Belden - Earnings Call - Q2 2025

Executive Summary

• Revenue and Adjusted EPS exceeded the high end of Q2 guidance; revenues were $672M (+11% y/y; +5% organic) and Adjusted EPS was $1.89 (+25% y/y), driven by stronger orders (+16% y/y; +8% q/q), margin expansion and a lower-than-expected tax rate benefit of ~$0.11 to Adjusted EPS.
• Guidance for Q3 2025: revenues $670–$685M, GAAP EPS $1.33–$1.43, Adjusted EPS $1.85–$1.95; tax rate ~12.5% for Q3 and slightly over 15% for FY25, with management reiterating constructive medium-term secular drivers (reindustrialization, automation, IT/OT convergence).
• Segment performance solid: Automation Solutions revenue $366M (+10% y/y) with EBITDA margin 21.4% and Smart Infrastructure Solutions revenue $306M (+13% y/y) with EBITDA margin 11.8%; book-to-bill of 1.0 (Automation) and 1.1 (SIS) signal healthy backlog conversion.
• Strategic wins: multi-site solutions award at a leading hyperscale data center (gray space, PLC-enabled modular cooling) and a global specification with a major U.S. auto OEM (~$40M over three years), expanding pipeline in data center and automotive/reshoring themes.
• Street consensus (S&P Global) for Q2/Q3 was unavailable in our feed; comparisons are vs company guidance and prior periods. Values retrieved from S&P Global were unavailable.

What Went Well and What Went Wrong

What Went Well

• Orders and backlog: “Order activity remained strong, with orders up 8% sequentially and 16% year-over-year. We ended the quarter with a book-to-bill ratio of 1.05…”.
• Margin expansion and EPS: Adjusted EBITDA margin rose to 17.0% (+50 bps y/y) and Adjusted EPS grew 25% y/y; tax planning and geographic mix drove an effective tax rate of 12.3%, adding ~$0.11 to Adjusted EPS vs guidance.
• Strategic wins in secular growth areas: “Multi-Site Solutions award with a leading hyperscale data center customer… industrial-grade switch in a high-demand AI data center application…,” and “global specification by a major U.S. automotive manufacturer… approximately $40 million over three years”.

What Went Wrong

• Sequential margin cadence impacted by pass-throughs: Management acknowledged sequential incrementals were dampened by copper and tariff pass-through effects; removing copper pass-through, incrementals approximate 25%.
• Smart Infrastructure Solutions margins modest: SIS EBITDA margin was 11.8%; management cited deliberate OpEx investments to accelerate solutions and slight dilutive impact from copper/tariff pass-throughs, with expected leverage improvement over time.
• Free cash flow down y/y in the quarter: Q2 FCF was $56.9M vs $61.0M in Q2 2024; H1 FCF was $32.2M vs $39.5M in H1 2024, reflecting higher capex and capital deployment (buybacks).

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Reports Second Quarter 2025 Results Call. Just a reminder, this call is being recorded. At this time, you are in listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question, please press star one on your touch-tone phone. If you are in the question queue and would like to withdraw your question, simply press star two. I would now like to turn the call over to Aaron Reddington. Please go ahead, sir.

Aaron Reddington (VP of Investor Relations)

Good morning, everyone, and thank you for joining us for Belden's Second Quarter 2025 Earnings Conference Call. With me today are Belden's President and CEO, Ashish Chand, and Senior Vice President and CFO, Jeremy Parks. Ashish will provide a strategic overview of our business, and then Jeremy will provide a detailed review of our financial and operating results, followed by Q&A. We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call. The press release, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com. Turning to slide two, I'd like to remind everyone that today's call will include forward-looking statements, which are subject to risk and uncertainties, as detailed in our press release and most recent Form 10-K. We will also reference certain non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP measures can be found in the appendix to our presentation and on our website. I will now turn the call over to our President and CEO, Ashish Chand.

Ashish Chand (President and CEO)

Thank you, Aaron, and good morning, everyone. We appreciate you joining us. Let's begin with slide four, which summarizes our major accomplishments and the key messages for the second quarter. My comments today will reference adjusted results. First, I want to recognize the outstanding efforts of our team. Their dedication and focus enabled us to deliver another strong quarter, continuing our positive momentum from the start of the year. Our team executed well, delivering results that exceeded our expectations. For the second quarter, both revenue and earnings per share surpassed the high end of our guidance, reflecting the ongoing progress of our solutions transformation. Revenue reached $672 million, up 11% year-over-year, while earnings per share grew 25% to $1.89. Demand remained steady, and we exceeded expectations despite ongoing policy uncertainty. Further, we achieved 5% organic growth overall, with all major regions experiencing growth for the period.

