What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-08 · 74 added, 63 removed, 149 unchanged (48% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(the Company, us, we, or our) is a leading global supplier of network infrastructure solutions built around two global businesses - Enterprise Solutions and Industrial Automation Solutions.

(the Company, us, we, or our) is a leading global supplier of network infrastructure solutions built around 2 global businesses - Enterprise Solutions and Industrial Automation Solutions.

Our mission is to build the foundation for a digital world that makes the digital journey simpler, smarter and secure.

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• Execute a disciplined capital allocation strategy while maintaining net leverage of approximately 1.5x;

• Drive Adjusted EPS to $8.00 by 2025.

• Drive Adjusted EPS to at least $8.00 by 2025.

Trends and Events

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dollar weakens against foreign currencies, our revenues and earnings are positively impacted.

Approximately 44% of our consolidated revenues during the quarter ended April 2, 2023 were to customers outside of the U.S.

Approximately 43% of our consolidated revenues during the quarter ended July 2, 2023 were to customers outside of the U.S.

In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results.

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Comparisons of our results between periods can be impacted by changes in the levels of channel inventory.

We use information provided to

us by our channel partners and make certain assumptions based on our sales to them to determine the amount of products they bought from us and hold in their inventory.

We use information provided to us by our channel partners and make certain assumptions based on our sales to them to determine the amount of products they bought from us and hold in their inventory.

As such, all references to the effect of channel inventory changes are estimates.

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To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share.

Sichert Acquisition

On April 17, 2023, we acquired Sichert with cash on hand for $97.5 million, net of cash acquired.

Sichert, based in Berlin Germany, designs and manufactures a portfolio of polycarbonate street cabinets utilized in outside plant passive optical networks (“PON”) and 5G networks.

Sichert is reported within the Enterprise Solutions segment.

Share Repurchase Program

During the three months ended April 2, 2023, we repurchased 0.6 million shares of our common stock for an aggregate cost of $50.0 million at an average price per share of $84.18.

During the three months ended July 2, 2023, our Board of Directors authorized an additional $300.0 million under the share repurchase program, and we repurchased 0.4 million shares of our common stock for an aggregate cost of $36.2 million at an average price per share of $92.01.

Sale and Deconsolidation of Hite

During the three months ended July 2, 2023 , we sold our 51% ownership interest in Shanghai Hi-Tech Control System Co, Ltd to (Hite) for $0.9 million and recognized a $0.4 million pretax gain on sale.

The sale also includes $0.6 million of potential earnout payments.

The joint venture developed and provided certain Industrial Automation Solutions products and integrated solutions to customers in China.

As Belden was the primary beneficiary of the joint venture, due to both our ownership percentage and control over the activities of the joint venture, we consolidated the joint venture in our financial statements and presented the results of the joint venture attributable to Hite’s ownership as net income attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations up to April 28, 2023 when we sold and deconsolidated the entity.

Off-Balance Sheet Arrangements

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Critical Accounting Policies

During the three months ended April 2, 2023:

During the six months ended July 2, 2023:

• We did not change any of our existing critical accounting policies from those listed in our 2022 Annual Report on Form 10-K;

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Consolidated Income before Taxes

Three Months Ended % Change

April 2, 2023 April 3, 2022

Three Months Ended % Change Six Months Ended % Change

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

(In thousands, except percentages)

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Non-operating pension benefit 646 1,070 (39.6) % 1,134 2,270 (50.0) %

Loss on debt extinguishment — (6,392) (100.0) %

Loss on debt extinguishment — — n/a — (6,392) (100.0) %

Income from continuing operations before taxes 84,431 71,730 17.7 % 162,255 125,648 29.1 %

Revenues increased $31.4 million in the three months ended April 2, 2023, respectively, from the comparable period of 2022 due to the following factors:

• Higher sales volume and favorable pricing resulted in a $40.9 million increase in revenues.

• Acquisitions contributed an estimated $7.9 million in revenues.

• Copper pass-through pricing had a $8.6 million unfavorable impact on revenues.

• Currency translation had a $8.8 million unfavorable impact on revenues.

Gross profit increased $37.2 million in the three months ended April 2, 2023 from the comparable period of 2022 due to the increases in revenues discussed above and favorable product mix .

Gross profit margins were robust, expanding 410 basis points to 38.3% in the three months ended April 2, 2023 from 34.2% in the comparable period of 2022 .

Selling, general and administrative expenses increased $18.5 million in the three months ended April 2, 2023 from the comparable period of 2022.

Revenues increased $25.7 million and $57.1 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 due to the following factors:

• Higher sales volume and favorable pricing resulted in a $31.3 million and $72.2 million increase in revenues, respectively.

• Acquisitions, net of divestitures contributed an estimated $7.0 million and $14.9 million in revenues, respectively.

