Hello, and welcome to the Third Quarter Earnings Conference Call for Amphenol Corporation. After the presentation, there will be a question-and-answer session. Until then, please remain in a listen-only mode. At the company’s request, this conference is being recorded. I would now like to introduce today’s conference host, Mr. Craig Lampo. Sir, you may begin.

Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here with Adam Norwitt, our CEO. We want to welcome you to our third quarter 2022 conference call. Our third quarter 2022 results were released this morning. I'll provide some financial commentary, and then Adam will discuss the business overview and current trends, after which we'll take questions. As a reminder, during this call, we may refer to certain non-GAAP financial measures and forward-looking statements, so please refer to our press release for relevant disclosures. All prior year comparative data discussed in this call is on a continuing operations basis. The company closed the third quarter with record sales of $3.29 billion and record GAAP and adjusted diluted EPS of $0.80. Third quarter sales were up 17% in U.S. dollars, 21% in local currencies, and 18% organically compared to the third quarter of 2021. Sequentially, sales increased by 5% in U.S. dollars, 7% in local currencies, and 6% organically. Adam will comment on market trends shortly. Orders in the quarter amounted to $3.151 billion, leading to a book-to-bill ratio of 0.96:1. Year-to-date, our book-to-bill remains strong at 1.07:1, and we continue to have a robust order backlog. GAAP and adjusted operating income for the third quarter of 2022 were $681 million and $693 million, respectively, with GAAP and adjusted operating margins at 20.7% and 21%. On a GAAP basis, operating margin increased by 40 basis points compared to the third quarter of 2021 and was flat sequentially, which included $12 million of acquisition-related costs. Adjusted operating margin rose by 70 basis points year-over-year and 30 basis points sequentially, driven by strong operating leverage from significantly higher sales volumes and the benefits of ongoing pricing actions. The increase in operating margin also reflected strong operating leverage from the higher sales volumes. Given the ongoing cost and supply chain challenges, we take pride in our company's operating performance. Our team's ability to navigate these global challenges results from our entrepreneurial culture, fostering a high-performance and action-oriented management team. Breaking down third quarter results by segment relative to the third quarter of 2021, sales in the Harsh Environment Solutions segment reached $794 million, an increase of 12% in U.S. dollars and 14% organically, with a segment operating margin of 26.1%. Sales in the Communications Solutions segment were $1.518 billion, a 19% increase in U.S. dollars and 17% organically, with a segment operating margin of 22.5%. The Interconnect and Sensor Systems segment saw sales of $983 million, up 17% in U.S. dollars and 23% organically, with a segment operating margin of 18.8%. The company's GAAP effective tax rate for the third quarter was 23.1%, while the adjusted effective tax rate was 24.5%, compared to 22.2% and 24.5% in the third quarter of 2021, respectively. GAAP diluted EPS from continuing operations reached a record $0.80 for the third quarter, up 19% from $0.67 in the previous year. Adjusted diluted EPS was also a record $0.80, reflecting a 23% increase compared to $0.65 in the same period in 2021. This is an excellent outcome, especially considering the various challenges we faced during the quarter. Operating cash flow for the third quarter was a record $576 million, or 116% of adjusted net income. After accounting for capital spending, our free cash flow was also a record at $457 million, or 92% of adjusted net income. Due to our continued strong top-line growth, we're pleased to see cash flow yield remain strong in the third quarter. Working capital metrics indicate days sales outstanding and payable days at 71 and 56 days, respectively, both in our normal range. Even with the challenging supply chain environment, our inventory days decreased to 83 days in the third quarter, also within our normal range. We are very pleased with our organization’s effective management of working capital. As noted in today's earnings release, our Board of Directors has approved a 5% increase in the quarterly dividend to $0.21 from the previous $0.20 per share, effective for payments starting in January 2023. During the quarter, we repurchased 2.4 million shares of common stock at an average price of approximately $72. Combined with our regular quarterly dividend, total capital returned to shareholders in the third quarter of 2022 was $289 million. Total debt as of September 30 was $4.8 billion, and net debt stood at $3.5 billion. Total liquidity at the quarter's end was $3.6 billion, which included cash and short-term investments of $1.3 billion and availability under our existing credit facilities. Third quarter 2022 EBITDA was $806 million, and our net leverage ratio at the end of the third quarter of 2022 was 1.1 times. I would also like to address interest expense and currency impacts. Due to the rising interest rate environment, our interest expense has increased, primarily from our floating Greek commercial paper, which totaled $904 million and accounted for about 19% of our total debt at quarter-end. Given the significant rise in interest rates recently, we anticipate fourth quarter interest expense to be around $38 million, which is factored into our fourth quarter guidance. Based on current debt balances and projected rate increases, we expect quarterly interest expenses in 2023 to be about $40 million. Regarding currency, the continued depreciation of the U.S. dollar in the fourth quarter is expected to result in a negative sequential sales impact of approximately one percentage point, and a year-over-year negative impact of five percentage points, assuming current rates. I will now turn the call over to Adam for his insights on current market trends.

