Q4 2024 Earnings Call Transcript

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded.

If anyone has any objections, you may disconnect at this time. I would now like to turn the conference host -- over to your host, Mr. Craig Lampo. Sir, you may begin.

Thank you very much, and good afternoon, everyone. This is Craig Lampo, Amphenol's CFO. And I'm here together with Adam Norwitt, our CEO. We would like to wish everyone a Happy New Year and welcome you to our fourth quarter 2024 conference call.

Our fourth quarter and full year 2024 results were released this morning. I will provide some financial commentary and then Adam will give an overview of the business and current market trends. Then, we will of course take questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements.

So, please refer to the relevant disclosures in our press release for further information. The company closed the fourth quarter of 2024 with record sales of $4.318 billion and record GAAP and adjusted diluted EPS of $0.59 and $0.55, respectively. Fourth quarter sales were up 30% in US dollars and in local currencies and up 20% organically compared to the fourth quarter of 2023. Sequentially, sales were up 7% in US dollars, in local currencies and organically. Adam will comment further on trends by market in a few minutes.

For the full year 2024, sales were $15.223 billion, up 21% in US dollars and in local currencies and up 13% organically compared to 2023. Orders in the quarter were a record $5.14 billion up 58% compared to the prior year and up 14% sequentially, resulting in a strong book-to-bill ratio of 1.16 to 1. For the full year, orders were $16.835 billion, up 37% compared to 2023, resulting in a book-to-bill ratio of 1.11 to 1. GAAP operating income was $954 million and included $12 million of acquisition-related costs in the quarter, primarily related to the pending acquisition of the Andrew business from CommScope.

GAAP operating margin was a record 22.1%, which increased 140 basis points and 180 basis points compared to the fourth quarter of '23 and the third quarter of '24, respectively. Excluding these acquisition-related costs, adjusted operating income in the fourth quarter of '24 was $966 million, resulting in a record adjusted operating margin of 22.4%. On an adjusted basis, operating margin increased by 120 basis points from prior year quarter and 50 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.

On a sequential basis, the increase in adjusted operating margin reflected strong conversion on the higher sales levels. For the full year of 2024, GAAP operating income was $3.157 billion, which included $146 million of acquisition-related costs. Full year GAAP operating margin was 20.7%, an increase of 30 basis points compared to 2023. Excluding acquisition-related costs, full year 2024 adjusted operating income was $3.303 billion, resulting in an adjusted operating margin of 21.7%, also a record. Compared to 2023, adjusted operating margin increased 100 basis points, which was primarily driven by the strong operational performance on the higher sales levels, partially offset by dilutive impact of acquisitions.

I am very proud of the company's record operating margin performance in the fourth quarter and for the full year, which reflects continued strong execution by our teams. Breaking down the fourth quarter results by segment compared to the fourth quarter of 2023, sales in the Harsh Environment Solutions segment were $1.262 billion and increased by 40% in US dollars and 8% organically and segment operating margin was 24.2%. Sales in the Communication Solutions segment were $1.928 billion and increased by 43% in US dollars and 42% organically, and segment operating margin was 26%. Sales in the Interconnect and Sensor Systems segment were $1.128 billion and increased by 4% in US dollars and 3% organically and segment operating margin was 18.6%.

Breaking down full year results by segment compared to the full year 2023, sales in the Harsh Environment Solutions segment were $4.117 billion -- sorry, $4.417 billion and increased by 25% in US dollars and 4% organically and segment operating margin was 24.7%. Sales in the Communication Solutions segment were $6.324 billion, and increased by 29% in US dollars and 27% organically and segment operating margin was 24.8%. Sales in Interconnect and Sensor Systems were $4.482 billion and increased by 9% in US dollars and 4% organically and segment operating margin was 18.4%. The company's GAAP effective tax rate for the fourth quarter was 17.4% and the adjusted effective tax rate was 24%, which compared to 22% and 24% in the fourth quarter of 2023, respectively.

For the full year 2024, the company's GAAP effective tax rate was 18.9% and the adjusted effective tax rate was 24%, which compared to 20.7% and 24% in 2023, respectively. We currently expect a 0.5 point increase in our effective tax rate in 2025 compared to 2024, bringing our tax rate to 24.5%. This is primarily driven by our expectation of a slightly less favorable income mix in 2025, and our first quarter guidance assumes this higher 24.5% tax rate. GAAP diluted EPS was a record $0.59 in the fourth quarter, up 44% compared to the prior period and on an adjusted basis, diluted EPS increased 34% to a record $0.55 compared to $0.41 in the fourth quarter of 2023. This was an excellent result.

For the full year, GAAP diluted EPS was a record $1.92, a 24% increase from $1.55 in 2023 and adjusted diluted EPS was a record $1.89 in 2024, an increase of 25% from $1.51 in 2023. Operating cash flow in the fourth quarter was a record $847 million or 114% of net income and net of capital spending or free cash flow was $648 million or 87% of net income. This was an excellent result, especially considering that our capital spending was somewhat elevated in the quarter due to investments we are making in support of the strong growth we are seeing in IT datacom and defense markets. We expect to continue to have somewhat elevated levels of capital spending in the first quarter as we continue to invest to support the significant growth that we are seeing in the IT datacom market, particularly related to AI applications.

