Belden Inc. — Q1 2022 Form 10-Q
Business context and period. Belden supplies specialty networking solutions through Enterprise Solutions and Industrial Automation Solutions. The quarter ended April 3, 2022; the comparable quarter ended April 4, 2021. The periods contained 93 and 94 days, respectively. Tripwire was sold on February 22, 2022 and is reported as discontinued operations.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $610.4 million | $508.7 million |
| Gross profit / margin | $208.9 million / 34.2% | $169.2 million / 33.3% |
| Operating income / margin | $73.5 million / 12.0% | $50.9 million / 10.0% |
| Income from continuing operations | $44.1 million | $29.1 million |
| Net income attributable to Belden / diluted EPS | $35.8 million / $0.79 | $28.7 million / $0.64 |
| Adjusted EBITDA / margin (non-GAAP) | $99.5 million / 16.3% | $76.6 million / 15.0% |
| Operating cash flow | $(58.0) million | $(41.5) million |
| Capital expenditures | $11.0 million | $11.2 million |
At April 3, 2022, cash was $559.6 million, long-term debt carrying value was $1,213.6 million, and the company had no Revolver borrowings and $292.5 million of available borrowing capacity. Current assets were $1,393.7 million and current liabilities were $583.5 million. The quarter’s operating cash use plus capital expenditures implies approximately $69.0 million of negative operating cash flow less capex.
Material changes and operating performance
- Revenue increased 20.0%, primarily from higher volume and favorable pricing, including copper pass-through pricing. Management attributed $97.4 million of growth to volume and favorable pricing, $13.9 million to copper pass-through, and $3.2 million to acquisitions; currency translation and the prior-year Brazil oil-and-gas cable divestiture partly offset growth.
- Industrial Automation Solutions revenue rose 21.1% to $341.9 million and segment EBITDA rose 41.8% to $67.5 million; its EBITDA margin expanded to 19.7% from 16.9%.
- Enterprise Solutions revenue rose 18.6% to $268.4 million, but segment EBITDA margin declined to 11.5% from 12.5%.
- Operating cash use increased year over year, mainly due to changes in accrued liabilities, accounts payable, and inventory. Management cited incentive compensation and channel-partner rebate payments, as well as inventory build to support demand.
- Belden received $338.7 million net of cash sold from the Tripwire divestiture. It used cash for the Macmon and NetModule acquisitions, share repurchases of $50.0 million, and debt repayment of $230.6 million.
Outlook, risks, and unusual items
- Management expects operating activities to generate cash in 2022 and believes available liquidity is sufficient for working capital, capital expenditures, retirement plan contributions, repurchases, dividends, and near-term plans. No specific revenue or earnings guidance was provided in the filing text.
- Management expects approximately $7 million of additional 2022 costs for its acquisition integration program.
- In March 2022, Belden repurchased all €200 million principal amount of its 4.125% notes due 2026, paying €204.1 million ($227.9 million) including premium. It recorded a $6.4 million extinguishment loss. Remaining notes mature in 2027, 2028, and 2031.
- Net income included a $4.6 million after-tax loss on disposal of Tripwire and $3.7 million of after-tax discontinued-operation losses. The prior-year quarter included $7.0 million of asset impairments and a $5.8 million benefit from reducing an acquisition earn-out liability.
- Management cited exposure to inflation and copper and other commodity prices, foreign exchange, channel inventory, economic and customer-demand conditions, and pandemic-related disruption. It said timely and sufficient price increases may not fully offset higher material costs.
- A putative class action relates to a 2020 data incident; the potential exposure was not estimable. The company said other routine legal matters were not expected to have a material adverse effect. A retained guarantee covers a former subsidiary’s lease through 2035; approximately $19.2 million of payments remained, payable only if the primary obligor defaults.
- Macmon and NetModule were acquired during the quarter for approximately $42.4 million and $23.5 million, respectively, net of cash acquired. Communication Associates was acquired after quarter-end, on April 15, 2022, for approximately $19 million net of cash acquired.
Most important facts for investors to verify
- Whether revenue growth and margin improvement persist, particularly in Industrial Automation Solutions, and whether Enterprise Solutions margin weakness reverses.
- Whether inventory, payables, and accrued-liability movements normalize and operating cash flow turns positive as management expects.
- How acquisition integration costs, anticipated savings, and acquired-business contributions develop.
- Cash deployment and leverage following the Tripwire sale, note redemption, acquisitions, and $50 million share repurchase; confirm remaining Revolver availability and debt obligations.
- Developments in the data-incident litigation and any change in the exposure from the lease guarantee or other contingencies.