Well, thank you very much, Craig, and allow me to extend my welcome to all of you on the phone here today. And I certainly hope that all of you are having an enjoyable fall. Here we are in beautiful Wallingford, Connecticut, with the leaves turning a wonderful autumn hue. I'm going to highlight our third quarter achievements. I'll then spend a little time to discuss the trends and our progress across our served markets. And then finally, I'll comment on our outlook for the fourth quarter and the full year of 2022. And of course, we'll have time for some questions at the end. Turning to the third quarter. Our results in the third quarter were much stronger than expected and exceeded the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew a very strong 17% in U.S. dollars and 21% in local currencies, reaching a new record of just under $3.3 billion. On an organic basis, sales increased by 18%, with broad-based growth across most of our served markets as well as contributions from the company's acquisition program. The company booked orders of $3.151 billion, representing a book-to-bill, as Craig mentioned, of 0.96 to 1. I would say that despite this slightly negative book-to-bill, the company's order backlog remains very robust. We are pleased to deliver strong profitability in the quarter, with adjusted operating margins reaching 21.0%, a 70 basis point increase from prior year and a 30 basis point increase from prior quarter. We achieved these results despite the continued wide range of operational, inflationary, and supply chain challenges around the world. Adjusted diluted EPS grew strongly from prior year, increasing by 23% to a new record of $0.80, and just really an excellent reflection of our organization's continued strong execution here in 2022. Finally, the company generated record operating and free cash flow of $576 million and $457 million, respectively, here in the third quarter. I just want to say how proud I am of our entire organization around the world. Our results this quarter once again reflect the discipline and agility of Amphenol's entrepreneurial team as we continue to perform well amidst what is no doubt a very dynamic and challenging environment. We're also pleased to announce that we closed the acquisition of Integrated Cable Assembly Holdings, or ICA, in September, based in North America and with annual sales of approximately $90 million. ICA manufactures a broad array of cable assemblies for a diversified range of applications, particularly in the industrial market. This acquisition further expands our offering of high-technology value-added interconnect products in the industrial market. As we welcome this outstanding new team to the company, we remain confident that our acquisition program will continue to create great value for Amphenol. In fact, our ability to identify and execute upon acquisitions and successfully bring these new companies into the Amphenol family remains a core competitive advantage for the company. Now turning to the trends and our progress across our served markets. I would just comment that we're very pleased that the company's broad and balanced end market diversification continues to create value for Amphenol. Importantly, and I've mentioned this many times before, our diversification mitigates the impact of the volatility of individual end markets, while also exposing us to leading technologies wherever they may arise across the electronics industry. And these are both very important benefits, in particular, in today's dynamic market environment. I would also just mention that in the third quarter, each of our eight end markets grew organically and some of them in double digits organically. So starting with the military market. That market represented 9% of our sales in the third quarter. Sales in this market grew 1% in U.S. dollars and 3% organically, which was a bit lower than our expectation heading into the quarter. On an organic basis, growth in space-related, ground vehicles, and avionics applications was offset by moderations of sales of products used in communications, rotorcraft and engine applications. Sequentially, sales declined by just about 1%. As we look into the fourth quarter, we expect a high single-digit sequential sales increase in the military market. And for the full year 2022, we now expect a low single-digit increase in sales from last year's levels. We continue to be very pleased with the strength of the company's broad position in the defense electronics market. As militaries around the world increase their adoption of a wide array of next-generation technologies in the face of what is no question an increasingly volatile geopolitical landscape, our team managing our leading range of interconnect and sensor products continues to position the company strongly for the future. The commercial aerospace market represented 2% of our sales in the quarter. Sales grew a very strong 36% versus prior year and 42% organically, driven by broad-based strength across all aircraft applications. Compared to the second quarter, our sales declined just a slight 1%, which was actually better than our expectations coming into the quarter. As we look to the fourth quarter, we expect a modest decline in sales versus the third quarter levels. But for the full year 2022, we expect sales to increase a very strong 30% compared to prior year. Our team is justifiably proud to have now realized four consecutive quarters of strong growth in the commercial air market, a clear sign of their resilience and of the continued recovery in the global air travel industry. Going forward, we look forward to benefiting from the company's strong interconnect and sensor technology positions across a wide array of aircraft platforms and next-generation systems being integrated into those airplanes. The industrial market represented 25% of our sales in the third quarter. Sales increased by 11% in U.S. dollars and 13% organically. Our growth was broad-based across most segments of the worldwide industrial market, including battery and heavy electric vehicles, factory automation, alternative energy, heavy equipment, medical, oil and gas, and building automation. Sequentially, our sales actually increased by 2% from the second quarter, which was a bit better than our expectations coming into the quarter. Looking to the fourth quarter, we expect a modest sequential sales decline. And for the full year 2022, we expect a mid-teens increase in sales from prior year. Our results in the industrial market this quarter confirm once again that our outstanding global team working in this important market continues to find new opportunities for growth across the many segments of the exciting industrial electronics market. I remain 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 well to capitalize on the many technology revolutions happening across the industrial market. To that end, the addition of ICA further strengthens our position across a number of exciting segments within this important end market, and we look forward to realizing the benefits