Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now introduce your conference host, Mr. Craig Lampo, 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 wish everyone a Happy New Year, and welcome you to our fourth quarter of 2023 conference call. Our fourth quarter and full year 2023 results were released this morning. I will provide some financial commentary, and then Adam will give an overview of the business and current trends. Then we will take questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements. So please refer to the relevant disclosures in our press release for further information. The company closed the fourth quarter with sales of $3,327 million and record adjusted diluted EPS of $0.82. Fourth quarter sales were up 3% in U.S. dollars, 2% in local currencies and down 1% organically compared to the fourth quarter of 2022. Sequentially, sales were up 4% in U.S. dollars, 4% in local currencies and 2% organically. Adam will comment further on trends by market in a few minutes. For the full year of 2023, sales were $12.555 billion, down 50 basis points in U.S. dollars, flat in local currencies and down 3% organically compared to 2022. Orders in the quarter were $3.164 billion, up 10% compared to the fourth quarter of 2022 and flat sequentially, resulting in a book-to-bill ratio of 0.95:1. For the full year, orders were $12.267 billion, down 5% compared to 2022, resulting in a book-to-bill of 0.98:1. GAAP operating income and operating margin was $690 million and 20.7%, respectively, in the fourth quarter of 2023, which increased 10 basis points compared to both the fourth quarter of 2022 and the third quarter of 2023. Adjusted operating income was $706 million, which excluded $16 million in acquisition-related costs. Adjusted operating margin was 21.2% during the fourth quarter, a new quarterly record for the company. On an adjusted basis, operating margin increased by 30 basis points compared to the fourth quarter of 2022 and increased by 40 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by strong operating leverage on slightly higher sales levels as well as the benefit of pricing actions. These benefits were partially offset by the dilutive impact of recent acquisitions, most of which are currently operating below the corporate average. For the full year of 2023, GAAP operating income was $2.56 billion, which included $35 million of acquisition-related costs and excluding these costs, adjusted operating income was $2.594 billion. For the full year of 2023, GAAP operating margin was 20.4% and adjusted operating margin was a strong 20.7%, consistent with our previous annual record margins achieved in 2022 and 2018. On a GAAP basis, operating margin decreased 10 basis points compared to 2022. Compared to 2022, the adjusted operating margin was flat, which was primarily driven by strong operational performance as well as the benefit of pricing actions, partially offset by the dilutive impact of acquisitions. This was an impressive margin performance given the slight sales decline we experienced in 2023. Our team continued to execute well in the quarter, and we are proud to have sustained these healthy levels of profitability, despite the continued range of challenges around the world. Breaking down fourth quarter results by segment. Relative to the fourth quarter of 2022, sales in the Harsh Environment Solutions segment were $900 million and increased by 13% in U.S. dollars and 6% organically. Segment operating margin was 26.5%. Sales in the Communications Solutions segment were $1.345 billion and declined by 6% in U.S. dollars and 7% organically. Segment operating margin was 23.1%. Sales in the Interconnect and Sensor Systems segment were $1.082 billion and increased by 7% in U.S. dollars and 2% organically. Segment operating margin was 18.5%. Breaking down full year results by segment relative to 2022, sales in the Harsh Environment Solutions segment were $3.531 billion, an increase of 14% in U.S. dollars and 9% organically, and segment operating margin was 26.7%. Sales in the Communications Solutions segment were $4.913 billion and declined by 13% in U.S. dollars and organically, and segment operating margin was 21.6%. Sales in the Interconnect and Sensor Systems segment were $4.111 billion, an increase of 6% in U.S. dollars and 3% organically, and segment operating margin was 18.3%. The company's GAAP effective tax rate for the fourth quarter was 22%, and the adjusted effective tax rate was 24%, which compared to 19.2% and 24.5% in the fourth quarter of 2022, respectively. And for the full year of 2023, the company's GAAP effective tax rate was 20.7% and the adjusted effective tax rate was 24%, which compared to 22.3% and 24.5% in 2022, respectively. In 2024, we expect our adjusted effective tax rate to be approximately 24%. GAAP diluted EPS was $0.83 in the fourth quarter, up 1% compared to the prior year period, and on an adjusted basis, diluted EPS increased 5% to a record $0.82 compared to $0.78 in the fourth quarter of 2022. This was an excellent result. For the full year, GAAP diluted EPS was a record $3.11, a 2% increase from $3.06 in 2022. And adjusted diluted EPS was a record $3.01 in 2023, an increase from $3 in 2022. Operating cash flow in the fourth quarter was a record $842 million or 162% of adjusted net income. And net of capital spending, our free cash flow was a record $739 million or 142% of adjusted net income. We are pleased to have continued to deliver such a strong cash flow yield in the quarter and for the full year. In the full year, 2023 operating cash flow was a record $2.529 billion or 130% of adjusted net income. Net of capital spending, our free cash flow for 2023 was a record $2.160 billion or 111% of adjusted net income, a very strong result. From a working capital standpoint, inventory days, days sales outstanding and payable days were 85, 70 and 55 days, respectively, all within our normal levels. And during the quarter, the company repurchased 1.3 million shares of common stock at an average price of approximately $86, bringing total repurchases during 2023 to 7.2 million shares or $585 million. When combined with our normal quarterly dividend, total capital returned to shareholders in 2023 was $1.86 billion. Total debt on December 31 was $4.3 billion, and net debt was $2.7 billion. Total liquidity at the end of the quarter was $4.9 billion, which included cash and short-term investments on hand of $1.7 billion, plus availability under our existing credit facilities. Fourth quarter and full year 2023 EBITDA was $830 million and $3.1 billion, respectively. And at the end of the fourth quarter of 2023, our net leverage was 0.9 times. We are very pleased that the company's financial condition remains strong by any measure. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Well, Craig, thank you very much, and I'd like to extend my welcome to everybody on the phone here today. And I hope it's not too late to wish all of you a Happy New Year from Wallingford, Connecticut. As Craig mentioned, I'm going to highlight some of our achievements in the fourth quarter and also for the full year of 2023. I'll then discuss our trends and progress across our served markets. I'll make some comments on our outlook for the first quarter, and then, of course, we'll have time for questions. Our results in the fourth quarter were stronger than expected, exceeding the high end of our guidance in sales and adjusted diluted earnings per share. Sales grew by 3% in U.S. dollars, 2% in local currencies, reaching $3.327 billion. On an organic basis, our sales did decline by just 1%, with growth in commercial air, defense, automotive and IT Datacom markets offset by declines across our other end markets. The company booked $3.164 billion in orders in the fourth quarter. This was a 10% growth versus prior year and flat to last quarter, but did represent a book-to-bill of 0.98:1. We're very pleased to have delivered record adjusted operating margins of 21.2% in the quarter, a clear reflection of our team's outstanding execution and these margins increased 30 basis points from prior year and 40 basis points sequentially. Adjusted diluted EPS reached $0.82 in the quarter, representing a growth of 5% from the prior year. I have to say that we were especially