Good morning, everyone, and welcome to Belden's 2024 Investor Day at our beautiful Customer Innovation Center here in Chicago, Illinois. I'm Aaron Reddington, Vice President of Investor Relations. We're very pleased to have you here this morning and hope that you find it most informative. First, I'd like to remind the audience that the matters we'll be discussing today contain projections and other forward-looking statements regarding future events or the future financial performance of Belden. Please refer to our most recent SEC filings, specifically Form 10-K and 10-Q, for a discussion of important risk factors that could cause actual results to differ materially. In addition, we'll also be referencing financial metrics that are Non-GAAP in nature. We will provide a reconciliation of our GAAP to Non-GAAP financial measures in the appendix of the presentation materials today.
These will be made available on the Belden Investor Relations website within the next 24 hours. Now on to the agenda. Today, we have a great group of speakers who are going to share more about our solutions transformation, key accelerators to drive additional growth and expand margins, and finally, new long-term financial targets to support enhanced shareholder returns. Our presenters today include Ashish Chand, President and CEO; Brian Lieser, Executive Vice President of our Industrial Automation Solutions segment; Jay Wirts, Executive Vice President of our Enterprise Solutions segment; Hiran Bhadra, Senior Vice President of Strategy and Technology; and finally, Jeremy Parks, Senior Vice President and CFO. And with that, we'll turn it over to Ashish.
So much in modern business and life depends on the flow of information. As that flow grows in speed and sophistication, new challenges come into focus, from setbacks like signal loss, extended downtime, or a security breach, to complexities like managing disparate networks, fragmented data. Beyond these missed connections lie untapped opportunities. Belden is your bridge between them. We connect people, information, and ideas to help you find clarity amid the chaos and unlock untold possibilities for your business. Our complete connection solutions serve automation and Smart Infrastructure customers across a range of industries, from healthcare to hospitality, manufacturing to mass transit, many others. Connections that are vital, connections that inform, connections that inspire, connections that enable increased productivity, improved experiences, and make digital transformation a reality. A safer, smarter, more prosperous future is just within reach. When we make the connections, we make it possible.
Good morning, and welcome. Thank you very much for joining us today. My name is Ashish. This is my first Investor Day as CEO, so I'm very excited today, and I'm sure you will be very excited by the end of the day. So connecting people, information, and ideas to find clarity, that is what Belden does. You would notice that we've given you a sneak preview of a new brand. We realize that as the company's transforming, we should also transform how we look to our customers and other stakeholders.
It's important also to see that as part of this transformation, we are highlighting not only what's new at Belden, which is all the whole concept of connecting people, information, and ideas, but also what's always been true at Belden, which is the focus on innovation, and which is why we are here today at the Customer Innovation Center. We chose this location so that all of you could touch and feel. You know, seeing is believing. We do a lot of interesting things for our customers, but we wanted to make sure that all of you get a chance to see that, experience that firsthand. Again, welcome, and looking forward to having a great day today. My team and I are going to talk about various elements of our strategy and our transformation.
We believe that we're really creating value for all our stakeholders in this process: customers, employees, investors, the community at large. And as part of this, I think there are three key messages that I would like you to take away. The first is that we are successfully executing on this transformation. This is not a futuristic plan. We've already transformed our biggest segment, which is Industrial Automation Solutions, and there's been a lot of progress made. We'll talk about that. We've institutionalized that process and that knowledge so that we can leverage it further. Second, we're very well positioned in markets that have strong secular tailwinds. These markets need more data, and they consume a lot of complex data in real time right now. They're moving from asset monitoring to automation to cognition, and we know these markets really well....
Third, our focus, the strategy is completely focused on building out more solutions, improving the quantum of solutions we do as a percentage of our revenues, along with complementary M&A to accelerate that. We're very focused. That's our single focus. As we do this, we will unlock the full potential and keep targeting double-digit EPS growth over the coming years, including the $8 of EPS in 2025 that we've previously articulated as a long-term goal. In my section today, I'll talk about let's take stock of where we are. We'll also talk. I'll also talk about the markets where we focus, and then how do we make this strategy consistent across Belden going forward, right? My colleagues will step up and talk about their sections, more details of each of these elements.
So let's start by taking stock of who we are. We are a company that delivers simpler, smarter data infrastructure. We're a data engineering company and... Sorry, glitch. And as you can see, we don't have all the historic historical data here, but as you can see, we have strong financials. We've generated over $200 million of free cash flow three years in a row. We had record EPS in 2023, even the year before that. And essentially, you will now see two segments that are very balanced in terms of their revenues. You know, Enterprise Solutions here is not does not show the addition of Precision Optical, so it's even more balanced now. So two segments with heft to make investments, but one of those segments doesn't have as attractive EBITDA margins, right?
That's an opportunity for us, and we'll talk about how we will address that. The other thing you will see here is our geographical exposure is far more oriented towards mature markets that would benefit from reshoring and reindustrialization, so I remember being asked this question previously, saying, "Hey, you guys are not as big in China or as in emerging markets, and how do you feel about that?", and we said, "Well, our focus is on solving problems in markets where there are legacy systems, lack of labor, but they have capital to invest," and I think now, people aren't asking us that question anymore. It's actually flipped.
People are saying, "Okay, so the fact that you're not overly exposed to those markets, is good, and how, how are you going to build your position in these mature markets?" So this is a lot about taking our solutions to markets that can afford them, can benefit from them more, and, we see that, the way we laid out right now. The other thing, that is important as part of who we are, as we take stock, is we have made a pivot to being a data infrastructure company. And as part of that, we have talked about network and data solutions. So sometimes people ask, "Well, Belden provides all these products. They don't actually influence an end outcome directly. Like, you don't make a television screen. It's not an end outcome.
Are you still a solution?" And the way I think about that is, most of our customers have disparate systems that need to be connected efficiently and in real time, and then they need to have all that data in one place so that any third-party application, whether it's a television or a software program or an application, a product, can access that data and provide some kind of an outcome. And to do that is very complex. And previously, we did not necessarily think of that as a solution, that whole data infrastructure, but it's a big solution because it saves time, money and effort for people, and it reduces complexity. So yes, we have these two businesses that are focused on providing data infrastructure.
One of the learnings we had over the last three years is, we thought that critical or mission criticality was synonymous with harsh environment, and we realize now that that is not true. I can think of a harsh environment, like a parking garage, which may not be mission-critical, but I can also think of a hospital, which is not a harsh environment necessarily, but is mission-critical. They have mission-critical applications, so we changed our mindset, and we said, "Mission criticality equates to complexity, not necessarily to harsh environment," and the key learning was that our customers across verticals had very similar problems, not only in factories, not only in metro systems, not only in airports, but across the board, our customers were dealing with legacy networks, very fragmented data, shortage of capital, shortage of labor, and therefore, we realized that our solution needs to be converged.
But we also realized that this made us unique because people that we competed with did not have this combination. So I'm excited to share with you today that we are changing the names of our segments. Industrial Automation Solutions will be called Automation Solutions because all verticals need automation. And Enterprise Solutions is gonna be called Smart Infrastructure Solutions because that's what they do. They provide the Smart Infrastructure that then allows people to monitor assets, automate assets, and go towards cognition. We also wanna talk about the key markets. We'll talk more about this, but all these markets need a combination of automation and Smart Infrastructure technology. So the analogy that I sometimes use to describe this is cars and roads. And some of you might have heard this from me in our one-on-one meetings, but we all spend time deciding which car to buy.
We spend no time figuring out who builds the roads, even though all of us own all the roads in this country. They're public roads. But if you don't have good roads, a good car doesn't help, and vice versa. So you need good cars, automation, and good roads, Smart Infrastructure, to make this whole data infrastructure work together. So that's what we do, and yes, it is a full solution, and yes, our customers value that. So let's talk a little bit about how did we evolve our thinking to get here, and you know, of course, Belden has history going back to 1902, and that would take the whole day if I had to describe that, so I won't do that, but I'll talk about a more recent evolution, but let me go back one step.
When I joined the company in 2002, within a few years of joining, I realized, and a lot of other people at Belden felt the same way, that a brand was bigger than a business. Now, that may come across as a criticism, in that our business was not big enough. But a lot of us saw that as an opportunity, in that customers trusted our brand enough to discuss bigger problems with us, which we were not able to solve at that point. So our brand was bigger than our business. There was a lot of respect. People trusted the reliability, the innovation, the integrity, et cetera, et cetera. And that was something we wanted to exploit as we grew.
Now, if I go back to recent history, in the first phase of that, we did some to exploit that opportunity for growth, we did some non-core acquisitions. I don't even need to remind you that those didn't go very well, right? All of you know that. And I think the reason they didn't go very well was because we acquired new customers with new problems versus solving our customers', our existing customers' problems. So we got further distracted, and we, we certainly learned not to do that. We cleaned up, and in that process, we somehow realized that the solution, and a pun intended here, lay within. And the reason was that when we examined our portfolio, our legacy portfolio, we had products that touched data and added value to data at every stage in its journey. And we hadn't thought of that as clearly prior to that.
So we had products that acquired data, that transmitted data, that orchestrated data, and that managed data. But we sold them separately to our customers. It's like giving everybody the parts of an automobile in a bag and saying, "Assemble it yourself." Right? But it's complex, and none of us will do that if, you know, an automobile company said that to us. So we kind of thought about some opportunistic success we'd had previously with solutions. In fact, some of the early solutions were in transportation. So I personally worked in a couple of large airport projects, and I remember the meetings where the airport design engineer said, "We have 18 different applications we have to run. There's a baggage handling system, there's a runway lighting system, there is a security system, there's a public address system, et cetera, et cetera.
We have two options: Either we can have eighteen different networks supporting those applications, which is simpler, but more expensive and more difficult to secure and defend, or we can have one network as a backbone, which is cheaper, easier to defend, but extremely complex to build. So by default, we are gonna build the eighteen separate networks. We stepped in and said, "Hang on, we have the expertise, and we can help you build one converged backbone," right? There were similar examples in transportation, in refineries, et cetera, et cetera. Then in 2019, 2020, we said, "Let's take all those examples, try and see what we can learn out of that process, and see if we can offer a vertical-specific set of solutions." We did, and it actually worked pretty well.
You know, Brian Lieser will talk more today about how solutions have evolved in the Industrial Automation business. Actually, I should call the Automation Solutions business now. I think the lessons we learned from there, and as I said before, we've made sure we've documented those, we've created the right talent, it's very scalable, and we'll talk about how now, going forward, we're going to scale those across our segments, across verticals, across geographies. Obviously, as we do this, we have to be cautious that we don't pick customers or verticals that can't afford to pay for that differentiation, because that can happen, so we've been very selective. We haven't lost that thread of it has to be mission-critical.
It must be something on which there's a lot of dependency, it's complex, and you'll see that as Brian and Jay describe our solutions approach going forward. So we are a very different company today. This approach, in the last four years, has made us a very, very different company, right? And here you can see different dimensions of how we've evolved in this period. Actually, for a company to do any one of these over two, three years is difficult. To do all of these in parallel is also even more difficult, and I think it's a testament to our team. I think our team was always ready for the solutions approach. It lay within them. I think we just needed as a leadership to, you know, kind of make that to provide that opportunity to make that happen.
And I will say, if you look at these multiple dimensions, the one that underpins all of them is the change in culture. Because if you think about it, our strategy is not predicated on introducing completely new product categories. We didn't do that. Our strategy is not focused on entering new geographies. Our strategy is not focused on penetrating new market verticals. We didn't do that. In fact, we took the products that we always had and we knew well, and we're operating in the vertical markets we know extremely well, where we are specialized. But what we've done is we've changed what we bring to market and how we bring it to market. And it's all about changing our habits, capabilities, and discipline, which is why it's cultural and which is why it's also sustainable, right?
And I think this is a pretty big. It's very important because in doing this, we are creating non-financial barriers to entry for our competitors. Because they would also need to make those changes in capabilities. They just can't buy their way into solutions. It's a difficult process, right? So again, I think it's a testament to our leadership team, and you'll see many of them on stage today, that we've been able to make this complex transition. But it's very gratifying because now, as we see the first stage end and we see the results, we know that it works. So one part of that change was an overall simplification of the organization.
If you go back to 2019, many of you remember this, we had five businesses that were disconnected, and they didn't have the heft to make investments in innovation, let alone cultural change. And really, the only way we could operate at that point was through a product sales strategy. So we were competing with other product providers. And, you know, I can say this honestly, Belden is a really good engineering company, but we are not the bleeding-edge innovation company. So there might have been people in each of those product categories that were better than us. And because we didn't have the linkage and the complementarity, and therefore we didn't have the benefit of solutions where we are better than them, we had to compete rather vigorously.
Now, today, we have two segments that are less cyclical, more attractive, and complement each other. Automation, Smart Infrastructure, cars, roads, right? So that whole concept of working together to give the customer the full outcome, and they're well-balanced in terms of their heft, and they can make investments because of their size. So really, this change from product sales to solutions was a result of the simplification, and similarly, the simplification is a result of the ongoing solutions approach, right? So they feed each other, and the more we do solutions, the more complementarity we get, and it's working really well. So at this point, let's talk a little bit about what is the progress we actually made, right? And I have a few indicators here of the strategy, of the successful strategy since 2020.
So first, we improved gross margins in the Industrial Automation segment, which is where we started our transformation, by 700 basis points over three years. That's very dramatic. We also took our growth in solutions revenue as a percentage of total from zero to 10%. That is a big deal. We've done some research on products to solutions transformations. It takes most companies approximately 15 years to get to about a quarter of a quarter of the revenues to solutions. So this is pretty good. And again, I think it is because inherently, we were always problem solvers. We just needed that opportunity. And while doing all this, we were able to invest $630 million into complementary M&A that enhanced that base of solutions.
We'll talk a little more about M&A later, but basically, all our M&A today, unlike the non-core M&A you might remember, I hope you forget, is really focused on enhancing solutions. As exciting as that past is, I think the future is even more exciting. Think about it. At the gist of it, our strategy essentially is to connect sources and users of data. Data generation and consumption is growing much faster than networks. Since our solutions strategy links us directly to data, that portion of our business will grow much faster. We think it'll grow at four to five times as fast as our total business. Today it's at about 10%, and, you know, we'll show you the math, but it'll become much bigger over the next four or five years.
This is very exciting because you will learn later precisely what impact it has on our order sizes, on our gross margin, et cetera. This is very, very compelling. Essentially, the impact of that growth on a metric that we care about a lot, which is gross margin, is very telling. As we go from 10% of solutions approximately to 20% in 2028, we will see our gross margins going from the high 30s to the mid-40s, and that is very compelling. Now, some of you might remember that previously I've spoken about a goal where one quarter of our revenues in four to five years would come from solutions. That aspirational goal has not changed. We are still shooting for that.
