Matthew Tractenberg - Vice President-Investor Relations John S. Stroup - President, Chief Executive Officer & Director Hendrikus Derksen - Chief Financial Officer & Senior Vice President-Finance.

Shawn M. Harrison - Longbow Research LLC Steven Fox - Cross Research LLC John Quealy - Canaccord Genuity, Inc. Charles Edgerton Redding - BB&T Capital Markets Noelle Dilts - Stifel, Nicolaus & Co., Inc..

Ladies and gentlemen, thank you for standing by and welcome to this morning's Belden Incorporated Conference Call. Just as a reminder, today's conference is being recorded. At this time, you're on a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the conference over to Matt Tractenberg.

Please go ahead, sir..

Thank you, Anthony. Good morning, everyone. Thank you for joining us today for Belden's First Quarter 2016 Earnings Conference Call. My name is Matt Tractenberg. I'm Belden's Vice President of Investor Relations. With me here this morning are John Stroup, our President and CEO; 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've 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 two in the presentation. During this call, management will make certain forward-looking statements.

I'd like to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The comments we will make today are management's best judgment based on information currently available.

Actual results could differ materially from any forward-looking statements that we make, and the company disclaims any obligation to update this information to reflect future developments after this call.

For a more complete discussion of factors that could have an impact on the company's actual results, 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, we have provided a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate. This reconciliation is in the appendix of the presentation and has been posted separately to the Investor Relations section of our website.

I'll now turn the call over to our President and CEO, John Stroup.

John?.

Thank you, Matt, and good morning, everyone. As a reminder, I'll be referring to adjusted results today. Please turn to slide three in our presentation for a review of our first quarter highlights. We are extremely pleased with our first quarter results, including earnings growth, margin expansion, and cash flow.

This allowed us to pay down an additional $51 million of debt, further reducing our leverage. Debt reduction continues to be a priority this year and we're on track to deliver approximately three times net debt-to-EBITDA in 2016.

As expected, strength within our Broadband, Enterprise, and Network Security markets, offset weakness from our industrial platforms. Despite a difficult year-over-year comparison due primarily to lower oil prices and a stronger U.S. dollar, our attractive portfolio, superior business system, and talented team enabled us to outperform.

I'd like to thank our associates for their hard work during the quarter and their commitment to aggressively executing our strategic plan. Overall, the business is off to a solid start for the year, with revenues in the first quarter totaling $543.8 million. After adjusting for changes in copper and currency, revenues declined organically by 1%.

We're encouraged by a consolidated book-to-bill above 1, with industrial orders consistent with seasonal patterns. Year-over-year revenues for the combined industrial platforms declined by 5.8%, in line with both expectations and peer results.

Our broadband connectivity business and Enterprise and Network Security platforms delivered solid growth within the quarter. Goss profit margins were 42.3% for the first quarter, an increase of 170 basis points from the year-ago period.

I'm also pleased with our EBITDA margins in the first quarter at 16.4%, a year-over-year increase of 90 basis points. Free cash flow in the period improved by almost $63 million from the prior year. I believe this is a great indicator of our commitment to operational excellence and our commitment to reducing financial leverage.

Earnings per diluted share was $1.01 in the first quarter, which both exceeded our own estimates and grew slightly from the year-ago period. As a result of this strong start to the year, we have increased our full-year revenue and EPS guidance. Please turn to slide four for a review of our business segment results.

To capitalize on the adoption of IP technology that accelerate our penetration of the commercial audio-video market, we elected to transfer the responsibility of this product category to our Enterprise segment leadership team. As a result, audio-video cable and connector revenue will now be recognized within the Enterprise Connectivity platform.

It was previously recorded within the Broadcast Solutions platform. Prior-period segment information has been revised to conform to the change in the composition of reportable segments and is included as an appendix to this release. Broadcast revenue in the quarter was $171.3 million as compared to $176.5 million in the year-ago period.

On an organic basis, revenues declined by 2.1% year-over-year. Our strategy and offering continues to be well-received, and I'm proud to announce that in April, Grass Valley won the largest project in its history.

