安費諾 (APH) 2015 Q1 法說會逐字稿

Hello and welcome to the first-quarter earnings conference call for Amphenol Corporation.

Following today's presentation there will be a formal question-and-answer session.

Until then all lines will remain in a listen-only mode.

At the request of the Company, today's conference is being recorded.

If anyone has any objections you may disconnect at this time.

I would now like to introduce today's conference host, Miss Diana Reardon.

Ma'am, you may begin.

Thank you.

Good afternoon.

My name is Diana Reardon and I am Amphenol's CFO.

I am here together with Adam Norwitt, our CEO, and we would like to welcome everyone to our first-quarter call.

Q1 results were released this morning.

I will provide some financial commentary on the quarter and Adam will give an overview of the business and current trends.

We will then have a question-and-answer session.

The Company closed the first quarter with sales of $1.327 billion and $0.57 of earnings, meeting the high-end of the Company's guidance.

Sales were up 7% in US dollars and 11% in local currencies compared to Q1 of 2014.

From an organic standpoint excluding both acquisitions and currency impacts, sales in Q1 2015 were up 5%.

Sequentially sales were down 7% in US dollars and 6% organically from Q4 of 2014.

Breaking down sales into our two major components, our cable business which comprised 6% of our sales in the quarter was down 3% from last year.

Our interconnect business, which comprised 94% of our sales, was up 7% from last year reflecting the benefits of both good organic growth and the Company's acquisition program.

Adam will comment further on trends by market in a few minutes.

Turning to operating income, operating income increased to $260 million in the quarter.

Operating margin increased to 19.6% compared to 18.8% last year excluding one-time items.

A strong year-over-year conversion margin on incremental sales of 32%.

The increase of 80 basis points in operating margins over the prior year resulted from an increase in profitability in our interconnected business.

From a segment standpoint in the cable segment, margins were 12.1% compared to 12.2% last year.

In the interconnect business, margins were 21.8%, up 90 basis points from 20.9% last year.

The improvement in ROS reflects excellent operating execution, both organically and in our acquisitions in addition to aggressive cost management.

We are very pleased with the Company's operating margin achievement.

This excellent performance is a direct result of the strength and commitment of the Company's entrepreneurial management team which continues to foster a high-performance action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in what clearly continues to be a very dynamic global environment.

Through the careful fostering of such a culture and the deployment of these strategies, the management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $17 million compared to $19 million last year reflecting the benefit of a lower average effective interest rate in the current quarter more than offsetting the impact of higher average debt levels resulting from the Company's acquisition and stock buyback programs.

The lower average rate is the result of a new note issuance in September replacing a higher cost note maturity in November of last year and the implementation of a new commercial paper program.

Other income was $4.1 million in the quarter equal to last year and consists primarily of interest income on cash and short-term cash investments.

The Company's effective tax rate excluding the impact of one-time items was 26.5% in both Q1 of 2015 and Q1 of 2014.

Including the impact of one-time items, the 2014 rate was 26.4%.

Net income in the quarter was approximately 14% of sales.

And EPS excluding one-time items increased 14%, an excellent performance.

On an as reported basis, earnings per share in the 2014 period included a charge of $2 million or a $0.01 per share for acquisition related costs.

Orders in the quarter were $1.34 billion, up 2% from last year, resulting in a book to bill ratio of approximately 1.01 to 1.

The Company continues to be a strong generator of cash.

Cash flow from operations was $188 million in the quarter or about 104% of net income.

The Company continued to target cash flow from operations in excess of net income.

From a working capital standpoint, inventory was $871 million at the end of March, up slightly from December.

Inventory days were 87 days, up seven days from December levels and at the high end of our normal range.

The higher inventory levels support a future step up in certain parts of the business and we expect inventory days to decline going forward.

Accounts receivable was $1.1 billion at the end of March, down about 3% from December.

Days sales outstanding were 75 days, up 4 days from December and at the high end of our normal range.

Accounts payable was $583 million at the end of March, down about 6% from December levels and payable days were 58 days, up 1 day compared to December.

The cash flow from operations along with proceeds from our commercial paper program of $86 million and $20 million of proceeds from stock option exercises were used primarily to purchase $62 million of the Company's common stock to fund net capital expenditures of $40 million, to fund acquisition payments of $76 million relating both to the Invotec acquisition and the final payment on a 2014 acquisition and to fund $78 million in dividend payments during the quarter including the funding of both the Q1 and Q2 dividends.

During the quarter, the Company repurchased 1.1 million shares under its January 2015 10 million share stock repurchase program and 8.9 million shares remain available at the end of March under the program which expires in January of 2017.

Cash and short-term investments were $1.4 billion at the end of March, the majority of which is held outside the US.

Our total debt was $2.8 billion, bringing net debt at the end of the quarter to $1.4 billion.

The Company had issued $753 million under its $1.5 billion commercial paper program at the end of the quarter and EBITDA for Q1 2015 was approximately $300 million.

From a financial perspective this was an excellent quarter.

Before I turn the call over to Adam, I would like to make a few comments relative to our guidance.

As noted in the press release, we have updated our 2015 guidance range to sales of $5.5 billion to $5.62 billion and earnings of $2.41 to $2.47.

This is a sales growth of 3% to 5% both in US dollars and organically and 7% to 9% from a local currency standpoint.

The EPS growth is 7% to 10%.

This guidance is based on current exchange rates reflecting the negative impact of the significantly stronger dollar and the addition of the acquisition of Invotec which we closed in the quarter.

The negative translation impact caused by the significant strengthening of the dollar in relation to the euro and certain other currencies since our last guidance has the impact of reducing 2015 guidance by about $65 million in sales and about $0.03 in earnings.

For the full year 2015 compared to 2014, we now expect a drag of about $225 million or 4% of sales from the negative effect of translation and an impact of about $0.10 in earnings.

The Invotec acquisition that closed in the quarter adds about $30 million in sales and a $0.01 in earnings.

From an organic growth perspective, we have increased our growth range from 2% to 5% in our previous guidance to 3% to 5% in our current guidance and Adam will talk about trends by market in more detail in a moment.

I would just add here that we have reflected some shift in demand in the wireless markets in our guidance.

Both wireless markets were previously expected to be relatively flat in 2015.

