Q4 2022 Belden Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to this mornings Belden reports fourth quarter and full year 2022 results conference call.
Just a reminder, this call is being recorded at this time you are in a listen only mode. Later, we will conduct a question and answer session. If he would like to ask a question. Please press star one on your Touchtone phone. If you are in the question queue and would like to withdraw your question simply press Star two.
I would now like to turn the conference over to Erin Redington, Vice President Investor Relations. Please go ahead Sir.
Thank you Jess good morning, everyone and thank you for joining us for today's Belden fourth quarter 2022 earnings Conference call with me today are belden, as president and CEO role Bastian, and senior Vice President and CFO Jeremy Parks.
Earl will provide a strategic overview of our business and then Jeremy 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.
This 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 most recent annual report on Form 10-K.
Additionally, during today's call management will reference adjusted or non-GAAP financial information.
In accordance with regulation G. The appendix to our presentation in the Investor Relations section of our website contain a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate.
I will now turn the call over to our President and CEO Rural bastions.
Thank you Erin and welcome to development team.
As a reminder, I'll be referring to adjusted results today.
Now please turn to slide three for a summary of the major accomplishments we achieved in 2022.
First we delivered another outstanding quarter with total revenues and EPS that exceeded expectations for the 11th straight quarter.
For the full year 2022, we delivered record revenues of over $2 6 billion and record EPS of $6.41.
I would like to thank our global teams for their strong execution and navigating a complex and challenging environment.
Aborting the needs of our customers with innovative solutions.
Revenues for the year increased by 16% organically with double digit organic growth in both segments.
On top of record revenues and EPS, we also expanded our EBITDA margins to 17%.
90 basis points for the year, driven by strong leverage on our organic growth.
Our strength in 2022 was broad based across our businesses as we continue to transition from a supplier of trusted products to a value added partner in the design and implementation of network infrastructure solutions.
We are very excited about our progress which is reflected in our strong financial performance.
Second our capital allocation strategy continues to be balanced and disciplines to drive long term shareholder value.
As we grew EBITDA and generated $220 million of free cash flow in 2022 net leverage declined to one times at the end of the fourth quarter down from two one times at the end of the prior year.
This level of net leverage provides us with significant flexibility to execute our strategic plans.
While pursuing organic growth opportunities M&A and returning capital to shareholders, all while staying below our target of one five times net leverage.
Third we remain focused on deploying capital towards high return opportunities are.
Our top priorities include investments in new product innovation, and our solution selling capabilities strategic bolt on M&A opportunities, which we completed three in 2022, and finally, returning capital to shareholders through our share repurchase program.
Which we repurchased two 6 million shares for $150 million in 2022.
Fourth and finally at our 2022 Investor Day last June we set forth a target of $8 EPS by 2025, and I'm happy to report that with our strong performance. In 2022. We are ahead of our internal plan in reaching that goal.
In summary.
This was another excellent quarter for Belden, which concluded another record year.
Now please turn to slide four and I will provide an example of our strategy in action with details around how product innovation and fiber is leading to exciting customer wins.
Over the years and our broadband and fiber business, we have strategically invested in fiber optic technology and solution building.
Our solutions focus on reducing our customers operating expenditures and deployment time.
Over the last three years, we've grown our fiber business within broadband and <unk> meaningfully.
Our fiber specific revenues increased 59% organically in 2022 with a three year organic revenue CAGR of 29%.
Further in 2019 fiber represented 16% of the total broadband and <unk> business.
And as of 2022 fiber now accounts for 37% of the total.
Such growth highlights the success of the investments we have made to ensure belden is in the right markets with industry leading solutions.
On that note.
Happy to report that we received a meaningful win in the fourth quarter for fiber cabinet solutions from a large telecommunications company based in the Netherlands.
The commitment of approximately 8000 fiber cabinets will provide the business with a total of approximately $50 million over the next four years.
Our fiber cabinets offer an easy to configure solution, reducing cost and deployment time both.
Both critical decisions for our customers.
This is the largest single fiber commitments for our business and highlights the growth we have made in the marketplace as well as the future opportunity ahead.
