Bel Fuse Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise. Bel designs and manufactures products that power, protect and connect electronic circuits, serving industrial, networking, aerospace, defense, transportation and other markets.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $158.7 | $177.7 | $499.8 | $485.0 |
| Gross profit / margin | $55.5 / 35.0% | $51.5 / 29.0% | $164.7 / 32.9% | $130.9 / 27.0% |
| Operating income | $24.5 | $22.1 | $71.5 | $46.9 |
| Net earnings | $19.4 | $16.5 | $61.8 | $38.6 |
| Class A / Class B diluted EPS | $1.46 / $1.54 | $1.27 / $1.34 | $4.63 / $4.88 | $2.95 / $3.12 |
- Q3 sales declined 10.7% year over year, while net earnings rose 17.5%. Nine-month sales increased 3.0% and net earnings increased about 59.9%.
- Q3 gross margin rose 6.0 percentage points; nine-month gross margin increased 5.9 points. Management cited pricing actions, product mix, lower material and labor costs as a share of sales, and operational efficiencies.
- Cash flow: Nine-month operating cash flow was $81.4, compared with $24.1 in 2022. Cash increased $30.0 to $100.2. Investing used $11.1; financing used $37.5, including $35.0 net debt repayments and $2.5 of dividends.
- Liquidity and debt: Current assets were $363.0 and current liabilities $117.7; the current ratio was 3.1. Revolver borrowings were $60.0, down from $95.0 at year-end 2022. The $175 million facility had $115.0 available; Bel reported covenant compliance. Cash less debt was approximately $40.2.
- Inventory fell to $140.0 from $172.5 at year-end; receivables declined to $94.3 from $107.3. Nine-month capital expenditures were $9.7.
Material changes and segment results
- Q3 revenue fell mainly because Magnetic Solutions sales declined 37.2% to $32.0, as networking customers and distributors continued to reduce inventory. Power Solutions and Protection sales decreased 2.1% to $74.9; Connectivity Solutions sales rose 3.0% to $51.8.
- For the first nine months, Power Solutions and Protection revenue increased 18.9% to $245.1 and Connectivity Solutions increased 14.2% to $160.0; Magnetic Solutions declined 31.8% to $94.7. Growth included networking/datacenter power products, eMobility, commercial aerospace and military sales.
- Backlog was $407.6 at September 30, down 27.9% from December 31, 2022. Magnetic Solutions backlog declined 59.2%, Power Solutions and Protection 28.5%, and Connectivity Solutions 2.0%.
Outlook, risks and unusual items
- Management expects existing cash, operating cash flows and available revolver capacity to meet foreseeable liquidity needs, including over the next 12 months. The filing gives no revenue or earnings guidance.
- Restructuring across manufacturing sites generated $6.3 of charges in the first nine months; $6.7 remained accrued at September 30. Management estimates approximately $6.9 of aggregate annual savings, including about $1.6 expected in Q4 2024. Certain facility transitions were expected to finish by year-end 2023.
- A PRC minimum-wage increase effective October 1, 2023 is expected by management to add approximately $0.5 of annual labor costs at two facilities. Inflation, labor, materials, foreign exchange, supply conditions, customer inventory levels, end-market demand, China exposure and customer concentration are identified risks.
- Q3 included a $0.1 gain on property sales; nine-month results included $3.8 of gains on property sales and a $1.0 gain on the Czech subsidiary divestiture. The divestiture generated $5.1 in proceeds. Restructuring charges and the prior-year comparison of expedite-fee revenue also affected results.
- Bel invested approximately $11.0, including transaction costs, for a one-third interest in Germany-based innolectric, focused on EV charging technology, and recorded $0.7 of its share of losses through September. It also loaned innolectric $1.9 at 5% interest. Certain EBITDA thresholds could obligate Bel to acquire the remaining shares.
- In a patent case against Monolithic Power Systems, the court granted summary judgment of non-infringement in July 2023; Bel was evaluating appeal options. A separate Italian tax claim of approximately $12.0 is recorded, with a corresponding indemnification asset from ABB. The filing says other legal matters are not expected to have a material adverse effect.
Important facts for investors to verify
- Whether customer and distributor inventory reductions, particularly in Magnetic Solutions, continue to pressure sales, backlog and margins.
- Whether restructuring transitions finish as planned and deliver the estimated savings, and how wage and other input-cost increases affect margins.
- Whether strong operating cash generation persists after the inventory reduction and other working-capital movements.
- The status and potential financial implications of the MPS litigation, Italian tax matter and innolectric acquisition provisions.
- Management’s assumptions behind the expected savings, liquidity outlook and sensitivity to foreign exchange, customer demand and end-market conditions.