Earnings Call Transcript - APH Q1 2022

Operator, Operator

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Craig Lampo, CFO

Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our first quarter 2022 conference call. Our first quarter results were released this morning. I will provide some financial commentary and then Adam will give an overview of the business and current strategies, 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. In addition, as previously announced, effective January 1, 2022, we aligned our businesses into three new reportable segments. Effective for the first quarter of 2022, we are reporting results for these new segments as well as the relevant comparable historical financial data. The company closed the first quarter with sales of $2.95 billion and GAAP and adjusted diluted EPS of $0.68 and $0.67, respectively. First quarter sales were up 24% in US dollars, 25% in local currencies and 17% organically compared to the first quarter of 2021. The significant sales increase was driven by double-digit organic growth in the IT data communications, commercial air, industrial, automotive and broadband markets as well as contributions from the company's acquisition program. Sequentially, sales were down by just 2% in US dollars and in local currencies and down 4% organically. Orders for the quarter were a record $3.441 billion, which is up 26% compared to the first quarter of 2021 and up 5% sequentially, resulting in a strong book-to-bill ratio of 1.17:1. GAAP and adjusted operating income was $590 million in the first quarter and operating margin was a strong 20% in the first quarter of 2022, which increased by 40 basis points compared to the prior year quarter. Sequentially, adjusted operating margins declined by only 10 basis points, which is significantly better than we typically see in the first quarter. The year-over-year increase in operating margin was primarily driven by normal operating leverage on higher sales volumes as well as the benefit of ongoing pricing actions. These benefits were partially offset by the impact of the more challenging commodity and supply chain environment, together with the slight margin dilution of acquisitions completed over the past year. On a sequential basis, the slight decrease in adjusted operating margin reflected normal conversion on the lower sales volumes, slightly offset by the benefit of ongoing pricing actions, which became effective in the quarter. Given the dynamic overall cost and supply chain environment, we are very proud of the company's operating performance. Our team's ability to effectively manage through the myriad of challenges around the world is a direct result of the strength of the company's entrepreneurial culture, which continues to foster a high-performance, action-oriented management team. GAAP diluted EPS was $0.68 in the first quarter, an increase of 28% compared to $0.53 in the prior year period, and adjusted diluted EPS was $0.67, an increase of 29% compared to the $0.52 in the first quarter of 2021. This was an excellent result, especially considering the significant cost, supply chain and other operational challenges the company continued to face during the quarter. The company's GAAP effective tax rate for the first quarter was 23.8% and the adjusted effective tax rate was 24.5%, which compared to 23.9% and 24.5% in the first quarter of 2021, respectively. Bringing down first quarter results into our three new segments. Relative to the first quarter of 2021, sales in the Harsh Environment Solutions segment were $728 million and increased 16% in US dollars and organically. Operating margin in the quarter for the segment was 25.2%. Sales in the Communications Solutions segment were $1.320 billion and increased 28% in US dollars and 21% organically. Operating margin in the quarter for the segment was 21.4%. Sales in the Interconnect & Sensor Systems segment were $904 million and increased 25% in US dollars and 13% organically, and operating margin in the quarter for the segment was 17.7%. Operating cash flow in the first quarter was $351 million or 83% of adjusted net income. Net of capital spending, our free cash flow was $274 million or 65% of adjusted net income. Cash flow in the quarter was a bit lower than we would normally expect even in a typically weaker first quarter, primarily due to a higher than normal increase in inventory levels, driven by the continued challenging supply chain environment. From a working capital standpoint, days sales outstanding and payable days were 74 and 57 days, respectively, both within a normal range. Inventory days were 88, which are slightly elevated due to the normal Q1 seasonality as well as the challenging supply chain reasons just mentioned. Our management teams are focused on reducing these inventory levels, although given the challenging environment, this may take a couple of quarters. During the quarter, the company repurchased 2.6 million shares of common stock at an average price of $78. When combined with our normal quarterly dividend, total capital returned to shareholders in the first quarter of 2022 was more than $320 million. Total debt at March 31 was $4.9 billion and net debt was $3.6 billion. Total liquidity at the end of the quarter was $2.9 billion, which included cash and short-term investments on hand of $1.3 billion plus availability under existing credit facilities. First quarter 2022 GAAP EBITDA was $699 million. At the end of the first quarter of 2022, our net leverage ratio was 1.3 times. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Adam Norwitt, CEO

