Belden Inc. (BDC) Q2 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden reports Second Quarter 2024 Results 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 Aaron Reddington, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for Belden's second quarter 2024 earnings conference call. With me today are Belden's President and CEO, Ashish Chand; and Senior Vice President and CFO, Jeremy Parks. Ashish will provide a strategic overview of our business, and then Jeremy will provide a detailed review of our financial and operating results, followed by Q&A. We issued our earnings release earlier this morning, and 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 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 contains 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 Ashish Chand.

Thank you, Aaron, and good morning, everyone. We really appreciate you joining us today. Let's turn to Slide 4 for a summary of the major accomplishments we achieved in the second quarter and key messages I would like to highlight. As a reminder, I will be referring to adjusted results today. First, let me start by congratulating our team on another solid quarter in light of this dynamic environment. Inventory destocking continues in our markets, however, our performance was stable. For the second quarter, our revenue and EPS both exceeded the high end of our guidance as our solutions transformation continues to push forward. Revenue totaled $604 million and EPS came in at $1.51. Second, I am pleased to report steady demand for the quarter, similar to what we saw in the prior period. Orders in the second quarter were up 9%sequentially, marking the third consecutive quarter of orders growth. We ended the quarter with a book-to-bill of 1.0 times, up from 0.9 during the same period last year. Our markets continue to experience headwinds and I am encouraged to see steady execution resulting in performance exceeding our expectations. Finally, our business continues to generate meaningful cash flow, and we are deploying capital consistent with our capital allocation priorities. Trailing 12 month free cash flow was strong at $234 million, roughly in line with recent performance. With our ample free cash flow, our team continues to reinvest in high-return opportunities beneficial to shareholders. As we announced previously, we closed the acquisition of Precision Optical Technologies during the quarter, providing new product capabilities to further enhance our solution opportunities in the broadband market. Post transaction completion, our proforma leverage remains reasonable at 2.1 times. With ample free cash flow in the second half of the year, we have the opportunity to bring our leverage down closer to our long-term target net leverage ratio of 1.5 times as the year progresses. Now please turn to Slide 5 for a summary of our Broadband Solutions business after closing the Precision Optical acquisition. Let me take a moment to reiterate why we think the broadband and fiber markets are so attractive. Then, I will highlight some recent initiatives we have taken to strengthen our position in this key vertical. The broadband markets in the U.S. have experienced tremendous growth, with broadband data consumption more than doubling over the past five years. Many secular trends are supporting and driving that growth including: increased reliance on home network for work and entertainment, advancements in technology to increase both access and speeds, and heightened competition between providers to gain customers and market share for broadband services. These trends are expected to continue, further driving data growth and consequently requiring our customers to make significant capital investments. Fortunately for the industry, there are multiple government stimulus programs designed to support the expansion of broadband access. The most meaningful over the next few years is anticipated to be the Broadband Equity, Access, and Deployment or BEAD Program. As time passes and allocations are granted, we are learning more and more about the timing of the massive $42.5 billion BEAD funding initiative. Our best estimates now show the majority of that funding hitting the market between 2025 and 2030, with our business squarely positioned to participate in the development. Further, we see similar dynamics playing out in key markets globally, including in Western Europe. Now to share about the steps we have taken to strengthen our Broadband Solutions business and how we are positioned to capitalize on the massive increase in broadband infrastructure spending just over the horizon. As you recall, we have been on a multi-year path to broaden our fiber portfolio and grow our broadband business. Our focus has been on expanding into high-growth applications in the broadband network through strategic tuck-in acquisitions combined with organic growth initiatives. To date, we have acquired several businesses in the broadband market with our most recent acquisitions of Sichert in 2023 and Precision Optical Technologies in the second quarter. These acquisitions helped us build a valuable portfolio of fiber products focused on the last mile of broadband networks and gain share with major MSOs as a trusted partner for their upgrade and expansion plans. Further, we have invested internally in new products and expanded our capacity, most notably with the Fiber Technology Center opened earlier this year in Tucson, Arizona. The new facility serves as a multifunctional hub where we house R&D, manufacturing, and distribution functions focused on advancing our leadership position and improving our optical fiber capabilities. Today I am happy to report that our Broadband Solutions business has grown considerably and our product portfolio is positioned for high growth. On a proforma basis, our Broadband Solutions business has revenues of approximately $660 million, of which half comes from fiber and fiber-related products. With our acquisitions and solutions framework, our business is much better positioned to win in the marketplace. As customers seek ways to quickly expand and upgrade their networks supported by massive government stimulus, companies like Belden who can rapidly provide comprehensive solutions will gain market share. I will now request Jeremy to provide additional insight into our second quarter financial performance.

