BDC - NYSE

Please standby. Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Reports Fourth Quarter and Full Year 2023 Results Call. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Aaron Reddington. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for Belden’s fourth quarter 2023 earnings conference call. With me today are Belden’s President and CEO, Ashish Chand; and Senior Vice President and CFO, Jeremy Parks. Ashish will provide a strategic overview of our business, and then Jeremy will provide a detailed review of our financial and operating results, followed by Q&A. We issued our earnings release earlier this morning, and have prepared a slide presentation that we will reference on this call. The press release, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com. Turning to Slide 2 in the presentation. During this call, management will make certain forward-looking statements in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For more information, please review today's press release and our most recent annual reports 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, Ashish Chand.

Thank you, Aaron, and good morning, everyone. We really appreciate you joining us today. As we host this earnings call, I’m days away from my first anniversary as President and CEO of Belden. Much has been accomplished this past year, and I am excited about the opportunity we have going forward to transform Belden and increase shareholder value. Let’s turn to Slide 4 for a summary of the major accomplishments we achieved in the fourth quarter and full year 2023. As a reminder, I’ll be referring to adjusted results today. First, let me take a moment and thank the Belden team for their excellent performance wrapping up a successful quarter and year. For the fourth quarter, our revenue and EPS both exceeded the high end of our guidance as our solutions transformation continues to drive incremental demand and margin expansion. Revenue for the quarter totaled $551 million, and EPS came in at $1.46. For the fourth quarter, orders increased sequentially by 4%, indicating stability in our end markets. Importantly, we experienced single-digit sequential order growth in both segments, Industrial Automation Solutions and Enterprise Solutions. Entering the quarter, our markets were experiencing many headwinds. I am encouraged to see relative stability in the fourth quarter that produced results exceeding our expectations. Second, as we wrapped up another transformational year, our business performed well and we were able to achieve record full year earnings per share of $6.83, up 7% year-over-year. I would like to point out, that after achieving record earnings per share in 2023, this marks two consecutive years of record EPS performance. Despite demand and destocking challenges in the second half of 2023, our revenue was only down 4% for the full year, and through successful execution, we were able to expand our margins. Gross margins were a robust 38.5%, up 270 basis points and EBITDA margins ended at 17.4%, up 40 basis points year-over-year. Third, our business is generating meaningful cash flow, and we are deploying capital consistent with our capital allocation priorities. Free cash flow for the year was strong at $217 million, roughly flat with our prior year total. With our ample free cash flow, our team took steps to reinvest in high-return opportunities. For the year, we invested nearly $110 million in strategic M&A designed to strengthen our solutions and enhance growth. Further, we returned over $200 million to shareholders mostly through share repurchases. Over the last year, we purchased 2.3 million shares, or approximately 5% of the total shares outstanding. Since 2022, our share repurchase program has returned approximately $350 million to shareholders resulting in the purchase of 4.9 million shares, reducing total shares outstanding by more than 10%. After deploying over $300 million in 2023 in M&A and share repurchases, our leverage remains low at 1.4 times. This leaves us with significant financial flexibility to execute upon our strategic plans whilst staying around our targeted net leverage ratio of 1.5 times. Now please turn to Slide 5. Before we dig deeper into our results for the quarter and year, I wanted to pause momentarily and reflect on the progress Belden has made during our solutions transformation. For those new to Belden, we began a transformation in early 2020 in our industrial business. Our main objectives were to bring together disparate Belden products, focus on data needs, and ultimately engage with customers in a different way to solve problems. Since then, we have been working feverishly behind the scenes to break down barriers, add new solutions skills internally, and invest heavily in our customer innovation centers, or CIC’s, of which we just opened the fifth in India recently. Our focus has been centered around key verticals with complex challenges. With our enhanced solution strategy, we work to simplify otherwise complex solutions and deepen our relationship with customers. Over the past few years, we have grown our solutions business meaningfully and see a runway for much more growth and opportunity. By focusing on customer problems, and working to provide high quality products and solutions, we are winning in the marketplace. Over the past market cycle, our business has performed admirably with a 6% revenue CAGR, meaningful improvements in gross margins, which led to a 140 basis point expansion in our EBITDA margins. Improved growth combined with margin expansion has led to impressive improvements in our earnings per share, which resulted in a 15% CAGR since starting our transformation. We have reconfigured our business to improve organic growth and prioritize higher value added products and solutions, and the results have been meaningful and impressive. If you look at Belden today compared to where we were four years ago, you will see massive changes underway and I am pleased to see these changes impact our financials so vividly. We ended 2023 with a new record for EPS and expect our business to perform similarly over the next cycle with increased revenue and record earnings. Finally, please turn to Slide 6 for a review of our capital allocation priorities in action during the past cycle. From a capital allocation perspective, much has been accomplished during our transition. First, we divested from two businesses that were underperforming and no longer aligned with our solutions strategy. As a result of those sales, combined with our impressive free cash flow, we generated approximately $1.3 billion of capital. On the right-hand side of the page, you can see where those funds were invested. First, over the last five years, we returned approximately $500 million to shareholders through share repurchases and dividends. Our buybacks have accelerated these past two years as we purchased approximately $350 million in stock and reduced our shares outstanding by over 10%. Second, our M&A activity has been steady with a total of 10 acquisitions, deploying approximately $400 million in capital. And finally, the Belden of the past had too much leverage. As part of our new strategy, we sought to reduce our leverage to a more reasonable 1.5 times target, which we achieved these past two years. Our lower leverage provides us with more flexibility during times like these to continue to invest in our business, seek out attractive acquisition targets, and return capital to shareholders. This slide is a perfect illustration of our capital allocation priorities in action, and how you can expect to see us operate in the future. Now please turn to Slide 7 for a quick summary of a few noteworthy customer wins during the quarter. These wins help highlight how our go-to-market strategy is evolving and showcase real-world examples of our solutions in the marketplace. First, on the Industrial Automation side, our teams succeeded in winning a project with one of the largest public transportation networks in Germany. Our customer was having issues with passenger experience, real-time position tracking of assets, and predictive maintenance. Working with Belden, we helped develop a comprehensive solution to improve their network and solve critical pain points in passenger experience. Next, I am pleased to report that we won a $6 million agreement with a major healthcare customer as an end-to-end solutions provider. This specific customer was looking to solve key data and network issues and brought their team to our CIC in Chicago for a demo. They were very impressed with our consultants and solutions, and ultimately awarded Belden the contract on top of eliminating multiple previous product suppliers and awarding us that business as well. This win highlights the power of our CICs and how the strategy not only showcases our solutions, but also helps us gain share in the marketplace. Finally, as we have discussed previously, we are working hard to streamline our Enterprise Solutions segment and move it down the solutions path in the same way we did for Industrial Automation a few years prior. I am proud to share that our team is gaining traction in the marketplace by selling enterprise and broadband products across key distribution partners. In the past, Belden operated with walls between markets and products that limited our opportunity. By breaking down these walls and silos operationally, we can bring our products to market in a more comprehensive way which lays the foundation for true solution sales. This work is important as we continue down our solutions path, and these wins are examples of how things are changing. I will now request Jeremy Parks to provide additional insight into our fourth quarter and full year 2023 financial performance.

