Q1 2024 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 first quarter 2024 results call.
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to this mornings Belden reports first quarter 2024 results call. Just a reminder, this call is being recorded at this time you are in a listen only mode.
Speaker Change: 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 are in the question queue and we'd like to withdraw your question simply press Star two I would now like to turn the call over to Erin Redington. Please go ahead Sir.
Operator: Just a reminder, this call is being recorded. At this time, you're in a listen-only mode. 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 are in the question queue and would like to withdraw your question, simply press star two on your touchtone phone. Please go ahead, sir.
Aaron Reddington: Good morning, everyone, and thank you for joining us for Belden's first quarter 2024 earnings conference call. With me today are Belden's President and CEO Ashish Chand and Senior Vice President and CFO Jeremy Parks. 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
Aaron Reddington: Good morning, everyone and thank you for joining us for Belden is first quarter 2024 earnings conference call.
Aaron Reddington: With me today are <unk>, President and CEO, Ashish, <unk>, and senior Vice President and CFO, Jeremy Parks Ashish.
Aaron Reddington: 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.
ashish: We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call.
ashish: The press release presentation and transcript of these prepared remarks are currently available online at Investor Belden Dot com.
Aaron Reddington: 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 in the Investor Relations section of our website contains 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.
ashish: Turning to slide two in the presentation.
ashish: 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 1095 for.
ashish: For more information. Please review today's press release and our most recent annual report on Form 10-K.
ashish: Additionally, during today's call management will reference adjusted or non-GAAP financial information.
ashish: In accordance with regulation G. The appendix to our presentation in the Investor Relations section of our website contains a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate.
ashish: I will now turn the call over to our President and CEO Ashish <unk>.
Ashish Chand: Thank you, Aaron, and good morning, everyone. We really appreciate you joining us today. Let's turn to slide four for a summary of the major accomplishments we achieved in the first quarter and the key messages I would like to highlight. As a reminder, I will be referring to adjusted results today. Let me start by saying that once again, the key theme for the quarter is stability. For the first quarter, our revenue and EPS both exceeded the high end of our guidance, and our solutions transformation continues in this dynamic environment.
ashish: Thank you Alan and good morning, everyone.
ashish: We really appreciate you joining us today.
ashish: Let's turn to slide four for a summary of the major accomplishments, we achieved in the fourth quarter and key messages I would like to highlight.
Speaker Change: As a reminder, I will be referring to adjusted results today.
ashish: First.
Ashish Chand: Revenue totaled $536 million, and EPS came in at $1.24. Demand was stable, similar to what we saw in the prior period. Audits in the first quarter were up 5% sequentially, resulting in a book-to-bill of 1.03 times, up from 0.96 in the prior period.
ashish: Let me start by saying that once again the key theme for the quarter is stability.
ashish: For the fourth quarter.
ashish: Revenue and EPS, both exceeded the high end of our guidance and our solutions transformation continues in this dynamic environment.
ashish: Revenue totaled $536 million and EPS came in at $1 and 24.
ashish: Demand was stable similar to what we saw in the prior period.
ashish: Orders in the first quarter were up 5% sequentially, resulting in a book to Bill of 1.03 times up from zero point 96 in the prior period.
Ashish Chand: Our markets continue to experience headwinds, and I'm encouraged to see steady execution resulting in performance exceeding our expectations. Second, I am pleased to announce that we just recently signed a definitive purchase agreement for Precision Optical Technologies Incorporated for approximately $290 million in cash, subject to customary closing conditions and regulatory approval, of course.
ashish: Our markets continue to experience headwinds.
ashish: Im encouraged to see steady execution, resulting in performance exceeding our expectations.
ashish: Second I am pleased to announce that we just recently signed a definitive purchase agreement for precision optical technologies incorporated for approximately $290 million in cash.
ashish: Subject to customary closing conditions and regulatory approval of course.
Ashish Chand: Precision Optical Technologies is a leading supplier of value-added optical transceivers with proprietary software, firmware configurations, and related components. I will go into further detail on the acquisitions shortly, but let me summarize here by saying that we are very excited to add the team and product set to our solution and believe this acquisition will create new opportunities for our enterprise segment and broadband markets, particularly in the Passive Optical Network, or PON, market.
ashish: Precision optical technologies is a leading supplier of value added optical transceivers with proprietary software firmware configurations and related components.
ashish: I will go into further detail on the acquisitions shortly but let me summarize here by saying that we are very excited to add the team and product set to our solutions and believe this acquisition will create new opportunities for our enterprise segment and broadband markets, particularly in the passive optical network.
ashish: Our phone market.
ashish: Third our business continues to generate meaningful cash flow and we are deploying capital consistent with our capital allocation priorities.
Ashish Chand: Our business continues to generate meaningful cash flow, and we are deploying capital consistent with our capital allocation priorities. Trailing 12 month free cash flow was strong at $241 million, roughly flat with what we produced in the same period last year. With an ample free cash flow, our team took steps to reinvest in high-return opportunities. For the quarter, we returned over 58 million dollars to shareholders, mostly through share repurchases, with approximately 700,000 shares purchased in the first quarter. Furthermore, our leverage remains low at 1.6 times, roughly in line with a targeted net leverage ratio of 1.5 times.
ashish: Trailing 12 month free cash flow was strong at $241 million roughly flat with what we produced in the same period last year.
ashish: The ample free cash flow our team took steps to reinvest in high return opportunities.
ashish: For the quarter.
ashish: We returned over $58 million to shareholders, mostly through share repurchases with approximately 700000 shares purchased in the first quarter.
ashish: Although our leverage remains low at one six times.
ashish: Roughly in line with our targeted net leverage ratio of one five times.
Ashish Chand: Finally, whilst it's not reflected in our Q1 figures, our team plans to deploy capital towards the acquisition of precision optical technologies, which we expect to close in the second quarter. Now, please turn to slide five for a summary of a few noteworthy solutions. As we do every quarter, let me take a moment to describe two recent customer wins to provide real-world examples of our solutions in action. In the first example, our team was awarded a $10 million plus project to help with the rail network in India.
ashish: Finally.
ashish: Whilst it's not reflected in our Q1 figures our team plans to deploy capital towards the acquisition of precision optical technologies, which we expect to close in the second quarter.
ashish: Now please turn to slide five for a summary of a few noteworthy solutions wins.
ashish: As we do every quarter, let me take a moment to describe two recent customer wins to.
ashish: To provide real world examples of our solutions in action.
Ashish Chand: In this example, we were working directly with Hitachi Rail SDS India as the systems integrator and Chennai Metro Rail Ltd., our end customer. Chennai Metro was looking for a reliable and secure backbone network to ensure passenger safety and security.
ashish: And the first example of <unk>.
ashish: <unk> was awarded a $10 million plus project to help with the rail network in India.
ashish: In this example, we were working directly with Hitachi rail Sds, India as the systems integrator.
ashish: And China Metro rail limited our end customer.
ashish: Timna Metro was looking for a reliable and secure backbone network to ensure passenger safety and security.
Ashish Chand: Reliability and in-house expertise in deploying complex solutions with top priorities for our customers, combined with a proven product portfolio. Our solutions consultants held multiple sessions with Chennai Metro, including a proof-of-concept test utilizing cutting-edge wireless and wired network components. The Belden Design Network proved successful in testing to increase operational efficiency by reducing communications-based strain control outages for the. The Belden solution also enabled IOD-based predictive maintenance functionality for a connected track. Our team of solutions consultants, along with Hitachi Rail SDS India, were able to add value to Chennai Metro and build a network to solve critical KPIs and improve passenger experience. In the second example, a team was awarded a multi-million-dollar project to assist in the redevelopment of a major hospital facility in the Americas.
ashish: Reliability and in house expertise in deploying complex solutions with top priorities for our customers combined with a proven product portfolio.
ashish: Our solutions consultants help multiple sessions with Shanghai Metro, including a proof of concept test utilizing cutting edge wireless and wired network components the.
ashish: The Belden design network proved successful in testing to increase operational efficiency by reducing communications based train control outages.
ashish: Further.
ashish: The <unk> solution also enabled Iot based predictive maintenance functionality for our connected track system.
ashish: Our team of solutions consultants, along with Hitachi rail STS, India, we're able to add value to China Metro and build a network to solve critical kpis and improved passenger experience.
ashish: In the second example, Athene was awarded a multimillion dollar project to assist in the redevelopment of a major hospital facility in the Americas.
