What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-02 · 62 added, 91 removed, 144 unchanged (52% of the section changed)

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

Approximately 46% of our consolidated revenues during the quarter ended October 1, 2023 were to customers outside of the U.S.

Approximately 44% of our consolidated revenues during the quarter ended March 31, 2024 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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We monitor available data regarding market growth, including independent market research reports, publicly available indices, and the financial results of our direct and indirect peer companies, in order to estimate the extent to which our served markets grew or contracted during a particular period.

We expect that our unit sales volume will increase or decrease consistently with the market growth rate.

Our strategic goal is to utilize our Market Delivery System to target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate.

We generally expect that our unit sales volume will increase or decrease consistently with the market growth rate.

Our strategic goal is to transition to a solutions provider and target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate.

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

CloudRail Acquisition

On August 31, 2023, we acquired CloudRail with cash on hand for $9.2 million, net of cash acquired.

CloudRail, based in Mannheim, Germany, spec ializes in sensor to cloud data solutions allowing end users to quickly connect sensors on their machinery to cloud providers to drive business insights and improve outcomes.

CloudRail is reported within the Industrial Automation Solutions segment.

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.

Gain on Sale of Assets

In September 2023, we sold our property in Ontario, Canada as part of a sale and leaseback transaction for $13.8 million and recognized a $12.1 million pre-tax gain on sale.

This gain on sale was excluded from Segment EBITDA.

Share Repurchase Program

During the three months ended October 1, 2023 , we repurchased 0.7 million shares of our common stock for an aggregate cost of $63.8 million at an average price per share of $92.46.

During the nine months ended October 1, 2023 , we repurchased 1.7 million shares of our common stock for an aggregate cost of $150.0 million at an average price per share of $89.42.

Sale and Deconsolidation of Hite

On April 28, 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 the disposal date when we sold and deconsolidated the entity.

During the three months ended March 31, 2024 , we repurchased 0.7 million shares of our common stock for an aggregate cost of $57.9 million at an average price per share of $85.66.

Off-Balance Sheet Arrangements

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Critical Accounting Policies

During the nine months ended October 1, 2023:

During the three months ended March 31, 2024:

• We did not change any of our existing critical accounting policies from those listed in our 2023 Annual Report on Form 10-K;

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Consolidated Income before Taxes

Three Months Ended % Change Nine Months Ended % Change

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Three Months Ended % Change

March 31, 2024 April 2, 2023

(In thousands, except percentages)

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Amortization of intangibles (10,809) (9,610) 12.5 %

Gain on sale of assets 12,056 37,891 (68.2) % 12,056 37,891 (68.2) %

Operating income 53,020 85,537 (38.0) %

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Non-operating pension benefit 231 488 (52.7) %

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

Income from continuing operations before taxes 87,177 119,791 (27.2) % 249,432 245,439 1.6 %

Revenues decreased $43.7 million and increased $13.4 million in the three and nine months ended October 1, 2023, respectively, from the comparable periods of 2022 due to the following factors:

• Sales volume resulted in a $60.1 million decline and $12.1 million increase in revenues, respectively.

• Acquisitions, net of divestitures contributed an estimated $12.7 million and $27.6 million in revenues, respectively.

• Copper pass-through pricing had a $0.7 million favorable and $19.4 million unfavorable impact on revenues, respectively.

• Currency translation had a $3.0 million favorable and $6.9 million unfavorable impact on revenues, respectively.

Gross profit increased $2.5 million and $78.8 million in the three and nine months ended October 1, 2023, respectively, from the comparable periods of 2022 primarily due to favorable product mix and pricing .

Gross profit margins were robust, expanding 290 and 380 basis points to 38.5% and 38.2% in the three and nine months ended October 1, 2023 from 35.6% and 34.4% in the comparable periods of 2022, respectively .

Selling, general and administrative expenses increased $7.6 million and $47.5 million in the three and nine months ended October 1, 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 $3.9 million and $14.8 million in the three and nine months ended October 1, 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 decreased $0.6 million and increased $2.2 million in the three and nine months ended October 1, 2023, respectively, from the comparable periods of 2022 primarily due to acquisitions.

The decrease in the three months ended October 1, 2023 was primarily due to fair value adjustments during the quarter related to intangible assets from the Sichert acquisition.