Well, thank you very much, Craig, and it's my pleasure also to welcome everybody here for our first quarter earnings call. First and foremost, I hope that everybody here today, together with your family, friends, and colleagues, are managing to stay safe and healthy as the world comes to some degree of normalcy. Again, I also wanted to just offer our thoughts to the people of Ukraine, who are obviously going through this very difficult time period with the unfortunate war. While we don't have operations in Ukraine, we do have many employees of Ukrainian descent, and our hearts are clearly with them together with their families and friends. As Craig mentioned, we wanted to highlight or I'm going to highlight some of our first quarter achievements. I'll then spend a few moments to discuss our trends and our progress across our served markets. Finally, I'm going to comment on our outlook for the second quarter. Of course, we'll then have time for questions at the end. As Craig mentioned, we drove results in the first quarter that were substantially beyond our original expectations, exceeding the high end of our guidance in sales as well as adjusted diluted earnings per share. Sales grew a very strong 24% in US dollars and 25% in local currencies, reaching $2.952 billion. On an organic basis, our sales increased by 17% with growth across nearly all of our end markets, driven particularly by double-digit growth in the IT datacom, commercial air, industrial, automotive, and broadband markets, and I'll talk about each of those in a few moments. The company booked a record $3.441 billion in orders in the first quarter; this represented another very strong book-to-bill this time 1.17:1. Despite continuing to face substantial inflationary pressures and supply chain disruptions, our operating margins reached 20.0% in the quarter, which was a 40 basis point increase from last year's levels. We're very encouraged by the strong profitability performance for the company, and we see that as a clear sign that our local management teams are successfully managing through this challenging cost environment. Diluted EPS for the quarter grew a robust 29% from the prior year to $0.67, again an excellent reflection of our continued strong execution. The company also generated strong operating and free cash flow in the quarter of $351 million and $274 million, and that's despite all of the challenges that Craig alluded to. Another clear reflection of the high quality of the company's earnings. I'm just very proud of our team this quarter. These results once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well in a very dynamic and challenging environment. Now turning to our end markets. I would just comment that we continue to be very pleased that our end market exposure remains highly diversified, balanced and broad. In particular, amidst these very dynamic times, this market diversification continues to create great value for Amphenol. Starting with our military market represented 10% of our sales in the quarter. Sales grew by 7% from the prior year and were up 1% organically with growth in space and avionics applications somewhat offset by moderations in our sales on UAVs, naval and military vehicles. Sequentially, our sales decreased by 2%, which was just a hair below our expectations coming into the quarter. Looking now into the second quarter, we expect sales in the defense market to increase modestly from these first quarter levels. We continue to be very pleased with the strength of the company's position in the defense market, a market that has renewed importance given the current geopolitical environment. As militaries around the world continue to accelerate their adoption of next-generation technologies, our industry-leading breadth of high technology interconnect and sensor products positions the company strongly across essentially all major military programs. This gives us great confidence in our long-term performance. The commercial air market represented 3% of our sales in the quarter. Sales in commercial air increased by a strong 42% from the prior year and 28% organically as we benefited from the continued recovery in global aircraft production. Sequentially, our sales grew by a better-than-expected 8% from the fourth quarter. As we look into the second quarter, while we do expect a sequential moderation of sales compared to these first quarter levels, we anticipate another quarter of year-over-year growth in commercial air. After two very challenging years in the air travel industry, we're encouraged by the strengthening of our ComAir business. As personal and business travel continues to recover, we look forward to benefiting from the company's strong interconnect and sensor technology position across a wide array of aircraft platforms, as well as the next-generation systems that are integrated into those planes. The industrial market represented 25% of our sales in the quarter, and we drove another quarter of excellent performance in the industrial market. Sales grew 31% in US dollars and 20% organically, driven by robust growth across most of the segments within the industrial market. We did see particular strength in battery and electric heavy vehicle applications, factory automation and oil and gas, as well as the benefits of several of the acquisitions that we've done over the last year. On a sequential basis, sales were down just 1% from the fourth quarter, which was better than our expectations coming into this quarter. Looking into the second quarter, we expect sales in the industrial market to increase moderately from current levels. This first quarter confirmed once again that our outstanding global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting 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 revolutions happening across the industrial electronics market. 