Ashish Chand: With a focus on better patient outcomes, our solutions consultants were able to recommend core data infrastructure components, including leading-edge DCX cabinets and HyFlex cabling to support a robust network and allow for leading-edge use cases. The result for a customer is a more reliable system, utilizing a smaller footprint, combined with reduced complexity to allow for a more streamlined network capable of supporting a customer's critical KPIs. I'm proud of our solutions team as they work to gather highly reliable Belden products and put together a complete solution for our customers, ultimately winning their trust and business.
ashish: With a focus on better patient outcomes are solutions consultants, we're able to recommend core data infrastructure components, including a leading edge VCX cabinets and high Plex cabling to support a robust network and allow for leading edge use cases.
ashish: The result for our customer is a more reliable system utilizing a smaller footprint combined with reduced complexity to allow for a more streamlined network capable of supporting our customers' critical kpis.
ashish: I am proud of our solutions teams as they work together highly reliable belden products and put together a complete solution for our customer.
ashish: Intimately winning their trust and business.
Ashish Chand: Again, we highlight these solutions to further emphasize that Belden is winning in the marketplace with our solutions transformation and that our value add to customers spans beyond the high quality products we produce. In fact, as an example, we recently launched three solution capabilities: Network Resilience, Edge Computing, and Data Interoperability Targeted at Discrete Manufacturers. These capabilities are enabled through Belden Horizons, which brings together hardware, software, and services in a single software
ashish: Again.
ashish: We highlight these solutions to further emphasize that belden is winning in the marketplace with our solutions transformation and that our value add to customers spans beyond the high quality products we produce.
ashish: In fact, as an example, we recently launched three solution capabilities.
ashish: Network resilience edge computing and data interoperability.
ashish: <unk> are discrete manufacturers.
ashish: These capabilities are enabled for Belden horizon, which brings together hardware software and services in a single software platform.
Ashish Chand: Our Horizon platform enables real-time management of complex industrial and enterprise networks and assists in the delivery of data-related services in a simple and highly secure manner. I point this out to highlight that at Belden, our focus is on solving customer problems and deepening our relationship with customers. A high quality product.
ashish: Our horizon platform enables real time management of complex industrial and enterprise networks and assistance in the delivery of data related services in a simple and highly secure manner.
ashish: I point this out to highlight that a belden, our focus is on solving customer problems and deepening our relationship with customers.
ashish: Our high quality products.
Ashish Chand: The Belden Horizon Software Platform and our dedicated team and consultants are making our solutions incredibly impactful for customers and are keys to our success. Now, please turn to slide 6 for a summary of the Precision Optical Technologies acquisition, based in Rochester, New York. Precision Optical Technologies is a leading supplier of value-added optical transceivers with proprietary software, firmware configurations, and related components. The company's products are core elements in fiber infrastructure deployments, expansions, and network upgrades. Benefiting from multiple secular tailings.
ashish: Belden Horizon software platform and our dedicated team and consultants are making our solutions incredibly impactful for customers at a key to our success.
ashish: Now please turn to slide six for a summary of the precision optical technologies acquisition.
ashish: Based in Rochester, New York precision optical technologies as a leading supplier of value added optical transceivers with proprietary software Bombay configurations and related components.
ashish: The company's products are core elements and fiber infrastructure deployments expansions and network upgrades benefiting from multiple secular tailwind.
Ashish Chand: Precision optical technology's strong position in the optical transceiver market will be highly beneficial to Belden as we look to grow our solutions offerings in the enterprise segment and broadband market, as networks are upgraded and bandwidth demands increase. Precision optical technology's products will be critical components as fiber deployments accelerate. Further, combined with Belden fiber and network products, our solutions teams will now have enhanced passive optical network, or PON, components. And we'll sit deeper in the Fiber Network, allowing for additional use cases and opportunities with MSOs, telcos, data centers, and enterprise customers.
ashish: Precision optical technologies strong position in the optical transceiver market will be highly beneficial to belden as we look to grow our solutions offerings in the enterprise segment and broadband markets.
ashish: As networks are upgraded and bandwidth demands increase.
ashish: <unk> optical technologies products will be critical components as fiber deployments accelerate.
ashish: Total combined with Belden fiber network products. Our solutions teams will now have enhanced passive optical network or PON components.
ashish: And also deeper in the fiber network, allowing for additional use cases and opportunities with Msos telcos data centers and enterprise customers.
Ashish Chand: Precision optical technologies will be a great addition to the Belden team and will help us further drive solutions in our enterprise sector. On a full year basis, we expect the company to generate revenue of approximately $150 million in 2024. With exposure to optical transceivers and PON networks, we anticipate growth in the mid to high single digits over the next few years. We anticipate closing towards the end of the second quarter and will provide updates as appropriate.
ashish: Precision optical technologies will be a great addition to the <unk> team and will help us further drive solutions and our enterprise segment.
ashish: On a full year basis, we expect the company to generate 2020 for revenue of approximately $150 million.
ashish: With exposure to optical Transceivers and bond networks, we anticipate growth in the mid to high single digits over the next few years.
ashish: We anticipate closing towards the end of the second quarter, and we'll provide updates as appropriate.
Ashish Chand: Post-close, the acquisition will be immediately accretive to our financials, and after being fully integrated, we expect the business to provide adjusted EBITDA margins comparable to the rest of Belden. Precision Optical Technologies is the perfect example of the types of deals that are most attractive to us. We are always excited to add good people and products to our team that further enable our solutions offering. I will now request Jeremy Parks to provide additional insight into our first quarter financial performance.
ashish: Post close the acquisition will be immediately accretive to our financials and after being fully integrated we expect the business to provide adjusted EBITDA margins comparable to the rest of Belgium.
ashish: Precision optical technologies is the perfect example of the types of deals that are most attractive to us as we're always excited to add good people and products to our team that further enable our solutions offerings.
ashish: I will now request, Jeremy Fox will provide additional insight into our first quarter financial performance.
Jeremy E. Parks: Thank you, Ashish. I will start my comments with results for the first quarter of 2024, followed by a review of our segment results, a discussion of the balance sheet and cash flow performance, and finally, our outline. As a reminder, I will be referencing adjusted results today. Now, please turn to slide 7 in our presentation for a review of our results.
Jeremy Fox: Thank you Ashish I will start my comments with results for the first quarter of 2024, followed by a review of our segment results a discussion of the balance sheet and cash flow performance and finally our outlook.
Jeremy Fox: As a reminder, I will be referencing adjusted results today.
Jeremy Fox: Now please turn to slide seven in our presentation for a review of our results.
Jeremy E. Parks: First quarter revenue decreased 17% year over year and was down 17% organically to $536 million, exceeding the high end of our guidance of $520 million. As expected, we experienced softness in industrial automation with revenues decreasing 17% organically and enterprise solutions revenue decreasing 18% organically. Orders were up 5% sequentially, with strength in industrial automation partially offset by typical seasonality in enterprise solutions.
Jeremy Fox: First quarter revenue decreased 17% year over year and was down 17% organically to $536 million.
Jeremy Fox: Exceeding the high end of our guidance of $520 million.