However, the model that we are discussing today, that Jeremy will discuss today, is built on 20% by 2028. Now, if we exceeded that, that's great, right? So we want to give you a model that, that's based on our reasonable expectation, but we have an aspirational goal that goes beyond that. Let me move on now to why are we excited about these markets? So at a very high level, and, you know, this is, these are things you know well. At a very high level, our customers have very dramatic opportunities, right? They're dealing with the benefits that can come from automation, from convergence in networks, IT/OT convergence, for example, more critical infrastructure. So if you think about our customers in broadband, they would benefit as, you know, broadband infrastructure grows.
And in a lot of these things, of course, we can help them. So there's opportunity for us, whether it's, you know, for reshoring or for using AI tools, edge compute, et cetera. But these same macro opportunities could also be risks for our customers if they don't know how to deal with them, right? And a lot of our customers, while they have a lot of appetite for dealing with these trends, sometimes they find it difficult. And the reason they find it difficult is that at the firm level, they have a lot of complexity. So, they have legacy systems, they don't talk with each other. You know, when you go into the CIC later, you'll see our hospital mock-up, or, and there's a screen there that shows data for the patient all on one screen.
It seems a little trivial that it's all the data's on one screen. Remember, all the devices that monitor health speak different languages and have different protocols, so there's a protocol conversion required before you can put all that data on one screen. It's not that trivial, actually. There are different languages. There are concerns about security. There are concerns about having the expertise, et cetera. While they're dealing with all those issues, their management teams, you know, the CFO, for example, is calling and saying, "Increase capacity because we need more reshoring, we need to make more stuff here. And at the same time, interest rates are high, so we can't give you more capital," et cetera, et cetera. This is not a fake, or this is not an example.
You know, we had the same issue in Richmond, our plant in Indiana. So actually, we built that plant in, it was ready in 1927, just in time for the Great Depression. That's when we built that plant. So it has very old systems, very old equipment, et cetera, et cetera. Of course, we've been updating it over time, but more recently, we needed them to increase capacity dramatically, and they had all these problems. So, it was interesting. We realized that even though we sell digitization and data infrastructure solutions, we didn't have that in our Richmond plant. So we had a team actually go work on that, and you will see some of those dashboards today when you go to the validation lab of how we improved Richmond. But this is true for a lot of companies across the mature markets.
And by the way, although the picture here is a manufacturing image, please don't think that this is only true for manufacturing. It's true in hospitality, it's true in healthcare, it's true in warehouses, it's true in data centers. You have all these complex systems that are not connected and create a lot of inefficiency. So this is where we come in, and we have two unique perspectives on this. The first is we have a very unique approach to how we deal with these problems with our customers. So we go in, we send in people called digital automation consultants. They're fairly neutral. They don't actually pitch Belden, but they try and understand the KPIs and the workflows.
They then offer a data flow solution, and then they step back, and if the customer likes that data flow solution, then our solution consultants go in and design a solution, right? So that approach is fairly unique. I actually think that approach is more important. How we engage is more important than what we sell, because what we sell will change over time, right? But that is important. Having said that, what we provide is also fairly differentiated. There is no one in the market that has this unique portfolio that goes all the way from acquisition, through transmission, through orchestration, through management of data, and that makes us pretty unique. So when you pull those two together, we have a very compelling solutions approach. Again, I don't want to steal Brian's thunder. He's gonna come and talk more about this later.
The one thing I do want to talk about quickly is the verticals we want to engage with, right? There have been questions about, "Hey, if you take the solutions approach to enterprise, would you dilute it?" Well, we... That is a possibility, but we won't do that because we are focused on certain markets. And the way to think about this is that all these markets either have more devices generating data or more data per device or both. And it's exponential. Hiran will talk a little bit about the number of devices and the data flow, but these markets are very complex in terms of data, and these are markets we have known for a very long time, for decades. So when you combine that, these are the markets we've chosen.
And of course, each of these markets needs a combination of automation solutions and Smart Infrastructure solutions, both technologies, right? That's the way to think about it. So what does all this lead to? We've estimated a total available market of $190 billion for our solutions approach, based on a solutions approach for Belden by 2026. So very compelling market, growing at GDP plus, driven by automation, data growth, fiber, and I think reshoring is a very special, driver. So it took a long time, 30, 40 years, for mature economies to offshore a lot of their manufacturing and infrastructure. It's gonna take a long time, hopefully not 30, 40 years, but still a long time to bring it back, right? So there's a lot of juice left in this imperative.
So I think reshoring and the broader reindustrialization, the creation of infrastructure to support reshoring, is a very compelling driver for our business. And again, just to summarize, we feel that we are very well positioned to exploit that big market opportunity because we have verticals that are growing in terms of data. We know those verticals extremely well. We have very differentiated products and solutions, and we have the capacity to keep investing in innovation because, as you know, the trends are changing and our customers do need a lot of new technology. So we have a very compelling value proposition for customers operating in that space. And that brings us here to: what is our position in this marketplace? Now, of course, we still compete with some of our product-focused peers, but they don't have the full solution bundle or capability.
So sometimes they may have a router that's better than our router, but they don't have the full data infrastructure that's better than our data infrastructure, right? So that's, of course, we've become unique. And then sometimes people feel that, hey, as you become unique and you go into that space with a more expansive portfolio, are you then competing with systems integrators or other technology providers? And the answer is no, we're collaborating with them. So in fact, we have our guests from Accenture here today. You'll hear from them later, where we collaborate with each other to take these solutions to customers. I think for them, it's a simplification because now they can buy the fabric from one provider versus buying different pieces of the fabric from different providers to make the suit. So it's simplification.
And for a lot of our ecosystem partners, they can actually benefit because they have really cool applications, software, hardware, that needs to plug into something that can provide the data, right? So if you have a manufacturing execution system software, how do you get the data for that? So if you're preconfigured with Belden system, that works, and that's how we build these partnerships. So we are not competing with them, and we are kind of competing with them, but it's a different game. So we think it's a very unique position. So let me close my section with a recap of our strategy and how we are making it more consistent. So I think our strategy is very simple, which is why it's difficult to execute upon.
It's also simple to communicate, by the way, so all our employees understand our strategy, and there are four steps. The first is, we will keep investing. We have the capacity and the interest, and we'll keep investing in improving our product and technology solutions portfolio. So basically our technology. This improves our gross margins because we differentiate more. Second, we will keep selling those products more and more as solutions, and that increases our gross margin. Third, we will keep enhancing that with selective bolt-on M&A. That is accretive, and that enhances our gross margin. Fourth, we will take all that gross margin to deliver better returns and reinvest in steps one, two, and three, that enhance our gross margin, right? It's as simple as that. Let's talk a little bit about how we execute upon that.
So in step one, we talked about investing in our portfolio. So think about this. You know, this is a think of this as on one axis, the more customized our products are, the better, and second, the more active content and software content, the better, right? So we customize our products by vertical. A lot of our competitors don't. They want the same cookie-cutter, pizza box approach for every vertical, right? So we customize a lot more, and we have a lot more active content and software. So we are doing both. Most of our competitors do either one, right? So that differentiates us. Second is all the investment we've made in solutions. So by the way, to get to 10% was not easy.
We had to build a big team, we had to build these CICs, we had to do ecosystem partnerships, lots of training. It took a long time for customers to initially trust us, so that's why we built these validation labs, right, so we got to 10%. But going forward, there's a lot of more investment required, and again, these are the non-financial barriers to entry. It's tough, and our competitors would find it very tough because they don't have that starting point, so this slide will repeat in different sections today, in presentations today, so you'll hear people talk about certain areas, but let me give you an example, so our next step really is to scale solutions to Smart Infrastructure, and if you think about Smart Infrastructure and you think about their competitors, our Smart Infrastructure business has three advantages that their competitors don't have.
First, they have an in with customers in manufacturing, warehousing, transportation, et cetera, that their competitors don't have, because we have an automation business. Second, they have access to a process and talent that's already created for solution sales, which their competitors don't have. And third, they have access to an active portfolio, switches, routers, et cetera, that their competitors don't have. So likewise, each of these, there's a detailed set of reasons why we are differentiated and what our plans are, and you'll hear more from Jay, Brian, Hiran, and Jeremy today about these. So let me touch quickly upon our M&A. Again, this is different to the transformational M&A we did in the past. These are bolt-ons that enhance our solutions approach. So for example, we acquired a company called OTN Systems that's based in Belgium.
There was a need with our power transmission and distribution customers as they were dealing with the energy transition and smart grids. They needed to move from the legacy SONET/SDH systems to IP. That was a gap in our portfolio. We didn't have that. So we acquired that company, and therefore it became part of the full solution. Similarly, we acquired Precision Optical Technologies recently. They make the optical transceivers that go at the two ends, one in the data center, one at the field device. We can do the whole channel, including the transceivers now, because we have that as part of our portfolio. Again, you'll hear more about this from Jeremy today. So if I bring it all together, you know, what does it mean to the bottom line?
We feel that as we keep investing in this portfolio, keep advancing the solutions capabilities, and keep enhancing that with the complementary M&A and grow gross margins, there are two outcomes that investors really like. We will keep getting better EPS, so we are looking for double-digit EPS, and we'll approach about 10% of free cash flow to revenue as a ratio, which is fairly compelling, and we've made progress in that. Again, you'll hear more about that later today, so where does that leave us? We are on track to deliver a 12% EPS growth starting 2019. That includes a very reasonable path to getting to $8 in 2025, and beyond that, we expect to grow, again, double-digit, 10%-12% CAGR on EPS, and we'll talk about a model of how we get close to $11 by 2028.
Again, more to come when our CFO speaks. So that brings me to the end of my section. Thank you very much for listening to my stories. And I would now like to call on stage my colleagues, Brian Lieser, who's the EVP of Automation Solutions, and Jay Wirts, EVP of Smart Infrastructure Solutions. Thank you. Brian.
Thank you, Ashish. I'm Brian Lieser. I lead the Automation Solutions segment, and Jay and I are gonna dig a little bit deeper into our solutions today. We're gonna talk about our progress, our approach, and some of the opportunities that lie ahead. So, what I want to do to start out is talk a little bit more about how we define solutions at Belden. So you saw this slide in Ashish's presentation. Let me just spend a few more minutes on it. So when we talk about solutions, sometimes I get the questions about, "Well, is that a certain set of products that makes a solution?" Or, "Is that a separate business that you run?" And it's not. What it is, is it's a combination of two things.
The first is how we engage with customers, so the process that we use to engage early with our customers, and the roles that we have that do that, things like digital automation consultants, solution consultants, solution architects. So that first part is a different way we engage the customer. And then that is, and combined with, turns into a combination of our products, services, and software that make up the solution. So when we do those things together, that's how we define a solution at Belden. And what we find is this leads to longer-term, stickier relationships with our customers. Okay, so now I wanna talk about the progress that we've made in the Automation Solutions segment on this solution transformation journey. We kicked off really this transformation about four years ago when we built the solution strategy.
Over the last four years, it's really touched all aspects of our business, from our go-to-market processes, tools, the talent and the roles, to the ecosystem partnerships that we've built, as well as our portfolio. So we've always been very strong and had best-in-class products and technologies, but we've invested both organically and with some bolt-on acquisitions, to fill some gaps and bring these together to form solutions that we can provide to our customers. And I think one of the, one of the best examples of how much we've changed is our Customer Innovation Centers, right? You've heard a lot about those today. We're really proud of them. We have five of them globally, but they're an integral part of how we've changed and the different way that we engage our customers.
It's really not only a signal to our customers on how we're different and how we engage, but also our employees. If you think about the last four years in the automation solutions segment, it's really transformed our whole business. How do we think about some of the progress we made, and what are some of the KPIs we use to measure that progress? We've doubled our core solutions team. I talked about those roles like solution architect, solution consultant. These are roles that engage directly with the customer to help understand their problems and build solutions. You know, we have these five global CICs, but one of the things we do in these Customer Innovation Centers often is we have proof of concepts.
So this is where we go through the selling cycle with our customers, and we need to validate that the solution we've designed is gonna meet their outcomes. Last year, we hosted 61 of those proof of concepts in our CICs. This year, we're already on pace to do over 150 of those, and those are really good leading indicators for our solutions progress. We've also built an ecosystem program, and you'll hear more from Hiran later today about this, but we've been working with companies like Nokia and AWS, and how we build complete solutions together. This has all led to a solutions funnel that we track that's over $700 million, and it's been growing at 50% a year for the last three years.
But let's also talk about the financial impact it's had on the Automation Solutions segment. To do that, first, I wanna take a minute and just explain a little bit about our product portfolio that we have. So, across our product portfolio, we have different gross margin profiles in our products. So we have the data acquisition and transmission portfolio that is kind of more like the passive products or passive portfolio, and we have our data orchestration and management products that are the more active, software-based, smarter products. As you look at the gross margin profile across those categories, you see as you move into the more active, smarter software, we get higher gross margins. The differences can be up to seventeen hundred basis points. So why does that matter?
Well, it matters because when we sell a solution, the content of the active products is much higher. So what we've seen, and we've seen over the last four years, is in a solution sale, we'll see 80% of the content more towards the active side of our portfolio, compared to 30% in a more traditional product sale. So as we move into solutions, it really gives us a much richer mix that we're selling to our customers. But not only that, right? What we also find is that the solutions approach dramatically increases the size of our opportunities. So, you know, in our, in our history, the typical product-type sale is about $100,000, but on average, we see our solution wins being more like $1 million.
So a ten times increase in the opportunity size when we're using our full solutions approach. What has this led to? Ashish mentioned it. It's led to structurally higher gross margins in the Automation Solutions segment. So as we've gone from very little to now, we're getting close to 20% of our revenue we tie to the solutions approach. We've seen this seven hundred basis points improvement in our gross margin. We've gone from the high thirties to the mid-40s. This has allowed us to continue to reinvest in our strategy and our solution strategy, but also improve our bottom line. So the solutions approach has really fundamentally transformed the financial profile of our Automation Solutions segment. Okay, so now I want to spend a few minutes and dig a little bit deeper into how does it work?
So, I can kind of share with you the two elements of our solutions and how it works. To do that, first, I'm going to show a short video. It's in one of our target verticals, so in the material handling automated warehouse space. You're going to see this video, and what I want you to take away is some of the customer challenges that they face. 'Cause when we talk about our approach, and we have our fireside chat, it'll give you good context for what we're talking about.
Next generation warehouses need strong networks to get robots, devices, data, and people to the right places, safely and securely. But when warehouse networks can't keep up, performance suffers, and a single network issue can cause a ripple effect that impacts the entire operation. Poorly connected management systems create islands of automation, which reduces visibility and control. That means lost productivity and efficiency. The bottom line, your network strength and ability to collect and contextualize data directly impact your bottom line. Without control and visibility over the network and operations, warehouses can't hit performance and business goals. That's where we come in. At Belden, we're setting the standard for next-gen warehouse automation. Our experts can help you build a flexible, reliable, and more secure network. Turn islands of automation into more productive resources with asset digitization that increases visibility and control. A successful warehouse is built on a strong network.