Our IP introduction continues to gain traction with leading broadcasters around the world, as evidenced by the additional 7 IP systems shipped during the quarter. Additionally, our broadband business continues to perform well, as MSOs invest heavily to keep up with the consumer demand for video.

EBITDA margins during the quarter were 13.6%, increasing 50 basis points from the prior-year period and in line with typical seasonal patterns. Revenue within our Enterprise platform was $135.9 million. On an organic basis, revenues increased by 4.1%, and orders by 8% year-over-year.

EBITDA margins were 17.5% during the quarter, an increase of 340 basis points from the prior-year period. The strength and consistency of this platform is clearly the result of our team crisply executing a well-crafted strategic plan.

While our industrial platforms experienced the market softness that we anticipated and discussed with you in prior periods, the productivity measures will mitigate much of the impact to earnings. Combined revenues of $195 million declined by 5.8% from the year-ago period.

The organic decline was a result of continued softness within oil and gas applications, and broad weakness in Latin America. Industrial Connectivity had revenue for the quarter of $141.1 million, down 4.1% organically from the year-ago period.

EBITDA margins were 16.3% for the first quarter, up 50 basis points, and a solid outcome given the demand headwinds it's facing. Industrial IT had revenue of $53.9 million, a decrease of 10.2% organically from the first quarter of 2015. Oil and gas applications continue to weigh on the platform, declining by 27%.

However, I'm encouraged by a solid book-to-bill of approximately 1.06, driven by strong demand from discrete applications within the EMEA region. As a result of lower volume, EBITDA margins decreased 220 basis points from the year-ago period.

The productivity initiatives introduced last quarter for the industrial platforms are on track to deliver $6 million of saving in 2016, and $17 million of savings in 2017. And finally, our Network Security platform increased revenues by 12.1% organically to $41.7 million. Non-renewal bookings during the quarter increased by more than 30%.

This is obviously extremely encouraging. In addition to posting outstanding results, Tripwire had a very busy quarter. First, announcing the release of Tripwire Connect, a reporting, analytic, and visualization tool that customers can use to manage the increasing complexity of cybersecurity threats.

Then at RSA, they announced a partnership with FireEye to provide integrated industrial network security solutions to critical infrastructure providers around the world. This will further enhance our unique position in the industrial markets to create leading cybersecurity solutions for global automation partners and other critical infrastructure.

And finally, they continue to win customers within the fast-growing utility market, with year-over-year growth exceeding 50%. EBITDA margins in the quarter were 27.5%. I'm encouraged by these new innovative products, an expanded customer list, and new industry-leading partners that will allow us to meet the critical security needs of the marketplace.

I will now ask Henk to provide additional insight into our first quarter financial performance.

Henk?.

Thank you, John. I will start my comments with the results for the 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 five for a detailed consolidated review.

First quarter revenues were $543.8 million, a decrease of $25.7 million, or 4.5%, from $569.5 million in the first quarter 2015. Currency translation and copper unfavorably impacted revenues by $10.9 million and $10.4 million, respectively. The acquisition of a fiber solutions company increased our revenues by $1.5 million.

On an organic basis, revenues declined 1% from the year-ago period. Gross profit margins for the quarter were 42.3%, increasing 170 basis points from the year-ago period, a function of improved productivity. Sequentially, gross profit margins declined 80 basis points, in line with typical seasonal patterns.

First quarter SG&A expenses were $116.2 million, or 21.4% of revenues. After adjusting for the impacts of currency and acquisitions, SG&A expenses declined by $1.5 million year-over-year and $5.9 million sequentially.

On a year-over-year basis, savings from our Broadcast productivity programs of $5.5 million more than offset continued investment in our Network Security and Enterprise initiatives. R&D expenses for the quarter were $35.9 million, or 6.6% of revenue.

After adjusting for the impact of currency, R&D increased $2 million year-over-year, reflective of our continued focus on innovative solutions for our customers. EBITDA margins were 16.4%, up 90 basis points year-over-year. Our Enterprise, Broadcast, Network Security, and Industrial Connectivity platforms all contribute to this expansion.

