Belden Inc. (BDC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Belden's 2020 Virtual Investor Day. My name is Kevin Maczka. I'm Belden's Vice President of Investor Relations and Treasurer. I'd like to thank everyone for joining us today. We certainly appreciate your interest in our company. We prefer to host these events live and interact with each of you in person. But unfortunately, that just isn't possible this year. Regardless, we have a great day planned, and we'll make the best of this virtual format. A year ago, we presented a strategy for positioning the company for significantly improved growth, margins and shareholder returns. We've made great progress on a number of important initiatives, and today, we are here to update you on that progress. We think we have an exciting story, an improving story, and we hope that you leave here today sharing our view that Belden is a very compelling investment opportunity. Before we get into the agenda, let me pause and call your attention to our forward-looking statements disclosure. I encourage you to review this statement and our other important disclosures in detail. But I would note that we will be referencing adjusted or non-GAAP financial information today. We will also be referencing pro forma results which are adjusted for the items noted here that we will be discussing in more detail. Okay. Let's get started with the agenda for the meeting. We've allocated 2 hours for today's meeting. The first 90 minutes or so will include our prepared remarks and a review of the presentation slides that we prepared. We allocated time at the end of the meeting for Q&A, and we'll be glad to take your questions at that time. [Operator Instructions] There will be a 5-minute break to allow everyone time to dial in. Today, you will hear from our President and CEO, Roel Vestjens; and our CFO, Henk Derksen. Roel will discuss the execution of our strategy to drive improving business performance and shareholder value. Henk will then review our financial goals and our plans to achieve them. So we have a very full and informative morning planned. With that, let's get started. I'd like to introduce our President and CEO, Roel Vestjens. Roel?

