Q1 2021 Bel Fuse Inc Earnings Call
Please standby were about to begin.
And.
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 our CFO, Greg <unk>, our vice President of Finance, and then Hudson, our director of financial reporting.
Before we begin the call I'd 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 and public statements regarding the anticipated impact of the acquired E O. Our business on our result anticipated higher sales of our magnetic solutions group during the second and third quarter as a result of strong bookings.
And the first quarter expectations regarding our scheduled backlog and as an indicator of stronger sales and the second and third quarters.
And I expect that contribution to net earnings from our rns and iOS acquisitions 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 involve risks and uncertainties.
Actual results could differ materially from bels projections I'm on.
And 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 on public health crises, such as the governmental social and economic effects of COVID-19.
And types of business and economic conditions.
Difficulties associated with integrating recently acquired companies.
Has the day and supply constraints or difficulties.
Product development and commercialization of our technological difficulties.
Regulatory and trade environment.
Risks associated with foreign currencies and.
Certainties associated with legal proceedings.
The market's acceptance of the company's new products and competitive responses to those new products the impact of changes to U S trade and tariff policies.
And the risk factors detailed from time to time and 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.
And 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 I can provide and update on COVID-19, and how it has impact on facilities overall I'm pleased to report on all manufacturing sites globally continued to be operational throughout the <unk>.
First quarter on that.
And this recent acquisition.
And is based in Mumbai, India, where theyre going through a very difficult time, and 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 before.
Before getting to our results while 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 and sales as compared to last year's first quarter demand and in each of our market was strong with the exception of commercial aerospace both E mobility and surface protection and exceptional quarters and demand from our distribution partners.
Sure.
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 increased and sales, although last year's first quarter on products sold and Jay.
Mobility applications applications were up 1.5 million are harder per cent increase from 'twenty 'twenty first quarter and fuse sales were up 1.6 million and 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% and 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 and 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 and 10 million or 57 per cent and sales through distribution by 3 million on 30%.
Yeah.
Sales weighted magnetic solution business were fairly consistent as compared to the first quarter of 2020. We have strong bookings in this segment over the past two quarters and our production team is working through some challenges on material and labor availability and.
In order to accommodate these increases in demand.
Overall, our margins were down and the first quarter 2020, one preliminary driven by the industry wide material shortages, resulting in higher material costs.
Labor costs also continue to rise as labor availability and China has been impacted by the lack of traditional workers migrate and during Chinese new year holidays as a result of the pandemic this year.
Our cost saving initiatives from prior years and mitigated our higher cost debt.
And the 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 on.
On the acquisition front.
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 on this was accretive to bels results and the first quarter of 2020, one and we anticipate EPS would be immediately accretive to ours.
And the second quarter.
And our backlog of orders was $234 million as March 31, and we reached 264 million and by the end of April are strong indicators of topline growth for the balance of year on year on.
Our ability to fulfill orders on the books will be dependent on the ability of materials and labor.
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 a decline of two 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.
Our solutions and protection on a gross margin of 24, 7% and the first quarter of 2021 up slightly from 24 three per cent and last year's first quarter.
Connectivity solutions gross margin was 25, 7% down from 28, 6% and the 2020 quarter.
And magnetic solutions gross margin was 13, 7% down from 21, two per cent and <unk>.
Last year's first quarter.
On a consolidated basis gross profit margin decreased to 21, 9% and the first quarter of 2021 as compared with 24, 8% and the first quarter of 2020.
Gross margin during the first quarter of 2021 and was impacted by industry wide increases on raw material pricing and higher labor costs, driven by wage increases and and unfavorable foreign exchange fluctuation.
Bel implemented price increases to its customers and distribution partners to offset these higher input costs.
With many of those price increases taking effect and the second quarter.
The margin comparisons were also affected by $2 $2 million and COVID-19 related subsidies received in last year's first quarter that did not repeat.
Research and development costs were $5 million during the first quarter of 2020, one and 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 and 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 and commissions and other selling costs of $632000 and lower travel expenses of $416000.
