BELFA - Earnings call 3 2020

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Operator

Good day, and welcome to the Bel Fuse Inc.

Third Quarter 2020 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dan Bernstein, President and Chief Executive Officer. Please go ahead, sir.

Daniel Bernstein

Anna. you, Thank

the President on Financial is Brosious, Craig Joining Finance; call Lynn Vice of of Hutkin, our me today our Reporting. Director

Lynn safe begin like we call, to ask go Before over statement. harbor the the Lynn? to I'd

Lynn Hutkin

Thank you, morning, Good Dan. everybody.

or factors to like sales, and on America R&D Among statement. Reform rely cost as such contained the following acquisitions, market forward-looking are involve under the sales call, constraints and potential that statements call, supply of savings business and that actual as materially difficulties responses viability such results the the the conditions, a and to company's new and matters currencies, regarding differ of sectors closure SEC risks cause product the impact risks company's I'd acceptance to risk and the economic in recently our the continuing revise as COVID-XX, the reports. Except future that We associated social impact from products; be no governmental, Germany time in well companies; start, office and our any proceedings; the uncertainties. and environment, competitive can the safe update the historical results quarter no impact statements with crises, anticipated assurance differ be with correct. for policies; we market's capacity commercialization and and new our forward-looking trade changes will, the products, of any risks undertake read Before U.S. prove light associated the development, this In Switzerland public technological obligation fourth projections. uncertainties are to with information as fact, statement the detailed from of this to of associated foreign facing Bel's such our statements. health time in Act harbor effects to difficulties, of there discussed or could regulatory materially Actual factors facility streamlining forward-looking difficulties; those from trade Uster, power of the XXXX concerns to and sales to products uncertainties, from of economic as from Securities our of customers; in statements on tariff acquired Litigation of on could described organization integrating North or that the effects Private legal

our results may general results a also like of have We to results to back call, our I update. release. business reconciliations non-GAAP the been non-GAAP discuss included to for and GAAP in Dan now during this call turn would

Daniel Bernstein

hope you times. for joining and today. families during your call you Thank our healthy these stay to Okay. continue I

on as an like to First, around relates COVID. the it update provide world I would to facilities the

are We throughout to have all quarter. pleased sites that operational been the report our globally manufacturing third

colder around the always, As remains the situation especially as enter months. we fluid, COVID

We risk. regulation [ ongoing with will to (sic) compliance migrate our mitigate ensure local ]

for these they past day manufacturing dedication months, we managers, challenging and what X unrelenting appreciate production have customers over Our Bel us associates, this and to time. do shown truly its during each

results. Now to turning our

our CR strategy related margin our plan the business, to driven The past organization, improvement has pleased improvement results. translated ongoing reduction the over our meaningful our into the low-margin streamline certain had to We recently sales of much year that in while inclusion with eliminating again are global along quarter. of gross products, third during acquired

this improved the with as by of consistent remains the XXXX, of third level XX% our pre-COVID sales level period. during in outlined while EBITDA, Bel quarter release, Our adjusted

us down aerospace orders of groups, quarter, down third third the across quarter. end the of year's were power last $X.X With for center declines our market growth sales quarter, year's the $XX.X product commercial accounted sales to million $X.X due CUI each of million circuit largely the products, Sales seen third decline. weakness last offset was Excluding protection we of in products, in were from from $X in from new our customer. a million. by This accepting million partially front-end low-margin data the

margins see product execution quarter compared in of the improvement sales a as Our result cost-reduction customers. to integrated reduction third connected each Despite to one by that year's are X showed encouraged groups plan. than sales, $X.X year demand module last our to were the lower success of gross due lower our in networking of from in global we a prior million of our

