Good day and welcome to the Bel Fuse Inc. Fourth Quarter and Full Year 2016 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Dan Bernstein, President and Chief Executive Officer. Please go ahead sir.

Thank you, Sheila [ph]. Joining me on the call today is Colin Dunn, our Vice President of Finance; Craig Brosious, our Director of Finance; and Lynn Hutkin, our Manager of External Reporting. Before we begin the call, I like to ask them to go over the Safe Harbor statement. Lynn?

Thank you, Dan. Good morning, everybody. Before we start, I like to read the following Safe Harbor statement. Except for historical information contained in this call, the matters discussed on this call, including the statements regarding sales growth, R&D spending, and profitability of Bel’s Connectivity Solutions 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 may also 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 a general business update.

Thank you, Lynn. Before we go into the financials, I want to provide a brief update on how the businesses did in the operations standpoint this quarter, and what we see going forward. As you see from the numbers we released this morning, the fourth quarter continue to be challenging on the top line across all our product groups. On a positive note, we started to see an upturn in our backlog since year-end, which is giving us some hope that the worse might be behind us. We are pleased with our ability to contain cost to the cost selling measures implemented over the last two years, which allowed us to maintain our margins. On the Power side, this continues to be the group with the largest potential for revenue growth. In addition to general market weakness and impacting all our products this group suffered from a decline in revenue due to missed design cycles, which run from 18 to 24 months. So while it takes a significant amount of time to get our product back in the cycle, we are finally seeing some of our new design wins from 2016 entering our backlog for shipment in 2017. Much of our focus has been on the data center markets and the area of e-Mobility, with the commercial construction industrial customers, which is expected to continue to our sales value beginning in late 2017, and early 2018. The growth will be as said, by the phase at our network power solution product line, which was sold to Unipower in 2015, and we have been working under a two-year manufacturing agreement with the buyer. Sales to Unipower totaled $16 million in 2016, and while our sales volume related to these products were most likely phased out by the end of the second…

Hi, good morning everybody. Thanks Dan. Starting with sales, our fourth quarter net sales were $118.5 million down 12.4%, as compared with the fourth quarter of 2015. On a product basis, sales of our Power Solutions and Protection products were $39.8 million in the fourth quarter of 2016, a decrease of 21.3% as compared with the fourth quarter of 2015. Sales of our Connectivity Solutions product were $38.8 million in the fourth quarter of 2016, a decrease of 9.8% compared with the fourth quarter of 2015. Sales of our Magnetic Solutions product were $39.9 million in the fourth quarter 2016, a decrease of 4.2% as compared with the fourth quarter of 2015. On a regional basis, sales in North America decreased $13.3 million or 18.2% in the fourth quarter of 2016, as compared with the same quarter of last year. Sales in Europe were up slightly by $550,000 or 3.4% and sales in Asia decreased 3.9 million or 8.6%. Gross profit margin increased to 20.7% in the fourth quarter of 2016, as compared with 19.3% in the fourth quarter of 2015, due to several factors. The shift in product mix towards high-end margin connector products had a favorable impact on our margins during the fourth quarter of 2016. Operational enhancements and cost reduction activities were completed in late 2015 contributed to our margin expansion, as did the strengthening of the US dollar compared to the Mexican peso and Chinese Renminbi, which served to our outlay for an overhead cost paid in those local currencies. Our selling, general, and administrative expenses were $16 million or 13.5% of sales as compared with $20.4 million or 15.15% in the fourth quarter of 2015. The majority of the decline in SG&A dollars related to a 3.2 million non-cash payable fluctuation in currency exchange rates…

Sheila, can we open up the line for questions.

[Operator Instructions] We will take our first question from Harsh Kumar of Stephens. Your line is open.

Hi Dan, I wanted to go back to something you mentioned at the beginning of the call, you mentioned that you are seeing backlog pickup and you're starting to see some designs in the power side finally coming through, could you just elaborate on that if possible.

