BDC

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden's Reports First Quarter 2026 Results. Just a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the call over to Aaron Reddington. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for Belden's First Quarter 2026 Earnings Conference Call. With me today are Belden's President and CEO, Ashish Chand; and Executive Vice President and CFO, Jeremy Parks. Ashish will provide an overview of our first quarter results before turning to a discussion on today's announcement that Belden has entered into a definitive agreement to acquire Ruckus Networks from Vistance Networks. Jeremy will discuss the financing aspects of the transaction and our immediate delivering plans. We issued press releases related to our earnings and this transaction announcement earlier this morning and have prepared slide decks for both announcements. These materials and a transcript of our prepared remarks are currently available online at investor.belden.com. Please note that the presentation used during today's call is the transaction announcement presentation. The regular earnings presentation is loaded to our website for your reference. 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 releases 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. And now to Ashish.

Thank you, Aaron, and good morning, everyone. This is a significant day for Belden, and we appreciate you joining us. Today, we announced an important step in our solutions journey, an agreement to acquire Ruckus Networks, a market-leading provider of Wi-Fi and enterprise switching solutions. This transaction directly accelerates our evolution into a full stack IT/OT networking solutions provider. Ruckus brings industry-leading wireless and switching technology that our customers in hospitality, education and health care are actively demanding and that we soon will be empowered to deliver as part of a complete end-to-end networking solution. Equally important, these same capabilities create a compelling opportunity to bring high-performance wireless and switching to our industrial customers who are increasingly looking to converge their IT and OT environments. Together, Belden and Ruckus will offer something no single competitor can match, a complete active and passive networking solution spanning the industrial edge to the enterprise campus. We're excited about what this means for our customers, our partners and our shareholders, and we look forward to sharing more details on the transaction today. Before we do that, let me cover the highlights of our first quarter results on Slide 4. In short, we had a strong start to the year in the first quarter. Our team executed well, and we continue to build on our momentum with healthy year-over-year organic growth in key verticals. For the first quarter, both revenue and adjusted earnings per share exceeded the high end of our guidance range. Revenue totaled $696 million, up 11% compared to the prior year, and adjusted EPS came in at $1.77, also up 11% compared to the prior year, demonstrating the earnings power of our growing solutions portfolio. Revenue for the quarter increased 7% organically year-over-year with growth across all our markets in major regions. The Americas were particularly strong with the U.S. up high single digits year-over-year. Across our market categories, automation delivered solid mid-single-digit organic growth with broad-based gains in key verticals, including discrete and energy. Smart buildings grew double digits organically, propelled by momentum in our priority verticals and accelerating solution adoption. Broadband rounded out the quarter with mid-single-digit organic growth during a seasonally slower period. Our profitability continues to strengthen. Adjusted EBITDA was $118 million, up 14% year-over-year, and adjusted EBITDA margins expanded 40 basis points to 17%, reflecting our growing solutions mix and continued operational leverage across the business. As we discussed last quarter, we continue to pass through copper and tariff-related costs, which modestly diluted our reported margin percentages. Excluding these pass-throughs, adjusted gross margins were flat and adjusted EBITDA margins expanded approximately 100 basis points year-over-year. Incremental EBITDA margins once again aligned with our target range, underscoring the operating leverage in our model. At the same time, we are continuing to invest in the foundation of the business, putting capital into capacity, footprint optimization and our back-end systems to scale solutions delivery and support long-term growth. Turning briefly to guidance. Assuming a continuation of current market conditions, we expect second quarter revenue of $735 million to $750 million, GAAP EPS of $1.53 to $1.63 and adjusted EPS of $1.95 to $2.05. Underlying demand signals remain encouraging, though near-term visibility is limited and the macro environment remains fluid. Our outlook reflects a balanced, measured view consistent with typical seasonal patterns. This guidance is provided on a stand-alone basis and excludes any contribution from the proposed Ruckus acquisition. Taken together, these results reflect the momentum in our solution strategy. Customer demand for integrated IT and OT networking solutions is accelerating, and we are well positioned to capture that opportunity. This was another quarter of consistent execution, reinforcing our confidence in our outlook and long-term strategy. Turning to Slide 5. I want to take a moment to reflect on the journey that has brought us to today's announcement because context here is important. When we began our solutions transformation early in 2020, we made a clear commitment to investors that we would systematically transform Belden from a product-centric company into a solutions-driven provider of integrated networking infrastructure, and we would do it in a measured, disciplined way that created lasting value for our shareholders. The results speak for themselves across four clear objectives. First, we said we would deliver consistent financial results with healthy growth, and we have. Since 2019, we have grown revenue at a 5% CAGR to a record $2.7 billion in 2025. At the same time, we grew adjusted EPS at a 12% CAGR to a record $7.54 in 2025. Second, we said we would advance our solutions offerings to transform the business. Solutions reached 15% of total revenue in 2025, on track to achieve and even exceed our 2028 target, a target that today's announcement accelerates meaningfully. Third, we said we would expand profitability while continuing to invest in growth. Adjusted EBITDA margins continue to expand with incremental margins consistently in the 25% to 30% range, demonstrating the operating leverage embedded in our business model. And fourth, we said we will deploy capital with discipline and purpose. Throughout this journey, we have repurchased over $700 million of outstanding shares while simultaneously executing multiple strategic acquisitions to build out our solutions portfolio. Each of these steps has been deliberate and interconnected. The solutions mix growth drives margin expansion. Margin expansion generates cash flow. The cash flow enables disciplined capital deployment. And finally, capital deployment, including today's announcement, further accelerates the transformation. This is what executing on a multiyear solution strategy looks like. And today's announcement is a logical next step as we look to strengthen our solutions offerings with active products that have a strong market presence in our priority enterprise verticals. Now please turn to Slide 