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 grew by 17% in US dollars and organically with our growth driven once again by the strength of our sales into electric and hybrid electric vehicle applications. Sequentially, sales increased by 5% from the fourth quarter, which is actually much better than our expectations of a high single-digit decline. This just reflected strong execution by our team working in the automotive market. For the second quarter, we expect a modest sequential decline in sales as customers manage through a wide array of supply chain challenges in the global automotive market. I remain extremely proud of our team working across the automotive market. They continue to manage through a difficult supply chain environment while remaining laser-focused on driving new design wins with customers who are implementing a wide array of new technologies into their vehicle platforms. Our continued outperformance is a direct result of that team's excellent efforts. The mobile devices market represented 10% of our sales in the quarter. Sales increased by 7% from the prior year, with strength in tablets, smartphones, wearables, as well as laptops. Sequentially, our sales decline was less than we had expected, declining 27% from the fourth quarter. As we look into the second quarter, we now anticipate a low double-digit sequential sales decline from these levels, driven by typical seasonality, as well as by some impact from the recent COVID-related shutdowns that have been occurring and continue to occur in China. There's no question that mobile devices remain our most volatile end markets. Nevertheless, our outstanding and agile team is poised, as always, to capture any opportunities for incremental sales that may arise in 2022 and beyond. Our leading array of antennas, interconnect products, and mechanisms continues to enable a broad range of next-generation mobile devices, positioning us well for the long term. The mobile networks market represented 5% of our sales in the first quarter, and sales in this market grew from the prior year by a stronger-than-expected 14% in US dollars and 5% organically, as strength from products sold directly to network operators, together with the benefit of acquisitions, more than offset a moderation of our sales to equipment OEMs. Sequentially, our sales in the first quarter were flat to the levels we achieved in the fourth quarter. As we look into the second quarter, we expect a modest decline from these first quarter levels. Nevertheless, we are encouraged to see continued strength in our sales to 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 efforts to expand our position in next-generation 5G equipment and networks around the world. We look forward, especially to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology and data communications market represented 22% of our sales in the quarter. Sales were stronger than expected in IT datacom, rising by a very robust 41% in US dollars and 35% organically from the prior year as our teams capitalized on broad-based strength across server and networking applications. We were pleased that sales moderated by just 2% sequentially in the first quarter, which was better than our expectations coming into Q1. Looking to the second quarter, we expect sales to increase in the mid-single digits from these first quarter levels as customer demand continues to grow in IT datacom. We remain encouraged by the company's outstanding position in this important market. Our OEM and web service provider customers continue to drive their equipment and networks to ever-higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power. We look forward to realizing the benefits of our leading position for many years to come. The broadband market represented 5% of our sales in the quarter. Sales in this market also grew by a very strong 47% from the prior year and 12% organically, as broadband spending levels increased and as we benefited from our recent acquisitions. On a sequential basis, sales increased by a much better-than-expected 30% from the fourth quarter. We're pleased, in particular, to start to see some progress in pricing actions across this market. In the second quarter, we expect sales to the broadband market to increase modestly from these levels. We look forward to continuing to support our broadband service provider customers around the world with our expanded range of high-technology products. As our customers increase the bandwidth and capacity of their networks to support the expansion of high-speed data applications to both homes and businesses, our products have become even more critical. Now turning to our outlook for the second quarter. The current market environment remains highly uncertain with ongoing supply chain and inflationary challenges being in many ways exacerbated by both the war in Ukraine, as well as the continued impact of the pandemic, which is causing shutdowns in certain geographies, most notably in China. Assuming conditions do not meaningfully worsen and also assuming constant exchange rates, for the second quarter, we expect sales in the range of $2.890 billion to $2.950 billion and adjusted diluted EPS in the range of $0.66 to $0.68. These expectations would represent strong sales growth of 9% to 11% and adjusted diluted EPS growth of 8% to 11% versus the second quarter of last year. I just have to say that I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges that are still present in the marketplace and to continue to grow our market position while expanding the company's profitability. In addition, our organization remains committed to delivering long-term sustainable value, all while prioritizing the continued safety and health of each of our employees around the world. I'd just like to take this opportunity at the end here to thank all of those employees, more than 90,000 of them around the world, the entire Amphenol team, for their truly outstanding efforts here in the first quarter. With that, operator, we'd be very happy to take any questions that there may be.

