Bel Fuse Inc (BELFB) 2014 Q2 法說會逐字稿

Good day and welcome to the Bel Fuse second-quarter 2014 results conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like introduce the host for today's conference, Mr. Dan Bernstein. Please go ahead, sir.

Thank you, Janine. I'd like to welcome you to our conference call to review Bel's unaudited primary second-quarter 2014 results. Before we start, I would like to hand it over to Colin Dunn, our VP of Finance. Colin?

Thanks, Dan. Good morning, everybody. I would like to read the following Safe Harbor statement before we start.

Except for historical information contained in this call, the matters discussed on this call, including the statements regarding the impact of the Company's expertise of the products on custom purchasing decisions; anticipated growth in revenues; the accretive nature and projected cost savings associated with the power solutions and connectivity solutions acquisitions; and the potential future growth for the Company's shareholders, our forward-looking statements 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 effects of business and economic conditions; difficulties associated with integrating recently acquired companies; capacity and supply constraints with difficulties, product development, commercialization with 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 the 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 statements will, in fact, prove to be correct. We undertake no obligation to update or revise any forward-looking statements.

Now moving onto the report, before I move into our historical results, there was a large transaction in the close subsequent to the June 30 quarter end. On July 25, 2014, Bel closed the acquisition of the Emerson Network Power Connectivity Solutions business or as we're calling it at the moment CS from Emerson.

Bel acquired the Connectivity Solutions business for approximately $98 million on a cash and debt-free basis. A small portion of the transaction located in China is expected to close by the end of the third quarter of 2014.

None of the results of the connectivity solutions business will be included in our results until the third quarter of 2014.

Moving on to historical results. On June 19, 2014, Bel completed its acquisition of the Power-One business solutions business from ABB Limited. Accordingly, the results of this business now known as Bel Power Solutions or BPS have been included in our results since the acquisition date.

In addition, the results of the Transpower magnetics business of TE, now known as TRP Connect or TRP acquired in late March 2013 and the Array Connector Corporation acquired in August 2013 have been included in the consolidated results since their respective acquisition dates.

Together, these three recent acquisitions amount for significant variances from prior periods. In my discussion, I will attempt to identify any material portion of such variance that is due to the inclusion of these acquired companies.

First, we'll start with sales. Due to the recent major changes in our business, we've decided to recast our sales into three product groups instead of four.

The new product groups are Magnetic Solutions, formally called Magnetics; Power Solutions Protection formally Modules Group combined with the former Circuit Protection Group; and Connectivity Solutions, which corresponds to the former Interconnect Group. The specific types of products that are included in each of these three groups are detailed in our earnings release.

Second-quarter 2014 sales were $99.4 million, up 5.8% compared to the $94 million in the second quarter of 2013. Included in the second quarter of 2014 were $9.1 million of sales of Array and BPS, which has not yet joined Bel in the same period of 2013. Mainly due to the Chinese New Year holidays in the first quarter, second-quarter 2014 sales were up sequentially by 11.6% from the first quarter of 2014, excluding sales of BPS.

Second-quarter 2014 sales in our three major product groups are as follows: Magnetic Solutions $44.7 million, which is down 8.3% from the second quarter of 2013, primarily due to a reduction in sales of PRP products; Connectivity Solutions $32.2 million, an increase of 18.8% over the last year's second quarter, including Array products. On a comparable basis excluding Array, second-quarter 2014 Connectivity Solutions sales were up 11.8% over last year. Power Solutions Protection, $22.5 million, an increase of 24.2% over the prior year's second quarter, including BPS products. On a comparable basis, excluding BPS, 2014 Power Solutions and Protection sales decreased by 15.7% from last year's second quarter.

Cost of sales. In Q2 2014, cost of sales as a percentage of sales was 82%, down from the 83.8% in the second quarter of 2013. Several factors contributed to this. There was a favorable shift in the mix of products sold away from the higher material cost products towards Bel's ever lower material content products. Higher costs were incurred during the second quarter of 2013 as we are in the final stages of the reorganization of Cinch's manufacturing footprint in North America. Those costs are behind us, and we are now realizing cost savings from that reorganization. And third, the Company implemented price increases during the latter half of 2013, which has helped to offset some of the rising labor costs in China.