Thank you, Ashish. I will start my comments with results for the second quarter, followed by a review of our segments, a discussion of the balance sheet and cash flow, and finally our outlook. As a reminder, I will be referencing adjusted results today. Now, please turn to Slide 6 in our presentation for a review of our results. Second quarter revenue decreased 13% year-over-year and was down 13% organically to $604 million, exceeding the high end of our guidance of $580 million. Orders were up 9% sequentially, with sequential growth in both segments. We ended the quarter with a book-to-bill of 1.0 indicating continued stability. Compared to the prior year, we experienced softness in both Industrial Automation Solutions, with revenue decreasing 13% organically, and Enterprise Solutions, with revenue decreasing 14% organically. Gross profit margins were 38.2%, increasing 10 basis points as favorable mix benefits helped to more than offset lower volume. EBITDA came in at $99 million with EBITDA margins down 130 basis points to 16.5%. Decremental margins for the quarter performed as expected, in line with our target of 20% to 30%. Net income was $62 million down from $82 million in the prior-year period. EPS was $1.51, above the high end of our guidance range of $1.40. Turning now to Slide 7 for a review of our business segment results. For the quarter, performance by segment was aligned with our expectations. Orders grew modestly for the third quarter in a row, in spite of continued slowness in our markets. For the second quarter, revenue in our Industrial Automation Solutions segment was down 12% compared to the prior year. EBITDA margins were 20.3% in the quarter, down from 20.7% in the prior year. Orders in Industrial Automation were up 6% sequentially, and flat compared to the prior year. For the quarter, we experienced weakness in our discrete end markets, particularly in the EMEA region, where customers continue to manage inventory. For the second quarter, revenue in our Enterprise Solutions segment was down 13% compared to the prior year. EBITDA margins were 11.6% in the quarter, down from 14.1% in the prior year. Orders in Enterprise Solutions were down 6% year-over-year but increased 14% sequentially. As we moved into the seasonally stronger second quarter, Broadband Solutions orders grew 18% sequentially, with Smart Buildings up 11%. As expected, we continue to see customers destocking in our markets, however, it’s worth noting the pace of destocking has moderated over the past few quarters. Next please turn to Slide 8 for our balance sheet and cash flow highlights. Our cash and cash equivalents balance at the end of the second quarter was $565 million compared to $597 million in the fourth quarter of 2023. However, please note that the cash consideration for the Precision Optical acquisition was transferred shortly after the quarter closed. On a proforma basis, we ended the quarter with $273 million in cash, net of the payable to sellers of Precision Optical Technologies. Our financial leverage was 1.5 times net debt to EBITDA at the end of the second quarter. On a proforma basis, net of the payable, we ended the quarter with net leverage of 2.1 times. As we communicated previously, we intend to maintain net leverage of approximately 1.5 times over the long term. As a reminder, we generate the majority of our free cash flow in the second half of the year, which gives us the opportunity to continue to reduce leverage and further deploy capital. Year-to-date we have deployed approximately $350 million towards M&A and share repurchases. We currently have $115 million remaining on our current repurchase authorization. As a reminder, our next debt maturity is not until 2027, and all of our debt is fixed with rates averaging 3.5%. Through the second quarter, our trailing 12-month free cash flow came in as expected at $234 million roughly in line with previous periods. Please turn to Slide 9 for our updated outlook. Order patterns remain steady across our markets as customers navigate this dynamic environment. Relative to the second quarter, end demand is expected to increase modestly with revenues up sequentially. For the third quarter, assuming current market conditions do not deteriorate further, we expect revenues in the range of $635 million to $650 million and adjusted EPS in the range of $1.55 to $1.65. That concludes my prepared remarks. I would now like to turn the call back to Ashish.