Again, I don't want to mention customer names, but again, one of our largest customers that we went out of major Power one was basically kicked down and now we are back very well situated with them and they have come to us asking us to be a preferred power supply based on a report card. So we think we could do a lot more with them and we are looking at additional hopefully $5 million over the next 18 months. In addition to that, one of the largest open compute customers we have building their own data centers, we're hoping that starting in April, we could possibly have a run rate of 1.5 million per quarter. So we are starting to see things starting to prove. Sorry.

Sorry, I didn't mean to cut you off.

So, again we are seeing positive signs by - I hate to say, but I think I said that a couple of times in the past two quarters, but hopefully…

Dan economy is tough, always tough to predict, but second question, we’ve been listening to a lot of earnings calls and for most part it seems like the industrial piece, particularly in the US, is this sort of picking up for one reason or the other, I was curious, I mean we always talk about your exposure to datacenter and things like that, but I was wondering if you could highlight for us where you might see opportunities if this pickup continues or steams up a little bit, where you might see opportunities on the industrial side, factory automation, factory building, things like that?

Well we see, for us again, with OCP open compute, we do believe that our really growing area, the data - people are building their own data centers, so we think there is tremendous growth there as probably the Cisco’s and HP's as their sales become a little softer as they lose this type of business. One area that we really are putting a tremendous amount of focus and we saw is the industrial, which is what we do a lot with the real people from a power standpoint is high efficiency vehicles, looking at battery charging applications in both buses, trucks, vans. Again, we are looking at some major opportunities. I think currently, we have about 100 NDAs signed in HEV [ph] areas; basically we had two customers that accounted for probably $3 million or $4 million of sales. We lost one major customer, now we have about 30 customers that make up about $4 million in sales and we see it [indiscernible] business that we would hope within two years, three years and could be a $15 million to $ 20 million business. So again, we think HEV is probably the biggest growth channel we have besides the datacenters. Industrial again is real and you are talking maybe 5%, 10% growth and a gain automation we are still trying to work that a lot better through our European operations because we believe very strongly that a lot of the best automating equipment manufacturers are coming out of Germany. So, we think there’s opportunities there for us.

Understood. Thank you for the color.

We will take our next question from Sean Hannan of Needham & Company. Your line is open.

Good morning folks. Thanks very much for taking the question here. So, just to follow-up on that last question, and I think it is really kind of been an outstanding one for us for a period of time. The growth that we are looking to perhaps see kick back up again at some point, particularly within power, I think that we are all encouraged. I think that it is something of a scenario that we will be very happy to see as it presents. My big question is from a scale standpoint, really what could we potentially see? 2016 really ended up being from a revenue standpoint down a bit lower than I think many of our expectations, there is a lot really to make up from here, so I don't, I’m not going to ask for guidance for 2017, but just really trying to understand the logic, the thought process, is there even an opportunity, we could get back to, kind of a revenue neutral position for 2017 or have some growth on top of that and potentially kind of understanding that magnitude of what you're looking for coming out of power? Thanks.

So, again Sean, as you know when we bought Power one, we were disqualified, probably that - if they had 10 customers we were probably lost the PSL list, preferred supplier list and probably 8 of the 10 major customers we had. Again it took us, before having to go back to the customer asking for new orders, I had to take care of the factory, so at that standpoint the first 18 months was all quality, quality, quality and focus on the operation. And then finally we got the operations up and running and we felt comfortable we could bring back the customer and show them we had a world-class facility. Then they came back they looked at the facility and finally approved the facility and now we’re back in working the design cycles. If you asked me last year, I thought we hit rock bottom. If you ask me today, I definitely think we hit rock bottom. There is no greater focus at this company, at this time of the year, yes again two years ago, it was quality, quality, quality; today it is a revenue growth, revenue growth, revenue growth myself Dennis who is in-charge of the Power Group, Pete who is in-charge of the Cinch Group, we are currently spending probably 50%, 60% of our time with our customers with our distributors, with our sales organization really fine tuning. We reorganized North American sales, separating outside sales from internal sales taking a lot more analytical approach using the data we have or how better address our customers. In Europe, we divided one sales group into two dedicated sales group, one percentage for Bel Power. We rotated probably 15% to 20% of the sales staff. Every salesman has clearly defined goals that they have to retain. So the only thing I can say is that we're doing everything we can to improve the situation and what we do today is not working, we are now awaiting a year to change it. We have hired somebody and we don't feel comfortable with them that change will take care of in 90 days. So I am somewhat confident again that I will be shocked that we don't hit - knowing that it [indiscernible] is up Sean is that MPS business which we are losing $16 million in sales. So even though if I pick up, if you look at 500 million, picking up the 10 million that would be our goal, but again I can't see us staying at this level, something has to get soon.

