Belden Inc

NYSE:BDC

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Inc. conference call. Just a reminder this call is being recorded. [Operator Instructions]

I would now like to turn the call over to Jeremy Parks. Please go ahead, sir.

[Jeremy Parks, CFO]

Thank you, Bettina. Good morning, everyone, and thank you for joining us today for Belden's second 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?

[Roel Vestjens, President and CEO]

Thank you, Jeremy, and good morning, everyone. As a reminder, I'll be referring to adjusted results today.

Now please turn to Slide 3 for a summary of today's presentation. Before we begin the discussion of our second quarter results, I would like to revisit some of the key themes from the Investor Day event that we hosted at the New York Stock Exchange on June 15th. As we highlighted during Investor Day, Belden is a transformed company.

Our portfolio of businesses and our financial performance are significantly improved. We delivered mid-single digit revenue growth and double-digit EBITDA and EPS growth over the last three years, a period that included a pandemic-driven recession, extreme inflationary pressures, and lasting supply chain disruptions.

As I discussed, the pandemic and ensuing aftermath accelerated virtually all of the longer-term secular trends in our markets. Labor shortages, inflation, and supply chain bottlenecks are driving the need for more automation and reshoring. Remote work and changing workspaces are driving the need for additional bandwidth and for buildings to become "smarter."

We are executing a number of specific initiatives to ensure that Belden benefits from each of these important secular trends. To that end, we have enhanced our commercial processes and are now providing complete end-to-end solutions, focused on customer business outcomes, rather than individual products. We have dramatically revitalized our product portfolio with new integrated hardware and software solutions.

And our recent acquisitions have provided innovative new capabilities to further augment our product roadmap. We did all of this to better serve our customers and fulfill a much broader corporate purpose, to build the foundation for a digital world. We expect this to result in robust and sustainable organic growth and margin expansion, driving EPS to $8 or more by 2025. As we execute our plans, we would expect this to translate into very compelling returns for our shareholders.

Turning to the financial results, I am very pleased we delivered another strong quarter, our 9th straight quarter exceeding expectations. Our capital allocation strategy continues to be balanced and to drive shareholder value. Accordingly, we executed another $50 million in share repurchases through July, bringing the year-to-date total to $100 million.

After a strong first half of 2022, we are increasing our guidance for the year. The revised revenue guidance now represents consolidated organic growth of 12% to 13%, compared to our prior expectation of 7% to 9%. Additionally, we increased our EPS guidance by $0.25 at the high end, resulting in full year EPS growth of 24% to 28%.

Now please turn to Slide 4 in our presentation for a review of the second quarter highlights. We delivered meaningful growth and margin expansion again this quarter. Second quarter revenues increased 16% year over year to $667 million, exceeding our guidance range of $625 million to $640 million. I am pleased with the revenue performance, which was up 18% organically year over year.

Our strong performance was broad based across both the Industrial Automation Solutions and Enterprise Solutions segments. Orders were healthy, and we built backlog again in both segments.

We had another great quarter in industrial. Industrial Automation revenues increased 20% organically in the second quarter. Market conditions remain healthy, and we continue to see compelling longer-term demand drivers for automation solutions as industrial customers respond to labor shortages, capacity requirements, and reshoring of production. Enterprise Solutions revenues increased 15% year-over-year on an organic basis in the second quarter, driven by strong end markets and share capture.

Within the segment, revenues in Smart Buildings increased 14% organically. I continue to be pleased with the strong execution by our teams, as we benefit from our commercial focus on growth verticals, such as data centers, government, and healthcare facilities. Revenues in Broadband and 5G increased 16% organically, driven by strong demand for our fiber connectivity products.

We see long-term secular trends in this market, driven by the ever-increasing demand for high-speed broadband and the resulting investments required to upgrade networks. We continue to invest in our business to drive growth and support our strategic plans. Now one great example is the recent grand opening of our new manufacturing and R&D facility in Kochi, India, which serves as a key hub for global product development in Broadband & 5G. In addition to expanding our fiber manufacturing capacity, the facility also features an R&D testing laboratory for cutting-edge fiber technologies that has been certified to meet the most strict quality standards of our key customers. This new facility exemplifies our continued commitment to growth.