However, we now expect a decline in the mobile network market in the low teens and a high single-digit growth in sales in the mobile device market with the majority of that growth expected in the second half of 2015.

I would also just note relative to the Q2 guidance that from a sequential standpoint at the high-end of guidance, sales are up 2% in US dollars and 3% organically with a negative translation impact from the stronger dollar reducing sales by about 1%.

From an organic standpoint, the 3% sequential growth in Q2 sales is somewhat lower than our normal seasonality.

This results from our current expectations that the wireless market will be relatively flat sequentially.

Historically both markets normally increase sequentially going into Q2.

However, as I mentioned earlier, we now see a softer demand in the mobile network market for the year and therefore do not expect a normal seasonal uptick in Q2.

And in the mobile device market we now see a flat sequential performance in Q2 based primarily on program timing before a significant strengthening in the second half of 2015.

Adam will now provide an overview of the business and current trends.

Thank you very much, Diana, and let me also add my welcome to those of you on the call today.

As Diane I mentioned, I'm going to highlight some of our first-quarter achievements and then I will spend some time to discuss our trends and progress across our diverse served markets.

And finally I will make a couple of comments on our outlook for the second quarter as well as for the full year.

With respect to the first quarter, I'm just very pleased to report that our sales and EPS were both at the high end of guidance and that is despite a challenging economic environment as well as the impact of the strengthening US dollar.

Our sales increased 7% from prior year in US dollars and 11% in local currency reaching that $1.327 billion and orders at $1.340 billion were a book to bill of 1.01 to 1 which is an encouraging sign.

Our profitability in the quarter continued to be very strong as we generated operating margins of 19.6% which as Diana mentioned, is an 80 basis point increase from prior year and our EPS grew 14% from prior year essentially twice the rate of our sales growth.

I just want to say that I am extremely proud of our global team who was once again able to react quickly to the many opportunities that are being created by the electronics revolution all the while exercising the discipline and drive necessary to achieve outstanding operating performance.

I think our strong results in this first quarter once again demonstrate the benefits of the Company's outstanding entrepreneurial culture.

I am very pleased in the quarter that we completed the acquisition of Invotec during the first quarter and Invotec is a leading UK-based manufacturer of highly engineered, harsh environment, printed circuit board select circuits and related assemblies for the aerospace, defense and industrial markets and it has annual sales of roughly $35 million.

Importantly, Invotec represents an outstanding complement to our North American PCB and flex circuit capabilities and positions us to take further advantage of the ongoing drive to proliferate this technology in important aerospace and industrial applications and that is a trend that we are really seeing across our global customer base in that space.

We are very excited to welcome the outstanding Invotec team to Amphenol and we look forward to continuing to create value in the future with our very successful acquisition program.

Turning to our trends and progress across our served markets, I just want to comment first that once again our balanced and broad end market diversification supported the Company's excellent performance in the first quarter and we are particularly pleased that no single market represented more than 18% of total sales in the quarter.

The fact is that the Company's diversification across the electronics area -- across the electronics industry in areas with a wide variety of technology requirements, product life cycles and underlying drivers has consistently been an underlying creator of long-term value for the Company.

Turning to those markets, first, the military market represented 11% of our sales in the quarter.

Sales were flat to prior year in US dollars and increased by 3% in local currency led by increases in communications, vehicle and rotorcraft related products.

Sequentially, as we had expected, sales were down in the mid-single digits.

Looking ahead to the second quarter, we expect sales to increase moderately from these levels and we remain confident in achieving full-year growth in constant currency in the military market.

Now it is true that military budgets overall appear to have stabilized but at the same time they are clearly not expanding.

Nevertheless, our technology leadership and our broad program participation have enabled us to realize the growth we experienced in the first quarter and have positioned the Company to benefit long-term from the expanding adoption of electronics and military hardware as well as from stronger spending trends in emerging geographies.

The commercial aviation market represented 6% of our sales in the quarter.

Sales were up slightly in local currency and declined by 6% in US dollars on what was a pause in growth rates of the components used in production by the leading aircraft manufacturers.

Sequentially sales reduced seasonally by 7% on lower production volumes.

Despite this moderating rate of growth, we remain confident that our commercial air sales will grow in the second quarter from these first-quarter levels and for the full year we continue to expect to achieve robust organic growth in particular with the anticipated second half ramp up of certain new airplane platforms.

The world's airlines continue to demand planes that are more fuel-efficient and that create a better passenger flying experience leading aircraft manufacturers to incorporate an increasing range of complex new technologies into their latest generation airliners.

We are extremely well-positioned to enable these technologies with our interconnect, value add, cable and printed circuit assemblies and cable management products.

This combination creates an exciting long-term expansion opportunity for Amphenol.

The industrial market represented 18% of our sales in the quarter and we achieved strong growth of 10% in US dollars and 13% in local currency compared to prior year and 3% in local currency sequentially.

This increase in our sales was driven by excellent performance in the heavy equipment, alternative energy and medical segments as well as by contributions from the Goldstar acquisition that we completed in the fourth quarter and that growth was partially offset by an expected decline in sales to oil and gas customers that is related to lower levels of exploration and drilling due to the recently reduced commodity prices.

Looking ahead we expect sales in the industrial market to increase from these levels in the second quarter and we continue to anticipate a double-digit sales growth in local currencies for the full year 2015.

Long-term we look forward to realizing the benefits of our broad industrial interconnect and sensor product offering together with our diversified presence across the many exciting segments of the global industrial market.

The automotive market represented 18% of our sales in the quarter and we experienced a again a significant increase in sales from prior year growing 31% and 14% organically as we continued to benefit from the CASCO acquisition made last year in the third quarter and as we grew our sales of new products used in telematics, emissions management and drivetrain control applications.

Sales were essentially flat sequentially in US dollars but they grew by 4% on a local currency basis from the fourth quarter.

We are very pleased to be continuing to outgrow the overall automotive electronics market as we capitalize on our broadened suite of interconnect and sensor technologies which are being incorporated into a wide array of new and complex vehicle electronics.

With the additions of Tecvox, Advanced Sensors and CASCO during the last 18 months, we have significantly expanded our product offering across a wider array of new electronics applications and cars.

