Q2 2024 Belden Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Reports second quarter 2024 results call.
Operator: And by welcome to this morning's Belden Report, 2nd quarter, 2020, 24 results call. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question, please press star one on your touch-tone phone. If you are in the question queue and would like to withdraw your question, simply press star two.
Speaker Change: Just a reminder, this call is being recorded. At this time, you are in a listen-only mode.
Speaker Change: Later we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your touch-tone phone. If you are in the question queue and would like to withdraw your question, simply press star 2.
Aaron Reddington: I would now like to turn the call over to Aaron Reddington by the Vice President of Investor Relations. Please go ahead, sir.
Speaker Change: I would now like to turn the call over to Aaron Reddington, Vice President of Investor Relations. Please go ahead, sir.
Ashish Chand: Good morning, everyone. And thank you for joining us for Belden's 2nd quarter 2024 earnings conference call. With me today are Belden's President and CEO Ashish Chand and Senior Vice President and CFO, Jeremy Parks.
Speaker Change: Good morning everyone and thank you for joining us for Belden's second 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 Chand: 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 it 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.
Speaker Change: Ashish will provide a strategic overview of our business, and then Jeremy will provide a detailed review of our financial and operating results, followed by Q&A.
Speaker Change: 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.
Operator: The press release, presentation, and transcript of these prepared remarks are currently available online at Investor.belden.com.
Ashish Chand: Turning to slide two in the presentation, during this call, management will make certain forward-looking statements and 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.
Speaker Change: 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.
Speaker Change: 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.
Ashish Chand: 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.
Operator: 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.
Speaker Change: 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 Chand: I will now turn the call over to our President and CEO, Ashish Chand. Thank you, Aaron, and good morning, everyone. We really appreciate you joining us today.
Speaker Change: I will now turn the call over to our President and CEO , Ashish Chand.
Ashish Chand: Thank you, Aaron, and good morning, everyone.
Ashish Chand: Let's start with slide four for a summary of the major accomplishments we achieved in the second quarter and key messages I would like to highlight. As a reminder, I will be referring to adjusted results today. First, let me start by congratulating our team on another solid quarter in light of this dynamic environment. Inventory destalking continues in our markets. However, our performance was stable. For the second quarter, our revenue and EPS both exceeded the high end of our guidance as a solution transformation continues to push forward. The revenue total is $604 million and EPS came in at $1.51.
Ashish Chand: Let's turn to slide four for a summary of the major accomplishments we achieved. This is the second quarter and key messages I would like to highlight. Let me start by congratulating our team on another solid quarter in light of this dynamic environment. However, inventory de-stocking continues in our market. However, our performance was stable, as the solutions transformation continues to push forward. Revenue totaled $604 million, and EPS came in at $1.51, similar to what we saw in the prior period.
Ashish Chand: We really appreciate you joining us today.
Ashish Chand: Let's turn to slide four for a summary of the major accomplishments we achieved in the second quarter and key messages I would like to highlight.
Ashish Chand: As a reminder, I will be referring to adjusted results today.
Ashish Chand: First.
Ashish Chand: Let me start by congratulating our team on another solid quarter in light of this dynamic environment.
Ashish Chand: For the second quarter, our revenue and EPS both exceeded the high end of our guidance.
Ashish Chand: As a solutions transformation continues to push forward.
Ashish Chand: Revenue total $604 million and EPS came in at $1.51.
Ashish Chand: Second, I am pleased to report steady demand for the quarter, similar to what we saw in the prior period. Orders in the second quarter were up 9% sequentially, blocking the third consecutive quarter of orders growth. We ended the quarter with a booktable of 1.0 times. up from 0.9 during the same period last year. Our markets continue to experience headwinds, and I'm encouraged to see steady execution resulting in performance exceeding our expectations. Finally, 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 $234 million, roughly in line with recent performance.
Ashish Chand: Second.
Ashish Chand: Orders in the second quarter were up 9% sequentially, marking the third consecutive quarter of order growth. Our markets continue to experience headwinds, and I'm encouraged to see steady execution.
Ashish Chand: Orders in the second quarter were up 9% sequentially, marking the third consecutive quarter of orders growth.
Ashish Chand: up from 0.9
Ashish Chand: Our markets continue to experience headwinds.
Ashish Chand: With ample free cash flow, our team continues to reinvest in high return opportunities beneficial to shareholders. As we announced previously, we closed the acquisition of precision optical technologies during the quarter, providing new product capabilities to further enhance our solution opportunities in the broadband market. Post transaction completion, our performance leverage remains reasonable at 2.1 times. With ample free cash flow in the second half of the year, we have the opportunity to bring our leverage down closer to a long-term target net leverage ratio of 1.5 times as the air progresses.
Ashish Chand: roughly in line with recent performance.
Ashish Chand: With ample free cash flow, our team continues to reinvest in high return opportunities beneficial to shareholders.
Ashish Chand: As we announced previously, we closed the acquisition of Precision Optical Technologies during the quarter, providing new product capabilities to further enhance Solution Opportunities in the Broadband Market. With ample free cash flow in the second half of the year, we have the opportunity to bring our leverage down closer to a long-term target. The broadband markets in the U.S. have experienced tremendous growth. Many secular trends are supporting and driving that growth, including increased reliance on the home network for work and entertainment.
Ashish Chand: With ample free cash flow in the second half of the year, we have the opportunity to bring our leverage down closer to a long-term target net leverage ratio of 1.5 times as the year progresses.
Ashish Chand: Now, please turn the slide five for a summary of our broadband solutions business after closing the Precision Optical acquisition. Let me take a moment to reiterate why we think the broadband and fiber markets are so attractive. Then I will highlight some recent initiatives we have taken to strengthen our position in this key vertical. The broadband markets in the US have experienced tremendous growth, with broadband data consumption more than doubling over the past five years. Many secular trends are supporting and driving that growth, including increased reliance on form network for work and entertainment, advancements in technology to increase both access and speed, and heightened competition between providers to gain customers and market share for broadband services.
Ashish Chand: Let me take a moment to reiterate why we think the broadband and fiber markets are so attractive.
Ashish Chand: Then, I will highlight some recent initiatives we have taken to strengthen our position in this key vertical.
Ashish Chand: The broadband markets in the U.S. have experienced tremendous growth.
Ashish Chand: with broadband data consumption more than doubling over the past five years.
Ashish Chand: Increased reliance on home network for work and entertainment.
Ashish Chand: Advancements in technology to increase both access and speed and heightened competition between providers to gain customers and market share for broadband services. These trends are expected to continue, further driving data growth and, consequently, requiring our customers to make significant capital investments. Fortunately for the industry, there are multiple government stimulus programs designed to support the expansion of broadband access. As time passes, and allocations are granted, We are learning more and more about the timing of the massive $42.5 billion speed funding initiative. In addition, we see similar dynamics playing out in key markets globally, including in Western Europe.
Ashish Chand: These trends are expected to continue, further driving data growth and consequently requiring our customers to make significant capital investments. Fortunately for the industry, there are multiple government stimulus programs designed to support the expansion of broadband access. The most meaningful over the next few years is anticipated to be the Broadband Equity, Access and Deployment, or BEAD program. As time passes and allocations are granted, we are learning more and more about the timing of the massive $42.5 billion bead funding initiative. Our best estimates now show the majority of that funding hitting the market between 2025 and 2030, with our business squarely positioned to participate in the development.
Ashish Chand: These trends are expected to continue, further driving data growth and consequently requiring our customers to make significant capital investments.
