Belden Inc (BDC) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated conference 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.

(Operator Instructions).

I would now like to turn the call over to Matt Tractenberg. Please go ahead, sir.

Thank you, Nikki. Good morning, everyone, and thank you for joining us today for Belden's third quarter 2013 earnings conference call.

My name is Matt Tractenberg, and I'm Belden's Director of Investor Relations. With me here this morning are John Stroup, President and CEO; and Henk Derksen, Belden's CFO. John will provide a strategic overview of our business and then Henk will provide a detailed review of our financial and operating results followed by question and answer.

We issued our earnings release earlier this morning and we have prepared a slide presentation that we will reference on this call. The press release and the presentation are available online at investor.belden.com.

Before we begin, I'd like to remind our audience that Belden will hold its 2013 investor and analyst day in Boston on Monday December 9 at 1.00 p.m. Eastern. At this event, we will provide additional insight into our performance and strategy, as well as 2014 guidance. Please reach out to us if you would like to attend in person. The event will be webcasted live for those of you unable to attend, and can be accessed via the Belden IR website.

Turning to slide 2 in the presentation. During this call, management will make forward -- certain forward-looking statements. I would like to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The comments we will make today are management's best judgment based on information currently available. Actual results could differ materially from any forward-looking statements that we make and the Company disclaims any obligation to update this information to reflect future developments after the call. For a more complete discussion of factors that could have an impact on the Company's actual results, please review today's press release and our annual report on Form 10-K.

Additionally, during today's call management will reference adjusted or non-GAAP financial information. In accordance with Regulation G, we have provided a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate. This reconciliation is in the appendix of the presentation and has been posted separately to the Investor Relations section of our website.

I'd now like to turn the call over to our President and Chief Executive Officer, John Stroup. John?

Thank you, Matt, and good morning, everyone.

I'm pleased with our third quarter results, and I would like to thank the team for their hard work during the period. While Belden, like many of its peers continues to find revenue growth challenging in the current environment, our solid results highlight the resiliency of our portfolio and business system. I am proud to report best-in-class gross profit margins up 36% and operating profit margins up 14.2%, within the range of our newly stated goal.

Although stronger end-markets would certainly be welcomed, our market delivery system is driving share capture and expected fall through. Following the formation of Belden's four global business segments this year, our commercial and product strategies are easier to execute, and we continue to benefit from geographic and end market balance.

Results in our industrial and broadcast platforms were solid, while market dynamics within our enterprise platform were challenging. Overall, revenue in developed markets, which represents nearly 80% of consolidated revenues grew by 3.1% year-over-year. This growth more than offset softness and difficult year-over-year comparisons in China. We believe in our long-term secular growth drivers, but it's clear that customers remain cautious when contemplating capital investment.

Please turn to slide 3 in our presentation for a review of our third quarter highlights. As a reminder, I will be referring to adjusted results today. I am pleased with third quarter revenue, an increase of 12.3% year-over-year to $525.6 million. Income from continuing operations per diluted share totaled $0.95 for the quarter, up 43.9% over last year's $0.66 per diluted share.

Gross profit margins increased 290 basis points year-over-year to 36% and continue to be best-in-class. Operating profit margins also increased year-over-year by 270 basis points to 14.2% and are within our newly stated goal of 14% to 16%. We attribute the increase in margins to organic and inorganic improvements to the portfolio and meaningful year-over-year productivity gains. On a sequential basis, operating profit margins remain stable.

And finally, we repurchased approximately 515,000 shares of Belden common stock for $31.25 million. In the past nine quarters, we have purchased a total of 5.4 million shares at an average price of $40.37 per share. This represents more than 12% of the outstanding shares. We continue to believe that buying back Belden's stock, paired with the purchase of attractive businesses, is an effective allocation of capital and will continue to drive shareholder value.

Please turn to slide 4 to review the third quarter income statement. Revenue for the quarter of $525.6 million was up $57.6 million or 12.3% compared to $468 million in the third quarter of 2012.

Adjusting for acquisitions, divestitures, foreign exchange, and copper; revenue was up approximately 1% year-over-year. After further adjusting for changes to inventory levels at our channel partners and customers, revenue increased by approximately 2% year-over-year.

In Europe, which represents 17% of consolidated results, revenue grew 1.9% sequentially and declined less than 1% from the year-ago period. It appears that on balance, demand in Europe has reached the bottom and we should begin to experience growth, albeit shallow.

