Q4 2023 Belden Inc Earnings Call
Please standby.
Operator: Please stand by. Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Reports fourth quarter and full year 2023 results. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode.
Ladies and gentlemen, thank you for standing by and welcome to this mornings Belden reports fourth quarter and full year 2023 results call.
As a reminder, this call is being recorded at this time you are in a listen only mode.
Operator: Later, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your touchtone phone. If you are in the question queue and would like to withdraw your question, simply press star 2.
Later, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your Touchtone phone.
If you were in the question queue and we'd like to withdraw your question simply press Star two.
Operator: I would now like to turn the call over to Erin. Please go ahead. Good morning, everyone, and thank you for joining us for Belden's fourth quarter 2023 earnings conference call. With me today are Belden's president and CEO, Ashish Chand, and senior vice president and CFO, Jeremy Park. 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. We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call. The press release, presentation, and transcript of these prepared remarks are currently available online at Investor.belden.com.
I'd now like to turn the call over to Aaron Redington. Please go ahead Sir.
Good morning, everyone and thank you for joining us for Belden <unk> fourth quarter 2023 earnings Conference call with me today are <unk>, President and CEO, Ashish, John and senior Vice President and CFO Jeremy Parks.
Each 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 have prepared a slide presentation that we will reference on this call. The press release presentation and transcript of these prepared remarks are currently available online at Investor Belden Dot com.
Erin: Turning to slide two in the presentation, during this call, management will make certain forward-looking statements in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 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. I will now turn the call over to our President and CEO, Ashish Chand. Thank you, Aaron, and good morning, everyone.
Turning to slide two in the presentation.
During this call management will make certain forward looking statements in reliance upon the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 for.
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.
Right.
I'll now turn the call over to our President and CEO Ashish chunk.
Thank you Adam and good morning, everyone.
We really appreciate you joining us today.
Ashish Chand: We really appreciate you joining us today as the host of Earnings Call. I am days away from my first anniversary as President and CEO of Belden. A lot has been accomplished this past year, and I'm excited about the opportunity we have going forward to transform Belden and increase shareholder value. Let's turn to slide four for a summary of the major accomplishments we achieved in the fourth quarter and full year 2023. As a reminder, I will be referring to adjusted results today. Of course,
As the hostess earnings call I'm days away from my first anniversary as president and CEO of Belden.
What has been accomplished this past year and I'm excited about the opportunity we have going forward with the transform belden and increase shareholder value.
Let's turn to slide four for a summary of the major accomplishments, we achieved in the fourth quarter and full year 2023.
Minder.
We'll be referring to adjusted results today.
First.
Ashish Chand: Let me take a moment and thank the Belden team for their excellent performance in closing out a successful quarter and year. For the fourth quarter, our revenue and EPS both exceeded the high end of our guidance, as our solutions transformation continues to drive incremental demand and margin expansion. Revenue for the quarter totaled $551 million, and EPS came in at $1.46. In the fourth quarter, orders increased sequentially by 4%.
Let me take a moment and patent the belden team for the excellent performance wrapping up a successful quarter and year for.
For the fourth quarter, our revenue and EPS, both exceeded the high end of our guidance.
As our solutions transformation continues to drive incremental demand and margin expansion.
Revenue for the quarter totaled $551 million and EPS came in at $1 46.
For the fourth quarter orders increased sequentially by 4%.
Ashish Chand: Indicating stability in our end mark. Importantly, we experienced single-digit sequential order growth in both segments, industrial automation solutions and enterprise solutions. Entering the quarter, our markets were experiencing many headwinds. I am encouraged to see relative stability in the fourth quarter that produced results exceeding our expectations.
Indicating stability and markets importantly, we experienced single digit sequential order growth in both segments industrial automation solutions and enterprise solutions.
Entering the quarter, our markets were experiencing many headwinds.
I'm encouraged to see relative stability in the fourth quarter that produced results exceeding our expectations.
Second as.
Ashish Chand: As we wrapped up another transformational layer, our business performed well, and we were able to achieve record full-year earnings per share of $6.83. Up 7% year-over-year. I would like to point out that after achieving record earnings per share in 2023, this marks two consecutive years of record ETS performance. Despite demand and destocking challenges in the second half of 2023, our revenue was only down 4% for the full year. And through successful execution, we were able to expand our market. Both margins were a robust 38.5%.
As we wrapped up another transformational layout.
Our businesses performed well and we were able to achieve record full year earnings per share of $6 83 up seven.
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I would like to point out that after achieving record earnings per share in 2023. This marks two consecutive years of record EPS performance.
Despite demand and Destocking challenges in the second half of 2023.
Revenue was only down 4% for the full year.
And through successful execution, we were able to expand our margins.
Gross margins were a robust 38, 5%.
Ashish Chand: Up 270 basis points, and EBITDA margins ended at 17.4%, or 40 basis points year-over-year. Third, our business is generating meaningful cash flow, and we are deploying capital consistent with our capital allocation priorities. Pre-cash flow for the year was strong at $217 million, roughly flat with a prior total.
270 basis points.
And EBITDA margins ended at 17, 4% up 40 basis points year over year.
Good.
Our business is generating meaningful cash flow and we are deploying capital consistent with our capital allocation priorities.
Free cash flow for there was strong at $217 million roughly flat with the prior year total.
Ashish Chand: With ample free cash flow, our team took steps to reinvest in high-return opportunities. For the year, we invested nearly $110 million in strategic M&A designed to strengthen our solutions and enhance growth. Additionally, we returned over $200 million to shareholders, mostly through share repurchase. Over the last year, we purchased 2.3 million shares, or approximately 5% of the total shares outstanding.
With the ample free cash flow our team took steps to reinvest in high return opportunities.
We invested nearly $110 million and strategic M&A designed to strengthen our solutions and enhance growth.
Although we returned over $200 million to shareholders, mostly through share repurchases.
Over the last year, we purchased $2 3 million shares or approximately 5% of the total shares outstanding.
Ashish Chand: Since 2022, our share repurchase program has returned approximately $350 million to shareholders, resulting in the purchase of 4.9 million shares, reducing total shares outstanding by more than 10%. After deploying over $300 million in 2023 in M&A and share repurchases, our leverage remains low at 1.4 times. This leaves us with significant financial flexibility to execute upon our strategic plans while staying around our targeted net leverage ratio of 1.5%. Now, please turn to slide five.
Since 2022, a share repurchase program has returned approximately $350 million to shareholders.
<unk> and the purchase of four 9 million shares reducing total shares outstanding by more than 10%.
After deploying over $300 million in 2023 in M&A and share repurchases, our leverage remains low at one four times.
This leaves us with significant financial flexibility to execute upon our strategic plans, while staying around our targeted net leverage ratio of one five times.
Now please turn to slide five.
Before we dig deeper into our results for the quarter Aneel I wanted to pause momentarily and reflect on the progress <unk> made during our solutions transformation.
Ashish Chand: Before we dig deeper into our results for the quarter and a half, I wanted to pause momentarily and reflect on the progress Belden has made during our solutions transformation. For those new to Belden, we began our transformation in early 2020 in our industrial business. Our main objectives were to bring together disparate Belden products, focus on data needs, and ultimately engage with customers in a different way to solve problems.
Those new Belden, we began a transformation in early 2020 and our industrial.
Business.
Objectives to bring together disparate belden products focus on data needs and ultimately engage with customers in a different way to solve problems.
