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spk11: Good morning, ladies and gentlemen. Welcome to the Belfu's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with three-part advisors. Please go ahead, Jean.
spk03: Thank you, Bikram, and good morning, everyone. Before we begin, I'd like to remind everyone that this conference call contains certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results may differ materially from those expressed or implied by these forward-looking statements, due to a number of risks and other factors. Additional information about factors that could potentially impact our financial results is included in yesterday's press release and is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our subsequent quarterly reports and other filings with the SEC from time to time. We may also discuss non-GAAP results during this call and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me on the call today is Dan Bernstein, President and CEO, Fruit2Week CFO, and Lynn Hutkin, Director of Financial Reporting. With that, I'd like to turn the call over to Dan. Dan?
spk09: Thank you, Jean, and thank everyone for joining our call today. I'm delighted to report we achieved record-breaking results for the second quarter in many categories. Revenue, adjusted EBITDA, bookings, and backlog were all at the highest level in Bell's history. And we would have to look back to 2015 to see comparative adjusted EBITDA results. This new milestone for Bell was delivered by our entire team and all three of our product groups. Commercial aerospace continued to rebound with $7.8 million in sales, up 43% for the same period last year, and up 26% sequentially. The EV and market sales were up 6.7 million, or 89% from the same period last year, and up 13% substantially. Power and Mennonetics continued to perform well, and with margin improvement due to the strategic initiatives we implemented over the past year, revenue generated from our distributor partners grew 10.8 million, or 23% over the same period last year. Connectivity margins are currently compressed due to the initial costs associated with ramping commercial error. Additionally, we had $9 million of revenue related to raw material expedite fees this quarter, where the overwhelming majority came from through our power segment. Although this is largely a pass-through with minimum administrative markup, this does have a negative impact on our margin. While this is an unusual source of revenue, we do expect this to continue in the near term until supply issues are stabilized. The supply chain continues to be constrained, impacting raw material availability, freight, and logistics, but that seems to be the new normal that every business is having to deal with. I'm very proud of our team and the contributions that drove this record-breaking performance, and I'm confident that we will continue our momentum throughout the remainder of the year. I would like now to turn the call over to Lynn to provide full financial update. Lynn?
spk04: Thank you, Dan. As Dan mentioned, Q2 was very strong with year-over-year growth seen across each of our product groups. Overall second quarter sales were $170 million, an increase of 23% from the second quarter of 2021. Gross margin for the quarter increased to 26.6% as compared to 24.7% a year prior, primarily due to our efforts on pricing over the past year. By product group, power solutions and protection sales were $71 million, up 28% from last year's second quarter. In addition to Dan's commentary on EB sales and expedite fee invoicing, the Power Group also benefited from strong sales in our CUI business, which posted an increase of 1.8 million, or 13%, from Q2 2021. Our EOS business, acquired in Q1 last year, also saw growth of 1.1 million, or 30%, from last year's second quarter. Gross margin for this group was 28.2% for the second quarter, a 230 basis point improvement from Q2 2021, largely driven by the benefits of pricing action taken over the last year. Our power solutions and protection group had a book to bill ratio of 1.9 during the second quarter of 2022 and a backlog of orders of 338 million, an increase of 41% from the 2021 year end. Turning to our connectivity solutions group, sales were 46.1 million, an increase of 7% from last year's second quarter, mostly due to the continued rebound of the commercial aerospace end market and higher sales of our passive connector and cabling products. Military sales continued to be challenged this past quarter, resulting in a 7% year-over-year decrease in the defense end market. Gross margin for this group came in at 27.6% for the second quarter of 2022, down from 30% in the second quarter of 2021. Much of the margin pressure relates to incremental training and overhead costs at the factories, as we've been quickly scaling the operations back up to accommodate the higher demand in commercial aerospace. The connectivity solutions group had a book to bill ratio of 1.2 during the second quarter of 2022, and a backlog of orders of 103 million at June 30th, an