Belden Inc (BDC) 2015 Q1 法說會逐字稿

Ladies and gentleman, thank you for standing by. Welcome to this morning's Belden Inc. conference call. Just a reminder, this call is being recorded. (Operator Instructions)

I would now like to turn the call over to Mr. Matt Tractenberg, VP of Investor Relations. Please go ahead, sir.

Thank you, Chanelle. Good morning, everyone, and thank you for joining us today for Belden's first quarter 2015 earnings conference call. My name's Matt Tractenberg. With me here this morning are John Stroup, President and CEO and Hank Derksen, Belden's CFO. John will provide a strategic overview of our business, and then Hank 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, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com.

Turning to slide 2 in the presentation, during this call, management will make certain forward-looking statements. I'd like to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The comments we will make today are management's best judgment based on information currently available. Actual results could differ materially from any forward-looking statements that we make, and the Company disclaims any obligation to update this information to reflect future developments after this call. For a more complete discussion of factors that could have an impact on the Company's actual results, please review today's press release and our annual report on Form 10-K.

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

Before we begin, I'd like to let our investors and analysts know that we'll be holding a live event in Montreal on June 4th that will focus on the Broadcast platform here at Belden. We'll discuss the market, the technology, speak with customers, and walk through a studio demo. We'll also be touring our factory floor. If you'd like to join us, you can register right on our website at investor.belden.com. Under the News & Events section, just clink the link that says "Broadcast Day."

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

Thank you, Matt, and good morning, everyone. As a reminder, I'll be referring to adjusted results today. Please turn to slide 3 in our presentation for a review of our first-quarter highlights.

Given the macroeconomic challenges facing all global companies, I'm especially pleased with our results for the first quarter. I believe it is the direct result of a purposeful approach to creating a strong and balanced portfolio in combination with solid and steady execution. I'd like to thank all our associates for their hard work during the quarter and their commitment to aggressively executing our strategic plan.

Total revenues for the first quarter were $569.5 million, an increase of 16.6%. On a constant currency basis, total revenues increased 22.5%. The stronger US dollar had an approximate $29 million unfavorable impact on revenues, and revenues grew 2.4% on an organic basis.

The demand environment in the first quarter varied by market and geography. As you would expect, revenue growth was strongest at Tripwire, our newly acquired Network Security platform. A pleasant and somewhat surprising result was a return to organic growth at our Enterprise platform. Although forecasted to occur in 2015, it came a little earlier than expected. Both of our Industrial platforms posted organic growth in excess of 3%, despite overcoming challenges with weak demand in Brazil.

Meanwhile, after an exceptionally strong 2014, and in particular fourth quarter, our Broadcast segment battled the realities of a stronger US dollar. In particular, our Grass Valley business had to overcome year-over-year revenue declines in the Middle East, Russia, and Latin America. As a result, revenue in our Broadcast platform was flat year-over-year on an organic basis.

From a geographic perspective, we continue to benefit from a diversified global footprint. We experienced solid performance across several regions, with notable strength in the United States and Canada, up 5.9%, and western Europe, up 5.1%, both on an organic basis, more than offsetting continued weakness across several emerging markets, which experienced a contraction of almost 9% from the year-ago period.

Record gross profit margins were 40.6% during the quarter, an increase of 450 basis points from the year-ago period. In addition to being best in class, these margin levels allow us to further leverage our organic growth initiatives.

Operating profit margins in the first quarter were 13.5%, a year-over-year increase of 40 basis points. EBITDA margins were 15.5%, also an increase of 40 basis points from the year-ago period. We generated earnings per diluted share of $1 in the first quarter, an increase of 25% from the year-ago period.

And, finally, we completed the acquisition of Tripwire, a leading provider of innovative cybersecurity software. We've spoken to you about the pervasive needs of customers across enterprise, industrial, and broadcast markets to protect their mission-critical infrastructure. The Network Security platform will comprise a fifth business segment for Belden, and we believe it makes sense to report these results separately. Please turn to slide 4 for a review of our business segment results.