In addition, we have organically expanded into a variety of new discrete connectors and advanced value add interconnect systems thereby positioning the Company for continued excellent long-term growth.

Looking towards the second quarter, we expect sales in the automotive market to increase further from these levels and we continue to look forward to an excellent 2015 and beyond for this exciting business.

The mobile devices market represented 15% of our sales in the quarter and sales increased 5% from prior year and declined as we had expected by roughly 28% sequentially driven by post-holiday seasonality.

I can just say I am so proud of our mobile devices team who has once again quickly flexed their resources given the significant volume changes all while still preserving strong operating performance as well as very importantly preserving the ability to expand our capacity for growth expected in the second half of 2015.

This organizational agility remains a core advantage of Amphenol in the extremely dynamic mobile devices market.

As Diana mentioned, while we expect sales to remain at current levels in the second quarter, we now have a more positive view of the demand potential in the mobile devices market in the second half of this year.

Thus we now anticipate achieving growth for the full year 2015 somewhere in the mid-single digits.

We remain confident that despite the ever-changing landscape across the mobile devices market, our leading technology, preferred supplier relationships with a broad range of device makers, and most importantly the excellent execution of our outstanding agile organization, positions us extremely well for the future.

The mobile networks market represented 9% of our sales in the quarter and sales declined as we had expected by about 9% from prior year in US dollars and 4% in local currencies and by 5% sequentially as operators further moderated their network buildout activities in most geographies after last year's significant infrastructure investments.

As Diana mentioned earlier, based on the latest information that we received from our OEM and service provider customers, we now expect only a slight increase from these demand levels in the second quarter if not flat performance and do anticipate a decline in our mobile network sales for the full year 2015.

Regardless of these more muted sales expectations, we remain extremely well-positioned in the mobile networks market and are thus very confident that with our industry-leading breadth of interconnect and antenna products we will continue to participate broadly in ongoing next-generation mobile network deployments around the world.

The information technology and datacom market represented 17% of our sales in the quarter and sales in this market increased by greater than expected 6% from prior year due to strengthening sales of our wide range of high-speed products incorporated into a broad range of data center equipment.

Sequentially our sales were flat to the seasonally stronger fourth quarter and looking ahead to the second quarter, we expect sales to grow slightly from these levels and we continue to anticipate full-year growth in the IT datacom market in the mid-single digits.

This IT market is really undergoing a rapid transformation as cloud and web service providers are driving new innovations across the entire architecture of data centers really around the world.

Amidst this dynamic environment, we remain encouraged by our industry-leading high speed and power products, our preferred relationships with leading equipment suppliers and our enhanced and direct focus on service provider and datacenter customers all of which have created a platform for us to continue to outperform in the future in this important market.

The broadband communications market represented 6% of our sales in the quarter and as we had expected, sales declined slightly from prior year on a moderation of spending from US cable operators and were essentially flat to the fourth quarter.

While we do expect a slight increase in demand in the second quarter we now expect more moderate growth in the broadband market for the full year of 2015 as there really remains a heightened level of uncertainty in the capital spending plans of many of the MSO, satellite and telecommunication customers in this space and that is in particular given the several high-profile industry mergers which are still at this stage pending after a long time.

Nevertheless, we remain confident that we will realize long-term success in this market due to our proven capability to create innovative solutions for our customers in support of the rapid growth of especially high-speed data delivery.

As we drive further efforts to create these enabling technologies, we look forward to maintaining our leadership position in the broadband market.

In summary with respect to the first quarter, I am just extremely proud of the Amphenol organization as we once again executed very well in a challenging and dynamic market environment.

Our continued strong performance in 2015 is another clear reflection of the Company's distinct competitive advantages, our broad range of leading technologies, our balanced and comprehensive market diversification, our worldwide presence and our lean and flexible cost structure.

But above all of these strengths, simply our greatest asset remains the high-performance culture that is reinforced every day by Amphenol's agile, entrepreneurial management team.

Now turning to the outlook and just to reiterate some of the comments Diana made, there continue to still be significant uncertainties across the global marketplace that is reflected in part by the ongoing weakening of certain overseas currencies.

Accordingly and based on a continuation of these current economic conditions and assuming also that exchange rates remain stable at these latest levels, we now expect in the second quarter and the full-year 2015 the following results.

For the second quarter, we expect sales in the range of $1.315 billion to $1.355 billion and EPS in the range of $0.56 to $0.58 respectively.

This represents a sales increase versus prior year of flat to 3% in US dollars and 5% to 8% in local currency and an EPS increase of 4% to 7%.

For the full year 2015, we expect sales in the range of $5.5 billion to $5.62 billion which is an increase of 3% to 5% in US dollars and 7% to 9% in local currencies.

And we expect 2015 EPS of $2.41 to $2.47 which represents an increase of 7% to 10% over 2014 excluding one-time items.

We are very encouraged by the Company's continued strong outlook in sales and earnings especially given the many uncertainties in the global marketplace and it is really the ongoing revolution in electronics that continues to create tremendous opportunities for Amphenol.

I very confident in the ability of our outstanding management team to continue to capitalize on these opportunities to grow our market position and to expand our profitability and thereby to drive continued superior performance for the Company in 2015 and beyond.

With that, operator, we would be very happy to take any questions.

(Operator Instructions).

Jim Suva, Citi.

Thank you and congratulations to you and your team there at Amphenol.

Really great results especially considering the current (inaudible) changes.

Diana and Adam, can you help us understand a little bit more granularity on your comments around the mobility.

You mentioned some softness, is this broad-based global?

Is it geographic?

Is it more of like smartphone handset or tablet or notebook or how should we think about that commentary?

Jim, thank you very much.

I think we talked about mobility and mobile from two standpoints.

One is the mobile networks market where we do have a more moderate view of that market as well as the mobile devices market where I think we have a somewhat stronger view than we previously had.

So I assume what you are asking is relative to our comments on mobile networks.

And in mobile networks I think what we have seen is last year there was just tremendous performance in that market.

You know that we grew last year by 24% over prior year which is really far in excess of any of the statistics that one saw coming out of equipment manufacturers or the various capital spending results of the operators around the world.

And I think that was just a great confirmation of the efforts that we had made over many years to broaden our product offering in support of these new technologies and these next-generation systems.

