Q2 2022 Bel Fuse Inc Earnings Call

July 28, 2022

The.

Good morning, ladies and gentlemen. Welcome to the Bell Fuse.

Second quarter, 2020, Duanning's conference call.

At this time, all participants are in a listen-only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the call over to Jean Mary Young with three part advisors. Please go ahead, Jean.

Thank you, Bikram, and good morning, everyone. Before we begin, I'd like to remind everyone that this conference call contains certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results may differ materially from those expressed or implied by these forward-looking statements due to a number of risks and other factors. Additional information about factors that could potentially impact our financial results may be included in this call.

is included in yesterday's press release and is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our subsequent quarterly reports and other filings with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website.

Joining me on the call today is Dan Bernstein, President and CEO , Fruit2Eeks, CFO , and Lynn Hedken, Director of Financial Reporting. With that, I'd like to turn the call over to Dan. Dan. Thank you, Jean, and thank everyone for joining our call today. I'm delighted to report we achieve record-baking results for the second quarter in many categories. Revenue, adjusted EBITDA, bookings and backlog, or at the highest level in those history.

and we would have to go back to 2015 to see comparative, adjusted EVA. results. This new milestone for Bell was delivered by our entire team and all three of our product groups.

Commercial aerospace continually bounced with 7.8 million in sales of 43% to the same period last year and up 26% eventually the EVN market sales were up 6.7 million or 89% from the same period last year and up 13% essentially power and magnetic continue to perform well

And with margin improvement due to strategic initiatives, we implement over the past year. Revenue generated from our distributed partners grew 10.8 million over 23% over the same period last year.

Can activity margins are currently compressed due to the initial course associated with ramping commercial air? Additionally, we had 9 million of revenue related to raw material expedite these, this quarter, with overwhelming majority came from our power segment.

Although this is largely a pass-through of minimum administrative markup, this does have a negative impact on our margin. While this is an unusual source of revenue, we do expect this to continue in the near term until those fly issues are stabilized.

The supply chain continues to be constrained impacting warm material of albary, freight and logistics. But that seems to be the new normal that every business is having to deal with. All we're doing now, it's right about every business having to deal with.

I'm very proud of our team and the contributions that drove this record-breaking performance, and I'm confident that we will continue our momentum throughout the remainder of the year. I would like now to turn the call over to Lynn to provide full financial update. Lynn? Thank you, Dan. As Dan mentioned, Q2 was very strong with year-over-year growth seen across each of our product groups.

Overall, second quarter sales were 170 million, an increase of 23% from the second quarter of 2021. An increase of 23% from the second quarter of 2021.

growth margin for the quarter increased to 26.6% as compared to 24.7% a year prior, primarily due to our efforts on pricing over the past year.

otiative groups.

Power Solutions and Protection Sales for 71 million, about 28% from last year's second quarter.

In addition to the uncommon theory on EV sales and expedite sea invoicing, the power group also benefited from strong sales in our sea ride business, which posted an increase of 1.8 million or 13% from Q2 2021.

Our EOS business, acquired in Q1 last year, also saw growth of 1.1 million, or 30%, from last year's second quarter.

Gross margin for this group was 28.2% for the second quarter, a 230 basis point improvement from Q2 2021, largely driven by the benefits of pricing action taken over the last year.

Our power solutions and protection group had a book to the ratio of 1.9 during the second quarter of 2022 and a backlog of orders of 338 million in increased to 41% from the 2021 year end.

Turning to our connectivity solutions group, sales were 46.1 million, an increase of 7% from last year's second quarter, mostly due to the continued rebound of the commercial aerospace end market and higher sales of our passive connector and cabling products.

Military sales continued to be challenged this past quarter, resulting in a 7% year-over-year decrease in the defense end market.

Gross margin for this group came in at 27.6% for the second quarter of 2022, down from 30% in the second quarter of 2021. 13 6L

Much of the margin pressure relates to incremental training and overhead costs at the factories, as we've been quickly scaling the operations back up to accommodate the higher demand in commercial aerospace.

