# BEL Fuse Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [BEL Fuse Inc](/companies/belfa.md) (CIK 729580)
- Form: 10-Q
- Filed: 2023-11-03
- Accepted by EDGAR: Nov 3, 2023, 12:49 ET
- Period: 2023-09-30
- Accession: 0001437749-23-030168
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/729580/000143774923030168/belfb20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/729580/000143774923030168/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $158.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $499.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $103.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $335.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $55.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $164.7m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $5.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $16.5m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $23.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $74.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $24.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $71.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $512.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $2.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $4.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $8.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $19.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $61.8m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $81.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $9.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $2.5m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $100.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $363.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $559.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $117.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $237.7m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $60.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-09-30 | $321.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,422 characters.

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s condensed consolidated financial statements and the related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2022 Annual Report on Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our 2022 Annual Report on Form 10-K. See Part II, Item 1A, “Risk Factors,” below and “Cautionary Notice Regarding Forward-Looking Information,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our Forward-Looking Statements. All statements herein regarding the anticipated or likely impact of COVID-19 including regarding the continuing, lasting, consequential or related impacts and uncertainties resulting from the associated pandemic constitute Forward-Looking Statements. All amounts and percentages are approximate due to rounding and all dollars in the text are in millions, except per share amounts or where otherwise noted. When we cross-reference to a “Note,” we are referring to our “Notes to Condensed Consolidated Financial Statements,” unless the context indicates otherwise. All amounts noted within the tables are in thousands and amounts and percentages are approximate due to rounding.

### Overview

### Our Company

We design, manufacture and market a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the networking, telecommunications, computing, general industrial, high-speed data transmission, military, commercial aerospace, transportation and eMobility industries. Our portfolio of products also finds application in the automotive, medical, broadcasting and consumer electronics markets.

We operate through three product group segments, in addition to a Corporate segment. In the nine months ended September 30, 2023, 49% of our revenues were derived from Power Solutions and Protection, 32% from Connectivity Solutions and 19% from our Magnetic Solutions operating segment.

Our operating expenses are driven principally by the cost of labor where the factories that we use are located, the cost of the materials that we use and our ability to effectively and efficiently manage overhead costs. As labor and material costs vary by product line and region, any significant shift in product mix can have an associated impact on our costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include materials, labor cost and fringes and related allocations of factory overhead. Our products are manufactured at various facilities in the United States, Mexico, Dominican Republic, United Kingdom, Slovakia, India and the People’s Republic of China (PRC).

We have little visibility into the ordering habits of our customers and we can be subjected to large and unpredictable variations in demand for our products. Accordingly, we must continually recruit and train new workers to replace those lost to attrition and be able to address peaks in demand that may occur from time to time. These recruiting and training efforts and related inefficiencies, and overtime required in order to meet any increase in demand, can add volatility to the labor costs incurred by us.

### The Effects of COVID-19 on Bel’s Business

We continue to be focused on the safety and well-being of our associates around the world in light of COVID-19 and the variants of COVID that have followed. Our management team closely monitors the situation at each of our facilities and protective measures, where possible and as applicable under governing regulations, remain in place throughout our facilities.

Throughout 2022, pandemic-related issues created additional port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of critical parts. In order to better control our costs, the expediting of raw material deliveries has been generally reserved for customer-specific requests for expedited timing whereby our end customer has agreed to pay the incremental fee. The requests to expedite shipments has continued into the first nine months of 2023 but to a lesser extent. Upon the discontinuation of COVID protocols in the PRC in late 2022, we experienced approximately 3-4 weeks between December 2022 and January 2023 where the attendance rate of workers at our factories in the PRC were very low due to COVID outbreaks in the regions in which we operate. As of September 30, 2023, attendance rates at all of our factories in the PRC were at normal levels. We do not believe the aforementioned low attendance rates had a material impact on Bel's financial results during the first nine months of 2023. To date, the COVID-related transportation delays and local outbreaks have not materially impacted our ability to operate our business or achieve our business goals.