As leaders in material handling systems, we help companies design next-gen networks that solve industrial data complexity, increase security, and drive better performance. Ready to get started? Let's work together to build the automated next-gen warehouse.
Okay, so the solutions approach that I want to explain, right, has two components. It's the engagement with our customers, how we go to market, and then the capabilities, the products and technologies that form our network and data solutions, right? And these two differentiated approaches that we have lead to, as I talked about, the richer gross margins, the larger opportunity size, and these stickier, longer-term relationships with our customers. So first, let's dig into the go-to-market approach and how that works. So really, you can think about it in three key phases, right? It starts with what we call exploration, where we're bringing our experts together with the customers to really understand what's happening, what issues are they having, or what outcomes are they trying to achieve. We're not talking about Belden and what we do.
We're really trying to understand what the customer is doing and the customer problems. That leads to the solutioning phase. We're often working jointly with our customer to design a solution together that we think will achieve their outcome, solve their problem, what, you know, whatever the customer needs are. That leads to the validation phase, where now, like we're doing the proof of concepts, like I mentioned before. Often, these are in the CICs, sometimes it's on the customer site, but this is where we're doing a proof of concept of our solution to really give the customers confidence in that solution will meet their needs and achieve their outcomes.
This approach we've built over the last four years, the capabilities, processes, the different types of roles that we use, and we really think, as Ashish said, it's very hard for others to replicate this. And I think one of the data points that you might find most interesting is that when we start this process, so we're down in the exploration phase when we're starting, our win probability is around 20%. As we move through the solutioning phase, it goes more up into the 50%. But when we get into the validation phase, now our win probability goes up to 80%, so dramatic improvement in our in our win percentages. Okay, so that's the go-to-market. The second part is the the network and data capabilities that we bring together to form the solutions.
So what we can do uniquely is start where most customers need to start, is making sure they have a really strong network foundation. So the ability to capture the data, move the data, connect to sensors, machines, connect islands of different machines and automation around to really form a solid network foundation. But then that leads into now you have the ability to have insights into the network itself and the performance of the network, but also the data moving through the network. So then we can take that data and unify and simplify it so that it's accessible to use in higher level applications, where our customers often want to do things with machine learning or AI.
Our ability to help the customer in that breadth of their challenge, from the foundation of a strong network to really simplifying and unifying their data infrastructure, is unique. In the marketplace, you find companies that can do certain pieces of that, but our ability to bring that all together is really what makes our network and data capabilities unmatched. Let's talk about a real-life example of how this worked, and I'll touch on this, but I'm very happy that we have a guest here from Symbotic, one of our customers, that's gonna share in his own words. Symbotic is a large global leader in automated warehousing systems. They serve customers like Walmart in their distribution centers. They came to us because they were having problems in their mobile network architecture for their robots.
And so we used our three-step process. So we worked with them to really understand what was happening, the issues, what they were trying to achieve, what their customers expected to achieve, and then worked with them on the solution design. And then we actually validated in a few of their different locations around the U.S. This led to the largest solutions win that we've had to date, a $20 million relationship that we've created with Symbotic. But I think more importantly, it allowed Symbotic to dramatically improve the uptime of their robots while keeping a very high accuracy. And that has also improved the service levels to their customer.
And we'll talk more about how that's now led to further engagements, and you'll hear from our guest in his own words about how that worked. So kind of in summary of my section here, we've made really good progress and really transformed the Automation Solutions segment. We're very proud of that. I get the opportunity to travel around the world and meet with customers, but not that, just our teams. And the amount of engagement in what we're doing and the transformation is truly impressive. But we're not done. We still have a significant opportunity and runway ahead as we look at how do we scale this further across our verticals and continue to build these capabilities out that I've talked about.
But one of maybe the most exciting opportunities is the things that we've done, the things we've learned, and the capabilities we've built can be now leveraged across Belden and into our Smart Infrastructure Solutions segment. And so now I want to turn it over to Jay to talk about that.
Thank you, Brian. Good morning, everybody. My name is Jay Wirts. I lead the Smart Infrastructure Solutions segment, and what I'm gonna talk to you about is how we scale solutions from automation, as Brian talked about, into Smart Infrastructure. Okay, the first key point is that automation has laid the groundwork for us. They've laid down a foundation that we can build off of. They've done things like establish a solution sales process, they've invested in a lot of key technologies, and they've set up the CICs, the Customer Innovation Centers. And those are the things that we're gonna build on, use as a foundation to help us scale. So a couple of examples of that, how we're gonna get leverage from what they've done. For example, the integrated solution sales function. There's now one solution sales team in Belden. We've combined with them.
There used to be two separate teams, one in Smart Infrastructure, one in automation. Now there's one, and the reason for that is that team already has knowledge, and they already have processes set up for us to leverage, to accelerate, to go faster. Another good example of that are Customer Innovation Centers. You'll see a little bit later, there's a hospital room here, so we were able to leverage all the infrastructure that has already been established here in this CIC for us to set up our own, to go and engage with customers. So big help for us. Now, a couple of other really important things that we've done to make progress and get us going. We did pilots. We did some extensive research on a couple of our priority verticals. For example, we studied healthcare, and we studied hospitality.
What we found is that there are significant problems there that require solutions. Those customers, they want solutions to those problems. There's demand, and that was very encouraging for us. You know, they want things like an improved guest experience for, for hospitality, for our hotels. They want improved patient experience, and those are things that I'll talk about a little bit more, but there's demand for us to help them with those sorts of things. Another big, another significant progress we've made is in acquiring Precision. So Precision built out our portfolio, and it gave us more opportunities to create solutions, for those customers. Okay, so good progress already made, lots of leverage. Okay, let's talk a little bit about the customer problems that are out there for us to solve.
I think the first key point is that the customer problems we have are really based on the same things as the customers in the Automation Solutions segment. They really boil down to network complexity, data fragmentation, and labor shortages. Now, they show up in kind of different ways, but they're all rooted in those things. And again, that gives us leverage, that lets us scale, that lets us accelerate. So in this example right here, we've got a hospital room, and there's, you know, some examples that all of us can probably relate to. If you go to see a doctor, you have a doctor's appointment, and if you show up at the hospital, when you get there, you check in, you give your information, you've probably already given that information a time or two, maybe three.
You sit down and you wait, and if your appointment was at 9:00 A.M., 9:00 A.M. probably comes and goes, and you wait, and no one can tell you how long you're gonna wait, why you're waiting, all that kind of thing. Eventually, someone comes and they take you into a room, nurse takes your vitals, and you don't really know the result of those vitals. Is it good? Is it bad? Are they better than last time? Are they worse than last time? Your experience as a patient is starting to erode a little bit. It's not great. You probably wait some more. Eventually, the doctor comes, you get evaluated, and on your way out, you've got to check in with somebody else. You've got to give them some information. You've got to schedule a follow-up appointment.
In all of that, that entire process, there's been a lot of waiting, there's been a lot of inefficiency, and not a lot of satisfaction, and that's the kind of thing that hospitals want help with. They want our help with that because all of those things are caused by network complexity, data fragmentation, and labor shortages. So if we can work on those problems, we can create a good patient experience for hospitals, satisfy that demand. Okay, now let's talk a little bit about the products that can provide those solutions, and the key thing is those products come from both automation and Smart Infrastructure, and you know, Ashish already talked about this some, and, and Brian did as well. We get more leverage here. Now, another interesting example here that can bring it to light, this is a hotel, kind of a resort hotel here.
If you were in your room, you could, you know, control the TV, control the thermostat, control the blinds, all from an app on your phone. You could also order room service from that same app on your phone and have the room service delivered. You don't have to sign for anything, just gets billed to your room. Very seamless experience. If you left your room, you could stay connected. As a resort, if you decide you want to go to the spa and make an appointment, well, you can make an appointment on the same app on your phone. When you're done with that, if you decided you wanted to play golf or go on one of the hiking trails, you could schedule a round of golf on your phone, you go out.
And really key, when you get out there, you're on the golf course, it's very difficult to stay connected. You could stay connected to your Teams call, to Spotify to listen to your music, or if you're finishing up and you want drinks or you want food waiting when you get there, you can order those. They're there when you arrive. And once again, it's all billed to your room. You don't sign for anything, and then you're starting to have a very, very positive, a very, very good guest experience. And that's the kind of thing that hotels wanna provide, and the products from both automation and Smart Infrastructure can offer as solutions. And a couple of keys there. You know, you see in the picture, there's ruggedized products and there's non-ruggedized products.
So in that golf course or on that golf course, those products have to deal with heat and dust and rain and wind and all those things, so they have to be ruggedized. Those are these, those are the automation products. But that hotel needs products inside, too, and those are the Smart Infrastructure products, and importantly, tying them all together, you have Belden Horizon. It's taking that data, it's processing it, it's unifying it, and ultimately providing the solution. So the products from both automation and Smart Infrastructure can give that great guest experience or that great patient experience, whatever it is we need to do. Okay, something that we get asked a lot is, if we develop a solution for a hotel, for example, when it comes time to provide a solution for the next hotel, do we have to start from scratch? Do we start over?
And the answer to that is no, we don't need to start over. In fact, we'll have a blueprint that we leverage from one to the next. So if we have a solution for a hotel, for the next hotel, we use the same thing. We're very, very close. There'll be some modification, of course, from one time to the next, but we're leveraging that same blueprint, that same solution, for the next hotel or the next hospital, whatever it is. Now, we call that blueprint the Common Reference Architecture, and Hiran's gonna talk a lot more about it. But the important thing for the moment is that that is what enables us to scale quickly and efficiently through a vertical, so we can get across hotels or hospitals, whatever it is, smoothly.
I wanna summarize three of the key points that will enable us, as Smart Infrastructure, to accelerate implementing solutions across this segment. Three key things, and these are ones that Ashish already touched on. Really important things. People and processes is the first one. Second one is key customer relationships, and the third is Belden's Active Products network. So people and processes, the first one. You know, the best example of that is we have one solution sales team right now, 'cause we've merged the teams. Those people give us knowledge, they give us experience on how to do that, and they've established processes that we'll use. So that's that enabled us to leverage that and go faster and not start over. Second one, key customer relationships. Really, really important.
A key there is the customers in the automation segments or the automation applications. Those customers also need Smart Infrastructure. Again, Ashish talked about this. A couple of really good examples of that are, we have a major material handling customer, want a nice solution there, but that CIO at that material handling customer also needs Smart Infrastructure. And because we had established that relationship, we were able to win that business as well when they said, "Hey, we need the Smart Infrastructure also." Another really good example, Ashish talked about airports. You know, we won a solution at an airport, and this is an airport that had a lot of outdoor infrastructure, and it was in a very hot and very humid area. So they needed those hardened-...
Ruggedized products to deal with the heat and deal with the humidity, those environmental conditions. But they also needed to put their various systems on their IT backbone, on the network, their security systems, baggage handling, building management, public address, all those kinds of things, security. So again, that was a good example of leveraging that key customer relationship that had been established in automation to win Smart Infrastructure business. Okay. Oh, and sorry, lastly, on the active products. Again, as we develop solutions, active products will be a part of that, and they have a portfolio of active products for us to leverage and use and make great progress on. All right. I've been focused so far on Smart Infrastructure and talking to you about what we're going to do there.
Now I want to change and shift gears somewhat and talk about Belden overall. So a little bit different focus here. So Belden, in terms of our runway for solutions growth, we have a very long runway. We have a lot of growth potential left to go, which is very, very encouraging. So we think currently we're about 10% of sales as solutions, but we think we can get to 20% or double it in 2028. And the reasons we think that are very important and they make a lot of sense. Essentially, we have a playbook. So if you think about things like scaling solutions from automation to Smart Infrastructure, we talked through that. That's a big part of that runway. That helps us out a lot. Custom... Common Reference Architecture.
Again, that lets us scale and grow further and get more solution sales, another key part of the playbook. And third, Belden Horizon. You know, again, that sits in the middle of the products, takes the data, processes it, unifies it, gives us a unique advantage in the marketplace. So those are three key elements of the playbook to go from 10% to 20% over the next several years. So now we just have to execute, and the fact that we have all these tools to work with, and now we just got to execute, which is one of our strengths. It gives us a ton of optimism. Okay. With that, I think we're going to turn it over for the-
Yep
...fireside chat. Thank you, Brian.
Okay, I would like to welcome Jitin Bhagat from Symbotic up to the stage here for our fireside chat. Jitin is the Senior Director of IT Installations for Symbotic. Thanks for being with us here today.
Thank you. Thank you for having me.
Which one you want? Okay. Okay, so let's start out. Why don't you tell us a little bit about Symbotic and how you provide value to your customers?
Yeah, so Symbotic brings AI and advanced robotics to the warehouse automation space. And so, you know, we have advanced automated inbound systems that'll take a pallet in, take all the cases off, and induct the cases into our system, and then automated outbound systems that'll create custom pallets that are coming out of our system and going to stores. And in between, we have what we call Symbots, robots that are taking those cases and putting them into storage and holding them. And so, you know, our systems, you know, you can look at them in terms of scale as you know, football fields, right? Like, imagine NFL.
Yeah
... football field.
Wow!
You know, a smaller system could be one of those, and larger systems are multiple, so really, really big scale there.
Okay, great. Maybe share a little bit more about your role at Symbotic.
Yeah, of course. So, I'm a Senior Director of IT Installations, and so my responsibility is the infrastructure that goes into our customer facilities. And so, you know, when I first started, we were doing a couple installs, and now we've scaled up doing, you know, dozens of installs and how to bring that technology into our customer facilities, get it all installed and set up. And so that's the challenge I've been facing.
Okay, great. So let's kind of go back to the beginning. So kind of before we started working together, what kind of challenges were you facing in your systems?
Yeah, so one of the main challenges we were facing was, you can imagine these Symbots that they travel up to 25 mph in these vast areas. And keeping them connected, you know, our systems have, you know, 300 + bots in a system and can be much higher than that. Keeping them all orchestrated, connected, and knowing exactly where the bots are so we can task and route the bots correctly going forward. You know, one of the KPIs, at least on my side, we track, are flickers, another one is disconnect.
Mm.
And so a flicker is a latency event where we lose connectivity to a bot for a short duration, and a disconnect is a longer duration latency event. And so, with the technology we've been using, you know, we're tracking these, and we had a program to try and improve these. But because we did have these events, you know, our software always had to take a more cautious approach, right? You can't task a bot to go do something where another bot might not have left in time. And so it kind of slowed the system down a tiny bit just to account for these type of events.
