Amphenol Corporation (APH) Q2 2016 Earnings Report, Transcript and Summary

Hello, and welcome to the Second 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, Mr. Craig Lampo. Sir, you may now begin. Craig A. Lampo - Chief Financial Officer & Senior Vice President: Good afternoon. My name is Craig Lampo, and I'm Amphenol's CFO. I'm here together with Adam Norwitt, our CEO. We'd like to welcome everyone to our second quarter conference call. Q2 results were released this morning. I provide some financial commentary on the quarter, and Adam will give an overview of the business and current trends and then we'll take Q&A. The company closed the second quarter with record sales of $1.548 billion and EPS of $0.65. Sales were up $0.15 – 15% in U.S. dollars and 16% in local currencies compared to the second quarter of 2015. From an organic standpoint, excluding both acquisitions and currency, sales in the second quarter increased 4%. Sequentially, sales were up 7% in U.S. dollars and 6% organically. Breaking down sales into our two segments. Our Cable business, which comprise 6% of our sales, was up 11% from last year, primarily due to the strength in the broadband market. The Interconnect business, which comprise 94% of our sales, was up 15% from last year, primarily driven by the impact of the FCI acquisition as well as organic growth. Adam will comment further on trends by market in a few minutes. Operating income increased to $300 million in the second quarter. Operating margin, excluding one-time items, was 19.4% compared to 19.7% at second quarter of 2015. As discussed on our last earnings call, the FCI acquisition is accretive on an earnings per share basis, but reduces the company's overall operating income percentage as the business currently operates at a lower level of profitability than the average of the company. We continue to be very excited about the potential of the FCI acquisition and have begun to see improvement in their operating margins. We expect their operating income margins to continue to improve over time based on the combination of their excellent management team, leading technology and our strong operating discipline. From a segment standpoint, in the Cable segment, margins were 14.9% compared to 11.8% last year. The increase in margin is related primarily to strong operating execution on additional volume, as well as the benefit from favorable impact of commodities. In the Interconnect segment, margins were 21.2% compared to 21.9% last year. The decline in the Interconnect operating margins reflects the impact of the FCI acquisition previously discussed. We continue to be very pleased with the company's operating margin achievement. This excellent performance is the direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster high performance, action-oriented culture and which each individual operating unit is able to appropriately adjust to market conditions, and thereby, is maximized both growth and profitability in a challenging market 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 $18 million when compared to $17 million last year, reflecting the impact of higher average debt levels resulting from the company's stock buyback programs. The company's effective tax rate was 26.5% in both the second quarter of 2016 and the second quarter of 2015, excluding one-time items. On a GAAP basis, the company's effective tax rate was 26.5% and 27.1% for the second quarter of 2016 and 2015, respectively. Net income was a strong 13% of sales in the second quarter of 2016. EPS was $0.65 and $0.58, excluding one-time items in the second quarter of 2016 and 2015 respectively. And on a GAAP basis, EPS was $0.65 and $0.56 for the second quarter of 2016 and 2015 respectively. Orders for the quarter were $1.582 billion, a 16% increase over the second quarter of 2015, resulting in a book-to-bill ratio of 1.02 to 1. The company continues to be an excellent generator of cash. Cash flow from operations was $243 million in the second quarter or approximately 117% of net income. For the six months, operating cash flow was $438 million or approximately 119% of net income. The company continues to target cash flow from operations in excess of net income. From a working capital standpoint, inventory was $927 million at the end of June. Inventory days were 79 days, down five days compared to March. Accounts receivable was approximately $1.3 billion at the end of June; and days sales outstanding was 73 days, down approximately two days from end of March. Accounts payable was $645 million at the end of the quarter; and payable days were 55 days, flat compared to March. The cash flow from operations of $243 million along with stock option proceeds of $66 million were used primarily to purchase approximately $59 million of the company's stock, to fund net capital expenditures of $47 million, to fund dividend payments of $43 million and to repay commercial paper borrowings of $33 million, which resulted an increase in cash, cash equivalents and short-term investments of approximately $112 million net of translation. During the quarter, the company repurchased 1 million shares. 3.5 million shares remain available under the stock repurchase program through January 2017. At June 30, cash and short-term investments were $825 million, the majority of which is held outside the U.S. At the end of the quarter, the company had issued $845 million under its commercial paper program and the company's cash and availability under the credit facilities totaled approximately $2 billion at June 30. Total debt at June 30 was $2.8 billion and net debt was approximately $2 billion. In Q2 2016, EBITDA was approximately $362 million. From a financial perspective, this was an excellent performance. Before I turn the call over to Adam, I wanted to make a couple comments relative to our guidance. We have issued updated guidance in the press release that increases our range of guidance for the full year from sales and diluted EPS excluding one-time items of $6.080 billion to $6.200 billion and $2.56 to $2.62, to sales of $6.120 billion to $6.200 billion, and EPS of $2.60 to $2.64, an increase in the midpoint of guidance of $20 million in sales and $0.03 in diluted EPS. This updated guidance reflects the offsetting impacts of the negative impact of current FX rates, particularly the weakening of the euro, RMB, and pound, and the positive impact of our newly announced acquisitions. In addition, it reflects our current expectations for accretion from our January 2016 acquisition of FCI of $0.15 compared to $0.12 in our previous guidance. Our updated expectations for FCI reflect good progress in operating margin improvement. The management team continues to be fully committed to continuing to improve the FCI margins. Adam will now provide an overview of the business and current trends. R. Adam Norwitt - President, Chief Executive Officer & Director: Well, thank you very much, Craig. And I also like to add my welcome to that of Craig's to all of you who are here on the phone today, and I hope that you've all had a pleasant beginning to the summer so far. As Craig mentioned, I'm going to spend a few moments just to highlight some of our achievements in the second quarter. And in particular, I'll discuss some of the trends and progress in our various end markets. Finally, I'll make a few comments on the outlook for the third quarter and full-year 2016. And of course, we'll have time at the end for questions. With respect to the second quarter, we're just so pleased that we reached new records in sales and orders and equaled our previous record for EPS. I'll just say that these achievements are particularly significant given the ongoing uncertainties that are still present in the worldwide economy. Our revenues in the quarter increased by a very strong 15% in U.S. dollars and 4% organically, reaching that new record of $1.548 billion. And Craig alluded to the fact that we booked also record orders in the quarter of $1.582 billion and that represented a very strong book-to-bill of 1.02 to 1. We're also really proud of the company's margins, which increased by 80 basis points from the first quarter to 19.4%. Really excellent achievement, especially in light of the currently lower margins of FCI that Craig detailed. And while those margins do remain below our average, we're excited to be starting to see improvements in the operating performance of FCI and that is reflected in our revised guidance for EPS accretion of approximately $0.15. Operating cash flow in the quarter was also a very robust $243 million, which is a clear sign of the quality of the company's earnings. I just want to say that I remain truly proud of our Amphenol team. Our entrepreneurial agility has once again enabled the company to achieve strong performance despite what are still very significant uncertainties around the worldwide economy. And with respect to that financial strength, we're also very pleased that our financial position has enabled us to complete two acquisitions just in the last week. First, AUXEL FTG is a France-based manufacturer of high-technology power interconnect solutions for both the industrial and IT datacom markets. And AUXEL has sales of approximately $50 million per year. AUXEL, which has facilities in France and Germany as well as production in China and India, is a real leader in value-add power interconnect and busbars and represents an excellent complement to our already broad array of high reliability power interconnect products. Custom Cable, the other acquisition we announced today, is a U.S.-based manufacturer of fiber optic and copper cable assemblies, in particular for the enterprise and carrier datacenter market. And that company has annual sales of approximately $30 million. With Custom Cable's outstanding service and their great product offering, together with our existing array of high technology products, we really look forward to being able to better capitalize on the interconnect opportunity within the fast-growing data center space. Let me just say that as we welcome these outstanding new teams to Amphenol, we remain very confident that our successful acquisition program will continue to create great value for the company. It is in fact our ability to identify and execute upon acquisition opportunities and successfully bring those new companies into the Amphenol family that represents a real core competitive advantage for the company. Turning to our progress across our served markets, I'll just comment that our company's extremely balanced and diversified end-market exposure is really a great asset, in particular during economic times like today. In fact, we're really pleased that in the second quarter not one of our markets represented more than 20% of our overall sales. Starting first with the military market, military market represented 9% of our sales in the quarter. Sales were down slightly in U.S. dollars and local currencies from prior year as growth in avionics, airframe and space applications was offset by its slower sales in military vehicles, communications and rotorcraft. Sequentially, the sales were flat from the first quarter. As we've talked about last quarter, we expected and in fact, that's what happened, that our sales were impacted by the Defense Logistics Agency's stop shipment order that we reviewed with you. Our team continues to work on the recovery from the DLA stop ship. And we are actually encouraged by our progress thus far and have actually just recently been able to secure a lifting