The Connectivity Solutions Group had a book-to-bill ratio of 1.2 during the second quarter of 2022, and a backlog of orders of 103 million at June 30th, an increase of 21% from December 31st.

Lastly, our magnetic solutions group had Q2 sales of 53.5 million, of 33% from last year's second quarter led by increasing demands for our integrated connector modules that are used in next generation switching applications. And then the List 5 So work long system maintenance for XE. Thank you. brilliant Wiemmeyer. What's the point of view on the other biggest systems in the international unique very very very not really really not really really really really really really really really very really lagi all lagi lagi lagi log?? micrises gal et cetera. g r d l a g g g applications.

Growth margins for this group improved significantly to 28.2% in the second quarter of 2022, from 23.2% a year prior.

Margin Tritis Group benefited from the higher sales volume and also a favorable shift in exchange rate of Chinese Remn and B versus the US dollar, which lowered our labor cost in China versus the 2021 period.

Our magnetic solution screw padded up to the ratio of 0.7 during the second quarter of 2022 and finished the quarter with $140 million of orders down slightly from the 2021 year-end level.

Our selling general and administrative expenses were $24 million or 14% of sales, up from 21.8 million in the second quarter last year, but down as a percentage of total sales.

Within FGNA, the primary increases for related to salaries, rep submissions, travel, and advertising costs.

Turning to balance sheet and cash flow items, we ended the quarter with a cash balance of 65.8 million and increased of 4.1 million from December 31st.

Are working capital increased by 15.3 million from the 2021 year end?

We saw a $12.7 million increase in our accounts receivable balance.

offset by a $5 million reduction in our unbilled receivables balance at June 30th compared to the December 31st balances.

Our DSO worked 53 days at June 30th, 2022, compared to 54 days at December 31st, 2021.

Inventories increased by 25.3 million from year end, which is largely seen in work in progress as we continue to accommodate the increase in demand from our customers. Inventories increased by 25.3 million from year end, inventories increased by 25.3 million from year end, which is largely seen in work in progress. Inventories increased by 25.3 million from year end, inventories increased by 25.3 million from year end,

In addition to changes in working capital, other items impacting cash flow for the first half of 2022 included capital expenditures of $3.5 million and our continued dividend program where we made payments of $1.6 million.

Cash paid during the first half of 2022 for income taxes was 4.6 million, and interest payments totaled 1.1 million.

I'll now turn the call over to Ferruz for additional color, outlook, and execution. Ferruz. Thank you, Lynn. As we have spoken about the last few quarters, the initial plan was to build sequentially upon our progress in future quarters, and that is precisely what we are doing. We're proud to report our sixth consecutive quarter of year over year sales, growth, and margin improvement.

2015, as Dan mentioned, was the last time we experienced similar margins and we're delivering these results in a very challenging environment.

Excluding the PPV part of our revenue, our margins would have looked even more impressive as a percentage of sales.

Although we have started to see the fruits of our efforts, we are still on a journey and remain laser focused on continuous improvements.

Looking toward the third quarter, we expect year-over-year top-line growth in the high single digits and gross margins higher year-over-year and more in line with the second quarter of 2022.

Power and magnetics will see better year-over-year improvements, while connectivity will be slow to follow till year-end as contracts come up for negotiations.

Our backlog continues to look robust with continuously improving gross margins that gets us excited as to our future prospects.

Thinking beyond the third quarter to the balance of 2022, we see continued demand demonstrated by our strong backlog of orders. While the economic concerns of 2023 have dominated the airwaves, we have not seen any meaningful signs of a slowdown.

Some softening could occur over time, but we remain highly counterfinanced overall in the business.

From an operational efficiency perspective, there are still several internal initiatives underway, and additional details will be shared in the near future to update you on our progress.

Our executive team had an offset in May, which resulted in some very exciting takeaways that give us the confidence in our ability to drive further long-term shareholder value as we execute on our strategic plan and vision.

We have identified diverse and numerous opportunities for continued margin improvement and are excited about the journey.

