BELDEN INC. quarterly report, Q2 FY2021

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

MetricQ2 2021Q2 2020Six months 2021Six 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.