Bel Fuse (BELFB) 27 Jul 232023 Q2 Earnings call transcript

Good morning and welcome to Bel Fuse's Second Quarter 2023 Earnings Call.

As a reminder, this is being recorded.

I would like now, to turn the call over to Jean Mary Young with Three Part Advisors. Please go ahead Jean.

Thank you and good morning everyone.

statements like will everyone our the make will periods considered I'd conference during business XXXX. company's begin, Laws, in including be we Securities guidance financial call statements forward-looking future expected we operating to statements performance that remind today's that such and Before as Federal for regarding periods, under relating future to for should as not any expectations are considered and company's reflect of based today, views company's subsequent statements the and These of current only be of representative company's on the as the views date.

uncertainties obligation issued update forward-looking other results these materially after risks material any we disclaims company in factors. outlook. may those or from forward-looking statements, Actual due The press These future differ and periods release summarized to that risks, are market any to by statements the yesterday. a projected closed for of number

other including our Commission, December, our filed our results with that materially XXXX, our information SEC risks factors is Annual discussed Exchange the most could about filings actual cause important and reports in with impact and XX-K, Securities we quarterly potentially XX, to that other from our performance and expectations, and documents hence to or fiscal year may on time. for have Form the recent material file the from time Additional ended differ financial the Report

and GAAP reconciliations We may to our call our results non-GAAP of included this discuss in have release. press also during results non-GAAP results been

the filings all at website. section and IR of SEC release our our are press Our available

President CFO; Farouq President Bernstein, and Dan Investor and Relations. is CEO; today call the Reporting on Lynn Vice Hutkin, Financial me Tuweiq, of Joining and

call to like Dan. turn I'd to over that With the Dan?

for and Jean, our Thank thank today. all you call you joining

improvement. very pleased margin of seventh are gross quarter to We year-over-year consecutive our report

group. markets felt lead offset continued our served Magnetics quarter of us and way diversity and products the within successfully the year. this to impacts Connectivity Our well this has Power and

challenging margin a more global in couldn't on We've macro our been environment for proud improvement. be working of discipline I team unwavering and their

backlog it side, to On normalize. as continues the expected,

Importantly, strong to be the a orders in our margin backlog perspective. continue from

acknowledge wanted others in take Deswarte Catherine the moment I associates Republic. Czech a to former to and

in to divested who As we it's we a business had in PEI-Genesis, June, Czech a long as Republic early known Bel non-core distributor Cinch our the for announced time products. of

the Lastly, of our corporate $X.X headquarter as sell closed for and quarter sale which in We new to resulting our This to is building able in move results. announced million, operating annual second building made the Jersey. location. Jersey our late June, in Orange included West the the we and sense value a of moved of in New gain City in expenses were $X.X million property former to current lower market

the Lynn? call turn provide update. financial With over Lynn a now the that like to I'd to

Thank you, Dan.

the From of second perspective, second continuing to second groups, second product was with year strong expansion reached Overall a XXXX XX.X%, a notable expansion, quarter Gross groups. the of margin and compared very million $XXX in three million XXXX, as margin all financial continued to three the XX.X% quarter $XXX quarter compared of as in across XXXX. prior. were our for sales gross quarter two

end $XX.X Power consolidated market, Bel's a new million, By Group is the high 'XX This over product our year's of sales networking half driver. Solutions sales. growth QX from for Higher front-end demand our power represent Power Protection products now group, and for was largest last quarter. they and were XX% serving second record our up for

product was by margin circuit benefits XX.X% XXX improvement and 'XX. mix, QX taken this Sales driven decline shift quarter, of basis group for protection sales. second of products strong the our year, point a past also in to eMobility favorable over FX. pricing Largely helped for remained a from in the the offset Gross and actions a seen favorable

bill had $XXX backlog Solutions million XXth. book Power a at group June a X.X, of XXXX, second Protection and to of ratio during the orders of of Our quarter and

the the came Solutions in XXXX, of the quarter XX.X% aerospace military million XX.X% second new and Group the of posted Gross year's group quarter of quarter sales record from of at from quarter, increase Connectivity the largely an margin this of commercial up second in second Our rebound $XX.X of continued due XX% to end for markets. XXXX, XXXX. last in second for

throughout in effect, impacted Our and higher in half by facility profile steps of transformed financially the which costs. improvements certain restoring the in recent the labor has efficiency actions cost group, material been and year. critical margin Connectivity as of first group consolidations These had years XXXX, renewals this took contract were