Broadcast revenue in the quarter was $213.6 million, as compared to $166.5 million in the year-ago period, an increase of 31.2% and a result of, among other things, the acquisition of Grass Valley. Revenues, on an organic basis, were flat during the period and in line with market. EBITDA margins were 13.7%, decreasing 200 basis points year-over-year, a result of mix within the portfolio, as strength in broadband connectivity partially offset the impact of recent acquisitions.

I am extremely pleased with the progress made with the integration of Grass Valley and, in particular, response to our new end-to-end IP solution at the most recent NAB Show was encouraging. Although our customers are managing through a number of uncertainties regarding their business model and technology adoption, we are better positioned than anyone to help them successfully navigate this period of disruption. And I believe they greatly appreciate our vast experience with IP transitions in mission-critical applications, something our competition cannot offer them.

The Enterprise platform returned to growth, with revenues of $104.7 million, an increase of 4.2% year-over-year on an organic basis. I'm encouraged by the strength we're seeing in the market, with solid results in all geographies. I'm especially pleased with growth of almost 18% from our Connectivity portfolio, a sign that the hard work of focusing the business on higher-value solutions is delivering the desired results. We'll continue to monitor the business environment, but we anticipate continued growth from the platform as we make our way through the year. Profitability was also strong, with EBITDA margins of 13.3% during the quarter, an increase of 20 basis points from the year-ago period.

Industrial Connectivity had revenue for the quarter of $153 million, an increase of 3.2% organically. EBITDA margins were 15.8% for the first quarter, up 90 basis points. Coast, an acquisition completed last fall, continues to perform well, already delivering ROIC in excess of 11%. Industrial IT revenue of $61.1 million increased by $7 million from $54.1 million in the first quarter of 2014. After adjusting for changes in currency, revenues increased 4% year-over-year on an organic basis. EBITDA margins in the platform were 18.2%, an increase of 50 basis points from the year-ago period.

I'm proud of our team's recent recognition by Frost & Sullivan, a well-respected industry research firm, for outstanding leadership in product line strategy. In particular, they noted how our thoughtful approach to acquiring and integrating businesses, in combination with leading product innovation and global market coverage, provides customers with the most comprehensive industrial IT solution.

Network Security contributed revenues of $37.1 million, an increase of 20.7% year-over-year. EBITDA margins were 26.7%, an exceptional first quarter in the Belden portfolio. As you've likely seen in the media, security breaches continue to occur at an alarming rate. Recently, we've seen a number of them within the industrial and even broadcast markets. This helps to illustrate that now, more than ever, our customers need to protect their mission-critical infrastructure. For those of you who'd like a deeper dive into their products, markets, and opportunities, we've recently posted an educational webcast on the IR home page at investor.belden.com.

I will now ask Hank to provide additional insight into our first-quarter financial performance. Hank?

Thank you, John. I will start my comments with results for the quarter, followed by a review of our segment results, a discussion of the balance sheet, and close with our cash flow performance. As a reminder, I will be referencing adjusted results today. Please turn to slide 5 for a detailed consolidated review.

First quarter revenues are $569.5 million. Compared to the first quarter of 2014, revenues grew 16.6%, or 22.5% on a constant currency basis, from $488.3 million. Acquisitions contributed $106.7 million in the quarter and were partially offset by foreign currency translation headwinds of $28.5 million as a result of the stronger US dollars.

Revenues in the first quarter increased 2.4% year-over-year on an organic basis, a result of solid performance in our Enterprise and Industrial platforms. Sequentially, revenues decreased $44.2 million, from $613.7 million, as the unstable effects of normal seasonality and foreign currency headwinds were partially offset by revenues from acquisitions.

Gross profit margins were at an all-time (inaudible) of 40.6%, increasing 450 basis points from the year-ago period and 320 basis points sequentially, a result of successful execution on our M&A strategy. First quarter SG&A expenses were $119.9 million, or 21% of revenues. After adjusting for currency and acquisitions, SG&A expenses declined $4 million, or 80 basis points, from the year-ago period due to productivity improvement program implemented in the prior year.

R&D expenses for the quarter were $34.8 million, or 6% of revenues. This represents an increase of 200 basis points year-over-year as a percentage of revenues and illustrates the shift to more innovative products and services.

