Q4 2020 Belden Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to this mornings Belden incorporated conference call. Just a reminder, this call is being recorded at this time you are in a listen only mode. Later, we'll conduct a question and answer session.
To ask a question. Please press star one on your Touchtone phone. If you were items the question queue and would like to withdraw your question simply press Star two I would now like to turn the call over to Kevin Moskow. Please go ahead Sir.
Thank you Sergey and good morning, everyone and thank you for joining us today for Belden <unk> fourth quarter 2020 earnings Conference call My.
My name is Kevin Mascara on Belden, Vice President of Investor Relations and Treasurer.
With me. This morning are Belden, President and CEO will best <unk> and CFO Henk derksen.
We will provide a strategic overview of our business and then Henk will provide a detailed review of our financial and operating results followed by Q&A.
We issued our earnings release earlier this morning, and we've prepared a slide presentation that we will reference on this call.
The press release presentation and transcript of these prepared remarks are currently available online at Investor Belden Dot com.
Turning to slide two in the presentation. During this call management will make certain forward looking statements for more information. Please review today's press release and our annual report on form 10-K.
Additionally, during today's call management will reference adjusted or non-GAAP financial information.
Accordance with regulation G. The appendix to our presentation and the Investor Relations section of our website.
A reconciliation of the most closely associated GAAP financial information.
The non-GAAP financial information we communicate.
I will now turn the call over to our President and CEO Robustious rule.
Thank you, Kevin and good morning, everyone.
As a reminder, I'll be referring to adjusted results today.
Please turn to slide three in our presentation for a review of our fourth quarter highlights.
Demand trends improved in the fourth quarter and I'm pleased to report that revenues earnings and cash flow exceeded our initial expectations.
Fourth quarter revenues increased 5% sequentially to $498 $5 million.
Compared to our initial guidance range of $460 million to $485 million and our revised guidance range of $494 million to $499 million.
The upside relative to our expectations was broad based with contributions from both the industrial solutions and enterprise solutions segments.
During the fourth quarter, our channel partners further reduced inventory levels by approximately $22 million as expected.
Resulting in a reduction of approximately $70 million for the full year 2020.
Importantly, this is not expected to recur in 2021.
Incoming order rates were solid during the quarter, increasing 13% sequentially.
This resulted in a book to Bill ratio of 110 times.
Including a robust one six times and the industrial solutions segment.
EPS increased 25% sequentially to 90.
Compared to our initial guidance range of 63.
To 78 cents.
In our revised guidance range of <unk> 85 to 90 cents.
Free cash flow generation was $101 million in the quarter, which exceeded our expectations by approximately $11 million.
As a result, we exited the fourth quarter with cash on hand of $502 million, which provides ample flexibility as we pursue our strategic initiatives.
Please turn to slide four for a brief discussion of our full year 2020 results.
So I'm just trying to you as a truly unprecedented year with each of us are facing significant challenges related to the global pandemic, both personally and professionally.
I'm extremely proud of the way our global work Force responded to these challenges and maintained a sharp focus on supporting our customers and executing our strategic plans, while maintaining the safest possible working conditions.
For the full year 2020, we delivered revenues of $1 $863 billion and EPS of $2 75.
Free cash flow generation was $86 million compared to our expectation of approximately $75 million.
Beyond the initial response to defend that make the year was highlighted by the bold steps, we took to position the company for substantially improved organic growth and margins.
This include streamlining our cost structure funding, our compelling growth initiatives and significantly improving our portfolio of businesses.
On the cost side, we delivered on our commitments are successfully reducing SG&A costs by $40 million for the full year 2020.
We exited the year with a quarterly run rate savings of $15 million in the fourth quarter. So we are prepared to deliver the full $60 million in savings in 2021 as planned.
This represents approximately 300 basis points of incremental EBITDA margin expansion on an annual basis.
These are permanent cost reductions that will not return as conditions normalize.
As we executed these cost reduction plans, we continued to make strategic investments to accelerate growth.
And capitalize on the opportunities in our key markets.
R&D spending increased 14% to $107 million in 2020 with.
But approximately 65 per cent of this investment dedicated to software development.
