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 one on your touchtone phone. If you are in the question queue and would like to withdraw your question, please press star 2 on your touchtone phone. I would now like to turn the call over to Mr. Kevin Mazka. Please go ahead, sir.

Thank you, Mark. Good morning, everyone, and thank you for joining us today for Belden's first quarter 2020 earnings conference call. My name is Kevin Mazka. I'm Belden's Vice President of Investor Relations and Treasurer. With me this morning are Belden's President, CEO, and Chairman, John Stroop, Chief Operating Officer Ruel Vestjens, and CFO Hank Dirksen. John will provide a strategic overview of our business. Ruel will provide a detailed update of our operations and review our segment results. 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 Stroop.

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. Before we review our first quarter performance, I'd like to discuss the COVID-19 situation and how we are responding. This unprecedented pandemic is putting incredible stress on the global economy and financial markets, and our associates, customers, and suppliers are experiencing disruptions in their daily lives that were unimaginable just a short time ago. Belden is certainly not immune from these new challenges, but we have the solid financial foundation to weather these difficult times. We are committed to protecting our people and supporting our customers and offering our expertise and resources to assist in combating COVID-19. The health and safety of our associates and their families remain our top priority, and we are following CDC and WHO guidelines to maintain safe working conditions. We rapidly scaled our work from home capabilities in our offices, enhanced the hygiene practices in our factories, and implemented social distancing standards across our organization. We are also providing flexible working arrangements to help employees and their families navigate the disruption. I am extremely proud to report that our teams are rising to the occasion and finding creative ways to support local efforts to combat COVID-19. This includes donating cabling and connectivity products for ventilator production and masks for medical centers and temporary hospitals in the United States, Wuhan, and elsewhere. In addition, we are using our 3D printers to produce components for face shields for medical workers and rapidly developing and testing designs for N95 masks. Our valued customers are feeling the impact of this global pandemic as well, and we are focused on keeping them supplied while keeping our associates safe. The majority of our sites have qualified for essential business status and remain operational albeit at reduced capacity in some cases. Rule will provide more details on our operations in his remarks. We remain committed to our capital projects and R&D investments. These investments are important to our customers and will enable us to provide a high level of product innovation in the future. We are also taking the opportunity to further optimize our business for the current environment and the eventual recovery. As you would expect, we are managing our expenses and deploying countermeasures to protect cash flows. This includes upsizing our existing cost reduction program, harvesting working capital, and implementing compensation reductions for our senior leaders. Specifically, for the remainder of the year, we are reducing base salaries by 50% for myself and 30% for our senior leadership team. We are also reducing cash retainer fees for our board of directors by 50%. However, we intend to maintain our direct labor force in anticipation of improving demand trends later in the year. During this period of softer demand, our direct labor is allocating additional time to Kaizens and other continuous improvement and preventative maintenance activities. This will allow our operations to emerge even stronger. Please turn now to slide four in the presentation. Next, I would like to update you on the three transformative actions we initiated last year following our comprehensive strategic portfolio review. These include the divestiture of Grass Valley, the $40 million cost reduction plan, and the planned exit of approximately $250 million in undifferentiated copper cable product lines. The Grass Valley divestiture remains on track. In February, we announced a definitive agreement to sell 100% of Grass Valley to private equity firm Black Dragon Capital in a transaction that we expected to close in the first half of 2020. The teams are working diligently to satisfy any remaining closing conditions, and the transaction remains on track for closing in the second quarter. As I mentioned, we are upsizing our $40 million SG&A cost reduction program. We previously communicated an expectation of delivering 20 million of these savings in 2020 and the full 40 million run rate in 2021. We made considerable progress on achieving the planned savings and our teams have identified a number of incremental opportunities. Today we announced an increase in the program to 60 million. We now expect to deliver $40 million of savings in 2020 and the full $60 million run rate in 2021. Finally, given current market conditions, we are delaying the planned exit of $250 million in copper cable product lines. We believe that we are unlikely to maximize the value of these product lines during a global pandemic, so we will revisit this process and engage with potential buyers when conditions normalize. Turning now to slide five in the presentation. I'd like to update you on our end markets. Recall that the strategic actions we are executing will result in an improved portfolio of businesses that is aligned with favorable secular trends in industrial automation, cybersecurity, broadband and 5G, and smart buildings. We continue to believe that these are robust markets with compelling growth opportunities over the cycle. We are well positioned to participate in that growth as we execute our strategic plans. Turning now to slide six in the presentation. That said, the current situation is very dynamic and visibility remains limited, making it incredibly difficult to accurately forecast near-term trends. As such, we thought it would be helpful to share our view of the potential trends in our markets once conditions normalize. When the crisis passes and global economies reopen, We believe that many of our businesses could emerge stronger than ever. The next three slides illustrate our view of market conditions in a post-crisis environment. Green