Belden Inc

Ladies and gentlemen, thank you for standing by and welcome to this morning's Belden Reports second quarter 2023 results conference call. Just a reminder, this call is being recorded and at this time you are in a listen-only mode, but later we will conduct a question and answer session. If you would like to ask a question, press star and one on your touchtone phone. If you are in the question queue and would like to withdraw your question, simply press star two. I would now like to turn the conference over to VP of Investor Relations, Mr. Aaron Reddington. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us for Belden's second quarter 2023 earnings conference call. With me today are Belden's President and CEO, Ashish Chand, and Senior Vice President and CFO, Jeremy Parks. Ashish 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 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. For more information, please review today's press release and our most recent 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 contains 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, Ashish Chand.

Thank you, Aaron, and good morning, everyone. Thank you for joining us today. Let's turn to slide four for a summary of the major accomplishments we achieved in the second quarter of 2023. As a reminder, I will be referring to adjusted results today. Once again, our team delivered another outstanding quarter, with total revenues in EPS exceeding expectations for the 13th quarter in a row. Our revenue grew, our margins expanded, and organic growth came in at the high end of our previously issued guidance for the quarter. During the second quarter, we achieved record quarterly revenue of $692 million, record earnings per share of $1.91, and we expanded our EBITDA margins by 120 basis points to 17.8% for the quarter. Very solid execution from the Belden team. Well done. Growth in the quarter was broad-based across our businesses and regions. As Belden continues to transform from a supplier of trusted products to a value-added solutions provider, we are seeing the results. Improved and more resilient growth, increasing margins, and deeper customer partnerships. Second, our segments continue to perform well, considering the challenges and uncertainties around the world. End demand for our products and solutions is healthy, with both of our segments experiencing positive revenue growth with expanding margins for the quarter. Tough to do in today's environment. Sound execution across the business helped us achieve 5% organic growth company-wide 8% organic growth in industrial automation solutions, and 1% organic growth in enterprise solutions. Finally, as our business continues to grow and we invest our capital towards high return opportunities, leverage at Bellin remains low at 1.4 times, in line with levels a year ago. Our current balance sheet is strong with ample liquidity. Combined with low net leverage, We have significant flexibility to execute our strategic plans while staying below our target net leverage of 1.5 times. Free cash flow for the quarter was up air over air, and our trailing 12-month free cash flow reached $280 million, well on track to achieve the targets we have previously articulated. During the quarter, we continue to deploy capital, and I'm pleased to report that, here today, we have invested $190 million in M&A and share repurchases. In summary, this was another excellent quarter for Belden and continues to highlight the change our business has undergone over the last few years to produce a growing, more sustainable, and higher margin business than the Belden of the past. Now, please turn to slide five. Belden is still in the early innings of its solutions transformation. Over the last few years, we have created a new and incremental go-to-market strategy. By focusing on customer KPIs and framing a business case around how we can address their unique challenges, we are purposefully building our position in the solutions marketplace. Let me take a moment to better describe where we see opportunity, and how we believe Belden is uniquely positioned. Across our markets, customers continue to invest heavily to automate and modernize their systems and infrastructure to gather actionable data. Often, these investments come in waves with disparate equipment and systems. As a result, many find themselves with islands of data across multiple systems that do not provide the promised functionality or outcomes. This is where Belden has a unique competitive advantage and our solution consultants are carving out a niche in the marketplace. As we work to grow our solutions offerings, the foundation has been and always will be a highly reliable network and data products. A comprehensive portfolio of products puts us in a leading position as we excel in all of the following offerings, data acquisition, data transmission, data orchestration, and data management. Our solutions transformation began with industrial