Based on our analysis of Accounting Standards Codification ("ASC") 350 and ASC 360 during the nine months ended September 30, 2023, we are not aware of any potential triggering events for impairment of our goodwill, indefinite-lived intangible assets or finite-lived assets. We will continue to assess the relevant criteria on a quarterly basis based on updated cash flow and market assumptions. Unfavorable changes in cash flow or market assumptions could result in impairment of these assets in future periods.

As our operations have continued we have not experienced a negative impact on our liquidity to date. Our balance of cash on hand continues to be strong at $100.2 million at September 30, 2023 as compared to $70.3 million at December 31, 2022. We also have availability under our current revolving credit facility; as of September 30, 2023, we could borrow an additional $115.0 million while still being in compliance with our debt covenants. However, any significant negative impact to our financial results related to COVID or otherwise would have a related negative impact on our financial covenants outlined in our credit agreement, which would impact the amount available to borrow under our revolving credit facility. Our management team closely monitors the ongoing COVID situation and its continuing and consequential or related effects and uncertainties including upon our industry, suppliers and customers, and has developed plans which could be implemented to minimize the impact to our Company in the event prior or similar pandemic conditions reemerge or recur or the current situation otherwise deteriorates.

Our statements regarding the future impact of COVID-19 including regarding the continuing, lasting, consequential or related impacts and uncertainties resulting from the associated pandemic represent Forward-Looking Statements. See “Cautionary Notice Regarding Forward-Looking Information.”

### Other Key Factors Affecting our Business

We believe that, in addition to uncertainties around COVID-19 and resulting pandemic-related uncertainties and effects, recent global inflationary pressures on the costs of goods and services in general, and ongoing conflicts/political unrest in or near the countries in which Bel operates, the key factors affecting and/or potentially affecting our results for the nine months ended September 30, 2023 and/or future results include the following:

