Good day, and welcome to the Bel Fuse Inc. Fourth Quarter and Full Year 2021 Results Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Jean Young from Three Part Advisors. Please go ahead, sir.

Thank you, Emma, and good morning everyone. Before we begin, I'd like to remind everyone that this conference contains certain forward looking statements regarding the company's expected operating and financial performance with future periods. These statements are based on with company's current expectations. Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to number of risks and other factors. Additional information about factors that could potentially impact our financial results is included in yesterday's press release and just discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10k and our subsequent quarterly reports and other filings with the SEC from time-to-time. 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 press release. Our press release and our SEC filings are all available at the IR Section of our website. Joining us on the call today is Dan Bernstein, President and CEO, Farouq Tuweiq, CFO, and Lynn Hutkin, Director of Financial Reporting. Now, I'd like to turn the call over to Dan.

Thank you, Jean, and all of you for joining our call today. Our team at Bel has performed extremely well. In these challenging times they have embraced our efforts to improve the company. I would like to thank every associate for their hard-working dedication to Bel for enabling us to have one of our best quarters in recent memory. We achieved our fourth quarters of strong year-over-year sales growth with new record highs in both quarterly bookings and in our backlog of orders at quarter end. This increase in demand is across each of our three product groups and the majority of our end markets. Our backlog remains at an all-time high, totaling $468 million at December 31. In 2021, we launched 1800 new standard part numbers into the channel. This will bode well for us for our future growth. Our acquisition of RMS and EOS completed last year are fully integrated and have contributed to Bel's bottom line through combined net earnings of $1.9 million in 2021. CUI acquired in late 2019 continues to be a strong performer with sales growth of 29% from 2020 to 2021. On the cost side, we continue to navigate direct and indirect supply chain challenges and included those related to raw material, logistics, labor availability, retention and overall inflation. Last year, we completed our four-year ERP conversion project, combining five systems into one. We have transitioned from a functional use of the system to data analytics and now have better visibility on margins by SQU. Although still in the early stages of adaptation, this data has quickly become the foundation of our day-to-day business decisions on how best to allocate our sales engineering and manufacturing resources. Overall, we invested $7 million in the ERP conversion and have recognized an annual cost savings of…

Thank you, Dan. As Dan mentioned Q4 was very strong with year-over-year growth seen across each of our product groups. Overall, fourth quarter sales were $147 million, an increase of 27% from fourth quarter of 2020. Gross margin for the quarter increased to 26.7% as compared to 25.3% a year prior. By product group, power solutions and protection sales were $58.7 million, up 12% from last year's fourth quarter. The largest contributing factor to power sales growth during the quarter related to our 2021 acquisition of EOS, which generated sales of $4.6 million in the fourth quarter. Other notable growth came from sales of our circuit protection products, which were up $2 million or 46% from Q4, 2020. And sales through our CUI business and into the e-mobility and market also remained strong in the fourth quarter. These areas of growth were offset in part by a $1.5 million decline in our custom modules product line, which we continue to exit that low margin business. Future year-over-year variances related to this exit should be minimal going forward. Gross margin for this group was 30.9% for the fourth quarter, a 320 basis point improvement from Q4 2020, driven by a favorable shift and product mix. Our power solutions and protection group finished the year with a healthy book-to-bill ratio of 1.7 and a robust backlog of orders of $240 million, an increase of 270% from the 2020 year end. Turning to our connectivity solutions group, sales were $43.6 million, an increase of 27% from last year's fourth quarter. With the continued rebound of commercial aerospace and market, which improved by $3 million or 140% from last year's fourth quarter. To provide some context on where we are in the ramp and commercial aerospace, sales into that end market were $30 million…