Thank you, Ashish. I will start my comments with results for the fourth quarter and full year 2023, followed by a review of our segment results, a discussion of the balance sheet and cash flow performance, and finally our outlook. As a reminder, I will be referencing adjusted results today. Now, please turn to Slide 8 in our presentation for a review of our fourth quarter results. Fourth quarter revenue decreased 16% year-over-year and was down 18% organically to $551 million, exceeding the high end of our guidance of $530 million. As expected, we experienced softness in Industrial Automation with revenues decreasing 17% organically and Enterprise Solutions revenue decreasing 19% organically. Orders for the fourth quarter were up 4% sequentially, with slight upticks in both segments. We ended the quarter with a book-to-bill of 0.96 reflecting a more stable order environment. Gross profit margins were 38.2%, expanding 40 basis points compared to the prior year. EBITDA came in at $88 million with EBITDA margins down 140 basis points to 16.0%. Decremental margins for the second half performed as expected, down 20%, in line with our targets. Net income in the quarter was $61 million, from $76 million in the prior-year period. EPS was $1.46, above the high end of our guidance range of $1.20. Please note that relative to prior guidance, we experienced a favorable tax rate that resulted in a $0.15 benefit for the quarter. The benefit was the result of our continual tax planning efforts and certain discrete tax items. Now, please turn to Slide 9 in our presentation for a review of our full year 2023 results. Full year revenue decreased 4% year-over-year and was down 4% organically to $2.5 billion. By segment, Industrial Automation experienced a 1% decline in revenue organically and Enterprise Solutions experienced an 8% decline in revenue organically. Gross profit margins were 38.5%, expanding 270 basis points compared to the prior year. Our business is benefiting from favorable product mix, as we continue to deliver solutions that typically consist of more higher-margin active components. EBITDA was down 1% year-over-year to $438 million with EBITDA margins up 40 basis points to 17.4%. Net income for the year was $293 million, up 3% from $285 million in the prior year. And finally, EPS increased 7% to a record $6.83, up from $6.41 in the prior year. Turning now to Slide 10 in the presentation for a review of our business segment results for the quarter. For the quarter, performance by segment was aligned with our expectations. Orders were soft, as our markets experienced continued slowness combined with the lingering impact of destocking. For the fourth quarter, revenue in our Industrial Automation Solutions segment was down 16% compared to the prior year, and EBITDA was down 18%. Orders in Industrial Solutions were up 7% sequentially, and down 19% year-over-year. For the quarter, we experienced particular weakness in our discrete end markets, which continue to exhibit customer destocking. For the fourth quarter, revenue in our Enterprise Solutions segment was down 17% compared to the prior year, and EBITDA was down 29%. Orders in Enterprise Solutions were up 1% sequentially, and down 2% year-over-year. As expected, we continue to see customer destocking in both the smart buildings and broadband markets. Longer-term we anticipate meaningful growth in broadband as the investment cycle ramps up. Now onto Slide 11 for a review of segment results for the full year. For the full year 2023, in the Industrial Automation Solutions segment revenue decreased by 1% year-over-year. For the full year revenue was off in Discrete Manufacturing, partially offset by growth in other markets including Process, Mass Transit, and Energy. Industrial Automation segment EBITDA increased year over year to $287 million and EBITDA margins were 20.7% for the year, with margins expanding by 100 basis points. Turning now to our Enterprise segment. For the full year 2023, in the Enterprise Solutions segment revenue decreased by 6% year-over-year. We saw a moderate decrease in most of our end markets, as customers continued to work through inventory. Enterprise Solutions segment EBITDA margins were 13.3% for the year, compared to 13.5% in the prior year, down 20 basis points due to lower volume leverage. Next please turn to Slide 12 for our balance sheet and cash flow highlights. Our cash and cash equivalents balance at the end of the fourth quarter was $597 million compared to $688 million in the fourth quarter of 2022. Our financial leverage was 1.4 times net debt to EBITDA at the end of the fourth quarter. As we communicated before, we intend to maintain net leverage of approximately 1.5 times going forward. We have a reasonable level of debt, much lower than in the past, with no maturities until 2027. In addition, all our debt is fixed with an average interest rate of approximately 3.5%. Through the fourth quarter, our trailing 12-month free cash flow was $217 million, just slightly below prior year levels. We continue to have ample liquidity to deploy towards high-return opportunities even as we manage through a dynamic environment. In 2023, we invested nearly $110 million in new and complementary businesses and returned over $200 million to shareholders. Please turn to Slide 13 for our updated outlook. First, we have decided to provide guidance one quarter at a time, aligned with the short-cycle nature of our business. During these challenging times, our focus will remain on execution. For the first quarter, we anticipate challenges from the prior year to continue, including customer destocking and other temporary headwinds. Relative to the fourth quarter, we expect end demand to be stable with revenue down slightly, in line with normal seasonal patterns. If you recall, the first quarter is typically our weakest quarter seasonally, and we would expect that trend to continue for 2024. For the first quarter, assuming current market conditions do not deteriorate further, we expect sales in the range of $505 million to $520 million and adjusted EPS in the range of $1.00 to $1.10. That concludes my prepared remarks. I would like to turn the call back to Ashish.