Ashish Chand: Since then, we've been working feverishly behind the scenes to break down barriers, add new solution skills internally, and invest heavily in our Customer Innovation Centers, or CICs, of which we just opened the fifth in India recently. Our focus has been centered around key verticals with complex challenges. With our enhanced solution strategy, we work to simplify otherwise complex solutions and deepen our relationship with customers. Over the past few years, we have grown our solutions business meaningfully, and we see a runway for much more growth and opportunity. By focusing on customer problems and working to provide high-quality products and solutions, we are winning in the marketplace. Over the past market cycle, our business has performed admirably with a 6% revenue tag. Meaningful improvements in gross margins, which led to a 140 basis point expansion in EBITDA margins.
Since then we've been working feverishly behind the scenes to break down barriers add new solutions, SKU internally and invest heavily in our customer innovation centers, our CICS of which we just opened a fifth in India recently.
Our focus has been centered around key verticals with complex challenges.
With our enhanced solution strategy, we want to simplify otherwise complex solutions and deepen our relationship with customers.
Over the past few years.
Our solutions business meaningfully and see a runway for much more growth and opportunity.
By focusing on customer problems and working to provide high quality products and solutions, we are winning in the marketplace.
Over the past market cycles.
Business has performed admirably with a 6% revenue Tiger.
Meaningful improvements in gross margins, which led to a 140 basis point expansion in EBITDA margins.
Ashish Chand: Improved growth combined with margin expansion has led to impressive improvements in our earnings per share, which resulted in a 15% CAGR since starting our transformation. We have reconfigured our business to improve organic growth and prioritize higher value-added products and solutions, and the results have been meaningful and impressive. If you look at Belden today compared to where we were four years ago, you will see massive changes underway, and I'm pleased to see these changes impact our financials so vividly. We ended 2023 with a new record for EPS and expect our business to perform similarly over the next cycle with increased revenue and record earnings. Finally, please turn to slide six for a review of our capital allocation priorities in action during the past cycle.
Improved growth combined with margin expansion as led to impressive improvements in our earnings per share, which resulted in a 15% CAGR since starting the transformation.
We have reconfigured our business to improve organic growth and prioritize higher value added products and solutions and the results have been meaningful and impressive.
If you look at Belden today compared to where we were reported as a goal you won't see massive changes underway and I'm pleased to see these changes impact our financials. So vividly.
We ended 2023 with a new record for EPS and expect our business to perform similarly over the next cycle with increased revenue and record earnings.
Finally, please turn to slide six.
Review of our capital allocation priorities and action during the past cycle.
Ashish Chand: From a capital allocation perspective, much has been accomplished during our transition. First, we divested from two businesses that were underperforming and no longer aligned with our solution strategy. As a result of those sales, combined with our impressive free cash flow, we generated approximately $1.3 billion of capital. On the right-hand side of this page, you can see where those funds were invested.
From a capital allocation perspective, much has been accomplished during that transition first we divested from two businesses that were underperforming and no longer align with our solution strategy.
As a result of both sales combined with our impressive free cash flow, we generated approximately $1 $3 billion of capital.
On the right hand side of the page you can see where those funds were invested.
Ashish Chand: First, over the last five years, we have returned approximately $500 million to shareholders through share repurchases and dividends. Our buybacks have accelerated these past two years as we purchased approximately $350 million in stock and reduced our shares outstanding by over 10%. Second, our M&A activity has been steady, with a total of 10 acquisitions deploying approximately $400 million in capital. And finally, the Belden of the past had too much leverage.
First over the last five years, we returned approximately $500 million to shareholders through <unk>.
Share repurchases and dividends.
Our buybacks have accelerated this past week as.
As we purchased approximately $350 million in stock and reduced our shares outstanding by over 10%.
Our M&A activity has been steady with a total of 10 acquisitions deploying approximately $400 million in capital and.
And finally, the burden of the past had too much leverage.
Ashish Chand: As part of our new strategy, we sought to reduce our leverage to a more reasonable 1.5 times target, which we achieved these past two years. Our lower leverage provides us with more flexibility during times like these to continue to invest in our business, seek out attractive acquisition targets, and return capital to shareholders. This slide is a perfect illustration of our capital allocation priorities in action and how you can expect to see us operate in the future. Now, please turn to slide seven for a quick summary of a few noteworthy customer wins during the quarter. These wins help highlight how our go-to-market strategy is evolving and showcase real-world examples of our solutions in the marketplace. First, on the industrial automation side, our team succeeded in winning a project with one of the largest public transportation networks in Germany. A customer was having issues with the passenger experience, real-time position tracking of assets, and predictive maintenance.
As part of our new strategy, we sought to reduce our leverage to a more reasonable one five times target, which we achieved this past week.
Our lower leverage provides us with more flexibility during times like these to continue to invest in our business seek out attractive acquisition targets and return capital to shareholders.
This slide is a perfect illustration of our capital allocation priorities and action and how you can expect to see us operate in the future.
Now please turn to slide seven for a quick summary of a few noteworthy customer wins during the quarter.
These wins help highlight our go to market strategy is evolving and showcase real world examples of our solutions in the marketplace.
First on the industrial automation side, our team succeeded in winning a project with one of the largest public transportation networks in Germany.
Our customer was having issues with passenger experience real time position tracking of assets and predictive maintenance welcomed.
Working with Belden, we have developed a comprehensive solution to improve their network and solve critical pain points and passenger experience.
Ashish Chand: Working with Belden, we helped develop a comprehensive solution to improve their network and solve critical pain points in the passenger experience. Next, I'm pleased to report that we won a $6 million agreement with a major healthcare customer as an end-to-end solutions provider. This specific customer was looking to solve key data and network issues and brought their team to our CIC in Chicago for a demo. They were very impressed with our consultants and solutions, and ultimately awarded Belden the contract, on top of eliminating multiple previous product suppliers and awarding us that business as well.
Next I am pleased to report that we won a 6 million dollar agreement with a major healthcare customer as an end to end solutions provider.
Specific customer was looking to solve key data and network issues and brought the team to our CIC in Chicago for a demo.
They were very impressed with our consultants and solutions and ultimately awarded Belden the contract on top of eliminating multiple previous product suppliers and awarding us that business as well.
This win highlights the power of our CICS and how the strategy not only showcases our solutions, but also helps us gain share in the marketplace.
Finally, as we have discussed previously we are working hard to streamline our enterprise solutions segment and move it down the solution spot in the same way, we had it for industrial automation or <unk> trial.
Ashish Chand: This win highlights the power of our CICs and how the strategy not only showcases our solutions but also helps us gain share in the marketplace. Finally, as we have discussed previously, we are working hard to streamline our enterprise solutions segment and move it down the solutions path in the same way we did for industrial automation a few years ago. I'm proud to share that our team is gaining traction in the marketplace by selling enterprise and broadband products across key distribution parts. In the past... Belden operated with walls between markets and products that limited our opportunity.
I'm proud to share that our team is gaining traction in the marketplace by selling enterprise and broadband products across key distribution partners.
In the past belden operated with walls between markets and products that limited our opportunity.
By breaking down these walls and silos operationally, we can bring our products to market.
More comprehensive way, which lays the foundation for true solution sales.
<unk> is important as we continue down our solution spat and these wins are examples of how things are changing.
I will now request Jeremy box will provide additional insight into our fourth quarter and full year 2023 financial performance.
