30 Oct Belden Announces Results for Third Quarter 2019, Intent to Divest Grass Valley and Cost Reduction Program
ST. LOUIS–(BUSINESS WIRE)–Belden Inc. (NYSE: BDC), a leading global supplier of specialty networking solutions, today reported fiscal third quarter 2019 results for the period ended September 29, 2019. The Company also announced two significant outcomes of its comprehensive strategic portfolio review. These include the intent to divest the Live Media business (“Grass Valley”) and a new broad-based cost reduction program that is expected to result in $40 million of annualized savings.
Third Quarter 2019
Revenues for the quarter totaled $620.3 million, decreasing $35.5 million, or 5.4%, compared to $655.8 million in the third quarter 2018. Net loss was $(297.0) million, compared to $85.9 million in the prior-year period. Net loss included a $337.0 million after-tax non-cash impairment charge related to Grass Valley. EPS totaled $(6.70) compared to $1.80 in the third quarter 2018.
Excluding Grass Valley, adjusted revenues totaled $533.1 million, decreasing $20.9 million, or 3.8%, compared to $554.0 million in the third quarter 2018. Excluding Grass Valley, adjusted EPS was $1.18 compared to $1.29 in the third quarter 2018. Adjusted results are non-GAAP measures, and a non-GAAP reconciliation table is provided as an appendix to this release.
John Stroup, President, CEO, and Chairman of Belden Inc., said, “Revenues were near the midpoint of our expected range excluding Grass Valley. Consistent with our expectations, demand trends remained softer in some of our key Industrial markets in the third quarter, but we are encouraged by the improving trends in our Broadband business.”
Intent to Divest Grass Valley
Subsequent to the end of the third quarter, the Company made the decision to pursue the divestiture of Grass Valley. Based on the approval of Belden’s Board of Directors to divest this business and the probability that such divestiture will be consummated, Grass Valley’s financial results will be presented as discontinued operations in our fourth quarter and full year 2019 financial statements and prior periods will be recast for consistency.
Mr. Stroup remarked, “We completed a rigorous strategic review of our portfolio of businesses, and today’s announcement marks an important outcome. We concluded that it is in the best interests of our shareholders, customers, and employees to separate Grass Valley from Belden. This will enable Grass Valley to more effectively execute its strategic plan and pursue growth opportunities. Further, this separation will simplify Belden’s portfolio and improve organic growth and revenue visibility.”
“The remaining Belden portfolio will consist of strong businesses in attractive Industrial and Enterprise markets, each aligned with powerful secular trends. These include industrial automation, cybersecurity, broadband & 5G, and smart buildings. This portfolio, while smaller, offers improved predictability and multiple platforms for accelerating organic growth and margin expansion. In addition, we continue to see numerous opportunities for disciplined capital deployment as we invest in compelling inorganic opportunities in these robust markets,” said Mr. Stroup.
Cost Reduction Program
The divestiture of Grass Valley provides an opportunity for a broad-based organizational recalibration. As a result, the Company announced a cost reduction program that is designed to improve performance and enhance margins, delivering a $40 million annualized reduction in selling, general, and administrative expenses. The Company intends to deliver improvements by streamlining the organizational structure and investing in technology to drive productivity. These actions will begin immediately, with some benefit in 2020, and the full benefit in 2021.
“Belden has a long track record of substantial growth, margin expansion, and shareholder value creation, but we are not satisfied with our recent performance. We are reaffirming our commitment to our stated financial goals, including a total revenue CAGR of 5-7% and EBITDA margins of 20-22%. The Company will be well-positioned to achieve these goals after executing these actions. Importantly, the expected cost savings will more than offset the free cash flow dilution associated with the divestiture of Grass Valley,” said Mr. Stroup.
Outlook
“Near-term demand trends remain challenging, but our simplified portfolio of businesses is aligned with long-term secular trends and positioned for profitable growth. We are updating our expectations of revenue and EPS from continuing operations since Grass Valley will be presented as discontinued operations in our fourth quarter and full year 2019 financial statements,” said Mr. Stroup.
The Company expects fourth quarter 2019 revenues to be $510 – $530 million. For the full year ending December 31, 2019, the Company now expects revenues to be $2.092 – $2.112 billion.
The Company expects fourth quarter 2019 GAAP EPS to be $0.00 – $0.15. For the full year ending December 31, 2019, the Company now expects GAAP EPS of $2.04 – $2.19. This full year 2019 guidance relates to income from continuing operations and excludes Grass Valley, the $337.0 million after-tax non-cash impairment charge related to Grass Valley and an estimated loss of $75 million upon a sale of Grass Valley, primarily related to its accumulated foreign currency translation losses, as these items will be included in income (losses) from discontinued operations.