Ashish Chand: Fortunately for the industry, there are multiple government stimulus programs designed to support the expansion of broadband access.
Ashish Chand: As time passes and allocations are granted, we are learning more and more about the timing of the massive $42.5 billion BEAD funding initiative.
Ashish Chand: with our business squarely positioned to participate in the development.
Ashish Chand: Further, we see similar dynamics playing out in key markets globally, including Invest in Europe.
Ashish Chand: Now to share about the steps you have taken to strengthen our broadband solutions business, and how we have positioned to capitalize on the massive increase in broadband infrastructure, spending just over the horizon. As you recall, we've been on a multi-air path to broaden our five portfolio and grow our broadband business. Our focus has been on expanding into high growth applications in the broadband network through strategic tuck-in acquisitions combined with organic growth initiatives. These acquisitions help us build a valuable portfolio of fiber products focused on the last mile broadband networks and gain share with major MSOs as a trusted partner for the upgrade and expansion plans.
Ashish Chand: Now to share the steps you've taken to strengthen our broadband solutions business and how we are positioned to capitalize on the massive increase in broadband infrastructure spending just over the horizon. To date, we have acquired several businesses in the broadband market, with our most recent acquisitions of Z-Shirt in 2023 and Precision Optical Technologies in the second quarter. These acquisitions helped us build a valuable portfolio of fiber products focused on the last mile of broadband networks and gained share with major MSOs as a trusted partner for the upgrade and expansion plans.
Speaker Change: Now to share about the steps you've taken to strengthen our broadband solutions business.
Speaker Change: As you recall, we've been on a multi-year path to broaden our fiber portfolio and grow our broadband business.
Speaker Change: Our focus has been on expanding into high growth applications in the broadband network through strategic token acquisitions combined with organic growth initiatives.
Speaker Change: These acquisitions helped us build a valuable portfolio of fiber products focused on the last mile broadband networks and gained share with major MSOs as a trusted partner for their upgrade and expansion plans.
Ashish Chand: Further, we've invested internally in new products and expanded our capacity, most notably with the fiber technology center opened earlier this year in Tucson, Arizona. The new facility serves as a multi-functional hub where the house R&D, manufacturing, and distribution functions focused on advancing our leadership position and improving our optical fiber capabilities. Today, I'm happy to report that a broadband solutions business has grown considerably, and a product portfolio is positioned for high growth. On a performer basis, our broadband solutions business has revenues of approximately $660 million, of which have come from fiber and fiber-related products. With our acquisitions and solutions framework, our business is much better positioned to win in the marketplace.
Ashish Chand: We've invested internally in new products and expanded our capacity, most notably with the Fiber Technology Center opened earlier this year in Tucson, Arizona. Our broadband solutions business has revenues of approximately $660 million. With our acquisitions and solutions framework, our business is in a much better position to win in the marketplace, as customers seek ways to quickly expand and upgrade their networks supported by massive government stimulus. Companies like Belden, who can rapidly provide comprehensive solutions, will gain market share.
Speaker Change: The new facility serves as a multifunctional hub where we house R&D, manufacturing, and distribution functions focused on advancing our leadership position and improving our optical fiber capabilities.
Speaker Change: Today, I'm happy to report that our broadband solutions business has grown considerably and our product portfolio is positioned for high growth.
Speaker Change: on a performer basis.
Speaker Change: of which half comes from fiber and fiber-related products.
Ashish Chand: As customers seek ways to quickly expand and upgrade the network supported by massive government stimulus, companies like Belden who can rapidly provide comprehensive solutions will gain market share.
Speaker Change: companies like Belden who can rapidly provide comprehensive solutions will gain market share.
Jeremy Parks: I will now request Jeremy to provide additional insight into our second quarter financial performance.
Jeremy Parks: Thank you, Ashish. I will start my comments with results for the second quarter, followed by a review of our segments, a discussion of the balance sheet and cash flow, and finally our outlook. As a reminder, I will be referencing adjusted results today. Now, please turn to slide six in our presentation for a review of our results. Second quarter revenue decreased 13% year over year and was down 13% organically to $600 million and $4 million, exceeding the high end of our guidance of $580 million. Fortress were up 9% sequentially, with sequential growth in both segments. We ended the quarter with a book-to-bill of 1.0, indicating continued stability.
Speaker Change: Thank you Ashish. I will start my comments with results for the second quarter followed by a review of our segments.
Speaker Change: A discussion of the balance sheet and cash flow, and finally, our outlook.
Ashish Chand: Now, please turn to slide 6 in our presentation for a review of our results. Second quarter revenue decreased 13% year-over-year and was down 13% organically to $604 million, exceeding the high end of our guidance of $580 million, with sequential growth in both segments. Compared to the prior year, we experienced softness in both industrial automation solutions, with revenue decreasing 13% organically, and enterprise solutions, with revenue decreasing 14% organically. Gross profit margins were 38.2%, increasing 10 basis points as favorable mix benefits helped to more than offset lower volume.
Speaker Change: Second quarter revenue decreased 13% year-over-year and was down 13% organically to 604 million dollars, exceeding the high end of our guidance of 580 million dollars.
Speaker Change: We ended the quarter with a book-to-bill of 1.0, indicating continued stability.
Jeremy Parks: Compared to the prior year, we experienced softness in both industrial automation solutions, with revenue decreasing 13% organically, and enterprise solutions, with revenue decreasing 14% organically. Gross profit margins were 38.2%, increasing 10 basis points as favorable mixed benefits helped to more than offset lower volume. EBITDAQ came in at $99 million with EBITDA margins down 130 basis points to 16.5%. Decormental margins for the quarter performed as expected, in line with our target of 20 to 30%. Net income was $62 million, down from $82 million in the prior year period. DPS was $1.51 above the high end of our guidance range of $1.40.
Speaker Change: Compared to the prior year, we experienced softness in both industrial automation solutions, with revenue decreasing 13% organically, and enterprise solutions, with revenue decreasing 14% organically.
Speaker Change: EBITDA came in at $99 million, with EBITDA margins down 130 basis points to 16.5%.
Speaker Change: Decremental margins for the quarter performed as expected in line with our target of 20 to 30 percent.
Ashish Chand: Net income was $62 million, down from $82 million in the prior year period. DPS was $1.51 above the high end of our guidance range of $1.40 for the third quarter in a row in spite of continued slowness in our market.
Jeremy Parks: Starting now to slide 7 for a review of our business segment results. For the quarter, performance by segment was aligned with our expectations. Orders grew modestly for the quarter in a row, in spite of continued slowness in our markets. For the second quarter, revenue in our industrial automation solution segment was down 12% compared to the prior year. EBITDA margins were 20.3% in the quarter, down from 20.7% in the prior year. Orders in industrial automation were up 6% sequentially and flat compared to the prior year. For the quarter, we experienced weakness in our discrete end markets, particularly in the Amea region, where customers continue to manage inventory.
Speaker Change: Turning now to slide 7 for a review of our business segment results.
Speaker Change: Orders grew modestly for the third quarter in a row, in spite of continued slowness in our markets.
Ashish Chand: For the second quarter, revenue in our industrial automation solution segment was down 12% compared to the prior year. EBITDA margins were 20.3% in the quarter, down from 20.7% in the prior year. For the quarter, we experienced weakness in our discreet end markets, particularly in the EMEA region, where customers continue to manage inventory. Orders for enterprise solutions were down 6% year over year, but they increased 14% sequentially. As we moved into the seasonally stronger second quarter, broadband solutions orders grew 18% sequentially.
