What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 77 added, 62 removed, 152 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 and digitization solutions built around 2 global businesses - Enterprise Solutions and Industrial Automation Solutions.

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

As Belden continues to advance forward with solutions focused on data infrastructure, we renamed our two reportable segments during the three months ended September 29, 2024 from Enterprise Solutions and Industrial Automation Solutions to Smart Infrastructure Solutions and Automation Solutions, respectively.

The composition of the segments did not change as a result of these name changes.

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

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Our current business goals are to:

• Drive organic revenue growth in excess of GDP;

• Deliver incremental Adjusted EBITDA margins of approximately 30%;

• Generate free cash flow of approximately $1 billion cumulatively from 2022 through 2025;

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

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

• Achieve mid-single-digit annual revenue growth;

• Deliver incremental Adjusted EBITDA margins between 25% to 30%;

• Generate free cash flow margin approaching 10%;

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

• Drive Adjusted EPS to at least $8.00 by 2025 with annual growth of 10% to 12% thereafter.

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 June 30, 2024 were to customers outside of the U.S.

Approximately 41% of our consolidated revenues during the quarter ended September 29, 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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To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share.

Voleatech GmbH Acquisition

On September 16, 2024, we acquired Voleatech for €5.0 million ($5.6 million), net of cash acquired.

The acquisition includes a potential earn-out up to €3.0 million based upon certain targets over three years, which will be accounted for as compensation cost.

Voleatech, based in Germany, is known for their VT AIR Next Gen Firewall and expands Belden's Firewall product portfolio and overall planning of security in OT networking.

Voleatech is reported within the Automation Solutions segment.

Precision Optical Technologies Acquisition

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Share Repurchase Program

During the six months ended June 30, 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.

During the three months ended September 29, 2024 , we repurchased 0.2 million shares of our common stock for an aggregate cost of $20.1 million at an average price per share of $110.84.

During the nine months ended September 29, 2024 , we repurchased 0.9 million shares of our common stock for an aggregate cost of $78.0 million at an average price per share of $90.98.

Off-Balance Sheet Arrangements

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Critical Accounting Policies

During the six months ended June 30, 2024:

During the nine months ended September 29, 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 Six Months Ended % Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended % Change Nine Months Ended % Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(In thousands, except percentages)

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Amortization of intangibles (13,738) (9,526) 44.2 % (34,487) (30,262) 14.0 %

Gain on sale of assets — 12,056 (100.0) % — 12,056 (100.0) %

Operating income 75,349 95,429 (21.0) % 197,281 273,563 (27.9) %

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Income before taxes 64,780 87,177 (25.7) % 170,574 249,432 (31.6) %

Revenues decreased $87.9 million and $194.0 million in the three and six months ended June 30, 2024, respectively, from the comparable periods of 2023 due to the following factors:

Revenues increased $28.1 million and decreased $165.9 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023 due to the following factors:

• Acquisitions contributed $34.5 million and $42.1 million in revenues, respectively.

• Copper pass-through pricing had an $10.2 million and $17.1 million favorable impact on revenues, respectively.

• Lower sales volume resulted in a $15.2 million and $218.9 million decline in revenues, respectively.

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• Divestitures had a $0.0 million and $0.4 million unfavorable impact on revenues, respectively.

• Acquisitions contributed $0.0 million and $7.6 million in revenues, respectively.

• Copper pass-through pricing had an $8.7 million and $6.9 million favorable impact on revenues, respectively.

Gross profit decreased $34.5 million and $79.0 million in the three and six months ended June 30, 2024, respectively, from the comparable periods 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 periods due to favorable pricing and mix.

Selling, general and administrative expenses decreased $7.1 million and $17.9 million in the three and six months ended June 30, 2024, respectively, from the comparable periods 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 $2.5 million and $4.9 million in the three and six months ended June 30, 2024, respectively, from the comparable periods of 2023 primarily due to a shift, or change in R&D project timing.

Amortization of intangibles decreased $1.2 million in the three months ended June 30, 2024 from the comparable period of 2023 primarily due to certain intangible assets becoming fully amortized and foreign currency exchange rates.