- Revenues – Our revenues in the first nine months of 2023 were up $14.8 million, or 3.0% as compared to the same period of 2022. The increase was primarily seen within our Power Solutions and Protection group from higher sales of our power products utilized in networking and eMobility end applications. Our Connectivity Solutions group was also a significant contributor to our sales growth in the first nine months of 2023, driven by increased sales to customers in the commercial aerospace and military end markets. These increases were offset in part by a decline in sales of our Magnetic Solutions products during the first nine months of 2023 as compared to the same period of 2022, we believe primarily due to our Magnetic Solutions networking customers continuing to work through inventory on hand.
- Backlog – Our backlog of orders amounted to $407.6 million at September 30, 2023, a decreaseof $157.8 million, or 27.9%, from December 31, 2022. From year-end 2022 to September 30, 2023, we saw a 28.5% decrease in the backlog for our Power Solutions and Protection business, a decline in backlog of 2.0% in our Connectivity Solutions business and a 59.2% decrease in backlog level at our Magnetic Solutions business. Order volumes in general have been lower in recent quarters which we believe to be due in part to our customers' working through inventory on hand.
- Product Mix – Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on our gross margin percentage. In general, our Connectivity products have historically had the highest-contribution margins of our three product groups given the harsh environment and high-reliability nature of these products and the end markets they serve. Our Power products have a higher-cost bill of materials and are impacted to a greater extent by changes in material costs. As our Magnetic Solutions products are more labor-intensive in nature, margins on these products are impacted to a greater extent by minimum and market-based wage increases in the PRC and fluctuations in foreign exchange rates between the U.S. Dollar and the Chinese Renminbi. Fluctuations in revenue volume among our product groups will have a corresponding impact on our profit margins. See *"Results of Operations - Summary by Operating Segment - Revenue and Gross Margin"* below for further details.
- Pricing and Availability of Materials – Over the second half of 2023 to date, while there has been some stabilization of raw materials pricing, overall our cost of materials remain elevated. With the exception of discrete semiconductors, supply constraints have eased related to components that constitute raw materials in our manufacturing processes, particularly with capacitors, resistors and copper. Lead times are still above normal though suppliers are now meeting the agreed delivery deadlines with more regularity. Our material costs as a percentage of revenue were 41.8% of sales during the first nine months of 2023, down from 45.9% during the same period of 2022 as a result of a favorable shift in product mix and the impact of our pricing actions over the past year, offset in part by higher material costs in 2023.
- Labor Costs – Labor costs represented 6.5% of revenue during the first nine months of 2023 as compared to 8.4% of revenue during the same period of 2022. The reduction in labor costs as a percentage of sales for the first nine months of 2023 was largely impacted by various internal initiatives taken by our Company over the past year to mitigate the increase in wage rates at our factories that we had absorbed over the past several years. Effective October 1, 2023, the PRC issued a regulation mandating an 18.2% increase to the minimum wage in a region where two of Bel's factories are located. We anticipate this increase in minimum wage to result in higher labor costs of approximately $0.5 million per year in the aggregate at these facilities going forward. This and any future increases in minimum wage rates will have an unfavorable impact on Bel's profit margins. The preceding two sentences represent Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
- Inflationary Pressures - Inflationary pressures could continue to result in higher input costs, including those related to our raw materials, labor, freight, utilities, healthcare and other expenses. Our future operating results will depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost savings initiatives and sourcing decisions. The preceding two sentences represent Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
- Restructuring – During the third quarter of 2022, we launched a series of initiatives to simplify our operational footprint. Within our Connectivity Solutions group, facility consolidation actions have been underway in both the U.S. and Europe. During the nine months ended September 30, 2023, we completed the transitions our of our Tempe, Arizona and Sudbury, UK sites, moving those operations into other existing Bel facilities. Our Connectivity site in Melbourne, Florida is in the process of transitioning its manufacturing operations to our existing site in Waseca, Minnesota and this initiative is scheduled for completion by the end of 2023. Within our Magnetic Solutions group, our facility consolidation efforts in China were largely complete by the end of the third quarter of 2023 with the final aspects expected to transition by year-end. Aggregate annual cost savings are estimated at approximately $6.9 million, of which we anticipate to realize approximately $1.6 million in the fourth quarter of 2024. We will continue to review our operations to optimize our business, which may result in restructuring costs being recognized in future periods. The preceding sentences represent Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
- Impact of Foreign Currency – As further described below, during the nine months ended September 30, 2023, labor and overhead costs were $0.4 million lower than the corresponding 2022 period primarily due to a favorable foreign exchange environment involving the Chinese Renminbi, largely offset by an unfavorable foreign exchange fluctuations in the Mexican Peso, as compared to the prior year period. We realized foreign exchange transactional losses of $0.1 million during the nine months ended September 30, 2023, due to the fluctuation of the spot rates of certain currencies in effect when translating our balance sheet accounts at September 30, 2023 versus those in effect at December 31, 2022. Since we are a U.S. domiciled company, we translate our foreign currency-denominated financial results into U.S. dollars. Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our financial results and the revaluation of certain intercompany as well as third-party transactions to and from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact to our consolidated statements of operations and cash flows. We were favorably impacted by transactional foreign exchange gains in the nine months of 2023 due to the depreciation of the Chinese Renminbi against the U.S. dollar, which was largely offset by an appreciation of the Mexican Peso against the U.S. dollar, as compared to exchange rates in effect during 2022. We have significant manufacturing operations located in in the PRC and Mexico where labor and overhead costs are paid in local currency. As a result, the U.S. Dollar equivalent costs of these operations were approximately $2.5 million lower in the PRC, largely offset by higher costs in Mexico of approximately $1.8 million, in the nine months ended September 30, 2023 as compared to the comparable period in 2022. We monitor changes in foreign currencies and have historically implemented foreign currency forward contracts, and may continue to implement pricing actions to help mitigate the impact that changes in foreign currencies may have on our consolidated operating results. The preceding sentence represents a Forward-Looking Statement. See "Cautionary Notice Regarding Forward-Looking Information."
- Effective Tax Rate – Our effective tax rate will fluctuate based on the geographic regions in which our pretax profits are earned. Of the geographic regions in which we operate, the U.S. and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of our three geographical regions. See Note 12, “Income Taxes”.

