Belden Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter ended July 4, 2021; comparisons are with the quarter ended June 28, 2020. The six-month periods included 185 days in 2021 and 180 days in 2020, which affects comparability. Belden supplies specialty networking solutions through Enterprise Solutions and Industrial Solutions.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $602.0 million | $424.8 million | $1,138.4 million | $888.3 million |
| Gross profit / margin | $211.5 million / 35.1% | $149.9 million / 35.3% | $402.9 million / 35.4% | $320.4 million / 36.1% |
| Operating income / margin | $66.0 million / 11.0% | $17.1 million / 4.0% | $117.4 million / 10.3% | $46.8 million / 5.3% |
| Net income attributable to Belden / diluted EPS | $43.8 million / $0.97 | $(67.9) million / $(1.52) | $72.4 million / $1.60 | $(79.1) million / $(1.76) |
| Adjusted EBITDA / margin | $93.4 million / 15.5% | $49.1 million / 11.6% | $173.6 million / 15.2% | $110.0 million / 12.4% |
- Q2 revenue rose 41.7%; higher volume contributed $118.6 million, copper prices $37.0 million, currency translation $13.8 million, and acquisitions an estimated $8.9 million. Six-month revenue increased 28.1%.
- Both segments grew. Q2 Enterprise Solutions revenue was $267.5 million, up 31.5%, and Segment EBITDA was $35.3 million, up 58.6%. Industrial Solutions revenue was $335.3 million, up 51.4%, and Segment EBITDA was $56.7 million, up 114.5%.
- Gross margin was slightly lower year over year in both periods, while operating income and adjusted EBITDA margins improved substantially. Adjusted EBITDA is a non-GAAP measure; the filing provides reconciliations.
- Q2 2020 net loss included a $71.1 million after-tax loss from discontinued operations, primarily reflecting Grass Valley disposal-related impairment. The 2021 periods reported no discontinued-operation loss.
Cash flow, debt and liquidity
- For the first six months, operating cash flow was $26.7 million, versus a $12.1 million use in 2020. Receivables used $90.8 million of cash, partly offset by a $50.2 million source from accounts payable; management attributed the receivables increase primarily to higher revenue. Q2 days sales outstanding improved to 53 days from 60.
- Investing cash outflow was $94.2 million, including $73.7 million primarily for the OTN acquisition and $30.9 million of capital expenditures; proceeds included $10.8 million primarily from the Brazil business sale. Financing cash outflow was $10.1 million. Cash declined $78.7 million from year-end to $423.3 million.
- At July 4, cash was $423.3 million and current assets were $1,165.0 million against current liabilities of $582.5 million. Long-term debt carrying value was $1,527.0 million; outstanding notes had $1,542.7 million carrying value before debt issuance costs. The Revolver had no borrowings and $294.1 million of available capacity under its $300 million commitment.
- On July 28, after quarter-end, Belden issued €300 million of 3.375% notes due 2031 and said it intended to use proceeds and cash on hand to redeem its 2025 notes in full.
Material changes, outlook and risks
- Belden acquired OTN Systems on January 29, 2021 for approximately $73.3 million net of cash acquired. OTN contributed $8.8 million of Q2 revenue and a pretax loss of $0.8 million; acquisition-related inventory fair-value charges, amortization and integration costs affected reported results.
- The company completed the sale of its Brazil oil and gas cable business for $10.9 million net of cash delivered, after recording a $3.4 million impairment. It also recorded a separate $3.6 million impairment on certain held-and-used Industrial Solutions assets.
- An Opterna earn-out liability was reduced to zero because its targets were not met, generating a $5.8 million SG&A benefit in the six-month period; this was excluded from Enterprise Solutions Segment EBITDA.
- Management expected operating activities to generate cash in 2021 and considered liquidity sufficient for working capital, capital expenditures, retirement contributions, dividends, repurchases and near-term strategy. It noted significant acquisitions could require external financing. The filing provides no specific revenue or earnings guidance.
- A cost-reduction program was expected to produce about $60 million of annual SG&A savings; approximately $5 million of additional 2021 costs were expected. About $2 million of further 2021 integration costs were expected for recent acquisitions.
- Key exposures include COVID-19 and its variants, inflation and copper/material costs, component supply constraints, foreign exchange, economic and project-demand uncertainty, competition, and acquisition integration. Belden also disclosed putative class actions following a 2020 data incident; potential exposure could not yet be estimated. A retained guarantee covers a former Grass Valley property lease with about $21.2 million of payments remaining, but the company did not believe a liability was probable.
- Belden reported no material off-balance-sheet arrangements, effective disclosure controls, and no material change in market-risk exposure since year-end.
Important facts for investors to verify
- How much of revenue and margin growth persists after separating volume from copper pricing, currency translation, acquisitions and the differing six-month day counts.
- Whether operating cash generation improves as receivables and inventory rise, and whether reported margin expansion converts into sustainable free cash flow.
- Completion and terms of the planned 2025-note redemption, the resulting debt and interest profile, and continued Revolver availability.
- Final OTN purchase-price allocation, integration progress, and realization of the stated cost-reduction savings.
- Recoverability of the Grass Valley seller’s note, recorded at $34.9 million, and developments in the data-incident litigation and other disclosed risks.