Thank you, Jeremy. To close, let me reiterate that the second quarter for Belden was once again steady with orders and end demand reflecting stability in our business. As expected, our customers continue to reduce inventory and operate cautiously in this dynamic environment. However, let's pause and reflect on where we stand in this cycle. In the third quarter of last year, we saw a sharp decrease in orders from our customers, with our orders reaching a post-COVID low. Since then we have slowly but steadily experienced marginal sequential increases in orders over the past three quarters, resulting in second quarter orders up nearly 20% from our low last year. Certainly destocking continues in our markets, but it is safe to say that the magnitude has come down. Over the past two quarters, our book-to-bill has been 1 or higher and I am encouraged by the execution of our team. I believe we have gained market share during this uncertainty thanks to our solutions transformation. Looking forward to the third quarter, we see continued stability across our businesses as customers remain watchful. Economic indicators such as inflation are encouraging, and manufacturing PMI figures are improving, however, they are not consistently back into expansion territory yet. As a short cycle business, our forward view is limited beyond the most current quarter, so it's difficult for us to estimate when these trends will dissipate. What I can say is that our business is positioned well for strong outperformance once we are on the other side of destocking and we will continue to execute in a measured fashion, working to advance solutions and gain share. The long-term secular drivers and investment cycles remain intact, and looking forward, we expect to see higher revenue and EPS through the next cycle. Reindustrialization is just beginning and our products and solutions are aligned with many secular growth drivers. We are well-positioned to take advantage of the growth opportunities ahead of us, and our balance sheet is strong to enable our expansion. Our team will continue to execute through this temporary weakness and will look for opportunities to gain share where possible. I would like to take a moment and recognize the contributions of our associates this past quarter and welcome the Precision Optical team to Belden. I appreciate your efforts and would like to thank you for your support as we continue to transform Belden through a challenging environment. That concludes our prepared remarks. Operator, please open the call to questions.

Thank you. [Operator Instructions] And our first question is going to come from William Stein, Truist Securities. Please go ahead, sir.

Great. Thanks for taking my questions. First, I wanted to ask about the Smart Buildings order increase. That was a bit surprising to me, that strength, and perhaps it's just my memory that's fading as to whether that's a normal seasonal dynamic or whether that's -- we should interpret that as a cyclical sort of upturn in demand.

Yeah. Well, good morning, Will. I think we expected Smart Buildings to have a good booking scorer given all the work that's been initiated on our core verticals that, we've talked about non-commercial real estate vertical markets that really are seeing activity as part of infrastructure development that includes healthcare, hospitality, data centers, et cetera. So, we expected bookings to increase sequentially. Yes, this is a little better than our expectations. I think part of it is just that our business is gaining share in that whole area because of improving product mix, more fiber, and more solutions approach as we go and talk to customers. We've seen, for example, more customers in our CICs in Q2, talking about more Smart Buildings type of applications than we've seen previously, right. So if you remember, it's been more industrial in nature, our solutions approach and it's shifting, or it's -- we are adding Smart Buildings applications to that whole approach. So, that's also helped. So yeah, I think it's a mix of all of those things and we feel good that it's going to continue in that same direction.

This sounds more structural than seasonal. Thank you for that. The next, you sort of touched on it already, but I'm hoping you can update us on traction in the CICs. Maybe you can talk about things like your traffic close rates which have been very strong in the past, pricing strategies that you see there working for you, and that would be really helpful. Thank you.

Yeah. So I think we've talked about last year on a full year basis we did about 60 to 65 major validation visits, what we call proofs of concept visits at our CICs across the world. We also brought on stream more capacity because we inaugurated CICs in Bangalore, in India, and in Shanghai. So all of that added up, and we think we can do something like 250 to 300 real high-quality validation visits. We are tracking somewhere in that, about half of that rate right now, right? So in the first full year of capacity, that's where we are tracking. So it is an increase over what we did last year. I think it's fairly significant. Obviously, there is still a little bit of uncertainty, especially in European markets, so we see projects coming in for discussion that are still kind of more long-term. So it does impact close rates as such as we measure for the next 12 months. So I think the pipeline increase is more than the increase in close rates, obviously, that's improving too. And then pricing, I think in general, if you see our gross margins have continued to be, as expected, slightly better in spite of volumes being down, that's essentially driven by solutions, mix. And so I think while, I don't want to call out pricing per se, it's a combination of mix and pricing, but that is obviously working well for us. So overall, I would say that our investments in the CICs have proven to be fairly successful. Our pipeline has expanded a lot. Our close rates are expanding and I think pricing is holding up as expected.

Thank you.