of this strategy for many years to come. The automotive market represented 20% of our sales in the quarter, and sales in the third quarter grew by a very strong 27% in U.S. dollars and 37% organically, driven by broad-based strength across most automotive applications and particularly strong growth once again in sales to electric and hybrid electric vehicle applications. Sequentially, our sales increased by 4% from the second quarter, which was much better than our expectations. For the fourth quarter, we expect sales to remain roughly at these levels. And for the full year 2022, we expect sales to increase by approximately 20% compared to last year, driven by our expanded position in next-generation electronics and electrical systems being integrated into cars. I remain extremely proud of our team working in the automotive market. They continue to manage well through a challenging overall environment, all while remaining focused on driving new design wins with customers, who are implementing a wide array of new technologies into their vehicles. Our continued outperformance is a direct result of their excellent efforts. The mobile devices market represented 12% of our sales in the quarter, and our sales to customers in this market increased by 13% in U.S. dollars and 15% organically. This was driven by strong growth in sales of products incorporated into smartphones, wearables, and laptops. Sequentially, our sales increased by a much stronger-than-expected 43%, driven by higher sales across virtually all product categories that we serve. As we have seen periodically in the past, we do believe that some small portion of this robust demand in the third quarter may have been pulled forward from the fourth quarter. Accordingly, we expect a low double-digit sequential decline in sales from these strong third quarter levels. For the full year, we anticipate sales to grow modestly from our strong 2021. I'm very proud of our team working in the mobile devices market, as they continue to execute strongly in the face of an ever-dynamic demand for our leading array of antennas, interconnect products and mechanisms that are integrated into a wide range of next-generation mobile devices. And no question, this team remains poised as always, to capture any opportunities for incremental sales that may arise here in 2022 or beyond. The mobile networks market represented 5% of our sales in the quarter, and sales increased by a strong 19% versus prior year and 15% organically as growth in our sales to mobile service providers was only partially offset by a moderation of sales to equipment manufacturers. On a sequential basis, our sales increased by 9%, which was better than our expectations. For the fourth quarter, we expect a low double-digit sequential sales reduction after our very strong third quarter. And for the full year 2022, sales are expected to grow in the high single digits. We're encouraged by our strengthening performance in the mobile networks market. As operators continue to ramp up their investments in next-generation systems, our team remains focused on realizing the benefits of our long-term efforts to expand our position in next-generation 5G equipment in networks around the world. The information technology and data communications market represented 22% of our sales in the quarter. Sales in the third quarter rose from prior year by 16% in U.S. dollars and 11% organically. This was driven by increased demand for products in servers and networking applications, and that was only partially offset by some declines in storage-related products. Sequentially, our sales did decline by 3%, albeit better than our expectation coming into the quarter. We believe that this begins to reflect some of the expected inventory corrections that we've discussed in the past by our IT datacom customers. As we look towards the fourth quarter, we expect a low double-digit decline in sales from these third quarter levels as customers continue to moderate their demand and adjust their inventory levels. For the full year 2022, however, we expect very strong high-teens sales growth compared to prior year. We remain encouraged by the company's outstanding position in the global IT datacom market. Our team has done just an outstanding job developing leading high-speed power and fiber optic interconnect products that are enabling our OEM and web service provider customers, who continue to drive their equipment and networks towards ever higher levels of performance. We look forward to realizing the benefits of that leading position in this important market for many years to come. And finally, the broadband market represented 5% of our sales in the third quarter. Sales in this market increased by a very robust 65% in U.S. dollars and 46% organic, as we experienced strong demand from cable operators for a wide range of our products. On a sequential basis, sales increased by 2%, which was better than our expectation coming into the third quarter. Looking towards the fourth quarter, we expect sales to increase moderately from these strong third quarter levels. And for the full year 2022, we expect sales to increase by more than 50% from prior year, and that includes both robust organic growth as well as the benefit of acquisitions. We look forward to continuing to support our broadband service provider customers around the world with our expanded range of high-technology products. These products have become even more critical as our customers increase the bandwidth and capacity of their networks to support the expansion of high-speed data applications to homes and businesses. And this is in certain cases, and furtherance of government-funded programs to expand broadband. Now turning to our outlook. There is no doubt that the current economic environment remains highly uncertain and increasingly dynamic. Assuming market conditions do not meaningfully worsen and also assuming constant exchange rates, for the fourth quarter, we expect sales in the range of $3.09 billion to $3.15 billion, and adjusted diluted earnings per share in the range of $0.73 to $0.75. This would represent sales growth of 2% to 4%, and adjusted diluted EPS growth of 4% to 7% versus the fourth quarter of 2021. Our fourth quarter guidance represents also an expectation for full year sales of $12.474 billion to $12.534 billion and full year adjusted diluted EPS of $2.95 to $2.97. This outlook would represent full year sales and adjusted EPS growth of 15% and 19% to 20%, respectively. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current dynamic environment, and to continue to grow our market position while driving strong profitability. In addition, I just have to say that the entire Amphenol team around the world remains committed to delivering long-term sustainable value. And I would be remiss if I did not take this opportunity here to thank each and every one of our Amphenolian team members around the world for their truly outstanding efforts here in the third quarter. And with that, operator, we'd be very happy to take any questions.