pleased that the company generated record operating and free cash flow of $842 million and $739 million, respectively, in the fourth quarter, both really clear reflections of the quality of the company's earnings. I come out of the fourth quarter extremely proud of the Amphenol team. Our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the challenging and dynamic environment. We're also pleased to have announced this morning that we closed four acquisitions in the quarter, specifically in November and December. Based in Ohio, TPC Wire & Cable is a value-added provider of harsh environment cable and cable assemblies for applications across the industrial market, particularly factory automation and heavy equipment, with annual sales of roughly $110 million. Located in New Hampshire and with annual sales of approximately $90 million, Airmar is a leading provider of sensors for the recreational marine, commercial fishing and industrial markets. LID Technologies, based in Toulouse, France, has annual sales of approximately $40 million and is a high-technology supplier of sensor products to the industrial and automotive markets, focusing on tire pressure monitoring and the telematics associated with that. We also closed on the previously announced acquisition of PCTEL, a leading global provider of antennas for a broad array of markets, particularly in the Internet of Things or industrial IoT market. PCTEL generated approximately $85 million in sales in 2023. As we welcome these outstanding new teams to Amphenol, I remain confident that our acquisition program will continue to create great value for the company. In fact, our acquisition program was very successful in 2023, and our pipeline of prospective deals remains strong as we enter the new year. Indeed, we continue to see interesting near-term potential opportunities to bring outstanding and complementary organizations into the Amphenol family. Our ability to identify and execute upon acquisitions and then to successfully bring these companies into the Amphenol family remains a core competitive advantage for the company. As our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now turning to the full year of 2023, despite the demand challenges that we did experience in certain end markets in the year, I have to say that the Amphenol team delivered another successful year of performance. Amidst significant organic declines in the communications end markets due to inventory builds in 2022 as well as the more recent moderations in demand in the industrial market. Our team was able to deliver overall sales that were only slightly down from the prior year. This was a testament to the breadth and diversification of the company as well as our team's ability to capitalize in real time on opportunities for incremental sales across the entirety of our markets. Our full year 2023 adjusted operating margin of 20.7% was flat with our last year record levels in 2022 despite the organic sales decline. This excellent performance by our team allowed us to deliver adjusted diluted EPS of $3.01, which was just slightly above prior year levels. We also generated record operating and free cash flow of $2.529 billion and $2.160 billion, respectively, both confirmations of the company's superior execution and disciplined working capital management. Our acquisition program, which I just discussed, really created a great value throughout the year with 10 new companies contributing annualized sales of more than $600 million joining Amphenol in 2023. These new acquisitions enhanced our position across a broad array of technologies while bringing outstanding and talented individuals into the Amphenol organization. We're excited that these companies represent expanded platforms for the company's future performance and have deepened our already strong bench of leaders around the world. In addition, in 2023, we bought back over 7 million shares under our share buyback program, and increased our quarterly dividend by 5%, representing a total return of capital to shareholders of nearly $1.1 billion. So while there continues to be a high level of volatility across the overall market environment in 2023, as we enter 2024, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long-term performance. Now turning to the trends and our progress across our served markets. I would just comment that we remain very pleased that the company's end market exposure is still highly diversified, balanced and broad, with no end market representing more than 25% of our sales in 2023. This market diversity helps to insulate us from the effect of any given market volatility, while also exposing us to the exciting revolutions happening across the electronics industry. Turning first to the defense market. Our sales represented 12% of our total in the fourth quarter and 11% for the full year 2023. Fourth quarter sales once again grew strongly from prior year, increasing by 18% in U.S. dollars and 17% in local currency. On an organic basis, sales in the defense market increased by 15%, with broad-based growth across virtually all defense applications, particularly strong in naval, helicopters, communications, and airframe applications. Sequentially, our sales increased by a better-than-expected 4% from the third quarter. For the full year 2023, sales in the defense market grew by 20% in U.S. dollars, in local currency and by 18% organically. This reflected our operational execution, as well as broad strength across most segments of the defense market, specifically related to naval, aircraft engine, helicopter, communications, and space-related applications. Looking ahead, we expect sales in the first quarter to decline in the mid-single digits sequentially, and we remain very encouraged by the company's strengthened position in the defense market, where we continue to offer the industry's widest range of high-technology interconnect products. Amidst today's dynamic geopolitical environment, countries around the world are expanding their investments in both current and next-generation defense technologies, thereby increasing the long-term demand potential for Amphenol. We are well positioned to accelerate our new product development and increase our capacity to support this demand long into the future. The commercial air market represented 3% of our sales in the quarter and 4% of our sales for the full year 2023. In the fourth quarter, our sales grew by a very strong 25% in U.S. dollars and 23% in local currency, and organically, driven by broad-based strength across all aircraft applications. Sequentially, our sales grew by 1% from the third quarter, which was actually ahead of our expectations for a modest seasonal decline. For the full year 2023, sales increased by a very robust 36% in U.S. dollars, local currency and organically, reflecting our strong design-in positions on a broad range of platforms, as well as broad-based demand across all aircraft applications. Looking into the first quarter, we expect sales to remain at these lofty fourth quarter levels. I'm truly proud of our team working in the commercial air market. With the ongoing recovery in travel and thus demand for jetliners, our efforts to strengthen our breadth of high-technology interconnect products, while diversifying our market position into next-generation aircraft are paying real dividends. We continue to see great long-term opportunities for expansion of our technology offering to this important market and look forward to realizing the benefits of those growth initiatives for many years to come. The industrial market represented 23% of our sales in the quarter and 25% of our sales for the full year. Our sales in the fourth quarter did decline by 4% in U.S. dollars, 5% in local currencies and 12% organically, as growth that we realized in oil and gas, rail mass transit, and marine applications was more than offset by moderations in demand in other segments, including battery and electric heavy vehicles, building automation, transportation, and heavy equipment. In addition, our sales into the industrial distribution channel continued to be more muted than they were a year ago. On a sequential basis, sales grew by 1%, but that was driven primarily by acquisitions that we did close in the quarter. For the full year 