Dan Bernstein - President and Chief Executive Officer Colin Dunn - Vice President, Finance and Secretary Frank Scognamiglio - Financial Reporting Manager.

Sean Hannan - Needham and Company Harish Kumar - Stephens Lenny Dunn - Freedom Investors Corp..

Good day, ladies and gentlemen and welcome to the Bel Fuse Inc. Third Quarter 2015 Earnings 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 follow at that time. [Operator Instructions] As a reminder this conference call is being recorded.

I would now like to turn the conference over to Dan Bernstein, President and Chief Executive Officer. You may begin..

Thank you, Abigail. Before we begin, I would like to have Colin Dunn, our Vice President of Finance to read our Safe Harbor statement..

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 that have been included in our release. Turning to the comments. Our third quarter net sales were $144.2 million, down $7.8 compared with $156.3 million in the third quarter of last year.

Included in the third quarter of 2015 was an incremental $4.5 million of sales from the Emerson acquisition. Excluding these sales the decline was $16.7 million. On a regional basis and including the sales from the 2014 acquisitions, sales in North America decreased $1.5 million in the third quarter of 2015 as compared with last year.

Sales in Europe decreased $4.4 million and sales in Asia decreased $6.3 million. On a product basis, including the sales from the 2014 acquisitions, Magnetic Solutions product sales were $41.8 million in the third quarter of 2015, which decreased 9.4% as compared with the third quarter of last year.

Cinch Connectivity Solutions product sales were $47.4 million in the third quarter of 2015 which is an increase of $5.4 million over third quarter last year, primarily due to the incremental impact of the acquisition from Emerson.

Power solutions and protection product sales were $54.9 million in the third quarter of 2015 which is a decrease of 15.7% from the third quarter last year, primarily due to our decision to walk away from certain low margin products which we acquired with the Power One acquisition.

Despite the decline in sales in the third quarter of 2015, we were able to maintain our level of gross profit in the third quarter of 2015 as compared with last year because of our streamlining activity in the company.

Selling, general and administrative expenses in the third quarter of 2015 were $19.3 million or 13.4% of sales as compared with $23.1 million or 14.8% of net sales. These declines were primarily due to our cost saving activities resulting in lower salaries expense.

We also had a lower professional fees in our acquisition related costs in the third quarter of 2015 as compared with the third quarter of 2014.

Income from operations was $7.3 million in the third quarter of 2015 as compared with $4.4 million in the third quarter of 2014 reflecting the incremental impact from the 2014 acquisitions as well as lower SG&A expenses and cost synergies realized.

Interest expense was $1.8 million in the third quarter of 2015 as compared with $1.9 million in the third quarter of 2014. Interest income and other net includes $4.2 million of income related to a settlement of a Power One acquisition related item. Income tax provision was $4.9 million in the third quarter of 2015.

This compares to an income tax provision of just $1.3 million in the third quarter of 2014. The income tax provision in the third quarter of 2015 reflected the mix of pretax earnings and losses in certain jurisdictions.

The company's effective tax rate which is income tax benefit or provision as a percentage of earnings before income taxes, fluctuates based on the geographic segment on which the pretax 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 typically has the lowest tax rates. Earnings per share on a GAAP basis was $0.42 for the third quarter of 2015 as compared with $0.11 to the third quarter of 2014.

We also include non-GAAP financial metrics including non-GAAP earnings per share which excludes the impact of certain special items like restructuring charges and other unusual items that are detailed in the financial tables that accompany our press release.

Earnings per share on a non-GAAP basis was $0.25 for the third quarter of 2015 compared with $0.64 for the third quarter of 2014. This decline reflects the decline in sales discussed earlier as well as an increase in the non-GAAP effective tax rate in the third quarter of 2015 as compared with the third quarter of 2014.

The non-GAAP effective rate was 54.9% in the third quarter of 2015 as compared with 34.2% in the third quarter in 2014. The higher effective tax rate in the third quarter of 2015 reflected a change in the mix of pretax earnings in certain jurisdictions with higher tax rates and losses in certain jurisdictions with lower tax rates.