Looking forward, we see multiple favorable trends benefiting our broadband and <unk> business.
I outlined many of these in our recent Investor day, but let me spend a minute reviewing the key themes.
First rural broadband has become a major focus with meaningful federal investments and recently passed legislation.
We see combined broadband investment totaling $85 billion in the United States, which will provide meaningful growth opportunities for belden.
Second to meet the increasing bandwidth demand msos are reinvesting in the networks to preserve the current customer base amongst increased competition.
Our portfolio of solutions positions.
Positions us to support these multiyear upgrade cycles.
A third major <unk> Rollouts will dominate wireless carrier spend over the next five plus years.
This will include Microsoft upgrades, and new small cell construction.
As <unk> cell sites need both fiber as well as power. This will allow build them to participate in multiple ways.
So to summarize we continue to see strong demand from network operators for our fiber connectivity products.
We offer easy to use fiber solutions, which allow customers to install fiber connections quickly and reliably.
We see favorable long term trends driven by the ever increasing demand for high speed broadband and the resulting investments required to upgrade networks.
I'll now ask Jeremy to provide additional insight into our fourth quarter and full year financial performance.
Thank you rule I will start my comments with results for the quarter and full year, followed by a review of our segment results.
And a discussion of the balance sheet and cash flow performance.
As a reminder, I will be retrofit referencing adjusted results today.
Now please turn to slide five in our presentation for a review of our fourth quarter results.
We delivered meaningful growth and margin expansion again this quarter.
Fourth quarter revenue increased 8% year over year, and 12% organically to $659 million exceeding our guidance range of $635 million to $650 million.
We had another impressive quarter and industrial automation with revenues, increasing 18% organically.
We continue to see compelling long term demand drivers for automation solutions as industrial customers respond to labor shortages capacity requirements and re shoring of production.
Enterprise solutions revenue increased 6% year over year on an organic basis with solid mid single digit growth in both broadband and <unk> and smart buildings.
As expected we ended the year with over $800 million in backlog, which was up 20% year over year.
As the supply chain continues to stabilize we expect our backlog to decrease to a more normalized level.
We ended the quarter with a book to Bill of <unk>, 91, which was down modestly from <unk> 95 in the prior quarter.
From a full year perspective, we ended 2022 with a book to Bill of 1.04 with similar performance in both segments.
Gross profit margins in the quarter were a robust 37, 8%.
Increasing 280 basis points compared to 35% in the year ago period.
Gross profit margins benefited from better than normal product mix combined with leverage on higher volume levels and the impact of price increases enacted earlier in the year.
EBITDA in the fourth quarter increased 14% year over year to $115 million.
EBITDA margins expanded 90 basis points from 16, 5% a year ago period to 17, 4%.
Net income in the quarter was <unk> $76 billion up 28% from $60 million in the prior year period, and EPS increased 35% year over year to $1 75 compared to $1 30.
In the year ago period, and exceeded our guidance range of $1 60 to $1 70.
Now please turn to slide six for a review of the full year 2022 results.
Belden achieved both record revenues and record EPS in 2022.
Both segments grew double digits organically and at the same time, we expanded margins.
To quickly highlight our performance revenues increased 13% versus the prior year and 16% organically to a record $2 $6 billion.
Our revenue performance was strong in both segments with industrial automation solutions growing 19% organically.
Enterprise solutions growing 13% organically.
EBITDA increased 19% to nearly $444 million.
EBITDA margins expanded 90 basis points from 16, 1% in the year ago period to 17%.
Net interest expense was $44 million for the year down $63 million.
Our down from $63 million in the prior year.
Benefiting from the early debt repayment that we completed in the first quarter as well as favorable foreign exchange rates.
At current foreign exchange rates, we expect net interest expense to be flat at approximately $44 million for the full year 2023.
Our effective tax rate was 19% in 2022, we expect an effective tax rate of approximately 20% for the full year 2023.
EPS increased 35% for the year to a record $6 41.
Compared to $4 75 in the year ago period.
We were very pleased to deliver such robust growth and margin expansion once again.
Turning now to slide seven in the presentation for a review of our business segment results.