EBITDA in the second quarter increased 19% year over year to $111 million. EBITDA margins expanded 50 basis points, from 16.1% in the year-ago period to 16.6%. EPS increased 31% year over year to $1.60, compared to $1.22 in the year-ago period and our guidance range of $1.35 to $1.45. Additionally, we ended the quarter well-positioned with net leverage of 1.4x, now below our target of 1.5x.

In summary, this was another excellent quarter for Belden, and I am very proud of the achievements of our teams. We continue to transition Belden from a supplier of trusted products to a value-added partner in the design and implementation of networking infrastructure solutions. We are making great progress, which is reflected in our strong financial performance.

I will now ask Jeremy to provide additional insight into our second quarter financial performance. Jeremy?

[Jeremy Parks, CFO]

Thank you, Roel.

Please turn to Slide 5 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 $667 million in the quarter, increasing $90 million, or 16%, from $577 million in the second quarter of 2021. Revenues increased 18% year over year on an organic basis.

Incoming order rates remained healthy and were over $700 million for the third quarter in a row. Our book to bill ratio was 1.06x, including 1.04 in Enterprise and 1.08 in Industrial Automation. Gross profit margins in the quarter were 34.4%, increasing 60 basis points compared to 33.8% in the year-ago period. We continue to proactively address inflationary pressures through price recovery and productivity measures to support gross profit margins.

EBITDA was $111 million, increasing $18 million, or 19%, compared to $93 million in the prior-year period. EBITDA margins were 16.6%, increasing 50 basis points compared to 16.1% in the year-ago period, demonstrating solid operating leverage on higher volumes. Net interest expense declined $4 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 $48 million in 2022, compared to $63 million in 2021. Our effective tax rate was 19% in the second quarter. We expect an effective tax rate of approximately 20% for the second half of 2022, resulting in a full year effective tax rate of approximately 19.6%.

Net income in the quarter was $72 million, compared to $55 million in the prior-year period. And earnings per share was $1.60, increasing 31% compared to $1.22 in the second quarter 2021. We were very pleased to deliver such robust growth and margin expansion again this quarter.

Turning now to Slide 6 in the presentation for a review of our business segment results. I will begin with our Industrial Automation Solutions segment. As a reminder, our Industrial Solutions allow customers to transmit and secure audio, video, and data in harsh industrial environments. Our key markets include discrete manufacturing, process facilities, energy, and mass transit.

The Industrial Automation Solutions segment generated revenues of $359 million in the quarter, increasing 16% from $309 million in the second quarter of 2021. Segment revenues increased 20% on an organic basis, with double-digit growth in each of our primary market verticals. Industrial Automation segment EBITDA margins were 19% in the quarter, increasing 110 basis points compared to 17.9% in the year-ago period, due to solid operating leverage on volume growth and favorable pricing.

urning now to our Enterprise segment. 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. The Enterprise Solutions segment generated revenues of $307 million during the quarter, increasing 15% from $268 million in the second quarter of 2021.

Segment revenues increased 15% organically, with similar growth in both Smart Buildings and Broadband and 5G. Revenues in the Smart Buildings market increased 14% year-over-year on an organic basis. Our continued focus on growth verticals, including data centers, healthcare, and government, contributed to the strong revenue performance.

Revenues in Broadband and 5G increased 16% year-over-year on an organic basis due to solid share capture and especially strong demand for our fiber connectivity products. In the quarter, revenues for our fiber products represented approximately 45% of the Broadband & 5G business. For the full year, we expect fiber products to represent approximately 35% of Broadband & 5G, up from approximately 15% only three years ago.

Enterprise Solutions segment EBITDA margins were 13.6% in the quarter, compared to 13.5% in the prior year period and 11.5% in the first quarter. As expected, sequential EBITDA margins improved significantly, after facing temporary cost pressures in the first quarter.

If you will please turn to Slide 7 for our balance sheet highlights. Our cash and cash equivalents balance at the end of the second quarter was $528 million compared to $560 million in the first quarter and $421 million in the second quarter 2021. Days sales outstanding of 59 days were in line with 58 days in the prior-year period and 57 days in the prior quarter. Inventory turns were 4.5, compared to 4.1 in the prior quarter and five in the prior-year period.