Within the United States, our share capture initiatives were especially effective this quarter. Organic revenue growth, after adjusting for changes in copper prices was 3.8% year-over-year. Conversely, revenue in China contracted 15% year-over-year. This was a result of soft demand and some extremely difficult comparisons within our industrial IT business. Elsewhere around the world, revenue from Brazil and the Middle East were up modestly.

Operating margins are a clear highlight for the quarter and year. However, we also see it as a major opportunity for improvement. We believe our business model has the potential for significant operating leverage. Specifically, we believe fall through on incremental revenue should be approximately twice that of our current operating margin.

Please turn to slide 5 for a review of our business segment results. Broadcast revenue in the quarter was $179.2 million as compared to $99.3 million in the year-ago period, which included two months of Miranda, but excludes PPC. Results from these acquired businesses were strong and contributed approximately $114 million of revenue during the quarter or $81 million more to the segment than the year-ago period.

Had we owned Miranda and PPC for a full period last year, revenue within the broadcast platform would have increased by 4.6% year-over-year after adjusting for changes in copper and currency. Operating profit margins were 14.7 %, increasing 500 basis points year-over-year and accretive to consolidated margins.

Our enterprise connectivity segment saw macro-related headwinds during the quarter. Revenue was $123.4 million, down from $128.7 million in the third quarter of 2012, a decline of 2.5% after adjusting for changes in copper and currency.

We believe revenue was negatively impacted by uncertainty within the United States, as anticipation of a federal shutdown likely impacted purchasing behavior in the quarter. In addition and as a result, inventory levels at our customers and channel partners were more tightly managed.

Operating profit margins were 11.5% for the period, an improvement of 40 basis points sequentially and 80 basis points from the year-ago period. We continue to see opportunity for margin expansion within this segment.

Our industrial businesses continue to fare well given the uncertain global environment, and I am pleased with the combined 3.6% year-over-year organic revenue growth from these two businesses. Implementation of our market delivery system is making a difference, and I believe we outperformed in these markets.

I would now like to offer some details on each of these platforms. Industrial connectivity had revenue for the quarter of $167 million, up 4.8% from the year-ago period. After adjusting for changes in copper and currency, revenue grew by 6.3% year-over-year.

Operating profit margins were 14% for the period, up 160 basis points year-over-year and within the range of our long-term corporate goal. Industrial IT revenue, up $56 million, was approximately flat year-over-year from $56.3 million in the third quarter of 2012. Operating profit margins were 18% for the quarter, down 10 basis points from last year's period and down 150 basis points sequentially on lower volume.

As I mentioned earlier, we had a large nonrecurring project a year ago in China that made for an especially challenging year-over-year comparison. I will now ask Henk to provide additional insight into our third quarter financial performance. Henk?

Thank you, John.

I will start my comments with results for the quarter followed by a review of our operations and segment results, discussion of the balance sheet, and close with our cash flow performance. As a reminder, I will be referencing adjusted results today.

Please turn to slide 6 for a detailed consolidated review. Third quarter consolidated revenues were $525.6 million. Revenues for the quarter grew by 12.3% from $468 million in the prior year.

We benefited from the addition of Miranda beginning in August 2012 and PPC during December 2012, as compared to the year-ago period with an impact of $81.3 million. Additionally, the revenue from our consumer electronics business is no longer included in our results, with an unfavorable impact of $24.3 million year-over-year.

Organic revenues adjusted for changes in copper prices and foreign currency, increased 80 basis points year-over-year. After further adjusting for changes in inventory at our channel partners and customers, revenues for the third quarter increased by approximately 2% year-over-year.

As highlighted by John, results were favorably impacted by strength in our broadcast platform, as well as growth in industrial connectivity. These were offset by challenges in our enterprise connectivity end markets.

On a sequential basis, after adjusting for changing copper and currency, revenues declined seasonally by 60 basis points from $532.6 million to $525.6 million. Best-in-class gross profit margins, now at 36%, increased 290 basis points year-over-year and 80 basis points sequentially.

The year-over-year improvement was largely the result of inorganic activities, with an impact of 240 basis points. Sequentially, we benefited from productivity and lower input costs with a combined impact of approximately 80 basis points.

Third quarter SG&A expenses were $94.6 million or 18% of revenue. R&D expenses for the quarter were $20.8 million or 4% of revenue. SG&A and R&D expenses increased year-over-year as a result of acquisitions, with a combined impact of $11.9 million. After adjusting for the impact of currency and inorganic activities, SG&A and R&D combined expenses declined $1.1 million year-over-year.

