Ladies and gentlemen, thank you for standing by. Welcome to this morning’s Belden Third Quarter 2022 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Jeremy Parks. Please go ahead, sir.

Thank you, Mary. Good morning, everyone, and thank you for joining us today for Belden’s Third Quarter 2022 Earnings Conference Call. This is Jeremy Parks, Belden’s Chief Financial Officer. With me this morning is Belden’s President and CEO, Roel Vestjens. Roel will provide a strategic overview of our business, and then I 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. For more information, please review today’s press release and our most recent 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 and CEO, Roel Vestjens. Roel?

Thank you, Jeremy, and good morning, everyone. As a reminder, I’ll be referring to adjusted results today. Please turn to Slide 3 for a summary of today’s presentation. We delivered another outstanding quarter with total revenues and EPS that exceeded the high end of our guidance ranges for the 10th straight quarter. Further, we delivered a company record of $1.77 of EPS. I would like to thank our global teams for their strong execution in navigating a complex and challenging environment while supporting the needs of our customers. Revenues in the quarter increased 15% organically and the increase was broad-based across our businesses, demonstrating the continued strength of the secular trends behind our portfolio. We continue to transition from a supplier of trusted products to a value-added partner in the design and implementation of network infrastructure solutions. We are very excited about our progress, which is reflected in our strong financial performance. Our capital allocation strategy continues to be balanced and to drive shareholder value. Accordingly, we have executed on $150 million in share repurchases year-to-date through October. And as we increased EBITDA and generated $110 million of free cash flow, net leverage declined to 1.1x at the end of the third quarter. We are comfortable with that leverage at this level, which is below our target of 1.5x. After another strong quarter, we are increasing our guidance for the year. The revised revenue guidance now represents consolidated organic growth of 15% to 16% compared to our prior expectation of 12% to 13%. Additionally, we increased our EPS guidance by $0.27 at the high end, resulting in full year EPS growth of 32% to 34%. Now please turn to Slide 4, and I will provide highlights of some recent customer wins. I am pleased with the progress our teams have…

Thank you, Roel. Please turn to Slide 6 for a detailed consolidated review. I will start my comments with results for the quarter, followed by a review of our segment results and a discussion of the balance sheet and cash flow performance. As a reminder, I will be referencing adjusted results today. Revenues were $670 million in the quarter, increasing $65 million or 11% from $605 million in the third quarter of 2021. Revenues increased 15% year-over-year on an organic basis. As expected, we began to modestly work down our record backlog during the quarter, a result of solid execution to meet customer delivery requirements, particularly in broadband and 5G. Accordingly, our book-to-bill ratio this quarter was 0.95x. On a year-to-date basis, our book-to-bill ratio remains very healthy at 1.09. While we expect to continue working down the backlog in the fourth quarter, we expect to enter 2023 with nearly 20% more backlog than we had at the start of 2022. Gross profit margins in the quarter were a robust 36.2%, increasing 190 basis points compared to 34.3% in the year ago period and 180 basis points sequentially. Gross profit margins benefited from leverage on higher volume and the impact of price increases enacted earlier in the year. EBITDA was $118 million, increasing $17 million or 17% compared to $101 million in the prior year period. EBITDA margins were 17.6%, increasing 90 basis points compared to 16.7% in the year ago period, driven by the strong gross profit margin performance. Net interest expense declined $6 million from the year ago period, benefiting from the early debt repayment that we completed in the first quarter as well as favorable foreign exchange rates. At current foreign exchange rates, we expect interest expense to be approximately $10 million in the fourth quarter and…