This includes Standalone software and embedded software within various hardware products.
We are making targeted investments to support growth and innovation in industrial automation and enhance our best in class Cyber security cloud platform.
These innovations are important to our customers and our shareholders yesterday, we will further strengthen our product offering and enhance our competitive advantage.
We also maintained the capex spending of approximately $70 million per the year to ensure that we have the capabilities and capacity to fully participate in the anticipated growth in our key markets.
We made significant portfolio moves during the year, including the sale of grass Valley in July.
Divesting this business simplified and improved our portfolio.
It also removes a considerable drag on consolidated organic growth as declines in grass Valley's business in prior years represented a substantial headwind.
In addition, we initiated a process to divest approximately $200 million in revenues associated with certain undifferentiated copper cable product lines.
These are primarily standalone product lines that are low growth and low margin and we do not believe that they can meet our growth or margin goals in the future.
Much like grass Valley, we believe that exiting these product lines will improve our end market exposure.
In this case, we are exiting the oil and gas markets and reducing our exposure to certain smart buildings markets.
We expect to complete multiple transactions associated with these product line exits.
We are encouraged by the overall progress to date and we remain on track to complete these divestitures in the first half of 'twenty 'twenty one as previously communicated.
Finally, subsequent to the end of the fourth quarter, we announced the bolt on acquisition of Ot and systems for $71 million.
The transaction closed on January 29th.
Please turn to slide five for additional details on Ots systems.
This is our first industrial automation acquisition in years, and we are very excited to have established a team and its innovative networking products and technologies to our portfolio.
<unk> systems is a leading provider of easy to use and highly reliable network solutions tailored for specific applications and harsh mission critical environments.
It's value added technology allows customers to easily build maintain and monitor a complex networks and growing industrial markets, such as power transmission mass transit and process.
Belden, an ODM systems have a commercial partnership moving back to 2017. So we have a thorough understanding of the business and the value it will add to our product offering and our customers.
The company's primary brand and product line known as ex strategy consists of proven switching devices and network management software that is complementary to belden, leading industrial network offering.
We expect the acquisition to contribute incremental revenue and EPS of.
Of approximately $36 million and 11.
Respectively. During the 11 months of ownership in 2021.
Consistent with our M&A strategy. This acquisition supports one of Belden skis strategic priorities related to the growing demand for industrial automation by adding proprietary technology and mission critical hardware and software products for more complete end to end solutions.
It also accelerates belden initiatives related to customer innovation centers or see ice's with advanced solutions, selling and customer consulting capabilities.
This will allow us to bid on a wider array of projects.
It offers meaningful business synergies in the product technology and commercial areas and we see significant opportunities to leverage our global customer base to accelerate growth and further improve profitability.
We remain an acquisitive company and we continue to pursue other strategic inorganic opportunities in industrial automation and fiber connectivity.
Which further enhance our product offering and growth potential.
However, we are prioritizing delevering in the near term and as a result, we expect our M&A activity to be modest in 2021.
I will now ask Hank to provide additional insight into our fourth quarter financial performance, but before I do so I wanted to discuss the other matter referred to in our press release this morning.
After 20 years with Belden, the last nine as our CFO Henk has announced his departure next month following a transition of duties to Jeremy parks.
Henk your contributions to belden are difficult to put into words, you are a meaningful part of the history of this company and we thank you for everything.
Yeah.
Thank you all for the kind words before I begin my prepared remarks, I want to express my gratitude to my team the leadership team and the board of directors the entire finance organization and so many belden colleagues around the globe what shape my time at the company.
My whole, leaving Belden.
Substantial transformation one of the regional cable company Indeed early two thousands.
Global Network solutions company it is today.
I leave the company with a strong balance sheet and capital structure and much improved portfolio and I'm confident that double remains well positioned for future success.
Please turn to slide 648 E sales consolidated the view.
I will start my comments with results for the quarter, followed by a review of our segment results and it especially off the balance sheet and cash flow performance as a reminder, I'll be referencing adjusted results today.
Revenues were $498 $5 million in the quarter.
