Belden Inc. (BDC) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to this morning’s Belden Incorporated Conference Call. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Kevin Maczka. Please go ahead sir.

Thank you, Sarah. Good morning, everyone, and thank you for joining us today for Belden’s Fourth Quarter and Full Year 2017 Earnings Conference Call. My name is Kevin Maczka, I’m Belden’s Vice President of Investor Relations. With me this morning are John Stroup, President, CEO, and Chairman; 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 in the presentation. During this call management will make certain forward-looking statements in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For more information, please review today’s press release and 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, the appendix to our presentation and the investor relations section of our website contain a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate. I will now turn the call over to our President, CEO, and Chairman, John Stroup. John?

Thank you, Kevin, 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 fourth quarter performance. Most of our businesses performed in line with our expectations during the fourth quarter, with the exception of an isolated situation in our Broadcast Solutions segment. We had expected to recognize revenue on $36 million of product that was shipped in 2017, but we were unable to do so as a result of technical U.S. GAAP revenue recognition requirements that our team identified during the year-end closing process. We now expect these 2017 shipments to be recognized as $36 million in revenue and $22 million in EBITDA in 2018, and this will be additive to the revenue and EBITDA that we otherwise would have anticipated. As a result, revenues in the fourth quarter decreased 50 basis points to $604.9 million. Our Enterprise, Industrial, and Network Solutions segments performed in line with our expectations, growing 8% on a combined basis from the prior year period. EBITDA in the fourth quarter was $110.2 million, or 18.2% of revenue. Our proven Lean enterprise system continues to drive sustainable productivity gains, with year-over-year EBITDA margin expansion in our Enterprise, Industrial and Network Solutions segments. EPS increased 14.1% in the fourth quarter, from $1.42 in the prior year period to $1.62. Looking to 2018, we raised our full-year revenue guidance range by $36 million to reflect the 2017 shipments that will now be recognized as revenue in 2018. We expect improved organic growth in 2018. We’re encouraged by the robust 5% organic order growth in the month of January. We also maintained our full year earnings per share guidance range of $5.95 to $6.20. This guidance reflects an increase related to the delayed revenue and EBITDA recognition that I just discussed, offset by a higher effective tax rate. Under the new U.S. tax legislation, we now anticipate an adjusted effective tax rate of approximately 24% compared to the prior guidance of 20% before the impact of the new legislation. Henk will provide further details of our expectations relating to tax later on this call. Please turn to Slide 4 for a brief discussion of our full year 2017 results. Revenues for the year increased 1.3% to a record $2.389 billion, led by solid growth in our Industrial and Enterprise Solutions platforms of 7.3% and 4.6%, respectively. EBITDA increased 70 basis points to a record $434.3 million, with robust 18% growth in Industrial Solutions offset by the shortfall in Broadcast Solutions. EBITDA margins of 18.2% were consistent with the prior year period. Lower interest expense and a tax rate of 13.7% resulted in net income growth of 10.4% for the year. EPS increased from $5.27 in 2016 to $5.35 in 2017, a company record for full-year EPS. 2017 was also highlighted by significant improvements to our balance sheet and disciplined capital deployment. During the year we issued €450 million of senior subordinated notes at 3.375% and €300 million at 2.875%, the lowest long-term borrowing rates in the history of the company. These actions allowed us to further lower our cost of capital, extend our maturities, and increase our annualized earnings per share by $0.47. We also completed the acquisition of Thinklogical during the year. This highly profitable business continues to perform well as part of the Belden family. Finally, we increased our investments in attractive organic initiatives, which we expect to drive meaningful growth in future periods. Notably, in the fourth quarter we increased net capital expenditures by $12 million year-over-year. This included investments in a new manufacturing facility in India and investments in new software products. Please turn to Slide 5 for a review of our business segment results. Broadcast segment revenues in the fourth quarter were $174.7 million, compared to $208.8 million in the year ago period. Our Broadband business recovered nicely as expected in the quarter, increasing 10% year-over-year and 21% sequentially. In our Broadcast IT business, orders in the fourth quarter were in line with our expectations. However, as I mentioned before, $36 million in revenue and $22 million in EBITDA related to 2017 shipments will now be recognized in 2018. Largely a result of the deferral of these revenues, Broadcast EBITDA margins in the fourth quarter were 12.7%, compared to 23.3% in the prior-year period. I am pleased that our Enterprise, Industrial, and Network Solutions platforms performed in line with our expectations. Enterprise revenues increased 5% to $157.7 million driven by our successful share capture programs, notably within the Asia-Pacific region. Organic growth in the region was 12%, the sixth consecutive quarter of double-digit growth in that region. Order rates were strong in January, increasing double-digits and benefitting from a number of large projects moving from our sales funnel and into our backlog. Notably, this included two significant project wins that are larger than any opportunity shipped in the past two years. EBITDA margins improved in the quarter, as expected, increasing a robust 290 basis points year-over-year to 16.7%. Revenues in our Industrial Solutions platform increased 10.8% to $162.6 million, with continued strength in Discrete Manufacturing, our largest vertical. End market demand remains very encouraging, with orders increasing 10% year-over-year in the fourth quarter, resulting in double-digit year-over-year order growth in every quarter of 2017. EBITDA margins increased 110 basis points from the year-ago period to 19.9%, driven by solid volume leverage and productivity gains. Network Solutions revenues increased 7.4% from the prior year period to $110 million. Our industrial end markets continue to perform very well, with revenues increasing 17% from the prior year period. EBITDA margins were 25.8% in the quarter, increasing 40 basis points from the prior year period. I will now ask Henk to provide additional insight into our fourth quarter financial performance. Henk?