of the stop ship on certain products. Nevertheless, our expectations for the financial impact of the DLA issue remain consistent with what we discussed last quarter. Despite this continued short-term regulatory challenge, we remain very encouraged by the company's performance in the military market. For the third quarter, we expect sales to increase from these current levels and we continue to anticipate modest growth for the full year 2016, even with the impact from the DLA issue. I'll just tell you that Amphenol remains the leader in military interconnect technology with the broadest range of high technology products across virtually all defense equipment, and that's the position of strength that we look forward to building upon into the future. The commercial aerospace market represented 5% of our sales in the quarter. Sales in this market were down by 5% from prior year, as stronger sales on some new airplane platforms were offset by continued reductions in commercial helicopter and business jet-related sales. In addition, we did see in the quarter some impact of the DLA stop shipment on certain military specification products that are used in commercial air applications, and in particular, sell-through distribution. As expected, our sales were down slightly from the first quarter. Looking ahead into the third quarter, we do anticipate a moderate increase in sales sequentially and we continue to expect growth for the full year 2016, as production volumes of new airplane platforms ramp up. The commercial air market is really an exciting space for Amphenol. With our strong technology position with customers around the world, together with the proliferation of electronics on new aircraft platforms, as well as the increasing production volumes of such airplanes, we are very confident for the long term in this exciting market. The industrial market represented 18% of our sales in the quarter. Sales in this market grew by a very strong 19% from prior year, driven by contributions from the FCI acquisition as well as by growth in the hybrid bus and truck, battery, alternative energy, rail mass transit and medical segments. Organically, sales increased by 2% as growth in these segments was offset by declines in our sales to oil and gas and heavy equipment customers. Sequentially, our sales growth is expected by 5% from the first quarter. Now with the acquisition of AUXEL, we have today the broadest range of power interconnect products into the industrial market, including a wide array of value-add solutions for both high and low-voltage applications. For the third quarter, we anticipate sales to remain at these levels. And we continue to expect very strong sales growth in the industrial market for the full year as we benefit from the contributions of FCI and now AUXEL, together with organic growth from a range of segments within the industrial market. We remain very proud of our diversified industrial business as we continue to make progress in selling in ever broader range of interconnect, sensor and antenna products into this important space. And our position in the industrial market is really stronger than ever and that's despite continued uncertainties across the global industrial market. The automotive market represented 18% of our sales in the quarter. Sales increased by 10% in U.S. dollars and 4% organically. And this was driven by continued progress in penetrating new interconnect and sensor applications in both traditional as well as hybrid electric vehicles. Sequentially, our sales increased by 4% in the quarter. Looking into the third quarter, we expect sales to remain at or slightly above these levels due to normal summer seasonality. And for the full year 2016, we remain confident to achieve continued strong growth in the automotive market. Our long-term outlook for the automotive market remains very positive. With our continued expansion of automotive interconnect sensor and antenna products; we are participating in a very broad range of new vehicle electronic systems. In addition, we now have a more balanced position geographically than actually ever before in the company's history, and this positions us to capitalize on growth opportunities around the world. We look forward to realizing the benefits of that strengthened position from many years to come. The mobile devices market represented 14% of our sales in the quarter. Sales were up slightly from prior year, as increased sales of products into laptops and accessories were offset by reduced sales into smartphones and tablets. While we grew by a very strong 15% on a sequential basis, this was a bit less than we had anticipated coming into the second quarter. And in fact, we've recently seen a moderation of customer expectations for a range of different mobile devices for the remainder of 2016 and this includes smartphones as well as other mobile computing devices such as tablets and laptops. Accordingly, while we expect sales to increase again in the third quarter by approximately 10% from current levels, we now expect our full year sales to decline by more than from 2015 levels. Regardless of this more challenging outlook for 2016, we remain extremely confident that our dynamic agile team has positioned us to benefit from any increases in demand that may still arise in this very dynamic market. We're confident that our highly reactive organization will continue to secure a strong position in the mobile devices market and are actually encouraged by our excellent technology positions that are across a wide range of next-generation mobile computing platforms. The mobile networks market represented 10% of our sales in the quarter. Sales were better than expected in the second quarter, growing from prior year by 29% in U.S. dollars and 15% organically, as we benefited from the contributions of FCI, as well as stronger sales of interconnect and antenna products to OEMs and network operators in several geographies. Sequentially, our sales increased modestly from the first quarter. We're very pleased that our growth accelerated here in the second quarter and it's an excellent confirmation of the success of our efforts to expand our position with mobile network service providers and equipment manufacturers around the world. This growth is a great confirmation of our ongoing drive to develop next-generation products that enable the continued proliferation of mobile broadbands. Looking into the third quarter, we expect a slight moderation of sales on normal seasonality. Nevertheless, we now expect to achieve low- to mid-single-digit organic growth for the full year 2016, which, together with the very strong contributions from the FCI acquisition, we expect to result in an excellent growth year for mobile networks market. Turning to the information technology and data communications market, this market represented 20% of our sales in the quarter. Our performance in this market was also stronger than expected in the second quarter, as our sales grew 38% in U.S. dollars and 5% organically. This performance was driven by strength in networking as well as further progress that we have made with new data center and web service provider customers. Our sales increased a very robust 12% sequentially, essentially all organic. Our team, focused on the important IT datacom market, is just doing outstanding job of positioning Amphenol across a broad range of customers with the widest array of high technology products, and in particular, with the new products from FCI. We're supporting our traditional and new customers in their ongoing quest to upgrade their equipment to handle dramatic increases in data traffic around the world. We're particularly excited that the acquisition of Custom Cable strengthens our position with both enterprise and carrier data centers, and it represents really an excellent addition to our growing offering in this important part of the IT datacom market. In addition, AUXEL further bolsters our leading suite of power interconnect products for the IT datacom market, an increasingly important technology area as data center operators strive for more efficient power consumption for their equipment. Looking ahead to the third quarter, we expect sales to increase from these levels. And we remain confident in achieving strong double-digit growth for the full year 2016 with the contributions from FCI and these new acquisitions, together with our organic performance. Finally, the broadband market represented 6% of our sales in the quarter, and we're very pleased that sales increased from prior year by a strong 13% in U.S. dollars and 15% in local currencies as cable operators accelerated their investments to accommodate upgrades in network performance. All of this growth was organic. Sales from the first quarter grew by a very robust 11% sequentially. For the third quarter, we expect the seasonal moderation of sales. But nevertheless, given our strong performance here in the first half, we now expect to achieve mid-single-digit growth for the full year 2016 in the broadband market. We're pleased to be benefiting from the renewed investments in next-generation capabilities by cable operators, especially in light of the many challenges we witnessed over the last couple of years amidst the wave of customer merger activity in this market. Our team in the broadband market is now capitalizing on our expanded range of interconnect and cable products, as well as our excellent position with broadband operators around the world and we think this positions us very well for the long term in this important space. So, just in summary, I just can tell you that I'm extremely proud of our company's record results here in the second quarter. And while the global market environment remains uncertain, the Amphenol organization is executing extremely well through our dual-prong strategy of strategic acquisitions and organic growth, all of which is enabling us to expand our market position while strengthening the company's financial performance. Amphenol's superior performance is really a direct reflection of our distinct competitive advantages: our leading technology, our increasing position with customers across a diverse array of end markets, company's worldwide presence, a lean and very flexible cost structure, and most importantly, our agile entrepreneurial management team. Turning to our outlook, based on the continuation of the current economic environment and assuming constant exchange rates, we now expect in the third quarter and full year of 2016 the following results. For the third quarter, we expect sales in the range of $1.543 billion to $1.583 billion, and EPS in the range of $0.67 to $0.69 respectively. This represents sales and EPS increase versus prior year of 6% to 8% and 3% to 6%. For the full-year 2016, we now expect sales in the range of $6.120 billion to $6.2 billion and EPS, excluding onetime items, in the range of $2.60 to $2.64. For the full year, this represents sales and EPS growth, excluding onetime items, of 10% to 11% and 7% to 9%, respectively, over 2015 levels. We're very encouraged by the company's robust outlook for 2016 and we look forward to driving further strength going forward despite the many ongoing dynamics in the global economy. I am confident in the ability of our outstanding management team to build upon our strength and to continue to capitalize on the many opportunities to grow our market position and expand our profitability in 2016 and beyond. With that, operator, we'd be very happy to take any questions.

