Belden Inc

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Weldon Incorporated conference call. Just as a reminder, this call is being recorded. At this time, you're in a listen-only mode. Later, we will conduct a question and answer session. If you would 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 2. I would now like to turn the call over to Kevin Maska. Please go ahead, sir.

Thank you, Mary. Good morning, everyone, and thank you for joining us today for Belden's third quarter 2020 earnings conference call. My name is Kevin Maska. 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.delvin.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 for a review of our third quarter highlights. Business conditions improved during the third quarter, and I'm pleased to report solid double-digit sequential increases in revenue, EPS, and free cash flow. Third quarter revenues increased 12% sequentially to $475.8 million, with both our segments delivering organic growth on a sequential basis in the quarter. EPS increased 57% sequentially to $0.72, and free cash flow increased 78% sequentially to $35.7 million. I'm extremely proud of the way our global workforce has responded to the unprecedented challenges this year. The teams remain highly engaged and committed to supporting our valued customers while maintaining the safest possible working conditions. These significantly improved results demonstrate the continued dedication of our associates around the world. During the quarter, we made further significant progress with our $60 million SG&A cost reduction program. We expect to deliver $40 million of these savings in 2020 and the full $60 million in 2021. Our teams delivered $12 million in savings in the third quarter as expected, and we intend to deliver the full $15 million quarterly run rate savings in the fourth quarter. When fully realized, this represents approximately 300 basis points of incremental EBITDA margin expansion on an annual basis. As a reminder, these are permanent cost reductions that will not return as conditions normalize. As we successfully execute our cost reduction plans, we continue to make strategic investments to accelerate growth and capitalize on the opportunities in our key markets. To that end, R&D spending increased 26% year-over-year in the quarter, with over 60% of these investments now dedicated to software development. This includes standalone software and embedded software within various hardware products. We are making targeted investments in compelling growth opportunities across the portfolio to drive further innovation in industrial automation and enhance our best-in-class cybersecurity cloud platform. Innovations are important to our customers and our shareholders as they will further strengthen our product offering, enhance our competitive advantage, and drive growth. we are seeing a return on prior investments in broadband fiber in the form of outsized growth in those products. Similarly, we expect our current investments in industrial automation and cybersecurity to drive accelerating growth in those solutions going forward. Our strong balance sheet and ample liquidity provide the financial flexibility to make these important investments as we successfully navigate this economic downturn and position the company to fully participate in the recovery. We exited the quarter with cash on hand of $391 million after repaying all remaining short-term revolver borrowings. We are comfortable with our liquidity position at this point. Finally, demand trends and visibility in our business are improving. As a result, we are resuming our traditional guidance practices. We expect modest sequential improvement in underlying demand during the fourth quarter. However, we expect our channel partners to pursue incremental reductions in channel inventory levels during the fourth quarter after only modest reductions in the third quarter. This will partially offset the sequential growth in underlying demand that we expect, and it is contemplated in our guidance. Please turn now to slide four in the presentation. Looking out beyond the quarter, we remain very excited about the opportunities for Belden as we continue our transformation. We are aligning our business around markets with favorable secular trends, and our key strategic priorities are industrial automation, cybersecurity, broadband and 5G, and smart buildings. We believe that each of these markets offers compelling growth opportunities over the cycle. I'd like to briefly review each of them now. First, the global pandemic clearly impacted demand for industrial automation on a temporary basis, but we remain extremely optimistic longer term, due in large part to increasing labor costs and enhanced productivity and quality needs. The secular tailwinds remain fully intact, And social distancing and other new health and safety practices 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 industrial markets, where we are particularly well positioned. Belden's truly unique offering provides critical cybersecurity protection, and this remains an important area of investment for our customers during this pandemic. We are clearly gaining traction with our new cloud-based and other products, and we are encouraged by robust recent orders for industrial cybersecurity and software-as-a-service offerings. 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 broadband fiber acquisitions completed in the last few years. We are extremely well positioned to support our MSO customers as they upgrade existing networks in response to record demand levels and new competitive threats from 5G. We also support our telco customers as they build out new 5G infrastructure. Finally, in smart buildings, the increasing use of integrated networks drives increasing demand for our productivity solutions. the outlook for some smart building markets is clearly 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 recovers, we would expect healthy demand from these customers to partially offset the headwinds in other verticals within smart buildings. I will now ask Henk to provide additional insight into our third quarter financial performance.