Thanks Lynn. Good morning everyone. There are a few items that I wanted to touch upon as we focus and look out towards 2022. With regard to pricing, we continue to monitor the impact of supply chain concerns, raw material sourcing and the overall cost of doing business to ensure we're responding in an appropriate and effective manner. As of today, we have implemented another round of price increases that started in late fourth quarter of 2021 and continue through Q1 this year. Furthermore, we have implemented various price processes and procedures that will allow us to react to the dynamic market in a more expeditious and targeted manner. Looking at 2022, first quarter margins have historically had downward pressure due to production and efficiencies related to Chinese New Year. That said, we do expect to see favorable impact of our initiatives as we progress throughout the year. On the supply chain side, our best estimate at this stage is that shipping logistics and procurement of raw materials will all remain a challenge throughout 2022 as it seems as if it's a little bit of a new norm. This will remain a key area and focus for our sourcing team and various other teams around the world. We're also keeping a close eye on all things COVID [ph] at the local operating levels given we are exposed to a number of regulations in the various countries which we operate in. As Lynn mentioned earlier, our financials are impacted each year with fluctuations and foreign exchange rates, Particularly the Chinese Renminbi and Mexican peso. as those are the currencies in which a large percentage of our labor is paid. This past year, we meaningfully expanded our ForEx hedging program to mitigate financial impact related to these currencies, as well as initiating…

Thank you. Emmer, can you please open up the call for questions.

Certainly. Thank you. [Operator Instructions] We'll take our first question now from Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Thank you and congratulations on the good quarter. Question for you. Given what's happening in Ukraine, I just have to ask about your operations in Slovakia. If you're seeing any impact there? And are you planning for logistics issues either in that area or in the operations in nearby?

I think we do have operations in the Czech Republic and Slovakia. And throughout Eastern Europe and central, there's a tremendous concern of what's going to happen. At this point, I think we're roughly about 350 miles from the border. It is a concern. However at this time we are keeping a watchful eye on it. And it is a concern mostly for the people and their families in the area and the uncertainty that it brings to everybody.

And we're seeing some companies that are redesigning products to use components from multiple sources. And I'm wondering if that's impacting you at all?

I think everybody realize in the past started with SARS and now with COVID that you can't be overly dependent on one country or one source. So everybody I think throughout our industry are trying to get a minimum of two to three sources. However, we're doing the same thing, trying to diversify, A, our production where we're getting parts from. And then B, having multiple sources from different locations. But it has been a slower process than what we would like.

Okay. Thank you very much.

Thank you. [Operator Instructions] We'll now go to our next question now from Hendi Susanto from Gabelli Funds.

Good morning, Dan, Farouq and Lynn.

Good morning.

Thank you for the information on the commercial aerospace. So, Dan, in terms of backlog, any data point that can help us to somewhat like forecast our expectation for commercial aerospace sales in 2022?

When it comes to forecasting and those questions, I'm going to pass it on to Farouq or Lynn. Who would want to grab that one?

Yes. So indeed the question is specifically on how much commercial aero backlog we're sitting on right now?

Yes. Revenue-wise and then the pace of the recovery in commercial aerospace?

Got it. And Lynn, can feel free to jump in here, but from maybe just to kind of recap what was said so in 2018 commercial aerospace. We had roughly $30 million of sales, And in 2020, it went all the way down to 12. And in 2021 we're back up to 18. So, we're still off from that 30 mark in 2018. The other thing I would say, this is obviously legacy Bel numbers now with RMS. The equation has changed a little bit. So we do expect that to be north of there. But the ramp is pretty steep. It's taking a lot of time from the connectivity folks perspective. But we don't -- I don't know, Lynn, if you have a number on that handy.

Yes. I don't have a backlog number. But to give you some perspective. So, sales into commercial aerospace, and these are -- this wouldn't include anything through distribution. But it was -- as I mentioned, just under $18 million for 2021. From a bookings perspective, it was just about $20.5 million of bookings that were received in 2021 and Q4 bookings was $7.7 million, which definitely indicates that we are on an increased path here. I do not have the bookings or what is scheduled to ship specific to that end market. But I think we do continue to see growth there.