Despite a decline in revenues from the year-ago period, EBITDA dollars increased slightly to $89.1 million, highlighting the resilience in our business model. Sequentially, EBITDA margins decreased 260 basis points, driven by seasonally lower volume. Net interest expense was $24.4 million dollars, an increase of $600,000 dollars year-over-year.

The lower debt principal reduced interest expense by approximately $1 million in the quarter. This was more than offset by additional days, which had an unfavorable impact of $1.6 million. We expect interest expense of approximately $24 million for the second quarter and $95 million for the full year.

The adjusted effective tax rate for the first quarter was 20%, compared to 18.8% in the prior year. For financial modeling purposes, we recommend using a 20% effective tax rate for the second quarter and full-year 2016. Earnings per diluted share was $1.01 compared to $1 in the year-ago period.

Please turn to slide six; I will now discuss revenues and operating results by business segment. As a reminder, our audio-video cable and connector results will now be recognized within the Enterprise Connectivity Platform.

After adjusting for the change, Broadcast Solutions generated revenues of $171.3 million during the first quarter, compared to the year-ago period, revenues decreased $5.2 million. Currency translation unfavorably impacted revenues by $3 million and the acquired fiber solutions company contributed $1.5 million.

On an organic basis, revenues declined 2.1% from the year-ago period. Sequentially, revenues decreased in line with typical seasonal patterns. Broadcast EBITDA margins improved year-over-year by 50 basis points to 13.6% of revenues. Sequentially, EBITDA margins declined 630 basis points, mainly a result of seasonally lower volume.

Our Enterprise Connectivity segment generated revenues of $135.9 million during the first quarter, a decrease of $5.9 million year-over-year. This segment faced a $2.9 million headwind from currency translation and a $5 million unfavorable impact from lower copper prices.

Organic growth in the quarter was 4.1% year-over-year with all major regions expanding. The Enterprise segment generated EBITDA margins of 17.5%, an increase of 340 basis points year-over-year. This segment benefited from leverage on volume and improved productivity. Sequentially, EBITDA margins increased 70 basis points due to productivity.

The Industrial Connectivity segment generated revenues of $141.1 million in the quarter. Currency translation and copper prices unfavorably impacted revenues by $4.1 million and $5.3 million, respectively, from the year-ago period. On an organic basis, revenues declined 4.1% year-over-year and 2.1% sequentially.

EBITDA margins of 16.3% increased 50 basis points year-over-year, primarily due to productivity. Sequentially, EBITDA margins declined 50 basis points as a result of mix. The Industrial IT segment generated revenues of $53.9 million. Currency translation unfavorably impacted the segment by $1 million year-over-year.

On an organic basis, revenues declined 10.2% from the prior-year period and 14.4% sequentially. While the sequential decline is a function of typical seasonality, the year-over-year decline is primarily due to softer oil & gas markets. As John mentioned, we're encouraged by our book-to-bill ratio of 1.06 for the quarter.

EBITDA margins of 16% declined 220 basis points year-over-year and 240 basis points sequentially. This was mainly a function of leverage on lower volume. As we execute on our productivity programs, we expect EBITDA margins for this platform to be at approximately 18% on a full-year basis.

Finally, our Network Security segment continues to perform well, generating revenues of $41.7 million, up 12.1% on an organic basis year-over-year. Sequentially, revenues declined 15%, reflecting the seasonality of this business.

EBITDA margins were 27.5%, an improvement of 80 basis points from the year-ago period, a result of leverage on volume partially offset by strategic investments. You will turn to slide seven; I'll begin with our balance sheet highlights.

Our cash and cash equivalents balance at the end of the first quarter was $146 million compared to $217 million in the prior quarter, and $167 million in the prior year. During the first quarter, we paid down $51 million of our outstanding debt, reducing our total debt principal amount to $1.72 billion.