Ashish Chand: By breaking down these walls and silos operationally, we can bring our products to market in a more comprehensive way, which lays the foundation for true solution sales. This work is important as we continue down our solutions path, and these winds are examples of how things are changing. I will now request Jeremy Paul to provide additional insight into our fourth quarter and full year 2023 financial performance. Thank you, Ashish.
Thank you Ashish.
I will start my comments with results for the fourth quarter and full year 2023, followed by a review of our segment results a discussion of the balance sheet and cash flow performance and finally our outlook.
As a reminder, I will be referencing adjusted results today.
Now please turn to slide eight in our presentation for a review of our fourth quarter results.
Fourth quarter revenue decreased 16% year over year and was down 18% organically to $551 million.
Jeremy Park: I will start my comments with results for the fourth quarter and the full year 2023, followed by a review of our segment results, a discussion of the balance sheet and cash flow performance, and finally, our outlook. As a reminder, I will be referencing adjusted results today. Now, please turn to slide 8 in our presentation for a review of our fourth quarter results. Fourth quarter revenue decreased 16% year over year and was down 18% organically to $551 million, exceeding the high end of our guidance of $530 million. As expected, we experienced softness in industrial automation, with revenues decreasing 17% organically and enterprise solutions revenue decreasing 19% organically. However, orders for the fourth quarter were up 4% sequentially, with slight upticks in both segments.
Exceeding the high end of our guidance of $530 million.
As expected, we experienced softness in industrial automation with revenues decreasing 17% organically and enterprise solutions revenue decreasing 19% organically.
Orders for the fourth quarter were up 4% sequentially with slight upticks in both segments we.
We ended the quarter with a book to Bill of <unk> 96, reflecting a more stable order environment.
Gross profit margins were 38, 2% expanding 40 basis points compared to the prior year.
EBITDA came in at $88 million with EBITDA margins down 140 basis points to 16%.
Decremental margins for the second half performed as expected down 20% in line with our targets.
Net income in the quarter was $61 million.
Jeremy Park: We ended the quarter with a book-to-bill of.96, reflecting a more stable order environment. Gross profit margins were 38.2%, expanding 40 basis points compared to the prior year. EBITDA came in at $88 million, with EBITDA margins down 140 basis points to 16%. Decremental margins for the second half performed, as expected, down 20% in line with our target. Net income in the quarter was $61 million, from $76 million in the prior year period.
From $76 million in the prior year period.
EPS was $1 46 above the high end of our guidance range of $1 20.
Please note that relative to prior guidance, we experienced a favorable tax rate that resulted in a 15 cent benefit for the quarter. The benefit was the result of our continual tax planning efforts and certain discrete tax items.
Now please turn to slide nine in our presentation for a review of our full year 2023 results.
Full year revenue decreased 4% year over year and was down 4% organically to $2 $5 billion.
Jeremy Park: EPS was $1.46, above the high end of our guidance range of $1.20. Please note that, relative to prior guidance, we experienced a favorable tax rate that resulted in a 15 cent benefit for the quarter. The benefit was the result of our continual tax planning efforts and certain discrete tax items. Now, please turn to slide 9 in our presentation for a review of our full year 2023 results. Full year revenue decreased 4% year over year and was down 4% organically to $2.5 billion.
By segment industrial automation experienced a 1% decline in revenue organically and enterprise solutions experienced an 8% decline in revenue organically.
Gross profit margins were 38, 5% expanding 270 basis points compared to the prior year.
Our business is benefiting from favorable product mix as we continue to deliver solutions that typically consist of more higher margin active components.
Jeremy Park: By segment, industrial automation experienced a 1% decline in revenue organically, and enterprise solutions experienced an 8% decline in revenue organically. Gross profit margins were 38.5%, expanding 270 basis points compared to the prior year. Our business is benefiting from a favorable product mix as we continue to deliver solutions that typically consist of more higher-margin active components. EBITDA was down 1% year-over-year to $438 million, with EBITDA margins up 40 basis points to 17.4%. Net income for the year was $293 million, up 3% from $285 million in the prior year.
EBITDA was down 1% year over year to $438 million with EBIT margins up 40 basis points to 17, 4%.
Net income for the year was $293 million up 3% from $285 million in the prior year and.
And finally, EPS increased 7% to a record $6 83.
Up from $6 41.
In the prior year.
Now to slide 10 in the presentation for a review of our business segment results for the quarter.
For the quarter performance by segment was aligned with our expectations.
Orders were soft as our markets experienced continued slowness combined with the lingering impact of Destocking.
Jeremy Park: And finally, EPS increased 7% to a record $6.83, up from $6.41 in the prior year. Turning now to slide 10 in the presentation, for a review of our business segment results for the quarter. For the quarter, performance by segment was aligned with our expectations. However, orders were soft as our markets experienced continued slowness combined with the lingering impact of de-stocking. For the fourth quarter, revenue in our industrial automation solution segment was down 16% compared to the prior year, and EBITDA was down 18%. Orders in industrial solutions were up 7% sequentially and down 19% year over year.
For the fourth quarter revenue in our industrial automation solutions segment was down 16% compared to the prior year and EBITDA was down 18%.
Orders in industrial solutions were up 7% sequentially and down 19% year over year.
For the quarter, we experienced particular weakness in our discrete end markets, which continue to exhibit customer destocking.
For the fourth quarter revenue in our enterprise solutions segment was down 17% compared to the prior year and EBITDA was down 29%.
Orders in enterprise solutions were up 1% sequentially and down 2% year over year.
Jeremy Park: For the quarter, we experienced particular weakness in our discrete end markets, which continue to exhibit customer destocking. For the fourth quarter, revenue in our Enterprise Solutions segment was down 17% compared to the prior year, and EBITDA was down 29%; orders and enterprise solutions were up 1% sequentially and down 2% year over year. As expected, we continue to see customer destocking in both the smart buildings and broadband markets. However, longer term, we anticipate meaningful growth in broadband as the investment cycle ramps up. Now on to slide 11 for a review of our segment results for the full year. For the full year 2023, revenue decreased by 1% year over year.
As expected, we continue to see customer destocking in both the smart buildings and broadband markets.
Longer term, we anticipate meaningful growth in broadband is the investment cycle ramps up.
Now onto slide 11 for a review of our segment results for the full year.
For the full year 2023, and the industrial automation solutions segment revenue decreased by 1% year over year.
For the full year revenue was often discrete manufacturing, partially offset by growth in other markets, including process mass transit and energy.
Industrial automation segment, EBITDA increased year over year to $287 million and EBITDA margins were 27% for the year with margins expanding by 100 basis points.
Jeremy Park: For the full year, revenue was off in discrete manufacturing, partially offset by growth in other markets, including process, mass transit, and energy. Industrial automation segment EBITDA increased year over year to $287 million, and EBITDA margins were 20.7% for the year, with margins expanding by 100 basis points. Turning now to our enterprise segment, for the full year 2023, revenue decreased by 6% year over year.
Turning now to our enterprise segment for the full year 2023 in the enterprise solutions segment revenue decreased by 6% year over year.
We saw a moderate decrease in most of our end markets as customers continued to work through inventory.
Enterprise solutions segment, EBITDA margins were 13, 3% for the year.