represents markets that we believe could see an accelerated recovery. Yellow represents markets that will likely see a typical recovery, while red represents markets that could remain depressed for an extended period before recovery. Broadband and 5G, which represents approximately 23% of total revenue, should be a clear beneficiary of the global pandemic and the associated social distancing and work from home practices. Broadband networks are being stressed like never before. We believe this will drive increasing investments in network infrastructure by our customers, supporting continued growth in our outside the home product revenues. Further, Our inside the home business recently secured several large orders of self-install kits as a result of social distancing and a reluctance to send technicians into consumers' homes. We are well positioned to benefit from increasing demand for broadband and 5G and the required investments in network infrastructure. Turning now to industrial automation, which represents approximately 46% of total revenue. The global pandemic is clearly impacting in demand on a temporary basis, but we remain extremely optimistic about automation trends longer term. We see a number of drivers of sustainable secular growth, including increasing labor costs and enhanced productivity and quality needs. Social distancing and other new practices in the post-crisis environment could represent yet another incremental demand driver for automation. Within industrial automation, we serve customers in four market verticals, including discrete manufacturing, process facilities, energy, and mass transit. Our discrete products reside in machines on factory floors in a number of industries. Not surprisingly, recent demand trends vary significantly by sub-vertical. We support customers in consumer products, material handling, medical, and pharmaceutical products and semiconductors. These are areas of relative strength that we expect to perform very well in the recovery. The energy market is all about electric utilities producing and distributing electricity. This vertical includes conventional electricity generation along with newer alternatives such as wind and solar and smart grid installations. Energy is typically less cyclical than most industrial verticals and we expect demand to remain healthy through that period. Mass transit is also typically less sensitive to economic conditions. Projects in this market are often state-funded, and infrastructure-related stimulus investments could be especially beneficial, particularly in the EMEA and Asia Pacific regions. Much like industrial automation, demand trends in smart buildings vary significantly by subvertical. We would also expect robust demand in some of our smart building markets. We serve government, healthcare, and data center customers. And as the economy reopens, we would expect healthy demand from these customers to partially offset the headwinds in the other verticals within smart buildings. Finally, cybersecurity is about 6% of our total revenue. We continue to see compelling secular growth opportunities in cybersecurity, especially in industrial applications. However, COVID-19 is impacting our near-term results. Our customers are temporarily shifting their IT priorities elsewhere and delaying planned projects. Importantly, however, we are not seeing large project cancellations, and we expect the projects to proceed as the crisis passes. Turning now to slide seven in the presentation. This slide highlights our other verticals that we would expect to see a normal recovery once the global economies reopen. In process facilities, we play in the water and wastewater, oil and gas, metals and mining, and chemicals markets. Process markets like water and wastewater tend to be much more stable even in recessionary environments. We would characterize our expectations for the recoveries in these markets as relatively normal. Turning now to slide eight, while we expect many of our markets to see accelerating demand trends as the global economies recover, some of our markets may be depressed for an extended period before recovery. For instance, in smart buildings, our customers in the hospitality, retail, and commercial real estate markets are clearly facing fundamental changes in their business that will have implications for demand for our products. We would expect projects currently underway to proceed to completion, but new project starts in these markets could soften going forward. Oil and gas is obviously challenged, And I would note that this market represents only approximately 5% of our total revenues. Similarly, demand from automotive factories is increasingly pressured and it also represents only approximately 6% of total revenues. In summary, we see many more opportunities than risks in our markets in the post-crisis environment. Our portfolio of businesses will be impacted by COVID-19 to varying degrees. but we believe that many of our businesses, such as broadband and 5G and discrete manufacturing, will emerge stronger than ever. We remain extremely excited about the opportunities for Belden going forward as we continue our transformation. Please turn to slide nine for a brief discussion on our first quarter results and balance sheet and liquidity positions. Revenues in the first quarter declined 7% on a year-over-year basis to $463.5 million. In-demand for our products exceeded our shipments in the first quarter, with incoming orders declining 2% to $489 million. EPS was 67 cents compared to 84 cents in the year-ago period. Perhaps more importantly, given the current environment, our balance sheet is strong, and we are very comfortable with our liquidity position. In recent years, we strengthened our balance sheet and secured sources of additional liquidity. These decisions are providing to be especially beneficial now, providing important financial flexibility to successfully navigate this difficult economic environment. We exited the first quarter with cash on hand of $294 million. Subsequent to the end of the quarter and out of an abundance of caution, we proactively drew down $190 million under our revolving credit facility, resulting in ample liquidity of over $450 million. Our financial leverage at the end of the quarter was 2.8 times net debt to EBITDA. This is within our stated range of two to three times. Importantly, our fixed interest rate debt has no maintenance covenants and no maturities until 2025 to 2028. I will now ask Roel to provide an update on our operations and a review of our business segment results. Roel?