So speed and efficiency were issues you were trying to solve?
Exactly. Yeah.
Okay. So I shared a little bit about the experience, and how we kind of went through our go-to-market approach during my presentation. Would you share a little bit about how the engagement with Belden went from your view?
Yeah, perfect. And so while we were working on working on minimizing the disconnects and flickers, you know, we worked with our current vendors, you know, turned every knob, flipped every switch that we could, and really optimized for the solution that was possible with the hardware at the time. But the piece of hardware on the bot that we used for connectivity was actually going end of life. And so we also while working on this, kicked off an initiative to find a new product and a new partner to work with, and one of those partners was Belden. And so we, you know, kind of entered an exploratory phase where we talked to you guys about our problems, right? We have bots that go into these massive systems. They're building essentially walls, right?
You're putting cases, one day it could be diapers, the next day it could be cans, and so, you know, Wi-Fi on these networks, you can imagine, are constantly changing in a very dynamic environment. We also had, you know, we're in a warehouse, so environmental factors, a lot of requirements that have to go into a device that can support this, as well as you're on a bot that's moving, right, so motion, vibration, things like that, that the hardware has to handle.
At the same time, we're like, "How can we improve our KPIs while we're looking at for this new product?" So, as we discussed this, I think we got engaged with your team, and they recommended a ProSoft Bridge, and so that's where it kind of began.
Okay. Okay, and how did it move then from that start into actually selecting Belden as your partner for this?
Yeah, and so, after you guys recommended the ProSoft product, what we did is invited your team to our test facility up in Wilmington, Massachusetts. We installed one of your bridges, and that was really the first clue I knew that this was gonna be a really good relationship. Because we installed the bridge, tried to bring the bot online, and it didn't come online. And so we're like: Well, this is kind of a rough start out of the gate. And so that was in the afternoon. We said, "All right, we'll regroup in the morning, and we'll start troubleshooting." The next morning, before we even arrived, we got an email saying, "Hey, here's a new firmware that'll solve it. Based on the logs we reviewed, we know exactly what the issue was." And it's...
It wasn't a ProSoft issue, right? All those knobs and things we turned to-
Mm
... to really optimize our previous solution made the connectivity really restrictive in our Wi-Fi environment. And so you guys were able to pivot really quickly, get the solution, and get the bot in, and we were able to run through our tests at our test facility. The next step, what we did is we actually went to one of our customer facilities that had on the order of three hundred bots.
Okay.
And what we decided to do was, put in 50 ProSoft bridges, along with our traditional hardware, and then we have, you know, apples-to-apples comparison on how they do in the field, you know, in an actual production environment. And it was great. Right off the bat, our KPIs for those bots improved without any optimization. And then we worked thoroughly with your team over the next few months to do the same thing, right? Turn the knobs, flip the switches, get all the settings to where it works at its best. And in the end, our disconnects dropped by 90%, and our flickers dropped by over 80%, so really significant improvement.
Fantastic. So if you kind of step back, and you think about how you've been engaged with Belden now for the last, you know, year plus, how does that compare to other vendors that you've engaged with?
Yeah, and it goes to that first clue, right? So a lot of vendors we work with, they're not as engaged. You know, we don't have direct access to their R&D teams and get the reports back. It's an active troubleshooting exercise where we can kind of get the multiple firmware revisions over days, not months, not years, and a lot of times it was Symbotic-specific software solutions and to get everything working before you guys kind of bring it onto your essentially main branch and your general release firmware.
So it's been a great relationship, and you know, after our testing, when we decided to roll out, we actually not only did we cut it into our production, so all new bots would get it, we went back to a majority of our Symbotic fleet and retrofitted the ProSoft Bridge, actually.
Oh, that's fantastic.
And what that actually enabled is, you know, the software team, once they realized the connectivity levels of the ProSoft Bridge, they were able to remove some of that caution we were taking. 'Cause we had, you know, more accurate location data for these bots, where they were going, how fast they were going, and so our predictive algorithms were able to increase the amount of times they pinged that bot for, "Hey, are you doing okay? Are you actually where you say you are? Are you at the speed you're saying you're supposed to be going?" And you know, increase efficiency through our system from that perspective.
That's great. So it, I mean, it really sounds like the ability to engage with our solution architects and consultants not only created value for you but also sets us a little bit apart, right, from-
Exactly
... from other companies you work with. Great!
Exactly, yeah.
Okay, so now we're working on the bots and the radios for the bots. What other types of opportunities has this led to for us to work together?
Yeah. So after we started working with you guys on the bots, we got introduced to the broader Belden umbrella with all the breadth of your products. We've already worked with you guys on your Hirschmann line of OT network switches. We're also looking at potentially using you guys in the cabling space. You know, when you're working warehouse size as we are, a lot of times we're limited by the physical length limitations of Cat6 cable, and so we'd have to be locating infrastructure throughout a warehouse, trying to make sure-
Okay
... our APs are within the appropriate lengths. You know, that presents a challenge. Like, well, are we giving up storage space to put an infrastructure piece of hardware? How are we gonna access that safely? Things like that, that we have to take into account when we design these systems. And so one of the, we were at your R&D facility in Richmond, Indiana, a couple weeks back. We were playing with your RemoteIP cable. And so, you know, you guys are able to rate that, you know, well over the 100 m of Cat 6 specifications. And so now we're going through a process of looking at that, figuring out what the benefits are, how we can redesign our systems to better accommodate that, and how much that benefits us.
And so that's a fun program we're going through right now. The other piece is, and Ashish covered it when he was on stage, is that you guys have a breadth of products that we were kind of going with you, and different teams were kind of using, right? And now you guys are approaching us with the full solution from start to bottom. You guys have the OT side down to the PLCs and the OT switches, and now you guys also have the data center switches for our IDFs and MDFs. And, you know, we're going to these data centers that are really antiquated, right? Now we're going in and putting in, you know, data centers that can do run AI and these software systems.
And so the need for a convergence of OT and IT at these locations is only gonna increase, and you guys having the ability to cover us from top to bottom in our system and help us with that is a really, really good asset.
That's fantastic. I mean, we're really excited not only about our current engagement, but these opportunities to extend into other use cases in the wired infrastructure, right into the LAN infrastructure, right into some of your data centers. So we really appreciate the opportunity.
Yeah.
I want to thank you for joining us here today, and, looking forward to working together.
Yeah.
in the future.
Really appreciate it. Thank you so much.
Okay, thank you. Okay, we're gonna take a break now, a short break, so we will be back here in 15 minutes. Thank you. Thanks, Jitin.
Mic. New stuff.
Good morning, everyone. My name's Hiran. I'm the Senior Vice President responsible for strategy and technology in Belden. I'm gonna speak to the topic of powerful solution accelerators. Before the break, you know, we spoke about the transformation journey we are in. We spoke about the critical role the solutions are playing, and more importantly, we spoke about the focus of gross profit margin consistently as a success factor. When we speak about powerful accelerators, I'm gonna bring to life for you how Belden's proprietary technology initiatives is helping bring scale, it's bringing speed, and it's bringing differentiation. Specifically, I'm gonna speak to three of them.
The first one got referenced as the Common Reference Architecture, and Jay, I think, did the best job of saying it's common, it's referenceable across all customers within the same vertical as the industry standard, and it's indeed an architecture that brings together multiple technologies. So I'm gonna deep dive and bring that to life for you. The second one is about the platform. You hear about companies making platform initiatives. My job is to make it live again for you so that you see how it's different, it's unique, and it's differentiated. And then finally, we will see the role ecosystem partners are playing because one of the biggest acknowledgment of Belden's strategy is we can't do this alone. We have to do this together with complementary technologies that make it possible.
Now, before I speak to the Common Reference Architecture, let's go back to the foundation of what's going on in the world of data out there. Ashish keeps making this reference. While the world's growing at GDP, network requirements are growing at GDP plus, data requirement is going in tens of GDP plus, and we are right in the middle of that opportunity. We have twelve priority verticals. Each of them are facing an unprecedented degree of complexity that we are converting to an opportunity for the organization. Now, let's talk about that.
Whether it's a factory that makes plastics, whether it's a highly automated process plants that makes chemicals, whether it's a hospital that runs a single facility or a chain, they foundationally want automation, they want to deliver very good experience to their stakeholders, and they want to do a lot of processing at the premise, which is increasingly being called edge computing and data center operations. That's common across everyone. Now, let's talk a little bit about the complexity. Each of this infrastructure, the total number of points that needs to get connected to the network can vary from 500 to about 2,500. They all need unique ways of connecting to the network... The sensor that connects to a PLC and the sensor that connects to a 5G network speaks different languages. They want to move in different speeds.
They want to go to different destinations, and 500 of them in the most basic scenario. A simple cement plant has about 3,200 sensors, so that's one part of the complexity. Experts predict that the total number of devices that are connected to the network today globally is going to increase from about 25 billion to 27 billion, depending on who you trust, to about 1 trillion by 2030. Even if you take 80% of that's going to happen, that's 30% -4 0% more of connection that the world of Belden needs to support. The second dimension of complexity is the velocity. The first is volume, the second is velocity. Megabits of speed is not good enough anymore. Do you remember the days when the routers used to show kbps, and we say, "Yeah, we are fine with it.
Maybe we'll send two documents over to our colleagues and, you know, over the first half of the day, gone. We want instantaneous transfer of large documents across locations, across devices, and that aspiration, just like the only queue time you're happy with, is zero. The same thing, there is no end to aspiration of speed. So velocity. The third dimension of complexity is variety. It's no more automation data, you need sound, you need video be transferred too. They, again, need different networking technologies and path. So the complexity out there is then a combination of these three at the most basic level. Something else happened in the world in the last ten years. When the cloud providers came in, it was assumed that all these data will go to a remote data center for processing because it's cheaper.
The world has done a completely 180-degree turn. Technologists have concluded the only sustainable way of doing it is to operate at the edge, meaning close to where the data is going to get generated. And here is the most interesting thing from a technology standpoint for Belden. Our switch, our actives, our routers can now be repurposed as edge data centers. So you're talking of a product that will now elevate its status from not only doing basic networking capabilities, it will also provide edge computing to our customers. And then finally, it was really powerful to hear the example that Mr. Bhagat spoke about, about how IT networks in his premises and OT networks in his premises are going to come together.
The first challenge the customers want Belden to solve is security, even before functionality, because if for any reason there is an incident that takes the network down, that's millions and millions of dollars of losses. So in conclusion, the need that we are trying to solve for as a company is complexity, driven by those drivers that I spoke to you about. Now, why we are excited is because complexity means opportunity for Belden. And for us, the opportunity is... Sorry, the job is to simplify that complexity, and one of the first steps we are taking to doing that is what we are calling our Common Reference Architecture. What we don't aim to do is 600 customers trying to solve their networking problems. We don't want to do it in 15,000 ways. That's not scalable.
We want to do it on the engineering side in a consistent way, while the customers experience customization that they feel they need for their business condition. How are we doing it? We are breaking the problem into components called blueprints. These blueprints, like Lego blocks, talk to each other in a highly consistent way, but the customer sees different designs coming out of the foundational Lego blocks. It's exactly the same principle. But the Lego blocks also have teeth that know exactly how to fit at each other. You know, the experience you get, I mean, you know, as a kid, I loved playing with them. The feeling you get when you take two blocks and bring them, and they make that click sound, and you get that feeling, "Ah, it's solid." Trust me, in our networks, what we do is exactly the same.
We spoke about ProSoft, we spoke about connectors, we spoke about switches. Our architecture is about bringing that clicking feeling into how we solve for our customers. Second, this is no more in the world of spreadsheets. It's been digitized. Now, why is that important? Whether a salesperson, what Brian was speaking about, it's about selling experience. The salesperson in Singapore, the salesperson in China, the salesperson or the solution consultant in North America, they all have equal access to the blueprints, consistent access to the blueprints. Now, who gains beyond the internal productivity is the customer. Let's call DuPont our customer, let's call Dow our customer, let's call Bayer Chemicals the customer. They have hundreds of facilities globally. For every one of their facilities or every one of their hospitals, they get the same seamless experience through digitization. That's the second aspect of the Common Reference Architecture.
Now, what it's helping us, which is the obvious one, it's allowing us to deploy our solutions at scale. But here is the other thing that I'm gonna make it, again, real for you. The amount of opportunity that Belden has at play now has increased by 20%, which we are calling solutions uplift, and it's made of both categories: problems that nobody's solving today and problems that somebody else is solving, but we are making it part of our top line, and that is 20%. That 20%, based on the total addressable market number that Ashish shared with you, is about $20 billion-$25 billion annually. Aren't you excited? I am. Now, let's make it visual. What is a CRA in tangible terms, and how has Belden repositioned itself as a company? First, CRAs are all vertical-specific designs.
Jay made the point: once you do it for one, you can do it for others because the journey of the data, the complexity dynamics, are exactly the same. But now let's make it tangible. Six capabilities. The leftmost one is all hardware. ProSoft, that got spoken about, Hirschmann, that got spoken about. It's all there. The rightmost one is a software. It helps orchestrate the hardware. It helps orchestrate IT and OT devices to speak to each other. It helps orchestrating automation solution technologies to speak to Smart Infrastructure technologies. You go further to the right, three more. They bring security, they bring data to the fore, we are calling it platform, and I'm gonna spend a little more time on that. Then it allows for service delivery because irrespective of network design, customers are differentiating solution provider based on services.
Then finally, as you have heard it from all organizations, adoption is a direct correlation of the experience that you deliver through visualization. Now, there are two parts of this diagram I want to bring to your notice. First, hardware to the left is increasingly being complemented with more and more software to the right. That's an important transformation that we have to commit to. The second, it doesn't need to be all about Belden. This is an architecture that should support, as is being shown through the dotted blue lines, integration, and that integration doesn't need to be about Belden products alone. So Nokia, AWS, and Belden will be orchestrated through the common platform that we have, delivering value to the customer. That, ladies and gentlemen, is the vision and execution of the CRA. Let's talk about a case study so that it becomes real for you.
Ashish spoke about islands of automation. Brian spoke about islands of automation. In real life, how does it translate? Now, how do islands of automation come into being? Let's understand that. In any company, they have a value chain. They have multiple segments of value chain. Each segment of value chain, they use an automation. Vendors are not the same, and those vendors often do not know how to make their data talk to each other. Real-life implication, what happens? This is a utility, power transmission, high voltage, and extra high voltage. Two things are important for them: uptime. Second is, if there is indeed a downtime incident, can we resolve it quickly? That's it. Uptime is dollars. If you don't resolve your downtime quickly, customer satisfaction.
