Bel Fuse Inc (BELFB) 2020 Q4 法說會逐字稿

Good day, and welcome to the Bel Fuse Inc. Fourth Quarter 2020 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. I would like to welcome everybody to our fourth quarter year-end financial results today. Before I begin, we hope you and your family stay safe during these difficult times.

On the call today is Craig Brosious, our Vice President of Finance; Lynn Hutkin, our Director of Financial Reporting. And I would like to introduce our new Chief Financial Officer, Farouq Tuweiq, who came on board this week. While working with BMW -- I'm sorry, working with Bank of Montreal in the past, we have developed a strong relationship with Farouq. During this time, we have been overly impressed with his knowledge of our industry, work experience, interpersonal skills, and most importantly, his ability to solve problems in a timely manner.

The #1 goal at Bel, simply put, will be to increase Bel's overall value to our shareholders. But I believe there is a substantial valuation gap between Bel's share price and our current breakout value. Farouq has a broad mandate to work with team members, to examine the various pathways to increase top line growth, margin improvement, simplify our operations while driving growth through M&A.

When searching for our first CFO in the company's history, he was the best candidate, and we feel fortunate that he joined Bel to offer us his fresh perspective. Welcome aboard, Farouq.

Thank you, Dan, for the introduction there. I'm very excited to be joining the Bel family.

Okay. Lynn, can you please go over the safe harbor statement?

Sure. Thank you, Dan. Good morning, everybody. Before we start, I'd 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 the potential rebound of Bel's Magnetic Solutions business and overall product sales, the anticipated impact of global cost reduction program on Bel's positioning for further margin expansion, anticipated cost savings resulting from the closing on the sale of the Switzerland facility and other restructuring actions, potential benefits to those margins resulting from recovery of demand in Bel's end markets, the anticipated impact of the rms Connectors acquisition included on sales EBITDA, anticipated impact of the EOS Power acquisition, including the timing and closing thereof, factors that may impact Bel's organic growth for 2021, including continuing visibility -- limited visibility of the result of COVID and long lead times for semiconductors and certain components 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 those 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 may also 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. First, I'd like to provide an update on COVID-19 and how it impacted our facilities. Overall, I'm pleased to report that all our manufacturing sites globally continue to be operational for the majority of the fourth quarter. There were 2 facilities that needed to be closed for about a week during the quarter in response to the infection. But we're still able to service our customers during this time.

While the number of COVID-19 cases appear to be moving in the right direction and vaccine distribution is now underway, the situation still remains fluid. We continue to operate our facilities with all preventive measures in place and ensuring ongoing compliance with local regulations to migrate our risk.

I would again like to acknowledge our production managers and manufacturing associates who work day-to-day under difficult conditions. Their continued dedication to Bel and our customers is truly appreciated.

Now turning to our results. We saw improved margins on relatively flat sales as compared to last year's fourth quarter. While there was a minimal change in overall sales balance, the composition of our sales has changed quite a bit since last year's fourth quarter.

Sales within our Power Solutions and Protection group were up $16.2 million or 44.8% from the fourth quarter of 2019. Our acquisition of CUI in December 2019 contributed $11 million incremental sales to the fourth quarter of 2020. And this brings us run at a higher margin.

Other areas within our Power segment that was strong as well, our products sold into fast-growing e-mobility markets were up $2.5 million, a 200% increase from 2019 quarter, and CUI sales were up $1.3 million, an increase of over 40% from last year's fourth quarter. These areas of growth were offset by elimination of low-margin products within this group.

Within our Connectivity Solutions segment, sales were down $6.8 million or 16.6% in the fourth quarter of 2020 versus the same quarter of 2019. We continue to be impacted by the depressed commercial aerospace industry where sales were down $7 million or 80% for last year fourth quarter. The Connectivity segment was also impacted by the lower sales of product into premise wiring applications as new construction pilots stalled in 2020 due to COVID also.

We were able to shift our production lines to support our growing military backlog, which enabled us to capture 60% increase in military sales, partially offsetting the commercial decline. Sales within our Magnetic Solutions business was down $8.4 million or 22.1% from the fourth quarter of 2019 as one of our largest OEM end customers had it's poorest ordering as they work through their inventory on hand. On a positive note, Magnetic bookings have since rebound and we should see the sales kick back up in the first quarter of 2021.