Amortization of intangibles remained relatively flat in the six months ended June 30, 2024 from the comparable period of 2023.

Operating income decreased $23.7 million and $56.2 million in the three and six ended June 30, 2024, respectively, from the comparable periods 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 increased $0.2 million and decreased $0.4 million in the three and six months ended June 30, 2024, respectively, from the comparable periods of 2023 due to fluctuations in interest income and foreign currency translation.

Income before taxes decreased $24.3 million and $56.5 million in the three and six months ended June 30, 2024, respectively, from the comparable periods of 2023 primarily due to the changes in operating income discussed above.

Three Months Ended % Change Six Months Ended % Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Gross profit increased $2.8 million and decreased $76.2 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023 primarily due to the changes in revenues discussed above.

Selling, general and administrative expenses increased $8.9 million and decreased $9.0 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023.

The increase in the three months ended September 29, 2024 was primarily attributable to expenses from the operations of companies acquired in 2024.

The decrease in the nine months ended September 29, 2024 was primarily attributable to the benefits realized from our productivity initiatives.

Research and development expenses decreased $2.2 million and $7.1 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023 primarily due to the timing of projects.

Amortization of intangibles increased $4.2 million in both the three and nine months ended September 29, 2024 from the comparable periods of 2023 primarily due to acquisitions.

The $12.1 million pre-tax gain on sale of assets during the three and nine months ended October 1, 2023 represents the gain on certain real estate sold in Canada for $13.8 million.

Operating income decreased $20.1 million and $76.3 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023 primarily due to the fluctuations in revenues;

selling, general and administrative expenses;

and the pre-tax gain on sale of assets discussed above.

Net interest expense increased $2.3 million and $1.9 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023 due to fluctuations in interest income and foreign currency translation.

Income before taxes decreased $22.4 million and $78.9 million in the three and nine months ended September 29, 2024, respectively, from the comparable periods of 2023 primarily due to the changes in operating income discussed above.

Three Months Ended % Change Nine Months Ended % Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(In thousands, except percentages)

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Effective tax rate 17.1 % 17.0 % 17.9 % 18.2 %

For the three and six months ended June 30, 2024, we recognized income tax expense of $11.1 million and $19.5 million representing effective tax rates of 18.4%.

For the three and nine months ended September 29, 2024, we recognized income tax expense of $11.1 million and $30.5 million representing effective tax rates of 17.1% and 17.9%, respectively.

The effective tax rates were 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 Six Months Ended % Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended % Change Nine Months Ended % Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(In thousands, except percentages)

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as a percent of revenues 17.2 % 18.4 % 16.5 % 17.8 %

Adjusted EBITDA decreased $23.8 million and $50.5 million in the three and six months ended June 30, 2024 from the comparable periods 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.

Adjusted EBITDA decreased $2.7 million in the three months ended September 29, 2024 from the comparable period of 2023 primarily due to an increase in incentive compensation, partially offset by earnings from acquisitions and benefits realized from our productivity improvement initiatives.

Adjusted EBITDA decreased $53.1 million in the nine months ended September 29, 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 Six Months Ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(In thousands, except percentages)

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Depreciation expense 14,655 13,442 41,697 38,478

Income tax expense 11,091 15,656 19,451 30,535

Amortization of intangible assets 13,738 9,526 34,487 30,262

Income tax expense 11,091 14,850 30,542 45,385

Interest expense, net 10,855 8,580 27,454 25,593

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Adjustments related to acquisitions and divestitures (2) 561 495 1,157 1,042

Gain on sale of assets — (12,056) — (12,056)

Adjusted EBITDA $ 112,530 $ 115,202 $ 296,692 $ 349,832

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Adjusted EBITDA margin 17.2 % 18.4 % 16.5 % 17.8 %

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

(2) Adjustments related to acquisitions and divestitures include fair value adjustments of acquired assets and gains associated with the sales of businesses.

(1) Includes costs associated with acquisitions and manufacturing footprint actions.