The diversity of contribution gives us optionality to see where our improvement will be coming from.

While these results are impressive, our work is not done, and it is on multiple fronts. We will celebrate this quarter with our teammates and quickly pivot back to the bigger task at hand.

And with that, I'll turn the call back over to Dan. Thank you, Farouk. At this time, we would like to open up the call for any questions you might have.

Thank you.

At this time we will be conducting our question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad.

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One moment please while we pull for questions.

We have a first question from Lionel Theodore Oniel with Lichfield Hills Research. Please go ahead.

Thank you and congratulations on a good quarter.

Dan, in your prepare remarks, you talked about, I got this right, $9 million in expedite fees that you were able to bill your customers. Is that, is that, is that they hear that correctly? Yes.

And what was that across all segments or one in particular? Mainly focus, I would say the majority of it is in power products and bringing in semiconductors.

Okay, great. You're having some good success here in terms of growth rate in the immobility sector, which you've cited here is continued to see good growth in the quarter. How diverse is the customer base there? And is this?

Is it a share gain related or is this some you know particularly good product fit?

I think it's more, it's good product fit, it's new technology. Most of all our designs were a single source at this point in time. So it's very engineering derivative. How many non-disclosures do we have, Ruth? I think we have over 250 non-disclosures, which ranges from anywhere, kind of startups all the way to kind of big main staple names in the industry. And as then noted, this is still an emerging field. We had a first mover's advantage. We've been in this business for roughly 10 years, and we've only witnessed early started on.

on your direct channel.

Distribution has been in its substantially stronger than the OEM market at this point in time and that falls back and forth But we do see the market distribution. They are a lot more aggressive by material

Thank you.

Okay, thanks very much.

Thank you.

We have next question from the line of Jim Ritchie with Needham and Company. Please go ahead.

Hi, good morning. It's actually Chris Gringo on for Jim. Congrats on the on the great quarter. Congrats on the on the great quarter.

Last quarter, you had a reference roughly 30 or 40 million of sales pushed out due to customer rescheduling. Has that trend improved, stayed the same or expanded? Okay.

So that trend has continued. The number currently is about 34 million of orders that was scheduled to ship in the second quarter. That did not. So it's a very similar number to where it was last quarter.

And maybe just to add some color on that, that's not all on us partially, maybe our material challenges as Dan has spoken about, but also on our customer side, where we may have finished goods and products and ready to ship, but they're not ready as they are waiting on other parts of the system, so to speak. So it's a little bit of a mix of both of that.

Got it, thanks.

Anywhere where you're starting to see any demand deterioration or any areas that isn't

a group or market vertical that might be precursors to softening and consumer demand.

We are currently concerned about the recession, concerns that we hear throughout the country, but at this time we monitor our cancellations daily and we haven't seen anything to give us any concern.

Excellent, maybe one more for me, but...

You had alluded a little bit to it, but where do you stand with the strategy refresh and could you provide a sense for maybe where margins could go from here once those initiatives are fully implemented?

Yeah, so I'd say, you know, we understand that there's a lot of work ahead of us, and there's a lot of internal projects going on across all three segments. And these can arrange from sizes and scale, from kind of big things to smaller things.

So it is coming from all ends in terms of our strategy. We think that we have a healthy room to go yet on the margin front. We think that we have a healthy room to go yet on the margin front.

And we don't obviously put on any forward guidance, but we understand that we're still kind of climbing the stairs here early on. So we're going to leave it at that here.

Fair enough. Thanks very much and congrats on the quarter.

Thank you.

Thank you. We have an express train from the line up handy to Santo with your barely funds. Please go ahead.

Good morning, dad, Faroq and Lin.

Go ahead and do it.

Congrats, strong result. For, I would like to ask questions about the pricing action. So how much of the benefit of pricing action of Belfuse generated in the June quarter? And I'm wondering whether you can give more colors, like how much more, and then I assume more will come. And I don't know what kind of timing, and then maybe you can help us figuring out what magnitude.

