Belden Inc

NYSE:BDC

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated Conference Call. Just a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the call over to Kevin Maczka. Please go ahead, sir.

[Kevin Maczka, Vice President, Treasurer and Investor Relations]

Thank you, operator. Good morning, everyone, and thank you for joining us today for Belden’s third quarter 2018 earnings conference call. My name is Kevin Maczka, I’m Belden’s Vice President, Treasurer and Investor Relations.

With me this morning are John Stroup, President, CEO, and Chairman, and Henk Derksen, Belden’s CFO. John 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, CEO, and Chairman, John Stroup. John?

[John Stroup, President, Chief Executive Officer and Chairman]

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 for a review of our third quarter performance.

I am pleased to report strong year-over-year earnings growth in the third quarter. However, despite entering the quarter with record backlog, order softness in our Enterprise segment and capacity constraints in our Industrial segment prevented us from meeting our revenue guidance.

We expect these challenges will continue in the fourth quarter. As a result, we are reducing our revenue and EPS expectations for the remainder of the year. We are disappointed in this near-term outlook revision.

As you know, we have a long track record of accurately predicting our results and delivering on our commitments to shareholders. My team and I remain fully committed to executing our strategic plan and delivering robust growth and margin expansion longer term.

Our new full year 2018 guidance ranges reflect our expectation of approximately 9% revenue growth and 12% to 14% EPS growth.

Now, let’s review the third quarter performance. Revenues in the quarter increased 6% year-over-year and 3.2% organically to $659 million. On a constant currency basis, revenues grew 6.8%, in line with our long-term financial goal of 5% to 7%.

EBITDA grew 6.3% year-over-year to a record $126.7 million, reflecting 19.2% EBITDA margins. Increasing volumes and pricing along with the continued successful integration of our SAM acquisition offset various cost headwinds in the quarter. I am pleased with another quarter of strong earnings growth.

EPS increased 15.4% in the third quarter, from $1.49 in the prior year period to $1.72. This represents our fifth consecutive quarter of double-digit EPS growth.

Please turn to Slide 4, for a review of our business segment results. I will begin with our Enterprise Solutions segment. As a reminder, our Enterprise solutions allow customers to transmit and secure data, sound, and video across complex enterprise and media networks.

Our key markets include live media production, final mile broadband, and smart buildings. Revenues in this segment increased 8.7% year-over-year to $392.1 million, or 1.1% on an organic basis.

Live media production is served by our combined Grass Valley and SAM businesses. This market has proven to be very difficult to forecast. Following a relatively flat revenue performance in the second quarter, we had anticipated flat revenues in the third quarter based on our strong funnel of project opportunities and the typical seasonality of the business.

However, third quarter revenues declined 8% year-over-year and 5% sequentially, driven by the continued significant disruptions within the media markets in North America. Revenues in North America declined 19% year-over-year, compared to growth in EMEA and Asia-Pacific.

We expect the challenges in North America will continue in the fourth quarter. Importantly, the SAM acquisition increased our exposure to stronger international markets and provided meaningful synergy capture opportunities. The combined EBITDA margin exceeded 19% in the third quarter as a result of our successful integration efforts.

I’d like to thank the team for their hard work during the quarter and their impressive execution under some extremely challenging circumstances. Final mile broadband, which benefits from increasing broadband subscribers and network upgrades, increased 8% in the quarter.

However, order growth slowed later in the quarter due to customer inventory management. This pressure is likely to persist in the fourth quarter. The smart building market continues to benefit from healthy non-residential construction in the United States, and increased needs for contractor productivity and building efficiency.

This trend is best reflected by our innovative Category 6A cable products, which deliver both data and power over Ethernet. Category 6A cable revenues increased a robust 48% organically in the third quarter.

Enterprise Solutions segment EBITDA margins were 18.4%, increasing 120 basis points from the prior year period, primarily as a result of the acquisition integration and improved pricing.

Turning to our Industrial segment. Much like Enterprise, our Industrial solutions allow customers to transmit and secure data, sound, and video, but in this case in harsh industrial environments.

Our key markets include discrete manufacturing, process facilities, energy, and transportation. Revenues in this segment increased 6.2% on an organic basis to $266.9 million.

Discrete manufacturing and process facilities, our largest verticals, grew 8% and 9.4%

respectively on an organic basis. We continue to benefit from strong demand from machine builders and increasing investments in automation, and we expect these favorable trends to continue.