On a go forward basis we anticipate our full year effective tax rate to be closer to the non-GAAP effective tax rate for the nine months ended September 2015 which was 26.4%. Now I would like to cover some cash flow and balance sheet items.

Cash and cash equivalents on September 30, 2015 were $76.3 million which decreased to $846,000 from December 31, 2014. During the year we used $34.9 million of cash to reduce our outstanding debt.

Our cash flow from operations including net proceeds of $9 million from the sale of the Network Power Solutions systems division and related transaction in January. In the first nine months of 2015, capital expenditures were $8.3 million and dividend payments were $2.3 million. Cash taxes paid were $1.7 million and cash interest paid was $4.8 million.

From a working capital perspective, accounts receivable was $92.9 million at September 30, 2015 compared with $99.6 million at December 31, 2014. Days sales outstanding was 58.7 days at September 2015 as compared with 62 days at December 31, 2014. Inventories were $104.6 million, down $9 million from December 31, 2014.

Inventory turns remained at 4.5 times per year at September 31, 2015 as compared with December 31, 2014. Accounts payable was $51.6 million which decreased $10.3 million from December 31, 2014, reflecting the timing of payments and lower inventory purchases. Bel's outstanding debt as of December 30, 2015 was $197.7 million which is down $34.9 million.

This reduction was due to payment of our mandatory payments as well as additional payments made during the nine months ended September 30, 2015. The additional payments made during the first nine months of 2015 included the $9 million of net proceeds we received from the MPS sale I discussed earlier.

Book value per share as of September 2015 which is calculated as stockholders equity divided by our combined A and B classes of common stock outstanding, was $19.56 per share. And now I would like to turn the call back to Dan..

Thank you, Colin. At this time, we would like to open up the call for any questions that might be out there..

[Operator Instructions] Our first question comes from the line of Sean Hannan with Needham and Company. Your line is open..

Got a lot of questions here. .

Shoot away Sean..

All right. So first question here in terms of the softness that materialized. Can you talk a little bit about specifically when that began to materialize in the quarter and to what degree since the close in September has that continued to either soften or has it effectively stabilized now at these lower levels. Thanks..

Okay. Let me give the backlog so that might give you some more insight. At the end of the first quarter this year our backlog was roughly about $152 million. The second quarter was about $138 million and the third quarter, currently it's about $131 million.

So again the pawn that we have is that we just don’t see any visibility out there at all from any of our customers or from any of our suppliers. It's just, everybody we talk to see either a decline of 5% to 10% and they don’t see any positive or negative. They just don’t see any visibility whatsoever..

Okay. I am sorry, those numbers again. Backlog against [renewal] [ph], $152 million. I missed the June number and then....

Okay. The June number is $138 million and today it's $131 million..

Okay. All right. That’s helpful.

So was the softening, did that happen though consistently throughout the quarter or was that more pronounced, let's say within that last month there?.

No, I think it was throughout the quarter and it was most of, all of our product groups. We did have the Emerson acquisition, had positive sales and also our modular group has some positive sales. But across the board we had negative sales with all our product groups..

Okay. Now in terms of some of the restructuring actions you guys are taking.

Are all of the benefits of prior restructuring efforts, are those reflected in the operating results in September or how much is there to achieve in terms of savings from prior announcements?.

Well, I think all those savings are factored in. We did make an announcement. We did take $800,000 write-off this quarter and you are going to start seeing those results coming in the next quarters over time..

Okay. And that’s exactly follow-up. So was there any positive impact as a benefit to the restructuring that was announced today.

When should we...?.

I don’t know. I wouldn’t think so..

Okay. What should we expect in terms of what's accomplished for that for December and is this something, I think you just indicated a couple of quarters.

So is that then fully in the model through the end of March or how should we put this all to context?.

I think it should be completed, the move and the cost by the end of this year. So by the first quarter of next year it should be factored in completely..

