Belden Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 4, 2021; the quarter included 94 days, compared with 89 days in the prior-year period. Belden supplies specialty networking products through its Enterprise Solutions and Industrial Solutions segments.
Financial performance
| Metric | Q1 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $536.4 million | $463.5 million | +15.7% |
| Gross profit / margin | $191.3 million / 35.7% | $170.5 million / 36.8% | Profit +12.2%; margin down |
| Operating income / margin | $51.4 million / 9.6% | $29.7 million / 6.4% | +73.2% |
| Continuing-operations income | $28.7 million | $14.9 million | +93.0% |
| Net income attributable to Belden / diluted EPS | $28.7 million / $0.64 | Net loss $11.2 million / $(0.25) | Turned profitable |
| Adjusted EBITDA / margin | $80.1 million / 14.9% | $60.8 million / 13.1% | +31.7%; margin +1.8 points |
| Operating cash flow | $(41.5) million | $(52.1) million | Use of cash narrowed |
| Capital expenditures | $11.2 million | $20.9 million | Lower |
Cash from operations less capital expenditures was approximately negative $52.7 million. Investing activities used $82.3 million, including $72.2 million for the OTN acquisition. Cash and equivalents were $370.9 million at quarter-end, including $0.3 million of cash classified as held for sale; the balance sheet reports cash of $370.6 million.
Long-term debt carrying value was $1.510 billion, comprising $1.526 billion of senior subordinated notes less unamortized issuance costs. The notes are fixed-rate, average interest rate 3.5%, and mature in 2025–2028. There were no Revolver borrowings; $269.2 million of capacity was available under the $400 million facility, which matures May 2022. Belden reported no maintenance covenants on its notes.
Comparisons and business drivers
- Revenue growth reflected higher sales volume (+$35.9 million), copper prices (+$23.8 million), currency translation (+$9.1 million), and acquisitions (+$4.1 million). Industrial Solutions revenue rose 23.4% and segment EBITDA rose 44.6%; Enterprise Solutions revenue rose 6.7% and segment EBITDA rose 13.7%.
- Adjusted EBITDA margin improved with leverage on higher volume. GAAP gross margin declined despite higher gross profit. R&D expense increased 20.1%, while amortization expense fell 38.5%, primarily because certain intangible assets became fully amortized.
- Q1 2020 included a $26.1 million after-tax loss from discontinued operations, including Grass Valley impairment. Grass Valley was sold in July 2020; its results are not included in Q1 2021.
- The prior-year quarter was shorter by five days, and the filing does not quantify the effect of the different quarter lengths on year-over-year growth.
Outlook, commentary, and notable items
- Management expects operating activities to generate cash in 2021 and believes available liquidity can fund working capital, capital expenditures, retirement-plan contributions, dividends, repurchases, and near-term operating strategies. A significant acquisition could require external financing. No specific revenue or earnings guidance was provided.
- The cost-reduction program is expected to reduce annual SG&A by about $60 million; approximately $6 million of incremental costs were expected in 2021. Acquisition integration costs of approximately $2.4 million were also expected in 2021. Q1 restructuring and integration costs were $5.2 million.
- Belden acquired OTN Systems on January 29 for $73.3 million net of cash acquired. OTN contributed $4.1 million of revenue and a $3.4 million pretax loss in the reported period; the preliminary purchase-price allocation includes $39.3 million of goodwill and $33.5 million of intangibles.
- Belden recorded $3.4 million of impairment on an oil-and-gas cable business classified as held for sale and $3.6 million of impairment on other Industrial Solutions assets. It also recorded a $5.8 million benefit after reducing the Opterna earn-out liability to zero.
- Management cited ongoing COVID-19 disruption, foreign-exchange exposure, commodity-price and inflation pressures, and sensitivity to channel inventory. The company said it would seek timely price increases and cost controls to address material-cost inflation.
- Two putative class actions followed a 2020 data incident involving employee and limited business-partner information. Potential exposure was described as premature to estimate. Belden also retained a guarantee on a former subsidiary’s lease, with approximately $21.5 million of payments remaining through 2035; management did not consider a liability probable.
Investor verification priorities
- Assess whether volume-led growth and adjusted EBITDA margin improvement continue, and distinguish underlying performance from copper pricing, currency, acquisition effects, and the longer reporting quarter.
- Track working-capital conversion: Q1 receivables used $50.2 million of cash and inventories increased; reconcile operating cash flow with reported earnings and planned full-year cash generation.
- Review OTN integration, the preliminary purchase-price allocation, and whether acquisition-related costs and expected benefits develop as anticipated.
- Monitor debt refinancing and liquidity ahead of the $400 million Revolver’s May 2022 maturity, alongside the 2025–2028 note maturities and foreign-currency exposure.
- Follow the oil-and-gas business sale, the data-incident litigation, and any developments in the retained lease guarantee or Grass Valley seller’s note. The seller’s note had a reported fair value of $34.9 million and accrued $3.7 million of interest in the quarter, which Belden reserved for under its expected-loss methodology.