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.

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?

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. 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 crisis 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 U.S. 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.

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 is 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. Sales within our Power Solutions and Protection Group were up 23% from the second quarter of 2020. The increase was largely driven by a 55% growth in our fuse sales, a 53% growth in our products that support growing e-Mobility end markets, and a 30% improvement in CUI sales compared to last year's second quarter. These increases were offset in part by lower sales of our custom module products as we exit these low-margin products. In connection with this exit, our modular designs center in Maidstone, UK, will be closing during the third quarter with an estimated annual cost savings of $400,000. Our Power Solution and Protection Group finished the second quarter with a robust backlog which is up $92 million or 143% from year-end. Sales of our Connectivity Solutions products increased by 11% from last year's second quarter, with the continued rebound of the commercial aerospace end market, which improved by $2.9 million or 114% from last year's second quarter. Sales of our Connectivity products through distribution channels were also strong, reflecting a $1.7 million or 12% increase from last year's second quarter. The backlog of orders for our Connectivity products grew by $21 million or 45% since year-end. On the Magnetic Solutions Group, our sales growth of 8% over the last year of second quarter, led by higher shipments of our Integrated Connector Modules that are used in next generation switching applications. During the first half of 2021, our backlog of all of our Magnetic products grew by $45 million or 105% since year-end. Our first quarter acquisition of rms and EOS are now fully integrated into Bel's businesses. Both were immediately accredited to our results, contributing a combined $8.7 million in sales since the respective acquisition dates. The recent pricing adjustments to our customers focus on margin improvement, coupled with the highest backlog in Bel's history, the return of the aerospace demand and our participation in growth markets like ATV, IoT and 5G allows us to be strongly optimistic about Bel's future. Craig, can you go forward?

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. Connectivity Solutions' gross margin was 30.3%, up from 29.6% in the 2020 quarter. And Magnetic Solutions' gross margin was 23.2%, down from 25.4% in last year's second quarter. On a consolidated basis, gross profit margin decreased to 24.7% in the second quarter of 2021 as compared with 25.8% in the second quarter of 2020. Bel implemented price increases earlier in 2021 to offset rising input costs, with a portion of these price increases taking effect in the second quarter. In addition to industry wide increases on raw material pricing, labor costs are higher due to wage rate increases and unfavorable foreign exchange fluctuations in the second quarter of 2021, as compared to the same quarter of 2020. The margin comparisons were also affected by $1 million in COVID-related subsidies received in last year's quarter that did not repeat. Excluding the subsidy, gross margins in the second quarter of 2021 would have been more comparable with last year's second quarter. Research and development costs were $5.5 million during the second quarter of 2021, a decline of $650,000 from the second quarter of 2020, primarily due to the closure of our Switzerland R&D facility in mid-2020. Our selling, general and administrative expenses were $21.8 million or 15.7% of sales, up $2.7 million from a dollar perspective from the second quarter of last year, but the same as a percentage of sales. G&A salaries and fringe benefits were $1.3 million higher as compared to the second quarter of 2020. Legal professional fees were up by $467,000 and we incurred $317,000 in acquisition-related costs. These factors resulted in income from operations of $6.6 million in the second quarter of 2021 as compared to $6.1 million in the second quarter of 2020. Other income and expense net income of $130,000 for the second quarter of 2021, as compared to income of $1.2 million during the second quarter of 2020. The income in the second quarter of 2020 largely related to $1.5 million gain on the company's SERP investments, which are included in this line item. Interest expense was $721,000 in the second quarter of 2021, down from $1.3 million in the same quarter last year, as a result of decreases in both LIBOR, the company's spread on its credit facility, driven by EBITDA improvements and the overall reduction in our outstanding debt balance. We had a benefit from income taxes of $1.9 million in the second quarter of 2021 compared to a provision of $423,000 during last year's second quarter. The benefit in the second quarter of 2021 primarily resulted from the expiration of statutes of limitations on certain tax reserve. Earnings per share for the Class A common shares was earnings of $0.61 per share in the second quarter of 2021, as compared with earnings of $0.43 per share in the second quarter of 2020. Earnings per share for the Class B common shares was earnings of $0.64 per share in the second quarter of 2021, as compared with earnings of $0.46 per share in the second quarter of 2020. On a non-GAAP basis, which excludes certain unusual and other non-recurring items, EPS for Class A shares was $0.64 per share in the second quarter of 2021, as compared with earnings of $0.43 per share in the second quarter of 2020. On a non-GAAP basis, EPS for Class B shares was earnings of $0.68 per share in the second quarter of 2021, as compared with earnings of $0.46 per share in the second quarter of 2020. I'd now like to turn the call over to Farouq to go through some balance sheet and cash flow items. Farouq?

