Q1 2021 Bel Fuse Inc Earnings Call
Yeah.
Please standby were about to begin.
Good day and welcome to the Bel fuse incorporated first quarter 2020. One results Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Dan Bernstein, President and Chief Executive Officer. Please go ahead.
Thank you Jennifer joining me on the call today is for our CFO, Craig Brosious, Our Vice President of Finance, and then Hudson, our director of financial reporting.
Before we begin the call I have to ask Lynn to go over the Safe Harbor statement Lynn.
Thank you Dan Good morning, everybody before we start I'd like to read the following safe Harbor statement.
Except for historical information contained on this call. The matters discussed on this call public statements regarding the anticipated impact of the acquired.
Our business on our result anticipated higher sales for our magnetic solutions group during the second and third quarters as a result of strong bookings in the first quarter expectations regarding our scheduled backlog as an indicator of stronger sales in the second and third quarters expected contribution to net earned.
<unk> from our rns, and iOS acquisition and cost savings from restructuring efforts and our efforts to continue to optimize our cost structure are all forward looking statements as described under the private Securities Litigation Reform Act of 1995 that income.
Risks and uncertainties.
Actual results could differ materially from bels projections.
Among the factors that could cause actual results to differ materially from such statements are the market concerns facing our customers the continuing viability of sectors that rely on our products the impact of public health crises, such as the governmental social and economic effects of COVID-19 the.
The effects of business and economic conditions.
Difficulties associated with integrating recently acquired companies.
Passive and supply constraints or difficulties.
Product development commercialization or technological difficulties.
For the regulatory and trade environment.
Risks associated with foreign currencies.
Certainties associated with legal proceedings.
The market's acceptance of the company's new products and competitive responses to those new products.
Impact of changes to U S trade and tariff policies.
And the risk factors detailed from time to time in the company's SEC reports.
In light of the risks and uncertainties there can be no assurance that any forward looking statement will in fact prove to be correct. We undertake no obligation to update or revise any forward looking statements.
So may discuss non-GAAP results during this call and reconciliations of our GAAP results to non-GAAP results have been included in our release.
I would now like to turn the call back to Dan for a general business update.
Thank you Linda and thank you everybody for joining us on the call today I hope that you and your families continue to stay safe. During these difficult times first of all like to provide an update on COVID-19, and how it impacts our facilities overall I'm pleased to report that all our manufacturing sites globally continue to be operational throughout the <unk>.
First quarter.
Most recent acquisition.
<unk> is based in Mumbai, India, where theyre going through a very difficult time. The fact that continues to be operational as a manufacturer of essential products and protective measures have been put in place to price the safety of our new associates.
We would like to thank these new associates, who work each day under these difficult conditions.
For getting to our results well Bel does not normally comment on market activity. We realized it was a substantial amount of training and Dallas stock on Friday.
And the company does not know the reason for this increased trading activity.
Turning to our results, we saw a 6% improvement in sales as compared to last year's first quarter demand in each of our market was strong.
For the exception of commercial aerospace both E mobility and surface protection had exceptional quarters in demand from our distribution partners, where store, which is a good indicator of general market demand to that broad customer base.
Sales within the power solutions and protection group were up $7.5 million or 21% from the first quarter of 2020. So <unk> turned in another strong performance this quarter with $2 $1 million increase in sales over last year's first quarter all products sold into <unk>.
Mobility applications applications were up 1.5 million are harder percentage increased from 2021st quarter and fuse sales were up 1.6 million an increase of 60% from last year's first quarter.
He is of growth were partially offset by elimination of low margin products within the group.
Within our connectivity segment sales were down $1 million or 3% in the first quarter of 2020, one versus the same quarter of 2020 well.
While we continue to be impacted by year over year comparison related to the commercial aerospace market we.
We saw a partial rebound in the <unk>.
The end market versus the fourth quarter of 2020, and looking at that trend from the fourth quarter of 2020. So the first quarter of 2021 commercial aerospace increased by one point 10 million or <unk> 57 per cent and sales through distribution by 3 million or 30%.
Sales weighted magnetic solution business were fairly consistent as compared to the first quarter 2020, we had strong bookings in this segment over the past two quarters and our production team is working through some challenges on material and labor availability.
In order to accommodate these increases in demand.
Overall, our margins were down in the first quarter 2020, one preliminary driven by other industry wide material shortages, resulting in higher material costs low.
Labor costs also continue to rise as labor availability in China has been impacted by the lack of traditional workers migrating during Chinese new year holidays as a result of the pandemic this year.
Our cost saving initiatives from prior years mitigated as a higher cost for <unk>.
Certain extent and the remaining impact as it significantly been addressed through price increases to all our customers.
We anticipate price increases the majority of these increases to go into effect during the second quarter and third quarter of 2020 one.
The acquisition price.
