Earnings Call Transcript - BDC Q2 2025

Operator, Operator

Ladies and gentlemen, thank you for being here. Welcome to this morning's Belden Reports Second Quarter 2025 Results Call. This call is being recorded. I would now like to turn the call over to Aaron Reddington. Please go ahead.

Aaron Reddington, VP of Investor Relations

Good morning, everyone, and thank you for joining us for Belden's Second Quarter 2025 Earnings Conference Call. With me today are Belden's President and CEO, Ashish Chand; and Senior Vice President and CFO, Jeremy Parks. Ashish will provide a strategic overview of our business, and then Jeremy will provide a detailed review of our financial and operating results, followed by Q&A. We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call. The press release, presentation, and transcript of these prepared remarks are currently available online at investor.belden.com. Turning to Slide 2. I'd like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties as detailed in our press release and most recent Form 10-K. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in the appendix to our presentation and on our website. I will now turn the call over to our President and CEO, Ashish Chand.

Ashish Chand, CEO

Thank you, Aaron, and good morning, everyone. We appreciate you joining us. Let's begin with Slide 4, which summarizes our major accomplishments and the key messages for the second quarter. My comments today will reference adjusted results. First, I want to recognize the outstanding efforts of our team. Their dedication and focus enabled us to deliver another strong quarter, continuing our positive momentum from the start of the year. Our team executed well, delivering results that exceeded our expectations. For the second quarter, both revenue and earnings per share surpassed the high end of our guidance, reflecting the ongoing progress of our solutions transformation. Revenue reached $672 million, up 11% year-over-year, while earnings per share grew 25% to $1.89. Demand remained steady, and we exceeded expectations despite ongoing policy uncertainty. Further, we achieved 5% organic growth overall with all major regions experiencing growth for the period. Order activity remained strong with orders up 8% sequentially and 16% year-over-year. We ended the quarter with a book-to-bill ratio of 1.05 compared to 1.0 in the prior year period, positioning us well for the second half of the year. Our focus on profitability drove further improvement with gross margins increasing 70 basis points year-over-year to 38.9% and adjusted EBITDA margins expanding 50 basis points to 17%. This margin expansion demonstrates the positive impact of our solutions transformation, which is driving a richer mix of high-value offerings and enhancing our earnings power. Our business continues to generate significant cash flow with trailing 12-month free cash flow at $216 million, in line with our expectations. Year-to-date, we have repurchased 1 million shares for $100 million, demonstrating our commitment to disciplined capital allocation. Our balance sheet remains healthy, providing us with the flexibility to pursue strategic acquisitions that support our solutions transformation and, when appropriate, return additional capital to shareholders through buybacks. Overall, this was a quarter of strong execution, and I'm very pleased with our performance. The progress we are making with our solutions transformation is clear in our results, and we are well positioned to build on this momentum going forward. Now, please turn to Slide 5. I'd like to highlight a recent win that exemplifies the impact of our solution strategy and our ability to unlock incremental value from our portfolio with new use cases and applications. This quarter, we secured a multi-site solutions award with a leading hyperscale data center customer, a significant step forward in our data center and gray space strategy. This win is a direct result of our team's ability to collaborate across the ecosystem, working closely not only with the end customer, but also with their OEM and systems integration partners to deliver a tailored solution. At the core of this project is our innovative use of Belden Switches to support a critical PLC system embedded in an advanced modular cooling