I will begin with our industrial automation solution segment.
As a reminder, our industrial solutions allow customers to transmit and secure audio video and data in harsh industrial environments.
Our key markets include discrete manufacturing process facilities energy and mass transit.
The industrial automation solutions segment generated revenues of $1 $4 billion.
Increasing 15% from $1 2 billion in the prior year.
As mentioned previously industrial automation revenues increased 19% on an organic basis with double digit growth in each of our primary market verticals.
Industrial automation segment EBITDA margins for the year were 19, 7%, increasing 150 basis points compared to 18, 2% in the prior year due to solid operating leverage and volume growth and favorable pricing.
Turning now to our enterprise segment.
Our enterprise solutions allow customers to transmit and secure audio video and data across complex enterprise networks. Our key markets include broadband and <unk> and smart buildings.
The enterprise solutions segment generated revenues of $1 $2 billion, increasing 12% from $1 1 billion in the prior year.
As mentioned previously segment revenues increased 13% organically.
Revenues in broadband and <unk> increased 15% on an organic basis due to solid execution and strong demand for our fiber connectivity products.
As will mentioned the trends for this business remains strong and we are encouraged by the early impacts of government funding for network upgrades.
Revenues in the smart buildings market increased 10% on an organic basis.
Can you focus on growth verticals, particularly health care government and data centers contributed to this solid revenue performance.
Finally enterprise solutions segment EBITDA margins were 13, 5%.
Compared to 13, 4% in the prior year.
We saw the benefits of leverage on higher volumes and favorable pricing.
Offset by a temporary cost increase to expedite materials in the first quarter and a one time bad debt expense in the fourth quarter.
That being said I am very encouraged with how the segment ended the year with fourth quarter EBITDA margins of 14, 1% up 60 basis points compared to 13, 5% in the prior year period.
If you'll please turn to slide eight for our balance sheet highlights.
Our cash and cash equivalents balance at the end of the fourth quarter was $688 million compared to $548 million in the third quarter and 642 million in the fourth quarter of 2021.
Days sales outstanding of 60 days compared to 56 days in the prior year and 59 days in the prior quarter.
Inventory turns were four eight times compared to $4 seven in the prior year and $4 nine in the prior quarter.
Our financial leverage was 1.0 times net debt to EBITDA at the end of the fourth quarter compared to one one times in the third quarter and two one times a year ago.
As we communicated in our 2022 Investor day, we intend to maintain net leverage of approximately one five times going forward.
For the full year, we repurchased two 6 million shares for $150 million at an average price of approximately $58 per share.
Going forward, our capital allocation priorities will be balanced emphasizing organic growth initiatives, while also considering strategic M&A and additional share repurchases.
Please turn to slide nine for a few cash flow highlights.
Total cash flow from operations for the fourth quarter was $202 million up 19% compared to the prior year.
Capital expenditures were $55 million in the quarter up from $35 million from the prior year.
For the fourth quarter, we achieved free cash flow of $148 million down from $162 million in the prior year.
As a reminder, in the fourth quarter of 2021, our free cash flow realized a combined $54 million benefit from the sale of a note receivable related to the grass valley divestiture as well as the sale leaseback transaction transaction for a facility in Germany.
For the full year, we achieved free cash flow of $220 million up from $211 million in the prior year.
That concludes my prepared remarks, I would now like to turn the call back to our President and CEO rule version for the outlook.
Thank you Jeremy.
Please turn to slide 10 for our outlook.
While macro conditions remain uncertain as we enter 2023, our portfolio is designed to deliver organic growth in excess of GDP.
We are confident in our ability to execute our strategy and generate sustainable long term shareholder value.
Our transformed portfolio aligns belden with key long term secular trends that are a lengthy investment cycles investments in automation re shoring increased connectivity, increasing bandwidth usage and network upgrades, all bode well for belden to produce sustainable earnings growth.
For the full year 2023, we expect revenues of 2.67 billion.
Two 2.72 billion.
This represents consolidated organic growth, 3% to 5%.
And when we dig deeper we see industrial automation growing organically in the mid to high single digits and broadband and fiber growing organically in the mid single digits.