### Results of Operations - Summary by Operating Segment

#### Revenue and Gross Margin

Our revenue and gross margin by operating segment for the three and nine months ended September 30, 2023 and 2022 were as follows:

|  | Three Months Ended September 30, Revenue 2023 | 2022 | Gross Margin 2023 | 2022 | Nine Months Ended September 30, Revenue 2023 | 2022 | Gross Margin 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Power solutions and protection | $74,862 | $76,433 | 41.7% | 32.4% | $245,134 | $206,247 | 37.5% | 29.5% |
| Connectivity solutions | 51,771 | 50,253 | 35.8% | 26.1% | 160,010 | 140,062 | 35.8% | 26.7% |
| Magnetic solutions | 32,049 | 51,053 | 22.0% | 30.4% | 94,659 | 138,721 | 23.0% | 27.0% |
|  | $158,682 | $177,739 | 35.0% | 29.0% | $499,803 | $485,030 | 32.9% | 27.0% |

#### Power Solutions and Protection:

Sales of our Power Solutions and Protection products were lower by $1.6 million (2.1%) during the third quarter of 2023 compared to the same period of 2022. The decrease resulted primarily from a decline in sales of our CUI products of $8.1 million and a reduction in sales of our circuit protection products by $2.2 million during the third quarter of 2023 compared to the same period of 2022, both of which categories were largely impacted by lower demand from our distribution customers as we believe they continue to work through excess inventory on hand. Further, raw material expedite fee revenue for our Power segment totaled $1.0 million in the third quarter of 2023 as compared to $9.4 million in the third quarter of 2022.These areas of decline were partially offset by higher sales of our front-end power products of $7.5 million and board mount power products of $1.9 million during the third quarter of 2023 compared to the same period of 2022, both of which are used in networking and datacenter applications. Further, sales of product into the eMobility end market increased by $3.8 million (119%) and sales of products into the rail end market increased by $2.5 million (66%) in the third quarter of 2023 as compared to the third quarter of 2022.

Power Solution and Protection sales were up by $38.9 million (18.9%) during the first nine months of 2023 as compared to the same period of 2022. This increase was primarily due to higher sales of our front-end power products and board mount power products of $39.5 million and $7.9 million, respectively, both of which are used in networking and datacenter applications. Further, sales of product into the eMobility end market increased by $9.8 million (79.2%) and sales of product into the rail end market increased by $5.3 million (33.0%) in the first nine months of 2023 as compared to the same period of 2022. These increases were offset in part by a reduction in sales of our CUI products of $8.7 million and a decline in sales of our circuit protection products of $7.4 million, both of which were largely impacted by the lower demand from our distribution customers as noted above. Raw material expedite fee revenue for this segment totaled $14.4 million in the nine months ended September 30, 2023 as compared to $22.0 million in the same period of 2022.

Gross margin improved in the 2023 periods presented versus those from the same periods of 2022 as pricing actions, higher sales volume, favorable exchange rates with the Chinese Renminbi versus the U.S. dollar, a lower volume of low-margin expedite fees and a favorable shift in product mix offset the impact of increased material costs.

#### Connectivity Solutions:

Sales of our Connectivity Solutions products increased by $1.5 million (3.0%) and $19.9 million (14.2%) during three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. These increases were primarily due to an increase in sales into the commercial aerospace end market of $3.3 million (41.1%) during the third quarter of 2023 and $19.7 million (89.4%) during the first nine months of 2023 as compared to the same periods of 2022. Sales into our military end market also grew in the 2023 periods by $3.6 million (44.5%) during the third quarter and $7.0 million (25.9%) during the first nine months of 2023 as compared to the same periods of 2022. We also experienced an increased volume of Connectivity Solutions products sold through our distribution channels in the 2023 periods compared to last year. These sales increases were offset in part by a decline in sales of passive connector and cabling products used in the industrial premise wiring and 5G/IOT markets of $4.4 million (39.6%) during the three months ended September 30, 2023 and a decline of $8.2 million (28.0%) during the nine months ended September 30, 2023 as compared to the prior year periods. Gross margins for the 2023 periods presented above were favorably impacted by the higher overall sales volume, pricing actions and operational efficiencies implemented during the first nine months of 2023, partially offset by higher wage rates in Mexico and an unfavorable fluctuation in exchange rates between the U.S. dollar and Mexican peso in the 2023 periods as compared to the 2022 periods presented.

