Bel Fuse Inc.
Q1 2021 Earnings Call Transcript

Published: 3 May 2021

[Operator Good day, and welcome to the Bel Fuse Inc. First Quarter 2021 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.Dan Bernstein Thank you, Jennifer. Joining me on the call today is Farouq Tuweiq, our CFO; Craig Brosious, our Vice President of Finance; and Lynn Hutkin, our Director of Financial Reporting. Before begin the call, I'd like to ask Lynn to go over the safe harbor statement. Lynn?Lynn Hutkin 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, such as statements regarding the anticipated impact of the acquired EOS Power business on our results, 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 contributions to net earnings from our rms and EOS 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 involve risks and uncertainties. Actual results could differ materially from Bel's 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 effects of business and economic conditions; difficulties associated with integrating recently acquired companies; capacity and supply constraints or difficulties; product development, commercialization or technological difficulties; the regulatory and trade environment; risks associated with foreign currencies; uncertainties 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 US 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. We also 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.Dan Bernstein Thank you, Lynn, and thanks everybody, for joining us on the call today. I hope that you and your families continue to stay safe during these difficult times. First, I'd like to provide an update on COVID-19 and how it impact our facilities. Overall, I'm pleased to report that all manufacturing sites globally continue to be operational throughout the first quarter. Our most recent acquisition, EOS, is based in Mumbai, India where they're going through a very difficult time. The factory continues to be operational as they manufacture essential products and protective measures have been put in place to prioritize the safety of our new associates. We would like to thank these new associates who’re working each day under these difficult conditions. Before getting to our results, while Bel does not normally comment on market activity, we realized there was a substantial amount of trading in Bel's stock on Friday, and the company does not know the reason for this increased trading activity.Turning to our results. We saw 6% improvement in sales as compared to last year's first quarter. Demand in each of our market was strong with the exception of commercial aerospace. Both eMobility and Circuit Protection had exceptional quarters and demand from our distribution partners was strong, which is a good indicator of general market demand to their broad customer base. Sales within the Power Solutions and Protection group were up $7.5 million or 21% from the first quarter of 2020. CUI turned in another strong performance this quarter with $2.1 million increase in sales over last year's first quarter. Our products sold into eMobility applications were up $1.5 million, a 100% increase from 2020 first quarter and fuse sales were up $1.6 million, an increase of 60% from last year's first quarter. The areas of growth were partially offset by elimination of low margin products within the group.Within our Connectivity segment, sales was down $1 million or 3% in the first quarter of 2021 versus the same quarter 2020. While we continue to be impacted by year-over-year comparison related to the commercial aerospace market, we saw a partial rebound in the end market versus the fourth quarter of 2020. And looking at that trend from the fourth quarter of 2020 to the first quarter of 2021, commercial aerospace increased by $1.2 million or 57% and payoffs through distribution by $3 million or 30%. Sales within Magnetic Solutions 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 in order to accommodate these increases in demand. Overall, our margins were down in the first quarter of 2021, [primarily] driven by the industry wide material shortages resulting in higher material costs. 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 have mitigated a higher cost to a certain extent and the remaining impact has significantly been addressed through price increases to all our customers. We anticipate price increases, the majority of these increases, to go in effect during the second quarter and third quarter of 2021. On the acquisition front, our first acquisitions of rms -- our first quarter acquisitions of rms and EOS have both been run smoothly and integrated has been proceeding planned. It is encouraging to see that rms was accretive to Bel's results in the first quarter of 2021 and we anticipate EOS to be immediately accretive to our results in the second quarter. Our backlog of orders was $234 million as March 31st and we reached $264 million by the end of April, a strong indicator of top line growth for the balance of year here. Our ability to fulfill orders in the books will be dependent on both the availability of materials and labor. We will keep a close eye on costs and availability of raw materials and [labor] in order to service our customers as timely as possible.I would like to now turn over to Craig to go over the financial update. Craig?Craig Brosious 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 20.6% from last year's first quarter; Connectivity Solutions sales were $38.1 million, a decline of 2.7%; 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