Good morning, everyone. I would also like to extend my welcome to Belden's 2020 Investor Day. I've had the pleasure of meeting many of you. But for those of you who do not know me, I was appointed President and CEO in May after previously serving as the company's Chief Operating Officer. I've been involved with many Investor Day events during my 14 years with Belden, but this is obviously my first as CEO. I look forward to meeting with you in person as we get past COVID-19 and things start getting back to normal. Those days obviously cannot come soon enough. As you see here, this is Belden's vision, and this is what we do. Belden connects and protects the world with industry's most compelling suite of end-to-end specialty networking solutions. Our solutions allow our customers to securely transmit audio, video and data across harsh industrial environments in a number of mission-critical applications. We play in 2 primary markets: industrial and enterprise. Within the industrial markets, we serve 4 vertical markets, including discrete manufacturing, process facilities, mass transit and energy. Within the enterprise markets, we serve 2 primary verticals: broadband and 5G and smart buildings. We also provide mission-critical cybersecurity solutions to protect both industrial and enterprise networks from cyber threats, which, of course, can be incredibly damaging. I will provide additional details on these markets later in the presentation. A year ago, we announced that we will be taking bold actions to drive improvements in our portfolio and our business performance that should result in substantially improved organic growth and margins. These included these 3 transformative actions: divesting our live media business, known as Grass Valley; streamlining our cost structure by substantially reducing our SG&A spending; exiting undifferentiated copper cable product lines that cannot meet our growth or margin targets. I will discuss each of these in more detail on the following 3 slides. Importantly, I was deeply involved in crafting these strategies as COO, and I'm obviously highly focused on delivering our commitments as CEO. I would like to update you now on these 3 transformative actions, starting with the divestiture of Grass Valley. It seems like quite a long time ago, but we only closed the sale of Grass Valley in July of this year. 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 recent years represented a substantial headwind. Moving on to the second transformative action, streamlining the cost structure, which is now also effectively complete. A year ago, we announced a new $40 million cost reduction program. Exiting Grass Valley and the copper cable product lines obviously shrinks the revenue base of the company and creates opportunities for optimizing the cost base. As you know, we since increased the size of the program from $40 million to $60 million in annualized SG&A savings. We have executed the actions necessary to achieve these savings, and we expect to realize the full quarterly run rate savings of $15 million in the fourth quarter of 2020. On a full year basis, we expect to realize $40 million of the savings in 2020 and the full $60 million in 2021. These savings are meaningfully accretive to EBITDA margins by over 300 basis points. Importantly, these are permanent cost reductions that do not return as volumes recover. In addition, while we're reducing SG&A, we are not reducing R&D, new product development or growth CapEx. We are committed to supporting our customers through innovation, and later in the presentation, we will discuss our plans to increase our R&D investments to drive growth. The third transformative action announced a year ago was our plan to exit $250 million in undifferentiated copper cable product lines. This process was delayed earlier this year by COVID-19, but we are now engaged with potential buyers. We are very pleased with the progress to date, and we are on track to complete these product line exits in the first half of 2021 as planned. These are primarily stand-alone product lines that are low growth 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 exiting these product lines will improve our end market exposure. In this case, we will be completely exiting the oil and gas markets and reducing our exposure to certain smart buildings markets. Our conviction to divest these product lines has been confirmed by the recent performance as COVID-19 had a significant impact on the revenues generated by these product lines in 2020. Belden's consolidated revenues are trending down approximately 14% in 2020 with these revenues declining closer to 20%. As a result, we will be referencing a revenue base of $200 million compared to the $250 million a year ago. Following the divestitures, our new portfolio will benefit from enhanced growth and margin characteristics. With these 3 transformative actions either complete or progressing towards completion, we thought it would be helpful to give you a clear view of Belden upon completion of all 3 actions. The Grass Valley divestiture, $60 million cost reduction and $200 million in product line exits. The pie chart on the left is how 2020 is shaping up. The midpoint of our full year 2020 revenue guidance is $1.84 billion, and implied in our revenue and EPS guidance is an EBITDA margin of approximately 13%. Grass Valley's financial results were previously removed from our consolidated results as discontinued operations, but the benefit of the other 2 actions are not fully realized this year. The pie chart on the right represents pro forma 2020 results assuming that the benefits of all 3 actions were, in fact, fully realized in 2020. Here, the pro forma revenue of $1.64 billion is $200 million lower as we removed the copper cable product lines, and the EBITDA margin increased nearly 200 basis points to 15%. This represents the incremental $20 million in SG&A cost savings that we expect, plus the margin accretion associated with divesting the lower-margin copper cable products. The net result is a smaller but more profitable portfolio. We believe this portfolio is much better positioned for growth and margin expansion off this new base. Following this portfolio transformation, our strategic priorities are aligned with attractive end markets with secular favorable trends. We believe these markets, industrial automation, cybersecurity, broadband and 5G and smart buildings are secular growers, and we are uniquely positioned to win in each of them. So if you are bullish on these markets, you should absolutely be bullish on Belden. I will discuss the key themes we see in these markets on the following slide. Again, we are bullish on each of our 4 strategic markets over the long term, and we believe the robust secular trends remain intact. However, COVID-19 clearly impacted the demand environment in 2020. Post-COVID, we expect parts of our business to emerge even stronger. Specifically, industrial automation, cybersecurity, broadband and 5G and data centers, which collectively represent approximately 80% of our business, could see accelerating demand trends following the global pandemic. Short-cycle markets, like industrial automation, typically recover relatively quickly. Whereas longer-cycle markets, like the commercial real estate vertical within smart buildings, take longer to fully recover. We understand investors' concerns about the nonresidential construction markets, and we agree that certain verticals within smart buildings, commercial real estate, hospitality and retail will likely see continued cyclical pressure. Importantly, that represents a relatively small piece of the overall portfolio, as you'll see in much more detail later in the presentation. However, other verticals, such as data centers and health care, will see continued growth, providing a partial offset to the current cyclical pressure of nonresidential construction. Now let's dig in a little deeper into our key strategic priorities. We have 2 reporting segments: Industrial Solutions and Enterprise Solutions. Beginning with Industrial Solutions, our key strategic priorities are aligned around industrial automation and cybersecurity. We are extremely bullish about both of these markets as we see sustainable secular tailwinds from the growing demand for automated production and the ever-growing demand for cybersecurity solutions. Let's begin with the discussion of industrial automation. Our Industrial Solutions allow customers to transmit and secure audio, video and data in harsh industrial environments. On a pro forma basis for our planned divestitures, industrial automation represents 47% of total revenues. Within industrial automation, we serve 4 primary markets: discrete manufacturing, process facilities, energy and mass transit. In discrete markets, our products reside on machines on factory floors, supporting industries like material handling, food and beverage, automotive, semiconductors and pharmaceuticals. We serve global customers, such as machine builders, integrators like Rockwell Automation and Siemens as well as end users like Procter & Gamble and General Motors. The ever-increasing need to improve safety, productivity, quality, cost and on-time delivery drives automation and robotics investments in these markets. In addition, the increased demand for connectivity and industrial IoT helps to enable data use on the factory floor to create customized solutions and further improve efficiency. As manufacturers continue to increase machine-to-machine communication or connect factories to the enterprise, they are looking for us to provide trusted solutions. These solutions could include fiber or copper cables, connectivity, networking equipment such as switches and routers and network management and cybersecurity software. We continue to expect healthy long-term growth in this market. In process facilities, we play in the water and wastewater, metals and mining and chemicals markets. Some of the customers include large engineering and construction companies, water/wastewater treatment facilities and chemical manufacturers. Process facilities tend to be extremely harsh operating environments. Our products in these facilities are designed to withstand extreme temperatures, humidity, dirt, oil and other corrosive chemicals, sometimes even electromagnetic interference. These are clearly mission-critical applications given the high cost of operational downtime and the significant health and safety risks associated with failures in these often hard-to-reach places. Our products are purpose-built and designed to withstand these hard conditions, and our vertically focused teams provide the application expertise to support our customers. Population growth, the increase in middle class and urbanization all drive more investments in process facilities. We expect this market to grow nicely moving forward. The energy market is all about electric utilities, producing and distributing electricity. Transmission and distribution networks that bring electricity to homes and businesses, often referred to as PT&D, is part of the energy vertical. Additionally, this vertical includes conventional electricity generation along with newer alternatives, such as wind and solar. Increasing demand for renewable power sources as well as population growth are expected to drive demand and investments in energy infrastructure. Energy is typically less cyclical than most industrial verticals but has consistently performed well over the past few years. We expect demand to remain healthy over the cycle. Finally, we play in the mass transit vertical, which includes rail systems, airports, seaports, et cetera. These markets are much less cyclical than automotive as many of these types of projects are often state funded. For example, China and other Asia Pacific countries continue to invest in infrastructure upgrades and build-outs. Urbanization is a very favorable trend that we expect to continue to drive solid demand in this market. Belden has been very bullish on industrial automation for a number of years now. We delivered robust growth in this market in the past, and we continue to see a number of compelling long-term demand drivers that should drive growth for many years to come. In fact, we like to say that all roads lead to more automation, whether it's the high cost of labor, low cost of machines, advanced age of equipment generally or demographic trends. All of these support the case for more automation. We've discussed these 3 bullets in the past, but the next 2 are newer and relate to COVID 19. Industrial