Our first acquisitions of RMS I'll first quarter acquisitions of RMS and <unk> have both been run smoothly and integrated has been proceeding plaid is encouraging to see that RMS was accretive to bels results in the first quarter of 2021 and we anticipate <unk> to be immediately accretive to other.
Results in the second quarter.
Our backlog of orders was $234 million as March 31, and we reached 264 million by the end of April are strong indicators of topline growth for the balance of year over year.
Our ability to fulfill orders from our books will be dependent on the ability of materials and labor will keep a close eye on cost and availability of raw materials and direct labor in order to service our customers as timely as possible.
I would like to now turn to Craig over to Craig to go over the financial update.
Thanks, Dan.
Sales by product segment for the first quarter of 2021 were as follows.
Power solutions and protection sales were $43 6 million.
Up 26% from last year's first quarter.
Connectivity solutions sales were $38 1 million weighted.
Decline of $2 seven per cent and.
And magnetic solutions sales were $28 $9 million largely the same as last year's first quarter.
Preliminary gross margin by product segment for the first quarter of 2021 was as follows.
Power solutions and protection had a gross margin of $24 seven per cent and the first quarter of 2021.
Slightly from 24 three per cent in last year's first quarter.
Connectivity solutions gross margin was 25, 7% down from 28, 6% in 2020 quarter.
And magnetic solutions gross margin was 13, 7% down from 21 two per cent.
Last year's first quarter.
On a consolidated basis gross profit margin decreased to 21, 9% in the first quarter of 2021 as compared with 24, 8% in the first quarter of 2020.
Gross margin during the first quarter 2021 was impacted by industry wide increases in raw material price.
Higher labor costs, driven by wage increases and an unfavorable foreign exchange fluctuation.
Bel.
Any price increases to its customers and distribution partners to offset these higher input costs.
With many of those price increases taking effect in the second quarter.
Our margin comparisons were also affected by $2 $2 million in COVID-19 related subsidies received in last year's first quarter that did not repeat.
Research and development costs for $5 million during the first quarter of 2021, a decline of $1.1 million from the first quarter of 2020, primarily due to the closure of our Switzerland R&D facility in mid 2020.
Our selling general and administrative expenses were $21 million toward 19% of sales up slightly from a dollar perspective from the first quarter last year S.
SG&A salaries and fringe benefits were $1 4 million higher as compared to the first quarter of 2020.
These costs were partially offset by a reduction in commissions and other selling costs of $632000 and lower travel expenses of $416000.
During the first quarter of 2021, we closed on the sale of a property in Hong Kong. This transaction resulted in a gain of $6 $2 million, which is included in our first quarter results.
These factors resulted in income from operations for $5 million in the first quarter of 2021.
As compared to a loss from operations of $1 $1 million in the first quarter of 2020.
Other income and expense net was an income of $546000 for the first quarter of 2021.
As compared to an expense of $2 $1 million during the first quarter of 2020.
The expense in the first quarter of 2020, largely related to a $2 million loss on the company's certain investments which are included in this line item.
Interest expense was $800000 in the first quarter of 2021 down from $1 4 million in the same quarter last year as a result of decreases in both LIBOR the company spread on its credit facility driven by EBITDA improvements.
And the overall reduction in our outstanding debt balance.
We had a provision for income taxes of $1 million in the first quarter of 2021 compared to a benefit of $772000 during last year's first quarter.
The benefit in the first quarter of 2020 reflected a reduction in guilty tax and tax benefits associated with the cares Act.
Earnings per share for class a common shares was earnings of 24 cents per share in the first quarter of 2021 as compared with a loss of <unk> 30 per share in the first quarter of 2020.
Earnings per share for the class B common shares was earnings of 26 cents per share in the first quarter of 2021 as compared with a loss of 31 cents per share in the first quarter for 2020.
Okay.
On a non-GAAP basis, which excludes certain unusual and other nonrecurring items EPS for class a shares was a loss of 23 cents per share in the first quarter of 2021 as compared with a loss of 28 cents per share in the first quarter of 2020.
On a non-GAAP basis EPS for class B shares was a loss of 23 cents per share in the first quarter of 2021 as compared with a loss of 29 cents per share in the first quarter of 2012.
And now I'd like to go through some balance sheet and cash flow items.
Our cash and cash equivalents balance at March 31, 2021 was $74 million a decrease of $10 9 million from December 31 2020 during.
During the first quarter of 2021, we've made net payments of $16 million in connection with the acquisitions of RMS and E S.
$1 5 million towards our outstanding debt balance and used cash for capital additions of $1 2 million dividend payments of 815000 net interest payments of 627000.
These items were partially offset by cash flows generated from operating activities of $3 million and $6 7 million in proceeds received from the sale of property.
Accounts receivable were $74 1 million at March 31, 2020.
That's compared with $71 4 million at December 31st 2020.
