Belden Inc. (BDC) Q4 2019 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 conference over to Kevin Maczka. Please go ahead, sir.

Thank you, Mary. Good morning, everyone, and thank you for joining us today for Belden's fourth quarter 2019 earnings conference call. My name is Kevin Maczka; I'm Belden's Vice President of Investor Relations and Treasurer. With me this morning are Belden's President, CEO, and Chairman John Stroup, Chief Operating Officer Roel Vestjens, and CFO Henk Derksen. John will provide a strategic overview of our business, Roel will review our segment results, 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 3in our presentation. Before I review our fourth quarter performance, I'd like to discuss the announcement we made this morning regarding the divestiture of Grass Valley. As we reported last quarter, we completed a rigorous strategic review of our portfolio of businesses and concluded that it was in the best interests of our shareholders, customers, and employees to separate Grass Valley from Belden. Today, we announced that we reached a definitive agreement to sell 100% of Grass Valley to private equity firm Black Dragon Capital. The transaction is expected to close in the first half of 2020. Black Dragon's deep broadcast industry experience will enable Grass Valley to more effectively execute its strategic plan and pursue growth opportunities. We look forward to supporting the Black Dragon and Grass Valley teams during the transition. The transaction consideration includes an upfront cash payment of $140 million plus various forms of deferred consideration, including a $213 million five-year seller's note, subject to certain adjustments, up to $130 million in PIK interest on the seller's note over its five-year term, and $150 million in potential earn-out payments. These earn-out payments are based on certain performance thresholds, but the seller's note and the interest on the seller's note are not. We are pleased to announce this definitive agreement and extremely excited about the opportunities for Belden going forward as we continue our transformation. Now, let's review our fourth quarter performance. Revenues in the fourth quarter of $549.7 million exceeded the high end of our guidance range. Importantly, we delivered healthy organic growth of 2.7% after adjusting for changes in channel inventory levels in the fourth quarter of 2018. This demonstrates the enhanced growth potential of our improved portfolio of businesses. We did not see the reduction in channel inventory levels that we anticipated in the fourth quarter 2019, so we are reflecting that expectation in our guidance for the first quarter. EPS of $1.20 also exceeded the high end of our guidance range of $1.00 to $1.15. Consistent with our M&A strategy, in the fourth quarter we completed another bolt-on acquisition of a broadband fiber related business called Special Product Company, or SPC, for $23 million. SPC is a supplier of enclosure systems for fiber and 5G applications with annual revenues of approximately $32 million. SPC's products complement our broadband fiber portfolio, with many of our current outside-the-home products already being utilized in conjunction with SPC products. We see significant opportunities to leverage our global customer base and accelerate SPC's growth. In addition, we continue to pursue a number of compelling inorganic opportunities in this robust market that would further enhance our product offering and growth potential. Please turn to slide 4 for a brief discussion of our full year 2019 results.2019 was highlighted by the significant actions we initiated following our comprehensive strategic portfolio review. These include the divestiture of Grass Valley, the ongoing $40 million cost reduction program, and our planned exit of approximately $250 million in undifferentiated copper cable product lines. These actions will result in an improved portfolio of businesses that is aligned with favorable secular trends in industrial automation, cybersecurity, broadband & 5G, and smart buildings. Full year revenues were $2.131 billion. Despite the headwinds from global trade policies, end demand for our products increased during the year. 2019 was another year of disciplined and balanced capital deployment toward organic growth investments, acquisitions, and share repurchases. Net capital expenditures of $80 million funded a number of attractive organic initiatives that are expected to drive meaningful growth in future periods. This included investments in new software solutions for both cybersecurity and industrial automation, and targeted capacity additions to support our customers by shortening our lead times and expanding our fiber capabilities. We completed three strategic broadband fiber acquisitions in 2019 for a combined purchase price of $74 million. These included Opterna and the FutureLink product line in the second quarter and SPC in the fourth quarter. Importantly, our product mix continues to improve, as the majority of our broadband revenues came from higher-growth outside-the-home products for the first time in 2019. During the year, we also deployed $50 million toward share repurchases. All of this was accomplished with year-end financial leverage of 2.5x net debt to EBITDA. This is well within our stated range of 2x to 3x. Moreover, our net interest coverage ratio exceeds 7 times. I will now ask Roel to provide a review of our business segment results. Roel?

