Belden Inc

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated Fourth Quarter Earnings Conference Call. Just a reminder, this call is being recorded. At this time, you are in the 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 star 2. I would now like to turn the call over to Kevin Maska. Please go ahead, sir.

Thank you, Orlando. Good morning, everyone, and thank you for joining us today for Belden's fourth quarter 2021 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 Senior Vice President and CFO, Jeremy Parks. Rule 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&A. We issued our earnings release earlier this morning, and we've 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. For more information, please review today's press release and our most recent quarterly report on Form 10-Q. 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 for a summary of the takeaways of today's presentation. First, I'd like to recognize our global teams for their extraordinary work to deliver another outstanding quarter. The operating environment remains incredibly complex, and our teams showed great determination in navigating the challenges and executing our strategic plans. I am very pleased to report another quarter of significant growth with total revenues, earnings, and free cash flow that exceeded expectations. Demand trends remained robust in the fourth quarter. Our revenues increased 21% on an organic basis, and record incoming order rates resulted in the highest book-to-bill ratio of the year at 1.2 times. We continue to take actions to transition Belden from a product supplier to a value-added partner in the design and implementation of advanced networking solutions. We are very excited about our progress, which is reflected in our strong financial performance. Subsequent to quarter end, we entered into two transactions that further improved our portfolio of businesses. First, we recently signed a definitive agreement to divest our tripwire cybersecurity business. I will provide additional details on this important transaction on the following slide. Second, we acquired MacMon Secure GMBH for $43 million. This is the second acquisition in our industrial solution segment in the last year. We are excited about the value creation potential of this acquisition. We also reduced net leverage again this quarter. Strong EBITDA growth and free cash flow generation throughout the year resulted in a reduction in net leverage from four times at the end of 2020 to 2.1 times at the end of 2021. Following the completion of the tripwire divestiture, we will see another meaningful reduction in net leverage. Finally, today we are announcing our revenue and EPS guidance for 2022. We entered this year with momentum in our business. I am encouraged by our recent order rates and execution and optimistic about our ability to continue driving profitable growth. Specifically, our full year 2022 guidance calls for organic revenue growth of 6% and pro forma EPS growth of 13% at the high end. I'm proud of our achievements in the fourth quarter and throughout 2021, and I'm encouraged by our outlook for 2022 and beyond. Now, before we review our fourth quarter performance, I would like to provide some additional details on the tripwire divestiture and the MacMon acquisition. Please turn to slide four. We have signed a definitive agreement to divest Tripwire to help systems, a cybersecurity and automation software company for $350 million in cash. Tripwire's full year 2021 revenue and EPS contributions were $107 million and 3 cents respectively. Free cashflow generation was not material. Belden had $644 million in cash on hand and 2.1 times net leverage at the end of 2021. For a format for this transaction, the year-end cash balance would be approximately $1 billion with net leverage of 1.2 times. Strategically, this is an important transaction that will enable both Belden and Truebuyer to more effectively execute their growth plans. While Tripwire made progress in recent years, advancing its product roadmap in both enterprise and industrial markets, we determined this in our best interest to refocus our resources entirely on industrial solutions where we are best positioned to win. We believe that health systems is better positioned to make the incremental investments necessary for Tripwire to be successful. Importantly, we are maintaining an exclusive commercial relationship with Tripwire under health systems in industrial and markets. As we deliver our comprehensive networking solutions to industrial customers, this agreement will allow us to continue integrating Tripwire's cybersecurity functionality. As a result of this alignment, Tripwire customers will also benefit from the wide range of solutions that health systems offers to address today's fast-changing cybersecurity environments. I would like to thank the Tripwire team for their significant contributions to Belden. I wish them every success going forward. Please turn now to slide five. You see two pie charts on this slide. The left represents our actual results for 2021, including Tripwire, and the right represents our pro forma results excluding Tripwire. Pro forma 2021 revenues excluding Tripwire were $2.3 