No doubt about it that was a lot of buildout that happened last year and I think what we are seeing on a global basis really is that the operators are really working to digest those investments in particular here in the first half.

But even throughout the year more maybe then we would have thought previously.

From a regional standpoint last year we saw good growth in all the regions, probably saw a little bit better in Asia but we had strong double-digit growth in every region.

I think in this quarter we probably saw a bit more magnified reductions in Europe and some reductions in North America.

We actually still saw some element of continued strength on a year-over-year basis in Asia.

I think for the full year we would probably anticipate that all the regions would still be in that kind of digestion phase of their investments but perhaps maybe Europe would be a little bit weaker than Asia for example.

Relative to mobile devices again, we are seeing more strength in that space and that just comes down to our organization's fantastic ability to continue to win programs at the leading device manufacturers.

I think we did talk about last year that we saw a little bit worse performance last year in tablets and a little bit better performance maybe in things like ultra books and we have seen good performance with some of a new smartphone manufacturers as well as some of the accessories around those products.

And I think that those trends are largely continuing coming into 2015 and we probably wouldn't expect much different performance across that market this year.

Great.

As a very quick follow-up, your acquisition, a lot of times when we hear printed circuit board companies we think of very low margin business.

Am I correct by assuming that this Company is a lot more than just printed circuit boards and a lot higher value add and maybe you can give us a little bit of flavor or color into if that is a correct statement more than just printed circuit boards?

This is an outstanding question, Jim, and it is very true that there is a whole industry of printed circuit boards and that is not an industry that we have in large part participated in.

But we do have a business in very high reliability, harsh environment printed circuits be it flex or rigid flex or rigid boards and the related assemblies that is really active in the military, aerospace and industrial space.

And that is what this company is and so it is by no means a big entry into printed circuits.

Rather it is a continuation of our approach to present a total interconnect solution for those very high reliability applications that we see in particular in aerospace, military and industrial.

One trend that we have seen and we have been really one of the drivers of that trend from a very high technology standpoint is there are applications in particular in those harsh environments where traditionally those have been managed through big cable bundles and that those cable bundles are over time in certain of those applications being migrated towards more of a printed circuit technology that integrates connectors and integrates that whole assembly and allows the customers to have a better vibration proof and a more kind of certainty of the application than they would have had in the past.

That is a very, very long-term trend that we see and it is one that we are really at the forefront of working with leading customers around the world on enabling.

Previously we had that capability predominantly in North America and the Invotec acquisition gives us that higher value add, high technology opportunity to support customers also in Europe.

And so it very, very much consistent with that strategy.

You could call it a little bit of a niche strategy in that broader printed circuit area but it is very complementary to our overall value add interconnect offering to those customers.

Sherri Scribner, Deutsche Bank.

Diana, I just wanted to bridge the full-year revenue guidance versus what you said a couple of months ago to what you're saying now.

It looks like if you add the acquisition back, you add the modest beat that you had this quarter and then you take out the FX impact, it is mostly the same guidance.

I just want to make sure that I am understanding that correctly.

It seems like mostly the change is the acquisition and the FX impact.

Sure, I think that is the right way to look at it.

I think at the high-end that is exactly right.

It is the same guidance adjusted for FX impact and adding in the Invotec acquisition and from a low end of guidance we have increased our range from 2% to 5% organic growth to 3% to 5%.

So I think the way you have described it is correct.

Okay, thanks.

And then I guess just for the second-quarter guidance it seems a little, it seems like the seasonality is a bit less than you would typically see, usually you see sales increase sort of in the mid-single digits on a sequential basis.

What is really driving that and then I guess what is the strength that drives growth in the second half of the year?

Obviously mobile devices to some extent but just want to get a little more color.

Thanks.

Sure.

I think as I said in my prepared remarks, we expect in the second quarter if you look sequentially we expect not to see the normal sequential increase in the wireless markets.

The wireless network market due to the fact that we now see a year-over-year decline in that market and I think Adam just described pretty well what is going on there.

In terms of the mobile device market, we actually do have a more positive view of that market and expect now that that market will be up in the mid-single digit range for the year but in the second quarter due to program timing again, we expect that market to be flat.

And then as we move into Q3 and Q4 in the second half of the year we expect to see a significant strengthening in that market.

That is why you see a little bit less than what our normal sequential seasonality would be in Q2 and we will have a little bit higher than normal seasonality if you will when we move into Q3 in the second half of the year.

Shawn Harrison, Longbow Research.

Good afternoon.

I guess kind of going back to the first questions on mobile twofold.

On devices, am I correct, is it solely content gains which give you the bullish view on the second half of the year versus a better volume outlook for the device market?

Second, on networks, is there an inventory issue of Amphenol products or is it that there is an inventory issue of end products being put into the market?

I just wanted to be clear on that versus just a lack of deployment of base stations and associated equipment for the year.

Shawn, thank you very much.

Just relative to mobile devices, it is hard for us to always say is it content gains, is it new wins on new programs, is it more content on programs that we already had content?

I think the best is to say that we are doing an excellent job of maximizing our content in as many devices as we can and as you have a lot of devices in this space so to sort of parse that out and say which is content and which is totally new things and which are volume expectations.

But I think that the team is just doing a fabulous job to gain position on coming programs in which we have a lot of confidence and as well on programs that we really start to see and start to really see in the pipeline.

Relative to mobile networks, I don't know necessary that I would call it an inventory although there may certainly be end inventory in the channel of base stations and things like that.

That is very common when you have a big capital spending year followed by some reductions and some of the equipment manufacturers may very well have some inventory.

But I think if you just look at the capital spending plans that are widely reported, there are many of those that do reflect quite some significant downturns.

I think there are some of those operators as well who are also involved in some of these broadly reported corporate mergers and whether that is keeping some governor on their spending plans, that is something they know that I don't know.

But there are certainly some moving pieces going on strategically in the industry.

I think all of that being said, we feel that our position in that space and our position with customers is really stronger than it ever was before and one thing I will say is when you look at our performance last year, we did such a fabulous job in a time of high growth and demand to satisfy customers, they don't forget that.

They really don't forget it and so when that spending comes and it will come, they will always remember who was there for them and who reacted quickly, who didn't cause their crews to not have the parts when they needed them in the field and that will reflect positively on our ability to continue to gain position in the mobile networks market long-term.