Thank you, Jeremy. Stepping back, the fourth quarter was challenging with many uncertainties to navigate. We view the current softness as temporary with demand reacting to the economic environment and customers continuing to destock. Over the short term, we see stability in our business and are hopeful that we will see an uptick in the back half of the year. The long-term secular drivers and investment cycles remain, and after we get on the other side of this weakness, we expect to see higher revenue and EPS through the next cycle. Over the next few quarters, what can you expect from us? First, you can expect us to continue to focus on execution and managing our margins to enhance shareholder value. We will have a balanced focus on continuing to invest in our solutions transformation, whilst at the same time working to achieve incremental and decremental margins as we have in the past. Second, you can expect us to continue to drive solutions sales, with an enhanced focus on breaking down the barriers in our Enterprise Solutions segment and leveraging our world-class products across a broader customer base. Our CICs are now in full swing, and we expect to gain leverage on our investments in the quarters and years to come. And finally, you can expect us to continue with our capital allocation framework and invest our healthy free cash flow into high-return opportunities. That means first and foremost investing in organic growth. Over the past cycle, we delivered a 6% revenue CAGR with 4% of that from organic growth. This will continue to be our primary focus. After that, we will continue to seek out bolt-on acquisitions that enhance our solutions offering. And finally, we will look to return capital to shareholders, primarily through share repurchases. Looking forward, our portfolio is well-positioned and our balance sheet is strong. We will continue to execute operationally through these challenges and look for opportunities to seize the moment and gain share where possible. To close, I would like to take a moment and recognize the contributions of our associates this past quarter and year. I appreciate your efforts and would like to thank you for your support as we continue to transform Belden through a challenging environment. Thank you for your hard work. That concludes our prepared remarks, operator please open the call to questions.