For people who live in the United States, you know the experience we go through every time we have a snowstorm that takes the grid down. Same thing. In this case, it was a desert environment. This particular utility, because of islands of automation, was taking tens of minutes to first detect the fault, and second, even when they detected the fault, which also was not exactly where it had happened, it was mobilizing people, it was mobilizing spares ahead of the curve. They were having an operational failure. They were throwing money behind the problem, but the technology was not getting fixed. So the networking solution that Belden provided essentially took away the islands of automation.
The moment you take away the islands of automation, the infrastructure that knows there is a fault in the network starts talking to the infrastructure that needs to know what to send people and raw material and where, by what time. It was as simple as that. But the framing of that solution happened on the basis of the Common Reference Architecture. Implications? 18% reduction in operational expenses. When you have islands of automation, you throw resources at the problem, it leads to lower gross profit margin for all our customer organization, so went and disrupted it. The second thing is a satisfaction index, because it led to 60% reduction in the response time. And it's third, which it's not written here, because scalability is important, is every time this customer builds a new substation, builds a new network, they will think about Belden.
You heard a little bit of that from the, you know, from Symbotic as well. It's a journey. Any technology of the kind of complexity we are trying to address, it's a journey. But this journey started with the Belden platform - sorry, the CRA being launched in 2022. We launched it then. Since then, we have come out with blueprints, which, in combination, make the CRA work for few of the priority verticals. We have launched it. We are expanding the blueprint base to include additional verticals. We are laser-focused on the user experience aspect of it because we know at the end of the day, the blueprints have to be consumed.
Here is the most interesting part: We want to evolve to an operating model where the blueprints only will not be accessible and used by people within Belden, but they will be used by the networking teams of our customers directly. GenAI is an existing pilot capability within Belden today. We want to use the positive powers of GenAI to generate even more custom blueprints. And if we do this successfully over a period of three years, third year standing here, we should be able to show you demonstration on where we are able to solve a complex solution in less than one hour. That's the power of scalability that the CRA will bring to our customers and to us. In summary, then, it brings consistency. I think that point's made. It brings scalability. It is addressing, through hardware and software, both network and data requirements.
And here is the best part: When you truly invest in designing a reference architecture, it also tell you what your gaps are. So we are using it bidirectionally. We are designing it for solutions externally, we are using it to learn what new products do we need to come out with, what product gaps in our existing portfolio do we need to address, and that brings the sustainability in this journey. Going to the next part on the platform, which, as you remember, is actually an element of the reference architecture. Let's look at the video.
Strong data insights start with a strong network foundation, but managing it can feel like an exercise in complexity, forcing you to navigate a maze of data and devices, islands of automation, systems that don't speak the same language, software that identifies the symptoms, yet has limited insights into the cause. But help is on the horizon. Belden's Horizon platform orchestrates all your critical network hardware, software, and services through a single interface, simplifying the complex and unleashing the power of your data. It brings disparate networks together, securely unifying your data infrastructure to enable new insights and opportunities. Horizon is your window into what's possible. It shifts your attention from tasks to outcomes and leaves you with the freedom to focus on what matters for your business. Belden, connect to what's possible.
There are two aspects of this video that I want to speak to you about. The first is the centricity of the data. The second I want to speak to you about is the single window concept. What does it really mean? On the first one, we want to link data as an element of outcome for our customers. Literally, we want the customers to forget the complex OT networks they have built. They've acquired companies over time, which may or may not look the way they build their organic networks, and that's okay. We are going and telling them that's okay. They're telling us, "Look, we have switches, we have infrastructure that is not built in, and we don't plan to replace them, at least in the near future." Do you know how to talk to them?
You're saying, "That's okay." So the conversation, thanks to the Belden Horizon platform of vision and execution, is going away from the infrastructure that supports data movement, where Belden assumes the responsibility of managing it, to giving them data coming from any part of the network in a unified, clean, and secure manner. Why is this critical? This is critical because over the last fifteen years, the networks have now evolved as the foundational backbone of offering data that will make applications sitting in the cloud successful. And if we can manage the complexity that's lying in the automation, lying in the product base, and we can bring the customer's attention just to the data that they need, the Belden Horizon platform, as a software, as an infrastructure, would have been successful. So first is focusing it to an outcome, an outcome, in this case, meaning data.
Now, I want to spend a little time about the single window. It is not about having a single console that you're looking into. That's a basic aspect of the single window. What the single window means is, it's a window through which you receive insights, and you tell the network what it wants to do, what you want it to do for you. Let's take some examples. On an ongoing basis, the Belden Horizon platform informs and educates the customer about the safety, the security, the reliability of the network. It continuously educates how redundant is the network, whether there were any, you know, disruptions, events that happened, were they cleared, what caused it? It provides a wealth of intelligence so that the customer knows that the complexity is being solved on an ongoing basis. That is inside out to the customer.
The outside in, what the customer is telling Horizon is: "Hey, Horizon, you predicted, you predicted," not you detected, "you predicted that this facility of one of my 20 facilities out there potentially may have a security problem. I want you to isolate that network." Belden Horizon will do it for you. You don't need to be in that factory. You don't even need to be in that country. It's the window for you to provide your business intent of what you want the network to do, and the Horizon will then convert your instruction into set of software propagation, which will go and attach to the hardware and make them work. Think of your home. In your home, if you have a Ring camera that shows that someone's outside the door, can you imagine the power if you could tell the Ring software that, "Shut down my home?
And when it does it, whether it's your garage, whether it's your door, windows, they all go on a shutdown mode, and it's protected. That's the vision of Horizon, but I just took a security example. Let's take another example. You might say, to make predictive maintenance happen, I've added 20 more sensors to these machines in the Oklahoma facility. Please add them to the network, send the data of these 20 sensors to an IBM location located in New York, and the visualization of that software, make it available to Alberta. You are telling Horizon how you want the data to be collected, moved, processed, and visualized. It can do it for you, right? But then let's look at from a roadmap, what does it stand for? First, I'll take a customer example, then I will talk to you about the roadmap.
In this case, it's a customer. The customer is in supply chain solutions. You remember the point of automation I said? In this case, they have a process that looks like... not looks like, they have an injection molding, and if you're familiar with injection molding, it's a complicated chemical process which also involves heat. Then it goes, becomes a product, and then the product is sized, managed, moved, shipped to the end customer. Different kinds of manufacturing process. What comes right at the end of it is quality inspection. But the quality impact may have happened because of the quality of the injection molding, which was the first part of the manufacturing process, islands of automation. They didn't have a single data platform to make the quality problem go away.
So Belden Horizon platform is essentially the multi-site way, collecting data from these different islands of automation, bringing in a single plane, and making that data available to the quality management system, saying, "I can help you detect, one, there is a quality. I can tell you, I can help you with data that will help you understand what caused an injection molding that created that quality defect, and you can take action." It's a roadmap. The roadmap has started with some priority verticals. We have developed certain set of new applications. We are expanding the number of applications. We are integrating with your ERP.
If the particular Horizon platform detects there is a problem with the switch, in the future, we want the customer to be able to order that switch through the CRM system, which then goes into our supply chain system, and that switch gets shipped to the customer. Finally, the Horizon platform, like an ecosystem construct, doesn't need to be about Belden applications only. It will support partner applications as well, and that will ensure that in about two, three, four years from now, 40% of solution instances where Belden is present, Horizon platform will be a component of it. A little less than 5% of the solutions that's going out there today. Coming to the ecosystem partner, you would have seen all of those offerings, we are continuously saying it doesn't need to be about Belden technology only.
There are four kinds of ecosystem partnership we are integrating with: pure hardware companies, Nokia, Ericsson, pure software companies, cloud solution providers, and system integrators. In a complex converged solution, they will all become a part of the journey. This is just a visual illustration of how ecosystem partners are an integral part of the platform itself. In each layer of the platform, at the automation layer, partners like Schneider Electric, to the cloud solution layer, AWS, Accenture, who you'll hear from later today, are all integrated into the fabric of the Horizon platform design. It leads to a very important conclusion. This is not just about completing your solution, it's also smarter capital deployment. As Belden, we don't need to invest in R&D across the full technology stack. We are distributing the responsibility among the technology partners. It's an extremely important point.
The second thing, what you're doing is, you're distributing the risk of technology disruption. When you work with an ecosystem partner, and you all know how disruptive technology as such has been in terms of business models and operating models, we are continuously sharing information on insights to make each other successful. Finally, ladies and gentlemen, that's the story of technology and how it's an integral part of the solution delivery, that these three will bring speed, they will bring scale, and they will bring differentiation that will essentially help us from being a 10% solutions company to a 20% in about four years' time from now. This is the one that provides assurance, and all these technologies that I'm speaking to you about, where they are, this is where they're all getting demonstrated, in the CICs, and there are five CICs right now.
Each of them have their distinct capability of proving out some of these technologies that I was talking to you about. That brings me to the end of my session. I'm going to invite a couple of our ecosystem partner colleagues on the stage. Ram Ramalingam and Mike Mannion. They are senior leaders in Accenture. They have been an integral part of Belden's technology journey on the platform side, on the system integration side, and, you know, let's listen to them.
Thank you.
Okay. You're miked up, right?
Yeah.
Okay. So Ram, I shared with the audience the story around how our technology is playing an integral part of delivery of solutions. Now, Accenture is a very world-renowned name as partners in digital transformation for various companies globally. We are in network and data solutions. Tell us, how relevant do you think what we are trying to do in the overall context of digital transformation?
Great question. I'll cover this in three angles, right? So the first one is, the IT/OT convergence, right? We have been talking about it over the last several years, but I think we are at a point, on this journey where there is truly a business value that's getting generated out of IT/OT convergence, right? If we look at it, Accenture typically gets into a market doing a lot of analysis on the market. What we see, IT/OT convergence alone as a market is close to $54 billion in 2023, right? And it's growing at a CAGR of 14%, and we are looking at this market to get to close to $150 billion. So that's the number one, right? So if you look at it, the convergence platform is getting real. That's why I think this is a very exciting space.
The second part is, you talked a lot, I was listening, about the cloud transformation. The cloud providers, you know, if you look at the start of the digital transformation, it has been always, you know, related with the IT systems and how to enable on cloud, right? So that's how the digital transformation started. But the gaps was always on the network, which is very, very, you know, delicate, right? And only few players like Belden understand this, the connectivity and the data that's around the network, right? So I think that's the second phase of it, and that's where I think there is a true value that is going to get generated, right?
And that way, from that perspective, I feel, you know, a lot of things, you know, exciting that we are working with you on the Horizon platform, but that is where, you know, the second level of digital transformation for us, right? And the third part is, you know, the power of data. The unlocking the value of data is not going to happen because when I listen to Ashish, when I listen to Brian, right, all of them talked about, you know, islands of automation, and that cannot get solved without this convergence platform, and that is the next level of digital transformation we are seeing in this area, right? And it's a super exciting area.
The market is really picking up now, and very honestly, you know, though we work with you, I really think you are at the leading edge of how we are trying to take it to the market.
Got it. So your point is the fact that we have a product stack, both on the OT side and IT side, and we are trying to make them work with each other is a significant-
Yeah. So because I feel that, you know, the IT part integration was there, right? The IT/OT convergence is the biggest issue, right? And then, if I want to do all the GenAI components we are talking about, the data just coming from IT is not sufficient, right? You know, and the data coming from OT/IT, how to converge it and how to apply GenAI around it, is where the real intelligence is going to come and unlocking the value.
Clear. So going forward then, building on that, Accenture and Belden have now started going to the market together. We are going and positioning our solutions to our customers together as partners. Your CEO in your own earnings call, you highlighted your partnership with Belden. Can you tell a little more about the thought process going with Accenture, within Accenture, as to why you felt Belden belongs, you know, in a differentiated category?
It's a nice question because, because if you look at it, Accenture serves typically the Fortune 2000 customers, right? And we make all these big announcements, right? But then if you look at all our earnings announcements, you know, most of this are where we really impact the customer, where there is a value and there is a differentiation. And we picked Belden this time. And I was talking with my CEO why the story should be there on two, three things. Number one, I don't think there's no other company which is getting close to you. There's. And I thought I saw a chart from Ashish, which was very interesting, right? This product competitors you have on the left side, right? On the right side, Ashish didn't show any competition, right? It's only Belden, right?
That is where actually the trend is, really because I don't see a lot of companies have tried to, you know, embrace the solution journey, but not many of them have done it, right? And you guys have taken the right steps, number one. Number two, it's not like saying that I will be independent, I'll build a solution with one partner and go, right? The way you have embraced cloud providers in propagating the solution, that was a very differentiated step. So both these things is what I talked with my CEO. One, was cloud is big for us, right? And they're enabling through this partnership and the Horizon platform, we know when we launched it on AWS, made a lot of sense and the way you're taking the solution, right?
Those are the two things, right, you know, and I don't see a lot of companies, while they talk, they really truly have a solution in this angle, right? So that's the reason why we thought it should really have an impactful step, one, for you as a customer, but more for our end customers as well as we go into manufacturing and other enterprise industries together.
Got it. Got it.
I think it speaks to the timing as well, right, Ram? I mean, I think Belden is right now in a unique time, where you guys can be a mover at the beginning of this stack. I think that's another reason why Accenture is so interested and excited about partnering with you guys on this, right? Because it enables us to prove out where we can connect complex IT systems, network data, and Belden is a unique case study that it. It's really kind of a first mover that's making a play here. As Ram and Ashish both called that out, we recognize it as well, right? So I think for us, it's more than just the convergence of the technology and the capabilities, it's also the opportunity that exists for Belden right now and the timing.
So I think the timing for us is really compelling.
Got it. So Mike, your point is that the recognition of network as being a critical infrastructure in digital transformation is acknowledged right now? Because I remember the first 10 years, it was all about cloud and AI.
Yeah. Well, I think that it is definitely being recognized. Yes. So, and I think there's also an open conscious thought that we've got the it's the network and the data. It's the management of those two things together inside a platform that is so unique for Belden. And I think it's such a great opportunity for Belden and Accenture to partner together, right? Because we have the capabilities to develop world-class software, world-class platforms. You know, we can do that well, but it's the information that contained in there that becomes actionable for end users, and it's the experience that they're able to gain from that, right?
From my perspective, it's really about the convergence of the network, the data itself, the information that's being contained, the world-class engineering talent that we're able to bring to the table, combined with the use cases of the Belden customers, right? That's where it's just this perfect blend. Again, back to the point of there's a unique opportunity here, right? And time isn't... You know, customers, competitors will catch up, customer expectations will rise, right? And so we're really excited about the opportunity to partner with you guys on that because of that timing.
Thank you. That's very helpful. So moving to the Horizon platform, you know, all of us in the leadership team did make a reference to it in our discussion today. You are also our development partners.
Mm-hmm.
That's the other role you're playing. You know, when we scan the market, there's a lot of people who say we are in platforms.
