JERSEY CITY, N.J., Oct. 30, 2020 (GLOBE NEWSWIRE) -- Bel Fuse Inc. (Nasdaq: BELFA and BELFB), a designer, manufacturer and provider of products that power, protect and connect electronic circuits, today announced preliminary financial results for the third quarter of 2020.
Third Quarter 2020 Highlights
| • | Net sales of $124.5 million (including $10.9 million of incremental sales attributable to CUI, Inc., acquired during the fourth quarter of 2019), in line with Q3-19 sales |
| • | Gross profit margin of 26.9%, up from 23.0% in Q3-19 |
| • | GAAP net earnings of $7.5 million (leading to GAAP EPS of $0.57 per Class A share and $0.61 per Class B share) versus GAAP net loss of $(6.5) million in Q3-19 (GAAP net loss per share of $(0.51) per Class A share and $(0.53) per Class B share) |
| • | Non-GAAP net earnings of $7.6 million (Non-GAAP EPS of $0.58 per Class A share and $0.62 per Class B share) versus Non-GAAP net earnings of $2.5 million in Q3-19 (Non-GAAP EPS of $0.19 per Class A share and $0.20 per Class B share) |
| • | Adjusted EBITDA increased nearly 33% over Q3-19 to $11.8 million driven by shift in product mix and cost reductions implemented in the last 12 months |
| • | Paid down $10 million in debt during the quarter, reducing leverage ratio (as defined in our credit agreement) to 2.99x |
“Our Cinch Connectivity Solutions business had record shipments into military applications during the third quarter, driven by sales into both U.S. and European military programs. Growth in military sales continued to be offset by the decline in demand within the commercial aerospace segment, resulting in an overall decline in sales for the Cinch Connectivity Solutions group of $6 million from the third quarter last year. This shift in focus from commercial aerospace to military products, coupled with real-time cost adjustments at the factories, resulted in a 29.2% gross margin for the group as compared to 26.6% in last year's third quarter, allowing the group to retain the majority of its gross margin dollars on lower sales.
“Bel’s Power Solutions and Protection business benefited from $10.9 million in sales from our recently-acquired CUI business. CUI's third quarter 2019 results are not included in Bel's financial statements; however, sales in this past quarter represent growth of approximately 40% over revenues recognized in CUI's financial statements in the third quarter of 2019. Further, our circuit protection product sales increased by 43% versus the third quarter last year. A shift in product mix, resulting in part from the discontinuation of low-margin product sales to a former datacenter customer, along with cost savings from restructuring efforts implemented in prior quarters, resulted in a year-over-year improvement in gross profit of $4.8 million for this group. We also completed the closure of our Power R&D facility in Uster, Switzerland, resulting in annualized cost savings of $3 million, $250,000 of which was realized during the third quarter.
“While sales within Bel’s Magnetic Solutions business fell short of last year’s third quarter by $1.5 million as a result of a decline in demand from one of our large networking customers, the gross profit for this group increased by almost $550,000 largely due to the cost reduction and restructuring efforts previously implemented.
“As we look to the fourth quarter, sales are expected to be similar to the fourth quarter 2019 level with very limited visibility into 2021. In connection with our ongoing global cost reduction plan, we recently announced the anticipated closure of our sales office in Germany and a restructuring of our North America sales organization. These actions are expected to result in incremental annual cost savings of approximately $1 million starting in the fourth quarter of 2020, and consequently, we should see a more favorable gross margin comparison versus last year’s fourth quarter. In the meantime, we continue to actively look at acquisitions that will complement our existing product offerings and manufacturing capabilities to better position Bel for the future,” concluded Mr. Bernstein.
Financial Summary
All comparative percentages are on a year-over-year basis, unless otherwise noted.
Third Quarter 2020 Results
Net Sales
Net sales were $124.5 million, the same level as last year’s third quarter.
| • | By product segment: Cinch Connectivity Solutions sales declined by 13.5%, Magnetic Solutions sales were lower by 3.7% and Power Solutions and Protection sales were up by 18.5%. |
| • | By geographic area: Europe sales were down by 3.2%, North America sales increased by 4.6% and Asia sales were lower by 6.1%. |
Fixed costs within our Cinch Connectivity Solutions segment were reduced by $2.0 million in the third quarter of 2020 as compared to the same period of 2019 as a result of aligning the cost structure with the reduction in demand from our commercial aerospace customers. Further, approximately $0.7 million of cost savings were realized within cost of sales in the third quarter of 2020 related to restructuring efforts implemented in late-2019 related to our Power Solutions and Protections and Magnetic Solutions segments. Lastly, the elimination of low-margin products replaced by incremental higher-margin CUI sales drove further improvement in Power Solutions and Protection's gross profit margin for the third quarter of 2020 as compared to the same quarter of 2019.
Research and Development Costs
R&D costs were $5.7 million, a decline of $0.4 million from the third quarter of 2019. This reduction was largely the result of cost savings measures initiated in late-2019, partially offset by an unfavorable exchange rate environment during the 2020 quarter.
