Bel Fuse (NASDAQ:BELFA) Q4 2020 Earnings Call

0:00 Good day and welcome to the Bell Fuse Inc. fourth quarter 2020 results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dan Bernstein, President and Chief Executive Officer. Please go ahead.

0:13 Thank you, James. I would like to welcome everybody to our fourth quarter year and financial results today. Before I begin, we hope you and your family stay safe during these difficult times. On the call today is Craig Brocious, our Vice President of Finance, are Director of Financial Reporting, and I would like to introduce our new Chief Financial Officer, Farouq Tuweiq, who came on board this week. While working with BMW, I'm sorry, working with Bank of Montreal in the past, we have developed a strong relationship with Farouq. During this time, we have been overly impressed with his knowledge of our industry, work experience, interpersonal skills, and most importantly, his ability to solve problems in a timely manner.

1:00 His number one goal at Bell, simply put, will be to increase Bell's overall value to our shareholders. The board believes there's a substantial valuation gap between Bell's share price and our current breakup value. Farouq has a broad mandate to work with team members to examine the various pathways to increase top line growth, margin improvement, simplify our operations while driving growth through M&A. When searching for our first CFO in the company's history, he was the best candidate, and we feel fortunate that he joined out to offer us his fresh perspective. Welcome aboard, Farouq.

1:43 Thank you, Dan, for the introduction there. I'm very excited to be joining the Bell family.

1:51 Okay. Lynn, can you please go over the safe harbor statement? 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 potential rebound of Bell's magnetic solutions business and overall product sales, anticipated impact of global cost reduction program on Bell's positioning for further margin expansion, anticipated cost savings resulting from the closing on the sale of the Switzerland facility and other restructuring actions. Potential benefits to BELS margins resulting from recovery of demand in BELS end markets.

2:37 Anticipated impact of the RMS connectors acquisition included on BELS EBITDA. Anticipated impact of the EOS power acquisition including the timing and closing barrows. Factors that may and factors that may impact Bell's organic growth for 2021, including continuing visibility, limited visibility as a result of COVID and long lead times for semiconductors and certain components, are all forward-looking statements, as described under the Private Securities Litigation Reform Act of 1995 that involves risks and uncertainty. Actual results could differ materially from Bell'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 impact of public health crises such as the governmental, social, and economic effects of COVID-19, 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 difficulty.

3:50 The regulatory and trade environment. Risks associated with foreign currency. Uncertainties associated with legal proceedings. The market's acceptance of the company's new products and competitive responses to those new products. The impacts 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 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.

4:37 Thank you, Lynn. First, I'd like to provide an update on COVID-19. and Howard impacted our facilities. Overall, please report that all our manufacturing sites globally continue to be operational for the majority of the fourth quarter. There were two facilities that needed to be closed for about a week during the quarter in response to the infection, but we're still able to service our customers during this time. While the number of COVID-19 cases appear to be moving in the right direction and vaccine distribution is now underway, the situation still remains fluid. We continue to operate our facilities with all preventive measures in place and ensuring ongoing compliance with local regulations to mitigate our risk. I would again like to acknowledge our production managers and manufacturing associates who work day to day under difficult conditions.

5:29 The continued dedication to Bell and our customers is truly appreciated. Now turning to our results, we saw improved margins on relatively flat sales as compared to last year's fourth quarter. While there was a minimal change in overall sales dollars, the composition of our sales has changed quite a bit since last year's fourth quarter. Sales within our power solutions and protection group were up 16.2 million or 44.8% from the fourth quarter of 2019. Our acquisition of CUI in December 2019 contributed 11 million incremental sales to the fourth quarter of 2020. And this brings us one at a higher margin.

6:17 Other areas within our power segment that were strong as well, our products sold in the fast-growing immobility market were up 2.5 million, a 200% increase in 2019 quarter. And fuse sales were up 1.3 million, an increase of over 40% from last year's fourth quarter. These areas of growth were offset by the elimination of low margin products within this group. Within our connectivity solution segment, sales were down 6.8 million or 16.6% in the fourth quarter of 2020 versus the same quarter of 2019. We've continued to be impacted by the depressed commercial aerospace industry. where sales were down 7 million or 80% from last year's fourth quarter. The connectivity segment was also impacted by the lower sales of product into premise wiring applications as new construction projects stalled in 2020 due to COVID also.