Mm-hmm.
But we also feel the platform design we are proposing out there is quite unique.
Mm-hmm.
Ram, maybe we can start with you. What's your perspective on the uniqueness or the differentiation that you see in the Horizon platform?
So there are two parts to this. Yeah, you know, platform is a very abused word in the market now, right? You know, everybody wants to become a platform operating model. What we saw in Belden is two things. One, you guys have really world-class products, right? So that's number one. Number two is, you know, the way you have extrapolated, you know, from this product, the intelligence on your network layer and data layer, right? You know, both of them are unique, right? So that's the second one, which where we think there is a accelerated go-to-market possible. The third one back to, you know, and this is a very important one, you know, you didn't want to go alone on this platform, right? There were, there are customers who don't want to say that, "Oh, I'll run out on my private cloud.
I can run it as a service business." But you aligned on saying that, "Hey, we should partner with cloud providers to take it to the marketplace," and create a marketplace in AWS, right? So these are the three things, and the Horizon is already running on AWS now. It's a question of time before you are embracing the other cloud providers. I think the access to the market through the cloud providers and through Accenture becomes easier as well. So I think those are the three things I would attribute, right, why this platform is going to get very exciting for us.
Got it. Yeah.... So, you know, so clearly the technology is going to increasingly play a significant differentiation source for us.
Mm-hmm.
Any final thoughts as we close the discussion?
Yeah, I think, you know, the way we see it is, you know, the ROI on these platforms, you know, just doesn't get measured by saying how much more revenues you're going to get, right? You know, and this is something we see very often, and we coach our customers, right? The key amount of customer satisfaction you are going to get, right? The amount of times you're going to do a preventive maintenance, the amount of time you're able to predict this is what is going to go wrong, is going to be much more powerful with this platform. I keep giving this example: this, what you're building is something like what is an observability stack for an IT applications, right?
Mm-hmm.
If observability was working really well, you would not have had the CrowdStrike problem, which, you know-
Mm-hmm
... all of us got impacted with, right? What you are trying to create is especially very true for a network site, right? So I think that's, that's how I will, you know, land it. It's super exciting space, and you guys are in the right position to take it forward.
Thank you.
Yeah.
Mike?
Right. I mean, I think similar to Ram, I think you guys are in a... We're in a partnership right now to do something special, right? I think the Horizon platform, between the engineering functionalities, the data that's there, the network information that's there, there's a unique opportunity for us right now, and so when I think of this, and I think of the kind of the journey on the platform right now, and look, we understand there's a lot of technology under the covers, but it's really about business value derived, right? What is- what are your customers getting out of this experience, right? What are... How can your teams operate more effectively? How can you interface with the customer more effectively? That, to me, is what the Horizon platform is all about.
It's the convergence of that information to make the relationship between Belden and its customers more successful, and I think that's the journey we're on together, and we're really excited about it.
Thank you. I appreciate the partnership we have been. It's almost three years now.
Yeah.
And looking forward to it. That brings us to the end of the technology session, and I'm going to now invite Jeremy Parks, our CFO, to join on the stage and talk to you about his content.
Thank you.
Excellent. Yep, good.
Thanks. Thanks. Good job.
Okay. Good morning, everyone. So you've just heard about the tremendous progress that we've made as a company, executing on this solution strategy over the past couple of years. I'm gonna wrap things up today by discussing how it's impacting our financials and where we go from here. So I'm gonna start with a look back, and I want to go compare ourselves to where we were in prior cycles. Ashish talked a little bit about the recent past here, but if you look at the company back in 2018 , 2019 , we had just come off of a cycle, multiple years, where we had no organic growth, zero. Where our financial leverage was higher than the peer group, and spiked up when we ran into some difficult times.
And then we had earnings that were pretty volatile, a lot of volatility in earnings from year to year, ups and downs. But if you look at the four years starting in 2019, we've actually delivered mid-single-digit organic growth. And keep in mind, 2023 included about a half year of destocking. So this destocking event that's hitting most companies started for us back in 2023. Our leverage has come down, and we've actually been investing quite heavily in the business. I'll talk about that as we move throughout the presentation. But we've been spending more in CapEx, we've been buying companies, and we've been returning capital to shareholders. And then lastly, earnings have been pretty strong.
I know this is a bit of a down year because of the destocking, but our margins and our earnings have held up, I think, better this cycle than in prior cycles, and as Ashish mentioned, all-time record in EPS in 2022, all-time record in EPS in 2023. Back in 2022, we gave a mid-range target to achieve $8 of EPS in 2025, and that target was supported by what we call the Value Creation Framework . That framework included better organic growth, attractive incremental EBITDA margins, and pretty healthy free cash flow generation, and I would say that notwithstanding this destocking that's happening right now, we've executed really well versus this plan, especially with respect to those things within our control.
Now, I'm gonna talk about the path to $8 a little bit later in the presentation, so I'll go through that in more detail, but we believe that this target is still within our reach. Just another snapshot of the financial performance, where we are today or at the end of 2023 versus where we were in 2019. Again, better growth, better profitability, better earnings, better free cash flow. You can see 6% revenue CAGR over this four-year period. This goes from 2019 to 2023. Adjusted EBITDA margins up about 140 basis points. Now, Ashish and Brian both talked about the improvement in gross margins within the industrial business. If you look at our gross margins on a consolidated basis, we improved about 400 basis points over this four-year period.
So really, really strong, and then obviously, EPS 15% CAGR over the four-year period. We're gonna move next to capital allocation strategy. This company is pretty good at generating cash. You can see in the graph in the middle, this is what I would call free cash flow margins, free cash flow as a percentage of revenue. Right now, in 2023, we're about 9% of revenue, which is up 100 basis points versus 2019. But again, keep in mind, we've been investing heavily in the business. Just one data point, CapEx in 2023 was about 60% higher than it was in 2019. CapEx as a percentage of revenue is going up, but we're still generating more free cash flow. That's given us a lot of capacity to deploy capital.
These are the priorities that we've set out for the next couple of years. This has not changed, by the way, versus what we showed in our prior investment day, yeah, investor days. So number one, organic growth, investing in organic growth. Number two, strategic M&A, and then number three, returning capital to shareholders. And all while maintaining that leverage of about, of about one and a half times going forward. So we're gonna go through each of those in a little bit more detail. So obviously, investing in organic growth, for us, is the key. We are trying to become a company that generates long-term, sustainable, organic growth year-over-year. Ashish and Hiran and Brian and Jay all talked about some of the investments we've made in our commercial teams, products and so forth.
The way we've funded that is largely through improvements in gross margins. So generating, improved gross margins, we have flown some of that back to investors in the form of improved EBITDA margins. We've reinvested a lot back in the business as well. You can see some examples of where we've spent our money. We just opened a Fiber Technology Center in Tucson, Arizona, a month or two ago. We've introduced a number of new products, both hardware and software-based products, including a ruggedized edge computing device, next generation industrial-grade switches, and obviously, Belden Horizon. And then lastly, we've opened these Customer Innovation Centers, of which we have five around the world, including this one in Chicago. Number two is we are using M&A as a tool to build out our solutions, right?
You can see we've deployed a little over $600 million over the past five years, buying nine companies, all of which we would consider accretive to our financials, and all of which have helped to build out our solutions capabilities. I'll go into more detail on M&A because we've been getting more questions recently, so I'll spend a bit more time on that later in the presentation. Number three, returning capital to shareholders. You can see in the graph in the middle of this slide, from 2021 to 2023, we bought back almost 10% of our outstanding shares. We've been doing quite a bit in terms of buying back shares, deploying that excess cash back to shareholders. This was something we announced a little bit earlier today in our press release.
So the board of directors here has authorized a new share repurchase of $300 million. This is an open-ended authorization, which, along with the existing, the remaining amount on our existing authorization, will give us repurchase capacity to buy back up to about 10% of our current market cap. Okay, so like I said, I'm gonna spend a little bit of time talking about M&A. So since we announced the acquisition of Precision Optical Technologies, last quarter, we've gotten more and more questions about, about M&A. So I'm gonna talk about our approach and some of our process, around M&A. When we do M&A here, we really have two key objectives. Number one is to improve our solutions, to improve the capabilities, the products, and build out those solutions and make them more competitive.
The second objective, obviously, is that we're looking to invest money and generate strong returns over time, but we're looking for opportunities to buy companies that don't require an excessive amount of synergies. So basically, what we're looking for here when we do M&A is, we're looking to buy companies, again, that build out our capabilities, that operate in markets that we understand really well, that fit well with our products, and that can generate double-digit ROICs within a reasonable period of time. This is a snapshot of the nine acquisitions that we've done since 2019. And I'm not gonna go through these in detail.
I think the key takeaways on this slide would be, number one, that all of these, if you look at the products and some of the descriptions, all of these products have brought new capabilities and plugged gaps in our product portfolio, whether they're software or hardware acquisitions. Number two, it's been very balanced. So five of these deals built out our fiber capabilities within the Smart Infrastructure platform, and the other four were in Industrial Automation or automation solutions, as we call it today, building out those solutions. I thought it would be interesting to talk about a real-life example here, so, I'm gonna highlight OTN. And Ashish brought up OTN briefly, in the first presentation that you heard today. So OTN Systems is a company based in Belgium. They make industrial backbone switches, primarily for the transportation and the utility markets or the energy markets.
We liked OTN for a couple of reasons. OTN, first of all, we did not, as Ashish mentioned, have the technology that they brought with us. So we sell a lot of network switches into these markets. We did not have a backbone switch, so the combination of the backbone switch plus the IP technology was really, really important to us and helped us build out the solution. Number two, we felt like this was very complementary to what we're already doing, from a solution standpoint, and we understand these markets really well. So transportation is a core market for us. Utilities or energy are core markets for us, ones that we've been operating in for a very, very long time. So it was very natural to bring this into the mix.
We bought them again in 2021. We immediately started integrating this business into our solutions framework, and it's been extremely successful over the past couple of years. You can see some of the data points that we put on the slide. Revenue's up about 50% in this business versus where it was pre-acquisition. We've had a number of very interesting, exciting project wins, and these are wins that include not just legacy OTN product, but also includes legacy Belden product, Hirschmann switches, ProSoft gateways, Belden access points, so a lot of complementary product on this with this acquisition. And then you can see the cash ROIC, which is really, really strong.
If we're able to buy companies and execute well on this solution strategy, there's a lot of leverage in these businesses to improve ROICs over time. This has been a great acquisition. I also wanted to touch on Precision Optical Technologies. Precision is a company or an acquisition that we announced in the second quarter. Precision is based in the United States. They make or supply optical transceivers, primarily for the broadband and the telco networks. Again, these are markets that we understand really, really well. We have a long legacy in these markets. We know the customers. We sell a lot of products to cable operators, MSOs, telcos, and so does Precision. But what we didn't have was a transceiver product, right? Which, again, as Ashish mentioned earlier, fits extremely well with our other fiber products.
We have fiber connectors, fiber assemblies, fiber accessories, and the fact that we have all these products, including fiber cable, and we can combine them with the transceivers, is extremely powerful for us. So we view this one, I would say, very similar to OTN in that it plugged an obvious product gap, is very complementary with the rest of our products, our legacy products, and we think should have a very nice financial return over time. Okay, one more slide or one more point to make on process. So I would say that we're trying to accomplish a couple of things with our M&A process. Obviously, we're trying to build out solutions, but our goal is to be, A, very proactive in the types of targets that we're looking at, so we're heavily screening targets.
We're trying to cast a wide net and narrow them down. You can see as we move throughout the process, we're obviously doing all these checks around: Are they in the right vertical markets? Will the products work with our existing solutions, or are they outside of our existing solutions? And do they have the right cultural fit? So that leads to my second point, which is we're trying to be highly selective in how we do deals. So I think we've been pretty disciplined over the past few years. We've looked at a lot of companies. We've closed a few that we think will really be impactful, and you should expect us to do the same going forward. That's the approach that we're gonna continue with. Okay, so let's talk about the outlook. I know this is probably top of mind for investors.
I'm gonna start with 2025. You're all thinking about it. We're obviously thinking quite a bit about 2025 as well. The question I get asked most often is: how do you get from where you are today to $8 in 2025? And I'm gonna preface this by saying we're not guiding right now for 2025. It's too early. There's still quite a bit of uncertainty in the macro environment, in the interest rate environment, with U.S. presidential elections, and so on. So we're not providing guidance right now for 2025. But I did wanna talk about a path, how we would get to $8, and this is a path. There's other paths. But right now, we did guide for the third quarter at the high end of our EPS guidance in Q3.
If you annualize that number, that number is 1.65. If you annualize it, we're at $6.60 of EPS. How would you get from $6.60 to $8? There are three drivers, okay? Number one, deliver mid-single-digit organic growth versus where we are today, okay? And keep in mind, this year, we still have a drag from this destocking, right? Destocking has been pretty pervasive and long-lasting. We will get through it.
It's still causing a drag today, but it's just important to note, if we grew mid-single digits versus where we are today, organically delivered 30% incremental EBITDA margins, which is the commitment we made to investors a few years ago, and we deployed about $200 million in capital, whether it was to M&A or share repurchases, that would get us to right around $8. There are obviously other paths. The economy could heat up. Next year could be a very strong year, in which case we would have to deploy less capital. There could be other scenarios where the market weakens a little bit, and we maybe need to deploy slightly more capital. So we'll see how the next eighteen months or so progress, but we feel like we're still well-positioned.
We've executed well enough and put ourselves in a position that despite this market slowdown that we've seen recently, I still think we have a very reasonable path to get there. Now I'm gonna focus on the slightly longer term. All right? Ashish already showed you this slide. I just wanted to reiterate that our belief is that the market, there's market tailwinds at our back in the majority of our businesses. You know, the themes. I'm not gonna go through each one. Automation, reshoring, digital transformation, network upgrades and expansions on the broadband side. I think there's a lot of positive trends that will last for multiple years, and so we're feeling very positive about the longer term, the next cycle.
Which is why our expectation is that from here on out, we would grow over the cycle organically in the mid-single digits. I think three years ago we said GDP plus; now we're saying mid-single digits. I would consider those kind of interchangeable. How do you get to mid-single digit growth? It's a combination of market growth because of those secular tailwinds that I just described, and then some of the initiatives that you just heard about from Brian, Jay, and Hiran. Scaling solutions in the Smart Infrastructure business, I think, will be a nice accelerator, as well as scaling solutions just generally in both businesses by utilizing this Common Reference Architecture, selling more Belden Horizon, and then building out our ecosystem.