6. Before I walk through the details of the Ruckus transaction, I want to be clear about something important. Our strategy has not changed. What you see on the slide is exactly what we committed to on our last Investor Day, and it is exactly what we are executing against today. Four pillars: growing our portfolio of best-in-class networking and data products, advancing our solutions capabilities, enhancing growth with selective M&A and delivering long-term earnings and free cash flow growth. Each of these is progressing. Our product portfolio continues to strengthen. We are seeing increasing adoption of our integrated offerings and our solutions pipeline is growing as customers look for more comprehensive end-to-end capabilities. Our margin profile remains solid, supported by favorable mix and continued operating leverage even as we invest in innovation and go-to-market capabilities. And on Pillar three, selective M&A. This morning's announcement is a direct and deliberate expression of that commitment. As we've shared previously, our M&A pipeline has been focused on closing key gaps in our technology stack that strengthens our solutions offerings, including wireless capabilities, expanding access to customers pursuing IT/OT convergence and enhancing our software platform. Ruckus advances all three. The Ruckus acquisition is not a departure from our strategy. It is our strategy executed at scale. It fills a critical gap in wireless and enterprise switching capabilities, expands our addressable market and accelerates our ability to deliver the end-to-end IT solutions our customers are asking for. Taken together, these four pillars reinforce that our transformation is on track, our execution is consistent and that we are building a stronger, more durable business. With that foundation in mind, let me now turn to the details of the Ruckus transaction. Now please turn to Slide 8. This morning, we announced that we are acquiring Ruckus Networks from Vistance's Networks for approximately $1.85 billion in cash. Simply put, this is a pivotal acquisition for Belden and is a major step towards building the most complete IT-OE networking platform in the market. Ruckus Networks is a market leader in enterprise Wi-Fi and switching with 48,000 customers globally across many of our existing target verticals. Ruckus immediately strengthens our financial profile and puts us on a trajectory to exceed our 2028 solutions mix target. The combination creates a unified platform that is well positioned to take advantage of customer demands as IT and OT continue to converge. Now on to Slide 9. Ruckus is a market leader, and that leadership is what drew us to them. Their technology portfolio is best-in-class, first to market with enterprise Wi-Fi 7, a leading enterprise switching portfolio and unified wired and wireless management offerings. These are not incremental capabilities. They are differentiated and they're exactly what our customers are asking for. Their vertical presence is equally compelling. Hospitality, education, health care, warehousing and manufacturing are also core Belden verticals and align nicely with our existing footprint. Ruckus has deep roots with 48,000 customers globally and strong channel partnerships built over many years. That installed base represents an enormous opportunity for Belden. And the financial profile speaks for itself. $687 million in revenue last year with gross margins above 60%. That is immediately and structurally accretive to Belden's margin profile and earnings power. Finally, Ruckus has a strong experienced team of over 1,700 employees. I've gotten to know their leadership well, and I look forward to combining our teams to deliver an even more compelling offering for our customers. Turning to Slide 10. The most powerful long-term driver of this transaction is IT/OT convergence. Today, customers increasingly operate in environments where enterprise and industrial networks must seamlessly work together, and they are looking for partners who can deliver across both worlds. The combination of Belden and Ruckus positions us to do exactly that, creating value in several important ways. First, Ruckus is a significant growth catalyst that meaningfully expands our addressable market. Their industry-leading Wi-Fi and enterprise switching strengthen our solutions momentum across priority enterprise verticals, including hospitality, education and health care, whilst bringing world-class active networking in markets where Belden already has deep customer relationships and trusted brand presence. Second, it extends Ruckus' high-performance platform into our industrial base where demand for converged IT and OD connectivity, including edge capabilities and the enablement of physical AI at scale is accelerating rapidly. And finally, it creates an immediately compelling financial profile with accretion to gross margins, EBITDA margins and adjusted EPS, a meaningful step-up that advances our progress against our long-term financial framework. Please turn to Slide 11. And I want to spend a moment here because this slide tells you exactly why we believe this is the right transaction. At a high level, the two product portfolios are highly complementary. -- where Belden is strong, passive infrastructure, OT wireless and industrial switching, Ruckus has minimal presence. And where Ruckus leads in enterprise wireless and enterprise switching, we have been actively looking for complementary capabilities to round out our portfolio. This is not an overlap story. It is a completion story. Our customers in hospitality, health care and education have been clear about what they need, a single trusted partner capable of delivering both the physical infrastructure and the high-performance wireless and switching layer on top of it. Ruckus gives us exactly that capability. Their Wi-Fi and enterprise switching platform is purpose-built for these high-density mission-critical environments, and it maps directly to the customers we've been working to win. The opportunity runs in both directions. Ruckus' technology can also be extended into our extensive industrial customer base, customers who are actively converging their IT/OT environments and need exactly this kind of high-performance wireless capability. Combined, we deliver a complete higher-value end-to-end active networking solution spanning enterprise campuses, high-density public venues and industrial facilities. Now turning to Slide 12. Why Ruckus and why now? The answer starts with Ruckus itself. As of deliberate investment in sales, technology and go-to-market are now translating into accelerating commercial momentum. Their Wi-Fi leadership positions them at the forefront of a multiyear upgrade cycle across both enterprise and industrial environments. And their AI-driven cloud networking capabilities are increasingly what customers demand. Ruckus is at an inflection point, and we intend to capture it. The strategic fit is equally compelling. Customers today require secure, interoperable solutions that span both IT and OT environments. Together, Belden and Ruckus deliver exactly that, a complete wired, wireless and software networking solution. As the economics are attractive, we are acquiring a high-growth, high-margin asset at a disciplined entry point, and Jeremy will walk through the financial details in a moment. We are excited about the significant growth opportunity this acquisition provides us with and look forward to closing the transaction in the second half of the year. With that, I'll turn it over to Jeremy to provide insight into the financial aspects of the transaction.

