Good day and welcome to the Bel Fuse Incorporated First Quarter Results Conference Call. [Operator Instructions] Today’s conference is being record. At this time, I would like to turn the conference over to Dan Bernstein, President and Chief Executive Officer. Please go ahead, sir.

Thank you, James. Joining me on the call today is Colin our VP of Finance; and Frank our Manager of Finance. Before we begin the call I’d like to ask Colin to go over the Harbor statement. Colin?

Thank you, Dan, and good morning, everybody. Except for the historical information contained in this call, the matters discussed on this call including the statements regarding stronger sales for Bel Power Solutions in the second half of 2016 and potential growth in the Commercial Aerospace business are forward-looking statements as described under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Actual results could differ materially from Bel's projections. Among the factors that could cause actual results to differ materially from such statements are: 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 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. Now turning to our results; I would like to first spend some time discussing the goodwill impairment charge we recorded in the first quarter of 2016. On the U.S. GAAP we test goodwill and indefinite-lived intangible asset for impairment annually during the fourth quarter and review these intangible assets on an interim basis each quarter and a time when there maybe events or circumstances that may indicate additional…

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

Thank you. [Operator Instructions] And our first question will come from Sean Hannan with Needham & Company.

Yes. Good morning folks.

Good morning, Sean.

So I have some questions for you just to make sure that I understand the results accurately. That $2.8 million benefit to SG&A what we are seeing that specifically reflected as a reduction within that SG&A line. Is that correct?

Yes. That's correct.

Okay. So otherwise that would have been about $20.5 million. So is that something that in some manner is recurring or do we go back to a more normalized SG&A spend say moving forward in kind of that $20 million or maybe a hair above type of range.

Sean, so let me just elaborate on that. So those credits represent certain value added in business tax items that we are getting a benefit from because we have settled some negotiation with taxing authorities. So we're still in negotiation with certain taxing authorities and we anticipate that we will have additional benefits in Q2 and possibly further on during the year.

Okay. Anyway to give us some type of sizing around those benefits and any color in terms of why that's not pulled out of your adjusted results?

So the first part, we can’t provide an estimate at this point as we are still in negotiations. The second part is we have the expense or some portion of that expense in the prior year numbers which we did not head back and take a benefit for in the adjusted numbers.

Okay. That's fully understood. All right. And then in terms of going to the actual – the income tax benefit that we had, we're looking at a different scenario there correct where we had at least – when you come down to the adjusted net income your say adjusted tax benefit would be about $2.7 million correct?

That should be the amount that was included on the non-GAAP tables.

Yes, okay.

There is a portion of the benefit that was related to unrecognized or excuse me uncertain tax position that we settled on, which is kind of the scenario that we have in SG&A. There are two items that are tied together, one is the SG&A, one is the provision.

Okay. So would you similarly expect that we would have tax benefits next quarter and it's the third quarter?

Yes.

Okay. But no sense of being able to size that?

Not at the moment, no.

Okay. So you guys typically have a normalized at least if I think of last year's 25-ish type of tax rate, right now it seems like that would be extremely unclear for what that would end up to be this year. Is that accurate, is that fair?

I think the 25-ish is good from an operating point of view, but how it's going to get modified it will certainly bring it down.

Okay. All right. Thank you for all that. Now, if we think more from a demand standpoint and Dan this might be a little bit more for you, obviously the first quarter we have Chinese New Year so that can be a little disruptive, but can you talk about how demand generally did through the quarter. And then how did we exit the quarter trend wise to where we are now? Thanks.

Okay. Again, we don't hear too many positive things out there, still a wait and see [indiscernible] market as we see that seems very strong to us that might pull us along is the Open Compute, the Amazon’s and Google’s, the Facebook’s, the data storage to cloud is the only area that we see growth. Traditional companies like the HP, the Universe, the Cisco’s we see probably negative sales going with them. For the first quarter we think we’re pretty confident based on historic data that our second quarter will be better than the first quarter. However, compared to last year I think it will be less than last year’s quarter. And at that point, I think hopefully we should be pretty close with the previous third quarter after that.

Okay. So up sequentially the next two quarters, but still down on a year-over-year basis in June and perhaps at par in September?

Yes, I think that’s our gut feeling at this time.