Inventory turnover was 5.9 turns, down 1.2 turns sequentially, and up 0.2 turns on a year-over-year basis. Days sales outstanding was 60 days in the first quarter, an improvement of 2 days sequentially and 3 days year-over-year. PP&E turnover was 6.8 turns, down 0.9 turns sequentially and 0.1 turn year-over-year.

Net leverage was 3.7 times net debt-to-EBITDA at the end of the quarter. We are on track to achieve a net leverage ratio of approximately 3.0 times by the end of 2016. Please turn to slide eight for a few cash flow highlights. Cash flow from operations were $12.7 million, an increase of $60.9 million from the prior-year period.

This was mainly driven by improvements in our operating working capital performance, with an impact of approximately $54 million. Net capital expenditures for the quarter was $13.4 million, decreasing $2.1 million year-over-year. Free cash flow was a use of $700,000, an improvement of $63 million from the year-ago period.

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

John?.

Please turn to slide nine for our outlook regarding the second quarter and full-year 2016 results. Given the strong start, we have increased our revenue and earnings outlook for the year. We expect our Broadband, Enterprise, and Network Security businesses will continue to perform well and benefit from favorable end-market conditions.

Although our industrial businesses are down year-over-year, sequential performance, backlog, and order rates suggest stability that should lead to a better second half. We anticipate second quarter 2016 revenues to be between $570 million and $590 million, and EPS is expected to be between $1.20 and $1.30.

For the full year, we now expect revenues between $2.32 billion and $2.37 billion. The expected range of EPS is now $5.15 to $5.45. That concludes our prepared remarks. Anthony, please open the call to questions..

Thank you. Matt Tractenberg, your first question is from Shawn Harrison with Longbow Research..

Hi. Good morning, everybody..

Good morning..

Good morning, Shawn..

I guess just looking at Broadcast, a couple different questions on that business. If you could just speak to, I guess, the order rates you're seeing there, what exactly the IP shipments mean for you and kind of how you expect the margins to continue to track for the year.

I thought maybe they'd be a little bit higher because of restructuring savings but maybe there's something else going on there.

And so, just really what is the large project win mean? What are the IP solutions mean? I think you shipped four last quarter kind of the margin trajectory maybe for the year and maybe a run rate of EBITDA margins or something like that exiting the year?.

Shawn, so obviously within our Broadcast segment, we've got two pieces particularly given the fact that we've moved the audio-video cable business into the Enterprise segment. So, the broadband business which I think your questions pertain to Grass Valley but the broadband business had another very strong quarter.

The Grass Valley business on a year-over-year basis, revenues were down. We expected that. That was sort of the last quarter of a difficult comparison. As you recall, last year, we began to see softness in order rates in Q2 and revenue in Q2. On a year-over-year basis, I thought the team did a nice job on productivity improvement.

On a year-over-year basis within the segment, productivity was about $7 million. So, obviously, with the high margins in that business, it's difficult to overcome the revenue but I think the fact that they were able to expand margins, EBITDA margins on a year-over-year basis was a good outcome.

In terms of order rates, the order rates in the quarter were pretty much as we expected. The book-to-bill at Broadcast was just about 1.0 for the quarter. But as we mentioned, we did make progress on the IP products although that is still a relatively small percentage of the business.

I think maybe more noteworthy is that we saw a nice tick-up in advertising spending at our customer. So, even yesterday you may have noticed that CBS announced good earnings. They had strong advertising. We're seeing that with other customers as well. That's good news for us.

And as I mentioned in April, not in the first quarter, but in April, we won the largest order in Grass Valley's history it's in excess of $20 million. Now, that is an order that will ship over two-and-a-half to three years. But it's obviously a great win for the company.

So the full-year guidance, Shawn, that we increased from prior, certainly includes the fact that we exit the first quarter feeling good about all of our businesses including Grass Valley..

I guess just maybe, John, a follow-up for the year. If we think about the Olympics and the presidential elections, it looks like we have a clear frontrunner after trump winning my home state last night.