The $12.1 million and $37.9 million pre-tax gain on sale of assets in 2023 and 2022, respectively, represents the gain on certain real estate sold in Canada and the United States for $13.8 million and $42.2 million, respectively.

Operating income decreased $34.2 million and increased $11.5 million in the three and nine ended October 1, 2023 from the comparable periods of 2022 primarily due to the changes in revenues as discussed above.

Net interest expense decreased $1.3 million and $10.0 million in the three and nine months ended October 1, 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 nine months ended October 2, 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 decreased $32.6 million and increased $4.0 million in the three and nine months ended October 1, 2023, respectively, from the comparable periods of 2022 primarily due to the changes in operating income and decrease in debt costs as discussed above.

Three Months Ended % Change Nine Months Ended % Change

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Income before taxes 45,669 77,824 (41.3) %

Revenues decreased $106.1 million in the three months ended March 31, 2024 from the comparable period of 2023 due to the following factors:

• Lower sales volume resulted in a $110.8 million decline in revenues.

• Copper pass-through pricing had a $1.8 million unfavorable impact on revenues.

• Currency translation had an $0.8 million unfavorable impact on revenues.

• Acquisitions, net of divestitures contributed an estimated $7.3 million in revenues.

Gross profit decreased $44.5 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily due to the decline in revenues discussed above .

Despite the decline in gross profit, margins remained relatively flat over the year ago period due to favorable pricing and mix .

Selling, general and administrative expenses decreased $10.8 million in the three months ended March 31, 2024 from the comparable period of 2023.

The decrease in selling, general and administrative expenses was primarily attributable to the benefits realized from our productivity initiatives and a decline in incentive compensation.

Research and development expenses decreased $2.4 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily due to a shift, or change in R&D project timing.

Amortization of intangibles increased $1.2 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily due to acquisitions.

Operating income decreased $32.5 million in the three ended March 31, 2024 from the comparable period of 2023 primarily due to the decline in gross profit, partially offset by the decline in selling, general and administrative expenses as discussed above.

Net interest expense decreased $0.6 million in the three months ended March 31, 2024 from the comparable period of 2023 due to an increase in interest income.

Income before taxes decreased $32.2 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily due to the changes in operating income discussed above.

Three Months Ended % Change

March 31, 2024 April 2, 2023

(In thousands, except percentages)

Income from continuing operations before taxes $ 87,177 $ 119,791 (27.2) % $ 249,432 $ 245,439 1.6 %

Income before taxes $ 45,669 $ 77,824 (41.3) %

Income tax expense 8,360 14,879 (43.8) %

Effective tax rate 18.3 % 19.1 %

For the three and nine months ended October 1, 2023, we recognized income tax expense of $14.9 million and $45.4 million, representing an effective tax rate of 17.0% and 18.2%, respectively.

For the three months ended March 31, 2024, we recognized income tax expense of $8.4 million representing an effective tax rate of 18.3%.

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 Nine Months Ended % Change

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Three Months Ended % Change

March 31, 2024 April 2, 2023

(In thousands, except percentages)

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as a percent of revenues 15.8 % 17.4 %

Adjusted EBITDA decreased $2.9 million and increased $21.3 million in the three and nine months ended October 1, 2023, respectively, from the comparable periods of 2022 primarilly due to the fluctuations in revenues as discussed above.

Furthermore, Adjusted EBITDA margins in the three and nine months ended October 1, 2023 expanded to 18.4% and 17.8% from 17.6% and 16.9% in the comparable periods of 2022, respectively, due to favorable product mix.

Adjusted EBITDA decreased $26.7 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily due to the decline in revenues as discussed above, partially offset by favorable mix and benefits realized from our productivity improvement initiatives.