Operator, Operator

Our first question is from Amit Daryanani with Evercore.

Amit Daryanani, Analyst

My question is really about the impacts you're seeing from the China lockdown, and I hope you can elaborate on two fronts. First, how are you thinking about its effects on your supply and demand environment coming out of China? Secondly, do you think this situation is causing customers to hold on to more inventory for longer instead of shifting back to just-in-time models?

Adam Norwitt, CEO

I mean, look, relative to our own supply and demand, there's no doubt about it that our team is navigating lots of things in China. I just have to take a moment to really reflect on how extraordinary they have managed through the first quarter, because some of these disruptions started well into the first quarter. The fact that our team was able to drive the results that they did across the board, including in China, is a real testament to the reactivity, the agility, and the fortitude of our team there because these lockdowns are really quite something. We have employees who are sort of locked in their apartments in Shanghai for four or five weeks. We have factories that have had to operate in bubbles and things like this. It's just extraordinary how the team has managed through this. But no doubt about it. We see some impact. It's not a massive impact here in the quarter, but there is some impact here in the quarter. I specifically talked about the impact we see in mobile devices, which is the one market that has the highest exposure to China. It shouldn't be surprising that this is the one where there's a bit more magnitude of impact, both with customers and their demand and the supply chain and our own abilities to reach really full levels of production. But our team is doing a fabulous job, and I think that they will manage through this. I'm very confident that China, as a country, is going to manage through this; there's no question in my mind. Relative to customers holding more inventory, I think that whole concept of just-in-time has, in many ways over the last two years, been replaced by, to find a cliche, just in case. No doubt we have customers who are looking at lots of ways to balance risk in their supply chain. I think their first choice is not just to put inventory on the shelves, but rather to look to their supplier partners—companies like us—and say, 'What can we do to create diversification in the supply base so that they don’t have all their eggs in one basket?' We've done a lot of work over these couple of years, through the pandemic, through the supply chain crisis, through the logistics crisis, whatever that may be, to demonstrate to our customers and ultimately deliver to our customers a kind of multiplicity of options of supply that thereby minimize their risk. Beyond that, are customers kind of opening up their order window a little more? I think we would say yes. Are customers putting a little more inventory on the shelf? It wouldn’t surprise me if that were the case.

Operator, Operator

The next question is from Mark Delaney with Goldman Sachs.

Mark Delaney, Analyst

Thank you very much for taking the question, which is about the M&A landscape. I'm curious to what extent you're seeing any increased willingness of companies to be acquired. Financial markets are at good absolute levels, but you've seen some pullback recently in valuations. So I'm curious if more companies are perhaps willing to be open to an acquisition? Could you also speak to Amphenol's willingness to do larger acquisitions? You've done a few larger ones of late, including Halo and MTS, and I'm wondering, do you think you need to time digesting those, or would you be willing to do a larger acquisition if the opportunity presented itself?

