Belden Inc

NYSE:BDC

Earnings Call Transcript 2020-Q4

[Operator]

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'd now like to turn the call over to Kevin Maczka. Please go ahead, sir.

[Kevin Maczka, VP, Investor Relations]

Thank you, Sergey. Good morning, everyone, and thank you for joining us today for Belden’s fourth 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. 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?

[Roel Vestjens, President & CEO]

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 fourth quarter highlights. Demand trends improved in the fourth quarter, and I am pleased to report that revenues, earnings and cash flow exceeded our initial expectations.

Fourth quarter revenues increased 5% sequentially to $498.5 million, compared to our initial guidance range of $460 million to $485 million and our revised guidance range of $494 million to $499 million. The upside relative to our expectations was broad based, with contributions from both the Industrial Solutions and Enterprise Solutions segments.

During the fourth quarter, our channel partners further reduced their inventory levels by approximately $22 million as expected, resulting in a reduction of approximately $70 million for the full year 2020. Importantly, this is not expected to recur in 2021.

Incoming order rates were solid during the quarter, increasing 13% sequentially. This resulted in a book-to-bill ratio of 1.10 times including a robust 1.16 times in the Industrial Solutions segment. EPS increased 25% sequentially to $0.90, compared to our initial guidance range of $0.63 to $0.78, and our revised guidance range of $0.85 to $0.90.

Free cash flow generation was $101 million in the quarter, which exceeded our expectations by approximately $11 million. As a result, we exited the fourth quarter with cash on hand of $502 million, which provides ample flexibility as we pursue our strategic initiatives.

Please turn to Slide 4 for a brief discussion of our full year 2020 results. 2020 was a truly unprecedented year, with each of us facing significant challenges related to the global pandemic, both personally and professionally. I am extremely proud of the way our global workforce responded to these challenges and maintained a sharp focus on supporting our customers and executing our strategic plans while maintaining the safest possible working conditions.

For the full year 2020, we delivered revenues of $1.863 billion and EPS of $2.75. Free cash flow generation was $86 million, compared to our expectation of approximately $75 million. Beyond the initial response to the pandemic, the year was highlighted by the bold steps we took to position the company for substantially improved organic growth and margins. This includes streamlining our cost structure, funding our compelling growth initiatives, and significantly improving our portfolio of businesses.

On the cost side, we delivered on our commitments by successfully reducing SG&A costs by $40 million for the full year 2020. We exited the year with quarterly run rate savings of $15 million in the fourth quarter, so we are prepared to deliver the full $60 million in savings in 2021 as planned. This represents approximately 300 basis points of incremental EBITDA margin expansion on an annual basis. These are permanent cost reductions that will not return as conditions normalize.

As we executed these cost reduction plans, we continued to make strategic investments to accelerate growth and capitalize on the opportunities in our key markets. To that end, R&D spending increased 14% to $107 million in 2020, with approximately 65% of this investment dedicated to software development. This includes standalone software and embedded software within various hardware products.

We are making targeted investments to support growth and innovation in Industrial Automation and enhance our best-in-class Cybersecurity cloud platform. These innovations are important to our customers and our shareholders, as they will further strengthen our product offering and enhance our competitive advantage.

We also maintained CapEx spending of approximately $70 million for the year to ensure that we have the capabilities and capacity to fully participate in the anticipated growth in our key markets. We made significant portfolio moves during the year, including the sale of Grass Valley in July. Divesting this business simplified and improved our portfolio. It also removed a considerable drag on consolidated organic growth, as declines in Grass Valley’s business in prior years represented a substantial headwind.

In addition, we initiated a process to divest approximately $200 million in revenues associated with certain undifferentiated copper cable product lines. These are primarily stand-alone product lines that are lowgrowth and low-margin, and we do not believe they can meet our growth or margin goals in the future.

Much like Grass Valley, we believe that exiting these product lines will improve our end market exposure. In this case, we are exiting the oil & gas markets and reducing our exposure to certain smart buildings markets. We expect to complete multiple transactions associated with these product line exits. We are encouraged by the overall progress to date, and we remain on track to complete these divestitures in the first half of 2021 as previously communicated. Finally, subsequent to the end of the fourth quarter, we announced the bolt-on acquisition of OTN Systems for $71 million. The transaction closed on January 29.