Okay. That’s helpful. And then last question here, then I’ll jump back in the queue. So you gave an indication within your release you are stepping up efforts around commercial aerospace. So just want to get a little bit more color around that. Is that a specific push within sales or you making investments and actively seeking maybe M&A targets in order to push that up? How do we think about that effort from your end and what should we expect? Thanks.

Okay. Boeing is one of our biggest customer – the biggest customer in aerospace. We have a licensing agreement on radio part that [indiscernible] we spend a couple of million dollars to get that in development. We are now pushing that in seeing if we can became a second source to radio and that’s been a lot of our commercial aerospace push forward is. Again in the connecting area using the radio design and being a second source for a lot of people either to Boeing and the people that support Boeing. But again from an acquisition standpoint I don’t think we’re overly aggressive. However, it something does come across our desk, that make sense. We definitely will look at it, but with the debt situation now we are being somewhat cautious.

Okay. Thanks for the color. I’ll hop back in the queue. Thank you.

All right. Thanks Sean. Talk to you later.

Next we’ll hear from Harsh Kumar with Stephens.

Hi, guys I wanted to ask a couple of questions on your business. I think Dan you started talk about this earlier in terms of end markets. I am curious why you are seeing some of the traditional electronics manufactures act and be so negative or maybe you could talk about why your business is – why you don’t sound too excited about business with them I get the cloud part, but I was more curious about is there something going on in the industry or the marketplace was making so negative on the Cisco promo?

No I’m not only negative, yes hopefully a little bit more realistic to negative, but I think one problem we had is I think if you look at everybody and most CEOs in America today I think they’re more concerned about buying back stock, they’re reinvesting in the company. So I think that’s affected a lot of the equipment that people would be buying from Cisco and another company, large investments in automating things and so forth. And then I think there is no question that the Cisco’s and Universe the major players out there, the HP’s and even Oracle have been affected by these major companies building their own hardware. But now they're trying – as you know Oracle is making a major play into storage themselves and how they address I think and maybe a storage supplier and they can – that we can attain that marketplace. So again I think at this point there is a lot of transition going on in the industry and how the big guys – again eight, five years ago or six years ago everybody bought all their equipment from the major networking telecom companies and now this big push of people building their own equipment and how that's going to fall out or not and how these other major companies going to adjust for it. So I think and when we talk about the big days in the networking industry I just think at this point there's a transition and we don't know how that transition is going to end up.

Hey, Dan let me follow that up but something else you said you are expecting business to pick up in the back half a little bit from here. What's giving you confidence if that’s the case and then again is in the end market or something specific to you guys?

I think the back half of last year we got beat up so bad, so I don’t think we can get beat up any more. So it’s not relating to the market size. And we keep open and open then sooner or later all the good stuff we did in power that that might turn our way. But again I think the [driving factor] why we said we’ll bottom out in the second half of this year, because we bottom out in the second half of last year.

Fair enough. And may last question is we cover a couple of defense type place and they’re all pretty optimistic about what's going on just between geopolitical stuff and also just what they're seeing specifically. You’ve got some defense exposure, you touched upon their briefly. I’m curious how you feel about that business and let’s say six months to two years out?

Okay. Again if you look at Cinch Connectivity Solutions or Cinch Group, their sales only declined 4%, well in the Bel product – and that supports network and we were down 18% to 24%. So again, we think that and that’s why we are very fortunate with our recent acquisitions of the MSM Group and the Cinch Group that we can support The Raytheon, the Boeing. The banker uses all the people that support the aerospace industry and we are on a lot of [indiscernible]. We do think that market does seems strong over the next three or four years with the political climate that we face with.

Fair enough, guys. That’s it from me. Thanks, Dan.

Thanks. Appreciate the time.

We’ll now hear from Hendi Susanto with Gabelli & Company.

Hello. Hi, Dan and Colin.

Hi, Hendi.

First question, Dan I'm wondering how much exposure you have to automotive market?

Very, very small. I would say less than probably 1%. No we don’t think whatever at this time besides [indiscernible], we are looking at some smart grid devices. Power One, the company we acquired, major effort into high efficiency vehicles. They work very closely with a couple of companies and we can have put that on the back burner. We just thought there was a lot of effort there that we could use in other – for our key customers. We think there's so much still we can do with power and the customers we service today then look for new opportunities in automobile and other opportunities. So again automobile has not been and we think our businesses are tough. However, we think the automobile business because you already have three or five major players there. There’s a lot more tremendous price pressure in that marketplace in what we participate in.