2023, sales were flat in U.S. dollars in local currency and declined by 7% organically as the contribution from acquisitions was offset by weakness in instrumentation, battery and EV, and electric heavy vehicles, factory automation and heavy equipment applications in particular. Looking into the first quarter, we expect sales to remain at these levels as the benefit of recent acquisitions offset the modest organic sequential decline. Despite this near-term demand pause driven in particular by elevated inventory levels, both in the distribution channel, as well as in certain end markets, I remain proud of our outstanding global team working in the industrial market. We are very excited by the additions of TPC, Airmar, LID, and PCTEL, each of which adds complementary new interconnect sensor and antenna technologies to our industrial product offering. And I'm confident that our long-term strategy to expand our high-technology interconnect antenna sensor offering, both organically and through complementary acquisitions has positioned us to capitalize on the many revolutions that will no doubt continue to occur across the industrial electronics market. The automotive market represented 24% of our sales in the quarter and 23% of our sales for the full year. Sales in the fourth quarter grew by a robust 16% in U.S. dollars and 15% in local currency, and on an organic basis, our sales to the automotive market increased by 12%. That was really driven by broad-based strength across most automotive applications, including electric and hybrid electric vehicles. Sequentially, our automotive sales increased by 8%, which was better than our expectations coming into the quarter. For the full year 2023, I'm pleased that our sales increased by a strong 12% in U.S. dollars, 13% in local currency and 12% organically, and that reflected broad strength across the automotive market, including, in particular, next-generation electronics, for example, electric and hybrid drivetrains. Looking into 2024, we expect a high single-digit sequential seasonal moderation in sales in the first quarter from these levels. I'm truly proud of our team working in the automotive market. Their performance in 2023 is yet another confirmation of the benefits of their focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles. It's really a multitude of applications, including electrified drivetrains, but not just that, many other applications. We look forward to benefiting from that strong position for many years to come. The mobile devices market represented 11% of our sales in the quarter and 10% of our sales for the full year 2023. Our fourth quarter sales moderated by 3% in U.S. dollars, local currency and organic as robust growth in smartphones was once again more than offset by declining sales into tablets, laptops and wearables. Sequentially, our sales increased by 9%, which was much better than our expectation coming into the quarter for a high single-digit decline. For the full year 2023, sales in the mobile devices market declined by 12% in U.S. dollars and 10% organically as strong growth in smartphones was more than offset by declines in other mobile device applications. Looking into the first quarter, we do anticipate a typical seasonal sequential decline of approximately 35%. While mobile devices will always remain one of our most volatile markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2024 and beyond. Our leading array of antennas, interconnect products, and mechanisms continues to enable a broad range of next-generation mobile devices, which positions us well for the long term. The mobile networks market represented 3% of our sales in the quarter and 4% of our sales for the full year. Sales in this market declined from prior year by 26% in U.S. dollars, 27% in local currency and 34% organically, as we continue to manage through a broad-based reduction in spending by network operators and wireless equipment manufacturers. Sequentially, our sales decreased by 6%, which was in line with our expectations. For the full year, sales declined by 26% from the prior year and 32% organically, driven by the spending reductions that we've discussed throughout the year. Looking ahead, we expect a modest increase in sales from these fourth quarter levels. And despite this more challenging short-term wireless investment environment, our team continues to work aggressively to realize the benefits of our efforts, to expand our position in next-generation 5G equipment and networks around the world. When customers once again drive renewed wireless investments, we look forward to benefiting from the increased potential that comes from our position with both equipment manufacturers and mobile service providers. The information technology and data communications market represented 20% of our sales in the quarter and 19% of our sales for the full year. We're very pleased that our sales in the fourth quarter returned to growth compared to the prior year, with sales in U.S. dollars and local currency increasing by 6% and organically by 5%. Sequentially, our sales increased by a much better-than-expected 6%. As we continue to benefit from our strong presence with AI data center customers as well as some overall improved demand. For the full year 2023, our sales in the IT Datacom market declined 13% in U.S. dollars and organically as strong demand for AI-related applications was more than offset by inventory adjustments that we saw amongst our traditional IT Datacom applications. Looking ahead, we do expect in the first quarter a mid single-digit sequential seasonal decline in sales. I have to say coming out of what was a challenging year in the overall IT Datacom market that we're more encouraged than ever by the company's position in this space. Our team continues to do an outstanding job securing future business on next-generation IT systems, particularly those enabling artificial intelligence. Indeed, the revolution in AI has created a unique opportunity for Amphenol given our leading high-speed power and fiber optic interconnect products. With machine learning driving a more intensive usage of these highest technology interconnect products, we are very well positioned for the future. This creates a continued long-term growth opportunity for Amphenol. The broadband communications market represented 4% of our sales in the quarter and 4% for the year. Sales in the fourth quarter were down by 31% in U.S. dollars and 32% organically, as broadband operators continued to moderate their procurement levels. On a sequential basis, sales did decline by 12%, which was worse than our expectations coming into the quarter when we anticipated more of a modest increase. For the full year 2023, sales were down by 7% in U.S. dollars and organically, driven by the continued pause in broadband operator spending. Looking ahead, we expect sales in the first quarter to increase modestly from these levels. Regardless of the current demand dynamics, we do remain encouraged by the company's strengthened position in the broadband market. We look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high-speed data applications to homes and businesses. And finally, turning to our outlook. There's no doubt that the current economic environment remains somewhat uncertain. Assuming the continuation of these current market conditions and constant exchange rates, for the first quarter, we expect sales in the range of $3.4 billion to $3.1 billion and adjusted diluted EPS in the range of $0.71 to $0.73. This would represent sales growth of 2% to 4% and adjusted diluted EPS growth of 3% to 6% compared to the first quarter of 2023. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow Amphenol's market position while driving sustainable and strong profitability over the long term. And finally, I just want to take this opportunity to thank our entire global team around the world, including all of those who work across our factories, touch our products, and ultimately deliver to our customers what they need. I'm just truly grateful for all of their outstanding efforts both here in the fourth quarter, and moreover, for the entirety of 2023. Without them, we wouldn't be able to make it happen like we do. And with that, operator, we'd be very happy to take any questions.