Jeremy Park: We saw a moderate decrease in most of our end markets as customers continued to work through inventory. Enterprise Solutions segment EBITDA margins were 13.3% for the year, compared to 13.5% in the prior year, down 20 basis points due to lower volume leverage. Next, please turn to slide 12 for our balance sheet and cash flow highlights. Our cash and cash equivalents balance at the end of the fourth quarter was $597 million compared to $688 million in the fourth quarter of 2022. Our financial leverage was 1.4 times net debt to EBITDA at the end of the fourth quarter. As we communicated before, we intend to maintain net leverage of approximately 1.5 times going forward. We have a reasonable level of debt, much lower than in the past, with no maturities until 2027. In addition, all of our debt is fixed at an average interest rate of approximately 3.5%. Through the fourth quarter, our trailing 12-month free cash flow was $217 million, just slightly below the prior year level.
Pair to 13, 5% in the prior year down 20 basis points due to lower volume leverage.
Next please turn to slide 12 for our balance sheet and cash flow highlights.
Our cash and cash equivalents balance at the end of the fourth quarter was $597 million compared to $688 million in the fourth quarter of 2022.
Our financial leverage was one four times net debt to EBITDA at the end of the fourth quarter.
As we communicated before we intend to maintain net leverage of approximately one five times going forward.
We have a reasonable level of debt much lower than in the past with no maturities until 2027.
In addition, all of our debt is fixed with an average interest rate of approximately three 5%.
For the fourth quarter, our trailing 12 month free cash flow was $217 million just slightly below prior year levels.
We continue to have ample liquidity to deploy towards high return opportunities, even as we manage through a dynamic environment.
Jeremy Park: We continue to have ample liquidity to deploy towards high-return opportunities even as we manage through a dynamic environment. In 2023, we invested nearly $110 million in new and complementary businesses and returned over $200 million to shareholders. Please turn to slide 13 for our updated outline. First, we have decided to provide guidance one quarter at a time, aligned with the short cycle nature of our business. During these challenging times, our focus will remain on execution.
In 2023, we invested nearly $110 million in new and complementary businesses and returned over $200 million to shareholders.
Please turn to slide 13 for our updated outlook.
First we have decided to provide guidance one quarter at a time.
Aligned with the short cycle nature of our business.
During these challenging times, our focus will remain on execution.
Jeremy Park: For the first quarter, we anticipate challenges from the prior year to continue, including customer destocking and other temporary headwinds. Relative to the fourth quarter, we expect end demand to be stable, with revenue down slightly, in line with normal seasonal patterns.
For the first quarter, we anticipate challenges from the prior year to continue <unk>.
Including customer Destocking and other temporary headwinds.
Relative to the fourth quarter, we expect and demand to be stable with revenue down slightly.
In line with normal seasonal patterns.
If you recall the first quarter is typically our weakest quarter seasonally and we would expect that trend to continue for 2024.
Jeremy Park: The first quarter is typically our weakest quarter seasonally, and we would expect that trend to continue for 2024. For the first quarter, assuming current market conditions do not deteriorate further, we expect sales in the range of $505 million to $520 million and adjusted EPS in the range of $1 to $1.10. That concludes my prepared remarks. I would like to turn the call back to Ashish.
For the first quarter, assuming current market conditions do not deteriorate further.
We expect sales in the range of 505 million to $520 million and adjusted EPS in the range of $1 to $1 10.
That concludes my prepared remarks, I would like to turn the call back to Ashish.
Ashish Chand: Thank you, gentlemen. I'm subscribing back. The fourth quarter was challenging, with many uncertainties to navigate. We view the current softness as temporary, with demand reacting to the economic environment and customers continuing to destock. Over the short term, we see stability in our business and are hopeful that we will see an uptick in the back half of the Earth. However, long-term secular drivers and investment cycles remain. And after we get on the other side of this weakness, we expect to see higher revenue and EPS through the next cycle. So, over the next few quarters, what can you expect from us?
Jeremy.
Stepping back the fourth quarter was challenging with many uncertainties to navigate.
We view the current softness is temporary but demand reacting to the economic environment and customers continuing to destock.
Over the short term, we see stability in our business.
And are hopeful that we will see an uptick in the back half there.
The long term secular drivers of an investment cycle that remain and.
And after we get on the other side of this weakness, we expect to see higher revenue and EPS through the next cycle.
Over the next few quarters, what can you expect from us.
First.
Ashish Chand: You can expect us to continue to focus on execution and managing margins to enhance shareholder value. We will have a balanced focus on continuing to invest in a solutions transformation whilst at the same time working to achieve incremental and decremental margins as we have in the past. Second, you can expect us to continue to drive solution sales, with an enhanced focus on breaking down the barriers in the enterprise solution segment and leveraging our world-class products across a broader customer base. Our CICs are now in full swing, and we expect to gain leverage on our investments in the quarters and years to come. And finally, you can expect us to continue with the Capital Allocation Framework and invest a healthy free cash flow into high-return opportunities. That means, first and foremost, investing in organic growth.
You can expect us to continue to focus on execution and managing our margins to enhance shareholder value.
We will have a balanced focus on continuing to invest in our solutions transformation, whilst at the same time bookings to achieve incremental and decremental margins as we have in the past.
Second you can expect us to continue to drive solution sales.
With an enhanced focus on breaking down the barriers.
Enterprise solutions segment, and leveraging our world class products across a broader customer base.
CICS and now in full swing and we expect to gain leverage on our investments in the quarter than is to come.
And finally, you can expect us to continue with our capital allocation framework and invest our healthy free cash flow into high return opportunities.
That means first and foremost investing in organic growth.
Ashish Chand: Over the past cycle, we delivered a 6% revenue growth, with 4% of that from organic growth. This will continue to be our primary focus. After that... We will continue to seek out bolt-on acquisitions that enhance the solutions offering. And finally, we will look to return capital to shareholders, primarily through share repurchase.
Over the past cycle, we delivered a 6% revenue CAGR with 4% of that from organic growth.
This will continue to be our primary focus.
After that.
We'll continue to seek out bolt on acquisitions that enhance our solutions offering.
And finally, we will look to return capital to shareholders primarily through share repurchases.
Looking forward, our portfolio is well positioned and our balance sheet is strong.
Ashish Chand: Looking forward, our portfolio is well positioned, and our balance sheet is strong. We will continue to execute operationally through these challenges and look for opportunities to seize the moment and gain share where possible. I would like to take a moment and recognize the contributions of our associates this past quarter in AIR. I appreciate your efforts and would like to thank you for your support as we continue to transform Belden into a challenging environment. Thank you for your hard work.
We will continue to execute operationally through these challenges and look for opportunities to seize the moment and gain share where possible.
To close.
I would like to take a moment and recognize the contributions of all of our associates this past quarter now.
I appreciate your efforts 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.
That concludes our prepared remarks.
Operator, please open the call to questions.
Thank you again, if you would like to ask a question during the Q&A session. Please press star one on your Touchtone phone.
Operator: That concludes our prepared remarks. Operator, please open the call to questions. Thank you. Again, if you would like to ask a question during the Q&A session, please press star 1 on your touchtone phone.
To withdraw your question.
Please press star two.
Your first question comes from the line of William Stein with Caris <unk> Securities.
William Stein: If you would like to withdraw your question, please press star. Your first question comes from the line of William Stein with Truist Securities. Great. Thanks for taking my question. And let me offer my congratulations on the surprisingly good results and outlook today. Your guidance, as you highlighted, aligns with normal seasonality, and yet you're still talking about customer de-stocking, you know, weak demand levels. Those two feel a little bit at odds to me.