Very helpful and if I just may one brief follow-up.

It seems as if private market multiples on sensor companies has gone a bit sky high over the past six to 12 months.

Does that in any way change your thinking about the opportunities in that market near-term knowing that you guys are typically a very astute acquirer?

I appreciate the compliment.

Look, we are not a bottom feeder.

We are an astute acquirer, we pay fair multiples for good companies and we have bought many companies in many different valuation cycles.

So whether there are a few data points over the last 12 months that reflect maybe higher multiples than we would necessarily have paid, does that change the landscape for Amphenol?

Absolutely not.

We continue to have a fabulous reputation among sellers, both financial sponsored sellers as well as real owner managers of companies.

As a company that does what it says, keeps its word, executes quickly, pays a fair price and is a fabulous home ultimately for those companies and I think that thus the one that pays only the highest price doesn't win in every instance.

There are some instances where they do win and if someone wants to pay a much higher price than us on certain occasions we will be happily not buying those companies.

But I think that there still remain a lot of opportunities for us to acquire great companies using our consistent methodology which hasn't changed over the years and we have not chased market multiples as you know very well regardless of what cycle that we are in.

We view this as a real long-term gain.

When you are buying a company, you are buying it in our world at least for life and you don't just sort of buy opportunistically when things are cheap and not buy when things are expensive and you don't -- only buy because of short-term dynamics that are at play.

We feel very confident that long-term we are going to continue to be successful across the broad range of companies that we want to acquire and that includes interconnect as well as sensor companies.

Amit Daryanani, RBC Capital Markets.

Good afternoon, guys.

Thank you.

Two questions for me.

One, Adam, I was wondering if you could just touch on this mobile devices trend that you expect in the back half.

Is there a lot of breadth to the strength you guys are expecting or is it really driven by one or two customers because this has historically been a fairly volatile pattern for you guys in the past.

I'm just trying to get a sense of how good the breadth is from a customer basis in the back half?

Look, I think we have always said and I wouldn't say anything different this year, that our breadth in that market is relatively reflective of the overall breadth of who is successful and who is not successful in the space.

And so I wouldn't say anything different about our outlook for this year.

It is a market where there are always winners and losers of the day and sometimes those are different winners and different losers of yesterday and different winners and different losers of tomorrow.

But it is a relatively concentrated market as it relates to who is winning at a given moment.

And I think from that standpoint our guidance is consistent with how we have always approached that market.

I think we have a strong position across a lot of different products, product types as well.

I mean it is not just phones, it is not just tablets, it is not just Ultra books, there is accessories and other things that go along with those.

And I think our team has just on a fabulous job on their continued mission to diversify our presence in that space as best one can in a space where there are always winners and losers.

Got it.

And then just on the automotive side, your revenue growth organic trends have been well ahead of what I think other production or (inaudible) numbers would suggest.

So maybe you could just talk a little bit what is driving that and then are you starting to get benefits from cross-selling opportunities with the GE sensor assets you guys acquired?

Is that starting to have a tangible difference on your revenue line over there?

It is a very great point.

We are just so proud of this market and how that has performed.

Just to think over the last half a decade here I mean six years ago, Q1 of 2009 this market was 5% to 6% of sales and here it is this quarter 18% of sales really historical high for us across that balanced diversification that we have.

And I think if I look at why we continue to outperform, I mentioned in my remarks earlier that we really see two main pillars of that.

One is we have made a lot of great acquisitions and over the course of the last five years, we have acquired just a great range of really interesting, really high technology, high-performance companies ranging from companies that are involved in sealed connectors to companies involved in automotive lighting to companies involved in datacom and power connectivity in the car to sensor companies.

And I think that those acquisitions have really rounded out our high-value product offering at the same time as the other pillar has been a real focus on organic growth and driving products into new applications in the car.

Not trying to take share from the traditional players but really capitalizing on new applications, new electronics, new functionality that comes into the car.

So ultimately as it gets to that sort of cross-selling, automotive is not a market where things flip on a dime.

At the same time if I think over the last five years, have we benefited from cross-selling of some of those acquisitions that we have brought on and have those become drivers of really renewed organic growth for the Company?

No question about it.

But that does take time.

And so now to your question of does the sensor company which we acquired 16 months ago in the case of Advanced Sensors or Casco roughly less than half a year ago, have those started to create meaningful, material impacts to sales?

I wouldn't say that they are material impacts to sales.

Would I say that we have seen meaningful progress in finding those opportunities?

Absolutely.

When do those ultimately translate into kind of moving the needle on a revenue standpoint?

There is a certain time horizon to that in the automotive industry, whatever that may be one, two years.

And I fully expect given the great progress that our team has managed to achieve that we will see that impact long-term but I wouldn't necessarily say that our results this quarter have any meaningful impact from cross-selling of sensors but they clearly have meaningful impact from cross-selling of other things that we have acquired over the last six years.

Mark Delaney, Goldman Sachs.

Great.

Good afternoon and thanks very much for taking the questions.

For the first question, Adam, I was hoping you could help provide some perspective on some of the trend s you are seeing in the industrial end market and I know you commented on a weakness in the oil and gas area specifically as you had anticipated but I wanted to see if you have seen slowdown in any of your other industrial end markets given some of the weaker data points we have seen this earnings season from some of the big industrial companies?

Thank you very much.

Obviously we did talk about oil and gas and I think that is the real sort of industrial market, the one that is no doubt in the headlines with the broadly reported price of oil and the resulting slowdown in some of the drilling and extraction and exploration activities there.

Like anybody else we are not immune to that slowdown and that has certainly had some impact.

Fortunately for us, we are not leveraged onto one or another part of the industrial market.

We have a very diversified industrial market across things like heavy equipment, alternative energy, lighting, machine tools, factory automation, rail mass transit and I think I mentioned where we saw really the strength in the quarter, we saw that great strength in heavy equipment and that heavy equipment strength was not just because of some acquisition that we made with Goldstar but also we saw outstanding performance in heavy equipment organically where we have just made great progress really in taking stronger position with customers in the off-road and heavy equipment market.

Seeing fantastic performance in alternative energy where our team there has just done such a fabulous job in what is not an easy market.