Overall, margins have improved by 420 basis points and are trending in the right direction. This can be attributed to a combination of product mix as discussed previously and our ongoing cost reduction program. On the acquisition front, we have been digging over these past few months as we recently announced our purchase of 2 companies, rms Connectors and EOS. Bel closed the acquisition of rms Connectors in January, which enabled us to expand our market share within the commercial aerospace business. That will benefit us in the industry's stock to rebound later in 2021. We also saw an agreement to acquire EOS Power, which is based in India. The acquisition of EOS will not only expand our product portfolio in the low to mid-range, but will, all importantly, provide us a manufacturing capability of outside of China.

Both these acquisitions fit within our strategy, increase market share while diversifying our product portfolios and geographic footprint. Looking to 2021, we have seen some recovery in certain of our served markets. We would expect demand for military customers in e-mobility to remain a driver for sales throughout 2021. We additionally see signs of certain additional markets such as premise wiring, rail, commercial aerospace have potentially recovered throughout the year as COVID conditions improve. While our competitive position remains stronger than ever, with the COVID situation still with us and uncertainty regarding some semiconductors and components that might be into our supply, give us very big visibility into the future.

In the meantime, the management team remain focused on bottom line growth from integrating the announced acquisitions, and are looking at other strategies to better position Bel for the future.

And with that, I'd like to turn the call over to Craig for the financial update. Craig?

Thank you, Dan. Sales by product segment for the fourth quarter of 2020 were as follows: Power Solutions and Protection sales were $52.3 million, up 44.8% from last year's fourth quarter. Connectivity Solutions sales were $34.2 million, a decline of 16.6%. And Magnetic Solutions sales were $29.6 million, down 22.1% from last year's fourth quarter.

Gross margin by product segment for the fourth quarter of 2020 is as follows: Power Solutions and Protection had a gross margin of 27.8% in the fourth quarter of 2020, up from 19.7% in last year's fourth quarter. Connectivity Solutions gross margin was 24%, down from 24.5% in the 2019 quarter. And Magnetic Solutions gross margin was 23.3%, up from 19.1% in last year's fourth quarter. On a consolidated basis, gross profit margin increased to 25.3% in the fourth quarter of 2020 as compared with 21.1% in the fourth quarter of 2019, the result of a combination of factors.

Overhead and indirect labor costs were $1 million lower during the fourth quarter of 2020, primarily due to restructuring measures implemented during late 2019 and a reduction in the cost structure for our Cinch Connectivity Solutions segment to align with current sales volumes within that segment. A portion of the margin improvement in the fourth quarter of 2020 related to the elimination of certain low-margin power products from our portfolio.

Research and development costs were $5.7 million during the fourth quarter of 2020, a decline of $1 million from the fourth quarter of 2019, primarily due to restructuring efforts implemented during the latter part of 2019.

Our selling, general and administrative expenses were $19.6 million or 16.8% of sales, flat from the fourth quarter of 2019. Lower travel expenses of $613,000 and savings from other cost containment efforts fully offset the $1.1 million of incremental SG&A expenses associated with the CUI business acquired in December of 2019.

On a go-forward basis, we would expect SG&A to run between $19 million and $20 million per quarter in the near-term as we expect our T&E spend will continue to be lower than normal for at least the first half of 2021.

During the fourth quarter of 2020, we closed on the sale of our facility in Switzerland. This transaction resulted in a gain of $1.9 million, which is included in our fourth quarter results. These factors resulted in income from operations of $5.6 million in the fourth quarter of 2020 as compared to the loss from operations of $2.9 million in the fourth quarter of 2019.

Other expense net was $395,000 for the fourth quarter of 2020 as compared to $1.7 million during the fourth quarter of 2019. An increase in foreign exchange losses of $700,000 in the fourth quarter of 2020 was offset by a larger gain on the company's SERP investments, which are now included in this line item. The expense in the fourth quarter of 2019, largely related to a $2.1 million loss on the liquidation of foreign subsidiaries.

