Daniel Bernstein - President and CEO Colin Dunn - Vice President, Finance and Secretary.

Sean Hannan - Needham & Company LLC Lenny Dunn - Freedom Investors Corp..

Good day, ladies and gentlemen and welcome to the Bel Fuse, Inc. Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. [Operator Instructions] As a reminder today’s program is being recorded.

I would now like to introduce your host for today’s program Dan Bernstein, CEO and President. Please go ahead..

Thank you and I would like to welcome everybody to our conference call to review Bel’s fourth quarter and year end results for 2014. Before we start I'd like to hand over to Colin Dunn, our Vice President of Finance.

Colin?.

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 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 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 statement will in fact prove to be correct. We undertake no obligation to revise or update any forward-looking statements.

We also may discuss non-GAAP results during this call and reconciliations for our GAAP results to non-GAAP results have been included in our press release.

Moving on, throughout this call I will refer to the Bel Power Solutions business which was acquired in June 2014 as BPS and the Cinch Connectivity Solutions business which was acquired in August 2014 as CCS. Collectively these will be referred to as the 2014 acquisitions.

Sales, fourth quarter 2014 sales were $148.7 million up 63.3% compared to the $91 million in the fourth quarter of 2013 included in the Q4 2014 was $64 million of sales of BPS and CCS which had not yet joined Bel in the same period of 2013. Excluding sales regarding BPS and CCS sales were down $6.4 million from the fourth quarter of 2014.

On a regional basis and including the sales from the 2014 acquisitions. Sales in North America increased $44.6 million in the fourth quarter of 2014 as compared with last year. Sales in Europe increased to $12 million and sales in Asia increased $1.1 million. On a product basis including the sales from the 2014 acquisitions our sales were this way.

Magnetic Solutions product grew to $44.1 million which decreased 6.7% as compared with the prior year. Connectivity Solutions product sales reported $5.6 million which is an increase of 60.2% over the last year primarily due to the acquisition of CCS, excluding CCS, fourth quarter 2014 sales decreased 8.5% as compared to the prior year.

Power Solutions Protection product sales were $59 million which is an increase of over 100% from last year primarily due to the acquisition of BPS, excluding BPS, Power Solutions Protection product sales decreased 5.6% as compared with 2013.

Gross profit in the fourth quarter 2014 reported gross profit margin was 18.7% of net sales as compared with 19.7% in 2013. On a non-GAAP basis which excludes the impact of the step up in inventories from the 2014 acquisitions gross profit margin was essentially flat.

SG&A, selling, general, and administrative expenses in the fourth quarter of 2014 was 16.5% of sales as compared to 11.9% in the prior year. On a non-GAAP basis which excludes the impact of acquisition related costs and information technology and migration costs incurred in 2014.

SG&A expenses as a percentage of net sales increased to 14.4% of net sales in the fourth quarter of 2014 as compared with 11.7% in 2013.

This increase is primarily attributable to high depreciation and amortization expenses and the fair value step ups of tangible and intangible assets declined in the 2014 acquisitions and higher SG&A structure from the acquired Connectivity business.

As part of the integration of this business into better aligned Connectivity Solutions selling SG&A structure we implement a restructuring program in the fourth quarter of 2014. Taxes, our income tax benefit for the fourth quarter of 2014 was $892,000. This compares to a benefit of $407,000 in the prior year.

The company’s effective tax rate which is the income tax benefit of provision as a percentage of earnings before income taxes fluctuates based on the geographic statement and which the pre-tax profits are up.

Of the geographic segments in which Bel operates, the US has the highest tax rates, Europe’s tax rates are generally lower than US tax rates and Asia typically has the lowest tax rates. Our non-GAAP effective tax rate for the fourth quarter of 2014 was 14.7%, this compare to a benefit of 5% in 2013.

Last year’s effective tax rate was impacted by losses in North America as well as favorable adjustment related to the research and experimentation credit. And now I’d like to cover some balance sheet items. Cash and cash equivalents at December 31, 2014 were $77.1 million which increased $15 million from December 2013.

During the year we made debt repayments of $17.4 million, capital expenditures of $9 million as well as dividend payments of $3.2 million. We also acquired $27.5 million of cash and cash equivalents in connection with the 2014 acquisitions. Accounts receivable was $99.6 million at December 31, 2014 compared with $63.8 million at December 31, 2013.

This increase was primarily due to the acquisition of $38.8 million of cash receivable in connection with the 2014 acquisitions. Accounts payable was $61.9 million which increased $32.4 million from December 31, 2013. As with the receivables, this increase in payables was due to the acquisition of BPS and CCS.

Inventories at the end of December 2014, our inventories were $138.6 million up $43.6 million from the December 2013 level. The addition of inventories for BPS and CCS was partially offset by a decrease in inventory at Bel locations.