Turning to selling, general and administrative expenses, SG&A expenses for the second quarter of 2014 were 13.3% of sales, up from the 13.1% of sales during the second quarter of 2013. In dollar terms, during the three-month period ended June 30, 2014, SG&A increased by approximately $800,000 in comparison to the same period of 2013. These increases were primarily due to higher acquisition-related costs in 2014.

Taxes. Bel recorded income tax expense of $473,000 for the three months ended June 30, 2014, for an effective tax rate of 13.4% compared to $34,000 for the three months ended June 30, 2013, which amounted to an effective tax rate of 2%. The Company's effective tax rate, which is the income tax benefit or provision as a percentage of earnings before income tax, fluctuates based on the geographic segment, which the pretax profits are up.

Of the geographic segments of which Bel operates, US has the highest tax rates. Europe's tax rate are generally lower than the US tax rates, and Asia, where we have our largest operations, have the lowest tax rates. On an unaudited GAAP basis, Bel reported income from operations of $3.7 million and after-tax net income of $3.1 million for the second quarter of 2014. Last year we reported income from operations of $1.7 million and after-tax net income of $1.7 million for the second quarter of 2013.

To state these results on a comparable basis, non-GAAP income from operations for the second quarter of 2014 was $6.3 million compared to $3.3 million for the second quarter of 2013. Acquisition-related costs -- the restructuring, reorganization and severance charges -- have been excluded from non-GAAP income from operations in both periods. A reconciliation of GAAP to non-GAAP measures is included in our press release today. Excluding restructuring costs, BPS contributed $100,000 of operating income to Bel's results during the second quarter of 2014.

Balance sheet, cash and equivalents. At the end of June 2014, our cash and cash equivalents were $87.87 million, which was $25.7 million in our December 2013 balance of $62.1 million. Cash acquired in connection with the Bel Power Solutions acquisition accounted for approximately $21 million of this increase.

Receivables net of allowances were $97.5 million at June 30, 2014 compared with $63.8 million at December 31, 2013, an increase of $33.7 million. This increase resulted primarily from the inclusion of Bel Power Solutions accounts receivable.

Our Accounts Payable at June 30, 2014 were $58.4 million, an increase of $28.9 million from December 31, 2013. As with the receivables, the increase in payables was due to the acquisition of Bel Power Solutions, partially offset by a decrease in Accounts Payable at other Bel facilities.

Inventories. At the end of June 2014, our inventories were $98.7 million, up $28.7 million from the December of 2013 level. The addition of Bel Power Solutions inventory was partially offset by a decrease in inventory at the other Bel locations.

Debt. And this is a new category across the Bel Fuse. During the six months ended June 2014, Bel borrowed $145 million for use in the acquisition of the Power-One Power Solutions business of ABB Limited. In June 2014, payment of various financing costs, retirement of the outstanding $4 million balance on Bel's former revolving credit line and to increase the cash on hand.

Other balance sheet comments. Our capital spending for the six months ended June 30, 2014, was approximately $3 million, while depreciation and amortization was $6.5 million.

The purchase price allocation for the BPS acquisition has not yet been completed. Accordingly, preliminary estimates of goodwill, intangibles and other assets and liabilities have been included in our June 30, 2014, balance sheet. On that basis, our per share book value at June 30, 2014, was $20.39, including goodwill and intangibles. If we exclude intangibles and goodwill, our per share book value was $11.19.

I will now hand the call back to Dan.

Thank you, Colin. Janine, can we open up the call for questions, please?

(Operator Instructions). Harsh Kumar, Stephens.

Hey, Dan. It's Harsh Kumar from Stevens -- and Dan and Colin. Looks like -- I had a couple of questions. Looks like a lot of the issues regarding Cinch costs are behind you, and you mentioned you're set with the reorg. I'm curious if you would talk about the benefits that you might see in the second half of this year and even beyond, both from a topline standpoint and also maybe from the cost standpoint more importantly?

