Belden Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to this morning's Belden Reports Second Quarter 2023 Results Conference Call. Just a reminder, this call is being recorded and at this time you are in a listen only mode, but later we will conduct a question and answer session. I would now like to turn the conference over to VP of Investor Relations, Mr. Aaron Redington. Please go ahead, sir.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining us for Belden's Q2 2023 earnings conference call. With me today are Belden's President and CEO, Ashish Chand and Senior Vice President and CFO, Jeremy Parks. Ashish will provide a strategic overview of our business and then Jeremy will provide a detailed review of our financial and operating results followed by Q and A. We issued our earnings release earlier this morning We have prepared a slide presentation that we will reference on this call.

Speaker 1

The press release, presentation and transcript These prepared remarks are currently available online at investor. Belden.com. Turning to Slide 2 in the presentation. During this call, management will make certain forward looking statements. For more information, please review today's press release and our most recent annual report on Form 10 ks.

Speaker 1

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 contains a reconciliation of the most closely associated GAAP financial information to the non GAAP financial information we communicate. I will now turn the call over to our President and CEO, Ashish Chand.

Speaker 2

Thank you, Aaron, and good morning, everyone. Thank you for joining us today. Let's turn to Slide 4 for a summary of the major accomplishments we achieved in the Q2 of 2023. As a reminder, I will be referring to adjusted results today. 1st, once again, our team delivered another outstanding quarter Total revenues and EPS exceeding expectations for the 13th quarter in a row.

Speaker 2

Our revenue grew, our margins expanded And organic growth came in at the high end of our previously issued guidance for the quarter. During the second quarter, We achieved record quarterly revenue of $692,000,000 record earnings per share of $1.91 and we expanded our EBITDA margins by 120 basis points to 17.8% for the quarter. Very solid execution from the Belden team. Well done. Growth in the quarter was broad based across our businesses and regions.

Speaker 2

As Belden continues to transform from a supplier of trusted products to a value added solutions provider, we are seeing the results, Improved and more resilient growth, increasing margins and deeper customer partnerships. 2nd, our segments continue to perform well considering the challenges and uncertainties around the world. End demand for our products and solutions is healthy with both of our segments experiencing positive revenue growth We're expanding margins for the quarter, tough to do in today's environment. Sound execution across the business helped us achieve 5% organic growth companywide, 8% organic growth in Industrial Automation Solutions and 1% organic growth in Enterprise Solutions. Finally, as our business continues to grow and we invest the capital towards high return opportunities, Leverage at Belden remains low at 1.4 times in line with levels a year ago.

Speaker 2

Our strategic plans while staying below our target net leverage of 1.5 times. Free cash flow for the quarter was up year over year And our trailing 12 month free cash flow reached $280,000,000 well on track to achieve the targets we have previously articulated. During the quarter, we continued to deploy capital and I'm pleased to report that year to date, we have invested $190,000,000 in M and A and share repurchases. In summary, this was another excellent quarter for Belden and continues to highlight the change our business has undergone over the last few years to produce a growing, More sustainable and higher margin business than the Belden of the past. Now please turn to Slide 5.

Speaker 2

Belden is still in the early innings of its solutions transformation. Over the last few years, We have created a new and incremental go to market strategy. By focusing on customer KPIs and framing a business case around how We can address the unique challenges. We are purposefully building our position in the solutions marketplace. Let me take a moment to better describe where we see opportunity and how we believe Belden is uniquely positioned.

Speaker 2

Across our markets, customers continue to invest heavily to automate and modernize the systems and infrastructure to gather actionable data. Often these investments come in waves with disparate equipment and systems. As a result, many find themselves with islands of data across multiple systems that do not provide the promised functionality or outcomes. This is where Belden has a unique competitive advantage and our solution consultants are carving out a niche in the marketplace. As we work to grow our solutions offerings, the foundation has been and always will be A highly reliable network and data products, a comprehensive portfolio of products puts us in a leading position as we excel in all of the following offerings: data acquisition, data transmission, data orchestration and data management.