During the first quarter of 2020, one we closed on the sale of a property and 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 of $4 $5 million and the first quarter of 2020 one.
As compared to a loss from operations of $1 $1 million and the first quarter of 2020.
Other income and expense net was an income of $546000 for the first quarter of 2020, one as compared to an expense of $2 $1 million during the first quarter of 2020.
The expense from the first quarter of 'twenty, and 'twenty largely related to a $2 million loss on the company's certain investments which are included in this line item.
Interest expense was $800000 and the first quarter of 2021 down from $1 4 million and the same quarter last year.
As a result decreases and both LIBOR and the company's spread on its credit facility driven by EBITDA improvements.
And the overall reduction and our outstanding debt balance.
We had a provision for income taxes of $1 million and the first quarter of 2021 compared to a benefit of $772000 during last year's first quarter.
The benefit and the first quarter of 2020 reflected a reduction and 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 and the first quarter of 2021 as compared with a loss of <unk> 30 per share and the first quarter 2020.
Earnings per share for the class B common shares was earnings of 26 per share and the first quarter of 2021 as compared with a loss of 31 cents per share and the first quarter of 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 and the first quarter of 2021 as compared with a loss of 28 per share and the first quarter of 2020.
On a non-GAAP basis EPS for class B shares was a loss of 23 per share and the first quarter of 2020 one.
Compared with a loss of 29 per share and the first quarter of 2020.
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 and.
Decrease of $10 9 million from December 31, 2023.
During the first quarter 2021, we've made net payments of $16 million and 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 and interest payments of 627000.
These items were partially offset by cash flows generated from operating activities of $3 million and $6 7 million and proceeds received from the sale of property.
Accounts receivable were $74 1 million at March 31, and 2020.
That's compared with $71 4 million at December 31, 2020.
The primary driver of the increase related to the 2021 acquisitions of RMS and the Eos, which added $3 $1 million to our receivable balance.
Day sales outstanding increased to 60 days at March 31, 2020, one 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, Inc.
The increase we've seen and raw materials and work in progress and it was largely due to the inclusion of $5 $3 million from the 2021 acquired companies.
Accounts payable were $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.
Bels 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 Dan 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 turns off to life signals from chocolate and that once again Thats star one to ask a question we'll pause.
And with just a moment to allow everyone an opportunity to signal for questions.
Okay.
And we'll go first to Theodore O'neill.
Build and research.
Yes.
My first question is about the email ability market, which is kitting and awful lot of discussion this quarter.
And just give us an idea about is it.
Scooters bikes.
Bikes at both do you see any regional differences in the market and how big do you think the opportunity could be.
Yeah.
And I think at this time, it's too early and 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 from E mobility, focusing on that is at this and they do from a from a power group and why.
And we're looking at our niche markets so basically.
You know a post office school buses and 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 niche markets and also you know voting charging markets also okay, it's not scooters and E bikes.
No absolutely not okay alright.
But.
We did do 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 required that type of situation, but nothing that's that small.
Okay.
You've mentioned on the prepared remarks, and 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.
I'll get back to something looking approaching normal.
I mean, what's normal and I again I think.
If you look and again from what we understand that you do see with Airbus and you'll receive.
Leaving 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.
And my hands are kind of tied because of.
Agreements, so basically it can't get much lower so we do see consistent improvement and aerospace for the next three to four years do we get back to the from all the research that we read.
Okay, and I like that answer.
And I can certainly comment on the broader commercial aerospace and market.
Oh go ahead.
No headwinds in the fourth quarter on our total commercial aerospace sales and this is direct this is not straight distributions.
It was around $2 1 million and and the first quarter. We saw that go up to $3 3 million.
So definitely from recovery here, but to put it and 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.
Along a long runway no pun intended and that.
And then back to that.
No.
Yeah.
And 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 and company.
Hi, good morning.
And I just wanted to pursue.
Kris and backlog.
So I think you guys reported and your K.
You had a backlog at the end of February and around 180 million and 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 and.
