Hello and welcome to the First 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 introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our first quarter 2020 conference call. As a reminder, during the call, we may refer to certain non-GAAP financial measures and may make certain forward-looking statements. So please refer to the relevant disclosures in our press release for further information. But before I review the financial performance for the quarter, Adam would like to say a few words.

Well, thank you very much Craig. And first and foremost, I wanted to express my hope to everybody that's here on the phone today that you and your family, your friends and your colleagues are all staying safe and healthy amidst the current COVID-19 crisis. As Craig just mentioned, I'm going to comment on the current environment. I'll discuss also some of our highlights from the first quarter. I'll then turn it over to Craig to provide further detail on our financial performance. And then finally, I'll come back to me to discuss the trends and progress across our served markets and I'll make a few comments about the future. No question that we're living in truly unprecedented times as the COVID-19 pandemic has impacted all of us around the world in really extraordinary ways. Here at Amphenol, our first priority from the earliest day has been to ensure the safety and wellbeing of our employees, our suppliers, our customers, and the many communities in which we operate around the world. And I'm sure that this pandemic has also personally impacted many of you on the phone here today just like it has really everyone around the world. Our company began to see the impacts from the outbreak at the time of the government restrictions that were imposed by China starting with the shutdown of Wuhan on January 23rd. While we don't have any facilities in Wuhan, our team successfully navigated an unprecedented three-week shutdown of our 50 manufacturing operations in China. And I just wanted to mention here how truly proud I am of our entire China team, who were able to return to full production level by the beginning of March, substantially earlier than we had originally expected. As the COVID-19 virus has continued to spread around the world, Amphenol’s entire global team has been focused on executing amidst very challenging market conditions and quickly evolving government measures to control the pandemic, all whilst clearly prioritizing the safety and health of our more than 75,000 employees around the world. To that end, we early on proactively instituted significant measures to protect our employees, which has ultimately enabled us as a company to continue to operate throughout this pandemic. I'm truly proud of the Amphenol organization who despite these unprecedented conditions have continued to execute as Amphenolians always do, including by supporting our communities around the world when they need us the most. We've donated hundreds of thousands of masks to local hospitals, reconditioned machines to produce our own face masks, dedicated 3D printers to help make face shields, significantly expanded our production of components used in ventilators and other critical equipment, and ramped up the capacity of our high-speed and power products to support the expanded bandwidth needs around the world. And these are just a few of the many initiatives that have been taken by our more than 120 operations around the world. And I just wanted to take this opportunity to thank each and every one of our Amphenol employees around the world for their dedication, resolve, agility, and focus amidst these most challenging and uncertain times. Now turning to the first quarter, as I'm sure you all well know, due to the widespread disruption caused by the COVID-19 pandemic, on February 24th, we withdrew our first quarter guidance that had been issued at the time of our January earnings release. Despite this, I'm very proud of the results that the company has ultimately achieved in this uniquely challenging quarter. Our sales reached $1.862 billion, a reduction of 5% in U.S. dollars versus prior year and 9% organically. And that was driven by lower sales in the mobile devices, mobile networks, IT datacom, automotive, and industrial markets. These declines largely related to the COVID-19 disruptions in China, including, in particular, the approximately three weeks shutdown of all of our manufacturing operations in that country. I'm very pleased that the company booked $2.150 billion in orders in the first quarter, and that represented a book-to-bill of 1.15 to 1, the highest level in the modern history of the Corporation. And despite the significant disruptions to our operations in the quarter, adjusted operating margins held up very well, reaching 17%. Amphenol’s financial position is extremely strong, with operating cash flow of $384 million in the first quarter, supporting the company's excellent liquidity which includes a substantial $2.4 billion in cash and cash equivalents at quarter-end. Craig will give more details on this in a few moments. Just like to close by saying I'm extremely proud of our team and that our performance this quarter once again reflects the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the truly unprecedented challenges related to the COVID-19 crisis. And with that, I'll turn it over to Craig to review our financial performance and then come back in a few moments to talk about our end markets. Craig, please.