Regarding Cinch, it was the move that we made from Oklahoma down to Texas, McAllen, Texas. We thought from a material traveling standpoint, it would be substantially greater to have everything in close proximity, and we find that that has improved substantially. Our lead time on materials has dropped from probably 14 weeks down to six weeks. So we're very pleased by that.

From an up top growth standpoint, revenue standpoint, it doesn't affect it at all. It just makes us more efficient. However, this product line is really geared to Boeing, and everything we hear from Boeing regarding -- and our major products are going into the 737. And we'll also design in on the 737 MAX. So if Boeing is doing well, we should follow that trend very nicely with the Cinch product line.

Fair enough. So, a lot of benefit it sounds like from just the leadtimes and just efficiency standpoint? And then also, Dan, if I could ask you about your Emerson deal, it gets you into aerospace defense, microwave, I suspect particularly in the optical piece, maybe the margins are a little bit better? Maybe you could talk about the growth dynamics of those end markets and also maybe potentially the impact on margins?

I think, again, it's kind of one for the other. Because if you look generally, you can tell by the purchase price we paid a nice price for that business. Besides selling to the military aerospace, 41% of their sales are going through distribution. When you do sell through distribution, you don't see the price pressure that when you are dealing with large OEMs. And, again, also when you're dealing with military and aerospace, they are a lot more concerned about higher reliability, and that's the number one driving factor for them.

But the other problem we have is because we bought Power-One solutions where we have a lot of material content, those margins are a lot less than historically what Bel would have in the ECS business.

So even though we have this group that has really a lot more better margins, it's probably going to be offset by the Power-One business that because of the material content doesn't work in such high margin.

And that's a totally fair comment. And then also, Dan and Colin, in your press release you talked about, you've already chalked out I think you mentioned $5 million in savings. I'm curious if they're coming in G&A, sales or cost of goods. Also, how long would it take for you to get those maybe?

I think a majority -- I think those $5 million are pretty much done already, and they definitely came out of salaries, and I would say a good chunk of it -- probably 60% -- is from the sales and marketing side, and the balance is more of overhead and management. We still believe that we have opportunities for streamlining and being more efficient on how we run the Company and the savings we can get as being a $700 million instead of being a $300 million company. And those savings should come across the board in so many different areas.

Great, guys. I'll get back in line and let somebody else take the stage. Congratulations again.

Thank you so much.

Sean Hannan, Needham & Company.

So just to see if I can clarify some of the comments you just made, Dan. When we think about the contributions of both of these businesses to legacy Bel, on a blended basis as we look at forward quarters, when we get down to the operating margin, outside of additional costs that would be taken out, it sounds to me like there are net net general similarities to where your business is that if we do see a lift, it's not something to be expected to be of great magnitude, but it's really something that would be magnified by the benefit of scale. Is that a fair way of thinking about this?

I think, Sean, what we're feeling that the margins particularly on the power side again are fairly much mimic what we currently do on our non-Cinch business than what we've traditionally done on our non-Cinch business and should be fairly representative of that. And we believe going forward that the margins on the connectivity business, which we bought from Emerson and just closed on last Friday, that they will more mimic the Cinch margins going forward.

Okay. How about if there's a way that we can talk a little bit about how your revenues may flow now with the contribution of both of these businesses? I mean, obviously, you've now effectively doubled the size of your Company. The power business, that Power-One really went through a pretty good state of decline through early 2013. They didn't have a lot of real clear seasonal patterns, and I think in 2013 it got down to about half of what it had been in 2010. Can we talk about the demand patterns in that business today? Do you agree that that's stabilized or bottomed and growing again? And then also you can talk about the destabilization of the growth profile of the CS business as well? Thanks.

Okay, so let's talk about Power-One. I think roughly before we bought them, trailing there about $250 million run rate. Probably down, as you said, from about $450 million. There might be a negative decline for the next six months. They have treated customers somewhat not in the best manner we think. They had certain quality problems, and it wasn't addressed properly. So we feel that we are trying to shore it up as soon and as best as we can, and we have spent a tremendous amount of time trying to improve the situation. But, for example, there's key customers that Bel has today where we are the preferred vendor.