increase of 21% from December 31st. Lastly, our magnetic solutions group had Q2 sales of 53.5 million, up 33% from last year's second quarter, led by increasing demand for our integrated connector modules that are used in next-generation switching applications. Gross margin for this group improved significantly to 28.2% in the second quarter of 2022 from 23.2% a year prior. Margins for this group benefited from the higher sales volume and also a favorable shift in exchange rate of Chinese renminbi versus the US dollar, which lowered our labor costs in China versus the 2021 period. Our magnetic solutions group had a book-to-bill ratio of 0.7 during the second quarter of 2022 and finished the quarter with $140 million of orders down slightly from the 2021 year end level. Our selling general and administrative expenses were $24 million or 14% of sales up from 21.8 million in the second quarter last year, but down as a percentage of total sales. Within SG&A, the primary increases were related to salaries, rep commissions, travel, and advertising costs. Turning to balance sheet and cash flow items, we ended the quarter with a cash balance of $65.8 million, an increase of $4.1 million from December 31st. Our working capital increased by $15.3 million from the 2021 year end. we saw a $12.7 million increase in our accounts receivable balance offset by a $5 million reduction in our unbilled receivables balance at June 30th compared to the December 31st balances. Our DSO were 53 days at June 30th, 2022 compared to 54 days at December 31st, 2021. Inventories increased by $25.3 million from year end which is largely seen in work in progress as we continue to accommodate the increase in demand from our customers. In addition to changes in working capital, other items impacting cash flow for the first half of 2022 included capital expenditures of $3.5 million and our continued dividend program where we made payments of $1.6 million. Cash paid during the first half of 2022 for income taxes was $4.6 million and interest payments totaled $1.1 million. I'll now turn the call over to Baruch for additional color, outlook, and expectations. Baruch?
spk01: Thank you, Lynn. As we have spoken about the last few quarters, the initial plan was to build sequentially upon our progress in future quarters, and that is precisely what we are doing. We are proud to report our sixth consecutive quarter of year-over-year sales, growth, and margin improvement. as Dan mentioned, was the last time we experienced similar margins and we're delivering these results in a very challenging environment. Excluding the PPV part of our revenue, our margins would have looked even more impressive as a percentage of sales. Although we have started to see the fruits of our efforts, we're still on a journey and remain laser focused on continuous improvements. Looking toward the third quarter, We expect year-over-year top-line growth in the high single digits and gross margins higher year-over-year and more in line with the second quarter of 2022. Power and Magnetics will see better year-over-year improvement, while connectivity will be slow to follow till year-end as contracts come up for negotiations. Our backlog continues to look robust with continuously improving gross margins. That gets us excited as to our future prospects. Thinking beyond the third quarter to the balance of 2022, we see continued demand demonstrated by our strong backlog of orders. While the economic concerns of 2023 have dominated the airwaves, we have not seen any meaningful signs of a slowdown. Some softening could occur over time, but we remain highly confident overall in the business. From an operational efficiency perspective, there are still several internal initiatives underway. and additional details will be shared in the near future to update you on our progress. Our executive team had off-sited May, which resulted in some very exciting takeaways that give us the confidence in our ability to drive further long-term shareholder value as we execute on our strategic plan and vision. We have identified diverse and numerous opportunities for continued margin improvement and are excited about the journey. The diversity of contribution gives us optionality to see where our improvement will be coming from. While these results are impressive, our work is not done, and it is on multiple fronts. We will celebrate this quarter with our teammates and quickly pivot back to the bigger task at hand. And with that, I'll turn the call back over to Dan.
spk09: Thank you, Farouk. At this time, we would like to open up the call for any questions you might have.
spk11: Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. We have a first question from the line of Theodore O'Neill with Litchfield Hills Research. Please go ahead.
spk02: Thank you, and congratulations on a good quarter. Dan, in your prepared remarks, you talked about, if I got this right, $9 million in expedite fees that you were able to bill your customers. Did I hear that correctly? Yes. Was that across all segments or one in particular?
