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?