Adam Norwitt, CEO

I mean, look, I don't know that we've seen any meaningful difference in the M&A environment. I would tell you the M&A environment is very robust. Our pipeline is as strong as ever. As you know, over the last two and a half years, we closed on a large number of deals, including last year, just the extraordinary progress that we made in our M&A program with very significant deals like MTS and, at the end of the year, Halo, as well as the number of wonderful tuck-in companies that ultimately strengthen our position across a wide array of our end markets. I think we continue to see among companies that we talk to, I don’t know if it's a general increased willingness but our reputation as a wonderful home for their companies continues to strengthen over time. There's no doubt about it that our phone continues to ring. We continue to create that sort of organic pipeline of acquisitions. Not a week goes by that Craig and I don't hear of some new company that we had never heard of. At the same time, we have very high standards. To the point, if companies are kind of coming out of the woodwork, we're not just saying yes to every one of these. We hold very, very high standards around our acquisition program. This includes looking for great people with great products who have complementary market positions. That is never going to be something that we compromise on, nor do we ever compromise on valuation because, at the end of the day, whether the stock market is higher or lower, we pay fair value for great companies. We pay a value that’s based on what they have delivered, not what the company can become as part of Amphenol. In terms of our willingness to do larger deals, I would just let our history speak almost for itself here. We have the capability to do an enormous number of deals, and that includes deals large and small. The evolution of our organization has opened up the bandwidth across the company so that we have capacity to either do more deals or bigger deals, both of which we need to do if we want acquisitions to continue to represent roughly a third of our growth over the long term, which is what we continue to target. So I think the M&A landscape remains a very positive driver for Amphenol. The strategy of complementing our superior organic growth with adding excellent companies is something that has created enormous value for the company in the past and will continue to do so going forward.

Operator, Operator

The next question is from Samik Chatterjee with JPMorgan.

Unidentified Analyst, Analyst

This is Manmohan on for Samik Chatterjee. I just wanted to ask if the way we were thinking—and where some of the investors you were talking to were—is we were expecting you to have higher than headwinds in terms of margins compared to your peers. However, you have had results that were a little contrary to that with better operating margins than peers, both for the current quarter as well as for the next quarter. Is there expectations due to the decentralized way of functioning the centralized hedging activity was lesser? What exactly are we missing here? Is this entirely due to better success with price increases or some other dynamics at work?

Craig Lampo, CFO

I mean, we talked about this a little bit coming into the quarter in January. We certainly saw some pressures from the cost environment as everybody has. I think we did a great job in 2021 really protecting against that through pricing and other actions as well. We talked about in the fourth quarter where our margins were a bit lower than we did expect coming into the first quarter. Some improvement in profitability reflected in our guidance indicated that our profitability improved from pricing actions starting to take hold, and that's exactly what we saw. I think the team has done a fabulous job of ensuring that they were taking the actions they needed to take. There's no doubt we're in an inflationary environment, with a lot of difficult conversations that we're having with customers on a frequent basis; this isn’t just something happening annually anymore. It's probably happening on a monthly basis or sometimes even more frequently than that as we continue to see costs rise. The team has done a great job in that respect. We don’t do any hedging; hedging is typically not part of our strategy, other than maybe FX hedging or similar. But as it relates to commodity costs, we don’t engage in that, so that certainly has no impact on our margins. The pricing actions we've taken with our customers are starting to take hold in the first quarter; we expect that to continue into the second quarter. I’m real proud of the team. The inflationary environment has gotten worse in the first quarter, and we certainly don't expect it to get any better in the second quarter. So the ability of our team to continue to protect and expand the margins while offsetting some of the cost environment is certainly great to see. We’re going to continue to work hard to do the same thing as the inflationary environment continues.

Operator, Operator

Next question is from Steven Fox with Fox Advisors.

Steven Fox, Analyst

I was wondering if you could drill down a little more into the IT datacom segment. As I mentioned before, it keeps surprising for the upside for you guys. I'm curious to know what you're seeing during the quarter from both a market standpoint and then a content standpoint; whether we're missing the boat maybe on market shares or just better content on certain interconnect products? Is it all related to spending coming in better than you think? Any color there would be helpful.