For the full year 2024, operating cash flow was a record $2.815 billion or 116% of net income and net of capital spending, our free cash flow was $2.157 billion in 2024 or 89% of net income, a strong result. From a working capital standpoint, inventory days, days sales outstanding and payable days were 80 days, 68 days and 58 days, respectively, all within our normal levels. During the quarter, the company repurchased 2.4 million shares of common stock at an average price of approximately $70, and when combined with our normal quarterly dividend, total capital returned to shareholders in the fourth quarter of 2024 was $368 million and $1.280 billion for the full year of 2024. Total debt on December 31st was $6.9 billion and net debt was $3.6 billion, and total liquidity at the end of the quarter was $6.3 billion, which included cash and short-term investments on hand of $3.3 billion plus availability under our existing credit facilities.

Until the previously-announced acquisition of the Andrew business from CommScope closes, we expect quarterly interest expense, net of interest income earned on cash-on-hand to be approximately $45 million, which is reflected in our first quarter guidance. We continue to expect the CommScope acquisition to close in the first quarter of 2025. Excluding acquisition-related costs, fourth quarter and full year 2024 EBITDA was $1.137 billion and $3.902 billion, respectively. And at the end of the fourth quarter of 2024, our net leverage ratio was 0.9 times. We are very pleased that the company's financial condition remains strong by any measure.

I will now turn the call over to Adam, who will provide some commentary on current market trends.

Well, thank you very much, Craig, and I hope it's not too late to wish everybody here on the call a Happy New Year from frozen Wallingford, Connecticut. And I hope all of you are able to stay warm on this very chilly, but beautiful winter day. As Craig mentioned, I'm going to highlight some of our achievements in the fourth quarter and the full year. I'll then discuss our trends across our served markets, and then I'll comment on our outlook for the first quarter, and of course, we'll have time for questions.

With respect to the fourth quarter, the company had a very strong finish to a successful 2024 with sales and adjusted diluted earnings per share both exceeding the high end of our guidance here in the fourth quarter. Sales grew by 30% in US dollars and local currencies, reaching a new record of $4.318 billion. And on an organic basis, our sales increased by a very strong 20% with growth across virtually all of our served markets. The company booked just over $5 billion in orders in the fourth quarter, also a new record for the company and representing another strong book-to-bill of 116 to 1. Orders grew by a very strong 58% from prior year and were also up 14% sequentially.

These strong orders were once again driven primarily by data center demand related in particular to artificial intelligence or AI investments by a number of our large customers. We're pleased to have delivered record adjusted operating margins of 22.4% in the quarter, an increase of 120 basis points from prior year and 50 basis points sequentially. I would just say that this superior profitability is a direct result of the outstanding execution of the Amphenol team around the world. Adjusted diluted EPS in the quarter grew by 34% from prior year and reached a new record of $0.55. Finally, the company generated record operating cash flow of $847 million as well as free cash flow of $648 million in the fourth quarter, both clear reflections of the quality of the company's earnings.

I just have to say that I can't express enough my pride in the Amphenol team. Our results this quarter once again reaffirmed the value of the discipline and agility of our entrepreneurial organization as we have continued to perform well amidst the very dynamic environment. Now, turning to the full year of 2024. I just want to say that this was a truly successful year for Amphenol. We expanded our position in the overall market, growing sales by 21% in US dollars and local currency and 13% organically, reaching a new sales record of $15.2 billion.

As we cross $15 billion in sales in 2024, our organization is proud that we have grown our sales by 40% just in the last three years, and it's a great reflection of our organization's ability to navigate market uncertainties while capitalizing on the broad array of opportunities arising across the electronics industry. Our full year 2024 adjusted operating margins reached a record 21.7%, an increase of a full 100 basis points from prior year, and this strong level of profitability enabled us to achieve record adjusted diluted EPS of $1.89. And finally, we generated record operating cash flow of $2.815 billion and free cash flow of $2.157 billion, clear confirmations of the company's superior execution and disciplined working capital management.

Also very pleased that our acquisition program again created great value in 2024. We completed the acquisition of Carlisle Interconnect Technologies, our largest ever, together with the acquisition of Luetze US and Europe. These acquisitions have collectively added annualized sales of more than $1 billion to the company while enhancing Amphenol's position across a broad array of technologies and bringing outstanding and talented individuals into our family. In addition, as previously announced, in July, we signed the acquisition for the Andrew businesses from CommScope. This outstanding acquisition, which we still expect to close here in the first quarter of 2025 will also strengthen the company's position in the global communications market while adding incredible technologies and team members to Amphenol.

We returned substantial cash to shareholders in 2024, buying back 11.1 million shares under our share repurchase program and increasing our quarterly dividend by 50%. And this represented a total return of capital to shareholders of nearly $1.3 billion. As we enter 2025, I remain excited about the opportunities ahead of us. Our agile entrepreneurial organization has created a new position of strength from the company from which we can continue to drive superior long-term performance.

Now, turning to the trends and our progress across our diversified served markets, I would just comment that we're very pleased that the company's end-market exposure remains highly diversified, balanced and broad. This diversification continues to create great value for Amphenol because it enables us to participate across all areas of the global electronics industry, all while not being disproportionately exposed to the volatility of any given market or application. So, turning first to the defense market. This market represented 10% of our sales in the quarter and 11% of our sales for the full year 2024. Sales in the fourth quarter grew strongly from prior year, increasing by 16% in US dollars and local currency.