Interest expense was $900,000 in the fourth quarter of 2020, down from $1.3 million in the same quarter last year as a result of decreases in the LIBOR rate, 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 $774,000 in the fourth quarter of 2020 compared to a provision of $392,000 during last year's fourth quarter. Earnings per share for the Class A common shares was earnings of $0.27 per share in the fourth quarter of 2020 as compared with a loss of $0.50 per share in the fourth quarter of 2019.

Earnings per share for the Class B common shares was earnings of $0.29 per share in the fourth quarter of 2020 as compared with a loss of $0.52 per share in the fourth quarter of 2019. On a non-GAAP basis, which excludes certain unusual and other nonrecurring items, EPS for Class A shares was earnings of $0.18 per share in the fourth quarter of 2020 as compared with a loss of $0.30 per share in the fourth quarter of 2019. On a non-GAAP basis, EPS for Class B shares was $0.20 per share in the fourth quarter of 2020 as compared with a loss of $0.30 per share in the fourth quarter of 2019.

And now I'd like to go through some balance sheet and cash flow items. Our cash and cash equivalents balance at December 31, 2020, was $84.9 million, an increase of $12.7 million from December 31, 2019. During 2020, we generated cash flows from operating expense activities of $46.1 million and received $4 million in proceeds from the sale of property. We made net payments of $28.2 million towards our outstanding debt balance and used cash for capital expenditures of $5.5 million, dividend payments of $3.4 million and interest payments of $4.1 million.

Accounts receivable were $71.4 million at December 31, 2020, as compared with $76.1 million at December 31, 2019. Days sales outstanding decreased to 57 days at December 31, 2020, as compared to 60 days at December 31, 2019. The decrease in accounts receivable balance was largely due to lower sales in Asia, where payment terms tend to be the longest.

Inventories were $100.1 million at December 31, 2020, down $7.1 million from December 31, 2019. The decline you're seeing in raw material is due to reduced material intake in anticipation of slower fourth quarter. Accounts payable were $39.8 million at December 31, 2020, down $4.4 million from its level at December 31, 2019, primarily due to lower purchases of raw materials during the fourth quarter of 2020.

Sales total outstanding debt balance was $115.6 million as of December 31, 2020, net of deferred financing costs, a decrease of $28.1 million since the 2019 year end balance. This primarily reflects voluntary debt repayments of $28 million made during 2020. Book value per share, which is calculated as stockholders' equity divided by our combined A and B classes of common stock outstanding, was $15.04 per share at December 31, 2020, as compared to $13.69 per share at December 31, 2019.

And with that, I'll turn the call back over to Dan. Dan?

Thank you, Craig. At this time, James, can we open up the call for questions?

(Operator Instructions) And we'll take our first question today from Jim Ricchiuti with Needham & Company.

Wondering if you could speak a little bit more about rms Connectors and the EOS acquisition. Share with us, perhaps, if you could, just any details on their financial contribution or just the impact that we would anticipate in 2021.

Okay, before I have Craig go over the numbers with you, but just to give you insight to both those companies. EOS, again, we've been private labeling their product for over 3 years. We have a very strong relationship with them. We know the people. It was a market, that's a low medium market, mostly in the medical area and industrial area, which we felt we could grow with a price -- with a proper pricing structure and product portfolio. So we've been pestering them for many years and their interest has been same.

So we're very excited that, again, that we could put this deal together and close on March 31. So on that deal, as I said -- and the key for -- also is that we are overly dependent with manufacturing in China, and this gives us another area where we can have low cost manufacturing.

And in addition to that, we do believe the Indian market should be a substantially stronger market for Bel as we move forward. The other acquisition, rms, when Cinch was the Boeing supplier for the 737 connectors, Boeing suggested very strongly that we approved a second source, and that company was rms.

And over the past 10 years, we've contacted them every year to see if they would be interested in selling because of the price pressures that we're feeling by the aerospace companies out there. Because their medical sales were growing so fast, this wasn't a strategic product line for them any longer. So they allowed us to buy, and we came up with a very strong deal, almost close to book value. And book value is a lot of automated high-end equipment that we didn't have in-house. So besides eliminating a good competitor, we were able to pick up some state-of-the-art equipment.