But just maybe does that benefit, are you expecting to see the benefit this year? I know it's typically happening but there is some questions on the Olympics this year given what's going on in Brazil, at least the U.S. elections look like we will have a lot of TV coverage..

Yeah. So, Shawn, I would say that our guidance right now on the full year implies modest growth in Grass Valley on a year-over-year basis. So, we are not incorporating a strong rebound in the Grass Valley business in 2016 to hit the numbers that we've given everybody today..

Okay. And then as a follow-up on cash flow expectations for the year, I think Henk you noted it was better by $60-some-odd million year-over-year, so a heck of a start to the year.

Does that change your view in terms of free cash flow guidance for the year? I know you always try to target more than 100% of net income, but it looks like with a strong start out of the gate, you should potentially be able to easily exceed that target?.

Yeah, so a strong start out of the year mainly driven by working capital performance with an intent to improve our linear pattern. The expectation for free cash flow on a full-year basis is anywhere from $225 million, $230 million. That's a current view, Shawn..

So, some of it was just pulled forward then because of the strong first quarter performances (25:42).

Correct. Correct. (25:44).

Okay. Thanks so much and congratulations on the results, guys..

Thanks, Shawn..

Thanks, Shawn..

Our next question comes from Steven Fox of Cross Research..

Thanks. Good morning. A couple questions from me. John, I was wondering – I understand the numbers, what the numbers are telling you from an industrial standpoint.

I was hoping you can give us some more anecdotal evidence as to why you're confident that industrial has some at least stable trends ahead of it based on what you're hearing from customers? And then secondly, you highlighted a 340-basis-point year-over-year improvement in Enterprise.

I was wondering if you could just break that down a little bit between mix, productivity, revenues and anything else that might go in there. Thanks..

Industrial Connectivity was 1.02, industrial IT was 1.06. If we look at the backlog entering the quarter, it's where you would expect it to be given our guidance, and then if you look at the performance by vertical, it also performed pretty much the way that we expected. So, oil and gas for example, on a year-over-year basis, was down about 17%.

That's now currently about 13% of our revenue within the industrial platform. The discrete business is performing pretty well, that's about 50% of our total business, and we think that that will continue. We see really no change there. The U.S.

dollar is now stabilized from where it was trending downward a year ago and obviously that gave people reason to pause about the when to place their purchases and so forth. I was just in Germany last week at the large Hanover (28:27) fair, fairly optimistic view of everybody at the fair with the exception of oil and gas.

So, I think that as we start turning the page on some of these difficult comps for our industrial businesses around oil and gas, which really starts happening in Q3, I think we're going to return to growth in our industrial platforms in the second half. And just right now, it feels like we're pretty well-positioned for the rest of the year..

Thank you. That's very helpful.

And then just one quick follow-up on Enterprise, looking ahead in terms of Enterprise demand, what are you seeing as the major influences that may be continued to give you at least comfort that you can grow maybe four – I think you posted 4% or so organic growth in the last quarter?.

So, the Enterprise team right now is benefiting clearly from a pretty healthy non-residential environment in the United States and Canada and we think that's going to continue. We watch very carefully the leading indicators that come from Dodge and other people and we tend to have about a three quarter lag on that performance.

So, that environment continues to be healthy. But then the other thing of course is that because we've got some very clear public company comps, we can look at how we're performing compared to others, and the team is outperforming.

And I think it's just really good execution and if I look at – well, not if, I do look at their metrics which includes their funnel and when I have access to their funnel, it's pretty easy for me to predict their results in the next 90 days.

And that gives us comfort about what we'll do in the second quarter and what we think we'll do in the back half..

Great. Thank you very much..

You're welcome..

Our next question comes from John Quealy with Canaccord..

Hey, good morning, folks. Nice job on the quarter. First question in industrial, John, have we seen the bottom of oil and gas? We've seen a lot of companies that touch oil and gas saying that it didn't get much better and in fact it may have ticked worse from a sentiment perspective.

I know you talked about book-to-bill, but qualitatively, can you give us a little bit more there about energy? Is it still going to be incrementally worse maybe Q2, Q3?.