I mean solar and wind energy and the other sort of ancillary alternative energies, some of those can be very tough markets but we have an organization that just focuses on that space, drives costs down and takes share with important customers around the world and they have done a great job.

We have done a great job in things like lighting and machine tool as well.

I think the only space where we maybe saw a little bit of downturn besides oil and gas, wasn't quite as robust in factory automation although in local currencies it was relatively flat but otherwise I think we have seen pretty broad-based growth in our industrial market.

Thanks.

I appreciate the perspective there.

For a follow-up question on gross margins, I know gross margins have gotten back to 32 which is a good number and I think that has been a level that a high after several years.

I think the last time you guys were there were 2010, 2011.

As you look out into the second half of the year as we think about mobile device revenue mix maybe increasing, is that something that is going to put some downward pressure on gross margin or are there other things that maybe can offset what I would expect would be some mix headwinds for 2H?

Sure.

I think that we would more talk about operating income margin I think as we have said before on prior calls.

We really don't manage to the gross margin or the SG&A line, we look at operating income margin and I think that there are, within the markets we participate in, there are certainly to your point, a different mix of gross margin and SG&A but it is the operating income I think we all care about at the end of the day.

From an operating income standpoint, we had certainly very good performance here in the first quarter in line with about our expectations are.

We had a very strong year-over-year conversion margin on incremental sales.

I think the guidance as we have laid that out has again good conversion margins in the remainder of the year.

It implies an increase in ROS levels as we go through the year and so we feel very good about what the trajectory of that profitability will be during 2015 and that fully incorporates that mix that you refer to with a stronger mobile device market in the second half.

Again, we feel very good about the profitability profile that we expect to see in 2015 and expansion in ROS levels.

Amitabh Passi, UBS.

Adam, I had a couple of questions on the IT datacom segment.

It looks like sales have sort of stabilized here the last three quarters or so.

Just wondering, are you starting to see some semblance of stability with the OEM customers or do you continue to see your business skew more towards the web scale companies?

Thank you very much.

I think stabilized -- we are happy to see actually pretty strong growth in that space this quarter.

We grew 7% for the year.

I think I guided that we expect to have been IT datacom grow mid-single digits for the year and I think we are doing that at a time when you continue to not see such robust growth at least coming out of the publicly traded hardware OEMs around the world.

So I think from that standpoint, we are really continuing to gain position in the IT datacom space.

There is no question that we have really expanded our activities around working with as you call it the web scale providers or we call it kind of the data center web service provider customer base and I think that is a real pivot that we have had to make and typically Amphenol fashion, it is a pivot that we make very quickly because that is kind of one of the great advantages of our entrepreneurial organization is that agility that we are able to exercise.

We don't have to completely restructure ourselves to pivot toward a new trend in that market.

And I think as I mentioned earlier, we do see in the IT datacom market quite a significant transformation happening and I think I would call it kind of a re-architecting almost of how you work in that IT datacom space.

And I just think our team has done a fantastic job in capitalizing upon that, not just reacting to it but really capitalizing upon that change.

I think where we have seen real progress is in our real leading offering of high-speed products as well as with our outstanding power solutions that go into that market and the high-speed no doubt about it is such a critical feature whether you are a traditional OEM, a traditional enterprise datacenter or a web service provider, the amount of data that people are trying to crank through their systems and really pump out is just increasing at phenomenal, phenomenal rates.

I mean I see the my own TV.

I had a technician in my house last night because I can barely watch Netflix right now because it is just stopping and starting all the time and it just shows me again the phenomenal potential and the growth that is coming.

And here I am watching Netflix at most an hour a week and for that one hour if it stops and starts, it really is frustrating and there is real value that is created for the end customers and thereby for the operators and the equipment manufacturers by creating high-speed solutions that ultimately can support a much fatter pipe of data.

So I think from that standpoint, it is a question of really that pivoting towards the new reality of the market together with the continued investment of our leading high-speed and power products that has positioned us for the growth that we have seen this quarter and that we expect this year.

That was helpful, Adam.

Just a quick follow-up, there is some excitement in the market around standardizing 25 gig.

Is that a meaningful needle mover for you guys or in the grand scheme of things would it be noise?

I'm just trying to get a sense of how big 25 gig could be potentially for your business?

25 gig is something we have actually been developing and innovating for it feels like almost 8 years now that we have been talking about creating and have created interconnect solutions to support 25 gig.

The reality is we are working on interconnect solutions that get well beyond 25 gig.

And one of the reasons for that is that the interconnect sometimes outlasts the silicon in these devices.

You can imagine in an environment where boxes are being built and they want to change out cards in that box with the latest speed upgrades but you've got to still put it through the connectors that are residing for example in the back plane or the mid plane of such a system.

And so we have always prided ourselves on creating high-speed solutions that give head room beyond where the customers want to go in today.

And so it is true that there is maybe a lot more publicized talk about 25 gig.

For us we are talking about things like 56 gig and 100 gig and beyond right now because we need to think far in advance, such that when our customers design our product into their core architecture they've got room to expand in the future.

Mike Wood, Macquarie Group.

Good afternoon.

First question on auto growth.

Can you just remind us what you were looking for that end market for the full year?

I think you may have mentioned low double-digit previously?

And would the growth rates in auto be primarily determined by product launches or is it really customer decisions with upgrading to specific add-ons when they make the car purchase?

Thank you very much, Mike.

I think we have guided for that market to be growing in the low double digits.

I don't know that I've given a specific number but it is somewhere in the low teens I would estimate organically.

Obviously we have much higher expectations because of the acquisitions that we made last year.

I think we would see on a local currency basis growth more in the 25%, 30% range for the year.

Relative to timing, you have a couple of dynamics at play.

Certainly we have good content on new platforms and many times you work for many years on a new system that is integrated into a new platform and that has a certain ramp cycle to it.

But in addition to that, what we have started to see more of over the recent years is what I would call midcycle upgrades and those midcycle upgrades would be things like lighting and onboard electronics where the electronics industry is just moving at a much faster pace than the automotive industry that has traditionally moved.

And I think the auto companies have recognized that there is certain feature sets in the car that they can't wait five years for a platform upgrade to implement.

I mean you see it even in any new car you drive, you buy it with a GPS system and within six months that GPS already feels kinds of old and kludgy.