Thank you. Our first question is from Mike Wood from Macquarie Group. Your line is now open. Mike Wood - Macquarie Capital (USA), Inc.: Hi. Congratulations on good quarter results. First question maybe I'll just ask about, your pipeline in automotive, just what you're seeing with some regional color, if you'd expect any impact as the comparisons with the incentives there start to rollover and potentially any European thoughts on production after Brexit? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. Well, thank you very much, Mike. Look, our auto business is continuing to just perform extremely well and we're just really happy about the progress that we've made over a many year period. I've talked about it in the past, the strategy that we have of finding complementary acquisitions, together with really driving into new electronics in the car with our organic product suite. And I think that continues to create a very, very strong pipeline. From a regional perspective, what we're just so proud of now is we have transformed that business from what was a clear majority European business with a minority North America and a very small presence in Asia, to now a business that is much, much more balanced. In fact, it's just over 40% or so in Europe and then equally split roughly between the other two regions. And I think that gives us exposure regardless of where the developments are and regardless of where the ultimate volumes are going to be. With respect to the incentives that may be in certain areas, I don't know necessarily that we have seen a big impact or whether we expect to see a big impact from those incentives. The ones that are most widely talked about are in China. They have traditionally to do more with smaller cars that tend to have a little bit less content than maybe some of the larger cars. If I look at our performance in the second quarter, actually, we had our best performance in Europe, where we had strong growth in the European market, both organically as well as with acquisitions. And we had also good performance in Asia and modest, let me say, performance in North America. And again, I think it's a credit to both the OEM diversification that we have, the regional diversification that we now have, and the application diversification, because we're seeing that growth across a wide array of different applications. And that is interconnect and sensors as well. Mike Wood - Macquarie Capital (USA), Inc.: Great. And it was good to see the FCI accretion increase. Curious if you've had any conversations yet with the distributors about leveraging the Amphenol product suite with the distributors where FCI had strong relationships and if you have any expectations about that? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. We've had a lot of conversations with distributors. I personally have had many of them and our team has had multiples of what I have had. And what we saw early on from the date of announcement and that has continued and I will say even ratcheted up is a great enthusiasm from our distributors on two fronts. Number one is, they have always had an affection, affinity, and loyalty towards FCI, but they had always a little bit of a cloud hanging over it in terms of the prior ownership. Whenever you're owned by a financial sponsor, your partners always have a little bit of a question mark. And I can tell you that every distributor just stood up and applauded when we were ultimately the company that was the ultimate home of FCI. But the second and more important is, FCI has positioned us with those distributors in just a very, very different way than we have been in the past. In the past, we have always been known by the distributors from our original legacy with them, which is in the harsh environment, military, industrial products, and that's where the history came. Even if we have diversified our products over time, we struggled to diversify them in certain of the commercial areas, the more high-tech telecom, IT datacom type areas, which are still very important for those distributors. Well, on the contrary, FCI was extremely well-positioned, and that was the area where they were positioned with these distributors. And so, what we have already seen is really great momentum in elevating the prominence of total Amphenol at those branches where traditionally we were not necessarily the first name to their lips when they were going to their own customers. And I think that elevation of the prominence at those branches which are more associated with telecom, with datacom applications, that will for us create great long-term opportunities to really cross-sell the broader suite of Amphenol products. Does it happen in a six-month period? Not necessarily. But do we already start to see the kind of green shoots of that coming up? We do, indeed. And I can only attest to the level of interaction and the enthusiasm of the interaction that we see with all of our distributors that gives me great confidence that in the future we will really see strong benefits from that combination.

