Hello, and welcome to the fourth quarter earnings conference call for Amphenol Corporation. [Operator Instructions]. 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. You may begin..

Thank you. 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 fourth quarter 2018 conference call. Our fourth quarter 2018 results were released this morning.

I will provide you with some financial commentary on the quarter, and then Adam will give you an overview of the business as well as current trends, and then we will take questions. As a reminder, we may refer in this call to certain non-GAAP financial measures and may make certain forward-looking statements.

So please refer to the relevant disclosures in our press release for further information.

The company closed the fourth quarter with record sales of $2,225,000,000 and with record GAAP and adjusted diluted EPS of $1.09 and $1.05, respectively, exceeding the high end of the company's guidance for sales by approximately $122 million and adjusted diluted EPS by $0.07. Sales were up 14% in U.S.

dollars and up 16% in local currency as compared to the fourth quarter of 2017. From an organic standpoint, excluding both acquisitions and currency, sales in the fourth quarter increased 14%. Sequentially, sales were up 4% in U.S. dollars and 5% in local currencies and organically, breaking down sales into our two segments.

Our cable business, which comprise 5% of our sales, was up 12% in U.S. dollars and up 15% in local currency compared to the fourth quarter of last year. The interconnect business, which comprise the remainder of our sales, was up 15% in U.S. dollars from last year, driven primarily by organic growth.

For the full year 2018, sales were a record $8,202,000,000. Sales were up 17% in U.S. dollars and in local currency, and up a very strong 14% organically compared to 2017, an excellent performance. Adam will comment further on trends by market in a few minutes. Adjusted operating income was $466 million for the fourth quarter of 2018.

Adjusted operating margin was a record 21% in the fourth quarter of '18, up 50 basis points compared to the fourth quarter of '17 of 20.5%, and up 10 basis points compared to the third quarter of '18 of 20.9%. From a segment standpoint, in the cable segment, margins were 11.9%, which is up compared to 11.2% in the fourth quarter of '17.

In the interconnect segment, margins were a strong 22.8% in the fourth quarter of 2018, which is up compared to the fourth quarter of last year at 22.4%. For the full year 2018, the company delivered $1,695,000,000 in adjusted operating income, up a strong 18% from 2017.

We continue to be very pleased with the company's adjusted operating margin achievement, both with the achievement of 20.7% for the full year as well as 21% for the fourth quarter.

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 a dynamic market environment.

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

Interest expense for the quarter was $26 million, which is comparable to last year. The company's adjusted effective tax rate was approximately 25.5% for the fourth quarter of 2018, compared to 26.7% in the fourth quarter of 2017.

The adjusted effective tax rate excludes the impact of the tax charge in 2017 and related finalization in 2018 resulting from the Tax Act, as well as the excess tax benefit associated with stock option exercises and the tax effect of acquisition-related costs incurred in the 2018 period.

The company's GAAP effective tax rate for the fourth quarter of 2018, including the items just mentioned, was approximately 21%, compared to 126.5% in the fourth quarter of 2017. For the full year, the adjusted effective tax rate was 25.5% and 26.5% for 2018 and '17, respectively.

The adjusted effective tax rate excludes the impact of the tax charge in 2017 and related finalization in 2018 resulting from the Tax Act, as well as the excess tax benefit associated with the stock option exercises and tax effect of acquisition-related costs incurred in both periods.

On a GAAP basis, including the items just mentioned, the company's full year effective tax rate was approximately 23% and 51% for 2018 and '17, respectively. Adjusted net income was a strong 15% and 14% of sales in the fourth quarter of '18 and for the full year '18, respectively.

On a GAAP basis, diluted EPS was $1.09 in the fourth quarter of '18, compared to a loss of $0.34 in the fourth quarter of 2017. For the full year, GAAP diluted EPS was $3.85, compared to $2.06 in 2017. Both periods reflect the one-time tax and other items previously mentioned.

Adjusted diluted EPS grew 22% to a record $1.05 in the fourth quarter of 2018 from $0.86 in the fourth quarter of 2017. For the full year 2018, adjusted diluted EPS was a record $3.77, up 21% over 2017 at $3.12. This strong growth was supported by excellent operating performance, as reflected in the company's strong operating margins.

Orders for the quarter were a record $2,198,000,000, a 10% increase over the fourth quarter of '17, resulting in a book-to-bill ratio of 0.99:1. The company continues to be an excellent generator of cash.

Cash flow from operations was $378 million in the fourth quarter and $1.1 billion in the full year or approximately 116% and 94% of adjusted net income, respectively. The full year amount includes the previously mentioned payment of approximately $81 million to fully fund our U.S.

pension plans, as well as higher-than-normal tax-related payments during 2018 due to the Tax Act. Excluding both of these items, the cash flow from operations was 108% of adjusted net income for the full year.

From a working capital standpoint, inventory, accounts receivable and accounts payable were approximately $1.2 billion, $1.8 billion and $890 million, respectively, at the end of December. And inventory days, days sales outstanding and payable days were 74, 73 and 53 days, respectively, which were all within our normal range.

The cash flow from operations of $378 million, along with proceeds from the eurobond offering of $572 million, were used primarily to purchase approximately $255 million of the company stock.

We repaid $245 million under our commercial paper programs and revolving credit facilities to fund net capital expenditures of $101 million and to fund dividend payments of $69 million, which resulted in an increase in cash, cash equivalents and short-term investments on hand of approximately $272 million, net of translation.