And I think that is a dynamic that the car companies are really facing up to quickly and so we have seen a few more what I would call mid-platform upgrades which don't coincide with that traditional kind of second half of the year product launch that you would normally see in car companies.

And so I think it is maybe not quite as magnified to those platform launches as it has been traditionally.

Great.

And then more than 30% conversion margin on the interconnect business, was that upside relative to your long-term goals from the improvement on the acquired companies notably advanced sensor so does that have a similar impact embedded in your 2Q guidance?

Sure, I think from a year-over-year standpoint, that 32% conversion margin had contribution from both of those things.

So I think to your point, the acquisition programs did come along very well during 2014 as we talked about last year and coming into this year.

So there is a positive impact there but the base business or the core business also performed very well from an operational execution standpoint on that incremental volume.

And so I think we are getting a contribution from both of those things that you are seeing in the Q1 profitability level.

I would say as we work our way through 2015, I think that would also be true where we expect both our base business and the acquired companies to continue to execute well and to continue to move up that scale from a profitability perspective.

Steven Fox, Cross Research.

Thanks.

Good afternoon.

Two questions for me.

One, just a quick check on your DSOs being up four days for the quarter.

I wasn't quite clear on whether you were saying that there is a slightly higher level or whether you think that number comes down in the next couple of quarters?

Secondly, Adam, can you just talk a little bit more about the broadband business given it has never been a huge growth area for you organically and some of the things you just talked about seemed to suggest that it could be headed for some more muted growth for a while and you have fixed costs that are my understanding is very well associated just with that business.

What is it that keeps you in it today versus maybe looking out a year or two?

Maybe I will just start with the DSO question.

I think to your point and as I said, the DSO was at the high end of our normal range at the end of Q1.

DSO and payable days are a little bit harder because you get to the end of a quarter sometimes and you do have a day or two either way but I think that over time we would expect I think that to come back down more to the midpoint of our range and it can range anywhere from 70 days to 77 days probably at the end of a quarter but we would expect that that would work its way back down toward that midpoint.

Steve, relative to the broadband business, it is true that right now we would certainly prefer to have a more robust growth outlook for the business and last year that business was slightly down on a year-over-year basis.

Why are we in that business?

I have said it before and I will just reiterate it today.

We believe that it is very important for the Company to participate in all aspects of the electronics industry and that includes in all aspects of how people get Internet and high-speed data and the broadband remains one of the top ways that high-speed data is delivered to homes and businesses around this country and many others.

And we have just an outstanding position in that space and I think our team has done an excellent job to diversify our products such that we are no longer simply just a cable on a real company that we were many years ago.

It is very true that right now that industry is going through a lot of change.

You have the very widely reported mergers that are still lingering and delayed and who knows ultimately whether they get approved.

You can imagine that that causes a pause in the purchasing activities of customers.

But we saw a very similar dynamic for close to three years in our wireless networks business and I talked all along about the fact that there was building a pent-up demand in the wireless networks market and ultimately that pent-up demand which we continued to focus on gaining position, we continued to focus on gaining technology, breath in that space.

Ultimately last year we were able to realize fantastic growth in that space as the operators ultimately realized that they had to satisfy some of the pent-up demand.

What kind of pent-up demand is being created in the broadband space?

I can only speak at a personal anecdotes of how terrible that service is in certain areas and you can imagine that as that business shakes out in particular in the United States, that one could imagine a scenario where the buildout activity strengthens again.

And we are not a company that is just living by the short term of what is happening in that market in a given year.

We have a long-term conviction that is great to be in a space where we have a high technology, leadership position in an area that is delivering one of the best delivery systems for high-speed data that anyone knows today.

What will it be this year?

We have a more muted expectation.

We anticipate a little bit of growth this year.

What will it end up being next year?

Time will tell.

But one day will there be a necessity for investment in that space an investment where Amphenol will be a participate in that?

We certainly have that long-term conviction.

Fair enough.

That is very helpful.

Thanks.

Craig Hettenbach, Morgan Stanley

Thank you.

Adam, question on the sensors business.

As you think through the strategy there, can you give a little context in terms of how much is push versus pull in terms of some of your customers perhaps pulling you into discussions in terms of what you can offer at this point and what the implications are for the growth there?

Sure, look, I am not going to tell you that in any of our businesses customers just come screaming and knock down the door.

I mean we've got people out there knocking lots of doors.

In every one of our businesses we are going to push hard, and that is true certainly in the sensor business as well.

I think to the extent there is a pull, it is a pull that happens internally in Amphenol where we have fabulous relationships with certain customers in certain segments of either the industrial or the automotive market in particular, where we don't have a sense of relationship.

And through that wonderful dialogue that we have with our ongoing relationship from an interconnect standpoint, we pull in the sensor team to talk about a collaborative drive, whether that is a new integrated product o whether that is just a totally new product that the customer says, hey, now that you have that sensor, let's talk.

What's the genesis of that conversation?

Is it the customer taking up a notice or is it our salesperson promoting it or our engineering team promoting it?

I have a hard time to say which is push and which is pull.

But no question, there is a lot of dialogue happening at customers across those spaces.

And the customers that I have had the good fortune to visit, they just are really happy about a company in whom they have so much confidence like Amphenol now can offer them a broader solution of interconnect, of sensors and of antennas, which are all products that are real growth areas for customers in most of those spaces.

You talk about something like the Internet of Things, which is a very often bantered about almost cliche these days.

Ultimately, this Internet of Things as it is reflected in places, like industrial and automotive and otherwise, is a network of sensors with antennas and interconnect on them.

And there's very few companies very, very few, who can say they are really a leader in all three spaces, and that is something that we can say very strongly to our customers around the world.

I think ultimately that will create long-term value for the Company and for those customers.

Does it start with a push or a pull?

It doesn't really matter as long as in the end, do we win it.

Got it.

Maybe just a follow-up there since you mentioned integrated product.

Can you talk about just the design engineer teams working together now and how you envision that as you look out over a couple years in terms of where the technology might go?

Sure.

You know very well, Craig, having covered the Company for a while that we have still a very simple organization, with general managers who run their organizations and they have full accountability and authority to run their businesses.

And all the functions report up into those businesses.

So we don't have an integrated engineering organization across Amphenol.