7:24 We were able to shift our production lines to support our growing military backlog, which enabled us to capture 60% increase in military sales. partially offsetting the commercial decline. Sales within our magnetic solution business was down 8.4 million or 22.1% from the fourth quarter of 2019 as one of our largest OEM end customers and as poor as ordering as they worked through their inventory on hand. On a positive note, magnetic bookings have since rebound and we should see these sales take back up in the first quarter of 2021. Overall margins have improved by 420 basic points and are trending in the right direction. This can be attributed to a combination of product meds as discussed previously and our ongoing cost reduction program.

8:22 On the acquisition front, we have been busy over these past few months as we recently announced our purchase of two companies, RSM Connectors and EOS. . We also signed an agreement to acquire EOS Power, which is based in India. The acquisition of EOS will not only expand our product portfolio in the low to mid range, that will all importantly provide us a manufacturing capability of outside China. Both these acquisitions fit within our strategy to increase market share while diversifying our product portfolios and geographic footprint. Looking to 2021, we have seen some recovery in certain of our server markets. We would expect demand for military customers and e-mobility to remain a driver for sales throughout 2021.

9:28 The addition of C-sides of certain additional markets such as premise wiring, rail, commercial airspace have potential to recover throughout the year as COVID conditions improve. While our competitive position remains strong as ever, with the COVID situation still with us, an uncertainty regarding some semiconductors and components that might be in short supply give us limited in the future. In the meantime, the managing team will be focused on bottom line growth, integrating the announced acquisitions, and actively looking at other strategies to better position Bell for the future.

10:11 And with that, I'd like to turn the call over to Craig for the financial update. Craig? Thank you, Dan. Sales by product segment for the fourth quarter of 2020 were as follows. Our solutions and protection sales were $52.3 million, up 44.8% from last year's fourth quarter. Connectivity solution sales were $34.2 million, a decline of 16.6%, and magnetic solution sales were $29.6 million, down 22.1% from last year's fourth quarter. Post-margin by-product segment for the fourth quarter of 2020 was as follows. Power Solutions and Protection had a gross margin of 27.8% in the fourth quarter of 2020, up from 19.7% in last year's fourth quarter.

10:59 Connectivity Solutions' gross margin was 24%, down from 24.5% in the 2019 quarter. And Magnetic Solutions' gross margin was 23.3%, up from 19.1% in last year's fourth quarter. On a consolidated basis, gross profit margin increased to 25.3% in the fourth quarter of 2020, as compared with 21.1% in the fourth quarter of 2019, the result of a combination of factors. Overhead and indirect labor costs were $1 million lower during the fourth quarter of 2020, primarily due to restructuring measures implemented during late 2019 and a reduction in the cost structure for our sensor connectivity solution segment to align with current sales volumes within that segment.

11:58 A portion of the margin improvement in the fourth quarter of 2020 related to the elimination of certain low-margin power products from our portfolio. Research and development costs were $5.7 million during the fourth quarter of 2020, a decline of $1 million from the fourth quarter of 2019, primarily due to restructuring efforts implemented during the latter part of 2019. are selling general and administrative expenses were $19.6 million or 16.8% of sales flat from the fourth quarter of 2019. Lower travel expenses of $613,000 and savings from other cost containment efforts fully offset the $1.1 million of incremental SG&A expenses associated with the CUI business acquired in December of 2019.

12:56 On a go forward basis, we would expect SG&A to run between $19 and $20 million per quarter in the near term, as we expect our T&E spend will continue to be lower than normal for at least the first half of 2021. During the fourth quarter of 2020, we closed on the sale of our facility in Switzerland. This transaction resulted in a gain of $1.9 million, which is included in our fourth quarter results. These factors resulted in income from operations of $5.6 million in the fourth quarter of 2020 as compared to the loss from operations of $2.9 million in the fourth quarter of 2019. Other expense net was $395,000 for the fourth quarter of 2020 as compared to $1.7 million during the fourth quarter of 2019.

13:51 An increase in foreign exchange losses of $700,000 in the fourth quarter of 2020 was offset by a larger gain on the company's SIRP investments, which are now included in this line item. The expense in the fourth quarter of 2019 largely related to a $2.1 million loss on the liquidation of foreign subsidiaries. Interest expense was $900,000 in the fourth quarter of 2020, down from $1.3 million in the same quarter last year, As a result of decreases in the LIBOR rate, the company spread on its credit facility driven by EBITDA improvements and the overall reduction in our outstanding debt balance. We had a provision for income taxes of $774,000 in the fourth quarter of 2020 compared to a provision of $392,000 during last year's fourth quarter.