EBITDA margins were 15.5%, up 14 basis points year-over-year and down 18 basis points sequentially. Operating profit margins were 13.5%, up 14 basis points year-over-year and down (inaudible) basis points sequentially. The year-over-year increases are due to productivity improvement programs initiated last year, while the sequential declines are a result of typical seasonal revenue patterns.

Net interest expense for the quarter was $23.8 million, an increase of $5.2 million year-over-year, a result of the additional senior subordinated notes issued in June and November of 2014. Given the current exchange rates, our capital structure provides for expected interest expense of approximately $25.5 million a quarter going forward. The adjusted effect of tax rates for the first quarter was 18.8%, compared to 21.9% in the prior year. For financial modeling purposes, we continue to recommend using a 20% effective tax rate for the second quarter 2015 and full year. Income from continued operations per diluted share increased 25% from the year-ago period to $1 per share in the first quarter 2015.

Please turn to slide 6. I will now discuss revenues and operating results by business segment. Broadcast Solutions generated revenues of $213.6 million during the first quarter. Compared to the year-ago period, revenues increased $47.1 million, or 28.3%, from $166.5 million. Organic revenues are flat on a year-over-year basis following a strong performance in the fourth quarter of 13.2% organic growth. The first quarter was impacted by lower demands in certain emerging market regions, including the Middle East, Russia, and Latin America, in response to currency and geopolitical related pressures. EBITDA margins of 13.7% within the Broadcast segment decreased 200 basis points year-over-year and [340] basis points sequentially. The year-over-year comparison is impacted by the inclusion of Grass Valley and the sequential decline of (inaudible) volume.

Our Enterprise Connectivity segment generated revenues of $104.7 during the first quarter, decreasing $3.7 million year-over-year. Revenues increased 4.2% year-over-year on an organic basis, with solid growth across all applications. EBITDA margins increased 20 basis points year-over-year and sequentially due to improved product mix. Our Industrial platforms are performing in line with expectations, with organic growth of 3.4%.

The Industrial Connectivity segment generated revenues of $153 million during the first quarter. Organic revenue growth of 3.2% on a year-over-year basis includes [the softness] experience within the oil and gas markets in Brazil, with an impact of more than 200 basis points. EBITDA margins of 15.8% increased [90] basis points year-over-year and [16] basis points sequentially, largely due to the accretive acquisition of Coast and productivity.

The Industrial IT segment generated revenues of $61.1 million during the first quarter. Revenues increased $7 million year-over-year, with acquisitions contributing $12.3 million and were partially offset by $7.5 million of currency headwinds. Revenues increased 4% on an organic basis, compared to the year-ago period, with (inaudible) from our global automation partners. EBITDA margins of 18.2% increased 50 basis points year-over-year and declined (inaudible) basis points sequentially. The year-over-year improvement is primarily due to productivity improvements, while the sequential decline is a result of lower volume.

Finally, our Network Security platform generated revenues of $37.1 million in the first quarter. The team delivered strong performance, with better-than-expected growth of approximately 21% compared to the prior-year period. We are encouraged by the strong start, and we'll continue to provide insight into this business as we make our way through the year. EBITDA margins in the first quarter were 26.7%. Both the year-over-year growth and EBITDA margins highlight a significant accretion (inaudible) to the business model.

If you will please turn to slide 7, I'll begin with our balance sheet highlights. Our cash and cash equivalents balance at the end of the first quarter was $167 million, compared to $570 million in the prior year. The decrease is primarily due to the acquisition of Tripwire closed at the beginning of this year. Inventory turnover was 5.7 turns, flat on a year-over-year basis. Day sales outstanding were 63 days in the first quarter, an increase of 6 days year-over-year. Working capital turnover was 6.2 turns, an improvement of .2 turns year-over-year. We expect each of these metrics to improve throughout the year as acquisitions continue to benefit from our proven lean enterprise system. PP&E turnover was 6.9 turns, an improvement of .4 turns year-over-year. We continue to generate significant improvement in fixed asset deficiency due to our lean enterprise initiatives.