Thanks, Ashish. Turning to Slide 14. This is a disciplined and financially compelling transaction. We are acquiring Ruckus for approximately $1.85 billion in cash, representing 13x projected 2026 adjusted EBITDA. This is an attractive entry point given the company's growth profile and margin structure. Ruckus operates with gross margins of approximately 60%, which are significantly higher than Belden's current margins, reflecting their highly differentiated active product portfolio. This provides an immediate uplift to our consolidated margin profile. The transaction accelerates growth, expands margins and is accretive to adjusted EPS immediately following close. We will share additional details on our expectations at a later date. To finance the acquisition, Belden has obtained fully committed debt financing from JPMorgan, which provides flexibility to optimize our permanent capital structure between signing and closing based upon market conditions. This transaction has been approved by both Boards of Directors. And as Ashish mentioned, we expect to close in the second half of 2026, subject to customary closing conditions and regulatory approvals. Finally, I want to be clear about our capital allocation priorities post close. Delivering will be our top priority. We have a clear path to rapid reduction in our leverage, which I will walk through when we get to Slide 16. Turning to Slide 15. The strategic and financial impact of this transaction is significant. And most importantly, it is a leap forward in our solutions transformation. Together, Belden and RUCKUS will deliver high-value differentiated solutions that strengthen our existing offerings and meaningfully expand our addressable market. On a 2025 pro forma basis, RUCKUS represents approximately 20% of combined revenue and importantly, takes our solutions mix from 15% to over 20% of the business, accelerating our progress against our 2028 solutions mix target. Financially, Ruckus brings a high-quality profile to the combined company with high single-digit revenue growth, gross margins above 60% and EBITDA margins of 20% in the first full year of ownership, each meaningfully above Belden's current profile. As a result, the transaction is expected to be immediately accretive to earnings per share. The combination is a stronger, more differentiated solutions platform that meaningfully strengthens our financial profile. Now let's discuss the financing behind this transaction and our plan to deliver with Slide 16. As I mentioned earlier, our debt financing is fully committed by JPMorgan. We have a clear and well-defined path to bringing net leverage to approximately 2.9x by year-end 2027 and back to our long-term target of approximately 1.5x by year-end 2029, as illustrated in the chart at the bottom of the slide. That path starts with a strong cash generation profile. The combined business will have an adjusted EBITDA base of approximately $650 million, complemented by Ruckus' low capital intensity, which maximizes free cash flow conversion. Together, these drive a pro forma unlevered free cash flow base of more than $360 million, providing substantial capacity to pay down debt quickly. As we prioritize delevering, we intend to temporarily pause both share repurchases and strategic M&A until leverage returns closer to our long-term target. Throughout this period, our priorities are clear: disciplined execution of our combined business, continued investment in organic growth and rapid delevering to return to our long-term target capital structure. With that, I'll turn the call back to Ashish for closing remarks.