Jeremy Fox: As expected, we experienced softness in industrial automation with revenues decreasing 17% organically and enterprise solutions revenue decreasing 18% organically.
Jeremy Fox: Orders were up 5% sequentially with strength in industrial automation, partially offset by typical seasonality and enterprise solutions.
Jeremy E. Parks: We ended the quarter with a book-to-bill of 1.03, indicating a more stable order environment for the quarter. Gross profit margins were 38.4%, decreasing 20 basis points compared to the prior year as favorable mix benefits helped to offset lower volume. EBITDA came in at $85 million, with EBITDA margins down 160 basis points to 15.8%.
Jeremy Fox: We ended the quarter with a book to Bill of one <unk>, three indicating a more stable order environment for the quarter.
Jeremy Fox: Gross profit margins were 38, 4% decreasing 20 basis points compared to the prior year as favorable mix benefits helped to offset lower volume.
Jeremy Fox: EBITA came in at $85 million with EBITDA margins down 160 basis points to 15, 8%.
Jeremy E. Parks: Decremental margins for the quarter performed as expected in line with our target of 20 to 30 percent. That revenue was $51 million, down from $73 million in the prior year period. The EPS was $1.24, above the high end of our guidance range of $1.20. Turning now to slide 8 in the presentation, for a review of our business segment results. For the quarter, performance by segment was aligned with our expectation; orders were soft but stable as our markets experienced continued slowness due to the impact of de-stocking.
Jeremy Fox: Decremental margins for the quarter performed as expected in line with our target of 20% to 30%.
Jeremy Fox: Net income was $51 million down from $73 million in the prior year period.
Jeremy Fox: <unk> was $1 24.
Jeremy Fox: Above the high end of our guidance range of $1 10.
Jeremy Fox: Turning now to slide eight in the presentation for a review of our business segment results.
Jeremy Fox: For the quarter performance by segment was aligned with our expectations.
Jeremy Fox: Orders were soft, but stable as our markets experienced continued slowness due to the impact of Destocking.
Jeremy E. Parks: For the first quarter, revenue in our industrial automation solution segment was down 18% compared to the prior year. EBITDA margins were 19.5% in the quarter, down from 20.1% in the prior year. Orders in industrial automation were up 12% sequentially and down 5% year over year. For the quarter, we experienced weakness in our discrete end markets, particularly in the EMEA region, which continues to exhibit customer destock. For the first quarter, revenue in our enterprise solution segment was down 15% compared to the prior year. EBITDA margins were 11% in the quarter, down from 13.5% in the prior year. Orders in Enterprise Solutions were down 4% sequentially and down 11% year over year.
Jeremy Fox: For the first quarter revenue in our industrial automation solutions segment was down 18% compared to the prior year.
Jeremy Fox: EBIT margins were 19, 5% in the quarter down from 21% in the prior year.
Jeremy Fox: Orders in industrial automation were up 12% sequentially and down 5% year over year.
Jeremy Fox: For the quarter, we experienced weakness in our discrete end markets, particularly in the EMEA region, which continues to exhibit customer destocking.
Jeremy Fox: For the first quarter revenue in our enterprise solutions segment was down 15% compared to the prior year.
Jeremy Fox: EBITDA margins were 11% in the quarter down from 13, 5% in the prior year.
Jeremy Fox: Orders in enterprise solutions were down, 4% sequentially and down 11% year over year.
Jeremy E. Parks: As expected, we continue to see customer destocking in both the smart buildings and broadband market. Next, please turn to slide nine for our balance sheet and cash flow highlights. Our cash and cash equivalents balance at the end of the first quarter was $507 million, compared to $597 million in the fourth quarter of 2023. Our financial leverage was 1.6 times net debt to EBITDA at the end of the first quarter. As we communicated before, we intend to maintain net leverage of approximately 1.5 times over the long term.
Jeremy Fox: As expected, we continue to see customer destocking in both the smart buildings and broadband markets.
Jeremy Fox: Next please turn to slide nine for our balance sheet and cash flow highlights.
Jeremy Fox: Our cash and cash equivalents balance at the end of the first quarter was $507 million compared to $597 million in the fourth quarter of 2023.
Jeremy Fox: Our financial leverage was one six times net debt to EBITDA at the end of the first quarter as we communicated before we intend to maintain net leverage of approximately one five times over the long term.
Jeremy E. Parks: We plan to fund the acquisition of precision optical technologies with cash on hand. On a pro forma basis, we estimate that our net leverage ratio will be around two times after close. With our ample free cash flow generation, we have the ability to quickly deliver. As a reminder, our next debt maturity is not until 2027, with all of our debt fixed at rates averaging 3.5%. Through the first quarter, our trailing 12-month free cash flow was $241 million.
Jeremy Fox: We plan to fund the acquisition of precision optical technologies with cash on hand.
Jeremy Fox: On a pro forma basis, we estimate that our net leverage ratio will be around two times after close.
Jeremy Fox: With our ample free cash flow generation, we have the ability to quickly delever.
Jeremy Fox: As a reminder, our next debt maturity is not until 2027 with all of our debt fixed at rates, averaging three 5%.
Jeremy Fox: Through the first quarter, our trailing 12 month free cash flow was $241 million.
Jeremy E. Parks: During the first quarter, we repurchased approximately 700,000 shares, or $58 million, with $115 million remaining on our current repurchase authorization. Please turn to slide 10 for our updated outline. For the second quarter, we anticipate customer destocking and other temporary headwinds to continue. However, relative to the first quarter, end demand is expected to be stable, with revenues up slightly, in line with normal seasonal patterns. For the second quarter, assuming current market conditions do not deteriorate further, we expect sales in the range of $565 million to $580 million and adjusted EPS in the range of $1.30 to $1.40. The acquisition of precision optical technologies is not included in the Q2 2024 guidance.
Jeremy Fox: During the first quarter, we repurchased approximately 700000 shares or $58 million with $115 million remaining on our current repurchase authorization.
Jeremy Fox: Please turn to slide 10 for our updated outlook.
Jeremy Fox: For the second quarter, we anticipate customer destocking and other temporary headwinds to continue.
Jeremy Fox: Relative to the first quarter and demand is expected to be stable with revenues up slightly in line with normal seasonal patterns.
Jeremy Fox: For the second quarter, assuming current market conditions do not deteriorate further we expect sales in the range of 565 million to $580 million and adjusted EPS in the range of $1 30 to $1 40.
Jeremy Fox: The acquisition of precision optical technologies is not included in Q2 2020 for guidance.
Ashish Chand: The closing date is subject to certain regulatory approvals and customary closing conditions. We will provide updates as appropriate. That concludes my prepared remarks. I would now like to turn the call back to Ashish.
Jeremy Fox: We closed date is subject to certain regulatory approvals and customary closing conditions.
Jeremy Fox: We will provide updates as appropriate.
Jeremy Fox: That concludes my prepared remarks, I would now like to turn the call back to Ashish.
ashish: Thank you Jeremy.
ashish: To close.
Ashish Chand: Let me reiterate, the first quarter for Belden can best be described as stable. We came in anticipating a dynamic market environment with many customers continuing to reduce inventory, and it played out as expected. Looking forward into the second quarter, we see steadiness in our business and are hopeful that conditions will improve in the back half of the year, resulting in an uptick in demand from current levels. The 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. Pre-industrialization is just beginning.
ashish: Let me reiterate the fourth quarter for Belden can best be described as stable.
ashish: We came in anticipating a dynamic market environment with many customers continuing to reduce inventory and it played out as expected.
ashish: Looking forward into the second quarter, we see steadiness in our business and are hopeful that conditions improve in the back half of this.
ashish: Salting and an uptick in demand from current levels.
ashish: Longer term the <unk>.
ashish: 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.
ashish: Pre industrialization is just beginning and our.