Speaker 2

Our solutions transformation began with industrial automation, where we seized the opportunity to utilize our best in class products with a more solution focused approach to directly solve customer problems. The result has been higher growth with improving margins. This past June, we appointed a new leader to our Enterprise Solutions segment to drive growth and change across the combined broadband and smart buildings markets. You see a compelling opportunity ahead for enterprise solutions as we bring together our unique products to address the ever expanding needs of hybrid networks in enterprise applications. Consider, for example, a large campus environment that requires both broadband access and connectivity solutions in addition to traditional enterprise products.

Speaker 2

Across our markets, Our ability to gather data and move it across a factory floor, a warehouse or a hospital gives us credibility as we design digitization solutions focused on core verticals and use cases. We bring islands of data together, utilizing hybrid solutions and ultimately format the data into a common language for easy digestion by end operating systems. Now please turn to Slide 6 for further discussion around Belden Horizon and our improving product functionality and capabilities. As we have discussed before, Belden Horizon is a cloud native platform that provides secure OT centric services for deploying, connecting and managing devices and applications. As we grow our solutions offerings, Belden Horizon is a key value add as part of an overall Belden solution.

Speaker 2

It provides critical software for the onboarding, monitoring and updating of edge computing devices and the management and orchestration of edge applications that are used by businesses to improve their efficiency, maximize uptime and enable continuous process improvement. This past June, with the launch of Belden Horizon Data Operations and Belden Horizon Data Manager. The Belden Horizon Suite added key functionality to further empower organizations. The upgrades included: 1, adding hundreds of OD protocols with easy integration 2, The addition of digital twins and analytics tooling empower users to collect, contextualize and analyze data at the edge. And 3, Scalable functionality to support large or remote deployments and manage many instances.

Speaker 2

With recent upgrades, Belden Horizon stands out in the industry due to its dedicated focus on industrial networking and cybersecurity challenges. By combining network management, cybersecurity and analytics into a single vendor agnostic platform, Belden aims to simplify the management, security and optimization of networks. As we consider the evolution of Belden, it is that enable our customers' digitization journeys. Software like Belden Horizon brings our products together in one comprehensive solution and enhances our offerings by differentiating us from competitors and ultimately deepening our relationship with customers. Now please turn to Slide 7 for an exciting new win for Belden that further validates our solution transformation.

Speaker 2

Material handling is what we consider a converged opportunity. The products from both industrial and enterprise can be utilized to further lean into our product competitive advantage as we develop solutions for customers. In this example, our customer had a problem. Their previous wireless network was challenged to provide ample access Critical that their equipment is always connected, no matter where it is on the warehouse floor. When equipment disconnects, It causes delays, system reboots and even robot collisions.

Speaker 2

These challenges make it impossible to hit targeted processing rates and at times even requires manual retrieval of disabled robots. Enter Belden and our solution consultants. We took the time to understand the core problem and ultimately the KPI our customer wish to impact. We designed, tested and helped implement a wireless network solution as part of a larger hybrid solution to ensure network availability. As a result of our solution, we estimate a 99% reduction in disconnections and timeouts, which will ultimately result in an 11% increase in package process rates.

Speaker 2

We are proud of our team and the solution we developed. The award is our largest solution win to date, will span over 3 years and highlights how our teams are finding opportunities in the marketplace and driving incremental demand for our products and solutions. We view this award as further proof that customers are seeking experts in Networks and Digitization Solutions and that Belden is uniquely qualified to provide world class products and solutions to improve outcomes. I will now request Jeremy to provide additional insight into our Q2 financial performance.

Speaker 3

Thank you, Ashish. I will start my comments with results for the Q2, followed by a review of our segment results and a discussion of the balance sheet and cash flow performance. As a reminder, I will be referencing adjusted results today. Now please turn to Slide 8 in our presentation for a review of our 2nd quarter results. We delivered meaningful growth and margin expansion again this quarter.

Speaker 3

2nd quarter revenue increased 4% year over year and 5% organically to a record $692,000,000 exceeding our guidance range of $675,000,000 to $690,000,000 We had another impressive quarter in Industrial Automation with revenues increasing 8% organically. We continue to see compelling Longer term demand drivers for automation solutions as industrial customers respond to labor shortages, capacity requirements and the reshoring of production. Enterprise Solutions revenue increased 1% year over year on an organic basis with mid single digit growth in broadband solutions and a low single digit decline in smart buildings, which we will discuss later. Orders for the quarter were up 4% sequentially. We ended the quarter with a book to bill of 0.9.