customers now clearly have a need to pandemic-proof their operations. This includes implementing various health and safety and social distancing protocols, and it likely means more automation and fewer humans working in close proximity to each other. Further, we expect part of the fallout from COVID-19 to be an acceleration in repositioning or reshoring of the manufacturing footprint, which could also have positive implications for automation demand. As a result, we remain very bullish, and we continue to prioritize investment in this market. This is an important slide that illustrates Belden's unique competitive advantage in our industrial markets. We believe that we have the most comprehensive offering of end-to-end networking and connectivity solutions in the marketplace. You see some of our industrial competitors listed here. Now clearly, some of these companies are much larger than Belden, but we believe that none of them can do everything we do. Some do cables, some do connectors, some do cyber, but none of them can provide the breadth of customized solutions within each of these verticals. That is unique and a very important differentiator for our customers. Next, I'd like to share our outlook for our industrial markets and then talk about some of the Belden-specific initiatives we are pursuing to drive above-market growth in our business. Again, we see favorable secular trends in our industrial markets. We expect normalized over-the-cycle growth rates in the industrial automation market in the mid-single-digit range. Obviously, nothing is normal at this point. But these markets grew at that base in recent years, and we see GDP plus trajectory continuing over the longer period of time. We see the most robust growth potential in our largest vertical, discrete automation, which represents approximately 60% of industrial automation revenue. These are typically shorter cycle markets. And leading indicators, like the manufacturing PMI readings in the United States, Eurozone and China suggest that a cyclical recovery is underway. As you would expect from us, we are setting our sites a little higher than market growth, and I'd like to share some of the exciting plans we have to continue capturing share and outpacing the market. The first is our product road map. We are committed to innovation, and later in this presentation, we will detail our plans to ramp up R&D spending. The majority of this planned spending targets opportunities in rapidly evolving automation areas, such as converged IT/OT networks, cybersecurity, edge networking and even cloud communications. Next, we are increasingly positioned Belden to be a broader solutions provider rather than simply a product provider. Belden can certainly provide our industrial customers with the products they need, such as cables or connectors or switches, but we are moving towards being the vendor of choice for providing end-to-end mission-critical solutions, including hardware, software, service and support, consulting and project management. We are well positioned for that, and later we will show you some examples of our success. Third, customer innovation centers, or CICs as we call them, are our new initiative this year designed to improve customer intimacy. This will allow us to not only supply our customers but co-innovate with them, create solutions that solve their complex networking problems and deliver superior service and support. We are very excited about the potential here. And finally, India expansion. We established a local presence in India with a new greenfield plant that has been up and running for over a year now. We will continue to add engineering and R&D resources with the scalable facility is obviously support to this high-growth region. This is an interesting case study that elevates some of Belden's unique capabilities in the process market. The end customer here is a water treatment facility in Southeast Asia, but it could be anywhere in the world. This facility processes 250 million of gallons of water per day, and it operates in a very harsh environment, as you might imagine. The customer is upgrading its entire network and, of course, needed to transition in a seamless way with no disruptions to their operations or service. This case validates the opportunity to co-innovate with customers for complete solutions. We were able to consult with this customer and the system integrator to design a no-failure network, integrating hardware and software offerings from a number of Belden brands, including Hirschmann and Lumberg Automation and ProSoft software. We also layered in Tripwire's cybersecurity software for this upgraded network. In the end, we provided fiber optic cables, connectors, switches, routers and the associated software in addition to the cybersecurity software. In most cases, our competitors simply cannot match the type of innovative, integrated solution to satisfy all the customers' networking and cybersecurity needs. Let me pause and recap the key takeaways from our industrial automation strategic priority. Again, we are very bullish. We believe that all roads lead to more automation and Belden is uniquely positioned and highly differentiated in the marketplace. The cyclical recovery is underway led by our largest vertical, discrete manufacturing, and we expect robust mid-single-digit growth over the cycle as conditions normalize. Moving on to cybersecurity, which we also report under the Industrial Solutions segment. As seen here, our cybersecurity business represents approximately 7% of total revenues in 2020. Now I think we can all agree that cybersecurity should be an exciting growth market for the foreseeable future. As the number of connected devices grows and networks become increasingly complex, cyber attacks become increasingly sophisticated and costly. In fact, cyber attacks, including ransomware, are being launched on unsuspecting companies almost constantly. And the networks can be so complex that attackers often access networks and can hide out undetected for long periods. Large enterprise customers, such as leading banks and retailers, have been dealing with this for quite some time. If this type of company suffers a breach, it's front page news. I think we're all too familiar with that. However, industrial cybersecurity is central to our strategy in this space. And industrial cyber incidents, while often less physical externally, can also be incredibly damaging. That is why we remain extremely bullish on industrial cybersecurity. Industrial customers are typically not early adapters, but they are progressing in their cybersecurity journeys. We are incredibly well positioned to support industrial customers as they define their requirements and prepare to deploy new cyber tools. We believe that demand and spending will only increase in response to the new personal and business practices prompted by COVID-19. Think about remote work and remote learning. In the age of social distancing, we are increasingly interacting in a digital way, creating more opportunities for cyber attacks. Another important trend in this market in recent years has been the transition to the cloud. As you know, we've been working hard to build our industry-leading on-premise cybersecurity solutions by developing new and complementary cloud-based solutions of our own, and we are certainly gaining traction with these offerings with new and existing customers. Finally, we are rapidly transitioning the business to Software as a Service, or SaaS, and subscription revenue models and generating healthy bookings growth. I will share some interesting data with you on that in just a moment. We have meaningful competitive advantages in cybersecurity, including a leading brand and over 2,000 active customers, many of which are Fortune 500 companies. We are uniquely positioned as the only provider of on-premise, cloud and hybrid cloud solutions for both enterprise and industrial customers. No other player can match our upgraded offering of proven on-premise and modern cloud capabilities. This is important because our cloud-only competitors are not likely to develop new on-premise technology, so upgraded hybrid offering is a unique competitive advantage. Specific to Belden, we play in the SCM, VM markets and the nascent industrial market where we are an early leader in a market that is still in its infancy. We see solid growth potential here. We expect normalized over-the-cycle growth rates in the cybersecurity market in the high single-digit range led by outsized growth in industrial cyber. Again, we've been rapidly transitioning the business to a more ratable SaaS revenue model. Nonrenewal bookings are our best leading indicator of revenues. And as seen here, SaaS bookings as a percentage of our total nonrenewal bookings have increased from just 5% in 2018 to approximately 25% in 2020. We expect the trend to continue with further sizable increases in 2021 and beyond. Over time, we would expect that to result in increased revenue growth rates and revenue predictability. Again, I think we can all agree that this should be an exciting growth market with sustainable secular tailwinds. We obviously intend to not only participate in that growth market but to take share and exceed the market. So how will we do that? First, we will leverage the truly unique product offering that I touched on earlier. We have a very large installed base and a differentiated product offering that now allows customers the on-premise, cloud as well as hybrid cloud solutions that they need. Going forward, we expect to increasingly transition legacy on-plan customers to our new cloud-based solutions. We should drive incremental growth as we introduce new product and managed service capabilities. We will offer more choices to new and existing customers. Next, speaking of cloud, we are accelerating the development of our cloud-based platform which we believe is best-in-class. We are increasing our R&D investments in this area, and we expect to continue introducing exciting new product moving forward. Third, we see the need for enterprise-class cybersecurity solutions within our core industrial markets, and we have established the early leadership position in industrial that we intend to maintain and build upon. Belden's R&D investment in this critical area will continue moving forward with new solutions, on-premise and in the cloud, for enhanced visibility and mitigation of growing industrial cyber threats. We are increasingly integrating our cybersecurity capabilities with our industrial automation solutions, and I will share an exciting example of that on the next slide. Now this is an interesting case study that illustrates the integration of our industrial hardware and cybersecurity software offerings. In this particular example, a major automotive manufacturer needed a factory floor network to connect various machines, robots and PLCs. It also needed cybersecurity protection for that scalable network, which will be rolled out to all global manufacturing facilities after initial launch at a single plant here in the United States. Belden, again, is uniquely positioned to provide the complete end-to-end hardware and software solution involving fiber and copper cabling, Ethernet switches and related software and cybersecurity protection. Most of our competitors simply cannot do that. This shows the value of our comprehensive portfolio of hardware and software offerings. That integration is an important differentiator for Belden. In many cases, our hardware offering allows us the opportunity to win software business that we normally would not win on a stand-alone basis and vice versa. So to recap the key takeaways from our cybersecurity strategic priority. As industrial and enterprise networks become increasingly complex and interconnected, further investments in upgraded cybersecurity solutions will be needed. We plan to leverage Tripwire's strong brand and installed base to offer differentiated product offerings to suit our customers' needs. We are very excited about our upgraded product road map and the traction we are gaining with customers, especially on the industrial side. As a result, we expect our cyber revenues to return to a solid growth trajectory, and we see the potential for high single-digit growth over the cycle. Moving on to the strategic priorities in our Enterprise Solutions segment, and I'll begin with broadband and 5G. Relative to our other markets, broadband was minimally impacted by COVID-19. Revenues are on pace to increase this year. As a result, broadband and 5G increased