Q3 2024 Belden Inc Earnings Call
Speaker Change: [inaudible]
Speaker Change: Good morning everyone and thank you for joining us for Belvin's third quarter, 2024 earnings conference call. With me today our Belvin's President and CEO Ashish Chand, continue rights president and CFO Jeremy Parks.
Speaker Change: A sheet 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 ambassador.beldend.com.
Speaker Change: Turning to slide two in the presentation.
Speaker Change: During this call, management will make certain forward-looking statements and reliance upon the state, 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 10K. Additionally, during today's call, management will reference adjusted or non-gap financial information.
Speaker Change: In accordance with Regulation G, the appendix to our presentation in the investor relation section of our website contains a reconciliation of the most closely associated gap financial information to the non-gap financial information we communicate.
Speaker Change: I will now turn the call over to our president and CEO Ashish Chand.
Ashish Chand: and good morning everyone. We really appreciate joining us today.
Ashish Chand: Let's turn this light for a summary of the major accomplishments we achieved in the third quarter. And key messages I would like to highlight. As a reminder, I will be referring to it just as it results today.
Ashish Chand: First.
Ashish Chand: Let me congratulate our team on another solid quarter as we delivered results, slightly ahead of expectations.
Ashish Chand: Performance of Stable for the Quarter, while a customer's remained cautious as inventory the stocking is nearing an end.
Ashish Chand: For the third quarter, our revenue and earnings per share, both exceeded the high end of a guidance as a solution transformation continues to push forward.
Ashish Chand: Revenue total $655 million of 8% sequentially and the earnings per share came in at $1.70 of 13% sequentially.
Ashish Chand: Profitability Alliance with Expectations and adjusted EBITDA margins increased sequentially by 70 basis points, 2017.2%.
Ashish Chand: Second, I'm pleased to report steady demand for the quarter. Audders in the third quarter were up 8% sequentially, marking the fourth consecutive quarter of all the growth.
Ashish Chand: The birth of the prior period, or the result of 28%, with Chand in both segments.
Ashish Chand: From a job perspective, we continue to see tempered results in a mere and a fact.
Ashish Chand: But I'm encouraged to see organic revenue growth, the term to be a medical region, which constitutes over 60% of our overall business.
Ashish Chand: Organic road to the quarter was positive 1% here over here marking the first quarter of organic road since the second quarter of last year.
Ashish Chand: A market's continued experience diminishing headwinds and I'm pleased to see steady execution, resulting in performance exceeding our expectations.
Ashish Chand: Finally, our business continues to generate meaningful cash flow and we are deploying capital consistent with our capital allocation priorities.
Ashish Chand: Trailing 12 month freak Ashflow was strong at $211 million, roughly in line with recent performance and expectations.
Ashish Chand: with the Ample Freak Ashflow or theme continues to invest in high return opportunities beneficial to share all this.
Ashish Chand: Discoater, we deployed $6 million to acquire a clear tech, a small tuck in software acquisition to support our active products portfolio and edge devices with firewall technology for industrial or e-networks.
Ashish Chand: Further, we continue repurchasing shares and as of earlier this week are total repurchases for their amount to 1.2 million shares using $115 million of our free cash flow.
Ashish Chand: Our balance sheet remains strong and provides us with the ability to enhance shareholder returns in multiple ways.
Ashish Chand: You can expect us to continue to look for acquisitions that support our solution transformation.
Ashish Chand: and when appropriate, by-back of stock at levels we find attractive.
Ashish Chand: Now please turn the slide, folks.
Ashish Chand: During our invested day this past month, we outline a discipline approach to MNA, targeting products and technologies that enhance and expand our solutions offerings.
Ashish Chand: and Assistant Without Framework, I am pleased to announce the acquisition of a leader tech which flows during the quarter for $6 million.
Ashish Chand: Willier Tech, based in Germany, is the leading provider of advanced cyber security fire-owned technology designed to protect industrial networks with robust, 40 security solutions.
Ashish Chand: Volia Tech is attractive to building as the technology enables and accelerates our active product portfolio.
Ashish Chand: The software developed by Volia Tech fits in nicely with the industrial products by upgrading our active offerings with key fire world technology utilized in 14 networks.
Speaker Change: Now, please turn the slide six for a quick summary of notable wins for the quarter.
Speaker Change: The examples of the score have come from a match transit and hospitality workouts.
Speaker Change: Starting with the first twin.
Speaker Change: Deutsche Bahn is a leading provider in the mobility and logistics sector with services focused on the German market.
Speaker Change: I'm pleased to announce that Belden has won a multi-year opportunity, worth between 25 and 45 train systems over the next eight years.
Speaker Change: A customer was facing a challenge with network infrastructure and was looking to upgrade their system.