Please turn to Slide 5 for additional details on OTN Systems. This is our first industrial automation acquisition in years, and we are very excited to add this talented team and its innovative networking products and technologies to our portfolio. OTN Systems is a leading provider of easy to use and highly-reliable network solutions tailored for specific applications in harsh, mission-critical environments. Its value-added technology allows customers to easily build, maintain, and monitor complex networks in growing industrial markets, such as Power Transmission, Mass Transit, and Process.

Belden and OTN Systems have a commercial partnership dating back to 2017, so we have a thorough understanding of the business and the value it will add to our product offering and our customers. The company’s primary brand and product line, known as XTran, consists of proven switching devices and network management software that is complementary to Belden’s leading industrial networking offering. We expect the acquisition to contribute incremental revenue and EPS of approximately $36 million and $0.11, respectively, during the 11 months of ownership in 2021.

Consistent with our M&A strategy, this acquisition supports one of Belden’s key strategic priorities related to the growing demand for industrial automation by adding proprietary technology and mission-critical hardware and software products for more complete end-to-end solutions. It also accelerates Belden’s initiatives related to Customer Innovation Centers, or CIC’s, with advanced solution selling and customer consulting capabilities. This will allow us to bid on a wider array of projects. It offers meaningful business synergies in the product, technology and commercial areas, and we see significant opportunities to leverage our global customer base to accelerate growth and further improve profitability.

We remain an acquisitive company and we continue to pursue other strategic inorganic opportunities in industrial automation and fiber connectivity that would further enhance our product offering and growth potential. However, we are prioritizing de-levering in the near term, and as a result, we expect our M&A activity to be modest in 2021.

I will now ask Henk to provide additional insight into our fourth quarter financial performance. But before I do so, I wanted to discuss the other matter referred to in our press release this morning. After 20 years with Belden, the last nine as our CFO, Henk has announced his departure next month following a transition of duties to Jeremy Parks. Henk, your contributions to Belden are difficult to put into words. You are a meaningful part of the history of this company and we thank you for everything.

[Henk Derksen, CFO]

Thank you, Roel, for the kind words. Before I begin my prepared remarks, I want to express my gratitude to my team, the leadership team and the Board of Directors, the entire finance and IT organization, and so many Belden colleagues around the globe who have shaped my time at the company. I am proud of my role in leading Belden through a substantial transformation, from a regional cable company in the early 2000s to the global networking solutions company it is today. I leave the company with a strong balance sheet and capital structure, and much improved portfolio and I am confident that Belden remains well-positioned for future success.

Please turn to Slide 6 for a detailed consolidated review. I will start my comments with results for the quarter, followed by a review of our segment results and a discussion of the balance sheet and cash flow performance. As a reminder, I will be referencing adjusted results today.

Revenues were $498.5 million in the quarter, compared to $549.7 million in the fourth quarter of 2019. Revenues decreased 9.3% on a year-over-year basis and increased 4.8% sequentially. After adjusting for a $5.5 million favorable impact from acquisitions and a $14 million favorable impact from currency translation and higher copper prices, revenues declined 12.8% organically on a year-over-year basis. After further adjusting for changes in channel inventory levels, revenues decreased 6.1% organically from the prior-year.

On a sequential basis, revenues increased 2.9% organically after adjusting for a $9.1 million favorable impact from currency translation and higher copper prices. After further adjusting for changes in channel inventory, revenues increased 9.6% organically on a sequential basis.

Incoming orders were solid during the quarter, increasing 13% sequentially. This resulted in a book to bill ratio of 1.10 times, including a robust 1.16 times in the Industrial Solutions segment and 1.04 in the Enterprise Solutions segment. Gross profit margins in the quarter were 35.4%, consistent with the third quarter. EBITDA was $74.0 million, compared to $65.3 million in the prior quarter and $92.9 million in the prior-year period. EBITDA margins were 14.8%, compared to 13.7% in the prior quarter and 16.9% in the prior-year period.

As Roel mentioned, we successfully executed our SG&A cost reduction program by delivering savings of $15 million in the fourth quarter and $40 million for the full year 2020. We expect to deliver the full $60 million in savings in 2021. As we streamlined the cost structure, we remained committed to our important growth initiatives. We increased R&D investment by approximately 15% in the fourth quarter and the full year 2020. We expect further increases in 2021 as we make additional targeted investments to drive innovation and growth in Industrial Automation and Cybersecurity.