Back to five from its $49 7 million in the fourth quarter of 2019, Kevin.
<unk> decreased nine 8% on a year over year basis, and increased four 8% sequentially. After adjusting for a $5 5 million favorable impact from acquisitions, and a 14 million faithful impact from currency translation and higher copper prices.
Revenues declined 12, 8% organically on a year over year basis. After further adjusting for changes in channel inventory levels revenues decreased six 1% organically from the prior year.
On a sequential basis revenues increased two 9% organically after adjusting for a $9 1 million favorable impact from currency translation and higher global prices. After further adjusting for changes in channel inventory revenues increased nine 6% organically on a sequential basis.
Incoming orders were solid during the quarter, increasing 13% sequentially. This resulted in a book to bill ratio of one 110 times.
Building, a robust $1 16 in the.
The industrial solutions segment, and a 1.0 for any enterprise solutions segment.
Profit margins in the quarter were 35, 4% consistent with the third quarter.
EBITDA was $74 million compared to $65 3 million in the prior quarter and $92 9 million in the prior period.
Period.
EBITDA margins were 14, 8% compared to 13, 7% in the prior quarter and 16, 9% in the prior year period.
As we mentioned we successfully executed our SG&A, possibly that she pulled them by delivering savings of 15 volume in the fourth quarter and $14 million for the full year, we expect to deliver the full $60 million in savings in 2021.
As we streamlined the Paul structure remain committed to our important growth initiatives, we increased R&D investments by approximately 15% in the fourth quarter and the full year 2020, we expect further in cases in 2021 as we make additional targeted investments to drive innovation. They go.
In industrial automation and cyber security.
Net interest expense was approximately flat sequentially in the quarter at current foreign exchange rates, we expect interest expense to be approximately $61 million in 2021.
Our effective tax rate was 13, 5% from the fourth quarter and $16 four per cent for the full year as we benefited from incremental discrete tax planning initiatives.
Paul, but I know, you're planning and modeling purposes, we recommend using an effective tax rate, 20% flow out to 2021.
Net income in the quarter was $45 million compared with $32 2 million in the prior quarter and $54 9 million in the prior period earnings per share was <unk> 19.
In the fourth quarter compared to the dollar in 'twenty.
India periods.
<unk> per share increased 25% sequentially from 72 cents in the third quarter.
Turning now to slide seven in the presentation for a review of our business segment results I'll begin with our industrial solutions segment. As a reminder, our industrial solutions allow customers to transmit and secure audio video and data in harsh industrial environments.
Key markets include discrete manufacturing pulses facilities energies.
Mass transits, the industrial solutions segment generated revenues of $378 million in the quarter.
Gonna see translation and copper prices had a favorable impact of $9 2 million year over year and $5 8 million sequentially. After adjusting for these sectors revenues decreased 14% organically on a year over year basis and increased 7% sequentially.
After further adjusting for changes in channel inventory levels revenues declined 8% year over year and increased 10% sequentially on an organic basis.
Within this segment industrial automation revenues declined 8% year over year and increased 9% sequentially on line.
Ganic basis after adjusting for changes in channel inventory levels.
Not surprisingly the trends were relatively consistent across our market verticals in the quarter.
Cyber security revenues declined 14% in the fourth quarter on a year over year basis, and increased 16% sequentially. We continued to secure large strategic orders with new customers and significantly expand our engagements with existing customers as a result, non renewal bookings in the fourth.
Quarter matched the highest quarterly level in five years multiple bookings in the quarter included a fortune 500 insurance company migrating from on premise to cloud based solutions and a multinational financial services globalization, expanding its coverage and tabulation for expected future growth, we'll make music.
<unk>.
We remain very bullish on industrial cyber security.
Bookings in this vertical increased 13% sequentially in the quarter and 31% for the full year.
Further we continue to gain significant traction with our software as a service offerings.
As all things represented approximately 25% of non renewal bookings in the quarter compared to 10% a year ago.
Industrial solutions segment, EBIT margins were 17, 5% in the quarter compared to 15, 6% in the prior quarter and 21% Diego periods. The year over year decline, primarily reflects lower volumes and increased R&D investments in industrial automation cybersecurity.