Adam Norwitt, CEO

And Steve, you're never missing any boats. So I wouldn't say that. Our IT datacom business and the operations within Amphenol who are serving that end market have done a phenomenal job over the last two years on several fronts. Number one, it's developing the products that our customers need. I think the innovation in this market is critical because our customers are under enormous pressure to satisfy this unquenchable thirst among consumers for bandwidth and at the same time the unquenchable thirst for power that these data centers create. The real innovations are happening around high-speed interconnect across the board, as well as in the power interconnect that drives the efficiency of these systems in a way that ultimately reduces energy consumption. On both of those fronts, we continue to see this immutable march forward and drive for customers to push the limits of technology, and that's where our engineers are excelling. There's been a consistent ability to satisfy customer needs, even when those needs change dramatically at a moment's notice. That responsiveness and reliability are part of what drives customers to us more and more, giving us perhaps a disproportionate share of their needs because they know that we're there for them. I think the demand for bandwidth does not seem to abate. While I wouldn’t commit to growing by 35% organically every quarter, I think our team has done a great job positioning us to outperform for a long time to come.

Operator, Operator

Next question is from Nick Todorov with Longbow Research.

Nick Todorov, Analyst

Adam, I think you mentioned that you're starting to see some progress on pricing in the broadband market. I know that has been one of the most difficult ones to get pricing through. Can you please help us unpack there a little bit? What is causing that change? And what are you able to do in terms of offsetting the impact of inflation that you're seeing there and maybe generally across the business?

Adam Norwitt, CEO

I did make that mention, and we think some portion of our organic growth, certainly not the totality, is a credit to our team's long-term efforts on pricing. The thing about our traditional broadband business is it has very high material content paired with a rational competitive landscape. The severity of the inflation has really woken up other participants in the market to the fact that there needs to be some reasonable sharing of that inflation with customers. We’ve always been at the forefront of that. I’ve said for many years that we don’t let the sun set on a pricing action from peers to match that and keep pace with inflation pressures. I think we've taken an even more leadership position over the last year or so. We're pleased to see some signs of a little more discipline in that market that traditionally hasn’t had as much. The inflation has a disproportionate impact here due to the higher material content, so we're hopeful; it’s certainly not a fully told story, but we're encouraged to start to see some progress in pricing in that market.

Operator, Operator

Next question is from Jim Suva with Citigroup.

James Suva, Analyst

While it's very sad about the world conflict that's happening in Russia and Europe and such, taking a step back, I wonder—are you seeing and having discussions with defense companies that are maybe doing, say, electronic radars, surveillance, smart warfare, defense items, a material pickup, because with the supply chain issues, it'd be tough to simply put in an order and expect it pretty quickly. I'm wondering if this is kind of a sector that, all of a sudden, unexpectedly, and for sad situations, is starting to see a pretty sharp increase in demand for defense.

Adam Norwitt, CEO

I would use the same adjectives as you that it is a sad situation what is happening in Ukraine. Tragic in many respects. But I would also tell you that we're proud of the role that our company has played, both in supporting refugees from Ukraine and some of the neighboring countries where we have operations. Not only supporting them monetarily but also providing jobs to some. This has been a real initiative by our team to support these people who have really had their livelihoods crushed. At the same time, I think we’ve witnessed the power of defense, and some of these new technologies that we have talked about for years have real importance in people's lives to keep a country safe in the face of what may be considered unreasonable aggression. So I wouldn’t want to comment on specific conversations that we have in the defense industry; I think we’re encouraged for the long term to see that many countries are recognizing that their defense budgets should be better calibrated to the level of threat present in the world to keep peace-loving people of the world more secure. That can translate into overall spending and can translate long-term into an acceleration of adoption of technologies. I’ve discussed the difference between tactical versus strategic defense spending before, and this tragedy seems to be spurring NATO countries to shift focus towards a strategic defense emphasis; this inevitably involves technology such as radar and missile defense systems. Amphenol is positioned strongly in the military interconnect market to help countries adopt next-generation technology to protect their citizens.

Operator, Operator

Next question is from Wamsi Mohan with Bank of America.

