Q3 2023 Belden Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Reports 3rd quarter 2023 results call. Just a reminder, this call is being recorded.
Ladies and gentlemen, thank you for standing by and welcome to this morning.
Sheldon reports third quarter 2023 results call. Just a reminder, this call is being recorded.
Speaker 1: At this time, you're in a listen-only mode. Later, we will conduct a question and answer session. If you'd like to ask a question, please press star 1 on your touchtone phone. If you're in the question queue and would like to withdraw your question, simply press star 2. I would now like to turn the call over to Erin Reddington, Vice President of Investor Relations. Please go ahead, sir.
At this time, you're in a listen only mode. Later, we will conduct a question and answer session. If you'd like to ask a question. Please press star one on your Touchtone phone.
If you're in the question queue and would like to withdraw your question simply press Star two.
Now I'd like to turn the call over to Aaron Redington, Vice President of Investor Relations. Please go ahead Sir.
Speaker 2: Thank you. Good morning everyone and thank you for joining us for Belvin's third quarter 2023 earnings conference call.
Thank you good morning, everyone and thank you for joining us for Belden is third quarter 2023 earnings conference call.
Speaker 2: With me today are Belden's President and CEO , Ashish Chand, and Senior Vice President and CFO , Jeremy Park.
With me today are belden, as president and CEO, Ashish, John and senior Vice President and CFO Jeremy Parks.
Speaker 2: A sheesh 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.
Ashish 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.
Speaker 2: We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call.
We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call.
Speaker 2: The press release, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com.
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.
Speaker 2: During this call, management will make certain forward-looking statements.
During this call management will make certain forward looking statements.
Speaker 2: For more information, please review today's press release and our most recent annual report on Form 10-K .
For more information. Please review today's press release and our most recent annual report on Form 10-K.
Speaker 2: Additionally, during today's call, management will reference adjusted or non-GAAP financial information.
Additionally, during today's call management will reference adjusted or non-GAAP financial information.
Speaker 2: In accordance with Regulation G, the appendix to our presentation and 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.
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.
Speaker 2: I will now turn the call over to our president and CEO Ashish Chonam. Thank you, Adam, and good morning, everybody.
I'll now turn the call over to our President and CEO Ashish John.
Thank you Adam and good morning, everybody.
We appreciate you joining us today.
Speaker 3: As highlighted in our communication three weeks ago, third quarter results were below our expectations as demand unexpectedly weakened within our industrial and broadband markets, adding to ongoing pressure from Channel D stock.
As highlighted in our communication three weeks ago third quarter results were below our expectations as demand unexpectedly weakened within industrial and broadband markets, adding to ongoing pressure from channel Destocking.
Speaker 3: So quite a softening in demand are expanding solution-driven mix through gross margin out performance, resulting in well-initivating the lower end of our initial adjusted EPS out.
Despite a softening in demand are expanding solutions driven mix drove gross margin outperformance, resulting in belden, achieving the lower end of our initial adjusted EPS outlook.
Speaker 3: Our proactive efforts towards becoming a premier solutions provider continue, even amid the current market weakness.
Our proactive efforts towards becoming a premier solutions provider continue even amid the current market weakness.
Speaker 3: We believe this approach will drive incremental growth and margin expansion over the long term.
Elyse this approach will drive incremental growth and margin expansion over the long term.
Speaker 3: In the meantime, we are evaluating opportunities to protect margin where appropriate and have already taken cost-saving measures in response to the market weakening.
The meantime.
We are evaluating opportunities to protect margin where appropriate and have already taken cost saving measures in response to the market weakness.
Speaker 3: Furthermore, we remain confident in the resilience of our portfolio, which stands well positioned to benefit from significant secular trends with lengthy investment cycles.
Well the mall.
We remain confident in the resilience of our portfolio, which stands well positioned to benefit from significant secular trends with lengthy investment cycles.
Now, let's review the quarter.
Speaker 3: Turn slide 4 for a summary of the third quarter of 2023. As a reminder, I will be referring to adjusted results today.
Please turn to slide four for a summary of the third quarter of 2023.
As a reminder, I will be referring to adjusted results today.
Speaker 3: Our team performed admirably considering the difficult operating backdrop.
Our team performed admirably, considering the difficult operating backdrop.
Speaker 3: Unfortunately, industry demand weakness came about unexpectedly and we experienced a marked change in orders in our industrial and broadband markets during the quarter.
Unfortunately, industrial demand weakness came about unexpectedly and we experienced a marked change in autos.
Our industrial and broadband markets during the quarter.
Speaker 3: After growing orders 4% sequentially in the second quarter, total orders were down 19% sequentially in the third quarter.
After growing orders and 4% sequentially in the second quarter total orders were down 19% sequentially in the third quarter.
Speaker 3: As such, we achieved quarterly revenues of $627 million, down 7% year-over-year.
As such.
We achieved quarterly revenues of $627 million.
Down 7%.
Yeah.
Despite and demand softness our shift to solution sales continues which led to favorable margins during the period.
Speaker 3: Despite end-demand softness, a shift to solution failed continues, which led to favorable margins during the period.
Speaker 3: Rose margins were up 280 basis points to 39% and EBITDA margins were up 80 basis points to 18.4%.
Gross margins were up 280 basis points to 39% and EBITDA margins were up 80 basis points to 18, 4%.
Speaker 3: Organic growth was down 4% in our industrial automation segment with EBITDA margins up 230 base response to 22.5%.
Organic growth was down 4% and our industrial automation segment with EBITDA margins up 230 basis points to 22, 5%.
Speaker 3: In enterprise solutions, organic growth was down 14%, with EBITDA margins down 110 basis points.
And enterprise solutions organic growth was down 14%.
EBITDA margins down 110 basis points.
Speaker 3: As we adjust to this temporary weakness, we expect to continue to follow up previously outlined capital allocation priorities with organic growth as a top priority, followed by M&A, and finally returning capital to shareholders.
As we adjust to this temporary weakness we expect to continue to follow up previously outlined capital allocation priorities with organic growth as a top priority followed by M&A and finally, returning capital to shareholders.
Speaker 3: A balance sheet is strong with ample liquidity and leverage at Belden remains low at 1.3 times, down from 1.4 times.
Our balance sheet is strong with ample liquidity and leverage at Belden remains low at one point.
Down from one four times in the prior quarter.
Speaker 3: We have significant financial flexibility to execute upon our strategic plans while staying around our targeted net leverage ratio of 1.5 times. Even if the outlook becomes more challenging.
We have significant financial flexibility to execute upon our strategic plans, while staying around our targeted net leverage ratio of one five times, even if the outlook becomes more challenging.
Speaker 3: Pre-cash flow for the quarter was robust and we continue to deploy capital to grow the business.
Free cash flow for the quarter was robust and we continue to deploy capital to grow the business.
Speaker 3: I'm pleased to report that here today we have invested nearly $110 million in M&A with our most recent acquisition of CloudRail, an edge software provider that helps connect and manage devices in industrial environments.
I am pleased to report that air to date, we have invested nearly $110 million in M&A with.
Our most recent acquisition of cloud drill and Ed software provider that helps connect and manage devices and industrial environments.
Welcome to the team clouded.
Speaker 3: Further, here to date we have returned over $150 million to share hold.
For the year to date, we have returned over $150 million to shareholders.
Speaker 3: In summary, the unexpected shifts in market demand in industrial and broadband during the third quarter impacted orders.