Net interest expense was approximately flat sequentially in the quarter. At current foreign exchange rates, we expect interest expense to be approximately $61 million in 2021. Our effective tax rate was 13.5% in the fourth quarter and 16.4% for the full year, as we benefitted from incremental discrete tax planning initiatives. For financial planning and modeling purposes, we recommend using effective tax rate of 20% throughout 2021.

Net income in the quarter was $40.5 million, compared to $32.2 million in the prior quarter and $54.9 million in the prior-year period. Earnings per share was $0.90 in the fourth quarter, compared to $1.20 in the year-ago period. Earnings per share increased 25% sequentially from $0.72 in the third quarter.

Turning now to Slide 7 in the presentation for a review of our business segment results. I will begin with our Industrial 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 Solutions segment generated revenues of $270.8 million in the quarter. Currency translation and copper prices had a favorable impact of $9.2 million year-over-year and $5.8 million sequentially. After adjusting for these factors, revenues decreased 14% organically on a year-over-year basis and increased 7% sequentially.

After further adjusting for changes in channel inventory levels, revenues declined 8% year-over-year and increased 10% sequentially on an organic basis. Within this segment, Industrial Automation revenues declined 8% year-over-year and increased 9% sequentially on an organic basis after adjusting for changes in channel inventory levels. Not surprisingly, the trends were relatively consistent across our market verticals in the quarter.

Cybersecurity revenues declined 14% in the fourth quarter on a year-over-year basis, and increased 16% sequentially. We continue to secure large strategic orders with new customers, and significantly expand our engagements with existing customers. As a result, non-renewal bookings in the fourth quarter matched the highest quarterly level in five years.

Notable bookings in the quarter included a Fortune 500 insurance company migrating from on-premise to cloud-based solutions, and a multinational financial services corporation expanding its coverage in preparation for expected future growth from acquisitions.

We remain very bullish on Industrial cybersecurity. Non-renewal bookings in this vertical increased 13% sequentially in the quarter and 31% for the full year. Further, we continue to gain significant traction with our software-as-a-service offerings. SaaS offerings represented approximately 25% of non-renewal bookings in the quarter, compared to 10% a year ago.

Industrial Solutions segment EBITDA margins were 17.5% in the quarter, compared to 15.6% in the prior quarter and 20.1% in the year-ago period. The year-over-year decline primarily reflects lower volumes and increased R&D investments in Industrial Automation and Cybersecurity.

Turning now to our Enterprise segment. As a reminder, our Enterprise solutions allow customers to transmit and secure audio, video and data across complex enterprise networks. Our key markets include broadband, 5G and smart buildings. Our Enterprise Solutions segment generated revenues of $227.7 million during the quarter. After adjusting for a $5.5 million favorable impact from acquisitions and a $4.8 million favorable impact from currency translation and higher copper prices, revenues declined 12% organically on a year-over-year basis.

Revenues declined 2% sequentially after adjusting for a $3.3 million favorable impact from currency translation and higher copper prices. After further adjusting for changes in channel and customer inventory levels, revenues declined 3% year-over-year and increased 9% sequentially on an organic basis. Revenues in Broadband and 5G increased 8% year-over-year and 5% sequentially after adjusting for changes in customer inventory levels. We were encouraged by the solid share capture during the quarter.

The ever-increasing demand for more bandwidth and faster speeds is driving increasing investments in network infrastructure by our customers. This supports continued robust growth in our fiber optic products, which increased 28% organically in 2020. Revenues in the Smart Buildings market declined 12% year-over-year and increased 13% sequentially on an organic basis after adjusting for changes in channel inventory. Enterprise Solutions segment EBITDA margins were 11.5% in the quarter, consistent with the prior quarter and compared to 13.7% in the prior year period. The year-over-year decline primarily reflects lower volumes.

If you will please turn to Slide 8, I will begin with our balance sheet highlights. Our cash and cash equivalents balance at the end of the fourth quarter was $502 million compared to $391 million in the prior quarter and $426 million in the prior year period. We are very comfortable with our current liquidity position.

Working capital turns were 10.3 turns, compared to 6.6 turns in the prior quarter and 8.9 turns in the prior-year period. We are extremely pleased with the DSO performance in the quarter. Days sales outstanding declined eight days sequentially from 58 days in the prior quarter to 50 days. Inventory turns were 5.2 turns, compared to 5.0 turns in the prior quarter and 6.0 turns in the prior year.