Order activity remained strong, with orders up 8% sequentially and 16% year-over-year. We ended the quarter with a book-to-bill ratio of 1.05 compared to 1.0 in the prior year period, positioning us well for the second half of the year. Our focus on profitability drove further improvement, with gross margins increasing 70 basis points year-over-year to 38.9% and adjusted EBITDA margins expanding 50 basis points to 17%. This margin expansion demonstrates the positive impact of our solutions transformation, which is driving a richer mix of high-value offerings and enhancing our earnings power. Our business continues to generate significant cash flow, with trailing 12-month free cash flow at $216 million, in line with our expectations. Year to date, we have repurchased 1 million shares for $100 million, demonstrating our commitment to disciplined capital allocation.

Our balance sheet remains healthy, providing us with the flexibility to pursue strategic acquisitions that support our solutions transformation and, when appropriate, return additional capital to shareholders through buybacks. Overall, this was a quarter of strong execution, and I'm very pleased with our performance. The progress we are making with our solutions transformation is clear in our results, and we are well-positioned to build on this momentum going forward. Now, please turn to slide five. I'd like to highlight a recent win that exemplifies the impact of a solution strategy and our ability to unlock incremental value from our portfolio with new use cases and applications. This quarter, we secured a Multi-Site Solutions award with a leading hyperscale data center customer, a significant step forward in our data center and gray space strategy.

This win is a direct result of our team's ability to collaborate across the ecosystem, working closely not only with the end customer but also with their OEM and systems integration partners to deliver a tailored solution. At the core of this project is our innovative use of Belden switches to support a critical PLC system embedded in an advanced modular cooling system. By leveraging a proven technology in a new application, we delivered a low-latency network with extremely fast recovery times, capabilities that are essential for hyperscale environments where downtime can have substantial financial consequences. Importantly, this project is a prime example of IT/OT convergence in action. At its core, IT/OT convergence is about integrating the physical world of operational technology with the digital world of IT, unlocking powerful insights from industrial data to improve efficiency and drive smarter business decisions.

Achieving this is a major challenge for many organizations, as it requires bridging two worlds with historically different requirements for security, reliability, and performance. In this case, we successfully deployed an industrial-grade switch traditionally used in operational technology environments into a high-demand AI data center application. This demonstrates our ability to bridge the gap, as Belden is uniquely positioned to solve this challenge with a portfolio and expertise that span both the rugged industrial space and the high-performance enterprise environment, allowing us to deliver a truly robust and unified solution. This type of innovative application, leveraging our expertise across both domains, truly showcases the power of our solutions approach. By engaging deeply with customers and partners, we are able to identify and address new high-value use cases for our existing products, expand our reach into new applications, and deliver differentiated value in high-growth markets.

This success provides a repeatable model for future engagements and will help us build a pipeline of similar high-value opportunities. We are excited about the momentum this creates and look forward to building on this success as we continue to execute our solutions-driven growth strategy. Now, please turn to slide six for a second win I would like to highlight for the quarter. This win underscores the benefits of our collaborative approach and broad portfolio, positioning Belden as a single global source for our customers. We secured a global specification by a major U.S. automotive manufacturer to supply advanced connectivity products into the assembly line and related factory equipment. This is a multi-year opportunity, representing a significant growth driver for our business, with the potential to deliver approximately $40 million over three years, with additional upside as we deepen our engagement.

This award is made possible by the breadth of our global product offerings. It specifies a broad range of Belden products, including advanced connectivity solutions and cable assemblies, for use by all line builders supporting this customer worldwide. As a result, this positions Belden as a single source supplier for these critical components, streamlining procurement and ensuring consistency and reliability across all new installations. This achievement is a direct result of our core strengths: our balanced global manufacturing footprint, with capacity and output well aligned by region, our ability to deliver integrated solutions that improve functionality and uptime, and our deep technical expertise. This unique combination demonstrates how customer-focused innovation allows us to capture new opportunities and expand our presence within the entire ecosystem of line builders and OEMs globally.

