Bel Fuse (BELFB) - 2024 Q4 - Annual Report

Part I Business Overview Bel Fuse Inc. designs, manufactures, and markets products that power, protect, and connect electronic circuits across various industries, including defense, aerospace, networking, and eMobility - The company operates through three product groups: Power Solutions & Protection, Connectivity Solutions, and Magnetic Solutions[20][29] Net Sales by Product Group (2024) | Product Group | Percentage of Net Sales | | :--- | :--- | | Power Solutions & Protection | 46% | | Connectivity Solutions | 41% | | Magnetic Solutions | 13% | - On November 14, 2024, Bel acquired an 80% stake in Enercon Technologies, Ltd., a supplier for aerospace and defense markets, for approximately $325.6 million; Bel intends to purchase the remaining 20% by early 2027[25] - On February 3, 2025, the company announced that CEO Daniel Bernstein will step down after the 2025 Annual Meeting, to be succeeded by Farouq Tuweiq, with Mr. Bernstein expected to become Non-Executive Chairman[23] Products Bel offers a diverse product portfolio categorized into three groups: Power Solutions and Protection, Connectivity Solutions, and Magnetic Solutions - Power Solutions and Protection products (46% of 2024 net sales) are used in aerospace, defense, servers, networking, and transportation[29][30] - Connectivity Solutions products (41% of 2024 net sales) serve markets like commercial aerospace, military communications, and network infrastructure[29][32] - Magnetic Solutions products (13% of 2024 net sales) are primarily used in network switches, routers, and Power over Ethernet (PoE) applications[29][34] Market Factors Product orders decreased by 7% to $416.8 million in 2024, driven by declines in Power and Magnetic solutions, while the order backlog increased to $388.1 million due to the Enercon acquisition Product Order Trends (2024 vs 2023) | Product Group | 2024 Orders (millions) | Change vs 2023 | | :--- | :--- | :--- | | Power Solutions & Protection | $139.7 | -24% | | Connectivity Solutions | $212.1 | -1% | | Magnetic Solutions | $65.0 | -24% | | Total | $416.8 | -7% | - The order backlog was $388.1 million as of Jan 31, 2025, compared to $358.3 million a year prior; the 2025 backlog includes $132.5 million from the newly acquired Enercon[42] - Management estimates that approximately 80%-85% of the January 31, 2025 backlog will be shipped by the end of 2025[42] Human Capital and ESG Bel employed approximately 5,370 associates globally in 2024, focusing on employee development and ESG initiatives overseen by the Board's Nominating and ESG Committee - The company employed approximately 5,370 associates as of December 31, 2024, with 31.0% located in North America[54] - The Board's Nominating and ESG Committee provides oversight for ESG matters; five of its 22 manufacturing facilities are ISO 14001 certified, representing 63% of its manufacturing footprint[62][64] - In 2024, the company's charitable program resulted in contributions of $168,975, and employees volunteered 6,007 hours, a significant increase from 3,181 hours in 2023[66] Risk Factors The company faces significant risks including intense competition, acquisition integration challenges, dependence on new products, operational risks from PRC and Israel manufacturing, and financial risks from costs, tariffs, and debt - A key risk is the potential for unanticipated difficulties in integrating the recently acquired 80%-owned Enercon subsidiary and the risk that the intended acquisition of the remaining 20% is not completed[75][76] - The company has substantial manufacturing operations in the PRC, with 41% of associates and 62% of manufacturing facility square footage located there, exposing it to significant political, economic, and regulatory risks[89] - Following the Enercon acquisition, the company faces risks related to political, economic, and military conditions in Israel, where Enercon is based and has approximately 300 employees[95][96] - Changes in trade policies and tariffs, particularly concerning the PRC and Mexico, pose a material risk; approximately 12-13% of sales relate to products shipped from the PRC to the U.S., and 4% from Mexico to the U.S.