billion. The divestiture has minimal impact on consolidated EPS and free cash flow. Following the divestiture, pro forma consolidated EBITDA margins for the full year 2021 would be 50 basis points higher at 16.1%. Further, pro forma net leverage declines to 1.2 times. This provides ample financial flexibility and opportunities for accretive capital deployment. Now please turn to slide six in our presentation for a review of the Magman acquisition. We are very pleased to add Magman's talent and team and its innovative technologies to our portfolio. Magman is a recognized leader in advanced network access control software. Its products are complementary to Belden's leading industrial networking portfolio, and will be integrated with a Hirschman offering to expand our ability to provide complete end-to-end solutions. Key vertical markets include automotive manufacturing, food and beverage, utilities, and healthcare. We expect MacMon to contribute incremental revenue of approximately $12 million in 2022. Longer term, we see numerous opportunities to leverage our global customer base and solution selling capabilities to drive growth. We are prioritizing organic growth, but we continue to pursue strategic acquisitions like MACMOM to further enhance our product offering and accelerate our profitable growth potential. Now please turn to slide seven. Moving on now to a review of the fourth quarter highlights. We delivered meaningful growth and margin expansion again this quarter with total revenues and EPS that exceeded expectations. Fourth quarter revenues increased 28% year-over-year to $638 million, exceeding our guidance range of $615 to $630 million. Organic growth is a key priority, and revenues increased 21% year-over-year on an organic basis. Our strong performance was broad-based across both the industrial solutions and enterprise solutions segments. EBITDA increased 37% year-over-year to $101 million. EBITDA margins expanded 110 basis points from 14.8% in the year-ago period to 15.9%. EPS increased 47% year-over-year to $1.32 compared to 90 cents in the year-ago period in our guidance range of $1.21 to $1.31. Turning now to our key strategic markets. We had another great quarter in industrial. Industrial solutions revenues increased 18% organically in the fourth quarter. Market conditions remain very healthy, and we continue to see a number of compelling longer-term demand drivers for automation solutions as industrial customers respond to increasing labor costs, increasing capacity and productivity requirements, and other factors. Belden is highly differentiated in the marketplace, and we expect to deliver solid growth in this market going forward. Turning now to enterprise. Enterprise solutions revenues increased 23% year over year on an organic basis in the fourth quarter, driven by improving end market trends and significant share capture in broadband and 5G and smart buildings. Within the segment, revenues in broadband and 5G increased 25% organically. We see strong secular trends in this market, driven by the ever-increasing demand for high-speed broadband and the desire to provide greater access. We have sustainable competitive advantages in this market, and we are ideally suited to support both MSO and telco customers as they continuously upgrade and expand their networks. Revenues in smart buildings increased 22% year over year on an organic basis. We are very encouraged by the improvement we are seeing in this market and the strong execution by our teams. We are also benefiting from our commercial focus on growth verticals, such as data centers and healthcare facilities. In addition, we continue to capture market share as a result of our improved operational performance and superior lead times. Now please turn to slide eight in our presentation for a review of the full year 2021 highlights. 2021 was an exceptional year for Belden. This year was highlighted by meaningful recovery in our end markets, significant progress on our organic growth strategies, and successful management of inflationary pressures and supply chain challenges. We delivered strong growth in revenues, earnings and cash flow, which allowed us to significantly deliver our balance sheet. Full-year revenues increased 29% overall and 20% on an organic basis to $2.4 billion. EBITDA increased 51% to $376 million. Despite the inflationary pressures, EBITDA margins expanded 220 basis points from 13.4% in 2020 to 15.6% in 2021. EPS increased 74% from $2.75 in 2020 to $4.78 in 2021. Pre-cash flow increased 145% from $86 million in 2020 to $111 million in 2021. We increased our cash balance to $644 million and reduced net leverage from four times at the end of 2020 to 2.1 times at the end of 2021. We continued to transform and improve our portfolio with three notable transactions in our industrial solution segment, including the agreement to divest Tripwire and the acquisitions of OTN Systems and Magma. To summarize, This was a strong finish to a strong year for Bellwood. Our substantially improved financial results demonstrate the progress we are making on our strategic growth initiatives. And I will now ask Jeremy to provide additional insight into our fourth quarter financial performance. Jeremy?