On an organic basis, sales increased by 9% with broad based growth across virtually all defense applications, and this included in particular space, ground vehicles, avionics, airframe and communications. Sequentially, our sales increased by 4%, which was in line with our expectations coming into the quarter. For the full year 2024, our sales grew by 15% in US dollars and local currency and by 9% organically and this reflected our superior operational execution together with growth across really all segments of the defense market. I would just note here that our growth in 2024 was particularly strong in Europe and that reflected our broad and leading position across the many countries there who are increasing their defense spending.

Looking into the first quarter, we expect sales to remain roughly at these levels. And we remain encouraged by the company's leading position in the defense interconnect market, where we continue to offer the industry's widest range of high-technology products. Amidst the current dynamic geopolitical environment, countries around the world are expanding their spending on both current and next-generation defense technologies. With our investments in the development of a broad array of new products as well as in the capacities to build them around the world, we're well-positioned to capitalize on this long-term demand potential.

The commercial air market represented 6% of our sales and for the full year 2024 and in the fourth quarter, sales grew by a strong 137% in US dollars and local currency and on an organic basis, our sales increased by 18% from prior year, and this was really driven by broad-based strength with virtually all commercial aircraft manufacturers. Sequentially, our sales grew as expected by 7% from the third quarter. For the full year 2024, our sales increased by 86% in US dollars and local currency as we benefited from the acquisition of CIT as well as from strong underlying growth in the market. And in fact, organically, our sales increased by 15% from prior year and that really did reflect our robust design-in position on a broad range of jetliner platforms.

Looking into the first quarter, we expect sales to moderate in the high -- mid-to-high single-digit range sequentially. I'm just really proud of our team working in the commercial air market. With the ongoing growth and demand for aviation, our efforts to expand our product offering both organically and through our acquisition program are paying real dividends. We continue to see great long-term opportunities for our technology offering in this important market, and we look forward to realizing the benefits of our growth initiatives for many years to come.

Now, turning to the industrial market, this market represented 23% of our sales in the fourth quarter and 24% for the full year 2024. Our sales in the quarter grew by 26% in US dollars and local currency from prior year. And on an organic basis, we were pleased that sales grew by 6% from prior year with growth in instrumentation, alternative energy, battery and electric heavy vehicles, medical as well as rail mass-transit applications. On a sequential basis, our sales grew by 3%, which was better than our expectations coming into the quarter. For the full year 2024, sales grew by 14% in US dollars and local currency as we benefited from the impact of our acquisitions.

Organically, sales declined by 2% from prior year as strength in rail mass transit, alternative energy and medical applications were more than offset by moderations in other markets. Looking into the first quarter of 2025, we now expect sales to decline in the low-single digits from these fourth quarter levels. I will say that in 2024, despite the overall market moderation, we did continue to expand our range of products and capabilities in service of the diversified global industrial market. Demand did moderate in particular in Europe this year, but we remain encouraged by the company's strength across the many diversified segments of this important market.

As demand now begins to improve, I'm confident that our long-term strategy to expand our high-technology interconnect antenna and sensor offering, both organically and through complementary acquisitions has positioned us to capitalize on the many electronics revolutions that will no doubt continue to occur across the industrial market. The automotive market represented 18% of our sales in the quarter and 20% of our sales for the full year. Sales in the fourth quarter were down by 3% in US dollars, local currencies and organic, and that was really driven particularly by lower demand from European customers, which more than offset organic growth in North America and Asia.

Sequentially, our automotive sales increased by 1%, which was a bit better than our expectations coming into the quarter. For the full year 2024, our sales increased by 6% in US dollars and local currencies and by 4% organically, and this was driven particularly by strong performance in North America and Asia, which was partially offset by reduced demand in Europe. Looking into the first quarter of 2025, we expect a seasonal moderation in sales from this quarter's levels. I just want to say that I'm really proud of our team working in the automotive market.

While there are clearly some uncertainties in the market, in particular in Europe, our team remains focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles, and this includes everything from electrified drivetrains to a whole multitude of other exciting applications that we're working on and we look forward to benefiting from our strong position in the automotive market for many years to come. The mobile devices market represented 10% of our sales in the quarter and 9% of our sales for the full year. In the fourth quarter, our sales grew by a robust 15% in US dollar, local currency and organically as strong growth in smartphones, laptops and wearables was only partially offset by a moderation in sales into tablets.

Sequentially, our sales increased by 7%, which was much better than our expectations coming into the quarter. And for the full year, I'm really pleased that our sales in the mobile devices market increased by 11% in US dollars and organically, and this was driven by growth in virtually all mobile device applications. As we look into the first quarter of 2025, we do anticipate a typical seasonal sequential decline in the sort of mid-30% range. I'm very proud of our team who is working in the always dynamic and volatile mobile devices market as their agility and reactivity have once again enabled us to capture incremental sales here in the fourth quarter.

And I'm confident that with our leading array of antennas, interconnect products and mechanisms designed in across a broad range of next-generation mobile devices that we're positioned very well for the long term. The IT datacom market represented 27% of our sales in the fourth quarter and 24% of our sales for the full year. Sales in this market grew by a very strong 76% in US dollar, local currency and organically, and this was driven by the continued acceleration in demand for our products used in AI applications, together with continued growth in our base IT datacom business. On a sequential basis, sales increased by 17% from the third quarter, substantially better than our expectations coming into the quarter.