I think the only thing I'll add, Will, is -- and I kind of covered this, but just to reiterate, we are now seeing more CIC visits for our enterprise solutions business, especially on smart buildings, than we've seen previously. So I'm just reiterating what I already said a few minutes ago.

I appreciate that. Thank you, Ashish.

And our next question is going to come from David Williams from Benchmark.

Hey, good morning. Thanks for taking my question. I guess first, and forgive me if I missed part of this discussion earlier, but just wondering how you're thinking about the EBITDA contribution as the top-line expands. And I guess if we think about similar revenue levels, should we anticipate similar margin there, or how much expansion could we expect just kind of given the structural changes that you've had in the business?

Yeah. Hey, David, this is Jeremy. So the framework that we've given in the past has been that as we grow organically, we would expect incremental EBITDA margins of about 30% on the incremental revenue. I think that framework still holds going forward. So I would use that as your guideline for modeling. The way that works out, by the way, is from an EBITDA margin expansion standpoint, if you grow mid-single digits, you get maybe 60 basis points of EBITDA margin improvement, I guess, for every mid-single digit growth in revenue.

All right. Perfect. Thanks for the color there. And then maybe just thinking about your bookings velocity, you talked about that being stable through 2Q, but when you think about the July quarter and what you've seen there, are you seeing customers that are still enthusiastic about their orders or maybe incrementally more positive, are you seeing any caution? We're hearing that there is a bit of caution at least in ordering patterns. I'm just curious if that's what you're seeing as well, or if there's anything, any puts and takes around that bookings? Thank you.

Yeah. Let me start here with maybe a couple of qualitative remarks, and then Jeremy can add to that. So clearly, there is still -- the destocking has not finished, right? There is still some left. I think we've seen like that point of inflection where things have started becoming incrementally better, and when we talk to customers now, there is more confidence about projects that are planned over the next six months to 12 months, there is more discussion about specifics, timelines, etc. So that tells us that at the end user level there is increased confidence, and I think that's especially true in the Americas, right, we are seeing that. I think we continue to see a little bit of that destocking playing out in EMEA, especially in Germany, where it's more OEM machine builder type of markets that focus on exporting that equipment. So there are flavors, but yeah, I think there is still caution. So you're right about that.

Yeah. The only thing I would add, David, is that if you look at the guidance sequentially, keep in mind that we have the acquisition of precision in our third quarter guidance. So the real underlying growth in order rates, I would say, is pretty modest, and it's more reflective of continued moderation in destocking versus growth in the underlying economy.

Thanks so much for the help. Appreciate it. Best of luck on the quarter.

Our next question comes from Rob Jamieson from Vertical Research Partners. Please go ahead.

Hey. Good morning, Ashish and Jeremy. Congrats on the quarter.

Thank you.

Thanks a lot and welcome back.

Yeah. Thank you. Good to be back. Hey, just wanted to go back to Bill's question, just on gross margin and the solutions progress there. I know longer term, you guys are targeting to get to 20% sales over time, and this is something you're hyper-focused on internally. So just curious, like how this positions as the macro environment kind of starts to maybe improve over the next 12 months to 18 months. I mean, it puts you in a really good position. It sounds like still on track for that, and any update kind of where you are on that path would be great.

Yeah. No, absolutely. So I think, Rob, in the medium term, we feel really good about all the drivers that impact our businesses. I think at a very general level, first, anything that is impacted by legacy networks or data complexity, or shortage of skilled labor or expensive capital is a good place for us to go and talk about our solutions, right, and that's, as you can imagine, is happening pretty much across the board in the vertical markets where we focus. So whether that's in healthcare, or whether that's in material handling or warehouse management, et cetera, it's all -- the dynamics are similar, right? So -- and then, if you add to that the acceleration caused by the reindustrialization, especially in the American context, I think that's certainly very helpful for our business. So the way I think about this is that we've spent a lot of time over the last three, four years building out that capability, especially in our more industrial-focused markets. Over the last 12 months, we've brought that approach also to our enterprise markets. Now, the last 12 months were a little quiet in terms of growth. As Jeremy pointed out, right, it is more about going through the destocking cycle and now moderation in that. So as rail growth starts coming forth, especially in enterprise markets, we'll see that solutions revenue increase. We've articulated a 25% approximate revenue of -- share of revenue by 2028, it’s about over five years and since we started talking about it more publicly. I think we're well on track there. We were approximately 10% of revenues as we entered this year. We think we're going to be in that low-to-mid-teens as we finish this year. And then you can see the impact on gross margins. In spite of being -- volumes being down substantially as part of destocking, gross margins have continued to improve. A little more modest in the last couple of quarters, but have continued to improve because of that solutions mix. So it's very exciting. I think the idea of taking it to what we used to think of as enterprise markets is actually gaining a lot of momentum within our company and our customer base right now. So, it's all positive, and I think you characterized it well, that as the demand environment shifts, we will be better positioned.

