Bel Fuse Inc. (BELFB) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Bel Fuse Inc. Second Quarter 2021 Results Conference Call. At this time I'd like to turn the conference over to Dan Bernstein, President and Chief Executive Officer. Please go ahead.
Daniel Bernstein: Thank you, James. 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 we 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 would 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 anticipated cost savings resulting from the closure of Bel's modules design and technical support center in Maidstone, UK., expectations concerning pricing adjustments taking effect and their impact on offsetting labor and material cost increases, the company's plans, intentions, expectations and efforts in connection with profit improvement and maximization, operational efficiencies and the pursuit of certain opportunities and markets, expectations regarding backlog as an indicator of sales, supply constraints and the company's ability to manage them, and anticipated future trends, plans and results for the business, including for the second half of 2021 are all forward-looking statements, as described under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Daniel Bernstein: Thank you, Lynn. And thank you for joining us on our call today. First, I'd like to provide an update on COVID-19. All our manufacturing sites globally are operational throughout the second quarter. The delta variant is prevalent in regions in which Bel operates, particularly in India, UK and now the U.S. We continue to stay vigilant and have protective measures in place to safeguard our associates. I would once again like to thank all of our global manufacturing associates for their ongoing dedication to Bel under these difficult conditions. Turning to our results. We are pleased with our financial results for this quarter. This is our second consecutive quarter of meaningful year-over-year sales growth, as increased orders over the past six months continued to translate into sales. Our bookings during the second quarter reached a new record high and our backlog of orders are managed at $314 million at June 30, 2021, an increase of 75% from a year ago. Most importantly, these increases in sales and bookings were seen across all our major product groups, which is an indication of general market strength.
Craig Brosious: Sure. Thanks, Dan. Moving into the financial update. Sales by product segment for the second quarter of 2021 were as follows. Power Solutions and Protection sales were $55.4 million, up 22.9% from last year's second quarter. Connectivity Solutions sales were $43 million, an increase of 10.6%, and then Magnetic Solutions sales were $40.3 million, up 8.3% from last year's second quarter. Preliminary gross margin by product segment for the second quarter of 2021 was as follows. Power Solutions and Protection had a gross margin of 25.9% in the second quarter of 2021, up from 23.5% in last year's second quarter.
Farouq Tuweiq: Yeah. Thank you, Craig. Beginning with some balance sheet items. Our cash and cash equivalents balance as of June 30, 2021 was $66.4 million, a decrease of $18.5 million from December 2021. During the first half of 2021, we made net payments of $14.8 million in connection with the acquisitions of rms and EOS. $3 million toward our outstanding debt balance, and used cash for capital additions of $2.5 million, dividend payments of $1.6 million and interest payments of $627,000. These items were partially offset by $6.7 million in proceeds received from the sale of property. Accounts receivable were $86.9 million at June 30, 2021, as compared with $71.4 million at December 31, 2020. The primary driver of the increase related to the higher sales volume in the second quarter of 2021 as compared to the fourth quarter of 2020. The 2021 acquisitions of rms and EOS also contributed to the increase in AR from year-end, accounting for $4.7 million to our receivables balance at June 30. Days sales outstanding was 56 days at June 30, 2021 comparable with the DSO at December 31, 2020. Inventories were $116.2 million at June 30, 2021, up $16 million from December 31, 2020. The increase was seen in raw materials and work in progress, and was largely due to increased raw materials purposes to accommodate our higher backlog of orders, as well as the inclusion of $3 million from 2021 acquired companies. Accounts payable were $53 million at June 30, 2021, up $13.2 million from its level at December 31, 2020. The increase in AP was in line with the heightened purchasing volume of raw material during the first half of the year.
Daniel Bernstein: Thank you, Farouq. Before I open the call for questions, I'd like to take a moment to thank Craig for his nearly 18 years of service to Bel Fuse. Craig, came to the Bel family through our acquisition of Stewart Connector in 2003. Since then, he assumed a number of positions within the financial department, to ultimately rising to lead the group in 2017. He is instrumental and helping guide Bel through some of most transforming years. I also like you now acknowledge his generous efforts in ensuring the transition for Farouq is smooth and uneventful. Craig will be retiring from the company at the end of September. He will be missed, but we wish him the best in his retirement. Thank you, Craig. James, can we open the call for questions now?