As forward, remains last to sales limited fourth year. comparative more be to going of quarter visibility we fourth anticipate quarter

continued [ seen strength. end segment up programs. we quarters the the both of we've in quarter. the XX% increase were third ] avionics the stand-alone U.S. to sales have record during year's markets had the areas last leading during in group ground sales and military and communication The shipping military the first CUI XX%, markets, areas growth sales into State defense in However, do the for of European a over emissions, quarter

for growth prototype with meaningful a with power-related new Our increase our circuit There's areas be shipping e-mobility as to the the third for are protection also market continued expected products. These XX% been been of over sales several third we've quarter. quarter in us. also last activity growth end saw year's

are the products to in term. be e-mobility long significant contributors to expected growth Our Bel's

activities brought other Ulster, that plan, in world. sales acquisitions These will strategic the starting throughout closure cost bottom-line fixed of million office groups for remains streamlining shifted of fourth and The announced in are result recently expected our As savings Uster in Switzerland our Bel the American team $X closure better growth quarter facility cost With North R&D reduction looking our to million. by XXXX. sales been the organizations. Germany we part down the of the in Further, actions focused our $X anticipated August of of actively existing has of management annual late Bel positioned global our to cost incremental annual in R&D have while future. at on closing,

through over the Craig that, a call I'd run Craig? to And like to update. turn to financial with

Craig Brosious

by product cycle of were and quarter. Connectivity last sales as Sales last down million, quarter. sales Solutions million, protection XXXX year's $XX.X Power million, Magnetic XX.X% were year's quarter $XX.X and third were Solutions Dan. decline sales XX.X%, Solutions from for third up the X.X% from $XX.X Thanks, were of third a follows:

indirect the XX.X% gross basis, of a in in the expense, excluding costs to consolidated the XXXX, result increased in XXXX due and third third that XXXX a and On primarily measures of the within factors. compared restructuring the of with as to as with margin, combination implemented sales of quarter quarter volumes of million Cinch lower profit of during R&D late during third structure to Connectivity XX% $X segment. XXXX current segment labor align Overhead cost quarter our Solutions were a reduction

XXXX, to to of implemented of quarter due year. the third a costs quarter compared during $X.X the up components of lower $XXX,XXX the resulting material chain in that of decline last quarter margin been development restructuring the of as quarter our the XXXX. in XXXX, have portion had efforts to related previously A improvement in now during primarily of Research lower stocks million of built significantly and material XXXX the latter P&L in same been from third through, the were costs third supply high-cost costs part and worked

costs offset administrative ERP Our or a million, $XX.X in $XXX,XXX, selling, sales or business. third XXXX. million, of of acquired general and from and of cost compared XX.X% as the efforts expenses sales expenses largely in quarter reduction with expenses savings incremental of were other million associated travel recently of XX.X% containment with of CUI the SG&A $XX.X the $X.X Lower $XXX,XXX

of in million $XX we policies quarter between near-term year. an of of to of the cash $XX $XXX,XXX as run spend surrender on XXXX. compared and for T&E the On value third a normal quarter included quarter to also the COLI XXXX than SG&A remainder expect third in be expense gain continue basis, SG&A million our will go-forward of to lower expect the incremental the the per we would

in of million the compared a operations $X.X XXXX quarter of from XXXX. million income in from third of in loss resulted $X.X the third factors to of operations These as quarter

quarter related $X.X our recall, to goodwill. you'll an of charge third included XXXX impairment the million If

the net of as income was expense third to of a quarter third XXXX. fluctuations related a of in The for last third quarter to of XXXX. $XXX,XXX million an income million compared gain compared quarter as XXXX the the in $X.X from largely third third foreign $X quarter of XXXX Other quarter year's exchange was $XXX,XXX of exchange foreign the loss to expense of of during

quarter. the Interest $X.X the last slightly down quarter rate year in during XXXX effect third was million XXXX, in from quarter same the to the of interest lower due expense

reduction the be facility, decreases to the both to our in its spread company's rates credit balance. on interest and LIBOR expect We in debt with related outstanding in quarter in fourth a the lower along

We of with had of in income reversal in benefit was the tax of quarter provision of The income third in a XXXX year's tax law federal a third uncertain a in taxes for during benefit of our quarter of America XXXX. goodwill $X.X the quarter. tax a from North provision around unfavorably tax, from positions, impairment quarter $XXX,XXX by third XXXX the Changes to compared led of the last impacted to GILTI segment. taxes million coupled third the

quarter $X.XX common the per for share the common shares third of was of in the $X.XX XXXX. of was quarter per shares XXXX with third quarter for loss loss as the XXXX. as of share XXXX share Earnings share a $X.XX A the Earnings third a quarter with per Class per of compared earnings in of per in the of compared earnings per share in third $X.XX B share Class of

unusual with of share certain of of A of in was $X.XX for shares basis, the On quarter XXXX a as the in of as quarter third and which earnings $X.XX earnings compared share the B in in Class items, quarter XXXX. basis, share XXXX. third per compared nonrecurring was Class of shares XXXX earnings share non-GAAP per per third per non-GAAP of for other On EPS with $X.XX third a $X.XX excludes EPS the quarter