Use of Non-GAAP Financial Information

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

Three Months Ended Nine Months Ended

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Three Months Ended

March 31, 2024 April 2, 2023

(In thousands, except percentages)

Revenues $ 535,675 $ 641,789

GAAP income from continuing operations $ 72,327 $ 103,687 $ 204,047 $ 206,425

GAAP net income $ 37,309 $ 62,945

Income tax expense 8,360 14,879

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Severance, restructuring, and acquisition integration costs (1) 4,212 1,712

Loss on debt extinguishment — — — 6,392

Amortization of software development intangible assets 2,713 1,452

Non-operating pension settlement loss — 954 — 954

Adjustments related to acquisitions and divestitures (2) 298 298

Gain on sale of assets (12,056) (37,891) (12,056) (37,891)

Adjusted EBITDA $ 84,748 $ 111,451

GAAP income from continuing operations margin 11.5 % 15.5 % 10.4 % 10.6 %

GAAP net income margin 7.0 % 9.8 %

Adjusted EBITDA margin 15.8 % 17.4 %

(1) Severance, restructuring, and acquisition integration costs for the three and nine months ended October 1, 2023 and October 2, 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.

(1) Includes restructuring and integration costs associated with acquisitions as well as costs associated with certain manufacturing footprint actions.

(2) Adjustments related to acquisitions and divestitures include fair value adjustments of acquired assets.

Segment Results of Operations

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Enterprise Solutions

Three Months Ended % Change Nine Months Ended % Change

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Three Months Ended % Change

March 31, 2024 April 2, 2023

(In thousands, except percentages)

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as a percent of segment revenues 11.0 % 13.5 %

Enterprise Solutions revenues decreased $35.3 million and $23.3 million in the three and nine months ended October 1, 2023 from the comparable periods of 2022, respectively.

The decrease in revenues in the three months ended October 1, 2023 was primarily due to decreases in volume, lower copper pass-through pricing, and unfavorable currency translation of $46.1 million, $2.0 million, and $0.4 million, respectively, partially offset by $13.2 million from acquisitions.

The decrease in revenues in the nine months ended October 1, 2023 was primarily due to decreases in volume, lower copper pass-through pricing, and unfavorable currency translation of $33.8 million, $8.9 million, and $5.0 million, respectively, partially offset by acquisitions of $24.4 million.

Enterprise Solutions EBITDA decreased $8.4 million in the three months ended October 1, 2023 from the comparable period of 2022 primarily as a result of the decrease in revenues discussed above and remained relatively flat in the nine months ended October 1, 2023 from the comparable period of 2022 .

Enterprise Solutions revenues decreased $41.2 million in the three months ended March 31, 2024 from the comparable period of 2023.

The decrease in revenues in the three months ended March 31, 2024 was primarily due to decreases in volume, lower copper pass-through pricing, and unfavorable currency translation of $48.3 million, $0.2 million, and $0.2 million, respectively, partially offset by $7.5 million from acquisitions.

Enterprise Solutions EBITDA decreased $11.4 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily as a result of the decrease in revenues discussed above, partially offset by benefits realized from our productivity improvement initiatives .

Industrial Automation Solutions

Three Months Ended % Change Nine Months Ended % Change

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Three Months Ended % Change

March 31, 2024 April 2, 2023

(In thousands, except percentages)

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as a percent of segment revenues 19.5 % 20.1 %

Industrial Automation Solutions revenues decreased $8.4 million in the three months ended October 1, 2023 from the comparable period of 2022 and increased $36.7 million in the nine months ended October 1, 2023 from the comparable period of 2022.

The decrease in revenues in the three months ended October 1, 2023 was primarily due to decreases in volume of $14.0 million and divestitures, net of acquisitions of $0.5 million, partially offset by favorable currency translation and higher copper pass-through pricing of $3.4 million and $2.7 million, respectively.

The increase in revenues in the nine months ended October 1, 2023 was primarily due to increases in volume and favorable pricing of $45.9 million and acquisitions, net of divestitures of $3.2 million, partially offset by lower copper pass-through pricing and unfavorable currency translation of $10.5 million and $1.9 million, respectively.

Industrial Automation Solutions EBITDA increased $6.2 million and $23.0 million in the three and nine months ended October 1, 2023 from the comparable periods of 2022, respectively, primarily as a result of favorable product mix.

Accordingly, for the three and nine months ended October 1, 2023, Segment EBITDA margins expanded to 22.5% and 21.1% from 20.2% and 19.6% over the year ago periods, respectively.

Industrial Automation Solutions revenues decreased $64.9 million in the three months ended March 31, 2024 from the comparable period of 2023.