In summary, the unexpected shifts in market demand in industrial and broadband during the third quarter impacted orders.
Speaker 3: That being said, our team executed well and we are proud to have sustained these healthy levels of profitability with such a strong balance sheet and cash flow position.
Being said our team executed well and we are proud to have sustained these healthy levels of profitability with such a strong balance sheet and cash flow position.
Speaker 3: Now please turn to slide five for a summary of our market performance in the third quarter and where we see things trending over the short term.
Now please turn to slide five for a summary of our market performance in the third quarter, and where we see things trending over the short term.
Speaker 3: Taking a step back, during the third quarter, orders changed considerably in our industrial and broadband markets.
Taking a step back during the third quarter autos changed considerably.
Industrial and broadband markets.
Speaker 3: Smart Billings performed as expected, but is more than offset by the sequential change in orders in our other markets. So.
<unk> performed as expected, but was more than offset by the sequential change in autos and other markets.
Starting with the industrial automation market.
Speaker 3: The first half of the year, our business performed well with orders roughly flat sequentially in the second quarter, and point-of-sale data confirming our order trend.
The first half of the year or <unk>.
Business performed well with autos roughly flat sequentially in the second quarter and point of sale data confirming our order trends.
Speaker 3: As a third quarter progressed, industrial customers became increasingly cautious and we saw a material change in our orders and point of sale data.
As the third quarter progressed industrial customers became increasingly cautious and we saw a material change in the autos and point of sale data.
Speaker 3: So, our sequential bases are industrial orders for the third code over down 21%.
On a sequential basis, our industrial orders for the third quarter were down 21%.
Speaker 3: Softness in the industrial market has many contributing factors.
The softness in the industrial market has many contributing factors, but at a high level the weakness in orders has two major drivers.
Speaker 3: But at a high level, the weakness in orders has two major drivers.
Speaker 3: First, we experienced a pause in end customer demand due to broad weakness in discrete conscious bleed functions. Just a quick summarize.
First we experienced a pause and end customer demand due to broad weakness in discrete manufacturing.
Speaker 3: Second, both OEMs and distributors took action to further reduce inventory levels during the quarter.
Second both Oems and distributors took action to further reduce inventory levels during the quarter.
Speaker 3: The small change in demand for industrial automation products and solutions is a temporary reaction coming into the back half of 2023 amid overall macro uncertainty.
The small change in demand for industrial automation products and solutions as a temporary reaction.
Coming into the back half of 2023, Amit overall macro uncertainties.
Speaker 3: So moving forward, we expect to see reduced demand for few quarters as end users adjust to challenges in the marketplace. However, we expect them to emerge with continued investments in automation.
Looking forward, we expect to see reduced demand for a few quarters as Andy was adjust to challenges in the marketplace. However, we expect them to emerge with continued investments in automation.
Speaker 3: Longer term are secular trends remain intact, led by reshoring, labor shortages and investments in industrial automation. I'm confident that we are well positioned to grow market share once we get past the temporary slowdown.
Longer term, our secular trends remain intact led by reassuring labor shortages and investments in industrial automation and.
I am confident that we are well positioned to grow market share once we get past this temporary slowdown.
Speaker 3: In the smart building's market, we saw revenue and orders more or less in line with the guidance.
And the smart buildings market, we saw revenue and orders more or less in line with our guidance.
Speaker 3: Within smart buildings, we experienced weakness in commercial real estate with more stability in our targeted verticals, such as hospitality and government.
Within smart buildings, we experienced weakness in commercial real estate with more stability in our targeted verticals such as hospitality and government.
Speaker 3: With smart building market, continues to face challenges with higher interest rates creating uncertainty and distributors continuing to destalk as they adjust to lower demand and work to improve cash flow.
The smart building market continues to face challenges with higher interest rates, creating uncertainty and distributors continuing to destock as they adjust to lower demand and work to improve cash flow.
Speaker 3: Similar to our industrial market, point of sales data declined in the third quarter, which points to further weakness into the fourth quarter and 2024.
Similar to our industrial market point of sales data declined in the third quarter, which points to further weakness into the fourth quarter and 2024.
Speaker 3: Longer term, we expect to see demand growth from increasing digitization and expanding connectivity needs.
Longer term, we expect to see demand growth from increasing digitization and expanding connectivity means.
Speaker 3: Customers have increasingly complex challenges, including hybrid networks that combine disparate data and network protocols onto a single backbone.
Our customers have increasingly complex challenges, including hybrid networks that combine disparate data and network protocols onto a single platform.
Speaker 3: Belden is well positioned to address these challenges with a product breadth and technical expertise.
<unk> is well positioned to address these challenges with our product breadth and technical expertise.
Speaker 3: Finally, in the broadband solutions market, we had a good first half of the air with meaningful order growth in the second quarter. However, in the third quarter, we experienced a sharp reverses with orders down 28% sequentially.
Finally in the broadband solutions market, we had a good first half with a meaningful order growth in the second quarter.
However, in the third quarter, we experienced a sharp reversal with orders down 28% sequentially.
Speaker 3: The change in the third quarter is the result of MSOs adjusting their procurement processes to reduce inventory and rely on shorter lead times to meet demand. But it Gandh Make sure that thebody lights are cooled down because it doesn't turn out to be
This change in the third quarter as a result of msos adjusting their procurement processes to reduce inventory and rely on shorter lead times to meet demand.
Network upgrades remain intact.
Speaker 3: However, we anticipate a soft fourth quarter as customers further adjust inventory into ARN.
However, we anticipate a soft fourth quarter as customers further adjust inventory into Iran.
Speaker 3: We expect to pick up in orders as we move through the first half of 2024 with further momentum as government funding increases throughout next year.
We expect to pick up in orders as we move through the first half of 2024 with further momentum as government funding increases throughout next year.
Speaker 3: I will now request Jeremy to provide additional insight into our third quarter financial performance.
I will now request Jeremy to provide additional insight into our third quarter financial performance.
Speaker 4: Thank you, Ashish. I will start my comments with results for the third quarter, followed by a review of our segment results, a discussion of the balance sheet and cash flow performance, and finally,
Thank you Ashish.
I'll start my comments with results for the third quarter, followed by a review of our segment results a discussion of the balance sheet and cash flow performance and finally our outlook.
Speaker 4: As a reminder, I will be referencing adjusted results today.
As a reminder, I will be referencing adjusted results today.
Speaker 4: Now, please turn to slide six in our presentation for a review of our third quarter result.
Now please turn to slide six in our presentation for a review of our third quarter results.
Speaker 4: Third quarter revenue decreased 7% year over year and was down 9% organically to $627 million.
Third quarter revenue decreased 7% year over year and was down 9% organically to $627 million.
Speaker 4: exceeding our preliminary view of $625 million.
Seeding, our preliminary view of $625 million.
Speaker 4: We experienced softness and industrial automation with revenues decreasing 4% organic.
We experienced softness in industrial automation with revenues decreasing 4% organically.
Speaker 4: Longer term, we continue to see compelling secular demand drivers for automation solutions as industrial customers respond to labor shortages.
Longer term, we continue to see compelling secular demand drivers for automation solutions as industrial customers respond to labor shortages.
Speaker 4: capacity requirements and the reshoring of production.
<unk> requirements.
And the re shoring of production.
Speaker 4: Enterprise solutions revenue decreased 14% organically with increased weakness in our broadband solutions mark.