Thank you. Our next question is from Amit Daryanani from RBC Capital Markets. Your line is now open.

Thanks. Good afternoon, guys. I have two questions as well. I guess starting off on the mobile devices side. Adam, could you just talk about the softness that you're seeing in the back half of the year? Is that a reflection of what's happening in the end demand in end markets or is it more a reflection of maybe share shift that's a little bit against you right now and that's impacting you? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, no. Thanks very much, Amit. I think we have seen in the mobile devices, as you know, we came into the second quarter with an expectation of being down for the year in the sort of mid-single digits range and, today, we see that being down somewhere in the 10% range approximately. And that was reflected in part with a somewhat less ramp-up that we saw in the second quarter, we were up about 15%. I think we had originally talked about being up around 20%, and then also some modest reductions here in the second half. We see that really all as changes in the overall demand as it's being now forecast to us from our customers. It's not that we're losing anything of any note. You're always winning and losing certain things in that space, let me say that. But overall, we have seen that just a more modest expectation from customers really across the board from their earlier forecasts. When we look at the mobile device market for the year being down, there's no doubt we prefer it not to be down and we're not happy about that. When you look at the trends, we've had years in the past where the second half is a very significant uptick from the first half and we've had other years where it's a somewhat less significant uptick from the second half. And I think this year in mobile devices, our second half as we've currently guided it is going to be up in somewhere in the teens. And we've had years where it's been in the high-teens, low-20s. We've had other years where it's been like last year much more substantial. And the cadence of the market, do you see more growth in the second quarter, third quarter, fourth quarter, we've had even years in the past where the first quarter was not so bad. Every year that changes a little bit. But overall, what we see is a more broad-based reduction in expectations. Now, I mentioned in my prepared remarks, this is not an easy market to forecast. And our team, no doubt about it, is poised for whatever opportunity to do better than that may come their way. And it's always been the agility of the team that in the end has allowed us to remain strong with our customers. Because in the end, customers want somebody there who can react to those quick changes, satisfy the upticks in demand, and deal with the moderations in demand if they come, and in that market, they tend to come when you least expect them.

Fair enough. That's really helpful. And if I could just follow-up on the FCI integration. I think you guys are raising the accretion by about $0.03 for the full year from $0.12 to $0.15. Just wondering, is that a better demand reflection from FCI or is the margin improvement in FCI much better than what you guys – or somewhat better than what you guys thought it would be? And to the extent, you can talk about the eventual potential of FCI margins versus what Interconnect average is? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. I think it's not a demand necessarily. We're happy with the demand. And I would say the demand is really meeting – the top line of FCI is really, at a minimum, meeting with our expectations. We've just seen better operating performance as a company. We've started to see better operating performance, we expect to see better operating performance and that's what's given us the confidence to raise our outlook for the accretion of the company. We still have a long-term goal, as we always do and as we widely communicated, to have FCI perform at the same levels of the rest of Amphenol. And we certainly don't lose sight of that goal and we have confidence long term to reach that goal. When does it ultimately get there? That's something that is still too early to say, but the early returns and the performance of the team is really fantastic and we're just so pleased with how they have not just embraced being part of Amphenol, but actually embraced what it means to be part of Amphenol. And that high performance culture, they have bought into that, embraced it, and become one with it in a time period that is really somewhat beyond our original expectations.