I am pleased with the sequential improvement in inventory turns, after we strategically increased inventory levels during the first quarter to support the robust growth expected throughout 2022. Our financial leverage of 1.4x, net debt-to-EBITDA is now below our target level of 1.5x. This compares to 1.6x in the first quarter and 3.5x a year ago. As we communicated in our recent Investor Day, we intend to maintain net leverage of approximately 1.5x going forward.

During the second quarter and through fiscal July, we repurchased approximately 920,000 shares for $50 million for an average price of $54.34. This brings our total year-to-date share repurchases to $100 million. Following these repurchases, we have $115 million remaining on our existing authorization.

Going forward, we intend to maintain a disciplined financial policy. Our capital allocation priorities will be balanced, emphasizing organic growth initiatives while also considering strategic M&A and additional share repurchases.

Please turn to Slide 8 for a few cash flow highlights. Total cash flow from operations in the second quarter was $49 million compared to $68 million in the prior-year period. Net capital expenditures were $19 million for the quarter, up slightly from $16 million in the prior-year period.

Free cash flow in the quarter was $31 million, compared to $52 million in the prior-year period. Free cash flow was impacted by investments in working capital. Accounts receivable increased by $50 million compared to first quarter levels, due to the strong growth in revenues sequentially.

We expect working capital levels in the second half of the year to improve, following typical seasonal patterns. As such, for the full year 2022, we continue to expect free cash flow to exceed $200 million.

That concludes my prepared remarks. I would now like to turn the call back to our President and CEO, Roel Vestjens, for the outlook. Roel?

[Roel Vestjens, President and CEO]

Thank you, Jeremy.

Please turn to Slide 9 for our outlook. We are increasing our revenue and EPS guidance for 2022. While the market environment is very dynamic with considerable challenges and uncertainties, we enter the second half of the year with record backlog and stable end markets.

We expect underlying volume in the third and fourth quarters to be essentially in line with the second quarter. However, compared to second quarter revenues, third quarter revenues are expected to be lower by approximately $25 million due to a stronger U.S. dollar and lower copper pass-through pricing, with minimal impact to EPS. Accordingly, we anticipate third quarter 2022 revenues of $625 million to $640 million, and EPS of $1.50 to $1.60.

For the full year, we now expect revenues of $2.52 billion to $2.55 billion, compared to prior guidance of $2.48 billion to $2.53 billion. Our revised guidance now represents consolidated organic growth of 12% to 13%, with solid growth in both segments, compared to our prior expectation of 7% to 9%. We expect full year 2022 EPS to be $5.90 to $6.10, compared to our prior guidance of $5.55 to $5.85. For the full year 2022, our new guidance represents EPS growth of 24% to 28%.

Please turn to Slide 10. Before we conclude, I would like to reiterate our value creation framework. The commitment is to drive EPS to $8 or more by 2025. The $8 of EPS is built on a financial framework consisting of revenue growth greater than GDP over the cycle, healthy incremental EBITDA margins, significant free cash flow generation, and a disciplined capital allocation strategy targeting net leverage at 1.5x.

In summary, we delivered another exceptional quarter. Our strategic growth initiatives continue to gain traction, and I am encouraged by the execution of our teams across the Company.

Belden is well positioned to benefit from the favorable secular trends in industrial automation, broadband & 5G, and smart buildings. I am confident that our teams will continue to deliver robust organic growth and margin expansion, driving significant value for our shareholders.

That concludes our prepared remarks, Bettina please open the call to questions.

[Operator]

[Operator Instructions] Our first question today comes from Chris Dankert of Loop Capital.

[ChrisDankert]

Hi, good morning, guys. Thanks for taking the questions. I guess kind of starting off your impressive sales growth, when I'm looking at the key drivers behind that growth, can you break down at all what market growth versus internal share gain initiatives and kind of what drove some of better-than-expected growth in the quarter here?

[Roel Vestjens, President and CEO]

Yes. I appreciate the question. So first of all, I want to reiterate that the growth was broad-based. So, in all platforms and within the Enterprise Solutions platform in both businesses. From a geographical perspective, the growth was also very broad-based. We had growth - significant growth in all three regions as we define them. So the Americas, Europe, Middle East and Africa and even in Asia Pacific. Asia Pacific, we had close to 10% organic growth.