The first call is to Amit Daryanani with Evercore. You may go ahead.

Thanks. Good afternoon everyone. One question I have is, can you sense the weakness in the industrial market that you mentioned, particularly regarding inventory issues? I'm curious if the situation is stable or if it seems to be deteriorating as we approach 2024. Also, feel free to address any technical issues.

Yes, Amit, I didn't perfectly hear the second part of your question. There's a little bit of a connection issue. But I think relative to your question, which was, is industrial stable versus 90 days ago? I mean, look, I think we came into the quarter with an expectation of kind of a modest reduction in sales, our sales were essentially in line with that. So I think it was kind of what we expected it to be. I would say that the book-to-bill in industrial was a bit weaker. I mean, if we think about why our book-to-bill was 0.95:1. I mean, the real driver for that was industrial on one side. And we did see in the IT Datacom market a little bit of a softer book-to-bill. But that that is really just a little bit more of an equalization from very high book-to-bill that we've seen over the prior couple of quarters. So I don't think the IT Datacom book-to-bill is at all representative of the demand environment. But I think in the industrial market, we did see bookings a little softer than we had anticipated. I'm going to assume that your second question is how do we see that going forward? And where do we see that kind of cycle in industrial. And I think it's early to tell. I mean, the beauty of our industrial business is it's so broad. And so we're not levered onto one or another of the individual segments. And you know there are so many segments across the industrial market that we participate in. And we don't have any of those that are really disproportionate to our overall business. And we continue to see some of those segments, areas like marine and oil and gas, rail mass transit, medical during the course of this year. They still had very robust demand. But no doubt about it, areas like factory automation, instrumentation, those are areas where we've seen more market reductions in demand and also more impact from the distribution channel. When is that going to be worked out in the distribution channel, the inventory, when does some of that demand return in some of those segments. I think it's a little too early to tell. And as we go through the course of this year, we'll try to give you a really good read on that. I mean as we look into here now in the first quarter, as I said in my prepared remarks, we do anticipate in the first quarter, a kind of modest level, but really supported by the acquisitions that we've made. And on an organic basis, we see the first quarter, again, modestly down from our current levels.