automation, where we seized the opportunity to utilize our best-in-class products with a more solution-focused approach to directly solve customer problems. The result has been higher growth with improving margins. This past June, we appointed a new leader to our enterprise solution segment to drive growth and change across the combined broadband and smart buildings markets. We see a compelling opportunity ahead for enterprise solutions, as we bring together our unique products to address the ever-expanding needs of hybrid networks in enterprise applications. Consider, for example, a large campus environment that requires both broadband access and connectivity solutions in addition to traditional enterprise products. Across our markets, our ability to gather data and move it across a factory floor, a warehouse, or a hospital gives us credibility as we design digitization solutions focused on core verticals and use cases. We bring islands of data together utilizing hybrid solutions and ultimately format the data into a common language for easy digestion by end operating systems. Now please turn to slide six for further discussion around Belden Horizon and our improving product functionality and capabilities. As we have discussed before, Belden Horizon is a cloud native platform that provides secure OT-centric services for deploying, connecting, and managing devices and applications. As we grow our solutions offerings, Belden Horizon is a key value add as part of an overall Belden solution. It provides critical software for the onboarding, monitoring, and updating of edge computing devices. and the management and orchestration of Edge applications that are used by businesses to improve their efficiency, maximize uptime, and enable continuous process improvement. This past June, with the launch of Belden Horizon Data Operations and Belden Horizon Data Manager, the Belden Horizon suite added key functionality to further empower organizations. Key upgrades included, one, adding hundreds of OD protocols with easy integration. Two, the addition of digital twins and analytics tooling empower users to collect, contextualize, and analyze data at the edge. And three, scalable functionality to support large or remote deployments and manage many instances. With recent upgrades, Belden Horizon stands out in the industry due to its dedicated focus on industrial networking and cybersecurity challenges. By combining network management, cybersecurity, and analytics into a single vendor agnostic platform, Belden aims to simplify the management, security, and optimization of networks. As we consider the evolution of Belden, it is important to reiterate that our intention is not to transition into a software provider. At our core, we produce highly reliable data and network products that enable our customers' digitization journeys. Software like Belden Horizon brings our products together in one comprehensive solution and enhances our offerings by differentiating us from competitors and ultimately deepening our relationship with customers. Now please turn to slide seven for an exciting new win for Belden that further validates our solution transformation. Material handling is what we consider a converged opportunity with products from both industrial and enterprise can be utilized to further lean into our product competitive advantage as we develop solutions for customers. In this example, our customer had a problem. Their previous wireless network was challenged to provide ample access across the warehouse floor, and the equipment was disconnecting, causing major delays. As a leader in the automated warehouse market, it's critical that their equipment is always connected, no matter where it is on the warehouse floor. When equipment disconnects, it causes delays, system reboots, and even robot collisions. These challenges make it impossible to hit targeted processing rates and at times even requires manual retrieval of disabled robots. Enter Belden and our solution consultants. We took the time to understand the core problem and ultimately the KPI our customer wished to impact. We designed, tested, and helped implement a wireless network solution as part of a larger hybrid solution to ensure network availability. As a result of our solutions, we estimate a 99% reduction in disconnections and timeouts, which will ultimately result in an 11% increase in package process rates. We are proud of our team and the solution we developed. The award is our largest solution win to date, will span over three years, and highlights how our teams are finding opportunities in the marketplace and driving incremental demand for our products and solutions. We view this award as further proof that customers are seeking experts in networks and digitization solutions, and that Belden is uniquely qualified to provide world-class products and solutions to improve outcomes. I will now request Jeremy to provide additional insight into our second quarter of financial performance.