Thank you. [Operator Instructions] The first question comes from the line of William Stein with Truist Securities.

Great. Thanks for taking my question and let me offer my congratulations on the surprisingly good results and outlook today. Your guidance, as you highlighted aligns with normal seasonality and yet you're still talking about customer destocking and weak demand levels, those two feel a little bit at odds to me. I'm trying to understand if you believe that the weakness that we saw in Q3 and Q4 is essentially behind us now or are we still going through it? And any details or nuances that would help me understand cyclical positioning would really help? Thank you.

Sure. Well, first of all, thank you, Will, for your kind words. So we saw Q4 as a stable period, right? So we saw orders sequentially growing slightly across the businesses. We think Q1 will follow a similar pattern, essentially. And with the sequential adjustment, typically, we go about 7%, 8% down from Q4 to Q1, just with normal seasonality. So it's not -- nothing different in terms of that extended period of stability. Now if you remember, we previously guided that the first half of '24 is the period when we would see this destocking phenomenon at its peak and then, in the back half, we would see normalization. So no, we -- I don't actually think it's different from what we previously expected. And this -- I don't think we can say that the destocking period is behind us, but I think we can say that we are going through the stable process of destocking as expected and based on all the other indicators we have at the macro level, including PMIs now, we are heading in the right direction.

Okay. That's helpful. Thank you. One follow-up, if I may. I'm hoping you can talk a bit about the CICs, the pacing of investment there. You noted that you opened our fifth one recently. Are we -- should we expect more of these going forward and whether the CICs have changed your relationship with the channel at all and your anticipated revenue through the channel relative to your act? Thank you.