to approximately 26% of total Belden revenues. We see robust secular trends in broadband that are likely to continue for a long, long time, and demand is only accelerating in response to COVID 19. As we all know, the key drivers of broadband demand have been in place for quite some time. These include high-definition and 4K video consumption, streaming, online gaming and even virtual reality. Work from home and virtual learning have become additional demand drivers that many of us are very familiar with in our daily lives. We think broadband networks will be upgraded continuously for many years to come. Our MSO cable customers will need to upgrade existing cable networks to keep up with the incremental demand and to maintain share in the face of new competitive threats from 5G. Obviously, 5G is also coming, and the telcos will be deploying new 5G infrastructure. Belden is very well positioned to support both MSO and telco customers. Within our business, demand for outside-the-home product categories is outpacing inside-the-home, and fiber is outpacing copper. And we see those trends continuing. Importantly, our business mix is improving and aligning with these trends. Outside-the-home now represents approximately 60% of our broadband revenues, and our fiber mix is rapidly increasing. I will provide more details on that in just a moment. Finally, this market remains highly fragmented with many attractive M&A targets in various stages of cultivation. We have been successful in recent years in completing and integrating bolt-on M&A in this market, and we intend to remain acquisitive going forward. We feel very good about our competitive positioning in this market. There is no doubt that we have sustainable competitive advantages. We are entrenched with the major MSOs where we have long-standing and strong relationships. Our broad product offering and robust patent protection strategies are critical differentiators that limit the competitive threats. Plus, we have a strong track record of bolt-on M&A in this space where we remain a preferred buyer for many potential sellers. As I discussed earlier, we believe that we are ideally suited to support both MSO customers as they operate their networks, as we have for many years, and telco customers as they roll out their new 5G infrastructure. Hopefully, we can all agree that these are favorable secular growth tailwinds in broadband for the foreseeable future. However, those trends vary by product type within our business. We expect normalized growth rates in the mid-single-digit range driven by outsized growth in our outside-the-home and fiber products. Importantly, the business mix has shifted in recent years, and the outside-the-home products now represents approximately 60% of revenues. So the majority of the business has a superior growth trajectory. We are pursuing opportunities to take share and outpace market growth via our organic activities as well as M&A. On the organic side, we have a robust process in place for patent-protected new product development. Our team is quite accomplished at defending our intellectual property, and we remain very mindful of the need to continue to do so. We're also actively pursuing geographical expansion into high-growth regions with a focus on emerging markets and expanded relationships with telco customers to support 5G. On the inorganic side, our M&A strategy complements our organic growth in broadband fiber. This market remains highly fragmented with many attractive acquisition candidates. Our last 5 acquisitions have been in this space, and the integrations were highly successful. In many cases, acquisitions in this space are effectively acquired R&D, and they bring new technologies, products and customer relationships that we didn't previously have and could not efficiently develop organically. We have a sizable funnel and cultivation, and given our recent successes in this space, we plan to continue our strategy of pursuing small bolt-ons in these growing markets. I have 2 interesting case studies to share with you: one for broadband; and one for 5G. This one is a residential broadband application involving multi-dwelling properties. The customer here, a broadband service provider, required standardized outside-the-home network connectivity for these units. In addition, speed and ease of installation were critical drivers of reduced OpEx in the field. We were able to leverage our legacy product portfolio and 4 recent acquisitions to create an end-to-end broadband fiber solution for this customer. We have many examples like this which demonstrate our successful acquisition integration. Importantly, solutions like this become scalable and that they can be relatively easily utilized in other fiber-to-anywhere projects. Our final case study involves a 5G application. Again, in this case, we are integrating the legacy product offering with recently acquired products to design a custom solution. In this case, as telcos roll out new 5G infrastructure, they need to upgrade existing macro cells and deploy a large number of small cells, which in this case can be mounted on streetlights in major cities. Speed and ease of installation were critical drivers of reduced OpEx in the field in this case, too. Belden designed a custom solution that would not have been possible prior to our recent acquisitions to create an end-to-end fiber solution, including the hand-off box enclosure, fiber management console, fiber optic cables and connectors. This is also a scalable solution for many other applications. As I mentioned a moment ago, we expect healthy growth in this market to be driven by outsized growth in outside-the-home and fiber product categories. Our mix is shifting to align with those dynamics. As seen here, our outside-the-home revenues increased from 40% in 2017 to 60% currently. Fiber went from 0% in 2017 to approximately 25% of the mix currently. We are exiting 2020 with about $120 million in annualized broadband fiber revenue, and we expect that number to increase far in excess of corporate average growth going forward. Now let me recap the broadband and 5G strategic priority. There is no doubt that this continues to be a growth market given the secular trends. Our strategy is to expand industry-leading portfolio, which is positioned to grow as MSOs upgrade their legacy cable networks and telco customers build out new 5G networks. The majority of our products are positioned to benefit from the secular trends, and we expect mid-single-digit growth rates over the cycle in this market. Moving on to our final strategic priority, smart buildings. Smart buildings revenues represent approximately 20% of total revenues. For those of you that are less familiar, it might be helpful to provide a little bit more color on what the term smart building actually means. Smart buildings use interconnected devices and systems to drive a number of benefits. This includes improved building efficiency, sustainability and analytics. This helps building owners reduce operating costs and provide improved end user experiences. It includes video conferencing and WiFi access, but it is much more than that. It's also HVAC systems, security systems, lighting, data center and much more. This market is driven, in part, by private nonresidential construction, which as we all know has been significantly impacted by COVID-19. Given the cyclical pressures, I thought I would remind everyone about how nonres cycles typically play out. Historically, the average expansion is about 40% to 50% over a period of about 6 years, followed by a contraction of about 20% to 30% on average over 2 to 3 years. This late-cycle market typically takes longer to recover than early cycle industrial markets, so we do not expect a quick rebound from here. However, we expect our smart buildings revenues to decline approximately 20% in 2020. So we do believe that much of the downturn is behind us at this point. Now within the overall smart buildings market, demand trends can vary significantly by market vertical and product category. Specifically, certain verticals are expected to show continued growth. These include data centers, consumer packaged goods, e-commerce warehouses and health care facilities just to name a few. On the other hand, the verticals that are most significantly impacted by COVID-19 will likely see further declines before recovery. Examples include commercial real estate, hospitality and retail. Regardless of the market vertical, we expect demand for fiber products to outpace demand for copper cable products, and we are positioning our business accordingly. We are well positioned to support the higher growth areas of this market already. And as a market leader with a large installed base and strong customer and contractor relationships, Belden has established significant competitive advantages in the form of scale and spec positioning. This is a crucial differentiator. Our share capture initiatives in this market have been quite successful, and we see further opportunities to take market share. We understand investors' concerns about the downturn in nonresidential construction in general, and we certainly have some exposure there. But again, I would point out that there are still growth verticals within this market, and we estimate that approximately 40% of our smart buildings revenues are tied to those verticals. As we prioritize opportunities in those markets, we would expect our business mix to increasingly move in that direction. COVID-19 certainly changed the near-term outlook for nonres construction in general. We have probably all seen data like this on nonresidential construction starts and spending. But I wanted to remind everyone that we've been through cyclical downturns, even severe downturns in the past, and there will be a recovery. COVID-19 will result in lasting change in many parts of our daily lives, but we will not be locked down forever. We won't be working from home and social distancing forever. There will be a recovery. Again, these are later cycle markets and will take longer to recover but that is typical to prior cycles. So what are we doing to offset the cyclical challenges this market is currently facing? We are increasingly focused on the growth verticals and product categories within the market. We are expanding our commercial efforts in these areas. Given the competitive advantages that I discussed, we expect this to drive continued share capture. We have been building out our fiber offering in recent years, and that is accelerating given the superior growth expectations for that product category. To summarize the takeaways from our fourth and final key strategic priority. We are believers in the secular tailwinds involving more connected devices and more bandwidth demand in buildings and more applications requiring fiber connectivity products. However, we are in the midst of a cyclical downturn. And if history is any guide at all, that will likely persist into 2021 before a modest recovery begins. In the meantime, we are leveraging our strong market position to capture share while positioning ourselves in the higher growth verticals. Looking beyond the current downturn, we expect to see potential for normalized over-the-cycle growth rates in the low single-digit range. Following that review of our 4 key strategic priorities, I would like to now discuss how we plan to use the Belden Business System to drive accelerating growth. The Belden Business System provides a framework for everything we do. It is a huge part of our culture and a critical enabler of our success, so it is worth reviewing this with you. It includes 3 elements: the market delivery system, lean enterprise and talent development. Now each of these 3 elements are extremely important. Our proven lean enterprise system is a cornerstone of the Belden culture, not only in the factories, but throughout all functions. This has been an important driver of the robust margin expansion we delivered over the last 10 to 15 years. Talent development is also essential for any successful organization. It allows us to attract, retain and develop talent. We are very pleased to report leading metrics on talent retention rate, internal fill rate and employee engagement and are very proud to consistently be recognized as a great place to work. Today, however, I'd like to focus most of this discussion on our evolving market delivery system because this will have the most direct implications for organic growth. We are laser-focused on driving accelerating organic growth, so I'd like to talk about some of