Press release·02/28/2025 20:31:24

Bel Fuse Inc. - A Comprehensive Financial Overview

Bel Fuse Inc. is a company that designs, manufactures, and markets a wide range of products that power, protect, and connect electronic circuits. Their products are primarily used in the defense, commercial aerospace, networking, telecommunications, computing, industrial, transportation, and eMobility industries.

Financial Performance Overview

In 2024, Bel Fuse’s revenues decreased by 16.4% to $534.8 million compared to 2023. This decline was driven by a 21.8% decrease in Power Solutions and Protection sales, a 40.2% decrease in Magnetic Solutions sales, partially offset by a 4.7% increase in Connectivity Solutions sales.

The company’s gross margin improved to 37.8% in 2024 from 33.7% in 2023, primarily due to a shift in product mix, stabilization of raw material pricing, shorter lead times, and better procurement efforts. However, labor costs as a percentage of sales increased due to lower sales volume, a shift in product mix, and higher minimum wage rates in Mexico.

Segment Performance

• Power Solutions and Protection: Sales decreased by $68.6 million (21.8%) due to lower demand for front-end power and board mount power products used in networking and data center applications, as well as the loss of sales related to a trade restriction on one of the company’s suppliers. Gross margin improved due to the Enercon acquisition, favorable exchange rates, and a lower volume of low-margin expedite fees.

• Connectivity Solutions: Sales increased by $9.8 million (4.7%) driven by growth in the commercial aerospace and military end markets. Gross margin improved due to pricing actions, operational efficiencies, and favorable exchange rate fluctuations, partially offset by higher wage rates in Mexico.

• Magnetic Solutions: Sales declined by $46.3 million (40.2%) due to reduced demand from networking customers and through distribution channels. Gross margin expansion was driven by facility consolidations, cost management, product mix, and favorable exchange rates.

Key Factors Affecting the Business

1. Revenues: The company’s revenues decreased primarily due to lower demand in the Power Solutions and Protection and Magnetic Solutions segments, partially offset by growth in Connectivity Solutions.

2. Backlog: The company’s backlog decreased by 2% in 2024, with the largest declines in the Power Solutions and Protection and Magnetic Solutions segments.

3. Product Mix: Material and labor costs vary by product line, and any significant shift in product mix can impact gross margins. Connectivity Solutions products generally have the highest contribution margins, while Power Solutions and Magnetic Solutions products are more impacted by changes in material and labor costs.

4. Pricing and Availability of Materials: Raw material costs have stabilized but remain elevated. Supply constraints have eased, but the company continues to face challenges related to trade restrictions and the impact on its supply chain.

5. Labor Costs: Labor costs as a percentage of sales have increased due to lower sales volume, product mix shifts, and minimum wage increases, particularly in the PRC, Mexico, and Israel.

6. Inflationary Pressures: The company is experiencing higher input costs related to raw materials, labor, freight, utilities, and other expenses, which it is working to manage through pricing actions and cost-saving initiatives.

7. Restructuring: The company initiated restructuring initiatives in its Connectivity and Power segments, which are expected to generate annual cost savings of $4.9 million.

8. Impact of Foreign Currency: The company’s financial results are impacted by fluctuations in foreign exchange rates, particularly the Chinese renminbi, Mexican peso, and Israeli shekel. The company uses foreign currency forward contracts to manage its short-term exposures.

9. Effective Tax Rate: The company’s effective tax rate will fluctuate based on the geographic regions in which its profits are earned, with Asia generally having the lowest tax rates.

Liquidity and Capital Resources

Bel Fuse’s principal sources of liquidity include $68.3 million in cash and cash equivalents, $1.0 million in held-to-maturity investments, and borrowings available under its credit facility. The company expects to use this liquidity for operating expenses, investments in working capital, capital expenditures, interest, taxes, dividends, debt obligations, and other long-term liabilities.

During 2024, the company’s cash and cash equivalents decreased by $21.1 million, primarily due to the $320.5 million payment for the Enercon acquisition, $16.1 million in stock repurchases, $15 million in debt repayments, and $14.1 million in capital expenditures, partially offset by $74.1 million in cash provided by operating activities and $242.5 million in debt proceeds.

The company’s current ratio (current assets to current liabilities) was 2.9 to 1 at the end of 2024, indicating a strong liquidity position. However, a significant portion of the company’s cash and cash equivalents (71%) is held by foreign subsidiaries, and repatriating these funds to the U.S. could result in tax liabilities.

Future Cash Requirements

Bel Fuse’s material cash requirements include:

1. Debt Obligations and Interest Payments: The company had $287.5 million outstanding under its revolving credit facility at the end of 2024, with no mandatory principal payments due in 2025. Anticipated interest payments amount to $28.7 million, of which $17.2 million is expected to be paid in 2025.

2. Lease Obligations: The company has $29.0 million in operating lease payments and $3.0 million in financing lease obligations, of which $9.1 million and $0.8 million, respectively, are expected to be paid in 2025.

3. Purchase Obligations: The company had $82.2 million in outstanding purchase orders for raw materials, of which $75.1 million is expected to be paid in 2025, and $4.7 million in outstanding purchase orders for capital expenditures, all of which is expected to be paid in 2025.

4. Pension Benefit Obligations: The company has $18 million in estimated future obligations under its Supplemental Executive Retirement Plan (SERP), with $0.9 million expected to be paid in 2025.

5. Dividends: The company has historically paid quarterly dividends on its two classes of common stock, amounting to $3.5 million in 2024. Consistent with past practice, the company has declared dividends totaling $1.7 million to be paid in the first half of 2025.

6. Share Repurchase Program: In 2024, the company’s Board of Directors authorized a $25 million share repurchase program, of which $9.0 million remains available for future repurchases.

7. Tax Payments: The company has $18.1 million in liabilities for unrecognized tax benefits and related interest and penalties, as well as $2.0 million in transition tax liabilities associated with the 2017 U.S. tax reform, the majority of which is expected to be paid in 2025.

The company also has potential future cash requirements related to the Enercon acquisition, including earnout payments of up to $5 million per year in 2025 and 2026, and the potential purchase of the remaining 20% interest in Enercon in early 2027.

Credit Facility

Bel Fuse is a party to a credit agreement that provides for a $325 million revolving credit facility. At the end of 2024, the company had $287.5 million outstanding under this facility, with $37.5 million in unused credit available. The credit agreement contains financial covenants related to the company’s leverage ratio and fixed charge coverage ratio, which the company was in compliance with at the end of 2024.

Conclusion

Bel Fuse’s financial performance in 2024 was mixed, with declines in the Power Solutions and Protection and Magnetic Solutions segments offset by growth in Connectivity Solutions. The company’s gross margin improved, but it continues to face challenges related to labor costs, material availability and pricing, and the impact of foreign currency fluctuations.

Looking ahead, the company’s liquidity position remains strong, and it is actively managing its cash requirements through debt obligations, lease payments, purchase orders, and other commitments. The successful integration of the Enercon acquisition and the realization of anticipated cost savings from the company’s restructuring initiatives will be key to its future performance.

Overall, Bel Fuse appears to be navigating a challenging operating environment, but its diversified product portfolio, global manufacturing footprint, and financial discipline provide a solid foundation for the company’s long-term success.