Thank you. Our first question is from Mark Delaney with Goldman Sachs. Please go ahead.

Yes. Thank you very much for taking question. In terms of the comments about a more challenging and dynamic environment that the company is expecting, is that more observing that there's the potential for business conditions to deteriorate given macroeconomic factors or is that consistent with the recent moderation in incoming orders that Amphenol has already seen in the third quarter and perhaps has continued or even accelerated in the fourth quarter to date?

Thanks for the question, Mark. As we've discussed previously, positive book-to-bill ratios don’t always continue to rise indefinitely. Therefore, it wasn't surprising for us to see a slight moderation in our orders this quarter, resulting in a slightly negative book-to-bill. We've managed to build a significant backlog over recent months. However, it's clear that we are experiencing a more complex economic landscape, which can affect the markets we serve. Some of our customers, especially in areas like IT datacom, seem to be adopting a more cautious approach because of their inventory situations. In the industrial sector, we've seen strong performance, yet there are indications of slight hesitance among some customers. While we’re not predicting any specific outcomes, the volatility is evident, particularly in interest rates and currency markets. It’s not our role to forecast recessions; rather, we must always be prepared. As I’ve mentioned before, we operate with a balance of caution and initiative. We are actively meeting our customers' needs, achieving nearly $3.3 billion in sales this quarter. For areas where we've received feedback indicating a potential decrease in demand, our 130 general managers are quickly adjusting their resources to maintain the company's financial health. While we won't speculate on a recession, we will continue to be well-prepared, and I can assure you we are today.

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

Thank you for taking questions. I guess, Adam, I had a sort of a similar question, but more relative to your sort of performance here. When I go back and look at the last four quarters or so, every time you've reported a revenue number, you've guided sequentially the next quarter to be slightly slower, slightly lower in terms of revenue. And nevertheless, you've sort of executed above that number. And particularly through this year, you've continued to sort of ramp revenue sequentially as well. What's changing now when we look into December? We're seeing a similar trend in terms of you trying to probably bake in some of the macro in terms of the guidance for the December quarter, again, being sequentially lower in terms of revenue than September? But what's changing probably relative to the first 3 quarters of the year when we've seen sort of the execution being very different or maybe the industry conservatism that you baked in hasn't really come through? Maybe help me understand that.

Thank you, Samik. We always emerge from the quarter with our best estimate for the coming quarter on behalf of everyone here. It’s a testament to our team that we have exceeded expectations, and we will always strive to do so. However, we shouldn’t assume that Amphenol is inherently conservative and will always outperform. The macro and market landscape is more dynamic now, with increased uncertainty in certain areas. Nevertheless, the ongoing electronics revolution continues to provide us with a solid foundation for our performance. Our technological capabilities have never been broader, and since the start of 2019, we have made 20 acquisitions that have enhanced our company with new capabilities, broadened our reach, and opened access to new customers in various regions. We are well-positioned to capitalize on any potential opportunities, but we acknowledge the current environment is more uncertain than it has been in the past. This is evident from just a glance at the front page of the Wall Street Journal. While we will always aim to exceed our expectations, I cannot guarantee that this quarter will mirror previous ones or that we will outperform by the same margin as last quarter. We will work diligently to achieve that, while also navigating the challenges that may arise.

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

Thank you. So margins have realized a pretty nice sequential improvement both over the last 2 quarters. I know at least part of that is price cost catch-up. What is the expectation on price cost into Q4 and early 2023 to the extent you have visibility on price in the backlog and where inventory costs are running at? And kind of with that, does the guided drop in Q4 operating margins really just reflect the volume deleverage into the fourth quarter? Thank you.

Thank you for the question, Chris. We're genuinely proud of our performance, particularly in the second quarter, but also in the third quarter, where we reached 21%, matching our previous record from the fourth quarter of 2018 despite facing a very different cost environment since then. We've dealt with a pandemic, supply chain challenges, inflation, and energy costs, among other factors. Despite these challenges, we've managed to navigate effectively and take advantage of strong demand, bringing our margins back up to this level, which speaks volumes about our management team. As we wrap up the third quarter, similar to last quarter, we've offset a significant portion of the inflation and supply chain-related cost pressures. Our management team has done an excellent job managing all cost elements while adjusting pricing in line with cost inflation, and when that isn't possible, it necessitates raising prices for customers, which we believe we've handled well. Additionally, I'm proud that our team has maintained our cost structure even amid robust growth, effectively leveraging our operating expenses without simply increasing resources and costs. This positions us strongly, regardless of the demand environment. Looking into the fourth quarter, the expected incremental or decremental changes align with our guidance and fall within the normal range, so there’s no need for concern regarding those decrementals. We continue to anticipate strong profitability based on fourth-quarter revenue levels, as indicated in our guidance. While we do face some pressure from interest expenses in the fourth quarter, we expect our operating margins to remain strong. Although I won't give specific guidance for '23 regarding operating margins, I feel confident about our team's overall performance in achieving more than 25% operating leverage and protecting our bottom line in case demand decreases in certain areas. Overall, I'm satisfied with our profitability and extremely proud of the team's ability to reach these record levels once again.