Thank you, Ashish. I will start my comments with results for the second 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. Now, please turn to slide eight in our presentation for a review of our second quarter results. We delivered meaningful growth and margin expansion again this quarter. Second quarter revenue increased 4% year over year and 5% organically, to a record $692 million, exceeding our guidance range of $675 million to $690 million. We had another impressive quarter in industrial automation, with revenues increasing 8% organically. We continue to see compelling longer-term demand drivers for automation solutions as industrial customers respond to labor shortages, capacity requirements, and the reshoring of production. Enterprise solutions revenue increased 1% year-over-year on an organic basis, with mid-single-digit growth in broadband solutions and a low single-digit decline in smart buildings, which we will discuss later. Orders for the quarter were up 4% sequentially. We ended the quarter with a book-to-bill of 0.9. We expect orders in the second half to increase from the first half, with our book-to-bill remaining below 1. Gross profit margins were a robust 38.1%, up 370 basis points compared to the prior year. The quarter benefited from a better than typical product mix as we continue to sell more solutions and generate favorable productivity. Given the strong start to the year in both Q1 and Q2, we are increasing our expectations for full year gross margins to be up approximately 200 basis points compared to 2022. This would imply slightly lower sequential gross margins in the second half, given the strong outperformance in the first half. EBITDA increased 11% year over year to $123 million. EBITDA margins expanded 120 basis points to 17.8%. Net income in the quarter was $82 million, up 15%, from $71 million in the prior year period. And EPS increased 19% year-over-year to a record $1.91 compared to $1.60 in the year-ago period and exceeded our guidance range of $1.70 to $1.80. Turning now to slide nine in the presentation for a review of our business segment results. I will begin with our industrial automation solution segment, which helps customers transmit and secure audio, video, and data in harsh industrial environments. Key markets include discrete manufacturing, process facilities, energy, and mass transit. The industrial automation solution segment generated revenues of $380 million, increasing 6% year-over-year and 8% organically. We achieved broad-based strength in each of our primary market verticals. Industrial automation segment EBITDA margins were 20.7% for the quarter, compared to 19% in the prior year. Margins increased 170 basis points due to solid operating leverage and volume growth and favorable mix. Turning now to our enterprise segment, which enables customers to transmit and secure audio, video, and data across complex enterprise networks. Our key markets include broadband solutions and smart buildings. The enterprise solution segment generated revenues of $313 million, increasing 2% year-over-year and 1% organically. Revenues in broadband solutions increased by 4% organically for the quarter. We continue to expect long-term growth in our fiber and outside copper products because of ever-increasing data demands combined with government funding for network upgrades. Revenues in the smart buildings market decreased by 1% organically for the quarter flat for the first half of 2023 and in line with our prior expectations. In our smart buildings market, we are seeing an increased impact of channel destocking, which has a temporary impact on orders from our channel partners. We experienced some impact in Q2 as anticipated, but now we expect to feel a larger adjustment during the third and fourth quarters. For smart buildings, which has a temporary channel headwind, we expect organic growth to be down low to mid single digits for the full year. That said, we continue to see meaningful opportunities in the smart buildings market, driven by our target verticals utilizing converged products and solutions. Finally, enterprise solutions segment EBITDA margins were 14.1% for the quarter, compared to 13.6% in the prior year. If you will please turn to slide 10 for our balance sheet and cash flow highlights. Our cash and cash equivalents balance at the end of the second quarter was $515 million, compared to $688 million in the fourth quarter and $528 million in the second quarter of 2022. Our financial leverage was 1.4 times net debt to EBITDA at the end of the second quarter, compared to one time in the fourth quarter of 2022 and 1.4 times a year ago. As we communicated in our 2022 Investor Day, we intend to maintain net leverage of approximately 1.5 times going forward. For the second quarter, we realized free cash flow of $68 million, an improvement of $37 million year over year from free cash flow of $31 million in the prior year. As of the second quarter, our trailing 12-month free cash flow was $280 million, which puts us ahead of our full-year free cash flow targets. Recall that in the third quarter of 2022, we received $42 million from the sale of a building. As that quarter rolls off our trailing 12-month calculation, we expect this figure to decrease from current levels. We expect to generate more than $200 million of free cash flow in the second half of 2023, providing ample room to deploy capital towards high return opportunities. Finally, As Ashish mentioned earlier, during the quarter, we continued to deploy capital. In 2023, we deployed approximately $100 million towards M&A and $90 million towards share repurchases. Year-to-date, we have purchased approximately 1 million shares at an average share price of around $87. That concludes my prepared remarks. I would now like to turn the call back to our President and CEO, Ashish Chand, for the outlook. Thank you, Jeremy.