Enterprise solutions revenue decreased 14% organically with increased weakness in our broadband solutions market.
Speaker 4: As Ashish mentioned earlier, orders for the third quarter were down 19% sequentially, with weakness in both segments.
As Ashish mentioned earlier orders for the third quarter were down 19% sequentially with weakness in both segments.
Speaker 4: We ended the quarter with a book to bill of 0.81.
We ended the quarter with a book to Bill of 0.81.
Speaker 4: Gross profit margins were a robust 39%.
Gross profit margins were a robust 39%.
Speaker 4: and 80 basis points compared to the prior year.
Pending 280 basis points compared to the prior year.
Speaker 4: quarter benefited from a better than typical product mix driven by our solutions.
The quarter benefited from a better than typical product mix driven by our solutions business.
Speaker 4: EBITDA was down 2% year-over-year to $115 million, while EBITDA margins expanded 80 basis points to 18.4%.
EBITDA was down 2% year over year to $115 million.
While EBITDA margins expanded 80 basis points to 18, 4%.
Speaker 4: margins for the quarter benefited by approximately 100 basis points due to an adjustment to lower year-to-date incentive compensation.
Margins for the quarter benefited by approximately 100 basis points due to an adjustment to lower year to date incentive compensation.
Speaker 4: Net income in the quarter was $76 million, down 3% from $78 million in the prior year period.
Net income in the quarter was $76 million down 3% from $78 million in the prior year period.
Speaker 4: EPS increased 1% year over year to $1.78.
EPS increased 1% year over year to $1 78.
Speaker 4: compared to $1.77 in the year ago period.
Compared to a $1 77 in the year ago period.
Speaker 4: slightly above our updated guidance range of $1.75 to $1.77.
Which was slightly above our updated guidance range of $1 75 to $1 77.
Speaker 4: Turning now to slide seven in the presentation for a review of our business segment results.
Turning now to slide seven in the presentation for a review of our business segment results.
Speaker 4: I will begin with our industrial automation solution segment.
I will begin with our industrial automation solution segment.
Speaker 4: helps customers transmit and secure audio, video, and data in harsh industrial environments.
Which helps customers transmit and secure audio video and data in harsh industrial environments.
Speaker 4: The markets include discrete manufacturing, process facilities, energy.
Markets include discrete manufacturing process facilities.
Energy and mass transit.
Speaker 4: The industrial automation solution segment represented 55% of our sales in the quarter with revenue totaling $343 million.
The industrial automation solutions segment represented 55% of our sales in the quarter with revenue totaling $343 million.
Speaker 4: For the quarter, revenue decreased 2% year over year, and decreased 4% organically.
For the quarter revenue decreased 2% year over year and decreased 4% organically.
Speaker 4: on a sequential basis, revenue declined 10%.
On a sequential basis revenue declined 10%.
Speaker 4: During the quarter, we experienced blood declines into screen manufacturing, partially offset by stability in process automation.
During the quarter, we experienced broad declines in discrete manufacturing, partially offset by stability and process automation.
Speaker 4: Industrial Automation Segment, even a margins for 22.5% for the quarter compared to 20.2% in the prior year with margins expanding by 230 basis.
Industrial automation segment EBITDA margins were 22, 5% for the quarter compared to 22% in the prior year with margins expanding by 230 basis points.
Speaker 4: Turning now to our Enterprise segment, which enables customers to transmit and to cure audio, video, and data across complex enterprise networks.
Turning now to our enterprise segment, which enables customers to transmit and secure audio video and data across complex enterprise networks.
Speaker 4: Our key markets include smart building and broadband solutions.
Our key markets include smart buildings and broadband solutions.
Speaker 4: The Enterprise Solution Segment represents 45% of our sales in the quarter, with a revenue totaling $284 million.
The enterprise solutions segment represented 45% of our sales in the quarter with revenue totaling $284 million.
Speaker 4: The quarter revenue decreased 11% year over year and declined 14% organic.
For the quarter revenue decreased 11% year over year and declined 14% organically.
Speaker 4: On a sequential basis, revenue decreased 9%.
On a sequential basis revenue decreased 9%.
Speaker 4: Enterprise solutions segment EBITDA margins were 13.3% for the quarter compared to 14.4% in the prior year.
Enterprise solutions segment, EBITDA margins were 13, 3% for the quarter compared to 14, 4% in the prior year.
Speaker 4: In the smart building's market, revenues were down 14% organically.
And the smart buildings market revenues were down 14% organically.
Speaker 4: In the broadband solutions market, revenues were down 15% organic.
And the broadband solutions market revenues were down 15% organically.
Speaker 4: Fiber revenue was a slightly year over year due to the benefit of recent acquisition.
Fiber revenue was up slightly year over year due to the benefit of recent acquisitions.
If you will please turn to slide eight for our balance sheet and cash flow highlights.
Speaker 4: If you will please turn to slide 8 for our balance sheet and casual highlight.
Speaker 4: Our cash and cash equivalent balance at the end of the third quarter was $531 million compared to $600 in 88 million in the fourth quarter of 2022 and $547 million in the third quarter of 2020.
Our cash and cash equivalents balance at the end of the third quarter was $531 million compared to $688 million in the fourth quarter of 2022.
And $547 million in the third quarter of 2022.
Speaker 4: Our financial leverage was 1.3 times net debt to Ibadah at the end of the third quarter, down from 1.4 times last quarter.
Our financial leverage was one three times net debt to EBITDA at the end of the third quarter down from one four times last quarter.
Speaker 4: As we communicated before, we intend to maintain net leverage of approximately 1.5 times going forward.
As we communicated before we intend to maintain net leverage of approximately one five times going forward.
Speaker 4: We have a reasonable level of debt much lower than in the past, with no maturities until 2027.
We have a reasonable level of debt much lower than in the past with no maturities until 2027.
Speaker 4: In addition, all our debt is fixed with an average interest rate of approximately 3.5.
In addition, all our debt is fixed with an average interest rate of approximately three 5%.
Speaker 4: Looking ahead, we expect to generate meaningful free cash flow in the fourth quarter and achieve full year free cash flow slightly lower than 2022 levels.
Looking ahead, we expect to generate meaningful free cash flow in the fourth quarter and achieved full year free cash flow slightly lower than 2022 levels.
Speaker 4: We expect to have ample liquidity to deploy towards high return opportunities, even as we manage through a dynamic environment.
We expect to have ample liquidity to deploy towards high return opportunities, even as we manage through a dynamic environment.
Speaker 4: Year to date we invested nearly $110 million in new and complimentary businesses and $150 million or share repurchase it.
Year to date, we invested nearly $110 million in new and complementary businesses.
And $150 million towards share repurchases.
Speaker 4: So far in 2023, we have repurchased 1.7 million shares, which is 4% of shares outstanding.
So far in 2023, we have repurchased one 7 million shares which is 4% of shares outstanding.
Please turn to slide nine for our updated outlook.
Speaker 4: Looking forward to the fourth quarter, we expect weakness to continue in line with levels experienced in the second half of the third quarter.
Looking forward to the fourth quarter, we expect weakness to continue in line with levels experienced in the second half of the third quarter.
Speaker 4: This weakness is in contrast to our performance in the first half of the year.
This weakness is in contrast to our performance in the first half of the year.