Our total debt principal at the end of the fourth quarter was $1.59 billion, compared to $1.52 billion in the third quarter. The sequential increase reflects current foreign exchange rates. Net leverage was 4.0 times net debt to EBITDA at the end of the quarter. This is temporarily above our targeted range of 2.0 to 3.0 times, and we expect to trend back to the targeted range as conditions normalize.

Turning now to slide 9. I will now discuss our debt maturities and covenants. As a reminder, our debt is entirely fixed at an attractive average interest rate of 3.5% with no maturities until 2025 to 2028. We have no maintenance covenants on this debt, so we are not at risk of default in the unlikely event of significantly worsening economic conditions.

As I mentioned previously, we are comfortable with our liquidity position and the quality of our balance sheet. Please turn to Slide 10 for a few cash flow highlights. Cash flow from operations in the fourth quarter was $134.7 million, compared to $187.4 million in the prior year period. Net capital expenditures were $33.3 million for the quarter, compared to $35.9 million in the prior-year period.

For the full year 2020, we generated cash flow from operations of $173.4 million, compared to $276.9 million in 2019. The decline primarily reflects lower EBITDA during the year that resulted from the global pandemic. For the full year, net capital expenditures were $87.1 million, compared to $110.0 million in 2019. The difference is primarily related to the timing of the Grass Valley divestiture, which we completed in July 2020. As a result, we generated free cash flow of $86.3 million in 2020, compared to $166.9 million in 2019.

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

[Roel Vestjens, President & CEO]

Thank you, Henk. Please turn to Slide 11 for our outlook. 2021 will be a year of recovery in most of our key markets. During the year, we expect to complete our transformative portfolio actions and turn the focus to accelerating organic growth. Our recent order rates are encouraging, and I am confident in our ability to achieve our financial goals and drive superior returns for our shareholders.

We anticipate first quarter 2021 revenues to be between $490 million and $505 million, and EPS of $0.60 to $0.70. For the full year 2021, we expect revenues to be between $1.99 billion and $2.050 billion, and EPS of $2.90 to $3.30. For financial modeling purposes, we recommend using interest expense of approximately $61 million for 2021 and an effective tax rate of 20% for each quarter and the full year.

This guidance includes the expected accretion from the OTN Systems acquisition. It continues to include the contribution of our copper cable product lines that we are in the process of divesting, which contributed approximately $200 million in revenue and $0.20 in EPS in 2020. We will update our guidance accordingly as we complete these divestitures.

Please turn to slide 12 for a bridge that walks from our 2020 results to the high end of our 2021 guidance. We expect current copper prices and foreign exchange rates to have a favorable impact on revenues of approximately $80 million in 2021, with a negligible impact on earnings. We expect consolidated organic growth in the range of 1% to 4%, or up to $70 million, with solid growth in our Industrial Solutions segment partially offset by declines in the Smart Buildings markets within our Enterprise Solutions segment.

We anticipate an incremental $36 million in revenue and $0.11 in EPS from the OTN Systems acquisition. Consistent with our commitment, we expect to realize the incremental $20 million in savings under our SG&A cost reduction program. These savings represent $0.36 in EPS. R&D investments are an important strategic initiative designed to drive growth in future periods, but these investments will temporarily pressure margins and EPS in 2021.

Finally, a normalized effective tax rate of 20%, along with modestly higher interest expense and share count represent an EPS headwind of approximately $0.20 for the year. For the full year 2021, the high end of our guidance implies total revenue and EPS growth of 10% and 20%, respectively.

Please turn to slide 13. Before we conclude, I would like to reiterate our investment thesis. We view Belden as a very compelling investment opportunity, as we are taking bold steps to drive substantially improved business performance. We are significantly improving our portfolio and aligning around the favorable secular trends in our key strategic markets, including industrial automation, cybersecurity, broadband & 5G, and smart buildings.

We continue to invest in our business to position the Company for accelerating organic growth and robust margin expansion. As we successfully execute our strategic plans and deliver on our goals, we would expect this to drive superior returns for our shareholders.

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

[Operator]

[Operator instructions] Our first question comes from Reuben Garner from Benchmark. Please go ahead.

[Reuben Garner, Benchmark Company]

Thank you. Good morning, everybody. First of all Henk good luck moving forward and hopefully you stay in touch and Jeremy congrats on the new role. Maybe if we can start off the way the fourth quarter ended and your first quarter guidance is pretty strong. Can you just talk about maybe order trends last year with the confidence that Q1 will already be returning to growth in then in that same kind of thought process the outlook for the year I think would seem a bit conservative just given what you are already seeing in terms of recovery. Can you just talk about how you're thinking about 2021 top line?