system. By leveraging our proven technology in a new application, we delivered a low-latency network with extremely fast recovery times; capabilities that are essential for hyperscale environments where downtime can have substantial financial consequences. Importantly, this project is a prime example of IT/OT convergence in action. At its core, IT/OT convergence is about integrating the physical world of operational technology with the digital world of IT, unlocking powerful insights from industrial data to improve efficiency and drive smarter business decisions. Achieving this is a major challenge for many organizations as it requires bridging two worlds with historically different requirements for security, reliability, and performance. In this case, we successfully deployed an industrial-grade switch traditionally used in operational technology environments into a high-demand AI data center application. This demonstrates our ability to bridge the gap as Belden is uniquely positioned to solve this challenge with a portfolio and expertise that spans both the rugged industrial space and the high-performance enterprise environment, allowing us to deliver a truly robust and unified solution. This type of innovative application, leveraging our expertise across both domains, truly showcases the power of our solutions approach. By engaging deeply with customers and partners, we are able to identify and address new high-value use cases for our existing products, expand our reach into new applications, and deliver differentiated value in high-growth markets. This success provides a repeatable model for future engagements and will help us build a pipeline of similar high-value opportunities. We're excited about the momentum this creates and look forward to building on this success as we continue to execute our solutions-driven growth strategy. Now please turn to Slide 6 for a second win I would like to highlight for the quarter. This win underscores the benefits of our collaborative approach and broad portfolio, positioning Belden as a single global source for our customers. We secured a global specification by a major U.S. automotive manufacturer to supply advanced connectivity products into their assembly line and related factory equipment. This is a multi-year opportunity, representing a significant growth driver for our business with the potential to deliver approximately $40 million over three years with additional upside as we deepen our engagement. This award is made possible by the breadth of our global product offerings. It specifies a broad range of Belden products, including advanced connectivity solutions and cable assemblies, for use by all line builders supporting this customer worldwide. As a result, this positions Belden as a single source supplier for these critical components, streamlining procurement and ensuring consistency and reliability across all new installations. This achievement is a direct result of our core strengths, our balanced global manufacturing footprint with capacity and output well aligned by region, our ability to deliver integrated solutions that improve functionality and uptime, and our deep technical expertise. This unique combination demonstrates how customer-focused innovation allows us to capture new opportunities and expand our presence within the entire ecosystem of line builders and OEMs globally. As manufacturers continue to invest in domestic capacity and modernize their operations, they are driving the reshoring and reindustrialization trends in the U.S. Our solutions are essential to this transformation, providing the reliable, high-performance connectivity needed to bring advanced manufacturing back onshore. Ultimately, this key specification position not only strengthens our relationship with this major manufacturer but also establishes a platform for significant growth across the automotive and adjacent markets. By becoming the single source supplier for these critical components, we create operational efficiencies for our customer while securing a stable, long-term revenue stream for Belden. It's a clear example of how our strategy translates directly into durable long-term shareholder value. I will now request Jeremy to provide additional insight into our second quarter financial performance.