In the past, power was a supplier to these vendors, and they were kicked out. We hope once we get comfortable with the quality and that we've changed the Company in a positive manner, that we can start bringing this business back and that we can start gaining on it.

However, I don't think at this point most likely that we can go back to those customers until about January 1 and then probably getting approval on products will take six to nine months. But we do think as a business that can grow is a business that we think that can grow up back to $350 million to $400 million with the entrees that we have at our key customers. And not just regaining the business that they lost and reintroducing the new Bel Power Solutions.

One of the things that was odd is, when we met with the customers, we thought initially that the Power-One brand had a great name. And then we met with all the customers, and we realized that if we kept the Power-One name, that they wouldn't even talk to us. But as Bel Power Solutions, they would view us completely different.

And even though they treated customers poorly, some customers poorly in the past, the one thing that I've heard from every customer we've met with, they by far and away have the best design center in the world based in Switzerland. The most creative brightest people working on the best products and I think as long as we have that group of people working in Switzerland, we can bring back any key customer and would be pretty confident that we can bring back the key customers that we lost in the past.

So initially, we might have a little downturn in the sales, but hopefully starting within January, we should start moving forward and start gaining sales.

Regarding connectivity solution, what we have done is re-log it within the first day. We reorganized our sales and marketing. I think historically they emphasized a lot through distribution and through their rep organization.

Our goal is though we had a lot of technical people that were working with the reps and the distributors, we felt those technical people should be directed at the customers, and we are focusing on those customers now with these engineering technical people and trying to build up those one-to-one relationships and really trying to solve their problems. And that's what -- so I think that's going to be a little longer growth, but I think when you put connectivity solutions with Cinch, we really do have some critical mass that we can do things a lot better. It gives us a lot greater strength than our distribution channels and allows us to get a lot better penetration to grow that business.

However, I think overall from two years today, I think Power-One will have substantially greater growth, and on the other hand, we're hoping Connectivity Solutions we can get the 5% to 10% growth, and I would hope for Power-One after the initial nine months, we can get to a 10% to 20% growth with them.

Just so you know, our game plan for Power-One is I think we had three goals, but we had to make it six goals. And the first three goals are quality, quality, quality. The fourth goal is not to mess around with Europe and the engineering Group and the products they have in Europe, which we think are very strong, and the third thing is really focusing on the top 20 customers and make sure that during this critical period that we really are nurturing them and understanding their problems and working very closely with them.

Okay. That's very helpful color.

I think that was a long-winded question, and hopefully I addressed most of your questions.

Yes, no, that's very helpful color. One more and I'll jump in the queue here. Can you talk about the -- what your expectations are far from an SG&A standpoint now that we look to the third quarter. So I suppose there's a little bit more administrative for Colin and then also impacts in terms of taxes and how that should potentially change?

I think just from an SG&A stand, just from an overall viewpoint for both companies, we have transition services agreements for IT support, accounting support and other things. Those don't really clear up. We're hoping we can get it done by January 31. I think once after that period, we would have a really good handle on our SG&A and how we're looking forward. So now I would probably just, I don't even think we even have a roadmap. We are working with both companies and working with our team here seeing -- regarding those transition service agreements, can we get quicker. And once we can determine that, then we can determine what support we really need. I think we have a good idea.

So I think it is still -- I hate to give a number that's going to be constantly changing over the next three or four months for the SG&A side of it. And I'm hoping by the end of October when we have our next call that we should have at least give you a good idea of what it should look like and definitely when these transition services agreements will end.

And, Sean, on the tax side of it, with basically the Connectivity Solutions business, that is primarily North American business. There is going to be a fairly bust out US tax rate on most of that.

When we look at the business acquired from Power-One, without understanding that Power-One had a lot of tax loss carryforwards in its old configuration, and so there was a lot of business booked in North America that was really not North American business. It was activities operating in Asia, customers in Asia, manufacturings in Asia, and that sort of business for us would be Asian business we would need to reconfigure that, and we're in the process of doing that.