Thank you, John. Please turn to slide 5 for a review of our business segment results. Beginning with our Enterprise Solutions segment, I will be referring to adjusted results today. As a reminder, our Enterprise solutions allow customers to transmit and secure audio, video and data across complex enterprise networks. Our key markets include smart buildings and broadband and 5G. Revenues in this segment increased 1% year-over-year to $280.2 million, or 2.7% on an organic basis after adjusting for changes in channel inventory levels. Revenues in the smart building market increased 2% on an organic basis when adjusted for changes in channel inventory, with growth in all regions and continued solid share capture in the Americas. Revenues in Broadband & 5G increased 3% year-over-year on an organic basis. We continue to see robust demand for our fiber optic products. Following the successful integration of our broadband fiber acquisitions, we are significantly expanding our product offering and capturing additional share. As a result, our fiber growth was strong throughout 2019, with revenues more than doubling on a full year basis. Enterprise Solutions segment EBITDA margins were 15.3%. Turning now to our Industrial segment. Much like Enterprise, our Industrial solutions allow customers to transmit and secure audio, video and data, but in this case in harsh industrial environments. Our key markets include discrete manufacturing, process facilities, mass transit, and energy. Revenues in this segment also increased 2.7% on an organic basis after adjusting for changes in channel inventory levels to $269.5 million. We continue to benefit from a balanced portfolio of industrial businesses. Demand remained soft during the quarter as expected in our largest industrial market, discrete manufacturing. Revenues in the discrete market declined 4% in the fourth quarter, with continued softness in Germany. Given our recent order trends, the continued uncertainty in the global industrial economy, and the soft manufacturing PMI readings in the United States and Europe, we expect the pressures in discrete to persist into 2020. However, we continue to see growth in our other industrial markets, led by our process end market, which increased 6% organically in the fourth quarter. Performance in our Cybersecurity business improved in the fourth quarter. Non-renewal bookings, our best leading indicator of revenues, increased 4% year-over-year. We continue to make significant progress with our strategic priorities in cybersecurity. We expanded our software-as-a-service solutions, with SAAS revenues doubling in 2019 as a result. Industrial Solutions segment EBITDA margins were 18.8%. Finally, I would like to discuss the progress we are making on reducing our inventory levels. Our fourth quarter inventory balance declined $15 million sequentially and $34 million year-over-year, despite the addition of $9 million from the broadband fiber acquisitions completed during the year. As a result, inventory turns improved to 6.0 turns in the fourth quarter from 5.1 turns in the year ago period. As we continue to execute our proven Lean enterprise principles, we would expect further improvements and an increase of approximately one half turn in 2020. I will now ask Henk to provide additional insight into our fourth quarter financial performance. Henk?