[Roel Vestjens, President & CEO]

Okay. Thank you for the question. So there's a couple of factors to consider. So first of all, we did end the year very strong as we mentioned in our prepared remarks with a bill to bill of 1.1, most notably very strong bill to bill Industrial Solutions segment that we represented in our remarks 1.16 times. Secondly, we are encouraged by the order so far in January. They are in line and trending towards the high end of our guidance. And thirdly, the way that the calendar works out Reuben, we actually have three more shipping days in Q1 than we did in Q1 last year, which means we have three less shipping days in Q4 of this year. So that's why we feel confident that we'll be able to hit our Q1 guidance.

[Reuben Garner, Benchmark Company]

And back at the Analyst Day it sounded like 2021 growth in three out of your four business with smart buildings still expect to lag the recovery. Are you still thinking about the same way, maybe just talk about what you're seeing in the sub markets within your total 2021 outlook?

[Roel Vestjens, President & CEO]

Yeah absolutely. So we see our Industrial Solutions segment grow approximately 6% to 8%. That's implied in the guidance. Our Enterprise Solutions segment, we expect to be down 1% to 5%, which is basically a tale of two cities. So our broadband and 5G business, we expect to continue to grow low single digits, but we do expect our Smart Buildings business to be further down and it could be down as much as 5% to 10%. That's kind of how our guidance was constructed.

[Operator]

Thank you. We'll now move to our next question from William Stein from Truist Securities. Please go ahead.

[William Stein, Truist Securities]

Thanks for taking my question and also my congrats to everyone on the good results and outlook and especially Henk and Jeremy, I'd like to first ask you about shortages in the semiconductor we're seeing shortages pervade in that industry and when we look at your book-to-bill, we have to consider maybe somewhat of a strong backlog as related to customers expressing some concern about availability and maybe there are some go ahead.

Is that dynamic you think realistic way to proceed? What's going on with your business or inventories going on, were there some other dynamic that makes you push back on that idea and in fact this maybe real demand.

[Roel Vestjens, President & CEO]

Yeah we try to anticipate some of these shortages and as a result, you could see that our inventory levels in Q4 were only at 5.2 turns right and they were 6 turns a year ago, that's not where it used to and we made it up in other parts of the working capital. So therefore total working capital turns showed a nice improvement compared to a year ago, but that's the main reason for the higher inventory levels. So we wanted to make sure that we can indeed ship in Q1 and deliver on our backlog.

Whether or not all the orders received are truly for the demand currently at place, it's obviously a little bit hard to tell. We don’t have a lot of blanket orders. So virtually all of orders come with requested ship dates that are not too far in the future. So hopefully that answers your questions. Those are the two dynamics that we see and how we try to anticipate.

[William Stein, Truist Securities]

Great and relatively short duration of backlog, so I think I get it. Another question you at the very end of your prepared remarks, you talk about Belden as a compelling investment opportunity, we haven’t seen buybacks in the quarter may be longer and you did some of that today. I am wondering how you think about the balance between these two activities in the coming year. What should we expect more of when they're pulled or pardon me, are buyback on hold or how should we think about it now?

[Roel Vestjens, President & CEO]

Yeah our capital location has not changed from how we laid them out during Investor Day. So our priority was and will remain de-levering. I think Hank explained that we have no covenant issues, but we do feel that that is the most prudent thing to do in terms of the uncertainties the other world that we live in. As we see with OTN Systems, we obviously will continue to cultivate our long list of potential M&A targets most profoundly within the industrial automation space and fiber connectivity space for broadband and 5G offerings.

So if there is an opportunity as you know you cannot always control the timing of these companies, then we will act, but as we highlighted, it will be -- we expect it to be modest in 2020. So that the first and foremost priority will continue to be de-lever.

[Operator]

And our next question comes from Noelle Dilts from Stifel. Please go ahead.

[Noelle Dilts, Stifel Nicolaus]

Hi everyone and Henk, thanks for all you’ve done over the past 20 years and Jeremy congrats on the new role. So I am hoping you could just comment a little bit on the R&D investments, you talked about this again at Investor Day, but you discussed they are expected to pressure margins and EPS in 2021. How should we think about when you expect to start to feel return on those investments and as you look out to that kind of longer-term 20% to 22% EBITDA margin target? Do you still feel like that's achievable within the next two years, three years with this step up in R&D thanks?