Thank you. Our next question is from Craig Hettenbach from Morgan Stanley. Your line is now open. Craig M. Hettenbach - Morgan Stanley & Co. LLC: Yes. Thank you for taking the question. Just following up on FCI and especially the increased exposure on the IT datacom. There is a lot of changing dynamics to that landscape. So, Adam, we're just hoping you can kind of discuss kind of what they do for you and what you're seeing from kind of a customer traction perspective particularly in the data center? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. No, I think it's a really important point, and we talked about the fact that at the time we announced the acquisition that FCI really bolstered our position in the IT datacom market from two perspectives. One, from a product perspective, where they had just a great rounding out of some of our products on the high speed, on the backplane, very incremental progress from a power perspective and IO and then the unbelievable array of board level products that are just really fantastic from FCI. So, from a product technology perspective, we just have today a much, much broader array of products for customers in that space. As it relates to the market side, in addition to the products, we had very complementary customer base in fact. There were certain customers where we were both well-positioned, but there were most customers where one of us had a better position than the other. And whether that was regional where they, for example, had some stronger positions at certain customers for example locally in China, we had maybe certain customers that were a little bit stronger here, they had some very good customers on the data center, the web service provider, we had others, but there wasn't really an overlap there. So, it just – not just rounded out, but strengthened and bolstered and broadened our position. And you're absolutely correct, the IT datacom market is going through tremendous, tremendous change today and it's not for the faint of heart. You see that around the industry. If you just hang your hat on the traditional OEMs, the traditional places where the orders used to come, the orders then are not going to come at the same pace you used to get them. You've got to pivot. And I think with that broad product range, with the channel, with the presence with other customers, as well as with our innate agility of our team, we've just done a fabulous job in that pivot towards where the opportunity are. I think what's clear is the overall opportunity, the market opportunity for IT datacom is still an exciting one, it's just a very, very different one than it was in the past. If you look at our performance last quarter, we grew 38% together with FCI, but we also grew 5% organically. And clearly, that is a different level of performance than you see overall in the industry and no doubt with the broad range of OEMs in that space. And that growth is a reflection of not just excellent agility that our team has displayed here, now with also a broader range of weapons to attack. So, it's a place that we're excited about. Like any market, I wouldn't want to be 100% in IT datacom, but that's the beauty of the diversification of the company and the diversification even within that space. Craig M. Hettenbach - Morgan Stanley & Co. LLC: Got it. Thanks for your color there. And then just as a follow-up on kind of the hybrid and EV battery opportunity. There's been some noise of some potential slowing, and I know in these kind of new technologies as they're adopted, it could be kind of fits and starts, as to kind of the growth. But can you just give us a sense in terms of how you see that market developing and have you seen much volatility to that hybrid or EV opportunity? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, I think in any space, as you correctly point out, as the market is evolving, there is volatility. I think there is actually volatility in most markets, most times right now anyways. We're not in a Steady Eddie kind of a macroeconomy today. And I think the hybrid EV space is no different. There is a tremendous amount of innovation happening and there is a lot of opportunities to intersect new demand for new functionality from customers and it's kind of all over the place. There're so many places where you need to target those customers. And I think it gets down to the nature of our organization. The fact that we have general managers in certain places around the world, whether that's in China, in Europe, in North America, who are focused on their customers reacting quickly to those customers, retooling products, redesigning products, designing new products, as appropriate, that has positioned us well very. I think the other thing that we've seen in this space is there is a real demand for a comprehensive interconnect and sensor solutions. And that's something that our team has started to do a real excellent job on. And will all of those applications that we work on ultimately results in something that is mass produced in volume on a stable fashion for a long time period? No, absolutely not, but well some of them, no question about it. And our approach in times like this in these very dynamic times is to really maximize our presence with as many customers as possible, with as many of our products as possible such that whoever the winners and losers may be as the market shakes out, we're going to be positioned with them. And that's the approach we've followed in the mobile market over many years. That's the approach we followed in the datacom market. And it's an excellent approach here for this exciting space today.

Thank you. Our next question is from Wamsi Mohan from Bank of America Merrill Lynch. You line is now open.

Yes. Thank you. So, Adam in the mobile device segment, can you comment on that incremental five points of weakness for the year. If you could categorize that between like lower demand on any inventory correction. It sounds as though smartphone demand is pretty weak but PC demand actually was a little bit better in 2Q. Do you think that there was some pull-in, because of that, that's now leading to a little bit sharper decline for the remainder of the year? And I have a follow-up. R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, again, what we're talking about here is a reduction in our outlook, not a reduction in the sales. We still expect mobile devices to be up in the second half and up by, as I said, somewhere in the mid-teens range, second half to first half. But it is a reduction in what our customers have been telling us 90 days ago. Is some of that related to inventory build or not? I actually don't have enough visibility into the various pieces of the supply chain to be able to tell you whether there is inventory build. Nothing that we have seen that kind of – is so obvious. But could there be – certainly there could be – but that is not really what we see beyond just hearing from our customers that their overall demand is less than they said it was going to be one quarter ago.

Okay. Thanks, Adam. And then have you seen any order pattern changes post Brexit? Has that actually really had an impact, or is it just too early to say anything about it? Thanks. R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, I don't think we've seen any order pattern changes. I think Craig gave a very concise review of some of the FX changes and how those have impacted our overall guidance and that clearly happened on the day after this faithful vote. And I think as Craig mentioned, that had an impact roughly for the full year of somewhere to the tune of $35-million-or-so reduction of our full year outlook. And fortunately we've made these two acquisitions, which essentially offset that in our guidance. But in terms of order patterns or customer conservatism or changes from our customers of any real significance, I don't know that we've seen that. I think there's no question that there's unease around the world even before Brexit, and Brexit does not reduce the amount of money. What does that ultimately translate into, that's hard for us to say at this point. And we'll be watchful of it.