#### Magnetic Solutions:

Sales of our Magnetic Solutions products declined by $19.0 million (37.2%) and $44.0 million (31.8%) during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. Reduced demand for our Magnetic Solutions products from our networking customers and through our distribution channels has been the primary driver of the lower demand as we believe by these customers continue to work through inventory on hand. The lower sales volume, partially offset by pricing actions and favorable exchange rates with the Chinese Renminbi versus the U.S. dollar, were the primary drivers of gross margin reduction for this product group from last year's periods.

#### Cost of Sales

Cost of sales as a percentage of revenue for the three and nine months ended September 30, 2023 and 2022 consisted of the following:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Material costs | 40.5% | 46.1% | 41.8% | 45.9% |
| Labor costs | 6.2% | 7.9% | 6.5% | 8.4% |
| Other expenses | 18.3% | 17.0% | 18.8% | 18.7% |
| Total cost of sales | 65.0% | 71.0% | 67.1% | 73.0% |

Material costs as a percentage of sales during the three and nine months ended September 30, 2023 were down compared to the same periods of 2022, as pricing actions taken over the past year are helping to offset the continued heightened cost of certain raw materials. Labor costs in 2023 as a percentage of sales have decreased significantly from the 2022 periods presented due to a variety of factors, including the shift in product mix resulting in a lower consolidated percentage of sales from of our labor-intensive Magnetic products, lower labor costs in China due to the favorable fluctuation in the Chinese Renminbi exchange rate versus the U.S. Dollar, and the restructuring and efficiency programs implemented throughout 2023 in our Connectivity Solutions segment. The reduction in labor costs were partially offset by the unfavorable fluctuation of the Mexican Peso exchange rate versus the U.S. Dollar in the 2023 periods presented versus the prior year periods.

The other expenses noted in the table above include fixed cost items such as support labor and fringe, depreciation and amortization, and facility costs (rent, utilities, insurance). In total, these other expenses decreased by $1.5 million in the three months ended September 30, 2023 as compared to the same period of 2022. The declines were largely related to reductions in support labor and overhead costs as a result of efficiency programs implemented at several of our factories throughout 2023. For the nine months ended September 30, 2023, other expenses increased by $2.4 million as compared to the same period of 2022, as prior to the implementation of efficiency-related programs at our factories, global wage rate increases, both inflationary and government-mandated increases to minimum wage rates, coupled with increased overhead costs to accommodate additional demand from our commercial aerospace customers led to higher fixed costs in the 2023 period as compared to 2022.

#### Research and Development ("R&D") Expense

R&D expense amounted to $5.3 million and $4.9 million for the three months ended September 30, 2023 and 2022, respectively, and $16.5 million and $14.4 million for the nine months ended September 30, 2023 and 2022, respectively. The increases noted for the 2023 periods were primarily due to higher salaries, benefits and product development costs.

#### Selling, General and Administrative Expense (“SG&A”)

SG&A expenses were $23.7 million for the third quarter of 2023, up from $22.2 million in the third quarter of 2022. This increase in SG&A was largely the result of higher SG&A salaries and fringe benefits of $1.1 million and incremental litigation costs of $0.5 million. SG&A expenses were $74.1 million for the first nine months of 2023, up from $67.2 million in the same period of 2022, primarily due to higher SG&A salaries and fringe benefits of $5.3 million and litigation costs of $2.9 million primarily associated with the MPS patent infringement lawsuit further described in Note 15, "Commitments and Contingencies".