14:48 Earnings per share for the Class A common shares was earnings of 27 cents per share in the fourth quarter of 2020 as compared with a loss of 50 cents per share in the fourth quarter of 2019. Earnings per share for the Class B common shares was earnings of 29 cents per share in the fourth quarter of 2020 as compared with a loss of 52 cents per share in the fourth quarter of 2019. On a non-GAAP basis, which excludes certain unusual and other non-recurring items, EPS for Class A shares was earnings of 18 cents per share in the fourth quarter of 2020. That's compared with a loss of 30 cents per share in the fourth quarter of 2019.

15:34 On a non-GAAP basis, EPS for Class D shares was 20 cents per share in the fourth quarter of 2020. as compared to the loss of 30 cents per share in the fourth quarter of 2019. And now, I'd like to go through some balance sheet and cash flow items. Our cash and cash equivalents balance at December 31st, 2020 was $84.9 million, an increase of $12.7 million from December 31st, 2019. During 2020, we generated cash flows from operating activities of $46.1 million and received $4 million in proceeds from the sale of property. We made net payments of $28.2 million towards our outstanding debt balance and used cash for capital expenditures of $5.5 million, dividend payments of $3.4 million, and interest payments of $4.1 million.

16:34 Accounts receivable were $71.4 million at December 31st, 2020, as compared with $76.1 million at December 31st, 2019. Day sales outstanding decreased to 57 days at December 31st, 2020, as compared to 60 days at December 31st, 2019. The decrease in our accounts receivable balance has largely due to lower sales in Asia, where payment terms tend to be longer. Inventories were $100.1 million at December 31st, 2020, down $7.1 million from December 31st, 2019. The decline was seen in raw materials due to reduced material intake in anticipation of slower fourth quarter.

17:24 Accounts payable were $39.8 million at December 31st, 2020, down $4.4 million from its level at December 31st, 2019. primarily due to lower purchases of raw materials during the fourth quarter of 2020. Bell's total outstanding debt balance was $115.6 million as of December 31st, 2020, net of deferred financing costs, a decrease of $28.1 million since the 2019 year-end balance. This primarily reflects voluntary debt repayments of $28 million made during 2020. which is calculated as stockholders' equity divided by our combined A and B classes of common stock outstanding was $15.04 per share at December 31st, 2020, as compared to $13.69 per share at December 31st, 2019. And with that, I'll turn the call back over to Dan.

18:25 Dan? Thank you, Craig. At this time, James, can we open up the call for questions? Thank you, Mr. Bernstein. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow us to not reach our equipment. Again, if you'd like to ask a question, press star 1 at this time. And we'll take our first question today from Jim Rusciutti with Needham & Company.

18:55 Hi. Good morning. Speak a little bit more about RMS Connectors and the EOS acquisition. Share with us, perhaps, if you could, just any details on the financial contribution or just the impact that you would anticipate in 2021.

19:19 Thanks a lot.

19:22 Okay. Before I have Craig go over the numbers with you, but just to give you insight to both those companies, EOS, again, we've been private labeling their products for over three years. We have a very strong relationship with them. We know the people. It was a market at the low-medium, a market mostly in the medical area and industrial area, which we felt we could grow with a proper pricing structure and product portfolio. So we've been pestering them for many years if the rainfall still been same. So we're very excited that, again, that we could put this deal together and close March 31st. So on that deal, as I said, and the key for also is that we are overly dependent on manufacturing in China.

20:12 And this gives us another area where we can have low-cost manufacturing. And in addition to that, we do believe the Indian market should be a substantially stronger market for dollars when we throw it. The other acquisition, RMS, When Cinch was a loan supplier for the 737 connectors, Boeing suggested very strongly that we approve a second source, and that company was RMS. And over the past 10 years, we've contacted them every year to see if they'd be interested in selling because of the price pressures that we're feeling by the aerospace companies out there. because their medical sales were growing so fast.

20:57 This wasn't a strategic product line for them any longer. So they allowed us to buy us everywhere. So we came up, I feel, with a very strong deal, almost close to book value. And book value means a lot of automated high-end equipment that we didn't have in-house. So besides eliminating a good competitor, we were able to pick up some state-of-the-art equipment. So we think that also is going to be We do think it's going to become profitable once we move it into our facility, which will take three or four months. And once Boeing starts ordering again, we think it will be one of our most successful acquisitions. Craig, can you go over more of the financials, how you see both companies?