Next question comes from Asiya Merchant from Citigroup. You may go ahead.

Great. Hopefully, you can hear me clearly, and I don't have an echo, I will try. On IT Datacom market, if you guys can share some insight? Looks like this market is ramping up quite nicely for you guys. If you could elaborate a little bit on how you think about your wins in the AI segment and how you're able to ramp that into revenues going forward, especially given constraints on supply on the GPU side, how do you guys think you can ramp for AI for the remainder of the year? Thank you.

Thank you very much for joining our call. I’m looking forward to meeting you in person. We’re excited about the advancements the company has made in AI. I want to emphasize that AI is not new for us. While the world has started to recognize AI more recently, especially since the emergence of ChatGPT and the generative AI trend, our team has been working on AI-related interconnect architecture for a long time. Now, there is a noticeable surge in AI interest, often described as a gold rush, but we've been developing the capabilities, products, and manufacturing capacity to support this for quite some time. This year, we have been able to capture a significant portion of the urgent demand because we quickly adjusted our capacity to meet our customers' needs. Our team has always demonstrated agility in responding to increased demand, and we’ve shown that same capability with AI. I’m very proud of what our team has accomplished. Looking ahead, it’s still too early to predict the long-term landscape, but it’s clear that AI represents a significant opportunity. Large companies are making substantial investments in AI, and our interconnect architecture is a vital element alongside the chips you mentioned. Regarding chip shortages, we hope to see more investments in chip manufacturing. In our industrial sector, we provide many interconnect products that support semiconductor manufacturing. Currently, we don't see chip supply issues impacting our production or our customers’ demand. However, if customers face chip shortages, it could affect their overall operations, but we haven't experienced that yet. Our team is doing an excellent job managing the increased demand this year, even while overall IT demand was down. It's worth noting that we had to address some entirely new products, so it wasn’t just about reallocating existing capacity from lower-demand IT products. We successfully executed on these new initiatives.

Our next caller comes from Luke Junk with Baird. You may go ahead.

Great. Thanks for taking the question. Adam, just hoping you could comment on pricing dynamics into 2024, especially in which parts of the portfolio might look at as more normal with respect to price downs this year versus areas of the business that could be a laggard in that respect? And then the related question would just be, how you're feeling about delivering productivity of your supply chain and your operations to offset any price downs you might face this year. Thanks, Adam.