Operator: Thank you, Mr. Bernstein. And we'll take our first question today from Jim Ricchiuti with Needham & Company.
James Ricchiuti: Hi. Good morning. Yeah, congratulations on the quarter. It sounds the demand is clearly strong across the board. I'm just wondering if you could comment a little bit about lead times and how concerned are you? Just a general of this some of the - what we're hearing about component availability and the potential for that to be disruptive at all to the business later on, as you look out over the balance of the year?
Daniel Bernstein: Yeah. As we stated I think we managed the situation very well over this quarter. I think if you look at our materials, I think we have a ballpark figure about $2.5 million. We could have maybe add in greater sales if we received all the materials in. Lead times is stretched out. You're looking at some semiconductor companies are going out to 18 months to two years. So, it's very difficult to put a finger on it. But so far, I think we've done a good job and I think we can manage it just as we've done in the past. There might be a couple of shortfalls again over sudden - you're looking at should component shortage and then you have a situation in Malaysia, where because of COVID the factories are shut down for two weeks. So you are going to have these hiccups. And it is a concern, but so far, we've been able to manage that concern pretty well so far.
James Ricchiuti: Got it. In terms of the impact of COVID, it sounds like you've managed that fairly well. Is there any meaningful costs associated with COVID as you've had to secure all of your facilities that may be contributing to some additional costs that we don't see necessarily?
Daniel Bernstein: I don't think a substantial number. If you look at masks, thermostat, temperature gauge - temperature measuring devices, making the place safe by putting plastic walls between spacing, no cafeteria. All those costs I think were taken out. So I think going forward, we do have - I can't see any anything more than minimum cost going forward.
James Ricchiuti: Okay. Your SG&A is running a little higher than we were anticipating. I assume that's just a function also of your volumes. But I don't know if there's any additional color you could provide on that. And then I have one other question, I'll jump back in the queue. Thanks.
Daniel Bernstein: Okay. All right. Craig, you want to take the SG&A or you want Farouq to do it?
Craig Brosious: Yeah, I think I can take that one down. I think we are seeing some incremental SG&A related to the volume, as you said, Jim. Also we have some additional expenses as we noted in our remarks here. But I think it's still in line with what our expectations were, maybe a little bit maybe on the high-end. But I think it's nothing unusual in there.
James Ricchiuti: Got it. Just with respect to some of the pricing actions that you've taken, have you realized the benefits of that more fully or are some of those expected to flow in over the next quarter or so? I don't know if you can give us any kind of sense as to how those -
Daniel Bernstein: I think - and this is just ballpark to give you a rough idea. I think in this quarter we probably, maybe picked up present of the price increases we put out there. And then the balance will be I think divided pretty equally between the third and fourth quarter. But I mean I would, I would think they would all be flushed out by the middle of the fourth quarter.
James Ricchiuti: Got it. Okay. I'll jump back in the queue. And Craig, I just want to wish you the best.
Craig Brosious: Thanks. Appreciate it, Jim.
Operator: Next, we'll hear from Theodore O'Neill with Litchfield Hills Research.
Theodore O'Neill: Thanks very much. Congratulations on the good quarter. Question about seasonality. Given the sort of the strong demand here and longer lead times and the two recent acquisitions, do you think Q4 seasonality will continue or do you have any thoughts about that one way or the other, if there is a potential change?
Daniel Bernstein: I think with COVID everything is blown out the window. So again, generally, in North America because of the Christmas holiday, and Thanksgiving you lose anywhere from five days to ten days, where people don't need parts. But I think at this situation where the backlog is so strong and people are so desperate to get materials in. I'll be shocked that we will see-- I doubt we see the downward trend we've seen in the past.
Theodore O'Neill: Yeah. And it just didn't come up in the last quarter conference call, and I'll ask again here. Are you concerned about double bookings and how are you managing that for-- second for that?