Please turn to slide 11 for our updated outlook. Let me start by saying that I'm very pleased with our second quarter performance. As discussed earlier, we met or exceeded expectations for revenue, EPS, and organic growth. Looking forward to the second half of the year, we expect 2023 to the air of continued macro uncertainty, where we gain incremental clarity as the air progresses. As it relates to revenue expectations, after the first half of the year, I'm happy to report that we expect continued growth in our industrial automation and broadband markets consistent with the past guidance. We see industrial automation growing organically in the mid to high single digits, and broadband growing organically in the mid single digits. As Jeremy mentioned previously, for smart buildings, which has a temporary channel headwind, we expect organic growth to be down low to mid single digits for the full year. Despite temporary channel adjustments, let me reiterate my confidence in the smart buildings market. With a full suite of Belden products, including fiber, combined with solutions, I see a much greater opportunity ahead for Belden over the long term. The impact on a business will be solely on revenue, which is why we are adjusting a full year 2023 revenue and organic growth estimates accordingly. For the full year 2023, we now expect revenues of between $2.695 billion to $2.725 billion, with organic growth of 3% to 4%. Next, on to earnings per share. I'm happy to report that our business continues to execute with higher productivity and increased solution sales. Considering a strong first half and continued margin expansion, we are raising our full-year EPS targets. We now expect full-year 2023 EPS to be between $7.15 and $7.35, representing EPS growth of approximately 12% to 15% for the year. This is a rather impressive figure given the uncertainties companies are facing in 2023. For the third quarter, we expect revenues of between $675 million to $690 million, with organic growth between negative 1% and positive 1%. We expect third quarter EPS to be between $1.75 and $1.85. Our portfolio is designed to deliver organic growth in excess of GDP. We are confident in our ability to execute our strategy and generate sustainable, long-term shareholder value. Our transformed portfolio aligns Belden with key long-term secular trends. Investments in automation, reshoring, increased connectivity, increasing bandwidth usage, and network upgrades all bode well for Belden to produce sustainable earnings growth. Please turn to slide 12 for closing remarks. As we always do, I would like to reiterate our value creation framework. Our commitment is to drive EPS to $8 or more by 2025 through organic growth in excess of GDP, healthy margins, robust cash flow, and disciplined capital allocation. Belden continues to execute and is making excellent progress towards achieving these goals. End demand for our products and solutions remains healthy. While smart buildings is currently impacted by incremental channel destocking, the remaining three quarters of our business has not felt the same impact. Growth at Belden continues during a challenging year, all while some margins are expanding and our business is generating cash, which we are reinvesting in high ROI opportunities. With EPS growth of 12% to 15%, our business is delivering for shareholders and proving more robust than the Belden of the past. The longer I am in the role of CEO, the more convinced I am of the opportunity ahead of us at Belden. Our solutions go-to-market strategy is driving incremental demand for high-margin Belden products that help offset current challenges and uncertainties around the world. Industrial automation is advancing meaningfully in the marketplace, and with the changes we are making in enterprise solutions, I see a great opportunity to combine our products and services to address hybrid network needs. Finally, I would like to take a moment and recognize the efforts of our associates this past quarter and thank them for their support as we continue to transform Belden and drive incremental growth. Our results speak for themselves. Thank you for your hard work. That concludes our prepared remarks. Operator, please open the call to questions.