Overall, end market demand remains encouraging with 6% organic order growth in the quarter and healthy backlogs across our industrial markets. Despite these solid growth rates, we did encounter some manufacturing capacity constraints during the quarter related to labor shortages and extended supplier lead times. The teams are working diligently to eliminate bottlenecks and secure additional sourcing to satisfy the robust demand trends in our markets.

Cybersecurity revenues rebounded in the quarter as expected, increasing 3% year-over-year and 15% sequentially. Importantly, non-renewal bookings, our best leading indicator of revenues, increased a robust 18% year-over-year.

Our new Cloud based products are gaining traction with new and existing customers. We booked three orders in excess of $1 million in the quarter, the most since the third quarter of 2016.

We continue to expand our reach into Industrial customers, as we now offer a comprehensive suite of capabilities tailored for this vertical. We plan to continue adding to these capabilities in the coming quarters.

In addition, we recently announced two strategic partnerships. By partnering with ForeScout Technologies, a leading Internet-of-Things security company, and Claroty, a leader in cybersecurity for industrial control networks, we further strengthen our cybersecurity offering for industrial customers.

Industrial Solutions segment EBITDA margins were 20.1% in the quarter. I will now ask Henk to provide additional insight into our third quarter financial performance. Henk?

[Henk Derksen, Chief Financial Officer]

Thank you, John. I will start my comments with results for the third quarter, followed by a review of our segment results, a discussion of the balance sheet, and close with our cash flow performance. As a reminder, I will be referencing adjusted results today.

Please turn to Slide 5 for a detailed consolidated review. Revenues were $659 million in the quarter, increasing $37.3 million or 6% from $621.7 million in the third quarter of 2017.

Revenues were favorably impacted by a net $22.6 million from acquisitions and divestitures and negatively impacted by $5.3 million from currency translation. After adjusting for these factors, revenues increased 3.2% organically from the prior-year period.

On a sequential basis, revenues declined $12.4 million, or 1.8%. Revenues were negatively impacted by $9.4 million from currency translation and copper prices. Gross profit margins in the quarter were 41%, consistent with the year-ago period. Higher volumes and favorable pricing offset higher input costs and unfavorable mix.

Operating expenses were $156.4 million, or 23.7% of revenues. EBITDA was $126.7 million, increasing $7.5 million, or 6.3%, compared to the prior-year period. EBITDA margins of 19.2% were consistent with the year-ago period, and increased 90 basis points sequentially.

Net interest expense declined 25% year-over-year, from $19.4 million to $14.5 million, as a result of the debt refinancing actions completed in recent quarters. We are extremely pleased with these actions, which substantially lowered our cost of debt and extended our maturities.

As a reminder, our debt is entirely fixed at an average pre-tax interest rate of 3.5% with no maturities until 2025 to 2028. At current foreign exchange rates, we expect interest expense of $61 million for the full-year. Our effective tax rate for the third quarter was 18.6%, compared to 24% in the second quarter 2018.

I am pleased to report that our team has identified incremental tax planning initiatives available to us under the new tax laws. For financial modeling purposes, we recommend using an effective tax rate of 19% for the fourth quarter and 21% for the full year. We also recommend using 21% on an annual basis going forward.

Net income in the quarter was $81.9 million, compared to $73.9 million in the prior-year period. Earnings per share was $1.72 in the quarter, increasing 15.4% from $1.49 in the prior-year period.

Please turn to Slide 6. I will now discuss revenues and operating results by business segment. Our Enterprise Solutions segment generated revenues of $392.1 million during the quarter, increasing 8.7% from the prior-year period. Revenues were favorably impacted by $30.4 million from acquisitions, and negatively impacted by $3.3 million from currency translation and copper prices. After adjusting for these factors, revenues increased 110 basis points organically year-over-year.

On a sequential basis, revenues declined $7.6 million, or 1.9%. Revenues were negatively impacted by $4.6 million from currency translation and copper prices. EBITDA margins were 18.4% in the quarter, increasing 120 basis points from the prior-year period and 80 basis points sequentially. The year-over-year increase was driven by successful acquisition integration as well as solid execution on our pricing initiatives.

The Industrial Solutions segment generated revenues of $266.9 million in the quarter, an increase of 2.3% from $260.9 million in the prior-year period. Currency translation and copper prices had a negative impact of $2.2 million. The divestiture of MCS, completed at the end of 2017, resulted into $7.8 million lower revenues. After adjusting for these factors, revenues increased 6.2% organically.

