Welcome to this morning’s Belden Incorporated Second Quarter 2015 Earnings Release Conference Call. Just as a reminder this call is being recorded. At this time you are in a listen-only mode. Later we will conduct the question-and-answer session [Operator Instructions]. I would now like to turn the call over to Matt Tractenberg. Please go ahead, sir.

Thank you, Don. Good morning, everyone, and thank you for joining us today for Belden’s second quarter 2015 earnings conference call. My name is Matt Tractenberg, I’m Belden’s VP of Investor Relations and with me here this morning are John Stroup, President and CEO; and Henk Derksen, Belden’s CFO. John will provide a strategic overview of our business, and then Henk will provide a detailed review of our financial and operating results, followed by Q&A. We issued our earnings release earlier this morning, and we have prepared a slide presentation that we will reference on this call. The press release, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com. Turning to Slide 2 of the presentation, during this call management will make certain forward looking statements. I’d like to remind you that any forward looking information we provide is given in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The comments we will make today are management’s best judgment based on information currently available. Actual results could differ materially from any forward looking statements that we make, and the company disclaims any obligation to update this information to reflect future developments after this call. For a more complete discussion of factors that could have an impact on the company’s actual results, please review today’s press release in our annual report on Form 10-K. Additionally, during today’s call, management will reference adjusted or non-GAAP financial information. In accordance with Regulation G, we have provided a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate. This reconciliation is in the appendix of the presentation and has been posted separately to the investors section of our website. I’ll now turn the call over to our President and CEO, John Stroup. John?

Thank you, Matt, and good morning, everyone. As a reminder, I’ll be referring to adjusted results today. Please turn to Slide 3 in our presentation for a review of our second quarter highlights. On our first quarter earnings call, I shared with you some concerns regarding customer demand in a few of our served markets. A strong U.S. dollar, the impact of lower energy prices, and a lackluster Chinese economy are impacting demand for our industrial segments. Furthermore, it’s now clear that our broadcast customers will defer capital spending on traditional infrastructure equipment as they navigate through a number of important industry transitions. As a result, we believe it’s prudent to adjust our revenue expectations for the remainder of the year and take swift action to align our cost structure and profit margins. Before I proceed, please know that I am extremely disappointed to a make a mid-year revision to our full-year revenue and earnings guidance. As you know, we have a long track record of accurately predicting the economic environment, and we do not make it a habit to fall short of our commitments. It is important, however, for me to highlight that my team and I remain fully committed to delivering outstanding shareholder returns, and I am confident that we’ll do just that. For the full year, we now expect revenues between 2.36 billion and 2.39 billion. As a result of these changes, the expected range of adjusted income from continuing operations per diluted share is now $4.70 to $4.90, which represents earnings growth between 11% and 16%. As a reminder, if not for the impact of currency translation, earnings growth projections would have been 18% to 23%. This revised outlook includes the expected benefit of a cost reduction program within our Broadcast Platform to align our cost…

Thank you, John. I will start my comments with results for the quarter, followed by a review of our segment results, a discussion of the balance sheet, and close with our cash flow performance. As a reminder, I will be referencing adjusted results today. Please turn to Slide 5 for a detailed consolidated review. Second quarter revenues were $598.5 million, a decrease of 6.6 million or 1.1% from 605.1 million in the second quarter 2014. On a constant currency basis, revenues increased 5.2% with acquisitions contributing 53.3 million in the quarter. Currency headwinds of 38.2 million on a year-over-year basis offset much of this benefit. On an organic basis, revenues declined 2.6% from the year-ago period. Sequentially, revenues increased $29.0 million from 569.5 million, in line with typical seasonality. Gross profit margins were at an all-time record of 41.7%, increasing 470 basis points from the year-ago period due to successful execution on our M&A strategy. Sequentially, gross profit margins increased 110 basis points due to the favorable impact of lower input costs. Second quarter SG&A expenses were $125.2 million, or 21% of revenue. After adjusting for the impacts of currency and acquisitions, SG&A expenses declined 3.3 million from the year-ago period, primarily a result of productivity initiatives implemented in prior year. R&D expenses for the quarter were $36.2 million, or 6% of revenue. This represents an increase of 100 basis points year-over-year as a percentage of revenues as we continue to invest in more innovative products and services for our customers. Despite a challenging environment, the Company generated record EBITDA margins of 16.7%, up 190 basis points year-over-year and 120 basis points sequentially. The acquisition of Tripwire had a favorable impact of 60 basis points on a year-over-year basis, while the other platforms have been executing well on productivity initiatives…