I'd now like to and items. through cash And sheet flow balance go some

cash and equivalents million cash December XXXX, Our of XX, an $X.X September XXXX. increase was from XX, $XX.X balance at million,

by grew June sequentially balance XX balance. from cash Our million the $X.X

million. interest million we We During of net dividend $X.X balance of million the operations and million, $XX.X made of our payments of from $XX.X cash million. $X.X for of $X.X towards outstanding capital months cash of and XXXX, used first payments payments debt expenditures X flows generated

Asia, in December Accounts December receivable to tend XXXX. was to Days million payment XX, The lower $XX.X as at were XX, $XX.X balance where XX million as XXXX. XX, decrease XXXX, sales days XXXX, largely in at compared at be receivable longest. outstanding to our at compared sales XX, due September to XX terms September decreased with days accounts

of at reduced due from Inventories intake $X.X XX, were XXXX. you see down $XXX.X slower quarter to September The materials material million XXXX. in in the anticipation XXXX, a decline million December is raw fourth in XX,

a September X of $XXX.X due costs, to of balance. months $XX.X primarily from at payable at during debt $XX.X financing of made as voluntary down was XX, Accounts debt September XX, XXXX quarter million This lower the year-end purchases the the Bel's materials were million of first $X XXXX. repayments balance reflects $XX.X XXXX, primarily since of December deferred during its of net decrease million total third million level XXXX, XXXX. raw outstanding million XX, XXXX, of

our XXXX classes to $XX.XX as by Book as divided B common at was share, $XX.XX and at December outstanding, equity a September share share is value per XX, per compared XXXX. XX, combined which of per calculated stock stockholders'

Dan. the to over I'll with And that, Dan? back turn call

Daniel Bernstein

the up Craig. Thank this call open you, questions? time, we At for please Anna,

Operator

We'll take question with & [Operator Company. Mike a Instructions] from Needham Cikos

Michael Cikos

guide walking flat are I you this to your wanted the First thing some away now that this as was you umbrella of for sense see puts to I for and you we QX. customers, the you from I about you out of wanted QX And from the and you to get CUI the revenue get low-margin year-on-year business underlying a Just know ask look have now, to, the X takes organic from under guys talk as some revenues in guess, of how Can to playing business? different to year-on-year perspective. segments flat help guys a well. acquisition

Daniel Bernstein

have groups, CUI They tremendous mentioned, segments we it's line had within acquiring have Again, we them. have job product as top certain since that growth. on done a just

of have top the fly. on allowed the airlines end group they line buying group Fuse they year, idea. At going the is this be to that to very stomach hit get no by well Our at has hard said not airplanes? So Cinch we one permission done has end got the We're year. are But many hoping permission are The major [indiscernible], would the have be when back do XXXX. companies, not pretty they because one how they growth. aerospace of plane in point, -- really of

latest news XXXX. the Now is

It's So this there line forward the aerospace just tough we fits limited to growth. move determine side. visibility on with how top

On the can that pleased hand, That'd offset that, we growth, we aerospace. in maintain did military lost by difficult, other and substantial think we military what we really we're be have and growth.

from again, made probably Also, do as the had top XX% month. growth. about with has line that the substantially lot And power growth. signed has We a circuit with CUI NDAs XX stronger addition, We've substantially, e-mobility. we a group a protection, group mentioned,

activity. So there's lot a of

we a week, did bookings. $X averaging been we've past this $X And that, to addition about million million. In week

that's within has group. So groups had think X or we in that know the we think very customer I if good all limited growth this booking out group, I it's of have not, base week not that years. And limited -- have, because we probably the of probably the the time but potential I at that has sign best most a do Magnetic then, the

ourselves of So they Cinch we e-mobility, And on potential, the And think still a the side, think we doing lot basic circuit have protection, we in side. on lot we I growth acquisition. still on again, the products a have power are then again, adapters. power military also, before build the