We remain diligent in our cost controls given the uncertain economic environment. For the third quarter 2013, we recognized $758,000 in operating income from the equity method investment in our joint venture that services the Chinese train manufacturing market.

Although margins remain healthy, reduced market demand has impacted our results. A portion of the volume decline is an understandable reduction in customer inventory levels. We believe this is temporary and we expect an inventory build in the fourth quarter followed by a more normalized pattern going forward.

I am encouraged by third quarter's operating profit margins of 14.2%, up 270 basis points year-over-year from 11.5% and flat sequentially. This is our second consecutive quarter at the low end of our long-term corporate goal. As expected, net interest expense for the quarter was $19.2 million. The sequential net increase of $1 million is partially due to the cancellation of our euro denominated debt. Net interest expense increased year-over-year by $5.4 million, a result of financing activities that funded the acquisitions we made last year.

Our weighted-average cost of debt remains at 5.7%. We expect interest expense to remain stable at approximately $19.3 million per quarter. The adjusted effective tax rate for the third quarter was 23.3%. This is 110 basis points favorable to last year's effective tax rate of 24.4%, and it is primarily the result of effective tax planning. For financial modeling purposes, we recommend using a 25% effective tax rate for the fourth quarter of 2013, which will result in a rate of approximately 24% for the full year.

Income from continued operations for the third quarter was $42.4 million, up 40% or $12.1 million year-over-year from $13.3 million. Sequentially, income from continued operations decreased $1.8 million from $44.2 million. Income from continued operations per diluted share was $0.95 for the quarter, an increase of $0.29 from $0.66 year-over-year.

Please turn to slide 7. I will now discuss revenues and operating results by business segment. Our broadcast segment generated revenues of $179.2 million during the third quarter. Revenues increased by $79.9 million from $99.3 million compared to the third quarter of 2012.

The acquisitions of Miranda and PPC contributed $81.3 million to this platform compared to the year-ago period. Growth on an organic basis with Miranda and PPC included in the year-ago period was 4.6%. We are obviously extremely pleased with this result, given the market challenges.

On a sequential basis, revenues increased by $9.5 million from $169.7 million, up 5.8% on an organic basis adjusted for changes in copper and currency. This increase is largely a result of typical seasonal patterns.

Operating profit margins within the broadcast segment were 14.7% for the quarter, up 500 basis points from 9.7% in the year-ago period, and up 50 basis points sequentially. The integration of Miranda and PPC is on schedule. Operating profit margins are already within the range of our long-term goals and I look forward to further success in 2014.

Our enterprise connectivity segment generated revenues of $123.4 million during the third quarter, a decline $5.3 million compared to $128.7 million in the third quarter of 2012. After adjusting for changes in copper and currency, revenues decreased organically by 2.5% or $3.2 million compared to the year-ago period.

We believe that purchasing decisions in the quarter were impacted by the anticipations of a federal shut down in the US. This likely caused our customers and channel partners to more tightly manage their inventory levels, resulting in an impact of approximately $4.7 million on a year-over-year basis. After adjusting for the inventory reductions at channel partners and customers, revenues for the third quarter increased approximately 1% year-over-year.

Sequentially, revenues decreased $9.5 million from $132.9 million. After adjusting for copper and currency, revenues declined 5.8% or $7.7 million sequentially. After further adjusting for changes in inventory at our channel partners and customers revenues declined approximately 3% or $3.9 million sequentially.

Operating profit margins of 11.5% increased by 80 basis points year-over-year and 40 basis points sequentially, largely due to favorable input costs. While markets remain challenged, we continued to be diligent in our cost control and we are focused on share capture programs with our higher-margin products.

Our industrial connectivity segment generated revenues of $167 million during the third quarter. Revenues increased by $7.7 million from $159.3 million compared to the third quarter 2012. Sequentially, revenues decreased by $4.9 million from $171.9 million, inline with typical seasonal patterns.

Revenues within the industrial connectivity platform after adjusting for copper and currency, increased 6.3% compared to the year-ago period and decreased 1.8% sequentially. The year-over-year increase is attributable to the execution of Belden's market delivery system.

Operating profit margins of 14% increased by 160 basis points from 12.4% in the third quarter of 2012, a result of leverage in sales volume as well as productivity gains. Sequentially, operating profit margin declined by 40 basis points from 14.4%, driven largely by volume. The Industrial IT segment generated revenues of $56 million during the third quarter. Revenues were relatively flat compared to the third quarter 2012 and decreased $2.1 million sequentially from $58.1 million in the second quarter of 2013.

