bit more the uptick in orders and book-to-bill being positive this quarter. Just particular areas of strength that are driving that and maybe areas that are still lagging at this point?

Well, thanks so much, Luke. First of all, we're really pleased to see the positive book-to-bill, 1.03. I mean, I know during COVID, there were some funny books to bill at a few points where it was like 1.15:1 and then there were some negative book-to-bill. I mean, traditionally, 1.03 is actually a very strong book-to-bill for us because our lead times are not that long. We're a very reactive company, and I think that's a really good sign. It shouldn't be surprising that maybe the 2 places where we saw slightly negative book-to-bill would have been in mobile networks and industrial. Otherwise, we saw either flat or positive book-to-bill and probably our strongest bookings on a book-to-bill came out of IT datacom as well as Commercial Air, which were really good books to bill.

Our next question is from Saree Boroditsky with Jefferies.

I wanted to dig in more on the Carlisle, CIT, acquisition. It's relatively large. It was held by a commercial roofing company before. So what's the opportunity here being under your ownership? And where do you see potential to improve margins?

Well, thank you very much, Saree. I mean first, I just want to complement Carlisle, the corporation. I work closely with the CEO of Carlisle, who's a wonderful guy. It's a fabulous company actually. And it's true, their focus and their stated strategic focus is to be in the building materials industry. And they were a wonderful steward of Carlisle Interconnect for many years. But there's no doubt that interconnect was not where they were focused strategically. And I'm really pleased and happy for the team, the corporate team at Carlisle because I think they've really been able to realize their vision to be a focused building materials company. At the same time, Carlisle Interconnect is a fabulous company. I've known this company for most of my quarter century in Amphenol. It's one of those companies that we actually don't compete with them very much. Very little, actually. It's such a complementary company, but I've always admired the company. And we've always admired the company for their great technology fabulous people. And I've known some of the people at CIT also for many, many years. And I just can't tell you how happy I am that they're going to be on our side of the table, but they're going to join the Amphenol family. And that's really just -- it's such a fabulous organization inside of CIT. I mean what we really love about this company, they are a true leader in the technologies around wire and cable; in cable assemblies; in contact technologies, which is just so complementary to our leadership position on connectors and other value-add interconnect on things like back shells and the like. And when we bring that together, that offering to customers, whether that's in the commercial air market, whether that's in the defense market,…

Our next question is from Wamsi Mohan with Bank of America.

Adam, maybe back to this AI topic a little bit. Thanks for all the color you shared. Clearly, Amphenol has been in this space for a long time, and you continue to push the envelope both in terms of data speeds and signal integrity issues. So can you just talk about how you're seeing pricing evolves, maybe generation to generation? What's been the history there? How are you anticipating that given the higher value and kind of much more sort of transmitting 800 gigs instead of 400 gig speeds. So clearly, there's value in there, but the density of applications is becoming more complicated and the unit volumes are also growing kind of order of magnitude, higher. So putting all those together, how should we think about just the opportunity here? Is it right to think about maybe you're guiding to like a 30% growth in this end market right here in the next quarter. Is that something that's possible to continue into 2025?

Well, thanks, Wamsi. A lot wrapped up in that question. I mean, look, I guess to the very end of your question, I'm not going to get out ahead of myself and try to give a guidance about this revolutionary thing into 2025. As you know, we give guidance for the quarter ahead of us, and then we try to make sure we're maximizing our position of whatever the market will bring us long term. . But I would say this, number one, you mentioned pricing. I mean we are always trying to deliver to our customers' value and so our goal is to deliver the maximum amount of value to our customers at the lowest price that they can get. And if we can deliver enough value to our customers, then there will be some of that value left over for us. And I think what you see in AI is the criticality of the interconnect in these systems. I mean there is a direct correlation between the power of these AI learning and inference models and the quality and performance and capability of the interconnect systems because, again, you're talking about speed and latency. And so when you think about how long does it take to build a model, well, if you have even the tiniest proportion of higher latency between the chips, then all of a sudden, what may take a month, takes 3 months to build these complex models that are using trillions of learning factors across them. And if you take 3 months and your competitor takes 1 month, and your model is more up-to-date than your competitors, all of a sudden, you as a service provider, are not able to monetize these massive investments that you're making. So if you think about that correlation…

Our next question is from Mark Delaney with Goldman Sachs.

