Dan Bernstein – President and Chief Executive Officer Colin Dunn – Vice President-Finance and Secretary.

Sean Hannan – Needham and Company Lenny Dunn – Freedom Investors Hendi Susanto – Gabelli and Company Harish Kumar – Stephens.

Good day, ladies and gentlemen and welcome to the Bel Fuse Incorporated First 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.

With us on the call today we have Dan Bernstein, Chief Executive Officer; Colin Dunn, Vice President of Finance; and Frank Scognamiglio, Financial Reporting Manager. [Operator Instructions] I would now like to hand the conference over to Dan Bernstein. Please go ahead sir..

Thank you Karen and I would like to welcome everybody to our Q1 first quarter earnings of 2015. Before we begin, Colin can you go over the Safe Harbor statement please..

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 and achieving cost synergies; 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; and the risk factors detailed from time to time in the Company's SEC reports.

In light of the risks and uncertainties, there can be no assurance that any forward-looking statement will in fact prove to be correct. We undertake no obligation to update or revise any forward looking statements.

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

Now turning to the results, throughout this call I will refer to the Power Solutions business, which was acquired in June 2014 as BPS and the Connectivity Solutions business, which was acquired in July and August 2014 as CCS. Collectively these will be referred to as the 2014 acquisitions. So first, we are turning to sales.

First quarter 2015 sales were $142 million, up 72%, compared to $82.6 million in the first quarter of 2014. Included in the first quarter 2015 was $58.8 million of sales from BPS and CCS, which had not joined Bel in the same period of 2014.

Excluding these sales, sales were essentially flat reflecting the seasonality of the business in the first quarter of the year including the impact of the Lunar New Year as well as other holidays in Europe and the U.S.

On a regional basis and including the sales from the 2014 acquisitions, sales in North America were increased $48 million in the first quarter of 2015 as compared with last year. Sales in Europe increased $8.9 million and sales in Asia increased $2.5 million.

Turning to the product, on a product basis including the sales from the 2014 acquisitions, magnetic solutions product sales were $40.9 million in the first quarter of 2015, which increased 4.1% as compared with the first quarter of 2014.

Connectivity Solutions product sales were $45.6 million in the first quarter of 2015, which is an increase of 51.2% over the first quarter 2014 primarily due to the acquisition of CCS.

Power Solutions Protection product sales were $55.5 million in the first quarter of 2015, which is an increase of over 100% from the first quarter of 2014 primarily due to the acquisition of BPS. Gross profit, in the first quarter of 2015 reported gross profit was 21.1 – $27.1 million as compared with $40.1 million, an increase of $13 million.

This increase was primarily due to the incremental impact from selling, general and administration expenses. Selling, general, and administration expenses in the first quarter of 2015 was $17.6 million, or 12.4% of sales.

First quarter 2015 SG&A includes $4.6 million of net unrealized foreign currency gains, primarily due to the weakness of the euro against the U.S. dollar on the revaluation of inter company allowance and other inter company receivables and payables.

First quarter 2015 SG&A also includes IT, migration, and rebranding costs of $603,000 and acquisition related cost of $385,000. Excluding these items, SG&A would have been $21.2 million, or 14.9% of sales, as compared with $11.2 million, or 13.5% of sales, in the previous year. The increase reflects the incremental impact from the 2014 acquisitions.

Operating profit was $9.4 million in the first quarter of 2015 and included the unrealized gains of foreign currency mentioned earlier. Excluding the gains, operating profit would have been $4.8 million, or 3.3% of sales. This compares to operating profit of $2.7 million last year, a 76% increase.

Including the incremental impact from the 2014 acquisitions, we have also realized over $2 million of cost synergies in the first quarter of 2015, an excellent Transitional Services Agreement at the end of March. Turning to taxes, income tax provision was $2 million in the first quarter of 2015, compared with $399,000 last year.

The increase in the income tax provision was primarily due to the mix of pre-tax earnings and jurisdictions with higher income tax rates. The company’s effective tax rate, which is the income tax benefit or provision as a percentage of earnings before income taxes fluctuates based on the geographic segment on which the pre-tax profits are earned.

Of the geographic segments in which Bel operates, the U.S. has the highest tax rates; Europe’s tax rates are generally lower than U.S. tax rates and Asia has the lowest tax rates. And now I’d like to cover some cash flow and balance sheet items.

Cash and cash equivalents of March 31, 2015 was $78.6 million, which increased $1.5 million from December 31, 2014. During the first quarter, our cash flow from operations included net proceeds of $9 million from the sale of the Network Power Solutions systems and related transactions.