Our debt balance increased $530 million, from $1.37 billion in the first quarter of 2014 to $1.9 billion in 2015, due to the additional senior subordinated notes issued in June and November last year. Additionally, we used (inaudible) to complete the acquisition of Tripwire. [That leverage increased the 3.8 times that debt] to EBITDA, slightly ahead of our plan due to the (inaudible) impact of foreign currency on our euro-denominated debt. Our goal of improving this metric to a level of approximately [three] by the end of the year remains intact.

Please turn to slide 8 for a few cash flow highlights. First quarter resulted in a use of cash in operations of $48.2 million, compared to a use of cash of $20.4 million in the prior-year period. Net capital expenditures for the quarter are $15.5 million, increasing $5.1 million compared to the last year. Free cash flow was negative $63.7 million in the first quarter 2015, compared to negative $30.8 million in the prior-year period. The first quarter of 2015 was impacted by $31 million of nonrecurring costs and investments related to the acquisition and $5 million of (inaudible) expense from notes issued last year.

In the first quarter, we deployed (inaudible) to the acquisition of Tripwire, consisting of (inaudible) conversation. This results in excess of $1 billion deployed towards strategic acquisitions over the last 12 months. I'm pleased with our ability to continually identify effective capital deployment opportunities.

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

Thank you, Hank. Please turn to slide 9 for our outlook regarding the second quarter and full year 2015 results, which have been updated to reflect current exchange rates.

We expect second quarter 2015 revenues to be between $605 [million] and $625 million, and adjusted income from continuing operations per diluted share is expected to be between $1.15 and $1.25. For the full year, we now expect revenues between $2.45 billion and $2.5 billion. As a result of the stronger US dollar, the expected range of adjusted income from continuing operations per diluted share is now at $5.28 to $5.48, which represents earnings growth between 25% and 30%.

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

(Operator Instructions) Shawn Harrison, Longbow Research.

Hi, good morning, everyone.

Good morning, Shawn.

Hey, Shawn.

Good morning, Shawn.

I guess it'll be a multipart question on the guidance, but if we consider the revenue profile didn't change considerably, you brought the top end of guidance down by about $0.10, it looks to be a bit more back-half-weighted than, at least, I anticipated 90 days ago. Can you give us an idea of maybe what's stronger as you look through the year? Obviously, Broadcast is a bit weaker. There are additional cost cuts that are being included in these numbers for you to hit guidance for the year. Just a little bit more on the shape and the end market dynamics as we get through the second quarter into the back half.

Yes, Shawn, so on a full year basis, I would expect our seasonal trends to be fairly typical, maybe a little bit more back-end-loaded on the Broadcast domestic business. The international business for Grass Valley was weak in the first quarter, particularly Russia and the Middle East and Latin America, as a result of customers choosing to pause on programs because of their weaker currency. And in the domestic market, we saw the business slower in January and February than typical, but it improved in March. And so we expect that the domestic business will strengthen throughout the year.

So I would say that's the only thing about the business that may be a little bit different than normal. As you know, Shawn, the first quarter is typically our weakest. Second quarter, we see quite a bit of pickup from Q1 to Q2. And then in the back half, we usually see a very strong Q4 for Grass Valley, a little weaker for the broadband business, and a little bit stronger in Q3. So that would be the only thing I would say, Shawn, that's a little bit untypical.

And the top end of guidance coming down is solely the slow start to the year from Broadcast and currency, or is there -- are there other factors in there, at least on the EPS side?

So the adjustments at the upper end of our earnings guidance was predominantly currency and then also a little bit of our view on the Broadcast business not recovering internationally in the emerging markets for the full year.

Okay. And this is a follow-up. You know, growth in the first quarter at Tripwire, very robust. I know last quarter, you had provided some commentary, I think, on nonrenewal bookings rates. Just if you can give an update on how those are tracking, how you expect the business to ramp for the year given the strong start.

Yes, so the nonrenewable bookings in the first quarter as we expected. That business also has quite a bit of seasonality. It tends to strengthen in the back half. The comparison on a year-over-year basis is a little bit difficult, only because of the calendar shift. So Tripwire, pre-acquisition, was on a traditional calendar. Now they're on the Belden calendar. But if you make adjustments for that, which are not perfect, the booking rate was kind of in that 15% range for nonrenewable, which is the kind of rate we would need to see for the revenue growth to continue at rate that's consistent with our expectation.