Yeah, I appreciate the question, here, Hendy, on the pricing side, when we initially started this, it was really a little bit of a combination of reactionary to the increased input cost, logistics, freight, and everything, kind of that goes into producing these products. As we looked at some of these products last year, some of our components have gone up. We got price increases the tune of 10 times. The other part of it is we need to, in addition to recovery, look at what is a healthy and acceptable margin for us, and that answer.

So the difficulty of answering your question here is twofold. One is it's ongoing. So if we're looking at Q2, for example, it happened a number of times. So we're not putting a number out there yet, but I would say while pricing has obviously gotten a big amount of airplay here, I want to also emphasize that we are taking market share, we are wanting new business, and we are getting into new designs.

So as we're going after these newer opportunities, we're pricing things a little bit more appropriate for a company that meets our kind of shareholder expectations and what we expect for ourselves. So I'll leave it at that, but what encourages me as we look out and part of my bullish view here is the diversity of it. So we're not seeing kind of just again, one customer or one end market that this is going, but we have a ways to go. So I'll leave it at that.

I see. And then may I ask about the commercial aerospace revenue? It is great to see the rebound. And then if I remember correctly, the round rate pre-coffit is somewhat close to 40 million, should they expect the rebound to...

Go further closer to the 40 million ground grade anytime soon.

So I'll answer the first part of that question, Hendy. So our commercial aerospace sales for the second quarter were 7.8 million. And to put that in perspective, that's up from 5.5 million in Q2 last year. continued from that of by bad.

So, you know, as we had mentioned previously, commercial air space, if you take the Finge business plus the recently acquired RMS business, it was around $40, $45 million pre-COVID. So I think through a couple of months you'll find it. So, yeah, I would say so, you know, so if we kind of go back to pre-COVID, you know, pre-kind of, kind of, coming back and spending in the industry and kind of grounding and all that kind of stuff that was in the news, we were roughly renovating in the mid-40s.

Obviously, you know, that end market's coming back roaring and we're seeing all the headlights. We think there'll be a multi-year opportunity. So 45 is kind of the previous normal. The new normal should be well north of that. So I think that's how it is. So we're early on in the game of recovery. We've got a long way to go to get back to, at a minimum, the old normal, but definitely the new normal.

I see, it's in the end. And then...

Can you give some input and takes on Gross Margin and OpEx? I'm wondering how sustainable Gross Margin at 25 to 26% and OpEx, I saw that R&D dropped to 4.7 million. I'm wondering whether we would see rebound in R&D.

Yeah, so the R&D kind of similar to the commentary that Lynn made earlier on our wages, the magnetic group, there was a little bit of a FX favor in there. And I would say across all of our businesses, FX, and multiple lines was close to a million dollars for the quarter. So I think in the near term, with the economic worldview, we think the dollar will probably continue to strengthen or maybe stay kind of where it is in relation to these other currencies.

So I would say, you know, we, it is a benefit for us, probably around maybe for the near term, but it's not necessarily something we're planning on as we look at our operations, I mean, sure we're running a very lean operation over here. So that's going to, the benefit that came from there. In terms of sustainability, you know, I think we've been, we've been very public in terms of saying that, you know, we are continuing the client. And that's going to come both on the pricing and revenue and picking, these are the customers.

to both sustainability and increase and gives us comfort that we will get there because of the diversity of the optionality for our listeners. Thank you for our listener.

Thank you so much.

Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session. And I'd like to turn the call back to Dan Bernstein for closing remarks. Over to you, sir.

Thank you for joining us today. We appreciate your time and we're looking forward to presenting our next results.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation. Please return to your seats.

And.

Good morning ladies and gentlemen. Welcome to the Bell Fuse.

Second quarter 2020 warnings conference call.

At this time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during a conference, please press star 0 on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the call over to Jean Mary Young with three part advisors. Please go ahead, Jean.