Thank you. Our next question is from Matt Sheerin from Stifel. Your line is now open. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Yeah, thanks. Good afternoon, Adam and Craig. Just regarding your commentary, Adam, on the automotive and the fact that you're becoming more geographically diversified there. Could you elaborate that and run by us the numbers percentage by geo and maybe your outlook for each segment? TE Connectivity this morning talked about perhaps slower growth in North America versus perhaps stronger demand in Europe and China. I'm just wondering if you're seeing similar patterns? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, I think I mentioned earlier that we are very pleased with our balance geographically and that in the last quarter, actually Europe represented just a bit more than 40%, and Asia and North America were roughly balanced on the remainder of that. And I think I also mentioned that Europe was our strongest growing region, followed by Asia and then North America. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. And just the trends in North America in terms of your share and your content growth offsetting perhaps (46:37) share production numbers, are you still confident that you're going to grow here? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. I think, look, our share overall in the automotive market is still really small. So, while we've grown a lot in the automotive market, we still have a relatively minor position and that's what's so exciting for us, is that there is still so many electronic applications that are coming. And as each new thing comes along, that's a new opportunity for us to create a renewed platform for growth. And I think we see that in North America as much as we see that in Europe and in Asia. As it relates to our performance in North America, related to the SAAR and the overall volumes, we don't have a strong view on what SAAR will be this year and what the impact of that will be on us. I think we expect still to have strong performance in North America for the year. Although I guess at this point, we would expect Europe and Asia to be a bit stronger.

Thank you. Our next question is from William Stein from SunTrust. Your line is now open.

Great. Thank you for taking my question, and congrats on the very strong quarter and good outlook. R. Adam Norwitt - President, Chief Executive Officer & Director: Thank you.

I'm hoping you can talk about the incremental margins going forward – they were very strong in the quarter. It seems clearly that's going to improving performance within the FCI business and that's expected to extend into September. For how many quarters – or maybe said another way do you expect that to continue into 2017 to get this sort of upsized contribution margin? Craig A. Lampo - Chief Financial Officer & Senior Vice President: Sure. I think, as it relates to 2016 and the second quarter, we're really pleased with the company's profitability achievement and we continue to be committed to achieving operating income margin expense and we've really done that in the last couple of years. Moving to 2016, as we've discussed, we've had an overall level of ROS and conversion margin that, although negatively impacted by the inclusion of the FCI that's at the lower – our company average, from kind of an organic perspective, we've really converted quite well into the second quarter. And certainly part of that strong sequential margin improvement that we've had 30% sequential quarter conversion into the second quarter, 80 basis point improvement, part of that really does relate to our organic business. I'm not going to talk about so much about 2017. We certainly still see improvement potential in the FCI business, and certainly that will happen over time, which essentially equates that happening into 2017. But I think right now, we're really happy with where we are. We performed at a very good level. And going forward I would expect, as you look at our guide for the second half, our conversion will continue into the second half of the year.

Thanks. And then a follow-up, if I can, on M&A. Earlier this morning when TE Connectivity announced results, they announced a couple of smaller acquisitions that are frankly a bit more reminiscent of the types of deals Amphenol does. And as a result, it sort of begs the question whether there is incremental competition. I'm aware that these deals are not predictable; you can't certainly predict to close one every quarter for example and that they're subject to all sorts of market and even sometimes family conditions. But when I think of the pace and the pipeline, are you seeing incremental competition for your deals? R. Adam Norwitt - President, Chief Executive Officer & Director: Well, let me just comment. We made and announced two acquisitions this morning, outstanding companies. I discussed both AUXEL and Custom Cable. These are two excellent companies that represent opportunities in very exciting markets for us with really complementary product technology and service offering into those spaces. And together, they represent an annual sales value of about $80 million. And those are just outstanding companies. Are there other companies making acquisitions? I think this is nothing new. Others have made acquisitions of many companies in the past. And whether that's the companies that you follow or otherwise, we're not the only company who has ever made acquisitions in the interconnect market. And we will continue to not be the only company. But what we are is a company who has developed an organic strength in acquisitions that we believe is really second to none. If you look at our track record over a long time period, and we think in acquisitions, in very long time period, if you look at us over a very long time period, we have acquired somewhere north of 60 companies in the last 10, 15 years. Each one of them outstanding companies with great people, great technology and really complementary market position. And we have paid, over time, what we consider to be very fair prices, not that they are low or high, but they are fair prices. In the case of the acquisitions today, for those $80 million in sales, we paid roughly one times sales for those companies. And these are extremely high technology companies that we have brought into the company. And so are we going to win every auction? Are we going to be the first at the door of every company that ever comes out? No. But look, the beauty of the interconnect industry is how rich of an industry it truly is for acquisitions. There is a constant wellspring of new companies that are coming up, smaller companies that are becoming larger and midsize companies that become larger there again. And our approach, both organizationally and also from an execution perspective, is just a really, really, compelling approach for those companies. And the right companies, we're still very, very confident to win those companies and to bring them into the Amphenol family over time. And you correctly point out that every quarter, you cannot predict are you going to get a deal done or not but we have a very strong pipeline of acquisitions and a great reputation among companies in the industry as a place that represents an outstanding ultimate home for those companies long term.

Thank you. Our next question is from Shawn Harrison from Longbow Research. Your line is now open.

Good afternoon, Adam. R. Adam Norwitt - President, Chief Executive Officer & Director: Hi, Shawn.