As manufacturers continue to invest in domestic capacity and modernize their operations, they are driving the reshoring and reindustrialization trends in the U.S. Our solutions are essential to this transformation, providing the reliable, high-performance connectivity needed to bring advanced manufacturing back onshore. Ultimately, this key spec position not only strengthens our relationship with this major manufacturer but also establishes a platform for significant growth across the automotive and adjacent markets. By becoming a single source supplier for these critical components, we create operational efficiencies for our customer while securing a stable, long-term revenue stream for Belden. It's a clear example of how our strategy translates directly into durable, long-term shareholder value. I will now request Jeremy to provide additional insight into our second quarter financial performance.

Jeremy Parks (SVP Finance and CFO)

Thank you, Ashish. My comments today will cover our second quarter results, a review of our segments, the balance sheet and cash flow, and finally, our outlook. As a reminder, I will be referencing adjusted results today. Now, please turn to slide seven. As Ashish noted, our solid execution this quarter drove strong top-line growth, which translated directly to margin expansion and improved profitability. Revenue for the quarter was $672 million, up 11% year-over-year and exceeding the high end of our guidance of $660 million. Revenue was up 5% organically on a year-over-year basis, with Automation Solutions up 8% and Smart Infrastructure Solutions up 3%. Orders for the quarter were up 8% sequentially and up 16% year-over-year, with both segments demonstrating continued growth. Automation Solutions orders were up 11% year-over-year, and Smart Infrastructure Solutions orders were up 23% year-over-year.

As a result, gross profit margins were 38.9%, increasing 70 basis points compared to the prior year, driven by leverage on volume and favorable mix. On a sequential basis, margin performance was aligned with typical seasonality, combined with the pass-through of higher input costs. As discussed last quarter, we continued to manage our tariff exposure through a combination of sourcing changes and pricing actions. EBITDA was $114 million, with EBITDA margins up 50 basis points year-over-year to 17%. Net income was $76 million, up from $62 million in the prior year quarter. EPS was $1.89, up 25% and above the high end of our guidance of $1.77. For the quarter, our effective tax rate was 12.3% compared to our prior estimate of 17.5%. Relative to our prior guidance, the lower-than-expected tax rate benefited adjusted EPS by $0.11.

The second quarter tax rate reflects certain discrete tax benefits recognized during the period, combined with favorable changes in the geographic mix of earnings. This result reflects the tremendous work of our tax team as they continue to pursue and execute strategies to maximize our earnings and cash flow. Now, please turn to slide eight for a review of our business segment results for the quarter. Our Automation Solutions segment delivered a strong quarter, demonstrating continued recovery and solid execution. Revenue grew 10% year-over-year, and EBITDA margins improved to 21.4%. Order trends remain healthy, with orders up 11% year-over-year and a book-to-bill of 1.0 for the quarter. Highlighted by double-digit organic growth in both discrete manufacturing and energy, our industrial verticals showed broad-based strength. The segment delivered total organic growth of 8%, with positive growth in all regions.

Our Smart Infrastructure Solutions segment also delivered a strong quarter, with performance driven by our strategic focus on key growth verticals and continued investments in our solutions capabilities. Revenue grew 13% year-over-year, and EBITDA margins improved to 11.8%. The forward momentum in this segment is encouraging, with continued order growth resulting in a strong book-to-bill of 1.1. We saw robust demand in our targeted growth verticals, which presents compelling opportunities for our integrated solutions offering. Finally, our broadband business was another key contributor, with revenue up year-over-year, including 5% organic growth in our fiber products. Next, please turn to slide nine for our balance sheet and cash flow highlights. Our balance sheet remains a source of significant strength and flexibility, enabling our disciplined capital allocation strategy.

Our cash and cash equivalents balance at the end of the second quarter was $301 million compared to $370 million in the fourth quarter of 2024. Our cash position reflects typical seasonality and capital deployment towards share repurchases during the first half of the year. Our financial leverage was a reasonable 2.1x net debt to EBITDA, consistent with our expectations. We intend to maintain that leverage of approximately 1.5x over the long term. However, we will fluctuate from time to time as we pursue strategic opportunities consistent with our capital allocation priorities. For the trailing 12 months, our free cash flow was $216 million. Year to date, we repurchased 1 million shares, further reducing our share count, which is now more than 10% lower than it was at the end of 2021. We currently have $240 million remaining on our repurchase authorization.