Thank you. The next question is from David Kelley with Jefferies. You may go ahead.

Hi. This is Gavin Kennedy on for David Kelley. Your growth in the auto end market continues to be robust. Can you tell us how you're thinking about auto demand in the next 12 months? And are you seeing any signs of customers changing their buying habits? And then any insight into the inventory dynamics here would be great. Thank you.

Thank you very much, Gavin. We take great pride in our performance in the automotive sector. Over the past several quarters, we have achieved strong double-digit organic growth in automotive for eight consecutive quarters, which is excellent and clearly indicative of our outperformance. As I mentioned in my prepared remarks, this growth is largely driven by electrification, although it is not limited to that; we are also experiencing robust growth in areas such as passenger connectivity, safety, and new electronic systems in vehicles. This extensive array of content in both current and upcoming vehicle generations has created significant opportunities for Amphenol. This encompasses our interconnect products, sensors, antennas, and the broad range of interconnect solutions we offer. Regarding customer behavior and our outlook for the next 12 months, it’s challenging for me to provide a definitive forecast. I believe others have better insights into the industry outlook and inventory levels at dealerships and throughout the supply chain. For us, what’s more crucial is the increasing content we observe from our customers. While I cannot confirm exact inventory levels with our customers, whether at the end customer, the OEM, or within the supply chain, we have not observed any significant abnormalities. Therefore, order levels remain strong, and our performance continues to be robust, with customers demonstrating high demand for our products, as evidenced in the third quarter and also reflected in our guidance for the fourth quarter, which points to an exceptional year in automotive, building on a strong performance in 2021.

Thank you. The next question is from Amit Daryanani with Evercore. You may go ahead.

Good afternoon. Thank you for taking my question. My question is about the performance from calendar year 2022, specifically the midpoint achieved in December. It looks like you ended up with approximately 15% top line growth organically. I believe one of your peers mentioned that much of this growth was driven by inventory build, which may reverse more noticeably in 2023. While I know you don't track this quantitatively, could you discuss qualitatively how you view the growth you've achieved in 2023? Specifically, how do you see it relating to end market performance and market share gains as opposed to the inventory build that might start to decrease? Have you observed any signs of this? Thank you.

Thank you, Amit. We have discussed inventory in the IT datacom market, which is already having some impact in the third and fourth quarters. Looking at the broader interconnect market, it's evident that we are outperforming, not just compared to GDP or the end market but also against our peers. When considering the issue of inventory, unless we provide our customers with a specific reason to increase their inventory of our products, our outperformance should not be attributed solely to that inventory. I can't speak to the specific inventory levels among our customers, but we do have an understanding of it in distribution, where it's relatively healthy. No significant concerns are being raised about inventory levels in our distribution channel. Our outperformance suggests that unless we were creating issues that prompted customers to build buffer stock, it wouldn’t stem from inventory levels. Over the past four quarters, we have been solving customer problems rather than creating them. Qualitatively, as you suggested, it doesn’t seem likely to me that our outperformance is entirely related to inventory build. While it's possible the overall market is experiencing some inventory build, our performance, with an organic growth expectation of about 15% for the year, compared to peers who are performing at significantly lower levels, indicates that a substantial part of this can be attributed to share gains. This isn’t a scientific conclusion, as I can't provide exact figures, but qualitatively, I believe we've made considerable progress as a company.

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

Hi, good afternoon. I had a question on the auto queue, but I'll save that for off-line. I was wondering if you could talk about the acquisition a little bit more in terms of how it fits in with all the other cable assembly acquisitions you've done. And specifically, this one how you expect to grow it and where the margins are versus where you would like to see them. Thank you.