spk09: Mainly focused, the majority of it's in power products, and bringing in semiconductors.
spk02: Okay. Great. You're having some good success here in terms of growth rate in the e-mobility sector, which you cited here as continued to see good growth in the quarter. How diverse is the customer base there? And is this share gain related or is this some, you know, particularly good product fit?
spk09: I think it's more, it's good product fit. It's new technology. Most of all our designs were single source at this point in time, so it's very engineering-derived.
spk01: How many non-disclosures do we have, Farouk? I think we have over 250 kind of non-disclosures, which ranges from anywhere, kind of startups all the way to kind of big main staple names in the industry. And as Dan noted, this is still an emerging field. We had a first-movers advantage. We've been in this business for roughly 10 years when it early started on, and now we're starting to see the fruits of that labor and investment.
spk09: And our focus tends to be on niche markets, not the high-value automobile market. So, for example, trucks, transportation for the post office, mining trucks, things of that nature. Okay.
spk02: And are you seeing any changes in the dynamics in terms of products flowing between distribution channel and your direct channel?
spk09: Distribution has been and is substantially stronger than the OEM market at this point in time, and that follows back and forth. But we do see the market and distribution. They are a lot more aggressive buying material. Okay, thanks very much.
spk11: Thank you. We have a next question from the line of Jim Richutti with Needham & Company. Please go ahead.
spk10: Hi, good morning. It's actually Chris Granga on for Jim. Congrats on the great quarter. Last quarter you had referenced roughly 30 or 40 million of sales pushed out due to customer rescheduling. Has that trend improved, stayed the same, or expanded?
spk04: So that trend has continued. The number currently is about 34 million sales. of orders that was scheduled to ship in the second quarter that did not. So it's a very similar number to where it was last quarter.
spk01: And maybe just to add some color on that, that's not all on us. Partially, maybe our material challenges, as Dan has spoken about, but also on our customer side, where we may have finished goods and products and ready to ship, but they're not ready as they are waiting on other parts of the system, so to speak. So it's a little bit of a mix of both of that.
spk10: Got it. Thanks. And anywhere where you're starting to see any demand deterioration or any areas of the business product group or market vertical that might be precursors to softening in consumer demand?
spk09: We are tremendously concerned about the recession concerns that we hear throughout the country, but at this time, we monitor our cancellations daily, and we haven't seen anything to give us any concern.
spk10: Excellent. And maybe one more for me, but you had alluded a little bit to it, but where do you stand with the strategy refresh, and could you provide a sense for maybe where margins could go from here once those initiatives are fully implemented?
spk01: Yeah, so I'd say we understand that there's a lot of work ahead of us and there's a lot of internal projects going on across all three segments. And these can range from sizes and scale from big things to smaller things. So it is coming from all ends in terms of our strategy. We think that we have a healthy room to go yet on the margin front. And, you know, we don't obviously put on any forward guidance, but we understand that we're still kind of climbing the stairs here early on. So we're going to leave it at that here.
spk10: Fair enough. Thanks very much, and congrats on the quarter.
spk01: Thank you.
spk11: Thank you. We have a next question from the line of Handy Susanto with Gabelli Funds. Please go ahead.
spk13: Good morning, Dan, Farouk, and Lynn.
spk12: Congrats on strong results. Farouk, I would like to ask questions about the pricing action. So how much of the benefit of pricing action Belfu's generated in the June quarter? And I'm wondering whether you can give more colors, like how much more? And then I assume more will come. But I don't know what kind of timing. And then maybe you can help us figuring out what magnitude.