And smart buildings, we anticipate slightly lower growth in 2023 compared to our long term expectations, we see smart buildings being more impacted by recent macro uncertainty and are currently expecting a flat year of organic growth now that being said our long term view of the smart buildings market remains unchanged.
We expect full year 2023, EPS to be $6 60 to $7, representing EPS growth of approximately 3% to 9%.
For the first quarter, we expect revenues of $615 million to $630 million with organic growth between 3% to 6%.
We expect first quarter EPS to be $1 50 to $1 60.
Now please turn to slide 11 to review our value creation framework and a quick reflection on the progress we've made in 2022 and over the last three years.
First I'd like to reiterate our value creation framework.
Our commitment is to drive EPS to $8 or more by 2025 through organic growth in excess of GDP healthy margins robust cash flow and disciplined capital allocation.
When we set the $8 role at our Investor Day last June we were targeting 2022 EPS of $5 70.
As discussed previously we substantially beat our initial goal with actual EPS of $6 41.
Looking forward with our new EPS guidance range for 2023 at $6 $67. We are well ahead of our internal plans to achieve our 2025 targets.
Next I'd like to take a moment and recognize the significant progress our team has made in transforming belden over the last three years.
If you recall I was appointed CEO of Belden in May of 2020, a very interesting time for sure.
And reflecting on what we have accomplished since I'm incredibly proud of the team and the efforts we took to reshape meldons future.
First we made the decision to divest slow growing businesses that required excess amounts of capital.
Second we refocused our investments towards core businesses with active that attractive growth dynamics.
And third we reshaped the balance sheet to significantly reduce our leverage and increase our financial flexibility.
The outcomes of our efforts have been impressive.
On a pro forma basis, we have grown considerably with an organic CAGR revenue CAGR of 7% and EPS CAGR of 17% and we achieved a return on invested capital of 18, 5% in 2022 compared to nine 2% in 2020 up 930 basis point.
<unk>.
Finally, we also reshaped the balance sheet and decreased our net leverage considerably to one zero times at the end of 2022.
Our streamlined business with a focus on product innovation and solution based sales provides the framework to capitalize on key growth trends.
We see meaningful long term opportunity in our markets and we'll continue to invest accordingly, now to conclude I would like to recognize the hard work from our global teams as the business encountered significant challenges. These past few years.
From supply chain disruptions to inflationary pressures, we have successfully navigated the operating environment and delivered record results.
That concludes our prepared remarks Jess please open the call to questions.
Certainly ladies and gentlemen, if you would like to ask a question. Please press star one on your Touchtone phone again that is star one for any questions.
We would like to withdraw your question. Please press star keel.
Our first question comes from Reuben Garner with the benchmark Company. Your line is open. Please go ahead.
Okay.
Thanks, Good morning, everyone and congrats on another strong quarter.
Thank you I guess just start in your and your outlook for this year, maybe if you could just talk about the underlying economic assumptions.
Abetted in that range and I guess how sensitive.
Your business is too.
Yeah.
Slowdown in the economy.
I mean, I know you have some things bill and that can kind of maybe insulate you from that but if you could just give us a little more.
Until there that'd be great.
Yeah first of all I appreciate that.
The nice where it's relevant secondly, we're humble enough to recognize that it's very hard for us to predict the future.
Even within the same year that we live in so we feel good and we think the based on our strong guidance and we feel good that the macro or the secular trends that are businesses.
Favre from.
We will prevail.
There is a case to be made that if we start with industrial automation that higher cost of capital will only increase.
The need for automation at factories.
There's a strong case to be made that this D. Globalization trends that we're seeing is going to continue and hence the re shoring activities that we're already seeing and that we're already starting to benefit from will continue in.
In broadband and <unk> because of the tremendous stimulus.
That the United States government decided is required.
I think that business will prevail, well and is not really tied to higher interest rates, our microeconomic conditions because of the stimulus and as we recognized smart buildings that'll be a build a tougher this year, we did very very well in 2022.
Strong growth in the high growth verticals double digits, even in Q4 as we predicted in data centers.
Government and health care facilities, but that business will be a little bit tougher this year and as we re lowered expectations to flat.