We XXXX of of meet believe second X.X this customers backlog the military of at in are commercial during ratio to better orders we million positioned Connectivity current of quarter the expanding had and group requirements of XXth. now book a $XXX to and air bill and our a The June segment.

million, sales XX.X% last Solutions second quarter during the XX.X% our group as of had in last Lastly, group year's down for second compared was from Magnetic to this quarter. XX% year's second $XX.X QX Gross of margin quarter. XXXX,

of group side. a going on and Magnetics both our product quarter, last through perspective from customer period is transition noted consumption operation the As a

to China primary expected handled been being has the that group the planned. been third consolidation by year-end. new being our stages in manufacturing of XXXX. has shipped of shipping largely products site the $X the and this The site move beneficiary late transition facility completion expect since since complete in small quantities be to quarter, is with The progressing as in major underway with of and We been This late be new is balance full 'XX, has the during XXXX. second quarter million in from

ratio quarter a This backlog book finished orders X.X, As our low group XXXX. Magnetics hand, of million. bill QX within be the in QX, inventory of with through to second their group of on resulting customers group to work bookings $XX continued during in a of

the have a still largely levels past due QX, At run to though rate. there level, consolidated these unable that were returned to in are orders ship normal

indicated last quarter, continued begins times as and normalize. lead to availability decline has to and eases, expected our backlog overall As component

Our XXth, the backlog of due elevated, million come further. expect down XX% consolidated of We as $XXX is of backlog year-end lead June and view times from down level orders levels. XXXX it to was still this to

times approximately would were backlog one of when Historically, to our eight sales lead worth weeks. twelve quarter's represent

two-and-a-half current backlog represents Our worth level sales. quarter's about of

a way to still fully normalized. there's So before go, it's

from of administrative second quarter sales second expenses million the selling, XXXX million sales, were XX% of the $XX last or year. and up Our of $XX.X quarter in for or general XX.X%

Within cost, in the SG&A, fringe matter, to the with million of $X.X primary quarter continue litigation in plaintiffs costs salary XXXX. related discussed benefits will as our increases MPF litigation filings. through our of associated to We third recent these were and anticipate addition

On large regular did have QX expense the XX. tax was line, during FIN we offset of to reversal XX our a that $X.X tax an million,

impact you share $X.XX QX a items amount of similar favorable reversal in XX 'XX tax approximately share recall, favorable EPS we a had From $X.XX and If tax in $X.X 'XX. an QX per had these million. a in of perspective, QX per impact in the

million cash million at during the generated we flow in cash to $XX.X and end. items, activities a sheet balance year We from to with quarter cash $XX.X $XX.X operating ended of balance million Turning of flows half compared half million, capital versus in of million of million flow the half XXXX. XXXX. resulted $XX for this expenditures free of first With generation first the first XXXX. of improvement of $XX.X cash the $X.X as An

turns inventory times Our million in inventory QX X.X from from vs during levels by decreased end, improved 'XX, of $XX.X resulting times year-end. year X.X

While to range our turns progress of this X our times. historical down, levels to been a inventory companywide has bringing made initiative inventory on restore remains

quarter. $XX.X of Looking flow we million in at operations, generated cash second translated free from $XX.X quarter XXXX million this during the cash into the flow second specifically, of

Lastly, an debt on update balance. I wanted provide our to outstanding

During rate. XXXX, to subject portion the the rate free quarter outstanding interest pay flow debt a utilized variable our high second which we balance, to of down was of our cash

through outstanding now swap place XXXX. debt at that balance down Following the subject $XX sits million X.X% million QX, are to fixed in $XX is and through of our pay in effectively rate a interest agreements our

additional Farouq, now and I'll over to the outlook. color for turn call

Thank you, Lynn.

The busy for one team. another was of second the XXXX quarter

another headquarters, conducted In corporate solid moved completed we consolidations and our delivering that performance financially, small addition to non-core continued executive our business, a progress have underway. offsite, made various divestiture a facility of been our on

of quality to and was a visiting they firsthand sites management do in-person in something From great visited my exciting in are This since first and Bel there time and our personally two see able was years managing. we're the COVID. joining associates for since ago, China our time Dan perspective, sites the first China, it to I our facilities

progress factory a the in upgrade the We and our opening there. our customers. where to appreciative ceremony grand firsthand The that and excited at magnetics early and Bel team walked June formal represent away the we of facility of and overall able consolidation to myself participated in new see

have last quarters, and future, stated been this the an instead we in a quarters, prepare several the exciting take course over As seeing as to past I've on this is Bel quarter. hold, and for and journey seeing we're

