Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated Conference Call. Just as a reminder, today's 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.

Thank you, Jake. Good morning, everyone, and thank you for joining us today for Belden's Second Quarter 2020 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 and CEO, Roel Vestjens; and CFO, Henk Derksen. Roel 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 and CEO, Roel Vestjens. Roel?

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. Before we review our second quarter performance, I would like to update you on the three transformative actions we initiated last year. These include the divestiture of Grass Valley, the upsized $60 million cost reduction program, and the planned exit of approximately $250 million in undifferentiated copper cable product lines. First, on July 2nd, subsequent to the end of the second quarter, we completed the sale of Grass Valley to private equity firm Black Dragon Capital. This is an important milestone for Belden. We were obviously pleased to complete this transaction, and we look forward to supporting the Black Dragon and Grass Valley teams during the transition. Second, our SG&A cost reduction program is on track. We previously upsized the expected annual savings to $60 million, and communicated an expectation of delivering $40 million in 2020 and the full $60 million run rate in 2021. We have made considerable progress, and our teams delivered savings of $8 million in the second quarter, representing $32 million in annualized savings. As a reminder, these are permanent cost reductions that will not return as demand recovers. Finally, we previously delayed the planned exit of $250 million in copper cable product lines due to the global pandemic. We intend to restart this process and engage with potential buyers in the second half of 2020. Please turn now to slide 4 in the presentation. We are extremely excited about the opportunities for Belden as we continue our transformation and align our portfolio of businesses around markets with favorable secular trends. Our key strategic priorities are Industrial Automation, Cybersecurity, Broadband & 5G, and Smart Buildings. We continue to believe that each…

Thank you, Roel. Before I review the second quarter financial performance, I’d like to discuss the details of the Grass Valley transaction. The transaction included cash consideration plus various forms of deferred consideration. The gross cash consideration was $120 million, or approximately $67 million net of cash delivered with the business. Belden also made a short-term investment of $3 million for an equity interest in Grass Valley that we expect to convert into cash within 120 days of closing. The deferred consideration included a $175 million five-year seller’s note, up to $88 million in PIK interest on the seller’s note over its five-year term, and $178 million in potential earn-out. The earn-out payments are based on certain performance thresholds. Both the seller’s note and the PIK interest are due to Belden after five years. As Roel mentioned, we were very pleased to complete this transaction. Based on the terms of the deal, we continue to have a financial interest in the long-term success of the business and we look forward to supporting the Black Dragon and Grass Valley teams during the transition. Please turn to slide 7 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 $424.8 million in the quarter, compared to $548.4 million in the second quarter of 2019. Revenues decreased 21.7% organically from the prior year period, as a $6.9 million favorable impact from acquisitions was offset by an $11.2 million negative impact from currency translation and lower copper prices. After further adjusting for changes in channel inventory, revenues decreased 15.6% organically from the prior-year. Recall that we entered the…

[Operator Instructions] We will hear first from Reuben Garner with The Benchmark Company. Please go ahead.

Thank you. Good morning everybody.

Good morning.

And congrats Roel on the new role. Maybe start there. I know you're not new to Belden but new to the role. Just I guess high level do you foresee any material changes to the strategy or direction of the company now that you've been CEO for a couple of months?

Well, thank you for the question and thank you for the kind words. I've been with the company for 14.5 years now and very honored and privileged to take this role as of May of this year indeed. So, I don't foresee any major changes in strategy at all. I'm very confident that the steps that we've outlined the strategic priorities that I've described will bring us to our financial goals 20% to 22% EBITDA margins. I think our best days are ahead of us. I'm very excited about these secular trends in industrial automation, in cybersecurity specifically, in the industrial space for cybersecurity, and broadband and 5G. And we're seeing temporary weaknesses now but I think we've highlighted the broadband and 5G orders that we received in the second quarter. So, I think we're on the right track. I think I'm very happy with our balance sheet. So, we have ample liquidity where the company is in great shape, very impressed with our processes and ability to execute. So I'm extremely excited about the future.

Great. Good to hear. And maybe on the 5G and broadband order strength, I think last quarter you talked about maybe a disconnect, and I don't know if it was just the second quarter phenomenon, but a disconnect between the order strength you were seeing and what might actually flow through in revenue. Should we anticipate that still to be the case? And what's -- can you remind us what's behind that? And does that mean that you just got a building backlog of business at some point will flow through? Congrats on the quarter and good luck navigating through everything.

Thank you. Appreciate that very much. Yeah we did little backlog. And I think that's the reason of -- there's two causes. The first one is indeed that some of our customer strategy secure capacity tried to secure supply of products. But secondly the -- just the tremendous big secular trend of data consumption in the homes and in residential buildings caused our MSOs and our telco customers to just place orders on us to make sure that we were able to supply them.

We'll now move to our next question. It will come from Noelle Dilts with Stifel.

Hi, thanks. Good morning, and congrats on a good quarter.

Thank you. Good morning, Noelle.