During the quarter, the company repurchased 2.9 million shares of stock at an average price of approximately $87 under the $2 billion, three year open market stock repurchase plan, bringing total repurchases for the year to approximately 11 million shares or $935 million.

At December 31, cash and short-term investments were approximately $1.3 billion, the majority of which is held outside of the U.S. At December 31, 2018, the company had issued approximately $624 million under its U.S. and euro commercial paper programs.

And the company's cash and availability under our credit facilities totaled approximately $2.7 billion. Total debt at December 31 of '18 was approximately $3.6 billion, and net debt is approximately $2.3 billion. In addition, and as previously announced on January 7, the company successfully launched a $500 million U.S.

bond offering, which has a 10-year term and bears interest at 4.35%. The company will use the proceeds from the note issuance, as well as capacity under its U.S. commercial paper program, to repay the upcoming maturity of its $750 million U.S. senior note, which is due at the end of this month.

As a result of the new 10-year bond offering just mentioned, which carries with it a higher interest rate than the rate on the $750 million note maturing at the end of January, as well as considering the rising interest rate environment impacting our variable rate debt, we expect our quarterly interest expense from 2019 to increase to approximately $30 million.

The fourth quarter 2018 adjusted EBITDA was approximately $585 million, bringing the company's full year EBITDA to a record $2 billion. From a financial perspective, this was an excellent quarter and year. Before I turn the call over to Adam, I would like to make a brief comment relative to 2019 guidance.

As mentioned in our press release, our significant beat in sales during the fourth quarter of 2018 compared to the high end of our guidance was primarily driven by incremental strength in the mobile devices market, along with strength in IT datacom and communications market, partially offset by some additional weakness experienced in the automotive market.

Given the incremental strength in the mobile devices market in the fourth quarter, we expect a commensurate decline in the mobile devices market in the first quarter, which will result in a higher-than-typical seasonal reduction in mobile devices sales.

This decline is reflected in our higher-than-typical seasonal decline in our first quarter guidance, as well as in our full year growth expectations. In addition, we expect that our tax rate may come down slightly in 2019. At this point, we expect this reduction to be a maximum of 50 basis points, which is reflected in our 2019 guidance.

I will now turn it over to Adam, who will provide an overview of the business and comment on current trends..

For the first quarter, we expect sales in the range of $1,898,000,000 to $1,938,000,000, and diluted EPS in the range of $0.86 to $0.88, respectively. This represents a sales increase versus prior year of 2% to 4% in U.S. dollars and 5% to 7% in local currency and an increase versus prior year of adjusted diluted EPS of 4% to 6%.

For the full year 2019, we expect sales in the range of $8,190,000,000 to $8,350,000,000, and diluted EPS in the range of $3.88 to $3.96, respectively. For the full year, this represents sales and adjusted diluted EPS growth of flat to 2%, and 3% to 5% over 2018 levels, respectively.

I can just say once more that we're very encouraged by the company's record performance in 2018, and we look forward to driving further strength going forward, even given the many dynamics around the world.

I'm confident in the ability of our outstanding management team to build upon our new performance records and to continue to capitalize on the many future opportunities to grow our market position, while also expanding the company's profitability. And with that, operator, it'd be our pleasure to take any questions..

[Operator Instructions]. Our first question is coming from the line of Mark Delaney from Goldman Sachs..

Yes. First question is about mobile devices, which was the significant and positive surprise, especially given how weak global smartphone demand was and a lot of the smartphone supply chain companies actually cut their fourth quarter guidance.

So I'm hoping for just a little bit more color on how Amphenol was able to actually achieve significant revenue upside in its mobile devices segment for this past quarter?.

So well, thanks very much, Mark. I mean, look, we -- our team reacts to what demand we get from our customers. And I think, whether that's come in prior years from sometimes gaining share or sometimes the programs that we're on have done a little bit better, I would tell you that this year, it was more just the volumes of the programs that we were on.

There was more demand for the products that we were selling, and that's really the most simple explanation. And I think it really is a credit to our team for being able to react to that volume increase. And as I said, I mean, we had a volume increase in the quarter of quite significance on a sequential basis, 32%, from quarter-to-quarter.

And to react to such an increase in volume and be able to satisfy that was really a testament to the team's agility in the face of what is, no doubt about it, the most volatile market that we work in.

And look, as I explained in my prepared remarks, we see also the sort of commensurate reduction, which is more significant than we have typically seen, but that was because we saw this real incremental demand that we hadn't expected coming into the quarter.

And if you look at this market over many years, we have seen many times where we were not really able to predict quarter-to-quarter what's going to happen. We've seen sometimes a very strong Q2. We've seen other times a strong Q3, and in this case, we saw a really strong Q4. And it's really no different in -- than we've seen in other years.

The only difference here is that it kind of crosses the calendar year, and so it has a little bit of a magnified effect on the overall growth outlook for the company calendar year to calendar year.

But it's just another reflection of the team's real ability to capture what opportunities are present for them and then to react when, sometimes, the volumes have a different trajectory on the downside.

And I think our team has just done a fabulous job of that, ramping up the resources where necessary and ramping them down just as quickly as they need to in the face of the sort of seasonality that comes along..

That's helpful, Adam. My second question is about SSI.