21:45 Yeah, sure.

21:47 Yeah, starting with RMS, obviously they play in that commercial aerospace segment, so their revenues have been depressed over the last 12 months with the pause in manufacturing and also the aftermarket impacts. So for the coming 12 months, we're kind of expecting an incremental revenue increase you know maybe five to eight million dollars related to that once we get back to a you know a normal run rate and obviously that revenue would you know certainly tick up and because we were moving that entire production facility into one of our existing facilities you know there's no incremental G&A and we've been able to leverage our internal overhead structure and so we expect that business to be fairly profitable.

22:56 On the EOS acquisition, they've been obviously impacted by COVID like the rest of the industry. They've been running at an approximate $12 million and the rest of the team. So, we've got a pretty good revenue run rate over the past seven, eight months now. So, once they come on board, we expect the incremental revenue, assuming the March close, would be approximately eight to nine million for 2021. Margins there are similar to our other power margins. So we expect that business to be accretive right out of the gate.

23:46 Does that answer his question, Jim?

23:49 It does. And if it weren't for this clarification, Craig, the margins would all be more of the bell power and not like CUI.

23:56 Yeah, that's correct. The traditional bell power margin.

24:00 Thanks for that. Thanks for the color. Dan, they sound like nice acquisitions. Congrats. I wonder if you could also... can elaborate a little bit more on the impact of some of the component supply chain issues on the business.

24:17 Are you seeing any impact, or is this just a case of monitoring the situation in terms of whether it gets worse?

24:24 No, I think, again, we're very fortunate because we do have long-term relationships with our semiconductor companies we deal with and the component people we do deal with. So, again, you know, they... came to us, for example, and said, hey, if you want support this year, you have to sign up for a yearly non-cancelable order. And then you have to lock in your deliveries. Also, I think we do a good job of staying ahead of the situation because of all the relationships we have in the industry. So we tend to know about shortages before they come. So again, the major problem is that we won't have any pricing pressure during this period. And we have seen some... Thank you. Thank you. Thank you.

25:33 with the exception, obviously, of commercial aerospace and potentially a couple of situations with one of your blogger OEMs. Is it fair to say that the level of business activity you're seeing is picking up? Well, comparing to last year when we were in the middle of COVID and you had China shut down, I think going over that bar is not too hard. Well, I'm thinking more in terms of as you're entering the year versus Q4. Obviously, year over year comparison for students. I wish I could. I still think we just have such limited visibility. I think there's still so much uncertainty, you know, out there with COVID, you know, how the new government can affect, you know, policy.

26:23 And I still think it's, you know, still a little bit, you know, a lot more positive than last year overall. However, I still think there's still a substantial amount of uncertainty. There are people, again, that infamous term of cautiously optimistic, but I don't see anybody, you know, opening up the champagne yet. How about that?

26:45 Fair enough.

26:48 Thank you. Thank you for that. I'll jump back in the queue. Next, we'll hear from Theodore O'Neill with Richfield Hills Research.

27:00 Thanks very much. Two questions for you. First, on the margins, which continue to show improvement, last quarter there was a $900,000 Chinese subsidy in there. Were there any one-time items like that in this quarter?

27:18 Gregor Lynn, can you address it? Sure. Thank you. This is Lynn. We did have a similar amount in Q4 this year related to those subsidies. It was $835,000 in the fourth quarter.

27:36 And again, this may or may not continue into the next year. We don't believe it will continue.

27:47 My other question is about the EOS acquisition. So just from a branding perspective, will you continue to private label and sell under the EOS brand, or will you move that to the Bell brand? That is one of the big questions we're debating constantly. I show you how crazy of a situation we have. We private label EOS under the Bell brand. The company we acquired last year, CUI, private labels under EOS product under their brand. and then EOS uses that brand. So we have a couple of distributors that sell three of the same product with three different names all built by EOS. Okay. So we are marketing. It's the number one thing our marketing group is working on is how do we brand EOS but how we brand Dell with so many different companies that we acquired over the past couple of years.

28:47 Okay. Thanks very much. We now hear from Shendi Susento with Billy.

28:57 Good morning, Dan, Farouq, Craig, and Lynn.

29:01 Good morning.

29:04 Hi, Dan. Can you talk about your M&A pipeline now that you have Farouq in your team?