Speaker Change: Orders in industrial automation were up 6% sequentially and flat compared to the prior year.
Speaker Change: For the quarter, we experienced weakness in our discrete end markets, particularly in the EMEA region, where customers continue to manage inventory.
Jeremy Parks: For the second quarter, revenue in our enterprise solution segment was down 13% compared to the prior year. EBITDA margins were 11.6% in the quarter, down from 14.1% in the prior year. Orders in enterprise solutions were down 6% year over year, but increased 14% sequentially. As we moved into the seasonally stronger second quarter, broadband solutions orders grew 18% sequentially, with smart buildings up 11%. As expected, we continued to see customers destocking in our markets. However, it is worth noting the pace of destocking has moderated over the past few quarters.
Speaker Change: For the second quarter, revenue in our enterprise solution segment was down 13% compared to the prior year.
Speaker Change: EBITDA margins were 11.6% in the quarter down from 14.1% in the prior year.
Speaker Change: Orders in enterprise solutions were down 6% year over year, but increased 14% sequentially.
Speaker Change: As we moved into the seasonally stronger second quarter, broadband solutions orders grew 18% sequentially.
Speaker Change: with Smart Buildings up 11%.
Speaker Change: As expected, we continue to see customers destocking in our markets. However, it is worth noting the pace of destocking has moderated over the past few quarters.
Ashish Chand: However, it is worth noting the pace of destocking has moderated over the past few quarters. Next, please turn to slide 8 for our Balance Sheet and Cash Flow Highlights. Our cash and cash equivalents balance at the end of the second quarter was $565 million compared to $597 million in the fourth quarter of 2023. On a pro forma basis, net of the payable, we ended the quarter with net leverage of 2.1 times.
Jeremy Parks: Next, please turn to slide 8 for our balance sheet and cash flow highlights. Our cash and cash equivalence balance at the end of the second quarter was $565 million compared to $597 million in the fourth quarter of 2023. However, please note that the cash consideration for the precision optical acquisition was transferred shortly after the quarter closed. On a performance basis, we ended the quarter with $273 million in cash, net of the payable to sellers of precision optical technologies. Our financial leverage was 1.5 times net debt to EBITDA at the end of the second quarter. On a pro forma basis, net of the payable, we ended the quarter with net leverage of 2.1 times.
Speaker Change: Our cash and cash equivalents balance at the end of the second quarter was $565 million compared to $597 million in the fourth quarter of 2023.
Speaker Change: However, please note that the cash consideration for the Precision Optical Acquisition was transferred shortly after the quarter closed.
Speaker Change: Our financial leverage was 1.5 times net debt to EBITDA at the end of the second quarter.
Speaker Change: On a pro forma basis, net of the payable, we ended the quarter with net leverage of 2.1 times.
Jeremy Parks: As we communicated previously, we intend to maintain net leverage of approximately 1.5 times over the long term. As a reminder, we generate the majority of our free cash flow in the second half of the year, which gives us the opportunity to continue to reduce leverage and further deploy capital. Year to date, we have deployed approximately $350 million towards M&A and share repurchases. We currently have $115 million remaining on our current repurchase authorization. As a reminder, our next debt maturity is not until 2027, and all of our debt is fixed, with rates averaging 3.5%. Through the second quarter, our trailing 12-month free cash flow came in as expected at $234 million, roughly in line with previous periods.
Ashish Chand: As we communicated previously, we intend to maintain net leverage of approximately 1.5 times over the long term. As a reminder, we generate the majority of our free cash flow in the second half of the year, which gives us the opportunity to continue to reduce leverage and further deploy capital. Year to date, we have deployed approximately $350 million towards M&A and share repurchases. We currently have $115 million remaining on our current repurchase authorization.
Speaker Change: As we communicated previously, we intend to maintain net leverage of approximately 1.5 times over the long term.
Speaker Change: As a reminder, we generate the majority of our free cash flow in the second half of the year, which gives us the opportunity to continue to reduce leverage and further deploy capital.
Speaker Change: Year to date, we have deployed approximately $350 million towards M&A and share repurchases.
Speaker Change: As a reminder, our next debt maturity is not until 2027, and all of our debt is fixed with rates averaging 3.5%.
Jeremy Parks: Please turn to slide 9 for our updated outlook. Order patterns remain steady across our markets as customers navigate this dynamic environment. Relative to the second quarter, end demand is expected to increase modestly, with revenues up sequentially. For the third quarter, assuming current market conditions do not deteriorate further, we expect revenues in the range of $635 million to $650 million and adjusted EPS in the range of $1.55 to $1.65.
Speaker Change: Please turn to slide 9 for our updated outlook.
Ashish Chand: Order patterns remain steady across our markets as customers navigate this dynamic environment. Relative to the second quarter, and demand is expected to increase modestly with revenues up sequentially. For the third quarter, assuming current market conditions do not deteriorate further, we expect revenues in the range of $635 million to $650 million and adjusted EPS in the range of $1.55 to $1.65. That concludes my prepared remarks. I would now like to turn the call back to Ashish.
Speaker Change: Order patterns remain steady across our markets as customers navigate this dynamic environment.
Speaker Change: For the third quarter, assuming current market conditions do not deteriorate further,
Speaker Change: We expect revenues in the range of $635 million to $650 million, and adjusted EPS in the range of $1.55 to $1.65.
Ashish Chand: That concludes my prepared remarks.
Ashish Chand: I would now like to turn the call back to Ashish. Thank you, Jeremy. To close, let me reiterate that the second quarter of a building was once again steady, with orders and end demand reflecting stability in our business. As expected, our customers continue to reduce inventory and operate cautiously in the dynamic environment. However, let's pause and reflect on where we stand in the cycle. In the third quarter of last year, we saw a sharp decrease in orders from our customers. With our orders reaching a post-COVID-low, since then, we have slowly but steadily experienced marginal sequential increases in orders over the past three quarters, resulting in second quarter orders up nearly 20% from our low last year.
Speaker Change: That concludes my prepared remarks. I would now like to turn the call back to Ashish.
Ashish Chand: Let me reiterate that the second quarter for Belden was once again steady. As expected, our customers continue to reduce inventory and operate cautiously in this dynamic environment. In the third quarter of last year, we saw a sharp decrease in orders from our customers.
Ashish Chand: To close, let me reiterate that the second quarter for Belden was once again steady.
Ashish Chand: with orders and end demand reflecting stability in our business.
Ashish Chand: As expected, our customers continue to reduce inventory and operate cautiously in this dynamic environment.
Ashish Chand: However, let's pause and reflect on where we stand in this cycle.
Speaker Change: In the third quarter of last year, we saw a sharp decrease in orders from our customers.
Ashish Chand: Power order is reaching a post-COVID low, resulting in second quarter orders up nearly 20% from a low last year. Certainly, de-stalking continues in our market. But it is safe to say that the magnitude has come down. For the past two quarters, our book to build has been one or higher. And I'm encouraged by the execution of our team. I believe we have gained market share during this uncertainty thanks to our transformation. I am looking forward to the third quarter.
Speaker Change: with our orders reaching a post-COVID low.
Speaker Change: Since then, we have slowly but steadily experienced marginal sequential increases in orders over the past three quarters, resulting in second quarter orders up nearly 20% from our low last year.