spk01: Yeah, I appreciate the question here, Hindi. On the pricing side, when we initially started this, it was really a little bit of a combination of reactionary to the increased input cost, logistics, freight, and everything kind of that goes into producing these products. As we looked at some of these products last year, some of our components have gone up. We got price increases to the tune of 10 times. The other part of it is we need to, in addition to recovery, look at what is a healthy and acceptable margin for us. And that answer is going to look a little bit different based on product, the competitive set, the customer, and where we are. So it's not a straight line across the bow here. It's a really nuanced and surgical approach to it. But we are not done in the sense that we're still seeing challenges in the supply chain. So as cost increases and go up or changes, we need to stay on top of that. So it's a continuous game. So the difficulty of answering your question here is twofold. One is it's ongoing. So if we're looking at Q2, for example, it happened a number of times. So we're not putting a number out there yet, but I would say while pricing has obviously gotten a big amount of airplay here, I want to also emphasize that we are taking market share, we are winning new business, and we are getting into new designs. So as we're going after these newer opportunities, we're pricing things a little bit more appropriate for a company that meets our kind of shareholder expectations and what we expect for ourselves. So I'll leave it at that. But what encourages me as we look out and part of my bullish view here is the diversity of it. So we're not seeing kind of just, again, one customer or one end market that this is going, but we have a ways to go. So I'll leave it at that.
spk12: I see. And then may I ask about commercial aerospace revenue? It is great to see the rebound. And then if I remember correctly, the run rate pre-COVID is somewhat close to 40 million. Should we expect the rebound to go further closer to the 40 million run rate anytime soon?
spk04: So the I'll answer the first part of that question. So our commercial aerospace sales for the second quarter were 7.8 million and to put that in perspective, that's up from 5.5 million in Q2 last year. So You know, as we had mentioned previously, commercial aerospace, if you take the Cinch business plus the recently acquired RMS business, it was around $40 million, $45 million pre-COVID. So I think, Farouk, I don't know if you want to talk.
spk01: Yeah, I would say so. You know, so if we kind of go back to pre-COVID, you know, pre kind of cutting back on spending in the industry and kind of grounding and all that kind of stuff that was in the news, we were roughly rendering in the mid-40s. Obviously, you know, that end market is coming back roaring, and we're seeing all the headlights. We think there will be a multi-year opportunity. So 45 is kind of the previous normal. The new normal should be well north of that. So I think that's how to answer. So we're early on in the game of recovery, and we've got a long way to go to get back to, at a minimum, the old normal, but definitely the new normal.
spk12: I see. And then... Can you give some input and takes on gross margin and OPEX? I'm wondering, like, how sustainable gross margin at 25% to 26% and OPEX, I saw that R&D dropped to 4.7 million. I'm wondering whether we would see, like, a rebound in R&D.
spk01: Yeah, so the R&D, kind of similar to the commentary that Lynn made earlier on our wages, the magnetics group, there was a little bit of FX favor in there. And I would say across all of our businesses, FX and multiple lines was close to a million dollars for the quarter. So I think in the near term, with the economic worldview, we think the dollar will probably continue to strengthen or maybe stay kind of where it is in relation to some of these other currencies. So I would say it is a benefit for us, probably around maybe for the near term, but it's not necessarily something we're planning on as we look at our operations and make sure we're running a very lean operation over here. So that's kind of the benefit that came from there. In terms of sustainability, I think we've been very public in terms of saying that we're continuing the climb, and that's going to come both on the pricing and revenue and picking the customers and the SKUs and all that kind of good stuff, but also goes directly to where we develop and what kind of products and niches we're trying to get into a little bit more that gives us a little bit more of a defensible moat. But the third leg of that stool is also going to be, you know, as we think about just how we do business. And that's going to, you know, hopefully some of these things we'll be sharing as time goes on. So I want to, you know, just highlight that this is a multi-pronged approach to both sustainability and increase. and gives us comfort that we will get there because of the diversity of the optionality in front of us here.
spk06: Thank you so much.
spk01: Thank you.
spk11: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back to Dan Bernstein for closing remarks. Over to you, sir.
spk09: Thank you for joining us today. We appreciate your time, and we're looking forward to presenting our next results.
spk11: Thank you. Ladies and gentlemen, this concludes today's conference call.