Thank you, Roel. Please turn to slide nine for a detailed consolidated review. I will start my comments with results for the quarter, 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. Revenues were $638 million in the quarter, increasing $139 million, or 28%, from $499 million in the fourth quarter of 2020. revenues increased 21% year-over-year on an organic basis. Incoming order rates remained strong during the quarter, increasing 39% year-over-year and 7% sequentially compared to the very strong orders in the third quarter. This resulted in a book-to-bill ratio of 1.2 times, including 1.24 in industrial solutions and 1.15 in enterprise solutions. Gross profit margins in the quarter were 36.8%, increasing 140 basis points compared to 35.4% in the year-ago period. We continue to proactively address market inflationary pressures through price recovery and productivity measures to support our gross profit margins. EBITDA was $101 million, increasing $27 million, or 37%, compared to $74 million in the prior year period. EBITDA margins were 15.9%, increasing 110 basis points, compared to 14.8% in the year-ago period, demonstrating solid operating leverage on higher volumes. For the full year, 2021, we generated healthy incremental EBITDA margins of 30%, excluding the impact of higher copper pass-through pricing. Our teams continue to execute well in this challenging supply chain environment. Net interest expense was consistent with the year-ago period. At current foreign exchange rates, we expect interest expense to be approximately $62 million in 2022, consistent with the prior year. Our effective tax rate was 18.1% in the fourth quarter and 18.6% for the full year 2021, as we benefited from incremental discrete tax planning items. We expect a normalized effective tax rate of approximately 20% throughout 2022. That income in the quarter was $60 million compared to 41 million in the prior year period. Earnings per share was $1.32, increasing 47% compared to 90 cents in the fourth quarter of 2020. We were very pleased to deliver such robust growth in margin expansion again this quarter. Turning now to slide 10 in the presentation for a review of our business segment results. I will begin with our industrial solution segment. As a reminder, our industrial solutions allow customers to transmit and secure audio, video, and data in harsh industrial environments. Our key markets include discrete manufacturing, process facilities, energy, and mass transit. The industrial solution segment generated revenues of $343 million in the quarter, increasing 27% from $271 million in the fourth quarter of 2020. Segment revenues increased 18% organically, with broad-based strength across most of our primary market verticals within industrial automation. Industrial solution segment EBITDA margins were 17.6% in the quarter, increasing 30 basis points compared to the prior quarter, and consistent with the year-ago period. Turning now to our enterprise segment, our enterprise solutions allow customers to transmit and secure audio, video, and data across complex enterprise networks. Our key markets include broadband in 5G and smart buildings. The enterprise solution segment generated revenues of $294 million during the quarter, increasing 29% from $228 million in the fourth quarter of 2020. Segment revenues increased 23% organically with broad-based strength across both broadband and 5G and smart buildings. Revenues in broadband and 5G increased 25% year-over-year on an organic basis due to healthy demand for our fiber connectivity products and solid share capture. Revenues in the smart buildings market increased 22% year-over-year on an organic basis. Improving market conditions and strong operational performance resulted in further share capture during the quarter. Enterprise solutions segment EBITDA margins were 13.5% in the quarter, increasing 200 basis points compared to 11.5% in the prior year period. If you will please turn to slide 11 for our balance sheet highlights. Our cash and cash equivalents balance at the end of the fourth quarter was $644 million compared to $458 million in the third quarter and $502 million in the fourth quarter 2020. We are very comfortable with our current liquidity position. Working capital turns were 11.2 compared to 7.8 in the prior quarter and 10.3 in the prior year period. Days sales outstanding of 53 days compared to 56 in the prior quarter and 50 in the prior year period. And inventory turns were 4.7 compared to 5.2 in the prior quarter and the prior year period. Our inventory levels increased during the quarter as we proactively managed supply chain challenges and prepared to support robust expected growth in 2022. Our financial leverage improved significantly again this quarter, as Roel mentioned. Net leverage of 2.1 times net debt to EBITDA at the end of the fourth quarter compares to 2.8 times in the third quarter and four times a year ago. Pro forma for the tripwire transaction, year-end net leverage would have been 1.2 times. Going forward, we intend to maintain a disciplined financial policy. Our capital allocation priorities will be balanced, emphasizing organic growth initiatives while also considering strategic M&A, share repurchases, and debt repayment. Please turn to slide 12 for a few cash flow highlights. Total cash flow from operations in the fourth quarter was $170 million, increasing 26% compared to $135 million in the prior year period. Net capital expenditures were $35 million for the quarter compared to $33 billion in the prior year period. Free cash flows in the quarter were $162 million, increasing 60% compared to $101 million in the prior year period. We were pleased with the underlying cash flow performance of the business, which also benefited from two favorable one-time items in the quarter. The first involves the sale of a note receivable related to the Grass Valley divestiture. As a reminder, we completed the divestiture of Grass Valley in July 2020, and the transaction included upfront cash consideration plus deferred consideration in the form of a note. The note was held on our balance sheet as a receivable with a carrying value of $35 million. During the fourth quarter, we received $62 million in cash for the note, and recognized $27 million, or the difference between the cash proceeds and the carrying value, as a gain on sale, which benefited our cash from operating activities. The second item is a sale-leaseback transaction related to a facility in Germany. We received $27 million for the sale of this facility and recognized the full amount as free cash flow in the quarter. As a result, full year 2021 free cash flow generation was $211 million compared to $86 million in 2020. That concludes my prepared remarks. I would now like to turn the call back to our President and CEO, Roel Vestjens, for the outlook. Roel.