Ashish Chand: Certainly, these talking continues in our markets, but it is safe to say that the magnitude has come down. Over the past two quarters, our book to build has been one or higher. And I'm encouraged by the execution of our team. I believe we have gained market share during this for the third quarter. We see continued stability across our businesses as customers remain watchful. Economic indicators such as inflation are encouraging, and manufacturing PMI figures are improving. However, they are not consistently backed into expansion territory yet. As a short cycle business, our forward view is limited beyond the most current quarter.
Speaker Change: Certainly, de-stalking continues in our markets.
Speaker Change: Over the past two quarters, our book-to-bill has been one or higher.
Speaker Change: And I'm encouraged by the execution of our team.
Ashish Chand: We seek continued stability across our businesses, as customers remain watchful, economic indicators such as inflation are encouraging, and manufacturing BMI figures are improving. However, they are not consistently back into expansion territory yet. As a short cycle business, our forward view is limited beyond the most recent quarters, so it's difficult for us to estimate when these strands will dissipate.
Ashish Chand: So it's difficult for us to estimate when these trends will dissipate.
Ashish Chand: What I can say is that our business is positioned well for strong outperformance once we are on the other side of the stocking, and we will continue to execute in a measured fashion, working to advance solutions and gain share. The long term secular drivers and investment cycles remain intact. Looking forward, we expect to see higher revenue and EPS through the next cycle. Reindustrialization is just beginning, and our products and solutions are aligned with many secular road drivers. We have well positioned to take advantage of the growth opportunities ahead of us, and a balance sheet is strong to enable our expansion.
Ashish Chand: What I can say is that our business is positioned well, and we will continue to execute in a measured fashion, working to advance solutions and gain share. The long-term secular drivers and investment cycles remain intact. And looking forward, we expect to see higher revenue and EPS through the next cycle. Reindustrialization is just beginning. Our team will continue to execute through this temporary weakness, and we'll look for opportunities to gain share where possible.
Ashish Chand: Our team will continue to execute through the temporary weakness and look for opportunities to gain share where possible.
Ashish Chand: I would like to take a moment and recognize the contributions of our associates this past quarter and welcome the Precision Optical team to Belden. I appreciate your efforts and would like to thank you for your support as we continue to transform Belden through a challenging environment.
Ashish Chand: I would like to take a moment and recognize the contributions of our associates this past quarter and welcome the Precision Optical team to Belden. I appreciate your efforts and would like to thank you for your support as we continue to transform Belden in a challenging environment. That concludes our prepared remarks. Operator, please open the call to questions.
Operator: That concludes our prepared remarks. Operator, please open the call to questions. Thank you. Once again, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question.
Speaker Change: Thank you once again, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question and our first question is.
Operator: Thank you. Once again, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. And our first question is going to come from William Stein, of Truist Securities. Please go ahead, sir.
William Stein: And our first question is going to come from William Stein, Truest Securities. Please go ahead, sir. Great. Thanks for taking my questions. First, I wanted to ask about the smart buildings order increase.
Speaker Change: Going to come from William Stein Truest Securities. Please go ahead Sir.
William Stein: Great. Thanks for taking my questions. First, I wanted to ask about the smart buildings order increase. That was a bit surprising to me, that strength, and perhaps it's just my memory that's fading as to whether that's a normal seasonal dynamic or whether we should interpret that as a cyclical sort of upturn in demand.
William Stein: Great. Thanks for taking my questions.
William Stein: First I wanted to ask about the smart buildings order increase.
Ashish Chand: That was a bit surprising to me that strength, and perhaps it's just my memory that's fading as to whether that's a normal seasonal dynamic or whether that's, we should interpret that as a cyclical sort of upturn in demand. Yeah, well, good morning. I think we expected smart buildings to have a good-looking score. Even all the work that's been initiated on our core verticals that we've talked about, but non-commercial real estate vertical markets that really are seeing activity as part of infrastructure development, that includes healthcare, hospitality, data centers, etc. So we expected, you know, bookings to increase sequentially.
Speaker Change: That was it.
Speaker Change: A bit surprising to me that strength and perhaps it's just my memory, that's fading as to whether that's a normal seasonal dynamic or whether that's.
Speaker Change: We should interpret that as a cyclical sort of upturn.
Speaker Change: I'll turn in demand.
Speaker Change: Yes.
Ashish Chand: Yeah, well, good morning, Bill. I think we expected small buildings to have a good booking score. Given all the work that's been initiated on, these are core verticals that, you know, we've talked about non-commercial real estate vertical markets that bookings are expected to increase sequentially. Yes, this is a little better than our expectation. I think part of it is just an improvement in the product mix, more fiber, more solutions, you know, approaches we take when we talk to customers.
Ashish Chand: Yes, this is a little better than expectation. I think part of it is just that our business is gaining share in that whole area because of improving product mix, more fiber, more solutions, you know, approaches we go and talk to customers. We've seen, for example, more customers in our CICs in Q2 talking about more smart buildings type of applications than we've seen previously. So if you remember, it's been more industrial in nature, our solutions approach, and it's shifting or it's we are adding smart buildings applications to that whole approach. So that's also helped. So yeah, I think it's a mix of all of those things, and you know, we feel good that it's going to continue in that same direction.
Ashish Chand: We've seen, for example, more customers in our CICs. We are adding smart buildings applications to that whole approach, so that's also helped. So, yeah, I think it's a mix of all of those things, and we feel good that it's going to continue in that same direction.
Speaker Change: It's going to continue in that same direction.
William Stein: This sounds more structural than seasonal. Thank you for that. The next, you sort of touched on it already, but I'm hoping you can update us on traction in the CICs. Maybe you can talk about things like your traffic, close rates, which have been very strong in the past, and pricing strategies that you see there working for you, and that would be really helpful. Thank you.
William Stein: This sounds more structural than seasonal. Thank you for that.
Speaker Change: It sounds more structural than seasonal thank you for that.
Ashish Chand: The next you sort of touch on it already, but I'm hoping you can update us on traction in the CICs. Maybe you can talk about things like your traffic, close rates, which have been very strong in the past, pricing strategies that you see there working for you, and that would be really helpful. Thank you. Yeah, so I think we've talked about, you know, last year, on a full year basis, we did about 60 to 65 major, you know, validation visits, you know, what we call proofs of concept visits at our CICs across the world. We also brought on stream more capacity because we inaugurated CICs in Bangalore, in India, and in Shanghai, so all of that added up.
Speaker Change: The next you sort of touched on it already but I'm, hoping you can update us on track.
Speaker Change: Traction in the CICS, maybe you can talk about things like.
Speaker Change: Your traffic close rates, which had been very strong in the past.
Speaker Change: Pricing strategies that you see there working for you.
Speaker Change: And that would be that would be really helpful. Thank you.
Speaker Change: Yes, So I think we just talked about.
Ashish Chand: Yeah, so I think we've talked about last year, on a full year basis, we did validation visits, what we call proofs of concept visits at our CICs across the world. We also brought more capacity on stream because we inaugurated CICs in... in Bangalore, in India, and you know, in Shanghai, so all of that added up.
Speaker Change: Last year.
Speaker Change: On a full year basis, we did about.
Speaker Change: 60% to 65 major.
Speaker Change: Validation.
Speaker Change: Optical proofs of concept.
Speaker Change: I don't see actions across the world.
Speaker Change: We also brought on stream more.
Speaker Change: Capacity because we.
Ashish Chand: And we think we can do something like, uh... You know, 250 to 300. [inaudible] In that about half of that rate right now, right. So in the first full year of capacity, that's where we are tracking. So it is an increase over what we did last year. I think it's fairly significant.