spk08: You may disconnect your lines at this time. Thank you for your participation. Thank you. music music Bye. Thank you.
spk11: Good morning, ladies and gentlemen. Welcome to the Belfu's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with three-part advisors. Please go ahead, Jean.
spk03: Thank you, Bikram, and good morning, everyone. Before we begin, I'd like to remind everyone that this conference call contains certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results may differ materially from those expressed or implied by these forward-looking statements, due to a number of risks and other factors. Additional information about factors that could potentially impact our financial results is included in yesterday's press release and is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our subsequent quarterly reports and other filings with the SEC from time to time. We may also discuss non-GAAP results during this call and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me on the call today is Dan Bernstein, President and CEO, Farouk Tewiq, CFO, and Lynn Hutkin, Director of Financial Reporting. With that, I'd like to turn the call over to Dan. Dan?
spk09: Thank you, Jean, and thank everyone for joining our call today. I'm delighted to report we achieved record-breaking results for the second quarter in many categories. Revenue, adjusted EBITDA, bookings, and backlog were all at the highest level in Bell's history. And we would have to look back to 2015 to see comparative adjusted EBITDA results. This new milestone for Bell was delivered by our entire team and all three of our product groups. Commercial aerospace continued to rebound with $7.8 million in sales, up 43% for the same period last year, and up 26% sequentially. The EV and market sales were up 6.7 million, or 89% from the same period last year, and up 13% substantially. Power and Mennonetics continued to perform well, and with margin improvement due to the strategic initiatives we implemented over the past year, revenue generated from our distributor partners grew 10.8 million, or 23% over the same period last year. Connectivity margins are currently compressed due to the initial costs associated with ramping commercial error. Additionally, we had $9 million of revenue related to raw material expedite fees this quarter, where the overwhelming majority came from through our power segment. Although this is largely a pass-through with minimum administrative markup, this does have a negative impact on our margin. While this is an unusual source of revenue, we do expect this to continue in the near term until supply issues are stabilized. The supply chain continues to be constrained, impacting raw material availability, freight, and logistics, but that seems to be the new normal that every business is having to deal with. I'm very proud of our team and the contributions that drove this record-breaking performance, and I'm confident that we will continue our momentum throughout the remainder of the year. I would like now to turn the call over to Lynn to provide full financial update. Lynn?
spk04: Thank you, Dan. As Dan mentioned, Q2 was very strong with year-over-year growth seen across each of our product groups. Overall second quarter sales were $170 million, an increase of 23% from the second quarter of 2021. Gross margin for the quarter increased to 26.6% as compared to 24.7% a year prior, primarily due to our efforts on pricing over the past year. By product group, power solutions and protection sales were $71 million, up 28% from last year's second quarter. In addition to Dan's commentary on EB sales and expedite fee invoicing, the Power Group also benefited from strong sales in our CUI business, which posted an increase of 1.8 million, or 13%, from Q2 2021. Our EOS business, acquired in Q1 last year, also saw growth of 1.1 million, or 30%, from last year's second quarter. Gross margin for this group was 28.2% for the second quarter, a 230 basis point improvement from Q2 2021, largely driven by the benefits of pricing action taken over the last year. Our power solutions and protection group had a book-to-bill ratio of 1.9 during the second quarter of 2022 and a backlog of orders of 338 million, an increase of 41% from the 2021 year end. Turning to our connectivity solutions group, sales were 46.1 million, an increase of 7% from last year's second quarter, mostly due to the continued rebound of the commercial aerospace end market and higher sales of our passive connector and cabling products. Military sales continued to be challenged this past quarter, resulting in a 7% year-over-year decrease in the defense end market. Gross margin for this group came in at 27.6% for the second quarter of 2022, down from 30% in the second quarter of 2021. Much of the margin pressure relates to incremental training and overhead costs at the factories, as we've been quickly scaling the operations back up to accommodate the higher demand in commercial aerospace. The connectivity solutions group had a book to bill ratio of 1.2 during the second quarter of 2022, and a backlog of orders