Thanks a lot, Adam. So as Adam just reviewed the company closed the first quarter with sales of $1.862 billion and with GAAP and adjusted diluted EPS of $0.79 and $0.71 respectively. Sales were down 5% in U.S. dollars and 4% in local currencies compared to the first quarter of 2019. And from an organic standpoint excluding both acquisitions and currency impacts, sales in the first quarter decreased 9%. Sequentially, sales were down 13% in U.S. dollars and local currency and organically. Breaking down sales into our two segments, the interconnect business, which comprises 96% of our sales was down 5% in U.S. dollars and 4% in local currencies compared to last year. Our cable business, which comprises 4% of our sales, was down 13% in U.S. dollars and 11% in local currencies compared to the first quarter of last year. Adam will comment further on strength by market in a few minutes. Operating income was $317 million for the first quarter of 2020 and operating margin was 17%, which was down 310 basis points compared to the first quarter of 2019. Compared to the fourth quarter of 2019, operating margin decreased 300 basis points. The reduction in operating margins reflected a negative conversion rate higher than our typical 30% downside conversion. This elevated conversion was primarily driven by the impact on the first quarter of the COVID-19 pandemic on production and productivity, particularly due to the various government restrictions that limited our ability to adjust payroll costs. From a segment standpoint, in the Interconnect segment, margins were 19.1% in the first quarter of 2020, which was down compared to 22% for both the first and fourth quarters of 2019. In the Cable segment, margins were 7.6%, which is down compared to 11% in the first quarter of 2019 and 10% in the fourth quarter of 2019. Despite the year-over-year and sequential operating margin decline, we are proud of this quarter's performance given the unprecedented challenges created by the COVID-19 pandemic. Our team's ability to minimize the negative margin impact from this crisis is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high-performance action-oriented culture and thereby maximize both growth and profitability in an uncertain market environment. Interest expense for the quarter was $29 million which compares to $30 million in the first quarter last year. And the company's adjusted effective tax rate was 24.5% for both the first quarter of 2020 and 2019 respectively. The adjusted effective tax rate for the first quarter of 2020 excluded a discrete tax benefit of $20 million due to refunds in certain non-U.S. tax jurisdictions and the resulting adjustments to deferred taxes, as well as an excess tax benefit of $5 million associated with stock option exercises during the quarter. The adjusted effective tax rate for the first quarter of 2019 excludes the impact of acquisition-related costs partially offset by the impact of the excess tax benefit associated with stock option exercises during the quarter. The company's GAAP effective tax rate for the first quarter of 2020, including the items just mentioned, was 15.9% compared to 22.8% in the first quarter of 2019. Adjusted net income was a strong 12% of sales in the first quarter of 2020, another confirmation of the strength of the company's financial performance. On a GAAP basis diluted EPS declined by 9% in the first quarter to $0.79, compared to $0.87 in the first quarter of 2019. Adjusted diluted EPS declined 20% to $0.71 in the first quarter of 2020 from $0.89 in the first quarter of 2019. As Adam mentioned, orders for the quarter were $2.150 billion, which was up 7% compared to the first quarter of 2019, resulting in a record book-to-bill ratio of 1.15 to 1. Despite the extremely challenging environment, the company continues to be an excellent generator of cash. Cash flow from operations was $384 million in the first quarter or 177% of adjusted net income and net of capital spending of $61 million, our free cash flow was $323 million or 149% of adjusted net income. From a working capital standpoint, inventory, accounts receivable, and accounts payable were $1.3 billion, $1.5 billion, and $817 million respectively at the end of March. And inventory days, days sales outstanding, and payable days were 92, 75, and 57 days respectively. While DSO and DPO were both in the normal range, DSI was slightly elevated due to the lower sales levels in the first quarter, which were driven primarily by the extended shutdown of production in China as well as the production challenges in other parts of the world. Due to the current crisis, we do expect inventory days to remain somewhat elevated, while sales levels are depressed, but to come back down to normal levels as business returns to a more typical pattern. The COVID-19 pandemic created significant uncertainty and volatility in the credit and capital markets during the first quarter of 2020. As a result and as mentioned in our earnings release, as an abundance of caution, in late March, the company proactively drew down $1.25 billion under our $2.5 billion revolving credit facility. In addition, due to the significant volatility in the commercial paper markets, the company decided to reduce its reliance on the public commercial paper markets, and as such, approximately half of the proceeds from the revolving credit facility is allocated to repay amounts due under our commercial paper programs. During the first quarter, our cash flow from operations of $384 million along with net proceeds from our various credit facilities of $1.36 billion, proceeds from our recently completed bond offering of $400 million, and proceeds from the exercise of stock options of $30 million were used primarily to repurchase $257 million of the company's stock at an average price of approximately $96, fund repayments under our commercial paper programs of $250 million, fund dividend payments of $74 million, fund net capital expenditure of $60 million, fund acquisitions of $16 million, and fund distributions to and purchases of non-controlling interests of $8 million. At March 31st, cash and short-term investments were $2.4 billion, of which $1.4 billion was held in the U.S. This elevated level of cash was driven by $400 million on hand from proceeds of the February bond offering, which was subsequently used to fund the $400 million bond maturity due on April 1st. And the previously noted drawdown of our credit facilities in excess of our current or expected cash needs in order to fund the decision to reduce our reliance on the commercial paper market and to provide a cash buffer during this period of extreme market volatility. At March 31st, there was $1.36 billion outstanding under our credit facilities as well as $138 million of outstanding commercial paper remaining that will come due in April and be repaid with cash on hand. As a result, total debt at March 31st was $5.1 billion and net debt at March 31 was $2.7 billion which was unchanged from the net debt level as of December 31, 2019. Total cash on hand as well as the remaining availability under our credit facilities was $3.6 billion at the end of the quarter which leaves the company in a very strong liquidity position. The first quarter 2020 EBITDA was $403 million and the pro forma net leverage ratio was 1.4 times. In summary, although this was certainly a much more challenging quarter than we had anticipated coming into the year, we finished the quarter in a position of real financial strength and with a very strong balance sheet and liquidity position. We believe this financial strength coupled with the company's broad market and geographic diversity positions us well for the current more volatile environment which is characterized by moderating demand and continued uncertainty across global markets. And with that, I will now turn it over to Adam who will provide some commentary on current market trends.