Turning now to our enterprise segment as a reminder, our enterprise solutions allow customers to transmit and secure audio video and data across complex enterprise networks. Our key markets include all bent five G and smart buildings.
Enterprise solutions segment generated revenues of $227 7 million during the quarter after adjusting for a $5 5 million civil impact from acquisitions, and a $4 8 million it'll impact from currency translation and higher copper prices, having declined 12% organically on a year over year basis.
Yeah.
Revenues declined 2% sequentially after adjusting for a deeply deeply into favorable impact from currency translation and higher coal prices. After further adjusting for changes in channel and customer inventory levels revenues declined 3% year over year and increased 9% sequentially organic basis.
Revenues in broadband <unk> increased 8% year over year, and 5% sequentially. After adjusting for changes in customer inventory levels. We are encouraged by the total check capture during the quarter.
He had lincoln's and demand for more bandwidth and fastest speeds is driving increased investments in network infrastructure by our customers.
This supports continued robust growth in that fiber optics products, which increased 28% organically in 2020.
Revenues smart buildings market declined 12% year over year and increased 13% sequentially, although organic basis after adjusting for changes in January to do it.
And the price of solutions EBITDA margins were 11, 5% in the quarter consistent with the prior quarter and compared to $13 seven per cent and the party opinions.
The year over year decline, primarily reflects lower volumes.
If you please turn to slide eight I will begin with our balance sheet highlights.
Cash and cash equivalents balance at the end of the fourth quarter was five $2 million compared to being up $91 million and apply a quarter at 426 million in the prior year period, we're very comfortable liquidity.
Liquidity position we're in.
Kevin journeys with 10, three turns compared to six six turns in the prior quarter and eight nine turns and that probably your opinions.
We're extremely pleased with the DSO performance in the quarter day sales outstanding by eight days sequentially from 58 days in the prior quarter to 50 days.
Incidentally turns were five two turns compared to five <unk> in the prior quarter and six per node Terence that by ear.
Our total debt principal at the end of the fourth quarter was 159 billion compared to 1.52 billion in the third quarter disappointed of Encase reflects current foreign exchange rates.
Net leverage was flow, but the old times net debt to EBITDA at the end of the quarter. This is temporarily above our targeted range of two to three times and we expect to turn back to the targeted range as conditions normalize.
Turning now to slide nine I will discuss our adaptability and governance as a reminder, our debt is entirely fixed at an attractive average interest interest rate of three 5% with no maturities until 2025 to 2028, we have no maintenance covenants.
All these debts so another to risk of a default in the unlikely event of significantly worsening economic conditions.
As I mentioned previously we're comfortable with our liquidity position and the quality of our balance sheet.
Please turn to slide 10 for a few cash flow highlights cash flow from operations in the fourth quarter was $134 $7 million compared to 187 4 million into play opinions net capital expenditures were $33 3 million for the quarter compared to $35 9 million.
The prior periods for the full year 2020, we generated cash flow from operations of one of the $73 4 million compared to $276 9 million in 2019, the decline primarily reflects lower EBIT during the year that resulted from the global pandemic.
For the full year net capital expenditures were $87 1 million compared to almost $10 million in 2019. The difference is primarily related to the timing all the guys value divestiture, which we completed in July of 'twenty 'twenty.
As a result, we generated free cash flow of $86 $3 million from 'twenty 'twenty compared to $166 9 million in 2019.
That concludes my prepared remarks, I would now like to turn this pull back to our president and CEO of <unk>, a 40 outlook Paul.
Thank you Henk, please turn to slide 11 for our outlook.
'twenty 'twenty, one will be a year of recovery in most of our key markets.
During the year, we expect to complete our transformative portfolio actions and turn our focus to accelerating organic growth.
A recent order rates are encouraging and I'm confident.
And our ability to achieve our financial goals and drive superior returns for our shareholders.
We anticipate first quarter, 'twenty or 'twenty, one revenues to be between $490 million and $505 million.
EPS of 60 to 70 cents.
For the full year 'twenty 'twenty, one we expect revenues to be between 1.99 billion and $2.050 billion.