#### Other Expense, Net

Other expense, net was $0.1 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively. The year-over-year change within this line item was largely driven by the Company recording $0.3 million of losses associated with its investment in innolectric during the third quarter of 2023. Other expense, net was $0.3 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively. The year-over-year fluctuation was primarily due to market fluctuations in our SERP investments which resulted in a gain of $0.3 million in the nine months ended September 30, 2023 versus a loss of $2.9 million in the nine months ended September 30, 2022.

#### Provision for Income Taxes

The Company’s effective tax rate will fluctuate based on the geographic regions in which the pretax profits are earned. Of the jurisdictions in which the Company operates, the U.S. and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company’s three geographic regions. See Note 12, “Income Taxes”.

The provision for income taxes for the three months ended September 30, 2023 and 2022 was $4.3 million and $4.1 million, respectively. The Company’s earnings before income taxes for the three months ended September 30, 2023, were $3.1 million higher when compared with the same period in 2022, primarily attributable to an increase in income from the North America and Europe regions, offset by a decrease in the Asia region. The Company’s effective tax rate was 18.2% and 20.0% for the three months ended September 30, 2023 and 2022, respectively. The change in the effective tax rate during the three months ended September 30, 2023 as compared to the same period in 2022, is primarily attributable to a net benefit resulting from the impact of permanent differences on U.S. activities, as well as a decrease in the U.S. tax credits. See Note 12, “Income Taxes.”

The provision for income taxes was $8.0 million and $3.0 million for the nine months ended September 30, 2023 and 2022, respectively. The Company’s earnings before income taxes for the nine months ended September 30, 2023, were approximately $28.2 million higher than the same period in 2022, primarily attributable to an increase in income in North America and Europe regions, offset by a decrease in the Asia region. The Company’s effective tax rate was 11.5% and 7.1% for the nine months ended September 30, 2023 and 2022, respectively. The change in the effective tax rate during the nine months ended September 30, 2023 as compared to the same period in 2022, is primarily attributable to a decrease in the tax benefit resulting from the reversal of valuation allowances in 2023 compared to 2022. See Note 12, “Income Taxes.”

### Liquidity and Capital Resources

Our principal sources of liquidity include $100.2 million of cash and cash equivalents at September 30, 2023, cash provided by operating activities and borrowings available under our credit facility. We expect to use this liquidity for operating expenses, investments in working capital, capital expenditures, interest, taxes, dividends, debt obligations and other long-term liabilities. We believe that our current liquidity position and future cash flows from operations will enable us to fund our operations, both in the next twelve months and in the longer term.

#### Cash Flow Summary

During the nine months ended September 30, 2023, our cash and cash equivalents increased by $30.0 million. This increase was primarily due to the following:

- net cash provided by operating activities of $81.4 million;
- proceeds from the sale of property, plant and equipment of $5.4 million
- proceeds from the sale of our business in the Czech Republic of $5.1 million; partially offset primarily by
- net repayments under our revolving credit facility of $35.0 million; and
- payments for our equity method investment in innolectric of $10.0 million;
- purchases of property, plant and equipment of $9.7 million; and
- dividend payments of $2.5 million

During the nine months ended September 30, 2023, our accounts receivable decreased by $11.9 million due to lower sales volume in the third quarter. Days sales outstanding (DSO) was 55 days at September 30, 2023 as compared to 58 days at December 31, 2022. Inventory decreased by $29.3 million at September 30, 2023 compared to December 31, 2022, as component availability has started to ease and we have worked to consume our inventory on hand. Inventory turns were 2.9 at September 30, 2023 as compared to 2.6 at December 31, 2022.