Thank you very much, Craig. Craig just mentioned the value that we see in the company's balanced and broad end-market diversification. And I can just tell you that, that value is even more clear in the times like we're living in today. In the quarter, no single end market represented more than 21% of our sales. This diversification continues to mitigate the impact of the volatility of individual end markets and geographies, while also exposing us to leading technologies wherever they may arise across the electronics industry. And this is just a great asset in a dynamic and unpredictable environment like we are experiencing today. Now turning to our end market, the military market represented 14% of our sales in the quarter. Sales again grew very strongly from prior year, increasing by a bit less than expected 18% in the first quarter. And this was driven by growth across virtually all segments of the military market including, in particular, helicopters, space, military vehicles, and avionics applications. Sequentially, our sales decreased by 5% from the fourth quarter. Looking into the second quarter, we expect sales to decrease from the first quarter level. A certain of our facilities that support military customers are operating with reduced staffing as a result of governmental restrictions related to the COVID-19 pandemic. Nevertheless, our team focused on the military market has worked hard for many years to strengthen our position across the market while increasing our capacity to serve customers really in all segments of the military market. The company's continued strong performance is a great reflection of the results of those efforts. Given the ongoing favorable military spending environment, our team continues to solidify our leadership position by ensuring that we execute on the demand that we see in support of the many next-generation technologies that are required for modern military hardware. The commercial aerospace market represented 5% of our sales in the quarter, and our sales were down slightly as production volumes declined, and as overall demand from commercial aircraft manufacturers began to experience the negative impact of the COVID-19 crisis late in the quarter. Sequentially, our sales decreased by 10% from the fourth quarter, which was a bit more than we had expected coming into the first quarter. There's no doubt that the commercial air market has been significantly impacted by the rapid and unprecedented reduction in air travel around the world. Accordingly, we do expect a further reduction in sales as customers shut down and reduced demand for air travel impacts overall aircraft production volumes. Regardless of the difficult environment that we're seeing in the commercial air market today, our team working in this market remains committed to leveraging the company's strong technology position across a wide array of aircraft platforms and next-generation systems integrated into those airplanes, and that positions very well for the long-term. The industrial market represented 21% of our sales in the quarter. Sales in the industrial market declined by approximately 3% as growth in medical instrumentation, alternative energy, and battery-related applications, together with contributions from our acquisitions completed last year were offset by declining sales related to heavy equipment, rail mass transit, oil and gas, as well as other segments. On a sequential basis, sales in the industrial market were down more than we expected by about 4% from the fourth quarter and it reflected in particular the China COVID-19 related shutdown. I'd like to take this opportunity to highlight just how proud we are of our team working in the medical segment of our industrial market, who is ramping up our production of sensors, connectors, and a wide variety of interconnect assemblies in support of countless applications that are providing medical treatments for COVID-19 patients. Looking into the second quarter, we expect industrial markets to remain relatively stable, as increases in production in China are offset by lower sales in other geographies related to some of the restrictions on production that we're now seeing. We remain very pleased with the company's broad position in the worldwide industrial market, and through both our acquisitions program as well as our organic innovation, we have developed a very broad array of products across a diversified range of exciting segments within this market. We're proud of the company's long-term success in the industrial market and we look forward to realizing the benefits from our efforts for many years to come. The automotive markets represented 19% of our sales in the quarter. Sales were weaker than we had expected coming into the quarter due to both the China shutdown in February, as well as COVID-19 related shutdowns by automotive customers in other parts of the world later in the quarter. Sales declined by 8% in U.S. dollars and 6% in local currency and sequentially our automotive sales decreased by 13%. As we look towards the second quarter, we do expect sales to further reduce as customers shut down continue to impact demand, and as the number of our automotive plants are restricted from full operations in certain countries. At this time, it's very difficult to predict the exact timing and nature of the automotive market recovery. Nevertheless, and regardless of this extremely challenging period for the automotive market, we're very confident in our long-term position. When this crisis is behind us, we look forward to once again benefiting from our long-term and consistent strategy of expanding our range of interconnect, sensor, and antenna products, both organically and through acquisitions, which enable a wide array of onboard electronics across a diversified range of vehicles made by auto manufacturers around the world. The mobile devices market represented 10% of our sales in the quarter. Our sales to mobile device customers were significantly impacted by the three-week shutdown and subsequent month-long ramp-up of production in China. Sales in the mobile devices market declined by 20% from prior year and by a greater than expected 43% from the fourth quarter of 2019. Although the first quarter was very difficult for our team working in the mobile devices market, I'm just so proud that they were able to fully recover our production levels by early March. And as we look towards the second quarter, we do expect our sales to mobile device customers to increase from these first quarter levels. Regardless of the COVID-19 related disruption in the first quarter, our long-term position in the mobile devices market remains very robust. Our leading array of antennas, interconnect products and mechanisms continues to enable a broad range of next-generation mobile devices. And while there's no doubt that this market will always be one of our most volatile, our outstanding and agile team is poised as always to capture any opportunity from our customers that arises in 2020 and into the future. The mobile networks market represented 7% of our sales in the quarter. Sales decreased as expected from prior year by 14% in U.S. dollars and 31% organically, as we were impacted by reduced demand from wireless OEMs. As we discussed extensively last year, the U.S. government restrictions on sales to certain Chinese entities ultimately resulted in many operator and OEM customers reassessing both their build-out plans and inventory levels, leading to lower demand for our products. In addition, the China shutdown related to the COVID-19 crisis also impacted our sales in the first quarter in the mobile networks market. On a sequential basis, our sales actually increased 6% from the fourth quarter, and that was driven by higher sales to mobile network service providers. Given the continued disruptions related to the COVID-19 crisis, as well as the ongoing U.S. government restrictions that I just discussed, we anticipate sales in the second quarter to be similar to those levels that we realized in the first quarter. Regardless of the continued challenges in the mobile networks market, we are confident in the company's long-term position in this important and exciting industry. Our team continues to work aggressively to expand our opportunities with next-generation equipment and networks. And as customers plan for these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers around the world. I'd just mention in addition that as we all know global communication systems are being stretched by the radical shift in work and education practices due to the COVID-19 crisis. These factors create significant long-term expansion potential for the company. The information technology and data communications market represented 20% of our sales in the quarter. Sales in the first quarter were weaker than expected due to the impact of the China shutdown and the subsequent ramp back up to full production. Sales declined by 4% in U.S. dollars and 10% organically from prior year, as the contributions from the Charles Industries and XGiga acquisitions completed last year, together with stronger sales of server-related products were offset by the impact of the production shutdowns in particular in China. Sequentially, our sales declined by 12% from the fourth quarter. I would mention that we did see a significant uptick in orders in the first quarter from a wide array of customers in the IT datacom market. We believe that surge in activity is related to our customers' efforts and our customers' customers' efforts to increase bandwidth in support of new demands related to the COVID-19 crisis and this includes the increase in online video communication, streaming services, and gaming among others. We're well positioned to support these initiatives due to our team's continued efforts at developing industry-leading products across a wide array of technologies including in particular high-speed and power products. And while we do expect sales to increase in the second quarter due to these strong orders, I would mention that we continue to face production challenges in many geographies due to COVID-19 related government restrictions. Nevertheless, we remain very encouraged by the company's strong technology position in the global IT datacom market. Our customers around the world continue to drive their equipment to ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power. In turn, our team remains singularly focused on enabling this continuing revolution in IT datacom through their ongoing development of a wide range of next-generation technologies. The broadband market represented 4% of our sales in the quarter. Sales decreased by 10% from prior year as spending levels from broadband operators continued to moderate. On a sequential basis, sales decreased by a greater-than-expected 11% from the fourth quarter. We expect sales in the second quarter to increase as customers seek to quickly upgrade capacity in their networks to support the significant increase in demand for bandwidth that I discussed earlier. Our team is working very hard amidst the number of operational challenges to support these upgrades in capacity. Now turning to our outlook. Given the significant uncertainty related to the COVID-19 crisis, we believe it's prudent to withdraw our full-year sales and EPS guidance at this time and we will not be providing a specific sales and EPS outlook for the coming quarter. With that said, we do expect sales and EPS in the second quarter to be lower than our first quarter level. This expectation is related to weaker demand in certain markets due to the overall economic environment as well as certain operational restrictions that we're experiencing in several countries related to the government measures that have been implemented to reduce the spread of COVID-19. In some cases, these restrictions have limited our ability to adjust our resources in line with the volume declines we are experiencing, resulting in elevated costs in several of our businesses as we take actions to comply with government mandates while also ensuring the safety and health of our employees. Nevertheless, despite all these challenges, you can rest assured that the team of Amphenolians around the world is fighting hard to secure the company's overall performance, all while dedicating ourselves to protect the safety and health of our more than 75,000 employees around the world. So now to summarize, while the first quarter of 2020 has been uniquely challenging, I come away extremely proud of our team's performance. Amidst an unprecedented global pandemic, the Amphenol organization continues to execute extraordinarily well. In fact, it is in times of crisis like we are all facing today that the Amphenolian culture demonstrates its true value. The company's strong performance is a direct reflection of our distinct and consistent competitive advantages, our leading technology, our increasing position with customers in diverse markets, a worldwide presence, lean and flexible cost structure, our highly effective acquisition program, and our agile entrepreneurial management team. And I would just like to take this final opportunity to recognize and thank the entire Amphenol organization around the world for their focus on protecting our people and their communities, their dedication to supporting our customers, and their agility in the face of uncertainty, all of which helps to create value for all of our stakeholders.