Is there any way to I know you referenced $85 billion in the broadband and <unk>.
And any way to reference what kind of benefit youre getting from these.
The federal.
And kind of what kind of visibility. It gives you over the next.
Couple of few years.
It's obviously hard to express that in terms of dollars because you know we're not we cannot control.
To what extend and at which pace the funds are being distributed.
But we're seeing it now we saw it in the fourth quarter and we're seeing the deployments occurring.
So we expect it's obviously a massive amount we expect it to take five plus years as we hire.
Highlighted in our prepared remarks.
And since we have such a broad product portfolio.
Within that segment that was in that business, we benefit in multiple ways from network upgrades. So it's hard to quantify that in terms of in dollar terms, but we will significantly benefit.
Okay.
One more in if I missed it.
Good.
So you you.
You referenced.
And your margin.
Outlook.
I think you referenced we're talking about the supply chain normalizing in backlog normalizing is there any risk to.
The pricing in the industry and for you guys.
<unk> had just as things normalize and it's easier to get products is that something that you've accounted for in your in your margin outlook for this year.
Our pricing expectation for 2023.
Pretty similar to our exit rate of 2022.
We don't expect further prices to increase if they will that obviously, we will adjust.
We've been I think it's fair to say successful and breast.
<unk> on these quite significant price increases these inflationary pressures that we felt.
As we pointed out throughout the last two years, so I'm not I'm not worried about it if prices were to drop significantly then we were to adjust our pricing as well because we've always been straightened honest.
When it comes to setting expectations.
And passing on what we receive as input costs.
Great. Thanks, Congrats again and good luck this year guys.
I appreciate it thank you.
Our next question comes from Chris Dankert with loop capital. Your line is open. Please go ahead.
Hey, good morning, and congrats on a great 2022 over one.
Thank you I guess kind of dig in.
Yeah, I guess kind of digging in very strong outlook for 'twenty three.
The thing that caught my eye, the most and so if I look at kind of the assumption for broadband and <unk> growth a little bit more modest than I would've assumed I guess, given the fact that <unk> got a heck of an organic comps there.
And an assumption that hey.
Hi Hill decline and then some of the stimulus money is probably going to be.
Blowing through more fully in 2025, just help us understand how conservative or.
Could you just maybe size that that mid single digit organic consumption in broadband for us.
Yes.
I guess two.
Two comments that I'd like to make.
<unk>.
We obviously feel calm.
Confident about our guidance because otherwise it does not the guidance. We would have issued we don't expect to miss it.
But secondly, please understand that that business is a global business and the stimulus obviously applies to the United States. So in other parts of the world depending on the hallmark where conditions are manifest themselves that might be that growth might slow down. So we thought it was prudent at this point in time to spell out mid single digits.
Got it that makes complete sense.
And then again, we've been having some noise from the impact of raw materials copper, maybe just if you could highlight kind of what that impact was on gross margin in the quarter and kind of what youre, assuming for 2023 from raw materials.
Yes, so I'll start with the 2023.
Assumption, Chris So we're not expecting any material change in copper on a year over year basis.
And with respect to other materials, the sort of net out to not very much a little bit of inflation in compounds in resins.
Offset by some cost reductions in logistics, so everything sort of net out to not a very material impact.
In terms of.
Q4.
The copper copper was actually down a little bit on a year over year basis call it roughly $15 million.
And other materials were up kind of in the same ballpark or were up maybe $10 million a year over year basis.
Helpful.
That's very helpful.
I guess I'll leave it there and hop back in queue. Thanks, So much guys.
Thank you <unk>.
And once again, if you did have a question Thats Star one we will go next to David Kelley with Jefferies. Your line is open. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
I was hoping to ask broadly about channel exposure, we've heard from some other suppliers that are seeing some pockets of destocking. So could you talk about demand from your distribution partners and how youre thinking about channel visibility into 2023.
Yeah sure. So I appreciate the question so we have.
Pretty good visibility and the inventory levels of our channel partners.
Throughout decades, we built up and continuously improve the visibility and point of sale information that we receive from our channel partners.
