Bel Fuse Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Bel designs and manufactures products that power, protect and connect electronic circuits. Financial amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $172.3 | $136.7 | Up 26.1% |
| Gross profit / margin | $53.7 / 31.1% | $34.1 / 25.0% | Margin up 6.1 percentage points |
| Operating income / margin | $19.6 / 11.4% | $8.1 / 5.9% | Higher; Q1 2023 includes $3.5 restructuring charges |
| Net earnings | $14.6 | $5.1 | Up 187.8% |
| EPS, Class A / Class B | $1.09 / $1.15 | $0.38 / $0.41 | Basic and diluted |
| Operating cash flow | $16.8 | $(7.7) | Improved |
| Capital expenditures | $3.8 | $2.0 | — |
Revenue growth was led by Power Solutions and Protection, up 41.5% to $83.2 million, including higher front-end and board-mount power sales, eMobility growth and expedite fees. Connectivity Solutions rose 22% to $53.4 million, aided by commercial aerospace and military demand. Magnetic Solutions increased 4.5% to $35.8 million. Gross margin improvement reflected pricing, volume and product mix, along with favorable foreign exchange; labor costs as a share of sales also declined.
Financial position and liquidity
- Cash and cash equivalents were $77.8 million at March 31, versus $70.3 million at year-end 2022. Current assets were $382.6 million and current liabilities $129.9 million; the current ratio was 2.9 to 1.
- Revolver borrowings were $100.0 million, up from $95.0 million at December 31. The $175 million facility had $75.0 million of unused availability at quarter-end; the company reported covenant compliance. A voluntary $12.5 million repayment after quarter-end reduced borrowings to $87.5 million at April 30.
- Operating cash flow included a $7.7 million cash benefit from lower inventory. Investing outflows included $10.0 million for the innolectric investment and $3.8 million for capital expenditures. Financing included $5.0 million of revolver borrowings and $0.8 million of dividends.
- Inventory declined to $165.8 million from $172.5 million at year-end. DSO was 57 days, versus 58; inventory turns were 2.9, versus 2.6.
- About 80% of cash, or $62.1 million, was held by foreign subsidiaries. Repatriation could incur state and foreign withholding taxes.
Material developments, outlook and risks
- Backlog was $510.0 million at March 31, down $55.3 million, or 10%, from year-end. Management cited lower recent order volumes, partly attributed to customers working through existing inventory.
- Management expects raw-material supply constraints to continue through at least Q3 2023. Inflation in materials, labor, freight and other costs, customer demand variability, foreign exchange, and international operations—including manufacturing in China—remain risks. No specific revenue or earnings guidance was provided.
- Footprint consolidation is underway across Magnetics facilities in China and Connectivity sites in the U.S. and U.K. The company reported $3.5 million of Q1 restructuring charges and $9.4 million of accrued restructuring costs. It expects another $2–3 million of charges, mostly in Q2, and estimates approximately $5 million of annual cost savings beginning in Q4 2023.
- Bel invested approximately $8.8 million, including transaction costs, for a one-third interest in Germany-based innolectric, focused on EV onboard power electronics and fast charging. It also advanced approximately $2.0 million in related-party loans bearing 5% interest. Under specified profitability conditions, Bel could be committed to acquiring the remaining shares.
- A patent-infringement case against Monolithic Power Systems had trial scheduled for August 2023; Q1 SG&A included $1.6 million of associated litigation costs. Management said other legal matters were not expected to materially affect results or financial position.
- Uncertain tax-position liabilities were $25.2 million, including an approximately $12.0 million Italian tax claim for which Bel says it is indemnified by ABB. A separate customs claim relating to EOS had no accrual because the company could not determine the amount, if any, ultimately payable; Bel says it is indemnified for that matter.
- The company reported effective disclosure controls and no material change in internal control over financial reporting. It said no impairment-triggering events were identified in the quarter.
Important facts for investors to verify
- Whether backlog declines and customer inventory adjustments affect future orders, revenue and factory utilization.
- Whether pricing and cost controls offset ongoing material, labor and inflation pressures, and whether supply constraints ease as management expects.
- Execution, timing and costs of the consolidation program, including realization of the estimated savings.
- Developments in the MPS litigation, the Italian tax matter and EOS customs claim, including indemnification and potential cash exposure.
- Innolectric’s performance, the terms and implications of its purchase option, and the exposure from related-party lending.
- Available borrowing capacity and covenant headroom, interest-rate exposure, and potential tax costs if foreign cash is repatriated.