Thank you, John. I will start with 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 6 for a detailed consolidated review. Revenues were $604.9 million in the quarter, down from $608.2 million in the fourth quarter of 2016 and short of our guidance. Importantly, orders were in line with expectations, as we booked $659.2 million of orders in the fourth quarter 2017, up $44.8 million, or 7.3%, from $614.4 million in the prior-year period. We had expected to recognize revenue on $36 million of orders in our Broadcast segment that shipped prior to the end of 2017. However, we were unable to do so as a result of technical U.S. GAAP revenue recognition requirements. Per the terms of certain transactions, our Broadcast IT business shipped products through third party logistics providers or 3PLs. On all of these shipments, legal title and the risk of loss transferred to the customers at the time of the shipment, and we were entitled to receive payment. However, we did not meet all of the technical delivery criteria for revenue recognition under US GAAP. Clearly, we are disappointed with this outcome. That said, we are pleased that we identified this matter as part of our year-end closing process. Ultimately, we view this issue as a delay and have increased our 2018 guidance accordingly to reflect an incremental $36 million in revenue and $22 million in EBITDA. For the fourth quarter, currency translation, higher copper prices and acquisitions increased revenue by $26.5 million, and revenues decreased 4.9% organically from the prior-year period. Sequentially, revenues decreased $16.8 million from $621.7 million. Gross profit for the quarter was 39.3% of revenues compared to 43.4% in the year-ago period and 41.1% in the third quarter. Operating expenses were $140.2 million, or 23.2% of revenues. Compared to the prior-year, operating expenses declined $13.8 million, driven by significant productivity improvements. EBITDA was $110.2 million compared to $122.5 million in the prior-year period and $119.2 million in the prior-quarter. EBITDA margins were 18.2%, decreasing 190 basis points from 20.1% in the fourth quarter 2016. Net interest expense of $16.5 million decreased $6.6 million year-over-year, driven by the successful execution of our debt refinancing actions earlier in the year. For the full-year 2018, we expect interest expense to be approximately $68 million. We significantly outperformed on tax in the quarter, with an effective tax rate of 4.6%, compared to 19.9% in the prior year. The current quarter benefited from a number of incremental discrete tax planning initiatives. On a GAAP basis, the company incurred a one-time charge of $28.7 million in the fourth quarter, resulting from the enactment of the Tax Cuts and Jobs Act. However, as a result of successful tax planning strategies in 2017, we do not expect a material cash impact from the deemed repatriation of foreign earnings. For the full-year, our adjusted effective tax rate was very favorable at 13.7%, compared to 17.3% in the prior year and a jurisdictional rate of 28%. In 2018, we expect an effective tax rate of 24%, compared to our prior guidance of 20%. The Tax Cut and Jobs Act lowered our jurisdictional tax rate from 28% to 24%. However, many of the tax planning strategies that we previously deployed are no longer available to us. Our team is working hard to evaluate the new legislation and identify incremental opportunities. Importantly, we expect our cash tax rate to continue to be approximately 10%. Net income in the quarter was $79 million, increasing $8.7 million, or 12.4%, from $70.3 million in the prior-year period. Earnings per share was $1.62 in the quarter, increasing 14.1% from $1.42 in the prior-year period. Please turn to slide 7. I will now discuss revenues and operating results by business segment. Our Broadcast Solutions segment generated orders of $221 million in the fourth quarter 2017, growing $13.9 million, or 6.7%, compared to $207.1 million in the prior-year period. Broadcast revenues of $174.7 million declined 16.3% from $208.8 million in the