And welcome to the Bill Fuze Inc. 2nd Quarter 2021 Results Conference Call. Today's conference is being recorded. 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 Farooq Tewick, our CFO Greg Brocious, our Vice President of Finance and Nick Hocken, 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 of the company. The matters discussed on this call such as statements regarding anticipated cost savings resulting from the closure of Bell'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 Officer, 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 twenty twenty one, are all forward looking statements Officer, as described under the Private Securities Litigation Reform Act of 1995 that involves risks and uncertainties.
Actual results could differ materially from Bell's projections. Among the factors that could cause actual results to differ materially from such statements are The market concerns facing our customers the continuing viability of sectors that rely on our products the impact of public health crises, Such as the governmental, social and economic effects of COVID-nineteen the effects of business and economic conditions Officer. Difficulties associated with integrating recently acquired companies capacity and supply constraints or difficulties Executive Officer. Product Development, Commercialization or Technological Difficulties the Regulatory and Trade Environment
Executive Officer. Risks associated with foreign
currencies uncertainties associated with legal proceedings the market's acceptance of the company's new products and competitive responses Thank you, Dan. 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 Officer, 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 our call today. First, I'd like to provide an update on COVID-nineteen. All our manufacturing sites globally are operational throughout the Q2. The delta variant is prevalent in regions in which Bell operates, particularly in India, U. K.
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 our global manufacturing associates for their ongoing dedication to Bell under these difficult conditions. Turning to our results.
We are pleased with our financial results for this quarter. This is our 2nd consecutive quarter of meaningful year over year sales growth as increased orders Officer. Over the past 6 months, continue to translate into sales. Our bookings during the Q2 reached a new record high, And our backlog of orders amounted to $314,000,000 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 Solution and Production Group were up 23% from the Q2 of 2020. The increase was largely driven by a 55% growth in our fuel 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 Q2. These increases Executive Officer, who were offset in part by lower sales of our custom modular products as we exit these low margin products. In connection with this exit, our modular design center in Maidstone UK will be closing during the Q3 with an estimated annual cost savings of $400,000 Our Power Solutions Protection Group finished the 2nd quarter robust backlog, Officer, which is up $92,000,000 or 143 percent from year end. Sales of our Connectivity solution products increased by 11% from last year's Q2 with a continued rebound in the commercial aerospace end market, which improved by $2,900,000 or 114 percent from last year's Q2.
Sales of our connectivity products through distribution channels We're also strong, reflecting a $1,700,000 or 12% increase from last year's Q2. The backlog of orders for our connectivity products Group by $21,000,000 or 45% since year end. On the Magnetic Solutions Group, Officer. Our sales growth of 8% over last year's Q2, led by higher shipments of our integrated connector modules Executive Officer that are using next generation switching applications. During the first half of twenty twenty one, our backlog of our magnetic products grew by of $45,000,000 or 105 percent since year end.
Our Q1 acquisition of RMS, EOS Officer, are now fully integrated to Bell's businesses, and both were immediately accretive to our results, contributing a combined 8,700,000 Executive Officer. The recent pricing adjustments to our customers Officer. Focus on margin improvement, coupled with the highest backlog in Bell's history, the return of the aerospace demand Officer. And our participation in growth markets like HEV, IoT and 5 gs allows us to be strongly optimistic about Bell's future. Craig, can you go forward?
Sure. Thanks, Dan. Moving into the financial update. Sales by product segment for the Q2 of 2021 were as follows. Power Solutions and Protection sales were $55,400,000 up 22.9% from last year's Q2.
Connectivity Solutions sales were $43,000,000 an increase of 10.6 percent and Magnetic Solutions sales were of $40,300,000 up 8.3 percent from last year's Q2. Preliminary gross margin by product segment for Executive. Our Solutions and Protection had a gross margin of 25.9% in the Q2 of 2021, Up from 23.5 percent in last year's Q2. Connectivity Solutions gross margin was 30.3%, Officer, up from 29.6 percent in the 2020 quarter. And Magnetic Solutions gross margin was 23.2%, Officer, down from 25.4 percent in last year's Q2.
On a consolidated basis, gross profit margin decreased Officer to 24.7 percent in the Q2 of 2021 as compared with 25.8% in the Q2 of 2020. Officer. Bell implemented price increases earlier in 2021 to offset rising input costs with a portion of these price increases taking effect in the 2nd 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 Q2 of 2021 as compared to the same quarter of 2020. The margin comparisons were also affected by $1,000,000 in COVID related subsidies received in last year's quarter that did not repeat.