Then obviously, in addition, we will have capital to deploy, and so tuck-in acquisitions would help improve that, maybe even a little bit more. From an EBITDA standpoint, in 2023, we finished the year at 17.4% in EBITDA margins. We'd like to take that up to around 20% by the end of the next cycle. The math is pretty straightforward. Again, if you grow mid-single digits, and you achieve incremental EBITDA margins between 25%-30%, you're at about 20%. And so how do you get there? It's selling more solutions. It's improving margins within the Smart Infrastructure business as we sell more solutions and improve the mix. It's managing our cost structure very proactively.
We'll continue to invest, but we'll be judicious about how we do that, and obviously selling more and more of our Active Products. So this is the new framework. This does not replace the old framework. This is additive to the old framework. So we had one that we gave previously. That goes through 2025. This one goes through 2028. The goal is mid-single-digit organic revenue growth over the cycle, incremental EBITDA margins between 25% and 30%, like I just described. We want to improve our free cash flow margins. So I mentioned earlier, we're at about 9%, or we were last year, 9%. We'd like to take that up to about 10% by the end of the next cycle. We're gonna continue to manage our balance sheet in a very responsible way.
So net leverage will stay around one and a half times over the long term, may pop up a little or be a little bit under at various times, but over the long term, we'll be right around one and a half times. And if you do all that, then we should be able to grow EPS in the range of 10%-12% per year, double-digit.... And again, Ashish already showed you this slide. We've got the target for 2025. We already know what that is. We're working toward it. Moving on from 2025 to 2028, you can see how things would look in 2028 if we're able to grow 10%-12%. So just to summarize my section here, the transformation is producing real results. We've seen them in our financials.
The business is much stronger financially than it was three or four years ago in many respects. Again, more profitable, faster growing, better balance sheet. I think that is absolutely true. We think if we continue to execute on this plan going forward, we can deliver very similar results over the next cycle, and that is our expectation and the commitment that we're making externally. At the same time, we're gonna be very responsible in how we deploy capital. We will do M&A, when we find companies that fit well into our solution strategy, and we will continue to return capital to shareholders because of our strong cash flow. So that is the end of my section. I think that we are gonna bring some chairs up and go into Q&A in just a minute. Okay? Thank you. Oh, yeah, come on in.
Okay.
Yep.
Ashish.
All right. Aaron, you have a mic? Katie, you have a mic? All right, Will, go for it.
I have a couple, if I can.
Sure.
Will Stein from Truist Securities.
Yeah.
First, thanks for hosting this very informative investor day. Great announcements today, so thank you for that. You know, there's much less of a focus today on end markets and drivers and what are the government incentive programs for broadband and sort of all the details around that. That's often a big focus in these sorts of events, and I'm wondering what we can read into what was missing from today. Is it perhaps a sense that the solutions will carry you through, regardless of whether these end markets just perform okay or do better than that? Or is there something else we could read into that, either positive or negative?
Sure, let me take that. So I think, Will, that, you know, we do refer to these, more, discrete phenomena from time to time. On the earnings calls, we talk about BEAD funding, for example, or what's going on in a specific geography like Europe with discrete automation, et cetera. I think today we wanted to talk more about in the mid to long term, where we think all our markets have a lot of good secular tailwinds, you know, drivers that give tailwind. What is our differentiated strategy, right? And it's a more comprehensive picture versus calling out specific items.
But yes, there is a belief that because of our solution strategy and all the phenomena that we've heard about, including IT/OT convergence, the need for people to get better data access for AI, et cetera, et cetera, we feel that we would outperform within what was happening in the world, right? So there are things outside our control, and there are things in our control, and because of what we are doing, we will do better. And so yes, you I think you've picked up the right flavor. Not to say that those items are not important, and we will keep referring to them from time to time.
Great. And then a follow-up, if I can. You know, something that continues to confuse me a little bit, and I think what's confused investors from what some of them have shared with me, is the potential for intersection, but also overlap with someone like Accenture. So maybe we can have you share an example or two as to, you know, "Hey, there's this engagement where Accenture did this, and we did this.
Sure.
There's maybe another example where we can do the whole thing," and why you might need each other or not so much need each other, and what the benefits are and where you could potentially step on each other's toes, if that even.
Yeah
... is a thing. Thank you.
No, I think that's a really good thing for us to address. So before I go directly to Accenture or a systems integrator, let me just say this: You know, as we transform, we will obviously continue competing with some product suppliers, but we will compete increasingly with solutions providers. And some of those solutions providers make products and provide services on top of those products, but they tend to be more specific to a point solution, HVAC, security, et cetera. There is really no one that does an integrated solutions, a solution, approach if they are a product manufacturer with services. But then there are others that don't make products, and they provide services, like Accenture, and they have that breadth. They can do a full, end-to-end solution, and they're not tied down by a specific set of products....
However, if you look at what they do, they typically work with a number of different product providers to create that one solution, and we are taking the complexity out for them. We are saying: Hey, if you work with ten, now you only need to work with 7 + 3 . So it's Belden plus AWS plus Accenture and Schneider, versus you also had to work with, you know, a lot of other discrete product manufacturers. So I think it's less complex for them, and, you know, I think Hiran actually showed a slide where he had an example where we worked with Schneider. So the automation on the shop floor was from Schneider. It was their PLCs that had to be integrated. The data had to be integrated, so we did that.
But then they wanted to move a lot of that data to the cloud, which was AWS in that example, and Accenture was involved in advising that firm as to what should you move to the cloud, what should you keep at the edge? And Accenture was building the models and the software where they were doing the application processing, right? So, so really, we did not compete with Accenture in that situation. They, first of all, benefited from the simplification of the network, and second, they were the application provider, and we never want to be that. We don't want to be an applications company. We want to have a data platform on which any application can sit and extract the data they need, as long as the customer is okay with that. So, so it's a little more complex.
We touch them in two to three directions, but really, for all systems integrators, not only Accenture, it's worked out to be increasingly collaborative because they don't make products, right? So, you know, maybe this is something we need to message more clearly, Will, to your point, and remove that confusion, and we'll keep trying to do that. Okay. Yes, sir.
Thanks. Steve Fox from Fox Advisors. A couple questions just in terms of the solutions mix, so that talking about gross margins was super helpful. But how does that gross margin improvement as the mix improves, drop down to, like, the operating or EBITDA line? What kind of investments do you have to make in sales force going forward, CICs, et cetera? And then I had a follow-up.
Yeah. You want to start?
Yeah, let me start. So if you look at, again, the last four years, gross margins are up 400 basis points. EBITDA margins are up 140 basis points. So a little more than half of that margin improvement, we've redeployed back into the business. Now, we were starting from nothing in terms of a solutions organization, so we had a lot of investment that needed to be made up front. I think going forward, we'll continue to redeploy some of that improvement into the business, but it'll probably be a little bit more geared towards margin improvement versus investment. But we'll continue to make investment.
Yeah. No, exactly. I think-
Yeah
... Jeremy captured it well. I think it was in the first three, four years, Steve, it was two-thirds being reinvested, about a third.
Yeah.
Right? I think it's gonna go more to half-half. That's the model we have, approximately. And I think it's simply because, you know, these assets have been created now, and we have a lot of leverage available. A big part of that was upgrading our people, right? Which meant, A, bringing in some new people, but also training and, you know, redeploying our people so that their talents were well utilized. But a lot of that heavy lifting has been done, and, you know, we were fortunate that we got a lot of customer sponsors at that stage, and, you know, they, they kind of encouraged us to do that. You saw one of them on stage earlier today with Symbotic. But yes, it'll get more equitable as we go forward.
And that's helpful. And I guess just off of that answer, I'm just curious, why not invest a little bit more aggressively in Salesforce in order to generate maybe a higher growth rate out of the solutions business? Like, what's the math that goes into, like, whether you invest more aggressively there? Thanks.
Yeah. You know, obviously, Brian talked about the fact that our funnel's grown by 50% every year, right? So, our sales force is able to match the overall data growth rate. We are able to get those opportunities into our funnel. It takes a special kind of person to sell solutions, and it's not always easy to recruit that person directly. They have to come in and be taken through a process. I think to make sure that we have a very high quality, high integrity process, we are pacing ourselves on that. And really, as we go now into more vertical markets, especially when we do the combined Smart Infrastructure Solutions and Automation Solutions, we might open the tap a little more. Right? But in the meanwhile, we are also benefiting a lot from the use of GenAI.
Right now, there's a pilot going on. You know, in fact, one of Hiran's job is to do that. We are creating this process where the solution consulting and architecture process is being converted to a bot so that some of these smaller opportunities can also be addressed, versus only the $5 million, $10 million dollar opportunities. So I think by leveraging GenAI, by using all of that, we will, we'll open up the tap a little more. But to answer your question, Steve, the biggest, I think, barrier really is availability and of the skills and the time it takes to really improve them. And I think we have a head start versus our competitors, so you know, we're in a good place. Yeah. Yeah. David?
Thanks. David Williams from Benchmark. I think the Horizon platform is really interesting in a lot of ways, but it seems like a really enabling platform for a lot of different things. And if you think about customers that maybe don't need the entire solution, is that something that you could break out into an individual type application and sell into the market, where it could become a SaaS-type model, where you could maybe recurring revenue? Just how do you think about these different enabling technologies that you're bringing together?
Let me give a quick answer, and then maybe Hiran can help. So in general, we have positioned Horizon as something that connects our whole solution, right? And we would rather provide Horizon as that integration platform versus as a standalone software, because we also don't want to be seen as competing with, for example, a software application provider, right? Although Horizon is not necessarily in the same space, but sometimes that can be the perception. We do have some customers who are Belden customers and who have bought Belden products in the past, and at this point, they only want Horizon. But still, it's integrating something that's an existing Belden infrastructure. And in fact, I think there was a recent case in the Americas, on the West Coast, where we worked like that.
So go ahead, maybe you can describe some examples of...
Yeah, I mean, exactly as you said, the Horizon platform is essentially an orchestration infrastructure. Whether a customer wants applications that are only network specific or network and data specific or data specific, it's a menu card. But what the Horizon is also doing, and that's where our job comes, is also showing the customer, and I think to some extent, the conversation Brian had with Symbotic was going in that direction, that you were focusing on this application when you started the journey with Belden. How about this another application? And then what they soon realize is the two applications also have the ability to talk to each other, and then the virtuous cycle goes.
The journey is to make it modular, make it providing the network or data applications as the customer wants, but keep showing that as you add more applications to your portfolio, you're increasingly going to get more business value out of it. It's modular in design, exactly geared to do what you suggested.
Sorry, maybe we missed one aspect. David, we could, for example, offer data as a service today. We can switch that on. It's possible, right? I think the question is, we may get like 5, 10% of our customers saying, "We are ready in our digital journey to take advantage of that." But we have 80% of our customers saying, "We have an incomplete digital journey to start with." I think the bigger opportunity right now is for us to help that second group, which is kind of lagging to get more maturity, versus working with the very advanced group. Although we could, and to be fair, we have done some beta sites where we've done data as a service without necessarily commercializing it like that. Yeah, sure.
Thank you. Cliff Ransom, Ransom Research. Two questions that may be related. One is, how do you handle strategic planning at Belden today? And two, assuming that you meet your financial goals, what is your working assumption as to your prospective valuation at that time?
Maybe, Hiran, you talk about strategic planning, and then I'll touch on valuation.
So the strategic planning process is essentially today about looking at what Belden needs to do as one organization. We do not frame it in the context of the segments in which we participate. Hence, the journey starts from the verticals. I think a question was asked... The thing we want to always start is the priority verticals that we are planning to focus on, what do they need out there? And that need is either in the context of network or data, which then is broken into, okay, what do we need to do from a technology standpoint, operation standpoint, sales standpoint, marketing standpoint? And then, of course, each of them has linked to the financial planning, and then the financial planning implications of this plan is then broken, is fleshed out over a three-year period.
Every time we undertake strategic planning, which we do every year on a rolling three-year period, where we are looking at the verticals outside in, looking at the opportunity landscape, including the bid-specific ones, which might be more short term than long term, and then, you know, essentially plan into a set of initiatives that we want to pursue.
… And maybe just as a contrast, because, you know, Hiran joined us more recently. That was not what we did previously.
Yeah.
We previously did it by business, in fact, not even by segment, but by business. And each business was trying to optimize, you know, their financial goals. Sometimes those were conflicting. I think we had lost sight of really the vertical customer problems in that process because we would, you know, not every feature is a benefit, and sometimes you create features in products that people don't need, or you miss features they actually need. So that's all gone. You know, the One Belden approach is very vertically focused. One question, of course, is: Is it the same 12 verticals forever? The answer is no. Before we get into strat planning, we do evaluate, you know, those verticals. It could be short-term considerations like broadband funding, it could be, you know, global geopolitical considerations like what's happening to-
Supply chain
... you know, supply chain, world peace, security, et cetera. But we finalize those verticals. We've kind of said 10-12 verticals at any point in time, no more, but no less, so that we have some room if something goes down, but not so many that we, you know, are trying to be everything to everybody. But that's so that's the framework we work with. And maybe I can hand over to Jeremy for the next question.
Yeah. So with respect to valuation, I don't want to give you an exact multiple because I don't know. But we benchmark ourselves, obviously, against lots of different peer groups. I can tell you that since I've been here, we traded a discount to virtually every peer group, and we have for some time. I think if we get to $8, we get close to $8. I think it helps a lot with respect to people's view of the firm, and I would expect that we can erase that discount that we trade. It just depends on how you build that benchmark, whether you look at automation companies, general industrials, mid-size industrial companies. But I would say on average, we are trading sort of 10%-15% below any of those benchmarks from a multiple perspective.
So obviously, if we can improve earnings dramatically and then close that gap, that would be a lot of upside. Other questions, Chris?
Thank you. Chris Dankert, Loop Capital. I just echo the earlier sentiment. You know, thank you very much for putting that slide up in terms of the mix difference between cable connectors on the low end, switches on the high end. It's very illuminating. I guess, going forward on a margin perspective, are we leaning heavily on just that natural mix progression continuing, or is there, like, an explicit price for value that is also associated with solutions? It's not just mix, there's also explicit pricing in addition to it.
Yeah. I'm gonna give you an example, and maybe then Brian and Jeremy can add their comments on how this improves. We recently worked with a large company. I'm not gonna name it because it's confidential, but they had multiple cranes, Chris, because they were handling very heavy raw materials. They kept getting requisition for new cranes, and they were worried that their existing cranes were being underutilized. By the way, they had hundreds of cranes across the world. Somebody came to us from their system, either one of the employees or the SI, and said, "We want this very fancy kind of switch because we are trying to understand this problem." You know, we've trained our people to say now not to ask the question: How will you move data from point A to point B?
What will you do with the data once it gets to point B? So we asked that question, and they said, "We are trying to fix this downtime problem." We said, Do you know how much you are losing because of that? They said, "We don't know for sure, but it's a lot, so we said, "Okay, let's send in our DAC, our Digital Automation Consultant, to help you evaluate that." Turns out it was $135,000 per crane per annum, right? Multiply by, I don't know, 300 cranes or whatever, so it's a big number, and they were like, "Wow, that's a lot," and this is even before human error and stuff. This is simply network and data inefficiency.