Our capital allocation priorities remain unchanged, investing in high-return opportunities, pursuing disciplined M&A, and returning capital to shareholders through buybacks. While the current financial market environment is dynamic, we continue to evaluate M&A opportunities with rigor and remain committed to deploying capital in ways that create long-term value. As a reminder, our next debt maturity is not until 2027, and all of our debt is fixed with rates averaging 3.5%. Please turn to slide 10 for our third quarter outlook. We have executed well amid ongoing challenges. However, our customers still face heightened uncertainty as they navigate this rapidly changing environment. Assuming the continuation of current market conditions, revenues for the third quarter are expected to be between $670 million-$685 million, representing a 2% to 5% increase over the prior year quarter.

Adjusted EPS is expected to be between $1.85-$1.95, representing a 9%-15% increase over the prior year quarter. For the third quarter, we are projecting a tax rate of 12.5% as we continue to execute our planning strategies and slightly over 15% for the full year. That concludes my prepared remarks. I would now like to turn the call back to Ashish.

Ashish Chand (President and CEO)

Thank you, Jeremy. To summarize, our second quarter performance reflects the strength and resilience of our business, as well as the continued progress of our solutions transformation. We delivered solid results in a dynamic environment with strong order activity, expanding margins, and robust cash generation. Looking ahead, we remain mindful of the ongoing uncertainty in the macro environment. Many of our customers continue to take a measured approach to investment decisions as they await greater clarity on policy and economic conditions. As a result, we expect near-term demand to remain steady, with third-quarter performance likely to mirror typical seasonal patterns. We believe this is consistent with the neutral stance we are seeing across our customer base. That said, our medium and long-term outlooks remain highly constructive. The fundamental trends driving our business, reindustrialization, automation, digitization, and the convergence of IT/OT, are firmly intact and gaining momentum.

We are seeing increased interest in reshoring and domestic manufacturing, and our portfolio is uniquely positioned to support customers as they modernize and localize their operations. Importantly, the recent wins we highlighted earlier, such as the Solutions Award with a leading hyperscale data center customer and the Specification Award with a major U.S. automotive manufacturer, serve as clear evidence of our success in the marketplace. These achievements underscore the value of our collaborative approach, the breadth of our product portfolio, and our ability to deliver innovative, integrated solutions that address our customers' most critical needs. We believe Belden is exceptionally well placed to benefit as these secular trends play out. Our solutions transformation is delivering tangible results, expanding our addressable market, and positioning us for sustainable growth and margin expansion. We remain committed to disciplined execution and thoughtful capital allocation, ensuring we create lasting value for our shareholders.

That concludes our prepared remarks. Operator, please open the call for questions.

Operator (participant)

Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. If you are in the event via the web interface and would like to ask a question, simply type your question in the ask a question box and click send. Our first question is going to come from David Williams from Benchmark. Please go ahead.

David Williams (Equity Research Analyst)

Hey, good morning, everyone. Thanks for letting me ask the question. Congratulations on the continued success here.

Ashish Chand (President and CEO)

Hey, good morning, David.

David Williams (Equity Research Analyst)

First, good morning. Maybe first, just on the puts and takes around the second half demand environment. You've been cautious, I think, for the last several quarters, just given how dynamic it is. I guess maybe could you help us understand how you're kind of thinking about that second half in terms of maybe risks or maybe upside even. Thank you.

Ashish Chand (President and CEO)

Yeah. I think first of all, our automation business, Automation Solutions, we are seeing a steady improvement there with going into the second half. We've seen, across the board in terms of geographies, we've seen growth. We've seen growth even in Germany and China this quarter. That gives us more confidence as we go into the second half. Second, we see some key verticals, especially discrete manufacturing and energy, showing double-digit growth at this point. Orders were up 11% on a year-over-year basis in Automation Solutions. Generally, very favorable new tax policies are favorable to investments. We see that as, and by the way, I should add that we have multiple customers who are looking to establish more manufacturing closer to the points of consumption, especially in the U.S., pharmaceuticals, consumer goods, logistics, automotive, process manufacturing. That's a solid environment.

It's a little less, it's more at the level of green shoots in the case of our Smart Infrastructure Solutions business, where on the Smart Building side, we are seeing more activity in certain target verticals. That includes healthcare, hospitality, data centers. More broadly, there is still uncertainty there. On broadband, we see a lot of strength in the medium term, especially with investments in telco and even MSOs catching up. There seems to be a little bit of, there are some delays in how the DOCSIS upgrades are rolling out because of interoperability issues and some technology issues. There's a little bit of noise there. When I put it all together, I think our verticals are all well positioned. There is a broader trade policy overhang that may impact that.