And EPS of $2.90 to $3 30.
For financial modeling purposes, we recommend using interest expense of approximately $61 million for 2021.
An effective tax rate of 20 per cent for each quarter and the full year.
This guidance includes the expected accretion from the Ots systems acquisition.
It continues to include the contribution of our copper cable product line and stuff. We are in the process of divesting, which contributed approximately $200 million in revenue and 20 in EPS in 2020.
We will update our guidance accordingly, as we complete these divestitures.
Please turn to slide 12 for a bridge that walks from our 2020 results to the high end of our 'twenty 'twenty one guidance.
We expect current copper prices and foreign exchange rates to have a favorable impact on revenues of approximately $80 million from 'twenty to 'twenty, one, but a negligible impact on earnings.
We expect consolidated organic growth in the range of 1% to 4% or up to $70 million with solid growth in our industrial solutions segment, partially offset by declines in the smart buildings markets within our enterprise solutions segment.
We anticipate an incremental $36 million in revenue and 11 cents in EPS from the ODM systems acquisition.
Consistent with our commitment we expect to realize the incremental $20 million in savings under our SG&A cost reduction program.
These savings represent 36 cents in EPS.
R&D investments are an important strategic initiative designed to drive growth in future periods, but these investments will temporary pressure margins and EPS in 2021.
Finally, our normalized effective tax rate of 20 per cent, along with modestly higher interest expense and share count representing an EPS headwind of approximately 20 cents for the year.
For the full year 2021.
The high end of our guidance implies total revenue and EPS growth of 10 per cent and 20% respectively.
Please turn to slide 13.
Before we conclude I would like to reiterate our investment thesis.
We view Belden is a very compelling investment opportunity.
We are taking bold steps to drive substantially improve business performance.
Significantly improving our portfolio and aligning around the favorable secular trends in our key strategic markets, including industrial automation.
Cybersecurity broadband and <unk> G <unk>.
And smart buildings.
We continue to invest in our business to position the company for accelerating organic growth and robust margin expansion.
As we successfully execute our strategic plans and deliver on our goals.
We expect this to drive superior returns for our shareholders.
That includes our prepared remarks Sergey please open the call to questions.
Thank you Sir.
Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure that its function on your phone is switched up till August signal to each other equipment because they ask you to limit yourself to one question and one follow up.
Again, it is star one to ask a question.
Our first question comes from Reuben Garner from benchmark. Please go ahead.
Okay.
Thank you and good morning, everybody.
Good morning first off Henk.
Good luck.
Moving forward.
Hopefully you can stay in touch.
And Jeremy Congrats on.
The role.
Maybe if we could start off.
But the way the fourth quarter ended in your first quarter guidance, it's pretty <unk>.
Strong can you just talk about.
Maybe the order trends last year, what gives you the confidence that.
Q1 will already be returning to growth in line in that same kind of thought process.
The outlook for the rest of the year I think would seem a bit conservative just given what you're already seeing in terms of recovery can you just talk about how youre thinking about.
2021 top line.
Okay. Thank you for the question. So there's a couple of factors to consider so first of all.
We did end the year very strong as we mentioned in our prepared remarks with a book to Bill of one one most notably very strong book to Bill in our industrial solutions segment I think we referenced it in our remarks are 116 times.
Secondly, we are encouraged by the order so far in January they are in line I'm trending towards the high end of our guidance and.
And thirdly, the weighted the calendar works out Reuben we actually have three more shipping days in Q1 than we did in Q1 last year, which means we have three less shipping days in Q4 of this year. So that's why we feel.
Confident that we'll be able to hit our Q1 guidance.
Perfect.
Very helpful Batesville and back at the Analyst day.
It sounded like you know.
2021 growth in each of.
The growth in three out of your four business with smart buildings.
So we expect it to kind of lagged the recovery are you still thinking about it before but maybe just talk about what you're seeing kind of in the sub markets within your total 'twenty 'twenty one outlook.
Yeah, absolutely so we see.
Our industrial solutions segment.
Grow approximately six to eight per cent that's implied in the guidance.