• Copper pass-through pricing had an $11.5 million and $20.1 million unfavorable impact on revenues, respectively.

• Currency translation had a $1.1 million and $9.9 million unfavorable impact on revenues, respectively.

Gross profit increased $39.0 million and $76.3 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 due to the increases in revenues discussed above and favorable product mix .

Gross profit margins were robust, expanding 440 and 420 basis points to 37.8% and 38.0% in the three and six months ended July 2, 2023 from 33.4% and 33.8% in the comparable periods of 2022, respectively .

Selling, general and administrative expenses increased $21.4 million and $39.9 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022.

The increase in selling, general and administrative expenses is primarily attributable to strategic investments to enhance our solution selling capabilities as well as increases from acquisitions.

Research and development expenses increased $5.9 million in the three months ended April 2, 2023 from the comparable period of 2022 primarily due to increased investments as we further strengthen our product offering and continue our commitment to growth initiatives.

Amortization of intangibles increased $0.8 million in the three months ended April 2, 2023 from the comparable period of 2022 primarily due to acquisitions.

Operating income increased $12.0 million in the three months ended April 2, 2023 from the comparable period of 2022 due to the increase in gross profit, partially offset by increases in operating expenses as discussed above.

Net interest expense decreased $6.2 million in the three months ended April 2, 2023 from the comparable period of 2022 due to the retirement of the 2026 Notes during 2022 and an increase in interest income.

Research and development expenses increased $5.0 million and $10.9 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 primarily due to increased investments as we further strengthen our product offering and continue our commitment to growth initiatives.

Amortization of intangibles increased $1.9 million and $2.7 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 primarily due to acquisitions.

Operating income increased $10.7 million and $22.7 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 due to the increase in gross profit, partially offset by increases in operating expenses as discussed above.

Net interest expense decreased $2.5 million and $8.7 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 due to the retirement of the 2026 Notes during 2022 and an increase in interest income.

See further discussion below.

The $6.4 million loss on debt extinguishment in the three months ended April 3, 2022 represents the premium paid to the bond holders to retire the 2026 Notes and the write-off of the unamortized debt issuance costs associated with the 2026 Notes.

Income from continuing operations before taxes increased $23.9 million in the three months ended April 2, 2023 from the comparable period of 2022 primarily due to the increase in operating income and decrease in debt costs as discussed above.

Three Months Ended % Change

April 2, 2023 April 3, 2022

The $6.4 million loss on debt extinguishment in the six months ended July 3, 2022 represents the premium paid to the bond holders to retire the 2026 Notes and the write-off of the unamortized debt issuance costs associated with the 2026 Notes.

Income from continuing operations before taxes increased $12.7 million and $36.6 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 primarily due to the increase in operating income and decrease in debt costs as discussed above.

Three Months Ended % Change Six Months Ended % Change

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

(In thousands, except percentages)

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Effective tax rate 18.5 % 18.2 % 18.8 % 18.2 %

For the three months ended April 2, 2023, we recognized income tax expense of $14.9 million, representing an effective tax rate of 19.1%.

For the three and six months ended July 2, 2023, we recognized income tax expense of $15.7 million and $30.5 million, representing an effective tax rate of 18.5% and 18.8%, respectively.

The effective tax rate was primarily impacted by the effect of our foreign operations, including statutory tax rates differences and foreign tax credits.

Consolidated Adjusted EBITDA

Three Months Ended % Change

April 2, 2023 April 3, 2022

Three Months Ended % Change Six Months Ended % Change

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

(In thousands, except percentages)

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as a percent of revenues 17.8 % 16.6 % 17.6 % 16.5 %

Adjusted EBITDA increased $12.0 million in the three months ended April 2, 2023 from the comparable period of 2022 primarily due to leverage on higher sales volume and favorable product mix , as discussed above.

Accordingly, Adjusted EBITDA margins in the three months ended April 2, 2023 expanded to 17.4% from 16.3% in the comparable period of 2022.

Adjusted EBITDA increased $12.2 million and $24.2 million in the three and six months ended July 2, 2023, respectively, from the comparable periods of 2022 primarily due to leverage on higher sales volume and favorable product mix , as discussed above.

Accordingly, Adjusted EBITDA margins in the three and six months ended July 2, 2023 expanded to 17.8% and 17.6% from 16.6% and 16.5% in the comparable periods of 2022, respectively.

Use of Non-GAAP Financial Information

Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures.

Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures.

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including:

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accelerated depreciation expense due to plant consolidation activities;

purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory to fair value, and transaction costs;

acquisition-related expenses, such as the adjustment of acquired inventory to fair value, and transaction costs;

severance, restructuring, and acquisition integration costs;

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We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis.