Revenues within the industrial IT platform after adjusting for currency changes, decreased 4.2% compared to the year-ago period and 3.9% sequentially. Last year's results benefited from a large mining project assembled in China that did not repeat itself this year. Sequentially, declines are primarily due to typical European seasonal patterns.

Operating profit margins of 18% were relatively flat from the year-ago period and down 150 basis points sequentially. Sequential decline is primarily due to lower volume. The secular conference of ethernet (inaudible), security and machine-to-machine communications are intact. In summary, I am pleased with our performance, especially given this challenging economic environment.

If you will turn to slide 8, I will begin with our balance sheet highlights. Our cash and cash equivalents balance was $503.8 million at the end of the third quarter. This is an increase of $27.6 million from the second quarter of 2013.

Inventory turnover was 6.4 turns, a decline of 0.2 turns year-over-year and 0.3 turns sequentially. Days sales outstanding was 57 days in the third quarter, an increase of 1 day both year-over-year and sequentially. Working capital turns was 7 turns, down 2.6 turns year-over-year and improvement of 0.2 turns sequentially.

I would like to remind you that as we acquire effective companies like Miranda and PPC, they are initially dilutive to our capital turnover performance. After adjusting for all inorganic activities over the past year, working capital turnover improved by 0.5 turn year-over-year, in line with expectations. PP&E turnover was 6.9 turns an improvement of 0.2 turns year-over-year and a decrease of 0.2 turns sequentially.

The balance sheet is in excellent shape. We are currently at our target net leverage ratio of 2.5 times net-debt-to-EBITDA.

On October 3, 2013, we entered into a new credit agreement that provides for increased liquidity, extended maturity dates, and decreases the number of financial covenants. The event did not materially add to our existing debt levels, however, the added liquidity allows us to react quickly when attractive assets become available, an important element in our long-term strategic plan. This agreement has effectively increased our dry powder to $707 million, which allows us to simultaneously continue our share repurchase program and execute strategic acquisitions.

Please turn to slide 9 for a few cash flow highlights. Cash flow provided by operating activities for the third quarter were $67.3 million compared to $62.8 million in the year-ago period. Net capital expenditures for the quarter totaled $11.1 million compared to $9.2 million last year.

Free cash flow after capital expenditures was $56.2 million in the period. On a year-to-date basis, we've generated 50% more free cash flow than last year, a testament to our quality of earnings. I remain confident in our ability to deliver our long-term corporate goal of free cash flow in excess of net income for this year.

During the current quarter, we purchased approximately 515,000 shares of Belden common stock for $31.25 million at an average price of $60.71 per share. On a combined program basis, we have purchased a total of 5.4 million shares or 12% of the outstanding shares at an average price of $40.37 per share. We now have $131.3 million remaining available under the current program.

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

Thank you, Henk. Please turn to slide 10 for our outlook regarding the third quarter and full-year results.

Belden's outstanding business portfolio and an improved organizational structure provide us with an opportunity to perform well in a variety of economic environments. We continue to emphasize our strategic initiatives including our market delivery system and lean enterprise.

The global macroeconomic environment is generally as we anticipated, and we remain confident in our ability to deliver consistent operating results as we finish the year. While our revenue is not immune to changes in copper prices or macroeconomic weakness, we are slightly reducing our full-year revenue expectations. However, strong margins allow us to maintain our earnings per share outlook.

We expect our fourth quarter 2013 revenues to be between $510 million and $520 million and adjusted income from continuing operations per diluted share to be between $0.86 and $0.91. For the full-year 2013, the Company now expects revenues of $2.078 billion to $2.088 billion, and adjusted income from continuing operations per diluted share to be between $3.64 and $3.69.

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

(Operator Instructions).

Matt Tractenberg, your first question is from Shawn Harrison with Longbow Research. Your line is open.

Hi, good morning. This is Chris Dankert calling in for Shawn. I was wondering if you could give us a little bit more color around the Enterprise business. Did you guys see any negative impact from Brazil? Was there anything beyond the US government shutdown that was really driving that? And I got one quick follow-up.

Our Enterprise business really started off the quarter fairly strong. And then what we saw towards the end of the quarter was a just a reluctancy for certain customers to pull the trigger on CapEx. Our win-rate continues to improve. I think the team is doing a great job. Unfortunately, we can't force our customers to spend their CapEx sooner than they would like to.