29:11 I'll let Farouq speak about our M&A pipeline. Farouq?

29:16 Yes. Thanks, Dan. Great to be with you here today. You know, coming from the industry, there is a good amount of activity that we expect to occur a little bit in more frequency in 2021, especially as the world starts to recover from COVID. So our expectation is we will see more and expect to have a robust pipeline. and obviously with the team at Bell here and now in addition to myself, we'll be trying to cultivate our own proprietary side of the house, not to be similar to the idea that I've done here. So I would say it's definitely out there and we just need to figure out where we want to be spending time and going after it.

30:05 Thank you. And I think, you know, I think with the value also for Breed and Specialized knowing so many competitors of companies in the industrial market, which we will participate in. I think how we deal with the banks going forward, whereas Farouq, you know, because we haven't borrowed money in the past, and the financing terms and so forth, I think that's key for us. It's great that we want to buy a company, but the question is, can we get the proper financing from our lenders? And I think that Foucault Board, I think that's going to be a major benefit that he brings to the party besides his acquisition knowledge.

30:40 Got it. I would like to revisit the long list times. I don't know whether you've talked about this or not. There's been talk about inventories in the channel and inventories at OEMs are lower than optimal and therefore they would purchase more and then build their inventories. Do you see the same trends in OEMs? among your customers or that doesn't apply in your area?

31:17 I think, again, I think the initial concern you have when you have long wait times, you know, if someone has to wait nine months for a semiconductor, is he going to need a fuse in two months? You know, are they going to push back, you know, your deliveries for the last item? Generally, we never see that. When there are long lead times, we always feel it's beneficial to the business because most of our customers are more concerned about delivery than they are about pricing. And at some point, they're willing to pay a premium for pricing. So we think, you know, even though, you know, we do think it's beneficial, again, for all of us when we have long lead times and how we prepare ourselves properly for it. And I think Starzy, our purchasing group, has always kept our flood lines open with products.

32:09 and because of the long-term relationship we have with our suppliers. So again, I feel with these returns, we are somewhat confident that we can manage it properly. And if we do face increased pricing, then we can offset it with our pricing to our customers.

32:29 Got it. And with the addition of EOS and the RMS connector, what should will be our expectation for operating expense.

32:43 Right. Henry, you're asking expectation for OPEX?

32:49 OPEX and SDMA.

32:54 Yeah, for RMS, there should be very little incremental OPEX. because we're basically, you know, bringing a manufacturing facility into our own and we are not bringing, you know, any incremental SG&A along with that. On the EOS piece, the OPEX would be, you know, probably traditional about 13 to 15% of revenue. may be some synergy there. We're not anticipating a significant amount.

33:38 And then, Craig, can you share what kind of absolute dollars of FGMA we should expect?

33:48 Let's see. That would be, you know, revenue on an annualized basis of, let's say, $12 to $15 million. So I'd say, you know, 13, 15% of that. Okay.

34:04 And then I think for starting from Q1, you would see some benefit in R&D and then some closures also?

34:17 On a comparative basis, we should see a positive comparison for R&D. Okay. Are you asking about the consolidated business?

34:31 Yeah, the consolidated business, yes. I think a month ago, I think there's discussion that SDMA may run at between like 90 to 20 million. Great. So for the consolidated business, we will see incremental cost savings in Q1 of about 1.3 million. The majority of that will be in R&D, about 750,000 related to the Switzerland closure. And then the rest will be split between SG&A and NCARB.

35:12 That's helpful. Thank you, Lynn. Thank you. We'll now hear from Steve Cole with Mangrove.

35:24 Yes, good morning, Dave. Thanks for having the call. I have a few quick questions. First off, on magnetics, I know you mentioned that, you know, one of the large OEMs is kind of sitting tight and now starting to come back. Can you give a little bit more color on what else is happening there that gives you comfort that the order patterns are coming back? Are you seeing more strength outside of that

35:49 OEM? Basement, basement. We're using our backlog to make that judgment call. And the backlog has increased nicely in the fourth quarter in the magnetic side of the business.

36:01 Okay. And turning then to the RMS business, somebody talked about the five-day bump in incremental revenues. If we kind of go back and look at what a more normalized I think the key is where Boeing planes are going to be. Before COVID and before the 737 problems, they were looking at 49 to 51 planes a month.

36:43 and I think we have 5,000 connectors per plane. So those are substantial dollars and RMS was the second source at Boeing and to their suppliers. So again, and now I think Craig was hoping to get to 21 soon, right?