Daniel Bernstein: Yeah, that's a great question. And as you know we have-- as you probably know, we have Vinnie Vellucci, former President of Americas, of Arrow. And that's a question we address all the time. At this point, everything we hear, we're getting the impression that there isn't double booking out there, but you just, you don't know. And I would think that you would probably see it more in the semiconductor area that are really stretched out long lead times than our product line. But it is a concern that people bringing in too much inventory. I think just a concern is bringing the double booking is people bringing in inventory too soon. So why bringing a Bel part in 20 weeks, if you're not going to get the IC in 45 weeks. And that's a concern that we try to look at. And you can alleviate do you have non-cancellable orders, do you have non-schedule change orders. And we looked at that, but we haven't implemented at this time.
Theodore O'Neill: Okay. Thanks very much.
Operator: We'll take our next question from Hendi Susanto with Gabelli Funds.
Hendi Susanto: Good morning, Dan, Farouq and Craig. Thank you, Craig for all the interactions.
Craig Brosious: Thanks, Hendi. Enjoyed it.
Hendi Susanto: Dan, I would like to ask you questions about sales trend. Let's say, in the absence of like unforeseen COVID impact and given the strong bookings. Will it be reasonable to expect revenue will gradually improve every quarter throughout the end of the year?
Daniel Bernstein: I think, again - I think for the next quarter, it should improve. And then again based historically, I think the fourth quarter will be substantially better than last year's fourth quarter. But then I don't know if it would be better than the third quarter because historically, the third quarter has always been a strong quarter for Bel.
Hendi Susanto: I see. Yeah. And then, would you be able to share what the revenue contribution from rms and EOS in Q2? And then whether your expected revenue contributions from those two are higher, given strong performance in Q2?
Daniel Bernstein: Craig, do you want to take that?
Hendi Susanto: Like can you tell the contribution for the year.
Daniel Bernstein: Okay. Craig?
Craig Brosious: Lynn, I think is better equipped to address that.
Daniel Bernstein: Okay.
Craig Brosious: Yes.
Daniel Bernstein: Passing to her.
Lynn Hutkin: Sorry. I was on mute there. So, Hendi, you are looking for the quarter?
Daniel Bernstein: Yes -
Lynn Hutkin: Or for the -
Daniel Bernstein: For this quarter, and then do we have a forecast.
Hendi Susanto: Yeah.
Lynn Hutkin: Okay. So for the second quarter, rms contributed $2.7 million. I'm sorry, we're looking at trade sales. $2.5 million of sales, and EOS contributed $3.5 million of sales.
Daniel Bernstein: Just to give you a little more color and I would say that's a big - again they supply the aerospace people. So historically, if you looked over the - before COVID, that's a very weak month for them.
Hendi Susanto: Okay.
Lynn Hutkin: And then looking at the first half of 2021, rms contributed $4.6 million of sales and EOS was the same $3.5 million since they were acquired on March 31.
Hendi Susanto: And then how much revenue forecast for 2021? Are you expecting higher?
Daniel Bernstein: I would say yes. But I don't think we're ready to share figure with you, though. Sorry.
Hendi Susanto: Okay. Yeah. No, that's fair. And then this is like a bookkeeping question. The $0.4 million cost saving from the UK facility consolidation. Will it go toward bottom line or will you reinvest that somewhere else?
Daniel Bernstein: I think it's only $400,000, is the cost savings for showing down the Maidstone facility.
Craig Brosious: Yeah. So we'd expect to see that drop to the bottom line, Hendi.
Hendi Susanto: Okay. And then any insight into, like, price increases? Not to the Bel already - whether it's like a single-digit, mid-single-digit, high-single digit?
Daniel Bernstein: No, I think on the average, price increases are falling - some smaller ones, some higher ones. But overall I think it's probably falling into the 5% to 12% range.
Hendi Susanto: Got it. Okay. Thank you so much.
Daniel Bernstein: Thank you.
Operator:
Daniel Bernstein: James, are there any other calls? Hello?
Operator: There are no further questions at this time. I'll turn the conference over to you, Mr. Bernstein for any additional closing remarks.
Daniel Bernstein: And once again, I'd like to thank Craig for his tremendous job and I wish everybody a nice weekend and hopefully we can keep these numbers going. So thank you, everybody for participating.
Operator: That will conclude today's conference. Thank you for your participation. You may now disconnect.