Yeah. No. So I think -- in fact, I think you've actually visited one of our CICs, so you've seen it for yourselves. We had announced initially that we will build five big CICs across the world. We just finished that process. We are planning to roll out something -- some smaller format versions called mini CICs in more locations that will get connected to these big five hubs. Now what we've noticed is, as -- and we've seen this with our first CIC in Stuttgart, right? The first 12 months or so, it's a lot about customers getting familiar with our technology, and then it moves to the second phase where people invest in time and validation testing and large solution design. And then, it gets really interesting and we see a massive elevation in success or in win rates with customers once they get to that stage. For most of our channel partners, including those that do value add for our customers, they did not have those kinds of investments. They didn't have that infrastructure where they could demonstrate to a customer a complex solution. So the CIC has actually become a really positive element in that partnership because now they can bring their customers over and they can show how all those different products work together, which previously, they would have to just talk about. So yeah, I think the CICs have turned out to be a great investment. We just talked about earlier on the call about an example where a customer came in for a regular technology update visit, and then we ended up with a big contract. So -- and then, this customer was actually brought in by a partner and so that dynamic is very positive.

Great. Thank you.

Thank you.

We'll go next to Chris Dankert with Loop Capital.

Hi. Good morning. I guess, first off, as we're looking at the first quarter guidance here, I assume guidance is calling for both segments to be down a similar amount on a year-over-year basis. If you could just confirm that, that would be helpful.

Yeah. That's right, Chris.

Okay. Perfect. And I guess from a bigger picture perspective, I'm still seeing the $8 target in the back of the slide deck here. Maybe just kind of talk through the rationale on keeping that target unchanged, how you're thinking about getting it from here to there, perhaps?

Yeah. So the $8 EPS in 2025 is still our target, and it's driven by our belief in the longer-term fundamentals in the business. It's also supported by the investments we've continued to make through the cycle. We just talked about the CICs in the prior question. And it's not just the CICs, it's the overall product, R&D solution selling capabilities. Chris, we feel at this point that we were actually slightly ahead when we had articulated the target. Previously, in '22, we had said EPS would grow at about 12%. We had multiple levels to get there, including organic growth, of course, but bolt-on M&A, share buybacks, et cetera. And then we were ahead in the first half of '23 of that 12% CAGR. And with our current guidance, we need to kind of be in that 8% CAGR in '24 and '25, we still have two years to go. And we feel that the investments we've made will pay off handsomely once we get to the other side of this cycle of this destocking phenomenon. So it may not be linear, so I can't articulate a simple linear formula here. But just based on the fundamentals in the market, our investments and the fact that we were slightly ahead previously, we still believe we'll get there.

Yeah. I appreciate the color. And then glad to hear there's still a lot of confidence in hitting that goal, excuse me. If I could sneak one last one and maybe just a quick comment on what you're seeing in data center. I know there's a couple of different indicators in terms of how that market is. But just any comments on what you're seeing in data center would be great?

Yeah. So that business has continued to do well for us for two reasons. First, as you remember probably from previous discussions, we were not overly focused on the hyperscale market. We were focused more on helping customers in specialized areas like health care, hospitality, finance, federal, those kinds of markets to build out data centers. And they see that as part of the overall solutions approach that we bring to that market. Obviously, with the advent of more machine learning and AI, the need for data has multiplied even in those markets. So we continue to see data centers as fairly attractive. And it’s obviously had some ups and downs more recently, just given the inventory dynamics. But at a base level, if you look at our pipeline, we have more and more customers coming to us right now, asking us to design solutions that include data centers.

Understood. Well, thanks so much for the color and best of luck in '24 here.

Thanks, Chris.

We'll go next to Mark Delaney with Goldman Sachs.

Yes. Good morning. Thanks very much for taking my questions. First question around inventory levels. How much inventory do you think was reduced to distributors in the fourth and if you have visibility into it and direct customers as well. And where you think inventory levels in distribution and direct customers will be at the end of the first quarter compared to normal levels?

Yeah. I'll take that one, Mark. So inventory in the fourth quarter was down pretty significantly in the fourth quarter. I think this is a multi-quarter process as we -- as inventory comes down at distribution. I think there's really two elements here you have to keep in mind, which is the reduction in distribution and then the reduction at end customers. So machine builders, OEMs, other end users. And so I think that's a little bit more difficult to quantify. In the fourth quarter, it's hard to give you an exact number, but a significant amount of the reduction that we saw in fourth quarter was related to inventory.