Ashish Chand: And our products and solutions are aligned with many secular growth drivers. We are well positioned to take advantage of the growth opportunities ahead of us, and our balance sheet is strong to enable our expansion. Our team will continue to execute through this temporary weakness and will look for opportunities to gain share where possible. I would like to take a moment and recognize the contributions of our associates this past quarter. I appreciate your efforts and would like to thank you for your support as we continue to transform Belden in a challenging environment. Thank you for your hard work. That concludes our prepared remarks. Operator. Please open the call to questions.
ashish: <unk> solutions are aligned with many secular growth drivers.
ashish: We are well positioned to take advantage of growth opportunities ahead of us and our balance sheet is strong to enable our expansion.
ashish: Our team will continue to execute through this temporary weakness.
ashish: And we'll look for opportunities to gain share where possible.
Speaker Change: I would like to take a moment and recognize the contributions of our associates this past quarter.
Speaker Change: I appreciate your efforts and we'd like to thank you for your support as we continue to transform belden through a challenging environment.
Speaker Change: Thank you for your hard work.
Ashish Chand: That concludes our prepared remarks.
Ashish Chand: Operator.
Speaker Change: Please open the call to questions.
Operator: Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you would like to withdraw your question, please press star two. Again, if you would like to signal with telephone questions, please press star one on your touchtone telephone. Our first question will come from Mark Delaney with Goldman Sachs.
Speaker Change: Thank you.
I'd like to signal with questions. Please press star one on your Touchtone telephone.
Speaker Change: If you would like to withdraw your question. Please press star two again, if you would like to signal with some questions. Please press star one on your Touchtone telephone and our first question will come from Mark Delaney with Goldman Sachs.
Morgan Leung: Morgan Leung is on the line asking a question on behalf of Mark Delaney. Thanks for taking the questions. We were just wondering if you could give a little bit more color on what you're seeing with orders. We understand the messaging is around stability, but we just wanted to dig into more of when you think the inventory to stocking will end and how that's going to impact gross margins in 2Q relative to 1Q.
Operator: Morgan Lee on the line asking a question on behalf of Mark Delaney.
For taking the questions. We were just wondering if you could give a little bit more color on what youre seeing with orders understand the messaging is around stability, but we just wanted to dig into more of like when you think the inventory de stocking will end.
Morgan Leung: How that's going to impact gross margins in Q2 relative to Q.
Ashish Chand: Thanks, Morgan. Yeah, I think the key word is stability. We saw that We witnessed that in Q1. If you go below the hood a little, orders in the industrial sector were up about 12%, sequentially, down 5% year over year. And on enterprise solutions, orders are slightly down, led by Smart Buildings, although broadband orders were up sequentially. And I think if you look further below that, we saw POS, so you know, sell out from our channel partners, was as expected, you know, seasonally, so I think what we can conclude from this is that things are starting to normalize. Now, you know, every de-stalking is different.
Morgan Leung: Thanks, Marvin Yeah, I think the keyword instability.
Ashish Chand: We saw that Rick is that in Q1.
Ashish Chand: If you go below the Hood, a little autos and industrial were up about 12%.
Ashish Chand: Sequentially.
Ashish Chand: Down 5% year over year.
Ashish Chand: On enterprise solutions orders are slightly down.
Ashish Chand: Led by smart buildings, although broadband orders were up sequentially.
Ashish Chand: I think if you look further below that we saw Pos.
Ashish Chand: <unk>.
Ashish Chand: Sell out from our channel partners.
Ashish Chand: Was as expected.
Ashish Chand: Seasonally so I think.
Ashish Chand: What we can conclude.
Ashish Chand: Conclude from this is that.
Ashish Chand: Things are starting to normalize now.
Ashish Chand: Every destocking is different.
Ashish Chand: Historically, it takes about four to six quarters, and we are now halfway through that. And we also know from history that typically, industrial comes back faster, which we are also witnessing. I think, we stay very firmly focused on the longer term or the midterm outlook here, which is driven by reindustrialization, consumption of more broadband bandwidth, and even the fact that, you know, smart buildings, while certain core commercial real estate markets are slower.
Ashish Chand: Storage fleets it takes about four to six quarters.
Ashish Chand: And we are now halfway through that.
Ashish Chand: And we also know from history that typically industrial comes back faster, which we're also witnessing so.
Ashish Chand: I think we.
Ashish Chand: <unk>.
Ashish Chand: We stay.
Ashish Chand: Very firmly focused on the longer term or the midterm.
Ashish Chand: Outlook, there which is.
Ashish Chand: Driven by Reindustrialization consumption of more broadband bandwidth and even the fact that.
Ashish Chand: <unk>.
Ashish Chand: Buildings, whilst certain core commercial real estate markets are slow there are many other markets that are emerging.
Ashish Chand: There are many other markets that are emerging, for example, material handling, hospitality, healthcare, data centers, et cetera, and we see all of those receiving investment or are starting to receive investment now as part of the broader reindustrialization phenomenon. So yes, I mean, we really expect to see more positive trends in the coming cycle. I can't precisely predict when that whole inventory situation will turn because, like I said, every day's talking is different.
Ashish Chand: For example material handling hospitality healthcare data centers et cetera.
Ashish Chand: And we see all of those receiving investment.
Ashish Chand: Are starting to receive investment now as part of the broader reindustrialization phenomenon. So.
Ashish Chand: So, yes, I mean, it's really.
Ashish Chand: We expect to see.
Ashish Chand: More positive trends in the coming cycle icon precisely predict when that oil inventory situations.
Ashish Chand: Sure.
Ashish Chand: Well done because like I said every destocking is different.
Ashish Chand: Right, that makes sense. That's really helpful. And then, as a quick follow-up, it looks like you reiterated the $8 EPS target by 2025. So just kind of thoughts on whether you're on track to still hit that and the contribution from your progress with selling more full solutions. Thank you.
Speaker Change: Great that makes sense, that's really helpful and then as a quick follow up.
Ashish Chand: It looks like you reiterated the $8 EPS target by 2025, so just kind of thoughts on.
Speaker Change: Youre on track.
Ashish Chand: And the contribution from.
Ashish Chand: Your progress with selling more full solutions. Thank you.
Ashish Chand: Yeah, and sorry I might have missed one aspect of your prior question, which was around gross margins in Q2. We actually don't expect any, you know, significant change in our gross margin levels.
Speaker Change: Yes, I'm, sorry, I might have missed one aspect of your broader question, which was around gross margins in Q2.
Speaker Change: We actually don't expect any.
Speaker Change: Significant change in our gross margin levels I think we've.
Speaker Change: We've shown that those are fairly consistent.
Ashish Chand: I think we've, you know, we've shown that those are fairly consistent. And on that note, then, as we think about the 25 EPS, yes, $8 is still our target. We certainly have multiple levels to pull from, including organic growth that is led by solutions, M&A, and share repurchases. And I think the mid to long-term trends at this point make us comfortable that as we continue to invest, we will see, you know, clear progress towards that goal.
Speaker Change: On that note then as we think about the 25.
Ashish Chand: Yes.
Ashish Chand: Yes, $8 is still our target.
Ashish Chand: We certainly have multiple levers to pull including organic growth that is led by solutions M&A share repurchases.
Ashish Chand: And I think the mid to long term trends at this point.
Ashish Chand: Make us comfortable that as we continue to invest we will see.
Ashish Chand: Clear progress towards that goal.
Ashish Chand: It just may not be as linear as we previously expected, right, when we first articulated the target because there is this destocking cycle that we need to get through. But yeah, we feel good. And I think, you know, the announcement we made about precision optical technologies is a good step in that direction.
Ashish Chand: The.
Ashish Chand: It just will not be as linear as we previously expected when we first articulated the target because there is this.
Ashish Chand: Destocking cycle.