Michael Cikos

now to these margins again, gross I touch Bel -- the grow positive a and Fuse guess I on, item be continue to of wanted point helpful. a another story. for point That's

in QX. to for anything what to was spoke believe that sequentially. seasonality benefit that material Just down might input know QX And typically you from in there up as could those any But curious beneficial. costs? well QX gross a if margins talk able that material as if now size becomes in you time from you to I the been those QX. have headwind costs going one typical QX, I to be would QX the Were come

Daniel Bernstein

to do Or want want Craig, you this? address to it? you discuss Okay. Lynn

Craig Brosious

during that With it, think. respect No, part additional extent some not may about quarter the going we address from I the government of forward, of continue maybe Chinese can I to $XXX,XXX. mean, did items receive to I subsidies onetime the

be not of year, think forward, don't as So whether we those continue is into and kind in expect, anyway. But impact so impact product the offerings the new don't continuation substantial, so a forth. but on fourth will what know. we of streamlining quarter, There some the our going and I we'll of see,

But items see that? being the here. overall, degradation think last if do know through sales agree rolling a with So little to because significant there's you other expectation comparable I margin any And would of to of be year, we'll just volume. don't percentage-wise, volume Lynn, the onetime I bit that

Lynn Hutkin

part basis the costs, to the the in cost points quarter. so QX XXX just material for lower gross 'XX Mike, answer question Yes, the margin And to contributed I of material our agree. on

to of So QX and material was in QX 'XX. 'XX, in our to perspective, cost XX.X% sales percentage put in XX.X%, as that declined that a

generally a If around you XXXX, we recall, level. our to this quarters, little down expect tick XXXX but seen that XXXX costs high was and had stay It we high. material I running unusually think P&L the very that may in still at have we in come through level the lower up so bit,

Michael Cikos

is the on you're North in And that the I in. sales if closing may, that squeeze What conjunction do operational about facility. have talking on through Germany flowing the front? with more, curious announced know you for the in standpoint But then to it Just that cost the that organization. that mechanics American guys to the savings streamlining today annualized you an in I to question that P&L. from million one start of just for $X

Daniel Bernstein

when it with do cost the P&L? flowing want the you through to do savings Craig, starts

Lynn Hutkin

Craig, that. I can have

Craig Brosious

Lynn. Oh, ahead, fine. you it? That's Go have

Lynn Hutkin

do. I

XXXX. maybe a million. just about through those in cost we would be savings will It's expect the so to And just 'XX, QX quarter actions amount, for So XX. $XXX,XXX. small it forward, expect start aggregate And in mostly over going in savings end $XXX,XXX cost QX that or X the be of $XX,XXX a we then, $X XXXX.

Operator

question a with Theodore take Research. Litchfield O'Neill now from Hills We'll

Theodore O'Neill

In any that? from the follow-on a prepared power talked remarks last about quarter, award there supplies that you cost-effective And is $X.X for for a million yet? Has shipped business ventilator.

Daniel Bernstein

do Army. customer the the I other have thought, we're believe we not I we was And additional orders, probably. the Canadian think there positive. to extent think I but

Craig Brosious

start started shipping have third We we in quarter. shipping. government, that did Canadian Yes, the

Operator

Instructions] [Operator with Susanto now Gabelli take question from Hendi Funds. And a we'll

Hendi Susanto

Dan, share inventories have companies markets are seeing the what ahead impact talked in to pulling ban. And of shipment what about in you seeing then, you can ban the some so Huawei, your you now? China Other of China? are in

Daniel Bernstein

starting has for a do but customers, customer to Most of companies. or that never customers. Again, American-based been us, our subcontractors Cisco of time world. major us customers China. key the in are we're having are China prejudice, certain see customers the the difficult a go in see Huawei minor And deal with that none some big our We HPs for of to of large

buy Hon large off all type China. of Jabil, majority business a where a that's CEMs generally Flextronics, customers, these of and spec the European Hai/Foxcomm, our customers the the American to like have So big, goes of to or

some Hong China; and and in China there's between China; India. situation A, between and about China; concern and C, being between So political Kong America always the B,

besides looking are cost, at the think a to we of again, that out that would manufacturing we other not reasons to concerned XXX% that areas are of amount say tremendous uncertainty move us low I still point that dependent So manufacturing of gives a like low-cost we the China. but would to China there's get on same the we one we're of in not about. And manufacturing,

Hendi Susanto

companies then, insight talked digestion among data that? And also Do you centers. or some it. have any into capacity have Got about inventory

Daniel Bernstein

regarding About capacity capacitors?