Speaker 4: The fourth order, assuming the current market environment does not deteriorate further, we expect sales in the range of $510 million to $530 million and adjusted EPS in the range of $1.05 to $1.20.
For the fourth quarter, assuming the current market environment does not deteriorate further we.
We expect sales in the range of $510 million to $530 million and.
And adjusted EPS in the range of $1 five to a $1 20.
Speaker 4: Outlook implies full year revenue will decrease between 4 and 5%.
This outlook implies full year revenue will decrease between four and 5%.
Speaker 4: and full year EPS will be flat to up 3%.
In full year, EPS will be flat to up 3%.
Speaker 4: Further, this outlook would imply that full year 2023 organic growth will be down mid-single digits overall with enterprise down high single digits and industrial audit.
Further this outlook would imply that full year 2023 organic growth will be down mid single digits overall.
With enterprise down high single digits in industrial automation down low single digits.
Speaker 4: That concludes my prepared remarks. I would like to turn the call back to a cease.
That concludes my prepared remarks, I would like to turn the call back to Ashish.
Thank you Jeremy.
Speaker 3: While it is hard to estimate the continued impact of the challenges and uncertainties facing our customers,
While it is hard to estimate the continued impact of the challenges and uncertainties facing our customers.
Speaker 3: As we see it, the fourth quarter is likely to be the most challenge.
We see it the fourth quarter is likely to be the most challenging.
Speaker 3: However, we believe that demand will start to return as the longer term speculative drivers of our business prevail over the coming year.
However, we believe that demand will start to return as the longer term secular drivers of our business prevailed over the coming year.
Speaker 3: Regarding our investment philosophy over the next few quarters, I assure you we will act accordingly to balance two key priorities. First.
Regarding our investment philosophy over the next few quarters I assure you we will act accordingly to balance two key priorities first.
Speaker 3: We will further adjust the cost structure as necessary to help offset the overall impact on a bottom line, and we will strive to achieve decrementally better margins between 20 and 30 percent for the cycle.
We will further adjust our cost structure as necessary to help offset the overall impact on our bottom line.
And we will strive to achieve decremental EBITDA margins between 20 and 30% for the cycle.
Speaker 3: Second, I want to emphasize that the current uncertainty provides our solutions business with an opportunity to further differentiate ourselves from competitors.
Second.
Want to emphasize that the current uncertainty provides our solutions business with an opportunity to further differentiate ourselves from competitors.
Speaker 3: My goal is to come out of the cycle with increased solution fails. Marketshare game.
My goal is to come out of the cycle with increased solution sales.
Market share gains and higher margins.
Speaker 3: I would like to take a step back and highlight the progress you've made over the last few years drawing and transforming welder.
I would like to take a step back and highlight the progress we've made over the last few years growing and transforming belden.
Speaker 3: key objective of our pivotal solutions was to build differentiated capabilities while the business environment was positive so that we would enter inevitable periods of increased uncertainty as a stronger company.
A key objective of our pivot to solutions was to build differentiated capabilities, whilst the business environment is positive.
That we would enter inevitable periods of increased uncertainty as a stronger company.
Speaker 3: We proactively invested in go-to-market and technical capabilities that have driven higher margins and will provide a significant leverage as we get past this temporary downturn and return to growth based on secular trends.
We proactively invested in go to market and technical capabilities that are driven higher margins and will provide us significant leverage as we get past this temporary downturn and return to growth based on secular trends.
Speaker 3: We have developed a unique approach of offering network and data backbone solutions customized by market vertical that help our customer stack multiple use cases.
We have developed a unique approach of offering net book and data backbone solutions customized by market vertical.
That help our customers stock multiple use cases, and justify investments in smart infrastructure and Digitization.
Speaker 3: and justify investments in smart infrastructure and digitization.
Speaker 3: Much needed as customers strive to increase capital productivity and improve customer experience.
What's needed as customers strive to increase capital productivity and improve customer experience.
Speaker 3: through the combination of organic growth, targeted M&A, and share repurchase.
So the combination of organic growth targeted M&A and share repurchases.
Speaker 3: We have a clear and reasonable path forward towards future revenue and EPS growth beyond prior run rates.
Have a clearer and reasonable path forward towards future revenue and EPS growth beyond prior run rates.
Speaker 3: Our portfolio is well positioned and our balance sheet is strong.
Our portfolio is well positioned and our balance sheet is strong.
Speaker 3: We will continue to execute operationally through these challenges.
We will continue to execute operationally through these challenges.
Speaker 3: Look to deploy capital towards tuck-in acquisitions that make sense. And finally, we will continue to return capital to shareholders.
We look to deploy capital towards tuck in acquisitions that make sense and finally, we will continue to return capital to shareholders.
Close.
Speaker 3: I would like to take a moment and recognize the contributions of our associates, including our newest CloudRail team members.
I would like to take a moment and recognize the contributions of our associates, including our newest cloud real team members.
Speaker 3: I appreciate your efforts, this past quarter, and would like to thank you for your support as we continue to transform well into a challenging environment.
I appreciate your efforts this past quarter and we'd like to thank you for your support as we continue to transform belden through a challenging environment. Thank you for your hard work.
Speaker 3: That concludes our prepared remarks. Operator, please open the call to question.
That concludes our prepared remarks, operator, please open the call to questions.
Speaker 1: Once again, if you'd like to ask a question during the question and answer session, please press star one on your touch-tone phone. If you'd like to withdraw yourself from the queue, please press star two. Our first question comes from the line of William Stein with true securities. Please go ahead.
Once again, if you'd like to ask a question during the question and answer session. Please press star one on your Touchtone phone, if you'd like to withdraw yourself from the queue. Please press star queue. Our first question comes from the line of William Stein with <unk> Securities. Please go ahead.
Speaker 5: Great, thanks for taking my questions. I'm hoping you can contextualize margins in the guidance. It's clear that in Q3, margin to...
Great. Thanks for taking my questions.
I'm, hoping you can contextualize margins in the guidance.
It's clear that in Q3.
Margin.
Speaker 5: better than one would expect in the revenue shortfall. As you said, the solutions business performed a bit stronger.
Better than one would expect in the revenue shortfall as you said the solutions.
Business.
<unk> performed a bit stronger.
Speaker 5: That's not clear to me that that continues in Q4, and I'm hoping you can again contextualize it and provide some comments on that. Thank you.
That's not clear to me that that continues in Q4 and I'm, hoping you can again contextualize it and provide some comments on that thank you.
Sure.
So.
Speaker 3: For 2023 as a whole, we expect margins to be in the 38% range, gross margins.
Both were 23 as a whole.
We expect margins to be in the 30% range gross margins.
Speaker 3: and that's what we previously spoken of. There's no change in that in that perspective.
And that's what we've previously spoken off there's no change in that.
In that perspective by the way this is.
Speaker 3: By the way, this is over 5% better than what we had in 2020 and that process was continued based on, you know, how we worked on solutions and new products that we've talked about at different points in time. Indeed, Q3 benefited from better mix given some push out from the broadband customers.
Over 5% better than what we had in 2020 and that process has continued.
Just on.
We worked on.
Solutions and new products that we've talked about.
At different points in time.
Indeed, Q3 benefited from better mix, given some push out from the broadband customers.
Speaker 3: which are relatively lower margin because they are more less solutions.
Relatively lower margin because they are more or less solutions.
Components.
Speaker 3: But yeah, we expect it to be in that 38% range in Q4 and for the full year, slightly better than 38.