Okay. And conversations with industrial customers on the product, how's that progressing?

So we've had a number of early and promising conversations with our industrial partners, and we see a number of opportunities. The first one that's front and center for is is the cooperation on the utility opportunity, so that's where most of our time and attention's going, because there are some really hard deadlines for the utilities in 2016. So that's where a lot of our energy is going. But we're also spending time with some of our better partners to try to help them deal with increasing questions from their customers about how their networks are going to be secured. And I would say in the first 90 days, we've had a number of very promising conversations, and I look forward, throughout the year, being able to update you on some more tangible things that we've been able to accomplish.

Thanks, John.

Yes. You're welcome.

William Stein, SunTrust.

Thanks. First just a brief follow-up on that last point. It looks like the Tripwire revenue came in a bit better than we expected, and I think one of the great interests investors have is the timing of the roadmaps for Tripwire and for the core sort of Industrial IT and Broadcast businesses for those roadmaps to converge. And I'm wondering if you have any update on when we should expect that.

I think there's going to be tangible progress within the industrial space in the back half of this year, and by that I mean examples of where we've been able to introduce some of the Tripwire capability into industrial customers that are within Belden's typical sort of sweet spot. So I think that there's reason to expect that we'd be able to share more with you in the back half in that area.

As we mentioned at the time of the acquisition, I think broadcast is going to take a little bit longer to play out. We did see a breach in a very small television station in Europe earlier this quarter, and that did create a lot of interests by folks in the broadcast area as well as some of the folks in the industrial area about how they're becoming increasingly vulnerable. So there's clearly a lot of interest and a lot of activity, but in terms of tangible roadmap discussions and tangible wins, I think 2015 will be isolated to industrial, more of a back-half activity, whereas broadcast probably won't happen until 2016 or beyond.

Thank you. And then a follow-up related to the somewhat weaker than expected broadcast sales at Grass Valley. I know I'm a little bit less well-informed on what the lead time typically is in that market. I think we know that in comms infrastructure, generally, suppliers have framework agreements that keep them to very short lead times, and that market's notoriously difficult to forecast as a result. Would we characterize broadcast in a similar light, or is there more visibility in that market?

So I would say that for the broadband business, which most of our volume is based on a BMI kind of model, where we actually get daily visibility to replenishment. We have really good visibility there. In the Grass Valley business, the visibility's not as good. So a very significant piece of the revenue in the quarter is actually booked in the quarter and is project related.

So we saw a good fourth quarter in Grass Valley from a demand point of view. January and February were weaker than typical. March did come back. We've actually seen better orders in April as well. So we think some of the pause in spending, particularly domestically, will begin to improve throughout the year. But there are a number of things going on in that market that make it harder for us to predict, most notably some of the challenges our customers are having with advertising revenue and some of the challenges with their ability to collect subscription rates and things of that nature.

So we're a little bit, I'd say, appropriately cautious with regard to what the second half may look like in Grass Valley, but I think our assumptions at this point are prudent.

Thank you.

You're welcome.

Steven Fox, Cross Research.

Thanks. Good morning. Two questions from me. First of all, on the year-over-year gross margin improvement, I assume most of that is related to the tripwire acquisition, but can you talk about how the gross margins maybe have shifted over the last year in some of the other businesses for whatever reason? And then, secondly, one of your large distributors was expressing concern about pricing pressure on their conference call in the enterprise cabling space, talking about excess capacity that was influencing vendor pricing decisions. Can you just discuss your pricing approach, whether that was the case, or whether you walked away from any enterprise deals this quarter? Thanks.

Sure. So the first question about gross margins, the gross margin improvement in a year-over-year basis, you're right, Steven, was certainly helped by the Tripwire gross margins, which are extraordinarily healthy. But I would add that they also benefited from Grass Valley margins on a year-over-year basis, which are approximately 50%, as well as strong margins at ProSoft on a year-over-year basis, Coast on a year-over-year basis. So all of our acquisitions were at or above 50% gross margin on a year-over-year basis. So clearly the Tripwire margins are very helpful, but I thought we did well everywhere, and our core business margins were very constant, very much where you would expect them to be.