Demand remains strong across our industrial markets, with orders increasing 6% year-over-year on an organic basis and total backlog increasing 18%. EBITDA margins were 20.1% in the quarter, declining 130 basis points year-over-year but increasing 50 basis points sequentially. Volume, price and mix benefits were offset by temporary inefficiencies related to extended lead times throughout the supply chain.

Our customers remain our priority, so we are incurring additional costs to maintain our on-time delivery standards. We are working diligently through these headwinds, which we expect to continue for the next one to two quarters.

If you will please turn to Slide 7, I will begin with our balance sheet highlights. Our cash and cash equivalents balance at the end of the third quarter was $329 million, compared to $261 million in the second quarter and $461 million in the prior year period. The year-over-year decrease reflects our capital deployments, net of cash flow generation.

Our working capital turns were 6.2 turns, compared to 6.4 turns in the prior quarter and 7.1 turns in the prior-year. Days sales outstanding and days payable outstanding each increased slightly from the year-ago period to 66 days and 93 days, respectively. Inventory turns were 4.9 turns, compared to 5.2 turns in the second quarter. We continue to expect inventory levels to decline by approximately $30 million in 2018, adjusted for the SAM acquisition.

We therefore expect to exit 2018 at approximately 5.5 turns, compared to 5.1 turns at the end of 2017. Our total debt principal at the end of the third quarter was consistent with the second quarter at $1.53 billion. Net leverage was 2.5x net debt-to-EBITDA at the end of the quarter, in-line with our target range of 2x to 3x. We expect our net leverage to trend lower in the fourth quarter.

Please turn to Slide 8 for a few cash flow highlights. Cash flow from operations in the quarter was $130.2 million, compared to $68.8 million in the prior year. The third quarter 2018 includes $47.2 million related to a gain on patent litigation. Excluding this gain, cash flow from operations increased 21% year-over-year in the quarter.

Net capital expenditures were $23.9 million for the quarter, compared to $11.2 million in the prior-year period, as we increased our investments in organic growth initiatives. This included investments in new products and a new manufacturing facility in India, which made its first shipments in the fourth quarter.

As a result, free cash flow was $106.3 million in the third quarter 2018 compared to $57.6 million in the prior year period. For the full-year 2018, we now expect free cash flow in the range of $190 million to $210 million. This outlook reflects our revised view of EBITDA for the year.

Finally, we allocated $25 million towards our share repurchase program in the third quarter, repurchasing 344,000 shares. We repurchased 1.8 million shares for $125 million year-to-date in 2018. We have $50 million remaining on our current authorization, which we are planning to deploy in the fourth quarter.

That completes my prepared remarks. I would now like to turn this call back to our President, CEO and Chairman, John Stroup, for the outlook. John?

[John Stroup, President, Chief Executive Officer and Chairman]

Thank you, Henk. Please turn to Slide 9 for our outlook regarding the fourth quarter and full-year 2018. We anticipate fourth quarter 2018 revenues to be between $657 million and $677 million, and EPS of $1.60 to $1.70. For the full year 2018, we continue to expect record revenues and EPS, but we are lowering our guidance ranges.

We now expect revenues between $2.595 billion and $2.615 billion, compared to our prior guidance range of between $2.643 billion and $2.673 billion. This represents approximately 9% growth, or 8% on a constant currency basis, exceeding our 5% to 7% long-term financial goal. We now expect full year EPS of $6.00 to $6.10, compared to prior guidance range of $6.28 to $6.48. This represents 12% to 14% growth.

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

[Operator]

Thank you. [Operator Instructions] John Stroup, your first question is from Noelle Dilts from Stifel. Please go ahead. Your line is open.

[Noelle Dilts, Stifel]

Hi, thank you. Good morning.

[John Stroup, President, Chief Executive Officer and Chairman]

Good morning, Noelle.

[Noelle Dilts, Stifel]

So I just wanted to start with the broadcast market given here that you had several challenging quarters. Can you just help us understand how you're thinking about the long-term outlook for that market and really what you're looking for in terms of signs of stability or improvement, particularly as it relates to North America?

[John Stroup, President, Chief Executive Officer and Chairman]

Yes, so thank you, Noelle. We're obviously very frustrated with this business and with the end market, especially in North America. The business, if you were to exclude live media, we would've grown 5% organically and that would have not included some of the supply chain issues we had in Industrial. So we were positioned to have a really good quarter and we're incredibly disappointed with the results. So we're reflecting on the portfolio and trying to determine what our expectations ought to be from this business in 2019. Obviously, we've reset expectations for the fourth quarter.