Thank you, Jeremy. Please turn to Slide 10 for our outlook. Once again, we are increasing our revenue and EPS guidance for 2022. The market environment remains very dynamic with considerable challenges and uncertainties. However, we entered the fourth quarter of the year with significant levels of customer backlog, and we continue to gain momentum with our strategic growth initiatives. We expect underlying demand in the fourth quarter to be in line with the third quarter. However, compared to third quarter revenues, fourth quarter revenues are expected to be lower due to a stronger U.S. dollar and Difficult seasonal patterns. Accordingly, we anticipate fourth quarter 2022 revenues of $635 million to $650 million and EPS of $1.60 to $1.70. For the full year, we now expect revenues of $2.53 billion to $2.98 billion compared to prior guidance of $2.52 billion to $2.55 billion. Our revised revenue now represents consolidated organic growth of 15% to 16% with solid growth in both segments compared to our prior expectation of 12% to 13%. We expect full year 2022 EPS to be $6.27 to $6.37 compared to our prior guidance of $5.90 to $6.10. For the full year 2022, our new guidance represents EPS growth of 32% to 34%. Please turn to Slide 11. Now before we conclude, I would like to reiterate our value creation framework. Our commitment is to drive EPS to $8 or more by 2025. Now achieving our new EPS guidance of $6.37 for 2022 will represent solid progress towards reaching our longer-term goal. Belden is well positioned to benefit from the long-term favorable secular trends in industrial automation, broadband and 5G and smart buildings. I’m confident that our teams will continue to drive significant value for our shareholders. Now that concludes our prepared remarks. Mary, please open the call to questions.

[Operator Instructions] We now take our first question from Chris Dankert of Loop Capital.

Hey good morning everyone thanks for taking the question.

Good morning, Chris.

Yes, good morning. I appreciate that you hold the strength in fiber and broadband more holistically. I guess, just wanted to put a fine point on it. We’re just seeing the early days of our DOS investment. We really haven’t seen any dollars flow from the Infrastructure & Jobs Act yet, correct?

Yes, that’s correct.

Okay. Perfect. And I guess to kind of further pull that line, I mean, obviously, fiber is very, very good. But I guess just given the more normalized growth in smart buildings, I guess, what are you seeing in data center? I know there’s some concern out there about the hyperscaler slowing down? Just any thoughts on data center and kind of what those growth prospects look like kind of into the fourth quarter and beyond here?

Yes. So let me answer the question twofold. First of all, we’re not seeing a significant slowdown in our growth verticals at all. So we remain very bullish. Two is, yes, it’s a more normalized growth at 6%. I agree with you. However, the business grew 5% sequentially, and it was up against a very tough comp. So smart buildings grew 32% organically in the third quarter of last year. So still very, very strong.

Yes, absolutely thanks for the color on that.

Yes. Remind you, Chris, we don’t play in hyperscale data centers. So that’s not an area that we deploy resources in.

Perfect. Perfect. And I guess just one last follow-up for me, maybe just any comments on pricing or kind of the impacts of price in raws in the quarter?

As we’ve been able to do all year, we were successful in passing on the price increases that we’ve seen, the labor inflation that we’ve seen. Obviously, input prices have normalized a little bit. They’ve come down a little bit, and we adjust our pricing accordingly. So nothing to report.

Understood. Well, again, congrats on the quarter, really nice results here

Appreciate that.

And we can take our next question from Noelle Dilts of Stifel.

I was hoping you could just give us an update on how things are progressing with your SaaS and DAS initiatives and any progress since last quarter?

Well, it’s first of all, we’re pleased with the progress. Secondly, revenue in that area is still very, very small. We are very encouraged by the Belden Horizon order, which is a huge stepping stone into eventually becoming a network as a service provider. So we’re pleased with the progress. Our sales funnel is extremely healthy, and we are very pleased and therefore, we specifically called it out that we’re now seeing the first orders roll in over SaaS offering.

Great. And then could you just kind of, this is a question, I think, a little bit more for Jeremy. But could you just dig into your margin expectations by segment moving forward, even if you can give us some early thoughts into 2023. I’d be curious to hear how you’re thinking about that split.