I was hoping to get a better sense where EBIT margins are for that acquisition, what sort of EPS contribution from SSI is assumed in your guidance for 2019? And how should we think about EBIT margins for SSI over the longer term compared to the corporate average?.

Sure. Thanks a lot, Mark. Yes, with regards to SSI, I think we actually talked about this a little bit also when we released our press release for it. But those EBIT margins for that company, it's a great company, it's just slightly below kind of the company average, not meaningfully below, but they are slightly below the company average.

So in terms of the EPS accretion, we didn't really talk about that, and certainly, I wouldn't necessarily point that out specifically, but I'm sure you can probably calculate that yourself based on the EBIT margins I just mentioned..

Our next question is coming from the line of Amit Daryanani from RBC Capital Markets..

I have two questions as well, guys.

First off, in the mobile device side, Adam, the decline you guys have seen in March, is there a way to think about how much of that do you think is just normal seasonality versus inventory correction at the OEM level? And if you look at your crystal ball for mobile devices, do you think March is a trough, and then it will start the improvement in revenues in June? Or could revenues remain muted for the first half of the year?.

Well, first, I don't have a good crystal ball on mobile devices, Amit. I think we -- you've covered us long enough to know that. But look, I think what we both said, Craig and I, I mean, we -- the vast majority of our beat in the fourth quarter was really coming from mobile devices.

So I would sort of say that the equivalent of that is what we would see as kind of a correction going into the first quarter, because that was really incremental to the plans. And we don't know, ultimately, who's selling what products, but we do have a general sense of what they buy from us.

And so beyond that, I think it's the kind of normal seasonality. And look, normally, the first quarter is down somewhere between, I don't know, 25%, 35% is not abnormal to see. You have the holidays. You have Chinese New Year. You have all those various things.

Is the first quarter a trough or not? I think that's -- again, I think it's hard to say with a crystal ball. I think we've given an outlook for the year that we would expect the year to be down in the kind of mid- to high-teens. What the cadence is over the course of each quarter, I'm pretty bad at predicting that.

So I won't try -- I won't go out at the end of my skis on that one..

Fair enough. And if I could just follow up, you talked about heightened global uncertainty here, I think. I was somewhat surprised how well your military business is doing despite the government shutdown.

So are you seeing any impact from that? Or is there a risk that, that starts to impact your military business very specifically from the government shutdown? Any color there would be great..

Yes. Well, I think, the government shutdown, I mean, it may have lots of impacts that I'm not privy to, but I think the one area that it doesn't seem to have an impact on is the defense industry. I think the DOD is not one of the division -- one of the departments that is impacted today by the government shutdown.

I mean, we continue to see very robust demand in the military market. Obviously, we don't sell directly to the government in the vast majority of instances. The vast majority of what we sell is components that get integrated onto advanced military electronics systems, airplanes, vehicles, munition systems, communication systems and the like.

And we're selling those to OEMs who are manufacturing those products. But I think, in general, we have not seen really any slowdown or any impact from the government shutdown on our really strong military business.

And I think, when you look at the performance of our military business, really, over the course of the year, it's just a really outstanding performance, growing 20%, 19% organically, really continued momentum through the course of the year and, I think, with a continued strong outlook going into 2019.

And I think it is a reflection, really, of two things.

I mean, number one, we have worked over many, many years to broaden what was already an industry-leading position in military interconnect products, both through our acquisitions as well as really leveraging our technology capabilities around the company and packaging those technologies into the military, areas like high-speed and fiber optics and power.

I mean, the sort of core pillars of interconnect technology, we've just -- our teams have done an outstanding job of packaging those for these next-generation advanced military electronics. And the places where you see these electronics going in these next-generation electronics is really amazing.

I was just recently out in Michigan, and seeing what they're doing, for example, on next-generation electronification of military hardware, these are these really exciting areas where the military is pushing the limits of these technologies and where our team, by having broadened the range of products that we can sell, really becomes the first phone call on so many of these next-generation systems.

And so, I think, look, regardless of whether there's a short-term government shutdown or otherwise, I think this trend towards adoption of new electronics in the military and our enabling of that adoption has a real favorable platform for Amphenol..

The next question is coming from the line of Wamsi Mohan from Bank of America Merrill Lynch..

Adam, I want to ask my obligatory mobile device question as well. Your volume increase comment around mobile devices, I mean, if you really look at or at least what we track in terms of revisions to smartphone demand, it really had trended negative as you closed out through the course of the quarter.

And the bulk of that really happened in November and December. And when you look at sort of your guidance and upside to that, should we be really thinking about mobile devices as much broader than just smartphones? And frankly, laptops had been challenged too because of Intel shortage.

So should we be attributing this upside not to smartphones, but really to wearables? And can you size maybe the wearables business within your mobile devices, so we have some context on how large that could be? I have a follow-up..

Yes. I know it's not necessarily jibing with what everybody hears. But actually, we had really a strong performance in smartphones in the quarter. We had strong performance in other areas as well. And we do have a strong position in things like wearables. But today, our biggest business in mobile devices is really smartphones.

We grew -- I will tell you, we grew in all the areas, whether that's phones or laptops or tablets, wearables, all the other sort of accessories. I mean, there are so many new types of mobile devices that continue to emerge. But we had very strong and really the strongest performance in smartphones.