[Henk Derksen, CFO]

Yeah absolutely, absolutely, as a matter of fact, the investments that we're making now, we are confident will increase our growth rates in 2022 and 2023. So the sequence that outlined during our Investor Day still very, very. The guidance implies that to get us there in the first year of the three years that we outlined. So we're very confident that indeed the investments that we're making now will yield higher growth rates in '22 and in '23.

[Noelle Dilts, Stifel Nicolaus]

And then just in terms of you're seeing this nice strength in Industrial Solutions. Can you comment a little bit on what you're seeing in terms discrete oil and gas sub markets within the segment?

[Henk Derksen, CFO]

Yeah we're -- our Q4 results were pretty even amongst the verticals. We feel good about discrete. If we look at our current order rates, then we feel -- we feel very strong about -- very good about discrete. Our leading indicator as we see it is our business in Germany. Business in Germany in Q4 was very strong. It was actually up approximately 20%. So we feel good about discrete and we see a nice uptick in the mass transit and this is where OTM systems will help us out.

[Operator]

Thank you. We'll now take our next question from Steven Fox from Fox Advisors LLC. Please go ahead.

[Steven Fox, Fox Advisors LLC]

Henk, congratulations and thanks for all your help over the years. I've seen you manage AX banks [ph] but could you let us know what you're going to be doing? Anyway in terms of just the numbers, I guess I'm a little curious about where you see your customer inventories and the channel inventories, you mentioned some of that was a drag on growth last quarter. Can you just give us an update on how inventories look down the supply chain as they go up?

[Roel Vestjens, President & CEO]

So first of all, let me start [ph], there is no ambiguity. Let me call them the customer inventory levels. So we have outlined the plan at the beginning of year to get $70 million out of the system if you will. So further reduce our channel inventory partners levels at $70 million and that's exactly what matured, a lot of it in the fourth quarter as you saw, but that was exactly as we had forecasted it to be.

So that up as well for 2021. We don't expect any of this to recur and turns at our channel partners, we now believe are at healthy levels. So were very, very pleased to have them behind us. As far as our supply chain is concerned, as I mentioned earlier, you saw that the inventory levels that we carry on our balance sheet in Q4 were actually a little bit higher than you probably would have assumed, meaning that our turns did not improve compared to year ago period. As a matter of fact, the degraded 0.8 turns. That's because we carry more inventory anticipating some of these shortages that you read about to make sure that we can satisfy our customers and maintain our high on-time delivery standards.

[Steven Fox, Fox Advisors LLC]

That's very helpful and then just as a follow-up, can you talk a little bit more about the broadband business and especially one how you're gaining market shares and then secondly, so that the growth outlook either between the MSOs versus networking?

[Roel Vestjens, President & CEO]

Yeah so few comments that you might be helpful, we see the trends of our mix moving more towards outside the home versus inside the home continue. So all our full-year 2020, we had 50% of our revenue outside the home and hence 42% inside with actually an exit rate of 64%. Q4 we had 64% on our revenue outside the home. We saw the trend of fiber versus copper further improve.

So for the year, 27% of our revenue within broadband and 5G is now fiber and actually we have an exit rate of 32% in Q4. So more than $100 million for doing fiber and fiber related connectivity products in that segment. So that's one. Two is we continue to expand our offerings for the telcos as they get ready for their 5G offerings. It's still relative small part of the business, but we continue to invest in terms of -- adjusting our products, making our products suitable for 5G market, as well as increasing some of our commercial coverage within that segment.

Our MSO's are obviously still bread-and-butter right for that business. So we remain very strongly tied to our MSO customers and while we continue to expand our product portfolio, we continue to increase share through offering more solutions for these MSO customers.

[Operator]

Thank you. We'll now take our next question from David Williams from Loop Capital. Please go ahead.

[David Williams, Loop Capital]

First, I wanted to ask a little bit on the Smart Building side and how you envision that playing out for the rest of the year. Obviously a question that the COVID situation, but as that improves, do you see a big rebound there or is it kind of how you're thinking maybe about the Smart Business start up buildings?

[Roel Vestjens, President & CEO]

We continue to expect that business to decline in 2021 and I think during the Investor Day we highlighted that over the three year period, we outlined a base case and an upside case and the base case increase of low single digits over the last three years and the upside case most positive low single digits growth rates. So that's our outlook. We continue to monitor the starts right of commercial buildings and we're continuing to allocate more resources within the Smart Building segment to verticals that are actually growing such as the [indiscernible].