From a geographic point of view, we actually did better in the Americas than we did outside of the US. I think we could have done even better in a better macroeconomic environment. But after adjusting for changes in channel inventory our growth in the Americas in the Enterprise business was 5 %, which I think is a clear outperform compared to the information we've seen from other folks. That gives us optimism as it relates to the team's ability to take share, and more importantly driving growth in the higher-margin product categories to expand margins.

Great. Thank you. Could you give us a little bit of color -- and I know you can't comment directly -- but is there any traction on the M&A front? Is it pricing right now? Is it the complexity of the deals? Can you give us some kind of sense of what's happening in the pipeline there?

Yes, I can say that we are active. We are always active, of course, but I feel like we've got a number of attractive opportunities that we are hopeful for. From a environmental point of view, I think, as you can expect, pricing is a bit of a challenge, but I think compared to the folks we compete with, we've got some interesting levers to pull.

Our commercial synergy execution on our most recent deals have been very good. And as Henk mentioned, we often acquire companies with balance sheets that are not as efficient as ours and that creates another lever for us to pull. Even in an environment where pricing is challenging, I think we are uniquely situated to prevail.

Okay. Great. Thanks for the color. That really helps.

You're welcome.

And your next question comes from John Quealy with Canaccord Genuity. Your line is open.

Hello, good morning, folks. First, some housekeeping on Industrial IT. The large China project, is that now in Q3, or is there going to be some lingering into Q4?

No. The large project -- Industrial IT China -- was in Q3 of 2012. It was a difficult comp with an impact of $2 million or $3 million.

Okay. Thank you. And then, I know you don't comment, usually, by segment. But generally speaking, as we close out the year here in Q4, do you expect the growth trends to continue as they did in Q3, again, normalizing for copper currency and tough comps? Are we going to see relative out-performance or underperformance by sector in Q4? How should we think about Q4?

I don't think there's anything significant that we would expect to change in the fourth quarter on a year-over-year basis compared with what we saw in the third quarter. Our broadcast platform performed well in the third quarter. I think we expect the same in the fourth quarter. Sequentially, our PPC business does see a decline Q3 to Q4, but on a year-over-year basis that wouldn't be an impact. So I think you should expect more of the same.

I think the comp for Industrial Connectivity is a little tougher in the fourth quarter, maybe than it was in the third. So, that might be a bit of a headwind on a year-over-year basis; and as Henk said, the comp on Industrial IT is probably a little bit easier in the fourth quarter. But I think these are minor, minor adjustments. Nothing significant and on a consolidated basis, I think our guidance projects that we expect similar-type activity.

And lastly, John, you mentioned Enterprise started strong and it seems like it was very strong in the Americas. Obviously, maybe some channel pause around what we had here from sovereign issues.

Can you comment what you have seen post? Is it normal seasonal pattern thus far at Enterprise, or is it maybe a little bit more of a pickup, given that lag? Thanks, guys.

Sure. So what we have seen so far in the month of October is the sell-through data that we have seen is slightly better at Enterprise than it was in September, and consistent with the guidance that we've issued for the fourth quarter.

Operator, next question please.

And the next question will come from Noelle Dilts with Stifel. Your line is open.

Thanks. Good morning.

Good morning, Noelle.

Not to beat a dead horse, but I wanted to go back to Enterprise Connectivity. You provided some nice color by geography. I was hoping you could comment a bit on the markets. What you're seeing in LAN, what you're seeing in data center, if you're seeing any specific trends in data center by size? Any color you could provide there would be great.

So, activity in data centers continues to be better than it is in LAN. And, as you know well, it still represents a smaller portion of our total business, but it has been helpful to both growth as well as margins. And we do tend, I think, to do a little bit better in the small to medium-sized data centers than some of the larger data centers. Really no change there.

I would say that the real challenge for us in Enterprise, which I think is not unique to us, is the fact that customers are just very -- it is very difficult for us to predict when customers are going to let orders. I think it is really just a matter of their companies watching capital spending free cash flow tightly. And I think the situation in the United States in the third quarter made that just more difficult.

I feel really good about what's happening at Belden. We remain cautious with regard to what the end markets look like. Obviously, some of the leading indicators around AVI and non-res point to some recovery in 2014 but how many years have we said that? So, we're just going to watch it carefully.