Thank you, Jeremy. And please turn to slide 13 for our outlook. The market environment is very dynamic. with considerable ongoing challenges and uncertainties. However, our demand trends are encouraging and our global teams are performing at a high level. We are executing our strategic growth plans and have positioned the company for further growth and margin expansion in 2022 and beyond. Excluding Tripwire, we anticipate first quarter 2022 revenues of $558 million to $573 million and EPS of $1.03 to $1.13. For the full year 2022, we expect revenues of $2.39 billion to $2.44 billion and EPS of $5 to $5.35. Please turn to slide 14 for a bridge that walks from our 2021 results to the high end of our 2022 guidance. Performa 2021 revenues and EPS, excluding tripwire, were $2.3 billion and $4.75, respectively. We expect organic growth of 4% to 6%, or up to $142 million, with solid growth in both our industrial solutions and enterprise solutions segments. Incremental EBITDA margins on volume growth are expected to be in the $30 billion the 35% range. We anticipate a $12 million revenue contribution from the Magnon acquisition, which is largely offset by the impact of the Brazil oil and gas divestiture that we completed in 2021. We expect the current copper prices and foreign exchange rates to have a modest unfavorable impact on revenues of approximately $5 million in 2022, with a negligible impact on earnings. Finally, a normalized effective tax rate of 20%, along with modestly higher share counts, represent an EPS headwind of $0.07 for the year. For the full year 2022, the high end of our guidance implies organic revenue growth and pro forma EPS growth excluding to a buyer of 6% and 13% respectively. Please turn to slide 15. Now, before we conclude, I would like to reiterate that I'm extremely optimistic about our future. We had an exceptional 2021, and we entered 2022 with significant momentum. Our strategic growth initiatives are gaining traction, and I'm encouraged by our recent order rates and execution of our teams across the company. Belden is well positioned to benefit from the favorable secular trends in industrial automation, broadband and 5G, and smart buildings. I'm confident that our team will continue to deliver robust organic growth and margin expansion, driving significant value for our shareholders. That concludes our prepared remarks. Orlando, please open the call to questions.