I'm hoping to better understand how Amphenol is thinking about capital allocation for the rest of the year, especially with the pending Carlisle Interconnect transaction. Is the M&A funnel still active? And with the new repurchase authorization you announced this morning, but also the potential cash usage for M&A., so just Carlisle, how active might the company be on buybacks this year?

Yes. Thanks, Mark. Yes, I think in regards to our capital deployment, we've had a very consistent policy and practice over many years with regard to our capital deployment and over a whole host of years where we've done a significant amount of M&A and less M&A, and we continue to be kind of -- it continues to be a balanced and flexible deployment strategy. In the current year with the CIT, I talked about how strong our balance sheet is, the 0.7x net leverage, the strong free cash flow that we generate and continue to generate. And so I wouldn't think even with CIT, I wouldn't say that, that would have any impact ultimately on our capital deployment strategy. And we did just renew or have a new $2 billion 3-year share repurchase program. Certainly, that's one of the legs and a return of capital to shareholders. We, ultimately over time, we want to return about 50% or roughly half of our free cash flow to our shareholders. And part of that is our dividend yield, which is roughly 1%, and we continue to target that over time as well as our share repurchase plan. So I would say this new plan is just consistent with that and our dividend -- certainly policy is consistent with that. And ultimately, that M&A continues to be the focus that ultimately over time, we believe that, that will continue to drive strong returns. So if there was a time where we generated a significant closing of deals in this particular year, what we think about maybe dialing back share repurchases. But at the end of the day, just considering the significant free cash flow that we generate, we really haven't had to do that and certainly wouldn't expect this year just with CIT to have any adjustment to that.

And Mark, relative to the M&A pipeline. I would just tell you that our pipeline remains strong. Yes, we completed last year, 10 acquisitions. Yes, we announced in January, our largest ever acquisition was CIT. But I can tell you, we have the appetite, the capacity and the ability and agility to continue to make acquisitions, large and small. And I think we continue to demonstrate our ability to do more acquisitions, do bigger acquisitions. And the beauty of this industry and the beauty of this market is that there's just so many great opportunities to find companies with great people and great technology and a very complementary market position to Amphenol. We remain extremely disciplined in our acquisition program, and we will walk away for -- if we get a bad feeling up until the last second, before we wire money. But there's no doubt about it that there's great, great opportunities for us for the future. And as Craig mentioned, like our financial condition is in really a fantastic position with 0.7x leverage here at the end of the quarter. Our leverage will just be a touch above 1, following the acquisition of CIT. And so we have really the capacity, the capability and the appetite to continue.

Our next question is from Steven Fox with Fox Advisors.

I was just wondering on the auto markets, the 17% growth you talked about. I know you highlighted communications. And I know you guys don't like to count cars per se, but can you just sort of provide some color on the backdrop you're settling into right now and into Q2? And what exactly would you call out as sort of leading products that you're especially doing well on right now?

Yes. Thanks very much, Steve. And you're right, I don't like counting cars necessarily. I mean, the market is what the market is. But look, we have taken advantage, I think, for a very long time, not of an overall growing auto market. I mean, if you look over, I don't know, 8 years or something, it's still sort of a similar level of total worldwide auto production. But there's no doubt that the content has expanded dramatically over these years. And I think we've taken a real advantage of that. So when we think about our opportunities, we talked a lot over the past years about electrified drivetrains, the high-voltage connectors, for example, sensors that go into that. But we've also talked about all the other applications. And so when you think about communications, as I highlighted earlier, there's just more and more communications technology being put into cars. And as a leader in RF technology for cars, as a leader in antennas for cars, as someone who participates really across that whole signal chain of communication, that creates a great opportunity. There's other areas like connectivity, passenger connectivity, engine control. By the way, there's still the vast majority of cars that are built are using fuel-based engines or ICE vehicles and those require an enormous amount of different contents as well. Most of actually what we sell into cars is agnostic to the drivetrain. But it's not agnostic to the increase in content in cars. As there's more electronics, there's going to be more opportunities for Amphenol.

Our next question is from Samik Chatterjee with JPMorgan.

This is Joe Cardoso on for Samik. Can you just give us an update on where we stand on the inventory destocking headwinds in the industrial market and how you're thinking about timing of when we see that normalizing? And then maybe as a quickie second, if I can. Can you just touch on the CapEx investments that you highlighted in your prepared remarks? How should we be thinking about magnitude and besides IT datacom that you mentioned, what are the other major buckets of investments there?