Okay, great. Thanks for taking my question and let me offer my congratulations on the surprisingly good results and outlook today.
Your guidance as you highlighted aligns with normal seasonality and yet youre still talking about customer destocking.
Weak demand levels.
Those to feel a little bit at odds to me.
Im trying to understand if you believe that the weakness that we saw in Q3 and Q4 is essentially behind us now or are we still going through it.
Ashish Chand: I'm trying to understand if you believe that the weakness that we saw in Q3 and Q4 is essentially behind us now, or are we still going through it, and, you know, any details or nuances that would help me understand cyclical positioning would really help. Thank you. So, first of all, thank you, Will, for your kind words.
Any details or nuances that would help me understand cyclical positioning would really help thank you.
Sure well first of all thank you for your kind words.
So we saw Q4 as a stable period.
Right. So we saw.
Ashish Chand: So we saw Q4 as a stable period. Right, so we solved... orders sequentially growing slightly across the businesses. We think Q1 will follow a similar pattern, essentially, and with the sequential adjustment, typically we go about 7-8% down from Q4 to Q1. Just with normal seasonality, so it's not it's nothing different in terms of that extended period of stability. Now, if you remember, we had previously guided that the first half of 24 is the period when we would see this de-stalking phenomenon at its peak. And then in the back half, you know, we would see normalization. So So no, we, I don't actually think it's different from what we previously expected. And I don't, I don't think we can say that the de-stalking period is behind us.
Auto sequentially growing slightly across the businesses.
We think Q1 will follow a similar pattern essentially.
No.
The sequential adjustment.
Typically we go about seven 8% down from Q4 to Q1.
Just with normal seasonality. So it's not it's nothing different in terms of.
That extended period of stability.
If you remember we had previously guided that the first half of.
24 is the period when we would see this destocking phenomenon.
At its peak.
And then in the back half.
We would see normalization.
So no I don't actually think it's different from what we previously expected.
I don't I don't think we can say that the destocking period is behind us but.
But I think we can say that we are going through the stable process of destocking as expected.
Ashish Chand: But I think we can say that we are going through the stable process of destocking as expected. And, you know, based on all the other indicators we have at the macro level, including PMIs now, we are heading in the right direction. Okay, that's helpful. Thank you.
Based on all the other indicators, we have at the macro level, including PMI is now.
We are heading in the right direction.
Okay.
Helpful. Thank you one follow up if I may.
Ashish Chand: One follow-up, if I may. I'm hoping you can talk a bit about the CICs and the pacing of investment there. You noted that you opened your fifth one recently. Should we expect more of these going forward? And whether the CICs have changed your relationship with the channel at all, and your anticipated revenue through the channel relative... Direct. Thank you. Yeah, no. So, in fact, I think you've actually visited one of the ICs, so you've seen it for yourself.
I'm, hoping you can talk a bit about.
The CICS the pacing of investments there you noted that you opened your fifth one recently or are we should we expect more of these going forward.
Yeah.
Whether the CICS has changed your relationship with the channel at all in your anticipated revenue through the channel relative to your direct okay.
Yeah, and also I think in fact, I think you've actually visited level CICS.
<unk> seen it for yourself.
Ashish Chand: We had announced initially that we would build five big CICs across the world; we have just finished that process. We are planning to roll out something, some smaller format versions called mini CICs in more locations that will get connected to these big five hubs.
Had announced initially that we will build five <unk>.
<unk> CIC is across the board, we just finished that process.
We are planning to rollout something of some smaller format version skull many CICS.
More locations that will get connected to these big five hubs.
No.
Ashish Chand: What we've noticed is, as we've seen this with our first CIC Institute card, right, the first twelve months or so, it's a lot about customers getting familiar with our technology. And then it moves to the second phase where people invest in time and validation testing and large solution design. And then it gets really interesting.
What we've noticed is as you've.
You've seen this with CIC in Stuttgart ripe with first.
12 months, so it's a lot about customers getting familiar with our technology.
And then it moves to the second phase.
People invest in diamond.
Validation testing and large solution design and then it gets really <unk>.
Interesting and we see a massive elevation and success are in win rates with customers once they get to that stage for most of our channel partners.
Ashish Chand: And we see a massive elevation in success or in, you know, win rates with customers once they get to that stage. But for most of our channel partners, including those that do value add for our customers, they did not have those kinds of investments.
Including those that do value add.
For our customers.
They did not have those kinds of.
Investments they don't have their infrastructure they could demonstrate to a customer complex solution. So the CIC will actually become a really positive.
Ashish Chand: They didn't have that infrastructure where they could demonstrate to a customer a complex solution. So the CIC has actually become a really positive element in that partnership, because now they can bring their customers over. And they can show how all those different products work together, which previously they would have just talked about. So, yeah, I think the CICs have turned out to be a great investment. We just talked about earlier in the call about an example where a customer came in for a regular, you know, technology update visit, and then we ended up with a big contract. So, and then this customer was actually brought in by a partner. And, you know, so that dynamic is very positive. Great, thank you. We'll go next to Chris Gingrich with Loop Capital. Hi, good morning.
Element in that partnership because now they can bring their customers over.
And they can show how.
All of those different products work together, which previously they would have to just talk about.
So so yes, I think the CIC has turned out to be a great investment. We just talked about earlier on the call about an example, where a customer came in for a regular <unk>.
Technology update visit and then.
We ended up with a big contract.
No.
And then this customer was actually.
Broadened by our partner and.
So that dynamic is very positive.
Great. Thank you.
We'll go next to your quick Crystal with loop capital.
Hi, good morning.
Chris Gingrich: I guess first off, as we're looking at the first quarter guidance here, I assume guidance is calling for both segments to be down a similar amount on a year-over-year basis. If you could just confirm that, that would be helpful. Yeah, yeah, that's right, Chris.
I guess first off as we're looking at the first quarter guidance here I assume guidance is calling for both segments to be down a similar amount on a year over year basis can you just confirm that that would be that'd be helpful.
Yes, yes, that's right Chris.
Okay perfect.
Ashish Chand: Okay, perfect. And I guess from a bigger picture perspective, I'm still seeing the eight file target on the back of the slide deck here. Maybe just kind of talk through the rationale for keeping that that target unchanged, how you're thinking about getting from here to there, perhaps. Yeah, so, you know, the $8 EPS in 2025 is still a target. And it's driven by our belief in the longer-term fundamentals of the business. It's also supported by the investments we've continued to make through the cycle. We just talked about CIC's in the prior question. And it's not just the CICs; it's the overall, you know, product, R&D, and solution selling capabilities. Oh my! Chris, we feel at this point that, "Oh."
And then I guess bigger picture perspective, I'm still seeing the April target in the back of the slide deck here, maybe just kind of talk through the rationale on keeping that target unchanged, how youre thinking about getting from from here to there perhaps.
Yes so.
The $8 EPS in 2025 is still a target and.
It's driven by our belief in the longer term.
The models in the business.
It's also supported by the investments we've continued to make through the cycle, we just talked about the CICS.
In the prior question.
And it's not just the CIC is it's the overall.
Product.
RMB solution selling capabilities.
So Chris.
Chris we feel at this point.
No.
Yeah.