Thank you, Roel. 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 6 for a detailed consolidated review. Revenues were $549.7 million in the quarter, decreasing $2.4 million, or 40 basis points, from $552.1 million in the fourth quarter of 2018. Revenues decreased 1.7% organically from the prior-year period, as a $10.5 million favorable impact from acquisitions was partially offset by a $3.6 million negative impact from currency translation and lower copper prices. After further adjusting for changes in channel inventory, revenues increased 2.7% organically from the prior-year. Gross profit margins in the quarter were 37.4%, declining 230 basis points compared to 39.7% in the year-ago period. This decline was due to lower production volumes related to higher channel inventory levels in the year ago period and reductions in our own inventory balance, as well as unfavorable product mix. EBITDA was $92.9 million, decreasing $10.3 million, or 10.0%, compared to $103.2 million in the prior-year period. EBITDA margins were 16.9%, decreasing 180 basis points from 18.7% in the fourth quarter 2018. Net interest expense was consistent with the year-ago period at $13.9 million. At current foreign exchange rates, we expect interest expense in 2020 to be consistent with 2019 at approximately $56 million. Our effective tax rate was 19.8% in the fourth quarter and 17.5% for the full year 2019, as we benefited from a number of incremental discrete tax planning initiatives. For financial modeling purposes, we recommend using an effective tax rate of 20% throughout 2020. Net income in the quarter was $54.9 million, compared to $59.0 million in the prior-year period. Earnings per share were $1.20 in the quarter, compared to $1.26 in the year-ago period. Please turn to Slide 7. I will now discuss revenues and operating results by business segment. Our Enterprise Solutions segment generated revenues of $280.2 million during the quarter, increasing 1% from the prior-year period. Revenues were favorably impacted by $10.5 million from acquisitions. After adjusting for acquisitions and changes in changes in channel inventory in the year-ago period, revenues increased 2.7% organically on a year-over-year basis. EBITDA margins were 15.3% in the quarter, decreasing 270 basis points from the prior year period. Lower production volumes related to higher channel inventory levels in the year ago period and unfavorable product mix contributed to the year-over-year decline. The Industrial Solutions segment generated revenues of $269.5 million in the quarter, decreasing 1.9% from the prior-year period. Currency translation and copper prices had a negative impact of $3.5 million. After adjusting for these factors and changes in channel inventory in the year-ago period, revenues increased 2.7% organically on a year-over-year basis. EBITDA margins were 18.8% in the quarter, declining 70 basis points year-over-year and increasing 100 basis points sequentially. We continue to make strategic investments in new products, such as our Cloud-based cybersecurity solutions, which are expected to drive growth in future periods. 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 $426 million compared to $297 million in the third quarter and $421 million in the prior year period. Working capital turns were 13.0 turns, compared to 6.0 turns in the prior quarter and 10.8 turns in the prior-year. Days sales outstanding were consistent with the year-ago period at 57 days and improved 4 days sequentially. Inventory turns were 6.0 turns, compared to 5.4 turns in the prior quarter and 5.1 turns in the prior year period. Our total debt principal at the end of the fourth quarter was $1.46 billion, in line with the year-ago period. Net leverage was 2.5x net debt to EBITDA at the end of the quarter, in-line with our target range of 2x to 3x. As a reminder, our debt is entirely fixed at an average interest rate of 3.5% with no maturities until 2025 to 2028. We are very pleased with the quality of our balance sheet. Please turn to Slide 9 for a few cash flow highlights. Cash flow from operations in the fourth quarter was $187.4 million, consistent with the prior year period. Net capital expenditures were $35.9 million for the quarter, compared to $34.4 million from the prior-year period. Free cash flow in the quarter was $151.4 million, compared to $154.0 million in the prior-year period. For the full year 2019, we generated cash flow from operations of $276.9 million, compared to $289.2 million in 2018. As a reminder, 2018 benefited from a non-recurring gain of $47 million related to patent litigation. Excluding this item, cash flow from operations increased 14% in 2019. For the full year, net capital expenditures increased from $96 million to $110 million as we increased our investments in organic growth initiatives. This included investments in new software solutions and targeted capacity additions to support our fiber growth initiatives. As a result, we generated free cash flow of $166.9 million in 2019, compared to $193million in 2018. 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 2020 outlook. 2020 will be a year of continued transformation for Belden. Near-term demand trends are challenging, but we are taking appropriate and significant actions to position the Company for meaningful growth and margin expansion. I am very optimistic about our ability to achieve our financial goals and drive superior returns for our shareholders going forward. We anticipate first quarter 2020 revenues to be between $485 million and $505 million, and EPS of $0.70 to $0.85. For the full year 2020, we expect revenues to be between $2.06 billion and $2.14 billion, and EPS of $4.25 to $4.75.For financial modeling purposes, we recommend using interest expense of approximately $56 million and an effective tax rate of 20% for the full year 2020. This guidance does not contemplate any benefit from potential M&A transactions or share repurchases in 2020. However, we will continue to include the contribution of the $250 million in undifferentiated copper cable product lines until we formally exit those products. Please turn to slide 11 for a bridge that walks from our 2019 results to the high end of our 2020 guidance. In 2020, we expect to realize an incremental $44 million in revenue from the acquisitions completed in 2019, including SPC. As I mentioned previously, we did not see the reduction in channel inventory levels in the fourth quarter that we expected, so we are reflecting that expectation in our guidance for 2020. Our planning assumption for the full year is that our channel partners will pursue as much as a 1 turn improvement in inventory turns, which represents a reduction in channel inventory levels of approximately $50 million. After adjusting for these items, we expect organic growth to be approximately 1% at the high end of our guidance range. We are on track to realize at least $20 million in savings under our $40 million SG&A cost reduction program. These savings represent an incremental $0.38 in EPS. In addition, we expect another $0.12 EPS benefit from our productivity initiatives and improved mix. That concludes our prepared remarks. Mary, please open the call to questions.

[Operator Instructions] We will take our first question from Noelle Dilts of Stifel. Please go ahead.

Hi, everyone. And congratulations on a good quarter. So first I was just hoping to get a little bit more detail on how you are thinking about the segment as it relates to 2020 guidance. Could you give us a sense of how you are thinking about organic growth both for enterprise and industrial and also EBITDA margin for the -- by segment for the full year 2020?