So we think that also is going to be a home-run acquisition. We do think it's going to become profitable once we move it into our facility, which will take 3 or 4 months. And once Boeing kicks -- Boeing starts ordering again, we think it would be one of our most successful acquisitions. Craig, can you go a little more to financials how you see both companies?

Yes. The -- starting with rms. Obviously, they play in that commercial aerospace segment. So their revenues have been depressed over the last 12 months with the pause in the manufacturing and also the aftermarket impacts. So for the coming 12 months, we're kind of expecting an incremental revenue of maybe $5 million to $8 million related to that. And once we get back to a normal run rate, then obviously, that revenue would certainly tick up. And because we're moving that entire production facility into one of our existing facilities, there's no incremental G&A, and we've been able to leverage our internal overhead structure. And so we expect that business to be fairly profitable.

On the EOS acquisition, they've been obviously impacted by COVID like the of the rest of the industry. They've been running at an approximate $12 million revenue run rate over the past 7, 8 months now. So once they come on board, we expect that the incremental revenue, assuming a March close, would be approximately $8 million to $9 million for 2021.

Margins, their are similar to our other Power margins. So we expect that business to be accretive right out of the gate. I hope that actually answers your question, Jim.

It does.

It just one clarification, Craig. The margins will be more of the Bel Power and not like CUI.

Yes, that's correct. The traditional Bel Power margin, right.

Again, they sound like nice acquisitions. So congrats. I wonder if you can also, to the extent you can, elaborate a little bit more on the impact of some of the component supply chain issues on the business. Are you seeing any impact? Or is this just a case of monitoring the situation in terms of whether it gets worse?

No I think -- again, we're very fortunate because we do have long-term relationships with our semiconductor companies we deal with and the component people we do deal with. So again, they came to us, for example, and said, "Hey, if you want support this year, you have to sign up for a yearly noncancelable order. And then you have to lock in your deliveries."

Also, I think we do a good job seeing ahead of the situation because of our relationships we have in the industry. So we tend to know about shortages before they come. So again, the major problem is that we won't have any pricing pressure during this period, and we have seen some pricing increases during this shortage period. But I don't think it will affect our delivery but it may affect how we price going forward, and we have to increase pricing or not to our customers.

Got it. And just last question for me. Just in general, the level of activity you're seeing across your markets. It sounds like with the exception, obviously, commercial aerospace and potentially a couple of situations with one of your larger OEMs? Is it fair to say that the level of business activity you're seeing is picking up?

Well, in comparing to last year, when we're in the middle of COVID and you had China shut down, I think just going over that bar, is not too high.

Yes, I think in more in terms of as you're entering the year versus Q4. Obviously, year-over-year comparisons are skewed.

I wish I could. I still think we just had limited visibility. I think there's still so much uncertainty out there with COVID, how the new government can affect policy. And I still think it's still a little bit -- a lot more positive than last year overall. However, I still think there's still a substantial amount of uncertainty where people, again, and for this term, are cautiously optimistic. But I don't see anybody opening up the champagne yet, how about that?

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

Two questions for you. First, on the margins, which continue to show improvement. Last quarter, there was a $900,000 Chinese subsidy in there. Were there any onetime items like that in this quarter?

Craig or Lynn, can you address it?

Sure. This is Lynn. We did have a similar amount in Q4 this year related to those subsidies that was $835,000 in the fourth quarter.

And again, this is -- this may or may not continue into the next year?

We don't know if it will continue.

Okay. My other question is about the EOS acquisition. So just from a branding perspective, will you continue to private label and sell under the EOS brand? Or will you move that to the Bel brand?

That is one of the big questions we're debating constantly. I tell you how crazy of a situation we have. We private label EOS under the Bel brand. The company we acquired last year, CUI, private labels under -- U.S. product under their brand. And then EOS uses their brand. So we have a couple of distributors that sell 3 of the same product with 3 different names, all built by EOS.

So we are marketing, it's the #1 thing our marketing group is working on is how do we brand EOS, but how we brand Bel with so many different companies that we acquired over the past couple of years.

We now hear from Hendi Susanto with Gabelli.

Dan, can you talk about your M&A pipeline now that you have Farouq in your team?

I'll let Farouq speak about our M&A pipeline. Farouq?