But yes, we expect it to be in the 38% range in Q4 and for the full year.
Slightly better than 38.
Speaker 3: Perhaps the follow-up is just a clarification on this. Do you expect that in Q4, solution selling will continue at a somewhat more protected pace than the rest of the business, or is it seeing similar trends or even worse than the overall revenue growth? I think we're seeing very similar trends.
Perhaps a follow up is just a clarification on this do you expect that in Q4 solutions selling will continue at a somewhat more protected piece.
Then then the rest of the business or is it seeing similar trends or even worse than the than the overall revenue growth.
I think we are seeing very similar trends.
<unk>.
It'll be the same kind of <unk>.
Speaker 3: growth somewhere in the low double-digit range will.
Growth so somewhere in the low double digit range.
Speaker 3: You know, we look at our active and software portfolio.
We look at our.
Active and software portfolio.
Speaker 3: That's a good proxy for solutions and that was low double-digit for Q3. So we don't see a change in that given our backlog and also given the kinds of projects in our pipeline right now that are closing.
That's a good proxy for solutions.
So low double digit for Q3, so we don't see a change in that given our backlog and also given the kinds of projects.
And our pipeline right now that are closing.
Thank you.
Sure.
Speaker 1: Next, we go to the line of Rob Jamieson with UBS. Please go ahead.
Next we go to the line of Rob Jamieson with UBS. Please go ahead.
Speaker 6: Hey, good morning. Thanks for taking my questions. I guess just just wanted to start off 1st.
Hey, good morning, Thanks for taking my question I.
I guess, just just wanted to start off first.
Sure.
With.
The prelim.
And then just kind of when did the weakness start to show up in the quarter I mean, you guys have.
Significant amount of business that goes through distribution in a couple of large customers. It's like 40% plus so I feel like you'd have a pretty good pulse on what's happening through the quarter.
Speaker 6: So just trying to kind of understand when this showed up in the quarter. And then also, you know, what you've learned through this and how you intend to maybe change, you know, something internally in terms of getting a better pulse on the man in the quarter. You know, just because like D stock headwinds have been something that we've seen in industrial, it's just kind of, you know, more broadly. So just any color there will be super helpful.
Just trying to kind of understand when they showed up in the quarter and then also.
What you've learned through this and how you intend to maybe change.
Something internally in terms of getting a better pulse on demand intra quarter.
Just because like destock headwinds have been something that we've seen in industrial as just kind of more broadly. So just any color there would be super helpful.
Speaker 3: And so I think if I look back
Sure. So I think if I look back.
Speaker 3: You know, there have been so many things going on in the markets, right, because of
There've been so many things going on in the market right because.
Speaker 3: Interest rates, geopolitics, changes in how people think about where they manufacture.
Interest rates geopolitics changes in how people think about where the manufacturer.
Speaker 3: uh... changes in commercial real estate etc it's been difficult for most people to uh... to kind of read right
Changes in commercial real estate et cetera, So it's been difficult for most people.
Two to kind of read.
What we saw in Q2.
Speaker 3: was our orders were up sequentially 4%.
Was our orders were up sequentially, 4%.
Speaker 3: Our POS was strong, you know, the point of sale data we were getting from our channel partners was strong.
<unk> was so strong.
Later, we were getting from our channel partners are strong.
Speaker 3: And frankly, at that point, as we were entering Q3, we did not see in the early part of the quarter any clear indicator.
<unk>.
Frankly at that point as we were entering Q3.
We did not see in the early part of the quarter any clear indicator.
Speaker 3: However, as we were working through the quarter, we saw two things change. The first was there was a lot of tightness with OEMs and end users who started adjusting inventories on the industrial side.
However, as we were working through the quarter we.
We saw two things change, but first of all.
There was a lot of.
<unk> brightness with Oems and end users, who started adjusting inventories on the industrial side.
Speaker 3: And that just accelerated how our channel partners were reacting.
And that just accelerated Howard channel partners were reacting.
Speaker 3: And I think, uh, you know, you can see that across, uh,
And I think.
You can see that across.
Speaker 3: different indicators in the industry and I know other companies have released their earnings and you can see some of that clearly showcased their.
Different.
Indicators in the industry and I know other companies have released their earnings and you can see some of that.
Clearly showcase though.
Speaker 3: The other thing that happened was on the broadband side, you know, smart buildings is more or less as expected, we had already foreshadowed some weakness in the channel which manifests.
The other thing that happened was on the broadband side smart buildings is more or less as expected we had already foreshadowed some weakness in the channel which manifested.
Speaker 3: But in broadband, you know, partly because of how our lead times have improved.
But in broadband.
Partly because of how our lead times have improved.
Speaker 3: And partly because of how the large MSOs were managing their procurement processes.
And partly because of how the large msos for managing their procurement processes.
Speaker 3: We saw a rather sudden change in their approach.
We saw a rather sudden change in that approach.
Speaker 3: But the silver lining is I think that is also more temporary than what's going on on the industrial and smart building side, and I think that adjustment did surprise us.
But.
The silver lining is I think that is also more temporary.
What's going on on the industrial and Smart building site.
And.
I think that adjustment.
That surprise us.
Speaker 3: So between what happened in the industrial markets with OEMs and then, you know, with end users and accelerated in the channels.
So.
So between what happened in the industrial markets with Oems and then with.
With end users and then accelerated in the channels.
Speaker 3: Now, by the way, part of that was also the Eurozone. And I think, you know, few people have called that out. So we saw the Eurozone changing more materially than we expected.
No other part of that was also the eurozone.
And I think.
Few people of all of that out so we saw the eurozone changing more materially than we expected.
Speaker 3: And then like I said, as we worked through the quarter, there was this phenomenon on the broadband side.
And then like I said as we worked through the quarter.
There was so.
Phenomenon on the broadband side.
Speaker 3: And it really, it really has a lot to do. I mean, if you look at the MSO results, they've all talked about.
And it really.
It really has a lot to do I mean, if you look at the.
The MSR results have all talked about.
Speaker 3: Reasonable growth in the subscriber base. So the long term trends and the long term investments are intact. It's an adjustment in how they buy.
Reasonable growth in the subscriber base. So the long term trends in the long term investments are intact, it's an adjustment in how they buy.
Speaker 3: And, uh, you know, you can kind of look back now and say, there were some signs around that.
You can kind of look back now and say there were some signs around that.
Speaker 3: But there was nothing concrete, Rob, at the beginning of the quarter.
But there was nothing concrete rather at the beginning of the quarter.
Okay.
Speaker 6: Okay, thank you for that. That's helpful. And then I guess you mentioned that you expect for Q to be the weakness like the weakest in this cycle right now. Was that specific to industrial automation? And I guess a fall on to that is just how many quarters should this persist into the first half or through the first half of 24? Not looking for specific guidance, but how long should we expect this weakness to persist?
Okay. Thank you for that that's helpful and then I guess.
You mentioned that you expect <unk> to be the weakness like the weakest in this cycle right now was that specific to industrial automation, yes.
Our fall onto that it's just.
How how many quarters.
Should this persist into the first half or through the first half.
24, not looking for specific guidance, but how long should we can.
Expect this weakness to persist.
Yes at this point based on.