Ashish Chand: We need to get through.
Ashish Chand: Uh huh.
Ashish Chand: Yeah.
Ashish Chand: We feel good I think.
Ashish Chand: The announcement, we made about precision optical technologies.
Ashish Chand: This is a good step in that direction.
Morgan Leung: Great, super helpful, thank you.
Speaker Change: Great Super helpful. Thank you.
Speaker Change: Thanks Morgan.
Operator: And our next question will come from William Stein with Truist Security. Great, thanks for taking my questions. Congratulations on these results, considering the environment didn't sound so good relative to the derivative reads.
Morgan Leung: And our next question will come from William Stein with Truest Securities.
William Stein: Great. Thanks for taking my questions.
William Stein: Gratz on these results considering the environment and it sounds to good relative to the derivative reads.
William Stein: First, I guess I want to ask about that, and at least among other types of component companies we've heard about similar end markets that you're exposed to, in particular, industrial automation and broadband, which sounded, you know, really negative heading into the quarters yourself, yet, you all exceeded the guidance that you provided us, and then you did very well. So can you maybe put that in context? What do you think is the difference? Is it that end market exposure is more nuanced? Or were you suddenly uber conservative and guidance, or maybe there's maybe there's something else going on? Thank you.
William Stein: First I guess I wanted to ask about that.
William Stein: At least among other types of component companies we've heard.
William Stein: About similar end markets that you're exposed to in particular industrial automation of broadband.
William Stein: Sounded really negative heading into the quarter herself yet.
William Stein: All of.
William Stein: Exceeded.
William Stein: The guidance that you provide us and then you've got Q2, well. So can you maybe put that in context. What you think is the difference is it.
William Stein: The end market exposure is more nuanced or.
William Stein: Where you suddenly Uber conservative in guidance or maybe there is.
William Stein: Maybe there's something else going on thank you.
Ashish Chand: Thanks. Well, first of all, I appreciate your positive comments. I think it's a little specific by segment. So, you know, maybe we should start with industrial. So, as you know, we've been on this journey around solutions. And what that does very uniquely for us versus our competitive set is, we are providing a combination of hardware and software to solve real KPIs. And we don't really focus on a rip and replace type of solution, but we supplement whatever digital assets customers have. So, for example, if somebody is not driving.
Speaker Change: Thanks, a lot first of all I appreciate your positive comments.
Ashish Chand: I think.
Ashish Chand: It's a little specific by segment so.
Ashish Chand: Maybe we start with industrial so as you know we've been on this journey.
Ashish Chand: Around solutions.
Ashish Chand: And what that does is very uniquely for us versus our competitive set as we are providing a combination of hardware and software.
Ashish Chand: To solve that.
Ashish Chand: Kpis.
Ashish Chand: Kpis and we don't really focus on a rip and replace type of solution, but we supplement waterward digital assets customer.
Ashish Chand: Customers have so for example, if somebody is not arriving.
Ashish Chand: The OEE from their plan, you know, we can go in and supplement whatever network and data solution they have to make that happen. So really, in times like this, when capital is expensive, productivity is required, wages are high, really, our solutions become very useful, and you know, we've demonstrated various examples where we can very quickly lead to an outcome for a customer. So I think we are seeing differentiated share gains in our industrial market.
Ashish Chand: The OE.
Ashish Chand: From there we can go in and.
Ashish Chand: Supplement one of our network and data solution they have to make that happen. So really at times and times like this when capital is expensive productivity is required wages are high.
Ashish Chand: Daley our solutions become very useful.
Ashish Chand: Sure.
Ashish Chand: We've demonstrated various examples where.
Ashish Chand: We can very quickly.
Ashish Chand: <unk> lead to an outcome for our customer so I think we are seeing.
Ashish Chand: Differentiated share gain in our industrial markets and that has become obvious to us from.
Ashish Chand: And that that has become obvious to us from not only the results but ongoing customer conversations. It also helps that we are exposed to certain infrastructure markets. This is some of our, let's say, the component providing their group that you referred to. Chennai Metro is a good example where, you know, we can go in and do a fairly comprehensive infrastructure solution, in this case, a communication-based train control solution, which is very different from, you know, procurement-driven component purchase cycle, which is at a different level.
Ashish Chand: Not only the results, but ongoing customer conversations.
Ashish Chand: It also helps that we're exposed to certain infrastructure markets versus some of our let's say.
Ashish Chand: Component, providing their group that you referred to.
Ashish Chand: China Metro is a good example, where we can go in.
Ashish Chand: Through a fairly comprehensive infrastructure solution in this case the communication based train control solution.
Ashish Chand: It was very different from.
Ashish Chand: <unk>.
Ashish Chand: Procurement driven component purchase cycle.
Ashish Chand: Which is at.
Ashish Chand: Different levels I think thats.
Ashish Chand: So I think that's clearly on the industrial side. The combination of software and hardware, the approach to solutions, and the markets we are exposed to are helpful. On the broadband side, remember, we've referred to this previously too; our exposure is more to the MSOs, who are still, you know, very positively investing in the expansion of their DOCSIS network and just passing new homes. It's been more consistent than the telco market, which has step function driven seasonality.
Ashish Chand: Clearly on the industrial side, the combination of software and hardware the approach with solutions in the markets. We are exposed to is helping.
Ashish Chand: On the broadband side.
Ashish Chand: Remember that we have.
Ashish Chand: This previously to our exposure is more to be msos.
Ashish Chand: Who will still.
Ashish Chand: Very positively investing in expansion of there.
Ashish Chand: The DOCSIS expansions.
Ashish Chand: Just passing new homes.
Ashish Chand: It's been more consistent than the telco.
Ashish Chand: <unk> market, which is which has a step function driven seasonality.
Ashish Chand: So, you know, that exposure is certainly helping us. We've consistently grown the fiber content in that business. Again, precision is a good step to help that. But that makes it a little more secular, too, because it's more outside the home and less inside the home.
Ashish Chand: So that exposure is certainly is helping us.
Ashish Chand: We've consistently also grown the fiber content in that business again precision is a good step to help that.
Ashish Chand: But that makes it a little more secular.
Ashish Chand: Two.
Ashish Chand: Because it's more.
Ashish Chand: Outside.
Ashish Chand: And less insightful and I think that that is certainly helping the broadband market and then even on smart buildings, it's interesting.
Ashish Chand: And I think that is certainly helping the broadband market. We are developing three points of leverage that, you know, that I think differentiate us first. The access we have to markets like material handling, or discrete manufacturing, or intelligent traffic systems, thanks to our industrial expertise. But remember, all those markets also need buildings. And so our competitors don't have easy access to those markets, but we do. Second, we built this whole solution selling process, which we can leverage now on the enterprise side or the smart building side.
Ashish Chand: Versus our competitors.
Ashish Chand: We are developing three points of leverage that.
Ashish Chand: That I think differentiate us first.
Ashish Chand: The access we have to markets like material handling.
Ashish Chand: Discrete manufacturing, our intelligent traffic systems, thanks to our industrial expertise.
Ashish Chand: But remember all of those markets also in the buildings.
Ashish Chand: And.
Ashish Chand: So our competitors don't have easy access to those markets, but we do.
Ashish Chand: Second we built this whole solution selling process, which we can leverage now on the enterprise side or the smart building site and.
Ashish Chand: And third, part of what we do on the industrial side is that since we are providing active equipment, data orchestration, and management, we have earlier conversations with customers at a higher level. But those same conversations are also allowing us to pull in. Some of us bought buildings and infrastructure. So differentiated from competitors in all three markets. But obviously, we want to be modest in terms of, you know, so to your point, I don't think we were ultra-conservative in our guidance, but I think we were thoughtful when we guided, and we're glad that, you know, we exceeded expectations.