The demand I think any 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 is having said 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. It went from 12 to 14 weeks up to 32 weeks and.
And so we've seen that be stretched out and.
And so that's really how.
We used the backlog.
Our concern at this point is historically is is there a double ordering taking place because of the long lead times and material shortages and that's what we have to monitor it but as you know.
And it is if you look at our customers and the different types of products. They are a fuse product line is not on our biggest product volume 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 distributor sell through and industrial commercial.
You know networking computing Ah you name it security and 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 caused some pause we are on other suppliers.
Yeah, I mean, you're anticipating.
My next question.
And 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 and then let's say in the past when sometimes you guys are caught off guard.
Well it is starting to try and do as well.
Say, there's nice cash where the waters.
Say that you need payment upfront debt situations like that that you look at and you try to work day and what your contract agreements that you have with customers.
So again and you just say hey, if somebody has to pay up if you will.
And he was the port Arthur.
Yeah, and you got to pay a premium for delivery, what you know and habits and you want to pay up front the guidance either live and.
So those are the things that you can look at and you also you know noncancelable lawyers and that could help also.
Sure got it.
Are you guys seeing any any signs that the component cause strains on.
Our.
Potentially a risk factor just for where some of your customers because they're on supply chain challenges which might.
Yeah, yeah, it might be helping you and some disruption.
We see some slight miss on debt.
And while I take at our parks.
And if we're not getting all the parts and the build the finished product so try to push us off with a problem you have with that situation that is because it's such a bad from our other customers and if a customer charge the pushback on 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 and have spot.
So that's it and say basically if youre aggressive customer youre going to take a pause and wait the extra four to six weeks to the other parts.
And your advisors or your parts.
Got it and I'll jump.
Jump back and yes. It does it does and thank you all and one more question and I'll jump back in the queue.
On the SG&A was a was a bit higher and then I think you guys were indicating a back and the last call. I think you said around 19 and $20 million. So is this a level that we think youre going to see going forward and probably trends up with the growth and sales that you're expecting.
Great.
Yeah, I think yeah, I think you're right Jim.
I think it will trend up a little bit.
And just because you know.
And maybe the increased activity.
Related to travel and stuff like that.
And the future and future quarters will also have some incremental expense coming from from iOS that basically joined Bel already 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 will go next to Hendi Cusano Gabelli.
Good morning.
Good morning on the.
First question, Dan and I'll tell you talk about price increase debt bills debt.
And that will take place and Q2 and Q3.
Would you be able to pass like 100% of the price increase or is there some like sharing compound on in to your discussion with your customers.
And there's always sharing with our customers, but I think our goal and 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 and 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%.
And to improve the margins.
And as you know we have walked away from.
That's right, we have walked away and in the past year on products that do have low margin, where the customers do that except you know our price increases.
Okay and on that in terms of gross margin expectation for this year.
Last year, you did improve gross margin quite significantly and then withdraw on material cost increase and price increase and what are the puts and takes on.
Your gross margin for 2020 one.
I think Craig and I think that's a good question.
What did you say Craig.
Yeah, Yeah, I've proved and address that one.
Yeah, So Andy I'm, just speaking with you here today, so from a gross margin perspective, obviously, we saw the debt, but as there was alluded to on the open commentary last year's gross margin and was aided by a little bit Oh, I've kind of one off government subsidies are adjustments.
I think the when we look at it at a organic or 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 and all.
Obviously, we're trying to prevent that from dropping to the gross margin line and in addition to our other call it organic focus on it.
Does that answer your question Hendi. Okay. Thank you and then on last question from yes. Thank you far Okay, and do you have any insight into the hardware.
Many companies talk about.
<unk> recovery and the second half of 2021.
And then I'm wondering what your takes on insight into a data center or IP hardware market.
And again.
The hardware and 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 and it's been strong for us I don't think the.
The data bonds it cut back at all so we do have opportunities that we are addressing and certain countries. You know again looking at niche markets that and where the facebooks. 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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