As we talked about before, the disruption in North America is especially acute within our playout business, which is the minority of Grass Valley. The live piece continues to do well and the international continues to do well, but the North America playout business as it pertains to live is struggling.

So we are taking this opportunity to reflect on what expectations should be for the fourth quarter. We're going to issue guidance for 2019 in early December. We're reflecting on the portfolio in general. I don't have any updates for you on that but it's clearly underperforming the expectations we have and we need to give it further consideration.

[Noelle Dilts, Stifel]

Understood. That's really helpful. And then just shifting over to final mile broadband, where you saw this customer inventory management issue that you're expecting to persist in the fourth quarter. Now I think typically, those have not been kind of longer term events or multiple quarter events. Can you just give us a sense there of how to think about this from a short-term perspective versus what you're looking at from the market, again from a longer-term view?

[John Stroup, President, Chief Executive Officer and Chairman]

Yes. So I would characterize the situation with Broadband to be very different than what I just discussed with our live media. So we had 9% organic growth in the quarter with our Broadband business, so excellent performance. We do have a couple of customers, though, that are going through consolidation of their own distribution centers and looking at ways to lean out there inventory, and our team began to see that at the end of the third quarter.

And so we view this as temporary and we did adjust our fourth quarter for it. But I think you should expect that as we guide for 2019, we would expect the Broadband market to be up probably around 2%, and we would expect to continue to capture share. So I think the Broadband business is going to be a contributor to organic growth in 2019.

[Noelle Dilts, Stifel]

Wonderful. Thank you.

[John Stroup, President, Chief Executive Officer and Chairman]

Thank you, Noelle.

[Operator]

We take our next question from Matt McCall, Seaport Global Securities. Please go ahead.

[Matt McCall, Seaport Global Securities]

Hi, thank you. Good morning, everybody.

[John Stroup, President, Chief Executive Officer and Chairman]

Good morning, Matt.

[Matt McCall, Seaport Global Securities]

So last quarter, you changed the selling model on the Grass Valley, the part – I think the struggling part of Grass Valley and you've seen – I thought that the results last quarter were kind of a sign of success. Was it due to something else that was going on at the time? Did something reoccur in Q3 that didn't occur in Q2? I'm trying to figure out what happened then versus now and was the success last quarter in any way tied to the new selling model or was it something else?

[John Stroup, President, Chief Executive Officer and Chairman]

I don't think so, Matt. And I wish I had a silver bullet answer for your question. But quite frankly, what we find in this business, particularly North America, is a lot of lumpiness, a very difficult time being able to accurately predict when demand is going to occur. I don't want to bore you with the details but the team was confident that a fairly sizable order would, in fact, happen in the quarter and towards the end of the quarter, the customer decided to move it out and we've had this happen far too many times.

And so the team entered Q3 with a high level of confidence on their forecast. They ended up falling short of it. We took this opportunity to reset expectations for the fourth quarter. I don't think it has anything to do with the fact that we had introduced capital leases in the prior quarter. I think that's completely unrelated. This business is lumpier than our other businesses. It's harder to forecast and it's creating surprises when, obviously, we don't want them.

So I don't think it is anything more than that. And I think that as our North America customers in particular are struggling to allocate their capital in ways that they feel are prudent given some of their competitive challenges, I think this is our reality. And so we changed expectations for fourth quarter as a result. Quite frankly, if my team does what they say they're going to do in fourth quarter, then we'll beat these numbers, but I'm just not that positioned to set expectations that way.

[Matt McCall, Seaport Global Securities]

Okay, okay. I understand. Then maybe on the industrial capacity issues, so that's been kind of an issue you've been working through. I think you've been investing in some capacity to debottleneck or to open up – to deal with the issue. What got worse in the quarter? Was demand stronger? Was the supply chain worse? What incrementally changed? Because it sounds like that was a driver of the top line shortfall as well. So I know you mentioned a few things, Henk, that they were behind but what got incrementally worse specifically in Q3 that wasn't expected?

[John Stroup, President, Chief Executive Officer and Chairman]

Yes. So in our industrial platform, organic growth in the quarter was 6%. If we hadn't had these capacity constraints, I think we could have had organic growth around 8% to 9% in the quarter. So compared to Q2, there was an isolated supply chain issue that the team is working on. It really reared its ugly head in the quarter. We weren't dealing with it in Q2, it came up in Q3. It was within our industrial networking business.