Jeremy E. Parks, CFO

Thank you, Ashish. My comments today will cover our second quarter results; a review of our segments, the balance sheet and cash flow; and finally, our outlook. As a reminder, I will be referencing adjusted results today. Now please turn to Slide 7. As Ashish noted, our solid execution this quarter drove strong top line growth, which translated directly to margin expansion and improved profitability. Revenue for the quarter was $672 million, up 11% year-over-year and exceeding the high end of our guidance of $660 million. Revenue was up 5% organically on a year-over-year basis with Automation Solutions up 8% and Smart Infrastructure Solutions up 3%. Orders for the quarter were up 8% sequentially and up 16% year-over-year, with both segments demonstrating continued growth. Automation Solutions orders were up 11% year-over-year and Smart Infrastructure Solutions orders were up 23% year-over-year. As a result, gross profit margins were 38.9%, increasing 70 basis points compared to the prior year, driven by leverage on volume and favorable mix. On a sequential basis, margin performance was aligned with typical seasonality combined with the pass-through of higher input costs. As discussed last quarter, we continue to manage our tariff exposure through a combination of sourcing changes and pricing actions. EBITDA was $114 million, with EBITDA margins up 50 basis points year-over-year to 17%. Net income was $76 million, up from $62 million in the prior year quarter. EPS was $1.89, up 25% and above the high end of our guidance of $1.77. For the quarter, our effective tax rate was 12.3% compared to our prior estimate of 17.5%. Relative to our prior guidance, the lower-than-expected tax rate benefited adjusted EPS by $0.11. The second quarter tax rate reflects certain discrete tax benefits recognized during the period, combined with favorable changes in the geographic mix of earnings. This result reflects the tremendous work of our tax team as they continue to pursue and execute strategies to maximize our earnings and cash flow. Now, please turn to Slide 8 for a review of our business segment results for the quarter. Our Automation Solutions segment delivered a strong quarter, demonstrating continued recovery and solid execution. Revenue grew 10% year-over-year and EBITDA margins improved to 21.4%. Order trends remain healthy with orders up 11% year-over-year and a book-to-bill of 1.0 for the quarter. Highlighted by double-digit organic growth in both discrete manufacturing and energy, our industrial verticals showed broad-based strength. The segment delivered total organic growth of 8% with positive growth in all regions. Our Smart Infrastructure Solutions segment also delivered a strong quarter with performance driven by our strategic focus on key growth verticals and continued investments in our solutions capabilities. Revenue grew 13% year-over-year and EBITDA margins improved to 11.8%. The forward momentum in this segment is encouraging with continued order growth resulting in a strong book-to-bill of 1.1. We saw robust demand in our targeted growth verticals, which present compelling opportunities for our integrated solutions offering. Finally, our Broadband business was another key contributor with revenue up year-over-year, including 5% organic growth in our fiber products. Next, please turn to Slide 9 for our balance sheet and cash flow highlights. Our balance sheet remains a source of significant strength and flexibility, enabling our disciplined capital allocation strategy. Our cash and cash equivalents balance at the end of the second quarter was $301 million compared to $370 million in the fourth quarter of 2024. Our cash position reflects typical seasonality and capital deployment towards share repurchases during the first half of the year. Our financial leverage was a reasonable 2.1x net debt-to-EBITDA, consistent with our expectations. We intend to maintain net leverage of approximately 1.5x over the long term. However, we will fluctuate from time to time as we pursue strategic opportunities consistent with our capital allocation priorities. For the trailing 12 months, our free cash flow was $216 million. Year-to-date, we repurchased 1 million shares, further reducing our share count, which is now more than 10% lower than it was at the end of 2021. We currently have $240 million remaining on our repurchase authorization. Our capital allocation priorities remain unchanged: investing in high-return opportunities, pursuing disciplined M&A, and returning capital to shareholders through buybacks. While the current financial market environment is dynamic, we continue to evaluate M&A opportunities with rigor and remain committed to deploying capital in ways that create long-term value. As a reminder, our next debt maturity is not until 2027, and all of our debt is fixed with rates averaging 3.5%. Please turn to Slide 10 for our third quarter outlook. We have executed well amid ongoing challenges. However, our customers still face heightened uncertainty as they navigate this rapidly changing environment. Assuming the continuation of current market conditions, revenues for the third quarter are expected to be between $670 million and $685 million, representing a 2% to 5% increase over the prior year quarter. Adjusted EPS is expected to be between $1.85 and $1.95, representing a 9% to 15% increase over the prior year quarter. For the third quarter, we are projecting a tax rate of 12.5% as we continue to execute our planning strategies and slightly over 15% for the full year. That concludes my prepared remarks. I would now like to turn the call back to Ashish.

Ashish Chand, CEO

Thank you, Jeremy. To summarize, our second quarter performance reflects the strength and resilience of our business as well as the continued progress of our solutions transformation. We delivered solid results in a dynamic environment with strong order activity, expanding margins, and robust cash generation. Looking ahead, we remain mindful of the ongoing uncertainty in the macro environment. Many of our customers continue to take a measured approach to investment decisions as they await greater clarity on policy and economic conditions. As a result, we expect near-term demand to remain steady with third quarter performance likely to mirror typical seasonal patterns. We believe this is consistent with the neutral stance we are seeing across our customer base. That said, our medium- and long-term outlooks remain highly constructive. The fundamental trends driving our business; reindustrialization, automation, digitization, and the convergence of IT and OT are firmly intact and gaining momentum. We are seeing increased interest in reshoring and domestic manufacturing, and our portfolio is uniquely positioned to support customers as they modernize and localize their operations. Importantly, the recent wins we highlighted earlier, such as the solutions award with a leading hyperscale data center customer and the specification award with a major U.S. automotive manufacturer serve as clear evidence of our success in the marketplace. These achievements underscore the value of our collaborative approach, the breadth of our product portfolio, and our ability to deliver innovative, integrated solutions that address our customers' most critical needs. We believe Belden is exceptionally well placed to benefit as these secular trends play out. Our solutions transformation is delivering tangible results, expanding our addressable market and positioning us for sustainable growth and margin expansion. We remain committed to disciplined execution and thoughtful capital allocation, ensuring we create lasting value for our shareholders. That concludes our prepared remarks. Operator, please open the call for questions.