Thank you, Vikram, and good morning, everyone. Before we begin, I'd like to remind everyone that this conference call contains certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results may differ materially from those expressed or implied by these forward-looking statements due to a number of risks and other factors. Additional information about factors that could potentially impact our financial results may be included in this call.

Joining me on the call today is Dan Bernstein, President and CEO , Fruit Tewiks CFO , and Lynn Huttkin, Director of Financial Reporting. With that, I'd like to turn the call over to Dan. Dan? Thank you, Jean, and thank everyone for joining our call today. I'm delighted to report we achieved record-breaking results for the second quarter in many categories. Revenue, adjusted EBITDA, bookings, and backlog were at the highest level in Bell's history.

and we would have to flip back to 2015 to see comparative, adjusted EVA. results. This new milestone for Bell was delivered by our entire team and all three of our product groups.

Commercial aerospace continued to rebound with $7.8 million in sales, up 43% for the same period last year, and up 26% sequentially. The EVN market sales were up $6.7 million, or 89% from the same period last year, and up 13% sequentially. Environment and edX continue to perform well.

And with margin improvement due to strategic initiatives, we implement over the past year. Revenue generated from our Distribute Department 10.8 million or 23% of the same period last year.

Can activity margins are currently compressed due to the initial course associated with ramping commercial error? Additionally, we had 9 million of revenue related to raw material expedite fees this quarter, where the overwhelming majority came from our power segment.

Although this is largely a pass through a minimum administrative markup, this does have a negative impact on our margin. Well, this is an unusual source of revenue. We do expect this to continue in the near term and it's as far issues as stabilized. And this is why issues are stabilized.

The supply chain continues to be constrained impacting rheumatial of albary, freight, and logistics. But that seems to be the new normal that every business is having to deal with. The supply chain in ROT40 has a new timeframe for Vontavi 650, whose mission is to drive each fund to Metro, which is loud, sir, inzymoned trucks and forgot ???ara Hospital. Without any waiting, nobody can ????? to bus door. Through what we know about the??ri, we know a bit of Fortune000iano, that every business is having to deal with. Now, when a hotel has nothing, it's getting started, by AMP??lot Does it not be complicated, that even though they are all know you

I'm very proud of our team and the contributions that drove this record-breaking performance. And I'm confident that we will continue a momentum throughout the remainder of the year. I would like now to turn the call over to Lynn to provide full-up financial updates, Lynn. Thank you, Dan. As Dan mentioned, Q2 was very strong with you over your growth in across each of our product groups.

Overall, second quarter sales were 170 million, an increase of 23% from the second quarter of 2021. An increase of 23% from the second quarter of 2021.

Growth margin for the quarter increased to 26.6% as compared to 24.7% a year prior, primarily due to our efforts on pricing over the past year.

Biprotic group.

Power solutions and protection sales were $71 million, up 28% from last year's second quarter.

In addition to Dan's commentary on EV sales and expedite fee invoicing, the power group also benefited from strong sales in our CUI business, which posted an increase of 1.8 million or 13% from Q2 2021.

Our EOS business, acquired in Q1 last year, also saw growth of 1.1 million, or 30%, from last year's second quarter.

Gross margin for this group was 28.2% for the second quarter, a 230 basis point improvement from Q2 2021. Largely driven by the benefits of pricing action taken over the last year. I'm going to take an over the last year. I'm going to take an over the last year.

Our power solutions to protection group had a book to the ratio of 1.9 during the second quarter of 2022 and a backlog of orders of 338 million in increased the 41% from the 2021 year end.

Turning to our PON activity solutions group, sales were 46.1 million, and increased of 7% from last year's second quarter. Mostly due to the continued rebound of the commercial aerospace and market, and higher sales of our passive connector and cabling products. Turning to our PON activity solutions group, and increasing of 7% from last year's second quarter.

Military sales continue to be challenged this past quarter, resulting in a 7% year over year decrease in the events and market.