Hi Luke, it's Craig. I'll respond to that for Adam. As we look at pricing for 2023, we acknowledged that it was returning to normal levels. In 2022, we made several pricing adjustments to align with inflation-related cost increases. Entering 2023, we performed well in terms of profitability, but this was largely due to operational execution rather than pricing changes. The pricing landscape in 2023 and looking ahead to 2024 appears more normalized, with a better balance between price and costs. While costs remain elevated, they are not rising as rapidly as they did last year. Therefore, the pricing environment seems to have stabilized. As we approach 2024, I do not anticipate significant price benefits, as typically, a normal pricing and cost environment yields standard margins and margin growth. We aim for a typical target of 25% in a standard environment, and I expect that will hold as we transition into 2024. I am pleased with our record operating levels at the end of the year, positioning us favorably as we enter 2024. Our margin improvements are commendable, and I’m proud of the team's strong execution throughout the year, which has led to these profitability levels. I expect the overall environment to remain consistent as we move into 2024, and I trust the team will continue to perform at a high level.

Next question comes from Wamsi Mohan from Bank of America. You may go ahead.

Yes. Thank you. Adam, you called out the weakness in 2023 in the communication-related markets, but you did exceed your expectations in the fourth quarter. Do you see a greater than normal organic growth rate over the next two years in these markets given the historically easier compares here? And if you could also just talk about the environment in China, that would be really helpful? Thank you.

Thank you, Wamsi. It’s challenging to predict the next two years in the volatile communications space. Overall growth in communications is hard to estimate, but we see strong opportunities in various segments, including IT Datacom, mobile networks, mobile devices, and broadband, each with its own dynamics. Specifically for IT Datacom, which is the largest segment of our communications business, I believe we are in the early stages of AI investments. There will be significant developments related to new economic models around AI, and the investments tied to those are already being discussed widely. Many stakeholders are talking about major investments in next-generation systems, and interconnect products will play a crucial role in that. I expect to see great opportunities in AI within IT Datacom over the next couple of years. However, I can't provide accurate forecasts for IT Datacom over that period or even short-term guidance for mobile devices. Currently, the wireless market is in a typical investment cycle where service providers analyze new standards, assess customer adoption, and gauge willingness to invest more for better functionality. This investment phase is currently slow, and I cannot predict when it will pick up again. However, I can confidently say that more investments in 5G and eventually 6G will be necessary, as the majority of internet users connect wirelessly while on the move. The network must keep pace with the increasing data traffic. Regarding broadband, there’s significant momentum in countries like ours to ensure adequate capacity and coverage because broadband access is now considered essential, not just a luxury. This creates long-term opportunities in the sector. In terms of China, I’m encouraged by the shift towards a more moderate phase in U.S.-China geopolitics, leading to more dialogue rather than conflict, which benefits the global landscape. Although I’m not an expert on the Chinese macro environment, I can say that we are seeing great opportunities in the electronics sectors we support in China, such as automotive and industrial markets. Our team is excelling in seizing these domestic opportunities. We feel confident about our position as a global company that also operates locally in that environment, which gives us a significant advantage during these uncertain times.

And our next caller is Samik Chatterjee with JPMorgan. You may go ahead.

Hi. Happy New Year, and thanks for taking my question. I guess, Adam, I wanted to see if you can share your thoughts around organic growth opportunities for the company in 2024 related to inorganic growth. You have a strong pipeline of revenue from the acquisitions you've closed that you're onboarding. Maybe share your thoughts about how you think about the rest of the business growing, whether they are more positive related to negatives in 2024. And what is the average sort of growth average expected of the acquisitions that you closed more recently for 2024? Thank you.

Yes. Thank you very much. Again, there seems to be a little bit of a cut-out of the sound there. But I think your question is, how do I see the organic growth prospects as opposed to just the acquisitions? And I think we feel good about the organic prospects of the company, given all that I talked about each of our individual markets, and I'm not going to go through each of them once again. But I will just tell you that the investments we've made in next-generation technologies, the work we've done to support customers when they need us the most over the last two, three, four years has positioned us very, very strongly organically to have a strong, robust performance in the years to come. The other thing I would say as well is we think about acquisitions and obviously, in the first year that you own a company that's considered acquired growth. But we're focused much more on what happens thereafter. And are we acquiring companies that become platforms of future organic growth for the company. And I would tell you, all these 10 companies that we acquired this year, the nearly 30 companies that we've acquired since 2019 to me, these companies all represent expanded platforms for future organic growth for the company which makes me feel confident that over time, we will have, subject to all of the market dynamics that for sure we are not immune to, that the company is positioned to have really great organic growth potential.

And our next caller is Andrew Buscaglia with BNP. You may go ahead.

Hi, I wanted to ask about IT Datacom and its relationship with AI. In the past couple of quarters, you've mentioned improvements attributed to AI. Would you say the same occurred in Q4? Given that and your guidance, can we assume that the AI aspect of this business is continuing to accelerate sequentially?