Speaker 3

We expect orders in the second half to increase from the first half with our book to bill remaining below 1. Gross profit margins were a robust 38.1%, up 370 basis points compared to the prior year. The quarter benefited from a better than typical product mix as we continue to sell more solutions and generate favorable productivity. Given the strong start to the year In both Q1 and Q2, we are increasing our expectations for full year gross margins to be up approximately 200 basis points compared to 2022. This would imply Slightly lower sequential gross margins in the second half given the strong outperformance in the first half.

Speaker 3

EBITDA increased 11% year over year to $123,000,000 EBITDA margins expanded 120 basis points to 17.8%. Net income in the quarter was $82,000,000 up 15% from $71,000,000 in the prior year period. And EPS increased 19% year over year to a record $1.91 compared to $1.60 in the year ago period and exceeded our guidance range of $1.70 to 1 0.80 Turning now to Slide 9 and the presentation for a review of our business segment results. I will begin with our Industrial Automation Solutions segment, which helps customers transmit and secure Audio, video and data in harsh industrial environments. Key markets include discrete manufacturing, Process Facilities, Energy and Mass Transit.

Speaker 3

The Industrial Automation Solutions segment generated revenues $380,000,000 increasing 6% year over year and 8% organically. We achieved broad based strength in each of our primary market verticals. Industrial Automation segment EBITDA margins were 20.7% for the quarter compared to 19% in the prior year. Margins increased 170 basis points due to solid operating leverage on volume growth and favorable mix. Turning now to our Enterprise segment, which enables customers to transmit and secure Audio, video and data across complex enterprise networks.

Speaker 3

Our key markets include broadband solutions and Smart Buildings. The Enterprise Solutions segment generated revenues of $313,000,000 increasing 2% year over year and 1% organically. Revenues in broadband solutions increased by 4% organically for the quarter. We continue to expect Long term growth in our fiber and outside copper products because of ever increasing data demands combined with government funding for network upgrades. Revenues in the smart buildings market decreased by 1% organically for the quarter, flat for the first half of twenty twenty three and in line with our prior expectations.

Speaker 3

In our smart buildings market, we are seeing an increased impact of channel destocking, which has a temporary impact on orders from our channel partners. We experienced some impact in Q2 as anticipated, But now we expect to feel a larger adjustment during the 3rd and 4th quarters. For Smart Buildings, which has a temporary channel headwind, we expect organic growth to be down low to mid single digits for the full year. That said, we continue to see meaningful opportunities in the smart buildings market, driven by our targeted verticals utilizing converged products and solutions. Finally, Enterprise Solutions segment EBITDA margins were 14.1% for the quarter compared to 13.6% in the prior year.

Speaker 3

If you will please turn to Slide 10 for our balance sheet and cash flow highlights. Our cash and cash equivalents balance at the end of the second quarter was $515,000,000 compared to $688,000,000 in the 4th quarter $528,000,000 in the Q2 of 2022. Our financial leverage was 1.4x net debt to EBITDA at the end of the second quarter compared to one time in the Q4 of 2022 and 1.4 times a year ago. As we communicated in our 2022 Investor Day, we intend to maintain net leverage of approximately 1.5 times Going forward, for the Q2, we realized free cash flow of $68,000,000 an improvement of $37,000,000 year over year from free cash flow of $31,000,000 in the prior year. As of the Q2, our trailing 12 month free cash flow was $280,000,000 which puts us ahead of our full year free cash flow targets.

Speaker 3

Recall that in the Q3 Of 2022, we received $42,000,000 from the sale of a building. As that quarter rolls off our trailing 12 month calculation, We expect this figure to decrease from current levels. We expect to generate More than $200,000,000 of free cash flow in the second half of twenty twenty three, providing ample room to deploy capital towards high return opportunities. Finally, as Ashish mentioned earlier, During the quarter, we continued to deploy capital. In 2023, we deployed approximately $100,000,000 towards M and A and $90,000,000 towards share repurchases.

Speaker 3

Year to date, we have purchased approximately 1,000,000 shares at an average Share price of around $87 That concludes my prepared remarks. I would now like to turn the call back To our President and CEO, Ashish Chand for the outlook.