Our enterprise solutions segment, we expect to be down 1% to 5%, which is basically a tale of two cities. So our broadband and <unk> business. We expect to continue to grow low single digits, but we do expect our bar, our smart buildings business to be further down and it could be down.
As much as 5% to 10 per cent, that's that's kind of how our guidance was constructed.
Thank you, we'll now move to our next question from William Stein from interest Securities. Please go ahead.
Great. Thanks for taking my questions I want to offer my congrats to everyone on the good results and outlook and especially Frank and Jeremy.
I think I'd first ask about shortages and the related semiconductor market we're seeing.
He has pervaded that industry and when we look at your book to Bill.
We have to consider maybe some of the strong backlog is related to customers.
Pressing some concern about availability.
Maybe there's some pull ahead, but is that dynamic.
Frank realistic way to perceive what's going on with your business or inventories low enough or is there. Some other dynamic that makes you.
Pushed back on that idea and in fact, it's really is sort of real time demand.
Yeah, we try to thank you well, we try to anticipate some of these shortages.
And as a result, you could see that our inventory levels in Q4.
We're only at five two turns right and they were six turns a year ago. That's not what you used to with all of them. We made it up in other parts of their working capital. So therefore total lack of working capital turns have showed a nice improvement compared to a year ago, but that's the main reason for the higher inventory levels. So we wanted to make sure that we can indeed.
<unk> shipped in Q1 and deliver on our backlog.
Whether or not all the orders received are truly for the demand currently at place, that's obviously a little bit hard to tell.
Don't have a lot of blanket orders so virtually all of our orders come with a requested ship dates that are not too far in the future.
So hopefully that answers your questions. Those are the two dynamics that we see and how we have tried to anticipate.
Yeah, Paul now about the very short lead times, okay, great and relatively short duration of backlog, So I think I get it.
Another question you had.
At the very end of your prepared remarks, you talk about belden as a compelling Inc.
The best opportunity we have.
Haven't seen buybacks in the quarter, maybe longer and did some M&A I'm wondering.
How do you.
Think about the balance between these two activities in the coming year, which should we expect more out of his M&A on hold current pardon me buybacks on hold.
Or.
How should we think about modeling.
Yeah, our capital.
Capital allocation priorities have not changed from or how we laid them out during investor day. So our priority was and will remain a delevering.
I think Henk explained that we have no covenant issues, but we do feel that that is the most prudent thing to do in terms of the uncertainties of the world that we live in.
As we've seen with Ots systems, we obviously will continue to cultivate our long list of potential M&A targets, most profoundly within the industrial automation space and five of our productivity our space for.
For broadband and fiber offerings.
So if there is an opportunity as you know you cannot always control the timing of these companies then we will act, but as we highlighted it'll be we expect it to be modest in 2021. So the first and foremost priority will continue to be delevering.
Yeah.
Thank you Arnaud. The next question comes from Noelle Dilts from Stifel. Please go ahead.
Hi, everyone and Henk.
Thanks for all you've done over the past 20 years and Jeremy Congrats from me on the new role.
So I was hoping you could just comment a little bit on the R&D investments you've talked about this again at Investor day, but you know you did.
Hi, this is they are expected to pressure.
Margins and EPS in 2021, how should we think about you know when you expect to start to see a return on those investments and.
Look out to that kind of longer term, 20% to 22% EBITDA margin target you know do you still feel like that's a cheaper but within the next two years three years with the step up in R&D.
Yeah, absolutely absolutely as a matter of fact, the investments that we're making now we are confident will increase our growth rates in 2022 and 2023. So the thesis that we outlined during our Investor day is still very very valid the guidance implies.
At Bath to get us there.
First year of the three years that we've outlined so we're very confident that indeed, the investments that we're making now will yield higher growth rates in 'twenty two 'twenty three.
Okay, great. Thank you.
And then just in terms of you know you're seeing that that's nice strength in industrial solutions could you comment a little bit on you know.
What youre seeing in terms of discrete you know oil and gas kind of setting the submarkets within that within the segment.
Yeah.
Our Q4 results were pretty even amongst the verticals.