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 2020. 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 purchases 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. In addition, the 2021 acquired companies accounted for $3.2 million of this increase from the year-end level. Bel's total outstanding debt balance was $112.9 million as of June 30, 2021, net of deferred financing costs. A decrease of $2.7 million since the 2020-year-end balance. And with that, I'll turn the call back over to Dan. Dan?

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, ultimately rising to lead the group in 2017. He has been instrumental in helping guide Bel through some of our most transformative years. I also would like to 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?

Thank you, Mr. Bernstein. And we'll take our first question today from Jim Ricchiuti with Needham & Company.

Hi. Good morning. Yeah, congratulations on the quarter. It sounds like 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 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?

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 added greater sales if we received all the materials. Lead times are stretched out. You're looking at some semiconductor companies are going out to 18 months to two years. So, it's very difficult to pinpoint it. But so far, I think we've done a good job and I think we can manage it as we've done in the past. There might be a couple of shortfalls again over sudden - you're looking at component shortages 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.

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?

I don't think a substantial number. If you look at masks, thermostat, temperature gauges - 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, I can't see anything more than minimum costs going forward.

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.

Okay. All right. Craig, do you want to take the SG&A or you want Farouq to do it?

Yeah, I think I can take that one, Jim. I think we are seeing some incremental SG&A related to the volume, as you said. 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 on the high end. But I think it's nothing unusual in there.

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 -

I think - and this is just a ballpark to give you a rough idea. I think in this quarter we probably picked up a percentage 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 think they would all be flushed out by the middle of the fourth quarter.

Got it. Okay. I'll jump back in the queue. And Craig, I just want to wish you the best.

Thanks. Appreciate it, Jim.

Next, we'll hear from Theodore O'Neill with Litchfield Hills Research.

Thanks very much. Congratulations on the good quarter. Question about seasonality. Given 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?

I believe that with COVID, everything has changed significantly. Typically, in North America, during the Christmas and Thanksgiving holidays, there is a loss of five to ten days when people do not require parts. However, given the current situation with a strong backlog and the urgent need for materials, I would be surprised if we experience the downward trend we have seen in previous years.

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? Second for that?

Yeah, that's a great question. And as you 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 is really stretched out long lead times than our product line. But it is a concern that people are bringing in too much inventory. I think just a concern is bringing double bookings is people bringing in inventory too soon. So why bring 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 that with non-cancellable orders, do you have non-schedule change orders. And we looked at that, but we haven't implemented at this time.

Okay. Thanks very much.

We'll take our next question from Hendi Susanto with Gabelli Funds.

Good morning, Dan, Farouq and Craig. Thank you, Craig for all the interactions.

Thanks, Hendi. Enjoyed it.

Dan, I would like to ask you questions about sales trend. Let's say, in the absence of 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?

I think, again - I think for the next quarter, it should improve. Then again, 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.

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?

Craig, do you want to take that?

Like can you tell the contribution for the year.

Okay. Craig?

Sorry. I was on mute there. So, Hendi, you are looking for the quarter?

Yes -

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.

Just to give you a little more color, 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.

Okay.

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.

And then how much revenue forecast for 2021? Are you expecting higher?

I would say yes. But I don't think we're ready to share figures with you, though. Sorry.

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 the bottom line or will you reinvest that somewhere else?

I think it's only $400,000, which is the cost savings from shutting down the Maidstone facility.

Yeah. So we'd expect to see that drop to the bottom line, Hendi.

Okay. And then any insight into price increases? Not to the Bel already - whether it's like a single-digit, mid-single-digit, high-single digit?

No, I think on 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.

Got it. Okay. Thank you so much.

Thank you.

James, are there any other calls? Hello? There are no further questions at this time. I'll turn the conference over to you, Mr. Bernstein for any additional closing remarks.

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.

That will conclude today's conference. Thank you for your participation. You may now disconnect.