Speaker 3: You know, all the conversations we're having, we see broadband coming out of the space the earliest. You know, one thing that I didn't probably address in your previous question was, what are some of the learnings and what are the things we've changed? And we've actually gone a lot deeper through Q3 into our, you know, MSO customers procurement process and how they are planning. Q3 to ensure that no one would be thereby heard, we know that changes operations and lumps?
In all the conversations we're having we see broadband coming out of.
The space the earliest.
One thing that I've been probably.
Addressed in your previous question was what are some of the learnings and one of the things we've changed and we've actually gone a lot depot through Q3 into our.
MSR customers procurement process and how.
How they are planning.
Speaker 3: to hold inventory at different points, their large businesses. And we have confidence that that'll come back faster, which is a more temporary phenomenon. On the industrial and smart building side, at this point, I would say the weakness will press.
Through old inventory at different volume so they are large businesses.
And we have confidence that that will come back.
Foster a more temporary phenomenon.
On the industrial and smart building side.
At this point I would say.
The weakness will persist into the first half as we go into 2024.
Speaker 3: Just given the cycles around how our customers plan their projects.
Just given the cycles around how our customers plan their projects.
Speaker 3: But we also see a lot of customers talking about accelerating the need for productivity improvement.
But we also see a lot of customers talking about accelerating.
The need for productivity improvement and reassuring.
Speaker 3: in response to some of the broader macro phenomena. So I think it's a bit of a mixed bag, it's a difficult read, but I would say quicker turn in broadband, let's say within the early part of next year, and then slightly later as we go into mid-24 for industrial and for smart buildings.
In response to some of the Bravo MACRA.
Macro phenomenon. So so I think it's a bit of a mixed bag, it's a difficult read but I would say.
Quicker turn and broadband let's say within.
The early part of <unk>.
Nextera and then slightly later as we go into mid 'twenty for industrial and for smart buildings.
Speaker 6: Okay, now that makes sense. Thank you very much for the color and taking my questions.
Okay, no that makes sense. Thank you very much for the color and taking my questions.
Thank you.
Speaker 1: Once again, if you'd like to remove yourself from the queue, you may press star 2. If you have any additional question or comment, please press star 1, and we go to the line of Mark Delaney with Goldman Sachs. Please go ahead.
Once again, if you'd like to remove yourself from the queue. You May press star two if you have any additional question or comment. Please press star one and we go to the line of Mark Delaney with Goldman Sachs. Please go ahead.
Yes, hi, good morning, Thanks for taking my questions I'm going to better understand how much of the revenue weakness that youre seeing in the fourth quarter is related to inventory destocking and better contextualize that compared to just weaker overall demand. So is there any way you can help us in terms of what sell out of your products is relative to sell in.
And kind of where would revenue be if inventory wasn't being reduced in distribution.
Sure Mark so.
Our S. Four for example, industrial automation was up 8% in the first half of 2023.
Speaker 3: And we expect for the full layer that to be flattish. So in some sense, basically, there was.
And we expect for the full year to be.
Flattish.
So.
In some sense basically.
Was.
Speaker 3: There was more confidence that went down. And I think as it went down, you know, and it became flat, essentially there was this channel adjustment based on the kind of terms we expect in that, in that particular month.
There was more confidence it went down and I think.
As it went down.
No.
Became flat essentially.
There was this channel adjustment based on the kind of tons, we expect in that.
In that particular market.
Speaker 3: So I think as we emerge from 23, we've essentially.
So I think.
As we emerged from 'twenty three essentially.
Speaker 3: That market as a whole has, at the end-user level, has just stayed flat.
That market as a whole has.
The end user level as just stayed flat.
Yes.
Speaker 3: I think that's how I would model industrial. I think smart buildings is further down driven by commercial real estate.
I think that's how I would model.
Industrial I think smart billings as well the down driven by commercial real estate.
Speaker 3: And I think broadband and markets are they remain as expected slightly up.
And I think broadband end markets.
They remain as expected slightly up.
Speaker 3: But with this change in terms of how people buy because of.
With this change in terms of how people buy.
Because of lead times, reducing.
Okay.
Speaker 2: I understand. Thank you for the additional color on that. And then you know, you think about your 2025 target model and trying to get to $8 When how do you think you're you're tracking there or are there other changes you may need to implement in order to get there given the incremental To madness that you're seeing at least in the near term
Understood. Thank you for the additional color on that and then you think about your 2025 target model and I'm trying to get to $8. I mean, how do you think you're tracking there and are there. Other changes you may need to implement in order to get there given the incremental demand weakness that youre seeing at least in the near term. Thank you.
Speaker 3: Sure. So yeah, so I think, you know, when we, when we articulate the target for 2025.
Sure.
Yes, so I think.
When we when we articulated a target for 2025.
Speaker 3: We had a certain expectation of growth over the cycle and that already anticipated.
We had a certain expectation.
The expectation of growth over the cycle and that already anticipated.
Speaker 3: of, you know, some kind of, you know, over the cycle of three, four years, there will be some changes.
No.
Some kind of.
Over the cycle of three or four years, there will be some changes in how the business too. So I think our long term fundamentals remain fine be available.
Speaker 3: how the business grew. So I think our long-term fundamentals remain fine. We are well, you know, we still feel very good about that target. But I'm going to request Jeremy to throw in, to add some more color to that in terms of the mechanics.
We still feel very good about that target, but I am going to request Jeremy Detroit to add some more color to that in terms of the mechanics.
Speaker 4: Yeah, hey Mark, good morning. So I would say first of all, and just in terms of the EPS trend versus, you know, what we expected when we gave the target, we had been running far ahead. I think right now based upon this revised guidance, we're more or less on track. So we're on the path exiting 2023. You know, we will require growth over the next couple of years. Our expectation is that.
Yeah, Hey, Bart good morning, So I would say first of all and just in terms of the EPS trend versus what we expected. When we gave the target we had been running far ahead I think right now based upon this revised guidance, we're more or less on track.
So we're on the path exiting 2023.
We will require growth over the next couple of years, our expectation is that some of the slowness that we're seeing is is temporary and that things will recover over the next couple of years at.
Speaker 4: Some of the slowness that we're seeing is temporary and that things will recover over the next couple of years.
Speaker 4: At the same time, we'll manage cost structure appropriately. And I feel like we're still in pretty good shape relative to that 20-25 target. I think we have a lot of flexibility with respect to how we manage the cost structure. I think we'll still see growth between here in 2025, obviously, and I think the balance sheet is in great shape. So I think we still have a lot of options to get to that $8 target for 20-25.
At the same time, we'll manage cost structure appropriately and I feel like we're still in pretty good shape relative to that 2025 target I think we have a lot of flexibility with respect to how we manage the cost structure I think we'll still see growth between here and 2025, obviously.
And I think the balance sheet is in great shape. So.
So I think we still have a lot of options.
To that $8 target for 2025.
We feel good.
Thank you.
Sure.
Speaker 1: Our next question or comment comes from the line of Ruben Garner with Benchmark Company. Please go ahead.
Our next question or comment comes from the line of Reuben Garner with benchmark company. Please go ahead.
Thank you and good morning, everybody.
Speaker 7: Aishish, maybe if you could talk about any similarities or differences in this environment versus what you guys saw back in 2015 or early 2016, I ask that because it sounds like you think this is the worst of the demand in the industrial piece specifically and it seems to kind of get progressively worse back then in that environment. So any thoughts on what might be different this go around?
Ashish, maybe if you could talk about.
Any similarities or differences in this environment versus.