Ashish Chand: And we think we can do something like, you know, 250 to 300 real high quality validation visits. We are tracking somewhere in that, about half of that rate right now, right? So, in the first full year of capacity, that's where we are tracking. So it is an increase of what we did last year. I think it's fairly significant. You know, obviously there is still a little bit of uncertainty, especially in European markets. So we see projects coming in for discussion. There are still kind of more long term. So it does impact close rates as such as we measure for the next 12 months.
Ashish Chand: You know, obviously, there is still a little bit of uncertainty, especially in European markets. So we see projects coming in for discussion that are still kind of more long term. So it does, in fact. And then pricing, I think, in general, if you see our gross margins have continued to be, as expected, slightly better, in spite of... volumes being down, that's essentially driven by solutions. And so, you know, I don't want to call out pricing per se; it's a combination of, and I think pricing is holding up as expected.
Ashish Chand: So I think the pipeline increases more than the increase in close rates. Obviously, you know, that's improving too. And then pricing, I think in general, if you see, our gross margins have continued to be... as expected slightly better its spite of volumes being down that's essentially driven by solutions mix and so you know I think what I don't want to call out pricing per say it's a combination of mix and pricing but that that is obviously working well for us. So, so overall I would say that our investments in the CICs have proven to be fairly successful.
Speaker Change: And for Us.
Speaker Change: So so overall.
Speaker Change: I would say that our investments in the CICS have proven to be fairly successful.
Ashish Chand: Our pipeline has expanded a lot. Our close rates are expanding, and I think pricing is holding up as expected. Thank you.
Speaker Change: Our pipeline has expanded a lot our close rates are expanding.
Speaker Change: And I think pricing is holding up as expected.
Speaker Change: Thank you.
Ashish Chand: Thank you. I think the only thing I'll add, Will, and I kind of covered this, but just to reiterate. We are now seeing more CIC visits for our enterprise solutions business, especially for smart buildings, than we've seen previously. So, you know, I'm just reiterating what I already said a few minutes ago.
Ashish Chand: I think the only thing I'll add well is, and you know I kind of covered this, but just to retrait, we are now seeing more CIC visits for our enterprise solutions business, especially on small buildings, than we've seen previously. So, you know, so I'm just retraining what I already said a few minutes ago. Appreciate that. Thank you.
Speaker Change: I think the only thing I'll add windows.
Speaker Change: And you know I kind of covered this but just to reiterate.
Speaker Change: We are now seeing.
Speaker Change: More CIC visits for our enterprise solutions business, especially on smart buildings.
Speaker Change: We have seen previously so.
Speaker Change: So I'm just reiterating what I already said a few minutes ago.
Speaker Change: I appreciate that thank you Ashish.
Unknown Executive: Sheesh.
David Williams: And our next question is going to come from David Williams from Finchmark. Hey, good morning. Thanks for taking my question. I guess first, and forgive me if I missed part of this discussion earlier, but just worry how you're thinking about the EBIT all contribution as a top line expand. And I guess if we think about similar revenue levels, should we anticipate similar margin there? How much expansion could we expect just not even the structural changes that you've had in the business. Yeah, hey David, this is Jeremy. So the framework that we've given in the past is then that as we grow organically, we would expect incremental bit of margins of about 30% on the incremental revenue.
David Neil Williams: Hey, good morning. Thanks for taking my question. I guess first, and forgive me if I missed part of this discussion earlier, but just wondering how you're thinking about the EBITDA contribution as the top line expands. And I guess if we think about similar revenue levels, should we anticipate similar margin there? Or how much expansion could we expect, just kind of given the structural changes that you've had in the business?
Jeremy Parks: I think that framework still holds going forward, so I would use that as your guideline for modeling. The way that works out, by the way, is from an EBIT margin expansion standpoint. If you grow mid single digits, you get maybe 60 basis points of EBIT margin improvement, I guess, for every mid single digit growth in revenue.
David Williams: All right, perfect, thanks for the color there. And then maybe just thinking about your bookings velocity, you talked about that being able through to you. But when you think about the July quarter and what you've seen there, are you seeing customers that are still. enthusiastic about their orders or maybe increment more positive. Are you seeing any caution? We're hearing that there is a bit of caution, at least in ordering patterns, and just curious if that's what you're seeing as well or if there's anything, any puts and takes around around that bookings. Thank you.
David Neil Williams: And then maybe just thinking about your bookings velocity, you talked about that being stable through 2Q, but when you think about the July quarter and what you've seen there, are you seeing customers that are still enthusiastic about their orders or maybe incrementally more positive? Are you seeing any caution? We're hearing that there is a bit of caution, at least in ordering patterns. I'm just curious if that's what you're seeing as well or if there's anything, any puts and takes around that booking.
Ashish Chand: Yeah, let me start here with maybe a couple of qualitative remarks, and then Jeremy can add to that. So clearly there is still. You know the destalking has not finished, right? There is still some some left. I think we've seen like that point of inflection where things are started becoming incrementally better. And when we talk to customers now, there is more confidence about projects that are planned over the next six to twelve months. There is, you know, there is more discussion about specifics, timelines, et cetera. So that tells us that, you know, at the end user level, there is increased confidence.
Ashish Chand: Maybe a couple of qualitative remarks, and then Jeremy can add to that. So, clearly, the de-stalking has not finished, right? There is still... Some things left.
Jeremy E. Parks: I think we've seen that point of inflection where things have started becoming incrementally better, and when we talk to customers now, there is more confidence about projects that are planned over the next 6 to 12 months. There is, you know, there's more discussion about specifics, timelines, et cetera. So that tells us that Confidence, and I think that's especially true in the emeritus, right? We're seeing that, I think we've continued to see a little bit of that de-stalking playing out in EMEA, especially in Germany, you know, where it's more OEM machine builder type of markets that focus on exporting that equipment. So there are flavors, but I think there is still caution. So you're right about that.
Speaker Change: I think we've seen.
Speaker Change: Like the point of inflection where things have started becoming incrementally better.
Speaker Change: And when we talk to customers now there is more confidence about.
Speaker Change: Projects that are planned over the next six to 12 months.
Speaker Change: There is there is more discussion about specifics timelines et cetera, so that tells us that.
Speaker Change: At the end user level there is.
Speaker Change: Increased.
Speaker Change: Confidence and I think that's especially true in the Americas.
Ashish Chand: And I think that's specially true in the Americas. Right? We're seeing that. I think we've continued to see a little bit of that. These talking playing out in in a media, especially in Germany. You know, where it's more OEM machine builder type of markets that focus on exporting that equipment. So, so there are flavors. But I think, I think there is still caution. So you're right about that.
Speaker Change: Seeing that.
Jeremy Parks: The only thing I would add, David, is that if you look at the guidance sequentially, keep in mind that we have the acquisition of Precision in our third quarter guidance. So the real underlying growth in order rates, I would say, is pretty modest. And it's more reflective of continued moderation and destocking versus growth in the underlying economy.
David Neil Williams: Yeah, the only thing I would add David is that if you look at the guidance sequentially, keep in mind that we have the acquisition of precision in our third quarter guidance. So the real underlying growth in order rates is pretty modest, and it's more reflective of continued moderation and destocking versus growth and the underlying economy.
David Williams: Thanks so much for that, the help. Certainly appreciate it. Best luck on the quarter.
David Neil Williams: Thanks so much for the help, sir. I appreciate it. Best of luck on the court.