[David Williams, Loop Capital]

Okay. And then to our follow-up, just any comment on the ordering pattern in terms of being rational and are you seeing much anxiety in terms of trying to pull in orders just ahead of any shortages I guess down the food chain?

[Roel Vestjens, President & CEO]

Not at this point. I think I indicated that we feel good about the early trends that we're seeing it within the quarter, but we don't see anything out of the ordinary.

[Operator]

And our next question comes from [indiscernible]. Please go ahead.

[Unidentified Analyst]

First, let me just comment, and Henk it's been great working with you for the short time that we have and congrats on your next endeavor. I guess the question that I have is because may be it might have been asked, I was just curious how your upstream supply chain has been shifting in the markets that you serve are changing in terms of the technology. So for example while you look at -- if I look at broadband infrastructure for example, does those frequently increase, how exact having an effect on your upstream supply chain?

[Roel Vestjens, President & CEO]

So I think we've touched on this earlier. We feel good about our supplier's ability to deliver our components and the products that we require. We carry as Henk Gary highlighted earlier that we carry a little bit more inventory than we typically do for this specific reason to ensure that we don't run into shortages and that we're able to deliver our orders in Q1. We're able to book in turn in Q1 and able to maintain our high standards for our on-time delivery performance that our customers have expected from us at this point in time. So we don't see any issues at all.

[Unidentified Analyst]

I guess what I was trying to ask is now whether or now the issues like this has been processed that I'm assuming that your supplier base is shifting now with the technology shifts and so my question was more about the process of evaluating testing and qualification of your upstream supplier if the market demands continue to shift at a rather rapid pace? I am just curious how you're managing that?

[Roel Vestjens, President & CEO]

I understand, I appreciate the question, well first and foremost an increasing part of our offerings is software. So that obviously reduces the dependency on supplier lead times and supplier component availability. And secondly, because we are such a diverse enterprise, since we have so many different types of products and different types of suppliers, we're not very dependent on a few.

So and thirdly, because we've been doing this for a while and we have such a broad supplier base globally, there's very little components if not as a matter of fact I don't know of a single component ever sole-sourced that we only have one option in. So as you may or may not recall, we had an issue years ago where we kind of get stuck with the supplier not being able to supply certain components for industrial switching equipment and ever since that we've increased the exposure of our processes and optimize the processes to ensure that we minimize the chances of that ever happening again. So that's kind how I would answer the question. Does that make sense?

[Unidentified Analyst]

Yes sorry, I was trying to come off, that's helpful. Thank you.

[Operator]

Thank you. We'll take our next question from Mark Delaney from Goldman Sachs. Please go ahead.

[Mark Delaney, Goldman Sachs]

Hank, thank you as well for all of your help over the last several years and we wish you the best going forward. Two questions from me if I could, maybe first on the Cybersecurity business, there has been a lot of news around increased number of assets especially with wind and I'm curious has delving seen a material increase in customer dialogue or your order of funnel for the wire [ph] business just given the increasingly inventory environment?

[Roel Vestjens, President & CEO]

Our funnel currently supports our forecast for the first order for the full-year of 2021. We continue to focus on our number one strategic priority within Cybersecurity, the industrial space and we're pleased with the results that we've achieved within that vertical. So in 2021, in the second half, as you know our leading indicator is nonrenewal bookings. For the second half, they were up 11% Cybersecurity bookings in the second half and for the full-year they were actually up 31%. So what we feel good about the industrial priority within Cybersecurity and we continue to increase our funnel supporting the increased activity that we see.

[Mark Delaney, Goldman Sachs]

Understood and for my follow-up question, copper pricing, shipping cost and enterprises have all been rising. Can you speak to how much of a margin headwind you may be expecting in your 2021 outlook for some of these sectors?

[Roel Vestjens, President & CEO]

We don't. We have the ability to pass it on to our customers oftentimes through contractual agreements, oftentimes through price increases and since we're very used to fluctuations in copper prices as well as other metals, we're confident in our ability as we have proven over the last years to be able to pass those increases on to our customers.

[Operator]

There are no further questions at this time. Please continue.

[Roel Vestjens, President & CEO]

Okay. Thank you, Sergey 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 email address is [e-mail]. Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.