As an example, we adjust for acquisition-related expenses, such as amortization of intangibles and impacts of fair value adjustments because they generally are not related to the acquired business' core business performance.

As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses.

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The following tables reconcile our GAAP results to our non-GAAP financial measures:

Three Months Ended

April 2, 2023 April 3, 2022

Three Months Ended Six Months Ended

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

(In thousands, except percentages)

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Adjusted EBITDA margin 17.8 % 16.6 % 17.6 % 16.5 %

(1) Severance, restructuring, and acquisition integration costs for the three months ended April 2, 2023 and April 3, 2022 primarily related to our Acquisition Integration program.

(2) During the three months ended April 2, 2023, we incurred $0.3 million for fair value adjustments of acquired investments.

(1) Severance, restructuring, and acquisition integration costs for the three and six months ended July 2, 2023 and July 3, 2022 included costs related to our Acquisition Integration program.

(2) Adjustments related to acquisitions and divestitures included fair value adjustments of acquired inventory and investments as well as gains associated with the sales of businesses.

Segment Results of Operations

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Enterprise Solutions

Three Months Ended % Change

April 2, 2023 April 3, 2022

Three Months Ended % Change Six Months Ended % Change

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

(In thousands, except percentages)

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as a percent of segment revenues 14.1 % 13.6 % 13.8 % 12.6 %

Enterprise Solutions revenues increased $6.9 million in the three months ended April 2, 2023 from the comparable period of 2022.

The increase in revenues in the three months ended April 2, 2023 was primarily due to increases in volume and favorable pricing of $8.8 million and acquisitions of $4.0 million, partially offset by unfavorable currency translation of $3.0 million and lower copper pass-through pricing of $2.9 million.

Enterprise Solutions EBITDA increased $6.4 million in the three months ended April 2, 2023 from the comparable period of 2022 primarily as a result of the increase in revenues discussed above .

Accordingly, for the three months ended April 2, 2023, Segment EBITDA margins expanded 200 basis points to 13.5% from 11.5% over the year ago period.

Enterprise Solutions revenues increased $5.1 million and $12.0 million in the three and six months ended July 2, 2023 from the comparable periods of 2022, respectively.

The increase in revenues in the three months ended July 2, 2023 was primarily due to increases in volume and favorable pricing of $3.5 million and acquisitions of $7.2 million, partially offset by unfavorable currency translation of $1.6 million and lower copper pass-through pricing of $4.0 million.

The increase in revenues in the six months ended July 2, 2023 was primarily due to increases in volume and favorable pricing of $12.3 million and acquisitions of $11.2 million, partially offset by unfavorable currency translation of $4.6 million and lower copper pass-through pricing of $6.9 million.

Enterprise Solutions EBITDA increased $2.1 million and $8.5 million in the three and six months ended July 2, 2023 from the comparable periods of 2022, respectively, primarily as a result of the increase in revenues discussed above .

Accordingly, for the three and six months ended July 2, 2023, Segment EBITDA margins expanded 50 and 120 basis points to 14.1% and 13.8% from 13.6% and 12.6% over the year ago periods, respectively.

Industrial Automation Solutions

Three Months Ended % Change

April 2, 2023 April 3, 2022

Three Months Ended % Change Six Months Ended % Change

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

(In thousands, except percentages)

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as a percent of segment revenues 20.7 % 19.0 % 20.4 % 19.3 %

Industrial Automation Solutions revenues increased $24.5 million in the three months ended April 2, 2023 from the comparable period of 2022.

The increase in revenues in the three months ended April 2, 2023 was primarily due to increases in volume and favorable pricing of $32.1 million and acquisitions of $3.9 million, partially offset by unfavorable currency translation of $5.8 million and lower copper pass-through pricing of $5.7 million.

Industrial Automation Solutions EBITDA increased $6.3 million in the three months ended April 2, 2023 from the comparable period of 2022 primarily as a result of the increase in revenues discussed above, including solid operating leverage on volume growth and favorable pricing.

Accordingly, for the three months ended April 2, 2023, Segment EBITDA margins expanded to 20.1% from 19.7% over the year ago period.

Industrial Automation Solutions revenues increased $20.6 million and $45.1 million in the three and six months ended July 2, 2023 from the comparable periods of 2022, respectively.

The increase in revenues in the three months ended July 2, 2023 was primarily due to increases in volume and favorable pricing of $27.8 million and favorable currency translation of $0.5 million, partially offset by lower copper pass-through pricing of $7.5 million and divestitures of $0.2 million.

The increase in revenues in the six months ended July 2, 2023 was primarily due to increases in volume and favorable pricing of $59.9 million and acquisitions, net of divestitures of $3.7 million, partially offset by unfavorable currency translation of $5.3 million and lower copper pass-through pricing of $13.2 million.