Speaker Change: Institute of Running, parallel networks, Deutsche Bahn needed a solution that could support both operational and custom-of-facing ID systems with a dedicated safety network.
Speaker Change: are consultants worked with Deutsche Bahn to understand the need and aids in multiple proofs of concept.
Speaker Change: and ultimately won the business to provide a solution around a rugged ice-witted, customized to simplify application integration.
Speaker Change: In addition, our team is engaged with Deutsche Bahn to provide training and support as the solution is broadly implemented.
Speaker Change: Next, let me take a moment to highlight a win in the hospital and in vertical with a major gaming and leisure operator.
Speaker Change: A customer was looking for a single provider to supply a network backbone to connect and drown their entire operations, including the gaming floor, guest rooms, security, access controls, and on-premise data centers.
Speaker Change: The theme secure a project worth $2 million to provide a network backbone, including fiber, copper, connectivity and other 5G connectivity elements.
Speaker Change: But Dean from the CIC and Chicago went through the complete solution process and ultimately put together an offering including products from across the organization, including a traditional industrial, smart buildings and broadband businesses.
Speaker Change: This is a great example of a theme combining thoughts from a legacy business unit to provide an extremely unique solution.
Speaker Change: To conclude, we believe that our solutions are superior in the marketplace. And over time, winds like these will ultimately lead to more sales and a deeper and secure relationship with key customers.
Speaker Change: I will now request Jeremy to provide additional insight into a third quarter financial performance.
Jeremy Parks: Thank you Ashish. I will start my comments with results for the third order followed by a review of our segments, a discussion of the balance sheet and cash flow, and finally our outlook.
Jeremy Parks: As a reminder, I will be referencing a just-sid result today.
Jeremy Parks: Now, please turn to slide seven.
Jeremy Parks: for the quarter was $655 million of 8% sequentially and exceeding the high end of our guidance of $650 million.
Jeremy Parks: Excluding the Precision Acquisition, revenue in the third quarter was buffed 3% sequentially.
Jeremy Parks: [inaudible]
Jeremy Parks: Compared to the prior year, the recorder revenue increased by 4%.
Jeremy Parks: Organic revenue was down 2% year over year with automation solutions down 3% and smart infrastructure solutions down 1%.
Jeremy Parks: We are encouraged to see our organic growth rates continue to improve and expect positive year-over-year growth in the fourth quarter.
Jeremy Parks: orders for the quarter were up 8% sequentially and up 28% year over year with both segments exhibiting strong year over year growth.
Jeremy Parks: For us, Prof. Margins came in as expected at 37.8% decreasing 40 basis points sequentially.
Jeremy Parks: Even though it was 113 million dollars, with even a margins of 70 basis points sequentially to 17.2%.
Jeremy Parks: Next income was $71 million of from $62 million in the prior order.
Jeremy Parks: and EPS with a dollar 70 above the high end of our guidance range of a dollar 65.
Jeremy Parks: Turning now to slide eight for a review of our business segment results.
Jeremy Parks: Despite continued slowness in our markets, performance aligned with our expectations.
Jeremy Parks: For the third quarter, revenue in our automation solution segment was down 2% compared to the prior year.
Jeremy Parks: Even a margins were 21.4% in the quarter down from 22.5% in the prior year.
Jeremy Parks: Orders in automation solutions were down 1% sequentially and up 25% compared to the prior year.
Jeremy Parks: Well, we have not yet seen a recovery in our discrete markets. Other verticals, including process and energy, did show strength for the quarter.
Jeremy Parks: As mentioned previously, automation solutions revenue declined by 3% organically on a year-over-year basis.
Jeremy Parks: However, excluding the discrete vertical organic revenue growth was positive for the segment.
Jeremy Parks: Revenue in our smart infrastructure solution segment group 13% compared to the prior year. Even at margins, we're 12.7% in the quarter, down from 13.3% in the prior year.
Jeremy Parks: Forters in smart infrastructure were up 18% sequentially and up 31% compared to the prior year.
Jeremy Parks: Exploited the impact of precision, orders were up 7% sequentially and up 19% compared to the prior year.
Jeremy Parks: We shot improvements in both and markets with continued recovery in broadband and slight outperformance in our growth verticals within a smart boat.
Jeremy Parks: We continue to see destocking in our markets. However, the pace of destocking continues to moderate.
Jeremy Parks: Next, please turn to slide nine for our balance sheet in cash flow highlights.
Jeremy Parks: Our cash and cash equivalents balance at the end of the third quarter was $323 billion compared to $597 million in the fourth quarter of 2023.
Jeremy Parks: Please note that the cash consideration for the Precision Optical Acquisition was paid during the third quarter, resulting in a use of cash.