We feel good about discrete if we look at our current order rates that we feel we feel very strong about very good about discrete.
A leading indicator as we see it is our business in Germany. This is in Germany. In Q4 was a very strong was actually up.
Approximately 20%.
So.
We feel good about discrete <unk> and we see a nice uptick in net mass transit and this is where our ODM systems will help us out.
Thank you we will now take our next question from Steven Fox from Fox Advisors. Please go ahead.
Hi, good morning, and congratulations and thanks for all your help over the years I assume you're going to manage a accident, but please let us know what you're going to be doing.
Anyway in terms of in terms of just the numbers I guess I'm, a little curious about where you see them.
Your customer inventories in the channel inventories you mentioned some of that was a drag on growth.
Last quarter can you just sort of give us an update on how inventories look down the supply chain to you and then I have a follow up.
So first of all let me, let me Garmin and beat the mature Theres no ambiguity, let me comment on the customer inventory levels. So we had outlined the plan at the beginning of the year to get 77 zero million dollars out of the system. If you will so further reduce.
Our channel inventory partners levels with $70 million exactly what procured.
Lot of it in the fourth quarter as you saw but that was exactly.
As we had forecasted it to be so that sets us up well for 2021, we don't expect any of this to recur.
And it turns out our channel partners, we now believe our unhealthy levels. So we're very very pleased to have that behind us.
As far as our supply chain is concerned.
As I as I mentioned earlier, you saw that the inventory levels that we carry on our balance sheet in Q4 were actually a little bit higher than you probably would have assumed meaning that our turns did not improve compared to a year ago period as a matter of fact that the greatest 0.8 turns that's because we carry more inventory.
Laurie anticipating some of the shortages that you read it out.
To make sure that we can satisfy our customers and maintain our high on time delivery standards.
That's very helpful. And then just as a follow up can you talk a little bit more about the broadband business.
Especially Warren how youre gaining market shares.
And then secondly, sort of a growth outlook either split between Msos and <unk>.
Telecom and networking.
Yeah. So a few comments that you know that might be helpful.
We see the trend.
Of our mix moving more towards outside the home versus inside the home continue.
So for full year 2020.
We had 50% of our revenue outside the home and hence 42 per cent inside.
Actually an exit rate of 64% Q4, we had 64 per cent of our revenue outside the home.
We saw the trend of fiber versus copper further improve.
So 40 year, 27% of our revenue within broadband and <unk> is now fiber and actually we had an exit rate of 32% in Q4, so more than $100 million, we're doing in fiber and fiber related productivity products in that segment. So that's one.
Two is we.
We continue to expand our offerings for the telcos as they get ready for day or five G offerings, it's still relatively small part of the business, but we continue to invest.
In terms of adjusting our products, making our products suitable for Archie market as well as some increasing some of our commercial coverage within that segment.
Our msos are obviously still the bread and butter right for that business. So we remain very strongly to outdoors have a MSR customers and while we continue to expand our product portfolio.
<unk> continue to increase share through offering more solutions forties M. S O customers.
Thank you we'll now take our next question from David Williams from Loop capital. Please go ahead.
Hey, good morning, and thanks for letting me ask the question first.
First of all I wanted to ask a little bit on the smart building side and kind of how you envision that playing out for the rest of the year, obviously pressured with the COVID-19 situation, but as that improves do you see a big rebound there or just kind of how youre thinking maybe about the smart buildings out of the business.
We continue to.
Expect.
That business to decline in 2021, and I think during the Investor day, we highlighted that over the three year period, we outlined a base case and an upside case the base case I think we said.
Low single digits over the last three years.
On the upside case, a low positive low single digits growth rates. So that's that's our outlook we continue to monitor.
The starts right of commercial buildings.
And we're continuing to allocate more resources within the Smart building segment, two verticals that are actually growing such as data centers.
Okay and then.
From a follow up.
On your comments on the debt.
The ordering patterns in terms of being rational and are you seeing much anxiety in terms of trying to pull in orders just ahead of any any shortages I guess down the food chain.
Oh no not at this point I think I indicated that we feel good about the early trends that we're seeing it within the quarter, but we don't see anything out of the ordinary.