This sequential growth was driven essentially by growth in AI-related applications. For the full year 2024, our sales in the IT datacom market grew by a very strong 57% in US dollars and 56% organically as we benefited from strong demand for AI-related applications as well as growth in our non-AI IT datacom business. Looking ahead, we expect a further mid-single digit sequential increase in sales in the first quarter as investments in AI-related data centers continue to accelerate. We are more encouraged than ever by the company's position in the global IT datacom market.

Our team continues to do an outstanding job securing future business on next-generation IT systems, particularly those enabling AI. This revolution in AI continues to create a unique opportunity for Amphenol given our leading high-speed and power interconnect products. And really whether high-speed power or fiber-optic, our products are critical components in these next-generation networks and this creates a continued long-term growth opportunity for Amphenol. Now turning to the broadband and the mobile networks markets, I just want to note that with the pending acquisition of the Andrew businesses from CommScope, that effective in the first quarter of 2025 and going forward, we will combine the broadband and mobile networks markets into one market that we will refer going forward to as the communications network market.

The broadband market represented 3% of our sales in the fourth quarter and 3% for the full year 2024. Sales in the fourth quarter grew by 10% in US dollars and 11% in local currency and organic as demand from broadband operators improved. On a sequential basis, our sales increased by a very strong 14%, which was well ahead of our expectations for actually a high single-digit sales decline. For the full year 2024, sales in the broadband market were down by 11% in US dollars, local currency and organically, and that was driven really by a moderation in broadband operator spending. The mobile networks market represented 3% of our sales in the fourth quarter and 3% for the full year 2024. Sales in the fourth quarter increased by prior year by a strong 25% in US dollars and local currency and 21% organically, as we benefited from increased spending by mobile network operators as well as wireless equipment manufacturers.

Sequentially, our sales decreased by 4%, but this was much better than our expectations coming into the quarter. And for the full year 2024, sales grew by 11% from prior year and 5% organically, and this was driven by a strengthening in the mobile networks market in particular in the second half of the year. So, now looking ahead to the first quarter, we expect the newly named communications networks market to see a mid-teens decline in sales from these strong fourth quarter levels. And as a reminder, this guidance excludes the impact of acquisitions that have not yet closed and therefore excludes the impact of the Andrew acquisition that we still expect to close in the first quarter.

I would just say that we're very well-positioned with customers across the communications networks market, and we look forward to continuing to support our OEM and service provider customers in 2025 and beyond. Our teams around the world are working aggressively to realize the benefits of our efforts to expand our position in next-generation technologies and we look forward to the increased potential that comes from Amphenol's unique position with both equipment manufacturers and mobile service providers. As we look forward to welcoming the Andrew team to Amphenol, we remain poised to further build on our position as mobility technology innovation continues to accelerate.

Now, turning to our outlook, and obviously, assuming the continuation of current market conditions as well as constant exchange rates, for the first quarter, we now expect sales in the range of $4 billion to $4.100 billion and adjusted diluted EPS in the range of $0.49 to $0.51. This guidance would represent sales growth for the first quarter -- or from the first quarter of 2024 of 23% to 26% and adjusted diluted EPS growth of 23% to 28%. And I would just reiterate here that I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow Amphenol's market position while driving sustainable and strong profitability over the long term.

And finally, I would like to take this opportunity to thank our entire global team around the world for their truly outstanding efforts here in the fourth quarter and in the full year 2024. And with that, operator, we'd be happy to take any questions.

Thank you. The question-and-answer period will now begin. Please limit to one question per caller. Our first question comes from Luke Junk with Baird. Your line is open.

Good afternoon. Thanks for taking my question. Adam speaking in late January only, certainly into New Year. Just be curious to hear what's your number one below the radar opportunity for Amphenol in '25?

AI is much discussed, of course, as are the new CIT and pending Andrew acquisitions. But what about the below the radar opportunity either end market or operationally that you're excited about in the coming year? Thank you.

Well, Luke, thank you very much. I mean, I would burn the next five hours if I started to talk about all of the little bits and bobs of opportunities that we faced, and so I'm going to punch a little bit on that. But just to tell you one thing, which is that we see across the company so much opportunity with the revolution of electronics. I was just a couple of weeks ago out in Las Vegas at the Consumer Electronics Show and I know for a lot of people going to CES is kind of a chore and they dread it.

They spend their whole Christmas holiday dreading going on the first week of January to roam around the crowded aisleways of CES. For me, it's the most exciting thing on Earth to go. I think I burnt nearly 30,000 steps in one day, wandering the hallways, looking at this extraordinary array of what's going on in the world. And there was one thing that we see in our business and you saw on full display in Las Vegas, which is the real convergence of all of these things that have been going on, things like robotics, the next-generation vehicles and next-generation consumer devices, IoT and the like, and converging that with now this revolution in accelerated computing.

And the combination of the device and product innovation with the acceleration of compute power that really is AI, for me, that's going to unlock opportunities across our industry that we never could have imagined before. And when I spent those 30,000 steps in my half day of walking the -- and burning out my shoe leather at CES, I just saw this over and over and over again. And so, I am really excited about that convergence and I'm really excited about what that's going to create, the unknown new industries that are going to come out of this accelerated compute and that convergence with the amazing developments around product technology that we as a company are enabling across all of our end markets.

Thank you. Our next question comes from Samik Chatterjee with JPMorgan. Your line is open.