Okay. Now can you elaborate a little bit more in terms of what your downsizing and consolidating and then there is kind of a part b to that.

How and where are you going to continue to support the existing customers and programs and was there any revenue attrition you suspect could occur as a result of some of these moves and decision?.

I think this -- the latest consolidation was the Array move. We acquired Array about two years ago. It had 40 people. We are only ending up keeping 5 people and all the equipment and machinery has been moved to either Texas; McAllen, Texas, or the Mexican factory we have right across the border there.

We feel that we will be a lot more efficient and have quicker delivery. We did maintain substantial buffer stocks before we did do the move. So I don’t think we have lost any sales in that regard. The other move that we have discussed is the Chicago office.

We had two major offices in Chicago and we will be combining them over the next six months into one office and that should be some savings there..

Okay. All right. That’s helpful. Now in terms of the Power Solutions Group.

Now as you walked away from lower margin products, were these products that you were already on and price degradation just got too ugly or some of this even relevant to some of the new wins that you would...?.

I am sorry, Sean, to cut it like that. It has nothing to do with any of the new wins at all. It was for a consumer dishwasher. We had very tight pricing over the years and it was decided even before we bought it that they were to end that business and that was a good chunk of it.

And there were some other low margin business that we determined to walk away from. But it had nothing to do with any new sales at all or new opportunities we see out there..

Okay. And then last question here and I will jump back in the queue. So in terms of the new wins that you had and the expectations, some of that was going to start shipping in the third quarter.

Is there any expectation for the fourth quarter? What has happened here? Is this effectively a push out or is there now pretty heightened ambiguity around the ramps of those programs given some of the macro softness that you are seeing?.

Okay. I think the major point again with Bel Power Solution, which the big chunk is the Power One acquisition. I can't tell you how impressed we have been with the job the team has done to turn the company around 180 degrees. All the major customers that were very skeptical committing business with us are back with us.

Our scores on quality have been the best, I think in four or five years. When you have key people from our customers say to us, Dan, I was betting 15% chance you could turn this business around and I can't believe you turned it around, it's just amazing the job your team has done.

And from the factory audits we have gotten, everything, we are very pleased. I thought that, again, because of our sales this group at one point was doing $150 million and it was down $160 million. So I was somewhat confident that we could gain back market share we lost even in a down market. That was wrong.

My big miscalculation was the design cycle at our major customers, like the Ciscos, the HPs, the Alcatels, which would have led Power One participate in new products and those were the sales that we were kind of also loosing now.

So I just don’t have a clear definition from our customer on the products that we are being currently designing, when they will be going into production. And I think a lot of things we have seen have been pushed back because of the softness in the marketing..

Okay. Thanks, very much.

Yes...?.

No, just again, as I stated, we are extremely pleased in the direction that the Bel Power Solutions group is moving in and I think we will become a substantially bigger player than we are today..

Okay. So it sounds like we are still pretty confident accomplishing the wins that we are going to be a part of them just effectively the OEMs have some ambiguity in there end-markets since new launches at the moment seem delayed and giving you that lack of clarity..

You said it very well, Sean, thank you..

Thank you. Our next question comes from the line of Harish Kumar with Stephens. Your line is open..

I just want to clarify something. In the commentary I didn’t hear much about a slowdown or softness. I just want to clarify, if perhaps what we are calling softness or slowdown here is the $8 million you guys decided to walk away from? Because those are two different things in my mind..

No, completely different. Again, when we talk about softness we are talking looking at -- even though we have three major product groups, within each of those product groups is different components that make it up. And so you look at all different product groups and I think we have about 10 or 12 of them.

I think only two of them had positive sales for the quarter. Now, again, focusing on Bel Power Solutions, we do have a greater downturn in that business because of the sales we walked away from. On the other businesses, it had nothing to do about walking away from low margin at all. It was based on low churn in the sales..

Got it. Okay. Understood. And so then the backlog in numbers are held for. But that's kind of the function of the economy. We are seeing this in a lot of, like semiconductor and hardware companies, IBM etcetera, as they report numbers all kind of missing numbers. Okay. Helpful, Dan.