The Company expects fourth quarter 2019 adjusted EPS to be $1.00 – $1.15. For the full year ending December 31, 2019, the Company now expects adjusted EPS of $4.32 – $4.47.
Earnings Conference Call
Management will host a conference call today at 8:30 am ET to discuss results of the quarter. The listen-only audio of the conference call will be broadcast live via the Internet at http://investor.belden.com. The dial-in number for participants in the U.S. is 888-599-8686; the dial-in number for participants outside the U.S. is 720-543-0302. A replay of this conference call will remain accessible in the investor relations section of the Company’s website for a limited time.
Net Income and Earnings per Share (EPS)
All references to Net Income and EPS within this earnings release refer to net income attributable to Belden and income from continuing operations per diluted share attributable to Belden common stockholders, respectively.
Use of Non-GAAP Financial Information
Adjusted results are non-GAAP measures that reflect certain adjustments the Company makes to provide insight into operating results. GAAP to non-GAAP reconciliations accompany the condensed consolidated financial statements included in this release and have been published to the investor relations section of the Company’s website at http://investor.belden.com.
BELDEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
Nine Months Ended
September 29,
2019
September 30,
2018
September 29,
2019
September 30,
2018
(In thousands, except per share data)
Revenues
$
620,318
$
655,774
$
1,845,023
$
1,929,978
Cost of sales
(384,916
)
(394,917
)
(1,143,870
)
(1,180,931
)
Gross profit
235,402
260,857
701,153
749,047
Selling, general and administrative expenses
(120,169
)
(132,716
)
(365,439
)
(396,430
)
Research and development expenses
(31,351
)
(33,471
)
(100,539
)
(107,781
)
Amortization of intangibles
(22,243
)
(25,533
)
(67,952
)
(74,990
)
Goodwill and other asset impairment
(342,146
)
—
(342,146
)
—
Gain from patent litigation
—
62,141
—
62,141
Operating income (loss)
(280,507
)
131,278
(174,923
)
231,987
Interest expense, net
(14,200
)
(14,472
)
(42,561
)
(46,538
)
Non-operating pension benefit
489
1,356
1,517
824
Loss on debt extinguishment
—
—
—
(22,990
)
Income (loss) before taxes
(294,218
)
118,162
(215,967
)
163,283
Income tax expense
(2,797
)
(32,304
)
(13,580
)
(46,063
)
Net income (loss)
(297,015
)
85,858
(229,547
)
117,220
Less: Net income (loss) attributable to noncontrolling interests
(6
)
(23
)
60
(148
)
Net income (loss) attributable to Belden
(297,009
)
85,881
(229,607
)
117,368
Less: Preferred stock dividends
971
8,732
18,437
26,198
Net income (loss) attributable to Belden common stockholders
$
(297,980
)
$
77,149
$
(248,044
)
$
91,170
Weighted average number of common shares and equivalents:
Basic
44,444
40,510
41,090
40,960
Diluted
44,444
47,678
41,090
41,268
Basic income (loss) per share attributable to Belden common stockholders:
$
(6.70
)
$
1.90
$
(6.04
)
$
2.23
Diluted income (loss) per share attributable to Belden common stockholders:
$
(6.70
)
$
1.80
$
(6.04
)
$
2.21
Common stock dividends declared per share
$
0.05
$
0.05
$
0.15
$
0.15
BELDEN INC.