Thanks so much, Steve. I'm glad you asked about ICA. It's really a great company. And you mentioned all the cables, some of the acquisitions we've done. I mean, if I think back since 2019, we've done 20 acquisitions since that time, about five of those acquisitions were kind of diversified cable assembly acquisitions. I think we've made like three center acquisitions. We've made four fiber optics acquisitions. We've made six acquisitions of just connector companies. We've had one MilAero value-add company, one automotive, and that sort of makes up the 20. And each of those really helps us to broaden our position with customers, expanding our capability and making sure that we can cover every corner of the electronics industry on a worldwide basis. And ICA really goes towards all of those. ICA is a North America-based company, which I think is a very opportune thing right now. They have factories across the U.S. as well as in Mexico, servicing a real diversified range of applications across primarily the industrial market. Everything from electrified industrial vehicles to types of things that are used in factories, factory automation, to instrumentation, and I could go on and on and on because it's a very fragmented and diversified customer base. And what they bring us really is a real local presence close to customers where sometimes value-add interconnect proximity can be a real asset actually. Because if you're in an area where there's a lot of companies building things, designing things, and you can be their sort of neighbor and supporter and partner, that allows you to get in very early in the design cycle. And then if you have the breadth of Amphenol, if you have the access to low-cost manufacturing, low-cost sourcing of Amphenol, all of a sudden, you can turn that early involvement into a perpetuity and a strong long-term partnership. And that's something that we at Amphenol have been very successful in, in the past whenever we bought companies that maybe have a really nice proximity to a certain customer base, but a customer base who themselves is also globalizing. Not to mention the last thing, I'll say about ICA is, it's just great people. I mean, our company is made up of individuals, general managers around the world, who are entrepreneurs. And every time we bring in a company like an ICA, I'm just really amazed by the strength and the character and the entrepreneurship of the individuals that have joined as part of Amphenol. And I think at ICA, that's certainly the case. And we look forward to growing with customers where they're a little stronger than we were, to bring them into new customers, to helping them on connector technology, where we have a lot more to offer to give them a more total solution to customers and on and on. I mean there's so many levers of value that you have in these acquisitions, and we fully intend to take advantage of as many of them as possible with the team at ICA.

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

Yeah. Thanks for taking question. Maybe a bit of a bigger picture structural question. Adam, just wondering, is there anything inherent in the new segment structure of the company that could help with the margin? I'm thinking versus past cycles. If we do, in fact, go into a broader macro downturn, especially anything anecdotally, I think it would be helpful to illustrate the dynamic. I'm thinking enabling shared resources, identifying growth opportunities or things similar to that.

Thank you, Luke. Earlier this year, I discussed the restructuring of our organization into three divisions, which now serve as our reportable segments, each led by a division president. Our focus is on leveraging Amphenol's unique and scalable entrepreneurial culture. Currently, we have 130 general managers globally. In both challenging and favorable times, these general managers do not work in isolation. Each day, they respond to customer feedback and adapt to environmental changes, whether related to the supply chain or technology advancements. Additionally, they collaborate closely with our 12 group general managers, who work alongside the division presidents to foster real-time collaboration, share best practices, and coordinate with customers to provide a comprehensive range of products. This year, instead of having one CEO overseeing operations, we now have three division presidents who can engage more actively. This arrangement allows us to respond more swiftly to market changes and opportunities, and to allocate resources effectively. It also enables us to respond to challenges, as providing support during difficult times requires considerable moral encouragement and communication. The interaction between our divisions today is much richer than when I previously managed only seven groups. One of my key priorities has always been to maintain and scale Amphenol's culture. Being prepared for future downturns is essential, and we aim to maintain our ability to react positively, just as we have in the past. Our track record over the last two decades demonstrates that during tough times, our team members rise to the occasion and deliver exceptional results. Whether during the bursting of the Internet bubble or the global financial crisis, and even during the pandemic, our people's responsiveness has been evident, reflected in our margins. Preserving and scaling this culture is crucial, and I believe our new divisions will continue to support our longstanding reputation.

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

Yeah. Thank you so much. I was wondering, Adam, if you could elaborate maybe a little bit on the pull forward comment you made on mobile devices. You had expected, obviously, to grow sequentially at a much slower rate. You did report very strong sequential growth. Maybe talk about the cadence of orders and why do you think that happened in the quarter? And if I could, if you could just maybe give us some sense of what you're seeing in China since you have such a good view into the region? If you'd characterize it maybe as things being stable or getting worse or getting better, that would be great. Thank you.

Sure. Thank you, Wamsi. I have two related questions to address. Firstly, our mobile devices market has consistently been one of our most unpredictable sectors. Over the past decade, we've experienced at least two fourth quarters where sequential declines reached the mid- to high teens. Therefore, our expectation of a sequential decline in the low double digits this quarter isn't unusual for us, as fourth quarter downturns can occasionally occur. The one consistent trend in mobile devices is that the second half of the year tends to perform significantly better than the first half. Our guidance suggests that we anticipate over a 30% growth in the second half compared to the first half, reflecting a strong and typical contrast between the two halves of 2022. I also noted that we saw strong demand from customers at the end of the quarter in mobile devices. There could be several theories behind this. My theory is that much of our mobile devices are still primarily produced in China, and there were holidays and other events in early October that might have caused customers to prepare in advance for these occasions, potentially leading to increased demand. Regarding China, the situation seems dualistic. On one hand, there's noticeable political tension at the government level, fueled by various U.S. policies and Chinese responses. However, on the ground, things remain stable, with business operating as usual. We've not encountered any surprising disruptions that might have caused concern over the past few years. Our operations are functioning smoothly, and we're progressing well with local customers who require our technologies. Our global operations are managed by local general managers in over 40 countries, which allows us to run these businesses effectively with local support. This local approach is particularly successful in China, where our management team has done an outstanding job ensuring that customers receive support from local teams and engineers, rather than relying on expatriates or American technology. Despite the negative headlines, our teams are performing effectively across China. I understand there might be questions about how COVID-19 is impacting the region as well. I'm quite proud of how our team has handled the zero COVID-19 restrictions throughout this year, especially in Shanghai during the more intense restrictions of the first and second quarters. While some restrictions may still arise occasionally, our team is well-prepared. We maintain a diversified network of facilities across the country to mitigate risks associated with any specific location's shutdown. In summary, the situation in China remains stable, and I hope that global relations improve for everyone's benefit. For Amphenol's future in China, we feel confident and strong.