Gross margin for this group came in at 27.6% for the second quarter of 2022, down from 30% in the second quarter of 2021. Board of School District Court Board in attracting and expand their earnings? Qual? <expletive> deutser Marietta Burrows every single digit of the dies for good wahrscheinlich banks Cord? Think about in reading a government decree that Kindfish company used theémie to maximize classmates through the 51% before you

Much of the margin pressure relates to incremental training and overhead cost of the factories, as we've been quickly scaling the operations back up to accommodate the higher demand in commercial aerospace.

The Conactivity Solutions Group had a book to bill ratio of 1.2 during the second quarter of 2022, and a backlog of orders of 103 million at June 30th, an increase of 21% from December 31st. The Conactivity Solutions Group had a book to bill ratio of 1.2 during the second quarter of 2021. The Conactivity Solutions Group had a book to bill ratio of 1.2. during the second quarter of 2021.

Lastly, our magnetic solutions group had Q2 sales of 53.5 million, up 33% from last year's second quarter led by increasing demands for our integrated connector modules that are used in the next generation switching applications. The next generation switching application. The next generation switching applications.

Gross margins for this group improved significantly to 28.2% in the second quarter of 2022 from 23.2% a year prior.

Margin's for this group benefited from the higher sales volume and also a favorable shift in exchange rate of Chinese trend and B versus the US dollar, which lowered our labor cost in China versus the 2021 period.

Our magnetic solution screw padded up to the ratio of 0.7 during the second quarter of 2022 and finished the quarter with $140 million of orders found slightly from the 2021 year-end level.

Our selling general and administrative expenses were $24 million or 14% of sales up from 21.8 million in the second quarter last year, but down is a percentage of total sales.

Within SG&A, the primary increases were related to salaries, rep commissions, travel, and advertising costs.

Turning to balance sheet and cash flow items, we ended the quarter with a cash balance of $65.8 million, an increase of $4.1 million from December 31st.

Our working capital increased by $15.3 million from the 2021 year-end.

We saw a $12.7 million increase in our accounts receivable balance.

Offset by a $5 million reduction in our unbilled receivable balance at June 30th compared to the December 31st balances.

Our DSO worked 53 days at June 30th, 2022, compared to 54 days at December 31st, 2021.

Inventories increased by 25.3 million from year end, which is largely seen in work in progress as we continue to accommodate the increase in demand for more customers.

In addition to changes in working capital, other items impacting cashflow for the first half of 2022, included capital expenditures of 3.5 million, and our continued dividend program where we made payments of 1.6 million.

Cash paid during the first half of 2022 for income taxes was $4.6 million and interest payments totaled $1.1 million.

I'll now turn the call over to Ferruz for additional color, outlook, and expectation. Ferruz. Thank you, Lynn. As we have spoken about the last few quarters, the initial plan was to build sequentially upon our progress in future quarters. And that is precisely what we are doing. We're proud to report our sixth consecutive quarter of year over year sales, growth, and margin improvement. Periyang Department of Activities Stunned in March 2020. Let me ask you, Ferruz, who, involved with Plugin and Orange Observation for the next few years at Berge, inky, in Miss Leigh, and in May, now appear four quarters of you over year sales, growth, and margin improvement. The next quadrant. Can we give the beret and ink the inker... can we b s ink s ink ink o s fork s fork s fork s fork s fork s fork s fork s fork s fork s fork s fork s fork Thank you.

2015, as Dan mentioned, was the last time we experienced similar margins and we're delivering these results in a very challenging environment.

including the PBB part of our revenue are margins would have looked even more impressive as a percentage of sales.

Although we have started to see the fruits of our efforts, we are still on a journey and remain laser focused on continuous improvements.

Looking toward the third quarter, we expect year-over-year top-line growth in the high single digits and gross margins higher year-over-year and more in line with the second quarter of 2022.

Power and magnetics will see better year over year improvement while can actively will be slow to follow till year end as contracts come up for negotiations.

Our backlog continues to look robust with continuously improving gross margins and it gets us excited as to our future prospects.

Thinking beyond the third quarter to the balance of 2022, we see continued demand demonstrated by our strong backlog of orders. While the economic concerns of 2023 have dominated the airways, we have not seen any meaningful signs of a slowdown.

