Good day, everyone. Welcome to the Bel Fuse Incorporated Second Quarter 2018 Results Conference Call. This call is being recorded. At this time, I would like to turn the conference over to Dan Bernstein, President and Chief Executive Officer. Please go ahead.

Thank you. Joining me on the call today is Craig Brosious, our Vice President of Finance; and Lynn Hutkin, our Director of Financial Reporting. Before we begin the call, I'd like to ask Lynn to go over the safe harbor statement. Lynn?

Thank you, Dan. Good morning, everybody. Before we start, I'd like to read the following safe harbor statement. Except for historical information contained on this call, the matters discussed on this call, such as statements regarding the sustainability of Bel's sales growth, Bel's future business opportunity, the challenges associated with labor and material cost and within certain areas of our supply chain and the impact on Bel's margins of recently announced, as well as any future, changes in tariffs are forward-looking statements as described under the Private Securities Litigation Reform Act of 1995 that involves 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; our ongoing evaluation of the consequences of the U.S. Tax Cuts and Jobs Act; the impact of changes to U.S. trade and tariff policies; 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. I would now like to turn the call back to Dan for his business update.

Thank you, Lynn. Before going through the financials, I want to provide a brief update of how the businesses did from an operation standpoint this quarter and what we see going forward. Overall, we're pleased with our results. We now have 3 consecutive quarters of year-over-year sales growth, as increase in orders over the past year continues to translate into sales. We're also encouraged by our bookings during the second quarter, which is the highest level of bookings in the quarter since the third quarter of 2014. And in addition, backlog remained strong at $176.9 million as of June 30, 2018, an increase of 27% from a year ago. Most importantly, this is in sales and bookings we are seeing across all major product groups, which is indication of general market strength in addition to certain key projects moving into production. Sales during the second quarter were $140 million, up 7% from the second quarter of 2017, led by growth within our Connectivity Solution group of $5.1 million and our Magnetic Solution group of $2.2 million -- sorry, growth of $2 million. Sales of our Power Solution and Protection products were up $1.9 million during the second quarter despite a $2.1 million decline in sales related to the previously divested NPS. This is encouraging and marked the first quarter of year-over-year growth [indiscernible] since 2014 acquisition of the Power Solution. Our Connectivity Solution group finished the quarter with 11.6% increase in sales over the last year's second quarter. Within this group of sales, our Stewart passive connectors were very strong in the quarter, the result of continuing expansion of the Cinch and new products introducing through our distribution channels. There were also was a recovery in the level of construction spend, which drove higher demand for passive connectors and premise…

Thanks, Dan. To provide a quick recap on sales, sales during the second quarter were $140.7 million. By geographic segment, North American sales were $71.2 million, Asia sales $45.9 million and Europe sales $23.6 million. By product group, the Connectivity Solutions sales were $48.9 million, Magnetic Solutions sales were $45.5 million and Power Solutions and Protection sales were $46.2 million. Gross profit margin declined to 20.6% in the second quarter of 2018 as compared with 22.1% in the second quarter of 2017. This was due to unfavorable exchange rate fluctuations related to the Chinese renminbi, which essentially increased the operating [indiscernible] at our factories in the People's Republic of China by approximately 7% over last year's second quarter. Component cost and availability also remains a factor, particularly with resistors, capacitors, MOSFETS and printed circuit boards. Our selling, general and administrative expenses were $18.3 million or 13% of sales as compared with $21.7 million or 16.5% of sales in the second quarter of 2017. This decline is primarily related to foreign exchange fluctuations on the translation of our foreign balance sheet accounts with an exchange gain recognized in the second quarter of 2018 of $1.9 million compared to an exchange loss of 1.6 million in the second quarter last year. [indiscernible] factors that affected the variance in the second quarter periods were lower general and administrative cost of $394,000 and reduced depreciation and amortization expense of $453,000, offset by increase in bad debt expense of $593,000 and higher sales commissions of $264,000. On a go-forward basis, we would expect SG&A to run between [ $20 million and $21 million ] per quarter in the near term, barring significant fluctuations in foreign currencies. As a result of these factors, we generated income from operations of $10.7 million in the second quarter of…

Thank you. Ann, can we open up the call for questions, please?

[Operator Instructions] We'll take our first question from Sean [indiscernible] Needham & Company.

Apologies upfront, I'm having some phone issues. I was looking to see if -- first, can -- Craig, can you provide the revenues in the quarter for each of the product segments, again, really quickly?

Sure. Yes, Connectivity Solutions was $48.9 million, Magnetics was $45.5 million and Power Solutions and Protection was $46.2 million.

Okay, all right. That's very helpful. Okay. So I wanted to see if there was any color you folks could provide on -- in terms of what might be -- what might have been unique in the quarter, if anything. Particularly if you look at those strong revenues that we see on a year-on-year basis, distributors saw that up 17% year-on-year, I realized there's certainly a strategic thrust behind this, but don't know if there is anything else that might have been behind some of that strong performance that we had within the quarter.