Ashish Chand: And third part of what we do on the industrial side is that since we are providing active equipment data orchestration and management.
Ashish Chand: Earlier conversations.
Ashish Chand: With with customers at a higher level, but those same conversations are also allowing us to pull in.
Ashish Chand: Some of our spot buildings infrastructure. So so differentiated from competitors in all three markets.
Ashish Chand: But obviously, we want to be modest in terms of so to your point.
Ashish Chand: I don't think we were ultra conservative in our guidance, but I think we were thoughtful.
Ashish Chand: When we guided and we're glad that we exceeded expectations.
Ashish Chand: That's really great. Thank you. If I can have one follow-up. And that's on Precision Optical, the announced acquisition. The company detailed a pretty robust, Transcribed by https://otter.ai coming to an agreement. Can you put that in context? How did that unfold?
Speaker Change: Okay, great. Thank you if I can have one follow up.
Ashish Chand: And Thats what precision.
Ashish Chand: Optical the announced acquisition.
Ashish Chand: Hugh.
Ashish Chand: The company detailed a pretty.
Ashish Chand: Robust team.
Ashish Chand: Change in the way, it's contemplating M&A at the last analyst day.
Ashish Chand: And I'm, hoping you can put this acquisition really the origins of it but how you found out about this company and cultivated a relationship with Wanda.
Ashish Chand: Coming to an agreement can you put that in context, how did that unfold. Thank you.
Ashish Chand: Sure, that's a great question. So I think precision is... That's the kind of acquisition we would like to do as we go forward with our solutions transformation. So let me first speak quickly about the technology, and then I'll talk about the process.
Speaker Change: Sure. That's a great question, so I think precision is.
Speaker Change: Thus the kind of acquisition.
Speaker Change: We would like to do as we go forward with our solutions transformation. So let me first speak quickly to the technology and then I'll talk about the process.
Ashish Chand: No.
Ashish Chand: Basically precision optical technologies, they're experts in transceivers, right? So these are devices that, Unknown Executive, William Stein, Aaron Reddington, Belden Inc, Unknown Executive, William Stein, And effectively, one way to think about this is that if you think about, let's say, the broadband market, and at the two ends you have these transceivers, and everything else in the middle, which could be, you know, up to 30, 40 miles, 200 miles, there's a lot of other infrastructure that we currently provide a portion of.
Ashish Chand: Basically precision optical technologies they are experts in.
Ashish Chand: Transceivers right. So these are devices that.
Ashish Chand: Convert optical signals to electrical and vice versa right.
Ashish Chand: Use the.
Ashish Chand: FSP or the small form factor <unk> transceivers.
Ashish Chand: And effectively one way to think about this is that if you if you think about.
Ashish Chand: Let's say the broadband market and at the two ends you have these transceivers and everything else in the middle which could be.
Ashish Chand: Up to 30 40 miles to 100 miles there's a lot of other infrastructure that we currently provide a portion off but obviously now it's an end to end solution in the rail because we are covering both ends and we can participate in technical discussions for example around <unk>.
Ashish Chand: But obviously, now it's an end-to-end solution in the real sense because we are covering both ends, and we can participate in technical discussions, for example, around, how will signals lose intensity over time? So what's the link loss budget?
Ashish Chand: <unk> signals lose intensity over time, so what's the linked loss budget.
Ashish Chand: And that discussion allows us to pull through all our other components more convincingly than if we were only selling those components standalone. So it does help us in those broadband markets with those accounts. The same technology is also showing up more and more in data centers, obviously, so that's something helping that's good for us. You know, if you think about server switch storage interconnects, they're all based on transceivers. And then this market obviously is growing, you know? Transceivers as a market are growing faster than our portfolio, right? So it's growing faster than even fiber.
Ashish Chand: And back to that discussion allows us to pull through all our other components more convincingly benefit we're only selling those components standpoint, right. So it does it does help us.
Ashish Chand: In.
Ashish Chand: And those broadband markets with those accounts.
Ashish Chand: The same technology is also showing up more and more in data centers. Obviously so that's.
Ashish Chand: And thats something helping.
Ashish Chand: For us if you think about <unk> switch storage interconnects, they're all based on Transceivers.
Ashish Chand: And then the market obviously is growing.
Ashish Chand: Transceivers as a market is growing faster than our portfolio thats growing faster than even fiber so.
Ashish Chand: This is a good, you know, it's a gap filler that also expands our capability with existing and new customers. So it's good from that perspective. Oh, when we articulated our new, you know, new M&A approach, we said, "You know, we are not looking at transformative acquisitions. Well, we said we would be focused on bolt-ons that help us with solution sales or technology gap filling. And in this case, of course, we do both.
Ashish Chand: This is this is a good.
Ashish Chand: It's a gap fill which also expands our capability.
Ashish Chand: With existing and new customers. So it's good from that perspective.
Ashish Chand: So when we.
Ashish Chand: Articulated are new.
Ashish Chand: New M&A approach, we said.
Ashish Chand: We are not looking at transformative acquisitions, we said, we would be focused on bolt ons that help us with solution sales or technology gap filling.
Ashish Chand: And.
Ashish Chand: In this case of course, we do both.
Ashish Chand: So it showed up pretty high in our funnel, right? So we said, OK, this checks the boxes on both sides. The process was really us approaching them, which I think is a good way to do this. So, you know, it was not really a competitive process in that sense.
Ashish Chand: It showed a pretty high on our on our funnel right. So we said okay. This checks the boxes on both sides.
Ashish Chand: The process was really us approaching them.
Ashish Chand: Which I think is a good.
Ashish Chand: Good way to do this so there's not really.
Ashish Chand: Competitive process in that sense, we had good long discussions they were not really.
Ashish Chand: We had good, long discussions. They were not really up for sale per se, but they appreciated how becoming part of the broader Belden solution platform would help them and grow their franchise. So a very positive outcome. I think we're very excited about, you know, welcoming those employees into Belden. They're very solutions-oriented, very technology focused, and I think this is really going to supercharge our broadband business.
Ashish Chand: <unk> up for sale per se, but they appreciated how becoming part of the broader belden solution platform would help them and grow their franchise. So a very positive outcome I think we're very excited about.
Ashish Chand: Welcoming.
Ashish Chand: Those employees into Belden, Theyre very solutions oriented very technology focused and I think this is really going to supercharge our broadband business.
Speaker Change: Thanks, so much.
Operator: And our next question will come from Steven Fox with Fox Advisors. Hi, good morning.
Ashish Chand: And our next question will come from Steven Fox with Fox Advisors.
Steven Bryant Fox: I had a couple questions as well. My first question was kind of a follow-up to Will's question on the quarter. The answer you gave was great. It went through all the big picture issues that are driving performance. I'm just curious, if you dialed it into what specifically happened in Q1, how would you sort of force rank what drove the upside?
Steven Bryant Fox: Hi, Good morning, I had a couple of questions as well.
Steven Bryant Fox: First question was kind of a follow up to Will's question on the quarter.
Steven Bryant Fox: The answer you gave was great. It went through all of the Big picture issues that are driving our performance I'm. Just curious if you dialed it into what specifically happened in Q1, how would you sort of forced rank.
Speaker Change: Drove the upside and then I had a follow up.
Ashish Chand: I think there were a couple of things going on, Steve. First of all, like I said, on the industrial side, we continue to take share in a differentiated manner. Also, remember I talked about the fact that, you know, in past destocking cycles, industrial production typically goes down faster but comes back faster, right? So we've seen that phenomenon, I think, play out in Q1. I think On the enterprise side, we witnessed a little more inventory reduction in Q4 than was healthy.
Speaker Change: I think.
Speaker Change: There were a couple of things going on Steve first of all like I said on the industrial side, we continue to take share in a differentiated manner.
Ashish Chand: Remember I talked about the fact that in.