the key enablers of that over the next few slides. Again, the market delivery system is foundational for organic growth, and it is evolving strategically for the purpose of accelerating our growth. There are 4 interconnected components to our market delivery system. First, channel management. About half of our business goes to market through our trusted channel partners. We have dedicated staff that works hand-in-hand with these partners. Second, digital marketing. In this day and age, having a strong digital team is essential. We rely on our team to host informative product demos, provide the latest spec sheets and configurators all in one place. I'll talk more about some of our initiatives to further improve our digital marketing capabilities in a few slides. Third, strategic accounts. Certain global customers require a dedicated team capable of delivering Belden's full portfolio across a customer's global footprint. Our strategic accounts management program has been very successful, and I'll expand about that -- upon that, too, in a few slides. Fourth, market selection. With market selection, it is critical to be in the markets where we can win and to exit the markets where we cannot. We are increasingly focused on getting this right, and we've already seen us -- you've already seen us take bold actions to exit certain markets. So that provides the basis for how we go to market and engage with our customers, but it doesn't address what we bring to market. That's where innovation comes in, and it overlays everything we do in the marketplace. We utilize this market delivery system to deliver solutions. We have a unique ability to offer complete solutions with our diversified and integrated portfolio. Various competitors can obviously provide cables and connectors, for example, but very few can deliver the complete end-to-end solutions we saw earlier in the case studies. This is a key differentiator for Belden. An additional differentiator is our marquee customer base. With access to our industry's top customers, Belden is able to leverage relationships across our business units and sell new products to existing customers. Again, we believe our market delivery system is a true differentiator for Belden. But it is dynamic and needs to evolve along with our customers. So next, I'd like to briefly discuss that evolution. Customer preferences are changing, so we are refreshing our model to align with these new customer preferences. Specifically, we are seeing what we call a barbell emerging in which customers are gravitating towards 1 of 2 extremes: low touch, all-digital interactions or high-touch consulting engagements. On the low touch end of the barbell, customers value ease of doing business and prefer a self-service, digital interaction with Belden. These customers would prefer to order from their phone or tablet in the field. They don't want or need traditional sales coverage. As a result, we are investing in various e-commerce tools to make it much easier for these customers to do business with at Belden. At the other extreme, the high touch end of the barbell, customers value highly personalized service and project consulting. Think of the case studies we presented earlier, specifically, the water treatment facility and the automotive industrial cybersecurity areas. These are great examples of strategic accounts that need personalized solution to very large and complex problems. These engagements span from initial consulting and solution design work, all the way through installation and ongoing service and support. We are making targeted investments to drive this evolution. Specifically, in the past, you've heard us talk about our digital transformation and our strategic accounts program. Those are important aspects that continue to expand. A third element is newer. This year, we started rolling out our customer innovation centers, or CICs, and I'd like to discuss each of these important initiatives now. Digital transformation is an important and ongoing initiative for many companies. We want to improve the customer experience and make working with Belden as easy as possible. And we know that these days, certain customers want to interact with us exclusively through digital and mobile means. To do so, we are upgrading our website, improving the partner portal and enhancing our mobile capabilities. Stage 1 of this process is all about improving the customer experience. We have already rolled out the new partner portal, which has been very well-received. It's the one-stop shop for our partners to view their accounts, get the latest on projects in process, receive training from Belden product experts, maintain their warranties and certifications and get immediate feedback. Our upgraded website is mobile device friendly, and it allows us to scale globally in order to provide a consistent and seamless experience to our customers around the world. The new website will introduce refreshed and relevant content and make it easier to find products. Product configurators are being transitioned onto the new site to improve the experience and provide the ability to request quotes for configured products. Stage 2 is building upon these new foundations and learning from the data. We will provide customers a more personalized journey while also performing real-time analytics on customer interactions. This will allow for continuous improvement and increase the quality of our digital solutions. Stage 3 is about scaling the project to the full suite of Belden businesses. Through integrated systems, customers will have access to Belden's wide portfolio, which should make solution selling a standard practice. We are excited about the progress being made and encourage you to check out our new website while this project continues. As markets become more complex and competitive, our customer demands continue to increase. We developed a strategic global account program with a customer-centric One Belden approach to selling. We launched this program in 2017 with 3 goals in mind: build long-term relationships with key accounts, create impactful solutions together and drive partners to develop products to improve customer outcomes. We saw early traction with the program, and we continue to expand it every year. In 2019, organic growth in our strategic accounts increased 10%, substantially outpacing the corporate average. Now 2020 was obviously disrupted due to COVID, but we certainly expect further outsized growth with strategic accounts post-COVID. We plan to expand the program to 50 accounts or more by 2023. As this revenue base becomes more meaningful, it should be accretive to consolidated organic growth. We are proving that this approach to key account works, and we look forward to strengthening our partnership with these selected customers into the future. Customer innovation centers, or CICs, are our new initiative this year designed to improve customer intimacy. This will allow us to not only supply our customers but co-innovate with them, create solutions that solve their complex networking problems and deliver superior service and support. We are focused on the global hubs for innovation and talent in our markets, such as Germany for industrial automation and Silicon Valley for software engineering. As I mentioned in the water treatment facility case study earlier, we have started utilizing these capabilities to consult with our customers and ultimately deliver the mission-critical solutions that they need. Finally, innovation overlays everything as it drives the development of exciting new products and solutions that we bring to market. We are increasing our R&D investments. This should further strengthen our product offering, enhance our competitive advantage and drive growth. R&D spending is expected to increase 27% over 2 years from $94 million in 2019 to $120 million in 2021. Most of this spending is targeted at our industrial automation and cybersecurity initiatives. We are increasingly focused on software development, including stand-alone software and embedded software in our industrial hardware products. In fact, 65% of our R&D spending is now allocated to software development. The Belden business system provides a framework for everything we do. We are focused on driving organic growth. Our market delivery system is evolving to enable just that. Our initiatives around digital, strategic accounts and CICs are aligned with changing customer preferences that make it easier for us to serve our customers. Our R&D initiatives allow us to provide the innovative solutions they need. Now I'd like to conclude my prepared remarks with some comments on ESG at Belden. As it says here, Belden is committed to ethical and socially responsible business practices in its operations around the globe. You should expect to see more detailed disclosures on ESG topics from Belden going forward. Importantly, best-in-class ESG practices align very well with our long-standing corporate values. We have been committed to these values for a very long period of time, and I'd like to briefly highlight them to you now. Customers define our success. This value is characterized by our commitment to keeping our promises to our customers, earning their loyalty and creating value for them that is fundamental for the success of any organization. We play to win. Here, the focus is on measuring and holding ourselves accountable for our performance and striving to outperform the competition. We invest in our people. Our goal is to attract and retain the very best talent, and we pay for performance. This includes actively developing our associates and promoting from within. We extend the investment in our people to the communities in which we operate, and in a moment, I'll share a great example of just that. Continuous improvement is our way of life. This value emphasizes the use of the Belden Business System and our proven lean enterprise tools to improve quality, delivery and cost while eliminating waste from all processes. We succeed together through teamwork. At Belden, we value inclusivity and diverse opinions, and we learn from each other. We reach for greatness. This final value is about driving breakthrough results, stretching ourselves to create innovative products and processes and learning from our failures. These are well-established corporate values at Belden, and we believe that they are well-aligned with best-in-class ESG practices. As an overview, this slide highlights some of the programs that demonstrate our commitment. I will point out that we have robust policies in place around environmental, social and governance topics. Consistent with our corporate value of continuous improvement as our way of life, we will be looking for opportunities to enhance these policies going forward. We will also certainly increase our disclosure to be fully transparent and allow the investment community to easily see the good work being done here. We are very proud of our safety performance, and I would like to highlight for you: We strive to uphold the highest standards of workplace safety with the obvious goal of becoming a zero-incident enterprise. While we have yet to achieve that ambitious goal, we have clearly demonstrated improvement in our workplace injury rates, which are now at world-class levels. I would also like to highlight a unique Belden program that demonstrates our commitment to community engagement. This year, we launched the Connect with Community Program to support disadvantaged groups in our local communities. This program features paid leave for employee volunteerism, a 2x matching gift program and increased donations to STEM programs for diverse youth groups. Again, this is just one of the programs that highlights our commitment to our local communities, and you will be hearing more from us about all our ESG-related practices going forward. To conclude my portion of the presentation, I hope you can see we are laser-focused on executing the strategy that we presented to you a year ago. Despite the unprecedented challenges this year, we are making very solid progress. We continue to improve this portfolio, and we are laser-focused on driving improved organic growth and substantial margin expansion. We firmly believe that we have the plans and the team in place to drive performance, which in turn should drive improved valuations and returns for our valued shareholders. With that, I'd like to hand the presentation over to our CFO, Henk Derksen, who will provide additional color on our financial goals and our plans to achieve them. Henk, you can begin.

