Welcome to the Belfuse Incorporated First Quarter 2021 Results Conference Call. Today's conference is being recorded. At At this time, I'd like to turn the conference over to Mr. Dan Bernstein, President and Chief Executive Officer. Please go ahead.
Thank you, Jennifer. Joining me on the call today is Farooq Tariq, our CFO Greg Brocious, our Vice President, Finance and Lynn Huttkin, 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'd like to read the following Safe Harbor statements. Except for The matters discussed on this call, such as statements regarding the anticipated impact of the acquired EOS Power business on our results anticipated higher sales for our Magnetic Solutions Group during the 2nd 3rd quarters as a result of strong bookings In the Q1, expectations regarding our scheduled backlog as an indicator of stronger sales in the second and third quarters, Expected contributions to net earnings from our RMS and EOS acquisitions and cost savings from restructuring efforts and our efforts to continue to optimize our cost structure 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 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 factors 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 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. Would now like to turn the call back to Dan for a general business update.
Thank you, Lynn, and thank you everybody for joining us on the call today. I hope that you and your families continue to stay safe during these difficult times. First, I'd like to provide an update on COVID-nineteen and how it impacted our facilities. Overall, I'm pleased to report that all manufacturing sites globally continue to be operational throughout the Q1. Our most recent acquisition, HEOS, is based in Mumbai, India where they're going through a very difficult time.
The factory continues to be operational as they manufacture essential products and protective measures have been put in place to prize the safety of our new associates. We would like to thank these new associates for working each day under these difficult conditions. Before getting to our results, while Bell does not normally comment on market activity, we realized there was a Substantial amount of trading in Ballast stock on Friday and the company does not know the reason for this increased trading activity. Turning to our results. We saw a 6% improvement in sales as compared to last year's Q1.
Demand in each of our markets was strong With the exception of Commercial Aerospace, both eMobility and Circuit Protection had exceptional quarters and demand from our distribution partners was strong, which is a good indicator of general market demand to their broad customer base. Sales within the Power Solutions and Production Group were up $7,500,000 or 21% from the Q1 of 2020. CUI turned in another strong performance this quarter with $2,100,000 increased in sales over last year's Q1. Our products sold into e mobility applications were up 1,500,000 100% increase from 20.20 1st quarter and fuse sales were up $1,600,000 an increase of 60% from last year's Q1. The areas of growth were partially offset by elimination of low margin products within the group.
Within our Connectivity segment, sales were down $1,000,000 or 3% in the Q1 of 2021 versus the same quarter of 2020. While we continue to the commercial aerospace market, we saw a partial rebound in the end market versus the Q4 of 2020. Sales within Magnetic Solutions business were fairly consistent as compared to the Q1 2020. We have strong bookings in this segment over the past two quarters and our production team is working through some challenges on material and labor availability in order to accommodate these increases in demand. Overall, our margins were down in the Q1 of 2021, Preliminary driven by the industry wide material shortages resulting in higher material costs.
Labor costs also continue to rise As labor availability in China has been impacted by the lack of traditional workers migrating during Chinese New Year holidays as a result of the pandemic this year. Our cost saving initiatives from prior years have mitigated the higher cost To a certain extent and the remaining impact has significantly been addressed through price increases to all our customers. We anticipate price increases the majority of these increases to go in effect during the Q2 Q3 of 2021. On the acquisition front, our first acquisitions of RMS our Q1 acquisitions RMS and EOS have both been run smoothly and integrated has been preceding planned. It is encouraging to see that RMS was accretive to Bell's results in the Q1 of 2021 and we anticipate EOS will be immediately accretive to our results in the Q2.
Our backlog of orders was $234,000,000 as March 31 and we reached $264,000,000 by the end of April, a strong indicator of top line growth for the balance of the year. Our ability to fulfill orders on the books Will be dependent on the availability of materials and labor. We will keep a close eye on cost and availability of raw materials And you elect labor in order to service our customers as timely as possible. I would like to now turn the Craig over to Craig to go over the financial update. Craig?
Thanks, Dan. Sales by product Segment for the Q1 of 2021 were as follows, up 20.6% from last year's Q1. Connectivity Solutions sales were $38,100,000 a decline of 2.7 percent and Magnetic Solutions sales were $28,900,000 largely the same as last year's Q1. Preliminary gross margin Our product segment for the Q1 of 2021 was as follows. Power Solutions and Protection had a gross margin of 24.7% in the 25.7 percent, down from 28.6 percent in the 2020 quarter.
And Magnetic Solutions Gross margin was 13.7 percent, down from 21.2% in last year's Q1. On a consolidated basis, gross profit margin decreased to 21.9% in the Q1 of 2021 as compared with 24.8% in the Q1 of 2020. Gross margin during the Q1 of 2021 was impacted by industry wide increases on raw material pricing and higher labor costs driven by wage increases and an unfavorable foreign exchange fluctuation. Bell implemented price increases to its customers and distribution partners to offset these higher input costs, with many of those price increases taking effect in the Q2. The margin comparisons were also affected by $2,200,000 in COVID related quarter of 2021, a decline of $1,100,000 from the Q1 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 $21,000,000 or 19% of sales, up slightly from a dollar perspective from the Q1 last year. SG and A salaries and fringe benefits And other selling costs of $632,000 and lower travel expenses of $416,000 During the Q1 of 2021, we closed on the sale of a property in Hong Kong. This transaction resulted in a gain of $6,200,000 which is included in our Q1 results. These factors resulted in income from operations of $4,500,000 in the Q1 of 2021 as compared to a loss from operations of $1,100,000 in the Q1 of 2020. Other income and expense net was an income of $546,000 for the Q1 of 2021 as compared to an expense of $2,100,000 during the Q1 of 2020.
The expense in the Q1 of 2020 largely related to a $2,000,000 loss on the company's SERP investments, which are included in this line item. Interest expense was $800,000 in the Q1 of 2021, down from $1,400,000 in the same quarter last year. As a result, 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 provision for income taxes of $1,000,000 in the Q1 of 2021 compared to a benefit of $772,000 during last year's Q1. The benefit in the Q1 of 2020 reflected a reduction in GILTI tax and tax benefits associated with the CARES Act.
Earnings per share for Class A common shares was earnings of $0.24 per share in the Q1 of 2021 as compared with a loss of $0.30 per share in the Q1 of 2020. Earnings per share for the Class B common shares was earnings of $0.26 per share in On a non GAAP basis, which excludes certain unusual and other non recurring items, EPS for Class A shares was a loss of $0.23 per share in the first On a non GAAP basis, EPS for Class B Shares was a loss of $0.23 per share in the Q1 of 2021 as compared with a loss of $0.29 per share in the Q1 of 2020. And now I'd like to go through some balance sheet and cash flow items. Our cash and cash equivalents balance at March 31, 2021 was $74,000,000 a decrease of $10,900,000 from December 31, 2020. During the Q1 of 2021, we made net payments of $16,000,000 in connection with the acquisitions of RMS $1,500,000 towards our outstanding debt balance and used cash or capital additions of $1,200,000 Dividend payments of $815,000 and interest payments of $627,000 These items were partially Cash flows generated from operating activities of $3,000,000 $6,700,000 in proceeds received from the sale of property.
Accounts receivable were $74,100,000 at March 31, 2020 as compared with $71,400,000 at on December 31, 2020. The primary driver of the increase related to the 2021 acquisitions of RMS and EOS, which added $3,100,000 to our receivable balance. Days sales outstanding increased to 60 days at March 31, 2021, as compared to 57 days at December 31, 2020. Inventories were 106,700,000 at March 31, 2021, up $6,600,000 from December 31, 2020. The increase was seen in raw materials and work in progress and was largely due to the inclusion of $5,300,000 from the 2021 acquired companies.
Accounts payable were $42,500,000 at March 31, 2021, up $2,700,000 from its level at December 31, 2020. The 2021 acquired companies accounted for $2,200,000 of this increase from the year end level. Bell's outstanding debt balance was $114,300,000 as of March 31, 2021, net of deferred financing costs, A decrease of $1,300,000 since the 2020 year end balance. Book value per share, which is calculated as stockholders' equity divided by our combined A and B classes of common stock outstanding, was $15.09 per share at March 31, 2021 as compared to $15.04 per share at December 31, 2020. And with that, I'll turn the call back over to Dan.
Dan?
Thank you, Craig. Jennifer, we'd like to open up the call for questions now, if possible.
And And we'll go first to Theodore O'Neill with Litchfield Field Research.
My first question is about the e mobility market, which is getting an awful lot of discussion Could you give us an idea about, is it scooters? Is it bikes? Is it both? Do you see any regional differences
I think at this time it's too early to measure the opportunity. Well, our niche is we're not really focused on the automobile market at all. We do do some good business from a circuit protection business. But the growth that we got from eMobility, we're focusing on now is the business that we do from our power group. And what we're looking at are niche markets.
So basically, post office, school buses, Sanitation, mining equipment, so very specific niche markets where they're moving to electric vehicles. Again, we think the opportunity should have substantial growth at least in the next 5 to 6 years. And again, that's what the areas we're focusing on, Specifically niche markets also, boating, charging markets also.
Okay. It's not scooters and e bikes?
No, absolutely not.
Okay. All right.
For example, I'll give you a we did do a business with a company called StreetScooter That was building mailbox deliveries in Europe. So more of a government Specific requirement type of situation, but nothing that's mass market.
Okay. You've mentioned in the prepared remarks that you've seen an uptick in commercial aviation business. How I mean, I guess that was Probably pretty low, but how much more headroom do you have on the commercial aviation business, if we get back to something looking approaching normal?
I mean, what's normal? Again, I think if you look again from what we understand that you do see with Airbus Receiving a big order last week from Delta, I believe. So and you see I can't mention anybody else. So we do see opportunities. But again, if you look at my hands are kind of tied because of agreements.
So basically, it can't get much lower. So we do see consistent improvement in aerospace for the next 3 to 4 years till we get back to normal, from all the research that we read.
Okay. I like that answer.
If you want, Dan, I can certainly comment on the broader commercial aerospace end market. Go ahead, Lynn. In the Q4, our total commercial aerospace sales, and this is direct, this is not through distribution, was around 2 $100,000 And in the Q1, we saw that go up to $3,300,000 So definitely some But to put it in perspective, last year's Q1, we were at $5,100,000 So it's Definitely a partial recovery at this point and we anticipate it being a long runway, no pun intended, in getting back to
And also you should be noted that we are picking up the benefit of our new acquisition RMS, Which is dedicated to the aerospace industry also.
Okay. Thank you very much.
We'll go next to Jim Ruchi with Needham and Company.
Hi, good morning. I just wanted to pursue The increase in backlog, so I think you guys reported in your K, You had a backlog at the end of February of around $180,000,000 So this is a big increase. And I'm just wondering if you could maybe talk A little bit about which areas, which segments, I mean you alluded to The demand, I think, in e mobility, but I wonder if you could talk a little bit more broadly about where you're seeing the business Cover so strongly and how does this compare with some other cycles?
No, every cycle is kind of unique, but This is truly broad based if we took out commercial aerospace. Each one of our product groups are seeing some good substantial increases. Now it depends on where the lead times are. Currently, our Power Group has the longest lead times of any products Because they do use semiconductors, so those lead times have went from 12 to 14 weeks up to 32 weeks. So we've seen that be stretched out and so that really helps increase the backlog.
Our concern at this point is historically is that double ordering taking place because of the long lead times and material shortages And that's what we have to monitor. But again, if you look at our customers and the different types of products, Our Hughes product line is not our biggest product line by far and away, but it does have the broadest customer base because it goes into so many different markets And that's a great sign and same with our distribution business that our distributors sell to industrial, commercial, Networking, computing, you name it, security, medical and every one of these markets we see strength out there. Again, our only concern is that double booking occurring because of a long lead time And people can't get parts from possibly our other suppliers. Yes.
I mean, you're anticipating my next question. And how do you monitor? You've been through so many of these periods like this. And is there any better way to monitor it And say in the past when sometimes you guys are caught off guard.
But it's hard to try to do is say there's non cancel orders, Say that you need payment upfront, situations like that that you look at and you try to work through depending on your contract agreements that you have with customers. So again, you just try to say, hey, if someone has to pay up, if you really want the 4 parts, are you going to pay a premium for delivery? What and how much do you want to pay upfront to guarantee delivery? So those are the things that you can look at and also non cancelable orders And that could help also.
Sure.
Got it. Are you guys seeing any signs that the component
We see some slikeness of that. Why take it off parts if we're not getting all the parts in to build a finished product? So trying to push us off. But the problem you have with that situation is because there's such demand from our other customers. If a customer tries to push back our product We see if we can send it to another customer and they lose it.
We're not going to accept push outs if we have other customers with our spotlights. So that's it. So basically, if you're aggressive customer, you're going to take the parts in and wait the extra 4 to 6 weeks till the other parts come in We remind you of all your parts.
Got it. And I'll let Mark jump back in the yes, he does. He does, Sam. Thank you. One more question and I'll jump back in the queue.
The SG and A was a bit higher than I think you guys were indicating Back in
the last call, I think
you said around $19,000,000 to $20,000,000 So is this a level that we think you're going to see going forward and probably Trends up with the growth in sales that you're expecting.
Craig, could you answer that?
Yes. Yes, I think you're right, Jim. I think it will trend up a little bit just because of the increased activity So related to travel and stuff like that in the future quarters. We'll also have some incremental expense coming From EOS that basically joined Bell right at the end of the quarter. So we'll have a little bit of an uptick there.
Okay. And I'll jump back in the queue. I've got a few others. Thanks.
We'll go next to Hendi Susano with Gabelli Funds.
Good morning.
Good morning, Andy.
First
question, Dan, so you talk about price increase That will take place in Q2 and Q3. Would you be able to pass like 100% of the price increase or Is there some like sharing component into your discussion with your customers?
There's always sharing with Customers, I think our goal and I think it's industry wide, it's not us. So I think we do look at each customer, we do look at what our But of course, the Board, I think we're trying to implement a 5% to 12% price increase Depending on where the product sits on the fence, again, if it's a new product that's just been introduced, We probably only look for a 5% increase, but a mature product that's been beaten up over many years, We have to increase it probably closer to 8% to 10% to improve the margins. And as you know, we have walked away from products I'm sorry, we have walked away in the past year Our products that do have low margins where the customers do not accept price increases.
Okay. And then in terms of gross margin expectation for this year, last year you did improve gross margin quite significantly. And then with raw material cost increase and price increase, what are the puts and takes on your gross margin
Craig, I think that's a good question for Luke. What did you say, Craig?
Yes. Yes. I have to address that one.
Yes. So, Hendi, just speaking with you here today. So from a gross margin perspective, obviously, we saw the dip, but as it was alluded to in the open commentary, last year's Gross margin was aided by a little bit of kind of one off government subsidies adjustments. So I think the when we look at it at an organic or adjusted basis, the delta is not as The delta is not as wide. With that being said, I think the overarching theme that's a number we're laser focused on.
And to Dan's also comments that he made, we are seeing some of this we're doing price increases, raw material increases. So we are monitoring that Situations closely. Obviously, we're trying to prevent that from dropping to the gross margin line in addition to our other call it organic focus on it. Does that answer your question, Hendi?
Okay. Thank you. And then last question from Yes. Thank you, Farooq. Stan, do you have any insight into IT hardware?
Many companies talk about Spent your recovery in the second half of twenty twenty one. And then I'm wondering what your takes and insight into Data center or IT hardware markets?
Again, the hardware, We still haven't seen much. I mean that's the only area that we our backlog is very strong on those products, But we haven't seen the Ciscos, the Siemens, some of these companies out there. We really haven't seen Much bullish behavior from them. Data has been strong for us. I don't think the data farms have cut back at all.
So we do have opportunities that we are addressing in certain countries. Again, looking at niche markets, not the Facebooks, The Amazons and Microsofts of the world with the 2nd tier type of customers where we feel that we can offer benefit with our technology and our service.
And at this time, we have no further questions and that will terminate this conference call. Thank you for participating.
Thank you for joining us today.