Got it. Thanks for that, Jeremy. And then, a second question, just trying to better understand how you're looking at margins and operating expense levels in 1Q. I think implied EBIT margins are about 12.5% to 12.6% at the midpoint. So I think that would suggest gross margins are holding up at pretty healthy levels. OpEx dollars seem to be staying at a lower absolute level. But any more specifics you can provide around how to think about gross margins and OpEx in 1Q? And if there's anything temporary in there, onetime reductions in OpEx that may not repeat throughout the balance of the year, that would be helpful to better understand. Thanks.

Yeah. So gross margins, I think, will continue to be pretty strong. You may see a little bit of a tick down in gross margins from Q4 to Q1 just because the volume is lower. So there will be a bit of an impact from just lower volume leverage. On the OpEx side, we're going to continue to manage OpEx pretty closely to hit the decremental targets that we've given. And so we'll manage that tight. We don't have plans to do additional headcount reductions in the first half of the year. Remember, we took a productivity action in the fourth quarter. So we'll manage OpEx, and I wouldn't expect OpEx to be going up in Q1 versus where we were in Q4.

Thank you.

Sure.

[Operator Instructions] We'll go next to Reuben Garner with The Benchmark Company.

Thanks. Good morning, everyone.

Hey, Reuben.

Can we -- I think last quarter, you noted an expectation that Broadband would probably recover the earliest. It sounds like you're sort of seeing similar sequential movements in both Enterprise and Industrial Automation. Do you still have an internal expectation that you'll see kind of Broadband snap back first and maybe Industrial Automation and Smart Buildings sort of later in the fiscal year?

So Reuben, if you remember, we talked more about the kind of macro view at that point that Broadband demand was robust. It had support from federal spending. And in general, the large MSOs we partner with, they had no noticeable change in their posture towards capital expenditure and adding subscribers, right? That hasn't changed. We -- if anything, we're encouraged with the reports we've seen now, we've had a chance to kind of delve deeper into the customer plans. The one thing I will say is that these are complex supply chains that depend on a number of products coming together, of which we supply a portion and sometimes because of the complex procurement process, even though the end demand is fine, you may see some timing. So at this point, we don't see anything different to what we had previously guided in terms of strength in the Broadband end markets. We've seen a little bit of timing in Broadband, but nothing that takes us away from expectations. It's within a few percentage points here and there. So to give a simple answer to your question, we still expect Broadband end demand to come back first and we feel that given some minor changes in timing, et cetera, we'll see our Broadband business follow that.

Yeah. Maybe the only thing I'll add here, Reuben, for your benefit is that, keep in mind that the Broadband seasonality in Q1 is a little bit more significant because those products are going in the network. So typically, Q1 is not a particularly strong quarter in Broadband. Once we hit the spring, usually, we see volumes increase in that business.

Okay. Great. And then, we sort of touched on this, but I just want to kind of hopefully get a maybe a bridge on a year-over-year basis, Jeremy, if possible. The gross margin performance in the quarter was really strong considering the top line environment. Can you kind of walk us through how you were able to sustain those kind of gross margin levels in the face of volume down as much as it was?

Yeah. I mean, you've got -- for sure, we've got pressure coming from the negative leverage in the volumes coming down. So we've got to absorb those fixed costs on a smaller amount of volume. But the offset is that -- is positive mix. So I think where we've been strong is in our highest-margin products. So some of the actives, switches and other things that we're selling as part of our solutions, the reality is, if you look at the products that are really held in inventory at customers and at distributors, it's probably disproportionately things like cable and some lower-margin products. So the bulk of the impact that we've seen volume-wise has been in some lower-margin products. So I think you've got negative leverage, but then that's offset by positive mix. And so that's how we've been able to hold margins up through the past 12 months.

Understood. Thanks for taking the questions and good luck this year.

Thank you.

Thank you.

[Operator Instructions] We'll go next to Rob Jamieson with UBS.