The decrease in revenues in the three months ended March 31, 2024 was primarily due to decreases in volume, lower copper pass-through pricing, unfavorable currency translation, and divestitures, net of acquisitions of $62.5 million, $1.6 million, $0.6 million, and $0.2 million, respectively.

Industrial Automation Solutions EBITDA decreased $15.0 million in the three months ended March 31, 2024 from the comparable period of 2023 primarily as a result of the decrease in revenues discussed above, partially offset by favorable mix as we transition to solutions .

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 includes the results of discontinued operations up to the February 22, 2022 disposal date :

Nine Months Ended

October 1, 2023 October 2, 2022

The following table is derived from our Condensed Consolidated Cash Flow Statements:

Three Months Ended

March 31, 2024 April 2, 2023

(In thousands)

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Cash and cash equivalents, end of period $ 506,830 $ 589,045

Net cash provided by operating activities totaled $160.0 million in the nine months ended October 1, 2023, compared to $78.8 million in the prior year.

Operating cash flows improved $81.2 million compared to the prior year primarily due to an $11.2 million increase in net income and a $55.8 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 $145.5 million in the nine months ended October 1, 2023, compared to a source of cash of $223.4 million in the prior year.

Investing activities for the nine months ended October 1, 2023 included $106.7 million primarily for the acquisitions of Sichert and Cloudrail and $61.9 million for capital expenditures, partially offset by $13.8 million for asset sales and $9.3 million received from the disposals of businesses.

Investing activities for the nine months ended October 2, 2022 included cash receipts of $334.6 million primarily for the Tripwire disposal and $43.5 million for asset sales, partially offset by payments of $104.5 million for acquisitions and $50.3 million for capital expenditures.

Net cash used for financing activities totaled $167.4 million for the nine months ended October 1, 2023, compared to $376.7 million in the prior year.

Financing activities for the nine months ended October 1, 2023 included payments under our share repurchase program of $150.0 million, payments related to share based compensation activities of $17.3 million, cash dividend payments of $6.4 million, financing lease payments of $0.3 million, and proceeds from the issuance of common stock of $6.6 million.

Financing activities for the nine months ended October 2, 2022 included payments under borrowing arrangements of $230.6 million, payments under our share repurchase program of $136.3 million, cash dividend payments of $6.8 million, net payments related to share based compensation activities of $6.5 million, and proceeds from the issuance of common stock of $3.7 million.

Our cash and cash equivalents balance was $531.0 million as of October 1, 2023.

Net cash provided by operating activities totaled $2.7 million in the three months ended March 31, 2024 compared to a use of cash of $31.9 million in the year ago period.

Operating cash flows improved $34.6 million compared to the prior year primarily due to a $56.5 million improvement in operating assets and liabilities as we successfully managed working capital to mitigate the impact of lower revenues.

Net cash used for investing activities totaled $24.2 million for the three months ended March 31, 2024, compared to $3.8 million in the year ago period.

Investing activities for the three months ended March 31, 2024 included $24.3 million for capital expenditures, partially offset by $0.1 million for asset sales.

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.

Net cash used for financing activities totaled $64.9 million for the three months ended March 31, 2024, compared to $63.8 million in the year ago period.

Financing activities for the three months ended March 31, 2024 included payments under our share repurchase program of $57.9 million, payments related to share based compensation activities of $7.9 million, cash dividend payments of $2.1 million, financing lease payments of $0.2 million, and proceeds from the issuance of common stock of $3.1 million.

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.

Our cash and cash equivalents balance was $506.8 million as of March 31, 2024.

Of this amount, $269.5 million was held outside of the U.S.

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dollars or other foreign currencies.

We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and accordingly, no provision for any withholding taxes has been recorded.

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 October 1, 2023 consisted of $1,157.1 million of senior subordinated notes.

Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to permanently reinvest the foreign cash outside of the U.S.

If we were to repatriate the foreign cash to the U.S., we may be required to accrue and pay U.S.

taxes in accordance with applicable U.S.

tax rules and regulations as a result of the repatriation.

Our outstanding debt obligations as of March 31, 2024 consisted of $1,190.3 million of senior subordinated notes.

Additional discussion regarding our various borrowing arrangements is included in Note 9 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