Hi, thanks for taking my question. Adam, if I can just ask you one on the [indiscernible] AI connectors, particularly and there's been a lot of news reports about the complexity of the connectors that you're manufacturing for these AI systems. I mean, if you can talk about the implications of the complexity increase that you're seeing there in terms of both market share for Amphenol and how that trends long term with the increasing complexity vis-a-vis sort of the need maybe for customers to look at some of the level of simplification over time and how does that sort of impact your content opportunity on a generation-to-generation basis?

That will be helpful if you can talk about those drivers. Thank you.

Yeah, thanks very much, Samik. It was a little broken, but I think I got the gist of your question. Look, the complexity is a great thing for Amphenol and we've talked about this already a number of times with this advent and with the development and the acceleration of the investments in AI. But what is really unique about these systems is the fact that these chips, the processors have to all talk to each other to make the complex calculations and the probability calculations that ultimately creates a learning model or a neural network or machine-learning, whatever it is you want to call it and our products are an integral part of that connectivity of linking chips to chips and then linking them across the various devices in the data center.

We -- is that complex? It is by definition, because the products have to all talk to each other. And so, then, it's a question of can we solve our customers' problems with the highest speed, lowest latency interconnects that enable those chips to talk to each other to make those calculations amongst themselves, and to do that using the lowest possible amount of energy, because I think nobody -- you cannot pick up an article about AI without also hearing in the same breadth about the challenges around the power supply for these networks as they're being built out. And the beauty of the products that we supply is they accomplish both.

They are enabling the high speed, enabling the low latency, but also doing that with a much more significant reduction in power than you would get from certain other architectures. And for us, we're agnostic to how customers go about architecting these products as long as they continue to make investments broadly across the board in these new AI architectures, which just are by definition going to have a more intensive content of interconnect products for our industry and where Amphenol, we're confident we're going to gain more than our fair share of that opportunity.

Thank you. Our next question comes from Amit Daryanani with Evercore. Your line is open.

Hey, good afternoon. Thanks for taking my question. Adam, hoping you can just maybe talk a little bit more about the AI theme and maybe the part you can talk about is just the durability of growth you're seeing on the AI front will be helpful. I think $5 billion of orders is extremely impressive.

Maybe you can just touch on what's the duration of this book? How does that convert to revenues? And then, really related to AI, you folks had a really nice shout out from NVIDIA on their earnings call recently. So clearly, you're working very closely with them.

But typically when we see in your traditional smartphones or switches, everything else, your content typically goes up as you go from Gen 1 to Gen 2 to Gen 3. Would that hold true for AI as well, or is there something different here?

Yeah. Well, thanks very much, Amit and look, we are very pleased with the company's position on these next-generation systems and I've talked about the fact that we're working with really players up and down the stack from folks who are actually making the investments themselves in these data centers, all the way down to folks who are designing the chips and the systems around those chips and everything in between and we're really proud of our position and the breadth of our position. And I think the breadth of that position and the strength of our products is really a very durable position in as much as there is not a backwards trend in performance.

Performance of these systems is a one-way ratchet. And as we continue to enable and push the limits of the performance of the programs, that further strengthens our position across that entire stack of the investment. Now, are we going to win 100% of everything? Of course not.

I mean, we have great competitors and some of those competitors are actually our licensed partners in certain cases. But I would say that with Amphenol's leading position in high speed and power products, it puts us certainly in a position to gain more than our fair share of that. We're very pleased for any positive comments we get. I will continue my trend of not making any comments about any customers.

But what I will say is that as our customers think about the generational shifts and the performance increases in their products, we will have a very prominent role with them in helping to enable those generational changes, whether they're looking for more performance, whether they're looking for more power efficiency, whether they're looking to embed more complexity into those systems, those are all areas where we are already deeply at the table in a real partnership with all of our customers as they push the limits of this very, very exciting revolution in AI.

Thank you. Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.

Yes, good afternoon. Thank you for taking my question, and congratulations on the record profitability. Another question on AI, if I could, and you spoke a bit already around the very robust demand that the company is seeing. I am hoping to double-click a bit on the supply side, if I could please.

And as Amphenol is shipping products to support next-gen AI servers and racks, can you comment more on how that ramp is going and whether or not Amphenol has encountered any yield or supply issues that may be gaining your ability to meet demand? And if there are any constraints, maybe you could share what the current status is? Thank you.

Yeah. Well, thanks very much, Mark. Appreciate your comments. I mean, look, when our customers choose Amphenol, they're doing this for a variety of reasons.

They're doing it because we have the proverbial better mousetrap that our product has the capabilities and the abilities to satisfy the needs that they have and whether that's high-speed low-latency or more efficient power or the like. But they're also doing it because they have a -- that they have a kind of a confidence in the execution machine that our entrepreneurial organization has created. And let's -- if you step back for a moment and think about what makes our company special, it is really that decentralized entrepreneurial organization with nearly 140 general managers around the world who each have the full authority and accountability to tailor their individual businesses in such a way that they meet customer demands.

We've talked for years about the unique ability of our team working in mobile devices to capture incremental opportunities when maybe our competitors fall down. And we did that again last quarter as you saw outperforming our expectations coming into the quarter. And I would just tell you that the wide array of folks working inside of Amphenol on these AI ramp-ups, which are very significant ramp-ups, there's no doubt about it. I mean, you have only to look at the public CapEx spending of some of the big companies who are outfitting these AI centers to know that these are very, very significant and not for the faint of heart.