Thank you. And again, to our phone audience, if you would like to ask a question during today's Q&A session, please press star and 1 on your touchtone phone. And if you would like to withdraw your question, simply press star and 2. Our first question today comes from the line of William Stein at Truist Securities.

Great. Thanks for taking my questions. Congrats on the better profitability in particular. But I'd like to ask about visibility in general and what's changed that results in this downtick in the full year view. I understand you've addressed a lot of it in the prepared comments. Sounds like it's almost exclusively or exclusively in channel inventory in your smart buildings business. First, maybe confirm that understanding, and then also we'd love to hear about what you might have learned through this process that would help mitigate a sort of channel build and this effect that we're seeing now from happening in the future. Thank you.

Good morning, Will.

Yeah, so just to reconfirm what we said in our prepared remarks. We, at this point in time, overall we see the industrial automation solutions and the broadband business as consistent with our prior guidance. And within the smart buildings business, which is approximately 25% of our total revenues, the encouraging news is that POS, you know, point of sale data and demand, in Q2, for example, was 2% up organically, and also about 35% of that business, which is focused on priority verticals, that grew in the first half about 4%. So really, the issue is limited to some of the more commercial real estate-oriented markets there within smart buildings. And then the dynamic is really our channel partners feeling that they want to draw down more inventory. And our prior estimates were that they would stop doing that about a couple of months ago. It's going a little further. And I think that process is going to turn only sometime in Q3. As a result, you know, we've taken the high and down by 1%, effectively half a percent for the rest of this year. So yeah, it's basically localized to that sub-vertical in the market and the dynamic is with the distribution process. Now in terms of what we have learned going forward, I think as we've discussed on prior calls, we have really over the last two years worked with our channel partners on maintaining healthy turns and we have not fallen into the trap of building up too much inventory. And I think there's some more fine-tuning we need to do maybe to that process in the smart buildings area. And that fine-tuning happens kind of automatically when you have more solution sales and end-user connection. And I think that it just speaks to our requirement to build more solutions capability in enterprise as a whole and in smart buildings specifically.

If I can follow up, you know, margin performance impressive, both, you know, the quarter and the outlook. I wonder if you can maybe quantify a little bit when, you know, it's productivity and mix. Productivity, I think we all understand, but when we talk about mix, maybe how much of the improvement is mix-related and then within that, How much is it just higher margin products or more solution selling? Thank you.

Yeah, so as you know, our best reference for that is our industrial automation segment. The solutions portion there is about, you know, in the mid-teens, you know, 15% to 17% at this point growing. Now, the other way to think of that in an industrial automation portfolio is the portion that is active devices and software. That's about a third of our industrial automation business versus the passive products and components. That's the other two-thirds. Now, both solutions and the active portion are growing approximately high teens to close to 20% organically, and obviously that's driving improved margins. essentially by leading with solutions that have more content of high-margin products. We haven't done really any pricing this year. I mean, we've covered that in the last 18 months. It's already behind us. We are very focused on driving more active and software content as part of the overall solution story. And then on the enterprise side, you know, we do see demand for more specialized fiber-oriented products, including connectivity. You know, you've seen how we've transformed, you know, broadband business. It's now approximately 40% fiber content. So obviously that's driving better margins too. I think the area of opportunity for us going forward on mix is how within smart buildings we do more and more on the growth verticals. We did about 35% in the first half of this year. So this is really the data centers, federal healthcare, hospitality. And in these verticals, we see that the KPI for the user is not just connectivity, but to do something with that connectivity, saving a life, for example, in a hospital. And I think those markets tend to reward us better for our specialized products. So it's really that story, right? The whole solutions positioning is starting to pay off very well in the industrial side. We see patches of it on the enterprise side and more to come on that.

Great. Thank you very much. Thank you.

Our next question comes from Fox Advisors and the line of Stephen Fox.

Hi, Keith. Good morning. First, just to follow up on all the comments you just made on the high-value solution, is there a way to give us a sense for how much year-over-year margins benefited from just the mix shift or the higher sales of higher-value solutions? Then I had to follow up.

Yes. Morning, Steve. So I would say that we are expecting gross margins to be up 200 basis points on an area-wide basis. I would say that the bulk of that really came, you know, I would say 95% of that really came from the solutions approach. We haven't, like I said before, we haven't done any different pricing this year. And we see that in different stages. So in the industrial markets, that solutioning has gone beyond network solutions all the way to data solutions, right? So more data management software, for example, Belden Horizon is helping us there. On the enterprise side, the solutioning is still maybe at the network level, but margins, even there, gross margins have gone up as a result of that. So to really put a brief answer on that, I would say all of our margin improvement is coming from solutions dynamics.