Thank you, hen. Please turn to Slide 9 for our outlook regarding the third quarter and full year 2015 results, which have been updated to reflect the current revisions I discussed earlier. We expect third quarter 2015 revenues to be between $600 million, and adjusted income from continuing operations per diluted share is expected to be between $1.05 and $1.15. For the full year, we now expect revenues between $2.360 billion and $2.390 billion. Slightly more than half of the reduction in revenue can be attributed to the Broadcast Platform, with the remaining amount the Industrial Platforms. The expected range of adjusted income from continuing operations per diluted share is now at $4.70 to $4.90, which represents earnings growth between 11% and 16%. That concludes our prepared remarks, Don please open the call to questions.

[Operator Instructions]. The first question is from John Quealy with Canaccord Genuity.

First, on broadcasting within Grass Valley, thank you, guys, for giving us some updates and some micro and macro commentary, but can you dive deeper? I know there's been a change in the channel or some recharacterization of the channel since Grass Valley has been consolidated under the brand. Did any channel issues play into the lower visibility here, or is it clearly some of the macro and then I have got some follow-ups?

We believe is macro, and I’ll tell you why we think that. So first of all the size of the funnel that we track -- the project funnel that we track has been steadily building, on the surface that seem like all good news. However, one of the reasons it's been building is because less has been coming out of the funnel than typical. Our win rate is about 50%, that’s historically where we typically been, so we’re winning half of the opportunities that we pursue that’s also a healthy level. And if we look at our best benchmark which is Eberts [ph], the most recent data that they released was through April, their orders were up 28% on a year-over-year basis. And of course in this segment we have very intimate relationships with our customers. So we don't feel like we’re losing share, that of course doesn't mean that we’re not incredibly disappointed by the results, but we think what it means and what our customers are telling us is that, in the face of reduced advertising spend particularly in the U.S. with new entrance around streaming and over the top, they have diverted more of their CapEx towards building their own over the top solutions and that their needs for infrastructure, the kinds of things we provide, like cameras and like switchers and routers those course of things, their postponing those investments for some time. Now they can't postpone them forever, and we’re confident that the volume will return but it's difficult for us to predict and our orders in the quarter were disappointing. So we felt short of revenues but we fell short even greater on the order side, and therefore it became increasingly clear to us at the end of June that it was going to be difficult for us to achieve our budgeted results in the second half from a Broadcast point of view. Let me also emphasis that the revenue decline on a full basis that we’re projecting is larger outside of the U.S. than it is in the U.S. and those countries are not dealing with the lot of things I just mentioned, and so they are dealing with things like austerity in Western Europe where we’re seeing declines, I mentioned Russia, where they are dealing with the very weak currency. Of all places Saudi Arabia for example has reduced their spending significantly as their revenues from oil and gas have come down. So we do believe it's macro, we do believe it's temporary, but we didn't see a way forward to offset it in the back half of this current fiscal year.

And then if I could go back to the cost out program that you mentioned, so I just want to make sure I'm clear. 30 million of expenses or investments coming in the next two quarters, is that right, with the benefits of that just $0.13 by the time we get to Q4? Is that the right math?

So the math is falling -- I'll let Henk clean it up to make certain I have misstated. So we planned to invest $30 million that we believe will generate 30 million in annualized cost reductions and we believe that in this current calendar year we’ll realize $7 million of reductions, which is approximately $0.13.