prior-year period. As a reminder, the 2017 shipments in our Broadcast segment that were not recognized under U.S. GAAP had a revenue and EBITDA impact of $36 million and $22 million, respectively. As a result, Broadcast EBITDA margins were 12.7% in the quarter, down from 23.3% in the prior year period and 18.4% in the third quarter. Our Enterprise Solutions segment generated revenues of $157.7 million during the quarter, increasing 5% from the prior-year. On an organic basis, revenues increased 1.7% year-over-year. EBITDA margins were 16.7% in the quarter, increasing 290 basis points from the prior-year and 90 basis points sequentially, driven by productivity improvements. The Industrial Solutions segment generated revenues of $162.6 million in the quarter, an increase of 10.8% from $146.7 million in the prior-year period. Currency translation and higher copper prices had a favorable impact of $7.7 million. Adjusted for these factors, revenue grew 5.6% organically. EBITDA margins of 19.9% increased 110 basis points year-over-year driven by solid leverage on volume and productivity gains. Our Network Solutions segment generated revenues of $110 million, growing 7.4% from the prior-year period. Currency translation had a favorable impact of $4 million in the quarter. On an organic basis, revenues increased 3.4%. EBITDA margins of 25.8% increased 40 basis points from the prior-year and 100 basis points sequentially. If you will please turn to Slide 8, I will begin with our balance sheet highlights. Our cash and cash equivalents balance at the end of the fourth quarter was $561 million compared to $461 million in the prior quarter and $848 million in the prior year period. The year-over-year decrease reflects our disciplined capital deployment, net of cash flow generation. Working capital turns were 8.6 turns, compared to 7.1 turns in the prior quarter and 15.4 turns in the prior-year. The year-over-year decrease is mainly a result of increased inventory levels. Our total debt principal at the end of the fourth quarter was $1.58 billion, compared to $1.55 billion in the third quarter and $1.64 billion in the year-ago period. The year-over-year decrease reflects the debt repayment completed during the year, slightly offset by currency translation on our euro-denominated debt. We are extremely pleased with the improvements made to our balance sheet during 2017. We lowered our pre-tax cost of debt to 3.9%, compared to 5.3% at the end of 2016. Net leverage was a robust 2.3 times net debt to EBITDA at the end of the quarter, in-line with the prior quarter and below our target range of 2.5 times to 3.0 times. Please turn to Slide 9 for a few cash flow highlights. Cash flow from operations in the fourth quarter was $151.7 million compared to $167.4 million in the prior year. As a reminder, fourth quarter 2016 benefited from customer prepayments and a $10 million patent settlement. Net capital expenditures were $29.8 million for the quarter, increasing $12 million from the prior-year period. This included investments in a new manufacturing facility in India and investments in new software products. Free cash flow in the quarter was $121.9 million, decreasing $27.7 million compared to $149.6 million in the prior-year period. For the full-year 2017 we generated free cash flow of $192.1 million, compared to $261.2 million in the prior-year period. The year-over-year decline of $69 million was primarily due to higher inventory levels. Compared to the prior-year, copper inflation has increased the value of our inventory by $40 million. In addition, our inventory is temporarily elevated by $30 million as a result of holding safety stock for our ongoing manufacturing footprint consolidation, and the timing of shipments. In addition to robust EBITDA growth, we expect our inventory levels to normalize in 2018. As a result, we anticipate free cash flow to be in the range of $250 million to $270 million. That completes my prepared remarks. I would now like to turn this call back to our President, CEO and Chairman, John Stroup, for the outlook. John?