Yes. So we’re not going to guide into 2023 at this point, but I can give you a general sense. So what I would say is if you look at the performance year-over-year in 2022, I think our EBITDA margins will improve by roughly a 100 basis points and maybe a little bit better than that in Industrial Automation and a little bit lower than that 100 basis points in Enterprise driven by the fact that variable margins in industrial automation are a little bit higher. Looking forward into 2023, I think it’s highly dependent on our volume. So for instance, if we were to grow consistent with mid-single digits, and I’m not guiding that by any means for 2023, I think it’s very early. But consistent with our Investor Day, you would expect about 60 basis points of margin expansion year-over-year. And I would peg that at roughly maybe 60 or 70 basis points in industrial automation and a little bit less in enterprise. So I think we’ll make good progress in both platforms, but I also think it’s highly contingent on the growth.

Great, that makes sense. Thank you

Yes

[Operator Instructions] We can take our next question now from Ryan [indiscernible] of Goldman Sachs.

And the first one, just on the macro. Could you talk a little bit about how well positioned you think Belden is for a potentially slower macroeconomic environment next year and then which end markets could be a little bit more resilient and which perhaps could be more impacted in that scenario?

Yes, I appreciate the question. So I don’t fear the current environment or the environment that we are have a high likelihood of entering, we are significantly better positioned than we have in the past to deal with higher cost of capital, interest rates that are higher in a slowing economy. And I’ll tell you why. I’ll give you two reasons. The first one is applicable to more than 50% of Belden’s revenue in the Industrial Solutions segment. We’ve worked hard to reposition our solutions to increase the effectiveness of the assets currently on the factory floor. So when we enter an environment where our customers do not build new factories and hence net new networking infrastructure or do not order new machines because they need more capacity, they will utilize their existing assets and they will rely they have to manage their P&Ls as well. So they will rely on companies to increase the effectiveness of the current assets, and that is exactly the road that Belden took. That’s exactly the path of a whole solution selling approach that we entered a few years ago. And hence, we’re confident that, that business will remain strong. On the other side of that was the Enterprise Solutions. We’ve only as we recently highlighted in the call, we’ve only now started to see the Ardofunding and the funds relationship with the infrastructure bill being passed through to our customers. So we remain bullish about that as well. So I think we’re in summary, we are far better positioned and I think we should fare well

That’s very helpful. And then do you still think that the $20, $25, $8 EPS target is achievable in that slower macroeconomic scenario?

Yes, we do... Yes. Yes, we do.

Thank you

And we can now take our next question from Reuben Garner of the Benchmark Company.

Congrats on the strong results and outlook, guys

Thank you, Rueben

So Jeremy, you referenced the backlog entering 2023. I think you said based on your projections today, it will be 20% higher than it was a year ago. I guess, can you just can you talk about can you talk about how that plays out? What does the backlog ever have orders canceled? What kind of visibility does that give you for next year if things were to maybe turn worse than you expect? And then I guess maybe sorry for all the questions in one, but if you could talk about what that looks like relative to maybe pre-2020 times. I think it’s probably substantially higher than "normal" so that’s those are all my questions in one...

Yes. Thanks, Ruben. It’s a good question. So maybe to start with just order of magnitude of the backlog relative to where we were at the end of 2019 in the pre-pandemic times. I think we’ll exit with a backlog that’s roughly 5x where we were back in 2019. So I think it definitely gives us a lot more visibility as we go into 2023 than we’ve had in the past. We have not seen any customers pushing orders out or canceling at this point. I think if anything, we’ve seen the opposite, which is that customers are hungry for product and anxious for us to get it out the door. So I don’t have a significant fear of any order cancellations into next year. I think that I just think we’re in a good spot with significantly more visibility than we’ve had in the past. Although I would say we’re not a backlog business. We’re still a relatively short-cycle business. But I think we’re better positioned than we are going into most years.

Any sense, Jeremy, on how many how much, I guess, visibility that really gives you 5x normal. Is that enough to carry a couple of quarters that maybe you wouldn’t have seen in previous cycles?

Yes, I would say it’s about 1 quarter and half worth of revenue. It’s about 30% of our revenue, 30% and pre-pandemic, we would carry maybe a month worth of revenue in backlog at any time.

[Operator Instructions]

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. Their e-mail address is investor.relations@belden.com.

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