And I think to try to give a little color to that, we've been very successful at enabling with really new technologies, our products that sometimes can be used in new generation phones at a higher level of content and having a higher value into those products.

And I think our team's just done a fabulous job of continuing to build on our content as those devices become more complex and as there's more value that can be embedded in them. And you'll know very well, Wamsi, our approach here has always been a very consistent approach.

It's one where we say, we will participate in the mobile devices market to the extent that our product is really adding value to the end product of our customer.

And as our customer develops products which have more complex hardware, different -- an array of signals that go into them and other things like that, that can create the opportunity for us to participate with more content. It doesn't mean we always win everything. Of course, it's a very volatile market. Everything is a new jump ball.

But the opportunity is still there so long as there is still the innovation on the hardware side. As we've said before, if everything turned into a commodity that was just an empty host for software, then probably we wouldn't participate as much.

But as long as we've been in this market, we continue to see customers innovating new platforms of hardware and seeing the hardware as a strong selling point to their consumers and as a differentiating point to attract, preserve or gain market share..

Okay. And I was wondering if I could ask a longer-term question around the sensor business. So you obviously alluded to your Advanced Sensors, you did All Sensors, SSI now.

Can you maybe size for us the sensor portfolio as it currently stands and how you think about sort of the growth profile of that asset in aggregate, maybe just for 2019 if you could slice it a little differently from some of the end market because it goes across -- cuts across your different end markets?.

Yes. Well, I mean, look, we're really pleased with the progress of our sensor business really over the last half decade. It was just over five years ago that we made our first acquisition of the Advanced Sensor Business of GE, really, five years and a month ago, I think, exactly.

And since that time, we have acquired, I think, the better part of eight businesses that have been complements to that original Advanced Sensor Business.

And without giving a specific number for what sensors represent, because that's not necessarily how we portray the sales of the company, I would tell you that you look at all the acquisitions that we've made, with also some not insubstantial organic growth, and it's become a good business for us.

And what we really like about the business, as you alluded to, is it's not just kind of a one-trick pony of a business. You have a lot of different diversified opportunities, predominantly across the industrial and automotive markets, but we've also started to see sensor opportunities in the aerospace market.

And we'll continue to look for new areas across Amphenol's entire end market portfolio to really expand our sensor business. And the other thing that we've continued to see is a real strong benefit to us being able to go to customers with a comprehensive offering of interconnect, antennas and sensors.

And more and more, whether that's in areas like Internet of Things or whether that's in next-generation connected heavy equipment or you go through the list, there are so many different areas where the opportunity to go to customers and give them really an end-to-end solution has -- becomes more and more compelling.

And I think we've seen strong benefits from that, so far, and I think the stronger potential is still really in the future for that proposition..

The next question is coming from the line of Matt Sheerin from Stifel..

Yes. Just a question regarding, Adam, your commentary on the mobile networks and IT datacom's spaces, both areas where you saw very strong growth. It looks like a little bit more subdued outlook this year. I think you're looking at low single-digit growth for each sector.

Could you -- particularly on the IT data center where you've seen good growth, are you seeing any sort of pause, particularly on data center investments? And then on mobile networks, what's your take on the 5G rollout and how that impacts your revenue going forward?.

Yes. Well, look, as we mentioned, I think we had really strong both years in both these markets in 2018. You'll remember, we came into 2018 with a little bit less sanguine outlook, in particular in mobile networks, where I think we came into the year, if I recall correctly, almost flat.

And IT datacom was kind of a mid-single-digit kind of an outlook, and we ended up in both those markets growing organically in the high single digits. As we look now into 2019 -- look, I talked about the fact that there is -- there has been a little bit of building uncertainty in the world.

I think these are coming off a very, very strong year in particular for IT datacom.

And so as we think about our outlook for the coming year with some of the -- a little bit of conservatism maybe from some customers in the IT datacom market, given the overall kind of geopolitical world, maybe a little bit of that also in Asia, places like China, I think it's not -- nothing cataclysmic.

I think we still see that as being a market where we're going to have growth in the year. And you can bet that our team's going to fight really hard for every opportunity that presents itself. Relative to the mobile networks market, I think we're really pleased to see a little bit more opportunities in 2018.

And it remains a market where, I would say, we don't yet see the real strong impact coming from things like 5G or whatever next-generation networks are going to be called. But our team has done a great job of capitalizing on the opportunities that are present.

And as we look into the year, to the extent that any of these networks get accelerated, no doubt about it, we'd be present to capitalize upon that..

Our next question is coming from the line of Craig Hettenbach from Morgan Stanley..

Adam, just a question on trends by geography. There's been a lot of focus in the investing community on just China's slowdown. Just curious to get your take in terms of what you're seeing in China versus Europe and North America..

Yes. Well, I mean, I'll say two things. In the fourth quarter, we actually had really strong growth in Asia, not surprising on one -- from one perspective, which is that the mobile devices is essentially all procured in Asia, if not all procured in China. And so when you have a strong mobile devices quarter, that tends to also bring the all of Asia.

But interesting what I would also say is that even if you take out mobile devices in the fourth quarter, I mean, we still grew in the kind of mid-single digits in Asia. And for us, the vast majority of our business in Asia is in China.

And so I think our team, despite all the sort of press that you read, despite all the hoopla and hue and cry about the trade war and the slowdowns and all of this, I think our team's done a really good job of ferreting out opportunities.