That’s right John.

But the 30 is incurred in the back half of 2015?

So I would expect that 30 million to be incurred substantially complete by the end of this calendar year.

And then last question. So, Henk, debt to EBITDA calculations are I know there's been prior to this outlook, there was a hope to get closer to under the three times, and this is clearly going to put a dent in that. What are your expectations about debt-to-EBITDA? You gave us some free cash-flow guidance, but how should we think about the deleveraging initiatives in the next couple of quarters?

So we remain committed to get to 3.0 net debt to EBITDA leverage level. By year-end we’ll be closer to 3.3, 3.4 based upon the current planned investments in restructuring programs. Did that answers your question, John?

Yes, good. Thanks.

We’ll go next to Shawn Harrison with Longbow Research.

I wanted to delve into the implied fourth-quarter guidance because at least what the market is telling us this morning is they are not exactly sure how you can bridge the gap between the third and the fourth quarter. And you gave us $0.13 in terms of restructuring benefits, but there is another $0.30, and a lot of that looks to be volume leverage or other factors. And so maybe if you could just help me just bridge the gap between the third and fourth quarter? And I think there is also an implied high single-digit sequential revenue uptick. So any granularity there would be helpful.

Yes, Shawn. It’s an obvious question. So as you correctly pointed out, we see benefit from Q3 to Q4 in the cost reduction program with Grass Valley and then there are two other major items in Q3 to Q4. First, is the seasonal pattern of Tripwire is much strong in Q4, typically than Q3. And now the Tripwire is on Belden’s calendar which doesn’t end on the month -- on the calendar month but rather is a 544 progression. It moves a little bit more to Q4 as our Federal customers typically spend a lot of their money by the end of September and that would fall into our Q4. And then also Grass Valley typically has a stronger Q4 than typical. We have guided such that it would be a typical pattern, to be honest with you it wouldn’t surprise me given how they’ve spent money this year that it might be a little bit more pronounced from Q3 to Q4 but we’ve not put that into our guidance. And those are the two major drivers from Q3 to Q4.

I guess to that final point, John, and Grass Valley seeing an uptick sequentially given to what you’ve seen to date and kind of the implication of the third quarter guidance. Is there something that you’re seeing in the order patterns or projects being released that gives you the confidence to say you’ll at least see some type of budget flush?

So we are entering the third quarter, Shawn, with more backlog than we entered in the second quarter. So our book-to-bill at Grass Valley in Q2 was 1.15. So we’re entering Q3 with a much healthier backlog book than we entered in Q2 and we have by historical patterns anyway we’ve got a much better backlog situation in Q4 than we had entering Q2 as well. As I mentioned earlier win rates have been very stable, they haven’t really changed at all. What has been more difficult for us to predict than typical, Shawn, has been the amount of projects that have been left [ph] in a given month. They’ve been fairly erratic, and customers have moved things around. In some cases they canceled things; in other cases they’ve just postpone them. But our customers do typically pay attention to how much they spend in the full calendar year because that ends up being part of the equation for how much capital they have next year. So we are mindful of the fact that we typically see a peek towards the year. And then of course 2016 is the year of the Olympics and The U.S. Presidential Election and so some of these investments are going to have to major support that and typically that starts happening in the second half of the year prior. So those two things, Shawn, I’d say give us comfort and confidence that this guidance is appropriate given the circumstance that we are encountering.

And then as a follow-up, just the Grass Valley and cost reductions, it seems very appropriate when the other half of your guidance is probably about a five-point cut in the revenue outlook for the industrial businesses. Has there been a thought there of also revisiting the cost structure? Because who knows about low oil prices and how long that will persist along with what’s going on in China. Some of this demand weakness may be here with us for a while.