Yes. So as we enter 2020, we are expecting that revenue is going to be flat to up 1% on a consolidated basis. We are going into the year expecting that the discrete market will remain weak at least through the first half. We expect that the momentum that we achieved with our broadband business in the second half will continue. And we feel is though the changes we made with our mix in the broadband to more outside the home will also help us substantially going forward. But if you just look at it by the two consolidated segments on a channel adjusted basis, we're expecting that the performance will be about the same. So up roughly anywhere 50 bps to one point on the high end with most of the growth in enterprise I think coming from North America Enterprise and broadband. And then on the industrial side, as Roel mentioned, we've continued to see good performance in the other three verticals and we're just sort of watching very closely whether discrete going to improve. I think, Noelle, that a lot of the other folks that we compete with had pretty tough numbers in discrete in the fourth quarter and they were also pretty cautious about how they guided. And then of course right now with Coronavirus in Asia we're not sure how that might affect discrete demand in Asia. So we're being cautious coming into 2020.

Great. That's helpful. And then just looking at the inventory reductions you're expecting in the one turn improvement in inventory turns are expecting at it within the channel. Does that contemplate the impact that you're expecting from this consolidation with Wesco and Anixter coming together? To what extent does that play into your assumptions for the year?

It does. So we try to incorporate that in as best as we could. We based on what we're hearing it looks as though that that acquisition will be completed sometime probably in the third quarter maybe a little bit before. We've got outstanding relationships with both Wesco and Anixter, so we're communicating closely. They care an awful lot about making certain that their lead times to customers are good. So we're not expecting that there'll be anything rash or significant, but clearly part of the thesis for the acquisition is to try to improve efficiency, rationalize distribution centers and so we would expect that they're going to do all they can to try to improve their inventory turnover. So we're going to work closely with them, but yes the $50 million of contemplated inventory reduction at our channel partners does in fact include any impact from the acquisition of Anixter by Wesco.

We will take our next question from Shawn Harrison of Longbow Research. Please go ahead. Your line is open.

Hi. Good morning. This is Gausia Chowdhury on for Shawn. With regard to that $50 million can you break down how much is the delay channel reduction from the fourth quarter versus the Anixter and Westco combination?

Well. So we don't know exactly. So we had thought that there would be as much as a $20 million reduction in the fourth quarter that didn't occur. And so I think we put roughly $20 million into our Q1 guidance, $50 million on a full year basis. We don't know obviously exactly how it's going to play out partner by partner. By the way we think a one turn change would be probably the most that would happen. We've never seen that much in a given year, but we just think that given the event of Westco and an Anixter and we think the fact that some of our channel partners exited the year with a little bit more inventory than they would typically. We thought it was prudent to include $50 million at a consolidated level. But we don't have it by partner.

Okay. Great. Thank you. And then I just wanted to ask about the nonrenewable bookings I think they were-- there's a modest growth. Can you provide some color there and what that might mean?

Sure. So this is Roel. We're obviously very pleased after Q3 to see a sequentially and dramatic increase. As a matter of fact, non-renewal bookings increase 95% sequentially from Q3 to Q4, up modestly as I described in my prepared remarks year-over-year. The growth was pretty much the same in all areas. Industrial, we are pleased grew' our government segment grew substantially. So it was pretty spread amongst the various verticals that we have within cybersecurity.

Our next question from Matt Delaney of Goldman Sachs. Please go ahead. Your line is open.

Yes. Good morning. And thanks for taking the questions. The first question is on capital allocation. And as I understand the 2020 guidance doesn't assume any M&A or share repurchases, but assuming the company completes the Grass Valley sale as was announced. Can you talk about how you potentially think about allocating those proceeds? Thank you.

Yes. So I think our approach to capital allocation is unchanged. We would expect to continue to be balanced. So we'll prioritize our organic initiatives. We would expect that to be somewhere around $70 million or $80 million a year. We look forward to being active in share repurchase again. We've been out of the market for a little while because of the fact that we've been negotiating the divestiture of Grass Valley that we announced this morning. So assuming that the stock is undervalued we will be buyers and we look forward to continue acquiring bolt-on opportunities both within broadband and fiber as well as industrial automation. But I would expect like the last two years, it's going to be very balanced. We're certainly going to stay within our leverage commitment of 2x to 3x given how late we are in the cycle; it might sort of nudge more towards two than three. So with what we've announced, the divestiture of Grass Valley, the planned divestment of $250 million of undifferentiated cable products; $40 million in cost reduction; three bolt-ons we did last year that we need to integrate. We're going to be focused a lot on getting all that done, creating a lot of value for our shareholders and I would expect that in a year's time we'll talk to you about another year of very balanced capital allocation.