Thank you very much, Andrew. Yes, I think what I said in my remarks is that we saw growth in AI, and we saw also growth in the underlying business. So I think over the last couple of quarters, I've described that our upside, all of our sequential growth really did come from AI. I think that this quarter, it's some of each, which is actually really encouraging for us that we've seen maybe what one could call a bottoming of the underlying IT demand. Are we continuing to make progress in AI? Do we see continued acceleration opportunities? Yes, I wouldn't say that every quarter, it's going to accelerate in lockstep like it did over the course of Q2 and Q3 but for sure, we see opportunities long-term to be generating sales related to AI that are greater than we are today.

And our next caller is Mark Delaney with Goldman Sachs. You may go ahead.

Yes. Good afternoon. Thanks very much for taking my question and Happy New Year to all of you as well. Automotive has been a fast-growing market for the company. However, several auto OEMs have been seen EV sales and they said they're going to rethink how fast they want to shift their production towards EVs. I'm hoping to better understand if you think that will create any meaningful near to intermediate-term challenges for Amphenol that could limit the company's growth of market or perhaps lead to some inventory destocking? Thanks.

Well, thank you very much, Mark, and Happy New Year to you as well. Look, we read all the same papers, and we hear about the sort of discussions about slowdowns in EV sales. And I think we shouldn't forget that this is a fairly western dynamic. I don't think we hear, for example, in Asia, and specifically in the largest car market in the world, China, about folks turning their back on EVs and going back to internal combustion engines. But we do hear a little bit about that, I think, here and in Europe. And as I've described, we don't care if a car has an EV drivetrain or not. What we care about is does a car have a lot of electronics in it and new electronic systems. Among those systems are certainly electrified drivetrains or hybrid electric drivetrains. And I think what we've seen in Asia, what we've seen in Europe, and what we've seen in North America is that there is a real acceleration of the adoption of electronics in cars period. Some of that may actually be related to the fact that EVs tend to be a little fancier electronically. Car companies are seeing that and upgrading their standard companies to incorporate more electronic functionality. Whenever you have electronic functionality in a car, regardless of the drivetrain, you're going to have new interconnect solutions. You're going to have new sensor solutions. You're going to have new antenna solutions. And those are the three areas of our participation in the automotive market. For sure, if I go to like the largest EV market, China, for example, I mean, there continues to be unabated a real adoption. And I would almost say that EVs in that market have reached what is kind of an escape velocity, when they're just really normal. I mean you see them all over the place. And I think our team there just did a fabulous job of getting a breadth of penetration across both domestic and international EV manufacturers, whereby we really are able to enjoy the benefits of that. And I think in Europe and in North America, we've done a great job, but we've also done a really great job of capitalizing upon some of these new electronics. And so, I wouldn't put any dynamic here in the category of something that we view as a real near or medium-term challenge. Quite the contrary, as car companies struggle to figure out how they can sell their products and make more money from doing it, they're always going to fall back on electronics as the way to do that. And that's a good thing for Amphenol.

Our next caller is William Stein with Truist Securities. You may go ahead.

Great. Thanks. Adam, I'm hoping you can comment on the aperture for M&A and products within it. I think historically, you've talked about not wanting to acquire system-level solutions. And I think at least one of the acquisitions you've done recently has such products. I wonder if that could potentially be something you'll grow into and expand or if we should see you perhaps shy away from that business going forward? Thank you.

Thank you for the question. What you're referring to is PCTEL, which has a small test and measurement business with great people and products, but that wasn't the primary reason for our acquisition. As you know, we've acquired companies in the past that weren't exactly what we initially sought. We prioritize not entering into competitive situations with our customers. PCTEL is renowned for its exceptional antenna technologies. While I have no negative comments about their test and measurement team, our strategy isn't focused on system-level products. Regarding M&A, we see fantastic opportunities, as I've mentioned earlier. We have shown our ability to acquire companies of various sizes and manage those acquisitions effectively. Our small headquarters team has been a bit busier than usual with these ten acquisitions, but our organizational structure, which includes 14 groups across three global divisions, ensures that these acquisitions receive proper attention as they integrate into Amphenol. Our near-term pipeline looks very promising, and we are eager to capitalize on it. We will continue being disciplined buyers, as we have always been. I am prepared to walk away if we come across something that doesn't meet our standards. We'll pay a fair price for outstanding companies. While we may not always be the highest bidder, we often emerge as the best buyer due to our effectiveness and proactive approach to closing deals. Our structure allows new acquisitions to integrate smoothly into Amphenol, enabling them to operate as they normally would from day one. This low-risk acquisition strategy prevents us from disrupting what is working well. We look forward to making additional beneficial acquisitions in the future, but we will not position ourselves as a system-level company. We understand our identity as an interconnect company. There are numerous opportunities for expanding interconnect products organically and through acquisitions, and we will continue to align ourselves with companies that pass our rigorous evaluation process, ensuring we are well-positioned to proceed with those opportunities in the near, medium, and long term.