of 103 million at June 30th, an increase of 21% from December 31st. Lastly, our magnetic solutions group had Q2 sales of 53.5 million, up 33% from last year's second quarter, led by increasing demand for our integrated connector modules that are used in next-generation switching applications. Gross margin for this group improved significantly to 28.2% in the second quarter of 2022 from 23.2% a year prior. Margins for this group benefited from the higher sales volume and also a favorable shift in exchange rate of Chinese renminbi versus the US dollar, which lowered our labor costs in China versus the 2021 period. Our magnetic solutions group had a book-to-bill ratio of 0.7 during the second quarter of 2022 and finished the quarter with $140 million of orders down slightly from the 2021 year end level. Our selling general and administrative expenses were $24 million or 14% of sales up from 21.8 million in the second quarter last year, but down as a percentage of total sales. Within SG&A, the primary increases were related to salaries, rep commissions, travel, and advertising costs. Turning to balance sheet and cash flow items, we ended the quarter with a cash balance of $65.8 million, an increase of $4.1 million from December 31st. Our working capital increased by $15.3 million from the 2021 year end. we saw a $12.7 million increase in our accounts receivable balance offset by a $5 million reduction in our unbilled receivables balance at June 30th compared to the December 31st balances. Our DSO were 53 days at June 30th, 2022 compared to 54 days at December 31st, 2021. Inventories increased by 25.3 million from year end which is largely seen in work in progress as we continue to accommodate the increase in demand from our customers. In addition to changes in working capital, other items impacting cash flow for the first half of 2022 included capital expenditures of $3.5 million and our continued dividend program where we made payments of $1.6 million. Cash paid during the first half of 2022 for income taxes was $4.6 million and interest payments totaled $1.1 million. I'll now turn the call over to Baruch for additional color, outlook, and expectations. Baruch?
spk01: Thank you, Lynn. As we have spoken about the last few quarters, the initial plan was to build sequentially upon our progress in future quarters, and that is precisely what we are doing. We're proud to report our sixth consecutive quarter of year-over-year sales, growth, and margin improvement. as Dan mentioned, was the last time we experienced similar margins and we're delivering these results in a very challenging environment. Excluding the PPV part of our revenue, our margins would have looked even more impressive as a percentage of sales. Although we have started to see the fruits of our efforts, we're still on a journey and remain laser focused on continuous improvements. Looking toward the third quarter, We expect year-over-year top-line growth in the high single digits and gross margins higher year-over-year and more in line with the second quarter of 2022. Power and Magnetics will see better year-over-year improvement, while connectivity will be slow to follow till year-end as contracts come up for negotiations. Our backlog continues to look robust with continuously improving gross margins. That gets us excited as to our future prospects. Thinking beyond the third quarter to the balance of 2022, we see continued demand demonstrated by our strong backlog of orders. While the economic concerns of 2023 have dominated the airwaves, we have not seen any meaningful signs of a slowdown. Some softening could occur over time, but we remain highly confident overall in the business. From an operational efficiency perspective, there are still several internal initiatives underway. and additional details will be shared in the near future to update you on our progress. Our executive team had an off-site in May, which resulted in some very exciting takeaways that give us the confidence in our ability to drive further long-term shareholder value as we execute on our strategic plan and vision. We have identified diverse and numerous opportunities for continued margin improvement and are excited about the journey. The diversity of contribution gives us optionality to see where our improvement will be coming from. While these results are impressive, our work is not done, and it is on multiple fronts. We will celebrate this quarter with our teammates and quickly pivot back to the bigger task at hand. And with that, I'll turn the call back over to Dan.
spk09: Thank you, Farouk. At this time, we would like to open up the call for any questions you might have.
spk11: Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. We have a first question from the line of Theodore O'Neill with Litchfield Hills Research. Please go ahead.
spk02: Thank you, and congratulations on a good quarter. Dan, in your prepared remarks, you talked about, if I got this right, $9 million in expedite fees that you were able to bill your customers. Did I hear that correctly? Yes. Was that across all segments or one in particular?