There is no doubt about it. Very challenging products, very challenging ramp-up schedules, but no question, our customers are always happy to work with Amphenol on that unique agility. Are we perfect at all times? Of course, we're not, but are we always there to react in real time to redirect resources to make whatever needs to happen, happen in support of our customers.

No question about it. And that is at the end of the day the greatest value that we offer our customers is that unique Amphenolian entrepreneurship and the agility that comes there from. And I would tell you, I'm so proud, so proud of our team working on these just really momentous programs and how great of a job that they're doing so far.

Thank you. Our next question comes from Andrew Buscaglia [Technical Difficulty] Our next question comes from Asiya Merchant with Citigroup. You may proceed.

Great. Thanks. If I can just about the industrial end market, I think Adam mentioned that demand trends are improving. So, if you could just double click on where you're seeing the end market improving the linearity of that improvement, that would be great. Thank you.

Yeah, thank you very much, Asiya. And there seems to be some issue with some connectivity here, certainly not using Amphenol connectors. But if I understand your question, where are we seeing the improvements in industrial, and first, I would just comment that we're very pleased actually to have for the first, I think in seven quarters, organic growth in the industrial market growing [indiscernible] so bad in the quarter. And as I mentioned in my prepared remarks that, that growth would have been even better were it not for the fact that we continue to see an organic moderation of our sales in Europe.

When I think about the markets that showed particular strength or the segments of the market that showed particular strength in the quarter, we're really pleased that we had good growth in areas like medical and rail mass transit, alternative energy and other areas that we saw good organic growth. And then, actually very encouraging that we saw very robust growth in our industrial instrumentation and that really does include everything from test equipment and things that go into, for example, semiconductor manufacturing where there was a little bit of a cycle in that semiconductor manufacturing.

I think we're maybe on the other side of that cycle right now and starting to deliver growth. So, we're overall encouraged. I would say it's still too early to call a full recovery, especially because the kind of outlook of Europe remains in my mind very uncertain. But with the strength that we've seen in Asia and in North America, we come into 2025 for sure with a little bit of a better sense and a better sense of confidence than we did coming into 2024.

Thank you. Our next question comes from Joe Spak with UBS. Your line is open.

Thanks. And Adam, I'd recommend getting a good pair of sneakers for next year's CES to ease the strain on your feet a little bit. The Communication Solutions margins, they really expanded quite meaningfully over the past year or so. And I think that trajectory is pretty similar to when AI started picking up.

So, can you just help us understand how we should sort of think about profitability here going forward? Is it sustainable? And is AI mix continues to go up? Margins should mix higher?

Or are there some other things to consider whether it's more investment or I know you mentioned some higher CapEx to build that capacity and maybe that starts to reign in the margins a little bit? Thanks.

Yeah, thanks a lot, Joe. Listen, we're really proud obviously of just the overall profitability of the company and certainly hitting the operating margin levels of 22.4% for the company is really something that we're again extremely proud of. As it relates to just the Communication Solutions division and their profitability, I mean, they grew -- that division certainly grew very significantly over the last year, driven by the IT datacom market and AI specifically. Not all of that is in that division, but certainly a good portion of it is.

And when you have growth at that level, the conversion typically would be relatively strong. And it's not just related to AI specifically, it's just really related to the business' ability to really have strong discipline over fixed costs and really that drives the leverage in that business. I mean, if you look at the conversion in that division and that strong growth, it's probably in the low 30s, which is not abnormal for a growth rate, for a conversion rate. And when you grow as much as they did, you're clearly going to drive operating margin dollars and ultimately drive that percent higher.

So, I would say that's really more driven by just the execution of the team, their ability to really drive -- control the fixed costs within the operations as they continue to grow, which is typical to the Amphenol agility and what we do. We drive the growth, but we always keep an eye on costs. And that's really what I think makes the company special and ultimately able to drive strong conversion margin when we continue to grow. So, really strong -- really happy with the profitability and -- but I wouldn't say this has anything specifically to do with our AI related business.

It just really more relates to the growth and the real good discipline over cost.

Thank you. Our next question comes from Andrew Buscaglia with BNP. Your line is open.

Hey, guys. Sorry about that. I think I got dropped there. I wanted to touch on hopefully not repeating any questions that were asked, but President Trump is now taking office.

Want to get your take on what you guys are thinking and how you're planning for the year as it pertains to tariffs? And can you provide some details around percent of products coming from Mexico, Canada and China, just so we can try to gauge the risk ahead?

Yeah. Thank you very much and appreciate the question. Obviously, we're watching very carefully all that goes around the world -- all that's happening around the world and all of the places that we operate as a global company. Look, specific to tariffs, let me just say this.

I mean, this is not a new topic. We dealt with tariffs back -- from the US back in, I think it was 2017. Those were -- tariffs were mostly directed to China, but not only at China. And I think what we saw in that time is our team did a fabulous job of mitigating the impact of those tariffs through a wide variety of measures. There was not a one size fits all solution.

Underlying all of that is the backdrop that we tend to make our products in the regions where our customers buy them, not 100%, but that we tend to always try to be close to our customers, and sometimes our customers are making things in regions and shipping them into the US or into Europe and we try to be close to those customers wherever they're making them. But if you really get to the essence of why we were so successful in mitigating the last phase of tariffs, it comes down to that unique entrepreneurial organization that I mentioned earlier. The fact that we don't here at headquarters put out for everybody a mandate to say, "Hey, there are tariffs coming, here's what you have to do.