OPERATING SEGMENT INFORMATION
(Unaudited)
Enterprise
Solutions
Industrial
Solutions
Total
Segments
(In thousands, except percentages)
For the three months ended September 29, 2019
Segment Revenues
$
368,080
$
252,238
$
620,318
Segment EBITDA
56,814
44,614
101,428
Segment EBITDA margin
15.4
%
17.7
%
16.4
%
Depreciation expense
7,381
4,766
12,147
Amortization of intangibles
9,780
12,463
22,243
Amortization of software development intangible assets
1,161
36
1,197
Severance, restructuring, and acquisition integration costs
4,045
—
4,045
Purchase accounting effects of acquisitions
(186
)
—
(186
)
Goodwill and other asset impairment
342,146
—
342,146
For the three months ended September 30, 2018
Segment Revenues
$
392,080
$
266,923
$
659,003
Segment EBITDA
72,210
53,750
125,960
Segment EBITDA margin
18.4
%
20.1
%
19.1
%
Depreciation expense
7,092
4,579
11,671
Amortization of intangibles
12,322
13,211
25,533
Amortization of software development intangible assets
620
—
620
Severance, restructuring, and acquisition integration costs
9,528
2,160
11,688
Purchase accounting effects of acquisitions
821
—
821
Deferred revenue adjustments
3,229
—
3,229
For the nine months ended September 29, 2019
Segment Revenues
$
1,064,469
$
780,554
$
1,845,023
Segment EBITDA
149,855
139,531
289,386
Segment EBITDA margin
14.1
%
17.9
%
15.7
%
Depreciation expense
22,655
14,515
37,170
Amortization of intangibles
29,270
38,682
67,952
Amortization of software development intangible assets
3,119
87
3,206
Severance, restructuring, and acquisition integration costs
10,904
—
10,904
Purchase accounting effects of acquisitions
1,845
—
1,845
Goodwill and other asset impairment
342,146
—
342,146
For the nine months ended September 30, 2018
Segment Revenues
$
1,142,765
$
795,102
$
1,937,867
Segment EBITDA
199,943
153,401
353,344
Segment EBITDA margin
17.5
%
19.3
%
18.2
%
Depreciation expense
21,465
14,097
35,562
Amortization of intangibles
35,301
39,689
74,990
Amortization of software development intangible assets
1,344
—
1,344
Severance, restructuring, and acquisition integration costs
46,949
10,061
57,010
Purchase accounting effects of acquisitions
2,359
—
2,359
Deferred revenue adjustments
7,889
—
7,889
BELDEN INC.
OPERATING SEGMENT RECONCILIATION TO CONSOLIDATED RESULTS
(Unaudited)
Three Months Ended
Nine Months Ended
September 29,
2019
September 30,
2018
September 29,
2019
September 30,
2018
(In thousands)
Total Segment Revenues
$
620,318
$
659,003
$
1,845,023
$
1,937,867
Deferred revenue adjustments
—
(3,229
)
—
(7,889
)
Consolidated Revenues
$
620,318
$
655,774
$
1,845,023
$
1,929,978
Total Segment EBITDA
$
101,428
$
125,960
$
289,386
$
353,344
Eliminations
(343
)
(627
)
(1,086
)
(1,616
)
Total non-operating pension benefit
489
1,356
1,517
824
Consolidated Adjusted EBITDA (1)
101,574
126,689
289,817
352,552
Goodwill and other asset impairment
(342,146
)
—
(342,146
)
—
Amortization of intangibles
(22,243
)
(25,533
)
(67,952
)
(74,990
)
Interest expense, net
(14,200
)
(14,472
)
(42,561
)
(46,538
)
Depreciation expense
(12,147
)
(11,671
)
(37,170
)
(35,562
)
Severance, restructuring, and acquisition integration costs
(4,045
)
(11,688
)
(10,904
)
(57,010
)
Amortization of software development intangible assets
(1,197
)
(620
)
(3,206
)
(1,344
)
Purchase accounting effects related to acquisitions
186
(821
)
(1,845
)
(2,359
)
Loss on debt extinguishment
—
—
—
(22,990
)
Deferred revenue adjustments
—
(3,229
)
—
(7,889
)
Loss on sale of assets
—
—
—
(94
)
Gain from patent litigation
—
62,141
—
62,141
Costs related to patent litigation
—
(2,634
)
—
(2,634
)
Consolidated income (loss) before taxes
$
(294,218
)
$
118,162
$
(215,967
)
$
163,283
(1)
Consolidated Adjusted EBITDA is a non-GAAP measure. See Reconciliation of Non-GAAP Measures for additional information.
BELDEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29,
2019
December 31,
2018
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
296,742
$
420,610
Receivables, net
460,044
465,939
Inventories, net
290,995
316,418
Other current assets
74,876
55,757
Total current assets
1,122,657
1,258,724
Property, plant and equipment, less accumulated depreciation
384,183
365,970
Operating lease right-of-use assets
78,788
—
Goodwill
1,265,006
1,557,653
Intangible assets, less accumulated amortization
471,386
511,093
Deferred income taxes
88,118
56,018
Other long-lived assets
31,857
29,863
$
3,441,995
$
3,779,321
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
275,889
$
352,646
Accrued liabilities
301,599
364,276
Total current liabilities
577,488
716,922
Long-term debt
1,403,670
1,463,200
Postretirement benefits
127,090
132,791
Deferred income taxes
75,192
39,943
Long-term operating lease liabilities
73,436
—
Other long-term liabilities
40,309
38,877
Stockholders’ equity:
Preferred stock
—
1
Common stock
503
503
Additional paid-in capital
807,087
1,139,395
Retained earnings
667,703
922,000
Accumulated other comprehensive loss
(29,111
)
(74,907
)
Treasury stock
(307,482
)
(599,845
)
Total Belden stockholders’ equity
1,138,700
1,387,147
Noncontrolling interests
6,110
441
Total stockholders’ equity
1,144,810
1,387,588
$
3,441,995
$
3,779,321
BELDEN INC.