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

Segment Results of Operations

For additional information regarding our segment measures, see Note 4 to the Condensed Consolidated Financial Statements.

Enterprise Solutions

Three Months Ended % Change Six Months Ended % Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Smart Infrastructure Solutions

Three Months Ended % Change Nine Months Ended % Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(In thousands, except percentages)

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as a percent of segment revenues 12.7 % 13.3 % 11.9 % 13.6 %

Enterprise Solutions revenues decreased $42.1 million and $83.3 millio n in the three and six months ended June 30, 2024 from the comparable periods of 2023.

The decrease in revenues in the three months ended June 30, 2024 was primarily due to decreases in volume and unfavorable currency translation of $43.8 million and $0.8 million, respectively, partially offset by higher copper pass-through pricing of $2.5 million.

The decrease in revenues in the six months ended June 30, 2024 was primarily due to decreases in volume and unfavorable currency translation of $92.1 million and $1.0 million, respectively, partially offset by acquisitions and higher copper pass-through pricing of $7.5 million and $2.3 million, respectively.

Enterprise Solutions EBITDA decreased $12.5 million and $23.9 million in the three and six months ended June 30, 2024 from the comparable periods 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 Six Months Ended % Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Smart Infrastructure Solutions revenues increased $35.7 million and decreased $47.6 millio n in the three and nine months ended September 29, 2024 from the comparable periods of 2023.

The increase in revenues in the three months ended September 29, 2024 was primarily due to acquisitions, higher copper pass-through pricing, and favorable currency translation of $34.4 million, $4.4 million, and $0.3 million, respectively, partially offset by decreases in volume of $3.4 million.

The decrease in revenues in the nine months ended September 29, 2024 was primarily due to decreases in volume and unfavorable currency translation of $95.4 million and $0.7 million, respectively, partially offset by acquisitions and higher copper pass-through pricing of $41.8 million and $6.7 million, respectively.

Smart Infrastructure Solutions EBITDA increased $2.8 million in the three months ended September 29, 2024 from the comparable period of 2023 primarily due to the the increase in revenues discussed above, partially offset by an increase in incentive compensation.

Smart Infrastructure Solutions EBITDA decreased $21.2 million in the nine months ended September 29, 2024 from the comparable period of 2023 primarily due to the decline in revenues discussed above, partially offset by benefits realized from our productivity improvement initiatives.

Automation Solutions

Three Months Ended % Change Nine Months Ended % Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(In thousands, except percentages)

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as a percent of segment revenues 21.4 % 22.5 % 20.4 % 21.1 %

Industrial Automation Solutions revenues decreased $45.9 million and $110.7 million in the three and six months ended June 30, 2024 from the comparable periods of 2023 .

The decrease in revenues in the three months ended June 30, 2024 was primarily due to decreases in volume, unfavorable currency translation, and divestitures of $49.2 million, $2.8 million, and $0.1 million, respectively, partially offset by higher copper pass-through pricing of $6.2 million.

The decrease in revenues in the six months ended June 30, 2024 was primarily due to decreases in volume, unfavorable currency translation, and divestitures of $111.6 million, $3.4 million, and $0.4 million, respectively, partially offset by higher copper pass-through pricing and acquisitions of $4.6 million and $0.1 million, respectively.

Industrial Automation Solutions EBITDA decreased $10.9 mil lion and $25.9 million in the three and six months ended June 30, 2024 from the comparable periods of 2023 primarily as a result of the decrease in revenues discussed above, partially offset by favorable mix as we transition to solutions .

Automation Solutions revenues decreased $7.6 million and $118.3 million in the three and nine months ended September 29, 2024 from the comparable periods of 2023 .

The decrease in revenues in the three months ended September 29, 2024 was primarily due to decreases in volume and unfavorable currency translation of $11.8 million and $1.7 million, respectively, partially offset by higher copper pass-through pricing and acquisitions of $5.8 million and $0.1 million, respectively.