Excluding the subsidy, gross margin in the Q2 of 2021 would have been more comparable with last year's Q2. Research and development costs were $5,500,000 during the Q2 of 2021, a decline of $650,000 from the second Quarter of 2020, primarily due to the closure of our Switzerland R and D facility in mid-twenty 20. Our selling, general and administrative expenses were $21,800,000 or 15.7 percent of sales, up 2,700,000 from a dollar perspective from the Q2 of last year, but the same as a percentage of sales. G and A salaries and fringe benefits were $1,300,000 higher as compared to the Q2 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 $6,600,000 in the Q2 of 2021 That's compared to $6,100,000 in the Q2 of 2020. Other income and expense, net Officer, who was income of $113,000 for the Q2 of 2021 as compared to income of 1,200,000 dollars during the Q2 of 2020. The income in the Q2 of 2020 largely related to a $1,500,000 gain on the company's SERP investments, Officer, which are included in this line item. Interest expense was $721,000 in the Q2 of 2021, Officer, down from $1,300,000 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 have a benefit from income taxes of $1,900,000 in the Q2 of 2021 compared to a provision of $423,000 during last of Cheers' Q2.
The benefit in the Q2 of 2021 primarily resulted from the expiration of statutes of limitations
Officer on certain tax reserves.
Earnings per share for the Class A common shares Officer, was earnings of $0.61 per share in the Q2 of 2021 as compared with earnings of $0.43 per share in the Q2 of 2020. Earnings per share for the Class B common shares was earnings of $0.64 per share in the Q2 of 2021 As compared with earnings of $0.46 per share in the Q2 of 2020. On a non GAAP basis, Officer, which excludes certain unusual and other nonrecurring items. EPS for Class A shares Earnings:] Well, it was $0.64 per share in the Q2 of 2021, that's compared with earnings of $0.43 per share in the Q2 of 2020. On a non GAAP basis, EPS for Class B shares was earnings of $0.68 per share in the Q2 of 2021 Officer, as compared with earnings of $0.46 per share in the Q2 of 2020.
And now I'd like to turn the call over to Farooq to go through for some balance sheet and cash flow items. Ruq?
Yes. Thank you, Craig. Beginning with some balance sheet items, our cash and cash equivalents Balance as of June 30, 2021 was $66,400,000 a decrease of $18,500,000 from December 31, 2020. During the first half of twenty twenty one, we made net payments of $14,800,000 in connection with the acquisitions of RMS and EOS. 3,000,000 towards our outstanding debt balance and used cash for capital additions of 2,500,000 Dividend payments of $1,600,000 and interest payments of $627,000 These items were partially offset by 6 of $6,700,000 in proceeds received from the sale of property.
Accounts receivable were $86,900,000 at June 30, 2021, as compared with $71,400,000 at December 31, 2020. The primary driver of the increase related to the higher sales volume in the Q2 of 2021 as compared to the Q4 of 2020. The 20 21 acquisitions of RMS and EOS also contributed to the increase in AR from year end, accounting for Officer of the company's business at June 30, 2021, comparable with the DSO at December 31, 2020. Inventories were $116,200,000 at June 30, 2021, up $16,000,000 from December 31, 2020. The increase was seen in raw materials and work in progress and was largely due to increased raw material purchases to accommodate our prior backlog of orders, as well as the inclusion of $3,000,000 from 20 21 Acquired Companies.
Accounts payable were $53,000,000 at June 30, 2021, up $13,200,000 from its level at December 31, 2020. The increase in AP was in line with the heightened purchasing volume of raw materials during the first half of the year. In addition, The 2021 acquired company has accounted for $3,200,000 of this increase from the year end level. Bell's total outstanding debt balance was $112,900,000 as of June 30, 2021, net of deferred financing costs, a decrease of $2,700,000 since the 2020 year end balance. And with that, I'll turn the call back over to Dan.
Dan?
Thank you, Farooq. 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 Bell and Fuse. Craig came to the Bell family through our acquisition of Stewart Connector in 2003. Since then, he has assumed a number of positions within the financial department, Executive Officer, Ultimate Rising to lead the group in 2017. He's instrumental in helping guide Bell Officer.
Through some of his most transformative years, I would also like to acknowledge his generous efforts in ensuring the transition Officer. 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. Executive Officer. And we'll take our first question today from Jim Ricchiuti with Needham and Company.
Hi, good morning. Yes, 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 Just a general bit, some of the what we're hearing about component availability and the potential for that to be
Executive.