So if I then look at try to see, digest what is market and what a share capture, then I think it's pretty clear that we are taking share. If I compare the numbers or growth numbers compared to some of the numbers that have been issued by some of the other competitors and people in the market space, then I think it's fair to say that we're growing faster. So I do believe that our strategic growth initiatives are indeed gaining traction and that we're gaining share in the market.

[ChrisDankert]

And then just to dig in a bit, pretty clear secular drivers behind the industrial business and the broadband business you highlighted at the Analyst Day. Thank you again for that. As I think about smart buildings going forward here, was the book-to-bill in that specific business above 1? And kind of what's your outlook for smart buildings as we kind of move into the back half of the year here?

[Roel Vestjens, President and CEO]

Yes, it was. I think it was 1.04 --

[Jeremy Parks, CFO]

Yes, it was 1.04 in smart buildings.

[Roel Vestjens, President and CEO]

Yes.

[Jeremy Parks, CFO]

So it was still above 1. And the expectation in the second half of the year is that growth in smart buildings will be roughly mid-single digits.

[Roel Vestjens, President and CEO]

Yes. So what we're doing there for the last years, we've been reallocating resources from commercial real estate to other high-growth verticals. And we've been reporting those numbers sometimes explicitly sometimes when asked. But for example, in Q2, the growth verticals that we are investing in are data centers, government and health care, just as a reminder.

And those three combined grew 26.5% in Q2. So those are the verticals within smart buildings that we're investing in. And the secular trends there are pretty much the same. So more automation, more need for bandwidth with hospitals and data centers getting smarter and smarter, more use of data by doctors, et cetera, et cetera. So we continue to gain traction in those segments.

[Operator]

Our next question comes from Mark Delaney of Goldman Sachs. Please go ahead.

[Mark Delaney, Goldman Sachs]

Yes. Good morning. And thank you very much for taking the question. And congratulations on the good results. I think first, to better contextualize guidance for next quarter, if I add back the FX and copper pass-through impact, I think on a more constant currency basis, revenue is down just a little bit sequentially, which I think is pretty consistent with more normal seasonality, but hoping you could elaborate a little bit more on what you're seeing in terms of markets that are maybe getting better or weaker as you go into the third quarter?

[Jeremy Parks, CFO]

Yes. So Mark, just to put it into context, the copper and FX impact in third quarter is in total about $35 million. So when you look at it sequentially, I think we're guiding a high end that's pretty consistent with what we just did in the second quarter. Now we had a little bit of FX and copper impact in Q2. So it's $25 million. There's a $25 million sequential impact relative to prior guidance, it's about a $35 million impact.

[Mark Delaney, Goldman Sachs]

I guess in terms of an end market getting better or weaker sort of feeding into that?

[Jeremy Parks, CFO]

Yes. I think the guidance assumes roughly flat growth sequentially volume-wise in all three businesses. There are no significant changes in the trajectory of shipments in any of the three end markets.

[Mark Delaney, Goldman Sachs]

And my second question was just on the broader demand environment. And Roel, you mentioned in both the press release as well as your comments that highly uncertain times, bookings obviously still very strong. I think 1.06 book-to-bill implies to north of $700 million in bookings. But I think perhaps bookings did tick down slightly quarter-on-quarter. So I'm curious, do you think you're seeing any signs of macroeconomic weakness in those 2Q booking numbers? Or is that more just noise and you're just trying to say it's uncertain, but you're not seeing it in the business?

[Roel Vestjens, President and CEO]

Yes. I appreciate it, Mark. Not yet. No, we're not seeing it. I mean at some point, the year-over-year comparisons because we have been booking so strongly, don't make a lot of sense anymore, although in Q2, that $700-plus million that we booked was still growth compared to Q2 a year ago. We highlighted the fact that these are - three quarters in a row, our bookings have been more than $700 million.

So if I take - I don't even - if I take a magnifying glass, I don't find anything. Maybe if I take a microscope, I see a slight sequential delays from one quarter to another from one business to the other, but it's milliscule. Orders were very, very strong in Q2. Revenue exceeded expectations and our orders even exceeded that. So no, we still feel good, Mark.