37:01 Right, yeah. It's going to be expected to be a slower ramp-up in their build schedule, so it's going to take a couple of years until they get back up to that run rate that we were anticipating earlier.

37:17 So, again, if you look at our, I think the point for us was, you know, we could have waited, you know, if Boeing went back to normal and saying 42, 43 planes, we believe the buy RMS would probably be you know maybe two to three times what we paid for today. So we feel you know very fortunate you know we did take a big risk you know if the 737 doesn't come back you know this was not the best acquisition we ever had but even the fact that we picked up state-of-the-art equipment that we needed anyway in our facilities we're you know really pleased you know again with the acquisition you know besides Boeing the aftermarket and how it strengthens our relationship with some of our key aerospace distributors. So for us, again, it took me eight years, I think nine years, from sending Christmas cards to the president of the company before he finally responded.

38:13 And I thought he was going to have to thank me for my Christmas card. By the way, again, it's probably the best investment LFU has ever made. You know, $20 a business card.

38:27 That's a pretty good deal. That's probably $20 for a whole package, so not even the individual one.

38:34 Well, it made it all so exciting. We were able to complete this deal in a roughly two-month period, less than eight weeks, working closely with them. And I think that's a good sign. When we do deal with a lot of acquisitions that continue going forward, I don't think there's many companies out there that they can close the deal and not short of time team. And so that's to, you know, you know, our philosophy that we say, you know, we've done a lot of adventures with billion dollar companies. And I think, you know, if you look at a key, you know, a key, a saffron, some of the other companies we deal with, I think they decided to go with bell keys, not because we pay the highest dollar. It's because of user transaction and how we treat the customers and the associates.

39:19 So I think we have, you know, and some of our competitors. We have a really good track record. We can do a deal. We're going to do a fair deal. We do quickly deal. So that's going to help Tariq a lot in his pursuit. Definitely.

39:37 I guess, I'm sorry. One quick final.

39:40 Okay, go ahead. I'm sorry. I'm sorry, Ryan. I just wanted to quickly add that if we look back a couple of years, pre-COVID, pre-grounding, the RMS business was running around 15 to 16 million a year in revenue. And that compares to where they were in 2020, which was around 8 million. So just to give you some perspective of where they were. And then do you have their profitability?

40:09 Lynn, do you have their profitability? Yes, so before all of this, in normal conditions, their EBITDA margin was around 20%, whereas right now they've been running around 5%. Does that make room for improvement as conditions improve?

40:30 I would think under Bell, without their overhead and without their building and so forth, it should be under substantial improvement of those margins.

40:40 And this is going to seem like an off-the-wall question. I'm sure you hear this one too. But the world, you know, you talk about obviously T&E is down to everybody now. But how do you, when we look longer term, how, in terms of how you're doing business, do you expect a structural change in T&E and things like this going forward? In terms of how you're conducting your business, or how do you view that?

41:06 I think we're going through a revolution. And I think it's, you know, maybe I'm wrong, but I think the revolution would have taken maybe four or five years. But I think the revolution is going to take a few months or sooner. I mean, the role of salespeople, you know, people working from home, how can you call on a customer? 50%, 60% of the people are working from home down in Florida and having to connect with these people. And that's why, you know, we made a major effort over the last three or four months to consolidate our sales force. We started, you know, we had, you know, a salesperson for each company. So we had a salesperson at CUI, a salesperson for Dell Power Solutions, a salesperson for Signal Transformer, possibly all calling on the same customers.

41:57 We consolidated that into four people that cover the country. In addition to that, we are pushing our digital sales group substantially to add people on. So how do we connect to the engineer through LinkedIn, through YouTube, through Twitter? And really, you know, again, if you're dealing with young people, as you know, I don't think they like to use phone calls and I don't think they like to talk to people. They want the information quickly. They wanted staff and they don't want BS. And so we clearly understand that and hopefully we'll be quick enough to address the new engineers. And for us, that's the key. I mean, for us to be successful, we have to be able to work with engineers before when they're designing the product. If we come in as a second supplier or third supplier, it makes it extremely difficult. If we come in when the engineer is designing a product, we can help them, we can guide them, and a system to use our product in the proper way and that hopefully eliminates some of our competitors.

43:01 So it's definitely an exciting time we live in and I definitely believe things are changing rapidly.