Now, if you think about our Q2 results, they were pretty strong, and we are guiding Q3 pretty similar to that. We are confident. I don't think they are being overly conservative, but yes, we are concerned about some of the broader policy environment.

David Williams (Equity Research Analyst)

Great color there. Thanks so much for that. Maybe, Jeremy, on just kind of the margin performance and how you think about that leverage moving forward, is there anything that we should be thinking about this change now beyond what you kind of talked about in the past in terms of that EBITDA fall through? Thanks.

Jeremy Parks (SVP Finance and CFO)

Hey, David. No, nothing's changed. I think you should continue to model us with a roughly 25% incremental EBITDA margin when you look at the year-over-year on a full-year basis. I don't think anything's changed dramatically either in gross profit margins or EBITDA margins.

David Williams (Equity Research Analyst)

Thanks again.

Jeremy Parks (SVP Finance and CFO)

Sure.

Operator (participant)

Our next question is going to come from William Stein from Truist. Please go ahead.

William Stein (Equity Research Analyst)

Great. I want to address the same topic in a slightly different way. I understand your preference for and the reasoning for looking at this on a full-year basis or on a year-over-year basis. In both Q1 and Q2, the sequential incrementals on the gross line and operating margin were, you know, again, on a sequential basis, a bit lower than what you had been experiencing earlier. I'm wondering if that is related to passing along tariff costs at lower or near-zero margins or if there's some other dynamic that's driving, you know, that. I wonder to what degree we should look at that as a temporary thing that improves over the next couple of quarters or any other color that could help us explain and understand this dynamic. Thanks.

Jeremy Parks (SVP Finance and CFO)

I think there's always a little bit of noise from quarter to quarter, but there is an impact from copper increasing and some of these tariff pass-throughs. If you just took out the impact of the pass-through on copper, on a sequential basis, I think our incrementals are roughly 25%. I think they're healthy. There's no real changes in the underlying business. There is a little bit of an impact from just higher copper and tariff pass-throughs.

William Stein (Equity Research Analyst)

Great. As a follow-up on a different topic, I want to say it's great to see the hyperscale example. A lot of people are saying AI is eating the rest of the economy. It's great to see more exposure at the hyperscaler in that category of customers. You noted in this that this is for gray space, I think is how you described it, meaning not related to the GPU-to-GPU or ASIC-to-ASIC communications and the cables and wires that are related and connectors that are related to that technology. I wonder if there's any effort underway to potentially go after that part of the data center market, or is that too far afield from your technology position, or is there another reason that perhaps that's not a good market for Belden? Thank you.

Ashish Chand (President and CEO)

No, thanks. That's, you know, we've discussed that a lot internally, and it's certainly a market that we remain focused on. Data centers are part of our priority vertical set. That includes both the white space and the gray space. I think the point we wanted to make with this example was how our IT/OT convergence strategy is really now yielding more results. There is a problem that our customers face when they have to bring IT/OT together. The main problem is that OT equipment, devices, etc., use multiple protocols. IT is more standardized, so that translation becomes difficult. The second problem is that OT devices generate a lot of data, and moving all of that data up to the cloud is expensive. If you have to select which data to move and refine that, then you need capability at the edge to compute and process.

That's where we come in. If you remember the last quarter, we provided an example where we said how we had products from Smart Infrastructure Solutions going into a more industrial-type environment. This time, we've given an example where we've said how products from our erstwhile kind of industrial area are now going into a building campus environment, in this case, data center. I think there are two slightly different things. One is we have IT/OT converged solutions on offer, and multiple industries are going to benefit from that. The benefit is really measured in terms of latency, etc. Right now, hyperscale customers place a very big premium on time. They are looking for those solutions, and we have a nice pipeline with more. Yes, we also do have a data center approach, and we are working with some customers right now on both white space and gray space.

The one thing we have to be thoughtful about is, you know, there are certain grades of data center and customers. When you go to the really large ones, the white space can become super competitive. We are choosing carefully the kinds of customers we want to penetrate for white space, and you'll see more of that going forward. Maybe we'll bring out an example in the next couple of quarters.

William Stein (Equity Research Analyst)

Thank you.

Operator (participant)

Our next question is going to come from Mark Delaney from Goldman Sachs.

Mark Delaney (Stock Analyst)

Yes. Good morning. Thank you for taking our questions. I also had one on the hyperscale award you spoke about today. I understand that's historically been a smaller business for Belden, but some of the CapEx dollars being deployed are quite large, as we've heard this year. You mentioned the award tied to a PLC system supporting modular cooling. Maybe you could provide some more context on that award. Apologies if I missed it, but any context you can share around the revenue from that award when it's fully ramped and, you know, the potential to get additional awards tied to those sorts of systems maybe with other hyperscalers.