What you guys saw back in 2015 early 2016, I ask that because it sounds like you think this is the worst of the.
Demand in the industrial piece, specifically and it seemed to kind of get progressively worse.
That then in that environment or any any thoughts on what might be different this slow ramp.
Speaker 3: Sure. Yeah, so we've discussed that a lot, Ruben. And I think, you know, first of all, the prior contraction was driven by demand-side factors. We're going into this environment more driven by supply-side factors, right?
Sure.
Yeah, So we've discussed that a lot.
I think.
First of all the prior.
Contraction was driven by demand side factors.
We're going into this environment more driven by supply side factors we've had this.
Speaker 3: spike in demand has been inflation.
Spike.
And demand has been inflation.
Speaker 3: And I think what remains different is the shortage of labor, especially in the OECD markets. You can see that in the US quite a bit. And we think that...
And I think what remains are different as the.
No.
<unk> of labor, especially in.
The OECD markets.
You can see that in the U S quite a bit.
And.
We think that so.
Speaker 3: People deal with this particular slowdown, they have to keep working on productivity and they have to keep investing in new technology. There's a lot of talk about using AI, for example, in manufacturing as co-pilots so that you can elevate.
We will deal with this.
This particular slowdown they have to keep.
Working on productivity.
And they have to keep investing in new technology. There is a lot of talk about.
We are using.
For example in manufacturing as copilot, so that you can elevate how each vehicle performs right. This is a different environment versus what we saw previously where there was.
Speaker 3: how each work up a form, right? This is a different environment versus what we saw previously where there was left.
So.
Speaker 3: There was kind of less investment underpinning that whole phenomenon because people were just unclear about how
So that was kind of less investment.
Underpinning that whole phenomenon because people will just unclear about.
How the future is going to look.
Speaker 3: And and here I think it's more short term uncertainty.
And here I think it's more short term uncertainty.
Speaker 3: with a lot of robust, you know, investment focused on the longer term trend.
With a lot of robust.
Investment focused on.
The longer term trends.
Speaker 3: And I think we've talked about this, you know, across, across a market.
And I think we've talked about those across so across our markets.
Speaker 3: You know, on the industrial side, there's reshoring, there's the labor and skills gap.
On the industrial side is reassuring.
The labor and skills gap.
Speaker 3: There's investment in automation. On the smart building side, there's more digitization, hybrid networks. On the broadband side, of course, there's the DOCSIS transition, all sorts of investments in broadband, including from the federal government. And that's true in multiple jurisdictions. So this feels like a very different situation in that sense.
This investment in automation on the smart building side side, there is more digitization.
<unk> hybrid networks on the broadband side of cost of the DOCSIS transition.
All sorts of investments in broadband, including from the federal government and Thats true in multiple jurisdictions. So so this feels like a very different situation in that sense.
Speaker 3: The question is, how will the temporary weakness, how long will the temporary weakness last?
The question is how will those temporary weakness how long with this temporary weakness last.
Speaker 3: And like I said previously, we expect that on the broadband side it will turn faster. And it will persist a little more in the industrial and the smart building's markets is given how
<unk>.
Like I said previously.
We expect that on the broadband side it'll ton Fausto.
And it will persist a little more.
In the industrial and the smart buildings market given how.
Speaker 3: Those markets plan investments how the cycles work.
Both markets plan.
Investments, how the cycles work.
Bob.
Speaker 3: Yeah, I think it's different from 15, 16 in that sense. And I think we as a company have come out much better over each cycle that we've gone through. And I think this cycle is going to be different because of the technology investments we've made.
I think it's different from 15 16 in that sense.
I think we as a company have come out.
Much better.
<unk> cycled that we've gone through and I think this cycle is going to be different because of the technology investments we've made.
Speaker 7: Okay, thanks. And I guess it doesn't sound like, I recognize the targeted incremental, or decriminal margins. It doesn't sound like you necessarily have any material or... ...and it doesn't sound like you necessarily have any material or decriminal margins.
Okay. Thanks.
I guess it doesn't sound like.
I recognize the targeted incremental or decremental margins.
Margins it doesn't sound like.
Necessary.
Any material or.
Speaker 7: restructuring or cost initiatives right now? What would it take, I guess, for something like that to need to come into play as another quarter of what we just saw, or how would things have to progress before you have to make some other kind of move?
Restructuring our cost initiatives right now what would it take I guess.
For something like that that need to come in into play is another another quarter of what we just saw or.
How things have progressed before you have to make some other kind of moves.
Speaker 3: Well, I think our current thought processes that
Well I think our current.
<unk> thought processes.
Speaker 3: You know, based on our anticipated, like we said, you know, Q4 is going to be probably the weakest point. And then it'll take a couple of photos more before things start turning. I think for that, we are well set for the plans we have. We feel good about the 20 to 30 percent decriminal margins we've articulated.
Based on our anticipated like we said Q4 is going to be probably the weakest point and then it will take a couple of quarters more before things start turning.
I think for that we are well set for the plans we have.
We feel good about the 20% to 30% decremental margins we've articulated.
Speaker 3: We do want to protect our solutions transformation. So there's a lot of investment we've already made in go-to market and in technology. We don't have to repeat all of that. There's a lot of leverage over there, but there are obviously pieces that we need to protect.
We do want to protect our solutions transformation. So theres a lot of investment we've already made.
In our go to market and in technology. If you don't have to repeat all of that there's a lot of leverage over there, but they are obviously pieces that.
We need to protect.
Speaker 3: So as you said, at this point, we don't have any dramatic, you know, restructuring in mind. We have articulated a plan and started executing upon that for the current period.
So as you said at this point, we don't have any.
Dramatic.
Restructuring in mind.
We have articulated.
A plan and started executing upon that.
The current period.
Speaker 3: And I think for that to be expanded, we would have to see continued weakness going into the future.
And I think for.
For that too.
We expanded.
We would hope to see continued weakness.
Going into the second half of 'twenty four.
Speaker 4: Yeah, if I could just jump in, Reuben, and add a little bit to Ashish's response. If you do the math on the second half of the year, the decrementals are actually a little bit better. Decrementals are around 15% on a year-over-year basis.
Yes, if I could just jump in roubaix and add a little bit to Ashish is response.
If you do the math on the second half of the year. The Decrementals are actually a little bit better decrementals are around 15% on a year over year basis.
Speaker 4: SGNA and R&D are both coming down substantially from first task, the second half based upon this guide. And so we are taking some cost actions. We're managing the cost structure very proactively and tightly. And obviously if volume continues to be low, well, as she said, we'll evaluate other.
SG&A and R&D are both coming down substantially from first half the second half based upon this guidance. So we are taking some.
Some cost actions, we're managing the cost structure very proactively and tightly made off.
Obviously if it.
If volume continues to be low as Ashish said, we'll evaluate other options, but I don't want you to leave this call feeling like we're not doing anything substantial because I think we are.
Speaker 4: But I don't want you to leave this call feeling like we're not doing anything substantial because I think we are.
Okay. Thanks, guys. Good luck.
The rest of the year.
Thank you.
Speaker 1: And we go next to the line of Stephen Tox with Fox Advisors. Please go ahead.
And we go next to the line of Steven Fox with Fox Advisors. Please go ahead.
Speaker 8: Hi, good morning. A couple of questions from me if I could. First, let me industrial comments that you've made. I'm just, you know, given this sudden change in what you're seeing in the markets and that distribution, what are the points that give you confidence that this is an elongated cycle that's just starting?