Rob Chingerson: Our next question comes from Rob Chingerson from Vertical Research Partners. Please go ahead. Hey, good morning, Hermione. Shish and Jeremy, you've got some other quarter. Thank you. Thanks a lot, and welcome back. Yeah, thank you. Good to be back.
Operator: Our next question comes from Rob Jamieson from Vertical Research Partners. Please go ahead.
Robert Gregor Jamieson: Hey, good morning, Army, Ashish, and Jeremy. Congratulations on the quarter.
Ashish Chand: Thanks a lot, and welcome back.
Robert Gregor Jamieson: Yeah, thank you. It's good to be back.
Robert Gregor Jamieson: Hey, just wanted to go back to Bill's question just on gross margin and the progress there. I know, longer term, you guys are kind of targeting to get to 20% sales over time. And this is something you're hyper focused on internally. So just, just curious, like how this positions you as the macro environment kind of starts to maybe improve over the next 12 to 18 months. I mean, it puts you in a really good position. Sounds like you are still on track for that, and any update kind of where you are on that path would be great.
Ashish Chand: Hey, just want to go back to those questions just on, you know, gross margin and solutions progress there. I know longer term. You guys are kind of targeting to get the 20% sales over time. And this is something you're hyper focused on internally. So just curious, like how this positions as the macro environment kind of starts to maybe improve over the next 12 to 18 months. I mean, it puts you in a really good position. It sounds like still on track for that, and any update kind of where you are on that path would be great.
Speaker Change: Improve over the next 12 to 18 months I mean, it puts you in a really good position it sounds like still on track for that and any update kind of where you are on that path it would be great.
Ashish Chand: Yeah, absolutely. So I think Rob in the medium term, he feels really good about all the drivers that impact our businesses. I think at a very general level first, anything that is impacted by legacy networks or data complexity or shortage of skill labor or extensive capital is a good place for us to go and talk about a solution. So, and that's, as you can imagine, happening pretty much across the board in the vertical markets where we focus. So, whether that's, you know, in healthcare or whether that's in material handling or warehouse management, et cetera, it's all the dynamics are similar.
Robin: Yeah, no absolutely so I think robin the medium term.
Ashish Chand: Yeah, no, absolutely. So I think, Rob, in the medium term, we feel really good about all the drivers that, you know, that impact our businesses. I think, you know, at a very general level for us, anything that is impacted by legacy networks or data complexity or shortage of skilled labor or expensive capital is a good place for us to go and talk about our solutions, right? So that, as you can imagine, is happening pretty much across the board in the vertical markets where we focus.
Robin: Feel really good about all the drivers are.
Speaker Change: The net.
Speaker Change: In fact, our businesses.
Speaker Change: Oh I think.
Speaker Change: A very general level first.
Speaker Change: One thing that is impacted by legacy networks or data complexity or shortage of skilled labor or expensive capital is a good place for us to go in and talk about our solution strikes so and as you can imagine is happening.
Speaker Change: Pretty much across the board and the vertical markets, where we focus so whether that's.
Ashish Chand: And then, if you add to that the acceleration caused by the re-industrialization, especially in the American context, I think that's certainly very helpful for others. Business. So the way I think about this is that we've spent a lot of time over the last three, four years building out that capability, especially in our more industrial-focused markets. Over the last 12 months, we've brought that approach also to our enterprise markets. Now, the last 12 months are a little quiet in terms of growth. As Jeremy pointed out, it is more about going through the destocking cycle and now moderation in that.
Ashish Chand: So whether that's, I think that's certainly very helpful for our business. We've spent a lot of time over the last three, four years building out that capability, especially in our more industrial-focused markets. Over the last 12 months, we've brought that approach also to our enterprise markets. Now, the last 12 months were a little quiet.
Ashish Chand: So as real growth starts coming forth, especially in enterprise markets, you know, we will see that solutions revenue increase. We've articulated a 25% approximate share of revenue by 2028, about, you know, over five years, and since we started talking about it more publicly, I think we are well on track there. We were approximately 10% of revenues as we entered the share. We think we're going to be, you know, in that load of mid teams as we finish the share. And then you can see the impact on gross margins in spite of being, you know, volumes being down substantially as part of destocking.
Ashish Chand: So as real growth starts coming forth, especially in enterprise markets, you know, we'll see that solutions revenue increase. We've articulated a 25% approximate revenue share of revenue by 2028, so about, you know, over five years, and since we started talking about it more publicly, I think we're well on track there. We were approximately 10% of revenues as we entered this year. We think we're going to be, you know, in that low to mid-teens as we finish this year.
Speaker Change: Oh, we think we're gonna be you know in that low to mid teens as we finish this era.
Ashish Chand: And then you can see the impact on gross margins in spite of volumes being down substantially as part of destocking. Gross margins have continued to improve, a little more modest, but are actually gaining a lot of momentum within our company and our customer base right now.
Speaker Change: And then you can see the impact on gross margin in spite of being volumes being down substantially as part of Destocking.
Ashish Chand: You know, gross margins have continued to improve a little more modestly in the last couple of quarters, but have continued to improve because of that solutions. So, so it's very exciting. I think the idea of taking it to what we used to think of as enterprise markets is actually gaining a lot of momentum within our company and a customer base. That's right now. So, so it's all positive. And I think you characterize it well. That as the demand environment shifts, we will be better positioned. That's very helpful.
Speaker Change: Gross margins have continued to.
Speaker Change: Improve a little more modest in the last couple of quarters, but have continued to improve because of that solution spec. So so it's very exciting I think the.
Speaker Change: The idea of taking it to what we used to think of as enterprise markets.
Speaker Change: <unk> is actually.
Speaker Change: Gaining a lot of momentum, but then.
Speaker Change: Our.
Speaker Change: Company, and our customer base right now.
Speaker Change: So it's all positive and I think you characterized it well.
Speaker Change: As the demand environment shifts.
Speaker Change: We will be better positioned.
Ashish Chand: And then I guess just to kind of stick with enterprise solutions. This was announced last quarter, but just kind of want to rewind and kind of dig into Precision Optical just for a moment here. Obviously, you know, nice increase to the fiber exposure, the portfolio. But, but how does this change like your interaction with your customers, your ability to participate in the B program. You know, I mean, is it, you're, does it enable kind of a deeper customer relationship, the earlier kind of conversations on maybe, you know, architecture versus just purely, purely servicing what your providers need.
Ashish Chand: And then I guess lastly, you know, there is an opportunity for potential pull-through of like the core enterprise portfolio. Sorry, there's a lot in there, but color there would be great. Yeah, no, I think that that is the, that was the strategic thesis, right. So, so if you really look at precision optical technologies, they spend a lot of time building this position as a value added supplier of optical transceivers with a lot of proprietary software and configuration capability. I think that's unique. In many ways, that's a little bit similar to how, you know, for example, you can think of our active products on the industrial site.
Ashish Chand: Yeah, no, I think that that was the strategic thesis, right. So, if you really look at precision optical technologies, they've spent a lot of time building this and this configuration capability, right? I think that's unique in many ways.
Ashish Chand: That's a little bit similar to how, you know, for example, you can think of our active products on the industrial side, right? So you have this one, capability that's extremely differentiated, very sticky, to do new infrastructure deployment or upgrades, or any changes; it always starts at that end of their, let's say, data center. And all the discussions then come down to architectural design, you know, so they work through link loss budgets and go from end to end, and then, you know, so precision is covering both ends.
