Bel Fuse (BELFA) - 2024 Q2 - Quarterly Report

Revenue and Sales Performance - Net sales for Q2 2024 decreased to $133.2 million from$168.8 million in Q2 2023, a decline of 21.1%[25] - Revenue from Power Solutions and Protection products decreased by $28.5 million (32.8$51.5 million (30.3%) in H1 2024 compared to the same periods in 2023[42] - Connectivity Solutions revenue increased by $2.979 million (5.4$3.868 million (3.6%) in H1 2024 compared to the same periods in 2023[42] - Magnetic Solutions revenue decreased by $10.011 million (37.3$32.22 million (51.5%) in H1 2024 compared to the same periods in 2023[42] - Revenue for the six months ended June 30, 2024 decreased by $79.8 million, or 23.4$133.205 million, with gross profit of $53.396 million and a gross profit percentage of 40.1$261.295 million, with gross profit of $101.474 million and a gross profit percentage of 38.8$3.0 million (5.4%) and $3.9 million (3.6$10 million (37.3%) and $32.2 million (51.5$53.4 million, down from $55.5 million in Q2 2023, a decrease of 3.8$18.8 million, compared to $27.8 million in Q2 2023, a decline of 32.4$17.5 million, compared to $26.3 million in Q2 2023[26] - Net earnings for the six months ended June 30, 2024, were$18.8 million, compared to $27.8 million for the same period in 2023[27][28] - Net earnings for June 2024 were$34.68 million, compared to $42.347 million in June 2023, representing a decrease of 18.1$101.474 million, with gross profit percentages of 44.8% for Power Solutions and Protection, 37.6% for Connectivity Solutions, and 21.8% for Magnetic Solutions[128] - The company's gross profit for the three months ended June 30, 2024 was $53.396 million, with gross profit percentages of 45.7$109.201 million, with gross profit percentages of 35.7% for Power Solutions and Protection, 35.8% for Connectivity Solutions, and 23.6% for Magnetic Solutions[128] - The company's earnings before income taxes for the six months ended June 30, 2024 were $2.8 million lower compared to the same period in 2023, primarily due to decreased income from the North America and Asia regions[152] Expenses and Costs - Research and development costs for Q2 2024 were$6.0 million, consistent with $6.0 million in Q2 2023[25] - Selling, general, and administrative expenses for Q2 2024 were$24.1 million, down from 25.1 million in Q2 2023[25] - R&D expenses remained flat at 6.0 million for Q2 2024 and 11.2 million for H1 2024 compared to the same periods in 2023[47] - SG&A expenses decreased by 1.0 million (4.0%) in Q2 2024 compared to Q2 2023, primarily due to lower legal and professional fees[48] - SG&A expenses decreased to $49.1 million in the first half of 2024 from$50.4 million in the same period of 2023, driven by a $2.4 million decline in legal and professional fees and a$0.6 million reduction in commissions[49] - Material costs as a percentage of sales decreased in Q2 and H1 2024 compared to 2023 due to stabilized raw material pricing and improved procurement efforts[45] - Labor costs increased to 7.7% of revenue in the first six months of 2024, up from 6.6% in the same period of 2023, driven by higher wages in Mexico and Slovakia[166] - Material costs as a percentage of revenue decreased to 27.8% in the three months ended June 30, 2024, from 41.3% in the same period of 2023[173] - Total cost of sales as a percentage of revenue decreased to 59.9% in the three months ended June 30, 2024, from 67.1% in the same period of 2023[173] - The company incurred $0.5 million in severance costs in Q2 2024 due to headcount reductions in the Magnetics segment[166] - The statutory minimum wage rate in Mexico increased by 20$1.4 million[166] Cash Flow and Liquidity - Cash and cash equivalents decreased to $85.0 million as of June 30, 2024, from$89.4 million as of December 31, 2023[21] - Net cash provided by operating activities for June 2024 was $38.344 million, down from$40.656 million in June 2023, a decrease of 5.7%[32] - The company's cash and cash equivalents decreased by $4.4 million during the six months ended June 30, 2024, primarily due to net cash provided by operating activities of$38.3 million, offset by purchases of securities and common stock[155] - The company's principal sources of liquidity include $85.0 million of cash and cash equivalents and$58.8 million of held to maturity investments in U.S. Treasury securities as of June 30, 2024[153] - The company repatriated $11 million from outside of the U.S. during the six months ended June 30, 2024[157] - The unused credit available under the company's credit facility at June 30, 2024 was$115.0 million[159] Assets and Liabilities - Total current assets as of June 30, 2024, were $376.0 million, down from$381.5 million as of December 31, 2023[21] - Total liabilities decreased to $211.2 million as of June 30, 2024, from$231.1 million as of December 31, 2023[21] - Total stockholders' equity increased to $356.4 million as of June 30, 2024, from$340.6 million as of December 31, 2023[22] - Retained earnings increased to $340.5 million as of June 30, 2024, up from$307.5 million at December 31, 2023[27] - Additional paid-in capital grew to $46.1 million as of June 30, 2024, compared to$44.3 million at December 31, 2023[27] - Accumulated other comprehensive loss widened to $16.7 million as of June 30, 2024, compared to$12.0 million at December 31, 2023[27] - Inventories decreased to $127.9 million as of June 30, 2024, from$136.5 million as of December 31, 2023[88] - Assets held for sale increased to $2.1 million as of