Cash and cash equivalents, marketable securities and accounts receivable comprised approximately 34.8% of our total assets at September 30, 2023 and 31.7% of total assets at December 31, 2022. Our current ratio (i.e., the ratio of current assets to current liabilities) was3.1 to 1 at September 30, 2023 and 2.8 to 1 at December 31, 2022. At September 30, 2023 and December 31, 2022, $45.6 million and $50.1 million, respectively (or 45% and 71%, respectively), of our cash and cash equivalents was held by our foreign subsidiaries. We repatriated $33.5 million from outside of the U.S. during the nine months ended September 30, 2023. We continue to analyze our global working capital and cash requirements and the potential tax liabilities attributable to further repatriation, and we have yet to make any further determination regarding repatriation of funds from outside the U.S. to fund our U.S. operations in the future. In the event these funds were needed for our U.S. operations, we would be required to accrue and pay U.S. state taxes and any applicable foreign withholding taxes to repatriate these funds.

#### Future Cash Requirements

We expect foreseeable liquidity and capital resource requirements to be met through existing cash and cash equivalents and anticipated cash flows from operations, as well as borrowings available under our revolving credit facility, if needed. Our material cash requirements arising in the normal course of business are outlined in Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There were no material changes to our future cash requirements during the nine months ended September 30, 2023.

#### Credit Facility

In September 2021, we entered into the CSA, as further described in Note 11, "Debt". During January 2023, we amended our CSA and related interest rate swap agreements to transition the reference rate from LIBOR to a Secured Overnight Financing Rate ("SOFR") effective January 31, 2023. The CSA contains customary representations and warranties, covenants and events of default. In addition, the CSA contains financial covenants that measure (i) the ratio of our total funded indebtedness, on a consolidated basis, less the aggregate amount of all unencumbered cash and cash equivalents, to the amount of our consolidated EBITDA (“Leverage Ratio”) and (ii) the ratio of the amount of our consolidated EBITDA to our consolidated fixed charges (“Fixed Charge Coverage Ratio”). If an event of default occurs, the lenders under the CSA would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At September 30, 2023, we were in compliance with our debt covenants, including the most restrictive covenant, the Fixed Charge Coverage Ratio. The unused credit available under the credit facility at September 30, 2023 was $115.0 million, all of which we had the ability to borrow without violating our Leverage Ratio covenant based on our existing consolidated EBITDA.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements include certain amounts that are based on management's best estimates and judgments. We base our estimates on historical experience and on various other assumptions, including in some cases future projections, that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Different assumptions and judgments could change the estimates used in the preparation of the condensed consolidated financial statements, which, in turn, could change the results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis.

Based on the above, we have determined that our most critical accounting estimates are those related to business combinations, inventory valuation, goodwill and other indefinite-lived intangible assets, and those related to our pension benefit obligations. For a detailed discussion of our critical accounting estimates, refer to “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes in our critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to those disclosed in our 2022 Annual Report on Form 10-K.

#### Recent Accounting Pronouncements

The discussion of new financial accounting standards applicable to our Company is incorporated herein by reference to Note 1 to the Company’s Financial Statements, “Basis of Presentation and Accounting Policies,” included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

## Market risk

As filed, 164 characters.

The Company is not required to provide the information called for by this Item as it is a "smaller reporting company," as defined in Rule 12b-2 of the Exchange Act.

## Controls and procedures

As filed, 962 characters.

Disclosure controls and procedures: As of the end of the period covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in internal controls over financial reporting: There has not been any change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 1,386 characters.

The risk factors described in Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 should be carefully considered before making an investment decision. These are the risk factors that we consider to be the most significant risk factors, but they are not the only risk factors that should be considered in making an investment decision. This Quarterly Report on Form 10-Q also contains Forward-Looking Statements that involve risks and uncertainties. See the "Cautionary Notice Regarding Forward-Looking Information," above. Our business, consolidated financial condition and consolidated results of operations could be materially adversely affected by any of the risk factors described, under "Cautionary Notice Regarding Forward-Looking Information" or with respect to specific Forward-Looking Statements presented herein. The trading price of our securities could decline due to any of these risks, and investors in our securities may lose all or part of their investment. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially adversely affect our business in the future. Except as required by the federal securities law, we undertake no obligation to update or revise any risk factor, whether as a result of new information, future events or otherwise.

Filed Nov 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-030168. Last ingested by Listed: Nov 3, 2026, 18:21 ET. No prices; not investment advice.