Bel Fuse Inc. — 2023 Form 10-K
Business context and reporting period. Bel designs and manufactures electronic power, protection, connectivity and magnetic products for networking, industrial, aerospace, military, transportation and other markets. This annual report covers the fiscal year ended December 31, 2023; comparisons below are with 2022, not standalone fourth-quarter results. Product-group shares of 2023 sales were Power Solutions and Protection 49%, Connectivity Solutions 33%, and Magnetic Solutions 18%.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $639.8 million | $654.2 million |
| Gross profit / margin | $215.8 million / 33.7% | $183.5 million / 28.0% |
| Operating income | $88.0 million | $65.1 million |
| Net earnings | $73.8 million | $52.7 million |
| Basic and diluted EPS, Class A / Class B | $5.52 / $5.83 | $4.01 / $4.24 |
| Cash from operating activities | $108.3 million | $40.3 million |
- Sales fell 2.2% overall. Power Solutions and Protection sales rose 8.9% and Connectivity Solutions sales rose 12.6%; Magnetic Solutions sales declined 35.6%.
- Gross margin improved despite lower overall sales, supported by pricing actions, mix, lower labor costs as a share of sales, and fewer low-margin expedite fees. Segment gross margins were 38.1% for Power, 34.2% for Connectivity and 22.0% for Magnetic.
- Operating cash flow increased substantially, with cash generation including a $22.5 million reduction in receivables and a $33.6 million reduction in inventory. Capital expenditures were $12.1 million.
- Year-end cash and cash equivalents were $89.4 million, plus $37.5 million of U.S. Treasury securities. The current ratio was 3.4, versus 2.8 a year earlier.
- Debt under the revolving credit facility was $60 million, down from $95 million; $115 million remained available. Bel was in compliance with its covenants. The facility matures September 1, 2026, and interest-rate swaps covered the outstanding balance at year-end.
- Dividends paid were $3.5 million. In February 2024, the board authorized a share repurchase program of up to $25 million; repurchases began March 1, 2024.
Material changes versus 2022
- Magnetic Solutions was the principal sales headwind, with lower networking and distribution demand and customers working through inventory. Its backlog fell 69% year over year.
- Bookings declined 41% to $447.6 million. Year-end backlog decreased 34% to $373.1 million; backlog reported as of February 29, 2024 was $362.5 million, versus $526.9 million a year earlier.
- SG&A rose to $99.1 million from $92.3 million, and R&D rose to $22.5 million from $20.2 million. Restructuring charges were $10.1 million versus $7.3 million.
- Operating income benefited from a $3.8 million property-sale gain, compared with $1.6 million in 2022. Other items included a $1.0 million gain on the sale of the Czech subsidiary, a $2.7 million loss on liquidation of a foreign subsidiary, and a $0.8 million loss related to the innolectric investment.
- Effective tax rate was 11.4%, compared with 10.8%; the 2023 tax provision included benefits from reversals of uncertain tax positions.
Outlook, commentary and risks
- Management expects 2024 to start slowly, with a possible recovery in the second half as supply-channel inventory normalizes. The filing gives no quantified sales or earnings guidance.
- Management expects savings from four 2022 facility consolidations to be fully realized beginning in the first quarter of 2024, estimated at $6.9 million annually. A separate Glen Rock transition is expected to generate about $1.0 million in annualized savings as it progresses through 2024.
- Management estimates 2024 labor costs will rise by approximately $1.4 million due to Mexico’s minimum-wage increase and $0.3 million due to wage increases in Slovakia.
- Key risks include concentrated manufacturing exposure in China (50% of associates and 74% of owned or leased manufacturing space), foreign-exchange and trade-policy changes, input and labor costs, customer demand and cancellations, and continued channel destocking. Backlog is not a reliable indicator of shipment timing; management estimated 80%–85% of February 2024 backlog would ship by year-end 2024.
- No direct customer exceeded 10% of 2023 sales, but one ultimate end-user accounted for approximately 11.6% through intermediary contract manufacturers. Loss of that end-user could materially affect results.
- Bel reported increased cybersecurity threats and ransomware attempts in 2023, while stating that it had not experienced a material impact. The company also faces an ongoing Italian tax matter with an estimated $12 million liability, for which it says it is indemnified by ABB. In Bel’s patent suit against Monolithic Power Systems, the court granted the defendant’s summary-judgment motion; Bel was evaluating appeal options.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls, and reported no critical audit matters.
Important facts for investors to verify
- Whether the expected second-half 2024 demand recovery occurs, and how bookings, backlog and customer inventory levels develop.
- Whether Magnetic Solutions stabilizes and whether growth in Power and Connectivity offsets further weakness in networking-related demand.
- Realization and timing of restructuring savings, alongside implementation costs and the projected wage increases.
- Cash-flow durability after the significant working-capital release in 2023, and the effects of the $25 million repurchase authorization on liquidity and debt capacity.
- Debt covenant headroom, interest-rate exposure, China-related operational risks, and any developments in the tax and patent proceedings.