But I would also point out that in the quarter -- in the fourth quarter, in Asia, for example, we grew in markets like automotive on a year-over-year basis. And I think that that's a market where there's been a lot of wide discussions around the volumes, which are down. And no doubt about it, the volumes are down.

But I think our teams have done a great job of building on a growing position there, taking more position on next-generation electronics, which has allowed the company to offset that more subdued end market demand that has been there..

Appreciate the color. And then just as a quick follow-up, just on SSI.

Just as you think about the sensor portfolio you were talking about in half a decade of acquisitions, and you're building that up, can you just talk about the environment in terms of for additional potential bolt-ons and is it specific sensor types that you can kind of expand upon or certain end markets that look more attractive than others?.

a lot of mom-and-pops, a few companies owned by conglomerates and then a much smaller number of larger, really strong players.

And we saw that, and it reminded us very much of the interconnect market and the connector market that we've been a part of for so many years in that it creates an opportunity for one to build through an acquisition strategy of portfolio of products that can be both complementary and ultimately, valuable in their totality to customers.

And so as we've thought about that over the years and we've I think successfully executed here on bringing in the better part of eight companies in addition to that first one, we have really viewed that on -- from two perspectives. One is building on our market position in sensors.

So really, looking at the various markets that we participate in traditionally, which are very diversified, really kind of every nook and cranny of the electronics industry and trying to sort of plug the hole, so to speak, where we don't yet today have a sensor presence.

And then also looking at the types of sensors, starting with things like temperature and pressure, gas and moisture and expanding to areas like position and recently, level sensors, speed sensors and a whole array of different types of sensor technologies.

And by sort of thinking on those two trajectories of both end market as well as the sensor types, we're slowly able to build out a more broad presence and -- a more complementary and broad presence to our customers that we've been dealing with for many, many years. And I think that has been a really great strategy.

Are we at the end of that strategy? I would say, far from it. I think we're still -- I'd say, five years is pretty early days. We've been in this business, Amphenol, for 87 years. So five is a relatively small proportion of the history of the company.

But we still -- I think we have validated, at least for ourselves, the fact that, indeed, there is some -- that opportunity to both grow organically as well as grow through a thoughtful acquisition program.

And that's what we'll continue to pursue, a real thoughtful approach to adding new types of sensors, spreading those -- all of those sensors across new geographies, new applications. And then along the way, really, the most important principle of these acquisitions has been the people side.

And I can just tell you, we've brought in fabulous individuals into the company who we probably never would have gotten to know had we not, at one point, said we want to get into the sensor market and expand really what we offer to customers, broaden really the reach of what our interconnect offering is to include sensors.

And I'm very thankful that we did that because we have brought a lot of great people into the company. And those -- at the end of the day, those great people create also new platforms for future performance for the company..

The next question is coming from the line of Shawn Harrison from Longbow Research..

Two questions, if I may. The mobile networks business, in terms of the growth forecast for the year, is there any difference between the three geographies you principally serve in terms of growth rates? And then second, on the M&A environment.

When you come into kind of a more uncertain environment historically, do you see the companies that you've been speaking to over the past months and years become more willing to consider selling the business? Or do they begin to pull back a little bit more from considering selling the business?.

Yes. I think relative to the mobile networks guidance, I mean, what I can tell you is if we look at our performance here in the fourth quarter, I would say that we had stronger performance in North America. We had maybe kind of average performance in Europe and a little bit worse in Asia.

And I think when you look at kind of our full year performance for mobile networks, it was -- really, we had probably much stronger performance in North America compared to the other regions, a little bit better, actually, in sort of the rest of the world areas. So as we go into now 2019, I wouldn't -- we don't necessarily guide by region.

But I wouldn't expect it to be materially different. I think we still see robust opportunities in North America. I think our team in some of the other regions around the world, places like India and other kind of what we would call sort of rest of the world areas, we see good strength there.

We'll be mindful, though, I mean, to the extent that one or another region comes first with a next-generation system, that could all of a sudden drive that region to have a little bit better performance. And sometimes, we've seen that in the past when you've had a new generation system. Sometimes, it's a little bit of a regional arms race.

And again, I don't think we expect that right now. But to the extent that, that materializes over the course of the year, that could skew it. But I wouldn't say that we have necessarily appointed, by region, a sort of an outlook here.

Relative to your question about M&A and with the uncertain markets and whether you're talking about the volatility in the equity markets or otherwise, in our experience, this doesn't necessarily change buyer behavior. I mean, we look to buy companies that we work with for a long time. We try to get to know them over a long time period.

And sometimes, the gestation of those relationships is not really necessarily related to external factors. And so does that mean that people are more willing or less willing to sell? I think it has depended.

I think if you look at our track record over many years and over many cycles, I don't know that there's been necessarily a correlation between economic cycles and our willingness certainly nor our ability to successfully execute on acquisitions. I think we bought companies in good times and bad.

I mean, we made -- I remember making my first acquisition as CEO in March of 2009, which was not necessarily the greatest economic environment. So I think it really depends on the seller. Sellers sell for a lot of reasons.

And those aren't necessarily and usually aren't typically driven by the -- either the stock market or the overall macroeconomic environment. But we have a great pipeline. We continue to work that pipeline very hard, and I think we have a great story to tell.

The organizational culture of Amphenol really creates such a compelling and attractive destination for the right companies. And I'd say really the right companies, because we make sure we buy companies that have a real entrepreneurial fit with our organization. We look for great people, great products and great market position.