Great. Thanks. And just quickly -- I'm just curious if you have some early thoughts on China in 2014? Your thoughts on both the fundamental growth outlook for the market there and your growth outlook?

Our view so far on 2014 is that the macroeconomic environment in 2014 we think is probably going to be similar to 2013. We don't see any reason to suggest that things are going to change dramatically. We do think that Europe is bottoming out, as I mentioned. Maybe the absence of headwinds there is positive.

I think growth rates in China are going to be in that 5% to 7% range. That seem to be the most reasonable forecast. I think that 2014, we're probably all going to be living in an environment that's pretty similar to what we lived in in 2013. Obviously, we will provide guidance for 2014 when we're together in December. But those are some of my initial thoughts.

Great. That's helpful. Thank you.

You're welcome.

Our next question will come from Gary Farber with C.L. King. Your line is open.

Yes. Thank you. Just a couple of follow-up questions on Europe. Can you talk about how much Europe was as a percentage of revenue in the quarter? And then if you do enjoy a shallow recovery, will you -- will it mean noticeable operating leverage in the numbers as you head into next year?

Yes. I think our European business was approximately 17% of our total revenue in the quarter. The leverage that we get out of Europe is equal to, if not slightly better than the consolidated results because of our mix of business.

I don't have it handy here in front of me, but I know from the prior structure, and you may recall when we were organized or segmented by regions, the margins in Europe were always higher because of the fact that it was a little bit richer mix of product. So, if Europe is going to recover, or at least not have the headwinds that we had in the past, that's going to be favorable to top line and to margins.

Right. Okay. And then just one other one. Given your commentary regarding the tentativeness of the customer base, can you just offer your perspective given your extensive experience, how this recovery compares to other ones that you have worked through?

So, it's unlike any other recovery that I have worked through, in that it is a recovery, I think, without this typical kind of aggressive snap-back that you would typically see. So I think it is different. I think that we are obviously dealing with many things we have not had to deal with before. And I think that's why it makes it difficult for people to predict.

But I think the most likely outcome, unfortunately, is that the GDP on the global basis is going to be low. I think we're looking at 2%, 2.5% global GDP numbers. I think it just means that companies need to really focus on making certain they have a good portfolio, which I think we have. I think geographic balance is important. And I think execution is clearly at a premium. And fortunately for us, I think that plays into what we would like to do anyway.

Right. Lastly on the acquisition front, you talked about the pricing environment being challenging. Can you talk about -- what are the options? Is it the fact that private equity's involved? Other companies with significant balances? Are some companies thinking about going public because the public market has been pretty strong?

Yes, I think it is predominantly the multiples that you see in public markets, either directly or indirectly, having an impact on sellers' expectations. If they are large enough that a public option is available, then clearly that's a scenario. But even if a public option is not available, then they sort of look at that as one benchmark. And clearly, the cost of debt that's available to PE makes the engineering favorable. I think it is as simple as that.

I think that if you look at the difference between the multiple of transaction and the multiple of public companies, including ourselves, that delta really hasn't changed. It is just a matter of the rising tide and getting comfortable with the fact that our disciplined approach around ROIC has nothing to do with multiples. It has only to do with whether we get a return on invested capital. That discipline, I think is the underpinning of how we think about transactions. I think that discipline's good.

Great. Okay. Thank you.

(Operator Instructions)

The next question is a follow-up from Shawn Harrison with Longbow Research. Your line is open.

Hi guys. Chris again. Given the understandable up-tick in SG&A, rolling in all these acquisitions, can you highlight what we should really we expect for SG&A moving into the December quarter? And then, a couple of calls recently we've heard of a couple of green shoots, very green shoots, in the non-res market. Are you guys starting to see the tide turn in that area any at all?

So, on the first question, I think you should expect that our SG&A in the near-term on a sequential basis is going to be unchanged. Over the long run, over the next three years, you should expect that our SG&A costs will increase half as fast as our top line. That is very consistent and that is how we manage the business and that is the way I would model the business going forward.

In terms of green shoots in non-res spending, I think that if they exist, they are very early. I think it is just not prudent for me to suggest that we are experiencing a recovery. Obviously, we would love to have one. At this point, there's not data that would suggest we are experiencing a robust recovery.

Fair enough. Thank you.

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

Great. Thank you, Nikki. That's going to conclude our call. Thank you everyone for joining the call today. If you have any questions please reach out to the IR team here at Belden. Our email address is investor.relations@belden.com. We're always happy to help. Have a great day, everyone, thanks for joining.

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