Ashish Chand: So you have this one. capability that's extremely differentiated, very sticky. And then, as a result, every time, you know, for example, a big MSO customer has to do new infrastructure deployment or upgrades or any changes, it always starts at that end of their, let's say, data center, you know, where precision is plugged in. And all the discussions then come down to architectural design, you know, so that they work through link-class budgets and go from end to end. And then, you know, so precision is covering both ends. You know, our broadband business pre-precision is covering that middle ground.
Ashish Chand: You know, our broadband business pre-precision was covering that middle ground. And now we're in a position where we connect all of that end to end, right? So we now participate. So, how is that going? It's still early days. Obviously, Rob, you know, we've just closed.
Ashish Chand: And now we're in a position where we connect all of that end to end, right? So we now participate, or we can't participate in more systems architectural discussions. So how is that going? It's still early days, obviously. You know, we've just closed. But the initial discussions between the two teams and with our customers have been very encouraging. We've already found a number of pull-through opportunities. You know, we are bringing the teams together faster than we have done historically in terms of integration. So we are combining, you know, go-to-market more rapidly than we might have done in the past.
Ashish Chand: But the initial discussions between the two teams and with our customers have been very encouraging. You know, we are bringing the teams together faster than we have done historically in terms of integration. So we are combining go-to-market more rapidly than we might have done in the past with all our customers. In fact, as I may have mentioned on a previous call, you know, part of that acquisition process was getting endorsement from some key customers.
Speaker Change: We've already found a number of pull through opportunities.
Speaker Change: We are bringing the teams together faster than we have done historically in terms of integration.
Speaker Change: So we are combining.
Speaker Change: Go to market more rapidly than we might have done in the past.
Ashish Chand: And all our customers, in fact, as I may have mentioned on a previous call, you know, part of that acquisition process was getting endorsement from some key customers. And so they've really supported us during the process, and they continue to support us as we roll this out. So yes, I think in many ways precision optical acquisition will allow a broadband business to enter solutions in a way that would have been difficult organically, because they didn't have that kind of architecture, you know, enrolled into that discussion. So that is indeed the big change for us. That's really helpful context.
Speaker Change: And all of our customers in fact as I may have mentioned on a previous call.
Speaker Change: Part of that acquisition process was getting endorsement from some key customers.
Ashish Chand: And so they've really supported us during the process, and they continue to support us as we roll this out. So, yes, I think in many ways, in a way that would have been difficult organically because they didn't have that kind of architecture, you know, in the road into that discussion. So, that is indeed the big change for us.
Speaker Change: And so they've they've really supported us during the process and they continue to support us.
Speaker Change: As we roll this out so so yes, I think in many ways.
Speaker Change: Precision optical is acquisition.
Speaker Change: We'll allow our broadband business to enter solutions.
Speaker Change: In a way that would have been difficult to organically because they didn't have that kind of architecture.
Robert Gregor Jamieson: That's a really helpful context. Thanks very much and congrats again.
Unknown Executive: Thanks very much. And if you guys again, thank you.
Mark Delaney: And our next question is going to come from Mark Delaney from Goldman Sachs. Please go ahead. Yes, I'm good morning. Thanks very much for taking the questions.
Operator: Yes, good morning. Thanks very much for taking the questions. First, I was hoping to better understand how the company thinks it's tracking toward the $8 earnings target in 2025, and if that's still on track in your opinion. And maybe also help us better understand with Precision Obstacle having closed, what that means for 2025 earnings, and does that change the outlook at all for next year?
Mark Delaney: First, I'm going to better understand how the company thinks it's tracking toward the $8 earnings target in 2025. And if that's still on track in your opinion, and maybe also help us better understand with Precision Optical having closed, what does that mean for 2025 earnings? And you just had to change the outlook at all for next year.
Jeremy Parks: Yeah, hey Mark, let me take that question. This is Jeremy. So I would say we've been talking about our progress the last few quarters, and our perspective has been that we're on track. That's still the target and one that we think we can hit. Nothing's changed over the past 90 days. That would make us think that’s not the case.
Mark Trevor Delaney: Yeah. Hey Mark. Let me take that question. This is Jeremy. So I would say we've been talking about our progress in the last few quarters, and our perspective has been that we're on track. That's still the goal, and one that we think we can hit. Nothing's changed over the past 90 days that would make us think that's not the case. Obviously, it's contingent on getting through this de-stocking because we believe that once we get through the de-stocking, there's quite a bit of upside in both revenue and EPS.
Jeremy Parks: Obviously, it's contingent on getting through this destocking because we believe that once we get through the destocking, there's quite a bit of upside in both revenue and EPS. with respect to precision technologies. We gave a framework for that acquisition last quarter. So if you're going to model it for 2025, you can assume 150 million of revenue plus all it made to high single-digit organic growth. And then even a margins that are consistent with total company building. So call it high teams, even a margins.
Speaker Change: So if youre going to model. It for 2025, you can assume.
Speaker Change: $150 million of revenue plus.
Speaker Change: Call it mid to high single digit organic growth.
Speaker Change: And then EBIT margins that are consistent with total company belden.
Speaker Change: So call it high teens EBITDA margins.
Jeremy E. Parks: Thanks for that. My other question is just on capital allocation from here, now that you've deployed some capital for Precision Optical, hoping to better understand how you think about the balance between the different uses of cash. You mentioned your leverage ratio is in a pretty good spot, so I imagine you have some flexibility to do M&A if it comes up, but maybe help us better understand how you're seeing the pipeline going forward.
Mark Delaney: Thanks for that.
Speaker Change: Thanks for that my question was just on capital allocation from here now that you've deployed some capital for precision optical hoping to better understand how you think about the balance of the different uses of cash you mentioned your leverage ratios in a pretty good spot.
Jeremy Parks: And the other question is just on capital allocation from here. Now that you've deployed some capital for Precision Optical, hoping to better understand how you think about the balance of the different uses of cash. You mentioned your leverage ratios in a pretty good spot. So it's an emergency flexibility to do M&A if it comes up, but maybe help us better understand how you're seeing the pipeline going forward.
Speaker Change: Imagine you have some flexibility to do M&A if it if it comes out but maybe help us better understand how you're seeing the pipeline going forward. Thanks.
Jeremy Parks: Thanks. Yeah, I think we have plenty of options. So, in the past, we've been pretty balanced in how we've deployed capital. And I think we'll continue to do that. So, from an M&A perspective, we've got a good funnel. And I think there are opportunities to do additional M&A, obviously, over the next 18 months or so. But I also think share repurchases are a good action for us at this point. So I think everything's on the table and no major changes.
Jeremy E. Parks: Yeah, I think we have plenty of options. In the past, we've been pretty balanced in how we've deployed capital. And I think we'll continue to do that. So from an M&A perspective, we've got a good bundle. And I think there are opportunities to do additional M&A, obviously, over the next 18 months or so, but I also think share repurchases are a good option for us.
Speaker Change: Yes, I think we have plenty of options. So in the past we've been pretty balanced in how we've deployed capital.
Speaker Change: And I think we'll continue to do that.
Speaker Change: From an M&A perspective, we've got a good funnel.
Operator: Thank you. Sure. And once again, if you'd like to ask a question, please press one on your telephone keypad.
Operator: on your telephone keypad.