Yes. I mean just very quickly on industrial. I mean, I think we continue to see the demand in industrial to be somewhat muted. There is no doubt an impact from destocking with distributors. But it's not just destocking. I think distributors' orders themselves are also down. And so it's not just that they have too much inventory, but the demand in certain pockets of industrial. I would say, in particular, in places like Europe, maybe to a lesser extent in some parts of Asia and then even to a lesser extent, in North America. With regards to our comments on CapEx. I mean I talked about it in the context of AI. But you can imagine, we're growing strongly in a number of our markets, including, in particular, in Defense. We grew last year in Defense by 20%. We grew last quarter by 11% organically. We continue to see strong momentum. And the defense industry uses also extremely high-technology products. We have a very vertically integrated capability and offering to our customers. And usually, you can't grow by 20% in Defense-related products. It's just impossible to flex. And I think our team has just done a fabulous job of flexing their capacity. But that may require a little bit more. But look, we're not talking about big numbers here. I mean we said we expect a slight elevation in CapEx. Our CapEx is still very, very reasonable. I think, Craig, it was less than 3% last quarter. And so this is not a big deal. We expect to still have very strong and robust free cash flow through the year.

Our next question is from William Stein with Truist Securities.

I'm going to ask yet another on AI. We understand that the 3 main connector vendors in the space, Amphenol and 2 others have very solid positions, very good technical capabilities. I'm wondering if you can talk about the competitive dynamics among the 3 of you, and also the degree to which you can capture some of their share. Or whether it's possible, another entrant among the hundreds of connector companies globally could realistically attack this market.

Thanks very much, Will. Look, I'm not going to comment on our peers. I have great respect for them. They're fabulous companies. What I will say is that we've been working in this area for a very, very long time. And as the leader in high-speed interconnect technology, you can imagine that we also have a very robust position here. This is not something that we have just recently developed. This is a very, very long, intensive and real leading position in development of those technologies. But I have great respect for all of our competitors. This AI is a great thing for our industry because it is really a multiple of content because of the unique architecture of these products. And we're not going to win 100% of everything, but I can tell you that we certainly get more than our fair share. In terms of new entrants, I mean, look, there can always be new folks who come along, these are among the hardest products that are made in the interconnect industry. And I think I already spent some time talking about the economics of those products and how those economics mean that as a customer, you want to be very careful to not use a product that cannot meet the requirements that you need in these high-performance systems.

Our next question is from Asiya Merchant with Citigroup.

Great results. Just incremental gross margins, if I did the calculation here, right, we're -- sorry, operating margins are very strong. Maybe you can talk about how you guys think about the trajectory of those gross -- incremental margins as the quarter progresses or as the year progresses. And especially when you think about rolling in a pretty sizable acquisition in the back half, how we should be modeling for that?

Yes. Thanks, Asiya. Yes. No, we are really proud of the 21% operating margins here in the first quarter. I mean, first quarter typically is the more challenging quarter in the years, given the sequential quarter typical decline we have. And certainly, we always do a good job. But this quarter really, I think, is an outstanding quarter from being able to achieve 21% -- 30% year-over-year and really sequentially about 30%. And that's -- we did 10 acquisitions last year, as you know, and those acquisitions were significantly under our company average. So when you really pull out and look at the organic conversion on our 6% growth on a year-over-year basis, it's significantly stronger than the 30% that kind of in the reported numbers. And sequentially, kind of the same dynamic with the acquisitions we did in the fourth quarter, being well under the average profitability of the company. Sequentially, that conversion really is well under that 30% kind of in the face. So really strong execution by the team. I mean the team has done an outstanding job of really -- not only the teams that are growing, but also the teams that are impacted on the negative side. As you know, our industrial market is more challenged and a few other markets as well. And they've just done an outstanding job of controlling costs on the downside as well. So the combination of those 2 really has just turned into a really strong profitability for the company. I mean as we look forward, taking out CIT, I'll talk about that in a second. I would expect that, again, more normal profitability levels on incremental kind of revenue. If we talk about the 25% longer-term target, I would expect more in that normal range as we kind of get into more of the normal cadence from a pricing cost perspective that we're in right now. But no doubt our teams will continue to manage in a very strong level and do their best to maximize profitability as they have. But I think 25% or so is kind of what I would kind of expect as we kind of go throughout the year. Now when we layer in CIT, when CIT does close, we expect here by the end of Q2, there's no doubt that business is well under our average company profitability levels currently and there would be some impact on the profitability, on the margins, slightly from an operating margin perspective. And over time, we would certainly work and the team would work as Adam kind of mentioned earlier, to get those back up to the company average. But certainly, in 2024, we would expect some impact on the second half from a profitability perspective from them. But it's a great team, and certainly, we would expect over time to improve upon that.