Speaker 2

Thank you, Jeremy. Please turn to Slide 11 for our updated outlook. Let me start by saying that I'm very pleased with our Q2 performance. As discussed earlier, we met or exceeded expectations for revenue, EPS and organic growth. Looking forward to the second half of the year, we expect 2023 to the air of continued macro uncertainty, where we gain incremental clarity as the year progresses.

Speaker 2

As it relates to revenue expectations, after the first half of the year, I'm happy to report that we expect continued growth in the mid to high single digits and broadband growing organically in the mid single digits. As Jeremy mentioned previously, for Smart Buildings, which has a temporary channel headwind, we expect organic growth to be down Lowtomidsingle digits for the full year. Despite temporary channel adjustments, let me reiterate my confidence in the smart buildings market. With a full suite of Belden products, including fiber combined with solutions, I see a much greater opportunity ahead for Belden over the long term. The impact on our business will be solely on revenue, which is why we are adjusting our full year 2023 revenue and organic growth estimates accordingly.

Speaker 2

For the full year 2023, we now expect Revenues are between $2,695,000,000 to $2,725,000,000 with organic growth of 3% to 4%. Next, on to earnings per share. I'm happy to report that our business continues to execute with higher productivity and increased Solution sales. Considering a strong first half and continued margin expansion, we are raising our full year EPS targets. We now expect full year 2023 EPS to be between $7.15 $7.35 representing EPS growth of approximately 12% to 15% for the year.

Speaker 2

This is a rather impressive figure given the uncertainties companies are facing in 2023. For the Q3, we expect revenues of between $675,000,000 to $690,000,000 with organic growth between negative 1% and positive 1%. We expect 3rd quarter EPS to be between $1.75 $1.85 Our portfolio is designed to deliver organic growth in excess of GDP. We are confident in our ability to execute our strategy and generate sustainable long term shareholder value. Our transformed portfolio aligns Belden with key long term secular trends.

Speaker 2

Investments in automation, reshoring, increased connectivity, increasing bandwidth usage and network upgrades All bode well for Belden to produce sustainable earnings growth. Please turn to Slide 12 for closing remarks. As we always do, I would like to reiterate our value creation framework. Our commitment is to drive EPS to $8 or more by 2025 through organic growth in excess of GDP, healthy margins, Robust cash flow and disciplined capital allocation. Weldon continues to execute and is making excellent progress towards achieving these goals.

Speaker 2

End demand for our products and solutions remains healthy. While Smart Buildings is currently impacted by incremental channel destocking, The remaining three quarters of our business has not felt the same impact. Growth at Belden continues during a challenging year, All while some margins are expanding and our business is generating cash, which we are reinvesting in high ROI opportunities. With EPS growth of 12% to 15%, our business is delivering for shareholders and proving more robust than the Belen of the past. The longer I am in the role as CEO, the more convinced I am of the opportunity ahead of us at Belden.

Speaker 2

Our solutions go to market strategy is driving incremental demand for high margin Belden products that help offset current challenges and uncertainties around the world. Industrial Automation is advancing meaningfully in the marketplace and with the changes we are making in enterprise solutions, I see a great opportunity to combine our products and services to address hybrid network needs. Finally, I would like to take a moment and recognize the efforts of our associates this past quarter and thank them for their support As we continue to transform Belden and drive incremental growth, our results speak for themselves. Thank you for your hard work. That concludes our prepared remarks.

Speaker 2

Operator, please open the call to questions.

Operator

Thank Our first question today comes from the line of William Stine at Truist Securities.

Speaker 4

Great. Thanks for taking my questions. Congrats on the better profitability in particular. But I'd like to ask about visibility in general and what's changed That results in this downtick in the full year view. I understand you've addressed a lot of it in the prepared Comments, sounds like it's almost exclusively or exclusively in channel inventory in your Smart Buildings 1st maybe confirm that understanding and then also, we'd love to hear about what you might have learned Through this process that would help mitigate a sort of channel build and this effect that we're seeing now from happening in the future?

Speaker 4

Thank you.