Also during the first quarter of 2015, we made debt repayments of $11.7 million, capital expenditures of $2.8 million as well as dividend payments of $800,000. Cash taxes paid were $1 million and cash interest expense was $1.7 million.

Turning to working capital, net cash receivable was $93.8 million at March 31, 2015, compared with $90.6 million at December 31, 2014. Day sales outstanding declined to 59 days at March 31, 2015 from 62 days at December 31, 2014. Accounts payable was $63.4 million, which increased $1.5 million from December 31, 2014, reflecting the timing of payments.

Inventories were $111.9 million, down $1.7 million from December 31, 2014. Inventory returns declined to 4.1 times per year at March 31, 2015 from 4.3 times a year at December 31, 2014.

The changes in the account receivable, payables and inventories during the first quarter of 2015 reflect the seasonality of the business during the first quarter of the year. Now to the debt; during the first quarter of 2015, we made mandatory principal payments of $11.7 million, including the net proceeds received from the MPS transaction.

We incurred $2.2 million of interest expense. Book value per share as of March 31, 2015, which is calculated at the shareholders equity divided by our combined A and B classes of common stock outstanding was $18.58.

Purchase accounting update just [indiscernible] where we are, the purchase price valuation and allocations related to the 2014 acquisitions have not yet been fully finalized and accordingly preliminary estimates of goodwill, intangible assets, and other assets and liabilities have been excluded in the financial statements presented today.

Dan, I’ll turn it back to you..

All right, thank you very much.

Karen, can we open up the call for any questions that might be out there?.

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

Yes, thanks, good morning. Thanks for taking my question here.

Can you hear me?.

Yes, we can..

Okay, great. So first think I wanted to if I could ask about, it seems that the strength that you really had within the quarter from an earning standpoint was quiet driven by the class controls within SG&A.

So, why don’t see if we can an understanding of our ability to maintain this type of a spend level? And then, Colin, I think that you may have indicated that there are some IT costs, I don’t know if actually this was within the comments or within the release, but some IT costs that that probably should come down, I don’t know if that’s a first quarter or a – from the first quarter or year-over-year comparison.

I am just trying to understand how these operating costs should move from here? Thanks..

Yes, Sean, the – I think the G&A headwind impacted up and until the end of March really by IT expansion. [Indiscernible] Transitional Services Agreements for both of the acquisitions, one of the agreements was certainly a lot more expensive than the other. But as of the end of March, we are – it seems that you’re basically out of those two agreements.

Now that’s not to say that those costs go away, but the costs internal to Bel to provide those services will be substantially less, when I am talking substantially maybe 25% of what we were paying to have them provided outside.

So, if you look at the first page of the press release today, you know, some of those informations technology, migration and rebranding, a big substantial part of that will go away..

Okay, so it sounds like in terms of the $16.6 million spend that you had in March that – while the – presumably if the demand profile continues to lift through the course of the year and we generate some higher revenues, you’re still able to lower the absolute dollars quarter-to-quarter on that SG&A line.

Is that a fair assumption or did I misinterpret something?.

No, I think that’s a fair assumption. We have – there are some variables related to G&A and the biggest variable tends to be commissions that we pay, not all products pay commissions, but most of them do and that’s typically around about 5% of sales. But we feel that – and we think we’re continuing to consolidate facilities.

We’ve managed – three other major consolidations done. We’re in the middle of combining facilities in California still and we expect to have that finished at the end of the second quarter. We have a major consolidation going on in Hong Kong, where we are moving the Power folks that were in separate facility.

And with the Bel folks – and that will be – we expect to have that finished before the end of the third quarter. So these will continue to help our G&A..

Okay. So as a percentage of your revenues, you did $11.7 million on that SG&A spend. Is there an opportunity – then just looking at this from a different angle to work that percentage down to 10% of sales or does that sound a little bit aggressive, I am just trying to understand the sensitivity here..

Now, you’ve got to backup the foreign exchange gain we had that got booked in the quarter, Sean..

Right, okay, all right fair enough. Let me shift gears for a moment. Is there a way if we can get some color from both of you folks in terms of the demand profiles per segment as you work through the quarter and what you’re seeing thus far at least directionally here in the June quarter? Thanks..

Okay, I’ll take that one. And I think again we do see our sales overall to be flat. We dig ahead with the Bel with the new acquisition of Power One with two major quality problems that we’re working our way through. We think we should be able to start shipping in June.