Thank you and our next question comes from Ted Dosch, China from Canaccord Genuity. Please go ahead.
Hi, Thanks, and first let me just comment then and Henk, it's been great working with you for the short time net.
We have and Ah Congrats on your next endeavor.
Like I guess that the question that I have is.
Cause menu might have been asked.
I'm just curious how your upstream supply chain has been shifting is the market share.
Arent changing in terms of the technology. So for example, if I look at.
If I look at broadband infrastructure for example, those frequent inquiries how is that having an effect on your upstream supply.
Tim.
So I think we touched on this earlier.
We feel good about our suppliers our ability to deliver our components and the products that we require.
We carry I think I've highlighted earlier that we carry a little bit more inventory than we typically do for this specific reason to ensure that we don't run into shortages.
We're able to deliver our orders in Q1, we were able to book in turn in Q1 and able to maintain our high standards for.
Our on time delivery performance that our customers.
I would expect it from us at this point in time.
So we don't we don't see any issues at all.
Yeah.
Got it I guess, what I was trying to ask is about whether or not there are issues, but.
Net profit, but I'm, assuming that you're perhaps with your supplier base is shifting with the technology sales.
So I just wanted to my question was more about the process.
Evaluated testing and qualification of your upstream supplier is the market demands.
Continued to hit at a rather rapid pace I'm, just curious how you're managing that.
Oh I understand I appreciate the question, yeah, well first and foremost an increasing part of our offerings is software. So that obviously reduces the dependency on a supplier lead times on supplier component availability.
And secondly, because we are such a diverse.
Enterprise since we have so many different types of products or different types of suppliers, we're not very dependent on a few.
So and thirdly.
You know because we've been doing this for a while.
And we have such a broad supplier base globally.
We.
There's very little components, if not as a matter of fact I don't know of a single component. There were sole source that we only have one option and so as you may or may not recall, we had an issue years ago, where we kind of got stuck with the supplier and not being able to supply certain components for industrial switching equipment and ever since that we've.
Increased.
The exposure of our processes and optimize our processes to ensure that we minimize the chances of that ever happening again.
So that's you know that's kind of how I would answer the question does that makes sense.
Yeah, sorry, I was trying to come off mute.
That's helpful. Thank you.
Thank you we'll now take our next question from Mark Delaney from Goldman Sachs. Please go ahead.
Yeah, good morning, and thanks for taking the questions and Hank Cleveland. Thank you as well for all of your help over the last several years and we wish you the best going forward.
Thank you.
Yeah two questions from me if I could maybe first on the cyber security business are you know there's been a lot of news around our increased number of hacks, especially with with solar wind and I'm curious as belden seeing a material increase in customer dialogue or your order funnel for our firm.
The tripwire business given the increasingly challenging.
And from an environment.
Our funnel currently supports or.
Our forecast for the first quarter and for the full year 2021, we continue to focus on our number one strategic priority within cyber security the industrial space.
We're pleased with the results that we've achieved.
Within that vertical so in 2021 and the second half as you know our leading indicator is non renewal bookings for the second half day were up 11%.
Cyber security bookings in the second half and for the full year, they were actually up 31 per cent.
So we feel good about.
The industrial a priority within cyber security and we continue to increase our funnel are supporting the increased activity that we see.
I understood and from my follow up question.
Copper pricing and shipping costs and semiconductor prices have all been rising he speak to how much of a margin headwind you may be expecting in your 2021 outlook from some of these factors.
You know, we don't we have the ability to pass it on to our customers.
Oftentimes through contractual agreements are oftentimes through price increases and since we're you know we're very used to fluctuations in copper prices as well as the other metals.
We're confident in our ability as we have proven over the last years to be able to pass those increases onto our customers.
Okay. Thank you.
Thank you.
Kevin Matt because there are no further questions at this time please continue.
Okay. Thank you Sergei and thank you everyone for joining today's call. If you have any questions. Please reach out to the IR team here at Belden, our email address is investor not relations at Belden Dot com.
Yeah.
This completes today's conference call. Thank you for your participation you may now disconnect.