Ashish Chand: <unk> Destocking cycles, industrial typically goes down faster, but comes back faster.
Ashish Chand: That phenomenon and I think play out in Q1.
Ashish Chand: I think.
Ashish Chand: On the enterprise side.
Ashish Chand: We witnessed.
Ashish Chand: A little more inventory reduction in Q4 then.
Ashish Chand: What was healthy.
Ashish Chand: because suddenly people had service level problems and outages, and I think there was a little bit of rebalancing in that, and I think we saw that in the broadband business quite a bit. So, you know, a little more normal, normalized approach to how our customers were managing their supply chain and inventory versus maybe an overreaction, let's say, in the second half of 2023. So I think that was next.
Ashish Chand: Because suddenly people have service level problems in outages and I think there was a little bit of rebalancing in that and I think we saw that in the broadband.
Ashish Chand: Our business quite a bit.
Ashish Chand: So a little more normal.
Ashish Chand: <unk> approach to how our customers were managing their supply chain and inventory versus maybe.
Ashish Chand: An overreaction, let's say in the second half of 2023. So I think that was next and I think third.
Ashish Chand: And I think third, like I said, on smart buildings, it is true that some of the traditional markets are not growing at this point, but we've been able to pivot fairly successfully, right? Look at the health care example I talked about.
Ashish Chand: Like I said on smart buildings it is true that.
Ashish Chand: So all of the traditional markets.
Ashish Chand: Or.
Ashish Chand: We're not growing at this point.
Ashish Chand: We have been able to pivot.
Ashish Chand: Fairly successfully re look at the Healthcare example, I talked about.
Ashish Chand: And we were able to go in with a full solution that allowed them to not only lay the infrastructure but also to monitor the data flow on that. And that's a combination of, you know, our portfolio across automation into smart buildings. And I think that gives us some unique growth opportunities. So I think that's the kind of rank ordering of, you know, industrial share gain and bounce back. Broadband, more normalization, smart buildings, really more to share the game.
Ashish Chand: We were able to go in there with a full solution.
Ashish Chand: That allowed them to not only lay the infrastructure, but also to monitor the data flow in that infrastructure and Thats a combination of.
Ashish Chand: Our portfolio from across automation into smart buildings.
Ashish Chand: And I think that gives us some unique growth opportunities. So I think thats the thats the kind of rank ordering.
Ashish Chand: Industrial share gain bounce back.
Ashish Chand: Broadband more normalization smart buildings daily more share gain.
Ashish Chand: Great, that's helpful. And then just on the pace of the recovery in terms of, you know, channel destocking in the industrial markets, it seems like a lot of companies are sort of taking a more conservative outlook in terms of how long it's going to take to sort of recover, you know, get inventories clear, and start to recover towards better growth. I know you mentioned three to six quarters, but is there anything right now that makes you either agree with that assessment or makes you, you know, think that things can clear more within that time range? Any puts and takes versus prior cycles would be helpful. Thanks.
Speaker Change: Great. That's helpful. And then just on the pace of the recovery in terms of.
Ashish Chand: Channel Destocking in the industrial markets.
Ashish Chand: It seems like a lot of companies are sort of.
Ashish Chand: Taking a more conservative outlook in terms of how long, it's going to take to sort of recover.
Ashish Chand: Inventory is cleared and start to recover towards more better growth.
Ashish Chand: I know you mentioned, 3% to six quarters, but is there anything right now that makes you either agree with that assessment or makes you.
Ashish Chand: I think that things can clear more within that range any puts and takes versus prior cycles would be helpful. Thanks.
Ashish Chand: Yeah, you know, I actually agree with the broader thesis around markets in general taking some time to come back and normalize. I think, however, there are opportunities for being differentiated, and those are derived from two main areas, Steve.
Ashish Chand: Yes.
Ashish Chand: I actually agree with the broader thesis around.
Ashish Chand: Markets in general, taking some time to come back and normalize.
Ashish Chand: I think however, there are opportunities for us.
Ashish Chand: Being differentiated.
Ashish Chand: And those are derived from two main areas, Steve one I think is the geographical exposure.
Ashish Chand: One, I think, is geographical exposure. So some of the companies that you were referring to also have larger exposure on the East Asian continent. And as you know, right, some of those more OEM export-oriented markets are sluggish at the moment, whilst our exposure is more in markets like the US, North America, and Western Europe, where there is a need for reshoring, reindustrialization, and more projects seem to be taking shape as people build out capacity.
Ashish Chand: Some of the companies that you were referring to also have.
Ashish Chand: Largest exposure in the East Asian context.
Ashish Chand: And as you know right some of those more OEM export oriented markets.
Ashish Chand: Our sluggish at this point.
Ashish Chand: Whilst our exposure is more in markets like in the U S North America Western Europe there.
Ashish Chand: There is a need for re shoring the industrialization.
Ashish Chand: And more projects seem to be.
Ashish Chand: Taking shape as people build out capacity in fact I would argue.
Ashish Chand: In fact, I would argue there are markets where, because of labor shortages, people are not able to build out their projects as fast as they would like. So, I think we are going into these markets geographically that need reindustrialization, and because they can't deploy new fixed assets, they need to make their existing assets more productive, and our solutions fit right in, into that, into that opportunity. So I think that there's some differentiation by geography.
Ashish Chand: There are markets, where because of labor shortage people people are not able to build out the projects as fast as they would like.
Ashish Chand: So I think we are going into these markets geographically that need.
Ashish Chand: Reindustrialization and because they can deploy new fixed assets they need to make the existing assets more productive and our solutions for trading into that.
Ashish Chand: Into that opportunity. So I think there is some differentiation.
Ashish Chand: Bye.
Ashish Chand: And then I think linked to that, there is some differentiation by technology because, you know, if you think about the data network solutions we provide, they have a large portion of data orchestration and management, you know, the active products you provide, which is again a little differentiated from some of our competitors. And that is really, that is not really seeing the same sluggishness. All have the same inventory cycle as some of the other components.
Ashish Chand: And by geography, and then I think linked to that there were some differentiation by technology because.
Ashish Chand: If you think about the.
Ashish Chand: The data and network solutions, we provide.
Ashish Chand: They have a large portion of <unk>.
Ashish Chand: Data orchestration and management.
Ashish Chand: The active products, you provide which is again a little differentiated from some of our competitors.
Ashish Chand: And that is really.
Ashish Chand: That is not really seeing the same sluggishness.
Ashish Chand: All the same inventory cycle as some of the other components.
Ashish Chand: So, I think the combination of geography, solution, and the split in that industrial stack is allowing us to grow faster, whilst overall, I think macro uncertainty is, is indeed true. I think on the four to six quarters question, I think past cycles have shown us that that's the cycle. But this, you know, this situation is a little different. I think geopolitics is different at this point. So it's not that easy to predict. But we will continue, I think, remaining differentiated versus competitors in this space. Great, that's exactly what I wanted.
Ashish Chand: So I think the combination of geographies solution and the split in that industrial stack is.
Ashish Chand: Is allowing us to.
Ashish Chand: Grow Fausto, whilst overall I think macro uncertainty is.
Ashish Chand: As indeed true.
Ashish Chand: I think on the four to six quarters question I think past cycles have shown us.
Ashish Chand: But that's the cycle.
Ashish Chand: But this.
Ashish Chand: This situation is a little different I think geopolitics of different at this point, so it's not that easy to predict.
Ashish Chand: But we will continue I think remaining differentiated versus competitors in this space.
Speaker Change: Great that's super helpful. Thank you.
Ashish Chand: Great. That's super helpful. Thank you. Sure. Once again, if you would like to signal with questions, please press star one on your touchtone telephone again as star one. And our next question comes from David Williams with Benchmark.
Ashish Chand: Sure.