Ashish Chand: You know, we were actually slightly ahead when we had articulated that target previously in 22. We had said that EPS would grow at about 12%. We had multiple levels to get there, including organic growth, of course, but bolt-on M&A, share buybacks, etc. And then we were ahead of that 12% tagger in the first half of 2023. And with our current guidance, we need to kind of be in that 8% CAGR in 24 and 25. We still have two years to go. And we feel that the investments we've made will pay off handsomely once we get to the other side of this cycle, of this destocking phenomenon. But it may not be linear, so I can't articulate, you know, a simple... Uh, leave me a formula here.
We were actually slightly ahead, when we had articulated that target previously in 'twenty two we had said.
<unk> grew at about 12%.
We had multiple levels to get there including <unk>.
Organic growth of course, but bolt on M&A share buybacks et cetera, and then we went ahead.
In the first half of 'twenty three of that 12%.
CAGR.
And with our current guidance, we need to kind of be in that.
8% CAGR in 2425, we still have two years to go.
And we feel that the investments we've made will pay off handsomely once we get to the other side of this.
Cycle of this destocking phenomenon.
So it may not be linear.
So I can't articulate.
<unk>.
Linear formula here.
Ashish Chand: But just based on the fundamentals in the market, our investments, and the fact that we were slightly ahead previously, we still believe we'll get there. Now, I appreciate the color and am glad to hear that there's still a lot of confidence in hitting that goal. Excuse me. If I could see one last one, and maybe just a quick comment on what you're seeing in the data center. I know there are a couple different indicators in terms of how healthy that market is, so any comments on what you're seeing in the data center would be great. Yeah, so.
But.
Just based on the fundamentals in the market our investments.
The fact that we were slightly ahead previously.
We still believe we'll get there.
I appreciate the color and then glad to hear that there's still a lot of confidence.
Hitting that goal excuse me.
If I could sneak one last one and maybe just a quick comment on what Youre seeing in data Center I know, there's a couple of different.
Indicators in terms of how the health of that market is but any comments on what youre seeing in data center would be great.
Yes, so Doug.
Ashish Chand: That business has continued to do well for us for two reasons. First, as you probably remember from previous discussions, we were not, You know, overly focused on the hyperscale market; we were focused more on helping customers in specialized areas like healthcare, hospitality, finance, government, those kinds of markets to build out data centers. And they see that as part of the overall solutions approach that we bring to that market. Obviously, with the advent of more machine learning and AI, the need for data has multiplied even in those markets.
That business has continued to do well for us for two reasons.
First.
As you remember probably from previous discussions we will not.
Overly focused on the.
The Hyperscale market, we will focus more on helping customers.
In specialized areas like health care hospitality.
Finance federal those kinds of markets to build our data centers.
And they see that as part of the overall solutions approach that.
That we bring.
To that market.
Obviously with the advent of more machine learning and AI.
The need for data has multiplied even in those markets.
Ashish Chand: So, we continue to see data centers as fairly attractive. And, you know, it's obviously had some ups and downs more recently, just given, you know, the inventory dynamics, but, at a base level, if you look at our pipeline, we have more and more customers coming to us right now asking us to design solutions that include data centers. Understood. Well, thanks so much for the color and best of luck in 24-years.
So.
We continue to see Datacenters as Australia attractive.
And.
It's obviously had some ups and downs more recently just given.
The inventory dynamics, but.
At a base level. If you look at our pipeline, we have more and more customers coming to us right now.
Asking us to design solutions that include data centers.
Understood well, thanks, so much for the color and best of luck in 'twenty four here.
Chris Gingrich: Thank you. We're going next to Mark Delaney with Goldman Sachs. Yes, good morning.
Thanks, Chris.
We'll go next to Mark Delaney with Goldman Sachs.
Yes. Good morning, Thanks, very much for taking my questions first question around inventory levels, how much inventory do you think was reduced to distributors in the fourth quarter and if you have visibility into it attracts customers as well and where do you think inventory levels and distribution and direct customers will be at the end of the first quarter compared to normal levels.
Mark Trevor Delaney: Thanks very much for taking my question. First question on inventory levels: how much inventory do you think was reduced at distributors in the fourth quarter and whether you have visibility into it at direct customers as well? And where do you think inventory levels and distribution and direct customers will be at the end of the first quarter compared to normal levels? Yeah, I'll take that one, Mark.
Yeah, I'll take that one mark so inventory in the fourth quarter was down.
Jeremy Park: So inventory in the fourth quarter was down pretty significantly. In the fourth quarter. I think this is a multi-quarter process. As inventory comes down at distribution, I think there are really two elements here you have to keep in mind, which is the reduction at distribution and then the reduction at end cost. So, machine builders, OEMs, and other end users. And so, I think that's a little bit more difficult to quantify. In the fourth quarter, it's hard to give you an exact number, but a significant amount of the reduction that we saw in the fourth quarter was related to inventory. Thanks for that, Jeremy.
Pretty significantly in the fourth quarter I think this is a multi quarter process as we as inventory comes down at distribution I think theres really two elements here you have to keep in mind, which is the reduction at distribution and then the reduction at end customers.
So machine builders Oems.
Other end users and so I think thats, a little bit more difficult to quantify.
In the fourth quarter.
It's hard to give you an exact number but a significant amount of the reduction that we saw in fourth quarter was as it related to inventory.
Got it thanks for that Jeremy.
Mark Trevor Delaney: And second question, just trying to better understand how you're looking at margins and operating expense levels in 1Q. I think implied EBIT margins are about 12.5% to 12.6% at the midpoint, so I think that would suggest gross margins are holding up at pretty healthy levels. OPEX dollars seem to be staying at a lower absolute level, but any more specifics you can provide around how to think about gross margins in OPEX in 1Q, and if there's anything temporary in there, one-time reductions in OPEX that may not repeat throughout the balance of the year, that would be helpful to better understand.
Second question, just trying to better understand how you are looking at.
Margins and operating expense levels in Q I think implied EBIT margins are about 12, 5% 12, 6% at the midpoint. So I think that would suggest gross margins are holding up at pretty healthy levels opex dollar or seem to be staying at a lower absolute level, but any more specifics you can provide around how to think about gross margin.
Opex in <unk> and if there's anything temporary in there.
Yes.
Onetime reductions in Opex that that may not repeat throughout the balance of the year there would be helpful to better understand thanks.
Yes, so gross margins I think will continue to be pretty strong you may see a little bit of a tick down in gross margins from Q4 to Q1, just because volume is lower so there will be.
Jeremy Park: Yeah, so gross margins will continue to be pretty strong. You may see a little bit of a tick down in gross margins from Q4 to Q1, just because volume is lower. So there will be a bit of an impact from just lower volume leverage. On the OPEX side, we're going to continue to manage OPEX pretty closely to hit the decremental targets that we've given. And so we'll manage that tight. We don't have plans to do additional headcount reductions in the first half of the year.
A bit of an impact from just lower volume leverage.
On the Opex side, we're going to continue to manage opex pretty closely to hit the decremental targets that we've given.
So we will manage that tight we don't have plans to do additional.
<unk> head count reductions in the first half of the year remember, we took a productivity action in the fourth quarter. So.
So, we'll manage opex and I wouldn't expect opex to be going up in Q1 versus where we werent Q4.
Thank you.