Absolutely. And again, if you would like to ask a question during the Q&A session here, please press star 1 on your touchtone phone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you would like to withdraw a question, press star 2. We ask that you please limit yourself to one question and one follow-up question to allow everyone an opportunity to ask a question. Your first question is from Ruben Gardner with the Benchmark Company. Please go ahead.

Thank you. Good morning, everyone. Hey, so maybe, well, first off, congrats on the strong close to the year and congrats on both deals. Maybe to start, I guess, a two-part question on Tripwire, if you could just kind of uh, explain, I guess, why, um, why the divestiture? And then secondly, does this do anything really to change kind of your long-term, um, targets for the business overall or by segment?

Uh, thank you for your comments. Uh, appreciate it. Um, yeah, we, uh, we've previously communicated that Tripwire is going through a transition, right? They're transitioning to a SaaS based offering. And that requires significant investments, which we made in both R&D and commercial resources. But in order to support that transition, these investments are required for multi-years. And the fact is that we have additional and better investment opportunities within the company, and that's how we are prioritizing. It doesn't change the outlook. As you know, industrial automation is by far our biggest business in Belgium. And we, because of this exclusive relationship, are able to continue to offer and integrate cybersecurity solutions in our industrial solutions offerings that we offer to our customers. So it doesn't change the positioning nor the ability to offer solutions to our industrial customers at all.

Great. And then my second question is, you guys have had a nice run here in the world that we're living in where supply chain is often a headwind for companies. And I think Jeremy mentioned supply chain briefly in his remarks, but in general, you guys have kind of gotten through this without, it seems to be without much of a, you know, at least not a material impact on your business. Can you talk about, I guess, structurally how you're able to do that and continue to to perform in this environment?

Yeah, I appreciate you making that observation. We have made some strategic choices a few years back already where we said we want to produce within region. So I think our supply chains are typically a little bit shorter than the people we compete with, and I think that's bearing fruit right now. So I think that's a very important element as to why we're able to overcome the supply chain challenges. And on pricing, which is obviously related to it, the inflationary pressures that we're seeing, I think it's a testament to the value that we provide for our customers, that we're able to pass these inflationary pressures, whether it is commodity, whether it is freight, whether it's other material, or whether it's increased labor costs. on to our customers. So I appreciate the observation, but I think it's because of some strategic choices that we made a little while back.

Great. Congrats again, and good luck going forward, guys. Yeah. Thank you, Ruben.

All right. Up next, we will take a question from Noelle Diltz with Stifel. Please go ahead.

Hi, guys. Thanks, and congrats on the strong year. So I was hoping that first you could just talk about how you're thinking about additional portfolio actions kind of here that we're seeing the divestiture of Tripwire. In the past, you've talked about some of the less differentiated copper cable products still being kind of potentially on the table for divestiture. So how are you thinking about that right now? Thanks.

Yeah. So first of all, I appreciate the comment, Noelle. Secondly, I think we're very happy with the portfolio as we have it now. So we're constantly optimizing for two parameters. One is organic growth and two is EBITDA margins. EBITDA margins and EBITDA margin percentages. And we still are in the process or kicked off this process, which we didn't formally end, on divesting a few small non-strategic, low-margin, low-growth cable portfolios. But as I think we've previously indicated, the market has in the meantime moved on, and people that would be of potential interest and where it would have been accretive to them have other priorities as they're fighting their supply chain challenges and dealing with capacity issues. We like where we are now, and we are focusing in terms of capital deployment on internal investments to further increase our organic growth, paying down debt, or getting back to a more balanced approach, share repurchases. As I may remind you, we have an authorization for the board to deploy $250 million in share repurchase, and that's certainly one of the options that we're considering moving forward.