Well, I'll tell you what we are assuming. So, we had assumed that in 2016, our oil and gas business was going to be down about 30% for the full year. In the first quarter, it was down 17%.

So, it did a little bit better than what we had thought and that's largely because we had a couple of nice projects in Canada in our Industrial Connectivity business that were scheduled and funded in the prior year. So, as we look forward, we're still hanging on to that 30% number because we think that's appropriate.

And then that would obviously suggest that on a year-over-year basis, things would get a little bit worse. It's hard to say. I mean I would say that, it's still very difficult to determine where oil prices are going to settle out. I do feel like though, in the second half, there's going to be clearly a lot less headwind on a year-over-year basis.

Most of our conversations with customers do seem to suggest stability. It certainly feels a lot different than it did a year ago. And if I look again at my backlog and my order rates, compared to where I typically am moving into the second quarter, those numbers all seem to hold very nicely with our projections and our estimates..

And you're comfortable in that sub-segment on pricing in terms of whether you hold price or you decide to work against price for share, you're still comfortable with those dynamics?.

Well, so – I mean, we make those decisions obviously on a project-by-project basis, and they're influenced an awful lot by the mix of products, and what products might be influenced in a project.

I don't believe that there's going to be reason for the team to get more aggressive on pricing than they have been given the fact that our utilization of our factories is pretty good right now..

Right..

So these products don't exclusively go to oil and gas. So it's not as if we have an entire category of products that are being impacted by this vertical segment. So we have flexibility and levers as it relates to increase in our share in other segments, and I think the team's done that and I think they know how it handle it..

Great. Thanks for that. Switching gears in Network Security, and I'm sorry, I missed this number, I want to make sure I get it correct. Non-renewal bookings were up 30% year-on-year.

Is that right? Do I have that right?.

You have that exactly right..

Okay.

So that seems like a higher number, number one, is that a correct assumption? Number two, were there incentives or new sales relationships? What is driving some of that so early in the year?.

You're right. The 30% is a high number. It's higher than what we've seen during our ownership period and I have to go back in history to see whether or not or how to compares to results over the last, say, five years. But 30% was very robust, very encouraging and I would say that the performance was broad-based.

If I were to highlight a couple of things, I would say the performance in or – sorry, the performance outside the United States was especially strong. The team has made incremental investment in resources, particularly in the European market that paid off in the first quarter.

We also had a nice federal order in the first quarter that we've been working on. Quite frankly I think the team thought we may have gotten into the fourth, we got in the first so that was great. And the commercial business in the United States continues to be very healthy. Utility business was up 50%. We signed a new partnership with FireEye.

There's just a lot of good things going on right now in that business..

Okay.

And then lastly, Henk, on the cash side, I know of you sort of while we're raising guidance a little bit on the P&L cash expectations – free cash expectations are pretty much consistent, would you categorize that as conservatism or is there a little bit more investment going on that takes away from some of the P&L goodness?.

I think it probably is early in the year. We clearly improved our linear pattern with a strong performance in Q1, but working towards the $225 million, $230 million of free cash flow feels an appropriate number for us..

Okay. Great. Thanks, guys. Nice job again..

Thank you..

Our next question comes from Charles Redding with BB&T Capital Markets..

Hi. Good morning, gentlemen. Thanks for taking my call..

Good morning, Charles..

I just – quick follow-up on utility growth in Tripwire.

If you could just clarify what that was again on the quarter? And then maybe in terms of utilities, specifically, were there any one or two items that contributed here?.

So, the growth in the utilities in the quarter year-over-year was 50% and, we're working with a very large set of utility customers. I don't have in front of me the breakdown by customer. I'm not aware of any one customer driving a disproportionate percentage of that growth. So, I think it's fairly distributed.

And obviously it's been an area of focus for the team for the last 12 to 18 months and I think that they've done a really nice job. They've executed well..

Great.

And then you mentioned the better non-res in Canada, I'm assuming this is mostly non-commodity centric driven, can you just remind us what your Canadian exposure is and where specifically is this growth coming from?.