Operator, Operator

Our first question is going to come from David Williams from Benchmark.

David Neil Williams, Analyst

Congratulations on your continued success. To start, could you elaborate on the demand environment for the second half of the year? You have been cautious over the past few quarters due to its dynamic nature. Could you share your thoughts on potential risks or opportunities for the second half?

Ashish Chand, CEO

Yes. First, our automation business, Automation Solutions, is showing steady improvement as we enter the second half. We're experiencing growth across various geographies, including Germany and China this quarter, which boosts our confidence going forward. Notably, certain key sectors, particularly discrete manufacturing and energy, are exhibiting double-digit growth right now. Orders in Automation Solutions have increased by 11% year-over-year, which is very encouraging. The new tax policy is beneficial for investments. Additionally, many customers are looking to set up more manufacturing closer to consumption points, especially in sectors like U.S. pharmaceuticals, consumer goods, logistics, automotive, and process manufacturing, creating a solid environment. Conversely, our Smart Infrastructure Solutions business shows less immediate promise, with only emerging activity in smart building sectors like healthcare, hospitality, and data centers, though overall uncertainty remains. Regarding Broadband, we see strong medium-term potential, particularly with telco investments and MSOs improving, but there are some delays in the rollout of DOCSIS upgrades due to interoperability and technology issues. Overall, our sectors are well-positioned despite the potential impact of broader trade policy. Looking at Q2 results, they were solid, and we expect Q3 to be similar. We feel confident and don't believe we are being overly cautious, though we do have concerns about the broader policy environment.

David Neil Williams, Analyst

Yes. Great color there. And then maybe, Jeremy, on just kind of the margin performance and how you think about that leverage moving forward. Is there anything that we should be thinking about that's changed now beyond what you kind of talked about in the past in terms of that EBITDA, the fall through?

Jeremy E. Parks, CFO

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

Operator, Operator

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

William Stein, Analyst

I want to discuss the same topic from a different angle. I recognize your preference for analyzing this on a full-year or year-over-year basis. However, in both Q1 and Q2, the sequential increases in gross line and operating margin were slightly lower than what you experienced previously. I'm curious if this is due to passing along tariff costs at low or nearly zero margins or if there is another factor at play. Additionally, how should we interpret this – should we consider it a temporary issue that may improve in the upcoming quarters? Any insights to help us better understand this situation would be appreciated.

Jeremy E. Parks, CFO

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

William Stein, Analyst

Great. As a follow-up on a different topic, it's nice to see the example from hyperscale customers. Many are suggesting that AI is transforming the economy, so it's encouraging to have increased exposure to hyperscalers in that segment. You mentioned that this pertains to gray space, which I understand to mean it's not connected to GPU-to-GPU or ASIC-to-ASIC communications, along with the associated cables and connectors. I'm curious if there are any initiatives to explore that segment of the data center market or if it's too distant from your technology focus, or if there are reasons it might not be a suitable market for Belden.

Ashish Chand, CEO

No, thanks Will. We have discussed this extensively internally, and we are definitely focused on this market. Data centers are among our priority sectors, which includes both white space and gray space. What we wanted to emphasize with our example is how our IT/OT convergence strategy is starting to show results. Customers face challenges in integrating IT and OT because OT devices operate on various protocols, while IT tends to be more standardized, complicating translation. Additionally, OT devices generate vast amounts of data, and transmitting all that data to the cloud can be costly. Therefore, selecting which data to transfer and refining that requires edge computing capabilities. That's where we come in. In the last quarter, we shared an example of how our Smart Infrastructure products are being used in more industrial settings. This time, we're highlighting how products from our earlier industrial segment are being used in building campus environments, specifically data centers. There are two different aspects here. We offer IT/OT converged solutions that can benefit multiple industries, with advantages mainly measured by latency. Currently, hyperscale clients place a high value on time, so they seek these solutions, and we have a strong pipeline. Additionally, we have a data center strategy and are collaborating with some customers on both white space and gray space projects. However, we need to be cautious because certain types of data center customers can be highly competitive, particularly the large ones in white space. Hence, we are being selective about the customers we target for white space opportunities, and you will see more of that in the future. We may share another example in the next few quarters.