Okay. That makes a lot of sense. Thank you. Also, I was I'm wondering if you could kind of touch on the supply chain challenges in a different way. One of the concerns we hear from investors kind of across the industrial space is that there may be, you know, certain customers may be just buying as much as they can because of the supply chain issues and maybe kind of pulling forward some demand. Any thoughts on, you know, how you guys are looking at that or if you're seeing that in any market? Thank you.

Well, let me answer the question twofold from our perspective and from our customers' perspective. First, from our perspective, our work in capital turns were extremely strong in the quarter. So we are navigating those challenges as I've highlighted. And, yes, we purchase material when we can or when we deem it's appropriate. But we're doing it while maintaining extremely good turns or at least improving the turns every year, just like we demonstrated in Q4. So no excessive material there. And when it comes to our customers, this phenomenon of double ordering and then seeing who supplies first and then cancels and then canceling, we've not seen that. Our orders are non-cancelable. We reinforce that policy proactively, but we've not seen cancellations from our customers at all. So I'm not worried that our backlog is dramatically inflated or that we're going to have times where we have to face large cancellations. We're simply not seeing that.

Thanks. Great data points. Appreciate it.

You're welcome. All right. Our next question will come from William Stein with Truist Securities. Please go ahead.

Thanks for taking my question. Congrats on the good results and especially the sale of Tripwire. I think it's a very positive change. But I want to ask about the revenue contribution from that business. I think you highlighted about $100 million, maybe a little north of that, in 2021. I thought the majority of that revenue was indeed in the industrial end market. And I think you're also retaining exclusive sales rights into that market. So maybe help me understand what revenue goes away from this sale versus what revenue stays but just at a cost where you have to pay a supplier instead of develop the software internally to occur the optics.

I'll defer to Jeremy for a little bit more detail, but it's not the majority of the revenue. The majority by far is still in the traditional end markets that ThriftWire plays. We have, because of our agreement, an exclusive relationship with health systems that allows us to continue to sell within the industrial segment, as we've highlighted, we will further integrate that into our solutions that we offer to our industrial customers. But the vast majority of the revenue is still within the traditional markets that Trovia plays in.

Yeah, so just to clarify a little bit more, well, as Roel said, the majority of the revenue was going into enterprise markets. The industrial business had been growing, so it was becoming more important every year, but it was still – small portion of the total revenue at tripwire but we sold a hundred percent of the business we took all the revenue out of our guidance and then in the future we will act as a reseller of tripwire products into certain industrial applications and for some industrial products I don't expect the revenue to be material relative to Belden's total revenue, but it's an important capability that we have going forward. And then we can offer it to our customers. Yep.

Great. One more, if I can. Margin results were good, especially if you X out a tripwire for 21. Can you remind us of your I think you build your targets based on EBITDA instead of EBIT. But maybe walk us from where we are today, let's say without Tripwire, to your target level, and especially if the target should be adjusted for any reason like the Tripwire divestiture. Maybe the targets should go up a bit, but maybe there are other things pressuring those numbers. Thank you.

Yeah, sure. So I'll take a stab at that, Will. So from a margin standpoint, we had set out a goal of 20% EBITDA margins. And back in 2020, the starting point was 13.5% EBITDA. So we're going from 13.5% to 20%. The drivers there were the divestitures of the copper cable business and productivity initiatives, and then volume and leverage on that volume. to get us to 20% over several years. Since that time, I would say the major items that have occurred is that the copper cable businesses, we're not making those a priority to divest at this point, but we have divested tripwire. So that's sort of a wash, roughly the same margin accretion from both of those particular transactions. Volume has increased dramatically, and then the one offset to that has been the increase in copper costs. When we issued that revenue, that EBITDA margin target of 20%, copper was at 280. Today it's at $4.40 roughly, so it's had a material impact. So to summarize, what I would say is right now, based upon our guidance at the high end for 2022, we're guiding 16.8%. EBITDA margin roughly at the high end. If you adjust that for copper, that would put you roughly at 18%, which shows significant improvement versus where we were in 2020, and I think not too far off the longer-term target for the business.