But generally we would expect on an overall basis that probably the tax rate would pop up at least a couple of percentage points.

Okay. Thanks very much. Very helpful.

Hendi Susanto, Gabelli & Co.

Dan, so following like a series of acquisitions, what is your appetite for making further acquisitions, and how much capacity does your balance sheet have?

I think my Board was laughing at me when I told them I was hoping to go for a year without buying another company. They don't think it's possible. I'm hoping to really try to get a handle on this acquisition. Again, I don't have a problem with debt, but I like to see if we can be comfortable working down the debt.

I'm hoping our goal -- initially our goal in 2015 was to be $0.5 billion company and then in 2020 to be a $1 billion company. I think that we have tremendous amount of organic growth possibilities to get us to $850 million to $900 million.

Again, I don't -- I mean it has to be a very sweet deal to get me to buy another company, but I'm not actively pursuing things. I just think it has to be a real great deal for our shareholders if I buy another company and within the next 12 months.

And then hypothetically within the 12 months, is there some interesting candidate, like how much capacity your balance sheet can handle?

It would depend on the deal and how we can structure it, Hendi.

And again (multiple speakers) if they take stock, again we talked a lot of companies -- for example, in the past we talked to Emerson when the power business goes up for sale, even considering doing a Morris reverse trust and picking up $1.2 billion in a company.

So I think -- again, I don't think the size is an important factor to us. I think it's more important to us is the value it brings to our shareholders. So I think again looking at our Morris reverse trust gives us tremendous amount of, are you using our stock as purchasing power? I think we can look at any acquisition of any size. Again, I think the key point being is the value to our shareholders and does it add value to our shareholders?

Okay. And then post closing of Emerson, could you share what kind of industry break down Bel Fuse will have?

You know, I hate to say it, but it looks like it's going to be roughly the same probably because it will be offset by Power-One. Power-One is traditionally the Bel products, and we have the same customers. And Emerson is traditionally the same customers as Cinch. So it would probably be like maybe 70%/30% between Bel networking type of customers and then the 30% military aerospace. And, again, we were hoping and we are looking to build more in the military aerospace.

Got it. Thank you.

Lenny Dunn, Freedom Investors.

Good morning, good quarter, and you're saying all the right things to previous callers about shareholder value future acquisitions. So not only my questions have been answered, but I'm pleased with the answers you've given them.

I just have one question. Now that we are at least a $700 million company on the way to maybe $900 million without another acquisition, is it time to give consideration to flattening out the structure on the D&A stack because the bigger companies in this era just have (technical difficulty) stack?

Hey, I guess you don't know about Viacom or Ford Motor Company?

No, there's a few, there's a few. (multiple speakers) but not that many.

I think to be honest with you, our concern again is and based historically we did it for two reasons. One from a takeover standpoint. Not from a takeover standpoint, but generally we feel that just gives us a lot more strength. In addition to that, it gives us a lot more flexibility when we do want to buy a company. In the past, when we were looking and continue to look at companies, if we buy a company and we do use stock, they would end up controlling us and us not controlling them.

So, again, however, we did have situations in the past. When we did initially look at Power-One, when we do look at polls, when both times we sent letters to the company stating that if we do a merger, that we would fold the ABB stock into one.

However, at this point, I'm not too excited about doing it. I just think it gives us a lot more flexibility. Again, I think if we had an A and B stock and when our stock was going for $10, someone would come in, and we had one stock, someone would come and buy the Company, sell the Company again and take the $100 million in cash, and I think the shareholders would probably get screwed pretty bad. (multiple speakers)

But, again, it is something that I think if the right opportunity came and the right acquisition opportunity came, we would look at combining it. So, it's always up and the board always evaluates it at every meeting.

There are institutions that would not buy a stock with two classes anymore. So, we can broaden your shareholders (technical difficulty) which would (multiple speakers)

I think we would broaden our shareholders a lot more if we had a lot more float. I think that's our biggest problem. I don't think that that's going to do it. But I can understand your opinion (multiple speakers). Yes.