Chris Dankert: And our next question is going to come from Chris Dankert, Luke Capital. Hey, morning. Thanks for taking the question. I guess kind of to dig back in on solutions a little bit, but focus on industrial here. We've seen a pretty aggressive shift towards wireless architecture and industrial Ethernet from kind of a legacy field bus approach. Which I guess from a technology perspective, are you guys completely agnostic to kind of what type of architecture customers are using? And is that transition kind of the biggest driver of some of these solution sales with an industrial? Yeah, so the way to think about Chris is that, you know, at a very basic level, our job is to connect multiple sources and multiple destinations of data.
Ashish Chand: And how the data is routed between those two points changes a little bit based on what that data is and how it's acquired. It could be both over the air and over the wire. So obviously the wireless aspect is extremely important in certain use cases. Because people do not prefer wireless because they could be, you know, some risks that come with that. And in certain use cases, it's really important. So, for example, in warehouse management today, we are deploying a lot more wireless as they engage with more AGVs and robots. But in precision manufacturing, it's still not that relevant at this point.
Ashish Chand: There are some risks that come with that, but in precision manufacturing, it's still not that relevant at this point. But so, just think about multiple sources and destinations of data, and our goal is to remain agnostic to what the sources and destinations are. We bring in data that speaks different languages, like you pointed out, right, there are multiple protocols on the in the field. And it's all unified, it's scrub normalized.
Speaker Change: So that comes with that and in certain use cases, it's really important. So for example in warehouse management today, we are deploying a lot more wireless.
Speaker Change: As they engage with more Adv, then you know robots.
Speaker Change: But in precision manufacturing it's still.
Speaker Change: Not that not that relevant at this point, but.
Ashish Chand: But so this thing about multiple sources and destinations of data, and our goal is to remain agnostic to what the sources and destinations are. But obviously, impact the technology that's used for the actual data architecture, right? From one end to the other. One of the things we do now is we through Belden Horizon, which is our big data integration platform. We bring in data that speaks different languages. Like you pointed out, right? It's all there are multiple protocols on the field. And it's all unified. It's scrub normalized and then it's served up to different applications that customers have chosen.
Speaker Change: So just think about multiple sources and destinations of data and our goal is to remain agnostic to what the sources and destinations are.
Speaker Change: But obviously impact the technology that's used for the actual data architecture right from one end to the other.
Speaker Change: One of the things we do know is we.
Speaker Change: We.
Speaker Change: Through Belden horizon, which is.
Speaker Change: Our big data integration platform.
Speaker Change: We bring in data that speaks different languages.
Speaker Change: Pointed out right. It's all there are multiple protocols on the on the in the field.
Speaker Change: And it's all <unk>.
Ashish Chand: So part of what we do, indeed, is that standardization. You know, there are a few different protocols that are used for that purpose. It's not just Ethernet, but Ethernet is certainly the most relevant. And then we obviously have to deploy more and more resources towards emerging wireless security. You know, make sure that there is more compute at the edge and a number of cases customers don't want to move all their data to the clouds straight away because they need to make decisions real time at the edge. So we're building in more edge compute. So it's a little different by different aspects of which industrial market we serve.
Ashish Chand: Oh, and then, But at the end, we remain agnostic to the source and the destination, and we remain very focused on streamlining and securing everything that happens in the middle, versus previously, where customers had to deal with separate hardware and separate software vendors, somehow pull it all together on their own or with an SI, and it wasn't as simple.
Ashish Chand: But at the end, we remain agnostic to the source in the destination, and we remain very focused on streamlining and securing everything that happens in the middle. And I think that's been our differentiator, especially because we bring hardware and software together. Versus previously, where customers had to deal with separate hardware, separate software vendors, somehow pull that all together on their own. Over the NSI, and it wasn't as simple. It was, it was actually quite difficult.
Ashish Chand: It was actually quite difficult.
Ashish Chand: That's a great color. Thank you, Ashish.
Chris Dankert: That's great color. Thank you.
Ashish Chand: I guess my follow up on destocking it, and forgive me if I missed it. But is there a difference in the destox cycle from a distributed perspective and industrial and from a utility perspective in broadband right now? Maybe just can you how it where you see destocking in both pieces of the business today? Yeah, I think in the broadband sector, it's a little more, you know, just the procurement policies of the large operators. You know, they were buying a lot more and they change. There are fewer kind of big players. It's more visible. They communicate with us more directly, and we can understand what's going on, you know, at their end.
Ashish Chand: Is there a difference in the destocking cycle from a distributor perspective and from a utility perspective and broadband right now? Maybe just can you highlight where you see destocking in both pieces of the business today?
Ashish Chand: The large operators, you know, they were buying a lot more, and they changed so it was So we know that it's clearly a destocking phenomenon, right? That's what we're dealing with. We don't actually go and talk to all the end-users directly, because some of them are really small.
Ashish Chand: And by the way, you know, on that note, their usage has generally been as expected. So we know that it's clearly a destocking phenomenon, right? That's the, that's what we're dealing with on the industrial side. However, it's much more fragmented and less direct. We don't actually go and talk to all the end users direct. actually. Some of them are really small. Some of them have really just maintenance kind of projects. We obviously talk to end users directly when they have large solutions type, you know, engagements with us. But there we don't necessarily talk about their inventories, right.
Ashish Chand: Some of them have really just maintenance kind of projects. We obviously talk to end-users directly when they have large solutions-type engagements with us. So there is a lot more fragmented. There are also differences by region, for example, in Europe, you know, the OEMs are going through a slightly different stocking cycle versus, let's say, contractors in the US. So here, we have to obviously be guided a lot by our direct channel partners and what they do, and our visibility is limited versus in the broadband space.
Ashish Chand: It's more about the design of the solution. So there is a lot more fragmented. They're also differences by region. For example, in Europe, you know, the OEMs are going through a slightly different destocking cycle versus, let's say, contractors in the US. So, here, we have to obviously be guided a lot by our direct channel partners and what they do, and our visibility is limited versus in the broadband space. I don't think fundamentally there is a big difference in the driver. I think across both sectors or both segments, customers bought more than they needed because they were worried about supply chain brittle, and now it's unwinding.
Ashish Chand: I don't think so.
Ashish Chand: I think it's actually unwinding at similar rates at an aggregate level.
Unknown Executive: God, thank you so much, and I'm about to look at the third quarter here. Yeah, thanks a lot.
Robert Gregor Jamieson: Yeah, thanks a lot.
Operator: And that concludes today's question-and-answer session.
Speaker Change: At this time I would like to turn the call back over to Erin Redington.
Aaron Reddington: At this time, I'd like to turn the call back over to Aaron Reddington for additional or closing remarks. Thank you, everyone, for joining today's call. I'm pleased to announce that we will be hosting an investor day this coming September 12th from our Customer and Customer Innovation Center in Chicago. The event will stream live. So be on the lookout for additional information as we get closer. If you have any questions, please contact the IR team here at Bellden. Our email address is investor dot relations at bellden dot com.
Erin Redington: For additional or closing remarks.
Erin Redington: Thank you everyone for joining today's call I'm pleased to announce that we will be hosting an investor day. This coming September 12 from our customer and customer innovation Center in Chicago. The event will stream live so be on the lookout for additional information as we get closer if you have any questions. Please contact the IR team here at Belden.
Speaker Change: Our email address is investor relations at Belden Dot com. Thank you very much.
Operator: Thank you very much. Thank you, ladies and gentlemen.
Speaker Change: Thank you ladies and gentlemen, this concludes our call for today you may now disconnect from the call and thank you for your participation.
Operator: This concludes our call for today. You may now disconnect from the call, and thank you for your participation.
Speaker Change: Okay.
Speaker Change: Okay.