Ashish Chand (President and CEO)

Yeah. Mark, it is a multimillion-dollar contract, and it's going to play out over a couple of years. This is the nature of this industry in terms of how they build out. Really, the large hyperscale data center providers right now are facing major challenges on the energy management side. A portion of that, of course, is the whole heating cooling dynamic. This company has struggled for a long time just simply measuring and controlling or automating that control in terms of how to apply the cooling process in the most efficient way. The struggle was that their industrial-type devices or their operational-type devices were just on a different backbone. We were able to come in and do some deep customer-centric problem-solving, which is kind of part of our solutions approach, as you know.

We came up with what I would call a solution customized to that problem but repeatable across multiple customers that have the same problem. Energy management broadly and within that, supporting the best heating cooling control system is a problem that all hyperscalers face at this point. We are very focused on that gray space problem. We are going across a number of different customers at this point with early engagements. Again, very specific area where our industrial background and our deep engineering capabilities have allowed us to penetrate a new market, I think, where there was previously, frankly, no solution. They were just working around that with more manual intervention.

Mark Delaney (Stock Analyst)

That's very helpful. On the solutions topic, I think solutions sales were 10% of your total revenue last year. You have an objective to get it to, I believe, 20% in 2028. Can you give us an update on how that solutions mix is tracking for this year and if you're on track to hit that prior 20% target?

Ashish Chand (President and CEO)

Yeah. If you remember, Mark, the biggest contributor to our solutions sales till last year was Automation Solutions. Automation Solutions are on track, actually, to get closer to that 20% level even at this point. The opportunity for us was then to bring integrated solutions across IT and OT with, you know, Smart Infrastructure Solutions also becoming part of that. I think here we are pretty unique because we are able to orchestrate those two kinds of worlds together in parallel for our customers. We have a number of projects now where we are seeing that elevation to not just an automation solution but to a full IT/OT converged solution. That's the opportunity to get to 20% or more on an aggregate basis, really pulling our Smart Infrastructure Solutions into that process.

You will notice us also making more OpEx investments in Smart Infrastructure Solutions, which actually has some impact on the EBITDA margins in the short term, but obviously will help us accelerate solutions in that area. That includes, by the way, a full suite of not just passive products but active products and software in that area that will combine with our full stack on the automation side as we go into these integrated solutions. Again, Automation Solutions already tracking to that number or better. As we bring in Smart Infrastructure, we see many, many opportunities. We are fairly unique. It needs investment, but these are investments we know how to make. We've already made on the other side. We see the pipeline accelerating for those combined solutions.

Mark Delaney (Stock Analyst)

Helpful. Just one last one for me, if I could please. Jeremy, you spoke about a 15% tax rate for this year and running at lower levels in 2Q and 3Q. 15% is lower than where the company had been in prior years. Is this a more sustainable level for investors to think about going forward, or is some of the work your tax team has done more one-time in nature and this is more episodic than representative of the longer-term tax rate? Thank you.

Jeremy Parks (SVP Finance and CFO)

We're obviously always working through tax planning opportunities and working through our structuring. Every year we go into it with a playbook of things to work through. I think at this point, the benefits that we're getting this year are more discrete in nature. If you're modeling us beyond this year, you can probably put us back at more of a long-term tax rate of 20%, roughly. We're always going to work through items as we get into the year and hopefully do a little bit better.

Mark Delaney (Stock Analyst)

Thank you.

Operator (participant)

Our next question is going to come from Rob Jamieson from Vertical Research Partners. Please go ahead.

Rob Jamieson (Equity Research Analyst)

Hey, good morning, guys. Thanks for taking my questions. Just wanted to touch on Smart Infrastructure Solutions. You know, decent organic growth in the quarter. Margin was a bit light. I'm just curious on the factors. Is that, like, is any of that outside of the OpEx investment that Ashish mentioned related to kind of the optical or Precision Optical acquisition being a little bit diluted or just lower or higher percentage of, like, passive sales from there? Also, just following up on solutions. Sorry if I missed it. That's in between calls. Just if there's any update on how solutions sales are tracking for that segment.