[Operator]

Our next question comes from Steven Fox of Fox Advisors. Please go ahead.

[Steven Fox, Fox Advisors]

Thanks. Good morning. First question, I was curious on the revenues, if we could zoom out versus where you started the year. As you mentioned, you started the year thinking you'd grow 7% to 9%. Now you're talking 12% to 13% organically, 7 months later. What would be the biggest drivers of the difference in your thinking now versus then? And then I have a follow-up.

[Roel Vestjens, President and CEO]

Yes, I think the markets will continue to hang in there stronger. Like I said and reiterate, we feel good about our share capture programs. We feel good about our strategic growth initiatives. But I think the main difference in all honesty that our markets are hanging in there. I think after we've clean up the portfolio. And after we significantly stepped up our R&D investments and increased our innovation rate, we're able to benefit from the secular trends within those markets better. We feel better positioned. And I think that's by far the biggest driver.

So within smart buildings, it's the emphasis on the growth verticals that I highlighted within broadband and 5G, it's the continued effort of our fiber investments and our outside of the home investments. And with Industrial Automation, it's just broad-based. If I look at the verticals that we serve within that segment, they're all growing significantly faster than we had previously anticipated.

[Steven Fox, Fox Advisors]

And then as a follow-up question, can we talk in a little bit more detail about broadband and 5G, looking at some of the earnings to date, there's a combination of unmet demand because of capacity issues expansion going on, like you mentioned with your India plant. And then there's a range of sort of ramps, whether it's rural broadband versus 5G, et cetera. Can you just sort of part and parcel how you're seeing the world today and where you're maybe benefiting the most from all of that?

[Roel Vestjens, President and CEO]

Our growth - we thank you appreciate that. So let me answer the question on a few different vectors, a few different dynamics. So our growth is broad-based across the world, but very strong in the United States. As you would expect, because the RDOF funds are now being deployed, we're seeing those. So we feel very good about our position there. So that's one.

Two is our outside of the home grew even faster than we had anticipated. Now inside the home declined a little bit more than anticipated. Overall, growth was higher. So we see investments that the MSOs and also more and more the telcos are making pay off, and they come to Belden to broadband and 5G to help them with that infrastructure build.

And then our fiber continues to grow and the mix continues to grow. So I'll just throw out one number. I think we mentioned on the call. For the year, we expect 36% of our revenues now to become fiber, and that was like 27% in 2021 and only 16% in 2019. So a lot of the drivers are secular, if you will, so either inside, outside or copper versus fiber, broad-based, but very strong in the United States.

[Steven Fox, Fox Advisors]

And one piece of the puzzle just to close that out. Can you just talk about your capacity expansion in India and how that sort of fits into the mix of everything else that you just talked about?

[Roel Vestjens, President and CEO]

Yes, of course. Yes, I appreciate the question. So we feel bullish about India. We feel bullish there is significant expansion, a lot of need for broadband, whether it's directly through 5G or whether it's through what we in America call the typical MSOs. So we've been eyeing that part of the country. There's a lot of talent, fiber talent in Kochi. So we combined two thoughts and build one significant facility, so manufacturing expansion to serve the local market and potentially the rest of Asia as well as R&D facilities, so testing facilities, specifically tailored for fiber.

So it's not so much as that we try to alleviate current bottlenecks so that we cannot keep up in the other factories because our lead times are stable and actually coming down, but it's more for future capacity expansion as we are very bullish on the Indian market.

[Operator]

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

[Noelle Dilts, Stifel]

Hi, guys. Thanks for taking my questions. I was hoping you could just comment a bit on how you're thinking about margin expectations by segment for 2022?

[Jeremy Parks, CFO]

Yes. Yes, sure. So if you look at the consolidated company, right now, the guidance would imply roughly 100 basis points of margin expansion. And I would view both segments as improving close to that number on a year-over-year basis, I would say both will be in the range of kind of 80 to 110 basis points. So I think there's good opportunities and good leverage that we're going to get in both businesses because of the growth.

[Noelle Dilts, Stifel]

Okay. And then at the Investor Day, you kind of laid out this multiyear mid-single-digit growth guidance. Any thoughts on, as you look at the current macro environment, any thoughts on how that sort of looks over 2023 and over '24 and '25. I guess my question is really, would you expect '23 to be a little bit lower just directionally given the current macro environment?