Thank you speakers. The question-and-answer period will now begin. Our first question comes from Amit Daryanani from Evercore. You may ask your question.

I have just one question. Adam, do you believe there are any structural changes today compared to pre-COVID that would hinder Amphenol from returning to a 20% operating margin or achieving the incremental margin you've discussed once conditions normalize? Additionally, when considering the cost optimization strategies you've mentioned, do you think that could actually reduce the revenue run rate needed to reach that 20% operating margin target?

Yes. Amit, structurally, we are the same as we have always been, whether in good times or bad. This organization is purpose-built for crises like the one we are experiencing today. The agility and flexibility of our organization during times of change have always been a hallmark of Amphenol's performance. The current crisis is certainly different from previous ones, such as the tech collapse of 2001 or the financial crisis of 2009, as it also involves people's health. Craig noted that our conversion margins going into the first quarter were negative due to government restrictions on production and measures we are taking to ensure employee safety, which temporarily affected productivity and efficiency. However, the structural and cultural capabilities of our company to achieve the margins we saw just 90 days ago in the fourth quarter remain unchanged. If this crisis presents opportunities for us to do even better, we'll see how that unfolds. We consistently aim for strong conversion margins when conditions are favorable and moderate them during downturns, even in a challenging environment like today with its unique dynamics.

Thank you. Our next question is from Wamsi Mohan of Bank of America. You may ask your question.

Adam, can you maybe comment on the pace and cadence of new design activity? You mentioned significant headwinds in mobile devices that you witnessed in the quarter, given that a lot of it is China-centric. But given this disruption in travel and continued disruption, are you seeing or anticipating resulting pushes out of product launches in mobile devices? Thank you.

Thank you, Wamsi. I think it's important to acknowledge that our customers across all markets, including mobile devices, are adjusting to this new way of working. All of us, including those on the call today, are finding ourselves in a very different working environment than before, moving from in-person meetings in offices and conference rooms to becoming proficient at video calls and remote collaboration. While attempting to recreate in-person interactions is challenging, our teams are actively engaged in developing and launching new products. Customers are adapting to this shift. I can say from personal experience that my interactions with customers have improved significantly without the need for constant travel. Now, I can connect with many customers right from my desk using a screen and camera, which is quite efficient. We've all had to swiftly adjust to this new landscape, and I believe it offers excellent opportunities for growth and learning. There may have been some initial adjustments needed for individual product launches, but overall, as long as our customers have access to their manufacturing resources to produce at full capacity, we are witnessing substantial engagement with customers globally.

Thank you. The next question is from Craig Hettenbach from Morgan Stanley. You may ask your question.

Adam, just a question on the book-to-bill which is very strong, I know there's particular end markets like comm and medical that are helping, but also kind of customers as they look to mitigate supply chain concerns. And so just curious to get a little bit more context on how you feel like kind of the shape of those bookings are and relative to kind of what the demand you're seeing is?

Thank you, Craig. Let's take a step back. When we look at our bookings, they were exceptionally strong, marking the highest book-to-bill ratio in our history and one of our best order quarters, with a year-over-year increase of 7%. Our initial guidance for the quarter estimated a maximum of $2 billion in orders, but we actually booked $2.150 billion, resulting in an increase of about 7% to 8%. Part of this strong book-to-bill ratio can be attributed to production limitations we faced during the quarter. Additionally, there has been a notable rise in demand in certain areas, particularly in the medical products sector and bandwidth communications, which I've mentioned in my prepared comments. We've observed a sequential uptick in sales across various categories. The third aspect you mentioned relates to customers placing orders to secure supply and avoid risks, but I see this as a lesser factor compared to the first two. We haven't experienced issues like double ordering or frantic purchases to secure a spot in line. The demand reflects the critical role we play in our customers' technologies and the importance of our customers in addressing current needs. We have been involved in the IT datacom and mobile device markets for a long time, and have consistently adapted to customer requirements. The systems we support, which were originally for gaming and video, are now essential for education and communication, allowing families to connect with loved ones in hospitals. Our teams are driven by this sense of purpose, and they are committed to meeting our customers' needs. Therefore, I believe the strong orders are a true indication of the urgent purpose behind our work, and our team is dedicated to supporting those customers as best we can.