And then if I can ask you, so you walked away from this $8 million business, how much low were the margins here? Was it just absolutely were you not making any money on these.

Could you give us some idea...?.

We thought we were making money on it but when we saw our results, I think we make a lot more money by not building it..

I got you, okay..

And I think it was composed of about three or four customers. And within those customers, there were certain part numbers that we didn’t want to participate in.

So there is one customer we walked away from completely because that was just a big runner and the other two customers were just some low margin product that we thought we couldn’t participate in any way..

I got you. And then another question I had was this cloud stuff that you guys are trying to get into. The set of wins you have that didn’t necessarily kick in, maybe quite this quarter.

Any expectation of when that many happen? Any visibility...?.

No, we have one substantial cloud customer. And I don’t want to mention its name. But it's one it's one of the big players out there. We did have a quality problem in the first three quarters. That quality problem has been resolved and we started shipping in the third quarter again. And we do think some strong sales are there.

We are making it a major focus that all the major storage people out there that are building their own farm, that we should be contacting them and attacking them. I mean we are starting to have some wins with other customers.

Again, it looks that is one of the key areas that we need to do a better job on because we do think there is a lot more people like the Yahoo!s out there, the Google, the Amazon. A lot of people that are building their own data centers.

We should be doing a better job because we do feel we do have some of the best equipment out there to support what their needs are..

Got it. Okay. Helpful.

And then how long do you think it will take to make up this $8 million shortfall that you walked away from, in other words...?.

I blew it once and I am not going to blow it again. I said I thought it would happen in the third quarter, it didn’t happen. So now I have to play the wait and see game. So I apologize..

Understood. Understood. Hey, how about your, Dan and Colin, how about your long-term model? Let's say all this stabilizes, economy stabilizes from the crud that it's in right now, six months or who knows, a year out.

How should I think about sustainable long-term model for you guys in both op and gross margins?.

Well, Dan's going to give me this one. We still feel that the future is still there. It's just about how long it's going to take for it to slowly pick up. It's definitely, based on the backlog and part of the reason for the backlog also we should remember, being down is that because industry-wide it's down, people can get the product out fast.

So the backlogs aren't as long so some of the customers know they don’t have to put the orders in [definitely] [ph] as they did before leads times were down. So that has a bit of an impact there. But I think we have to push our model out, probably six to nine months from where we were.

Part of the issue is, we still feel very very strongly that we have got the growth engine with the power business that we have acquired and what we had before. That whole group put together. But the more of the uncertainty is really on the connectors side. Obviously the commercial aerospace is good.

The airlines are doing well and the Boeings and so on are doing great. So that’s all very positive stuff. And the data centers are good, we do fuses and connectors and power supplies and everything into the data centers. So that part is good..

Let me -- when we bought the Emerson Group, we know it wasn’t a high growth product line for us. But we believe very strongly that it should be a cash cow for us because 50% of their sales are going through distribution. So, again, we looked at both acquisitions as key.

One was Power One that was going to take a lot of work because of previous management. But, however, that lot of work would give us a lot of top line growth going forward. We feel the markets that we are participate in against the Deltas, the [Marauders] [ph], the [Orisons] [ph], the GEs. That it's a tremendous marketplace.

There should be a lot of niches for us to participate in and be successful in. On the Emerson product line, we do have a -- for some of the products where we are the market leader, it's difficult to grow that business.

The same thing with the magnetics where we are by far and away the largest ICM, integrated connector module, manufacturer in the world. So we understand that those products will not grow because of the market share we already have. However, we do believe that they should maintain a pretty good show in cash flow going forward.

But, again, what's really going to turn the company around is our focus on increasing power sales and that’s really going to help the top line and then it all runs, hopefully, down to the bottom line..

Got it. Understood. And then Colin I had a quick, simple housekeeping follow-up. Your tax rates are low but all over the place.