June 30, 2024, from$1.3 million as of December 31, 2023[90] - Accrued expenses decreased to $38.9 million as of June 30, 2024, from$54.7 million as of December 31, 2023[92] - The company's current ratio improved to 4.2 to 1 at June 30, 2024 from 3.4 to 1 at December 31, 2023[157] Investments and Derivatives - The company held $59.206 million in U.S. Treasury securities as of June 30, 2024, with an amortized cost of$58.822 million and gross unrealized gains of $384,000[37] - The company invested €8.0 million (approximately$8.8 million) in innolectric AG, with transaction costs of $1.3 million, and recorded a fair value of$11.0 million for the initial one-third equity investment[63] - Innolectric-related losses amounted to $0.3 million for Q2 2024 and$0.1 million for the first half of 2024, with results recorded on a one-month lag basis[64][65] - The company provided incremental loans of €0.2 million and €0.7 million to innolectric during Q2 and the first half of 2024, respectively, with outstanding loans totaling €2.6 million ($2.8 million) as of June 30, 2024[66] - The fair value of foreign currency forward contracts was ($0.5) million at June 30, 2024, compared to $0.5 million at December 31, 2023[78] - The fair value of interest rate swap agreements remained stable at$4.0 million as of both June 30, 2024 and December 31, 2023[79] - Total derivative assets decreased to $4.0 million as of June 30, 2024, from$4.4 million as of December 31, 2023[80] - The estimated fair value of total debt was $60.0 million as of both June 30, 2024 and December 31, 2023[83] - The company held outstanding foreign currency forward contracts with notional amounts of$18.8 million as of June 30, 2024, compared to $25.8 million as of December 31, 2023[96] - The company executed interest rate swap agreements in November 2021 with two multinational financial institutions, paying fixed rates of 1.3055$30.0 million each, transitioning from LIBOR to SOFR in January 2023 with new rates of 1.334% and 1.348%[98] - The 2021 Swaps are designated as cash flow hedges, with changes in fair value recognized in accumulated other comprehensive loss and reclassified into interest expense when the hedged transaction affects earnings[99] - The company's derivative financial instruments in cash flow hedging relationships resulted in net gains of $254,000 for the three months ended June 30, 2024, and$1.098 million for the six months ended June 30, 2024[101] Taxes and Retirement Plans - The company's liabilities for uncertain tax positions totaled $18.0 million at June 30, 2024, with$2.7 million resolved during the six months ended June 30, 2024[108] - The company recognized $0.2 million of interest and penalties related to uncertain tax positions during the six months ended June 30, 2024[109] - The company's retirement, savings, and deferred compensation plans incurred expenses of$0.3 million for the three months ended June 30, 2024, and $0.9 million for the six months ended June 30, 2024[110] - The company's SERP (Supplemental Executive Retirement Plan) had a net periodic benefit cost of$345,000 for the three months ended June 30, 2024, and $690,000 for the six months ended June 30, 2024[113] - The company's subsidiaries in Asia incurred retirement fund expenses of$0.1 million for the three months ended June 30, 2024, and $0.2 million for the six months ended June 30, 2024[117] - The company's estimated liability for uncertain tax positions related to a tax matter in Italy is approximately$12.0 million, included in the condensed consolidated balance sheets at June 30, 2024 and December 31, 2023[124] - The company's effective tax rate was 17.8% for the three months ended June 30, 2024, compared to (1.8%) for the same period in 2023[151] Other Financial Metrics - Dividends declared for Class A Common Stock were $0.06 per share, totaling$127,000, and for Class B Common Stock were $0.07 per share, totaling$725,000[27] - Foreign currency translation adjustment resulted in a loss of $999,000 for the six months ended June 30, 2024[27] - Stock-based compensation expense increased to$971,000 for the six months ended June 30, 2024, compared to $950,000 for the same period in 2023[27][28] - Treasury stock purchases amounted to$7.9 million for the six months ended June 30, 2024[27] - Unrealized holding losses on interest rate swap cash flow hedge were $291,000 for the six months ended June 30, 2024[27] - The company repurchased 9,791 Class A shares and 116,761 Class B shares during the quarter ended June 30, 2024, with an average price paid per share of$72.07 and $61.55, respectively[142] - Depreciation expense for the six months ended June 30, 2024 was$4.6 million, compared to $4.2 million for the same period in 2023[89] - The company's accounts receivable decreased by$2.8 million due to lower sales volume in the second quarter, with days sales outstanding (DSO) remaining at 55 days[156] - Inventory decreased by $8.0 million at June 30, 2024 compared to December 31, 2023, with inventory turns decreasing from 3.1 to 2.8[156] - Foreign exchange transactional gains of$0.4 million were realized in the six months ended June 30, 2024, due to favorable currency fluctuations[166] - The company anticipates annualized cost savings of over $1.0 million from the Glen Rock restructuring initiative, to be realized gradually in fiscal year 2024[166] - The company's Power segment gross margin improved in 2024 despite lower sales volume, driven by strategic pricing actions and favorable exchange rates[169]