Here's step one, step two, step three," rather, what we do is we tell all of our general managers around the world that it's up to them to manage through anything that comes along and impacts their business, including trade policies, including tariffs, including whatever can come along. There's a whole host of different government policies that can ultimately bump into our company. And what that means is not that they kind of guess where the policy is going, but rather that they make sure that their operations are as agile as possible. And we run a company that's based on the principle of agility, of entrepreneurship, the flexibility, the reactivity.

And that positions us extremely well when there are these kind of unpredictable situations that are coming. We're never going to front-run a policy and guess what policy, but we'll be right there ready to react if a policy does come about. And I can tell you that, we were very successful in mitigating any impact that came back in 2017 by having general managers who know their products, who know their competitors, know their customers, have full ability to manufacture their products wherever they need to do so, and to change the logistics if they need to do that. And I'm very confident that we'll be in the same position this time.

And if anything, I would tell you that this time around, we're in an even better position, because since 2017, we've continued to expand the presence of our company, the manufacturing presence of our company around the world; new factories in Southeast Asia, new capabilities in South Asia, new capabilities in North America, in the US, in Mexico, in Eastern Europe, in North Africa, you name it. And we have around the world today nearly 300 facilities across more than 40 countries and we continue to expand so that we preserve that flexibility in the event that there are policies that come out that do impact us and our customers.

And when those policies come out, we're first going to get together with our customers, we're going to see what's going on with them, what they want us to do, and then we're going to react accordingly in real time and faster than any other organization can do because of that unique entrepreneurial structure that we have.

Thank you. Our next question comes from William Stein with Truist Securities. Your line is open.

Great. Thanks for taking my question. I'll add my congratulations to the great results. I'm trying to skew away from AI and instead I want to ask yet another one about the industrial end market.

Adam, you talked about some of the stronger areas. I wonder about industrial automation specifically. It's my recollection that may be more sort of Europe-focused, and therefore, I'm guessing it's not recovering. But in terms of industrial automation, are you seeing any improvement there and to the degree it's still weak as your sense that it's more demand related or inventory overhang related?

Thank you.

Yeah, thanks very much, Will. I mean, look, double-clicking down into automation, you're very correct that industrial automation tends to be a more Europe-centric demand. It's not necessarily where the automation ends up, but there's no doubt that the companies that we work with, our customers who are creating these automation capabilities, they are more Europe-centric and they are still more impacted by the overall moderation in demand in Europe. I mean, so look, our sales in the Industrial Automation were down organically on a year-over-year basis.

I would say though that on a quarter-to-quarter basis, we saw a smidgen of growth in factory automation. I don't want to get ahead of my skis on that and tell you that that's a recovery or any other sign, but it is a data point. And so, we'll see. Look, I remain somewhat concerned about Europe with the exception that we've seen very, very strong performance in our defense and commercial air businesses in Europe.

But anything related to industrial, and industrial by the way in Europe still has a strong linkage to the overall automotive industry, that I think the recovery and the timing of that recovery is yet to be really determined.

Thank you. Our next question comes from Saree Boroditsky with Jefferies. Your line is open.

Hi. Thanks for fitting me in. So maybe building on some of the margin commentary, obviously saw some nice margin improvement, but you did highlight the dilutive impact of acquisitions in the quarter. Could you just update us on the integration of acquisitions and margin improvement there? And then, maybe how organic margins would have performed in the quarter? Thanks so much.

Yeah, thanks, Saree. I appreciate the question. Yeah, we had obviously a really good quarter on the face of our conversion margins of kind of in the mid-20s conversion on a year-over-year basis and in the 30% sequential conversion we had going into the Q4. But as I did mention, as you point out, that really despite the acquisition and dilutive impact of acquisitions, we had those conversions. So, with the acquisitions, these conversion margins were even stronger.

I wouldn't say sequentially so much because there's not such an acquisition impact sequentially, but really on a year-over-year basis. And obviously, the biggest acquisition on a year-over-year basis in the fourth quarter was CIT. We're not going to give specific margin information on CIT, but we certainly are very happy with their progress during the year. They're still under the company average margins, so they're still dilutive to the company in regards to our conversion, but certainly accretive on an EPS level and also from the perspective of progress on the margin line, we're happy with the progress they have made.

The management team has been outstanding, and really just couldn't say really enough things positively about how happy we are with the CIT and the progress of that acquisition. But the margins do have a little bit more to go. This takes a little bit of time. And, but I think that at the end of the day, we're really optimistic that ultimately we'll get to those company average margins.

Thank you. Our next question comes from Guy Hardwick with Freedom Capital Markets. Your line is open.

Hi, good afternoon. I just wanted to ask a question about the defense business. Adam, if you could break it up a little bit as you did with industrial? What's driving the growth beyond just broadening improvement in military budgets? Are you in particular areas where there is unmanned systems or electronic warfare? Can you maybe talk about some of the drivers behind defense?

I mean, look, a little bit different from industrial. Our defense business, which had a very strong performance last quarter and for the full year, both growing by 9% organically. I would tell you that it's very broad based in defense. I mean, yes, are there different pockets which are a little higher growing than others like space, for example, anything related to space is growing really strong.

Actually, we're seeing good strength in vehicles in particular in Europe, airframe growing very strong. But there's really communications growing strong both in the quarter and the year. But it's not as distinguished as it was in industrial where we're seeing a few markets which really offset other markets that remain more challenged like we mentioned to the answer to Will's question. So, I think broadly in defense, it is a question number one of increased investments by a variety of different countries, especially what we're seeing in Europe.