Jeremy Parks: Our financial leverage was 2.1 times, now dead to EBITDA at the end of the third quarter, consistent with our expectations.
Jeremy Parks: We intend to maintain that leverage of approximately 1.5 times over the long term.
Jeremy Parks: As a reminder, we generate the majority of our pre-cache flow in the second half of the year, particularly in the fourth quarter, which provides us the opportunity to reduce leverage and further deploy capital.
Jeremy Parks: Through the third quarter, our Tralling 12 Month, free cash flow came in as expected at $211 million. Roughly in line with previous periods.
Jeremy Parks: and Assistant with our Capital Education Priorities, year to date, we have deployed approximately $417 million toward M&A, Chair Repurchases and Dividates.
Jeremy Parks: We currently have $358 million remaining on our reproachment.
Jeremy Parks: As a reminder, our next death maturity is now to 1227.
Jeremy Parks: and all of our debt is fixed with rates averaging 3.5%.
Jeremy Parks: [inaudible]
Jeremy Parks: Please turn to slide 10 for our updated outlook.
Jeremy Parks: For the fourth quarter, we anticipate order patterns to remain steady across our markets as customers navigate this dynamic environment.
Jeremy Parks: Revenues are expected to be in the range of $645 million to $660 million.
Jeremy Parks: Representing a 17% to 20% increase over the prior year quarter.
Jeremy Parks: A just in EPS is expected to be in the range of $1.62 to $1.72.
Jeremy Parks: Representing an 11% to 18% increase over the prior year quarter.
Speaker Change: Back includes my prepared remarks. I would now like to turn the call back to Ashish.
Ashish Chand: Thank you, Jeremy.
Ashish Chand: The applause.
Ashish Chand: Let me reiterate that the third quarter for Bellden was again steady, with the orders increasing modestly on a sequential basis, and up meaningfully compared to our low point in the prior year.
Ashish Chand: The customers continue to operate cautious.
Ashish Chand: However, I am pleased to see a solid execution once again drive out the farmers.
Ashish Chand: As we outline during our invested day last month, our business is well positioned to succeed as the next investment cycle ramps up.
Ashish Chand: We are successfully executing our transformation and focusing our efforts on key verticals with solid circular growth trends and high data needs.
Ashish Chand: In turn, we are lining up processes and operations around solutions to rely on the full potential of a product portfolio.
Ashish Chand: So when I mentioned earlier, highlight the opportunity ahead of us as we continue refining of good-o-market strategy.
Ashish Chand: Across the organization.
Ashish Chand: A strong financial position allows us to accelerate growth with tucking acquisitions.
Ashish Chand: and provides exoscapability to opportunistic interviewer dishes when it makes sense.
Ashish Chand: I'm confident in our team's ability to transform our business, leverage our superior technology and capitalising growth opportunities in all market conditions.
Ashish Chand: I'll be generate sustainable long term shareholder value.
Ashish Chand: Looking forward to the fourth quarter, we see continued stability across our businesses as customers remain watchful on the eve of the US elections.
Ashish Chand: Economic indicators such as inflation on encouraging and manufacturing PMI figures have improved.
Ashish Chand: However, they are not consistently backed into expansion territory as yet.
Ashish Chand: I'm the shop-likey business.
Speaker Change: How far would you as limited beyond the most current portal? So it's difficult for us to estimate when these trends will disappear.
Speaker Change: What I can say is that a business and self-position was strong out of the formings, one thinks they're
Speaker Change: We will continue to execute in a measured fashion.
Speaker Change: What into advanced solutions and nature?
Speaker Change: I would like to take a moment to recognize the contributions of our associates, the Sparse Coral. I appreciate your efforts and would like to thank you for your support as we continue to transform and build and for challenging and bad best.
Speaker Change: That concludes up the bear-to-mots
Speaker Change: Operator, he's open the call to questions.
Speaker Change: Thank you. If you would like to ask a question, please press the Star Key Follow by the Digit 1.
Speaker Change: on your telephone keypad. Again, that is the start key followed by the digit one. If you're joining us today.
Speaker Change: B.S. speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Again, that is Star One if you have a question or comment. We'll take your first caller from William Stein from Trueist Securities.
William Stein: Great, thanks for taking a question, congrats on the good results and outlook guys.
William Stein: I'd like to first ask about precision optical. Can you remind us that that close at the end of last?
William Stein: The prior quarter or at the very start of this quarter and if you could disclose to us the revenue generated in the quarter from that company relative to your expectations.
Speaker Change: Yeah, hey, well, so the precision deal closed right at the end of second quarter.
Speaker Change: and so we had basically a full quarter of ownership during Q3. Revenue came in right about what we expected, I think revenue for the quarter was 34.5 million, which was consistent with our expectations.