That's very helpful. And then I guess just to stick with enterprise solutions, I know this was announced last quarter, but just want to rewind and kind of dig into Precision Optical just for a moment here. Obviously, nice increase to the fiber exposure to the portfolio, but how does this change your interaction with your customers, your ability to participate in the BEAD program? I mean, is it -- does it enable kind of a deeper customer relationship, earlier kind of conversations on maybe architecture versus just purely servicing what your providers need? And then I guess, lastly, is there an opportunity for a potential pull-through of like the core enterprise portfolio? Sorry, there's a lot in there, but any color there would be great.

Yeah. No, I think that is the -- that was the strategic thesis, right? So if you really look at Precision Optical Technologies, they've spent a lot of time building this position as a value-added supplier of optical transceivers with a lot of proprietary software and configuration capability, right, I think that's unique. In many ways, that's a little bit similar to how, for example, you can think of our active products on the industrial side. So you have this one capability that's extremely differentiated, very sticky. And then, as a result, every time, for example, a big MSO customer has to do new infrastructure deployment or upgrades or any changes, it always starts at that end of their, let's say, data center, where Precision is plugged in and all the discussions then come down to architectural design, so that they work through linked loss budgets and go from end to end, and then -- so Precision was covering both ends. Our Broadband business, pre-Precision, was covering that middle ground. And now we're in a position where we connect all of that end-to-end, right? So we now participate -- or we can participate in more systems architectural discussions. So how is that going? It's still early days, obviously, Rob. We've disclosed, but the initial discussions with -- between the two teams and with our customers have been very encouraging. We've already found a number of pull-through opportunities. We are bringing the teams together faster than we have done historically in terms of integration. So we are combining go-to-market more rapidly than we might have done in the past. And all our customers, in fact, as I may have mentioned on a previous call, part of that acquisition process was getting endorsement from some key customers. And so they've really supported us during the process and they continue to support us as we roll this out. So, yes, I think in many ways, Precision Optical's acquisition will allow our Broadband business to enter solutions in a way that would have been difficult organically because they didn't have that kind of architecture in road into that discussion. So that is indeed the big change for us.

That's really helpful context. Thanks very much and congrats again.

Thank you.

And our next question is going to come from Mark Delaney from Goldman Sachs. Please go ahead.

Yes. Good morning. Thanks very much for taking the questions. First, I was hoping to better understand how the company thinks it's tracking toward the $8 earnings target in 2025, and if that's still on track, in your opinion. And maybe also help us better understand with Precision Optical having closed, what does that mean for 2025 earnings and does that change the outlook at all for next year?

Yeah. Hey, Mark. Let me take that question. This is Jeremy. So I would say, we've been talking about our progress the last few quarters and our perspective has been that we're on -- we're on track. That's still the target and one that we think we can hit. Nothing's changed over the past 90 days that would make us think that's not the case. Obviously, it's contingent on getting through this destocking, because we believe that once we get through the destocking, there's quite a bit of upside in both revenue and EPS.

With respect to Precision Technologies, we gave a framework for that acquisition last quarter. So if you're going to model it for 2025, you can assume $150 million of revenue plus, call it, mid-to-high-single-digit organic growth, and then EBITDA margins that are consistent with total company building. So call it high-teens EBITDA margins.

Thanks for that. My other question is just on capital allocation from here. Now that you've deployed some capital for Precision Optical, hoping to better understand how you think about the balance of the different uses of cash. You mentioned your leverage ratio is in a pretty good spot. So imagine you have some flexibility to do M&A if it comes up, but maybe help us better understand how you're seeing the pipeline going forward. Thanks.

Yeah. I think we have plenty of options. So in the past, we've been pretty balanced in how we've deployed capital, and I think we'll continue to do that. So from an M&A perspective, we've got a good funnel, and I think there are opportunities to do additional M&A, obviously, over the next 18 months or so, but I also think share repurchases are a good option for us at this point. So I think everything's on the table and no major changes.