Jeremy Parks (SVP Finance and CFO)

Hey, Rob. What I would say is that the majority of the cost increase within Smart Infrastructure is to fund these solutions initiatives or the initiative around solution sales within Smart Infrastructure. There is a lot of deliberate investment going on in that space, which is part of the reason we've been highlighting some orders in the space because I think we're making good progress there. In terms of the gross margin, I would say roughly similar to where we've been the last few quarters. There is a little bit of a negative impact from the pass-through of higher copper costs and tariffs. We're recovering those, but it is slightly dilutive on margins. We would expect to see margins in that segment improve over time as we continue to grow organically. I think we should see good operating leverage as that business gets bigger over time.

Rob Jamieson (Equity Research Analyst)

Thank you. I'm just curious on the M&A pipeline. Is there anything that you're looking at to help expand and accelerate that solution-based approach, whether across either segment or specifically in the Smart Infrastructure Solutions space?

Ashish Chand (President and CEO)

Yes, sir. We do have a fairly robust M&A pipeline, and there are three areas of focus. The first is to, you know, close some gaps in our stack in terms of technology. For example, more edge capabilities, more security, cybersecurity, more wireless capabilities. That's an area. We previously also had in that list fiber, but I think, you know, there we have reached the right level in terms of fiber content. The second thing, obviously, is around acquiring more access, especially to end customers that need IT/OT converged solutions, right, which would help us in terms of just growing that combined approach because, you know, we have a lot of experience with graduating customers from products only to solutions and then to these converged backbones. We can apply that expertise to customers that come in with such a deal.

Obviously, the third area remains just in terms of overall software capabilities, you know, around Horizon. We've built this platform. We're deploying it in more and more of our solutions. There are areas where smaller acquisitions can become part of Horizon, especially around data orchestration and contextualization. We have a robust pipeline at this point. Let me just say it's more robust now than it's been over the last 24 months, and we feel good about it.

Mark Delaney (Stock Analyst)

Great. Thanks for taking my questions.

Operator (participant)

If you'd like to ask a question, please press star one on your telephone keypad, or you may type your question in the ask a question box and click send. Our next question is going to come from Steven Fox from Fox Advisors.

Steven Fox (Founder and CEO)

Hi. Good morning. First off, I was curious about the comments around fiber and broadband in particular. You talked about 5% organic growth. It sounds it's still pretty mixed there, even though some of the large carriers are talking about accelerating spending. Can you give us a little bit more color on maybe where you're succeeding more or less? I guess that also does recognize it sounds like your orders are growing, but I'm just trying to understand exactly what's going on in that market. I had a follow-up.

Ashish Chand (President and CEO)

Yeah. First of all, Steve, in Q2, our sales of fiber as a percentage of total broadband were at 50%, which is what we've been targeting for this year. Really, a lot of our sales of fiber have been around the DOCSIS upgrades, fiber-to-the-home rollouts that have been initiated both by the MSOs and the telcos. We are really strong in that distribution point versus some of our competitors who play more in the trunking routes, more carrier. Obviously, Precision has helped us a lot by allowing us to complete that channel. We are now able to go in and have end-to-end solutions going from the broadband data centers all the way to the field devices. Again, we remain focused on that distribution portion of the network. We've seen our fiber sales being fairly steady. You're right.

We got some orders in Q2 in the broadband segment for more of that DOCSIS rollout. We are well situated going into the second half. I think book-to-bill in that business was actually 1.14, so well positioned. That's where we are focused. We don't participate, as you know, more in the trunking fiber, which is more cyclical in nature. We don't always get the highs, but we also don't get the troughs of that dynamic.

Steven Fox (Founder and CEO)

Great. That's helpful. Jeremy, I don't know if this is even calculable given all the volatility around copper, but going forward now and recognizing there was a big move yesterday again, how are you factoring copper into the guidance, whether it's in margins versus what's passed through, etc.? I'm just trying to see if there's anything we could foot to there.

Jeremy Parks (SVP Finance and CFO)

You're right. Copper has been extremely volatile over the past 90 days, really since the beginning of the year. I think it started maybe close to $4. It got all the way close to $6, and now it's come back down in the mid $4s. We constructed the guidance assuming that copper would be around where it is today. You don't need to make any adjustments to our own guidance for this drop in copper that just happened yesterday. That's already incorporated into the numbers.

Steven Fox (Founder and CEO)

Okay.

Jeremy Parks (SVP Finance and CFO)

Think about it. It's fairly flat sequentially from Q2 to Q3.