And then given the weaknesses in your end market, any insight into inventories at your customers or channel partners whether it’s high, whether it’s lean?

I think in distribution in the first quarter they had – stocks are at pretty high level and I think they have been working of those stocks over the last couple of months. And I think now – again people are very cautious before they order. Again however, even in a down market I like to make this clear – even in the down market, we think with the power group only that we should be able to grow that business because it’s such a huge marketplace for us, the customers want to deal with us, they think we have a lot to offer. When we talk about the magnetic area mostly with our ICM Group, we don't think we can grow that market much further and if there's a downturn we can't do anything about it. Even in the connector space we've penetrated it very well. However, we do think in the power business we can buck the trends, because it’s such a larger diversified market and we haven't even scratched the surface yet.

Okay. And then last question for me for Colin. Colin in terms of gross margin despite of weaker revenue gross margin is relatively stable at 19%. So how should we expect the trajectory of gross margin going forward if there's any additional revenue can we expect that gross margin would increase accordingly.

Yes. That’s yes.

Thank you.

Our next question comes from Lenny Dunn with Freedom Investors Corporation.

Good morning. In some ways I am glad to see you took this write-off, because it certainly makes the book value hard. My question is what was the depreciation on the assets that you wrote off that we were using on a quarterly basis?

So the goodwill impairment resulted in an impairment of goodwill and trademarks and both of those intangible assets are not amortized, because they are indefinite-lived intangible assets, so there is no associated depreciation or amortization with those assets.

Okay. And I Just wanted to understand and trying to breakdown the cash flows, they don't look that bad. I guess that's kind of a kissing your sister remark, but they don't look that bad.

I will say good, Lenny.

Okay. And you anticipate now that we're into the more normal quarters because you don't have the Chinese New Year, better cash flows?

I think we're looking for fairly solid continued cash flow. If business ramped up dramatically, obviously the cash flow might slow a little bit in the interim as we start to put the money back into working capital, but to financing the ramp ups, but this company is a pretty lean company. And we've got a history of decades of in good and bad time drawing cash and that certainly is not going to change.

And I noticed that you paid voluntary payments on the debt which is good. Do you anticipate doing that during in assuming quarters or you just going to at least stick to the schedule?

No, we will continue with that policy.

Okay. That's all I had I believe there is some good understanding.

Okay. Thank you.

Thanks, Lenny.

[Operator Instructions] We will now hear from Sean Hannan with Needham & Company.

Yes. Thanks for taking the follow-up here just administratively, I'm sorry, can you repeat the segment revenues?

Yes, Magnetic Solutions product sales were 35.5, Interconnect sales were 43.4 and Power Solutions and Protection were 42.2.

Okay. All right, thanks very much.

Our next question comes from Anthony Gulu.

Good morning, gentlemen. My question has to do with provision for income tax. What were the provision for income tax be assuming we did not take this major write-off?

So we had a benefit in the quarter of $4.2 million, the impact on tax is related to the impairment was a benefit of $2.1 million, so the benefit would have been down by $2.1 million.

So we would have to pay taxes of what on our income assuming we didn't take the write-off?

It was a benefit, so there is no tax payable on the benefit. It wasn't a provision for the quarter. We settled some tax items as well as the mix of the earnings globally pushed our provision to a benefit for the quarter.

I have couple of other questions referenced to the write-off per se. When you write-off a major asset like this, what is the overriding criteria? Is it return on investment? Is it what you can sell that particular division in the marketplace? How is that – what is the overwhelming criteria, because this is a significant write-off on the balance sheet?

I’ll take that one. So what I can say first about goodwill impairment process, it’s very complex process involves third-party expert’s as well internal support and documentation. And at this stage of the process, we recorded an appropriate and supportable amount, and more directly to your question when you are in the process of performing the impairment analysis I think the main focus is the projected revenues and results on a discount basis that are used in the financial models in order to perform the valuation.

So return on investment where does that fit in?

It’s part of the process. However, there is a multi layered process and we could spend honestly maybe a half an hour discussing with the process and tell or maybe we should take that offline into call.

Yes, Anthony if you want to give us a call Frank and I would be happy to chat through it, this is quite complex.

Okay, thank you. End of Q&A

[Operator Instructions] There are no further questions. So I will turn the conference over to you for any additional or closing comments.

Just want to thank everybody again for joining us and I’ll speak to you in July. Have a good weekend.