The primary driver of the increase related to the 2021 acquisitions of RMS in the Eos, which added $3 $1 million to our receivable balance.
Day sales outstanding increased to 60 days at March 31, 2021, as compared to 57 days at December 31 2020.
Inventories were $106 7 million at March 31st 2021 up $6 6 million from December 31, 2020.
The increase was seen in raw materials and work in progress.
Largely due to the inclusion of $5 $3 million from the 2021 acquired companies.
Accounts payable for $42 $5 billion at March 31, 2021 up $2 7 million from its level at December 31 2020.
2021 acquired properties accounted for $2 $2 million of this increase from the year end level.
Sales outstanding debt balance was $114 $3 million as of March 31, 2021 net of deferred financing costs, a decrease of $1.3 million since the 2020 year end balance.
Book value per share, which is calculated as stockholders' equity divided by our combined a and b classes of common stock outstanding was $15.09 per share at March 31, 2021, as compared to $15.04 per share.
At December 31, 2020.
And with that I'll turn the call back over to Gail Dan.
Thank you Craig Jennifer we'd like to open up the call for questions now if possible.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off turned off to life signals from your chocolate net once again that star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay.
And we'll go first to Theodore O'neill with Litchfield Hills research.
Yes.
My first question is about the email ability market, which is getting an awful lot of discussion. This quarter could you just give us an idea about scooters is it is it bikes at both do you see any regional differences in the market and how big do you think the opportunity could be.
Yeah.
I think this time, it's too early to measure the opportunity where our niche is we're not really focused on the automotive market at all.
We do do some good business from our circuit protection business, but the growth that we got for me mobility focusing on that is this like we do from a from a power group and what we're looking at our niche markets. So basically.
You know a post office school buses sanitation mining equipment.
So very specific niche markets, where they're moving to electric vehicles.
Again, we think the opportunity should have substantial growth at least for the next five to six years.
And again, that's what the areas, we're focusing on specific the net.
Which markets are also voting charging markets also okay, it's not scooters and E bikes.
No absolutely yeah, Okay alright.
But if I could.
We did for a business, where a company called Street Scooter that was building you know Paul.
Oh mailbox deliveries in Europe, so more of a government spin.
Specific requirement type of situation, but nothing that's that small.
Okay.
You've mentioned in the prepared remarks that you've seen an uptick in commercial aviation.
This is how I mean, I guess that was probably pretty low, but how much more headroom do you have on the commercial aviation business.
We get back to something looking approaching normal.
I mean, what's normal I again I think.
If you look again from what we understand that you do see with Airbus.
Receiving a big order last week from Delta I believe so and you see I can't imagine anybody out.
So we do see opportunities, but again, if you look at.
Other than my hands are kind of tied with.
Agreements, so basically it can't get much lower so we do see consistent improvement in aerospace for the next three to four years do we get back to Bob for more of the research that we read.
Okay, I like that answer.
If you want.
Certainly comment on the broader commercial aerospace end market.
Oh go ahead.
No headwinds fourth quarter, our total commercial aerospace sales and this is direct this is not straight distributions.
It was around $2 1 million and in the first quarter, we saw that go up to $3 3 million.
So definitely from recovery here, but to put it in perspective last year's first quarter, we were at $5 1 million.
Oh, it definitely a partial recovery at this point and we anticipate ethane.
Yeah.
A long long runway no pun intended.
Adding back for that.
No.
Yeah.
It also should be noted that we are picking up the benefit of our new acquisition, RMS, which is dedicated to the aerospace industry also right.
Okay. Thank you very much.
We'll go next to Jim Ricchiuti with Needham <unk> company.
Hi, good morning.
I just wanted to pursue.
Kris and backlog.
So I think you guys reported in your K.
You had a backlog at the end of February at around 180 million. So this is a day.
Increase and I'm just wondering if you could maybe talk a little bit about.
Which which areas, which segments I mean, you alluded to the.
The demand I think of U E mobility, but I wonder if you could talk a little bit more broadly about.
Where youre seeing the business recover so strongly and how does this compare with some other cycles.
I know this at every side this past year needs, but this is truly broad based if we took out a commercial aerospace each one of our product groups. You are seeing some good substantial increases now it depends on where the lead times are.
Currently our power group has the longest lead times of antibiotics.
They do use semiconductors. So those lead times went from 12 to 14 weeks up to 32 weeks or.
So we've seen that be stretched out.
And so that's really how.
We used the backlog.
Our concern at this point is historically is that double ordering taking place because of the long lead times the material shortages and that's what we have to monitor it but again. It is if you look at our customers and the different types of products like our fuse product line is that our biggest product line by far and away.
But it does have the broadest customer base because it goes into so many different markets.
And that's a great sign and same with our distribution business that our distributors sell to industrial commercial.
You know networking computing you name. It you know security medical and every one of these markets, we see strength out there.