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Nine Months Ended
September 29,
2019
September 30,
2018
(In thousands)
Cash flows from operating activities:
Net income (loss)
$
(229,547
)
117,220
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Goodwill and other asset impairment
342,146
—
Depreciation and amortization
108,328
111,896
Share-based compensation
12,115
14,657
Loss on debt extinguishment
—
22,990
Changes in operating assets and liabilities, net of the effects of currency exchange rate changes and acquired businesses:
Receivables
6,002
(25,338
)
Inventories
32,261
(16,642
)
Accounts payable
(78,346
)
(81,296
)
Accrued liabilities
(70,368
)
(29,474
)
Income taxes
(19,650
)
4,463
Other assets
(9,088
)
(13,267
)
Other liabilities
(4,336
)
(4,350
)
Net cash provided by operating activities
89,517
100,859
Cash flows from investing activities:
Capital expenditures
(74,068
)
(63,451
)
Cash used to acquire businesses, net of cash acquired
(50,951
)
(84,580
)
Proceeds from disposal of tangible assets
19
1,556
Proceeds from disposal of business
—
40,171
Net cash used for investing activities
(125,000
)
(106,304
)
Cash flows from financing activities:
Payments under share repurchase program
(50,000
)
(125,000
)
Cash dividends paid
(32,153
)
(32,421
)
Withholding tax payments for share-based payment awards
(2,063
)
(2,004
)
Other
(232
)
—
Payments under borrowing arrangements
—
(484,757
)
Debt issuance costs paid
—
(7,609
)
Redemption of stockholders’ rights agreement
—
(411
)
Borrowings under credit arrangements
—
431,270
Net cash used for financing activities
(84,448
)
(220,932
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
(3,937
)
(5,704
)
Decrease in cash and cash equivalents
(123,868
)
(232,081
)
Cash and cash equivalents, beginning of period
420,610
561,108
Cash and cash equivalents, end of period
$
296,742
$
329,027
BELDEN INC.
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.
We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired business’ core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.
Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States.
Three Months Ended
Nine Months Ended
September 29,
2019
September 30,
2018
September 29,
2019
September 30,
2018
(In thousands, except percentages and per share amounts)
GAAP revenues
$
620,318
$
655,774
$
1,845,023
$
1,929,978
Deferred revenue adjustments
—
3,229
—
7,889
Adjusted revenues
$
620,318
$
659,003
$
1,845,023
$
1,937,867
Less: Grass Valley adjusted revenue
87,221
104,966
263,434
324,217
Adjusted revenues excluding Grass Valley
$
533,097
$
554,037
$
1,581,589
$
1,613,650
GAAP gross profit
$
235,402
$
260,857
$
701,153
$
749,047
Amortization of software development intangible assets
1,197
620
3,206
1,344
Severance, restructuring, and acquisition integration costs
792
4,820
1,777
21,482
Deferred revenue adjustments
—
3,229
—
7,889
Purchase accounting effects related to acquisitions
(186
)
558
532
1,833
Adjusted gross profit
$
237,205
$
270,084
$
706,668
$
781,595
Less: Grass Valley adjusted gross profit
37,709
51,409
114,105
152,624
Adjusted gross profit excluding Grass Valley
$
199,496
$
218,675
$
592,563
$
628,971
GAAP gross profit margin
37.9
%
39.8
%
38.0
%
38.8
%
Adjusted gross profit margin
38.2
%
41.0
%
38.3
%
40.3
%
Adjusted gross profit margin excluding Grass Valley
37.4
%
39.5
%
37.5
%
39.0
%
GAAP selling, general and administrative expenses
$
(120,169
)
$
(132,716
)
$
(365,439
)
$
(396,430
)
Severance, restructuring, and acquisition integration costs
3,253
6,341
8,364
30,287
Costs related to patent litigation
—
2,634
—
2,634
Purchase accounting effects related to acquisitions