That's helpful. Thanks. And for my follow-up question, I was hoping to better understand the channel inventory situation that materialized last quarter. And I understand the company had expected to see some inventory reductions but that didn't occur. What do you think led to customers holding higher levels of inventory in the fourth quarter? Thanks.

I think it's varied by partner. I think in some cases our partners might have been a little bit too optimistic about how much inventory they were going to reduce in the quarter. We communicated with all of them obviously when we prepared our forecast for the fourth quarter prior to providing guidance to all of you for the fourth quarter. So I think some of them might have just been a little bit too optimistic. Some of them I think decided at the end of the quarter to realize or earn the rebate that they get and so they decided to bring a little more inventory and then maybe they had thought at the start of the quarter. So it's very difficult, obviously, because it's out of our control to be able to know certain --for certain when and how they're going to adjust their inventory levels. We obviously have a really good system for being able to track what those levels are. But we think that throughout the year it could be up to $50 million in 2020. Our ability to predict the quarter is always a little bit challenging. But typically they reduce inventory in the first quarter compared to the fourth. I think in the first quarter of 2019 it went down about $20 million. And so if it went down $20 million in the first quarter of 2020 that would be fairly similar and wouldn't be surprising to any of us.

We will now take our next question from Jonathan Dorsheimer from Canaccord Genuity. Please go ahead. Your line is open.

Hi. Thanks and congratulations on the quarter. I guess I just like to dig into just the-- I guess on the industrial side maybe, but also to the enterprise's, I am a bit newer to the story, if you could help me better understand the exposure in terms of China. It's not direct in terms of but also indirect. In other words if how should we be thinking about the inability for exports out of the Chinese market and that exposure and perhaps on a time frame basis too. And then I have a follow-up.

So from a demand point of view in China, we have some direct exposure although not a lot. I think your question is a good one about indirect. So to the extent that factories in China are not producing that could certainly have an impact on their demand for machinery out of Europe and out of Germany. It could also have an effect on their ability to deploy labor into installations either in factories or buildings. So I know for example in Belden's case, we're not going to have production back up and running again until the 10th of February in a couple of our facilities. It wouldn't surprise me if that's not the same case for a lot of our customers in China. And therefore, we might see some demand push from Q1 to Q2. It's obviously a very dynamic situation. It's volatile. It's difficult I think for any of us to predict. I would say that Belden is probably underexposed compared to most companies that I know. But we're certainly not immune to any sort of global impacts from a situation like this. We're going to pay very close attention to it. We're obviously going to watch our orders and bookings and shipments out of China. We're also going to pay very close attention to the exports out of Germany into China. Those are the things we're going to look at from a supply chain point of view I think we're in pretty good shape. So I'm not overly concerned about it, but on the other hand we're paying close attention to it.

Got it. And then just as a follow-up on the indirect, but as it relates to channel inventory. Have you thought through sort of how competitors with more direct exposure in China may have an impact on channel inventory levels? I would assume, but please correct me if I'm wrong that that might help in terms of the drawdown. And if that's the case, I was wondering if you could maybe provide some metric in terms of how to gauge whether or not you're expecting a greater impact in terms of that drawdown. Thanks.

So most of our channel inventories in the United States and to the extent that we're competing with folks that may be struggling to export their products into the United States that might be a reason why our channel partners would hold a little bit more inventory. We've been tracking inventory levels at our channel partners for a long time. Henk and team have a great system to make certain that we have accurate information. We've got pretty good visibility to what they typically hold and obviously in 2020, we have a special cause which is the consolidation of two our largest channel partners. So we just felt like entering 2020 would be irresponsible for us not to include in our guidance some level of channel inventory reduction. Obviously, we don't know exactly what that number is going to be. One term would be a lot. That's $50 million. I'd be very surprised if it was more than that and I think it's likely you'll be less than that, but we just wanted to make certain we were transparent with everybody about that. And of course, we'll continue to give you information that includes growth adjusted for the channel partners. We pay very close attention to on-time delivery to our channel partner also on-time delivery from our channel partners to our customers. We're going to make certain service levels or where they need to be that's first and foremost. This is really just a consideration in my view for how to set expectations financially for 2020.

We will now take our next question from Paul Chung of JP Morgan. Please go ahead. Your line is open.