Thank you. Our next question is from Jim Suva with Citigroup. You may go ahead.

Thank you. I have a question about strategy for either Adam or Craig. With interest rates higher and Craig gave some good details about interest expense that we should model for Q4 and going forward. I didn't know if that included any additional Fed raise next month or not. But the bigger strategy question is, does this make it so your use of capital you are looking to pay down debt a little bit more or higher returns on capital versus how you look at M&A or stock buybacks a little more, you start to balance things a little bit differently with higher interest rates, but just let us know about strategically if it impacts things at all in your decision tree. Thank you.

Thanks, Jim. Yeah, I would say that our overall kind of capital deployment strategy, we certainly have talked about many times in the past. And certainly, over the last number of years, it's been in the lower interest rate environment, but we've had a similar capital deployment strategy over many different interest rate environments over the years. And it really has been consistent, and it's really resulted in what we believe to be a great return of investment to our shareholders. And in the strategy, kind of advise strategy before has been flexible and how it's executed over time depending on the economic and market conditions is in balance in regards to ensuring that we're deploying capital towards our M&A strategy, which really we believe provides the best return in our return of capital to shareholders, and that's both our dividend program and the return of repurchase program. And I would say, given that kind of strong free cash flow generation that we've had over the years that I can say with confidence is that really the rising interest rate environment really won't impact our overall capital deployment strategy. And I would say in any real meaningful way. I mean we continue to look to deploy that half of our free cash flow towards M&A over time, in that other half towards that return of capital to shareholders. And if opportunities that are more significant in acquisitions, we're certainly going to adjust that towards those acquisitions in a fast and flexible manner. And I think that we do generate a lot of free cash flow, and we certainly expect to continue to do so. So I wouldn't say that really the interest rate environment is going to change that. I think debt paydown is certainly something that we would do if some of those other levers just certainly M&A and otherwise, just isn't available to us. And we have been able to kind of maintain and in certain cases, pay down debt over time anyways, even giving all those different actions that we take. So I wouldn't say that the current environment has really changed the way we think about that.

Thank you. Our next question is from Joseph Spak with RBC Capital Markets. You may go ahead.

Thanks so much. Adam, I was wondering if you could comment just broadly given the macro and all this uncertainty, whether you're seeing any widening of the acquisition funnel or maybe any loosening of evaluations as sellers might get more skittish or it doesn't remain to, I guess, the world it was or valuation that was. And if I could sneak in just a quick housekeeping. Would the book-to-bill have still been negative without FX movements?

I believe your question about the acquisition funnel and evaluations is important. I don’t believe that foreign exchange fluctuations would have altered our book-to-bill ratio. Regarding M&A, we have a strong pipeline and have successfully closed 20 deals since early 2019 despite challenging market conditions. The narrative of being part of the Amphenol organization resonates well with companies globally, and we receive positive feedback on that front. While sellers may become more cautious in a shifting market, I would advise against overestimating how macroeconomic factors influence their decision-making. Many sellers focus on specific interest rates and foreign exchange rates rather than overall market trends. Although current conditions can affect margins and the prices others are willing to pay, we maintain a strong financial position, which allows us to navigate these challenges. Typically, macro shifts do not lead to drastic changes in the M&A landscape. Our strong pipeline, excellent track record, and attractive organizational culture position us well for the future. While I can't predict exactly when new opportunities will arise, I’m pleased we completed a deal this quarter and am optimistic about additional ones in the future.

Thank you. Our next question is from William Stein with Truist. You may go ahead.

Thank you for taking my question. Adam, I don't usually ask about the broadband end market, which typically doesn't receive much attention, but the growth has been very strong for some time. Could you comment on the longer-term trends here? We've heard from other component suppliers that this end market looks promising for more than just a couple of quarters. There have been significant spending commitments from cable MSOs and carriers. Are you observing this dynamic, and is it reflected in a substantial backlog, or could that be an overstatement? Thank you.