So the inventory turns at our channel partners right. That's how we measure the levels that they have whether they are appropriate or not.
Are unchanged they are pretty much unchanged and they are where we need them to be so when business partners. Their point of sale goes up that obviously, they carry a little bit more inventory when it goes down they carry a little bit less inventory, but we have not seen nor worried about massive destocking at our channel partners.
Okay got it that's helpful and maybe shifting gears.
In light of the $1 billion of free cash.
Target through 2025 cumulative.
Can you talk about the free cash conversion setup into 2023, and if there are any kind.
One off factors, we should be thinking about modeling here.
Yes, Hi, David This is Jeremy So I think we had a pretty good year in 2022.
In terms of conversion to net income we were about 77% I think I.
I would expect that to improve gradually over the next few years.
And probably in 2025 will be closer to 100%. So our plan is to invest first in organic growth, which means we are spending a bit in capex.
Depreciation so I would plan, maybe 80% conversion in 2023, and then ramping up over the next couple of years.
Okay perfect. Thanks, guys I will pass along.
Thank you. Thank you.
Our next question comes from Noelle Dilts with Stifel. Your line is open. Please go ahead.
Hi, Thanks, and again congrats on that throughout 2022.
Was hoping you could just dig a level can go a level deeper into some of your growth assumption for.
Specifically industrial for 2023 any notable.
Growth or outliers in terms of how youre thinking about the various vertical discrete process energy et cetera.
And then maybe within that you could touch on how youre thinking about the.
Growth outlook for your software and data solutions. Thank you.
Thank you all thank you for your question and thank you for your kind words.
So the assumptions per vertical in the industrial automation solutions space don't differ that much from each other.
But positive outliers are discrete so we see discrete automation within that food and beverage we see we expect above average growth.
In energy our energy vertical we feel very very good about as we see this transition all over the world and that the current energy quote unquote crisis.
The solutions that we provide for our customers. There. So those are positive outliers that we see even in the industrial automation space.
And as far as.
The software is concerned.
We only launched that solution in June as you know I think we called out our first order last call. So it's kind of pointless to talk about.
Percentage growth.
Yes, Paul.
But we feel we feel very good about the vary but the traction that we have we feel extremely good about the level of interest and it might be interesting to point out that we don't typically we don't market that product as a standalone product. It's part of a solution that enables a solution for our machine builder for our industrial.
Customers.
Great Okay great.
And then maybe kind of a similar line of question on the enterprise solutions side I mean, when you look at them.
Gee there's been.
I think youre going to see kind of mixed trends in terms of the carriers next year and how much they're spending on <unk> I guess.
Any thoughts on on I guess, the cadence of that spend next year, and then and broadband.
I guess any notable trends in terms of what you're seeing from cable versus the telcos and how much is rural coming into play and Ah and I guess anything.
How are you thinking about outside the home versus inside the home.
Yes.
Alright.
So I appreciate that.
So first of all on the <unk> spend.
It's obviously, a little bit hard to predict and I do think that that element of the business globally. It will be a little bit tied to macro conditions.
And our growth assumptions that growth is still is very modest.
The lion's share of our growth will come from our Msos.
From from Msos that from international So that's one.
Two is.
Cable versus telcos.
Yes, we see that telcos expand there.
Broadband offerings. So as you know we play on both sides it doesn't really matter for us.
So, yes, we see them gaining traction and we see the msos are gaining traction with offering.
Voice solutions right. So so we play on both sides. So that is great for us.
As far as inside versus outside.
We our expectation is that that trend will further increase the outside of the home.
So in 2022, we ended with 76% of our revenue outside of the home and we roughly expect that to go to 79% to 80% in 2023, okay.
Great.
Okay. Thank you.
Our next question comes from Mark Delaney with Goldman Sachs. Your line is open. Please go ahead.
Yes. Good morning, Thank you for taking my questions and let me add my congratulations on the strong results for 2022.
Thank you Mark.
First question is on pricing so if I understood correctly. The assumption is that pricing stays in 2023 at the levels that we're seeing in the fourth quarter I believe the company was raising price over the course of 2022. So if pricing holds at current levels I would think there might be some year over year benefit in 'twenty three.