Debt during the year in December 31, 2014, Bel issued $235 million of debt obligations to fund the 2014 acquisitions of BPS and CCS. The payment of various financing cost and the retirement of the outstanding $12 million loss on Bel's former revolving credit agreement.

During the full year of 2014, Bel made mandatory principal payments of $5.4 million and include an interest expense of $4 million. Of a balance sheet comments, our capital spending for the year ended December 31, 2014 was approximately $9 million while depreciation and amortization was $19.7 million.

The purchase price valuation allocation related to BPS and CCS acquisitions have not yet been completed and accordingly preliminary estimates of goodwill intangible assets and other assets and liabilities have been included on December 31, 2014 balance sheet. That's the financial comments, now I will hand the call back to Dan..

Thank you Colin. If possible we'd like to open up the call for any questions you might have..

[Operator Instructions]. And our first question comes from the line of Sean Hannan from Needham & Company. Your question please..

Hey guys thanks for taking my question.

Can you folks hear me?.

Yes..

Okay. So just trying to see if I can understand some of the math in the recent acquisitions what you’re contributing today and where we are with some of these trends and looking to see if you can help me to validate some of this.

I believe Emerson did about $14 million in September although that was really only two months for it so if you fully look at that on a quarter basis maybe that was around 18 million or 21 million standalone. So that may have been about 7% down at December if we were to think about a clean comp.

And then if I look at some of the other pieces of your business so the power 1 business and then legacy Bel Fuse. It looks like both of those were down 9% sequentially in the December quarter.

just want to make sure I have my math right here before I ask a little bit about seasonal trends and how that should be interpreted going forward?.

Okay. On the connectivity just on the standalone. We ran about $19.5 million on sales versus '13 near up to $14 million in the third quarter..

Right. So the third quarter that I believe you only had two months’ worth of that business under your hood..

Correct..

So if we were to have to clean comp I believe that was not up quarter-to-quarter but it instead was actually down. Can we get a clean compare on that..

I can't give you a clean compare..

Okay, alright. Let me shift topics really quick. Gross margin movements so you folks had really strong results I think in September.

You did a good job in the December quarter on the SG&A level but the gross margins really came down a bit quarter-over-quarter so looking to see if you can elaborate on that a little bit the type of direction we should think about this for the current quarter.

Does that deteriorate more or do we expect some recovery that goes into June and the back end of the year. is that 23.5% you did September already looks a little bit far away from where we are. So I just want to understand what's moving around within that result within December as well as how you think about that moving forward. Thanks..

Yeah at September it's somewhat of anomaly on a non-GAAP basis. We've come in at 19.6% on a gross profit margin basis.

I should point out that we still have the impact of inventory step up going on into the fourth quarter and then so with that and the somewhat weaker sales with the approach of the year end with some customers had sold inventory, that had the impact on the margins.

So, I do expect the gross profit margin as we move forward into 2015 to move back up somewhat..

So is that something we expect on an aggregate basis, or it should be operating more so in the 21%, 21% type of range I think you folks are at considerably larger scale now and some of the benefits of the recent yields. I think in concept should be able to get you there, I just don’t know if that’s a reality..

The first quarter is still going to be a little bit tough we are still operating with the transition services agreement which I think we have mentioned in the past whereby we've still got some of the acquisitions operating on the seller’s computer systems and we're having to pay fairly large amounts to maintain those.

We do expect that they will be completed, the transitions Emerson has already across on the ad [ph] systems and we do expect that the Power-One acquisition will be across on ad systems moving into the second quarter, at that time we'll have some certain cost reductions.

So I think we will, on the second point Sean I do expect somewhat better improvement margins.

The other thing is as you know as we spoke about last time we have been having some quality we had some quality problems with the, particularly with the power products whereby the quality was not up to our standards and we have taken a little while to get those under control. We believe we are in control now.

And moving forward we will see the benefits of much better manufacturing processes and not having to take certain expenses related to quality that we inherited..

So it sounds like this would be operational management as a consequence of improving the acquisitions you did no variable that might be in hidden in there working against the either on the pricing front or general mix of your input and supply costs, is that correct?.

And as always pricing concerns.

Sure, but nothing different than the typical patterns we see in your environment..

Yes, I agree..

Okay. And then last question here and I'll just jump back in the queue.

As you've talked about your power business or certainly expectations sort of back half of the year getting to growth I think that’s a potential use from my perspective third quarter and fourth quarter you can do some double digit growth, your comps will get better but also then you have new programs that are ramping and re-establishing some creditability with customers I think that you've mentioned for a bit as well within your release.

Is that type of growth a realistic potential or where should we be directing our thoughts on this specific piece of the business for you? Thanks..