[103] - The company's consolidated outstanding indebtedness was $287.5 million at year-end 2024, resulting in a Leverage Ratio of 2.1x, which exposes it to risks in the event of business downturns[112] Cybersecurity Bel manages cybersecurity through a full-time expert and third-party specialists, with oversight from the Audit Committee, investing in layered defenses and training - The company employs a full-time Cybersecurity Expert and works with third-party specialists to enhance its security programs[135] - The Audit Committee of the Board of Directors is responsible for overseeing cybersecurity risks and receives quarterly updates[136] Properties Bel's headquarters are in West Orange, NJ, with manufacturing facilities across 8 countries, totaling 2.3 million square feet, primarily in the PRC, with 14% owned Principal Manufacturing Locations (as of Dec 31, 2024) | Location | Approx. Square Feet | Product Group(s) | | :--- | :--- | :--- | | Dongguan, PRC | 661,000 | Magnetic Solutions | | Shenzhen, PRC | 227,000 | Power Solutions & Protection | | Zhongshan, PRC | 349,000 | All three product groups | | Guangxi, PRC | 243,000 | Magnetic Solutions | | Waseca, Minnesota | 128,000 | Connectivity Solutions | | Reynosa, Mexico | 88,000 | Connectivity Solutions | - Approximately 14% of the 2.3 million square feet of manufacturing space is owned, with the rest being leased[139] Legal Proceedings Bel is involved in several legal actions, including a patent infringement lawsuit against Monolithic Power Systems and ongoing tax and customs claims related to past acquisitions, for which it is indemnified - In a patent infringement lawsuit against Monolithic Power Systems, the court granted a motion for summary judgment in favor of the defendant; Bel is evaluating an appeal[426] - An ongoing tax claim in Italy related to the 2014 ABB acquisition has an estimated liability of $12.0 million, for which Bel is fully indemnified by ABB[427] Part II Common Stock and Shareholder Matters Bel's Class A (BELFA) and Class B (BELFB) common stocks trade on NASDAQ, with $3.5 million in dividends paid in 2024 and a $25.0 million share repurchase program authorized, of which $16.0 million has been utilized - Quarterly dividends in 2024 were $0.06 per Class A share and $0.07 per Class B share, totaling $3.5 million for the year[146] - A $25.0 million share repurchase program was authorized in February 2024; as of year-end, $16.0 million in shares had been repurchased ($1.9M Class A, $14.1M Class B)[153] - Approximately $9.0 million remains available for repurchase under the current program ($2.1M for Class A and $6.9M for Class B)[153] Management's Discussion and Analysis (MD&A) In 2024, revenues decreased 16.4% to $534.8 million due to customer destocking, while gross margin improved to 37.8% from the Enercon acquisition and favorable mix, despite lower operating income Financial Performance (2024 vs. 2023) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $534.8M | $639.8M | -16.4% | | Gross Profit | $202.4M | $215.8M | -6.2% | | Gross Margin | 37.8% | 33.7% | +4.1 p.p. | | Income from Operations | $64.3M | $88.0M | -27.0% | | Net Earnings | $49.2M | $73.8M | -33.3% | - The year-end backlog at Dec 31, 2024, was $381.6 million, a 2% decrease from the prior year; excluding the $119 million backlog from the newly acquired Enercon, the legacy business backlog saw a significant decline[160] - SG&A expenses increased to $110.6 million in 2024 from $99.1 million in 2023, primarily due to $10.9 million in acquisition-related costs for Enercon[176] Results of Operations by Segment In 2024, Power Solutions sales fell due to lower demand, Connectivity Solutions grew from aerospace and military markets, and Magnetic Solutions sales dropped from reduced networking demand, with margins improving across segments Segment Sales and Gross Margin (2024 vs. 2023) | Segment | 2024 Sales (M) | 2023 Sales (M) | % Change | 2024 GM | 2023 GM | | :--- | :--- | :--- | :--- | :--- | :--- | | Power Solutions & Protection | $245.6 | $314.1 | -21.8% | 42.4% | 38.1% | | Connectivity Solutions | $220.4 | $210.6 | +4.7% | 37.1% | 34.2% | | Magnetic Solutions | $68.9 | $115.1 | -40.2% | 25.3% | 22.0% | - The Enercon acquisition contributed $20.8 million to Power Solutions sales in the last two months of 2024[164] Liquidity and Capital Resources Cash decreased