Thank you, Jeremy. To summarize, we are highly confident in this transaction and the way it accelerates Belden's evolution into a full stack ITOE networking solutions provider across our target verticals and industries. We have strong conviction in our capability to successfully integrate Ruckus into our portfolio and believe that this transaction will create lasting value for our shareholders. I would like to thank the leadership teams at Vistance and Ruckus for their partnership throughout this process. Ruckus' people are central to the value of this business, and we are excited about what we can build together. I look forward to welcoming their more than 1,700 talented employees to the Belden family. Before we open the line for Q&A, I want to thank our entire team for their hard work and dedication to improving Belden every day. Today's announcement would not have been possible without their commitment to our solutions transformation and their continued execution at the highest level. Thank you all for joining us today. We appreciate your continued interest in Belden. With that, operator, please open the line for questions.

[Operator Instructions] We'll take our first question from Rob Jamieson with Vertical Research Partners.

Congrats on the quarter and the acquisition. So I just want to start on RUCKUS. I mean this is -- sounds like a very highly complementary acquisition that's clearly going to help your acceleration on the Enterprise Solutions side. I just wondered if you could expand a bit more on how this aligns with the solution strategy a bit more. What does this bring to the portfolio? I guess more importantly, like what are some of the secular growth opportunities this will enable you to capture in like the near and medium term?

Sure. And you're right, Rob. It certainly accelerates our strategy in terms of the enterprise markets, but I think it's equally compelling on the industrial side or the overall automation side. So -- the way to think about this is that we have made our vision really to provide our customers with the most comprehensive network solutions that can take them all the way from basic digitization all the way to autonomy, right? And it's digitization followed by harmonization, followed by convergence and then you get to autonomy. And convergence actually has a few aspects. So there's obviously the IT/OT convergence we talk about, which is the kind of big theme. But within that, there is a wired wireless convergence and there's also embedded security. And I think today's announcement really positions us to be a leader in terms of that IT/OT convergence plus the wired wireless aspect of it. So it's a fairly comprehensive solution. I don't think there's really anybody else in the market that has that full stack, the way we do. Obviously, the vertical markets Ruckus focuses on and Belden focuses on are complementary. So that's another -- it kind of -- it makes it more complete. And when you think about it from a customer's perspective, they are really looking for one single -- I'm going to say a single pane of glass, but one single system all the way from the industrial edge to their, let's say, IT data center. And I think that's the opportunity, right? It's really taking Belden to a different level in those conversations. And finally, it's the simplification. A lot of our customers don't have the expertise to deal with this complexity that comes from more velocity, variety and volume of data across many different types of pieces of the network. So getting it all together makes it simple, reduces total cost of ownership. So multiple, multiple reasons why this comprehensive IDOD strategy will work for us.