Thank you for the question. I'm excited to discuss the broadband market. It has always been a key area for Amphenol, even though there have been some tough years due to operators merging and waiting for new technologies. During that time, investment in the broadband market was relatively flat. However, this year we have seen a significant boost in our performance in this area. Currently, our run rate is over 50% higher than it was a year ago. In the past three to four years, broadband had been growing at a stable pace, but now it has reached a much higher level. This increase reflects the enormous growth of data traffic worldwide and the need for operators to support it. Think about how often we use data in our daily lives; it seems like there's rarely a moment that goes by without generating some form of traffic. On a personal note, I want to mention my new baby niece, Chloe, who my brother just had a few days ago. I've been using FaceTime more in the last six days to see her than I ever have before. It’s incredible that I can see a baby born just moments ago through my iPad while being in Connecticut. Although I can't be there in person, I can still experience that moment to some extent, which highlights the growing demand for broadband. Looking to the future, I believe there is positive momentum in spending. Additionally, there's significant government funding at play. The infrastructure bill in the U.S. and similar initiatives in other countries aim to address the lack of broadband access for many, especially those in rural areas. Broadband is a utility and, in many respects, a human right. Governments are recognizing that without providing access to everyone, regardless of their location, they are hindering people's ability to lead full lives. We take pride in our work in the broadband sector and have remained committed even when spending was stagnant. I'm thrilled for our team and proud that they are positioned to support the growth and investments happening with our customers.

Thank you. Our next question is from Joe Giordano with Cowen. You may go ahead.

Thank you again. Good afternoon, everyone. I think we all recognize that Amphenol's strength lies in the balance between different parts of the business. When one sector is performing well, another may be struggling, which helps to stabilize overall performance. If we were to adjust for the size of your respective end markets, could you identify which segments have the most significant impact on your margins? If one area were to decline, which one would you prefer to see remain stable?

Joe, I appreciate your question. I wouldn't point to any specific market that has significantly lower margins. Some markets show lower gross margins, but they also have reduced SG&A, and as we've discussed, the structure can vary based on the market. From an operating margin standpoint, there really isn't much of a notable difference. While we do see some variations in our operations and segments, I wouldn't emphasize those differences from a market perspective. Broadband, for instance, has shifted from being primarily a cable business to encompassing a wider range of activities due to our acquisitions in that area. This diversification has contributed to some of our substantial historical growth, which was previously lower margin. However, I wouldn't specifically highlight this growth as being tied to lower margins. In summary, I don't see any particular markets that stand out in that regard.

And our last question comes from Matt Sheerin with Stifel. You may go ahead.

Thank you. Thanks, Adam and Craig for all the details so far. My final question here is just on the aerospace market, where you've had some nice momentum over the last few quarters, still below where you were pre-pandemic, but it looks like you've got really strong backlog. So could you talk about the momentum you're seeing there, Adam, and the content opportunity going forward?

For sure, Matt, and thanks so much. It's a great last question. Look, I mentioned in my prepared remarks, just how proud I am of our team working in this market. It is not easy. Let me tell you, it is not easy to be servicing a space, an end market and to have that end market drop by as much as it did in the case of broadband. And let alone to do it well, some of your fellow colleagues are in spaces that aren't dropping by that much. So you don't even have the misery less company kind of dynamic. And what is the playbook for Amphenol in times like that. It's not to run and hide, it's not to just cower and sort of drown in sorrows. You take quick action. You make sure that your resources that you have deployed are befitting the demand that you have from your customers. And then you go out and you build new basis of business and you take the opportunity of the crisis. And that's really important that you take the opportunity from that crisis to diversify your business even further, to support the customers who still need you in those difficult times. Because then when it comes back, you have a much broader, more stable, more robust and high potential business to run. And that's what our team, who works in commercial air has done. And so yes, we're not quite back to the kind of pre-pandemic levels, but the world is also not quite back to pre-pandemic levels. I mean certainly, there's more travel and airports are more crowded here. But Craig and I went to Asia recently and I can tell you, there's a lot less flights crossing the Pacific than they ever were before. So the sort of widebody, long-haul kind of part of the business travel that was a real big driver of aircraft demand, that is still yet to be fully recovered. But our team has just done a fabulous job of being there for our customers, making sure that we have the right resources and using the opportunity of the crisis such that when things do normalize and they're on the path to doing that, we'll be in a better position today than we were prior to the crisis. What we also see in aerospace and one of the areas where I'll tell you our team spends quite a bit of time because they had a little bit of extra time given the downturn with the major traditional jetliner manufacturers, is this whole world of kind of new aviation, electrified aviation, different kinds of small startups all over the place doing really innovative and exciting things. And our team is working on just dozens and dozens of programs with countless of these companies, large and small, who are trying to really change the face of aviation in a world where everybody wants to reduce the amount of carbon that's being put in the atmosphere. And we have so much going on around Amphenol that's in support of this decarbonization. And I'll tell you that our team in Comair has really stepped up there and has just a really pervasive presence designing new products that really suit the unique applications of some of these next-generation systems that may eventually make it such that we can get on a plane, and we won't be just belching carbon in the atmosphere as we're moving across the country. And I personally am really hopeful for that for me and for our next generation. And I'm really proud of what the company is doing in that respect.

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

Well, operator, thank you so much. And in particular, thank you to everybody who is on the call here today. Thanks for your great questions. And I wish that everybody enjoys a wonderful fall, and we will be back together with you here in 90 days. And by then, amazingly, it will be 2023. So have a wonderful rest of the year, and we look forward to seeing you all soon. Thanks so much.

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