BELDEN INC. 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview Belden Inc. (the Company, us, we, or our) is a leading global supplier of complete connection solutions built around two global businesses - Smart Infrastructure Solutions and Automation Solutions. Belden is a leading global supplier of complete connection solutions that unlock untold possibilities for our customers, their customers and the world. We advance ideas and technologies that enable a safer, smarter and more prosperous future. Throughout our 120-plus year history we have evolved as a company, but making connections remains our purpose. Our long-term business goals are to: • 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; and • Realize annual Adjusted EPS growth of 10% to 12%. Trends and Events The following trends and events during 2025 have had varying effects on our financial condition, results of operations, and cash flows. Foreign Currency Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Mexican peso, Australian dollar, British pound, Indian rupee and Swiss franc. Generally, as the U.S. dollar strengthens against these foreign currencies, our revenues and earnings are negatively impacted as our foreign denominated revenues and earnings are translated into U.S. dollars at a lower rate. Conversely, as the U.S. dollar weakens against foreign currencies, our revenues and earnings are positively impacted. Approximately 41% of our consolidated revenues during the quarter ended March 30, 2025 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. As the U.S. dollar strengthens or weakens against foreign currencies, it results in a relative price increase or decrease for certain of our products that are priced in U.S. dollars in a foreign location. Global Trade Volatility During 2025, there has been significant volatility in previously stable global trade agreements. Sharp and sudden increases in tariff rates have the potential to increase the input costs for our products and impact our ability to compete in certain jurisdictions. We closely monitor the global trade landscape and take appropriate measures in our supply chain and pricing strategies to mitigate the impact of increased tariffs. Inflation D uring periods of inflation, if we are unable to raise prices timely and sufficiently to recover our material costs, our earnings could decline. Furthermore, inflation may impact labor, energy, and other costs. We monitor inflation pressures and proactively implement selling price increases or cost control measures as appropriate. Commodity Prices Our operating results can be affected by changes in prices of commodities, primarily copper and compounds, which are components in some of the products we sell. Generally, as the costs of inventory purchases increase due to higher commodity prices, we raise selling prices to customers to cover the increase in costs, resulting in higher sales revenue but a lower gross profit percentage. Conversely, a decrease in commodity prices would result in lower sales revenue but a higher gross profit percentage. Selling prices of our products are affected by many factors, including end market demand, capacity utilization, overall economic conditions, and commodity prices. T here is no exact measure of the effect of changing commodity prices, as there are thousands of transactions in any given quarter, each of which has various factors involved in the individual pricing decisions. Therefore, all references to the effect of copper prices or other commodity prices are estimates. -20- Channel Inventory Our operating results also can be affected by the levels of Belden products purchased and held as inventory by our channel partners and customers. Our channel partners and customers purchase and hold the products they bought from us in their inventory in order to meet the service and on-time delivery requirements of their customers. Generally, as our channel partners and customers change the level of products they buy from us and hold in their inventory, it impacts our revenues. 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. As such, all references to the effect of channel inventory changes are estimates. Market Growth and Market Share The markets in which we operate can generally be characterized as highly competitive and highly fragmented, with many players. 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 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. Share Repurchase Program During the three months ended March 30, 2025 , we repurchased 0.8 million shares of our common stock for an aggregate cost of $84.5 million at an average price per share of $104.28. See Note 15. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows that are or would be considered material to investors. Critical Accounting Policies During the three months ended March 30, 2025: • We did not change any of our existing critical accounting policies from those listed in our 2024 Annual Report on Form 10-K; • No existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate; and • There were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed. Results of Operations Consolidated Income before Taxes Three Months Ended % Change March 30, 2025 March 31, 2024 (In thousands, except percentages) Revenues $ 624,861 $ 535,675 16.6 % Gross profit 245,840 201,596 21.9 % Selling, general and administrative expenses (131,522) (110,768) 18.7 % Research and development expenses (28,417) (26,999) 5.3 % Amortization of intangibles (13,275) (10,809) 22.8 % Operating income 72,626 53,020 37.0 % Interest expense, net (10,104) (7,582) 33.3 % Non-operating pension benefit (cost) (441) 231 (290.9) % Income before taxes 62,081 45,669 35.9 % -21- Revenues increased $89.2 million in the three months ended March 30, 2025, respectively, from the comparable period of 2024 due to the following factors: • Higher sales volume contributed $59.8 million in revenues. • Acquisitions contributed $26.7 million in revenues. • Copper pass-through pricing had a $9.6 million favorable impact on revenues. • Currency translation had a $6.9 million unfavorable impact on revenues. Gross profit increased $44.2 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily due to the changes in revenues discussed above. Gross profit margins were robust, expanding 170 basis points from 37.6% to 39.3%. Selling, general and administrative expenses increased $20.8 million in the three months ended March 30, 2025 from the comparable period of 2024. The increase in the three months ended March 30, 2025 was primarily attributable to expenses from the operations of companies acquired in 2024 and higher incentive compensation. Research and development expenses remained relatively flat increasing $1.4 million in the three months ended March 30, 2025 from the comparable period of 2024. Amortization of intangibles increased $2.5 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily due to acquisitions. Operating income increased $19.6 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily due to the increase in revenues, partially offset by the increase in selling, general and administrative expenses discussed above. Net interest expense increased $2.5 million in the three months ended March 30, 2025 from the comparable period of 2024 due to fluctuations in interest income and foreign currency translation. Income before taxes increased $16.4 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily due to the changes in operating income discussed above. Income Taxes Three Months Ended % Change March 30, 2025 March 31, 2024 (In thousands, except percentages) Income before taxes $ 62,081 $ 45,669 35.9 % Income tax expense 10,144 8,360 21.3 % Effective tax rate 16.3 % 18.3 % For the three months ended March 30, 2025, we recognized income tax expense of $10.1 million representing an effective tax rate of 16.3%. The effective tax rate was primarily impacted by the effect of our foreign operations, including statutory tax rate differences and foreign tax credits. See Note 12. Consolidated Adjusted EBITDA Three Months Ended % Change March 30, 2025 March 31, 2024 (In thousands, except percentages) Revenues $ 624,861 $ 535,675 16.6 % Adjusted EBITDA 103,965 84,748 22.7 % as a percent of revenues 16.6 % 15.8 % Adjusted EBITDA increased $19.2 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily due to the increases in revenues discussed above and favorable mix, partially offset by an increase in incentive compensation and strategic investments. Accordingly, adjusted EBITDA margins expanded 80 basis points to 16.6%. -22- Use of Non-GAAP Financial Information 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: asset impairments; accelerated depreciation expense due to plant consolidation activities; acquisition-related expenses, such as the adjustment of acquired inventory to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability. We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. 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 operating 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. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight. Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures: Three Months Ended March 30, 2025 March 31, 2024 (In thousands, except percentages) Revenues $ 624,861 $ 535,675 GAAP net income $ 51,937 $ 37,309 Depreciation expense 13,896 13,465 Amortization of intangible assets 13,275 10,809 Income tax expense 10,144 8,360 Interest expense, net 10,104 7,582 Severance, restructuring, and acquisition integration costs (1) 1,698 4,212 Amortization of software development intangible assets 2,613 2,713 Adjustments related to acquisitions and divestitures (2) 298 298 Adjusted EBITDA $ 103,965 $ 84,748 GAAP net income margin 8.3 % 7.0 % Adjusted EBITDA margin 16.6 % 15.8 % (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. -23- Smart Infrastructure Solutions Three Months Ended % Change March 30, 2025 March 31, 2024 (In thousands, except percentages) Segment Revenues $ 274,050 $ 234,089 17.1 % Segment EBITDA 31,135 25,788 20.7 % as a percent of segment revenues 11.4 % 11.0 % Smart Infrastructure Solutions revenues increased $40.0 million in the three months ended March 30, 2025 from the comparable period of 2024. The increase in revenues in the three months ended March 30, 2025 was primarily due to acquisitions, increases in volume, and higher copper pass-through pricing of $26.2 million, $13.2 million, and $3.0 million, respectively, partially offset by unfavorable currency translation of $2.4 million. Smart Infrastructure Solutions EBITDA increased $5.3 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily due to the the increase in revenues discussed above and favorable mix, partially offset by an increase in incentive compensation and strategic investments. Accordingly, adjusted EBITDA margins expanded 40 basis points to 11.4%. Automation