And that – once we resolve both of those quality problems that probably won’t happen to a lot of – probably at the end of June, so we really won’t see sales increase in the third and fourth quarter regarding those two customers. We don’t see anything in the marketplace at this time that are very bullish or bearish.

It’s just again one step forward, one step back and we’re just – there is just tremendous amount of uncertainty out there. We don’t see any decrease in our backlog and our backlog still remains strong; it’s just got the revenue and we don’t see any substantial upside..

Okay. So now is this fundamentally any change of an environment in uncertainty versus what you….

The only change we’ve seen in the environment, these two quality issues that we have in the Power – in Bel Power Solution for the previous – and those parts were shifted before we were….

Okay, so then if I specifically focus on the power piece of the business, there are two elements that should drive some growth there in the back half of the year, right. So one being the resolution of the issues with these two customers.

And then number two, I think that there have been some program wins that you’ve referenced and talked about for a period of time, some of which start to ramp in that kind of mid summer timeframe and I think some of it might be related to fleet EV battery types of technologies.

So is there any perspective you can provide around that how that can ramp in the second half of the year and is there anything incremental to those two variables that I’ve otherwise missed..

I think, again, the biggest concern we have is the major customers really had to tell one on the backlist. Because of our relationships we had, they were willing to open up the door with us.

So, we have had over the past and currently in the far east over the past, since we acquired the company, we had 10 to 12 major customers audit our facility in China and they’re all have been very, very impressed with the changes we’ve made.That allows us thenI’ll go back into engineeringbecause we’re off the blacklistand being involved in all new productsthey’re developing.How quickly those productswe have now that’s so much abatableof where we stand in the stage..

– :.

Okay, that’s impressive. All right, that’s helpful..

It’s only impressed, Sean, if I can do it..

Yes, understood. Last question here for a moment, I’ll turn back in the queue. Based on where you are today, how should we think about taxes particularly for June and then the consequences of how we ramp some of that business across Power in the back end of the year. How should we think about the movements in that second half as well? Thanks..

We will expect from where we are, the tax rate to decrease still a bit of a work in progress. We’re still working on restructuring some of these acquisitions from an efficiency point of view. So – and again, it’s back to what the mix is in any one quarter.

This was down a year to a quarter that we had a lot more about revenue in – fully taxed in the U.S. So, I don’t expect it to stay where it is, Sean. I think we’re going to be back down in the 20 – sub-20 mark going forward..

Wonderful. Thanks so much for taking my questions..

Thanks, Sean..

Thank you. And we have a question from the line of Lenny Dunn from Freedom Investors..

Good morning. First of all very good quarter, better than I expected and my expectation has been high. And the question I have is with the debt pay down which clearly is something that you fairly want to do.

Can we expect a pretty decent debt pay down in the current quarter?.

We….

Colin, let me explain what we paid. Our debt is about $2 million per quarter around $2.2 million is our….

2.2….

Debt. And we paid roughly over $11 million this past quarter because of our MPS acquisition. Again, I don’t think we’re going to – at this point, I think we’re going to stay pretty consistent at $2.2 million until we can bring up – build up or want just a little bit more. So, we have to look at acquisitions.

We have the availability to do if we wanted to. And I guess also with the interest rate as well as they are – I don’t think, it highly motivates us to pay off the debt too quickly..

All right, I wouldn’t encourage that, but at the same time historically this has been a company that’s been extremely conservative with the balance sheet.

And the second question, I have is that clearly that you – and what is your worst quarter of the year, your sales were very strong and you’re saying that you have this Power One situation straightened up in the second half of the year.

So we look forward to see some very, very nice numbers in the second half of the year and I’m not misreading that right?.

Colin?.

No, we’re quiet blind and quiet comfortable with the improvements as we continue through the year..

Okay.

And as far as restructuring costs that we pretty well through with them with the current acquisitions now?.

Restructuring cost for the current acquisitions are substantially complete, yes. There is always fine tuning and we’re going to continue to – you know, there will be fine turning unfortunately which forces GAAP, non-GAAP issues. But there will be some – just probably nature of our business, so there’re a lot spread out.

We want to continue to consolidate and take the opportunities where we can to refine the business, but anything that was made related to the acquisition has done..

But the problem we have and I think we discussed this the last quarter, nothing would make me more pleased to having right GAAP and non-GAAP very close to each other. And that’s – that’s our goal. However, we do have opportunities for example that if we can see to restructure something and we can get a pay back in a $1 million.