Thank you, Henk. Please turn to Slide 10 for our outlook regarding the first quarter and full-year 2018. In 2018, we expect record revenues with growth across all our platforms. Consistent with our commitment to continuous improvement and high quality of earnings, we also expect record EBITDA margins and robust free cash flow growth. We anticipate first quarter 2018 revenues to be between $575 million and $595 million, and EPS of $1.05 to $1.15. For the full year 2018, we now expect revenues between $2.528 billion and $2.578 billion, an increase of $36 million compared to our prior guidance range of between $2.492 and $2.542 billion. We continue to expect full year EPS of $5.95 to $6.20, representing an increase of 11% to 16%. This guidance includes an increase in EPS related to the delayed revenue recognition and an offsetting impact of a higher effective tax rate due to the new tax legislation. That concludes our prepared remarks. Sarah, please open the call to questions.

Certainly. Thank you, sir. [Operator Instructions] We’ll now move to our first question today from Matt McCall of Seaport Global Securities. Thank you.

Thank you. Good morning, guys. This is actually Reuben on for Matt.

Hi, Reuben.

Hi, Reuben.

So if you adjust for the Broadcast revenue recognition, you guys had a pretty nice beat in the fourth quarter. Can you talk about maybe what surprised you? It looks like it was from a margin standpoint, can you just talk about what surprised you versus your previous guidance?

So I would say that the fourth quarter from a – certainly from an orders point of view, was exactly as we expected. As we mentioned in the prepared remarks, shipments in our Broadcast segment fell short of our expectations. All the other businesses performed well. I thought the team did a nice job on margin expansion, which is something that we’ve been focused on. In terms of what’s surprising us, I would say is that orders were stronger than we expected and orders in January have also been very strong. So we’re entering 2008 – pardon, 2018 with more momentum than I think we would have expected. And so I think we’re better positioned in 2018 now than we probably thought we were going to be three months ago.

Okay. And to clarify, I thought I heard a little bit, can you tell us what the orders were up again in January? And I think the fourth quarter was up 7% for company-wide and January, it was up 5%. Is that right?

So, orders in the fourth quarter were up 7% on a year-over-year basis and orders in the month of January at least so far are up 5% and in our businesses that are more linear, like Industrial Solutions and Enterprise where we have less of a hockey stick at the end of the quarter, those businesses are up double-digits in both cases.

Okay, perfect. And then I know you guys have shifted some focus to internal investments to drive organic growth. Can you talk about what is assumed in your guidance for the full year from an organic growth perspective? I know the dollar has been moving and copper has been moving, can you talk about what the – whether it’s by segment or company overall, what the organic growth assumption is?

So the guidance that we just gave for 2018 implies organic revenue growth between 3% and 5%.

Perfect. Thank you, guys. Appreciate it.

Thank you. We’ll now move to our next question which comes from Noelle Dilts of Stifel. Please go ahead.

Hi guys, good morning.

Good morning.

Good morning, Noelle.

I was hoping just to kind of discuss some of the underlying trends in your end markets. Maybe you could first touch on Industrial and give us a sense of what you’re seeing in discreet, oil and gas, mining, et cetera.

Yes. So the discrete market continues to perform very well. As you know, we had strong performance every quarter in 2017. That continued in the fourth quarter. And then, I’d say the sort of the new information is the process end market is now performing well. It was up 10% year-over-year in the fourth quarter and orders there continue to be very strong. So at this point, within our Industrial business, we’re seeing good performance across all of our verticals, process, discrete, transportation, energy, we’re seeing it in all regions. The business is really performing well in just about every area. Our Enterprise business, they had a growth fourth quarter, they continue to take market share. The orders in January are very robust so far. I think that gives us a lot of reason for encouragement. So I would say that most of our businesses right now are benefiting from favorable macroeconomic and secular trends. Our Broadband business did very well in the fourth quarter. It was up 10%. That team is optimistic about 2018. So from a macro point of view, Noelle, things are very strong.