Jeremy Park: Remember, we took a productivity action in the fourth quarter. So we'll manage OPEX, and I wouldn't expect OPEX to be going up in Q1 versus where we were in Q4. Sure. If there are any additional questions, please press star 1. We'll go next to Reuben Gardner with the Benchmark. Thanks. Good morning, everyone.
Sure.
Is there any additional questions. Please press star one on your Touchtone phone.
We'll go next to Reuben Garner with the benchmark company.
Thanks, Good morning, everyone.
Hey, Robert.
Can we.
I think last quarter, you noted an expectation that that broadband would probably recover the earliest it sounds like.
Reuben Gardner: Can we, I think last quarter you noted an expectation that broadband would probably recover the earliest. It sounds like You're sort of seeing similar sequential movements in both enterprise and industrial automation. Do you still have an internal expectation that you'll see broadband snapback first and maybe industrial automation and smart buildings sort of later in the fiscal year? Yeah, Ruben, if you remember, we talked more about the kind of macro view at that point that, you know, broadband demand had support from, you know, federal spending and, in general, the large MSOs we partner with. But they had no noticeable change in their posture toward capital expenditure and adding subscribers, right? That hasn't changed.
Can you sort of seeing similar sequential.
Movements in both enterprise and industrial automation do you still have an internal expectation that youll see.
Broadband snapback first and maybe industrial automation and smart buildings.
Sort of later.
This fiscal year.
So we're going if you remember we talked more about the <unk>.
Kind of macro view at that point that broadband demand.
Was so robust we've had support from.
Federal spending.
In general the large msos, we partner with.
They had no noticeable change in their posture towards capital expenditure.
<unk>.
Adding subscribers right that hasnt changed.
Ashish Chand: If anything, we are encouraged by the reports we've seen now; we've had a chance to kind of delve deeper into the customer plans. I'll, The one thing I will say is that these are, you know, complex supply chains that depend on a number of products coming together, of which we supply a portion. And sometimes, because of the complex procurement process.
If anything we are encouraged with.
The reports we've seen now we've had a chance to kind of delve deeper into the customer.
Plans.
Sure.
The one thing I will say is that these are.
Complex supply chains that depend on a number of products coming together.
All of which we supply a portion.
And sometimes because of the complex procurement process.
Ashish Chand: Even though the end demand is fine, you may see some timing. So, at this point, we don't see anything different to what we had previously guided in terms of strength in the broadband end market. We've seen a little bit of timing in broadband, but nothing that, you know, takes us away from Expectations. It's within that. We've been in a few percentage points here or there.
Even though the end demand.
Is fine.
You may see some timing.
So at this point, we don't see anything different to what we had previously.
Guided in terms of.
Strength in the broadband and markets.
We've seen a little bit of timing.
In broadband, but nothing that.
Takes us away from <unk>.
Expectations its within that.
Within a few percentage points here or there.
Jeremy Park: So, you know, to give a simple answer to your question, we still expect broadband and end-demand to come back first. And we feel that, you know, given some minor changes in timing, etc., we'll see our broadband business follow that. Yeah, maybe the only thing I'd add here, Ruben, for your benefit, is that keep in mind that the broadband seasonality in Q1 is a little bit more significant because those products are going into the network. So typically, Q1 is not a particularly strong quarter in broadband. Once we hit the spring, we usually see volumes increase in that business. Okay, great.
So to give a simple answer to your question.
Still expect broadband and demand come back.
First.
And we feel that.
Given some minor changes in timing et cetera, we will see our broadband business all of that.
Yes, maybe the only thing I'll add here Rubin for your benefit is that keep in mind that the broadband seasonality in Q1 is a little bit more significant because those products are going in the network. So so typically Q1 is not a particularly strong quarter in broadband once we hit this spring usually we see volumes increase in that business.
Okay, Great and then.
Reuben Gardner: And then, We sort of touched on this, but I just want to kind of hopefully get a maybe a bridge on a year-over-year basis, Jeremy, if possible. The gross margin performance in the quarter was really strong considering the top-line environment. Can you kind of walk us through how... You know, how you were able to sustain those kind of gross margin levels in the face of volume down as much as it was? Yeah, I mean, we've got pressure coming from negative leverage and volumes coming down. So we've got to absorb those fixed costs on a smaller amount of volume, but the offset is that it is a positive mix. So I think where we've been strong is in our highest margin products. So some of the actives, switches, and other things that we're selling as part of our solutions. But the reality is, if you look at the products that are really held in inventory at customers and at distributors, it's probably disproportionately things like cable and some lower margin products.
We started touched on this but I just wanted to kind of.
Hopefully get a maybe a bridge.
On a year over year basis, Jeremy if possible the gross margin performance in the quarter was really strong considering the top line environment can you kind of walk us through how.
How you were able to sustain those kind of gross margin levels in the face of volume down as much as it was.
Yes, I mean <unk> got for sure we've got pressure coming from.
From the negative leverage in the volumes coming down so you've got to absorb those fixed costs.
All right.
<unk>.
Amount of volume, but the offset is that as positive mix. So I think where we've been strong is in our highest margin products some of the actives.
Switches and other things that we're selling as part of our solutions. The reality is if you. If you look at the products that are really held in inventory at customers and add distributors, it's probably disproportionately things like cable and some lower margin products.
Jeremy Park: So the bulk of the impact that we've seen volume wise has been in some lower margin products. So I think you've got negative leverage, but then that's offset by a positive mix. And so that's how we've been able to hold margins up through the past 12 months. Okay. Thanks for taking the questions and good luck this year.
The bulk of the impact that we've seen volume wise has been in some lower margin products. So I think you've got you've got negative leverage, but then that's offset by by positive mix and.
So that's how we've been able to hold margins.
Up to the past 12 months.
Understood. Thanks for taking the questions and good luck with sugar.
Reuben Gardner: Thank you. As a reminder, that is Star 1 to ask a question. We'll go next to Rob Jamieson with UBS.
Thank you. Thank you.
As a reminder that is star one to ask a question. We'll go next to Rob Jamieson with UBS.
Hey, good morning, Congrats on the results and the solid guidance today.
Rob Jamieson: Hey, good morning, congratulations on the results and solid guidance today. Look, I appreciate all the detail that you've provided this morning. I guess for me, just within industrial automation solutions, can you maybe provide us with a little color on what you saw in the fourth quarter, maybe even full year, just across the different end markets, like between discrete, process, energy, and mass transit? Yeah, so, you know, obviously, discrete has been less robust in the second half of this year.
I appreciate all the detail that you've provided this morning.
Yes for me just within industrial automation solutions can you maybe provide us a little color on what you saw in the fourth quarter may be even full year just across the different end market segment team discrete process in our Gms transit.
Yes so.
Obviously discrete has been.
Less robust in the second half of 'twenty three.
Ashish Chand: And that was driven largely by the de-stocking phenomenon and maybe to some extent by the interest rate environment where people slowed down some of their projects. We even noted, as we've mentioned previously, that some of the reshoring projects in discrete. So in Q3, we saw that come down. If you remember, orders were down almost just over 20% actually, sequentially, and POS was down at that point about 8%. Now, in Q4, we saw that whole thing stabilize. Autos were up about 7% sequentially. POS was flattish.
And that was driven by largely by the Destocking phenomenon.
And maybe to some extent.
<unk> by the interest rate environment, where people have slowed down some.
Some of the projects, we even noted.
As we've mentioned previously that some of the re shoring projects in discrete.