It’s got to say, hey, do we were upset some shareholders or we can get this pay back in a year, we should go for the pay back. Our goal, I think we’re trying to do for the next two quarters, at least try to keep any restructuring charges under $1 million would be our goal and that’s how we were trying to do.

But we did again and also that if we do have a restructuring costs that we have to very – very clearly see a short-term pay that for that restructuring cost..

Okay. Well, thank you and thank you for the good quarter. Good work..

Thank you and our next question comes from the line of Hendi Susanto from Gabelli and Company..

Good morning Dan and Colin..

Good morning, Hendi..

Good morning..

First question, sorry if I missed this earlier.

How should we think of foreign currency impact in Q1 and potential impact in the rest of 2015?.

It’s we – we don’t – again, it’s going to be subject to what happens with the exchange rates. What I would say Hendi as we are certainly – we inherited some inter company balances, particularly on the Power One ABB acquisition.

And it’s taking us a while to get some tax rulings particularly in Europe as to what we can do to eliminate some of those inter company balances.

And we’re pretty much to that point we’ve got some recent tax rulings and its our intent to try and settle those balances in the next – hopefully by the end of this quarter – that’s being the second quarter, if not certainly by the third quarter.

And so the extend of these fluctuations, we hopefully will go away or most of that will go away going forward..

Okay.

And then – so did we have any negative foreign currency impact in Q1?.

Not really. What – if we look at just figuring about re-valuing assets, if you will. If we just look at our business and the currency of our business is primarily U.S. dollars.

The other exposures we tend to have, we have an R&D facility in Switzerland, where we have some expenses that are in Swiss francs, but fortunately the Swiss franc – exploded, it sort of settle back again and that hasn’t had the super major expense.

We have some manufacturing in the Slovakia, labor cost there – be quite favorable, but the components and the materials they buy tend to be primarily tied eventually back to the U.S. dollar. So – and as we’re selling in U.S. dollars primarily that’s pretty flat. We don’t have an exposure there.

And the other area we have is labor in China, which is in Renminbi. And of course the Renminbi is being fairly close, recently it continues to trade fairly closer to the U.S. dollars. So we’re not seeing – from operations, we really don’t have much in the ways of currency exposures..

Is it reasonable to assume that currency impact was neutral or slightly positive?.

It would be – for the quarter, I would say neutral..

Okay.

And then, Dan, post manufacturing consolidation, restructuring and complete integration of your acquisitions, how much improvements should we expect in your gross margin and cost structure?.

That’s a Colin question..

Hendi, there going to – it’s going to be a percentage point here or percentage point there, but the other side is we also have to continue to look at what’s going to happen in our cost structure. For example, as you’d probably know effective May we will have increases in labor cost again in China as well everybody in China.

And so while we’ll pick it up on some headcount reductions in one area, we’ll pick up a little bit of additional cost.

We believe though that on an annualized basis, our integration and the synergies that we’ve implemented from headcount reduction, facility consolidations, and what we feel is material cost savings across the company is somewhat in excess of about $10 million..

$10 millions run rate….

Annualized, yes..

Okay.

For Dan, while you’re focusing on integrations of your acquisitions, may I know whether you’re saying like active pipeline or potential acquisitions out there or the pipeline somewhat into this year?.

Again, we’re not actively pursuing acquisitions, but we have stayed in contact with certain companies to see where they stand and certain deals obviously out there. Is it a high priority on my desk, definitely not. But if someone comes knocking at the door, it make sense, we definitely would consider it.

I think we’re pretty much there from the integration point of – I think overall the integration, the heavy lifting, number one job that we’re able to do is getting of the software system, putting that on our software system. We made changes – all the people changes are probably 99.9% done. And the culture has changed.

So I think the only thing we’re doing now is really fine tuning it. For example like – but we talk about the consolidation, in Chicago or in San Jose we’re just combining offices that are within 45 minutes of each other.

So, it’s not like we’re letting go of any people, we would have maintained all the people at both offices, but we just think we’ll be more efficient by combining these certain offices. Again, we did the same thing that we completed in London that took us about seven weeks combining the Fibreco operation with the Chelmsford operation.

And that was somewhat more difficult because we moved our manufacturing – two manufacturing sites together. And I think we did this very well and we had no poor deliveries with our customers. So again when it comes to the integration, it’s 95% done. And now, we’re just doing the fine tuning of combining the stuff.

And we’re – I think we’re extremely pleased with how everything went so far..

Thank you, Dan, thank you Colin and all the best for 2015..

