Belden Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Belden supplies network infrastructure and digitization solutions through Enterprise Solutions and Industrial Automation Solutions. This unaudited filing covers the quarter ended October 1, 2023 and the first nine months of fiscal 2023; comparable periods ended October 2, 2022. The nine-month periods included 274 and 275 days, respectively.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $626.8m | $670.5m | $1,960.8m | $1,947.4m |
| Gross profit | $241.2m | $238.6m | $748.6m | $669.8m |
| Operating income | $95.4m | $129.6m | $273.6m | $285.1m |
| Income from continuing operations | $72.3m | $103.7m | $204.0m | $206.4m |
| Diluted EPS from continuing operations | $1.70 | $2.35 | $4.74 | $4.60 |
| Adjusted EBITDA, a non-GAAP measure | $115.2m | $118.1m | $349.8m | $328.6m |
Margins. Gross margin was 38.5% in Q3 and 38.2% year to date, up from 35.6% and 34.4%. Adjusted EBITDA margin was 18.4% and 17.8%, compared with 17.6% and 16.9%. Management attributed margin improvement primarily to favorable product mix and pricing.
Cash flow and liquidity. Operating cash flow for the first nine months was $160.0m, up from $78.8m, including a reported $55.8m improvement in operating assets and liabilities. Investing activities used $145.5m, including $106.7m for acquisitions and $61.9m of capital expenditures; financing activities used $167.4m, including $150.0m of share repurchases. Cash was $531.0m at October 1, 2023, down from $687.7m at year-end 2022; $237.6m was held outside the U.S. Current assets were $1,412.3m and current liabilities $553.2m.
Debt. Long-term debt carrying value was $1,145.8m, comprising senior subordinated notes with $1,157.1m carrying value before unamortized issuance costs. The company had no revolving-credit borrowings and reported $291.9m available under its $300m facility, maturing in 2026. Cash less debt carrying value was approximately $625m. Management said expected operating cash generation and available liquidity were sufficient for current needs; significant acquisitions could require external financing.
Material changes versus comparable periods
- Q3 revenue fell 6.5%, primarily reflecting a $60.1m decline attributed to sales volume. Nine-month revenue rose 0.7%; reported contributors included volume and acquisitions, partly offset by lower copper pass-through pricing and currency translation.
- Enterprise Solutions revenue fell 11.1% in Q3 and 2.6% year to date. Industrial Automation Solutions revenue fell 2.4% in Q3 but rose 3.5% year to date; its segment EBITDA increased 8.7% and 11.1%, respectively, with margins expanding to 22.5% and 21.1%.
- Q3 operating income declined 26.4%, despite higher gross profit, partly because the prior-year quarter included a $37.9m property-sale gain versus $12.1m in 2023. Year-to-date operating income declined 4.0%. Interest expense was lower, reflecting the 2022 retirement of notes and higher interest income.
- Year-to-date continuing-operations income was slightly lower, while reported net income increased to $204.0m from $192.8m; the prior-year figure included discontinued-operation and disposal losses.
Outlook, commentary, risks and unusual items
- Management’s stated longer-term goals include organic revenue growth above GDP, approximately 30% incremental Adjusted EBITDA margins, about $1bn cumulative free cash flow from 2022–2025, net leverage around 1.5x, and Adjusted EPS of at least $8.00 by 2025. These are goals, not a specific Q4 or full-year 2023 forecast.
- Management cited foreign-exchange exposure, inflation and labor/energy costs, copper and other commodity prices, channel-partner inventory levels, customer demand and competitive conditions as factors that can affect results. Approximately 46% of Q3 revenue was to customers outside the U.S.
- Unusual items included a $12.1m pretax gain from a Canadian property sale-leaseback; acquisition integration and restructuring costs; the acquisitions of Sichert ($97.5m net cash consideration) and CloudRail ($9.2m); and the sale of Belden’s 51% interest in Hite for $0.9m, with up to $0.6m of potential earnout payments.
- Environmental and legal contingency liabilities were described as not material; management did not expect pending claims to materially affect financial position, results or cash flow, while noting litigation outcomes are uncertain. The company also retained guarantees on Grass Valley property leases; after defaults on two leases, it recorded a $7.4m liability for expected future payments, dependent in part on estimated sublease income.
- The company reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls. It reported no material change in market-risk exposure since year-end.
Important facts for investors to verify
- Whether the Q3 volume-related revenue weakness, particularly in Enterprise Solutions, persists or reflects temporary demand and channel-inventory conditions.
- How much reported earnings and operating cash flow depend on asset-sale gains, working-capital movements, and adjustments used in non-GAAP Adjusted EBITDA.
- Whether integration of Sichert and CloudRail delivers expected operating benefits and how acquisition spending affects cash, debt and the stated leverage goal.
- How continued share repurchases—$150.0m in the first nine months, with $215.0m of authorization remaining—affect liquidity and capital allocation.
- Whether Grass Valley lease-guarantee assumptions, foreign-exchange and commodity exposures, or other contingencies change materially.