Perfect. That's very helpful. And then just as a follow-up, I know that this is going to accelerate the solutions-based mix. But where should we think about solutions as a percentage of total mix trending in the medium term? Is that going to be closer to like 30% as you look further out? And then also just on the slide of the software exposures here. Can you talk a bit about how and what RUCKUS brings from the software side and how that might align with or enhance the Horizon software platform?

Yes. So on the first question, Rob, we'd articulated a goal of over 20% by 2028 in terms of solutions mix. We were already -- even pre-Ruckus, we were already on track to get there. As you know, we did 15% in 2025. I think in the medium term, it's more the 30-ish percent number that you mentioned. I think that's the right framework to keep in mind. That's what gets us excited about this opportunity, especially. And then in terms of the software, so I think there are 3 aspects of what is going on there. Let me start with the one that's the most exciting. So if you think about traditional Wi-Fi 6, which is more based on RF technology, as you get to more Wi-Fi 7, Wi-Fi 8, this has to become -- the technology has to become more deterministic and you need AI optimization really to make that happen. Otherwise, it's just too complex. So Ruckus is pretty advanced in terms of how they are working on that entire capability. And that's something we didn't have previously, right? So we had wireless products, but not with that level of AI-driven complexity. So that's an important addition to us. Second, Ruckus has a single Belden Horizon-like approach with their kind of software platform that does unified wired and wireless management. I think this is a great opportunity for us to combine that platform at some point with Belden Horizon. Horizon has certain vertical-specific capabilities. Ruckus is kind of more horizontally simplified. And I think there's -- there are positives and negatives that both will -- they'll cancel each other out and become more powerful. And then Ruckus obviously also has an offering which is more of a Network as a Service offering. And that's also something that Belden has started at a very basic level. I think Ruckus is at a more advanced stage here. It has more exposure to those IT vertical markets that demand it. So that's the third aspect of software that will come out of this transaction.

We'll take our next question from William Stein with Truist Securities.

Ashish, I'm hoping you can talk a bit about the origin of this transaction relative to other ones. Is this sort of a sales or banking-led transaction? Or -- yes, let me just ask it in sort of an open-ended way. What was the origin of the transaction?

Will, we've admired Ruckus for some time. As you know, we've talked about 3 areas where we need to build capability. One is edge, one is wireless and one is cybersecurity. And in that framework, we've always had a well-developed funnel. We've -- we've liked Ruckus for quite some time. This actually did not originate through a bank process. Really, this is something that at the right time, there was a mutual discussion. I obviously don't want to go into too much detail here in terms of specifics. But really, we saw the benefits of how this can become a big complementary acquisition for us. At the same time, the leadership at Vistance realized that Belden would be a good home. And I think that conversation progressed very well, matured in a relatively short period of time, and then we started this process. So I think it was more a mutual understanding of what we can bring for each other rather than anything else.

Okay. As a follow-up, I'm wondering, I would expect that Ruckus might have been a customer of your, let's say, the more passive elements of your portfolio. And then by extension, I would assume that Ruckus' competitors are also customers. Is that correct? And does that create -- I don't know if I want to say channel conflict, but some sort of conflict with customers as we consider the competitors to Ruckus? Or do I -- maybe I misunderstand. Any clarity you can provide on that would help.

No, Ruckus, if you think of Ruckus' core offerings, it's enterprise switching and wireless systems and of course, the software portfolio that covers all of that. Ruckus is not actually buying anything from Belden. Now it's possible that some of Ruckus' installers when they deploy Ruckus products and solutions in the field, they may sit on some Belden passive networks. But frankly, that's a choice that changes project to project based on the systems integrator and installers. So no, there isn't really any conflict will hear in terms of Ruckus' competitors buying Belden products. If you think about Ruckus' competitors today, they actually do not -- I mean, I know this fact. We don't actually trade with them. But of course, they are in the industry. We sometimes work together on standards bodies. We collaborate on certain other things. But we also compete in some -- at some points in time because we have wireless in our industrial portfolio from the legacy Belden side. So it's pretty clean from that perspective, Will.