Thank you. Our next question comes from Matt Sheerin of Stifel. You may ask your question.

Yes. Thank you, and good afternoon, Adam and Craig. Adam, relative to the operational restrictions you're facing outside of China, can you give us an idea of what your utilization or production levels are now, where you're seeing the biggest issues? And relative to that, are you expecting similar cost headwinds as you saw last quarter or is it too early to tell given the fluid situation?

Yes. Thanks so much, Matt. I mean, look, the first quarter was largely about the sort of unprecedented, very clear shutdown in China. Chinese New Year came and it was on then February 10th when essentially you were allowed to reopen, and by the way, reopened with a lot of challenges because the government put forth a very, very detailed, very detailed requirement for you to reopen your factory, including things like, you had to have enough face masks for every employee to change their mask three times a day, and you had to have 14 days of stock and they would come and audit, do you have enough face masks? And do you have enough disinfectant solution, temperature checking devices, all these things, a very rigorous process to reopen. I will say the rest of the world has not been necessarily as clear as what we saw in China, which is not surprising. I mean, every country does things their own way and that is what it is and it's not for us to judge that, but rather to react to it. And so, we operate as you know in 40 countries around the world, and every country has a little bit of a different approach, and even here in the United States where we operate in a number of locations, we have very significant workforce in the U.S. every state has a little bit of a different nuance to that. What are exempted businesses? What are essential businesses and how is that all defined? And so, our team around the world has been reacting to those restrictions, making sure that when we are essential that we're able to operate, making sure that our employees are kept safe, and fortunately, we learned a lot in China, a lot and our Chinese team has been so helpful in to all of our other operations in making sure that we can stay open as much as the governments will allow us, as much as they possibly will allow us by putting in place the appropriate protective measures for our employees, and that's been a real critical aspect of staying open, where we have been able to do so, which is by the way, the vast majority of places, is making sure that, we can protect our employees and demonstrate to our people first that it's a safe workplace. And second, demonstrate that to the local governments who in most cases come and audit and inspect that. If your people don't believe they're coming to a safe workplace, they're not going to come. This is a but scary, scary virus and there's no doubt about it that you need to make sure that the place of work is almost safer than the homes of our people. That's actually our mantra inside of Amphenol, make the workplace safer than the home and then the people will be comfortable and justifiably comfortable in coming in. Now, ultimately, what does that mean? What is our utilization? I'm sorry to tell you, I can't tell you that. We don't have a central computer system and I just don't know exactly what the utilization is. I can tell you that, we have a number of facilities, but not an enormous number for who are operating at lower than their capabilities. The number of facilities that are really not producing is relatively small in other countries, where these restrictions have been a little more rigorous. I would maybe point to a place like in India or Mexico, and even in those countries we are operating, we're not totally shutdown in those countries. We're operating as an essential business where it's appropriate for us to do so. In terms of the second quarter, I think Craig talked about the fact that we had these extra costs. In the first quarter, we would expect to continue to have extra costs in the second quarter. And what the extent of those will be is really hard to predict, and that's part of the uncertainty that is underlying our reluctance to give a specific outlook here in the second quarter. And I don't know if Craig, you would like to add to that.

Yes, I would just add one quick thing to that Adam, and I agree with actually everything you just said. I think as we're coming into the second quarter though, I mean, the first quarter, we had the shutdown in China, which was that three-week period, and then obviously the ramp up from that. And then, really, what from impacted us in other countries, really the most meaningful part of that was probably in the second half of March. So, we're really in the second quarter, that's really an April in the second quarter, really seeing more of an impact from all the other countries and time will tell really how that resolves itself. So, it's a little bit of a difference between the first quarter second quarter, both actually having gone certainly a meaningful increase in cost just as a bit different, maybe a little bit different nature, full impact of the quarter with the rest of the countries which are all doing a little bit things a little bit differently.

Thank you. Our next question comes from Samik Chatterjee from JPMorgan. You may ask your question.

I wanted to follow up on the order trends and how you've addressed them. Can you share any insights on what you've observed regarding order trends early in the second quarter? I'm trying to reconcile the strong order trends you have with the lower economic activity. Shouldn't I expect that there could be some order reductions from your customers in the future? Given your current strength, it seems like you would have a very robust year. Please help me understand this. Are you starting to see any signs of changes from customers, or am I mistaken in thinking there could be declines ahead?

Thank you very much. I believe our strong orders in the first quarter came from various sources. It's a bit early to discuss order trends for the second quarter since we're only three weeks in, and the situation is still unclear. The orders, particularly in IT datacom, were robust until the quarter's end, and they actually strengthened over that period. It's uncertain whether that momentum will carry into the second quarter. As for potential order corrections, we are navigating a period of significant uncertainty. However, when I look at the market, especially in IT datacom where we have the strongest orders, it’s clear that these are not just stockpiling efforts. Customers are urgently trying to get their products out into the field to ensure reliable bandwidth for everyone, which has become increasingly strained, even in urban areas. For instance, I experience bandwidth limitations at home when my children are attending school online while I'm in my video meetings. The need for upgrades, capacity enhancements, and bandwidth expansion is critical. Customers aren't simply hoarding supplies; they require these components in the field. Take the medical sector, for instance, where there is immense pressure to produce every necessary item and acquire sensors and connectors for life-saving equipment that is needed immediately. This signals real demand. I don't believe we're seeing a situation where supply chains are overloaded or where businesses are stockpiling for future uncertainty. This reflects a different dynamic from what we are currently experiencing.

Thank you. Our next question comes from Mark Delaney from Goldman Sachs. You may ask the question.

So just hoping to better understand that the medical business at Amphenol, maybe some sizing of that business in terms of the percentage of revenue. And then you have any more details about how much exposure in terms of revenue it may have to some of these areas that are going to help support COVID-19 patients like ventilators? Thank you.