Ashish Chand: Once again, if you would like to signal with questions. Please press star one on your Touchtone telephone again Star one and our next question comes from David Williams with benchmark.
Operator: Hey, good morning, gentlemen. Thanks for taking my question and congratulations on the stability of the business here. I guess one question on the acquisition: just kind of think about the optical device suppliers and their upbeat commentary about the opportunity around AI that that's driving, at least near term. Just kind of curious how much of this acquisition was really driven by capturing maybe that opportunity of demand, in particular in the data center, and then if that's an area that you anticipate to play in through this acquisition.
David Williams: Hey, good morning, gentlemen, thanks for taking my question and congratulations on the stability of the business here.
Speaker Change: Thank you.
Operator: I guess one question on the on the acquisition.
Operator: Just how to think about the optical device suppliers and they are upbeat commentary about the opportunity around AI.
Operator: Riding at least near term just kind of curious how much of the.
Operator: Acquisition was really driven by capturing maybe that opportunity of demand in particular in the data center.
Operator: And then if that's an area that you anticipate to play in.
Operator: With this acquisition.
David Williams: Thanks, David. I think that's certainly a very important aspect of the acquisition, right? So, our modeling around precision optical technologies is based on the markets we currently jointly serve are broadband solutions. But like I said before, the whole high-speed interconnect market driven by server storage, switch connectivity, in data centers being, you know, really accelerated by the AI trend, is something we are keenly looking at, and I think this is where precision will allow us to also serve our data center customers in a way that we haven't been able to do before.
Speaker Change: Thanks, David I think that's certainly.
David Williams: Certainly a very important aspect of.
David Williams: The acquisition right so.
David Williams: Our our modeling around precision optical technologies is based on.
David Williams: The markets. We currently jointly serve around broadband solutions.
David Williams: As I said before right.
David Williams: Sure.
David Williams: The whole <unk>.
David Williams: High speed interconnect market driven by solar storage.
David Williams: Such connectivity.
David Williams: In data centers being really accelerated by AI trends.
David Williams: It's something we are keenly keenly.
David Williams: <unk> been looking at and I think this is where precision will allow us.
David Williams: Two.
David Williams: Also.
David Williams: Our data center customers in a way that we haven't been able to do before.
David Williams: So, yes, we think of ourselves more as the second derivative beneficiaries of AI because we don't actually sell products that directly enable AI. But if we are a provider of network and data solutions, we must enable that AI. And I think we've been certainly gaining market share because of that on the industrial side because we do data orchestration and management. And now, I think on the enterprise side, precision will certainly help us with that.
David Williams: So yes, we think of ourselves more as the secondary we're the beneficiaries of AI, because we don't actually sell.
David Williams: Products directly enable AI, but if we are.
David Williams: <unk> provider of network and data solutions, we must enable.
David Williams: Pat.
David Williams: And I think.
David Williams: We've been certainly gaining.
David Williams: Sure because of that on the industrial side, because we do data orchestration and management and now I think on the enterprise side.
David Williams: Precision will certainly help us with that.
David Williams: And, you know, you're right. I think when we look at how the broader market is thinking about that. And I know, you know, you have maybe companies in your coverage universe that focus on those markets. We feel, we feel very positive about that growth moment.
David Williams: And.
David Williams: Youre right I think when we look at.
David Williams: How the broader market is thinking about that.
David Williams: And I know you have maybe companies in your coverage universe.
David Williams: That focus on those markets.
David Williams: We feel we feel very positive about that growth momentum.
David Williams: Okay.
Ashish Chand: Fantastic. Thanks for the color there.
David Williams: Patrick Thanks for the color there and then do you anticipate this to be more of a captive solution with internal consumption or will it be used to have an opportunity to sell outside those components to maybe your existing customer base.
David Williams: And then, do you anticipate this to be more of a captive solution with internal consumption? Or will it be to have an opportunity to sell outside those components to, maybe, your existing customer base?
Ashish Chand: It's going to be far less captive, actually. We, you know, we at this point, it's still going to be more part of a broader product bundle approach, right? But we will build more captive solutions over time. But I think for the foreseeable future, it will be more, and it will be less captive. And I think that's the right approach in this market right now because this is going to be part of a broader solution on the broadband side, you know, where a number of different providers come together to serve these MSOs and telcos. So, we are happy to be part of that. But yes, especially for data centers and for certain other applications, you know, think about interoperability or resilience; we will certainly start building.
David Williams: It's going to be far less captive actually.
Ashish Chand: At this point, it's still going to be more part of our broader product bundle.
Ashish Chand: Our approach right, but we will build more captive solutions over time.
Ashish Chand: But I think for the foreseeable future it would be more it would be less cap captive.
Ashish Chand: And I think that's the right approach in this market right now because.
Ashish Chand: This is going to be part of a broader.
Ashish Chand: A broader solution.
Ashish Chand: On the broadband side.
Ashish Chand: A number of kind of provide us come together to solve these msos and telcos.
Ashish Chand: So we are happy to be part of that but yes, especially for datacenters and for certain other applications.
Ashish Chand: Think about interoperability our resilience, we will certainly start building.
Ashish Chand: Listen to our captive solutions.
David Williams: Fantastic. And just one more, if I may. Can you speak to the magnitude of the destocking that you're expecting and maybe any color around areas that have improved or maybe deteriorated?
Speaker Change: Okay, and just one more if I may.
Speaker Change: Can you speak to the magnitude of the Destocking that you're expecting and maybe any color around areas that have improved or maybe deteriorated and I apologize if I missed that earlier I joined a bit late thank you.
Jeremy E. Parks: And apologies if I missed that earlier. I joined a bit late. Thank you.
David Williams: Yes, Hey, David This is Jeremy so with respect to the magnitude of the Destocking I think one of the elements that's made it difficult to quantify.
Jeremy E. Parks: As a discrete item is the fact that we are seeing destocking that just a distribution, but at end users and Oems. So it's our distributors customers in some respects theyre, taking down inventory and we don't have great visibility.
David Williams: Hey David, this is Jeremy. So, with respect to the magnitude of the destocking, I think one of the elements that's made it difficult to quantify as a discrete item is the fact that we are seeing destocking not just at distribution but at end users and OEMs. So, our distributors, customers, in some respects, are taking down inventory, and we don't have great visibility. I think from our perspective, if you look at the drop-off from first half to second half last year, and then obviously, we're still behind first half last year, I think a significant portion of that is related to destocking in all markets, in industrial, in broadband, and in smart buildings.
Jeremy E. Parks: I think from our perspective, if you look at the drop off from first half the second half last year.
David Williams: And then obviously, we're still behind first half last year, they get a significant portion of that is related to destocking.
David Williams: In all markets in industrial in broadband and <unk> and smart buildings. So I think from our perspective, it's obviously a key story line and the number one paredo item to the number one driver behind the.
David Williams: So, from our perspective, it's obviously a key storyline and the number one Pareto item, the number one driver behind the reduction, but I can't quantify it in a discrete number for you. That's fair. Thank you.
David Williams: The reduction.
David Williams: But I can give you I can't quantify it in a discrete number for you.
Jeremy E. Parks: That's fair. Thanks again for the time. I certainly appreciate the help.
David Williams: That's fair. Thanks again for the time certainly appreciate the help.
Speaker Change: Thank you.
Operator: And that does conclude the question and answer session, and I'll turn the conference back over to you for any additional or closing remarks.
Speaker Change: And that does conclude the question and answer session and I will turn the conference back over to you for any additional or closing remarks.
Ashish Chand: 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 email address is investor.relations at Belden.com. Thank you.
Speaker Change: 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 email address is investor Dot relations at Belden Dot com. Thank you.
Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Speaker Change: Thank you that does conclude today's conference. Thank you for your participation and have an excellent day.
Operator:
Operator: [music].