Speaker 2

Good morning, Will. Yes, so just to reconfirm what we said in our prepared remarks. So We at this point in time, overall, we see the Industrial Automation Solutions and the Broadband business That's consistent with our prior guidance. And within the Smart Buildings business, which is approximately 25% of our total revenues, The encouraging news is that POS, point of sale data end demand In Q2, for example, was 2% up organically and also about 35% of that business, which is focused on priority verticals that grew in the first half about 4%. So Really, the issue is limited to some of the more commercial real estate oriented markets there Within Smart Buildings and then the dynamic is really our channel partners Feeling that they want to draw down more inventory and our prior estimates were that they would stop doing that About a couple of months ago, it's going a little further and I think that process is going to turn Only sometime in Q3.

Speaker 2

As a result, we've taken the high end down by 1%, effectively 0.5% for the rest of this year. So, yes, it's basically localized to that sub vertical in the market and the dynamic is with the distribution process. In terms of what we have learned going forward, I think as we've discussed on prior calls, We have really over the last 2 years worked with the channel partners on maintaining healthy turns and we have not Fallen into the trap of building up too much inventory. And I think the there is some more fine tuning we need to do maybe to that process in the Smart Buildings area and that fine tuning happens And automatically when you have more solution sales and end user connection, and I think that it just speaks to our requirement to build more Solutions capability in enterprise as a whole and in smart buildings specifically.

Speaker 4

If I can follow-up, margin performance impressive both the quarter and the outlook. I wonder if you can maybe quantify a little bit when it's productivity and mix. Productivity, I think we all understand. But when we talk about mix, maybe how much of the improvement is mix related? And then within that, how much is it Just higher margin products or more solutions on?

Speaker 4

Thank you.

Speaker 2

Yes. So As you know, our best reference for that is our Industrial Automation segment. The solutions portion there is about In the mid teens, 15% to 17% at this point growing. Now the other way to think of that in our Industrial Automation portfolio is the portion that is active devices and software. That's about a third of our industrial automation business versus the passive products and components.

Speaker 2

That's the other 2 thirds. Now both solutions and the active portion are growing approximately High teens to close to 20 percent organically. And obviously, that is that's driving improved margins Essentially by leading with solutions that have more content of high margin products. We haven't done really any pricing this year. That's not I mean, we've covered that In the last 18 months of it's already behind us.

Speaker 2

We are very focused on driving more active in software content as part of the overall solution story. And then on the enterprise side, We do see demand for more specialized fiber oriented products, including connectivity. You've seen how we've transformed our broadband business. It's now approximately 40% fiber content. So obviously that's driving better margins too.

Speaker 2

I think the area of opportunity for us going forward on mix is Within Smart Buildings, we do more and more on the growth verticals. We did about 35% In the first half of the day, so this is really the data centers, federal healthcare hospitality. And In these verticals, we see that the KPI for the user is not just connectivity, but to do something with that connectivity, right, saving a life, for example, in And I think both markets tend to reward us better for our specialized products. So that's it's really that story, right? The whole Solutions positioning is starting to pay off very well in the industrial side.

Speaker 2

You see patches of it On the enterprise side and more to come on that.

Speaker 4

Great. Thank you very much.

Speaker 2

Thank you.

Operator

Our next question comes from Fox Advisors and the line of Steven Fox.

Speaker 5

Hi, good morning. First, just to follow-up on all the comments you just made on the High Value Solutions. Is there a way to give us a sense for how much year over year margins benefited from just the mix shift or the higher sales of Higher Value Solutions. And I had a follow-up.

Speaker 2

Yes. Good morning, Steve. So I would say that we are expecting margins gross margins to be up 200 basis points on a year over year basis. I would say that the bulk of that really came I would say 95% of that really came from the solutions approach. We haven't like I said before, we haven't done any different pricing this year.

Speaker 2

And we see that in different stages. So in the industrial markets, that solutioning has gone Beyond Network Solutions all the way to Data Solutions, right? So more data management software, for example, Bell and Horizon is helping us there. On the enterprise side, the solutioning is still maybe at the network level, but Margins, even there, gross margins have gone up as a result of that. So to really put a brief answer on that, I would say All of our margin improvement is coming from solutions dynamics.

Speaker 5

Great. That's helpful. And then looking at your top line, you discussed the enterprise, the smart building piece thoroughly. But can we talk a little bit about broadband and industrial? On the broadband side, a couple of your competitors have actually been downgrading their sales forecast for the rest of the year As spending has slowed down, so I was curious if you could talk about that outperformance.