Solutions Three Months Ended % Change March 30, 2025 March 31, 2024 (In thousands, except percentages) Segment Revenues $ 350,811 $ 301,586 16.3 % Segment EBITDA 73,325 58,745 24.8 % as a percent of segment revenues 20.9 % 19.5 % Automation Solutions revenues increased $49.2 million in the three months ended March 30, 2025 from the comparable period of 2024. The increase in revenues in the three months ended March 30, 2025 was primarily due to increases in volume, higher copper pass-through pricing, and acquisitions of $46.6 million, $6.6 million, and $0.5 million, respectively, partially offset by unfavorable currency translation of $4.5 million. Automation Solutions EBITDA increased $14.6 million in the three months ended March 30, 2025 from the comparable period of 2024 primarily as a result of the increase in revenues discussed above and favorable mix, partially offset by an increase in incentive compensation and strategic investments. Accordingly, adjusted EBITDA margins expanded 140 basis points to 20.9%. Liquidity and Capital Resources Significant factors affecting our cash liquidity include (1) cash from operating activities, (2) disposals of businesses and tangible assets, (3) cash used for acquisitions, restructuring actions, capital expenditures, share repurchases, dividends, and senior subordinated note repurchases, and (4) our available credit facilities and other borrowing arrangements. We expect our operating activities to generate cash in 2025 and believe our sources of liquidity are sufficient to fund current working capital requirements, capital expenditures, contributions to our retirement plans, share repurchases, senior subordinated note repurchases, quarterly dividend payments, and our short-term operating strategies. However, we may require external financing in the event we complete a significant acquisition. Our ability to continue to fund our future needs from business operations could be affected by many factors, including, but not limited to: economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product offerings, and commodities pricing. The following table is derived from our Condensed Consolidated Cash Flow Statements: -24- Three Months Ended March 30, 2025 March 31, 2024 (In thousands) Net cash provided by (used for): Operating activities $ 7,441 $ 2,721 Investing activities (24,178) (24,190) Financing activities (96,784) (64,936) Effects of currency exchange rate changes on cash and cash equivalents 2,216 (3,809) Decrease in cash and cash equivalents (111,305) (90,214) Cash and cash equivalents, beginning of period 370,302 597,044 Cash and cash equivalents, end of period $ 258,997 $ 506,830 Net cash provided by operating activities totaled $7.4 million in the three months ended March 30, 2025 compared to $2.7 million in the year ago period due to an increase in earnings, partially offset by unfavorable changes in operating assets and liabilities. While receivables were a use of cash in 2025 as compared to a source of cash in 2024, days sales outstanding remained constant at about 60 days during each of Q1 2025 and Q1 2024. Net cash used for investing activities totaled $24.2 million for both the three months ended March 30, 2025 and March 31, 2024. Investing activities for the three months ended March 30, 2025 included capital expenditures of $32.2 million, partially offset by cash from business acquisitions and asset sales of $7.9 million and $0.1 million, respectively. 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. Net cash used for financing activities totaled $96.8 million for the three months ended March 30, 2025 compared to $64.9 million in the year ago period. Financing activities for the three months ended March 30, 2025 included payments under our share repurchase program of $84.5 million, payments related to share based compensation activities of $13.7 million, cash dividend payments of $2.0 million, financing lease payments of $0.4 million, and proceeds from the issuance of common stock of $3.8 million. 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. Our cash and cash equivalents balance was $259.0 million as of March 30, 2025. Of the total cash balance, $181.0 million was held outside of the U.S. in our foreign operations. Substantially all of the foreign cash and cash equivalents are readily convertible into U.S. dollars or other foreign currencies. 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 30, 2025 consisted of $1,186.6 million of senior subordinated notes. Additional discussion regarding our various borrowing arrangements is included in Notes 10 and 16 to the Condensed Consolidated Financial Statements. Forward-Looking Statements Statements in this report other than historical facts are “forward-looking statements.” Forward-looking statements include statements regarding future financial performance (including revenues, expenses, earnings, margins, cash flows, dividends, capital expenditures and financial condition), plans and objectives, and related assumptions. These forward-looking statements reflect management’s current beliefs and expectations and are not guarantees of future performance. Actual results may differ materially from those suggested by any forward-looking statements based on a number of factors. These factors include, among others, those set forth in Part II, Item 1A and in other documents that we file with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. -25-