Business context and reporting period
Belden Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. The company supplies specialty networking and connectivity solutions through Enterprise Solutions and Industrial Solutions. Its products support enterprise networks, broadband and 5G, smart buildings, cybersecurity, and industrial automation. This is an annual report; it does not provide a standalone fourth-quarter financial summary.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $2.408 billion | $1.863 billion |
| Gross profit / margin | $854.4 million / approximately 35.5% | $663.3 million / approximately 35.6% |
| Operating income / margin | $124.6 million / approximately 5.2% | $125.4 million / approximately 6.7% |
| Income from continuing operations | $62.5 million; diluted EPS $1.37 | $54.4 million; diluted EPS $1.21 |
| Net income (loss) attributable to Belden | $63.9 million; diluted EPS $1.41 | $(55.2) million; diluted EPS $(1.23) |
| Adjusted EBITDA and margin | $375.5 million / 15.6% | $249.2 million / 13.4% |
| Cash from operating activities | $272.1 million | $173.4 million |
| Capital expenditures | $91.0 million | $90.2 million |
| Cash and cash equivalents at year-end | $643.8 million | $502.0 million |
| Long-term debt carrying value | $1.460 billion | $1.574 billion |
Current assets were $1.467 billion and current liabilities $718.5 million at year-end 2021. The company reported no Revolver borrowings and $274.2 million of available borrowing capacity. Cash less long-term debt was approximately negative $816 million. Contractual debt principal was $1.5 billion, with none due in 2022; scheduled interest payments were $53.5 million in 2022.
Segment performance
- Enterprise Solutions: revenue rose 23.2% to $1.074 billion; Segment EBITDA increased 44.2% to $143.2 million, or 13.3% of revenue versus 11.4% in 2020.
- Industrial Solutions: revenue rose 34.7% to $1.334 billion; Segment EBITDA increased 54.4% to $227.9 million, or 17.1% of revenue versus 14.9% in 2020.
Changes versus the prior comparable period
Revenue increased 29.3% year over year. Management attributed the increase primarily to higher volume in industrial automation, smart buildings, and broadband/5G ($373.1 million), higher copper prices ($117.2 million), acquisitions ($37.7 million), and favorable currency translation ($26.7 million), partly offset by divestitures ($9.3 million). Adjusted EBITDA grew 50.7%, mainly from leverage on higher volume.
Despite the sales recovery, GAAP operating income was nearly unchanged. The increase in gross profit and lower amortization were offset by higher selling, general and administrative costs, R&D spending, and $140.5 million of goodwill and other asset impairments. Reported gross margin was roughly flat; management said gross margin excluding copper pass-through pricing and currency effects improved by more than 200 basis points.
Net income improved from a 2020 loss, but comparisons are affected by discontinued operations: 2020 included a substantial Grass Valley discontinued-operations loss, while 2021 had no discontinued operating loss and included a $1.9 million after-tax disposal gain.
Outlook, commentary, risks, and unusual items
- Management goals, not a dated forecast: Belden stated longer-term goals of 5%–7% annual adjusted revenue growth on a constant-currency basis, 20%–22% adjusted EBITDA margin, 13%–15% free-cash-flow growth, and 13%–15% return on invested capital. The filing does not provide a specific 2022 revenue or earnings forecast. The 2021 adjusted EBITDA margin was 15.6%, below the stated margin goal.
- Liquidity and investment: Management expected operating activities to generate cash in 2022 and considered liquidity sufficient for working capital, capital expenditures, retirement-plan contributions, dividends, and stated operating needs. A significant acquisition could require external financing.
- Impairments and transactions: Belden recorded a $131.2 million goodwill impairment for Tripwire, plus $9.3 million of other asset impairments. In February 2022 it agreed to sell Tripwire for $350 million cash, with closing expected in the first quarter of 2022. It also acquired OTN Systems in January 2021 for $73.3 million and Macmon in January 2022 for approximately $43.3 million. The 2021 sale of the Grass Valley seller’s note generated a $27.0 million gain; refinancing the 2025 notes generated a $5.7 million extinguishment loss.
- Cost actions: The cost-reduction program had delivered an estimated $60 million of annual SG&A savings; Belden expected approximately $3 million of further costs in 2022. It recognized $23.9 million of severance, restructuring, and acquisition-integration costs in 2021.
- Key risks: Supply-chain constraints, component shortages, copper and other input-cost inflation, and labor costs could pressure fulfillment and margins. Other disclosed risks include COVID-19 disruption, foreign exchange exposure, demand and channel-inventory volatility, customer/distributor concentration, competition, acquisition integration, cybersecurity, and technology substitution.
- Contingencies: Two putative class actions relate to a 2020 data incident involving employee and limited business-partner information. The company said potential exposure could not yet be estimated. Management said other routine legal and environmental matters were not expected to be material, while acknowledging outcomes are uncertain.
- Reporting and audit: The auditor issued an unqualified opinion on the financial statements and internal controls. OTN Systems was excluded from management’s 2021 internal-control evaluation and represented approximately 3% of assets and 2% of revenue.
Investor verification priorities
- Assess whether volume-led demand and backlog—$705.7 million at year-end versus $223.0 million a year earlier, mostly scheduled to ship in 2022—converted into revenue and cash without excessive inventory or customer cancellations.
- Reconcile GAAP results to adjusted EBITDA and evaluate recurring versus excluded restructuring, acquisition, impairment, and transaction items.
- Review the Tripwire sale’s closing, proceeds, final accounting, and the effect of the divestiture on future revenue, earnings, and debt reduction.
- Monitor cash conversion and working capital: receivables and inventories used $119.0 million and $93.0 million of cash, respectively, in 2021.
- Verify debt maturities, refinancing capacity, euro-denominated debt and currency exposure, and progress toward management’s stated margin and return goals.