Thank you, Roel, and hello, everyone. My name is Henk Derksen, Belden's CFO. I would like to also extend my welcome. Thank you all for joining us today. As a reminder, I will be referencing adjusted numbers today. Before I get started, I'm pleased to reiterate our Q4 and full year 2020 guidance: Q4 revenues within the range of $460 million to $485 million and earnings per share of $0.63 to $0.78. For full year revenues, we expect $1.824 billion to $1.849 billion and earnings per share of $2.47 to $2.62. With that out of the way, let's look at how the year is shaping up. 2020 has been unprecedented in many ways as we all know, and we certainly never envisioned this when we presented our plans to you a year ago. However, it's important to understand where we are and how we got here before we get into where we are going. Our 2020 guidance implies a total revenue decline of approximately 14% and EBITDA margins declining 340 basis points. I'd like to walk you through some of the factors that had the most significant impact on our revenues and margins in 2020. Starting with our performance in 2019. As you recall, we delivered $2.13 billion in revenue and 16.5% EBITDA margins in 2019. On the top line, the bolt-on broadband fiber acquisitions we completed in 2019 contribute an additional $28 million in 2020. The EBITDA margin contribution was below the corporate average as expected as we have not yet realized the full impact of the synergies associated with these acquisitions. These include SPC, which we acquired in Q4 of 2019; and Opterna and FutureLink, which we acquired in Q2 of 2019. These integrations went well, and the businesses are performing in line with our expectations. Next, COVID-19 obviously had a significant impact on our end markets. We estimate an unfavorable volume impact of $252 million with 50% of that occurring in the second quarter of 2020. Q2 was clearly the low-water mark of the downturn as we saw a notable sequential improvement since then. Given our decremental margins of 35%, this pressured consolidated EBITDA margins by 250 basis points. Our channel partners typically deplete their inventory levels in response to softer market conditions, as we have seen this year. In addition, consolidation of channel partners allowed for further depletion. Our expectation for the full year is unchanged at a combined impact of $70 million on top line, which impacts margins by approximately 100 basis points. The way to view this is that our revenues in 2020 will be about $70 million below the underlying demand level. Thankfully, this is nonrecurring. So all else equal, 2021 revenues should be $70 million higher than 2020. Next, we are making targeted growth investments and intentionally increasing our R&D spend. We expect a strong return on these investments in future periods in the form of organic growth and operating leverage. But in 2020, this is expected to negatively impact EBITDA margins by 80 basis points. Mix is another factor that impacts margin this year. This is also a result of the decline in volumes in response to COVID-19 and indicative of some of our higher gross profit margin businesses, such as industrial automation, declining more and our lower gross profit margin businesses, such as broadband, holding up better than the corporate average. We expect a mix benefit as industrial automation growth returns. It's not all bad news on the margin front. As you are aware, our SG&A cost reduction program is well on track to deliver $40 million in savings in 2020 as expected. This results in 190 basis points of EBITDA margin favorability in 2020. And as Roel said previously, we're also on pace to deliver the full quarterly run rate savings of $15 million in Q4 2020 and $60 million for the full year 2021. As we complete this bridge, that's how we expect the year to look: around $1.84 billion in revenue, at the midpoint of our guidance, and 13.1% EBITDA margins. Now let's take a look at the meaningful changes we are making to improve the portfolio. On this slide, you see 2 pie charts. The chart on the left is what is implied in our 2020 guidance, as we just discussed. The chart on the right is a pro forma view reflecting the 3 transformative actions as if all 3 were complete. We completed the Grass Valley divestiture in July, and its financial results were previously excluded from continuing operations for 2020. On the other 2 actions, we expect to realize the incremental $20 million (sic) [ $60 million ] in SG&A cost savings in 2021, and we expect to divest $200 million in corporate cable revenues in 2021. The portfolio [ reset ] results in a smaller but much better mix of business with EBITDA margins 200 basis points higher at 15%. As seen on this slide, our portfolio transformation started in 2018, and we are in the process of divesting approximately 1/4 of revenue base that we had in 2018. This is a thoughtful plan that resulted from a regular strategic review of our portfolio and our cost structure. In effect, we are removing the portions of our business that previously created large headwinds on organic growth while repositioning our resources to support our higher-growth businesses. Specifically, we exited the live media market entirely with the Grass Valley divestiture and are now exiting oil and gas with the planned copper cable divestitures. We're also exiting the less attractive portion of our smart buildings content while maintaining the more attractive portions. This results in a company that is much better positioned for organic growth going forward. We believe organic growth is one of the key elements of our shareholder value creation story at this point, and these moves position us for success on that front. Following our transformation, we have a simplified portfolio of businesses with better growth potential and profitability. The resulting portfolio will be aligned very well with attractive growth markets each with secular tailwinds, specifically, industrial automation, cybersecurity, broadband and 5G and smart buildings. We see the potential for high single-digit growth in cybersecurity and mid-single-digit growth in industrial automation and broadband and 5G, which collectively represents 80% of our business. We also see the potential for modest growth longer term in smart buildings, which represents the remaining 20%. The trend in certain verticals of this market, such as data centers and health care, are encouraging and support of the modest growth in the overall smart buildings market. Again, this is not a forecast for 2020 or 2021 but our view of longer-term normalized growth potential. This will result in much improved organic growth rates for Belden that we delivered in recent years. We view this as a really exciting aspect of our story. Next, let's discuss our long-term financial goals. These goals are unchanged, and we believe that achieving them will drive substantial shareholder value creation: total revenue growth CAGR of 5% to 7% with embedded organic growth of 3% to 4% or GDP plus type of growth, EBITDA margins of 20% to 22%, a free cash flow CAGR of 13% to 15%, ROIC of 13% to 15% or well in excess of our cost of capital. So while our longer-term goals are unchanged and achievable, the next 3 years will likely look a little different as our markets normalize post-COVID. Specifically, we expect more robust organic growth during recovery closer to 4% and very strong free cash flow growth of approximately 40% annually. We see the potential to reach the low end of our 20% to 22% EBITDA margin goal, but it will take a bit longer to reach the midpoint of our high end. Similarly, we think ROIC will recover and achievable the low end of our 13% to 15% goal. But also here, we need to be a little bit more patient to reach the midpoint or high end. Let's now discuss each of these 3-year goals, starting with revenue. In general, as we have discussed, we aligned our strategic priorities around attractive markets that have robust secular tailwinds. Our outlook varies by market as you would expect. The green, yellow and red colors on the slide represent our view of the strength of the recovery we are likely to see in each market. Importantly, 70% of our pro forma revenue base is green, indicating that we expect robust demand as the global economy recovers and conditions normalize. The commercial real estate markets, which represent 12% of revenues, are presented as red. Consistent with historical cyclical downturns in these late-cycle markets, we expect to see further pressure in 2021 before a modest recovery. Now let's take a look how this impacts the outlook for organic growth over the next 3 years. Here, we are representing a base case and an upside case for organic growth CAGRs through 2023. In the base case, we see the potential for consolidated organic growth in the range of 4%. By segment, this includes close to 6% in Industrial Solutions and 1% in Enterprise Solutions. Within Industrial Solutions, we expect healthy growth in both our industrial automation and cybersecurity of up mid-single digits or better. Within Enterprise Solutions, our growth expectations are a bit lower with broadband and 5G growing and smart buildings declining modestly. To be clear, that 3-year view for smart buildings contemplate a decline in 2021 followed by a modest recovery. In the upside case, we see the potential for consolidated organic growth in the range of 6% with a more robust recovery in our end markets. By segment, this includes 8% in Industrial Solutions and 4% in Enterprise Solutions. When will Belden get back to pre-COVID revenue levels of 2019? That's the question that investors will be asking us as the recovery plays out. Another way to look at the organic growth outlook I just presented is as follows. On this slide, you see 2019 pro forma revenues of $1.88 billion. That is the $2.13 billion we reported pro forma for the copper cable divestitures, which generated $250 million in revenues in 2019. You also see 2020 pro forma of $1.64 billion, which excludes $200 million in copper cable revenues that we expect this year. Using the 4% organic CAGR that we assumed in our base case, revenue would return to the 2019 level in 2023. In our upside case using a 6% organic CAGR, revenues will exceed the 2019 level in 2023 and would approach that level a year earlier in 2022. Any M&A would be upside to these organic