Some softening could occur over time, but we remain highly counterfinanced overall in the business.

From an operational efficiency perspective, there are still several internal initiatives underway. Additional details will be shared in the near future to update you on our progress.

Our executive team had off-site in May, which resulted in some very exciting takeaways that give us the confidence in our ability to drive further long-term shareholder value as we execute on our strategic plan and vision.

We have identified diverse and numerous opportunities for continued margin improvement and are excited about the journey.

The diversity of contribution gives us optionality to see where our improvement will be coming from.

While these results are impressive, our work is not done, and it is on multiple fronts. We will celebrate this quarter with our teammates and quickly pivot back to the bigger task at hand.

And with that, I'll turn the call back over to Dan. Thank you, Farouk. At this time, we would like to open up the call for any questions you might have.

Thank you.

At this time we will be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is in a question queue.

You may press star 2 if you'd like to room. Remove your questions on the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment please while we pull for questions.

We have a first question from Liner Theodore Onil with Litchfield Hills Research. Please go ahead.

Thank you and congratulations on a good quarter.

Dan, in your prepared remarks you talked about, if I got this right, $9 million in expedite fees that you were able to bill your customers. Did they hear that correctly? Yes. I have not received their respondents.

What was that across all segments or one in particular? Mainly focused I was a majority of its power products and bringing in semiconductors. Mainly focused I was a majority of its power products and bringing in semiconductors.

Is it share gain related or is this some you know particularly good product fit?

I think it's more, it's good product fit, it's new technology, most of all our designs were a single source at this point in time, so it's very engineering-derivative. How many non-disclosures do we have, Ruth? I think we have over 250 kind of non-disclosures, which ranges from anywhere, kind of startups, all the way to kind of big, main staple names in the industry, and as Dan noted, this is still an emerging field. We had a first mover's advantage. We've been in this business for roughly 10 years, and it's really started on.

and distribution channel on your direct channel.

Okay, thanks very much.

Thank you.

We have next question from the line of Jim Ritchie with Needham and Company. Please go ahead.

Hi, good morning. It's actually Chris Grenga on for Jim. Congrats on the great quarter.

Last quarter you had referenced roughly 30 or 40 million of sales pushed out due to customer rescheduling. Has that trend improved, stayed the same or expanded?

So that trend has continued of the number currently is about 34 million of orders that was scheduled to ship in the second quarter. That did not, so it's a very similar number to where it was last quarter.

And maybe to add some color in that, that's not all on us partially, maybe our material challenges as Dan has spoken about, but also on our customer side, where we may have finished goods and products and ready ship, but they're not ready as they are waiting on other parts of the system, sort of speak. So it's a little bit of a mix of both of that. So it's a little bit of a mix of both of that.

Got it, thanks.

Anywhere where you're starting to see any demand deterioration or any areas that isn't

A group of market vertical that might be pre-cursors to softening and consumer demand.

We are currently concerned about the recession, concerns that we hear throughout the country, but at this time, we monitor our cancellations galley and we haven't seen anything to give us any concern.

Excellent, maybe one more for me, but...

Yeah, no, so I'd say, you know, we are, we understand that there's a lot of work ahead of us and there's a lot of internal projects going on across all three segments. And these can arrange from sizes and scale, from gonna big things to smaller things. So it is coming from all ends in terms of our strategy. We think that we have a healthy room to go yet on the margin front.

And we don't obviously put on any forward guidance, but we understand that we're still kind of climbing the stairs here early on. So we're going to leave it like that here. So we're going to leave it like that here.

Fair enough, thanks very much and congrats on the quarter.

Thank you.

Thank you. We have an next question from the lineup handy to Santa with your barely funds. Please go ahead.

Good morning, Dan, Farok, and Lynn.

Generally.

Congrats, strong result. For I would like to ask questions about the pricing action. So how much of the benefit of pricing action of Belfuse generated in the June quarter? And I'm wondering whether you can give more colors, like how much more, and then I assume more will come. And I don't know what kind of timing and then maybe you can help us figuring out what magnitude.