Hendi Susanto

to that center we XXXX, then inventory have some data of about fact space, digestion. been in sales data see companies some may strong and In the now half No. first has talked the centers

Daniel Bernstein

think anything yet, seen sorry. don't I No. we have

Craig Brosious

Yes.

have book little quarter, some there, half center think Hendi. may that, benefited think, data bit the think with our in to seen we order of networking those I from first respect into we a the little have And I clients. I going bit soften a fourth

a think that. I So we are seeing of bit little

Hendi Susanto

Got it.

So you now, Dan, Magnetic limited growth be the that the share Magnetic is what somewhat growth when segment? can in drivers for segment next the

Daniel Bernstein

our market That's the would control with I at into think some group. product the we're question. there's needs specific the high-end a the a fall that good focus magnetic customers power magnetic. But make leader percentage probably think that I might good on. again, -- supply very power -- think Again, I group point on Every product. XX%, a a we We

available So think when difficult very for it's market, you grow XX% us of to it. I the control

again, how is now we we magnetics can have transformer, power CUI, supplies. with focus our combine I with where our So our think signal with there

solution we're is second can at for the solve problems, what a be one-stop tier our customers' think third better company, accounts. tier, looking but I we especially how

sales that do we we similar, how was it's are first again, this and step have of all force. the the that bundle So combining products very

signal guy CUI would then a guy to have direct guy that England. we we New transformer go go a England, to New we New would before have have go So Bel to a England,

can New that X go of Now products. all point that contact we to sell have England these would

customers us, at hoping, contact sales to our get partners point So by that greater we X these deal make having of should with for customers. easier and and channel we're it

Hendi Susanto

one a Lynn. I see. then question, question And more for

indicated talk down the you And should we secondly, behind margin gross or benefit Should in So cost Is that do to gross coming still still think expect the of Lynn, normalize from material about margin that I material the XXXX. costs past, runway? XX%. you lower between XX% some have you range? now, then,

Lynn Hutkin

will material costs, land. your the on at we're So I of part probably question the think where first we

so think correct anything, some think metals where me it know cost the basis little additional will the a I that. Craig, bit. has use QX precious if I I material for But QX probably costs, the and been a up wrong, we that some it's of that might pressure land. If increasing, can we might as I'm put on go of it.

to normalized gross Craig I only we $XXX,XXX really, a year. the we do the margin, renminbi Regarding higher year's our than trying FX China this mentioned, need just that eye from have received, an comps Other be that as nonrecurring. in to in was in some to think. the margin We that, would was which in quarter due third Asia costs of versus on. keep I'm unfavorable subsidies thing labor did last mean, quarter, the this the

forward, continues is trend to something direction. that that our if impact that So going will margins, an unfavorable in

I on put to on it, maybe if a any do had think mid-XXs, that? have you XX%. range XX% we Craig, thoughts to

Craig Brosious

XX% And reasonable right. But the the recovers, Obviously, are think to actions XX% range that range of it's influence will have. and that's on we we cost all think mix that of revenue obviously I purposes. successful how a will is our some margins aerospace the with for influence I other when margins. dependent commercial No, projection

Operator

from take question investor. a a Hudson, private is now John We'll who

Unknown Attendee

that your part by have the today? specifically good between I'm COVID relationship as in just Chinese government you and to Relative It the government of that. But wonder, China, between do any And period, company has and I Chinese very basically opinion? how And the further government. and to appears the need the that, the And and Chinese interested. recognize the me indicated between the comment over subsidies see Chinese that on been the I the provided. that government U.S. operations relation don't is government company issues I and the