Speaker 5

And then from an outsider looking in on industrial, we're seeing purchasing manager index Indexes go down around the world, especially in Europe and Germany, and you're putting up 8% organic growth. So I was wondering if you could talk about That outperformance in what seems like a tougher market than 90 days ago. Thanks.

Speaker 2

Yes. So consistent with what we've said in the past, I think our broadband business is benefiting from very long term trends. We've seen very no change in orders or PAS, for example, with our operator customers. And they are benefiting obviously from infrastructure spend. The out of spend about $20,000,000,000 over $10,000,000 has already started.

Speaker 2

A beat is coming up. I think our customers are preparing to deploy that funding. And The reason we are different, Steve, from some of our peers is that we focus a lot On the MSO market and the operators who are building out the access portion of broadband Versus telco, which tends to be more cyclical and is more the trunking portion of broadband. And I think that's what differentiates us. Now the interesting opportunity we have and we're already seeing some of that, Still early days, but a lot of those operators are looking for hybrid networks where they want to go into campuses, into buildings and they need also Products out of our smart buildings and industrial portfolio to help them with that.

Speaker 2

So having this we have guided the big sport When telcos were investing rapidly and we provided the reduction, so we've remained stable and I think the broadband business is Really on a very strong footing here. And then Industrial, I think it's important to understand that there's been a dramatic change in our industrial business over the last 3 years. Like I said previously About a third of the business is now active products and software driving solutions, and that needs to be comped with Some of our solutions oriented automation payers, like people who are not selling products or wire and cable products, but Really, the full solution suite. And that market I mean, if you look at the guidance from those companies, they're all in the mid to high teens actually. So when I think about that, there's a strong requirement.

Speaker 2

Now one dynamic That was actually turning out to be even better than we expected, frankly, is the reshoring dynamic. So we see a very, very high Investment in reshoring or near shoring. And the problem, of course, that companies face is the lack of qualified labor. In fact, I was reading somewhere that there's about 1,000,000 open jobs in the U. S.

Speaker 2

Right now, which approximately 40% Due to reassuring efforts. And I think what Belden does in that space is very valuable because we bring in those automation solutions that reduce Dependence on more labor, but we also create solutions to improve the productivity per labor unit By through our Connected Workers solution. So it's really a lot of there's a lot of ramp left on that. I think reshoring was just about starting. And the fact that we are doing network and data solutions really differentiates us from more commoditized Industrial players.

Speaker 2

So just to reiterate on both those markets, we feel good. Our first half performance has been very solid. We've not seen any changes in end user demand. To be fair, we've not seen changes even in POS as versus expectation in It's only the channel draw. And as a result, our guidance is consistent in those two markets with the past.

Speaker 5

Great. That's all really helpful. Thank you.

Speaker 2

Thanks, Steve.

Operator

Our next question comes from the line of Reuben Garner at The Benchmark Company.

Speaker 6

Thank you. Good morning, everybody. So not to beat a dead horse here, but can you talk about the differences between Smart Buildings And your other markets in terms of how much you go through, like what Your business goes through distribution versus working more on a solution direct with the customer approach.

Speaker 2

Sure. So in so first of all, the bulk of our business, both in Industrial Automation and in Smart Buildings So it's through channel partners, right? So it goes through distribution. I think the difference is that on the investment automation side, A lot of the selling is now done by Belden consultants and salespeople And supported by the whole Belden infrastructure and the channel partners are really more in fulfillment. And we work very closely with them, identifying opportunities and fulfilling them, right?

Speaker 2

So that's an important piece of the solution there. On the small billing side, we are more dependent on a channel partners for Sales because the market is far more fragmented other than in our priority verticals, where In the case of hospitality, healthcare, data centers, we did involve a lot more in the end user sales process. So I think and by the way, just to complete the story, in broadband, it's really not through distribution, the Overwhelming bulk of our business there is direct to MSO, direct to operator there. So Coming back to Smart Buildings, obviously, as I said before, the opportunity for us is to get closer to the end users In terms of understanding some of their challenges and creating solutions for them, we will always Full fill through distribution because that's Belen is not equipped To do bulk breaking and distribution, that's not our skill. We want to focus on solution station.

Speaker 2

And I think it's just that Slight difference in Smart Buildings where we are less involved downstream and we want to get more involved.