The decrease in revenues in the nine months ended September 29, 2024 was primarily due to decreases in volume, unfavorable currency translation, and divestitures of $123.4 million, $5.1 million, and $0.4 million, respectively, partially offset by higher copper pass-through pricing and acquisitions of $10.4 million and $0.2 million, respectively.

Automation Solutions EBITDA decreased $5.4 mil lion and $31.4 million in the three and nine months ended September 29, 2024 from the comparable periods of 2023 primarily as a result of the decrease in revenues discussed above, partially offset by benefits realized from our productivity improvement initiatives.

Liquidity and Capital Resources

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

Six Months Ended

June 30, 2024 July 2, 2023

Nine Months Ended

September 29, 2024 October 1, 2023

(In thousands)

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Cash and cash equivalents, end of period $ 322,982 $ 530,971

Net cash provided by operating activities totaled $85.7 million in the six months ended June 30, 2024 compared to $54.7 million in the year ago period.

Despite the decrease in net income, operating assets and liabilities improved $69.9 million compared to the prior year primarily driven by favorable changes in receivables and our successful management of working capital.

Net cash used for invest ing activities totaled $45.7 million for the six months ended June 30, 2024 compared to $121.0 million in the year ago period.

Investing activities for the six months ended June 30, 2024 included capital expenditures of $46.2 million, partially offset by asset sales of $0.5 million.

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

Net cash used for financing activities totaled $67.4 million for the six months ended June 30, 2024 compared to $105.9 million in th e year ago period.

Financing activities for the six months ended June 30, 2024 included payments under our share repurchase program of $57.9 million, payments related to share based compensation activities of $8.1 million, cash dividend payments of $4.1 million, financing lease payments of $0.4 million, and proceeds from the issuance of common stock of $3.1 million.

Financing activities for the six months ended July 2, 2023 included payments under our share repurchase program of $86.2 million, net payments related to share based compensation activities of $16.9 million, cash dividend payments of $4.3 million, financing lease payments of $0.1 million, and proceeds from the issuance of common stock of $1.6 million.

Our cash and cash equivalents balance was $564.8 million as of June 30, 2024.

Of the total cash balance, $291.5 million was paid to the sellers of Precision in July and $173.0 million was held outside of the U.S.

Net cash provided by operating activities totaled $177.4 million in the nine months ended September 29, 2024 compared to $160.0 million in the year ago period.

Despite a decrease in net income, operating cash flows increased $17.4 million compared to the prior year due to a $52.0 million improvement in operating assets and liabilities that was primarily driven by favorable changes in receivables.

During the first nine months of 2023, receivables were a use of cash of $48.9 million compared to a source of cash of $3.2 million in 2024.

Net cash used for invest ing activities totaled $366.2 million for the nine months ended September 29, 2024 compared to $145.5 million in the year ago period.

Investing activities for the nine months ended September 29, 2024 included $295.6 million primarily for the acquisitions of Precision and Voleatech, capital expenditures of $70.8 million, and asset sales of $0.1 million.

Investing activities for the nine months ended October 1, 2023 included $106.7 million primarily for the acquisitions of Sichert and Cloudrail, capital expenditures of $61.9 million, proceeds from asset sales of $13.8 million, and $9.3 million received from escrow for the disposal of a business.

Net cash used for financing activities totaled $84.8 million for the nine months ended September 29, 2024 compared to $167.4 million in th e year ago period.

Financing activities for the nine months ended September 29, 2024 included payments under our share repurchase program of $77.9 million, payments related to share based compensation activities of $8.9 million, cash dividend payments of $6.2 million, financing lease payments of $0.7 million, and proceeds from the issuance of common stock of $8.9 million.

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.

Our cash and cash equivalents balance was $323.0 million as of September 29, 2024.

Of the total cash balance, $200.5 million was held outside of the U.S.

in our foreign operations.

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tax rules and regulations as a result of the repatriation.

Our outstanding debt obligations as of June 30, 2024 consisted of $1,174.5 million of senior subordinated notes.

Our outstanding debt obligations as of September 29, 2024 consisted of $1,228.0 million of senior subordinated notes.

Additional discussion regarding our various borrowing arrangements is included in Note 10 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