[Operator Instructions] We'll take our next question from Mark Delaney with Goldman Sachs.

CommScope previously owned RUCKUS and CommScope also historically had a presence in markets, including structured cabling as well as broadband. So I'm hop to understand if there are synergies available to Belden that weren't there for CommScope or more broadly, why you think the portfolio will perform better with Belden than it did in the past with CommScope before they sold some of their business lines to Amphenol. I think I guess similar to Slide 11 in the deck and some of your prepared comments, but if you could speak more on this topic, it would be helpful.

Mark, that is an interesting question. I think it's got more to do with the maturation of the market and the trends that are emerging now, especially with the more complex demands of Wi-Fi 7, Wi-Fi 8, physical AI and how all of that will manifest, frankly. I think if you think about the CCS division of CommScope which is focused on structured cabling and broadband, they might have had some overlap with Ruckus in terms of end customers or there were very different buying processes at play 3 to 5 years ago and opportunities for synergy were limited from that perspective. I think what we've seen in the last 3 to 5 years is a lot more convergence. And I think it's accelerated significantly over the last, let's say, 18 to 24 months because of the whole idea that customers want to go towards autonomy and they need converged networks for that. So really, this is a more kind of recent phenomenon. That's one. I think the second thing is you might be right to some extent in that Belden had invested in the solutions selling approach maybe a little sooner than some of our competitors in the basic networking or passive networking area. So to that extent, maybe we are better positioned to benefit from the complementarity of this acquisition. So I think it's more market-driven, frankly, versus any specific capability or inherent weakness that CCS had.

My other question was just on the existing Belden business. You mentioned positive underlying demand signals, but also somewhat limited visibility. I think your guidance is for relatively typical seasonality as you characterized it. So maybe if you could just speak a little bit more on the demand signals you're seeing in the current business and on balance, if it's strengthened or weakened over the last 90 days.

Mark, this is Jeremy. Yes, you're right. I think that we're forecasting or guiding a quarter that looks a lot like Q1 just with typical seasonality. As you know, we're a relatively short-cycle business. But in general, I think the trends in each of our businesses have been positive up to this point. I mean industrial seems like it keeps getting stronger. PMIs continue to go in the right direction. So I think from an end market standpoint, industrial is relatively healthy. Smart buildings has been doing fairly well. That's been growing now for the last 5 quarters or so organically at a pretty decent pace. It was up double digits year-over-year in the first quarter. And I would expect them to have a pretty good second quarter. And I think broadband will improve as we move throughout the year. So I think broadband will grow as well. I think the good thing is all 3 businesses were up at least mid-single digits organically in the first quarter. And I would expect things to kind of move along at that same pace in the in the second quarter. I think we're obviously always trying to be a little bit cautious when there's so much volatility in the macro environment. But I would say, as we sit here today, we feel good about the second quarter.

And we'll go back to William Stein from Truist Securities.

I'm hoping you can give us any update on your exposure to AI infrastructure demand. A few quarters ago, this was an area that you spoke about with maybe one hyperscaler, one instance of their data center. And we've been hoping to hear about landing elsewhere and expanding in the place you are. So, hoping you can update us on that. And then along with that, any comments as to whether this acquisition would potentially improve your prospects in that end market?

Yes. So, Will, we do see AI data centers as one of our top growth opportunities over the next few years, but of course, along with physical AI. So, I think of both of those as connected. They're not necessarily connected in terms of the sales process. But as you get more AI data center capacity, it enables eventually more physical AI in the field. So, what is FLIR -- so by the way, before I go into that, our AI data center business, it had good growth this quarter too. I think we were up -- data centers as a category was up double digits. So, it's been coming along pretty well. Our customers keep talking about the need for converged solutions in AI data centers. They don't want to focus on buying pieces and pulling them together. They want us to do that. This is, by the way, one of the reasons why we have integrated with OptiCool. You might have seen that announcement because that brings advanced cooling straight to the rack to support AI workloads. So we are approaching AI data centers with that converged offering. We haven't really focused on just supplying passive networks by competing on price. Those conversations take a little longer. You're really getting into the full build -- design and build cycle there. And we've had -- apart from that one big win we talked about, we've had consistently midsized wins every quarter. So it's a very, very consistent flow. And then, of course, linked to that will is the whole physical AI opportunity. And this is very exciting. I mean, as you know, at a very -- just as a summary reminder, we do enable closed-loop physical AI systems in collaboration with companies like Accenture, NVIDIA and other select OT technologies where we combine vision, digital twins, some real-time orchestration, et cetera. We talked about the security -- sorry, the safety fence example from the automotive customer. And we are very focused on delivering the full deterministic fully secured network, which will deliver the low latency time synchronized connectivity. So that's the focus. And there, we are doing a number of pilots right now. So very exciting. A lot of our customers want solutions that will integrate cameras, edge computing, software AI platforms, industrial connect and we've gone forward with a number of companies. Many of them, by the way, in the U.S. focused on bringing manufacturing back. But those pilots are underway right now. And I think between physical AI and the AI data center opportunity, we will see this emerging as one of our top growth opportunities, if not the top one.