Yes. So we are closely examining cost opportunities in all of our businesses, but as you pointed out particularly within industrial connectivity. We think there is opportunities for us to address the cost structure in a way that wouldn’t require restructuring fees like is the case in Grass Valley. So we’re going to watch that closely. We’re going to make sure we protect our margins. And we’re -- Shawn I think we’ve demonstrated over an extended period of time that we’re good at keeping a close eye on the cost structure, keeping a close eye on the margins and we’ll do that absolutely with the industrial business as well.

We’ll go next to William Stein with SunTrust.

Thanks for taking my question. I apologize if I missed this. I think someone just recently asked about the big profitability improvement that the guidance implies for Q4, but I’m, frankly, having a bit of trouble understanding the significant decline in profitability in Q3. You’re guiding essentially for about a 1.5% sequential decline in sales, but a 10% hit to EPS. Can you sort of walk us through the decrementals? What’s causing this? Do I have my numbers right? Thank you.

So let's walk you from Q2 to Q3 and then let's also remind you the Q3 to Q4. So from Q2 to Q3 we’re expecting the EBITDA to be essentially unchanged, but however we are expecting the tax rate in the third quarter to be higher than it was in the second quarter and we’re expecting just a tad more interest expense in the third quarter than the second. So the reduction in profitability implied in our Q3 guidance as compared to Q2 is all below the EBITDA line. If you look at Q3 to Q4, we have a step-up in profitability as a result of the cost production program associated with Grass Valley. We also have seasonality with Tripwire and we have a little bit of seasonality with Grass Valley. And so that’s what’s driving the profitability improvement from Q3 to Q4 and I think if you put those together I think we can help you kind of model that and hopefully make it clear to you on how we came up with those numbers.

Maybe if I can ask, given sort of dislocations we’re seeing, could you give us some directional view on segment revenue expectations that the company has for the coming quarter?

So if you look at the full year guidance, let me start with the full year. We have really no change in expectations with either Tripwire or Enterprise. In fact if Enterprise were to miss, I think they would miss probably on the high side, they got good momentum, they got good volume growth, execution is good. On the broadcast side, the issues are isolated to Grass Valley. We still think that we’re going to have very strong growth in broadband or PPC [ph]. We still feel very good about our commercial AV and our broadcast cable business. And therefore the reduction in revenue in the broadcast platform is isolated to Grass Valley. So roughly speaking, we think the Grass Valley business on a full year basis is going to be down somewhere around 15%. The other reduction is in the industrial platforms in combination and that’s a result of us having a different view on our project business, which represents approximately 50% of the total of the two platforms. So we believe that business is going to be down on a full year basis approximately 3%. If you have noticed there has been quite a few other industrial companies that have come up in the last two weeks that have been expressing similar issues or concerns with regard to strong U.S. dollar affecting exports, oil and gas been weak and also leaking into other areas of the economy. So we feel like that project business is going to be down on a full year basis. We began seeing a reduction in our project funnel, within our industrial platforms starting in May, that’s when it first started declining and we also saw a slight reduction in our win rate as some of our traditional cable competitors who have more exposure to oil and gas began being more aggressive in certain projects as they were trying to deal with some of their own factory utilization issues. Our machine builder business is roughly 25% of total. We believe that business is going to be down maybe 1% on a full year basis, U.S. machine builder struggling a little bit because of the strong dollar, the German machine builder is probably helping or doing a little bit better as weak euro although everybody dealing with a weaker China. And then our MRO business, we think that will continue to be healthy, it was healthy in the quarter. It was up 6% in the quarter, very strong growth, I think that will continue. So in summary, roughly 40 million to 50 million out on broadcast or Grass Valley. 40 to 50 in the industrial platforms, probably three quarters of the industrial being to Industrial Connectivity and probably a quarter will be into Industrial IT.

A couple of other quick ones, if I can. First, bigger picture, you've been very acquisitive in the past. You tend to like to get towards your target leverage before you go lever up yet another deal. Should we expect -- I think, Henk, you said that you think that by the end of the year, you're looking to get to more like 3.3 to 3.4 turns of leverage. Did I get that right, and does that mean that another acquisition is much less likely this year?