scenarios and allow us to go back to 2019 levels sooner. Turning now to M&A. Our strategy has changed a bit relative to a few years ago. We remain an acquisitive company, and we continue to cultivate deals. We are more focused on smaller bolt-on deals in our core markets other than larger adjacencies. Our primary focus at this point is fiber connectivity and industrial automation. Fiber has been much more actionable with more attractive valuations, and we have closed 5 nice broadband fiber deals in recent years as seen here. Integrations went very well, and we are pleased with the performance of these businesses post acquisition. Industrial has been less actionable lately. We have a history of successful industrial deals, too, dating back to Hirschmann and Lumberg, for example, but these typically require longer cultivation periods. All that said, we are currently prioritizing delevering in the near term and as a result, we should expect M&A activity to be modest. Now turning to our revenue growth outlook. In the organic outlook presented 2 slides ago, revenues returned to the pro forma 2019 level in our 4% base case in 2023. Assuming modest M&A over the next 3 years, acquired revenue could push our total revenue CAGR to 6% in the base case and 8% in the upside case, exceeding our long-term goal of 5% to 7%. Moving on to margins. Our stated goal is 20% to 22%, and we remain absolutely committed to that goal. If we look back to 2008 and 2009 period and the financial crisis, our EBITDA margins bottomed at around 11% to 12%. We then drove 800 basis points of margin expansion in the post-recession period through 2017, and pro forma margins approached 20%. We see a similar opportunity after the recession to drive substantial margin expansion of the 2020 bottom. We believe the business is capable of returning to 20% over the next few years. We have been there before, and we can do it again. How do we get to 20% in the next few years? EBITDA margins should bottom at 13% in 2020 on a reported basis, and our ongoing strategic actions are accretive to consolidated margins. The incremental $20 million in cost reductions will be accretive to EBITDA margins by 120 basis points, and exiting $200 million at low-margin copper cable products will be accretive by another 70 basis points, 190 basis points combined. So on a pro forma basis, EBITDA margins are close to 15% in 2020. So that obviously helps, but doesn't get us all the way there. So how do we move from 15% to 20%? We see a clear path via leverage on organic growth, productivity and favorable product mix. Starting with leverage. Incremental EBITDA margins are 35%. So the positive organic growth that we expect as volumes recover should result in margin expansion over the planning period. Productivity, we already removed $60 million from our SG&A cost structure, and we will be pursuing other productivity initiatives as we do every year. Our typical assumption is a 6% reduction [ before 3% ] inflation on our controllable costs, which yields $10 million in savings per year. We expect these continuous improvement programs to drive additional margin expansion. Finally, on mix, we should also see a modest lift for mix as some of our highest gross profit margin businesses, like industrial automation and cybersecurity, return to growth after declining in 2020. Now let's talk about robust growth that we expect in free cash flow. Free cash flow was also significantly impacted by COVID-19 in 2020, declining towards $75 million. However, we were encouraged by the positive free cash flow generation during the periods of the most significant global disruption, including $20 million in Q2 and $36 million in Q3 of 2020. Consistent with our typical seasonality, we continue to expect Q4 to be the strongest of the year for free cash flow generation. On a full year basis and going forward, we see strong recovery of this temporarily depressed level at this point at approximately $120 million in 2021, ramping towards $200 million by 2023. This would represent a CAGR of approximately 40% during this period in time or well above our long-term goal of 13% to 15%. We're not generating that type of growth by reducing CapEx. We continue to invest in the type of growth CapEx projects, and total CapEx expected to be in the $70 million range. Key drivers of this robust growth are as follows: increasing operating cash flow mostly due to increasing EBITDA. As we discussed earlier, we have a very robust plan for driving EBITDA growth, including our strategic actions and leverage on growth as volume recovers. Decline in CapEx. CapEx had been running at $100 million prior to the Grass Valley divestiture and about $30 million of that went away with Grass Valley. The remaining portfolio already has a low capital-intensive business model. Restructuring charges. Over the 3-year period, we expected restructuring charges to decline significantly. And finally, interest expense. Interest rates on our debt are entirely fixed, which should provide some free cash flow leverage. Again, our CapEx budget will be $70 million in 2021, representing 4% of revenues. We would expect CapEx as a percentage of revenues to moderate toward 3% as revenue recovers and we continue to invest CapEx at current levels. Of the total, only $25 million is related to maintenance and upgrades. The remainder is growth CapEx related to high ROIC projects. These include new project development and commercial initiatives, expanding our fiber capacity and product offering and our digital transformation projects. We are investing in the business to accelerate growth. We are committed to innovation, and we are increasing our R&D investments. This should further strengthen our product offering, enhance our competitive advantage and drive growth. R&D spending is expected to increase 27% over 2 years from $94 million in 2019 to $120 million in 2021. As seen here, 80% of the spending is targeted at our industrial automation and cybersecurity initiatives. We are increasingly focused on software development, including stand-alone software and embedded software, in industrial hardware products. In fact, 65% of our R&D spending is now allocated to software development. Looking at our final financial goal, ROIC. We expect ROIC to be approximately 8% in 2020. Pro forma ROIC is modestly higher at 9% after adjusting for strategic actions. We also expect our organic growth to drive gains of 400 basis points and push ROIC back towards our target range of 13% to 15% over the next [ 3 ] years. Looking at our capital deployment, our priorities have changed in the near term. Organic initiatives and investments are always prioritized, and hopefully, we made it clear today that we are laser-focused on organic health. Not surprisingly, we intend to fund our attractive growth initiatives that has not changed. What has changed is the increase in focus on delevering in the near term. We continue to cultivate bolt-on acquisition candidates and expect to remain acquisitive. We also continue to view the stock as undervalued, and we expect to assume our share repurchase activity at some point. However, while we believe our balance sheet is in terrific shape, our near-term focus is on returning to our net leverage target. We view this as another shareholder fund initiative and believe that reducing our financial leverage and earnings volatility provides the opportunity for multiple expansion and improve equity value going forward. Speaking of debt, we're extremely pleased with the quality of our current balance sheet. Our debt is entirely euro-denominated and fixed at 3.5% rates on average. Importantly, we have no maturities until 2025 to 2028 and no maintenance covenants on this debt, so we're not at risk of an event of default caused by worsening economic conditions. We expect this year to exit with an excess of $475 million in cash on the balance sheet and are in great shape at this moment with ample flexibility to pursue our strategic plans even in the unlikely event of another significant economic downturn. We continue to target 2 to 3x net leverage. This slide highlights our performance in recent years. You see that we maintained well within our range in 2017 to 2019, including deployments for M&A and share repurchases. Our gross debt is entirely fixed, but EBITDA was obviously negatively impacted in 2020, resulting in this temporary increase in net leverage. We have no concerns with servicing our debt, and we expect to turn back to our target range in 2021 and 2022 as seen here. Turning now to what you ultimately care about most, shareholder returns. We had a great run from 2005 to 2015, easily outpacing the broader markets, the S&P 500 and the Russell 2000. More recently, however, the stock has underperformed as we all know. We are absolutely not satisfied with that performance and again, we're taking actions that we believe will drive vastly improved returns for our valued shareholders going forward, much like we achieved previously. It's worth reminding everyone that during that period of time I just mentioned up to 2015, our business was performing well, revenues were growing nicely, margins were expanding and our shareholders were [ awarded with expanded ] multiples. In 2015, our P/E reached 17x, and our EV to EBITDA multiple approached 13x. Then unfortunately, when we didn't perform as well in more recent years, multiples contracted significantly and stock underperformed. Now we see a terrific opportunity, an opportunity to drive improved performance, an opportunity to see multiple expansion once again as we deliver on the plans we have outlined here for you today. That's what we think our shareholders can expect: higher revenue, EBITDA, EPS and free cash flow. That should lead to higher multiples at a much higher stock price. We view Belden as a very compelling investment opportunity. As we reach the conclusion of our prepared remarks today, I'd like to highlight our investment thesis: our transformative actions nearing completion, the portfolio is aligned with secular tailwinds, we have substantial EBITDA margin upside to our goal of 20% to 22% and the stock continues to trade at a very attractive valuation. At this point, we will take a brief 5-minute break, and then Roel and I would be glad to take your questions. Operator, please provide the dial-in information for the Q&A session.