And we look to pay reasonable prices for all of that, fair prices, let me say. And I think we were successful in doing that here with SSI, a company that we had courted and dated for quite a long time. And again, we have a great pipeline going forward, and we'll look forward to more acquisitions in the future.

And as always, we'll remain very unable to predict the timing specifically of when those are going to come..

The next question is coming from the line of Steven Fox from Cross Research..

Just two quick questions from me.

One, can you just sort of help with your organic growth expectations for auto and industrial for 2019? And then secondly, any thoughts with the full year guidance, how would we think about cash flows versus the cash flow performance you just did? Would the ratios be about the same, better or worse for any reason?.

Yes. So relative to -- I'll talk about industrial and auto for a second, and then let Craig talk about the -- answer your other question. I think organically, we would expect both industrial and auto to be in the sort of low- to mid-single digits organic growth. So I think in both cases, we said they're high single digits.

So a little bit more than half of the growth coming out of M&A and a little bit less than half coming out of organic growth..

Yes. In regards to our cash flow for 2019, yes, we had a great year in 2018 for cash flow. It certainly -- especially if you kind of take into account the -- some of these additional kind of items that we had. But in regards to 2019, I wouldn't expect anything so different. I think we're going to still have a strong year in 2019.

We do a great job of managing our working capital in slower-growth years. Sometimes, that means that working capital is actually a help for you in terms of cash flow. So we certainly would expect that in 2019 to continue to have the cash flow.

And our target continues to be long-term operating cash flow in excess of net income, and I certainly wouldn't expect that any different for 2019..

And the next question is coming from the line of Deepa Raghavan from Wells Fargo Securities..

A couple from me, too.

With regards to your automotive low- to mid-single digits organic growth outlooks, are you able to discuss some of your production assumptions, especially across regions, China, Europe, North America, for example? That will be pretty helpful, especially just given that most companies are lowering their expectations versus third-party data providers.

And I have a follow-up..

Yes. I mean, we don't look at sort of overall vehicle productions and then extrapolate our outlook. Our outlook is really a bottoms up. We've described this I think before that the way that we come to a forecast is we go out, and we talk our customers, and we make some judgment about what they tell us.

And then on the basis of that, we ultimately come with an outlook for the company. And nowhere in that mix is there kind of a presumption of what the market is going to be. And I think others have maybe a better handle on that. It's not something that we necessarily base our outlook on..

Okay. So 0% to 2%, year-on-year growth, that's mostly -- that's probably lower due to your mobile devices. I mean, my math just says, you probably would -- it would be mid-single-digit growth ex mobile devices on revenue growth.

The question from me is, with the exception of mobile devices, are you -- are any of your end markets inflecting downwards? Or is it just cycle normalization that you're seeing? I guess where I'm going with that is how do you view the 0% to 2% growth outlook versus double-digit growth that you've printed the last couple of years?.

Yes. Well, look, I think one thing, Deepa, I'll credit you for doing good math here. And I think you made a good analysis. Look, I think overall, as we said, and it's no surprise, I don't think we're the only ones to observe this, there's no doubt that there's a little bit more uncertainty in the overall world right now.

And for a whole variety of reasons, which I don't mean to extemporaneously talk about here today, I think the newspapers are full to the rim with enough things written there.

Are there specific markets that have had an inflection? I think we talked last quarter about the fact that automotive here in the fourth quarter as we finished the year was a little bit weaker than we expected. And then ultimately, it was even a little bit touch weaker than we thought coming into the quarter.

So I'd say that, that was -- if we want to talk about an inflection, it was a little bit weaker than we expected coming into the quarter. And we had weakened our outlook going into the quarter. That's one. I would say that if we look at like the industrial market, it's mixed. We've had some markets that continue to be very strong.

I think I mentioned the fact that in the quarter, I mean, we saw strong performance from things like rail mass transit, medical and oil and gas, for example, a really strong performance. And then conversely, we saw some other areas that turned a little bit more negative, areas like heavy equipment, factory automation, instrumentation.

And those are areas that maybe earlier in the year, we saw a bit more strength coming out of those segments in the industrial market.

So are some of those more macro impacts having a little bit of impact on a few of those segments of the industrial market, a little bit more than certainly we thought a couple of quarters ago? I think that's kind of a fair statement. But look, military market and commercial air, we talked about I think we still have a very favorable outlook there.

I think I already addressed the IT datacom and mobile networks market to one of your peers' questions. And then the broadband market, I think, is just kind of in a flat situation right now. As for the full year, it was not a great performer, a little bit worse than we had expected.

I think that for the quarter coming up, well, while we do expect going into the first quarter, maybe a little bit of year-over-year growth, it's still kind of flat on a sequential basis. And our anticipation is that the market will be roughly flat for the whole year of 2019..

The next question is coming from line of William Stein from SunTrust..

Two of them, if I can. First, Adam, in the mobile device end market, investors tend to have concerns for component companies that have a lot of exposure there. I think that's typically because of the level of customer concentration and the difficulty in predicting sort of volume ramps across various products.

And it gets really to diversification, both among customers and within a customer among their product. I'm wondering if you can comment as to Amphenol's position in that regard today and in particular, relative to your customer and product concentration over the last few years in that end market.