Wamsi Mohan, Analyst

I appreciate the new segment disclosures. It seems like the operating margins here are ranging from 17% to 26% based on the segment. Can you talk about what is driving the dispersion there? In your 10-K, you report most of these—all three of these segments cover all of your end markets. Can you give some color about these products too? Would love to hear from you, Adam. What is it that's driving the delta in margins? And as you think about M&A, is there a propensity to lean towards one versus another segment?

Craig Lampo, CFO

Yes, certainly. You're right. We have a range in margins across our segments; I don’t think that’s surprising. We have 130 businesses, and you can’t imagine that some are above the company average while others are below. Our businesses are typically based on product technologies that span many different markets. We are very diversified from a market perspective, and one of our strengths is our ability to proliferate our products across all the markets where they can add value. This has driven our growth over the years. The segments aren’t market focused; they are product focused, serving many different markets. I’d not emphasize a correlation from a market perspective. The lower profitability in some operations can be attributed to recent acquisitions. The Interconnect and Sensor Systems segment includes a couple of additions, specifically MTS, which actually affected the year-over-year margin in that business. We spend considerable time on the businesses with lower profitability. However, our goal is to drive profitability in all our businesses and segments over time. While there’s no specific detail driving significant margin differences, it's how the businesses are segmented for management reporting purposes.

Adam Norwitt, CEO

Relative to your question on M&A, Wamsi, there’s no question; we look for acquisitions across every one of our markets and across all three now segments. We aren't strategically leaning toward one over another. They all have equal opportunity and resources.

Operator, Operator

The next question is from Luke Junk with Baird.

Luke Junk, Analyst

I have maybe what's a backward and forward-looking question. Specifically, Adam, I'm wondering if there's any color on bookings or orders in your auto business that you could share after obviously a very big increase in that business in 2021 and here in the first quarter as well. I looked back a couple of months ago at the 10-K; you included some language on the overall business, stating that the increase in the company's backlog was due to the significant sales increase in auto specifically. How should we think about that backlog and orders relative to that end market?

Adam Norwitt, CEO

When we look across all our end markets in terms of our book-to-bill, we had pretty strong book-to-bill ratios across nearly all markets except mobile devices where it’s always one-to-one. I would say, automotive was below average, but still a strong more than one book-to-bill ratio. I wouldn’t draw conclusions about automotive past performance from those bookings. What I would highlight is that our performance in automotive has consistently outperformed the end market. Our growth in this quarter was 17%, on the heels of last quarter where we grew 18%, the quarter before that was 31%, and the quarter before that was over 100%. This reflects dynamics I mentioned earlier, such as the higher content on next-generation platforms. We’ve seen a marked increase in electrification and our team has done a fabulous job positioning in that area. Our performance in automotive has been differentiated due to our capability to capture more than our fair share of these new developments.

Operator, Operator

The next question is from William Stein with Truist Securities.

William Stein, Analyst

First, you may have quantified it, if you had, I apologize for asking, but the impact of the COVID-related shutdowns in China that you're seeing. If you’ve already answered that, perhaps you can talk about linearity of bookings and whether you’ve seen any changes from what’s going on either in Ukraine or China, and any erosion into April.

Adam Norwitt, CEO

I don't think we put an exact number on the COVID shutdowns, and we don't plan to. It’s not a massive impact but there is some. I mentioned we see it, most in mobile devices, but also in a few other markets like automotive and IT datacom and industrial. In terms of linearity of bookings, our first quarter showed good strength through the quarter. February is a shorter month due to Chinese New Year, but we finished strong and March bookings were strong as well. We're still three days away from the end of April; I wouldn’t provide a number now but would I expect a 1.17:1 book-to-bill in Q2? I don't think I would. I didn’t expect it for Q1 either, and we had strong bookings. Customers continue to express a strong propensity to give us business, translating into a consistent volume of orders over the past quarters.

Operator, Operator

The next question is from Chris Snyder with UBS.