Yes. Thanks, Dan. Great to be with you here today. So coming from the industry, there is a good amount of activity that we expect to occur a little bit in more frequency in 2021, especially as the world start sort of coned up on COVID. So our expectation is we will see more and expect to have a robust pipeline. And obviously, we -- with the team at Bel here, and now in addition to myself, will be trying to cultivate our own proprietary side of the house, not to be similar to the deals that I could then have.

So I would say it's definitely out there, we just need to figure out where we want to be spending time in going after it.

And I think with the value also Farouq brings besides knowing so many of our competitors or companies in the industrial market, which we are participating, I think how we deal with the banks going forward where historically, because we haven't borrowed money in the past. And the financing terms and so forth, I think that's key for us. It's great that we want to buy a company, but the question is, can we get the proper financing from our lenders. And I think with Farouq aboard, I think that it's going to be a major benefit that he brings to the party besides his acquisition knowledge.

Got it. Then I would like to repeat the long lead times. There's been talk -- I don't know whether you talk about this or not. There's been talk about inventories in the channel and inventories that OEMs are lower than optimal. And therefore, they would partake more and then build their inventories. Do you see the same trends in -- among your customers or that are -- that doesn't apply in your area?

No. I think -- again, I think the initial concern you have, when you have long lead times. If someone has to wait 9 months for a semiconductor, which he's going to need a few weeks or 2 months. All they're going to push back your deliveries for the last item. Generally, we never see that. What we see generally, when there are long lead times, we always feel it's beneficial to the business. Because most of our customers are more concerned about delivery than they are about pricing. And at some point, they're willing to pay the premium for pricing. So we think even though we do think it's a beneficial again for all of us when we have long lead times and how we prepare ourselves properly for. And I think historically, our processing group has always kept our frontlines open with product and -- because of the long-term relationship we have with our suppliers.

So again, I feel with these lead times, we are somewhat confident that we can manage it properly. And if we do face increased pricing, that we can offset it with our pricing to our customers.

Got it. And then with the addition of the EOS and the rms Connector, what should be our expectation for operating expenses?

Hendi, you're asking expectation for OpEx?

OpEx and SG&A?

Yes. For rms, there should be very little incremental OpEx. Because we're basically bringing a manufacturing facility into our own, and we are not bringing any incremental SG&A, along with that. On the EOS piece, the OpEx would be probably traditional, about 13% to 15% of revenue, maybe some synergy there. We're not anticipating a significant amount.

Okay. And then Craig, can you share what kind of absolute dollars of SG&A we should expect?

Let's see. That would be revenue on an annualized basis of, let's say, $12 million to $15 million. So I'd say 13%, 15% of that.

Okay. And then I think for -- starting from Q1, you would see some benefit in R&D and then some closures also.

So on a comparative basis, we should see a positive comparison for R&D in rms.

Hendi, are you asking about the consolidated business?

Yes, the consolidated business, yes. I think, months ago, I think there was discussion that SG&A may run between like $19 million to $20 million.

Great. So for the consolidated business, we will see incremental cost savings in Q1 of about $1.3 million. The majority of that will be in R&D, about $750,000 related to the Switzerland closure. And then the rest will be split between SG&A and COGS.

We'll now hear from [Steve Cole] with Mangrove.

I had a few quick questions. First off, on Magnetics. I know you mentioned one of the large OEMs is kind of sitting tight and now starting to come back. Can you give a little bit more color on what else is happening there that gives you comfort that the order patterns are coming back? Are you seeing more strength outside of that OEM?

Based on -- we're using our backlog to make that judgment call. And the backlog has increased nicely in the fourth quarter, the magnetic side of the business.

Okay. And turning down to the rms business. I know you talked about the 5% to 8% bump in incremental revenues. If we kind of go back and look at what a more normalized world will look like on the commercial aerospace side. What is the expectation of where rms could ultimately be if you look out a longer view. So if we don't look at this year, but we look out 2, 3 years from here, for example.

I think the key is where Boeing planes are going to be. They were leasing before COVID and before the 737, the problems, they were looking at 49 to 51 planes a month. And that, I think we have 5,000 connected per plane. So those are substantial values in rms versus second source at Boeing and to their suppliers. So again -- and now I think, Craig, they are hoping to get to '21 soon, Craig?