Selling, General and Administrative Expenses
SG&A expenses were $18.9 million, up $0.4 million from the third quarter of 2019. Lower travel expenses of $0.5 million, a reduction in ERP costs of $0.2 million and savings from other cost containment efforts largely offset the $1.9 million of incremental SG&A expenses associated with the recently-acquired CUI business. SG&A expense also included a gain on the cash surrender value of COLI policies of $0.5 million in the third quarter of 2020 compared to a gain on these policies of $0.1 million in the third quarter of 2019.
Operating Income
Operating income was $8.8 million as compared to an operating loss of $(5.2) million in the third quarter of 2019, with an operating margin of 7.1% compared to -4.2% in the third quarter of 2019.
Income Taxes
The benefit from income taxes was $(1.1) million in the third quarter of 2020 as compared to a provision for income taxes of $0.6 million in the third quarter of 2019. This resulted in an effective tax rate of -16.9% during the third quarter of 2020, compared to an effective tax rate of -10.0% during the same quarter last year. The change in the effective tax rate during the third quarter of 2020 as compared to the same quarter of 2019 is primarily attributable to tax benefits relating to the federal tax law changes regarding the final regulations on GILTI high-tax exception, as well as the reversal of uncertain tax positions resulting from the expiration of the statute of limitations. Additionally, the effective tax rate for 2019 was unfavorably impacted by the impairment of goodwill in North America.
Net Earnings
The above factors resulted in net earnings of $7.5 million in the third quarter of 2020 as compared with net loss of $(6.5) million in the third quarter of 2019.
Nine Months Ended September 30, 2020 Results
Net Sales
Net sales were $349.6 million, down $27.6 million, or 7.3%, from the same period of 2019.
| • | By product segment: Cinch Connectivity Solutions sales declined by 11.3%, Magnetic Solutions sales were lower by 12.3% and Power Solutions and Protection sales were up by 1.4%. |
| • | By geographic area: Europe sales were down by 12.4%, Asia sales were lower by 12.4% and North America sales declined by 2.7%. |
Fixed costs within our Cinch Connectivity Solutions segment were reduced by $5.0 million in the nine months ended September 30, 2020 as compared to the same period of 2019 as a result of aligning the cost structure with the reduction in demand from our commercial aerospace customers. Further, approximately $2.4 million of cost savings were realized within cost of sales during the first nine months of 2020 related to restructuring efforts implemented in late-2019 which were related to our Power Solutions and Protection and Magnetic Solutions segments. Lastly, the elimination of low-margin products replaced by incremental higher-margin CUI sales drove further improvement in Power Solutions and Protection's gross profit margin during the first nine months of 2020 as compared to the same period of 2019.
Research and Development Costs
R&D costs were $17.9 million, a decline of $2.3 million from the first nine months of 2019. This reduction was largely the result of cost savings measures initiated in late-2019.
Selling, General and Administrative Expenses
SG&A expenses were $59.0 million, up $2.1 million from the first nine months of 2019. A reduction in ERP costs of $1.6 million, lower travel expenses of $1.4 million and savings from other cost containment efforts partially offset the $5.9 million of incremental SG&A expenses associated with the recently-acquired CUI business. SG&A expense also included a gain on the cash surrender value of COLI policies of $0.1 million in the first nine months of 2020 compared to a gain on these policies of $0.9 million in the first nine months of 2019.
Operating Income
Operating income was $13.2 million, up from $2.7 million in the first nine months of 2019, with an operating margin of 3.8% compared to 0.7% in the first nine months of 2019.
Income Taxes
The benefit from income taxes was ($1.4) million during the nine months ended September 30, 2020, compared to a provision of $1.0 million in the same period of 2019. This resulted in an effective tax rate of -18.3% during the nine months ended September 30, 2020, compared to an effective tax rate of -78.2% during the same period last year. The change in the effective tax rate during the nine months ended September 30, 2020 as compared to the same period of 2019 is primarily attributable to the same factors noted above for the third quarter as well as an increase in U.S. taxes related to income from foreign subsidiaries taxes in the U.S. as part of the Tax Cuts and Jobs Act.
Net Earnings
The above factors resulted in net earnings of $9.2 million in the first nine months of 2020 as compared with net loss of $2.4 million in the same period of 2019.
Balance Sheet Data
As of September 30, 2020, working capital was $195.0 million, including $81.1 million of cash and cash equivalents with a current ratio of 3.2-to-1. In comparison, as of December 31, 2019, working capital was $193.0 million, including $72.3 million of cash and cash equivalents with a current ratio of 3.1-to-1. Total debt at September 30, 2020, net of deferred financing costs, declined to $125.4 million as compared to $143.7 million at December 31, 2019, primarily due to a voluntary prepayment of $8.2 million made in connection with the amendment to the Company's credit agreement in February 2020 and a $10.0 million repayment to our revolving credit facility during the third quarter of 2020.
About Bel
Bel (www.belfuse.com) designs, manufactures and markets a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the networking, telecommunications, computing, military, aerospace, medical, transportation and broadcasting industries. Bel's product groups include Magnetic Solutions (integrated connector modules, power transformers, power inductors and discrete components), Power Solutions and Protection (front-end, board-mount and industrial power products, module products and circuit protection), and Connectivity Solutions (expanded beam fiber optic, copper-based, RF and RJ connectors and cable assemblies). The Company operates facilities around the world.