I think from a Power standpoint, we picked up additional -- we were on a quality hold [indiscernible] large customer, and we picked up some good [indiscernible] that power customer. Also, the [indiscernible] we did pick up a couple of new customers in the blockchain technology that added to the bottom line. So that was really the Power side. Overall, the other businesses are [indiscernible] are traditional customers. The only big news in that is the headways we're making to our distribution channels, and that's been very strong for us. But overall, everything we see in the marketplace today is very, very strong, and we see it continuing to grow.

Okay. And so just kind of expanding on that, Dan, and certainly realizing it's always very ambiguous folks try to look out given the visibility you have. But is -- can you talk a little bit about the degree you feel that you saw in this quarter is being sensed as being very sustainable and perhaps either improving or accelerating into this next quarter here. What's your general sense as you're entering the back end of the year here?

Okay. We're cautiously optimistic, I like that for our famous terms. We can maintain it, but we are concerned about materials out there and making sure that we can get the material in on-time and [indiscernible] we are funded with pushouts and [indiscernible]. So again, if we do have the material, I don’t -- I think we can easily meet the [indiscernible]. But at this point, [indiscernible] some material constraints [indiscernible].

Okay. That's helpful. And then from a operating standpoint, it's very similar question here. Is this level of SG&A stable? Certainly, haven't seen this level of dollars spent in some time. Certainly post the questions, it looks like you're getting back into, at least, some level of growth here again. So just trying to understand that as a factor, you got [indiscernible] some very good leverage coming through the quarter around that as a result.

Yes. We do see -- and we do have some opportunities of putting in [indiscernible] some cost-savings programs throughout the company that we are looking at [indiscernible] possibly in the Far East. So we do see opportunities to improve on that. So I think that should help again. And also with long lead times, we don’t [indiscernible] price pressure as historically we do, and we [indiscernible] opportunities to increase price on certain items where our materials have increased.

Okay. So I...

Were you asking specifically about...

Sorry, go ahead.

Were you asking about SG&A, specifically?

The SG&A.

So in SG&A this was an unusually low quarter in a sense due to the foreign exchange gain that went through that line. As Craig mentioned, we do anticipate that line running in the $20 million to $21 million range. I guess, the one area that may have some decreases in that line going forward is our ERP costs, which should not be running as high as they have been so that we'll bring it down a little bit, but this was an unusually low quarter.

Okay. All right. That's helpful. But it sounds like summarily, demand has picked up for you folks. Power has picked up but not necessarily even yet to where you feel it probably can get to and as you're getting some good leverage on cost discipline. Is that a fairly accurate view of how you're feeling these businesses today versus say a few months or quarters ago?

I think this is the most optimistic I've been over the last 24 months. Does that answer your question?

Coming from you, Dan, that's a lot to say, so that sounds good.

I know. After listening to you, I'm more optimistic now.

[Operator Instructions] We'll go next to Hendi Susanto with Gabelli & Company.

Dan, could you talk more about the price increase of raw materials, specifically your ability to pass through like higher raw material cost to customers and when that could happen? And additionally, could you talk also about some potential impact of tariff?

Okay. Two things. Regarding the price increases, again, we do have certain agreements with some of our largest customers, but we're now allowed to negotiate price increases during those agreements. As those agreements do open up, we are passing through price increases also through our distribution channel [indiscernible] possibly 20% and 25% of our sales implementing price increases and again, on items where we have price increases coming in from our component suppliers. Regarding tariffs that we mentioned, 4% of our product is affected today by tariffs. Those costs are being passed along to our customers. At this point, we have not seen any pushback, but it's too early to tell. Also, we're not -- we do know that [indiscernible] more tariffs do come at the end of August, that will have impact on us. But in our industry, from what we hear from our competitors in the marketplace, everybody will be passing along those costs. Now the question is, can our customers find other suppliers? And historically, we would probably say yes, but because of the material shortage today and the long lead times, it'd be very difficult for customers to find other suppliers and most any of our products without facing substantially longer lead time. Does that help you at all?

Yes. And then when you mentioned that it may take renewal of your existing contracts to pass along the higher costs to your customers, how much lead -- how much is -- or the lead time that you need to be like when renewals coming?

Well, we have agreement that last for 2 years. But overall, most of our agreements would be within 6 months to a year with that rolling. So again, I would say the longest now is probably 9 months, and as soon as [indiscernible] every day. But again, it's not across-the-board. It still has to do with how we stand in the competitive landscape. So for example, if you look at our circuit protection, we have very limited material cost in there, but our power supplies, our independent connector modules has substantially greater material cost.

And then my second question is could you talk about opportunities, in which markets you feel optimistic for the remainder of [indiscernible] and whether there are areas that you are cautious?

No, I think -- again, I think, all of us who are participating today are all very strong, from military to aerospace, [indiscernible]. I think, again, if we look at what our major concern we have today is, it's material lead times and material shortages. That's our greatest [indiscernible]. I don’t think finding customers today is our biggest problem. I think our biggest problem is delivering and meeting lead times. Ann, anybody else?

With no further questions in the queue, I would like to turn the call back over to Dan Bernstein with any additional or closing remarks.

[indiscernible] our call today. We apologize for [indiscernible] telephone connection. We'll look at it again, [indiscernible] we can improve it. Looking forward to speaking to you in October.

This does conclude today's conference. We thank you for your participation. You may now disconnect.