Anyhow, I don't know if you heard what I said but --

No, I heard what you said: if you combine them, you get more float.

Yes and if you got the share price up substantially if we are trading at $40s or closer to $50, you could split it two-for-one and then you have a more liquid stack (technical difficulty).

Well, as I said, we discuss it every board meeting, and I know it's going to be brought up again.

Okay. Thank you for your time and good quarter, and I'm pleased (technical difficulty) acquisitions are going to make would be if they are really in the shareholders' best interest. So thank you.

Harsh Kumar, Stephens.

Harsh Kumar from Stephens. Dan, I wanted to ask you a little bit of a broader question. You are pretty deep now into the networking market and got a pretty good foothold into the aerospace and defense market. I'm curious from where you sit, what are the underlying trends based on all of the things: economy, IT spending, etc., etc. how would you view your mid-to long-term aspects as a company going forward.

I think going forward, I think we are definitely a substantially stronger company. Our revenues are now more evenly divided. Before these acquisitions, we are only doing about $30 million in Europe, and now we're going to be doing -- just so you get an idea of certain things, we're going to be doing $100 million in North America, now we're doing $250 million in North America. Now we are doing $37 million in Europe. Now we're going to be doing $143 million in Europe. In Asia we're doing $137 million. Now we're doing $312 million.

So we really have some really critical mass where we are really picking up a tremendous amount of the customer base. I think the key for us is, how do we combine our products, how do we go to market, how do we do cross-selling of products?

One of the exciting things that Power-One has done and we've done a very poor job is open computing where you have companies like Amazon, Google, Facebook building their own equipment. And they've entrenched themselves a lot better in this marketplace than we do. Now hopefully we can piggyback those relationships and look at growing that business.

Again, the only thing I know for sure, the bigger you are, the better you are in the world we live, the more I can get economies of scale, the more I can be more price sensitive, the more value I can add to our customers. So we're very excited about the opportunity.

So looking at Russia and looking at Israel, do I sleep well at night? Not really. On the other hand, knowing that people are going to invest throughout the world today, they are looking at America as the best investment, that makes me somewhat more comfortable.

However, I think I sleep a lot overall, though, looking at where we were six months ago or a year ago before these acquisitions. And looking at where we are today, there's no question we are a lot stronger, a lot better company going forward, and we have tremendous opportunity for our organic growth. And I think before our opportunities for our organic growth wasn't as great, and they're substantially greater today.

That's great. Congratulations, Dan and Colin, and best of luck and great job.

Great. Then thank you.

Mike Hughes, SGF Capital.

Yes, a couple questions for you. I'm not sure if you covered this or not. I apologize if you have. Did you state what the long-term debt, where it stands now that you closed on the Emerson deal?

We didn't. After the Emerson deal, we've got -- just deal with me a minute, I'll pull up my cheat sheet on that. Yes, we've got -- our federal credit facility was $265 million. We've taken down $245 million of that. We didn't use it all. We had some of it sitting as cash now on our books at the moment. Is that the question?

Yes and did you have a rough cash balance?

At the end of the period, yes, we did. The cash -- (multiple speakers)

I mean right after you did the deal kind of roughly where it is now?

Yes, after we -- it's about between $80 million and $90 million today.

Because most of that cash is overseas, just so you know. Basically, we didn't use a good portion of our cash for the acquisitions.

Okay. And then what would be a good interest expense number to use on a go forward basis, including deferred financing fees. Sometimes that's complicated to calculate. So if you could just give us an idea of what to use on that front?

It's a LIBOR-based financing, so it's roundabout 3%.

LIBOR plus 3% or 3% all-in?

No total all up about 3%.

Okay. And then we could look at the Power-One operating margins historically when it was part of the publicly traded company, they were 6% to 7%. Is that kind of what you are guiding to today?

I was hoping we could start improving on that, I would hope.

But out of the box (multiple speakers) I'm sorry, go ahead.

Sorry, I think again they ran a little more fast than we ran. I think the costs we took out and then again the streamlining we do, so we're hoping to get 10%.

Okay. That will be over time, I assume?