Okay, well I guess maybe if I ask this another way, I’m just trying to get a sense of your gut feel around the magnitude of what could potentially come, let’s say we remove that $16 million headwind that we’d have in 2017 and we re-poll it out, we normalize, is there an opportunity that we should be able to get revenue neutral on a year-on-year basis?

I would hopefully be revenue positive in the 5% to 10%.

Okay. All right. So we do expect from a sequential standpoint that March should be picking up from December, is that how it is feeling to you at this point?

Again we have one key customer that if they get turned on, I would be very comfortable saying that, and I’m pretty positive that they will be turned on in the second quarter. So, the first quarter might be a little grayish, but I’m hoping by the second quarter that yes the second quarter should be good from a previous year and from a trailing.

Okay. Then obviously if we're thinking about revenue neutrality year-on-year in terms of the trajectory you’d have from this point moving forward, it would be pretty sharp, so it does sound like you have confidence that that should materialize.

I’m hoping. I’m praying and I'm confident, but again I thought the power business would be substantially greater today. So, as a predictor, I haven't been too good.

Okay. Alright. I'm going to hop back in the queue. Thanks for addressing.

Thanks Sean. And we definitely, as much as you are frustrated about the top line growth, I can only assure you Sean I am a lot more frustrated.

I don't doubt that. I don't doubt that. I don't doubt the sincerity whatsoever.

[Operator Instructions] We will take our next question from Hendi Susanto of Gabelli & Company. Your line is open.

Good morning Dan. Good morning Colin.

Good morning.

Good morning Susanto.

First of all, I think to Colin, I think you will be missed and it has been a great pleasure in knowing and working with you. And to Craig welcome aboard and congratulation.

Thank you very much.

So Dan, I would like to understand more about the annual cost savings, you achieved like 17 million annual cost saving in 2016 and then you mentioned that there will be additional 2 million from the closure of the Shanghai facility, is there anymore beyond that and then also would like to know…

We are running out of places to be honest with you. It is getting ready - we're running pretty tight now. We are consolidated as many operations as we can. So, I don't. I think we are retting. We might be getting closer the bone, if we cut much more. In addition, I do think that again, even though we’ve cut a lot of areas, I think we also strengthened a lot of areas. For us to set up the Taiwanese design centre to support the ODM’s, again I think, I know when we see sales going down, we are committing to certain areas where we can see top line growth, we know that what we have in the pipeline today, we are going to have to increase our R&D budget to meet the timeframes our customers are looking for, but from a facilities standpoint and cutting back, I mean there might be another 2 million out there, but there is not much left to be honest with you. So that’s why it’s so comparative that we start seeing the top line growth or we can go back to acquiring companies and start beating up overhead again.

I see. And then off all these cost savings, may I know with, like how much portion goes to the bottom line and then how much portion goes towards reinvestment?

It is pretty much all flowing to the bottom-line.

So Hendi, the 17 million was the cumulative cost savings through the end of 2016 and of that 2 million is expected to be incremental in 2017 and that would also net of tax to the bottom line about 1 million in SG&A and 1 million in cost.

Got it. Okay. Thank you.

We will take our next question from Lenny Dunn. Your line is open.

Good morning. And a lot of my questions have been answered, but I wish that you could be a little more open about the expectations here because Power one of course we had great expectations when it was acquired, and it turned out to be a bigger mess than you expected, but right now it really, you’ve had it long enough that you should be able to be more confident about the upturn in business.

No, I am definitely confident. I am not confident when my customers are going to release their order. That is my problem.

It just looks like the general business parameter has really gotten much better so - in the last month or two since the election, so I would expect more business.