Is it getting more concentrated, less concentrated, more diversified? Any help to understanding that, please..

number one, to make sure that we're as diversified as we can be, given the opportunities in that space; but also, number two, to make sure as a total company, we remain very diversified. And so that's why, for us, it remains very important that you look at the company for the full year and not one of our markets was more than 19% of our sales.

I think mobile devices was 17% of our sales for the full year of 2018. That was a little bit more in the fourth quarter, but it was a very heavy first quarter. And I think the fact that we ended up having that one customer peak a little bit over 10% was really because of this incremental demand for our products that we got in the quarter.

It was quite incremental to what we had expected as Craig and I have already described a few times here. So I wouldn't say that there's any real change. I mean, I talked earlier to the fact that this is a market that is volatile between the quarters. It's a concentrated market.

It's a market where you have to be extraordinarily agile in the face of that inherent volatility in the market. And it's a market that we're very, very pleased to be a part of.

And we're very proud of the success of the company over a long time period when many other companies have not been able to be successful because they just were not simply agile enough to manage the variability that comes in that market. It's a very wonderful market if you can be agile.

And I think our results here in the fourth quarter and in 2018 are a great reflection of that.

And as we go into first quarter, and we have to make the necessary adjustments to the business, I can tell you that our team is already well on their way without even one word from us to make whatever adjustments need to be made in the face of the changing demand environment.

So I certainly wouldn't want to be 100% mobile devices, but I wouldn't want to be 100% in any of our markets.

I mean, that's the beauty of our approach to really the electronics industry in the broadest sense is that we believe that it's important for the company to be present everywhere where there are opportunities in this sort of revolution of electronics that is going on over the course of our lives here, yet we don't want to bet on one or another in one of those areas.

And so we continue to find that there are opportunities everywhere, that we should be as diversified as possible. And by being diversified, we get access and awareness of the new technologies, but we don't just put all our eggs in one basket. And I think that's true across-the-board in the company, but it's also true here within mobile devices..

That's helpful. One follow-up, if I can. Just switching gears to the M&A pipeline. I know M&A is very bottoms-up driven at Amphenol, not a top-down thing. And I understand it's not very predictable when you're going to be able to close deals.

But is it fair to think about the pipeline of potential acquisition targets that you're looking at is likely skewed away from traditional connector companies today relative to how it's been in the past? And is there anything outside of, let's say, your traditional connectors, antennas and sensors? Is there another category that you might be looking at?.

Yes. Well, I think you correctly termed that it's our pipeline -- I mean, bottoms up, I would tell you we're very involved here at headquarters.

So I think it's -- I wouldn't say it's a bottoms-up driven process because Craig and I, together with our very small headquarters acquisition team, are extremely involved in every potential acquisition of any size. But look, the ideas for acquisitions certainly percolate around the company.

And that's the beauty of having 110-plus general managers and my seven group executives around the world. I mean, they're our greatest sensory network to find these new acquisitions. They know who their great competitors may be. They know some of the products that may be complementary to their own.

And that's a great resource, which is a heck of a lot better resource than just waiting for pitch books to show up on our desks from investment bankers. Now look, are we skewing away from Internet? I would say, absolutely not as they interconnect. I mean, we continue to have a pipeline of great interconnect companies.

And if you look at our acquisitions, just in the last year, I guess, two of them were sensor companies and two of them were interconnect companies. One of them was really a value-add interconnect. The other one was a really high-technology connector products company, and then the two sensor companies of All Sensors and SSI.

I think if you looked into prior years, you'd also see a blend of that.

I would rather say that when -- again, over the last five years, when we got into sensors, it opened up a new avenue, a kind of a new platform of acquisitions, but not to the expense of our continued strong drive to find complementary interconnect companies, antenna companies and sensor companies.

Now to your question of is there something else out there that we may further extend our portfolio of interconnect companies? There may very well be. But I can tell you this, we are not acquiring companies just to become a holding company of a bunch of unrelated components.

I mean, we view this as a very, very strategic drive to be able to offer our customers a broader suite of interconnect under the broadest definition of what that is. And that, in our mind, includes connectors, value-add interconnect products, sensors, antennas and all that is associated therewith.

And so we're not going to just go and acquire random companies to add incremental revenue to the company if it doesn't make really strategic sense to how our customers view us as an interconnect partner to them.

But are there new areas and accessories or ancillary products that are really part of that family that we could expand into? Yes, for sure, there are. And what those would be is hard for me to tell you at this point.

But we'll continue to look to, as I call it, extend really the reach of the interconnect products that we sell to our customers on a broad basis.

And we do that -- by the way, it's also organically, not just through the acquisition program, but always looking organically at our own internal innovation and product development to satisfy those needs as well..

The next question was coming from the line of Jim Suva from Citi..

A couple of quick questions, one for Craig and one for Adam. Craig, CapEx has been going up over the years, I assume, to support growth.

What should we think about for CapEx for 2019? But importantly, are you having discussions with customers due to the new trade wars and political situations of them asking you to physically relocate products? And if so, do we need to build a little more CapEx for that? And then, Adam, for your mobility outlook.

I think the worst year or the most challenging year that Amphenol ever had in mobility was like in 2016.

Are we looking kind of like that? Or it looks like your severity is even more than that because you were down about 14% this year, and now you're saying kind of mid to high teens decline? Or is that just simply because Q4 was so good?.