Okay. And then just sticking with the Broadcast segment outside of Broadband, can you just give us an update on now how you’re thinking about kind of the move to IP, some of the project activity associated with that? And what you’re seeing in terms of customer behavior?

Yes. So on December 8, the SMPTE, which is the standards board for the Broadcast industry, finally published their IP standards. And that’s a big deal. Because now customers can move forward with open systems and do so confidently and not have to worry about selecting vendors or hardware that doesn’t comply with the standard. So we think that’s an important development. It’s certainly going to be helpful moving into 2018. We had our strongest quarter ever in IP-based product revenues in the fourth quarter was over $5 million and it was to 36 different customers. So it’s clear that our customers are getting more confident, more comfortable with the technology. I think they view us as really one of the only solutions that meets the open standard. As we’ve talked about, we have some competitors that have done very well but their systems and their solutions are far more closed than what we’re offering and what the standard dictates. So I think that the Grass Valley business from a product point of view is very well positioned moving into 2018.

Great. And then last question for me, just on Tripwire, can you kind of give and an update on what you’re seeing there both in terms of kind of the legacy Enterprise customers as well as the continued effort to expand the product offering into the Industrial markets?

Sure. So the Tripwire business was up sequentially, which is typically the case. On a year-over-year basis, we saw good growth in Industrial, we saw good growth in Government. The Enterprise business was off a little bit on a year-over-year basis, which was a continuation of the theme in 2017. We think most of that has to do with the migration of assets from on-prem to the cloud. It’s a big focus for us as it relates to new product investment. I thought we made good progress in the fourth quarter with our cloud-based products as well as our cloud-based services and I fully expect that in 2018 that will take hold and we’ll see some growth in our Enterprise segment within Tripwire in 2018.

Perfect. Great, thank you.

Thanks, Noelle.

Thank you. We’ll now move to our next question comes from John Quealy from Canaccord Genuity. Please go ahead.

Hey, good morning, folks. First question, again, big picture on Broadcast. John and Henk, if you don’t mind talking about Disney, FOX, how that impacts legacy relationships for new ones, for you as well as – I think the other day Ericsson announced they’re spinning out some broadcast/media assets. Just talk about some of the moving pieces and how you’re seeing things shake out this early in the year?

So our relationships in the media industry are quite broad. We have relationships with all the primary participants in the industry. Good relationships, I would say with all of them including Disney, including FOX, all the legacy of U.S. media companies. So consolidation or movement of assets from one vendor or supplier to another is not really a concern to us. I think that it’s pretty clear that media companies continue to focus on ways to improve profitability, sports, of course, is one of the better ways for them to do so. And I think that as people are getting more comfortable with how they monetize some of their assets through new streams – streaming and new ways to get media to the customer, I think they’re getting more comfortable with the investments they make in production. So I think that there’s, from my perspective anyway, there seems to be some stabilization that’s happening in the industry. And I think that that’s good for us and of course the fact that there’s clarity with regard to the standard on IP, I think it’s also a very strong development.

And then as a follow-up if you don’t mind talking with oil at $70, has the energy part of the business shown any signs of life or do we need to wait for the channel to perk up in another couple of quarters to see how that rebounds, if at all? Thanks, guys.

Sure. Well – so we had as I mentioned before, we saw good performance out of all of our verticals in the industrial area. If you look at our process business, which would include oil and gas, organically that business grew 13%. If you look at energy, which for us is going to be more distribution so power transmission and distribution alternative, that business was roughly flat. But I would say that we’re already seeing improvement in the oil and gas sector, which was up about 5% in the fourth quarter. So it’s already showing up in our numbers and I would expect that we’re still in the early days of that.

Operator, next question.

Certainly. Thank you. Our next question from Shawn Harrison of Longbow Research. Please go ahead sir.

Hi, good morning.

Hi, Shawn.

Good morning, Shawn.