our refocus on elected that release, the greater positive, away slight of Czech of more as view As in We will $XXX QX million are efforts $X to million. a million keep have we attractive on tailwinds. walk sales, divestiture margin mind in we expecting given sales our Also with $XXX noted low annual this to XXXX in range our that revenues. the a opportunities, margin from have to impact we

but gross we line 'XX QX On 'XX. we quarter, with side, sales be on profit third margins. while to expect the year's to In of expect XXXX last QX margin generally QX to be behind we expect in ahead margins be short,

year actuals that be our full first fiscal outlook our for XXXX expectations year to expedite are revenue. and XXXX QX, to the now was Given including million sales reported $XXX fee half XXXX estimating raising closer and we year, for last are

the of at of and the year. is upon today end balance The strength for of through assumptions. on are based expectations this estimates, information including mentioned discussed expected start and XXXX, as call the continue as periods or available projections guidance of military, our of estimates, call, eMobility and to on all otherwise the foregoing market forecasts, As current the in our future commercial air, seen

working year. is optimistic Overall, other still the are the of topline. business profitability within the which in movements of are or even quarter Certain estimated areas through remain the on half the another strong, their believe to lightest second the inventory with take on We the we so. hand, will

are Tempe, existing and Arizona in U.K. two with having the former our consolidation transitioned Sudbury, facilities. On now to sites fully complete, projects the successfully facility other side, four of operations Connectivity

wind to down but expect with started the Magnetics down wind the in have it facility in QX. For more consolidation aggressive China, we in to be QX,

on We run in are cost touches means largely still track into this all business. about We QX, with spoke one QX. that to this complete in just baseline our takeout finishing have some

offsite, executing to target and bench Looking the strengthening in begin markets, end plan ahead, setting areas key ahead. us we The identifying further up exciting in to continuous at on key themes the of for which improvement will the prudently profitability. were growth, discussed is for invest and our the road recent opportunities business

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

Farouq. Yes, the please. now up operator, questions to thank like open for would The you we call

first Our ahead. Litchfield Hills O'Neill, Theodore [Operator from sir, go Research. Instructions] Please CFA, question comes

that are this you new what wondering things operating of if margin better was number? is I create normal, the doing to and sort

Farouq can answer that? you

Theo, mind sorry. may repeating half question, that? have skipped you your would Yes the of first we

the Yes there you controls. operating your or quarter, the expense you also new I It done were and outstanding your the good things margins reflecting - is like gross to the was shaved margins whether in that were so, last expenses the up X you're points off this talk over come. percentage but more so two looks profit if wondering years. is about you've could normal, too,

Yes.

been will we've a we to As continue getting a things list have to the get to. in get have right? that kind of journey, And of on trying and we past, we are are talked about to to,

some we we our operational result cost places. for is places way it the in business favorable net the at more invest resetting look all is prudently of basis this of prudently in the while investing, and net structure. a other and So But the cost trim so structure are we

our headcount we and big of the rationalization of to terms facility consume something relocating some as such the of more extent, doing, they but materials, lot about manufacturing approach, get headquarters. procurement factory our in lean down headline we the terms grabbers small like obviously floor So design for material, as of think play, the consolidations way right? our are down And processes a we some really also raw to corporate in we're being more to around

are things so these ensure invested overall add the in with think we we're do all and up. shrinking key structure, So theme future, lean and a that our cost of we ready right?

obviously in want happen, not growth. We our growth to invest that sure, we're way to make cut doesn't to we need to looking

So alluded that a trend some because we to of but it places, redeploy also $XX did back went call the make $X the more quite roughly, we're certain doing it million we're seeing sense. in not Similar where and million at places away frankly to these that some revenue earlier, I in opportunities from, doesn't attractive. it resources to

was the about much willing the stream revenue plant to or now? Czech revenue of - in part not is disclosed Have Okay. talk you is that how

roughly it where $X or $X let's was, than, little million, to it around, is give million million, Yes, sometimes kind bit bounced think but a $X higher take. of around

And an annual that's number, Theo.

Okay. the front, And you're is on on at, all? that at looking something acquisition that

seeing in the the interest we the a come We in we're so continue Right to the clients be of and but environment or think theme. assets in we've assets of to the acquisition that market, tends to On come of we'll that bit now more environment out. great the in the generally rate we our always be I more as of disappear some seeing quality overall front, on to because pick the expectations lending expect macro maybe game. been that little kind start some game, environment less see up environment, businesses is of see not QX,

clean good us will the a setting for new after and getting is, order, are the go both super up that obviously and road. our acquisitions think player terms in in balance with I a make down our deal, ourselves they closing the sheets and we know we we more come competitive hosting house of thing partners as us just will

will So, come looking. we're it not always yet, but

to do color bankers constantly. just to more meet our some We But investment is that. with add

the acquisitions past to proper Rothschild, over position ourselves they the how review we Citibank in Needham past marketplace. with met in to weeks that's see over break going What see a manner. four and and they So, the to loose,

very thanks Okay, much.

from question and comes Our next Needham Ricchiuti from Jim Company.