No. I think we can say, based on the readings that we've done in commercial aerospace, that we think things will get back to the pre-COVID level not this year, but in 2023, it should be back to pre-COVID level of commercial aerospace building.

That's very helpful. And then, Farouq, given the -- let's say like a strong demonstration of gross margin improve. Like how you manage like gross margin in this part of supply chain constraint? Any qualitative guidance that you can share with gross margin expectation for 2023 [ph]?

Yes. So, you're right. It is a challenge because in addition to just regular way business there's a lot of option geopolitical issues and supply chain issues and all this kind of stuff, so resume a challenge. But to Dan's earlier comment and now one of the nice things of having an ERP system is we're able to identify down to the SKU level and part number where the issue is, so we can be targeted. And we've introduced some processes internally where we can identify it earlier and address it on the front end. So the idea is more being proactive. We've also put in various procedures where things get out of hand down the road we'll be able to address it. So it's really about our ability to pass things on. And we're also taking another strategic look on where we think can take a market share and/or lean into some of our higher margins business. As we look out to 2022, obviously from the challenge do continue with the inflationary pressures, we're addressing a lot of these things. And I'd say we are addressing them and should be fully addressed assuming that what [ph] holds in Q1 here. So coming out of Q1 we should have put things in place that will stabilize and lead us to something a little bit better. As we look out specifically to maybe Q1, we do expect to be ahead of last year Q1. And obviously Q4 was a very high great quarter for us. So, and Q1 is historically a little bit weaker for us. So we'll be somewhere between last year Q1 and where we are in Q4 on the margin side. Obviously, as we'd also said, it's really -- we're trying to up the gross margin. And I think we'll see some of the benefits of that throughout this coming year. And as we go through the year we'll be sharing a little bit more specifics on what's being done on that front.

But just to add a little bit more color to that. Historically, when we quote a customer, it's 90 days. We would never change pricing on backlog. Quotes would be firm for 30 days. All our customers have received a letter stating based on the current conditions if the -- our raw materials change quickly we will have to change our pricing and coding at the same time and we have to change backlog. So historically, we could have orders on the books for six months seeing a price increase and not be able to make a change. Now we can make any -- for any backlog order we have the ability to change an order within 30 days and any open quote we have the ability to change immediately. So again, a much more proactive approach and then, and moving a lot quicker than we have in the past to deal with the changing environment we're living in today.

That sounds very positive, Dan. Thank you. And then my last question is on the e-mobility. Any particular geography and market?

Lynn? I think maybe Lynn can go over the backlog. Are you allowed to discuss the backlog, Lynn? No, no. But I think just from an overall standpoint from a marketplace we really focus on our niche markets, not a hive for our power group which is a driving force in EV. So we look at smaller companies, retrofitting vans, retrofitting trucks, not for GM or those type of companies. However, when it comes to our circuit protection group, because it's not as -- the pricing is not as aggressive. We service all EV vehicles with our circuit protection group and we have seen some nice growth through there in those markets. Lynn, you want to just follow up with EV?

Yes, sure. So I can share that. So sales within our EV market did go up by over $6 million from 2020. So we are starting to see some continued growth there. It's always been a relatively small dollar amount, but we're starting to see the pickup there. And from a booking's perspective, bookings increased by $47 million from 2020 to 2021 in this end market. And a lot of that I think is related to North America, European e-mobility applications that Dan mentioned.

Sorry, it's concentrating in north America and European and then China market is not a big portion of that.

Not from the palace side but from the circuit protection side.

I see. Okay. Thank you. Thank you so much. And then all the best for 2022.

Thank you. As we have no further questions at this time, I'd like to turn the conference back to your management team for any additional or closing remarks.

I'd just like to thank everybody for joining our call today. We appreciate your time and looking forward to reporting in April.

Thank you. This will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.