[Roel Vestjens, President and CEO]

Yes. I understand and I appreciate the question, Noelle. But obviously, it's a little bit tough, right? I mean if I follow the economic news in the morning then I'm positive in the afternoon, I'm negative. So it's still highly uncertain out there. So we're taking a very prudent approach. We are investing, but we're investing in a very thoughtful manner and only in areas where we believe the secular trends will keep hold. And even if or when there is a recession that we are responsible in terms of our investments and our cost structure. It's a little bit hard to look at 2023. We feel good about the second half of 2022, and we can look at '23 and beyond at the end of the year.

[Noelle Dilts, Stifel]

Okay. And then last, I was just hoping, again, software and task were kind of a big topic at the Investor Day. Could you give us an update on what you're seeing there and how things are progressing?

[Roel Vestjens, President and CEO]

Yes. Yes, I very much appreciate the question. Yes, we're very excited. We launched this Belden Horizon product within the Industrial Automation business. We feel very good about the demand that we received. We feel very good about the reactions of our customers. As you may or may not recall, we visualized all of our products in this pyramid. And we now have products on - that product on top of the period, which provides visibility into the data that we're collecting through our connectors and through our cable and our active products. So we're very excited about that. And I can honestly say that our customer expectations following June 15, even exceeded our expectations.

So we feel very bullish about not just being able to provide a complete solution on the industrial floor or on the machine from sensor to the cloud, but now also a platform through which our customers can analyze the data that we capture and that we present for them to further improve their efficiency of the factory or further improve the efficiency of the machine. So yes, we're very happy

[Operator]

Our next question comes from William Stein of Truist Securities. Please go ahead.

[William Stein, Truist Securities]

Great. Thanks for taking my questions. And congrats on the very good results. I'm hoping you can remind us about the mechanisms through which pricing and margins are influenced by copper. So on the way up, I think we know there's a bit of a struggle to pass that along to customers. And as it's fallen, I wonder whether that action and [technical difficulty] is more driven by sort of contractual things or market [technical difficulty] or dual customer innovations? And then I have a follow-up.

[Roel Vestjens, President and CEO]

Okay. Well, first of all, I appreciate the comment. Secondly, it's not really a struggle on the way up. So about half of - I would say about half of our copper or cable is contractually agreed upon beforehand. So that's "automatic". There's a quite narrow band. And if copper exceeds that band then automatically prices are adjusted same as on the way down.

For the other half, I think since we've been dealing with copper price swings for so long, - it's - I don't want to say it's a walk in a park, but it's not really a negotiation. I mean our customers understand and we'll even fully transparent, which means that on the way up, yes, we expect to pass it on. But on the way down, we adjust our prices also. So we don't play the games of trying to hold on for another month or another quarter to get a little bit of a benefit. We don't do that. So we built this credibility and this transparency over the years. So our customers understand.

[William Stein, Truist Securities]

The next I think I'll ask about is data center trends. I understand you've guided for the quarter and for full year, and that's helpful. And I'm sure you're not going to provide guidance for next year, but I wonder how you're thinking about demand for data center specifically for next year. One could build still very positive case for growth next year. However, we've also heard about lower investments, at least in operating expenses at some of these webscale companies hiring freezes and things like that. And it's not clear that, that's making its way into their CapEx plans. And so I'm hoping you might shed some light so we can set expectations for the coming year for that part of your business.

[Roel Vestjens, President and CEO]

Yes, of course. So here's what I would answer it. So firstly, please remember that we serve, first and foremost, enterprise-owned and color data centers. And the outlook for that is still pretty good for next year. That's according to the reports that we receive.

I think what you're referring to, the big guys are the cloud providers, and we don't sell to hyperscale data centers. So that is not - that's a deliberate choice that we made a few years back, and that is continuing to serve us well. So we're not affected by the big cloud players slowing down or hiring - issuing the hiring freezes that they have most recently done.

[Operator]

Jeremy Parks, there are no further questions at this time. Please continue.

[Jeremy Parks, CFO]

Thank you, Bettina, 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 [e-mail].

[Operator]

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