I'll slow down because there was a shortage of labor they don't have enough people to.
Either build or.
Operate those plants. So in in Q3, we saw that.
<unk> if you remember orders were down almost just over 20% actually sequentially.
POS was down at that point of about 8% now in Q4, we saw that holding stabilize orders were up about 7% sequentially.
Was flattish.
Ashish Chand: And we've seen other leading indicators, including PMI, that show that it's heading in the right direction. So discrete is still an area where we expect some weakness, and then it'll come back once this inventory cycle is over. But meanwhile, we did see significant growth in process markets and in mass transit. In mass transit, especially, you know, because of our high focus on providing this full mission critical solution. We have a number of engagements. These tend to be more long-term. They don't get impacted so much by inventory changes, etc.
And we've seen other indicators.
Leading indicators, including PMI that show that it's heading in the right direction.
So discrete is still.
An area, where we expect.
Some.
Weakness and then it'll come back once this inventory cycle.
We get to the other side, but Meanwhile, we did see.
Significant growth in process markets.
And in mass transit and mass trends, especially because of our.
A high focus on providing those full mission critical solution. We have a number of engagements. These tend to be more long term they don't get impacted.
Rob so much by inventory changes et cetera.
Ashish Chand: And you know, we have a fairly robust pipeline there. But yeah, so to answer your question, it was more discrete, more linked to the inventory phenomenon, and I think it's stable. Perfect, that helps. Thank you very much.
And.
We have a fairly.
Robust pipeline there.
But yes, so to answer your question it was more.
The script more linked to the inventory phenomenon.
I think it's stable loan.
Perfect that helps thank you very much.
Rob Jamieson: And then, just like the last one, a higher level. You talked a lot about the CIC, you know, the success there. I guess maybe two things: an update on kind of conversions with customers that have come through the door, and then maybe just some high-level thoughts on, you know, outside of just the solution and targeting the right KPIs for your customers. Maybe, can you talk a little bit about other, you know, investments that you've made in software or middleware solutions like Horizon? Yeah.
And then I guess, just like last one a higher level you talked a lot about the CIC.
The success there I guess, maybe two things an update on kind of conversions with customers that have come through the door and then maybe just some high level thoughts on outs.
Outside of just the solution in attacking the right Kpis for your customers, maybe can you talk a little bit about other investments.
Investments that you've made in software middleware solutions like.
Like horizon.
Yes.
So there are few things happening.
Ashish Chand: So there are a few things happening. So first of all, on the CICs, you know, so typically. When we engage with customers for the long term for a data or a network solution, are successful, about a third of the customers would, you know, would convert eventually, which is fairly healthy. We've seen that once we get a customer to invest in a validation test at a CIC, That rate might actually go up two to three times, right? So it's fairly significant.
So first of all on the CICS.
So typically.
When we engage with customers in the long term for <unk>.
Data or a network solution.
Our success.
It would be about a third of the customers were.
Would convert eventually which is fairly healthy.
We've seen that once we get a customer to invest in a validation test at a CIC.
That rate might actually go up two to three times.
Fairly significant.
Ashish Chand: The change that we see in that customer engagement. And we've seen more and more instances now where customers come to us, typically with a complex kind of idea in their head.
The change that we see in that in.
And that customer engagement.
And we've seen more and more instances now.
Where customers come to us.
Typically with a complex kind of idea in their heads.
Ashish Chand: And then we walk them back a little bit, talk about the KPIs they want to address. So, for example, you know, we previously mentioned we work with this utility company in Spain, and their KPI was the average time it took to find a fault in their network. And they were experiencing 140 minutes on average.
And then we walk them back a little bit talk about the kpis they want to address.
So for example, we previously mentioned.
We work with the utility company in Spain.
And there <unk> the average time it took to final follow ups in their network.
And they were experiencing.
140 minutes on average.
Ashish Chand: And we were able to take that down to about 35 minutes. And they saved, obviously, a lot of money through better revenues and savings on fines. So it's interesting that each customer typically comes initially with a semi-network design; we walk them back to KPIs, we design, you know, a better workflow and data flow, and then we get there. Now part of this, obviously, is how we bring different sources and destinations of data together. And Belden Horizon has turned out to be a really phenomenal experience for most of our customers because it's very neutral. It doesn't, it's not application software; it's not designed to do anything with the data other than cleanse it, sort it, and connect different sources to different destinations.
And we were able to take that down about 35 minutes.
And as Dave.
Lastly, a lot of money through.
Better revenues and saving on fines.
So it's interesting each each customer typically comes initially.
The MRI network design, we walk them back to Kpis, we design.
A better workflow and data flow and then we get there no part of this obviously is how we bring.
Different sources and destinations of data together and Belden horizon has turned out to be a really phenomenal.
Experience, where most of our customers because it's very neutral it doesn't it's not application software, it's not designed to do.
Do anything with the data other than cleansing sorted and connected to different connect different sources to different destinations. One interesting thing that's happening by the way with horizon. As we are now testing more and more offering data as a service. Although we are not we havent yet commercialize that.
Ashish Chand: One interesting thing that's happening, by the way, with Horizon is we are now testing more and more offering data as a service, although we aren't, we haven't yet commercialized that. And we've had requests now to incorporate more machine learning and AI. Into Horizons, which we've been doing, and you know the example I like to quote is uh... imagine a factory that has cobots and a worker maybe walking into the arc of a robotic arm, and with machine learning on our edge devices and some form of an LLM in Horizon, we can actually stop that robotic arm without anything going to the cloud. Because otherwise, there's too much latency, and somebody might get injured, right?
And.
We've had requests now to incorporate more machine learning and AI.
Into horizon.
Which we have been doing and the example, I'd like to quarters.
Imagine.
Factory, which has cobalts and a welcome maybe walking into the offer for robotic arm.
And with machine learning on our edge devices.
Some form of an LLM in horizon.
We can actually stop that robotic arm without anything going to the cloud.
Because otherwise the stores latency and somebody might get in <unk>. So those kinds of applications. They are not always the ones that get a lot of.
Ashish Chand: So those kinds of applications, they're not always the ones that get a lot of attention in the media as AI applications, but they save lives, and they save time, and they increase productivity. And that's where we are going with that whole software layer, which has turned out to be an exciting journey, even for us in terms of learning. So again, lots of interesting things are happening, but I think you were thinking about it the right way.
Attention in the media as AI applications, but to save lives and save time, and the increased productivity and that's where we're going with that hold software layer, which has turned out to be an exciting journey even for us in terms of loan.
So again lots of interesting things happening.
But I think youre thinking about it the right way customer kpis getting impacted and the software really making a big difference in that.
Operator: Customer KPIs are getting impacted, and the software really makes a big difference in that. Thanks so much, www.circlelineartschool.com There are no further questions at this time. I would like to turn the call back over to Erin Reddington for any closing. Yeah, thank you, operator. And thank you. Thank you, everyone, for joining today's call. If you have any questions, please contact the IR team here at Belden. Our email address is investor.relations at Belden.com. Thank you. This does conclude today's conference call.
Awesome. Thanks, so much.
There are no further questions at this time I would like to turn the call back over to Erin Wang for any closing remarks.
Yes. Thank you operator, and thank you. Thank you everyone for joining today's call. If you have any questions. Please contact the IR team here at Belden, our email address is investor relations at Belden Dot com. Thank you.
This does conclude today's conference call you may now disconnect.
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