So what Henk said -- you're correct, he said that our current plan would be to exit year with leverage somewhere around 3.3 to 3.4. I think it's still possible though. We can do an acquisition this year. Although, I think the kinds of acquisitions we will do this year would be smaller and bolt-on in nature and therefore, tend to be higher ROIC. Types of opportunities like for example what we did with Coast last year or like what we did with ProSoft, those smaller kind of opportunities, but higher ROIC were quickly accretive. I think that’s possible yet for us to do in 2015.

That's helpful. If I can squeeze one more in on Broadcast again. You didn't mention the transition to IP that I think this architecture change. My checks have been saying that this is part of the delay in purchase plans. Do I have that right, or am I misinformed? And to what degree, if I'm right, is this impacting demand today, and is it more of a permanent thing or a brief issue?

So I think you are right, and you’re right I didn't mention it and I probably should have. I do think that our customers desire to convert from proprietary to IP is part of the delay. To be frank I think it's probably less of an issue than some of the other things that I mentioned, but there is no question we have customers that have said we'd like -- we do like your IP solution, we'd like to use your IP solution, and we'd like to see it get further along in its development before we make that investment. But I do think that if our customers were committed to investing in infrastructure, in studio upgrade they probably would do at even if they more converting to IP. So I think it's real, I think that it's minor though by comparison to some of these other issues. And I have a high degree of confidence that the IP solution that we’re developing is unique and one that we’ll be well received by our customers. We've heard that feedback already from our customer.

For our next question we’ll go to Steven Fox with Cross Research.

First of all, in terms of the Industrial markets, you provided a lot of good information on what's going on. Some companies have talked about weakness is more of an inventory cycle. Others have talked about it similar to how you have in terms of just weaker demand. Can you give us any kind of sense for where you think the bottom is in this relative to what you're seeing in your own orders? I understand the updated guidance, but why couldn't some of these trends bleed into next year as well? And then I had a follow-up.

So I think that -- I think that we should expect that our MRO business will remain reasonably strong, that’s typically what happens in periods like this where people are a little bit more cautious about CapEx, and so I would expect that our MRO business will remain strong as it was in the second quarter. I think our project business is going to remain challenged as long as the oil and gas environment is the way it is. I didn't mention it but our business in Brazil for example is down 50% because that’s quite of oil and gas exposure. And I don't know how long this oil and gas situation is going to last. I've read some incredible comments from folks that, it may take 24 months or us to reach equilibrium again between supply and demand but there is obviously a lot of factors including the recent agreement with Iran that might throw a wrench in all that. So I don't know for sure. And on the machine builder side, I think it has a lot to do with China. So clearly the weak euro is a really good thing for our customers who build machinery in Germany, however if there is not anybody buying that machinery it doesn't really translate into a lot of economic gain. So I think there is a good chance that some of the weakness that we’re experiencing in both project as well as machine builders could bleed into 2016, we’re obviously watching that very carefully, but it wouldn’t surprise me if we see that bleed into 2016. On the other side it wouldn't surprise me if the strength that we see in Enterprise and Tripwire doesn't continue into 2016 as well.

And then secondly, just getting back on the Broadcast business, so it seems like HBO has moved over the top has been proven to be a momentous event since the months it was launched. It seems to be driving some of the pressures that you described. Any chance you can sort of put it into perspective how many of your customers are sort of delayed because of over the top in the U.S? Put in the international side to talk about sort of the secular pressures and whether that also continues into the next year or whether this move is more broad than maybe we understand?