Daniel Bernstein

because China. Generally, of when that we talk we're employer an not to with loc government, deal in we big the generally

we've local lot large in So a substantially a And with, communities we we of than been are we other deal government, employer. and longer there the deal the companies. generally with

people town, So relationship well. so historically, have the I we community think work a why we employ the a And local do town and that's been lot able of the local so with in we've good government. to very

and again, have again, going forward. concern, things, the a do activity And portion tariffs and in U.S. we the good of how is Our view political the unrest is done China. government our

scratch, in lot and and we running manufacturing quickly of and of that low-cost areas COVID, the very could can a things Philippines, so a I the Greenfield setting looking we're I more to think acquiring not about a at. get tour worry think company of we a another has those backstop. have area I type get know from have we just if things looked -- announcement political who shortly have hoping Before did to Vietnam, would an in situation. a standpoint, that of for Malaysia, And facility the as on you up our the done from we one one be up But we operation of to

again, this again, point, communities, okay. have at to it's it So comes And COVID. knock we do wood, like things China, when some are people. But on

XX is good going very is Hong upsetting. through Kong the have now and Hong the in work they're China a what not relationship We us. in Kong people And China that the situation. And between people for people

So a on. it's we keep do watchful something eye that

Operator

now follow-up Needham a take Company. we'll Cikos from And Mike with &

Michael Cikos

better initially what about it had be to CUI Thinking could. acquisition, least thought. the we more, at seems if one than I going Just

M&A is to for looking what on would be, assessment that of And what you're technologies the that your follow-up of So be then, front, would on acquisition. curious opportunities different if footprint to the to Is a about. interest it on it we diversifying Or at caters going just talking were that. it this the I'm to manufacturing maybe focused segment? leave you? kind specific of that

Daniel Bernstein

Okay.

there we've them to first. model manufacture just with Again, a took anything. to Let's historically from business, have When private-label. everything what better the introduction. doesn't lunch. find a X a They company always to minute CUI. NPI, discuss customer years CUI for wanted diversified base. What to any is product started see guy. than it's They X they've go a we more Bel than finally different out very in sales has. built acquire out I new tremendous us very Bel a has It other marketing, sold. to done is CUI Everybody interesting wanted everybody

to the quick to lunch. see to on a They Internet go just Now nobody their wants out as and wants as get designed get and guy, want sales in. possible go parts nobody to it

And be base, that the accounting and customer this profitable. Digi-Key, do They with to they for customer largest X,XXX has. why job no very there that customers. really X%, with diversified be that's like houses, And And base tend to X,XXX than could more is model they and CUI product that's Transformer same get to their the to work shines. a them out and where e-commerce great Mousers, the catalog a customer Signal

and their looked growth at is to the we products, the booking have company do one Bel to how market since tremendously we solve they us really bring do marketing, sales with had So again, acquired to point as pleased problems. -- growths it this now, other what And we're at and we and NPI, on we the them. capitalize customers'

as our that very between I there I So cross-selling before, the And think that our groups, like opportunities mentioned quickly. as on we side, upside think well been product I and will change can I hasn't there's from existing that tremendous penetrate customers. as

they is needs simple. that's power. if again, what's think again, as, and their out and I goal away us find if a Again, as connector said, And one-stop we portfolio one-on-one more want, with As calls we engineers and that's from for they solve up, are supply moving at us all magnetic go forward-looking get contact, their can or needs going power our to very this as their contact. can or connectors fill if to If go dealing -- to them we tremendous products we our count, can customer one-on-one more like needs, we forward. in-person in products, going the all

the years, might it's in where it, instead world like X I us escalate this years. to to just and COVID, with is think like be saying be in I think, it And going of going; X

that a of do do and digital lot So started Facebook, we things sales forward. how of more again, one resources transformation putting marketing than lot with outside salespeople, in group up going better we LinkedIn, the a we is through customers that address a

I any we we what in when a short, to there's we're than again, world on, at. and help we're that's company changes, to And were support lot that us, can a do strengthen; think, going So better a the hoping we're and positioned looking everything revolution ago. so, year believe,

Operator

And questions, will this we you no and Thank that for have terminate call. participating. conference further

Daniel Bernstein

Thank and to you, talking for we look to again. you Okay. everybody, joining, forward

Craig Brosious

you, Thank everyone.

Bel Fuse (BELFB) 30 Oct 202020 Q3 Earnings call transcript