And then, it's the redirection of that spending towards next-generation electronics broadly. And that's where Amphenol's position is really at such a premium because we participate in those next-generation electronics to a greater degree than we did in just the general overall military spending. And I think that's ultimately the equation that results in the strong performance that we saw last year.

Thank you. Our next question comes from Wamsi Mohan with Bank of America. Your line is open.

Yeah, thank you. Adam, there are a lot of moving pieces here in this AI supply chain, if I could go back to that topic. You had record orders, but your CapEx came down marginally. Your yields are very good, but ODM yields are low in these complex AI systems.

Can you just help calibrate if investors should think that second half revenues in AI could moderate for Amphenol or what kind of visibility do you have into second-half growth versus first half especially given where you are with CapEx and perhaps your capacity matching with ODM ramps? Thank you.

Yeah, thanks very much, Wamsi. I mean, look, I'm not going to try to predict any of our markets past the guidance that we've given here in the first quarter. I would just tell you that our position for these AI buildouts is very robust. We're making significant investments as we've talked about.

And yes, sure, in a given quarter, I mean, there can be a lumpiness to CapEx for a wide variety of reasons, when you order certain things, when you pay for certain things and the like. But I think the orders that we talked about, the very significant book-to-bill that we have in IT datacom, in particular, related to AI, and the broad array of design wins that we have with customers gives us a great long-term confidence without commenting on which quarter is going to be higher or lower next year, I think we've already given guidance about the first quarter that is unseasonably strong. I mean, typically, our first quarter in IT datacom would be down, I don't know, kind of low- to mid-single-digit decline from the fourth quarter, which is typical seasonality in IT datacom.

And here we are guiding that up mid-single-digits, which is quite a differential for a market of that scale. And so, I think we come into 2025 with a very positive outlook. And as we go through the year, we'll try to give you a good sense of how we see that each quarter successively.

Thank you. Our next question comes from Steven Fox with Fox Advisors. Your line is open.

Hey, good afternoon, guys. Just on the auto markets and the mobile devices markets, it seems like you guys for the full year on an organic growth basis outgrew what were pretty flattish markets. I was just curious if you could sort of give us a report card on whether that's sort of par for the course now looking at those numbers or if there was something unusually positive or negative that helped or hurt your growth over market in those areas looking out into '25? All right, thanks.

Thanks so much, Steve, for the comment. I think you're correct. I mean, we've outperformed in both of those markets. And I would say that that's not a rarity for us in recent years.

I mean, automotive, for example, I think we've outperformed for a number of years, whatever benchmark one wants to use. And I think, the underlying driver of automotive has always been for more than a decade, the expansion of electronics into cars and thereby the content opportunity that comes to us. And then, our ability to try to win more than our fair share of that content, whether it's in next-generation drive trains, next-generation electronics, safety, communications and the like. And relative to mobile devices, it really comes down to two things.

One is our position with customers through the breadth of our antenna interconnect and mechanism offering and wide variety of products that we sell into that market, everything from unique antennas to complex interconnect products to mechanical hinges and the like. And then, our ability to execute when customers need us the most, and thereby to take a little more than our fair share of that overall business. And I think our team has demonstrated time and time again over, gosh, I'd say the whole of my 16 years so far as CEO, they've demonstrated that ability to execute. And our team is just a fabulous organization.

They continue to have that agility that serves them so well in mobile devices. And look, every year is different. There's a different cadence. There's a lot of volatility.

But I don't think there's something unique in 2024 rather than a continuation of what has allowed us to outperform for many years prior.

Thank you. Our last question comes from Scott Graham with Seaport Research. Your line is open.

Hey, thank you for squeezing me, and congratulations on a strong quarter. I also have a question on the auto market and hopefully, it's simple. With EV production well above certainly current and forecast ICE production over the next five years, does that reduce your market opportunity in auto?

We talked about the fact that EVs and ICE vehicles all have growing amounts of content. And when you get to an EV and you're converting things that were mechanical or hydraulic into electronic and electrical, that creates a great opportunity for our company. And I think we've done a fabulous job of capitalizing upon that opportunity around the world. And meanwhile, with ICE vehicles, to the extent that there is a tilt to or from EVs to ICE, there's no doubt that ICE vehicles will be built to also be more fuel efficient and electronics is a great driver of that fuel efficiency as well, new sensors, new interconnect products that go along with that.

And the vast majority of our automotive business is actually agnostic to the drivetrain. And what it's not agnostic to is the expansion of electronics in the car. And so, I think today when you get a new car, and I know recently, we've been shopping for a new car for my mom, and you look at these new cars and, I mean, there's just a kind of flamboyant array of different electronics that you can get even for someone who is not used to so much electronics in their life like my mom would be. And it's amazing.

I mean, it's just amazing. These are life-saving, life-changing electronics that are being embedded, even in the type of a car that my 75-year-old mom would want to drive. And so, I think the opportunity ahead of us in automotive remains very, very robust.

Thank you. We have no further questions. I would like to turn the call back to Mr. Norwitt for closing remarks.

Well, thank you so much, operator. And I want to extend again my thanks to all of you on the phone for your attention and support of the company, and we very much look forward to talking to everybody 90 days from now. Take care. Thank you.

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