That was new from Q2. And then in Q3, we had a few facilities where our labor capacity was an issue, actually had gotten worse since Q2. So we had issues in Czech Republic. We had issues in one of our facilities in Canada and we also had issues in one of our facilities in Mexico. I think it's going to improve in the fourth quarter. I think the team has action plans in place that will make it better from Q3 to Q4, but we had a couple of areas where it got worse from Q2 to Q3.

[Matt McCall, Seaport Global Securities]

And I'm sorry – apologies, Kevin, but the – when you say labor capacity, what are you saying? What was specifically the issue, labor shortages inefficiencies, all of the above?

[John Stroup, President, Chief Executive Officer and Chairman]

So it was predominantly shortages. So we did our very best to meet the demand with overtime spending. But for example, in Czech Republic, we literally just did not have enough people to meet the demand, and the same was true in one of our facilities in Mexico as well. So we've seen a tightening labor market in certain areas of the world. Czech has been acute. I'd say certain areas of Mexico have been tougher and so we struggled that – with that in the quarter, but I do feel like we're going to see some progress in the fourth.

[Matt McCall, Seaport Global Securities]

Okay. Thank you, Jon.

[John Stroup, President, Chief Executive Officer and Chairman]

Yes.

[Operator]

Thank you. We'll take our next question from Shawn Harrison, Longbow Research. Please go ahead.

[Gausia Chowdhury, Longbow Research]

This is Gausia Chowdhury on for Shawn. Number one, can you qualify how much of the earnings is coming from the Industrial versus Enterprise business, and then in particular within Enterprise from Broadband, PPC and in Grass Valley?

[John Stroup, President, Chief Executive Officer and Chairman]

Yes. So if you look at our earnings for the quarter, they're actually within our guided range, but of course, we fell short of our guided revenue. Most of that revenue miss in the quarter was a result of the miss in Enterprise, and the miss in Enterprise was almost exclusively our live media business.

So for the third quarter, I would say the revenue miss is relatively isolated to the Grass Valley business. I said before, if our Grass Valley business had been flat on a year-over-year basis, we would have seen organic growth at a consolidated level of more like 5%. So that's our challenge in the third quarter.

For the fourth quarter and the full year, the challenges also include some of these capacity constraints I mentioned in Industrial as well as this inventory correction within our last mile broadband business.

[Gausia Chowdhury, Longbow Research]

And then given that your are reflecting on the portfolio and the lumpiness within Grass Valley, maybe can you reflect on why it's a good asset long term for the Enterprise portfolio considering the sales volatility, the secular challenges and the difficulty in forecasting? And also, has there been any consideration in breaking up the Industrial portfolio at all?

[John Stroup, President, Chief Executive Officer and Chairman]

So I think that the platform -- the Grass Valley business is a long term – I have a lot of regard for. I think that the media business in the long run is a good business. I think in the short to medium term, however, it's proven to be far more challenging than we expected and is creating some real issues for us to be able to accurately predict our results as well as be able to deliver the kinds of results that we want to.

If you look at our earnings growth in the quarter, we're obviously pleased that our earnings are up double digit in the quarter, so that's fantastic, but we are incredibly disappointed that we fell short of our own expectations and the expectations we set with the investment community.

So I think the issue with the live media business is more short to mid-term. That's not me suggesting, however, that it's an asset that we're at all happy with currently and one that we're not giving serious consideration to how we either manage it better or consider alternatives for. But in the long run, I believe the consumption of professionally produced content, in particular live-produced content, I think that's a good secular trend. But in North America right now, it's very challenging.

[Gausia Chowdhury, Longbow Research]

Thank you.

[John Stroup, President, Chief Executive Officer and Chairman]

Thank you.

[Operator]

We take our next question from Mark Delaney from Goldman Sachs. Please go ahead.

[Mark Delaney, Goldman Sachs]

I guess, good morning. I have two and thanks for taking the questions. So first question is around gross margin. The first just trying to better understand what's assumed in your gross margins for the fourth quarter, I imagine with the media discussion that mix is as favorable as it can be in some areas. So it seems like implied gross margin guidance is down maybe to about 40%, but if you could level set us on that.

And then – I'm not expecting guidance on gross margin for 2019, but again, there's a lot of moving pieces around mix. I think there are some price increases that you guys have passed through. It sounds like there may be some costs. So maybe just help us think about some of the puts and takes to gross margin. I mean it's going to be I think around 40% for 2018 overall. Should we think about it similar or maybe going up or down next year and how you guys think about those different pieces?