Wanted to, I guess, dig in a little bit more to the commentary on mobile infrastructure, and it sounds like a more bullish view. Is it something that you're seeing globally or is it anything that you're seeing particular region, be it China coming back or Europe or North America getting a little bit better? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, I think in this quarter, we saw probably better performance in Europe on an organic basis than we saw in other regions. We saw a strong performance also in Asia. And we had growth in North America but the most robust part of that performance clearly was in Europe. Look, our performance in mobile networks is just a great example of the fact that when the chips are down, we don't just throw them on the table and run away. In fact, we know that in a space like that, there are cycles. Last year was clearly a down cycle, the year prior was a good cycle and two years before that were not great cycles. And regardless of what the given cycle of the day is, we know that the ultimate demand for mobile networks comes from the rapid acceleration of the proliferation of mobile broadband, and that continues unabated. When do operators spend their money, on what do they spend their money, what are the nature of the architecture of the various systems that they're using, where are the constant opportunities for us. Those are all things that are changing on a constant basis. But they're all ultimately paying homage to and servicing an end demand which appears to continue to grow without limit. And so, our strategy is just a very simple one, continue to broaden our product offering, continue to work with customers at every geography and across service providers and equipment manufacturers to make sure that we are really the first phone call for them and there with them on the day that they want to design that next-generation system. Maximizing our position, maximizing our content on that equipment that they need so dearly to ultimately support the demands of the networks. And I think, I really give a lot of credit to our team. It's not easy to do that when your sales are down like they were last year by 18% in U.S. dollars and 13% in local currencies. But the team did a fabulous job. And I think the fact that we've seen now two quarters of strong performance, really indeed accelerating performance when you look at the growth here in the second quarter, it's just a great validation for that very aggressive and simple approach that we take. And to give us now the confidence to expect for the full year some growth in a market that we previously did not expect, we're really pleased with that.

The growth for the year, is it kind of a – it would be a continuation in the second half of these second quarter dynamics in terms of regional trends and your ability to continue to take share? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, I don't know in the second half would it necessarily be the same regional trends. In all honesty, we don't necessarily even have specific forecasts by region in that way. But I wouldn't be surprised if it's a relatively similar continuation as we go into the second half.

Thank you. Our next question is from Mark Delaney from Goldman Sachs. Your line is now open. Mark Delaney - Goldman Sachs & Co.: Yes. Good afternoon. Thanks very much for taking the questions. First question is a follow-up on the FCI margins. I think the original guidance was for FCI EBIT margins to be low-double digits. And if I try and back into what $0.03 of margin improvement implies, I think kind of gets you to a little over 200 bps of improvement, so maybe low-teens on average now for the year which, if you're getting better over the course of the year, should we be thinking that as you exit 2016 that FCI EBIT margins are something like 16%, maybe a little bit better? R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah, I think without going to a specific number, we're pleased that the operating performance is improving. And I think right now, it's maybe too early to say ultimately what the numbers will be. But you're correct in presuming that there is an improvement. And ultimately what that improvement will be by the end of the year still remains to be seen but we're just really excited about that improvement. And as I mentioned earlier, it's just an outstanding embrace of Amphenol at every level by the people of FCI that has ultimately resulted in them accelerating more than we had expected their operating performance improvement. Mark Delaney - Goldman Sachs & Co.: Okay. That's helpful. And then a follow-up on OpEx, SG&A dollars. Should we be thinking about SG&A dollars declining on an absolute basis in September versus June? Craig A. Lampo - Chief Financial Officer & Senior Vice President: Yeah, I think normally from an SG&A perspective, certainly, we operate pretty efficiently and cost effectively from that perspective. SG&A is, I think, at a very effective rate for the sales. Our product development and technology expansion is very key in terms of how we spend our money from an SG&A perspective. I think if you look at the second half of the year, I would expect that, as a percentage of sales, that our SG&A would certainly continue to decline as we get leverage on the increased sales. From an absolute dollar perspective, I don't necessarily know that that would essentially go down on higher volumes.

Thank you. Our next question is from Sherri Scribner from Deutsche Bank. Your line is now open.

Hi. Thanks, Adam and Craig. I think you guys did a good job of explaining the puts and takes on sales for the full year guidance, but when we think about the EPS number, you guys raised the EPS guidance by about $0.02 at the midpoint. But you beat this quarter by $0.02 and you added about $0.03 from FCI. So, should we think about the FX impact and the macro stuff as being sort of a $0.02 to $0.03 hit to the full year and that's the offset to that, similar to revenue? Craig A. Lampo - Chief Financial Officer & Senior Vice President: Yes. Thanks. This is actually a good question. And I think your math actually is quite good in regard to that. FCI did add about $0.03, as I mentioned, and then we had the FX impact that Adam mentioned, which comes with it, a normal kind of a margin perspective and impacting us by about $0.02. And then you have essentially about – the difference essentially being the acquisition impact on the additional $40 million in the acquisitions that we did. A little bit lower profitability than the average of the company currently. So, that's why it brings a little bit less from an EPS accretion perspective.

Okay, great. And then, Adam, your IT and datacom segment is doing very well. It's 20% of revenue at this point, and typically Amphenol's strengths in their model has been that no segment is larger than 20%, that you're pretty well diversified. Would the strength expected to continue in IT and datacom? Is there some risks that this segment becomes too big, or do you need to offset that with more strength in another segment? Thanks. R. Adam Norwitt - President, Chief Executive Officer & Director: Well, thank you very much, Sherri. I think if you look back over the years, it's true that today no segment represents more than 20% in the quarter. But we've had years where it's been a little bit more 20%, 25%. I think if you go back all the way to 2006, IT datacom was 25% of our sales. I think if you go back we had may be a year where Mil-Aero was a bit higher as a percent of sales. So, it's not that 20% is the bright line. I think there is a level beyond which we wouldn't go, what is that? Is it 30%, is it something like – somewhere in that range probably makes us a little bit less comfortable. What's most important though is that we have that breadths and balance across all of our end markets. We think it is a tremendous asset for the company to have that diversification and balance, in addition to have it within the market. And so, as we look at an IT datacom market, I mentioned earlier that the growth that we're seeing in that market is actually a lot driven by some of these newer customers and this sort of almost re-architecting of the nature of the market. And I think that's just the great credit to the interim market diversification that we have in IT datacom. But no, we're not putting the brakes on the IT datacom. It doesn't change our investment strategy. It doesn't change our appetite for acquisitions or otherwise, but we continue to be very sensitive that whatever we do strategically, we will maintain a good balance and we won't be over-relying on one or another of our markets for the company.

