Belden Inc

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated conference 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, and if you would like to ask a question, please press star 1 on your touchtone phone. Your questions will be taken in the order they are received. If you are in the question queue and would like to withdraw your question, simply press star 2. I'd now like to turn the call over to Kevin Maska. Please go ahead, sir.

Thank you, Ebony. Good morning, everyone, and thank you for joining us today for Belden's second quarter 2019 earnings conference call. My name is Kevin Maska. I'm Belden's vice president, treasurer, and investor relations. With me this morning are Belden's president, CEO, and chairman, John Stroop, CFO Hank Dirksen, and chief operating officer, Roel Vestjens. John will provide a strategic overview of our business, and then Hank will provide a detailed review of our financial and operating results, followed by Q&A. We issued our earnings release earlier this morning, and we 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. Turning to slide two in the presentation, During this call, management will make certain forward-looking statements in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For more information, please review today's press release and our annual report on Form 10-K. Additionally, during today's call, management will reference adjusted or non-GAAP financial information. In accordance with Regulation G, the appendix to our presentation and the investor relations section of our website contain a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate. I will now turn the call over to our President, CEO, and Chairman, John Strube.

John? Thank you, Kevin, and good morning, everyone. As a reminder, I'll be referring to adjusted results today. Please turn to slide three in our presentation for a review of our second quarter performance. Revenues were consistent with our expectations across most of our portfolio in the second quarter. However, demand trends softened in some of our key industrial markets, with orders declining in the last month of the quarter. Trade disputes and uncertainty seem to have triggered this abrupt shift in industrial demand. and we now expect a more challenging demand environment in the second half. Therefore, we are reducing our revenue and EPS expectations for the remainder of the year. Despite this near-term outlook revision, we remain extremely well-positioned to benefit from a number of long-term secular trends. Now let's review the second quarter performance. Revenues in the quarter declined 4.1% on an organic basis to $637.5 million. As a reminder, results in the second quarter 2018 benefited from non-recurring revenue recognition timing. After adjusting for that impact, revenues declined 3.1% organically. EBITDA was $101.2 million, reflecting 15.9% EBITDA margins. EPS was $1.39 compared to the guidance range of $1.30 to $1.50. I am pleased to report further significant improvements in free cash flow, which increased 25% year-over-year in the second quarter. Further, free cash flow more than doubled on a trailing 12-month basis. From $112 million in the second quarter 2018 to to $231 million in the second quarter 2019. Consistent with our plans, capital deployment has been balanced in the areas of organic growth investments, strategic acquisitions, and share repurchases. Near to date, we deployed $51 million in capital expenditures to fund a number of attractive organic initiatives. As previously communicated, we completed two broadband fiber connectivity acquisitions in the second quarter for a combined purchase price of $51 million. These businesses complement our product roadmap and should enable growth and share capture in our PPC broadband business. We also initiated the share repurchase activity under our $300 million authorization, deploying 50 million year-to-date through July 2021. including $23 million in the second quarter. Please turn to slide four for a review of our business segment results. I will begin with our enterprise solution segment. As a reminder, our enterprise solutions allow customers to transmit and secure data, sound, and video across complex enterprise and media networks. Our key markets include smart buildings, final mile broadband, and live media production. After adjusting for the non-recurring revenue recognition timing in the year-ago period, revenues in this segment declined 6.6% on an organic basis to $369.9 million, in line with our expectations. Revenues in the smart building market were approximately flat on an organic basis, with a decline in the APAC region offsetting continued growth and share capture in the Americas. Revenues in final mile broadband declined 14% in the second quarter, as we expected, against a very challenging year-over-year comparison. We continue to see healthy demand with our fiber optic and outside-the-home products, which benefit from increasing broadband subscribers and network upgrades. But demand for products used inside the home remains weak. Following the two acquisitions that we completed in April, our broadband fiber revenues more than doubled in the second quarter. Further, our product mix continues to improve as the majority of our broadband revenues came from outside-the-home products for the first time in the second quarter. We continue to pursue a number of other compelling and organic opportunities that would allow us to further expand our fiber product offering and drive substantial growth. Revenues in live media production declined in the quarter. The first half performance in this business is consistent with our expectations for the full year. Enterprise solutions segment EBITDA margins were 14.5%. Turning now to our industrial segment. Much like enterprise, our industrial solutions allow customers to transmit and secure data, sound, and video, but in this case, in harsh industrial environments. Our key markets include discrete manufacturing, process facilities, energy, and transportation. Revenues in this segment increased 1.9% on an organic basis to $267.7 million. We continue to benefit from a balanced portfolio of industrial businesses. Demand remains robust in our process, energy, and transportation markets, each of which increased at least 8% organically. However, growth rates reversed during the quarter in our largest industrial market, discrete manufacturing. Revenues in the discrete market declined 2% in the second quarter, with order rates declining 7% in June. This was especially pronounced in Germany and in the semiconductor vertical. Given our recent order trends, the increased level of uncertainty in the global industrial economy, and the lowest German PMI in seven years, We expect the pressure in discrete to persist in the second half. Cybersecurity demand trends remain very encouraging. Non-renewal bookings, our best leading indicator of revenues, increased 11% overall and a very robust 37% in the industrial vertical. This represents the fourth consecutive quarter of double-digit growth in total non-renewal bookings. Our new cloud-based solutions continue to gain traction with new and existing customers. We anticipate further solid growth in this business going forward as we continue to develop and launch new products to expand our comprehensive suite of solutions specifically designed for industrial and enterprise applications. Industrial solutions segment EBITDA margins were 17.7%. I will now ask Hank to provide additional insight into our second quarter of financial performance.