No, again what we've said the business power business looks like it’s running about 195, 198 over the past 12 months. We do think going forward that starting in the end of the third quarter that we should start to see yearly again 10% growth minimum we are hoping so we are talking 20 million, 25 million for the year.

And we still think that’s a pretty good goal that we should attain and that’s what we strive before. But I do think that we might still have some fallout in sales for the first half of the year compared to last year based on some of the problems we had with customers in addition some of the quality issues that we are stuck with..

Okay, very well. Thanks for taking the questions..

Thank you. Our next question comes from the line of Andy [ph] from Gabeli & Company. Your question please..

Good morning Dan and Colin..

Good morning Andy..

2015 seems to be exciting even for you.

How should we think of cost synergy cross sells opportunity factor utilization and their magnitude?.

Again we are seeing some opportunities in cross sells and there are I think we have already emerged the sales and marketing group between Cinch Connectivity and Emerson.

We have consolidated the operations in England, we are looking at consolidating the operation in Chicago so we do have those cost savings yet to come and then from a customer standpoint we just have a lot more critical mass than of course we're getting a lot more respect with the customers.

With Power One and with Bel we do serve the same customers but we are maintaining two different sales forces at this time. We are beginning to see some cross selling opportunity but nothing substantially.

Our biggest opportunity is not going to come from cross selling, our biggest opportunity is going to come for the turning around the Power One company and reposition it as a quality house technology house and that's where we're expecting the major growth of our company to come from is from the Power One acquisition..

Got it. And Colin....

Retrenching the customers they had, re-engaging them and once again they had within three or four years ago they were doing core 50 and we're hoping to get it back a good portion of that business..

Colin would you be able to provide CapEx estimate for 2015 and I'm wondering whether we will see like the similar number or....

Actually I am prepared for that. We have at this stage and again we - our budget of the CapEx is usually zero but we do have some estimates and we can look at every project on its merit at the time that comes along. But CapEx total number at the moment is $16.4 million..

Thank you..

Thank you. Our next question comes from the line of Harsh Kumar from Stephens. Your question please..

Hey guys this is Richard in for Harsh. Just kind of taking a setback in looking at the market in general. What are you seeing kind of what are you seeing in the market environment right now. And then how are you handicapping Chinese New Year and are there any associated cost with that in the upcoming quarter..

So let's get to the overall market. Again I think for the last 18 months it has been a very wait and see market, a very limited visibility we don't hear any pauses, we don't hear any negatives.

So this still a bit of uncertainty but again but if you look at all the overall market it's still very positive I like to say we can have company's stop buying their own stock and saw looking at buying equipment in automation. I think that would help out a lot.

But again so, again we see the year at this point we have very limited visibility and that's what we're getting from our customers.

Regarding Chinese New Year in the old days where you had a return rate of 40% or 50% then it have substantial amount of training cost and bringing work is back online but now over the last two or three years our retention rates has been about 92%, 93% for all our operations in China. So we don't see any major additional costs.

And most of our customers have done a good job putting in some more inventory time this year. Just so by September on any purchase on that we send out to a customer we note on the purchase order when Chinese New Year is and I think people are having a lot better understanding of that..

Great. That's very helpful. And then in terms of your cost cuts initiatives in the connectivity business. Can you give us a little bit more color on those and what kind of benefits do you expect from this..

Again we took out the major chunk already, for both groups. Again, we already took the hit on combining the operations.

So when we look England, I think we already knocked out probably with both companies prior 7.5 million, 8 million I think even though we put a lower number in press release but I think going forward we probably have another million math to do but it's pretty much I would say 90% done..

Got you. That’s very helpful..

We then, we generally move very rapidly we’ll go into an organization pull the bad debt from a people standpoint and a consolidation standpoint. So I mean we’ve closed as you see in our press release, we’ve closed on already closed facilities took out top management, took out any redundancy.

So again now it is using our purchasing power or things like that straight from the company..

Got you. And then in terms of your divestiture, the Network Power Solutions.

What’s going to be the top-line and kind of cost impact of that?.

Well, we closed the sale in 2015 and we still counting in the final accounting still on a review. We don’t anticipate recognizing a loss on that disposition. We will be continuing to manufacture those products for the company and acquire for up to two years. So we don’t really expect anything significant impact on our P&L..

Well, I think will you going to see from a sale standpoint we won’t see impact from a gross margins we might see impact because basically supporting them very closely on a breakeven. But from sales standpoint we’re only talking about in the $17 million to $20 million range.

But in fact gross margin because before we’re making certain amount of profit and that substantially reduce with the supply agreement we gave them..

Great. Thanks guys..

Thank you..

Thank you. [Operator Instructions]. Our next question is a follow-up from the line of Sean Hannan from Needham & Company. Your question please..