So just to follow up if I can, is it fair to think that you have another roughly 200 basis points of improvement and profitability. And if so, is that, you know, something that you think you realize in 23 or is it a longer term process?

So the way I would think about it is as we go forward, we are attempting to deliver organic growth at 30 to 35% incremental margins. So the major lever will be how quickly we grow over the next couple of years. I think 3% or 4% organic growth would deliver roughly 50 or 60 basis points of margin expansion. So it depends on how you model the growth profile of the business. But I think in the next maybe three or four years.

Thank you.

Sure.

Next, we will hear from Chris Dankert with Loop Capital. Please go ahead.

Hey, morning, everyone. I guess, you know, Following the sale of Tripwire, you highlighted some stronger return opportunities internally. Can you maybe kind of comment on where those investment opportunities are, kind of how R&D dollars shift here a bit?

Yeah, sure. So our guidance contemplates on the high end 6% organic growth. And the largest area of investment is also the area where we see the most opportunity also on a longer-term basis for organic growth, and that's in the industrial automation space. So that's the largest area of investment. As you rightfully point out, it's mainly R&D. There are some SG&A investments that we're making. We've publicly stated that we're building, I'll give you one example, customer innovation centers, which benefit multiple businesses, but first and foremost, the industrial automation business. These are five brick and mortar facilities that we're building. One of them already completed in Germany, in Stuttgart, Germany. Two scheduled for this year in the United States. And then we'll have one in China, near Shanghai, and one in Pune, India. But first and foremost, it's an increase in R&D. We feel that in the industrial automation space, which is the business that is farthest along in the solution selling approach, The tighter we get with our customers and the more solutions we develop, oftentimes customized solutions for our customers, we see more opportunities for further product line expansion and other components that are required or that will help us deliver those solutions for our customers. And that's predominantly, like I said, in the industrial automation space. So that's the main area of reinvestment.

Got it, got it. That's helpful. Maybe just kind of to follow up on that a little bit, when I think about the biggest growth opportunities in automation here, do you feel it's at the core, it's the connectivity, it's the networking, or is it really, as you kind of alluded to, expanding the offering a bit off of that strong base?

Yeah, it's connectivity and networking solutions. even moving slowly into data management solutions on the machine or on the factory floor or any other industrial environment that we serve. So that's the main area that we focus in. And I'm not thinking in terms of, for example, either connectors or connectivity. I'm thinking offering, because that's what we're doing today and that's the journey that we started, offering complete signal transmission or data management solutions for our industrial customers. whether that's on the machine or on the factory floor or on a wastewater facility or a power utility, you name it, all the industrial areas that we play in.

Got it. Just trying to make sure, again, it sounds like, again, the growth is really centered around those core competencies, not going really far afield, I suppose. Thank you so much for the clarification. Definitely best of luck in 2022 here, guys.

No, I appreciate that. That's absolutely correct. Now, mind you that on the other side of the enterprise solution segment, we're also forecasting robust growth in 2022 and beyond. So it's not that those areas are deprived of investment, but the industrial automation space we're most bullish about.

Makes sense. Thanks so much.

All right. Up next, we will hear from Stephen Fox with Fox Advisors. Please go ahead.

Hi, good morning. A couple questions for me, too, please. First off, I'm a little confused on the quarterly guidance for Q1 on the sales going from 638 to 573 on the high end. I understand taking out the divestiture, but the orders you said had a lot of momentum into quarter end. It sounds like supply chains are still tight. So what would you attribute sort of the quarter-on-quarter decline in the top line to? And then I had a follow-up.

Yeah, that's typical seasonality. So year over year, our Q1 organic growth on the high end is 12% growth. So we feel pretty good about Q1. On the low end, it's still 9% organic growth, just as a data point. So that's typical seasonality.

Okay, so you expect normal seasonality despite everything that's going on with the supply chains? Like there's no pull-in. It sort of has an implication for what, you know, customer inventories, I guess, is what I was getting at.