Great. That's helpful. And then looking at your top line, you discussed the enterprise side you know, the smart building piece thoroughly. But can we talk a little bit about broadband and industrial? On the broadband side, a couple of your competitors have actually been downgrading their sales forecast for the rest of the year as spending has slowed down. So I was curious if you could talk about that outperformance. And then from an outsider looking in on industrial, we're seeing purchasing manager indexes go down around the world, especially in Europe and Germany. and you're putting up 8% organic growth. So I was wondering if you could talk about that outperformance in what seems like a tougher market than 90 days ago. Thanks.

Yeah. So, you know, consistent with what we've said in the past, I think a broadband business is benefiting from very long-term trends. We've seen very no change in orders or contracts you know, PRS, for example, with our operator customers. And they are benefiting, obviously, from infrastructure spend. You know, the art of spend about $20 billion over 10 is already started. BID is coming up. I think our customers are preparing to deploy that funding. And the reason we're different, Steve, from some of, you know, our peers is that We focus a lot on the MSO market and the operators who are building out the access portion of broadband versus telco, which tends to be more cyclical and is more the trunking portion of broadband. And I think that's what differentiates us. Now, the interesting opportunity we have, and we're already seeing some of that still early days, but a lot of those operators are looking for hybrid networks, where they want to go into campuses, into buildings, and they need also products out of our smart buildings and industrial portfolio to help them with that. So I think we've avoided the big spurt when telcos were investing rapidly, and we've avoided the reduction, so we've remained stable, and I think the broadband business is really on strong footing here. And then industrial, I think it's important to understand that there's been a dramatic change in our industrial business over the last three years. Like I said previously about a part of the business is now active products and software driving solutions, and that needs to be comped with some of our solutions-oriented automation peers, people who are not selling products or wire and cable products, but really the full solution suite. And that market, I mean, if you look at the guidance from those companies, they're all in the mid to high teens, actually. So, you know, when I think about that, there's a strong requirement. Now, one dynamic that is actually turning out to be even better than we expected, frankly, is the reshoring dynamic. So we see a very, very high investment in reshoring or nearshoring And the problem, of course, that companies face is the lack of qualified labor. In fact, I was reading somewhere that there's about a million open jobs in the U.S. right now, which approximately 40% are due to reshoring efforts. And I think what Belden does in that space is very valuable because we bring in those automation solutions that reduce dependence on more labor, but we also create solutions to improve the productivity per labor unit through our connected workers solution. So it's really a lot of, there's a lot of ramp left on that. I think reshoring is just about starting. And the fact that we are doing network and data solutions really differentiates us from more commoditized industrial players. So just to reiterate, on both those markets, We feel good. Our first half performance has been very solid. We've not seen any changes in end-user demand. To be fair, we've not seen changes even in POS versus expectation in smart buildings. It's only the channel draw. And as a result, our guidance is consistent on those two markets with the past.

Great. That's all really helpful. Thank you.

Thank you, Steve.

Our next question comes from the line of Ruben Garner at The Benchmark Company.

Thank you. Good morning, everybody.

So not to beat a dead horse here, but can you talk about the differences between smart buildings and your other markets in terms of how much you go through Like what percentage of your business goes through distribution versus working more on a solution direct with the customer approach?

Sure.

So first of all, the bulk of our business, both in industrial automation and in smart buildings, is through channel partners, right? So it goes through distribution. I think the difference is that on the industrial automation side, a lot of the selling is not done directly by Belden consultants and salespeople and supported by the whole Belden infrastructure. And the channel partners are really more in fulfillment. And we work very closely with them, identifying opportunities and fulfilling them, right? So that's an important piece of the solution there. On the smart building side, we are more dependent on the channel partners for... sales because the market is far more fragmented, other than in our priority verticals, where in the case of hospitality, healthcare, data centers, we get involved a lot more in the end-user sales process. So I think, and by the way, just to complete the story, in broadband, it's really not through distribution. The overwhelming bulk of our business there is direct to MSO or direct to operator there. So, but coming back to smart buildings, obviously, as I said before, the opportunity for us is to get closer to the end users in terms of understanding some of their challenges and creating solutions for them. We will always fulfill through distribution because that's, you know, Belden is not equipped to do bulk breaking and distribution. That's not our skill. We want to focus on solution creation. And I think it's just that slight difference in smart buildings where we are less involved downstream and we want to get more involved.