Steven Fox (Founder and CEO)

Okay. Good. Just remind us right here because it seems like it could continue to be volatile. The time to pass through these costs, what's the lag relative to what we see in the spot market or when you buy the copper to when you're passing through to your customers these days?

Jeremy Parks (SVP Finance and CFO)

It doesn't take too long. Usually, when copper moves, we wait to see if it's going to stay at a new level. We give it a few weeks, give distributors maybe a 30-day notice, and then we implement prices. It takes roughly two months to get the price increases pushed through or the price changes pushed through distribution. We hold a couple of months' worth of copper inventory at any time. We're pretty well matched in terms of the timing of when the new prices hit our P&L on the cost side, as well as when the price changes come into effect.

Steven Fox (Founder and CEO)

Great. Let us know when you figure out the new level. Thank you.

Jeremy Parks (SVP Finance and CFO)

Yeah, thank you.

Operator (participant)

Our next question comes from Chris Dankert from Loop Capital Markets. Please go ahead.

Chris Dankert (SVP of Equity Research)

Hey, morning. Thanks for taking the question, guys. I guess just moving to the outlook again here and just touching on that order book specifically, it seems like orders are up pretty robustly here in the quarter. The guidance is fairly measured on the third quarter, I guess. Maybe you could put that into context. Is it more a matter of the order book being longer cycle, or is it just a matter of the conservatism that Ashish touched on earlier in terms of customers pushing or pulling some of these actual projects out a bit?

Jeremy Parks (SVP Finance and CFO)

Yeah, Chris, I would characterize our guidance not as overly conservative. I think we took a pretty balanced approach in how we constructed it, but keeping in mind that there are a lot of uncertainties. I mean, even this news around copper tariffs just went into effect last night, and the dynamic changed a little bit there for the better for us. I think that was positive, but I think it's just a recognition of the fact that there's a lot of moving parts right now in the policy environment and in the macro environments. Overall, I think we feel optimistic heading into the second half, and we modeled the third quarter to look much like the second quarter, which is what we would typically see seasonally from Q2 to Q3.

Ashish Chand (President and CEO)

If I may add here, Chris, if you take our trailing 12-month results, including our Q3 guidance, even at the low end, we would be establishing new records in both revenue and earnings per share. I think it's a fairly balanced guidance. We do think there is a policy backdrop that is still uncertain. Some customers are mulling over the best timing for their investment decisions. It's still a new record. We are leaning forward in that sense.

Chris Dankert (SVP of Equity Research)

Makes sense. Thanks for the color there, guys. I guess just to circle back on the AI exposure, when I think about Belden historically, it's been the real opportunity for you guys to help connect customers with their data that's kind of segregated in various lakes because they can't optimize what they can't see or measure, right? Can you speak to just the customer activity on that front? When they come into the CICs, how many customers are even talking about trying to get access to that data in order to utilize AI these days?

Ashish Chand (President and CEO)

I would say, Chris, every customer, literally, that has reached that basic level of maturity where they have a digital transformation project going on, they do talk about that aspect. I think you've hit the nail on the head. There's a whole lot of discussion right now about why do I have data in these secluded lakes whilst I could have, you know, agentic AI go across all my data, query it, and bring me back the best possible answer. There's a lot of that going on. I think the challenge most customers have, though, is just taking real-time data from the field, whether it's in a hospital or in a factory, and bringing it together so that you can have, on the IT side, you can actually process that data.

That's very challenging, which is why people used to put data in lakes so that they can be accessed more simply. I think this is where our customers are very keen. Whilst I would like to, obviously, I'm very excited about the AI exposure we had in this particular case study that we shared. To be fair, it's really more an energy management solution that happens to be applicable in the AI hyperscale space. I think similarly, we are building solutions around IT/OT converged use cases, many of which will apply to AI data centers, but hopefully, more of them will apply to end users than leveraging that AI compute capacity for their day-to-day operations. I think that's where the long-term opportunity for Belden is. Like I said, every customer that comes into our CIC is talking about that problem.

Chris Dankert (SVP of Equity Research)

Got it. Thanks so much for the close there, and best of luck in the back half of the year here, guys.

Ashish Chand (President and CEO)

Thank you. Thanks.

Operator (participant)

This concludes today's question and answer session. I'll now turn it back over to Aaron Reddington for closing remarks.

Aaron Reddington (VP of Investor Relations)

Thank you, operator, and thank you, everyone, for joining today's call. If you have any questions, please contact the IR Team here at Belden. Our email address is [email protected]. Thank you very much. Goodbye.

Operator (participant)

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