Thanks Hendi..

Thank you. [Operator Instructions] Our next question comes from the line of Richard Sewell from Stephens..

Yes, hi. It’s actually Harish Kumar. Great results guys, Dan and Colin. Just a couple of questions.

What would be some on the biggest levers that you guys can pull in the second half to get your operating leverage even higher from where it’s at right now?.

Colin, I think I can get this one, right, sales, sales, sales. I think we’re – right now that I know that Power and even at Bel that once we hit a certain sales level, we go beyond that, it chops down to the bottom line very quickly.

Again, as I said, we – I don’t think we can have cost savings out there, all the low hanging fruit, we could care of, we did a couple of fine tuning as I have mentioned before.

So we’re going to be as cost competitive as we possibly can and now it’s just – we’re gaining the business that the two acquired companies lost based on the previous management and just getting our footprint back. And if our sales get increase, it should fall pretty rapidly through the bottom line I would say.

Colin, do you want to add to that?.

No, that’s exactly the way that’s Dan..

And so let me – can I – if I can follow-up on that commentary. What would be the number that you get a substantial breakthrough in operating leverage.

What would be that revenue number if I can try to ask that?.

Well, it’s pretty much anything about where we are now. It’s – I would add – as I said before I – you know it’s a little bit of increase related to G&A on – because of commissions – sales commissions. It’s – our structure is pretty well fixed. And it’s – we do very well from here on – here on up..

Great, that was actually very helpful. So from – so it looks like you’re set at this revenue level, it sounds like from an OpEx angle also, correct me if I'm wrong based on what you said, we shouldn’t expect anything material outside.

You know sales grow, commissions grow, but outside of that nothing major should be ticking up from the $16.5 million, $16.6 million level?.

Correct..

Okay, awesome.

And last question from me, would you take a shot for me if I had to put you in the corner and say hey how much do you think that Power One revenue could generate exiting this year in revenues per quarter?.

I think I might take that one. Again I would say – yes, I would say half year around the 180 – 180 in the lows – on the low side, 200 on the high side..

But that’s….

That’s on an annualized basis..

Correct, correct. That’s very helpful guys. Thank you so much and great quarter..

Yes, Harish, just back to the G&A before we make sure we’re clear on the point, we had this one time $4.6 million of unrealized foreign currency gains in this quarter. That’s hopefully not going to – well, it would be nice if it did – coming back, but it’s not and we just need to make sure that’s eliminated..

Fair enough. Thanks, guys..

Thank you. And we have a follow-up from the line of Sean Hannan from Needham and Company..

Yes. Hi, folks. I just want to see if I can clarify some of the comments that I heard regarding Power. So first, in terms of, I think – some comments that you have made a little bit earlier Dan, when we look at the second half of this year that we should be in position to start growing that Power business 10% sequentially for eight quarters.

I just want to make sure that we’re talking about 10% on top of 10% quarter-to-quarter. If I understand that correctly? And number two, is that relevant specifically just to the Power One business that’s acquired or is that for the aggregate of your Power segment. Thanks..

Okay. It’s for the whole segment and just to give you an idea on this quarter with Power we did – combining the both Power groups, we did roughly about $47 million..

For the two Power groups, okay. Now, okay, I thought that I heard Power reported at $55.5 million, what am I missing..

Well, probably in the Power group we have Circuit Protection..

And modules….

And custom modules..

Okay. So….

We’re just taking the fuel power that we had at Power One and also DC-DC power business..

Okay. So that’s the – so and then this quarter it was $47 million, I’m sorry to say..

Yes, $47 million..

Yes. Okay, all right that’s helpful. And so when you talk about then a rough range of a 180-ish, 200-ish for the business you’re talking about, in reference to that $47 million being a contributor to that bigger picture..

[Indiscernible].

Yes I'm just – I just want to make sure I'm searching in apples to apples with this segment is a….

I’d like to see starting everything – I would say [indiscernible] by the fourth quarter, for the next four to six quarters every quarter we add $4 million to that quarter. So if we can do that, so over the years time we could add $16 million I would be pleased..

Okay, that’s helpful..

Starting in the fourth quarter..

Okay..

And then I would like to say, starting in the fourth quarter $4 million growth each quarter..

Okay, that’s helpful. All right, thanks folks..

Thanks, Sean..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any closing comments..

Just wanted to thank everybody for joining us this call, we appreciate your time. And we’re looking forward to continue success. Thank you. Good bye..

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does concludes this program. And you may now disconnect. Everyone have a good day..