Thank you.

[Operator Instructions] And our next question is going to come from Chris Dankert, Loop Capital.

Hey, good morning. Thanks for taking the question. I guess to dig back in on solutions a little bit but focus on industrial here. We've seen a pretty aggressive shift towards wireless architecture and industrial ethernet from kind of a legacy field bus (ph) approach I guess. From a technology perspective, are you guys completely agnostic to kind of what type of architecture customers are using? And is that transition kind of the biggest driver of some of these solution sales within industrial?

Yeah. So the way to think about, Chris, is that at a very basic level, our job is to connect multiple sources and multiple destinations of data, and how the data is routed between those two points changes a little bit based on what that data is and how it's acquired. It could be both over the air and over the wire, so obviously the wireless aspect is extremely important. In certain use cases, people do not prefer wireless because there could be some risks that come with that, and in certain use cases, it's really important. So for example, in warehouse management today, we're deploying a lot more wireless as they engage with more AGVs and robots. But in Precision manufacturing, it's still not that relevant at this point. But -- so just think about multiple sources and destinations of data, and our goal is to remain agnostic to what the sources and destinations are, but obviously, impact the technology that's used for the actual data architecture, right, from one end to the other. One of the things we do now is, through Belden Horizon, which is our big data integration platform, we bring in data that speaks different languages like you pointed out, right, it's all -- there are multiple protocols in the field, and it's all unified, it's scrubbed, normalized, and then it's served up to different applications that customers have chosen. So part of what we do indeed is that standardization. There are a few different protocols that are used for that purpose. It's not just Ethernet, but Ethernet is certainly the most relevant. And then, we obviously have to deploy more and more resources towards emerging wireless, security, make sure that there is more compute at the edge, and in a number of cases, customers don't want to move all their data to the cloud straight away because they need to make decisions real time at the edge. So we are building in more edge compute. So it's a little different by different aspects of which industrial market we serve, but at the end we remain agnostic to the source and the destination, and we remain very focused on streamlining and securing everything that happens in the middle. And I think that's been our differentiator, especially because we bring hardware and software together versus previously where customers had to deal with separate hardware, separate software vendors, somehow pull that all together on their own or with an SI, and it wasn't as simple, it was actually quite difficult.

That's great color. Thank you, Ashish. I guess, this is my follow-up. On destocking -- and forgive me if I missed it, but is there a difference in the destock cycle from a distributor perspective in industrial, and from a utility perspective in broadband right now? And maybe just -- can you highlight where you see destocking in both pieces of the business today?

Yeah. I think in the Broadband sector, it's a little more just the procurement policies of the large operators. They were buying a lot more and they changed, so it's -- there are fewer kind of big players, it's more visible. They communicate with us more directly and we can understand what's going on at their end. And by the way, on that note, their usage has generally been as expected. So we know that it's clearly a destocking phenomenon, right, that's the -- that's what we're dealing with. On the industrial side, however, it's much more fragmented and less direct. We don't actually go and talk to all the end users directly. Some of them are really small. Some of them have really just maintenance kind of projects. We obviously talk to end users directly when they have large solutions-type engagements with us, but there we don't necessarily talk about their inventories, right? It's more about the design of the solution. So there it's a lot more fragmented. There are also differences by region. For example, in Europe, the OEMs are going through a slightly different destocking cycle versus, let's say, contractors in the US. So here we have to obviously be guided a lot by our direct channel partners and what they do, and our visibility is limited versus in the broadband space. I don't think fundamentally there is a big difference in the driver. I think across both sectors or both segments, customers bought more than they needed because they were worried about supply chain brittleness, and now it's unwinding. I think it's actually unwinding at similar rates at an aggregate level.

Got it. Thank you so much and best of luck in the third quarter here.

Yeah. Thanks a lot.

And that concludes today's question-and-answer session. At this time, I'd like to turn the call back over to Aaron Reddington for additional or closing remarks.

Thank you, everyone, for joining today's call. I'm pleased to announce that we will be hosting an Investor Day this coming September 12 from our Customer Innovation Center in Chicago. The event will stream live, so be on the lookout for additional information as we get closer. If you have any questions, please contact the IR team here at Belden. Our email address is investor.relations@belden.com. Thank you very much.

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