Wanted to delve into the Enterprise business, it’s a two-part question if I may begin. Just first the price increases instituted into the market, are they gaining traction? Second, you’ve done heck of a job in terms of gaining market share, again this quarter. How do you expect that to play out in 2018? Are there still such big opportunities available for you after taking such a significant share last year?

So the price increases that we enacted in the fourth quarter were adopted more slowly than we would have liked. We do see, however, movement here in January with our distributors passing on price increases, we’ve seen some competitors follow with price increases that typically are a little bit slower with price increases. So I feel like the situation is better than it was three months to four months ago but it continues to be more of a struggle than what we would have traditionally seen. And I think the reason for that is demand in 2017 was weaker than what people had expected and when category utilization is lower than people expect and input costs are rising, it’s a little bit more difficult for us to pass the price increases on to be able to maintain our margins. I feel though, however, that demand in Enterprise segment is going to be better in 2018 than it was in 2017. We see our order rate in January, we also see our funnel. I think I’ve mentioned that we had two wins in January both of which are larger than any shipments – projects that are larger than any shipments we had in the last two years. And we’re getting the sense from our distributors are seeing similar activity. So if that continues and we see the price increases stick in the first quarter the way that we would expect, then I think we’re going to see better margins in 2018 than we did in 2017. And as it relates to market share, I agree, I think our team did an outstanding job in 2017 in market share capture. It’s probably unreasonable for me to expect that they would do as well in market share capture in 2018 as they did in 2017, but I do think that our product line and our go-to-market is very nicely positioned as it relates to the areas where we see growth, which is predominantly in the extended LAN.

And John, most of your market share gains, if I remember, were more international-based in 2017 versus U.S.-based. Is that where you see the ongoing greater opportunity for share?

Yes. You’re right. I mean we did a much better job outside of the United States as it relates to share capital than we did in the U.S. and I think our growth in Asia, we certainly expect to continue as well as Europe. But we did take some market share in the U.S. as well. So I think the team is executing very well and they made a lot of improvements that are not obvious yet around customer responsiveness and customer satisfaction, is at an all-time high as well for us and those things usually translate into higher levels of growth.

Okay. And then Henk, if I may, two follow-ups, brief just – what is the Capex guidance for 2018? I jumped on a little bit late, so I’m sorry if I missed that. And then if my math is correct, it looks like Broadcast EBITDA margins adjusted for the revenues that were pushed out were still down 200 basis points or 300 basis points year-over-year, if my math is right. So maybe you could help explain the variance there?

Yes. So – that’s right. If we adjust for the timing issue, Broadcast margin was still slightly off and that’s simply because of mix – mainly mix. Our PPC business grew a little faster than our Grass Valley business. The Grass Valley business is still little bit down, you adjust for that. And the CapEx guidance for next year will be roughly $90 million – so $90 million to $92 million. That includes the initiatives we have underway in India. So completing the new manufacturing footprint there as well as significant initiatives around developing our software products.

Okay, perfect. Thank you.

Thank you.

Thank you. Our next question now comes from Sherri Scribner of Deutsche Bank. Please go ahead.

Hi, thank you. I’m just a little bit curious in terms of the fourth – first quarter guidance. It’s a little bit lower than people, I think, would anticipate considering there’s $36 million in there, a little bit lower than the street. I guess I’m trying to understand did we all have the first quarter numbers kind of wrong? And maybe it would have been down more without the $36 million? And as a part of that, can you maybe, Henk, give us some sense of how you think the linearity of the year will translate through the year?

Yes. Thank you for your question, Sherri. Let me start with answering the first part of your question. The $36 million that we couldn’t recognize in the fourth quarter and will recognize in 2018 we’ll layer in $15 million in Q1, $15 million in Q2 and $6 million in the third quarter. We have to modify some of our terms and conditions with our customers that will take a little bit of time. So I don’t want you to expect that all the $36 million to reverse completely in Q1. It will be phased in throughout the year. And if you do that – if you update your model accordingly, you will see that seasonality now feels very typical as you expect from us.

Okay, perfect. That’s really helpful. And then I guess, when I look at the EBITDA margins through the full year when I make the adjustment for the Broadcast issue, it seems like you were up 60 basis points, is that sort of the right way to think about margins being up in fiscal 2018 when we exclude this additional revenue? How should we think about that?