I don’t know, I can't remember if you mentioned if you have a long-term model that you would like us to think about for tax rate?.

Yes. In my comments -- we thought this question would come up -- so we have suggested it around about the 26% range in the near term would be a good number to be using. That would be a full face on a full year number.

So part of that, reason it's crept up would be that we are generating much higher percentage of our profits these days in North America which is quite strong..

Thank you. Our next question comes from the line of [Anthony J. Scallow] [ph], a private investor. Your line is open..

Thank you for a nice report. I have a quick question for you. I don’t understand why in this particular quarter we have an effective tax rate of 49.8% versus what you just suggested, 26%, and effectively we had 27% for nine months. If we had assumed the 27% as the norm, our earnings per share would have been up very substantially.

So why are we using 49.8% as our effective tax rate here?.

We had some credit stuff, we had some losses offshore. And we also had a one time, a very large one time item in North America which was about -- we had a true up adjustment related to working capital which had to run throughout our P&L as opposed to being a capital item because the deal had closed more than a year ago.

So accounting rules made it run through our P&L and that really bumped this up. So it was sort of a onetime item. It's not going to continue. But we will, anytime we have write-offs or we have major onetime items, it's going to jerk out right around like this..

So if we didn’t have that one item, what would the earnings per share look like?.

We can tell what the tax rate looked like. I don’t know but we are -- right, Frank? We have Frank with us who is part of the accounting team..

If you look at the financial tables that accompany the press release, the non-GAAP financial tables give you a sense as to where the results would be excluding those onetime items..

It's on the table that’s headed up, reconciliation of GAAP to non-GAAP, it's condensed on that consolidated statement, supplementary information. Yes. And if you want to give us a call back later on we can show you where to look..

[Operator Instructions] Our question comes from the line of Lenny Dunn with Freedom Investors Corp. Your line is open..

I sorted through all the numbers so I don’t have questions on them but just wanted to pursue a little bit more on these design wins which are very encouraging, especially in the cloud.

But you were originally, I guess, had some expectations of them hitting this quarter and now you are being very vague as to when they will hit because you really don’t know.

But can you give us some, a little more comforting information as to they will hit?.

When we bought the company I was hoping and I told everybody that we were hoping to see 10% growth at the second half of this year, especially in the fourth quarter, on previous sales at Bell Power Solutions.

I just don’t know whether I can say, if you do everything right, hit every customer you can hit, you make sure your engineers are dealing with engineers, and hopefully at some point in time they will bear fruit.

I wish I could say it would be the fourth quarter but the worse thing I could say it's a fourth quarter, it doesn’t happen in the fourth quarter. Now at this point I have made my prediction and it wasn’t a good prediction. So I like to wait and when the results come then I will be glad to state those results to you..

Okay. But you do feel that this is going to happen.

It's just a question of when not if?.

No. Yes. If it doesn’t happen I think I am in big trouble..

Well, we don’t want you to be in big trouble, believe me..

We have stated all along that it's the revenue engine of the company..

Okay.

And until we have better digested the acquisitions you guys are going to hold off on doing anything further, right?.

Well, I think, again, just for the record, both acquisitions are fully digested. And again, we are always looking at acquisitions but, again, it has to help us pay off the debt. That’s the number one thing we look at. So if we are going to have an acquisition that makes our debt go away a lot quicker than we definitely would do it.

But to add on more debt and without being the ability to pay it off quicker, it doesn’t make sense..

Also you certainly wouldn’t want to give away equity at these prices because we are actually trading now below book value..

I don’t think it makes sense to us and at all I would be with you a hundred percent on that one. So that is off the table for now..

Okay. So I can take away from this that unless immediately accretive acquisition, it would help you pay down debt, you wouldn’t make it. So therefore, it wouldn’t be a large acquisition because I don’t see how that would work.

And that the design wins should come to fruition soon but you can't give me the soon exactly because you don’t have control over that..

But I think I wouldn’t even like, not to throw curve balls at you, but there are opportunities that we are looking at large corporations where we could use our equity for an acquisition instead of using cash. So that’s always a possibility..