You can go ahead.

million I to morning. lower sure misheard. Thank clear, $XX margin you. make annual to quarterly Good $X million business, of I'm just have the or want that's I may

good Yes, that's question. a Jim, annual. it's

if little which you Got comes that out. wondering And of on a it. could just light areas bit product I shed areas,

of should came in we're This of some we through I kind there. clarify, just of went constantly here the looking trim also highlights QX. bigger Yes. kind number to and that out

specifically this little slug comes, to it's ones, not in of bit a largely But constantly one-time where I'd of - of we're of magnetics. one other on Magnetics, but but couple out a So a thing. it terms crossover say, lugs

transition this wondering, margin a And of this how benefit see bottoming shift about that topic better recovery the from Magnetics do through early then think business. go of from happening, just and that to anticipated standpoint? we I'm revenue the is in should we margins, facilities gross some you as XXXX? And on business

to two to or to rebound we've takes recovery. The is a on call generally normalize. inventory we're our spoken that I in and industry, news see quarters so one it Yes, to things two Magnetics, ago think that good for starting levels

that that upward we out on curve. bottomed side believe the are So of we've and

we're so in confidence So, us month, July, given that that. had it's out a up climbing look of more and we as we good

the feel other excited the note about of feel and So, backlog, but today. future, the some we out, bottomed we've is given is thing of have done, and it's what profile we margin of work healthier look the we in we at

So can same there of the is scenario revenue. where lower have you a on level profits

facility. right at is of get down running and despite transition. X facilities this of the Ultimately One operating and is thing Magnetics we to sales to now out to should performing margin one level, right? consolidation, But gross I down XX% as trying point because being

So on business of going in see start closing and down to it's kind exiting QX top recovery. of really kind that consolidation we're to of nice this

So margin. that us to high

about excited think of making we and on a that going exciting exit. there. we're lot So there's things

quarter hit kind Just testament company. also us, of this which quite is frankly as a to us

like revenue Got it. seeing have a commercial the but Quick air sounds Lynn, did quarter. number follow-up. good It missed I may growth. give it, you pretty apologies, you're in

Yes, sure.

commercial was $XX.X for million So, air the quarter

I'm million sorry, $XX.X

Yes.

you. you back it's Thank jump one queue. questions, if other I'll Jim. asking the have take additional thanks. I Okay, any If it. one's no in can one

Jim. ahead, Go Sure.

Thank you.

to and wanted more seeing to I the power. deeply dig in a little So front-end you're bit strength

about also, of networking elaborate talk market. seeing I'm AI be front. you're you're I'm on business You And the I'm in I the related or momentum hearing what signs seeing in if on business elsewhere, may guess we're to about and this wondering if you what could part early any just the of activity that to the getting wondering all

Farouq?

Yes.

of Power pain those So power. the front-end point been we a out side the supplies of to a little Obviously, read the for participants the have market. public bit of kind of and some networking in it Jim, IC there, commentary if

it's not - So obviously quite chain easing, the we supply there is but yet.

But So in look a gets we too was when as it's in Magnetics, to think a us see we there because that little right? continue networking. about inventory we robustness the channel, bit confusing, little there for demand bit at much

and term things bit same around a so working be would term two-tailed broadly definitely of we the near some data that are for medium market, and do end we long We given do we So the little think in centers To a not your term about cities secondary it's bullish a market and speaking. the of question things beneficiary that. AI. of on hear

bit The it increase data are We way needs and play power computing we all are it AI tend to will in a which cause about removed, little call requirements, that is a of secondary. a lot center behind step maybe we in. think areas

wanted costs but uplift. So, direct not to there drawing we be will to expect have line we do an a be it,

days doing perspective, seeing right still We know are from all tough we're directly, around a say it it's hardware bit we it's if is But, us. a now but of us. think so, segments early for have we're - from the we ahead to And some couple business it's great a not unless that. you're little our Obviously, us will tail-wind in certain we better components. a of that

and pricing last question would me in channel. broadly helpful just you wonder in characterize how maybe for activity is, business more the the distribution just That's And general?

