Belden Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended April 2, 2023. Belden supplies network infrastructure through its Enterprise Solutions and Industrial Automation Solutions businesses. The comparable 2022 quarter ended April 3 and included 93 days versus 92 days in Q1 2023; 2022 results also included discontinued Tripwire operations through its February 2022 sale.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $641.8 million | $610.4 million | +5.1% |
| Gross profit / margin | $246.1 million / 38.3% | $208.9 million / 34.2% | Margin +410 bps |
| Operating income | $85.5 million | $73.5 million | +16.3% |
| Income from continuing operations | $62.9 million | $44.1 million | +42.7% |
| Net income attributable to Belden | $63.2 million | $35.8 million | +76.3% |
| Diluted EPS | $1.45 | $0.79 | Continuing-operations EPS: $1.45 vs. $0.97 |
| Adjusted EBITDA / margin | $111.5 million / 17.4% | $99.5 million / 16.3% | +12.0%; margin +110 bps |
| Operating cash flow | $(31.9) million | $(58.0) million | Cash use improved $26.1 million |
| Capital expenditures | $13.8 million | $11.0 million | — |
Revenue growth reflected $40.9 million from higher volume and favorable pricing and an estimated $7.9 million from acquisitions, partly offset by lower copper pass-through revenue ($8.6 million) and foreign currency translation ($8.8 million). Gross profit benefited from higher revenue and favorable product mix. SG&A and R&D increased with strategic investments and acquisitions. Net interest expense declined $6.2 million, largely following retirement of the 2026 notes in 2022 and higher interest income. The prior-year comparison included a $6.4 million debt-extinguishment loss and Tripwire discontinued-operation and disposal losses.
Segments
- Enterprise Solutions: Revenue $275.3 million, up 2.6%; Segment EBITDA $37.2 million, up 20.7%; margin 13.5% versus 11.5%.
- Industrial Automation Solutions: Revenue $366.4 million, up 7.2%; Segment EBITDA $73.8 million, up 9.3%; margin 20.1% versus 19.7%.
Both segments cited volume and pricing gains, partly offset by currency translation and lower copper pass-through pricing. Segment EBITDA is a non-GAAP measure.
Liquidity, debt and capital allocation
- Cash and equivalents were $589.0 million at April 2, down from $687.7 million at year-end. Of the quarter-end balance, $183.4 million was held outside the U.S.
- Long-term debt had a balance-sheet carrying value of $1,179.0 million, representing senior subordinated notes due 2027, 2028 and 2031; note principal/carrying amount before unamortized issuance costs was $1,191.4 million. No revolving-credit borrowings were outstanding; available revolver capacity was $291.9 million.
- Q1 cash use included $50.0 million of share repurchases and $2.1 million of dividends. Belden repurchased 0.6 million shares at an average $84.18 per share. After an April 24 authorization increase, remaining repurchase authorization was $315.0 million.
- Operating cash use was driven in part by working-capital outflows, including inventory, accounts payable and accrued liabilities. Investing cash use was $3.8 million, including capex, partly offset by $10.0 million received from a business-disposal escrow. Financing cash use was $63.8 million.
Outlook, risks and notable items
Management expects operating activities to generate cash in 2023 and believes liquidity is sufficient for working capital, capital expenditures, retirement-plan contributions, repurchases, dividends and near-term operating plans. A significant acquisition could require external financing. Management’s stated longer-term goals are organic revenue growth above GDP, approximately 30% incremental Adjusted EBITDA margins, approximately $1 billion cumulative free cash flow from 2022–2025, net leverage of approximately 1.5x, and Adjusted EPS of $8.00 by 2025. These are strategic goals, not specific Q1 or full-year 2023 guidance.
- Key sensitivities include foreign exchange (44% of Q1 revenue was to customers outside the U.S.), inflation, copper and other commodity prices, competitive conditions, customer demand and channel inventory levels.
- Belden retained guarantees on two Grass Valley property leases; following the lessee’s 2022 default, the company recorded an $8.8 million liability against approximately $19 million of remaining fixed payments. The estimate depends partly on expected sublease income.
- Environmental and legal contingency accruals were described as not material. The company said pending litigation was not expected to have a material adverse effect, while noting outcomes remain uncertain. It reported no material changes to previously disclosed risk factors.
- Subsequent events: Belden acquired Sichert on April 17 for approximately $98 million, funded with cash; authorized an additional $300 million of repurchases on April 24; and sold its 51% interest in the Hite joint venture on April 28 for $0.9 million plus potential $0.6 million earnout payments.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether revenue, pricing and volume trends persist, and whether channel inventory or foreign exchange affects subsequent quarters.
- Whether improved margins and earnings translate into positive operating cash flow, given Q1 working-capital cash use and inventory growth.
- Debt maturities, euro-denominated debt and currency-hedge effects, alongside cash deployment for acquisitions and the expanded repurchase authorization.
- Progress and costs integrating acquisitions, including the Sichert acquisition, and realization of management’s longer-term financial goals.
- Changes in the Grass Valley lease-guarantee estimate and any developments in litigation or other contingencies.