Relative to 'twenty two in total so if I'm understanding that correctly, maybe help us understand how much of a full year of pricing benefit there may be.
This year, just given that that flow through dynamic.
Since the I appreciate the question Mark since the price increases that we've launched in the second half of the year are relatively modest.
The pricing element of our organic growth guidance for 2023 is very modest less than 1%.
Got it. Thank you for clarifying on that that's helpful. And then my second question was better understanding the backlog and bookings dynamics as you mentioned the very strong backlog I think you said up 20% year on year and similar to a lot of the other companies.
And in this space, we've seen bookings can come down given how much backlog coverage, there isn't and customers don't need to order quite so far in advance.
The question, though as you know.
As we're thinking about what's necessary in terms of new bookings to get to the organic growth targets for 2003. When do you think book to Bill would have to get back above one.
Yes, so mark.
We our expectation in 2023 is that book to Bill stays below one <unk>.
As far as where we where we needed to be like what is the absolute lowest amount of orders I think that that's a.
A good question that is kind of difficult to answer, but my expectation and our expectation.
And what we've heard from the teams is that book to Bill probably doesn't get any worse than where it was in the fourth quarter endpoint and wining gradually improves over the next couple of quarters.
Thank you.
Yep.
We will go next to William Stein with <unk> Securities. Your line is open. Please go ahead.
Great. Thanks for taking my question Congrats on the good results in pretty remarkable outlook I would say.
I'm, hoping to focus on some longer term things.
Someone asked about the software I think thats.
I think thats, an important one but another is.
Customer innovation centers that you've begun to open I'm, hoping you can update us on how that's influencing your selling motion.
Our solution selling and demand trends generally.
Oh, thanks, very much I appreciate that question Yeah, we're very we're very happy with the results. So.
Just a quick reminder, we opened the first one in Stuttgart, Germany fully operational we opened the second one in Santa Clara, California.
We are planning on visiting the third one which will be in the Shanghai and at the end of this quarter.
And as soon thereafter, we will open the fourth one in Chicago, Illinois, and later on this year in Bangalore, India.
The feedback has been extremely positive from our customers.
And a significant part of the opportunities that are in the sales funnel stemmed from the interaction that we have with our customers at the customer innovation center. So this transition that we've been talking about from a component supplier to a solutions provider is not an easy transition.
I think in the past, we reference having to change compensation plans for our salespeople are having to hire solution consultants etcetera etcetera.
But obviously you have to have a environment.
Including technical capabilities.
That.
Provide our customers with the confidence that we're able to indeed provide those solutions and that we're able to demonstrate at dose innovation centers. So I could not be happier with the results we have and therefore, we're rapidly expanding them to the initial five that we've communicated.
Great. Thank you.
One.
The other one I guess is about capital allocation, you've talked about the focus on organic growth.
I will say about the potential for M&A, both sounding like de prioritize over.
Buybacks I believe buybacks decelerated, a little bit in Q4.
<unk>.
Trying to square that with.
It sounds like incrementally positive.
Look, especially relative to the macro should we interpret this as perhaps greater possibility that there would be a larger acquisition in the coming few months or is that over.
Reading over interpreting the data.
Yes, I wouldn't read too much into it well so the truth is that in 2022, we deployed quite a bit of capital. So remember we paid off $200 million euros and that we bought back $150 million in shares and we bought three companies. So we had deployed quite a bit of capital.
In 2022, as Rob mentioned in his prepared remarks, we are really well positioned and have a lot of options.
In 2023, and our focus is going to be.
Investing in organic growth number one number two investing in bolt on acquisitions strategic acquisitions, but unlikely it would be anything significant.
Large.
And then number three share buybacks.
Great Thanks, and congrats again.
Sure I appreciate it.
And with no other questions holding I will now turn the conference back to Mr. Herington for any additional or closing comment.
Yes, Thank you Jess 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 E Mail address is investor relations at <unk> Dot com. Thank you very much have a good day.
Ladies and gentlemen that will conclude today's conference. We thank you for your participation you may disconnect at this time.
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