Yes, thanks. Just to dive back into some of the ….

Sean - will you stop? The answer your question before on the connectivity. Q3 on the full quarter was 19.9 and Q4 on the full quarter was 19.5. So it was basically flat quarter-over-quarter. If we go back and look at the total sales not just the sales under how much..

And again we do predict that Sean that over the next probably two quarters that we don’t think any substantially growth we’re going to have from the acquisition.

And again we didn’t see that as a growth driver business, we looked at that it was a profitable very diversified customer base that has hopefully very good cash flow that could help us payoff the debt in Power-One. And we really are striving that growth for the company is kind of come from the power side..

Okay, that’s helpful. And then to follow-on that with some of the original for asking my question. Just trying to understand do we have a little bit more perhaps smoothing not entirely smoothing there is still some pretty good seasonal cycles that you would experience.

But there seems to be, I think, in ’15, the opportunity where March perhaps does not come down as much December does not come down as much on a relative quarter-over-quarter basis.

Just trying to understand how you think about revenue seasonally progressing for the year?.

I wouldn’t mean seasonal, but I think things are pretty choppy there is a Power-One. And again do we get a hand on, I give you an example with the major customer that basically kicked out Power One, we put it on and then once we booked that and we show them our back and what we’ve done they have reengaged us.

And so we’re right there, we’re looking at some new product and they both all of a sudden they had a quality problems. And based on the design that they were buying for three years before they acquire the company. And that put this product on hold and put future products on hold.

In addition to that we had another quality problem and a major customer that hit us and we weren't able to shift for the past three months. So that’s my concern is, I think until we focus out all these quality problems that are carrying in Power-One that we think things are going to still be pretty choppy for the next six months.

And once I think we get a good handle on all that again starting in the third quarter from a top-line sales growth standpoint. I think then we can say, we can start moving ahead and again as I said we just we are happy we don’t get a call regarding quality situation from the power group.

And again that’s all based on previous Bel history for Bel by the company..

Okay that’s helpful perspective.

On the cost reductions Dan I think when you talk about pulling out 7.5 million although putting 5 million in the press release is that 2.5 million delta is that something that you are guessing as kind of more of a less tangible cost reductions as you think you may be able to get the benefit of here or is that including the actions here in March and thinking forward?.

I think again from our standpoint even though we made like for example we can look at combining both facilities and champs [ph] so we haven't seen the cost saving but it really doesn't come in now until we get out the taxes of the two different sites, the heating the oil the receptionist all of those type of course.

So that’s when I add saying we took 5 million like if I get rid of 10 people there is a direct course to have million dollars and that’s what we show in the 5 million and then the ancillary [ph] cost is where we're coming up where we say 2.5 million to 2.8 million. Does that clarify or not clarify..

Yes that’s helpful..

So we have really good hardcore course regarding people issue that were taken out of the company. And now going the leases and sale again the taxes air conditioning that type of stuff..

Yes, okay. Now then last question here the current port issues out on the West Coast there is that having any impact on your business can you provide a little bit of perspective around either what you're seeing..

We haven’t heard any problems so far whatsoever and then again you should know that a good portion of our products do go into sub-contact throughout Far East Asia..

Sure..

I am not saving it hasn’t been a problem I am not saying it, it won’t be a problem going forward but at this point we haven’t been shifting anything in from there and we haven't heard any customer complaints..

Pretty good. Okay, thank you..

Thank you. Our next question comes from the line of Lenny Dunn from Freedom Investors. Your question please..

Good morning I guess my question is I have been seeing the last of the quarters that are hard to read..

No, no that's my gene is to have GAAP, non-GAAP the same but it looks like again our goal the fourth quarter I think the first quarter were 90% and 92% there but I think we might have some hangover in the second quarter.

The problem Lenny that we do have is that we see a situation that we can move on from a core savings standpoint because we just not ready to do it yet and then we're facing do we take it in the second quarter so really it helps the bottom line or we're saying, “hey, let’s just forget about for six months or a year make things look as clean as possible to keep you happy” and that’s we have internally.

It is our goal to get away from these one-time charges as much as possible. And I don’t know if we're going to reach that goal or not but it is definitely goal of ours..

Yeah, I am glad it is obviously sooner than better and I assume that whatever the maximum amount of free cash flow that you can allocate to paying down debt that is your intention?.

Nothing will make me happier than getting a lot debt off my balance sheet and then I could buy back stock which I know it would make you happy also..

Yes, it would but I don’t want you to do that while you are carrying much debt here, not a good choice. Okay, well thank you very much..

Thank you and appreciate the question..

[Operator Instructions] And this does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks..

I appreciate everybody’s time on the call and thank you for your questions. I am looking forward to speaking with you in April..

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..