Amphenol Corporation (NYSE:APH) Q4 2023 Earnings Call Transcript

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I come out of the fourth quarter, extremely proud of the Amphenol team. Our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the challenging and dynamic environment. We’re also pleased that we announced this morning that we closed four acquisitions in the quarter, really in November and December. Based in Ohio, TPC Wire & Cable is a value-added provider of harsh environment, cable and cable assemblies for applications across the industrial market and this includes particularly factory automation and heavy equipment and TPC has annual sales of roughly $110 million. On headquartered in New Hampshire and with annual sales of approximately $90 million, Airmar is a leading provider of sensors for the recreational marine, commercial fishing and industrial markets.

LID technologies based in Toulouse France has annual sales of approximately $40 million and LID is a high-technology supplier of sensor products to the industrial and automotive markets with a focus on tire pressure monitoring and the telematics associated with that. We also closed on the previously announced acquisition of PCTEL, a leading global provider of antennas for a broad array of markets, including in particularly the Internet of Things or industrial IoT market. PCTEL generated in 2023, approximately $85 million in sales. As we welcome these outstanding new teams to Amphenol, I remain confident that our acquisition program will continue to create great value for the company. In fact, our acquisition program was very successful in 2023 and our pipeline of prospective deals remain strong as we enter the new year.

Indeed, we continue to see interesting near-term potential opportunities to bring outstanding and complementary organizations into the Amphenol family. Our ability to identify and execute upon acquisitions and then to successfully bring these companies into the Amphenol family remains a core competitive advantage for the company. As our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now turning to the full year of 2023, despite the demand challenges that we did experience in certain end markets in the year, I have to say that the Amphenol team delivered another successful year of performance. Amidst significant organic declines in the communications end markets due to inventory builds in 2022 as well as the more recent moderations in demand in the industrial market.

Our team was able to deliver overall sales that were only slightly down from prior year. This was a testament to the breadth and diversification of the company as well as our team’s ability to capitalize in real time on opportunities for incremental sales across the entirety of our markets. Our full year 2023 adjusted operating margin of 20.7% was flat with our last year record levels in 2022 despite the organic sales decline. This excellent performance by our team allowed us to deliver adjusted diluted EPS of $3.01 which was just slightly above prior year levels. We also generated record operating and free cash flow of $2.529 billion and $2.160 billion, respectively, both confirmations of the company’s superior execution and disciplined working capital management.

Our acquisition program, which I just discussed really created a great value throughout the year with 10 new companies contributing annualized sales of more than $600 million joining Amphenol in 2023. These new acquisitions enhanced our position across a broad array of technologies while bringing outstanding and talented individuals into the Amphenol organization. We’re excited that these companies represent expanded platforms for the company’s future performance and have deepened our already strong bench of leaders around the world. In addition, in 2023, we bought back over 7 million shares under our share buyback program, and increased our quarterly dividend by 5%, and that represented a total return of capital to shareholders of nearly $1.1 billion.

So while there continues to be a high level of volatility across the overall market environment in 2023, as we enter 2024, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long-term performance. Now turning to the trends and our progress across our served markets. I would just comment that we remain very pleased that the company’s end market exposure is still highly diversified, balanced and broad with no end market representing more than 25% of our sales in 2023. This market diversity helps to insulate us from the effect of any given market volatility, while also exposing us to the exciting revolutions happening across the electronics industry. Turning first to the defense market.

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