Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bel Fuse Inc (BELFA, Financial) achieved sales of $133 million, hitting the high end of their forecast range.
- Gross margins improved significantly to 40.1% in Q2 2024 from 32.9% in Q2 2023.
- The Connectivity Solutions Group saw a 5.4% increase in sales year-over-year, driven by distribution channel growth.
- The company successfully reduced inventory levels by $8.6 million from year-end, reflecting efficient inventory management.
- Bel Fuse Inc (BELFA) continued its $25 million stock buyback program, purchasing $14.2 million worth of shares by June 30, 2024.
Negative Points
- Overall sales declined by 21.1% compared to Q2 2023, primarily due to lower sales in the Power and Magnetic segments.
- Power Solutions and Protection sales dropped by 32.8% year-over-year, mainly due to reduced sales in networking and consumer applications.
- Magnetic Solutions Group sales decreased by 37.3% from Q2 2023, largely due to lower shipments to a major networking customer.
- The company anticipates a slight downward shift in Q3 2024 sales, projecting a range of $118 million to $126 million, down from $159 million in Q3 2023.
- Trade restrictions on a China-based supplier are expected to impact Q3 2024 sales by approximately $4 million, adding uncertainty to future performance.
Q & A Highlights
Q: Can you provide an update on emerging opportunities within AI, EV, and space? Are sales cycles shortening, especially for AI?
A: Yes, our power segment will benefit the most from AI. We see exciting opportunities, but given the complexity of our products, the sales cycles remain long. However, we expect sequential growth from AI customers through 2024 and into 2025. For space, Q2 revenue was $2.3 million, with a year-to-date total of $4.3 million, and we estimate $7 million for the full year.
Q: Any early results from the growth-focused sales initiatives and revamped European sales force announced in Q4?
A: It's early, but the sales incentive program has been positively received. Although many salespeople didn't hit their targets in the first two quarters, they remain motivated. In Europe, we see increased activity and quoting, indicating substantial opportunities.
Q: Can you elaborate on the impact of the trade restrictions on the Chinese supplier and its effect on Q3 guidance?
A: We are taking a conservative approach, assuming no sales from the affected supplier in Q3. The supplier supported $3-$4 million in sales, and transitioning to a new supplier involves requalification processes, which take time. We will provide a better update in October.
Q: How is the power segment performing in AI, e-mobility, data center, and blockchain power conversion?
A: Growth in data centers, new builds, and upgrade cycles is beneficial. We avoid hyperscalers, focusing on niche markets like school buses and large equipment in EV. We support testing equipment for data centers, emphasizing profitability over top-line growth.
Q: What is the current pricing environment given weak demand? How might gross margins look in a normalized demand environment?
A: Surprisingly, we haven't seen significant price pressure in this down market. The focus has been on inventory management rather than pricing. As volumes pick up, we may see some pressure, but our cost management initiatives should help maintain margins.
Q: What kind of demand are you seeing in the military and commercial aerospace markets?
A: In Q2 '24, commercial aerospace sales were $15.4 million, and military sales were $12 million. These markets show consistent demand.
Q: How do you view the recovery timeline and its impact on different products and end markets?
A: Recovery timelines are uncertain, often cited as six months. Networking has been hit hardest, but we see potential in aerospace and other niche markets. Inventory levels are coming down, indicating a possible bottoming out.
Q: How much further can Bel Fuse lower its internal inventories?
A: We aim to improve inventory turns, but it's easier in a healthier sales environment. We continue to manage inventory levels, focusing on efficiency.
Q: What trends are you seeing in China, particularly in automotive, industrial, and IoT?
A: China is not our main customer base, and we focus on selective opportunities. We don't see significant trends impacting our business there.
Q: Can you provide guidance on OpEx, especially R&D and SG&A expenses?
A: R&D expenses are around $5-$6 million, mainly in power and connectivity. SG&A is approximately $25 million, with some variability. We are exploring ways to manage and potentially reduce SG&A expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