Good morning. So, my first question is kind of tied to what you were just discussing. But, obviously, the broadband business has been very strong. I'm just curious, how you're kind of thinking about the sustainability of strength in broadband and 5G. How do you think about how much of this has been the temporary COVID related boost versus the growth that's reflective of the longer term opportunity in the business? Thanks.

Yeah. I think we highlighted back in December that the long-term growth rate for that segment is mid-single digits. We still believe that to be true. If anything, it would probably be a little bit on the higher end of that versus the lower end of that because of what we described. But that's very much what we expect the business to grow at longer term.

Okay, great. And then just on the nonresidential construction markets and smart buildings. Obviously some of the data coming out recently the ABI for example, the AI I should say the consensus forecast, some of that data has been a bit more negative. Just, kind of, curious how you're thinking about nonres into 2021?

Yeah. Well, obviously, it is within the segments that we don't believe will recover especially from COVID-19. I think we've been open about that in our chart last quarter. I think we're open about that today. We do have verticals within the smart buildings segment that we expect to recover swiftly. I'll give you just one small example. The data center revenue in Belden is not that big, but it grew 12% in Q2. So we also feel very bullish about government and about health care. But indeed commercial real estate will probably take a little bit longer to recover.

Perfect. And then just one quick question. When you talk about modest sequential improvement in results, I guess I'm kind of looking at what do you think of as modest? Is that in the 10% range? And then historically your fourth quarter has been stronger than the third quarter. Are you still expecting that type of seasonality?

Yeah. We're expecting recovery from Q3 to Q4, and modest recovery from Q2 to Q3 Noelle. Obviously seasonality is slightly different this year. We're working through that channel inventory change. We saw $25 million of depletion that will help the sequential from Q2 to Q3 a little bit. But visibility is poor. And we think we're off to an okay start in July -- or July support that modest sequential improvement.

Thank you.

And now we'll move to our next caller and we'll hear from William Stein with SunTrust.

Great. Thanks for taking my question and good morning. Perhaps Henk you could elaborate on backlog for the overall business and your characterization of visibility is -- I'm not sure if you said more cloudy, but certainly you're not providing specific guidance. So we understand the visibility is limited, but hoping you can maybe characterize that. Is it based on just very limited backlog and customers ordering to very short lead times, or is it orders being placed, but being moved around a lot more than typically? How is this playing out in the buyer to seller relationship?

Yeah. So our business model is such that well that we are a book and turn business. So we typically have to book and turn 70% of our revenues during the quarter. So we enter the quarter with a month or a little bit over a month of backlog. So backlog is limited. That's implicit in the business model. Roel already pointed out a couple of positive developments in our broadband business, where we built roughly $20 million of backlog in the first half year. But visibility remains difficult in this environment.

And as a follow-up, I'm hoping you can talk or maybe clarify a bit about the Tripwire business. I thought, I heard you say that non-renewal bookings were up 37% year-over-year but that revenue was down year-over-year. That would suggest perhaps that a significant portion of your customer base is not renewing. Maybe you can set me straight on that.

Yes, this is Roel. So indeed the 37% is correct but may I remind you of the lag that we have between these new – non-renewal bookings before they actually turn into revenue. In addition to that we're booking more and more software-as-a-service orders. So it just takes a little while longer before we actually are able to recognize the revenue. Our renewal rates actually are very high, very decent. They're approximately 85%. So they haven't come down. As a matter of fact they've slightly increased with customers not switching and renewing our – their commitment to Tripwire. So that's the reason for the difference between these great non-renewal booking rates that we've seen and the revenue.

Thank you.

Now moving to Jed Dorsheimer with Canaccord Genuity.

Hi. Thanks for taking my question. I guess just a follow-up. It seems – you seem pretty optimistic in terms of some of the longer-term trends. Henk, I just wanted to ask directly. Is the only thing holding you back from providing targets and guidance the backlog level? And then could you just give me what that was at the same period last year?

It's not necessarily the backlog level at all. It's just that things change very rapidly. It's still murky and we want to make sure as we have been doing but when we provide guidance that we indeed – that you can count on that that you can count on us to deliver. So we extended the period which we said, let's not guide, because of the murkiness and because of the swiftness at which things change. I'm sure it's not aiding to you that specifically here in the United States, it's kind of hard to predict what the economies will do in terms of reopening and not reopening with the virus resurging or being under control. So that's purely the reason. And I'll ask Henk to comment on the backlog situation.

Yes, Jed, this is Henk. We are entering the third quarter with a backlog at the end of the second quarter of $191 million. That compares favorable to last year where we had $170 million in backlog end of Q2 in 2019. Some of that build is a result of very strong bookings in our broadband and 5G business.

Got it. So, sorry your backlog is actually higher. I just want to make sure I heard it correctly. Your backlog is higher today than it was same period last year?

That's right. That's correct.

That's right, it's $20 million higher.

Okay. Thanks. Good luck.

Thanks.

Thank you.

It looks like there's no further questions. I'll turn the call back to your host for closing remarks.

Okay. Thank you, Jake 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 e-mail address is investor.relations@belden.com. Thank you.

And ladies and gentlemen, this concludes our conference. Thank you for your participation and you may now disconnect.