As it relates to enterprise pricing, I do think the comment that was made by the distributor that you reference may have been more to do with the situation as a distributor or enterprise products rather than a manufacturer or provider of enterprise products. And I certainly don't want to put words in anybody's mouth, but I would say that we've seen the pricing environment to be relatively stable; however, whenever you have gyrations in currency, sometimes there can be some confusion with respect to what your costs actually are in a given currency. So, for example, the US dollar strengthening can create situations in, say, Canada or Europe where they may not appreciate that their costs have actually gone up because copper is a global commodity. And we did see a little bit of that in Europe and Canada. My expectation is that will resolve itself as the copper flows through the manufacturers and the distributors. And I'm not really that concerned about it.

From a capacity point of view, nobody that I know of has brought on additional capacity over the last three to six months, and demand has been steady to improving, and, therefore, from a pricing point of view, I wouldn't expect to see any significant headwinds.

That's helpful, John. And this is a quick follow-up on all those comments. You have walked away from some enterprise business in the past. Can you just let us know if you've done that? And also, I think you talked about 18% growth on the connectivity side of the business.

That's correct.

And so what was driving that, and how much did that help margins during the quarter?

So the connectivity growth of 18% is really important, and that, of course, is a result of the decisions and strategies taken by our enterprise team about a year ago. And as you recall, all last year, we were battling significant revenue headwinds as we focused our commercial team more on systems and solutions and higher-margin products. So this is exactly the outcome that we expected, and, obviously, it's gratifying to see it in our income statement and certainly is helpful to margins for the enterprise team.

In terms of our decision to walk away from business, I would say that a year ago, there was quite a bit of lower-margin, cable-only business that we did walk away from. Obviously, on a year-over-year basis, given that we drove organic growth at 4%, I think we've seen that trough, and the team is really optimizing its asset base. We don't have any intention of adding any capacity for cable products and really making certain that we have ample capacity for our solutions sale so that we can drive the margins up and we can get the kind of return on net assets that we would expect.

So I think the team's done a great job. I'm proud of their results in the first quarter, and I think it's the direct result of their strategy and good execution.

Great. That's very helpful. Thank you.

Thank you.

Noelle Dilts, Stifel.

Hi, thanks. Good morning.

Good morning.

Hi, Noelle.

Hi. My first question relates to just the Industrial platform. You know, you guys did post 3% organic growth there, in spite of this big Brazilian headwind, which I think was -- I understand you're seeing some softness there, but it was still a pretty good result. Would you say there were any aspects of Industrial that maybe outperformed your expectations? And then maybe could you discuss if we -- if we do see a more broad-based industrial market slowdown, somewhat of a derivative impact from the slowdown in oil and gas, do you think there are some factors that'll help you outperform that market?

Yes. Thanks for the question, Noelle. So, yes, you're right. It was a pretty big headwind for the industrial team in Brazil for the first quarter, and I think that headwind's going to be with them all year. So it's clearly a result of not just oil and gas weakness, but the situation at Petrobras, that's obviously a very disappointing situation that Petrobras is dealing with.

So I think, given those headwinds, I thought they had a nice quarter. A couple of highlights for me, I guess, in the Industrial platforms is I thought they did really well in the US. 4.4% growth for our Industrial Connectivity business in the US and Canada, I thought was quite strong, particularly compared to some of the people we compare ourselves to that would be serving similar markets, like some of the distributors that we sell through. So I think we clearly took share there.

I think our performance in western Europe was quite extraordinary. We saw European growth in our Industrial Connectivity business that was approximately 12%, and then in our Industrial IT business, our growth was like 22% in Europe, which is really strong. So I thought we did really well in developed markets in general, I think especially so in our industrial businesses, and that had to overcome some of the challenges we saw in emerging markets, much of which had to do with the fact that we're all dealing with a stronger US dollar.

Okay, great. That's helpful. Second question, following the Tripwire acquisition, could you discuss at this point how you're thinking, and, looking at your appetite for acquisitions, would you be looking still to do smaller bolt-on-type acquisitions in the industrial space, or are you thinking about larger deals further down the road?