Okay..

But, again, it has to be accretive to make sense and not dilute the company..

Well, I understand you guys are large shareholders so you certainly don’t want to dilute yourself. And I guess we are at the mercy of the economy here but my read is that the worst is over. That doesn’t mean it's going to get good soon.

But is that kind of your read too?.

Well, I think we had the same [indiscernible] we did in the first half of the year. But I think in the first half of the year, people seemed more positive and upbeat. Then obviously the year-end got people down but, again, the interest rates look like they are going to maintain them flat. So we think that would be a help.

But I just, again, I think my pet peeve is I think too many American companies have bought back stock, not reinvesting in the company, not looking at buying new equipment, not really trying to get the economy going. And I think that’s hitting everybody pretty good..

Okay. Thank you for answering my and questions and hopefully this time by not committing you get the design wins, you get orders from them sooner..

I am knocking on wood..

We have a follow up from the line of Sean Hannan with Needham and Company. Your line is open..

Thanks for taking the follow-up here. So within power in terms of the new design wins, I think there was an expectation originally that starting in the December quarter you would get on a per quarter basis about $4 million of incremental revenues.

I wanted to get an understanding of whether you think that that incremental number, when it does begin to materialize and when some of those OEMs start to move forward with launches.

Has your view of that incremental number changes and if so, to what degree and what should we think of?.

That’s a good question. I could come back and say, oh, let's drop it down to 4%-6%. Again, if you look at year-to-date basis, we are looking at $16 million. So maybe a more realistic number is $12 million. But I just -- you know the problem, when we do hit, generally they don’t hit like $100,000-$200,000.

They are generally are big numbers we are looking at, not small numbers. So I am still -- again, I still think we are doing everything right. I am still thinking that there is tremendous amount of opportunity. So I am still pretty upbeat.

So I don’t know what to tell you Sean but knowing I would rather be, keep my optimism down so I don’t get beat up too bad..

Okay. So....

To really help [gain] [ph] all Sean..

Well, it sounds like you won't necessarily have explicit reason to assume a lower number but given the delays, given macro, I guess anxieties at your customers, perhaps it's prudent to be conservative and take that expectation down a little bit..

Yes..

Thank you. Our next question comes from the line [Dan Amborse with Helston Financial] [ph]. Your line is open..

Just a question, clarification on the comments you made a moment ago about acquisitions. Suggesting that you would consider using stock as currency for acquisitions and I wonder if you can clarify that. We have had, well the shareholders are yet to have any benefit from the prior acquisitions, hopefully we will eventually.

But I mean stock is down 16% today on the earnings release, 19% and change, and very cheap relative to your earnings potential and so forth.

Are you really saying that you would consider using stock, with the stock where it is or is there some higher level that it would have to be at?.

Again, I would hope that the stock would be at a higher level and hopeful going forward our stock would go up. But I guess, I would say at these it would be very difficult to use your stock. And again, it depends how can we value this.

If I am looking at a company that's got worth $200 million, can I bring that stock saying, hey, this is what our multiple is, can I bring his multiple in our realm. So, again, it depends on what the value he puts on the company.

If he is selling at 14 times EBITDA, or 14 times multiple, and I am buying at stock 8 multiple, that doesn’t make too much sense. But, again, if his multiple is as low as my multiple, then it might make sense if we can see we can do things. And again how much it's going to accrete to EPS with the number of shares we are giving out.

But again, the point being is, the stock does give us some flexibility of how we look at deals going forward. And I know your point is basically, you are crazy to give out any stock at this price..

That would be my point, yes..

I got that. I think my board would have the same attitude you have. So I would have to make an extremely incredible argument for that to happen..

Well, let's hope the stock is at 30 before you have to make that argument..

Nothing would make me happier..

And I am showing no further questions at this time. I would like to turn the call back to management for closing remarks..

Once again thank you for joining the call. We appreciate your time and we are looking forward to, hopefully have better results next quarter. Bye..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..