Hi, Good morning, a couple of questions from me if I could first on the industrial comments that you've made I'm just.
Given the sudden change.
And what Youre seeing in the markets in that distribution.
What are the what are the points that give you confidence that this isn't an elongated cycle that is just starting.
Speaker 8: You mentioned maybe a couple more quarters of downturn, but you know, if this is sort of a starting point or even if Q2 was a starting point, it's not unusual to see these cycles last four to six quarters, especially with historically high interest rates. So like, is there any data point you would say besides obviously secular trends that I'm not arguing are still in place that, you know, can give you some confidence in like making sort of some of the comments you made so far about a term?
You mentioned, maybe a couple more quarters of downturn.
Got it.
If this is sort of a starting point or even if Q2 was the starting point.
It's not unusual to see these cycles last 46 quarters, especially with historically high interest rate. So like is there any data points. You you would say besides obviously secular trends that I am not arguing they're still in place that.
Can give you some confidence in making some of the comments you made so far that return.
Speaker 3: Yeah, I think, you know, as a new building, we see it more confident versus...
Yes, I think.
As a new belden, we feel more confident versus.
Speaker 3: how we would have felt going into a similar cycle previously, because the solutions we have actually help.
We would've felt going into some of those cycles previously because.
The solutions, we have actually helped.
Deal with.
Speaker 3: what's going on in the market trade shortage of labor higher cost of capital more brittle supply chains etc. So so part of it is the secular transit part of it is how we've changed ourselves to respond to that. And we see that then in our pipeline. So when we look at our.
What's going on in the market driver shortage of labor higher cost of capital.
More brittle supply chains et cetera. So it's a part of it is the secular trends are powerful does how we've changed ourselves to respond to that and we see that then.
In our pipeline so when we look at our.
Speaker 3: sales funnel of pipeline and we look at the projects that we are working on right now with our solutions consultants and you know
Sales funnel or pipeline and we look at the projects that we're working on right now.
Our solutions consultants and.
Customers.
Speaker 3: There's a lot of investment plan there.
There is a lot of.
Investment plan there.
Speaker 3: Some of them are actually talking about how to deal with all those trends, how to build in more infrastructure that will help them use leverage AI and other technologies that are emerging. And this seems different.
<unk>.
Customers are actually talking about how to deal with all of those trends how to build and more.
Infrastructure that will help them use leverage AI and other technologies that are emerging and this seems different.
Speaker 3: then the prior contraction with the
Oh.
The prior contraction.
We've seen.
Speaker 3: So it is, I think it's a combination of how we've changed and what's going on in, especially the OECD markets with reshore.
So it is so I think it's a combination of how we've changed and what's going on in especially the OECD markets.
With reshaping.
Speaker 8: Okay, that's helpful. And then on the broadband side, the difference, at least from my opinion, maybe you disagree with this, in terms of this cycle versus prior, is in the US, you have a lot of government money coming into the system that is incentivizing smaller peer-to-service providers to also spend on fiber and connectivity. That seems to be having
Okay. That's helpful and then on the broadband side the.
The difference at least from my opinion, maybe you disagree with us in terms of this cycle versus prior.
As in the U S. You have a lot of government.
<unk> coming into the system that is incentivizing smaller tier two service providers to also spend on fiber and connectivity.
That seems to be.
Speaker 8: and some unintended consequences in the supply chain. And I'm just curious whether you think that is maybe helped you artificially in recent quarters, changes your view on the cycle over the next few quarters. Just curious what you think the impact was specifically on belt and then maybe brought her on just the landscape you compete in on broadband.
Having.
Some unintended consequences in the supply chain and I'm just curious whether you think that has maybe helped you artificially in recent quarters.
Changes your view on the cycle over the next few quarters. Just curious what you think the impact was specifically on belden and maybe broader on just the landscape you compete in a broadband thanks sure.
Speaker 3: So, yeah, I think two perspectives in that one is in terms of the product portfolio. So, you know, whilst we have grown our fiber content quite a bit, right? It's getting closer to that 40% plus mark in a broadband business. We are not exclusively fiber. So we've made sure that we've retained a broader portfolio. You know, there's a there's obviously a lot going on in terms of.
So, yes I think.
Two perspectives one is in terms of the product portfolio. So whilst we have grown our fiber content quite a bit right, it's getting closer to that 40% plus mark.
Broadband business, we are not exclusively fiber so we've made sure that we've.
Retained a broader portfolio.
No.
There's obviously.
A lot going on in terms of.
Speaker 3: specialized copper cable and connectivity in broadband, but there's also value-added, there are value-added solutions around cabinets.
Specialized copper cable and connectivity and broadband, but there's also value added.
You added solutions around cabinets.
Speaker 3: and, you know, how we help people deploy, which goes beyond just the fiber product portfolio. So I think it is true that, you know, if one was only focused narrowly on fiber, then what's going on in the buying process and the industry would have created
And how we help people deploy which is which goes beyond just the fiber product portfolio. So I think it is true that.
Sure.
One was only focused not only on fiber.
Then what's going on in the buying process in the industry would have created.
Speaker 3: artificial highs and lows and we've seen that the summer of our
Artificial highs and lows and we've seen that with some of our.
Speaker 3: competitors. But that's different for us. I think second it's the mix of the customers. So remember a lot of our business the bulk of our business is actually focused on the MSOs and not on the telcos.
Competitors.
But that's different for us I think second it's the mix of the.
Customer so remember a lot of our business.
Business the bulk of our business is actually focused on the msos and not on the telcos.
Speaker 3: And I think with that kind of footprint, we're actually slightly differentiated from some of the other players in the market. So yes, we are focused on fiber, but it's not everything we have. And our mix of MSO and telcos keeps us more balanced.
And I think with that with that kind of footprint.
We are actually slightly differentiated from.
Some of the other players in the market. So yes, we are focused on fiber, but it's not everything we have and our mix of Amazon telcos.
<unk> keeps us.
More balanced.
Speaker 3: And, you know, when we look at their plans for investment, when we look at, and by the way, this is true in the US, of course, but I think it's true in a few other jurisdictions.
And when we look at their plans for investment when we look at.
By the way this is true in the U S of course, but I think it's true and a few other jurisdictions.
Speaker 3: We see them very bullish in terms of technology upgrades and that gives us confidence that this will turn around faster.
We see we see them very bullish in terms of technology upgrades and that gives us confidence that.
This will turn around faster.
Great. That's all very helpful. Thank you.
Yes.
Speaker 1: At this time, there are no further questions. We'll turn back to Erin Reddington for any additional or closing remarks.
At this time there are no further questions, we'll turn back to Erin redington for any additional or closing remarks.
Speaker 2: Yeah, thank you operator and thank you everyone for joining today's call. If you have any questions, please contact the IR team here at Bellden, our email address is investor.relationsatbellden.com. Thank you.
Yes. Thank you operator, and thank you everyone for joining today's call. If you have any questions. Please contact the IR team here at Belden. Our E Mail address is investor relations at Belden Dot com. Thank you.
Speaker 1: Thank you ladies and gentlemen. This concludes our call for today. You may now disconnect from the call. We thank you for participating.
Thank you ladies and gentlemen, this concludes our call for today you may now disconnect from the call. We thank you for participating.
Yeah.
Okay.
Okay.
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