Bel Fuse Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited; amounts below are in millions except per-share data.
Business context and results
Bel designs and manufactures products that power, protect and connect electronic circuits, serving markets including networking, telecommunications, aerospace, military, transportation and e-Mobility. It reports Connectivity Solutions, Power Solutions and Protection, and Magnetic Solutions segments.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $136.7 | $110.6 |
| Gross profit / margin | $34.1 / 25.0% | $24.3 / 21.9% |
| Operating income | $8.1 | $4.5 |
| Net earnings | $5.1 | $3.2 |
| Class A / Class B diluted EPS | $0.38 / $0.41 | $0.24 / $0.26 |
| Operating cash flow | $(7.7) | $1.8 |
Revenue rose 23.6% year over year. Gross margin improved as favorable product mix, pricing actions and higher volumes more than offset cost pressures. The 2021 comparison included a $6.2 million gain on sale of property, which benefited prior-year operating income.
Segment performance and material changes
| Segment | Revenue Q1 2022 | Revenue Q1 2021 | Gross margin Q1 2022 / 2021 |
|---|---|---|---|
| Connectivity Solutions | $43.7 | $38.1 | 26.5% / 25.7% |
| Power Solutions and Protection | $58.8 | $43.6 | 27.1% / 24.7% |
| Magnetic Solutions | $34.2 | $28.9 | 20.1% / 13.7% |
- Power growth reflected $4.2 million of EOS sales, stronger circuit protection and CUI sales, and e-Mobility design wins entering production; DC/DC power sales declined.
- Connectivity benefited from a commercial aerospace recovery and higher distribution sales, partly offset by lower military sales.
- Magnetic Solutions grew on networking demand and distribution sales.
- Management cited favorable product mix and pricing as contributors to lower material cost as a share of revenue (44.6%, versus 45.5%); labor costs rose to 9.5% of revenue from 9.1%.
Cash, debt and liquidity
- Cash was $51.2 million at March 31, down $10.5 million from year-end. Operating cash use was $7.7 million, capital spending $2.0 million and dividends $0.8 million.
- Working capital absorbed cash: inventory increased $16.0 million from year-end; accounts receivable rose $6.5 million. DSO increased to 62 days from 54, and inventory turns fell to 2.6 from 3.1.
- Current assets were $334.1 million and current liabilities $109.4 million; the reported current ratio was 3.1 to 1.
- Debt was $112.5 million, unchanged from year-end. The $175 million revolving facility had $62.5 million available to borrow without breaching the leverage covenant. Bel reported covenant compliance.
- Cash held by foreign subsidiaries was $37.6 million, or 73% of cash. Repatriation could involve state and foreign withholding taxes.
Outlook, risks and notable items
- Backlog reached $524.8 million, up $56.9 million, or 12%, from December 31, 2021. Management cited record backlog and strong bookings entering Q2 and expressed a positive view of the balance of the year; no specific financial guidance was provided.
- COVID-related closures in Shenzhen and Changping temporarily disrupted Bel facilities and parts of the supply chain for about one week in March. Facilities were operating at normal workforce levels as of the filing date, but future outbreaks remain a risk.
- Management identified supply shortages and higher prices for certain components, wage and labor pressures, logistics disruption, foreign exchange movements and demand/product-mix variability as risks to costs and margins.
- Uncertain tax position liabilities were $28.7 million; $4.1 million was expected to be resolved during 2022 through statute expirations. A separate approximately $12.0 million Italian tax matter is covered by an indemnity from ABB, with a corresponding indemnification asset recorded.
- Bel’s patent infringement suit against Monolithic Power Systems will continue in the Western District of Texas after the court denied MPS’s motions to dismiss and transfer venue on May 5, 2022. The filing says other legal matters are not expected to have a material adverse effect.
- After quarter-end, Bel entered into a May 6, 2022 employment agreement with CFO Farouq Tuweiq, including a $270,000 annual base salary and specified bonus, deferred compensation and severance terms.
Important facts for investors to verify
- Whether backlog converts to revenue on schedule and whether strong bookings persist.
- Whether inventory growth, lower inventory turns and longer DSO improve, and whether operating cash flow recovers.
- Whether pricing and mix continue to offset materials, labor, wage and foreign exchange pressures.
- Available borrowing capacity and covenant headroom if earnings or cash generation weaken.
- Developments in China-related operating disruptions, the Italian tax matter and the patent litigation.