Belden Inc. — Q1 2024 Form 10-Q
Business and period. Belden supplies network infrastructure and digitization solutions through Enterprise Solutions and Industrial Automation Solutions. The quarter ended March 31, 2024 and comprised 91 days; the comparable quarter ended April 2, 2023 and comprised 92 days. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Comparable 2023 | Change |
|---|---|---|---|
| Revenue | $535.7m | $641.8m | Down 16.5% |
| Gross profit / margin | $201.6m / 37.6% | $246.1m / 38.3% | Profit down 18.1% |
| Operating income / margin | $53.0m / 9.9% | $85.5m / 13.3% | Down 38.0% |
| Net income attributable to Belden | $37.3m | $63.2m | Down 41.0% |
| Diluted EPS | $0.90 | $1.45 | Down 37.9% |
| Adjusted EBITDA / margin | $84.7m / 15.8% | $111.5m / 17.4% | Down 24.0% |
| Operating cash flow | $2.7m | $(31.9)m | Improved $34.6m |
| Capital expenditures | $24.3m | $13.8m | Up $10.4m |
Gross margin was relatively flat year over year according to management, with favorable pricing and mix offsetting lower volume. Operating cash flow less capital expenditures was approximately negative $21.5m, versus negative $45.7m in the prior-year quarter.
Segments and principal changes
- Enterprise Solutions: Revenue was $234.1m, down 15.0%; Segment EBITDA was $25.8m, down 30.7%, with an 11.0% margin versus 13.5%. Lower volume, copper pricing and currency effects were partly offset by acquisitions and productivity initiatives.
- Industrial Automation Solutions: Revenue was $301.6m, down 17.7%; Segment EBITDA was $58.7m, down 20.4%, with a 19.5% margin versus 20.1%. Lower volume was the main revenue driver; favorable mix partly offset the EBITDA decline.
- Consolidated revenue fell $106.1m. Management attributed the decline principally to lower sales volume ($110.8m); copper pass-through pricing and currency were also unfavorable, while acquisitions net of divestitures contributed an estimated $7.3m.
- SG&A declined 8.9%, primarily from productivity initiatives and lower incentive compensation. R&D declined 8.1%, partly due to project timing; intangible amortization increased 12.5%, primarily due to acquisitions.
Cash, debt and capital allocation
- Cash and cash equivalents were $506.8m at March 31, down from $597.0m at year-end. Cash declined $90.2m during the quarter, including $64.9m used in financing and $24.2m used in investing.
- Long-term debt carrying value was $1,180.1m, comprising euro-denominated senior subordinated notes due 2027, 2028 and 2031. Approximate net debt using reported cash was $673.3m. No revolver borrowings were outstanding; available capacity was $292.6m under the $300m facility, which matures in 2026.
- Belden repurchased 0.7m shares for $57.9m at an average $85.66 per share; $115m remained authorized. The quarterly dividend declared was $0.05 per share.
- Working-capital changes supported the year-over-year operating cash flow improvement, while accounts payable and accrued liabilities were cash uses in the quarter.
Outlook, risks and notable items
- Management expects operating activities to generate cash in 2024 and believes available liquidity is sufficient for current needs, planned capital expenditures, retirement-plan contributions, repurchases and dividends. A significant acquisition may require external financing.
- Longer-term company goals include organic revenue growth above GDP, approximately 30% incremental Adjusted EBITDA margins, $1bn cumulative free cash flow from 2022 through 2025, net leverage of approximately 1.5x, and Adjusted EPS of at least $8.00 by 2025. These are stated goals, not quarterly guidance.
- On April 30, 2024, Belden agreed to acquire Precision Optical Technologies for approximately $290m in cash; closing was expected by the end of Q2 2024. The transaction is subsequent to the reporting period.
- Risks highlighted include foreign-exchange exposure (44% of quarterly revenue was to customers outside the U.S.), inflation and commodity-price changes, customer demand and channel inventory levels. The company said risk factors were not materially changed from its 2023 Form 10-K.
- Routine litigation and environmental contingencies were described as not material based on current estimates; management cautioned litigation outcomes are uncertain. Belden also retained guarantees on certain former Grass Valley property leases: approximately $21m of remaining base rent and an $11m liability at quarter-end.
- Q1 included $4.2m of severance, restructuring and acquisition-integration costs. Management reported no material impact from newly effective accounting standards and no material change in market-risk exposure.
Facts for investors to verify
- Whether revenue and segment profitability stabilize after the significant volume-driven declines, and how channel inventory and end-market demand develop.
- Whether productivity, pricing and mix can sustain margins despite lower sales, and how the $4.2m of restructuring and integration costs evolve.
- Cash conversion and capital spending, including progress toward the cumulative free-cash-flow goal and the stated net-leverage target.
- Funding, closing conditions and expected financial contribution of the proposed $290m Precision Optical acquisition.
- Debt maturities, revolver availability, foreign-currency exposure and the assumptions supporting the retained lease-guarantee liability.