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 $2,500,000 we could have maybe had greater sales if we received all the materials in. Lead times are stretched out. You're looking at some semiconductor companies that are going out to 18 months to 2 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, all of a sudden, you're looking
at
component shortage and then you have a situation in Malaysia Well, because of COVID, the factories are shut down for 2 weeks. So you are going to have these hiccups, and it is a Officer. 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 had to secure all of your facilities that Maybe contributing to some additional costs that we don't see necessarily?
I don't think a substantial number. If you look at mass Executive. Thermostat, temperature gauge, temperature measuring devices, making the place safe by putting Plastic walls between spacing, cafeteria, all those costs I think were taken out. So I think going forward, we do have I can't see anything more than minimum cost going forward.
Okay. Your SG and 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 and I'll jump back in the queue. Thanks.
All right.
I'll let Craig know. Craig, do you want to take the SG and A or you want Farooq to do it?
Yes. I think I can take that one, Dan. I think we are seeing some incremental SG and A related to volume, as you said, Jim. There's 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, maybe on the high end, but I think we're, it's nothing unusual in there.
Got it. And just with respect to some of the pricing actions that you've taken, have Do you realize the benefits of that more fully or are some of those expected to flow in over the next I don't know if you can give us any kind of sense as to how those actions
I think, and this is just ballpark to give you a rough idea. I think in this quarter, we probably maybe ticked up 15% of the price increases we put out there. Officer. And then the balance would be, I think, divided pretty evenly between the 3rd Q4. But I would think they would all be flushed out by the middle of the 4th 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. A question about seasonality. Given the strong sort of the strong And the longer lead times and your 2 recent acquisitions, do you think Q4 seasonality will continue? Or do Do you have any thoughts about that one way or the other, if there's a potential change?
I think with COVID, everything's blown out the window. So again, I don't generally because in North America because of the Christmas holiday and Thanksgiving, you lose Anywhere from 5 to 10 days where people don't need parts. But I think at this situation where the backlog is so strong and people are so desperate Officer. To get materials in, I'll be shocked that we see I doubt we see the downward churn we've seen in the past.
Yes. And this did 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 percentage for
That's a great question. And it's as you know, we have you probably know, we have Vinny Bellucci, Executive. Former President of the 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 And I would think that you would probably see it more in the semiconductor area that will really stretch out long lead times than our product line.
Officer. But it is a concern that are people bringing in too much inventory just as much I think just as a concern is bringing The double booking is people bringing in inventory too soon. So why bring in a Bell 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 cancelable orders?
Do you have non schedule change orders? We looked at that, but we haven't implemented that at this time.
Okay. Thanks very much.
We'll take our next question from Hendi Susanto with Your Daily Plans.
Good morning, Dan, Farooq and Craig. Thank you, Craig, for all the interactions.
Thanks, Andy. Enjoyed it.
Dan, I would like to ask you questions about XL's trend. In the absence of, let's say, like unforeseen cost 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 next quarter, it should improve. And then again, historically, I think the Q4 would be substantially better than last year's Q4. But, generally, I don't know if it'd be better than the Q3 because historically, the Q3 has always been a strong quarter for Bell.
I see. Yes. 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 2 are higher given like strong performance in Q2? Executive Officer. Thank you very much.
Okay. Craig?
Ben, I think he's better equipped to drive.
So, Hendi, you're looking for the quarter Yes. Okay. So for the second quarter, RMS contributed $2,700,000 I'm sorry, if we're looking at trade sales, of $2,500,000 of sales and EOS contributed $3,500,000 of sales.
Just to give you
a little more color, and I would say that's 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 twenty twenty one, RMS contributed $4,600,000 of sales And EOS was the same $3,500,000 since they were acquired on March 31st.
And then, how about revenue forecast for 2021? Are you expecting higher? I
would say, yes. But we don't have a I don't think we're ready to share a figure with you though. Sorry.
Okay. Yes, no, that's fair. And then this is like bookkeeping questions. The 400,000 Cost saving from the UK facility consolidation, will it go toward Bottom line or will you reinvest that somewhere else?
I think it's only 400,000 Is the cost savings for shoring down the Maidstone facility?
Yes. So we'd expect to see that Drop to the bottom line, Hendi.
Okay. And then any insight into like price increases, not the detail and or whether Whether it's like a single digit, mid single digit, high single digit?
No, I think on the average, the price increases are falling some smaller ones and some higher ones. But overall, I think it's probably falling into the 5% to 12% range. Thank you. 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.