Thanks so much, Mark. Look, the medical part of our industrial market and we haven't specifically split that out, but I would just tell you that it's an important part of our industrial market even though our industrial market doesn't have a dominant segment for sure. And across industrial everything from factory automation, rail mass transit, heavy equipment, instrumentation and other important segments and including medical. Now, I think our medical business in the recent years, we've done a fantastic job of expanding our position in medical products and that started really with some acquisitions we made many years ago, but it was enhanced and accelerated 6.5 years ago when we entered the sensor market. With our original acquisition of GE’s defense sensor business which was 6.5 years ago, who had a substantial sensor position across medical applications, and medical applications which by the way included a longstanding leadership position in respiratory therapy; and you can imagine that today respiratory therapy is kind of an important part of the medical market. We've always had a strong position in areas like patient monitoring and imaging and things like X-ray and CT and MRI and delivery of medications. And so that sensor business really positioned us, I believe even stronger than we were before because the sensor becomes such a critical component. And you'll recall, when we first got into the sensor market, one of the theories and secrecy that we had was that, while sensors represent a wonderful compliment and a part of the interconnect system, oftentimes the sensor element was a critical piece of the technological architecture of the products that we were in. And while it may not have always the highest value as an element, it has enormous value as a kind of tip of the spear into that application and into the engineering teams and the importance of the customer. And I would just say that we saw that and we’ve seen that over the six years, we see it much more today. As we talk and I personally interface with so many medical customers around the world. There's no doubt about it, that having that sensor capabilities, that sensor portfolio that we've built not just with our visual acquisition, but multiple acquisitions thereafter. So it's a company that what it is now that our position in the medical market, not just in terms of size, but the importance that we serve to customers in the medical market has really enhanced. You'll also remember that last year, we made a wonderful acquisition in Germany of a great company called Bernd Richter, a real leader in medical market value-add interconnect, and together with our preexisting companies that are very active in investment products in the medical market. So again, I'm not answering specifically Mark your question in terms of how, what is the exact size, but I will just tell you that it's a very important market and segments within the industrial market. And it's one where we're very, very proud that our technology can play a significant role in helping the world to do battle against this COVID-19 virus.

Our next question comes from Shawn Harrison from Loop. Please ask the question.

Question on capital deployment in terms of thinking this downturn versus 2008, 2009, there wasn't really a lot of M&A activity back in that period other than times like the way that I believe. In the share repurchase activity, wasn't really something that Amphenol did either, and then we had this quarter where significant share repurchase. And wondering if you could maybe just comment on if your view of share repurchases going forward and then also, what do you think of the M&A environment in 2020? Does it dry up?

Sure. Thanks, Shawn. We purchased 2.7 million shares during the quarter at an average price of about $96. I want to point out that these buybacks occurred before the significant market volatility we experienced during the quarter, which is reflected in the average price of the stock we acquired. The timing of our stock repurchases considers several factors, particularly our cash needs during certain periods, which could lead to fewer or more buybacks depending on our financial situation. This explains why we saw a slight increase in repurchases this quarter. Following that volatility, we did utilize our revolving credit facility, but these actions were independent and coincidentally occurred in the same quarter as we drew down $1.25 billion. As we generate cash and explore funding opportunities, especially when markets stabilize, we intend to start paying down the revolver amounts as early as the second quarter. Our approach to capital deployment remains flexible and balanced; we haven't formally halted any activities, but in this uncertain environment, we will be mindful and prudent about our requirements, including share purchases. Now, I'll let Adam speak on the M&A topic.

Yes. Thanks very much, Craig. I mean, very well said, I would just relative to the M&A environment Shawn. You've correctly pointed out that back in 2009. We did complete one acquisition early on, onto microwave, a fabulous company by the way. Here 11 years later, I can't tell you how happy we are to own it. We have never been a company that just chases market size or up and down during times of crisis, bottom fishing if you will for prices and other things like that. We take a very thoughtful long-term approach to our M&A program and that means having long-term conversations with people ultimately dating them with the intention one day to get married. And I can tell you that, in a short-term market dislocation, most people, if they don't have to sell, probably are not going to want to sell during the short-term market dislocation. And probably, you don't want to necessarily buy during that short-term market dislocation when you really don't know the full extent of what you're buying. All that being said, what I will tell you this. During this environment, this is a very, very kind of existential environment for many companies, and a company like ours, who has the financial strength that Craig talked about, who has the diversity that we've talked about, who has the geographical diversity as well, the footprint diversity if you will, and who has that culture and reputation as an acquirer becomes even more attractive destination for companies who may be going through today an existential crisis. Maybe they're only in one market, maybe they're only in one geography and they look kind of over the ledge today at their own existence. And I think that that is a time where if those companies do survive, they may start thinking long-term about, do I want to do this alone now that I know that this kind of a crisis can happen. And I think that the long-term prospects for us being a real acquirer of choice, I believe coming out of this can be quite substantial. Now what does it mean this year? How much of our capital we are going to allocate to west? How much M&A will we do? There's a lot of uncertainty to make any prediction on that front. But our long-term approach to capital deployment clearly is the priority toward new product development M&A and then obviously the dividend, the buyback that Craig has already talked about, and we look forward to continuing to be the acquirer of choice for the thousands of companies in this industry going forward.

Thank you. Our next question comes from Deepa Raghavan from Wells Fargo Securities. Please ask the question.

Hey, good afternoon. I'm going to look ahead and ask about better times. Just looking back in history, can you talk about which verticals you typically see recovering earlier and which usually takes longer to recover? And hypothetically, let's assume macro forecasts are right, and we start to see some recovery sometime in the second half. Should we think about most of your sales actually being recoverable, some of something that got pushed out or can there also be examples of lost sales within your portfolio? Thank you.

