Belden Inc

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Report's fourth quarter and full year 2023 results call. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode. Later, we will conduct a question and answer session. If you 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 Erin Reddington. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for Belden's fourth 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 have prepared a slide presentation that we will reference on this call. The press release, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com. Turning to slide two in the presentation. During this call, management will make certain forward-looking statements in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For more information, please review today's press release and our 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 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, Ashish Chand. Thank you, Alan. And good morning, everyone.

We really appreciate you joining us today. As we host this earnings call, I am days away from my first anniversary as president and CEO of Belden. Much has been accomplished this past year, and I'm excited about the opportunity we have going forward to transform Belden and increase shareholder value. Let's turn to slide four for a summary of the major accomplishments we achieved in the fourth quarter and full year 2023. As a reminder, I will be referring to adjusted results today. First, let me take a moment and thank the Belden team for their excellent performance wrapping up a successful quarter and year. For the fourth quarter, our revenue and EPS both exceeded the high end of our guidance as our solutions transformation continues to drive incremental demand and margin expansion. Revenue for the quarter totaled $551 million, and EPS came in at $1.46. For the fourth quarter, orders increased sequentially by 4%, indicating stability in our end markets. Importantly, we experienced single-digit sequential order growth in both segments, industrial automation solutions and enterprise solutions. Entering the quarter, our markets were experiencing many headwinds. I'm encouraged to see relative stability in the fourth quarter that produced results exceeding our expectations. Second, as we wrapped up another transformational year, our business performed well, and we were able to achieve record full-year earnings per share of $6.83, up 7% year over year. I would like to point out THAT AFTER ACHIEVING RECORD EARNINGS PER SHARE IN 2023, THIS MARKS TWO CONSECUTIVE YEARS OF RECORD EPS PERFORMANCE. DESPITE DEMAND AND DESTOCKING CHALLENGES IN THE SECOND HALF OF 2023, OUR REVENUE WAS ONLY DOWN 4% FOR THE FULL YEAR, AND THROUGH SUCCESSFUL EXECUTION, WE WERE ABLE TO EXPAND OUR MARGINS. THOSE MARGINS WERE A ROBUST 38.5%, UP 270 BASIS POINTS. and EBITDA margins ended at 17.4 percent, up 40 basis points year-over-year. Third, our business is generating meaningful cash flow, and we are deploying capital consistent with our capital allocation priorities. Free cash flow for the year was strong at $217 million, roughly flat with the prior year total. With the ample free cash flow, our team took steps to reinvest in high return opportunities. For the year, we invested nearly $110 million in strategic M&A designed to strengthen our solutions and enhance growth. Further, we returned over $200 million to shareholders, mostly through share repurchases. Over the last year, we purchased 2.3 million shares, or approximately 5% of the total shares outstanding. Since 2022, Our share repurchase program has returned approximately $350 million to shareholders, resulting in the purchase of 4.9 million shares, reducing total shares outstanding by more than 10%. After deploying over $300 million in 2023 in M&A and share repurchases, our leverage remains low at 1.4 times. This leaves us with significant financial flexibility to execute upon our strategic plans while staying around our targeted net leverage ratio of 1.5 times. Now please turn to slide five. Before we dig deeper into our results for the quarter in a year, I wanted to pause momentarily and reflect on the progress Belden has made during our solutions transformation. For those new to Belden, we began transformation in early 2020 in our industrial business. Our main objectives were to bring together disparate built-in products, focus on data needs, and ultimately engage with customers in a different way to solve problems. Since then, we've been working feverishly behind the scenes to break down barriers, add new solution skills internally, and invest heavily in our Customer Innovation Centers, or CICs, of which we just opened the fifth in India recently. Our focus has been centered around key verticals with complex challenges. With our enhanced solution strategy, we work to simplify otherwise complex solutions and deepen our relationship with customers. Over the past few years, we have grown our solutions business meaningfully and see a runway for much more growth and opportunity. By focusing on customer problems and working to provide high-quality products and solutions, we are winning in the marketplace. Over the past market cycle, our business has performed admirably with a 6% revenue tagger, meaningful improvements in gross margins, which led to a 140 basis point expansion in our EBITDA margins. Improved growth combined with margin expansion has led to impressive improvements in our earnings per share, which resulted in a 15% tagger since starting our transformation. We have reconfigured our business to improve organic growth and prioritize higher value-added products and solutions, and the results have been meaningful and impressive. If you look at Belden today compared to where we were four years ago, you will see massive changes underway, and I'm pleased to see these changes impact our financials so vividly. We ended 2023 with a new record for EPS and expect our business to perform similarly over the next cycle with increased revenue and record earnings. Finally, please turn to slide six for a review of our capital allocation priorities in action during the past cycle. From a capital allocation perspective, much has been accomplished during our transition. First, we divested from two businesses that were underperforming and no longer aligned with our solution strategy. As a result of those sales, combined with our impressive free cash flow, we generated approximately $1.3 billion of capital. On the right-hand side of the page, you can see where those funds were invested. Over the last five years, we returned approximately $500 million to shareholders to share repurchases and dividends. Our buybacks have accelerated these past two years as we purchased approximately $350 million in stock and reduced our shares outstanding by over 10%. Second, our M&A activity has been steady with a total of 10 acquisitions deploying approximately $400 million in capital. And finally, The building of the past had too much leverage. As part of our new strategy, we sought to reduce our leverage to a more reasonable 1.5 times target, which we achieved these past two years. Our lower leverage provides us with more flexibility during times like these to continue to invest in our business, seek out attractive acquisition targets, and return capital to shareholders. This slide is a perfect illustration of our capital allocation priorities in action and how you can expect to see us operate in the future. Now please turn to slide seven for a quick summary of a few noteworthy customer wins during the quarter. These wins help highlight how our go-to-market strategy is evolving and showcase real-world examples of our solutions in the marketplace. First, on the industrial automation side, our team succeeded in winning a project with one of the largest public transportation networks in Germany. Our customer was having issues with passenger experience, real-time position tracking of assets, and predictive maintenance. Working with Belden, we helped develop a comprehensive solution to improve their network and solve critical pain points in passenger experience. Next, I'm pleased to report that we won a $6 million agreement with a major healthcare customer as an end-to-end solutions provider. This specific customer was looking to solve key data and network issues and brought their team to our CIC in Chicago for a demo. They were very impressed with our consultants and solutions and ultimately awarded Belden the contract on top of eliminating multiple previous product suppliers and awarding us that business as well. This win highlights the power of our CICs and how the strategy not only showcases our solutions, but also helps us gain share in the marketplace. Finally, as we have discussed previously, we are working hard to streamline our enterprise solution segment and move it down the solutions path in the same way we did for industrial automation a few years prior. I'm proud to share that our team is gaining traction in the marketplace by selling enterprise and broadband products across key distribution partners. In the past, Belden operated with walls between markets and products that limited our opportunity. By breaking down these walls and silos operationally, we can bring our products to market in a more comprehensive way, which lays the foundation for true solution sales. This work is important as we continue down our solutions path, and these wins are examples of how things are changing. I will now request Jeremy Parks to provide additional insight into our fourth quarter and full year 2023 financial performance.