spk09: Mainly focused, the majority of it's in power products, and bringing in semiconductors.
spk02: Okay, great. You're having some good success here in terms of growth rate in the e-mobility sector, which you've cited here as continued to see good growth in the quarter. How diverse is the customer base there, and is this share gain related, or is this some particularly good product fit?
spk09: I think it's good product fit. It's new technology. Most of all our designs were a single source at this point in time, so it's very engineering-derived.
spk01: How many non-disclosures do we have, Farouk? I think we have over 250 kind of non-disclosures, which ranges from anywhere, kind of startups, all the way to kind of big main staple names in the industry. And as Dan noted, this is still an emerging field. We had a first-movers advantage. We've been in this business for roughly 10 years when it early started on, and now we're starting to see the fruits of that labor and investment.
spk09: And our focus tends to be on niche markets, not the high-value automobile market. So, for example, trucks, transportation for the post office, mining trucks, things of that nature. Okay.
spk02: And are you seeing any changes in the dynamics in terms of products flowing between distribution channel and your direct channel?
spk09: Distribution has been and is substantially stronger than the OEM market at this point in time, and that falls back and forth. But we do see the market and distribution. They are a lot more aggressive buying material. Okay, thanks very much.
spk11: Thank you. We have a next question from the line of Jim Ricciuti with Needham & Company. Please go ahead.
spk10: Hi, good morning. It's actually Chris Granga on for Jim. Congrats on the great quarter. Last quarter you had referenced roughly 30 or 40 million of sales pushed out due to customer rescheduling. Has that trend improved, stayed the same, or expanded?
spk04: So that trend has continued. The number currently is about 34 million sales. of orders that was scheduled to ship in the second quarter that did not. So it's a very similar number to where it was last quarter.
spk01: And maybe just to add some color on that, that's not all on us. Partially it's maybe our material challenges, as Dan has spoken about, but also on our customer side, where we may have finished goods and products and ready to ship, but they're not ready as they are waiting in other parts of the system, so to speak. So it's a little bit of a mix of both of that.
spk10: Got it. Thanks. And anywhere where you're starting to see any demand deterioration or any areas of the business product group or market vertical that might be precursors to softening in consumer demand?
spk09: We are tremendously concerned about the recession concerns that we hear throughout the country, but at this time, we monitor our cancellations daily, and we haven't seen anything to give us any concern.
spk10: Excellent. Maybe one more for me, but you had alluded a little bit to it, but where do you stand with the strategy refresh, and could you provide a sense for maybe where margins could go from here once those initiatives are fully implemented?
spk01: Yeah, so I'd say we understand that there's a lot of work ahead of us and there's a lot of internal projects going on across all three segments. And these can range from sizes and scale from big things to smaller things. So it is coming from all ends in terms of our strategy. We think that we have a healthy room to go yet on the margin front. And, you know, we don't obviously put on any forward guidance, but we understand that we're still kind of climbing the stairs here early on. So we're going to leave it at that here.
spk10: Fair enough. Thanks very much, and congrats on the quarter.
spk01: Thank you.
spk11: Thank you. We have a next question from the line of Handy Susanto with Gabelli Funds. Please go ahead.
spk13: Good morning, Dan, Farouk, and Lynn.
spk12: Congrats on strong results. Farouk, I would like to ask questions about the pricing action. So how much of the benefit of pricing action Belfu's generated in the June quarter? And I'm wondering whether you can give more colors, like how much more? And then I assume more will come. But I don't know what kind of timing. And then maybe you can help us figuring out what magnitude.