Thank you for your question about better times, which is something I'm passionate about. The recovery of various verticals really depends on the situation. It's not fair to compare the current environment to 2009 or 2001. In 2001, many of our markets remained stable despite the tech bubble burst. The recovery at that time was slow, and 2002 was challenging as well. During the financial crisis, after the Lehman Brothers collapse, we saw a significant drop in demand, leading to a 15% decline in sales and a 17% reduction in headcount in the last quarter of 2008. We managed to maintain the company's profitability during both crises. This current crisis is unique as it’s our first global pandemic, which brings fear and uncertainty for many people. However, I believe this situation will eventually resolve. It's hard to determine our exact position in this crisis, but it will certainly have a beginning, middle, and end, and I see many opportunities emerging afterward. When we return to a 'normal,' it will differ from what we knew before January 22. We will reassess our work, life, learning, and functionality. One key point is that the importance of electronics has become clear across various fields, from medical equipment to communication needs and safety systems. There are countless new applications that will arise from the disruptions we’ve faced. Amphenol is well-positioned to take advantage of these opportunities with our 123 General Managers globally, each ready to respond to whatever comes next. Regarding the second half, while I have seen many inaccurate macro forecasts recently, I do believe recovery will come, though I can’t predict its shape. It’s difficult to say if there will be a catch-up in demand when many people are not using resources like gasoline. Yet, there are immense opportunities on the horizon resulting from this crisis, and I believe they will yield long-term positive outcomes.

And our next question comes from Steve Fox from Fox Advisors. Please ask the question.

Adam, thanks for all the helpful discussion. I guess the one thing I was left wondering about in terms of your own operations was your supply chain. You mentioned disruptions with running your factories, but can you just talk about your ability to source raw materials, subcomponents and how that has been handled and how you think it's going to be handled in this quarter? Thank you.

Steve, look the supply chain is very important. I mean, we the suppliers are really important for us. One thing about Amphenol that very well, we don't have a centralized supply chain. We don't seek to put all of our stuff into one vendor and leverage that one vendor. We put the responsibility to manage our suppliers across all of our more than 120 general managers around the world. We may share information and do some smart things about that. But we're not putting all of our eggs in one basket of a supplier and I can tell you. Today, I'm very grateful for that. Because there are suppliers even in the month of February through the China shutdown, our organization was so much quicker than most others to come back to full production. There were suppliers who were not able to come back who didn't have the wherewithal, the agility, the capabilities to do what our team was so successful at doing and coming back to production. And to the extent that any of those, which for us usually are very small suppliers, create any disruption, we went and helped them right away. Our team was there for them supporting those suppliers. We haven't seen anything material in terms of or meaningful, I should say it's a double entendre material anything meaningful in terms of the impact from our supply chain. I guess the one thing I would maybe point to is not really suppliers as much as logistics. It's been well reported. There are some logistical impediments going on in the world right now. Freight capacities are quite significantly limited in certain areas, and our team's done a great job of working collaboratively across the organization to make sure that we're getting the product that we need when we need it and getting what our customers need when they need it. So, there's a little bit more work involved in doing that, but now there was 90 days ago.

Next question comes from William Stein from SunTrust. Please ask your question.

Great, thanks for taking my question. It relates to the margin trajectory we might expect to over the current and next couple quarters. We understand that the decrementals were a little bit, let's say they were a little bit worse than what they typically are in a downturn for Amphenol because you have some more challenging times in readjusting costs when you can't take actions on the employee base given all the things going on with COVID. And I wonder whether we should expect this to have a relatively quicker resolution where we could see a quarter here a better-than-expected decremental because you can align the cost base with the level of demand or if we should expect another quarter or two with the sort of current more challenging alignment of those two things? Thank you.

Yes. Thanks a lot for the question. Let me just start off by saying, I think, as a company, we're really just proud of the fact that we were still able to achieve the 70% operating margins in the first quarter with all the obstacles that we had to deal with in the first quarter with China being closed, with the other parts of the world. Having productivity issues and having some of our facilities closed or limited terms of people, so the fact that in that case, so to 70%, and essentially had a sequential quarter kind of conversion from Q4 to Q1 and just 40%, not so far over our typical 30% downside conversion, I think it's just a testament to the team. So I just kind of wanted to start with kind of that because I think that's really just the important point and that we're really proud of. Now, as it relates to kind of going forward into the second quarter and we certainly didn't or make or give guidance for the second quarter. Adam, we did say that we do expect sales and it has to be lower in the second quarter. So, with that being said, I said that I wouldn't expect profitability or the pressures on our profitability to be meaningfully better in the second quarter than they were in the first quarter. I mentioned before that in the first quarter, we have this China-specific event that happened and it really wasn't until the end of the first quarter that we really saw the other parts of the world starting to create issues with regards to adding costs or limiting our ability to adjust costs. And that's really what we're seeing in a bigger way in the second quarter. And so I think that we would expect still to have a drive from the banning, throughout the second quarter at this point in time. I wouldn't expect dramatically different sequential quarter conversions going into the second quarter that from the first quarter, second quarter, I can maybe normal-ish conversions. But again there's so many unknowns right now, as we kind of come into the second quarter that it's really difficult to compete on that.

Thank you. Our next question comes from Jim Suva from Citigroup Investment Research. You may ask your question.

Thank you so much and great to hear the Amphenol team is doing well and your positive outlook, which a lot of my questions have been answered for that. So, I'll just ask one a little bit. When we think about guide posts and I've been on the sell-side for over 20 years, I think back in history in the global financial crisis, the worst quarter year-over-year was down 19%, but then back in the tech bubble burst, there were some times of down 30% year-over-year. And I think about this crisis, the coronavirus is much different of global plant closures. But then you talked about how positive your team came back in China. So, can you give us any guide posts at all about, is it much different from some of those past historical trends we've seen or the plant closures and coming back make it much different? Any guidance or color would be greatly appreciated.