Yes. It’s about 60 to 70 basis points. If you include it, we’ll be up roughly 200 basis points, but if you adjust to let you closer to 70, 80 basis points.

Okay, perfect. And then just quickly, with the new tax changes, have you had – have you thought at all about how you want to think about your debt structure? And is there any changes that you foresee with the debt as well as your capital return strategy? Thanks.

Yes. So our debt is actually really well positioned. The majority of our debt is already in Europe, that’s euro-dominated trades in Europe. So that will not be a hindrance. The team is currently busy in better understanding the new legislation, understanding where there are incremental opportunities. So that will be the focus going forward. And in terms of the patriation, the company historically has done a very good job repatriating cash. At the end of 2017, roughly 75% of our cash will be in the U.S. And certainly, under the new legislation, we have more opportunities to continue down that path of mobilizing cash in the U.S.

Thank you.

Thank you. And I move to our next question, which comes from Mark Delaney of Goldman Sachs. Please go ahead.

Yes, good morning and thanks for taking the questions. First question is on the Broadcast segment. And if we normalize for the delayed revenue recognition, so if you think about the growth in 2018 versus 2017, in Broadcast, because I think typically Olympics here and the Presidential election – sorry, just an election here, the Broadcast business grows, and I’m curious if you think that’s coming through especially because of the Olympics are about to start?

Yes. That is correct. So if you make the adjustment for the revenue that we would have expected in 2017, that’s now going to be moving into 2018. We’re still expecting to see growth on a year-over-year basis from 2017 to 2018. It would be somewhere around 2% to 3% on a year-over-year basis. That would include growth in Broadband but also growth at Grass Valley. And as you correctly point out in the second year of the cycle, which includes the mid-term elections and the Winter Olympics, that’s typically a better year than year one. We’ve baked that into our guidance for 2018.

Okay, that’s helpful. And then, John, I know you already talked about seeing some pickup in Broadband and in Industrial including oil and gas. I was wondering if you could maybe frame it a little bit differently for us. I think two, three years ago oil and gas was 12% of the company’s revenue and if I’m not mistaken, when oil really declined, I think it fell to something like 4% of the company’s revenue. Maybe I just want to understand where you are at this point. Because I know you talked about it being probably your early instill for that part of your business. So you can maybe just kind of quantify if you have that number where oil and gas is at this point?

So I think if you look at our fourth quarter results on oil and gas, it was annualizing that just about $80 million in total. So that will give you a sense of kind of where we are right now. The oil and gas business was up nicely in the fourth quarter on a year-over-year basis, but you can look at $80 million on a full year basis, this is still relatively small percentage of our total.

Okay. All right, that’s helpful. So it still seems like it is in that 3% to 4% range. And then just lastly for me, if I add back to $36 million of revenue that was delayed to the fourth quarter revenue, it was $641 million, I think if my math is right, which is still the low end of the guidance for what the company is looking at in 4Q? And it sounded like from the prepared remarks, I know orders came in nicely but the commentary was things were generally consistent with expectations. So it seems like to me, something was a little bit weaker even outside of that pushout and so can you just help us better explain where maybe that modest downside was relative to the midpoint of guidance in 4Q?

Well, so in addition to the $36 million that we identified in Broadcast, we had approximately another $11 million in orders in our Broadcast segment that was in excess of the shipments that we would have expected to see. I say the other area of the company that might have been a little bit lighter than what we have guided on a high end would probably be Enterprise segment where if you compare where they are compared to kind of what we had contemplated at the high end, it’s probably a little bit weaker but not by much. I mean I would say the other businesses performed very much in line with what we would have expected.

Thank you very much.

You’re welcome.

Thank you. We’ll now move to our next question from Rob Cihra of Guggenheim. Please go ahead.

Hi, thanks very much. One quick question and then an actual question. The quick thing is just can you update in terms of where the timing is on the MCS divestiture from within Industrial? Is that closed or is that still expected to close or a timing on that?

Rob, that closed just before year-end on Christmas and the cash has flown in Q1, so that’s out.