Operator, Operator

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

Mark Trevor Delaney, Analyst

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

Ashish Chand, CEO

Yes. So, Mark, it is a multi-million dollar contract, and it's going to play out over a couple of years. This is the nature of this industry in terms of how they build out. Really, the large hyperscale data center providers right now are facing major challenges on the energy management side, a portion of that, of course, is the whole heating/cooling dynamic. So, this company has struggled for a long time just simply measuring and controlling or automating that control in terms of how to apply the cooling process in the most efficient way. And really, the struggle was that their industrial type devices or their operational type devices were just on a different backbone. And we were able to come in and do some deep customer-centric problem-solving, which is kind of part of our solutions approach, as you know. And we came up with what I would call a solution customized to that problem, but repeatable across multiple customers that have the same problem. So, really, energy management broadly, and within that, supporting the best heating/cooling control system is a problem that all hyperscalers face at this point. And we are very focused on that gray space problem. We are going across a number of different customers at this point with early engagements. So, again, very specific area where our industrial background and our deep engineering capabilities have allowed us to penetrate a new market, I think, where there was previously, frankly, no solution. They were just working around that with more manual intervention.

Mark Trevor Delaney, Analyst

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

Ashish Chand, CEO

Yes. Last year, the main driver of solution sales was Automation Solutions, which is on track to reach close to the 20% mark. Our goal is to provide integrated solutions that combine IT and OT, with Smart Infrastructure Solutions playing a key role. We have a unique advantage in orchestrating these two areas for our customers. Currently, we have several projects moving from Automation Solutions to fully integrated IT/OT solutions. This approach offers us the opportunity to exceed 20% overall by incorporating our Smart Infrastructure Solutions. Additionally, we are increasing our operational expenditures in Smart Infrastructure Solutions, which may impact EBITDA margins in the short term, but will ultimately help us enhance our offerings in that sector. This includes a wide range of products, from passive to active solutions and software, that will work with our complete automation stack as we pursue integrated solutions. Our Automation Solutions are already aligning with this target, and as we integrate Smart Infrastructure, we identify numerous opportunities. While these unique investments require capital, we know how to execute them effectively and have seen our pipeline for combined solutions grow.

Mark Trevor Delaney, Analyst

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

Jeremy E. Parks, CFO

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

Operator, Operator

And our next question is going to come from Rob Jamieson from Vertical Research Partners.

Robert Gregor Jamieson, Analyst

I wanted to discuss Smart Infrastructure Solutions. We saw decent organic growth in the quarter, but margins were slightly lower than expected. I'm curious about the reasons behind this. Is any of it related to the operational expenditures that Ashish mentioned, or could it be due to the Precision Optical acquisition being somewhat dilutive or a lower or higher proportion of passive sales from there? Additionally, I wanted to follow up on Solutions. Apologies if I missed this earlier while switching between calls, but is there any update on how Solutions sales are performing in that segment?

Jeremy E. Parks, CFO

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

Robert Gregor Jamieson, Analyst

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

Ashish Chand, CEO

Yes Rob. So, we do have a fairly robust M&A pipeline, and there are three areas of focus. The first is to close some gaps in our stack in terms of technology, for example, more edge capabilities, more security, cybersecurity, more wireless capabilities. So that's an area. We previously also had in that list fiber, but I think there we have reached the right level in terms of fiber content. The second thing, obviously, is around acquiring more access, especially to end customers that need IT/OT converged solutions, right, which would help us in terms of just growing that combined approach because we have a lot of experience with graduating customers from products only to solutions and then to these converged platforms. So we can apply that expertise to customers that come in with such a deal. And then, obviously, the third area remains just in terms of overall software capabilities around Horizon. We've built this platform. We're deploying it in more and more of our solutions, but there are areas where smaller acquisitions can become part of Horizon, especially around data orchestration and contextualization. So, we have a robust pipeline at this point. Let me just say it's more robust now than it's been over the last 24 months, and we feel good about it.