And we'll go next back to Mark Delaney with Goldman Sachs.

On RUCKUS, are you able to share a bit more on the end market exposure specifically for that business? I imagine a lot of it is what would be considered enterprise for Belden. But I'm curious to what extent they're also selling into factories and industrial markets? And to what extent there may be an opportunity for Belden to accelerate the growth of the RUCKUS portfolio into industrial and factory settings.

Yes. Mark, so from a vertical market standpoint, you're right. RUCKUS is mostly or primarily focused on enterprise segments. So hospitality, education, those are the 2 biggest verticals, but they sell into a lot of other enterprise verticals as well. They do have some exposure today into what we would consider industrial markets, primarily into automated warehouses and material handling, where we also play today, but that's the only area of overlap. So I think from our perspective, there's actually a lot of opportunity to bring their products into some of our legacy industrial markets and then obviously, to combine their products with some of our passives on the enterprise side.

So, if I can add to that, the short- to medium-term opportunity we see here, Mark, is in discrete manufacturing. At this point in time, as you may know, the majority of data, machine data is transmitted in a wireline format and not wirelessly. But that is expected to take over in the next 3 to 5 years to become more 50-50 and then the majority might move wirelessly. So, a lot of our discrete customers are planning for that change, and they need advice. Right now, they struggle because they don't actually have a company that they can go to for that comprehensive blueprint, which they will need in the next 2, 3 years. So that's the opportunity mainly. So apart from material handling, we see this expanding rapidly into discrete.

Helpful. And then just circling back to the existing Belden business. Maybe you can clarify how much revenue exposure you think Belden has via distribution network to the Middle East and if that's something you try to factor into your outlook. You imagine given the uncertainty there that, that was part of the thought process with guidance, but if you could be a little bit more specific around your exposure and what's included in guidance relative to that region?

Yes, Mark. So our Middle East exposure is relatively small. It's less than 5% of our total revenue. It's primarily in the enterprise side of the business, smart buildings, where we're selling into UAE and a few other countries. I think from our perspective, we've got that business roughly flat sequentially and not significant growth built into the guidance. So I don't view it as a significant risk for second quarter, just given the size of that business. And up to this point, by the way, it's kind of held up. So it's been okay.

Understood. And then just lastly on supply chain. It's been a difficult area for companies globally to manage, especially with certain semiconductor chips and memory. I'm curious if you could speak a bit more to Belden's ability to get the materials that needs to support the business and your confidence in passing on any higher costs and sustaining the margin objectives.

Yes. I think our -- our view is that we'll continue to pass on inflation to the extent it's real true market inflation. I think we've been successful doing that over the past several years. Our exposure is more so on some of the commodities, metals and plastics and things like that, oil-based compounds. But obviously, we do have electronic components. And I think we've been successful passing those on as well. The legacy Belden business does not really have much exposure to some of these memory price increases. So it's not been a major issue for us up to this point. But yes, for sure, to the extent that prices on chips and circuit boards and other components have gone up, we've been able to recover that in price and our expectation is that we'll continue to do so in the future.

And that does end our question-and-answer session. I would now like to turn the call back over to Aaron Reddington. Please go ahead.

Yes. Thank you, operator, and thank you, everyone, for joining today's call. If you have any further questions, please contact the IR team at Belden. Our e-mail address is [email protected]. Thank you very much. Thank you, ladies and gentlemen, and this does conclude our call for today. You may now disconnect from the call, and thank you for participating.