Well, we are hoping, we've got 2% quickly, but I'm not saying two or three years I would hope by the end of this year. Once we get rid of the transition agreements, then we should be at 10%.

Right and you anticipated my next question. Is that the transition services agreement, how much would that weigh on the margins then? Up 100 basis points or how much is that?

Yes, we are not going to get rid of all of that. Of course, we're going to have to replace it with some other loan, but yes, it's a couple of hundred basis points.

Okay and then A last question for you. You said the what you're calling the S business or the acquired business rather should run around Cinch margins. Can you remind me where Cinch historically runs?

Their gross profit margins tend to be in the mid-20s%, although their G&A tends to run higher. Obviously, their engineering side too. So it usually runs about 200 basis points higher on an operating income number.

200 higher relative to --

Relative to the rest of the business.

So maybe 8% to 9%?

Yes.

Okay. Great. Thank you very much.

(Operator Instructions). Sean Hannan, Needham & Company.

Yes, thanks. I just wanted to ask a little bit about current conditions. Dan, you provided a little bit of detail on your views on the Power-One piece of the business. But was hoping to see if we could kind of step back, talk about the business overall, what we're seeing in terms of demand trends here as we head into the September quarters?

Just regarding to us, it seems just extremely quiet. We don't see any negatives. We don't see any positives. It's just like stay the course. I don't know if that's because it's summertime and people are on vacation, but we just haven't -- it just seems somewhat flat at this point in time. And I wish I could -- I think people -- and we know then again, we just don't have any visibility out there for many of our customers. I just think there is probably just too much uncertainty for anybody to commit to anything. I don't know if that's a good answer or not for you, Sean, but --

That's helpful, thanks. And then in terms of price increases, so you were able to implement some a year ago and then realize that some of that was selective relevant to certain types of products or categories. Can you talk about the pricing environment today? Obviously are always going to get some degree of pressure, but how much of that actually materializes and how much are you able to identify within your own portfolio where you might be able to potentially raise prices? Thanks.

I think it's again at this point time because things are flat and there is substantial demand out there, I think it could be very difficult to raise price. And if it's -- if this demand stays flat, you probably would see price decreases going forward. I think again it really depends on our success again is if we can design in -- we have to do a lot better. We have a tremendous amount of engineering capabilities, how do we use those resources? What kind of commitments we make to certain customers that they make to us.

So, again, it's just broad-based now. I think again we haven't seen tremendous price decreases, but we have customers that they do want their quarterly 2% to 3% price reduction, and we might give them a little less than that but nothing either way at this time. We see little pops up -- for every price increase or opportunity, I see a price decrease. I don't see anything across the board where, you know, people generally when things are bad, I've got five people outside my door asking me to approve price decreases and then we don't see that.

Sure. Okay. Great. Thanks so much again for the color.

Lawrence Goldstein, Santa Monica Partners.

So the last 50 years or so that I've been a shareholder, the hallmark of the balance sheet has been cash and no debt. From the way you talk about interest in the future acquisitions and now that we've got a bunch of debt, shall we think of the next 50 years as a leverage company?

Larry, you know me well. How would you like to answer that question?

(technical difficulty)

I don't think we would be an overly leverage company.

I missed that. You were unclear. The clarity of the conference call (multiple speakers).

I've think I said, I think Larry, you know me well enough for the past 50 years that you know it won't be an overly leveraged company.

I say, okay. But we're not apt to be any longer of companies with pile of cash (multiple speakers) --

-- cash. I have no problem to have a pile cash. I think it is my goal to pay off this debt as quickly as possible if I can.

Thank you, Dan.

All right.

I'm showing no further questions in the queue and would like to turn the conference back for any further remarks.

So once again, we would like to thank everybody for joining us today. Again, this is probably our 65-year history as a company the most exciting period of our time, and we are excited to have the opportunity to bring these companies aboard to Bel Fuse and make it successful to us and to our shareholders. So, looking forward to a great future. Thank you.

Ladies and gentlemen, thank you for attending today's program. This does conclude the meeting, and you may all disconnect. Everyone, have a good day.