So I'd say our appetite is unchanged. Clearly, the small bolt-on acquisitions are extraordinarily rewarding from an ROIC point of view, both in terms of the amount and the speed at which we get there. I mentioned, I think in my prepared remarks, that Coast Industrial Connectivity acquisition that we made in the fall of last year is already at 11%, and that's because it's just a wonderful fit. We're able to take their products, sell it through our existing salesforce. We're able to drive some cost synergies. And we're strongly encouraging all of our platform leaders to continue down the path of cultivating, acquiring, and integrating these smaller bolt-ons that have high ROIC.

In parallel, of course, though, me and the corporate development team, we're always looking at what we would consider to be unique opportunities that are larger in nature and larger in scale. And, of course, many of those are timing dependent in terms of if and when they might become available. I think you know, Noelle, that many of the companies we're interested in are privately owned, and so should they become available, we would act on it, because they're companies that we've known for a long time. We cultivate and have continuously, and if that opportunity were to come available, then we would pursue it.

Great. Thank you.

You're welcome.

(Operator Instructions) John Quealy, Canaccord.

Hey. Good morning, folks. Sorry if I missed some of this. First, on the guidance chance, just about the (inaudible), but can you break that out with straight FX or Brazil or broadcast? Can you just give us some characterization of how that broke out between the new and the old guidance?

Yes, John, so it's roughly a nickel on FX, and I would say it's roughly a nickel on broadcast. So broadcast, for us, is -- we see continued strength in much of our Broadcast platform, but the weakness we saw in Russia, the Middle East, and Latin America for the Grass Valley business, we don't see that coming back in the year unless there's a change in currency rates. We think that many of those customers are going to be cautious about how they spend money, given the [recurrency], and in some cases, like in the Middle East, some of those TV studios are government-funded, and the lower price of gas and oil makes them also a little bit cautious. So that $0.10, roughly a nickel on FX, roughly a nickel on Grass Valley, and in particular the emerging market exposure Grass Valley.

Thanks, John. And then as a follow-up into broadcast, to dive down a little bit, so you mentioned some of the cadence challenges from your customers, whether it's advertising, revenue models, and things like that. Do you guys have the portfolio to help them with that digital ad insertion and things like that, or do you have to create products to help them with these issues? Is there anything that you can do to speed it up, or you just have to wait for them to spend?

Well, I do think we have the ability to help them, and so we announced at NAB, I think, an important partnership with a number of folks, including a customer that is using our equipment to do ad insertion, as you discussed. It's a great way for the broadcasters to offset some of the decline in advertising spend. We have equipment that helps them automate their process so that they can take costs out. So I do think there's a number of things that we do, and I should mention that as they migrate from proprietary to IP, we're the only vendor in the space that has experience doing so in mission-critical applications. So I do think there's a number of things that we are doing and we can continue to do to help them and to try to help them through some of these challenges. But, at the end of the day, I think it's prudent for us to appreciate that we're not going to be able to overcome a ruble that's lost half of its value and customers understandably choosing to pause as they try to figure out what the real value of their currency is.

That's fair. And if I could just squeeze one more in. Just in terms of broadcast, the vertical integration on manufacturing, can you comment on how that process is going and what do you think it adds to potential margin enhancement as that gets completed? Thanks, guys.

Sure. So I think the integration of manufacturing is going extremely well, and I would say that my comment applies to really all matters of the integration. I think that the team has done a fantastic job with the integration of Grass Valley. In fact, we've gotten rave reviews, not just from customers, but from many Grass Valley employees, because they've been owned by a number of companies, about just how swift we've been, how deliberate we've been, how good we've been at communicating and doing the things that we said we were going to do. So I'm very pleased with the integration.

In terms of the economic benefits of the integration of the manufacturing, they're entirely consistent with the expectations that we set out at the time of the deal and the time that we provided visibility on the kind of accretion that we would get. So we're in very good shape as it relates to the cost structure.

That concludes today's question-and-answer session. Mr. Tractenberg, I'll turn the call over to you for any additional or closing remarks.

Thank you, Chanelle, and thank you to everyone on the call this morning. If you have follow-up questions, please reach out to the IR Department. We're happy to help. Have a great day, everyone.

Thank you, ladies and gentlemen. And this concludes our call for today. You may now disconnect. Thank you for your participation.