Speaker Change: Maybe you can sort of shed some light as to what that's even being highlighted. Is it more strategic than some of the other acquisitions then or is it...
Speaker Change: Does the strategic importance outweigh that 6 million price tag and can you disclose the annualized revenue expectation there? Thank you.
Speaker Change: Yes, so let me start with that, well, and then Jeremy can add some comments on the revenue. So the reason Bolly attack is important, the reason it punches kind of about its weight is that.
Speaker Change: For a long time we had an inconsistent...
Speaker Change: Security layer in different active devices. So depending on which.
Speaker Change: Board of Category, you purchased from Belgium. There was a slightly different security configuration.
Speaker Change: We've been working to unify that across all the active products.
Speaker Change: and we are a similar to a certain time period to do that. Golly attack actually accelerates that dramatically.
Speaker Change: We are now able to in one move just.
Speaker Change: Good work consistent.
Speaker Change: Security Law across all our exercises.
Speaker Change: and that's very important for many of the customers who want to use our network and data solutions but for concern about security. So that's why it is strategic. We highlighted it to make sure that, you know, broadly it is understood.
Speaker Change: At the time of the break, it's not a big, you know, the revenue itself inherently in Bolia Tech is not very large, maybe Jeremy can remind me.
Jeremy Parks: Yeah, so we're not going to be disclosing it, but it's less than a million dollars. Very small. Think about this as an opportunity to...
Jeremy Parks: to not have to invest that money organically because it would have cost a bit more to do it organically than to purchase this company and get that technology and it's an accelerator in terms of helping sell solutions but it's very, very small but strategically I think relevant.
Speaker Change: I think I got a defecate squeeze one more in. You ever revvy, Carmen in these sort of industrial and market, things to be.
Speaker Change: The downturn seemed to be much less severe than for example for component most component and semiconductor company selling into those end markets. And as you now sort of transition into growth.
Speaker Change: Should we expect the rebound to be powerful or should we be more muted in our expectations because you've sort of outperformed in this week or period? Thank you.
Speaker Change: So, if you break it down on the discreet or the basic factual automation in that vertical.
Speaker Change: It's still weak for us, so it's not like it's...
Speaker Change: Sure.
Speaker Change: As a reminder, ladies and gentlemen that is the sarky followed by the digit one if you have a question or comment we will hear next from Mark Delaney from Goldman Sachs.
Mark Delaney: Yes. Good morning, Thanks, very much for taking my questions. I believe you said you are still seeing destocking occurring throughout the channel even as revenues picking up sequentially, so hoping to better understand and more specifically, where you see inventory levels and distribution and any views around where inventory may be as the company access to.
Mark Delaney: This year.
Mark Delaney: Yes, I think what we're seeing is first.
First of all inventory at distribution I would say it is is that a level that is consistent.
Mark Delaney: Consistent with longer term trends in terms of days of inventory.
Mark Delaney: At distributors. So I think that is okay. We are still waiting to see additional improvement in Pos because remember all along we've been talking about the destocking as having two components, which is inventory reduction at distributors and then inventory reduction at their customers machine builders Oems.
Mark Delaney: Et cetera, and so what we're still waiting to see is a significant acceleration in Pos it's coming up over time.
Mark Delaney: As those end customers or are those intermediate customers worked through their inventory.
Mark Delaney: It obviously has.
Mark Delaney: Yeah.
Speaker Change: Where are they see hardware and software as a single technology stack versus trying to buy that from.
Speaker Change: Many different vendors and pulling it altogether so to the extent that one.
Speaker Change: To the extent possible the one the data.
Speaker Change: To be managed in one hardware plus software stack. So this is good for us because this is the.
Speaker Change: <unk> solutions message, we have for our customers.
Speaker Change: And so those conversations are extremely encouraging across multiple verticals.
Speaker Change: Great. Thanks, so much for that color.
And kind of speaking to that from your your acquisition you made this quarter and then just kind of thinking about the software side of things.
Speaker Change: The packet, bringing how do you see the landscape I guess for acquisitions. Then are you focused more on software today or how do you kind of think maybe about the balance of acquisitions hardware versus software longer term. Thank you.
Speaker Change: Yes.
Speaker Change: Italy focused on three areas.
Speaker Change: <unk>.
Speaker Change: Basically edge hardware, which is which always have some kind of embedded software. So it's an active portfolio I know thats an area we keep.
Speaker Change: Looking for.
Speaker Change: We are certainly looking at.
Speaker Change: <unk> wireless.
Speaker Change: And then we continue to enhance security through M&A.
Speaker Change: The last one that we talked about earlier tech was so.
Speaker Change: In the security area again, it is very important for us to signal.
Speaker Change: [music].