Great, thanks. And then understanding that you're not necessarily seeing

weakness or a change in your broadband industrial automation businesses, it sounds like a pretty consistent theme from some peers that others are seeing a slowdown. Are you seeing any kind of incremental pressure on pricing in any categories where you're getting kind of pushed back after a few strong years of inflation?

Yeah, so before I answer the question, let me just clarify, even on the smart building side, what we're seeing is change in channel draw dynamics. We're not witnessing end markets changing that much. Like I said, our POS and CUDA was up 2%. Our focus verticals in the first half were up 4%. And I think one difference is we are not exposed to hyperscale markets. which again, like Telco, are kind of cyclical, and we've remained focused more on those sub-verticals where the KPI is beyond connectivity. I just want to clarify that. And then to your main question on pricing pressure, so the business has transformed a lot, and our customers see really the value of the solution in terms of the savings they get or the effect or the productivity they get. And as a result, those conversations have gone away from price per unit to really total cost of ownership of that solution. Now, obviously, this is not across the board. We're still early in our solutions journey. But I think that's a big factor in mitigating any price pressure. And the answer is not yet. We haven't seen people coming back and saying, you know, this is more expensive than we expected. But people do want us to justify why we are a premium product, and I think our consultants and our salespeople are well equipped to do that.

Great. Thank you. Congrats, guys, on the strong results, and good luck on Ford.

Thank you, Ruben.

And a reminder to our phone audience today that it is star and one if you would like to ask a question. We'll hear next from Mark Delaney at Goldman Sachs.

Hi, good morning. Thank you for taking the question. This is Morgan Leung on the line on behalf of Mark Delaney. So thank you for all the color today. We just wanted to ask a little bit more about the demand trends you're seeing by region and how they might differ at all between North America, Europe, and China. And I think you also talked a little bit about potential tailwinds from government funding in the enterprise segment, so maybe talking about the dynamic with that regionally as well. Thank you.

Sure. So if I think about kind of building across the board, really China is less than 5% of our business right now, and that is indeed the only – region which is uh or sub region which is uh down and it's down kind of uh mid single digits at this point uh non-china apac by the way is up uh about six percent in q2 so you know doing fine uh in a lot of enterprise a lot of infrastructure investments uh in those markets uh especially in india uh but pretty much across the board electrification in southeast asia you know, a lot of data infrastructure getting built out. So overall, we've seen, you know, strength, you know, across the board. I think the, you know, the North American market, especially the U.S., remains very healthy right now, especially for industrial automation solutions given the reshoring focus. I think it's really bucking the trend in terms of just overall what else may be going on in the economy. I think In spite of all uncertainties, people are saying we do need to produce more closer to the point of consumption and mitigate all supply chain risks. And then if I think of the dark region, there is some impact given what's going on in Europe around geopolitics. so it's not grown as much as you would have liked, but it's been a very consistent, steady market for us, especially in automation. So I think the big picture is China is down slightly as expected, a very small part of a business. Everywhere else we're doing fine. In the U.S. and North America especially, we're doing very well. And then, sorry, just to answer the second part of your question, tailwinds in enterprise, essentially, to be specific, that's in the broadband segment where we've seen, as I said before, the out-of-spending, what, $20 billion of infrastructure funding over 10 years. It's started. We've seen evidence of that with some of our operating partners, MSO partners. And then, We're working really hard on getting new approvals in that space because of our increased fiber content. So that's a good dynamic. And then once the bead portion of the Infrastructure Investment and Jobs Act comes in, that's even two acts of out-of-spending. So that will really provide more tailwind.

Okay, great. Thank you. That's really helpful. That's all from us today. Thank you.

And that was our final question from our audience today. Mr. Reddington, I will turn it back to you, sir, for any additional or closing remarks that you have.

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

Thank you, ladies and gentlemen. This does conclude our call for today, and you may now disconnect. Thank you for participating.