Operator, Operator

Our next question will come from Steven Fox from Fox Advisors.

Steven Bryant Fox, Analyst

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

Ashish Chand, CEO

Yes, in Q2, our fiber sales accounted for 50% of our total Broadband sales, which aligns with our targets for the year. A significant portion of our fiber sales has come from DOCSIS upgrades and fiber-to-the-home initiatives undertaken by MSOs and telcos. We have a strong presence in that distribution area, while some competitors focus more on trunking routes and larger carriers. Additionally, Precision has greatly assisted us in providing comprehensive end-to-end solutions from Broadband data centers to field devices. We are concentrating on that aspect of the network, and our fiber sales have remained steady. In Q2, we received orders in the Broadband segment related to the DOCSIS rollout, positioning us well for the second half of the year. The book-to-bill ratio in that business was 1.14, indicating a favorable outlook. Our focus does not extend much into the trunking fiber market, which tends to be more cyclical, meaning we do not experience the highs or lows that come with that sector.

Steven Bryant Fox, Analyst

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

Jeremy E. Parks, CFO

Yes. So, you're right, Copper has been extremely volatile over the past 90 days really since the beginning of the year. I think it started maybe close to $4. It got all the way close to $6, and now it's come back down in the mid-4s. We constructed the guidance assuming that copper would be around where it is today. So, you don't need to make any adjustments to our own guidance for this drop in copper that just happened yesterday. That's already incorporated into the numbers. So, this about it flat sequentially from Q2 to Q3.

Steven Bryant Fox, Analyst

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

Jeremy E. Parks, CFO

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

Steven Bryant Fox, Analyst

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

Operator, Operator

And our next question comes from Chris Dankert from Loop Capital Markets.

Christopher M. Dankert, Analyst

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

Jeremy E. Parks, CFO

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

Ashish Chand, CEO

If you look at our trailing 12-month results, including our Q3 guidance, even at the lowest point, we would be setting new records in both revenue and earnings per share. This reflects a balanced outlook. While we acknowledge that there is still some uncertainty in the policy landscape and that some customers are considering the timing of their investment decisions, we remain confident as we move forward.

Christopher M. Dankert, Analyst

It makes sense to revisit the topic of AI exposure. Historically, Belden has had a significant opportunity to assist customers in connecting with their data, which is often dispersed across different locations, as they cannot optimize what is not visible or measurable. Could you talk about the current customer activity in this area? When clients visit the Customer Innovation Centers, how many are discussing their efforts to access that data for AI utilization these days?

Ashish Chand, CEO

Every customer who has reached a certain level of maturity with their digital transformation project is discussing this challenge. You're absolutely right in noting the current conversations around why data is stored in isolated lakes when agentic AI could traverse all of it, query it, and return the most effective answers. However, the real difficulty for many customers lies in collecting real-time data from environments like hospitals or factories and integrating it so that it can be processed effectively on the IT side. This is challenging, which is why data was typically stored in lakes for easier access. Our customers are very interested in this issue. While I'm excited about the AI exposure we demonstrated in our recent case study, it's important to recognize that it's primarily an energy management solution that is relevant in the AI hyperscale context. We are also developing solutions for converged IT and OT use cases, many of which will be relevant for AI data centers, but we hope even more of these will benefit end-users by enhancing their daily operations with AI capabilities. This represents a significant long-term opportunity for Belden, and every customer visiting our CIC is addressing this issue.

Operator, Operator

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

Aaron Reddington, VP of Investor Relations

Thank you, Operator, and thank you, everyone, for joining today's call. If you have any questions, please contact the IR team here at Belden. Our e-mail address is investor.relations@belden.com. Thank you very much. Goodbye.

Operator, Operator

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