Again, you know our only concern is is there a double booking occurring because of the long lead time and people can't get you know god for possibly or other suppliers.
Yeah, I mean, you're anticipating.
My next question.
And how do you monitor you've been through so many of these oh periods like this and is there any better way to monitor. It then lets say in the past when sometimes you guys are caught off guard.
Well It is star then your child is.
Say, there's nice cash where the waters.
Say that you need payment upfront debt situations like that that you've looked at you try to work day and what your contract agreements that you have with customers.
So again, you just true.
For what has to pay up if you really want to for arch.
Yeah, you got to pay a premium for delivery what you know how much you want to pay a price you guys either with it.
So those are the things that you can look at it also you know noncancelable orders that could help also.
Sure got it.
Are you guys seeing any any signs that the component strains.
Our.
Potentially a risk factor just for for some of your customers because of their own supply chain challenges which might.
Yeah, yeah, it might be held true some disruption.
We see some slight miss on debt.
So I take it all parts.
If we're not getting all the parts end up below the finished product so try to push us off but the problem you have with that situation that is because it's such a bad from our other customers if a customer charge that pushed back a product.
Now we achieved we can send it to another customer and they lose it you know what actually you know, we're not going to accept push outs. If we have other customers with other spots.
So that's it's a basically if youre aggressive customer youre going to take the parts at a weighted the extra for six weeks for the other parts of your advisors or your parts.
Got it I'll.
I'll jump back in the yes. It does it does and thank you all and one more question I'll jump back in the queue.
The SG&A was a was a bit higher than that I think you guys were indicating are back in the last call. I think you said around $19 million to $20 million. So is this a level that we think youre going to see going forward and probably trends up with the growth in sales that you're expecting.
Greg you had for that.
Yeah, I think yeah, I think you're right.
I think it will trend up a little bit.
Just because you know.
The increase activity.
Related to travel and stuff like that.
In the future in future quarters will also have some incremental expense coming from from iOS that basically joined Bel right at the end of the quarter. So we'll have a little bit of an uptick there.
Okay, and I'll jump back into queue I've got a few others. Thanks.
Yes.
We'll go next to Hendi Cusano Gabelli.
Good morning.
Good morning Holly.
First question for Dan I'll tell you talk about price increase debt bills that.
That will take place in Q2 and Q3.
Cash would you be able to pass like 100 per cent of the price increase or is there some like sharing component in to your discussion with your customers.
There's always sharing with our customers, but I think our goal I think its industry wide is that us. So I think we do look at each customer we do look at what our competitors are doing but of course the board I think we've tried to handle that.
A 5% to 12% price increase depending on where the product sits on the fence.
You know that you know again, it's a new product that just been introduced we probably already looked for a 5% increase but a mature product that's been beaten up over many years. We have to you know increase would probably be closer to that 8% to 10%.
To improve the margins.
And as you know we have walked away from.
That's right we have walked away as in the past year, our products that do have low margin, where the customers do that except your price increases.
Okay, and then debt in terms of gross margin expectation for this year last year you'd get improved gross margin quite significantly and then withdraw a material cost increase and price increase what are the puts and takes on.
Your gross margin for 2021.
I think Craig I think that's a good question for Peru.
What did you say Greg.
Yeah, Yeah, I prove address that one.
Yeah, So Andy I'm, just speaking with you here today, so from a gross margin perspective, obviously, we saw the dip, but as low as alluded to in the opening commentary last year's gross margin was aided by a little bit about kind of one off government subsidies are adjustments.
I think the when we look at it at a organic growth adjusted basis the day.
<unk> is not as wide.
With that being said I think the overarching theme that number we're laser focused on and two to Dan's also comments that he made a we are seeing from as you know we're doing price increases raw material increases. So we are monitoring that situation closely.
Obviously, we're trying to prevent that from dropping to the gross margin line. In addition to our other call it organic focus on it.
Does that answer your question Hendi. Okay. Thank you and then a last question from yes. Thank you for Oh, Dan do you have any insight into the hardware.
Many companies talk about.
<unk> recovery in the second half of 2021.
And then I'm wondering what your take that insight into a data center or I D hardware market.
Yeah.
The hardware, we still haven't seen much I mean, that's the only area, where our backlog is very strong on those products, but we haven't seen this.
Cisco has seen and as you know some of these companies out there we really haven't seen much.
Much bullish behavior from them.
Data, it's been strong for us I don't think the.
The data bonds has cut back at all so we do have opportunities that we are addressing in certain countries. You know again looking at niche markets that the other faiths spokes. The amazons the microsofts of the world, but the second tier type of customers well, we feel that we can offer a benefit with our technology and our service.
I see okay. Thank you.
And at this time, we have no further questions and that will terminate this conference call. Thank you for participating.
Thank you for joining us today.
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