What we do have is a very successful approach towards collaborating across those companies.

So to the extent that these integrated products happen, it is through that collaboration that will come for example between an engineer working in our sensor organization and an engineer working in one of the other operations be that in industrial or automotive or otherwise.

The real question comes is how do you stimulate those dialogues and identify them.

And that is where our group executives and our management team comes into play so much which is making sure that we are incubating those dialogues on a frequent basis, facilitating them and identifying them as appropriate such that we can put those engineers in a room together and get the job done.

And I think we have done that really from day one.

So one of the very first things we did when we acquired Advanced Sensors and then later when we acquired Casco was to get a bunch of engineers in a room together to meet each other, number one, and to exchange kind of this is what I do, tell me what you do kind of you show me yours, I show you mine.

And that initiation of the relationship was something that we took the opportunity very early to do and that has already started to pay great dividends through some of the collaborative activities that we have seen.

So I think that long-term to the extent that customers have a desire and a need for those integrated products and we think they will and we see them already having that, I think our engineering teams will work very well collaboratively, still within the basic Amphenol operating structure but in a way that can be very effective to solve those problems for customers.

Will Stein, SunTrust.

Thank you for taking my question.

Two quick ones.

First, in the wireless infrastructure end market, I am wondering if you are seeing anything meaningful from small cells this year?

Yes, I think we are very much participating in small cells and I couldn't break down how much of our sales are resulting from small cells but is there something meaningful?

Yes, I would say that there is something meaningful in small cells as the capital spending of some of our operator customers in particular shifts a bit from macro towards a bit toward small and micro cells that we certainly would benefit from that because we have a great product offering that covers that both from an interconnect as well as an antenna perspective.

Great.

And then in the industrial -- that broad based industrial end market, I want to follow up on a question that was asked earlier.

Often I think we as analysts try to look at results of some of the biggest industrial companies and try to draw conclusions from their results to those of Amphenol and others.

And I am wondering if you think that is a reasonable way for us to anticipate demand shifts in this end market or perhaps is much of your demand really coming from either private companies or companies that we might not have a good view of because of their size?

Any characterization trying to line up those two -- let's say the results of the big companies and your results would be really helpful.

Thank you.

Sure.

Well, I would love to be able to help you make a model for the industrial market but I think I would fail miserably.

You would do a much better job than I would.

Our industrial business is so diversified and so to look at maybe for example a diversified industrial company, there is a pretty big one down the road here in Connecticut and say is that a proper proxy for the industrial outlook for an Amphenol?

I wouldn't necessarily say that that would be the most highly effective approach to that.

We work across so many segments of industrial.

Ultimately what ties these industrial markets together is that their applications that tend to go into areas which are a little bit dirtier, a little bit more tricky to deal with, they tend to have to last a long time but you are talking about applications as diverse as solar cells and high-speed rail, factory automation, oil and gas, companies that make earth movers and tractors, lighting and next-generation lighting, medical.

I mean do those have necessarily the same cadence to them, those spaces or is there one or two sort of proxy big companies where one can say that is going to drive it?

Not necessarily.

And I think there is another element too which is the same dynamic that we talk about in automotive which is the expansion of new electronic feature set in that space means that you can't just say how many more cars are built this year and thus what are the revenues of Amphenol or Amphenol's peers going to be in that space.

You have the very same dynamic that happens in industrial.

There is this what I -- to not use a very easy to say word but kind of an electronification that is happening across the industrial market in all those spaces that I referred to where something for example that used to be a hydraulic or a mechanically driven feature on a tractor now becomes electronic or where a train that used to only need power to connect between the cars now needs a whole suite of fiber optics and digital and power and RF and other aspects.

Or where a train network now has to be tracked through a whole wireless system, something like a positive train control.

I can go on and on about that migration that is happening in the industrial market away from hydraulics and mechanics and towards electronics which is the same thing we have seen in commercial air, it is the same thing we have seen in military, it is the same thing we have seen in automotive whereby it is very hard to just take the overall equipment sales and then put that as a template for what one should expect with Amphenol.

I think clearly our performance over these years has reflected a very different trajectory than what one would have seen in overall GDP or overall industrial performance.

Great.

Thank you.

Wamsi Mohan, Bank of America.

Thank you.

Diana, you noted that inventory was a little higher than normal to support future builds.

So in light of the fact that guidance is roughly flat sequentially, what end markets is this targeting?

Why is this atypically higher this quarter?

I have a follow-up.

Sure.

We are not going to get into inventory by end market but I think our guidance is from in organic standpoint about 3% growth sequentially so it is not exactly flat.

But I think that some of this build is not necessarily just for Q2 but also to some extent goes into the second half of next year.

That being said, inventory is a little bit higher but it is still at the high-end of the normal range that the Company has had if you go back over the last few years.

So it is not an astronomical build in inventory that we are talking about here.

And I think as I said in the prepared remarks, we would expect as we go through the year that inventory would come back down at least to the midpoint of the range from a days perspective historically.

Okay.

Thanks for that, Diana.

If I am looking at this right, your guidance implies some organic deceleration in the second quarter, re-acceleration again on the second half despite some slightly tougher compares in the back half.

So is it fair to take the puts and takes are largely the mobile network comments you alluded to in 2Q and the mobile device ramp in 3Q that is creating this dynamic or are there additional drivers of acceleration that you have confidence in 3Q and further?

Sure.

I think if you look at the guidance and think about why it is different than perhaps what you would expect from a normal seasonality standpoint, I think it is exactly those two markets that you just mentioned.

It is the fact that the wireless market which would ordinarily be up sequentially in Q2 for the reasons I already explained, we don't expect that and then we do expect a pretty significant sequential uptick in the mobile device market in the second half of the year and that does happen from time to time.

If you go back historically, you can find other years where that has happened.

And I think as Adam has described on many of these calls before, it just tends to be a lumpy type of business depending on timing of program introductions and that kind of thing.

But it is -- those two markets that are giving the 2015 sequential seasonality a bit different look than perhaps what it has been in the past.

At this time there are no further questions in queue.

Thank you very much and again I thank you all for your attention today and I hope that spring has come as it has here to Wallingford, Connecticut, to all of you and we look forward to speaking to you again in a short three months.

Thank you very much.

Thank you.

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