Industrial Automation Solutions EBITDA increased $10.6 million and $16.8 million in the three and six months ended July 2, 2023 from the comparable periods of 2022, respectively, primarily as a result of the increase in revenues discussed above, including solid operating leverage on volume growth and favorable mix.

Accordingly, for the three and six months ended July 2, 2023, Segment EBITDA margins expanded to 20.7% and 20.4% from 19.0% and 19.3% over the year ago periods, respectively.

Liquidity and Capital Resources

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economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product mix, and commodities pricing.

The following table is derived from our Condensed Consolidated Cash Flow Statements and for the three months ended April 3, 2022, includes the results of discontinued operations up to the February 22, 2022 disposal date :

Three Months Ended

April 2, 2023 April 3, 2022

The following table is derived from our Condensed Consolidated Cash Flow Statements, and for the six months ended July 3, 2022, includes the results of discontinued operations up to the February 22, 2022 disposal date :

Six Months Ended

July 2, 2023 July 3, 2022

(In thousands)

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Cash and cash equivalents, end of period $ 514,767 $ 527,682

Net cash used for operating activities totaled $31.9 million in the three months ended April 2, 2023, compared to $58.0 million in the prior year.

Operating cash flows improved $26.1 million compared to the prior year primarily due to a $27.1 million increase in net income.

Net cash from investing activities was a use of cash of $3.8 million in the three months ended April 2, 2023, compared to a source of cash of $261.8 million in the prior year.

Investing activities for the three months ended April 2, 2023 included $13.8 million for capital expenditures, partially offset by $10.0 million received from escrow for the disposal of a business.

Investing activities for the three months ended April 3, 2022 included cash receipts of $338.7 million for the Tripwire disposal, partially offset by payments of $65.9 million for the acquisitions of Macmon and NetModule and $11.0 million for capital expenditures.

Net cash used for financing activities totaled $63.8 million for the three months ended April 2, 2023, compared to $286.7 million in the prior year.

Financing activities for the three months ended April 2, 2023 included payments under our share repurchase program of $50.0 million, net payments related to share based compensation activities of $13.3 million, cash dividend payments of $2.1 million, and proceeds from the issuance of common stock of $1.6 million.

Financing activities for the three months ended April 3, 2022 included payments under borrowing arrangements of $230.6 million, payments under our share repurchase program of $50.0 million, net payments related to share based compensation activities of $3.7 million, and cash dividend payments of $2.3 million.

Our cash and cash equivalents balance was $589.0 million as of April 2, 2023.

Net cash provided by operating activities totaled $54.7 million in the six months ended July 2, 2023, compared to a use of cash of $8.6 million in the prior year.

Operating cash flows improved $63.3 million compared to the prior year primarily due to a $37.2 million increase in net income and $24.8 million improvement in operating assets and liabilities.

Inventories experienced the biggest improvement as we continue to reduce the outstanding backlog.

Net cash from investing activities was a use of cash of $121.0 million in the six months ended July 2, 2023, compared to a source of cash of $205.0 million in the prior year.

Investing activities for the six months ended July 2, 2023 included $97.6 million primarily for the acquisition of Sichert and $32.7 million for capital expenditures, partially offset by $9.3 million received from the disposals of businesses.

Investing activities for the six months ended July 3, 2022 included cash receipts of $338.7 million for the Tripwire disposal, partially offset by payments of $104.1 million for acquisitions and $31.0 million for capital expenditures.

Net cash used for financing activities totaled $105.9 million for the six months ended July 2, 2023, compared to $303.3 million in the prior year.

Financing activities for the six months ended July 2, 2023 included payments under our share repurchase program of $86.2 million, payments related to share based compensation activities of $16.9 million, cash dividend payments of $4.3 million, and proceeds from the issuance of common stock of $1.6 million.

Financing activities for the six months ended July 3, 2022 included payments under borrowing arrangements of $230.6 million, payments under our share repurchase program of $66.6 million, payments related to share based compensation activities of $5.2 million, cash dividend payments of $4.5 million, and proceeds from the issuance of common stock of $3.7 million.

Our cash and cash equivalents balance was $514.8 million as of July 2, 2023.

Of this amount, $219.0 million was held outside of the U.S.

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Upon distribution of those earnings in the form of dividends or otherwise, we may be subject to withholding taxes payable to the respective foreign countries.

Our outstanding debt obligations as of April 2, 2023 consisted of $1,191.4 million of senior subordinated notes.

Our outstanding debt obligations as of July 2, 2023 consisted of $1,199.0 million of senior subordinated notes.

Additional discussion regarding our various borrowing arrangements is included in Note 12 to the Condensed Consolidated Financial Statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis