Bel Fuse Inc (BELFB) 2005 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the Bel Fuse Second Quarter Results Conference Call. (Operator Instructions). I'd now like to turn the conference call over to Mr. Dan Bernstein who's the President and Chief Executive Officer of Bel Fuse Incorporated. Please proceed sir.

Thank you Jason. I'd like to welcome you to our conference call to review Bel's second quarter 2005 results. Before we start I'd like to hand it over to Colin Dunn our Vice President of Finance. Colin.

Thanks Dan. Good morning everybody. Before we start I'd like to read our forward-looking statement. Except for historical information contained in this news release today the matters discussed including the statement regarding further synergies from the Galaxy acquisition are forward-looking statements that involve risks and uncertainties. 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 effect of business and economic conditions, the difficulties inherent in integrating remote businesses that may have followed business practices that differ from the company's business practices; capacity and supply constraints or difficulties; product development, commercializing or technological difficulties; the regulatory and trade environment; uncertainties associated with legal proceedings; the market's acceptance of the company's new products and competitive responses to those new products, 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.

Now I'll move on with comments regarding our financial results. Profits. Bel ended the quarter on a GAAP basis with a net after tax earnings of $6,680,000 or $0.58 per fully diluted share. This is well above the net earnings of $5,783,000 for the second quarter in 2004 (audio gap) to the inclusion of net gains of $1.362 million or $0.12 per share from non-operating items in 2004 and is also well above the $4.3 million in the previous, that's the first quarter of 2005.

In this quarter, our sales were $57,545,000 which is 19% above the $48,390,000 in the second quarter of 2004 and again well above the $48,390,000 in the preceding first quarter ended March 2005. Sales gains above the second quarter of 2004 remain fairly priced primarily. And both of the newly applied Galaxy and organic growth -- that's how magnetics grew. On March 23, 2005 we completed the acquisition of Galaxy Power Inc. of Westborough, Massachusetts. For the quarter - period Galaxy contributed $4.5 million of sales mainly through gross margins due to purchase accounting rules and a $0.03 per share charge to earnings due to amortization of identified assets with the acquisitions.

Turning to cost of sales. Our gross margins for the second quarter was 29% which was slightly below the 31% gross margin for the same period of 2004. However this was an improvement above the 28% growth margin in the first quarter of 2005. The margins drop was largely due to mix but time and material costs due to conversion of products (inaudible) and increases material and production costs acquired but its almost impossible to pass through to customers.

However we have seen a slightly less quarterly price erosion as customers were somewhat allow us to recoup these additional costs as we move through the product cycle. Turning to SG&A. This increase is $500,000 from the same quarter in 2004 reflects the assumption of an additional $600,000 from the addition of Galaxy SG&A $375,000; applied to non-fixed asset amortization; $160,000 in additional sales commissions due to increased sales, offset by Sarbanes-Oxley related consulting fees and other bonus accrual. Percentage of SG&A expense for net sales was 15% during the second quarter of 2005.

Turning to our balance sheet and cash and equivalents, at the end of June our cash equivalents and securities were $72 million which was below the March 31 level of $88.5 million.

In the quarter we repatriated approximately $26 million from the Far East to the U.S. under the provisions of the Jobs Creation act. Under repatriation we paid us approximately $15.4 million for both the general use in conjunction with the Netwatch acquisition and the resulting credit line that we used for the Galaxy acquisition. In addition the cash from profits for the quarter increased net inventories split almost evenly between raw materials and finished goods by a total of $1.8 million. We also paid the bulk of the money we acquired from the NetWatch acquisition.

Receivables and payables. Receivables minimum balance was $40.4 million as of June 31st compared to $33.9 at March 31st 2004 and our accounts payable for -- at June 31st was $14 million. In this period our inventories were $33.3 million which is 2.4 higher than the March 31, 2005 level. However it did include $2.6 million of inventory at Galaxy. Capital spending for the quarter is approximately $2.5 million and this was primarily for capacity expansion in China. Our book value as of June 30, 2005 was $16.27 per share.

Now I'll turn it back to Dan for some general comments.

We have been pleased with the senior integration of Galaxy Power into the Bel family. Galaxy has been renamed to Bel Power and is already operating on the standard Bel IT system and operates as a true part of Bel Fuse. In addition to strong Q2 performance by Bel Power, Inc., our organic power group has already showed strong sales for the second quarter.

In late June, we completed the acquisition of Netwatch S.R.O. in Prague. Although just $2 million in generally annual sales, it gives Bel a necessary European light assembling and manufacturing capability to support our promissory customers in addition to some quite specific fiber optic capabilities to compliment our current copper-based product portfolio.

Regarding Artesyn Technologies, we still over-invested in Artesyn and have still not had the time to meet with Dell. As you have read in the papers, (inaudible) has taken an 11% position in Artesyn and given a broad seat. We still wait to see what develops there. We still remain open to expansion by acquisition and continue to evaluate other opportunities. The market remains uncertain and we still have very limited visibility as to the future of customer replies. Backlog is stable. I will now open for discussion. Jason?

Thank you. (Operator instructions.) Our first question comes on the line from Todd Cooper of Stephens Incorporated. Please proceed, sir.

In your press release it makes it sound like most of the upside was due to Galaxy but just given the revenue growth, it looks like other areas were strong. Can you comment on that?

Yes, it's currently 40% Galaxy, 10% organic power, and the other 50% to 40% -- I should say balance -- is with the magnetics and MagJack group.

Okay. Regarding the MagJack group, one of your main competitors, Technotro (ph), had kind of a rough quarter. You had a very good quarter. Can you help us understand why?

Colin, you want to --

Well, we always like to say superior management but I think we have to get a little more specific. One of the things that we've been quite fortunate with, we've got a very entrepreneurial -- our R&D group who manages to stay in front of the curve and we've done quite a lot better with gigabit technology and we've been able to get out in front of most of our competitors for the time being anyway and I think we're showing some of those gains at the moment. And I think that's primarily where it's coming from, Todd.

Yes, last quarter you also talked about increased competition and pricing pressures in the MagJack product line. Is that still the situation today?

I think in all of our products, we will receive competition and price increase so I don't think we would separate one product from another.

Thank you. In your opening comments, did you say that pricing is stabilized a little bit?

No, basically what we were talking about was particularly related to the Rojas, the lead-free products. While customers typically won't allow us to markup the product when we go across to Rojas, we do find that they do understand that. And as we go through the product cycle and the ongoing price decreases typically on a quarter basis, we're not seeing as quite a rapid a drop in prices. And so while we can't get the pickup on the price upfront, we do intend to pick it up over the next six to nine months.

Okay, and let me ask you a little bit about your guidance for the third quarter. Can you give us an idea, backlog relative to last quarter, book-to-bill, what guidance you care to share with us?

You knew the answer before you asked the question. We're not going to give guidance. We don't think that's appropriate. As we said -- as Dan said, our backlog is stable. This business is all over the place. We never know from day to day who's going to take down what and we don't know how our customers are going to respond. But we see things as just very stable at the moment. So we don't expect a significant change going into the third quarter.

And is third quarter seasonally weak, typically, given the European business?

It is a little bit. Obviously, we don't have an enormous business in Europe -- hat's not our strongest area -- but products do get manufactured in the Far East for Europe and our customers do ship products into Europe. So yes, they do a little bit of a -- a roll-on effect there.

Was the book-to-bill in the neighborhood of one?

Yes, very close to one.

Okay. Thanks very much.

Okay.

(Operator instructions). At this time, Mr. Bernstein, I'll turn the conference call back to you. Please continue with your presentation or closing remarks.

I'd just like to thank everybody for joining us today and we'll see you in October, I assume.

That's right, and if anybody is interested, the conference call. As for our press release, the details are there and it is available for replay for the next 20 days. Thank you, Jason

Thank you. Ladies and gentlemen, that does conclude today's conference call and we thank you for participating and ask that you please disconnect your lines.