[John Stroup, President, Chief Executive Officer and Chairman]

Yeah, so I think that the gross margins for the fourth quarter are going to be up slightly compared to the third quarter. So in the third quarter, gross margins were 41%. I would expect in the fourth quarter, they would be up slightly. We benefit from some favorable mix with the Tripwire business that would affect gross margins in a positive way. I do think, however we're going to be fighting some of these capacity issues in the fourth quarter.

And as Henk said, we're going to prioritize quality and on-time delivery. And if that means we have to spend a little bit more in overtime, we will, to make our commitments to customers. But I think 41% to 42% in the fourth quarter for gross margins is probably about where we're going to be. And then going into next year, I would expect that gross margins would be up compared to 2018. Like you said, we haven't done guidance next year. But as I reflect on the kinds of improvements, I would expect to see in our manufacturing group in 2019, it wouldn't surprise me if gross margins weren't up 100 basis points in 2019 from that as well as some of the favorable mix we're expecting from our cybersecurity business.

[Mark Delaney, Goldman Sachs]

That’s helpful and my follow-up is on the M&A pipeline and how you're thinking about that. Just I guess there's a two part question, but given the challenges in media, you did the SAM acquisition earlier this year. But with some of the revenue struggles, I mean do you think it's less likely that the company will be doing M&A within media and maybe you can just comment more broadly how the M&A pipeline looks and how active it may be. Thank you.

[John Stroup, President, Chief Executive Officer and Chairman]

Yeah, so as it relates to capital deployment, our priorities right now are to fund our organic plan and to repurchase our stock. To the extent that we do M&A, I think it's going to be focused in either final mile broadband with an emphasis on fiber, where we've done a number of smaller acquisitions recently or in industrial. We have done an excellent job as it relates to ROIC on SAM. And if I were to parse the Grass Valley and SAM business, the SAM business is actually up on a year-over-year basis because of its greater exposure to international markets. But having said that, we will not be investing anymore in our live media business as we try to sort through some of these challenges as it relates to our ability to predict demand.

[Mark Delaney, Goldman Sachs]

Thank you.

[Operator]

Will take our next question from Rob Cihra from Guggenheim Partners.

[Rob Cihra, Guggenheim Partners]

Thank you very much. Two questions if I could. Just one on the within Enterprise, you gave a pretty deep look on the Broadcast and the Broadband side. I just wasn't sure, you mentioned what you used to classify as Enterprise basically ex the Broadcast and Broadband. That business sounded good. I mean was that up year-over-year, I mean, is there anything – what are the trends there? And I have a follow-up if that's okay.

[John Stroup, President, Chief Executive Officer and Chairman]

So, our Enterprise Connectivity business, which is within our Enterprise platform, was up in the quarter. It was up only about 1.5%. However, we think that's all timing. The team feels like the fourth quarter is going to be up somewhere between 6% and 7% and that has to do with just the timing of projects. But I would characterize Enterprise Connectivity business right now as healthy.

Non-res continues to be strong. Our Category 6A growth in the quarter was very strong, which is I think a really good leading indicator for how that business performs not only from a revenue point of view but also from a profitability point of view. So PPC or Broadband, as I said before, was up 8.5% organically. The Enterprise Connectivity was up modestly. And if you were to exclude the Grass Valley business, as I said, that platform actually performed pretty well.

[Rob Cihra, Guggenheim Partners]

Okay, great, thanks. And then it sounds that outside of Broadcast and outside of the supply issues you guys have had yourselves, I mean you didn't really – you're not down taking on any demands. It seems like you see demand continue to be good apart from things, I mean, on the Broadband side. I know you get the customer inventory issues. But I mean, across Enterprise and Industrial at least, excluding your own supply issues, I mean do you feel like demand kind of clicking along as it has been through the first half? And do you see those demand trends continue to be good? Or have you seen any sort of macro hesitation? Thanks.

[John Stroup, President, Chief Executive Officer and Chairman]

So that short answer would be I agree with what you say that we see demand issues within our live media business. Other than that, the demand environment is as we expected and consistent with what we've seen all year.

[Rob Cihra, Guggenheim Partners]

Great. Thank you very much.

[John Stroup, President, Chief Executive Officer and Chairman]

Yes.

[Operator]

It appears there are no further questions at this time. Mr. Kevin Maczka, please continue.

[Kevin Maczka, Vice President, Treasurer and Investor Relations]

Thank you, Annah, 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 [e-mail]. Thank you, have a great day.

[Operator]

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