Right. Yes. Yes. It's going to be -- it's expected to be a slower ramp-up in their build schedule. So it's going to take a couple of years until they get back up to that run rate that we were anticipating earlier.

So again, if you look at all, I think the point for us, as we could awaited that Boeing was back to normal saying 42, 43 planes. We believe to buy rms would probably be maybe 2 to 3x what we paid for it today. So we feel very fortunate. We did take a big risk. If the 737 doesn't come back, this is not the best acquisition we ever had. But even the fact that we picked up state-of-the-art equipment that we needed anyway in our facilities, we're really pleased, again, with the acquisition, besides Boeing, the aftermarket and how it strengthens our relationship with some of our key aerospace distributors.

So for us, it just was -- again, it took me 8 years, I think, 9 years from sending Christmas cards to the President of the company before he finally responded. And I thought he's coming up to thank me for my Christmas cards. By the way -- so again, it's probably the best investment Bel Fuse has ever made, $20 of Christmas cards.

That's a pretty good deal. And that's probably $20 for a whole package. So not as in the individual one. So that's even...

What made it also exciting, we were able to complete this deal in a roughly 2-month period, less than 8 weeks by working closely with them. And I think that's a good sign when we do deal with a lot of acquisitions going forward, we can -- I don't think there's many companies out there that can close a deal in that short of timeframe. And so I had to -- our philosophy, what you were say, what we've done a lot of divestitures with billion-dollar companies. And I think if you look at a TE, a Safron, some of the other companies we deal with. I think the decide to go with Bel Fuse, not because we pay the highest dollar, it's because of ease of transaction and how we treat the customers and their associates.

So I think we have the PE against the PE, some of our competitors, we have a really good track record. We can do a deal, we're going to do a fair deal and a quick deal. So that's going to help to look a lot in his pursuit.

Definitely, definitely. I guess -- I'm sorry, one quick...

No...

Okay. Go ahead, I'm sorry. I'm sorry, Lynn.

I just wanted to quickly add that if we look back a couple of years, pre-COVID, pre-grounding, the rms business was running around $15 million to $16 million a year in revenue. And that compares to where they were in 2020, which was around to $8 million. So just to give you some perspective of where they were under...

And Lynn, do you have their profitability?

Yes. So before all of this, in normal conditions, their EBITDA margin was around 20%, whereas right now, they've been running around 5%. There's definitely room for Improvement as conditions improve.

I would think under Bel, without their overhead and without their building and so forth, we should be able to substantially improve those margins.

And this is going to seem like an off-the-lock question. I'm sure you hear this one, too. But the world, you talked about, obviously, T&E is down for everybody now. But how do you -- when we look longer term, how -- in terms of how you're doing business, would you expect a structural change in T&E and things like this going forward in terms of how you're conducting your business? Or how do you view that in...

Yes, I think we're going through a revolution. And I think -- and maybe I'm wrong, but I think the revolution would have taken maybe 4 or 5 years, but I think the revolution is going to take a few months or sooner. I mean, the role of salespeople and people working from home, how can you call on a customer when 50%, 60% of the people are working from home going forward, and how do you connect with these people. And that's why we made a major effort over the last 3 or 4 months to consolidate our sales force.

Historically, we had a salesperson for each company. So we had a salesperson at CUI, a salesperson for Bel Power Solutions, a salesperson for Signal Transformer, possibly all calling on the same customer. We consolidated that into 4 people that cover the country. In addition to that, we are pushing our digital sales group substantially to add people on. So how do we connect to the engineer through LinkedIn, through YouTube, through Twitter.

And really, again, if you're dealing with young people, as you know, I don't think they like to use phone calls, and they don't think they like to talk to people and they want their information quickly. They want it fast staff and they don't want BS. And so we clearly -- we understand that, and hopefully, we're moving quick enough to address the new engineers. And for us, that's a key. I mean, we -- for us to be successful, we have to be able to work with engineers before and when they design the product.