Yeah, I appreciate the question, here, and on the pricing side, when we initially started this, it was really a little bit a combination of reactionary to the increased input cost, logistics, freight, and everything, kind of that goes into producing these products. As we looked at some of these products last year, some of our components have gone up. We got price increases the tune of 10 times. The other part of it is we need to, in addition to recovery, look at what is a healthy and acceptable margin for us. And that answer.

is going to look a little bit different based on product, the competitive set, the customer, and where we are. So it's not a straight line across the bow here. It's really nuanced and surgical approach to it.

But we are not done in the sense that we're still seeing challenges in the supply chain. So as cost increases and go up or changes, we need to stay on top of that. So it's a continuous game. So the difficulty of answering your question here is twofold. One is it ongoing. So if we look at Q2 for example, you know, it happens a number of times. So we're not putting a number out there yet, but I would say while pricing.

It has obviously got a big amount of airplay here. I want to also emphasize that we are taking market share, we are winning new business, and we are getting into new designs.

So as we're going after these newer opportunities, we're pricing things a little bit more appropriate for a company that means our kind of sheer holder expectations and what we expect for ourselves. So I'll leave it at that, but what encourages me as we look out and part of my bullish view here is a diversity of it. So we're not seeing kind of just again, one customer, one end market that this is a going, but we have a ways to go. So I'll leave it at that.

I see. And then may I ask about the commercial aerospace revenue? It is great to see the rebound. And then if I remember correctly, the round grade pre-coffit is somewhat close to 40 million, should they expect the rebound to...

Go further closer to the 40 million run rate anytime soon.

So I'll answer the first part of that question, Hendy. So our commercial aerospace sales for the second quarter were 7.8 million and to put that in perspective that's up from 5.5 million in Q2 last year.

So, you know, as we had mentioned previously, commercial aerospace, if you take the CINCH business plus the recently acquired RMS business, it was around 40, 45 million pre-COVID. So I think, for a couple of months, you wanna know. Yeah, I would say, so, you know, so if we kind of go back to pre-COVID, you know, pre kind of cutting back on spending in the industry and kind of grounding and all that kind of stuff that was in the news, we were roughly render eating in the mid 40s.

Obviously, that end market's coming back, roaring, and we're seeing all the headlights, we think there'll be a multi-year opportunity. So 45 is kind of the previous normal. The new normal should be well north of that. So I think that's how it asks us to work. Early on in the game of recovery, we got a long way to go to get back to at a minimum, the old normal, but definitely the new normal.

Obviously, that end market's coming back roaring and we're seeing all the headlights. We think there'll be a multi-year opportunity. So 45 is kind of the previous normal. The new normal should be well north of that. So I think that's how it is. So early on in the game of recovery, we got a long way to go to get back to, at a minimum, the old normal, but definitely the new normal. I see. And then, and then.

Can you give some put and takes on gross margin and OPEX? I'm wondering like how sustainable gross margin at 25 to 26 percent and OPEX I saw that R&D dropped to 4.7 million. I'm wondering whether we would see like a rebound in R&D.

So I would say it is a benefit for us, probably around maybe for the near term, but it's not necessarily something we're planning on it as we look at our operations to make sure we're running a very lean operation over here. So that's kind of the benefit that came from there. In terms of sustainability, I think we've been very public in terms of saying that we're continuing to decline, and that's going to come both on the pricing and revenue and picking the customers and the...

sustainability and increase and gives us comfort that we will get there because of the diversity of the optionality in front of us here.

Thank you so much.

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I'd like to turn the call back to Dan Bernstein for closing remarks over to you, sir.

Thank you for joining us today. We appreciate your time and we're looking forward to presenting our next results.

Thank you, ladies and gentlemen, this concludes today's conference called. You may disconnect your lines at this time. Thank you for your participation. Thank you for your participation.

Q2 2022 Bel Fuse Inc Earnings Call

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