And our last question comes from Chris Snyder with UBS. You may go ahead.

Thank you. I wanted to follow up on some of the earlier conversation on AI. So it sounds like book-to-bill for AI moderated sequentially, maybe after some early outsized orders just given the company's foundation in that market. So I guess the question is, do you think that this moderation is a single quarter phenomenon? Or would you expect that to persist for multiple quarters? Because it does seem like the top line is still continuing to grow sequentially? Thank you.

Thank you very much, Chris. Usually, I don’t discuss book-to-bill by submarkets, but I can say we had strong bookings in AI-related applications in Q2 and Q3. Therefore, it's not surprising that in Q4, our IT Datacom book-to-bill was slightly below one due to those significant orders from customers who need the product, and we are currently fulfilling those orders. I believe our IT Datacom business is well-positioned for the future. Our guidance for the first quarter indicates a slight moderation, which is typical for this time of year. Additionally, I think the inclusion of AI is beneficial. Overall, I believe you've captured the situation accurately.

Our next call is Joseph Giordano with TD Cowen. You may go ahead.

Hi, guys. This is Michael on for Joe. So earlier, you had mentioned commentary regarding orders and specific markets. Can you just provide a high level, maybe book-to-bill on a consolidated basis for the quarter? Or any color there?

About earlier that our book-to-bill was 0.95:1 for the quarter.

Operator do we have another question. Our next caller is Steven Fox with Fox Advisors. You may go ahead.

Hi, good afternoon. Broadly speaking, the recent acquisitions focused on sensors, antennas, and assemblies. I was wondering, Adam, for your updated perspective on your M&A strategy by technology, particularly regarding the gross margins now at the 33% level. Some of these products have lower gross margins while others have higher. I'm curious if there's a mix that might be affecting the gross margin with the M&A. Overall, what are your thoughts on the technology areas you've targeted and where you plan to focus moving forward? Thanks.

Thanks, Steve. In the quarter, we acquired companies that produce sensors, antennas, cables, and high-technology cable with significant value for customers. We continue to see opportunities for acquisitions across all our interconnect products, including discrete connectors, value-add cable assemblies, complex interconnect products, sensors, and intricate sensor interconnect assemblies, among others. We are pleased to find companies in all these areas. We don't focus heavily on gross margin by product; instead, we focus on operating margins. Some of these companies do operate below our corporate average, but that isn't true for all. We don’t see a connection between the type of product, whether it’s a connector, sensor, antenna, or cable, and their profit potential. We actually see strong profit potential for all companies, which is part of our acquisition criteria. We won't acquire a company unless we believe it has long-term potential to improve profitability to meet or exceed our corporate average. While we do have industry-leading margins, most of the companies we acquire tend to have lower margins, and part of their integration into the Amphenol family involves improving those margins over time. However, this is not related to the type of products they offer.

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

Yes. Thank you. Good afternoon. Adam, in your commentary on mobile devices, you mentioned that tablets and notebook PCs continue to be weak. But we are hearing some chatter about expectations for a potential refresh PC refresh cycle playing out in the next year or two. So wondering if you have any visibility into that? And can you give us a sense of the content opportunity for Amphenol within notebooks, particularly in the next-generation so-called AI-enabled PCs?

Great. Thanks so much, Matt. I hope what you mentioned develops as expected. We certainly anticipate a refresh. We've discussed this year, and even last year, how the strength in phones this year has been more than countered, particularly by laptops and tablets. This is primarily due to the significant surge in device purchases during the pandemic when many transitioned to remote work and learning, disrupting the usual replacement cycle. Given that many bought devices in 2020 and 2021, and considering their typical lifespan of three to five years, one would hope to see some refreshes soon. I can't confirm that, but I'm sure you have insights from more knowledgeable sources. Regarding content, we do see substantial opportunities as devices become more complex, support a wider range of wireless standards, achieve higher speeds, and require more precision. These elements all create long-term prospects for Amphenol. We have always noted that in the mobile device market, including tablets and laptops, a premium on hardware could lead to opportunities for us over time. I can't directly link this to AI, but it's clear that people will need new devices going forward, and we are ready to support the interconnect products in those devices. If that was our last question, I'd like to thank everyone for your time today. I wish you all a pleasant continuation of winter wherever you are, and we look forward to speaking with you again in 90 days. Thank you.

Thanks, everybody.

And this concludes today's conference. Thank you for participating. You may disconnect at this time, and have a great rest of your day.