No, no, we don't. So, you know, again, on Q1, we expect between 9% and 12% organic growth year over year. And the inventory levels at our customers have been stable. So our inventory turns are extremely strong, and we've not seen any material build at all.

Okay, got it. And then secondly, just in terms of, you mentioned market share a couple of times. I was wondering if you could dive in a little bit on the broadband and 5G markets where you're gaining share, it sounds like. You mentioned it with fiber. I'm not sure if it was all fiber, but can you maybe give a little more color on how you performed on the fiber products in particular and anything else you could talk about in terms of share capture?

Yeah, I appreciate the question. Yeah, there's a few competitors that are public, so that gives us the opportunity to compare, as well as obviously conversations with our key customers. If we look at the split between fiber and copper, then that trend that favors our mix shifting towards fiber continued. So in the fourth quarter, revenue for the broadband and 5G segment, fiber and fiber-related, as we report fiber, is 31%. And for the year, that's 27%. So that trend continues to increase. And you may be interested in, because we report that previously as well as part of our strategic shift, inside the home versus outside the home. And also there that shift continues. So in Q4, 67%, almost call it two-thirds, was outside the home. And that's a record ever since we started making that shift and started making investments to further enhance the growth profile outside the home. We've never seen it. So very pleased with the strategic direction of the business and the shift to more outside the home and more fiber. Great. That's really helpful. Thank you. You got it.

If there are additional questions, please press star 1 on your touchtone phone. Up next, we'll take a question from Mark Delaney with Goldman Sachs. Please go ahead.

Yes, good morning. Thank you very much for taking the question and congratulations on the strong orders and results. I'm going to start on smart buildings. I believe that was one of the markets that was most impacted by COVID and you're now seeing some very good momentum. You talked about it being up over 20% year on year on an organic basis. Maybe you could help us better understand how far along Smart Buildings is in that recovery process. Is it shifting back more within typical ranges at this point, given the recoveries on the fourth quarter, or is that a market that still is down from historical levels?

Yeah, so I'll jump in here first, Mark. This is Jeremy. So Smart Buildings at this point is roughly maybe 4% or 5% below where they were pre-COVID. It's a business that recovered or is it recovering much more quickly than we had anticipated when we came into 2021. But there's still a little bit behind the other businesses with respect to performance versus pre-COVID levels. I think the encouraging thing in smart buildings at this point is that the economic indicators seem to be pretty good. ABI has been over 50 for maybe 11 or 12 months in a row at this point. So things are going, I think, just fine and recovering a bit more quickly than we anticipated. But we're not quite where we were back in 2019.

You got it. That's very helpful. And then my second question, you talked about data center as one of the focus verticals during the prepared comments. I was hoping you could elaborate a bit more on what's driving the outlook in data center. Where are you seeing strength? Is it still mostly within traditional enterprises, or are you making any progress potentially with co-location or hyperscale becoming bigger pieces of that? Thank you.

Yeah, Mark. I appreciate the question. Our priority and where we allocate our resources within data centers is indeed either enterprise-owned but more and more colo. So hyperscale is still not an area that we play in for strategic reasons, mainly margin pressure. We avoid that segment. We don't believe that the value that we add is truly recognized within that concentrated customer base. Secondly, we feel strong. We do very well within either municipalities or government-owned data centers. Our data center business was up 29% year over year. So we feel good about where we play. The results are there. And we get more and more design to answer the second part of your question. We get more and more involved in the design of the data centers. So we get more and more involved early on in the cycle. where we help our customers design their data centers and then are able to supply the solutions that we help design.

Thank you. You're welcome. Kevin Maska, there are no further questions at this time. Please continue.

Okay. Thank you, Orlando, and thank you, everyone, for joining today's call. If you have any questions, please reach out to the IR team here at Belden. Our email address is investor.relations at Belden.com. Thank you.

Thank you, ladies and gentlemen. This concludes our call for today. You may now disconnect from the call, and thank you for participating.