Thank you. Our next question is from Jim Suva from Citigroup. Your line is now open.

Good afternoon. This is actually Mike (01:02:26) for Jim at Citi. Just one question, if I may. So we saw that the Cable business saw a nice operating margin improvement. So, do you believe that's something sustainable, or is it something even that can continue to improve going forward? Thank you. Craig A. Lampo - Chief Financial Officer & Senior Vice President: Yeah, sure. Yeah, we are very pleased certainly with the growth and resulting profitability performance of the Cable segment. As I mentioned in my prepared remarks, margin improved from 11.8% last year to $14.9%. I would say this three point increase -as again I mentioned in my prepared remarks reflects strong operating execution on this additional volume as the segment grew by about 11% related to the broadband market strength. The team really also did really a nice job to diversify the business since it's really higher margin products and maintained really a strong pricing discipline. I should also note that there was also some favorable impacts from commodities. I think if you look going into the second half of the year, Adam did mention that we expect that broadband market to moderate slightly into the second half. And as such, we would expect some moderation in the Cable segment profitability based on kind of normal conversions. But I would say based on the current commodity environment essentially – certainly if that doesn't change and demand environment doesn't change, then we would expect the profitability to be roughly in this range, flexing up and down based on whatever the volumes do.

Okay. Very good. Thank you. R. Adam Norwitt - President, Chief Executive Officer & Director: Thank you very much.

Thank you. Our next question is from Steven Fox from Cross Research. Your line is now open.

Hi. Good afternoon. Just one quick question from me on the cash flow. So, you're running well above the 1 times net income that you guys target; it's closer to 120%. So, is there anything unusual in the first half cash flows that would make us think that's not sustainable in the second half, or has something changed with your scale and operations that maybe even more cash flow efficient? Thanks. Craig A. Lampo - Chief Financial Officer & Senior Vice President: Sure. Actually the answer is – in regard to any unusual items in the quarter is, no, we had no real unusual items of note that would have increased our cash flow. This is the cash flow that we achieved in the first quarter. It's really a great cash flow. We've actually – it's not really abnormal. We've had similar cash flow as a percentage of net income probably for the last number of quarters, going back probably a couple of years at least. So, I would say that this is probably a cash flow generation that we would expect going forward as well from the company. We generated a strong cash flow for the business. The company does really a great job using its – managing its working capital and certainly in order to really maximize the cash flow they are able to generate to be able to invest back into the business and through M&A and other things to use our cash for.

Thanks. R. Adam Norwitt - President, Chief Executive Officer & Director: Thanks, Steve.

Our next question is from Brian White from Drexel Hamilton. Your line is now open.

Yeah. Adam, I'm wondering if you could talk a little bit about some of the dynamics you're seeing in the sensor markets, obviously a big opportunity, you made a couple of acquisitions in that area. So, maybe talk about your traction there and some of the dynamics and what you're seeing. Thank you. R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. Thanks very much, Brian. Look, we remain very excited about the sensor market. We got into the market now more than two and a half years ago. Time really flies fast here, since we acquired first the Advanced Sensor business from GE. I can just tell you that the team has done an outstanding job in our sensor business. We are growing. We are improving the operating performance. We're expanding the range of opportunities in our pipeline. We are working in collaboration with the connector operations. I alluded to one of those areas where that's happening more intensively with places like hybrids and batteries. And we continue to be just very excited about the space. In addition, we continue to hunt for acquisitions in the sensor market. We have an excellent pipeline. The market can still – really reminds us of a bit like the Interconnect market of a decade or two ago, a very fragmented market, lots of diversity from a technology perspective, from a customer and geographical perspective. And I can just tell you two thumbs up from our perspective in terms of the assessment two and half years in. It is a space which is also not without challenges sometimes, I mean, you have competition, you have technology change, you have programs – that common programs that go very much like you have in the connector industry. And I think our team and the culture of Amphenol, as it is now reflected in those companies that are in our sensor business, is just so much better equipped to deal with those dynamics than they may have been under their previous shareholders. And I think of all the values that we have brought by those two acquisitions that we've made, so far, it is really incubating in them that agility and reactivity, the aggressiveness to shift towards where the opportunities are and not just hang your hat on something that may or may not be doing well. I mean, I look at our sensor business and we talked at the time when we first acquired it that we had some automotive business, we had some in heavy equipment, we had some in medical, where you can imagine, heavy equipment overall is a bit more of a challenging space. The team has just done an amazing job of pivoting their technology efforts, pivoting their sales coverage and applications coverage towards where the opportunities are and doing that both on their own and in collaboration with others in Amphenol. So, we're really excited. We're still small in sensors. We are still on a relative from a market share of the overall broad market for sensors. We still have just a very small position, and that's also exciting because it gives me great confidence that we can expand long term both organically as well as through our robust acquisition program.

And Adam, just any color on wireless infrastructure in India. R. Adam Norwitt - President, Chief Executive Officer & Director: Yeah. Actually, Craig and I were in India recently. And we are just really pleased with how we've done in India. We've been in the mobile infrastructure in India. We're not new comers to that space. In fact, I think we've been from the greater part of a decade and a half participating in the Indian mobile infrastructure market, I mean, I personally have over the years spent a lot of time going to operators and OEMs in the Indian market. And I think that long-term patience and investment in the time, in the relationships and in the native creation of technology and great team that is there, that has positioned us really well in India. And we saw towards the tail half of last year, the beginnings of some good performance, and we have continued to see that this year. And our expectation is to have really – India be a good contributor to our mobile infrastructure business.

Thank you. At this time, speakers, I'm showing no further questions in queue. R. Adam Norwitt - President, Chief Executive Officer & Director: Very good. Well thank you very much. And we truly appreciate everybody's attention today. And we wish that you all have a wonderful conclusion to the summer with hopefully a break between now and the next time that we see you for you and your families. Thanks again, and we'll talk to you in three months. Bye-bye. Craig A. Lampo - Chief Financial Officer & Senior Vice President: Thank you.

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