Belden Inc. — Q3 2022 Form 10-Q
Business context and period. Belden supplies specialty networking solutions through Enterprise Solutions and Industrial Automation Solutions. The third quarter ended October 2, 2022; the filing also reports the first nine months of fiscal 2022. Comparisons are with the periods ended October 3, 2021.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $670.5 million | $604.8 million | $1,947.4 million | $1,689.3 million |
| Gross profit / margin | $238.6 million / 35.6% | $203.4 million / 33.6% | $669.8 million / 34.4% | $563.9 million / 33.4% |
| Operating income | $129.6 million | $74.7 million | $285.1 million | $194.0 million |
| Income from continuing operations | $103.7 million | $44.0 million | $206.4 million | $118.4 million |
| Net income attributable to Belden stockholders | $98.3 million | $41.3 million | $192.7 million | $113.7 million |
| Diluted EPS | $2.23 | $0.91 | $4.30 | $2.51 |
| Adjusted EBITDA / margin | $118.1 million / 17.6% | $101.3 million / 16.7% | $328.6 million / 16.9% | $270.8 million / 16.0% |
Q3 revenue rose 10.9% and nine-month revenue rose 15.3%. Management attributed growth mainly to higher sales volume and favorable pricing; acquisitions added an estimated $9.0 million and $20.2 million, respectively. Currency translation reduced revenue by $22.0 million in Q3 and $45.7 million over nine months. Q3 adjusted EBITDA margin expanded 90 basis points; nine-month margin expanded 90 basis points.
Segments: Q3 Enterprise Solutions revenue was $319.2 million, up 11.5%, and Segment EBITDA was $46.1 million, up 14.1%. Industrial Automation Solutions revenue was $351.3 million, up 10.1%, and Segment EBITDA was $71.1 million, up 18.5%. Industrial Automation Solutions' EBITDA margin rose to 20.2% from 18.8%; Enterprise Solutions' rose to 14.4% from 14.1%.
Cash, debt, and liquidity
- Nine-month operating cash flow was $78.8 million, versus $101.9 million a year earlier. Capital expenditures were $50.3 million; operating cash flow less capital expenditures was approximately $28.6 million, a simple calculation rather than the company's reported non-GAAP free-cash-flow measure.
- Investing activities provided $223.4 million, including $334.6 million of proceeds primarily from the Tripwire sale and $43.5 million from asset sales. Financing activities used $376.7 million, including $230.6 million of debt repayments and $136.3 million of share repurchases.
- Cash and cash equivalents were $547.5 million at October 2, 2022, down from $641.6 million at December 31, 2021. Current assets were $1,384.6 million and current liabilities $545.5 million; year-end comparison is affected by Tripwire assets and liabilities classified as discontinued operations.
- Long-term debt carrying value was $1,045.3 million, compared with $1,460.0 million at year-end. The company reported $1,058.9 million principal amount of senior subordinated notes outstanding and no Revolver borrowings; available Revolver capacity was $292.9 million.
Material changes, outlook, and risks
- Belden sold Tripwire on February 22, 2022, for $350 million gross cash consideration. It recorded a $9.9 million nine-month after-tax disposal loss, including a Q3 working-capital price adjustment. Tripwire is reported as discontinued operations.
- A U.S. real estate sale generated $42.2 million net proceeds and a $37.9 million pretax gain in Q3 and the nine-month period. The gain materially lifted reported operating income and is excluded from Segment EBITDA.
- Belden repurchased its €200 million 4.125% notes due 2026 and recognized a $6.4 million debt-extinguishment loss. It completed three cash-funded acquisitions for a combined $84.4 million net purchase price and invested $20 million in Litmus Automation.
- Management said it expected operating activities to generate cash in 2022 and believed available liquidity sufficient for working capital, capital expenditures, retirement-plan contributions, repurchases, dividends, and near-term strategies. No specific revenue or earnings guidance is provided in the filing text.
- Management cited exposure to foreign currency, inflation and labor/energy costs, copper and other commodity prices, channel inventory, and changing demand. It said pricing actions and cost controls were being used to address inflation. The filing reported no material change in previously disclosed risk factors and no material change in market-risk exposure since December 31, 2021.
- Routine litigation and environmental/legal contingencies were described as not expected to have a material adverse effect based on information available, though outcomes remain uncertain. A retained guarantee of a former Grass Valley property lease had approximately $15.1 million of payments remaining; Belden would pay only if the primary obligor defaults.
Key facts for investors to verify
- How much of the reported earnings and operating-income growth reflects the $37.9 million real estate gain, and how do underlying operating trends compare with adjusted measures?
- Whether working-capital outflows and lower operating cash flow persist, and how management's stated 2022 cash-generation outlook compares with subsequent results.
- Debt reduction, refinancing needs, euro-denominated debt and currency exposure, and the availability and terms of the Revolver.
- Tripwire disposal adjustments, acquisition integration costs and preliminary purchase-price allocations, and remaining share-repurchase authorization and subsequent repurchases.