43:09 Let me hit you with one last question. It was kind of your opening that brought a warm feeling to my heart. So you mentioned about pointing out the valuation disparity between the sum of the pieces in the current marketplace. Obviously, Farouq is coming on, and I guess the best thing to do is throw him right into this task of how do we narrow that? So, obviously, you've been successful to varying degrees in acquisitions, as you've alluded to, and running the company efficiently, but how do we narrow? I'm still a little confused on how do we do that. So, how do you get up to a price on a public account?

43:45 Okay, Farouq, you want to earn your salary right now? Let me explain. Are you going to do it? Isn't that pretty good?

43:54 We're right out of the gate.

43:56 Yeah. Got to start somewhere on day three here. So when I was on the other side of the table looking at Dell and kind of seeing kind of the same information that you're looking at, I would say you develop certain expectations and perspectives on the business and being slightly under the covers here on the other side, I would echo Dan's sentiments now that we're peeling back the onion. I would also say, though, when the seat that I was sitting at on the other side of the table, on the cell side, Bell represents a unique opportunity from a size, reach, and global positioning, quite frankly, with varying degrees, whether it be on the connectivity side or the power side and the magnetic side. When I see, when I'm looking at, I see a great base, of course, to build upon and drive growth faster. Both, I would emphasize, inorganically and organically.

45:00 So, one of the benefits, from my perspective, is bringing a fresh set of eyes and asking questions for us to look at how Dell is conducting business today. and where should we be and what do we want to do down the road? So your question is, well, how do we bridge the gap? I think there's a consistency in kind of performance and the way we do business that we need to address. So we kind of have a feeling, again, sitting in your shoes, talking to investors, and I would say that Dan had alluded to it earlier, whether it be on that margin side, the way we just do business and simplifying and position ourselves for longer term sustainable growth. So it is a tough question, but I think we know the answers and we need to just figure out how to get there.

45:51 Sounds good. Thank you very much. Not a bad answer for day three.

45:56 I'll take it. We have a follow-up from Jim Rusciutti with Needham & Company.

46:05 All right, thanks. Just looking at the commercial aircraft market, the comparisons actually get much, much easier for you when Q3, is that when the business really started to come down sharply? So on the commercial aerospace side, yes, it was – actually in the second quarter of 2020 is when we saw the largest drop-off. So there will be some incremental pressure on Q1 sales related to that, but then we should be in a more normalized position come Q2.

46:47 Thank you. I'm just looking at commenting the press release. I just want to make sure I'm not misinterpreting it. You talk about and additional $4.4 million of cost savings in 2021. And I just want to make sure I'm not confusing that with some of the other savings you highlighted this morning. Right. So the $4.4 million that will be incremental in 2021, that is looking at full year 2020 costs. versus 2021. So, like of that, $2 million relates to the Switzerland facility closure.

47:33 We have about, excuse me, a million of that cost savings realized in 2020 at the tail end of the year here. And the other 2 million will be realized in 2021. Other actions that we had done throughout the year, the Germany sales office closing our North America sales reorganization. And we have a couple of other actions that were implemented in Q4 with moving some functions in Asia that will result in another million dollars of savings in 2021. So that 4.4 million is incremental and I do have the detail of it by quarter if that would be helpful.

48:21 Sure. Thank you. Okay. So again, these are year-over-year incremental savings. So in Q1, it's 1.3 million versus if you're looking at Q1 20. On Q2, it's almost 1.4. In Q3, it's 1.1. And in Q4, it's about 600,000.

48:46 And Jim, just to add some more color on that, you know, we still believe that we still got a ways to go before we find our cost savings program. One of the key things was implementation of our new software. And now instead of having many different, you know, ROI systems, we've got it down to two. One for Sync Street, one for the Bell Group. So we can look at, you know, consolidating many functions because we're all on one system now. Also our manufacturing footprint in China. We have three operations in China that we have to look at consolidating down to either one or maybe two. So we still think there's a good opportunity to improve our savings over the next year to two years.

49:31 So we've still got a ways to go and we'll still focus on it. Perfect. Thanks very much. Thank you. As a reminder, press star 1 if you have a question. We'll pause for a moment. And that will conclude today's question and answer session. I will now turn the conference over to Mr. Bernstein for any additional closing remarks.

50:02 Thank you, James. Thank you for joining our call today, and we're looking forward to speaking to you in April. Have a good day. That will conclude today's conference. Thank you for your participation. You may now disconnect.