spk01: Yeah, I appreciate the question here, Hindi. On the pricing side, when we initially started this, it was really a little bit of a combination of reactionary to the increased input cost, logistics, freight, and everything kind of that goes into producing these products. As we looked at some of these products last year, some of our components have gone up. We got price increases the tune of 10 times. The other part of it is we need to, in addition to recovery, look at what is a healthy and acceptable margin for us. And that answer is going to look a little bit different based on product, the competitive set, the customer, and where we are. So it's not a straight line across the bow here. It's a really nuanced and surgical approach to it. But we are not done in the sense that we're still seeing challenges in the supply chain. So as cost increases and go up or changes, we need to stay on top of that. So it's a continuous game. So the difficulty of answering your question here is twofold. One is it's ongoing. So if we're looking at Q2, for example, it happened a number of times. So we're not putting a number out there yet, but I would say while pricing has obviously gotten a big amount of airplay here, I want to also emphasize that we are taking market share, we are winning new business, and we are getting into new designs. So as we're going after these newer opportunities, we're pricing things a little bit more appropriate for a company. That means our kind of shareholder expectations and what we expect for ourselves. So I'll leave it at that. But what encourages me as we look out and part of my bullish view here is the diversity of it. So we're not seeing kind of just, again, one customer or one end market that this is going, but we have a ways to go. So I'll leave it at that.
spk12: I see. And then may I ask about commercial aerospace revenue? It is great to see the rebound. And then if I remember correctly, the run rate pre-COVID is somewhat close to 40 million. Should we expect the rebound to go further closer to the 40 million run rate anytime soon?
spk04: So the I'll answer the first part of that question. So our commercial aerospace sales for the second quarter were 7.8 million and to put that in perspective, that's up from 5.5 million in Q2 last year. So you know, as we had mentioned previously, commercial aerospace, if you take, uh, the cinch business plus the recently acquired RMS business, it was around 40, 45 million, um, pre COVID.
spk01: Um, so I think for government, so, yeah, I would say so, you know, so if we kind of go back to pre COVID, um, you know, pre kind of, uh, cutting back on spending in the industry and kind of grounding and all that kind of stuff that was in the news, we were roughly rendering in the mid forties. Um, Obviously, you know, that end market is coming back roaring, and we're seeing all the headlights. We think there will be a multi-year opportunity. So 45 is kind of the previous normal. The new normal should be well north of that. So I think that's how to answer. So we're early on in the game of recovery, and we've got a long way to go to get back to, at a minimum, the old normal, but definitely the new normal.
spk12: I see. And then... Can you give some input and takes on gross margin and OPEX? I'm wondering how sustainable gross margin at 25% to 26%. And OPEX, I saw that R&D dropped to 4.7 million. I'm wondering whether we would see a rebound in R&D.
spk01: Yeah, so the R&D, kind of similar to the commentary that Lynn made earlier on our wages, the magnetics group, there was a little bit of an FX favor in there. And I would say across all of our businesses, FX and multiple lines was close to a million dollars for the quarter. So I think in the near term, with the economic worldview, we think the dollar will probably continue to strengthen or maybe stay kind of where it is in relation to some of these other currencies. So I would say it is a benefit for us, probably around maybe for the near term, but it's not necessarily something we're planning on as we look at our operations and make sure we're running a very lean operation over here. So that's kind of the benefit that came from there. In terms of sustainability, I think we've been very public in terms of saying that we're continuing the climb, and that's going to come both on the pricing and revenue and picking the customers and the SKUs and all that kind of good stuff, but also goes directly to where we develop and what kind of products and niches we're trying to get into a little bit more that gives us a little bit more of a defensible moat. But the third leg of that stool is also going to be, you know, as we think about just how we do business. And that's going to, you know, hopefully some of these things we'll be sharing as time goes on. So I want to, you know, just highlight that this is a multi-pronged approach to both sustainability and increase. and gives us comfort that we will get there because of the diversity of the optionality in front of us here.
spk06: Thank you so much.
spk01: Thank you.
spk11: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back to Dan Bernstein for closing remarks. Over to you, sir.
spk09: Thank you for joining us today. We appreciate your time, and we're looking forward to presenting our next results.
spk11: Thank you. Ladies and gentlemen this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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