If we come in as the second supplier or third supplier, it makes it extremely difficult. But if we come in when the engineer is designing a product, we can help them, we can guide them in a system to use our product in the proper way. And that offer them some of our of our advantages. So it's definitely an exciting time we live in and definitely things are changing rapidly.

Let me hit one last question. It was kind of your opening that brought a warm feeling to my heart. So you mentioned about pointing out the valuation disparity between the sum of the pieces in the current marketplace. I guess, obviously, Farouq is coming on. And I guess the best thing to do is throw him right into this task of how do we narrow that? So obviously, you've been successful to varying degrees on acquisitions, as you've alluded to and running the company efficiently. But how do we narrow -- I'm still a little confused on how do we do that. So how do you get us to a price on the public...

Farouq, you want to earn your salary right now and explain how you're going to do it?

Yes. I got to start somewhere on day 3 here. So when I was on the other side of the table looking at Bel and kind of seeing kind of the same formation that you're looking at, I would say you develop certain expectations and perspectives on the business and being slightly under the coverage here on the other side, I would echo Dan's sentiment now that we're peeling back the onion.

I'd also say, though, when the seat that I was sitting at on the other side of the table, on the sell side, Bel represents a unique opportunity from a size, reach and global positioning, quite frankly, with varying degrees, whether it be on the Connectivity side or the Power side and the Magnetic side. So when I see -- when I'm looking at, I see a great base for us to build upon and drive growth faster, both, I would emphasize, inorganically and organically.

So one of the benefits, from my perspective, is bring a fresh set of eyes and asking questions for us to look at how Bel is conducting business today and where should we be? And what do we want to do down the road. So to your question is, well, how do we bridge the gap? I think there's a consistency and kind of performance and the way we do business that we need to address.

So we kind of have a feeling, again, sitting in your shoes, talking to investors and I would say that Dan had alluded to it earlier, whether it be on the margin side, the way we just do business as simplifying and positioning ourselves for longer-term sustainable growth. So it is a tough question, but I think we know the answers, and we need to just figure out how to get there.

We have a follow-up from Jim Ricchiuti with Needham & Company.

Just looking at the commercial aircraft market. The comparisons actually get much, much easier for you when Q3, is that when the business really started to come down sharply?

So on the commercial aerospace, I guess, it was actually in the second quarter of 2020 is when we saw the largest dropoff. So there will be some incremental pressure on Q1 sales related to that, but then we should be in a more normalized position from Q2.

Got it. And then I'm just looking at a comment in the press release, I just want to make sure I'm not misinterpreting it. You're talking about an additional $4.4 million of cost savings in 2021. And I just want to make sure I'm not confusing that with some of the other savings you highlighted this morning.

Right. So the $4.4 million that will be incremental in 2021, that is looking at full year 2020 costs versus 2021. So like of that, $2 million relates to the Switzerland facility closure. We had $1 million of back cost savings realized in 2020 at the tail end of the year here. And the other $2 million will be realized in 2021. Other actions that we had done throughout the year, the Germany sales office, closing our North America sales reorganization. And we had a couple of other actions that were implemented in Q4 with moving some functions in Asia that will result in another $1 million of savings in 2021.

So that $4.4 million is incremental, and I do have the detail of it by quarter, if that would be helpful.

Sure. Go ahead.

Okay. So again, these are year-over-year incremental savings. So in Q1, it's $1.3 million versus if you're looking at Q1 '20. Q2, it's almost $1.4 million. In Q3, it's $1.1 million. And in Q4, it's about $600,000.

And Jim, just to add some more color on that. We still believe in we still got a ways to go before we file our cost savings program. One of the key things was the implementation, our new software. And now from having many different ROI systems, we got it down to 2, 1 for Cinch group, and 1 for the Bel group. So we can look at consolidating many functions because we're all on one system now. Also our manufacturing footprint in China. We have 3 operations in China. We have to look at consolidating down to either 1 or maybe 2. So we still think there's a good opportunity to improve on our savings over the next year to 2 years. So we still got a ways to go, and we're still focused on it.

(Operator Instructions) And that will conclude today's question-and-answer session. I will now turn the conference over to Mr. Bernstein for any additional closing remarks.

Thank you, James. Thank you for joining our call today. And we're looking forward to speaking to you in April. Have a good day.

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