think. I Yes,

Yes, Dan. go ahead

No, side is a of inventory, that up again the supplies channel again, lot power working passive still is capacitive distribution through IC's in lot inventory. of a the of the built and because shortages

by So depleted. the end third they normal back to been get the hope ordering We somewhat that's of process. quarter, that of fourth the quarter end

much but strong product, down see So far little we know demand We reflect pricing likely come down, will out a to for seen times today. pressure still most we bit haven't pricing there that. as come lead

X% people and at component will growth, out at saying, is if are and you the thing as be the orders and lot they really in safe overall, side, all around a see at the don't cleaned on people, should stronger. everybody or predicting anything distributor, But think coming a I the And possibly the hopefully this OEM X%. look bright of X% inventories end new or on turning passive be plus most a maybe negative predicting year,

Dan. That's Thank the Got you congrats helpful. and on it. quarter.

Thank you.

came You ahead. from Hendi Please, Gabelli Funds. question can go next Susanto, Our

Lynn. Farouq Dan, and morning, good Yes,

new gradual And First will wondering comprehensively look portion been a I'm then products question what considering rebound? that or in has there through inventories excess recovery whether executed may it like, additionally pricing what pricing exercise gone or discipline, that not? so of were in Magnetics not Magnetics Magnetics, the be have

recovery say the the like said, would recovering. I I that's feel bottom we Yes,

starting of data we're type think So ordering the kind activities of we signs POS see and positive are on and stuff. and kind mend to do we

So, bit then big it than of a Magnetics, a it out. be will taking gradual kind little back growth a question And will to are going - pricing will right lot on we be your to but faster it's rates are. probably maybe cost to kind not be, other one of normal snap of it

investing upon of parts better. automation kind to other that able those and bit We're a little us, react in business, investing so of we're when kind of way come we're the do discussions

if side house. new and there a opportunities So, what see about here, price of of to little it cost that control on kind bit you're going how the are you it's your out

of for we we that coming of bit performance the be it's a already through set across our we and bit walked revenue some but way will business. takes So obviously little position overall better of the we puts and to of Magnetics for a frankly, little opportunities expect out group we like things And the better about bag. liked be It's going quite kind overall frankly nicely better other stuff the electrically kind mixed feel and and came up as these we of legacy some been them. we a we've an than so, that we and quite some some talked because of from away

$X Farouq, reflects the Yes. this baseline has second quarter the R&D million year, that investment? been higher more then in is that new And running

offense there on the and things products and we're some margin Yes on have things been, networking talent. terms legacy more got has so growth, frankly sleeping in obviously not to of as E-Mobility of big sure we not seeing we so look and some a exciting XG, space we're across focus quite right in we're we are that while the we said, we the make business on very defense

other invest areas in investing those consolidation to we've of the and of has one that at in. couple improvement of is the R&D allowed kind business margin in businesses been level both also Our a there's us probably

across good R&D which a at little of a at But, when too nothing, It's crazy right sales thing going opportunity after here. as as I flexibility that us business the in is a because and to you it invest So, nothing of right think the people, great things. percentage we the gives look look bit

about it's of So should say of kind it kind I'd normal for time probably be the where being.

process offering you the last then filed May proceed Yes. shelf Okay. may that in share and Bel thought would on how that. Fuse And with

what strategic Fuse Bel utilizing options kind Specifically, of can that that? pursue

Yes.

the but XXXX had have three It a So shelf good Obviously, place think since has we've or financial time of executed upon we and in XXXX, a thereafter. item been my couple before to to that kind ultimate offering was somebody I maybe of maintain every then housekeeping out gets years can it. it we rolling flexibility. there haven't was have and

filing been what of of doing, really an us have extension flexibility we as kind continuation needed. So the and to give was

say then Yes. me, are if may see the QX. positive colors last more benefits I missed And in like for last tax somewhat there on And quarters, or let's as times but tax I then when like some certain quarters? - question potential we the this give like flag could like in potential QX several like earlier, you in tax

Right.

portions reversal a QX, XX tax FIN off items So the quarter the tend off roll in the Hendi year. been we do $X.X QX rolling we had 'XX tax These of each larger have similar million a $X.X QX was million. that that in in did have of Last 'XX. taxes large second year, on reversal in to

rate. see not do this it QX to of would we expect level We tax to to benefit expect or back normal move a more So in QX.

Thank you Lynn.

to go [Operator Instructions] would Bernstein turn comments. the Daniel closing back Please for I Now to ahead. like Mr. over call

call look much very thank speaking to you our today in everyone forward joining we you October. to and for and Thank

concludes teleconference. This today's

disconnect may lines time. participation. at for this your You you Thank