Well, thanks so much Jim. I mentioned earlier that, I think well one can on their face say well there was the global financial crisis, there was the tech collapse and should we or should we not compare this moment to those. I think there is the different here. We have never worked in an environment where governments are so deeply impactful and for good reason, by the way. I mean I think governments need to take a role. They have an extraordinary role to play in protecting the health of all of us on the phone and all of the citizens of the world. And so justifiably, I think governments have taken steps to limit interaction of people and thereby slow the spread of the virus and the way it's happened has been very different. China I talked about was a very clear, very distinct and by the end of a certain time period, which was not so long. I mean, at the time it felt like ages let me tell you, three weeks felt like for years to all of because we were planning the kind of reentry. But there was a moment in time where you knew you could take your people back to work as long as you did certain things to protect them. And I think in the rest of the world, the actions haven't been as clear as the actions were in China, and thus the coming out of that is also I believe less clear. And so, what is that going to look like? It will depend. It will depend on the country. It will depend on the results. It will depend on the sort of means so many times this term, are we bending or not the curve, and all of these various things and it's not dependent on is the fiber capacity in the market now finally filled and we can start re-building fiber optic equipment back in year 2000. It's not dependent on demand coming back because people are not getting foreclosed upon in their mortgages and unemployment and all of those things. There’s an element obviously, I mean unemployment is increasing in many countries, for example, very significantly. So, there is an end demand that is related in some way to this crisis, but not a direct part of the battle against COVID-19. When does that end demand come back depend on so many factors. What's the degree of government stimulus that's going to be available to people? What will companies have in terms of support loans or grants or otherwise? I know, there are a lot of factors that come into this, which makes me feel like to draw that perfect parallel from those two crises. It would be maybe a dangerous parallel to draw. Again, I just reiterate one more time. From our perspective, it just doesn't matter, because our team is ready regardless. We are purpose-built for a time of strong demand. We're also purpose-built for a time where demand is very uncertain, and that's the agility, the flexibility of all of our organization that and really the resiliency of the organization in a time of kind of unprecedented uncertainty. And our ability to adapt, and to embrace a new environment is I believe second to none, and we'll get through this regardless.

Thank you. Our next question comes from Joseph Spak from RBC Capital Markets. Please ask your question.

Thank you so much, Adam. I do want to just quickly I guess I'll follow on your last comments and go back to some of the color you gave on the China restart in the lessons learned. I think that's important. As you mentioned, that was pretty intense. It's unclear if it's followed elsewhere in the world. But you also mentioned your place to feel safe and I think there's some plants with a decent amount of manual labor and lines can be set up with employees and close to each other. So you might have to do more than as minimally required in certain areas to get that level of comfort among your employees. So we think about, even beyond second quarter when there's obviously still going to be some costs because of the shutdown, there's productivity not get back to where it was until there is a vaccine, is that your view? Or does it sort of not matter, because to follow on your here, your last comments, you may just snap back to pre COVID immediately either?

Yes, it's a great question. So, I mean, I think what you're saying is, there is a pre-vaccine and the post-vaccine world and I would tend to agree with you. There is a pre-vaccine role and there's a post-vaccine world. And the pre-vaccine world is going to require you to probably take more aggressive steps to protect your people. And I would just point out one thing it was for us absolutely clear, as right on January 23 when that shutdown happened, the pure priority, the overarching priority of our corporation has to be to protect our people. And we do that because it's the right thing to do as a fellow human, of those 75,000 people around the world, but we do it also because it's just good business. If you don't protect your people, you see what happened. And there have been so many examples around the world, some well recorded and others not so well reported of the kind of catastrophic effect on a corporation business if they're not sufficiently protecting their people. So we went overboard. We absolutely went overboard from the very get-go making sure that our people were well protected. And yes, we have factories where we have assembly workers who used to work very close together. They're not working close together today. And we figured it out. We’ve repurposed offices. We’ve repurposed warehouses. We've staggered shifts. We've done so many things. Now, do all of those things ultimately hurt productivity in the pre-vaccine medium term, unnecessarily, I don't think they do not necessarily. I mean, you'd be amazed at the resilience and adaptability, not just of our management team, but of our people on the factory floor. And I thought, and I'll just put a plug in here right now. We have every time for our earnings release and management call. These people in our factories are the heroes of Amphenol today. They are everyday walking in the door of a factory. Well, those not the other people who can work from home are doing so, give a lot of people who have to go to work every day to do their jobs. And their jobs are so important today. Like I said, I mean, they're building things that go into life-saving equipment for building things to go into mission-critical communications network. And these heroes of our company who are going to work every day, it’s our job to protect them regardless of if that means I have to space them out in the factory, regardless of whether that means, I have to have the shift not overlap quite as much and lose 2% in productivity that day because of that, that's not a consideration at this point. I believe that our teams are going to make it happen regardless, and we're going to always follow that priority right now. It says we got to protect our people and protect them we will.

Thank you speakers. At this time, we don't have any questions on queue. I’ll turn the call back to you for any closing remarks.

Well, thank you so much, and thank you all for your extended time today. We wanted to give everybody a chance to have the question. Look, I wanted to say to just a few words here. I mentioned earlier, we're in a crisis unlike any of us, have lived through, but there will be a beginning and middle and an end to this crisis. There's no doubt about it. I'm not going to be the one to predict when does the end come, or when does the beginning of the end come, but it will come. There's no doubt about it. And what I have encouraged our employees to do and I will encourage all of you as well is relish the positives that may come out of it, take advantage of the things that we're learning about ourselves, about how we can work, how we can operate, and about our fellow people that I think are really some of the wonderful silver linings of what is a true tragedy for many people. And that tragedy I'm sure all of you have been touched in some way or another by that tragedy. And we wish that all of you continue to stay safe with your families, your colleagues, and all stay safe. And I'm sure one day we will get the chance to meet all of you in person, and I look forward certainly to sitting in the office with my colleagues at the nearest possible occasion. And regardless of that comes, you can rest assured that the Amphenol management team is there to support all of our stakeholders and to make sure that this company and our people remain safe and strong and that our company remains also healthy and strong for the long-term. Thank you all very much and we look forward to speaking to you again 90 days from now.

Thanks everybody.

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