Our next question is from Andrew Buscaglia with BNP Paribas.

Following up on that question, CIT, I think at a great price. As part of a holding company, you guys alluded to maybe not run optimally. But is this integration, is this company a cost-saving story? Or if you look at CIT, their growth, historically, wasn't all that exciting. Is this more of an opportunity to reaccelerate their growth? Or is it both? And if you could comment like that potential margin dilution in the back half, what might that be at this point?

Yes. I don't know that we have a specific number to give you for the margin dilution. I mean, we'll talk about it when we own the company. In terms of the priorities, I mean, every acquisition we make, we want them to accelerate their growth and make more money doing it. And so you can imagine that with the CIT team we're already talking about, to the extent that we can before closing, we're already talking about how do they both accelerate their growth, expand their market position, take advantage of being part of Amphenol, take advantage of the broader access that we have as a company, take advantage of the broader suite of technologies that we have to grow their business. And in turn, how do they take advantage of our low-cost manufacturing? How do they take advantage of the broader relationships we have in the supply chain? Whatever that may be. And also just how do they take advantage of now being part of a high-performance interconnect company like Amphenol? I will tell you, in years past, when we've seen companies improve their performance, some of that was just they came in and they saw, "Oh my goodness, I didn't realize I could make that much money." And they just figured it out and made it happen. And it's not that we parachute in with a bunch of folks from headquarters or otherwise, but there is inside of the company so many great role models of organizations run by entrepreneurs, run by Amphenol and general managers who have just figured it out. And that is -- we don't have an Amphenol business system. We don't have an Amphenol way. The Amphenol way is just to liberate people, to give them the authority and to hold them accountable as entrepreneurs. And that mindset is very different from most other companies. And again, Carlisle is a fabulous organization, the parent company, but they're not an interconnect company. And I think CIT, as part of Amphenol with our unique culture, with our uniquely broad suite of products and relationships, I can't tell you exactly how they're going to do it, but I have a lot of confidence that they will.

And our last question comes from Joe Giordano with TD Cowen.

Just curious like with the AI stuff, is there any inherent margin differential between the products that you're selling on these next gen technologies versus more traditional data center or versus like more of the company average? And then if I could, I asked your competitor this morning. But when you think about the CapEx that you need to do and the scale of what these customers of yours are thinking over a multiyear period is massive. How do you like bring that down to your own spend and like rationalize? Is this doable? Like how fast do we want to spend ahead of something that might be a 5-year story, like how do you balance that?

Yes. Look, I may let Craig comment on the margins, except I mean, it's an easy answer. It's just like look, we make margins based on selling value to customers. If we can create value for our customers, then usually there's value for us to be had there. And I think that's basically what I would say in this respect. Relative to scaling and working with our customers, I mean, you can imagine that we have very intensive discussions with our customers in every market. Here, because of the economics behind it, because of the pressure on our customers and the big vision, you can imagine that we're having even more intensive discussions. And so this is not just like you get an order and then you say, "All right, well, I'm going to go invest XYZ. I mean this is a very iterative, interactive discussion. But it's all done under the context of the Amphenol approach. These are -- it's not that we're making decisions here at headquarters and allocating capital. We have general managers making -- and having responsibility for specific products and they're going to figure out how do they satisfy the customer, but also knowing that it's their capital that they're spending. And if they spend more than they should, that's going to hit their P&L, not just going to hit Amphenol's P&L, it's going to hit their P&L. And that accountability of sort of from birth to death of a program is something that I think is very unique in our organization. And over time, when I think about why does Amphenol spend what we spend on capital expenditures, it is in large part because the ownership of that, the accountability, the authority for that is resident in individuals who also go to the customer every day, who also are in charge of the factory, who also are in charge of developing the products. And when you have that comprehensive authority, you tend to make wiser decisions about this. And it's not like, well, I'm going to overinvest now and let the next person clean it up on my behalf. These folks are there for the long term and they own it all. And I think they're going to make wise decisions accordingly.

Thank you. And I'll now turn the call back over to Mr. Norwitt for any closing remarks.

Well, thank you very much. And again, thanks to everybody for your time today. We appreciate everybody's attention. And I wish that everybody has a fabulous spring, and we'll talk to you again in 90 days or so. Take care.

Thank you.

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