So, yes, you're right. So, the growth in Canada and our Enterprise business in general in Canada is influenced predominantly in urban environments around residential construction. So, Toronto continues to be very strong. I think that our Enterprise business – our business in Canada of Enterprise is about 20%..

Yeah. I think it's a little higher. I think it's closer to 30%..

Okay, so approximately 30% of our Enterprise business is in Canada. And we've seen – we've continued to see good growth there, but mainly driven out of urban environments like Toronto and Montreal..

That's very encouraging. Thanks for the time..

You're welcome..

Thanks, Charles..

Our next question comes from Noelle Dilts with Stifel..

Hi. Thanks. Good morning..

Good morning..

Circling back to Network Security, really strong EBITDA margins here in the quarter.

Can you just speak to how sustainable margins are at these levels and how you're thinking about margins going forward?.

I'm sorry, can you repeat the question?.

Oh, sure. I was just asking about Network Security margins. I thought they were really strong in the quarter.

Can you just comment on how sustainable margins are at this higher level and just really how you're thinking about that moving forward?.

Sure. So, the margins in the quarter for Network Security were 27.5%. They were actually down a little bit sequentially, up slightly on a year-over-year basis. You would expect them to be down a little bit sequentially because the fourth quarter ends up being such a strong quarter from a volume point of view.

I think these are about where the margins should be. These margins by the way do include incremental spending in the business on a year-over-year basis. So, team continues to invest in salespeople, engineers, and so forth. So, I think these to me anyway feel like kind of the right EBITDA margins and I would expect them to hold for the full year..

Okay. Makes sense. And then, as you exit the year getting to that 3 times leverage number, can you just talk about how you're thinking about resuming M&A activity and just your pipeline at this point and how valuations are looking in the market..

Sure. So, the pipeline is very strong. So, even though we're committed to reducing our leverage, we have not in any way de-committed to our activity around cultivation and making certain that we spend our time smartly and thoughtfully with respect to the kinds of companies that we think would be helpful to execute our strategic plan.

So, that's unchanged. As it relates to valuation, I would say that it's not really changed very much over the last 12 to 18 months, meaning that it's relatively rich. Obviously private companies are taking notice of where public companies are trading at and use that as a benchmark.

I would say the only area where things have gotten a little bit more interesting would be companies that have any exposure to oil and gas who are trying to find their way through it.

Some of those companies are maybe not capitalized the way they would like to be and therefore are trying to find ways to kind of get through this situation and that could be an opportunity for us. But we continue to view M&A as an incredibly important part of our strategy and I would expect that that would continue..

Great. Thank you..

You're welcome..

It appears we have a follow-up question from Shawn Harrison with Longbow Research..

Hi again. Two clarifications. The project you had in industrial that came in, was that within Connectivity or IT? Because I think the Connectivity at least the growth declines year-over-year improved into the first quarter from the fourth quarter..

Yeah. That was Industrial Connectivity, Shawn..

Okay.

And so, that will normalize down to kind of a high single-digit decline into the second quarter organically, is that the way to think about it?.

So, I think that if you look at the organic growth for Industrial Connectivity in the second quarter on a year-over-year basis, I think you're still looking at sort of mid-single digits declines on a year-over-year basis..

Okay.

And then just thinking about the change in the full-year guidance, what's baked in now in terms of copper in the year? I'm sorry if I missed that but it's – both I think moved a little bit this your favor from when you provided the original guidance back in December?.

Yeah.

So, Henk?.

Sure. So (41:37) assumption is probably the most important assumption for the full year is about 110. (41:41).

Okay.

That was, I believe, was it 105 (41:45) previously?.

That's correct. And copper is 210, 215. (41:52).

Okay. So, a little bit of a tailwind there. Okay. Perfect. Thank You..

You're welcome..

You're welcome..

Matt Tractenberg, there are no further questions at this time. Please continue..

Thank you, Anthony. 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 investor.relations@belden.com. Have a great day, everyone..

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