Jim, so I would just say in regard to the CapEx, our typical kind of annual spending, as we've talked about before, is in the range of, say, 2% to 4% of sales. We typically, over the longer term, have been closer to a little -- maybe a little over 3%. This year, as you mentioned, we did have clearly some strong growth this year. Organic growth, 14%.

In years of that type of growth, we do typically have a little bit higher level of spending. And this year, we're maybe still within that range, but I think slightly under 4% for the year. As we move into 2019, I wouldn't expect anything meaningfully different from that. In terms of a range, I would expect between 3% to 4% of sales.

So -- and as it relates to the tariffs and the trade war and potentially moving production, I certainly wouldn't build anything incremental into the plan.

I think that, as Adam's talked about before, we're very thoughtful around being very agile in terms of ensuring that we're doing the right things and being thoughtful around whether or not we have to move production or just do different things a little bit differently from a logistics perspective.

And -- but I certainly wouldn't, at this point, add anything from that perspective into our capital spending..

And Jim, with respect to mobile devices, you have a good historical perspective. In 2016, our sales were down 15%. I think what I said in my prepared remarks is, we do expect in the full year 2019 sales to be down in the kind of mid to high teens. So mid to high teens could imply a little bit worse than the 15% that we had in 2016.

But I think you correctly pointed that out and I think, Deepa, also, earlier did the same math, which is that with this incremental sales that we had in the fourth quarter, there is some impact -- some not insignificant impact from that on to the year-over-year comparison in mobile devices as we go forward into 2019..

The next question is coming from the line of Joe Giordano from Cowen..

So auto, I think you said 7% organic was your 2018 full year number.

Can you kind of parse that out regionally? How do organic look in each of your key regions?.

Yes. So I think in -- for the full year, organically, on a regional basis, I would say, we had strong performance both in Asia and North America and a bit weaker performance in Europe. I think we were actually in Europe down a bit.

And in North America and Asia, both growing on a year-over-year basis in the kind of low double digits, sort of flat -- Europe was a little flat..

Okay. And then what about orders for like -- for that business on the auto side and for datacom specifically in 4Q? Some of your competitors reported they grew nicely in the quarter revenue, but orders really started to trail off.

So I'm curious what your orders in fourth quarter were for auto and for datacom, if you're willing to get into that organically..

Yes. I mean, we don't really split out orders by market. But I wouldn't tell you that we saw any sort of dramatic reductions in orders in any of those markets. I mean, you have a little seasonality that sometimes comes.

I think that the overall performance of the markets that we both reported in the fourth quarter, as well as how we've guided in the first quarter, is kind of a reflection of the rough magnitude of the order trends in each of those markets. I wouldn't say that there was this sort of real shocking disparity in orders..

Okay. And then last question from me, like the mobile device outperformance in 4Q versus your initial expectation.

I know you've, over the last couple of years, been winning a lot of this kind of white knight business where your flexibilities allowed you to fill holes that existed from others, and I'm just wondering does that -- how does being able to do that kind of carry over to discussions on new platforms as they emerge? Like does it allow you to -- does it position Amphenol in a way that you can price at a premium because they know that they're not going to have to scramble and find a replacement supplier at the end of the day?.

Well, look, pricing at a premium in the mobile devices market is not the easiest thing in the world. So I wouldn't say that anything ever gives you the right to kind of price at a premium. It's a competitive market, and you got to be lean and mean on your cost.

I think, look, a year ago, we talked about the fact that as we came into the second half of 2017, we really were coming to the rescue of our customers in a few instances where some of our peers had kind of fallen down and were not able to satisfy, both technically and capacity-wise, the needs of the customers and we were able really to step in and solve those problems.

And I think if we look at our performance this year, I think the strong performance that we've had this year was less related to that dynamic and more related to the fact that our customers do reward you for bailing them out when they need to be bailed out. And I think it doesn't give you a free pass.

It doesn't give you a carte blanche or anything like that, but it's part of the mix of considerations that a customer goes through when they decide to whom are they going to award business. And business is not awarded in our industry just on price. It's awarded on reliability. It's awarded on quality. It's awarded on technology.

It's awarded on the ability to meet the execution requirements and the volume of the customer and the terms of the arrangement. I mean, there's a whole complex array of considerations that our customers go through before they ultimately decide to whom are they going to work with, number one.

And number two, to whom are they ultimately going to award what share of their business going forward. And I think when you have demonstrated consistently as we have over many, many years that we're there for our customers when they need us, well, that is not harmful to that calculus. Is it just positive? Is it the only thing? No. Absolutely not.

But it certainly gives you a little extra thumb on the scale in the whole mix of considerations. And so I think when we look at the teams' great work that they did this year, growing more than 40% on a year-over-year basis, clearly, that was not just a reflection of a transactional relationship of 2019.

It was on a continuum on a buildup of sort of credibility and the reputation that we built with those customers over a long time period, together with the transactional discussion that you have on every new platform in that very volatile market..

At this time, we no longer have any questions over the phone. Speakers, you may....

Well, operator, thank you very much. And I'd like to extend my thanks to all of you for your close attention. And I wish you all a great start to the New Year, and we look forward to speaking with you all again here in a short 90 days. Thanks so much..

Thank you..

Thank you for attending today's conference and have a nice day. For the recording replay, you may dial 800-489-7545 or 203-369-3806 and use the passcode 7183..