Speaker 6

Great. Thanks. And then understanding that you're not necessarily seeing Weakness or a change in your broadband and industrial automation businesses, it sounds like a pretty consistent theme from Some peers that others are seeing a slowdown. Are you seeing any kind of incremental pressure on Pricing in any categories where you're getting kind of pushed back after a few strong years of inflation?

Speaker 2

Yes. So, Luvun, before I answer the question, let me just clarify. Even on the small building side, what we're seeing is Change in channel draw dynamics, we're not witnessing end markets changing that much. Like I said, Our POS in Q2 was up 2%. Our focus verticals in the first half were up 4%.

Speaker 2

And I think One difference is we are not exposed to hyperscale markets, which again like telco are kind of cyclical And we've remained focused more on those sub verticals where the KPI is beyond connectivity, right? So I just want to clarify that. And then to your main question on pricing pressure. So The business has transformed a lot and our customers see Really the value of the solution in terms of the savings they get or the effect or the productivity they get. And as a result, Those conversations have gone away from price per unit to really total cost of ownership of that solution.

Speaker 2

Now obviously, this is now across the board. We're still early in our solutions journey. But I think that's a big factor in mitigating any price pressure. And the answer is not yet. We haven't seen people coming back and saying this is more expensive than we expected.

Speaker 2

But we can do it on us to justify why we are a premium product. And I think our consultants and our sales people are very

Operator

We'll hear next from Mark Delaney at Goldman Sachs.

Speaker 7

Hi, good morning. Thank you for taking the question. This is Morgan Leung on The line for on behalf of Mark Delaney. So thank you for all the color today. We just wanted to ask a little bit more about The demand trends you're seeing by region and how they might differ at all between North America, Europe and China.

Speaker 7

And I think you also Talked a little bit about potential tailwinds from government funding in the enterprise segment. So maybe talking about the dynamic with that regionally as well. Thank you.

Speaker 2

Sure. So if I think about kind of building across the board, Really, China is less than 5% of our business right now and that is indeed the only Region which is or sub region which is down and it's down kind of mid single digits at this point. Non China APAC, by the way, is up about 6% in Q2, so doing fine. A lot of infrastructure investments in those markets, especially in India, But pretty much across the board electrification in Southeast Asia, a lot of data infrastructure getting built out. So overall, we've seen strength across the board.

Speaker 2

I think The North American market, especially the U. S. Remains very healthy right now, especially for Industrial Automation Solutions given the reassuring Focus, I think it's really bucking the trend in terms of just overall what else may be going on in the economy. I think In spite of uncertainties, people are saying we do need to produce more Closer to the point of consumption and mitigate all supply chain risks. And then If I think of the dark region, there is some impact given what's going on in Europe On geopolitics, so it's not grown as much as we would have liked, Well, it's a very consistent steady market for us, especially in automation.

Speaker 2

So I think the big picture is China is down slightly as expected, a very small part of our business. Everywhere else, we're doing fine In the U. S. And North America, especially, we're doing very well. And then sorry, just to Marvin, I'll answer the second part of your question, tailwinds in enterprise, Essentially, to be specific, that's in the broadband segment, where we've seen, As I said before, the auto spending for $20,000,000,000 of infrastructure funding over 10 years, it's started.

Speaker 2

We've seen evidence of that with some of our operating partners or MSO partners. And then We're working very hard on getting new approvals in that space because of our increased fiber content. So that's a good dynamic. And then once the big portion of the Infrastructure Investment and Jobs Act comes in, that will really that's even 2 acts of out of spending. So that will really provide more tailwind.

Speaker 7

Okay, great. Thank you. That's really helpful. That's all from us today.

Speaker 2

Thank you.

Operator

And that was our final question from our audience today. Mr. Redington, I will turn it back to you, sir, for any additional or closing remarks that you have.

Speaker 1

Yes. Thank you, operator, and thank you, everyone, for joining today's call. If you have any further questions, please reach out to the IR team here at Belden.

Operator

Thank you, ladies and gentlemen. This does conclude our call for today and you may now disconnect. Thank you for participating.

Remove Ads
Powered by Quartr
Earnings Conference Call
Belden Q2 2023
00:00 / 00:00
Remove Ads