So I think in the short run we have almost all of our customers that are directing a considerable amount of their capital budget towards their own over the top solutions. And I think that’s somewhat temporary and episodic as they do that build out. I think the bigger long-term issue for our customers is making sense of some of the advertising spend that they are trying to wrestle with. I think in the end however two-thirds of our Grass Valley revenue is used for content creation. And so that’s live sports, live news, and live studio production. And regardless as to whether you consume that content over the top or in traditional linear programming that I think will be the prime differentiator for people winning share or not and then ultimately being able to collect fees. We just saw a Netflix for example say that they are going to have to increase prices as they have to renegotiate the prices they pay for content and they are of course investing in their own content. But I believe that all the people investing in content is going to continue to be a positive trend for the Grass Valley business and therefore I think much of what we’re seeing right now is not permanent, it’s temporary and therefore we characterized it as a pause or deferral rather than a permanent reduction.

But you haven’t seen a positive offsets from that yet or given that over the top spend either, is that correct?

Yes. So I would say to this point the amount of benefit that we would see from over the top is minimal. The investments that they’re making for the top is setting up the infrastructure to manage the consumption of that content. So we get occasionally involved with some of the filed configuration and so forth, but our business is predominately exposed to content creation and that’s where they’re reducing their CapEx right now so that they can pay it for the over the top.

Understood. Thank you very much.

We’ll go next to Gary Farber with CL King.

Good morning. Just a couple of questions. It sounded like on the call you said the international markets would be down 18% year over year, in North America down 8%, and if that’s correct, can you kind of say how you thought about those markets before this quarter?

So that’s just for Grass Valley.

That’s just Grass Valley. And can you give us a sense of --.

Grass Valley business we expect on a full year basis to be down 18% outside of United States and down 8% in the United States.

And what would you have expected before?

So I would say, one quarter ago we would have expected the emerging market business to be down probably somewhere between 5% to 10%, we now view it more or like down 15. I would say that a quarter ago we would have thought the European business was going to be flat and now we think it’s going to be down more or like 15% and I’d say a quarter ago we would have expected the North America business to be up slightly and now we view it’s going to be down 8%.

Okay. And just whether in Grass Valley just sort of broadly in broadcast to date before this quarter, what kind of visibility -- because it sounds like you have a backlog -- so what kind of visibility do you typically have? Is it a couple of months or is it less?

So this business has backlog that can go out pretty far and it varies by how much -- how it layers into the quarter Gary. So going into the second quarter we had a higher booking turn assumption but that would be more orders that we would shift in the quarter than typical but not out of norm. It was a little bit more aggressive but not of norm and we had a project funnel to support that. We did have a book-to-bill of 1.15 and part of the reason why weren’t able to ship more in Q2 is the orders came in very late. So we got the orders in the quarter, but we weren’t able to turn them in the quarter and that’s one of the reasons why we’re entering Q3 with more backlog than we entered Q2.

Okay. That’s very helpful. And just one question on China. Even if it sort of qualitative in nature, can you talk about your industrial end markets, how tied are they to Chinese demand, do you think?

So I’d say on a direct basis our industrial business -- our industrial connectivity business has about 60 million a year in Asia, most of that’s going to be China. Our industrial IT has another 60 million a year, most of that’s going to be China. So that’s $120 million direct into China and then you’ve got machine builders in Europe and United States and those machine builders today represent maybe 200 million of our total. So, I don’t know let’s estimate that half of that 200 million is somehow been affected by China. You’re probably looking at somewhere around $300 million or so both direct and indirect that might be exposed to China.

Right. Okay. Thank you.

What we’re doing there Gary right, so I’m doing my best to try to gets you to the right answer but there is going to be some estimates in there, in terms of what I did.

Yes, no, I appreciate you getting so quantitative because a lot of people would have just given the qualitative picture, but I appreciate it. Thank you.

Matt Tractenberg, there are no further questions. Please continue.

Thank you, Don. That’s going to do it for us today. We appreciate everyone joining today’s call. If you have questions please reach out to the IR team here in Belden. Our email address is investor.relations@belden.com. Have a great day everyone.

Thank you. Ladies and gentlemen, this concludes our call for today. You may now disconnect from the call. Thank you for participating.