[Audio gap] due to the next 6 months. This is a little, maybe you -- can you just talk about maybe what your customers are seeing? You have that channel inventory reduction. Do you think that that's in the rear now. And as we move into '21, can we expect to kind of see the benefits of some of these improving data performance?

Yes, absolutely. No. Of course. So our conversations with our customers are very healthy and good and they're positive. The PMI readings, as we highlighted, in the Eurozone, in the United States and even in China are good. Business in China is good. So those are all positive. I think what's even more important, though, is that the conversations we're having around Belden's unique positioning such as the solution selling approach in these CICs, these customer innovation centers, are extremely well received. So from a macro perspective at Belden, it will be a little rocky, but from a micro perspective, but specifically, our ability to execute and deliver growth rates above-market growth, we're bullish. We feel good.

We'll go next to Noelle Dilts at Stifel.

Congrats on the progress you've made so far in the transformation. My first question, I want to -- on my first question, I just wanted to go to the market delivery discussion that you went through and kind of this barbell strategy around low touch and high touch. So I guess my questions that were -- does this lead to more direct sales? And does it change how much is going through the channel? And are there any financial implications from that? And second, how does this shift? How you're thinking about in investing in your sales force?

I think the biggest -- the best way to look at it, Noelle, is the investments that we're making in our digital platforms. So we're just seeing more and more customers that don't need for our external salespeople for them to be called on. When more customers -- the type of customers that buy more standardized products and solutions from us, they're very comfortable and actually require us to deliver a platform to which they can do -- a digital platform to which they can do that at their leisure. On the other hand, we see with automation becoming more profound and machines becoming more and more complex, network is becoming more and more complex, the larger accounts, having a need for a highly personalized touch sales process. That's why we're investing in these CICs, and that's why we're investing in our strategic accounts program. I think I highlighted is that we went from 5 accounts to 17 this year, and we expect to go to 50. So that's the dichotomy that we're seeing, and we're trying to satisfy both sides of the barbell.

Okay. That's helpful. And I guess, just as I'm thinking about this correctly. You made it pretty clear that you're prioritizing deleveraging -- delevering, but at the same time, most of your debt is fixed and has pretty long-dated maturities. So should we just think about that kind of as what you're trying to do is building as on the balance sheet, or might you think about trying to take some actions around some of that debt?

Yes. This is Henk, Noelle. Yes, initially, we'll be building cash on the balance sheet, but we don't exclude the possibility of taking some debt out. But initially, it's building cash on the balance sheet.

We'll move next to William Stein at Truist Securities.

Number one on capital allocation, and then I'll have a follow-up. Regarding the portfolio adjustments that you're anticipating, the business sales and the potential acquisitions you've spoken about, can you talk about relative valuation, and should we be prepared for the company to sell these slower growing, less attractive business centers at a lower -- relatively lower valuation, and then go out and repurpose that cash to acquire some faster-growing assets or things that are more in R&D phase where you sort of see a negative revenue and EBITDA impact in the first year of these shifts?

I don't want to necessarily comment on the valuation that we think we can get for these assets because we're in actual negotiations. But the proceeds, what we tried to highlight in the presentation is a very high focus on organic growth. So we're investing in R&D. I think we've highlighted the tremendous R&D increase, 27% over 2 years from $94 million last year to a forecast of $120 million for next year as well as delevering.

And then as a follow-up, I'm hoping you can update us a little bit on the India facility. You highlighted it in the beginning of the presentation. I'm wondering if you could talk about revenue contribution, profitability in that region today and your anticipation of how consistent that profitability can be in that region.

Yes, we see India as a very interesting growth opportunity for us. And the investments that we're making are even more than just the manufacturing footprint. So if I could cover the manufacturing facility, we make products for multiple businesses there, not just wire and cable, so that we can satisfy the local demand and customize, for example, Hirschmann-graded switches for the local market. Secondly, it obviously helps us in establishing a better geographical mix. So currently, we have 60% of our revenues in the United States. And with investing in higher growth rates in the emerging markets such as India, we will improve our geographical mix. And thirdly, we are investing in India in engineering facility. So we're rapidly increasing our engineering muscle in India for obvious reasons, but also to enable local customization.

We'll move next to Steven Fox at Fox Advisors.

A couple of questions from me. First of all, when we think about sort of the longer-term outlook for improving margins. Can you just sort of talk specifically to the conversion margin you're thinking that you get on the higher volumes? And how mix maybe helps or hurts that in the near term?

Sure. 30% to 35% is the margin that you should use.

And are you thinking as is software not making a difference in that in the near-term?

As our mix improves, as we highlighted in the presentation, then obviously, those decremental margins or incremental margins will improve. But for the time being, I would use 30% to 35%.

Okay. And then the R&D, the accelerated R&D investment or the higher growth in R&D. You provided a lot of color around that. I was just curious like when you consider R&D projects that you may take on across any of the businesses, what type of return are you looking back or looking at or payback period are you looking at? How are you holding your R&D team accountable for those investments?

Yes, that's a great question. I appreciate that. Yes, we have a pretty robust stage gate process, and we have a pretty robust process to evaluate whether or not and to what extent we should allocate engineering resources. And typically, the hurdle that we use is an ROIC of 20%.

And when you say -- and just get a little more color on that, when you say stage gate, is that -- what's the process there for sort of going on with the project or scaling it? Is that -- how much is it tied to what you're working with? You mentioned working closer with customers. Is there any other color you can just provide on that R&D investment?

Yes. Since our engineering investment is quite sizable to begin with and innovation is a very important driver for organic growth, we're constantly trying to improve the process. We're constantly allocating lean resource to further eliminate waste from our development processes. We use, for most development including more and more on the hardware front, we use agile techniques with these sprints, but we have regular touch points with customers for customized products. And that's a process that has been working well for us. We track a few indicators, few KPIs to ensure that the process is healthy and delivers the results. For example, vitality, which is a metric that we use in our company, and what we call R&D productivity. So the investment in R&D, what is the margin associated with products over the last 3 years, so to make sure that we keep track of, and keep ourselves 100% accountable for the investments.

And we'll take our final question from Paul Chung at JPMorgan.

So another follow-up on the high-touch business, is there a substantially higher-margin opportunity there? Or is it just more kind of volume of products sold at your typical margins? And what is the time lines to kind of hitting that 50 partners from, I believe you mentioned 17 to that?

So the margin profile is indeed a little bit higher because we're able to sell more customer solutions to these larger accounts. And I think we highlighted in our presentation that we should get to 50 accounts by 2023.

Okay. And then now with the kind of simplified portfolio and inventory reductions are kind of done, are you comfortable where the channel sits today and then if you could also provide kind of near-term gross margin and longer-term gross margin targets, that would be helpful.

Yes. So I'll ask Henk to comment on the gross margin targets. To answer the first part of your question, we are comfortable where the channel currently sits. We expect that the turns or the turnover of our inventory at our channel partners is improving this year. So not only do we expect that indeed, the turn levels stay the same with the reduction of inventory levels, so in line with the revenue declines, but they -- we expect them to take out more, so their turns improve. We very carefully monitor on-time delivery performance of our channel partners to our end customers to make sure that there's not too much channel and too much inventory taking out of the channel. But so far, we're very happy, very satisfied with service levels, with the commitment of our channel partners. So yes, that's where we currently sit.

And the last part of your question, Paul, gross profit margins both to the divestiture of our pop-up cable businesses and over time during 3 year planning period, we expect gross profit margins to trend above 14%.

And then last question is on the evolution of the kind of cybersecurity business. What have been the obstacle for kind of accelerating this business? And what do you learn there? And what gives you the confidence for future growth there? I think you mentioned high single digits.

Yes. I think there's a couple of areas where we're now increasing our investment in. The first one is our cloud-based tech delivery, so our cloud offerings. So that's one vehicle for growth. But more importantly, we feel extremely bullish about the industrial cybersecurity. And that market is still nascent, still very small. It's very attractive. We are extremely well positioned, so that gives me great confidence in our ability to execute. We have great, great products tailored for factory floor automation, tailored for the factory floor. And that's given us great confidence in our cybersecurity growth rate number.

We do have a follow-up question from Noelle Dilts at Stifel.

I just was hoping to get a little bit more detail on the broadband and 5G business. First, I was wondering how much of that is specifically 5G at this point? I know you broke out -- look at it in some other ways, but was curious if you had that number? And second, I'm just curious how you think about if there is or there's not much synergy across the inside-the-home and outside-the-home business, sort of given the slower growth outlook for inside-the-home?

So right now, our 5G exposure is still relatively small. We feel very good about our opportunity to win. We've demonstrated just 1 example that hand-off enclosure box that I highlighted. But certainly, it's still relatively small. And there are similarities in products between inside-the-home and outside-the-home. That's absolutely true. But the bulk of the products is different. There's different products that are required to build out the network versus providing connectivity inside the home. So the bulk is different.

Okay, okay. And the -- and in terms of the customers that you have, how much overlap would you say there is between your inside-the-home and outside-the-home customers? Or is it a very different sales process?

No, no, no. There's large significant overlap, yes. They're the same but different kind of customer. Absolutely.

Mr. Maczka, there are no further questions. I'll turn the conference back over to you.

Okay. Thanks, Audrey, and thank you, everyone, for joining us today. As always, if you have any questions, please reach out to the IR team here at Belden. Our e-mail address is [email protected]. Thank you.

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