Chris Snyder, Analyst

I wanted to follow up on the prior commentary around customers valuing diversification in their supply chain, which certainly screens positive for a global leader like Amphenol. But my question is—where is this dynamic filling up, and how would you expect this to show up? Is it just rate of share gains assisting with some of these pricing negotiations? Or could you help facilitate M&A for some of your smaller competitors who might be on the opposite side of that equation?

Adam Norwitt, CEO

It’s hard to pinpoint this because at the end of the day, why does the customer give us an order at any moment? Many factors contribute to that, from technology to reliability, quality, support, breadth of relationships, price—things customers never want to forget. Building a sustainable advantage is about adding to each of those factors further reasons for customers to place orders with us instead of competitors. Over the last two years, our focus has been to enhance our value proposition across all fronts. Customers have realized that they underaccounted risk; this realization has significantly changed their supply chain evaluations. When they select suppliers, they examine the risks of centralized companies or smaller players, but when they see Amphenol’s decentralized model, they view it as an asset. This change has encouraged our continued outperformance. As for M&A, small companies facing current challenges may find value in being part of a larger organization, particularly if they value security and options in supply and market access. This could enhance our chances and support for future acquisitions.

Operator, Operator

The next question is from David Kelley with Jefferies.

David Kelley, Analyst

I was hoping to drill down on industrials. You posted another really strong quarter there. Given your broad exposure, can you walk us through how you're thinking about the industrials market growth visibility? And what feels like a strong CapEx cycle but also an uncertain near-term global macro? What are your thoughts on the potential magnitude of content outgrowth given the unprecedented pace of technology transformation currently underway in industrials?

Adam Norwitt, CEO

Our team working in the industrial market has consistently delivered outstanding performance. Since the acute phase of COVID in Q1 of 2020, we’ve posted consistently strong double-digit year-over-year growth every quarter since then. It’s a broad market encompassing various sectors such as advanced medical equipment, next-generation agricultural equipment, high-speed rail, and semiconductor manufacturing equipment, to mention a few. Each sector has distinct cycles, but they converge in a common theme: the adoption of electronics into harsh environments. This reflects decades of capability in packaging interconnect and sensors for challenging contexts—a legacy that allows us to position highly computerized systems within diverse applications. Although we can’t promise continued quarterly growth at the same pace, the opportunity to outperform remains strong, with our industrial product technologies positioning us exceptionally well for the future.

Operator, Operator

Next question is from Joe Spak with RBC Capital Markets.

Joe Spak, Analyst

Maybe just to return to one of the earlier questions about the end markets and being well split across the new segments—does this imply that the growth you’ve laid out for the whole company, both organic and in the second quarter—is evenly split by the new reporting segments? Any insights into how we should think about segment performance would be helpful.

Adam Norwitt, CEO

We’re not guiding to growth by segment. The growth was fairly balanced across those segments this quarter, with broad growth throughout the company. I wouldn’t expect our growth expectations segmented evenly for each in the second quarter.

Operator, Operator

Our last question comes from Joe Giordano with Cowen.

Joe Giordano, Analyst

Just wanted to—on auto, obviously, the performance has been really good for a long time relative to peers, however you want to cut it. I'm just curious; if you were to break down the outperformance into large buckets, what’s driving it? I can leave it open-ended there. I’m curious about how much is tied to production being constrained here and focused on SUVs or high-end EVs—kind of the things that might be best for you, how much of that is driving some of this.

Adam Norwitt, CEO

I don't know that there's a significant impact from the prioritization of SUV or high-end EV production on our performance. If our customers build higher content cars, sure, that's good for everyone. But I believe our performance reflects the acceleration of the adoption of next-generation systems across all vehicles. This includes electrified drivetrains but extends to next-generation infotainment and communication systems, passenger comfort, and connectivity features. Recent developments in HVAC systems reflect that push for better sensor technology. While this sector is facing constraints, our ability to capture more than our share of new developments has differentiated our position. Well, thank you very much to everybody. I think that's our last question. I do want to take this opportunity to thank you all for spending a few of your precious minutes with us today and wish you all the best. We look forward to seeing everyone again within this quarter or at the latest 90 days from now. Thanks so much, everybody.

Operator, Operator

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