Hi. Guys. Thanks for taking my question. So first up just on cash flow, as we kind of think about operating cash flow for fiscal year 2020 and are there any kind of one-time charge, test charges we should expect for the year. I believe you mentioned some cash restructuring charges for the year in the past. So do those kind of still stand? And the seasonality of your cash flow kind of change with the sale of Grass Valley, any impact there and some CapEx levels, what should we expect there?

Yes. This is Henk. At a high end of guidance we expect free cash flow for 2020 at about $180 million that includes the $70 million of CapEx, so $250 million of operating cash flow and that cash flow is inclusive of approximately $40 million of restructuring. So the seasonality as a result of the divestiture of Grass Valley will not substantially change. They will be about the same as we saw it in 2019.

Great. Thanks for that. And then to follow up on share buybacks and the cash cushion you guys have now and with the sale of some assets should we expect kind of fiscal year 2018 type levels of share buybacks or 2019 levels or somewhere in between?

Well, I think that as long as our leverages within our stated range, which it is currently and as long as we're trading at a discount to our peers. And obviously with the divestment of Grass Valley announced today we'll see how that kind of re-rate but if those two conditions are true then I would expect us to be buying back shares up to $50 million a quarter that would be my expectation. I wouldn't expect us to exceed that. I wouldn't expect us to exceed $200 million in a year. But given the things we've announced, given the confidence the management team and the board has in our strategic plan, in our new portfolio. I think it's reasonable to expect we'd be buying the stock in 2020.

Okay. Great. And then last question is as you get more comfortable with the portfolio with all the moving pieces which areas of the portfolio are you more focus to kind of deployed investments? Whether inorganic or organic and does your year-end guide include any contributions from the copper assets or is that excluded? Thank you.

So the guidance that we provided for 2020 includes the product lines that we've announced a process to try to divest. So if and when that happens, we would obviously exclude it from the guidance, but it's included right now in the 2020 guidance. In terms of our priorities in both organic and inorganic, organically we're very focused on our industrial cybersecurity initiative. We're very focused on our industrial automation initiative and also on our broadband 5G. And from an inorganic point of view, as we did in 2019, we continue to get very focused on outside the home within broadband in 5G, fiber assets and then any nice industrial automation bolt-ons. That's where I think you would see the investments based on our focus.

We will now take our next question from Steven Fox of Cross Research. Please go ahead. Your line is open.

Thanks. Good morning. Two questions, if I could please. First on the Grass Valley divestiture. What's a reasonable way to think about the proceed, the total proceeds you expect to receive over time? So we can figure out what the evaluation work out to be. And then what would be the timing of some of the earn out payments? And then as a follow-up, can you just sort of reset us on the mix of enterprise sales now given everything that's going on? How much are broadband versus traditional enterprise and other products and what-- how would that growth breakouts and your modeling for 2020 guidance? Thank you.

Hi, Steven. This is Henk. On the Grass Valley question, there are four components to the Grass Valley proceeds. So there is some $40 million of cash upfront, a seller's note of $213 million and both of those are not tied to any performance. So of these $353 million is not tied to performance. We could earn a pack over five year period. The seller's note is five year period. An interest paid in kind of another $130 million and then it doesn't earn out upon $50 million a year now this in essence tied to performance criteria. So I think the best way to think about valuation, Steve, is at a $140 million to $213 million seller's note. It's about $353 million. It's about one times revenues.

Okay. So just think about the $353 million and then depending on how the business does you may or you may get more proceeds.

And then on your second question, Steve, so the platforms, the enterprise industrial platforms for 2020 are roughly equal. It's about 50% each. Within enterprise, it's roughly 55%, what we would call smart buildings enterprise connectivity in about 45% broadband/5G instead in as it relates to organic growth for those businesses currently we're expecting that the broadband business is going to be roughly 1% to 2%% and the smart buildings is probably going to be somewhere between 0% to 1% as we enter the year. A lot of that's obviously going to be dependent on macro. I know that you had expressed some concerns with regard to the macro environment and a number of the companies that you had covered. And obviously since that note, we've also had to wrestle with this Coronavirus thing. So we're entering 2020, obviously, we had a very strong Q4 from a POS point of view, probably stronger than some people thought we would have. And I think that's because of the secular trends of the business, but we're going to enter 2020 little cautious as it relates to setting expectations and obviously it's our goal to beat these numbers. End of Q&A

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

Okay. Thank you, Mary. 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. Thank you.

Thank you, ladies and gentlemen. This concludes our call for today. You may now disconnect from the call. And thank you for participating.