Hey. Good morning. Congrats on the results and solid guidance today. I appreciate all the detail that you have provided this morning. I guess for me, just within Industrial Automation Solutions, can you maybe provide us a little color on what you saw in the fourth quarter, maybe even full year just across the different end markets between discrete, process, energy and mass transit?

Yeah. So obviously, discrete has been less robust in the second half of '23. And that is driven by -- largely by the destocking phenomenon and maybe to some extent by the interest rate environment where people slowed down some of their projects. We even noted, as we've mentioned previously that some of the reshoring projects in discrete slowed down because there was a shortage of labor. They didn't have enough people to either build or operate this plant. So in Q3, we saw that come down. If you remember, orders were down almost -- just over 20% actually sequentially and POS was down at that point, about 8%. Now in Q4, we saw that whole thing stabilize. Orders were up about 7% sequentially. POS was flattish. And we've seen other indicators -- leading indicators, including PMI that show that it's heading in the right direction. So discrete is still an area where we expect some weakness and then it will come back once this inventory cycle is -- we get to the other side. But meanwhile, we did see significant growth in process markets and in mass transit. In mass transit, especially because of our high focus on providing this full mission-critical solution, we have a number of engagements. These tend to be more long term. They don't get impacted, Rob, so much by inventory changes, et cetera. And we have a fairly robust pipeline there. But yes, so to answer your question, it was more discrete, more linked to the inventory phenomenon and I think it's stable now.

Perfect. That helps. Thank you very much. And then I guess, just like last one, a higher level. You talked a lot about the CICs and the success there. I guess, maybe two things, an update on kind of conversions with customers that have come through the door. And then maybe just some high-level thoughts on outside of just the solution and attacking the right KPIs for your customers. Maybe can you talk a little bit about other investments that you've made in software or middleware solutions like Horizon?

Yeah. So there are a few things happening. So first of all, on the CICs. So typically, when we engage with customers in the long term for a data or a network solution, our success would be about one-third of the customers would convert eventually, which is fairly healthy. We've seen that once we get a customer to invest in a validation test at a CIC, that rate might actually go up 2 times to 3 times, right? So it's fairly significant, the change that we see in that customer engagement. And we've seen more and more instances now where customers come to us, typically, with a complex kind of idea in their heads and then we walk them back a little bit, talk about the KPIs they want to address. So for example, we've previously mentioned, we worked with this utility company in Spain, and their KPI was the average time it took to find a fault in their network. And they were experiencing 140 minutes on average. And we were able to take that down to about 35 minutes and they saved obviously, a lot of money through better revenues and saving on fines. So it's interesting. Each customer typically comes initially with a semi network design. We walk them back to KPIs. We design a better workflow and data flow and then we get there. Now part of this, obviously, is how we bring different sources and destinations of data together and Belden Horizon has turned out to be really phenomenal experience for most of our customers because it's very neutral. It doesn't -- it's not application software. It's not designed to do anything with the data other than cleanse it, sort it and connect it to different -- connect different sources to different destinations. One interesting thing that's happening, by the way, with Horizon is we are now testing more and more offering data as a service, although we are not -- we haven't yet commercialized that. And we've had requests now to incorporate more machine learning and AI into Horizon which we have been doing. And the example I'd like to quote is, imagine a factory which has cobots and a worker may be walking into the arc of a robotic arm and with machine learning on our edge devices and some form of an LLM in Horizon, we can actually stop that robotic arm without anything going to the cloud because otherwise, there's too much latency and somebody might get injured, right? So those kinds of applications, they're not always the ones that get a lot of attention in the media as AI applications but they save lives and they save time and they increase productivity. And that's where we are going with that whole software layer, which has turned out to be an exciting journey even for us in terms of learning. So again, lots of interesting things happening, but I think you are thinking about it the right way. Customer KPI is getting impacted and the software really making a big difference in that.

Awesome. Thanks so much.

There are no further questions at this time. I would like to turn the call back over to Aaron Reddington for any closing remarks.

Yeah. Thank you, operator, and thank you, everyone, for joining today's call. If you have any questions, please contact the IR team here at Belden. Our e-mail address is [email protected]. Thank you.