by $21.1 million in 2024 to $68.3 million, primarily due to the $320.5 million Enercon acquisition funded by new debt, increasing total debt to $287.5 million - Cash and cash equivalents decreased by $21.1 million to $68.3 million at year-end 2024[193] - The Enercon acquisition was a major cash use ($320.5M), funded by proceeds from long-term debt ($242.5M) and cash on hand[193] - The company had $287.5 million outstanding under its revolving credit facility at Dec 31, 2024, with $37.5 million of unused credit available[197][208] - At Dec 31, 2024, the company had purchase obligations for raw materials of $82.2 million and for capital expenditures of $4.7 million[199] Critical Accounting Estimates Critical accounting estimates include business combination valuations, inventory obsolescence reserves, goodwill impairment testing, and pension benefit obligations, all requiring significant management judgment - Key critical accounting estimates include business combinations, inventory valuation, goodwill and other indefinite-lived intangible assets, and pension benefit obligations[211] - Reserves for excess or obsolete inventory were $14.5 million as of December 31, 2024[213] - The annual goodwill impairment test as of October 1, 2024, showed that the fair value of each reporting unit exceeded its carrying value by a large margin, ranging from 44% to 500%[221] Financial Statements and Supplementary Data Consolidated financial statements for 2024 show total assets increased to $949.8 million and liabilities to $508.6 million due to the Enercon acquisition, with net sales of $534.8 million and net income of $41.0 million Consolidated Financial Highlights (as of Dec 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Balance Sheet: | | | | Total Current Assets | $373,530 | $381,478 | | Total Assets | $949,789 | $571,631 | | Total Current Liabilities | $128,069 | $110,609 | | Long-Term Debt | $287,500 | $60,000 | | Total Liabilities | $508,627 | $231,073 | | Total Stockholders' Equity | $360,576 | $340,558 | Consolidated Statement of Operations (Year Ended Dec 31) | Metric (in thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Sales | $534,792 | $639,813 | $654,233 | | Gross Profit | $202,358 | $215,849 | $183,453 | | Income from Operations | $64,297 | $87,976 | $65,147 | | Net Earnings Attributable to Bel | $40,960 | $73,831 | $52,689 | Consolidated Cash Flow Summary (Year Ended Dec 31) | Metric (in thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $74,064 | $108,349 | $40,257 | | Net Cash from Investing Activities | ($297,893) | ($53,535) | ($6,999) | | Net Cash from Financing Activities | $206,258 | ($38,597) | ($21,262) | | Net Change in Cash | ($21,118) | $19,105 | $8,510 | Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2024, excluding the newly acquired Enercon subsidiary from the internal control assessment - Management concluded that disclosure controls and procedures were effective as of December 31, 2024[439] - Management's assessment of internal control over financial reporting excluded the newly acquired Enercon subsidiary; Enercon constituted 15.9% of consolidated total assets and 3.9% of consolidated net sales for 2024[441] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 proxy statement, with the company maintaining a code of ethics and insider trading policy - Detailed information for this section is incorporated by reference from the forthcoming 2025 Proxy Statement[448] - The company has adopted a code of ethics and an insider trading policy, both of which are available to the public[449][451] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2025 annual meeting - Detailed information for this section is incorporated by reference from the forthcoming 2025 Proxy Statement[452] Security Ownership and Related Matters Security ownership information is incorporated by reference from the 2025 proxy statement; as of December 31, 2024, no outstanding options existed under equity plans, with 473,764 securities available for future issuance Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be Issued Upon Exercise | Securities Available for Future Issuance | | :--- | :--- | :--- | | Approved by security holders | 0 | 473,764 | | Not approved by security holders | 0 | 0 | | Total | 0 | 473,764 |