But if you look at Cisco Lenny, Cisco came out yesterday and their hardware business had declines from certain segments of 5% and other segments by 9% and your Cisco is our largest customer. So even though again, you have the atmosphere of the business climate, are people buying more equipment or not? Again as I like to say most CEOs in America are buying hardware equivalent to be more efficient or they are buying back stock to make their P&E look better. And I don't think that climate has changed much yet.

Yes, but your data center business should really have picked up. I mean people would seem like the Amazon’s and Facebook’s are the world - are really prospering.

I agree 100% of that. There are more people that are using their phone for different things. They definitely need greater status centers. I think Facebook definitely are the process now of adding two or three more data centers throughout the world and that should be a very strong benefit to us. But when they break ground and when they order the equipment are two different things.

I would think they would be racing to do it, but …

They are racing to do it, but getting it done is the problem.

Okay. And the second question relates to the Gabelli filing, which was very public that they want to flatten out the shares and that’s something that I have occasionally urged you to do, are you giving a little more serious consideration with Gabelli to urging it now?

Well Gabelli made two proposals. The first proposal was to collapse A and B into one stock, he took that proposal of the books. A second proposal is, having the ability if you are an ace shareholder to convert into B-stock if you would like. The board had sold Mario that we would put them up for shareholders vote. Once the shareholders vote on it, then we can determine if the Board of Directors of how they want to - what would they want to do with that vote or not.

Okay that is a year away, but okay. Those are my questions and tell Colin that I appreciated his hard work, enjoyed meeting him and well-deserved retirement.

Alright. Thank you so much.

Thanks Lenny.

[Operator Instructions] We will take our next question from Sean Hannan of Needham & Company. Your line is open.

Yes, thanks for taking up a follow-up here. So, you folks have done a great job in terms of cost cutting, I do realize that I think the viewpoints are a lot of that for you is more structural and as you have, your revenues start to come back and you should be able to get some good leverage on that. However, we are at - my question is that’s not always a 100% the case and so I wanted to see if I can get an understanding of what costs start to come back into the equation that could perhaps have an influence on may be constricting margin growth may be due to weather it be yields of efficiencies as you are then trying to run products very quickly, other costs whether you are tied to logistics and shipping et cetera. So, can you help to frame some context around that?

Let me top side, just you are aware of one thing. I think we are being a lot more aggressive on pricing then we have been in our life. We don't want to lose any more market share. So, from a margin standpoint, we might get affected by that and our profitability might not be as great as it is today because of what we’re bringing in. I think that’s something we haven't determined yet of how that’s going to affect us. I mean you always have different commissions, it is probably the biggest one we have out there as our sales increased our commissions though.

Obviously, the variable side of the equation we fill up as we see revenues increase. As far as the factory consolidations, you will have a short-term, maybe efficiency drop, but the latest one related to Shanghai, we basically only added direct into the factory to support that business. So, really nothing on the indirect side.

I still believe that - we believe very strongly that if we do increase revenue it should drop to the bottom line pretty good. And I think the only thing that really scares us, the only thing that really scares is our pricing to get the volume back up. But the other of course, I think are not substantial. Based on the efficiencies we get with the volume sales.

So given all of that, is there any way to frame context around how you think about contribution margins from here because there is certainly a number of variables, I think you just added good things to think about, any way we can get a perspective around contribution margins?

Well as we improve our efficiencies in operating fewer factories and so on it gives us an opportunity to be, maybe a little bit more aggressive on the pricing side, but again it’s not, we think our margins and our various product areas, I think we've mentioned this before connectivity is typically the highest margin area and on the power solutions side, it is typically our lowest end, but our contribution margins make our - we maintain in the 40s we believe.

Okay. All right thanks very much for taking the follow-up here.

Thank you, Sean. Thank you.

There are no further questions at this time. I will now turn the call back over to our host for any additional or closing remarks.

Just again, thank you very much for joining the call and hopefully next quarter we will get to our top line growth, which is our number one goal. Thanks again.

That concludes today's conference. Thank you for your participation. You may now disconnect.