Bel Fuse Inc. — Q1 2021 Form 10-Q
Business context and reporting period. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Bel designs and manufactures products that power, protect and connect electronic circuits. Its reportable product groups are Cinch Connectivity Solutions, Power Solutions and Protection, and Magnetic Solutions.
Key financial metrics
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $110.6 | $104.0; up 6.4% |
| Gross profit / margin | $24.3 / 21.9% | $25.8 / 24.8% |
| Operating income (loss) | $4.5 | $(1.1); Q1 2021 included a $6.2 property-sale gain |
| Net earnings (loss) | $3.2 | $(3.8) |
| EPS, Class A / Class B | $0.24 / $0.26 | $(0.30) / $(0.31) |
| Cash from operations | $1.8 | $8.1 |
| Cash and cash equivalents | $74.0 at March 31 | $84.9 at December 31, 2020 |
| Debt | $114.3 carrying value; $116.2 estimated fair value | $115.6 carrying value at December 31, 2020 |
| Current ratio | 3.1 to 1 | 3.2 to 1 at December 31, 2020 |
Gross margin fell 2.9 percentage points year over year. Reported operating income included the $6.2 million property-sale gain; excluding that gain, operating results would have been a loss of approximately $1.7 million. Cash declined $10.9 million during the quarter, principally reflecting acquisition spending, capital expenditures, dividends, debt repayments, and foreign exchange effects; property-sale proceeds partly offset these uses.
Material changes and operating performance
- Power Solutions and Protection revenue rose to $43.6 million from $36.2 million, led by CUI, fuse and eMobility demand. Cinch revenue declined to $38.1 million from $39.1 million, mainly due to commercial aerospace weakness. Magnetic Solutions revenue was broadly flat at $28.9 million.
- Material costs rose to 45.5% of revenue from 43.6%; labor costs rose to 9.1% from 8.9%. The filing cites product mix, shortages and higher pricing for components, wage increases, and currency effects.
- Bel acquired rms Connectors in January and EOS Power on March 31. Total preliminary consideration was $20.7 million; net cash paid for acquisitions was $14.8 million. rms contributed $2.1 million of revenue and an estimated $0.4 million of earnings after acquisition; EOS contributed no Q1 results.
- The company received $6.7 million from property and equipment sales and recognized a $6.2 million gain. It also classified $1.6 million of its Jersey City headquarters property as held for sale.
Outlook, risks and contingencies
- Backlog was $233.7 million at March 31, up 51% from year-end. Management said backlog indicated stronger Q2 and Q3 sales, while noting raw-material shortages and extended semiconductor lead times could delay shipments.
- Management expected positive earnings contributions from the acquisitions and cost savings from 2020 restructuring. Annualized 2021 savings from restructuring were estimated at $4.4 million. Bel also planned to continue cost-optimization efforts.
- COVID-19 remained a source of uncertainty. Operations continued, but certain North American and European sites had reduced productivity; higher air-freight costs and supply-chain delays were also reported. Management could not quantify the ultimate impact.
- Other risks include component availability and pricing, labor-market constraints and wage increases, foreign exchange movements, customer demand volatility, and commercial aerospace exposure. The filing says approximately 5% of revenue related to end markets affected by COVID-19.
- Cash was $74.0 million; Bel reported $63.0 million of unused revolving capacity, with approximately $39.6–$39.7 million available to borrow without breaching the leverage covenant. The company was in compliance with debt covenants at quarter-end. Its credit agreement matures in December 2022.
- Uncertain tax-position liabilities totaled $28.7 million. A separate Italian tax matter estimated at approximately $12.0 million is covered by an indemnification from ABB; the related Supreme Court decision remained pending.
Most important facts for investors to verify
- Whether backlog converts to revenue and profit as expected, given raw-material shortages and extended lead times.
- The sustainability of gross margins amid higher material, labor, freight and currency costs, and the extent to which restructuring savings offset those pressures.
- The final purchase-price allocations, integration progress and realized financial contribution from rms Connectors and EOS Power.
- Available borrowing capacity and covenant headroom if earnings or liquidity weaken; debt maturity and refinancing plans.
- Resolution and cash implications of uncertain tax positions, including the indemnified Italian tax claim, and completion of the headquarters property sale.