Belden Inc

And ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated conference call. Just as a reminder, today's 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'd like to ask a question, please press star 1 on your touchtone phone. If you are in the question queue and would like to withdraw your question, simply press star 2. I would now like to turn the conference over to Kevin Maska. Please go ahead.

Thank you, Jake. Good morning, everyone, and thank you for joining us today for Belden's second quarter 2020 earnings conference call. My name is Kevin Masca. I'm Belden's Vice President of Investor Relations and Treasurer. With me this morning are Belden's President and CEO, Roel Vestjens, and CFO, Hank Dirksen. Roel 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 and CEO, Roel Vestjens. Roel?

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 second quarter performance, I would like to update you on the three transformative actions we initiated last year. These include the divestiture of Grass Valley, the upsized $60 million cost reduction program, and the planned exit of approximately $250 million in undifferentiated copper cable product lines. First, on July 2nd, subsequent to the end of the second quarter, we completed the sale of Grass Valley to private equity firm Black Dragon Capital. This is an important milestone for Belden. We were obviously pleased to complete this transaction and we look forward to supporting the Black Dragon and Grass Valley teams during the transition. Second, our SG&A cost reduction program is on track. We previously upsized the expected annual savings to $60 million and communicated an expectation of delivering $40 million in 2020 and the full $60 million run rate in 2021. We've made considerable progress and our teams delivered savings of $8 million in the second quarter, representing $32 million in annualized savings. As a reminder, these are permanent cost reductions that will not return as demand recovers. Finally, We previously delayed the planned exit of $250 million in copper cable product lines due to the global pandemic. We intend to restart this process and engage with potential buyers in the second half of 2020. Please turn now to slide four in the presentation. We are extremely excited about the opportunities for Belden as we continue our transformation and align our portfolio of businesses around markets with favorable secular trends. Our key strategic priorities are industrial automation, cybersecurity, broadband and 5G, and smart buildings. We continue to believe that each of these markets offers compelling growth opportunities over the cycle. I'd like to briefly touch on each of them now. The global pandemic is clearly impacting demand for industrial automation on a temporary basis, but we remain extremely optimistic longer term. We see increasing levels of automation everywhere in our daily lives, from factories to restaurants to parking garages, etc. We absolutely see the secular chill winds continuing due, in large part, to increasing labor costs and enhanced productivity and quality needs. Social distancing and other new practices in the post-crisis environment represent yet another incremental demand driver for automation on the factory floor and elsewhere. In cybersecurity, increasingly sophisticated and costly attacks are driving the need for advanced cyber solutions. We are especially excited about the nascent industrial markets, where we are particularly well positioned for success. Belden's truly unique offering provides critical cybersecurity protection for our customers. Many of our industrial and enterprise customers delayed large IT projects, including tripwire installations, in the first half of the year due to COVID-related shutdowns. Importantly, however, we are not seeing project cancellations or market share loss, and we are encouraged by our robust recent order trends. We continue to add new customers, expand existing deployments, introduce exciting new cloud space and other products, and further penetrate international markets. As a result, we are gaining traction and driving strong growth with our industrial cybersecurity and our software as a service offerings. This provides further confirmation that the cybersecurity solutions we provide remain a critical area of investment for our customers, even in the midst of this pandemic. In broadband and 5G, demand for more bandwidth and faster speeds is ever increasing, and the COVID-19 pandemic is only accelerating the demand for our fiber optic and other products. We continue to expand our fiber product portfolio and capacity through organic, and inorganic investments, including five bolt-on fiber acquisitions completed in the last five years. We are extremely well positioned to support our legacy MSO customers as they upgrade existing networks in response to the record demand levels and new competitive threats from 5G. We also support telco customers as they build out new 5G infrastructure. Simply put, we are extremely well positioned to win in both. Finally, in smart buildings, the increasing use of integrated networks to enable improved user experiences, efficiency, and data analytics drives increasing demand for our connectivity solutions. The outlook for some smart building markets has changed due to COVID-19, but we continue to see growth opportunities in certain market verticals such as government, healthcare, and data centers. As the economy reopens, we would expect healthy demands from these customers to partially offset the headwinds in other verticals within smart buildings. Turning now to slide five in the presentation. We view Belden as a very compelling investment opportunity, and I would like to reiterate our investment thesis for you now. we are significantly improving our portfolio of businesses and positioning the company for enhanced growth and profitability. As we successfully execute our strategic plans and deliver on our goals, we would expect this, in turn, to drive superior returns for our shareholders. Key performance drivers include the portfolio moves that I just discussed, along with continued growth investment to capitalize on the opportunities in our strategic markets. To that end, we remain committed to our 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 successfully executing our 60 million SG&A cost reduction program, which represents approximately 300 basis points of incremental EBITDA margin expansion, and we continue to believe that the business has the potential to achieve EBITDA margins in the 20% to 22% range in time. However, it is important to note that we do not intend to achieve this by sacrificing R&D or other growth investments. Finally, before moving on to our second quarter highlights, I would like to mention that I'm extremely proud of the commitment and dedication of our workforce during these turbulent times. A recent survey of our teams confirmed that they continue to be highly engaged and productive. We implemented social distancing in our factories and remote and flexible working arrangements in our non-factory locations to allow people to work effectively from any location. Further, we have enhanced our support for local communities by launching our Connect with Community program. This new initiative allows Belden employees to take up to one week of fully paid time off to support volunteer initiatives that can improve the lives of disadvantaged groups in their community. It is our sincere hope that this program will enable Belden employees to make a direct positive impact on the life of others. Please turn now to slide six in the presentation to review our second quarter highlights. In the second quarter, we delivered revenues of $424.8 million and EPS of 46 cents. The quarter was highlighted by very robust demand in broadband and 5G, with orders increasing by 20% on a year-over-year basis and 13% organically. With broadband networks being stressed like never before, the products offered by this business are uniquely suited to address the issues presented by the global pandemic, such as new work from home practices. Importantly, our strong balance sheet and ample liquidity provide the financial flexibility to successfully navigate this difficult economic environment. We exited the quarter with cash on hand of $393 million. Recall that early in the second quarter, and out of an abundance of caution, we proactively drew down $190 million under our revolving credit facility. We are very comfortable with our liquidity position at this point, and as a result, we repaid $100 million of the $190 million revolver draw late in the second quarter. Finally, free cash flow was $20 million in the quarter. We are encouraged by the positive free cash flow generation during a period of unprecedented global economic disruption. I will now ask Henk to provide additional insight into our second quarter financial performance. Henk?