Okay. And then the broader question is, is there any way of telling – I mean your industrial revenue has reaccelerated so nicely over the last several quarters, continues to look good. I mean can you tell when you look at that how much is maybe actually like new technology like IoT, automation, that sort of thing versus macro versus just macro spending to replace aging infrastructure and obviously the cyclicality in oil and gas? I mean, is there a way that you can even tell the difference there yet? Thanks.

It’s difficult to be able to quantify it. I would suggest that most of it is the latter. That most of it has to do with the fact that there is aging factories, aging equipment, there’s relatively high utilization rates and if you look at the demand pattern across the globe and by product category, I think that most of it is that piece. Now having said that, our product categories that are very much conducive to the idea of a smart factory and connectivity of machines to other machines that would be in our I/O boxes as well as our UTP product lines, we’re seeing healthy growth there as well. So there’s no doubt in my mind that as people begin to invest in capital for factories and increasing capacity, they’re choosing to go down the path of smarter factories, more connected factories and you can see that those newer products are growing much faster than the legacy products.

All right, makes sense. Thank you very much.

You’re welcome.

Thank you. We’ll now move to our next question, which comes from George Godfrey of CLK. Please go ahead.

Thank you. Most of my questions have been answered, but the $90 million or so for CapEx next year, what percentage is maintenance versus the growth initiatives, is that like a 65, call it, 25 split? Is that right?

Yes. I think the maintenance part is typically around a percent of revenue cycle at $25 million to $30 million. The majority, as a two-thirds, will be allocated to what’s growth initiatives. As we spoke to, India is a great initiative for us, but also more investments in R&D and software will help us to position us for future growth.

Got it. Thank you. And then just one more. The organic growth for next year 3% to 5%, do you expect the Broadcast Solutions to be in that same range? And how do we think about that $35 million that gets shifted out? Are you going to add that back to give organic or how is that going to be reported?

So I would expect our Broadcast segment to be in that range, maybe towards the higher end, because when we report our organic growth in 2018, we’re going to give it based on what our actual revenues were in 2017 versus our actual revenues in 2018. So obviously, our Broadcast segment is going to have a lot of tailwind coming into 2018. So I would expect that all of our platforms are going to be somewhere around 3% to 5%. The Broadcast segment maybe on the higher end, maybe 5%, maybe a little bit higher given the fact that they have that $36 million of revenue coming into the year.

Thank you.

You’re welcome.

Thank you. We’ll now move to our next question from Ashwin Kesireddy from JP Morgan. Please go ahead.

Yes, hi. Thanks for taking my question. Just a quick clarification. You mentioned about this strong activity in the Enterprise segment but can you comment on how CAT 6A performed?

So in the fourth quarter, our CAT 6A business – I’m not sure if I have that handy, I can tell you though that our connector revenue in the fourth quarter was – on a year-over-year basis it was about flat, so it was consistent with the business overall, but our CAT 6A – sorry, our connector revenue total for the full year was up substantially. It was up about 12.5%. Oh, sorry, I do have the CAT 6A, I’m sorry. The CAT 6A in the fourth quarter was up 47.8%. It was up substantially in the fourth quarter. Sorry, I had it right in front of me.

Just one other question on the Network Solutions side. Can you comment on any activity you are seeing in terms of cross-selling ability into the Industrial segment particularly as it relates to security solutions around IoT. Any progress there or any activity you’re seeing there?

Yes. So on a full year basis, our cybersecurity business in the industrial segment was up nicely. Now that would include all aspects of that business that includes our Tofino firewall, it includes Tripwire, it includes our – what we call our EAGLE product line, our Hirschmann EAGLE product line. And on a full year basis that cybersecurity business I think was up about 20%, on a full year basis. And we continue to make good progress in bringing the Tripwire solution in. So the Tripwire software suite is part of that growth that I just mentioned before. And we’ve got high expectations that, that will be stronger in 2018.

Okay, great. Thank you.

Thank you.

Thank you.

Kevin Maczka, there are no further questions at this time. Please continue.

Okay. Thank you, Sarah. And thank you, everyone, for joining today’s call. If you have any questions, please reach out to the IR team here at Belden, our email address is investor.relations@belden.com. Thanks, have a great day.

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