—
263
1,313
526
Loss on sale of assets
—
—
—
94
Adjusted selling, general and administrative expenses
$
(116,916
)
$
(123,478
)
$
(355,762
)
$
(362,889
)
GAAP research and development expenses
$
(31,351
)
$
(33,471
)
$
(100,539
)
$
(107,781
)
Severance, restructuring, and acquisition integration costs
—
527
763
5,241
Adjusted research and development expenses
$
(31,351
)
$
(32,944
)
$
(99,776
)
$
(102,540
)
GAAP net income (loss) attributable to Belden
$
(297,009
)
$
85,881
$
(229,607
)
$
117,368
Interest expense, net
14,200
14,472
42,561
46,538
Income tax expense
2,797
32,304
13,580
46,063
Loss on debt extinguishment
—
—
—
22,990
Non-controlling interests
(6
)
(23
)
60
(148
)
Total non-operating adjustments
16,991
46,753
56,201
115,443
Goodwill and other asset impairment
342,146
—
342,146
—
Amortization of intangible assets
22,243
25,533
67,952
74,990
Severance, restructuring, and acquisition integration costs
4,045
11,688
10,904
57,010
Amortization of software development intangible assets
1,197
620
3,206
1,344
Purchase accounting effects related to acquisitions
(186
)
821
1,845
2,359
Deferred revenue adjustments
—
3,229
—
7,889
Costs related to patent litigation
—
2,634
—
2,634
Loss on sale of assets
—
—
—
94
Gain from patent litigation
—
(62,141
)
—
(62,141
)
Total operating income adjustments
369,445
(17,616
)
426,053
84,179
Depreciation expense
12,147
11,671
37,170
35,562
Adjusted EBITDA
$
101,574
$
126,689
$
289,817
$
352,552
Less: Grass Valley adjusted EBITDA
12,228
24,260
33,894
63,676
Adjusted EBITDA excluding Grass Valley
$
89,346
$
102,429
$
255,923
$
288,876
GAAP net income (loss) margin
(47.9
)%
13.1
%
(12.4
)%
6.1
%
Adjusted EBITDA margin
16.4
%
19.2
%
15.7
%
18.2
%
Adjusted EBITDA margin excluding Grass Valley
16.8
%
18.5
%
16.2
%
17.9
%
GAAP net income (loss) attributable to Belden
$
(297,009
)
$
85,881
$
(229,607
)
$
117,368
Operating income adjustments from above
369,445
(17,616
)
426,053
84,179
Loss on debt extinguishment
—
—
—
22,990
Tax effect of adjustments above
(11,385
)
8,776
(22,857
)
(17,859
)
Impact of Tax Cuts and Jobs Act enactment
—
4,835
—
5,308
Amortization expense attributable to noncontrolling interest, net of tax
—
(17
)
—
(50
)
Adjusted net income attributable to Belden
$
61,051
$
81,859
$
173,589
$
211,936
Less: Grass Valley adjusted net income
7,227
20,224
20,196
45,799
Adjusted net income attributable to Belden excluding Grass Valley
$
53,824
$
61,635
$
153,393
$
166,137
GAAP net income (loss) attributable to Belden
$
(297,009
)
$
85,881
$
(229,607
)
$
117,368
Less: Preferred stock dividends
971
—
18,437
26,198
GAAP net income (loss) attributable to Belden common stockholders
$
(297,980
)
$
85,881
$
(248,044
)
$
91,170
Adjusted net income attributable to Belden excluding Grass Valley
$
53,824
$
61,635
$
153,393
$
166,137
Less: Preferred stock dividends
—
—
18,437
26,198
Adjusted net income attributable to Belden common stockholders excluding Grass Valley
$
53,824
$
61,635
$
134,956
$
139,939
GAAP income (loss) per diluted share attributable to Belden common stockholders
$
(6.70
)
$
1.80
$
(6.04
)
$
2.21
Adjusted income per diluted share attributable to Belden common stockholders excluding Grass Valley
$
1.18
$
1.29
$
3.27
$
3.39
GAAP diluted weighted average shares
44,444
47,678
41,090
41,268
Adjustment for assumed conversion of preferred stock into common stock
1,130
—
—
—
Adjustment for anti-dilutive shares that are dilutive under adjusted measures
166
—
209
—
Adjusted diluted weighted average shares
45,740
47,678
41,299
41,268
Contacts
Belden Investor [email protected]
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