Now, in that scenario, we came up with a solution for that particular site. It's a scalable solution, but in that scenario, what we would have charged per crane for that bill of material with the regular margins, we were able to charge two X of that. It was still a small part of the $135,000. They were okay with it, right? So I think the answer to your question is both. There's a lot of action on mix improvement. For example, in Jay's business, we'll have more fiber and connectivity that improves mix. We'll have more actives, we'll have more software. But I think the second part of that, which is the solutions part, is articulating that value, because often they don't know.
And then, by the way, there is nothing wrong with demanding a fair slice of that value, because we are reinvesting, and it's a journey, right? Even for that customer. But maybe you can, you guys can add a little bit.
Yeah, well, I think you said it very well, but the only thing I would add is, I talked a little bit about our solution selling process, right? Exploration, solutioning, validation. I kind of, I simplified it, but we actually have built into our process this thing called quantify the value, right? So between the exploration and the solutioning, we're working with the customer in what we call frame the value and be able to quantify it, right? Like we did in this example, and we've done in others. And so we train our salespeople when we're looking at verticals and our solutions, we try to give them ways to calculate that, ask the right questions. So we've built that into our process, so it gives us the opportunity to often capture more of that value... Not much to add, really. Yeah, I think you covered it.
Go ahead, Chris. Did you have a second?
Yeah, just, just one quick follow-up.
Yeah.
I guess, in that journey to getting to 20% of sales from solutions, I think, you know, the expectation is automation's always gonna be relatively higher.
Yes.
Is the majority of the improvement there on the enterprise getting, you know, into the teens, or is it kind of across both businesses just moving together? Maybe just relatively where the real opportunity is.
Yeah. So our expectation would be, you're right, industrial continues to improve, ends up probably above 20%. Smart infrastructure does not quite get to 20% because they're starting from a very low base today, but into the teens, right? So maybe Smart Infrastructure in 2028 is in the teens, industrial's in the mid-20s. That puts you at about 20% in total. Other questions, Rob?
Thank you. Rob Jamieson from Vertical Research Partners. Just you talked in the presentation about the blueprints and how that kind of compresses the timeline to create a solution. How should we think about that journey to 20%, in terms of, like, do you get to a point where you have so many blueprints where you are able to inflect that growth path? So maybe it takes longer to get from 10% to 15%, but then 15% to 20% is pretty quick. I mean, how do we think about that over time?
Yeah, so Hiran can probably add some comments to this. Rob, I think executing well on the CRA, the blueprints, think of that as a three-dimensional catalog, so to speak, for a vertical, will probably allow us to even exceed that 20% mark, right? Because you're right, there is a acceleration on acceleration, right? It's a, it's a multiplier effect. And I think we've seen that tipping point in some markets, like in mass transit, which, you know, Brian's business focuses on. We've seen that after the first few cases, there's a major uptick. Similarly, in power transmission and distribution. But what is unknown to us is by vertical, right, what exactly is that point? We have to go through that learning curve to get there. For example, I don't know for hospitality or healthcare, how long will that take?
But I do know that within that process, somewhere there is that uptick, and we've seen it. So I think you're right. We will see probably closer to 28, a higher acceleration than we will see in the first two years of this four-year cycle, right? By the way, Hiran and team also have to construct all the blueprints. That takes a lot of time, right? Maybe you wanna add some comments about...
Yeah, I think what we are seeing out in the market is the first five-to-seven blueprints has a significant entry impact of solution conversation. So our job is, you know, for the priority verticals that Brian, Jay spoke about, to be able to publish those first seven. Once we are there, then you're talking of the next seven, which is creating more stickiness to your customer. You're addressing even more complex problems. And I think there is a natural kind of a curve that the gross profit margin will keep tracking on this. But I will say that our immediate opportunity is take these verticals, get the first five-to-seven going. And yes, they are it seems like easy, but trust me, it's quite an involved exercise. The first vertical we did it took us six months.
It's a complex, involved exercise. Yeah.
Very helpful. Thank you. And then I guess just on the margin trajectory on Smart Infrastructure, should it look pretty much the same as what we saw in Automation Solutions? Maybe not quite as much margin expansion, just given solutions would be a little bit lower as a percentage of total sales.
Yeah. Yeah, I agree. I think if you look at Smart Infrastructure, right now, their gross margins are in the low 30%s. I think they probably get to the high 30%s, not the mid-40%s. Because the amount of active content that they're gonna be selling is probably gonna still be a little bit less than what we see in industrial. So I think you'll see nice progression in smart buildings. Maybe you don't get the 20% in... or I'm sorry, in Smart Infrastructure, by the end of the cycle, but good improvement off of where we are today, for sure. Other questions? Will, coming back.
We might even have some online questions.
Yeah.
Okay.
Thanks, for taking another round for me. There's been some discussion of sort of overlap, between the two segments in terms of Salesforce, in terms of the products. Is there a sharp distinction between these two internally? Does that go away over time? And should investors maybe, at some point, stop making this distinction? You know, there are other vaguely similar companies that report segments. I can think of one that's now owned by a private company that used to report segments, and I think a lot of investors even know it, like it's some matter, that, you know, where they just disclose. End markets are much easier for us to think about than segments sometimes, depending on what the basis of the distinction is. So maybe you could talk about that for a little bit.
Sure. I think just to kind of illustrate the similarity, you know, in 2019, when we looked at the Industrial Automation segment, Jeremy and I, by the way, worked in that business together, we had nine businesses. And internally, they were like these nine. We didn't report them publicly, but there were these nine sets of numbers, et cetera, which, you know, people spent a lot of time on. But what was more meaningful was how our customers were doing by vertical, and that allowed us to then transform. And by the way, by the time we got to 2022, we had taken those nine to zero. We'd basically gone to zero different businesses. We had merged those P&Ls, and we'd gone to a vertical, more vertical orientation.
So I think similarly, as we look at these two interconnected and complementary segments, serving both chosen vertical markets, I think we will start informing you how we are doing by vertical. But it wasn't possible when it's only one segment that had that approach and another segment that was still very product-focused. So there was a little bit of a dichotomy, right? Now we are addressing that. So I think over the next couple of cycles, we'll. As we do our strategy, we'll start really focusing on that vertical, you know, what's the opportunity? What are we doing in that vertical? What's kind of the P&L for that vertical?
You're right. We'll go down the same path or similar path to some of those companies where we will report segments, but they will be maybe less informative in terms of how you think of our strategy and execution. I will say, though, that while we will go to 20%-25% of solutions over time, we will still have some. We'll have a long tail of product buyers, right? And they need to have comfort that we will be servicing them and managing, you know, those products and serving the channels, et cetera. So, so I think it does help to have some of that segment structure to serve that market, but the more we converge in solutions, the more we'll go to vertical.
I know I gave you kind of not a very precise answer, but that's simply because we're in the process right now. Chris?
Sorry, just one quick one, for Jay. Can't let you off the hook.
Yeah.
I think your example on the opportunity in hospitality makes a ton of sense. That resonates. When I think about healthcare, often they're much more capital constrained, so patient experience doesn't matter, it's only outcomes that matter. So maybe can you give us an example on where you can help with outcomes or kind of what the opportunity set is in healthcare there?
Yeah, we're focused on the patient experience, you know, which they've communicated to us is very important. It helps them compete and ultimately improve, you know, their operations. But also, you know, if we're helping them streamline all of their systems and if we're putting all their OT data on the network, that can be used not only for a patient experience, but also to help the hospital operate more effectively and to improve their margins. You know, good examples are, you know, they told us a lot about things like they'll have a certain amount of X-ray machines, and they don't always know where they are in the hospital. And so somebody comes in, needs to have an X-ray done, and they'll lose time looking around the hospital for the X-ray machine.
And then that patient is sitting there longer, and then that hospital is seeing less patients, and they're losing money. Or if they're going to spend money on X-ray machines, if they have good data on how they get used, where they get used, they might have assumed they need five, but if they were setting them up properly and tracking them properly, they only need four, and then they've saved money there. So it helps in both ways. I think that's, that's probably the best way to think about it. Yeah.
We have an online question: Which verticals do you see as most mature or immature in their data and product roadmap?
This be, Hiran?
Hiran.
Yep.
So from a Belden perspective, I think there are four verticals that are relatively extended in maturity than others. It's. First is discrete, and the discrete is a much larger umbrella. It brings both, you know, plastic manufacturers, automotive for the discrete. The second is mass transit. The third one is power transmission. We often interchangeably call it energy, and then material handling, and you heard the case study today. So among those four, among the industrial category, are definitely more mature presence from our products. But if you look at, if you take the kind of active focus out, and we look at the business Jay is leading, I will say healthcare, hospitality, data center, and telcos, they are naturally more mature, passive presence we have got.
Go ahead.
Thank you. Cliff Ransom, Ransom Research again. Can you talk about the process by which you have established the metrics that you will judge yourselves over the next three to five years? What are they, and why did you pick them?
Sure. You know, so we've as part of a legacy, we've always been very metric driven. We are a very data-driven company, but the ones that really matter to us right now are all around solutions, right? So we think of solutions sales as a percentage of total revenue. That's kind of the North Star we've talked about. We are at 10% approximately, we wanna get to 20% or more. In that process then, there are other metrics that, for example, brand reference, what's the solutions funnel leading to that outcome? And then you can go one step down. How many people come to the CICs for proofs of concept, et cetera, et cetera, right? So there's a whole stream of metrics around that, but at the high level, for the senior leadership team, it's gonna be about the solutions revenue.
I think similarly, you know, from a slightly different perspective, operationally, we've always been good at applying lean principles. We do look at our working capital very carefully, and that's a metric that you know is very important when you think of kind of the non-field operations, but the back office operations. And then linked to that, there are certain financial metrics that obviously matter a lot to us. Jeremy talked about free cash flow margins today. We are very focused on free cash flow. That's important for Belden. And then kind of, you know, if you take one step forward, we don't talk about this a lot internally, but you know, EPS, partly because we have this long-term goal.
So in fact, we had an interesting situation where Jeremy on one of our all-hands meetings educated every employee as to what EPS is and why it's important. It doesn't mean that we want employees to focus on that all the time, but yeah, so it's solutions metrics, it's capital efficiency, it's free cash flow generation. Those matter to us a lot. But then there's one more area of metrics that we've started talking about more, which are cultural. These are the most difficult to measure, by the way, because we are saying our entire strategy is about changing culture and talent. So how do you measure that, right?
So you could start with things like attrition, et cetera, et cetera, but our team has come up with some measures around how do people engage and how do they feel? Now, we do Great Place to Work, and we've had some good scores on that, but we have some metrics that are more specific by location, so we do that. So there's a cultural aspect we have introduced in the last eighteen months or so.
Thank you. One more? Okay. We have time for one more.
We have time for one more question.
One more?
Okay.
Yep. I don't think we have any more.
Oh, we have.
All right.
David.
You get the last-
I'll take it. Thanks.
All right.
Just going back to the culture, how deeply or maybe if you talk about your. You gave a good example about the EPS, but I guess if you think about the rest of your sales force, how much are they dedicated to a lot of these goals? Do they understand what those free cash flow measures are, the gross margin measures, and then how they impact that?
Yeah. So I think one of the reasons. You know, Steve earlier asked me a question as to why are we pacing ourselves? Why don't we go faster? I think part of it is that right at the outset, we said this transformation is gonna be a transformation and not a transfusion or a transplantation, right? It's not like everybody at Belden leaves and, you know, these new people come, and then everything changes. That's not the way we wanna do it. In fact, there's research. So I think this is done by McKinsey. Of all the companies that tried to go from products to solutions, only about less than 20% succeeded, right? The rest didn't succeed. And one of the biggest Paretos for the failure was they went too fast.
By the way, interestingly, if you go down the list of Paretos, I think number four or five was they went too slow, so there's a pace that's kind of, there's a good ideal pace. But those who went too fast typically did transplantation or transfusion, and they lost the older kind of culture. I think our pace is right, and, you know, as part of that, we're making sure that people are educated around, "Hey, we wanna be a more valuable company for our customers." One way that customers express that they recognize our value is that our gross margins go up. For gross margins to go up, we need to invest in R&D, in solutions, et cetera, et cetera. For that to happen, we need to generate cash, and there's a cycle, and people understand that cycle.
So it's a little different from, you know, putting everybody in a room and saying: If you don't meet this number, it's gonna be bad, right? But it's a lot more around, "Hey, you want more resources to invest because you have great ideas." So we've been able to find that connection to the metrics. So the culture really now is one of, "I'm curious, in my role, how can I help the solutions transformation? So please tell me, and then also please tell me how will you measure me, and what are some of the financial things that the senior leadership team considers?" We've also done a lot more transparent communication as an SLT. We used to do all hands that was scripted. Now they are not. So we go there and, you know, it's, it's a lot more extempore, and it's more discussion.
So you see that change in culture towards more curiosity, innovation. It's okay to ask a bad question or a wrong question. It's okay to have that discussion. But yeah, so it's a mix between the metrics and the, you know, how we communicate that aspect. Sure.
Okay.
Yes.
Yeah.
Okay. Well, with that, I'd like to first of all invite the folks back there, Leah and Brian Anderson to join us on stage. We talked a lot about culture. Leah is our head of HR. Brian Anderson is our general counsel, and we wanna make sure that the entire team is here. I know we presented, but there's a lot of work that goes on behind the scenes, so thank you, Leah and Brian for that. And then just to reiterate, you know, some of the key messages we wanted you to take away today.
We are very confident about how we've been executing, and therefore how we can continue to execute, because we have results, we have a track record, we have institutionalized a lot of those learnings, and we are ready to scale, right? Hit that point of inflection that Rob referred to. We are positioned in really good markets. They're all generating and consuming a lot more data. but more importantly, these are markets that we know really well. You know, somebody asked me earlier about will going to new markets create some dilution? Well, no, because we are focusing on stuff that we know. and like, for example, if you go to hospitality, we are focusing also on waste disposal, substation automation, et cetera, versus only, you know, the TV screens in the reception. so there's a lot of depth here, and we know these markets very well.
And third, our whole strategy is very simple. We wanna sell more solutions. And to do that, we will keep generating new products to enhance that, and we will look at acquisitions that support that. And as we do this, we will unlock a lot of value, and we have shown double-digit EPS growth since two thousand and nineteen, and we will continue down that path. So again, thank you very much for all the time and attention. We have some great exhibits for you today. So I think there are four different experiences. You can choose to go for all four, but you'll get a chance to touch and feel what we've been talking about. So I hope you enjoy that. Thank you.
Thank you.