BELFA earnings call analysis

NASDAQ:BELFA Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good morning and welcome to the Belfu's fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with three part advisors. Please go ahead, Jean. Jean Marie Young | Investor Relations, Three Part Advisors: Thank you, and good morning, everyone. Before we begin, I'd like to remind everybody that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2026. These statements are based on the company's current expectations and reflects the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market close yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file 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 today on the call is Farouk Tuik, President and CEO, and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouk. Farouk Tewaik | President and CEO: Thank you, Gene, and good morning, everyone. We appreciate you joining our call today. I want to begin by expressing a big thank you to our global team for making customer service and meeting demand their top priorities and for delivering innovative technologies as a key partner to our customers. As a result, 2025 was a milestone year for Bell with record revenue and EBITDOT. We delivered net sales of $675.5 million for the full year, a 26.3% increase over 2024, and achieved a record GAAP and non-GAAP EPS. Fourth quarter sales reached $175.9 million, up 17.4% year over year. Our gross margins expanded to 39.1% for the year, reflecting strong execution and operational discipline. Aerospace and defense, including space, continued to be strong drivers for us in 2025. For the full year, A&D accounted for 38% of our consolidated sales, with 28% from defense and 10% from commercial aerospace. Recovery in the networking end market and growth in AI applications also contributed to higher sales in 2025. Order volumes remain strong across multiple end markets throughout the year, resulting in a full-year book-to-bill ratio of 1.1. We have seen continued improvement and strength heading into Q1. This sustained momentum in incoming orders highlights a healthy demand environment across our end markets and positions us well as we move into 2026. Our team delivered these record results despite headwinds from material pricing, particularly gold, copper, and PCBs, and unfavorable FX movements in the peso, renminbi, and shekel. We're actively monitoring these factors and have and will continue to take pricing actions to mitigate incremental costs, ensuring continued margin strength. Operationally, we successfully completed the closure of our Pingwao China facility in Q4. transitioning operations to a third-party supplier without interruption to the business. This move is part of our ongoing efforts to optimize our global footprint and drive cost efficiencies. We also made significant progress in strengthening our balance sheet, paying down our debt by $90 million during 2025. This has created additional capacity and flexibility for future investments and potential acquisitions as we continue to pursue growth opportunities. Looking ahead to 2026, we anticipate continued growth in aerospace, defense, space, and AI, the same revenue drivers that have benefited Bell over the past few quarters. Additionally, we have seen positive shifts in sales across the networking, consumer, premise wiring markets, as well as through our distribution channel. The rebound in these areas are expected to continue into 2026. We also foresee increased raw material input costs and a weaker USD, which will require us to proactively manage pricing and pass costs along where appropriate. Our pipeline for M&A activity remains active, and we are excited about several opportunities currently in various stages of evaluation. We anticipate a better backdrop in terms of M&A opportunities as the market noise settles down a bit in 2026. As announced a few weeks ago, we're excited to welcome Tom Smelker to our executive team. Tom joins us from Mercury Systems, bringing valuable experience and a fresh perspective in aerospace and defense. His leadership will help us better align our organization with changing customer needs and industry trends. As we continue to evolve, we are reviewing our segment structures to ensure we're well positioned for future growth. With aerospace and defense now representing a significant portion of our business, we see opportunities to further tailor our leadership and strategy to the unique demands of these markets. Before turning the call over to Lynn here, I would like to take a moment to recognize Pete Bittner, president of our connectivity solutions business. who will be retiring in April after 23 years with Bell. Pete has been instrumental in shaping and growing the segment, and leaving it in great conditions as he pursues his next chapter. And we thank him for his many meaningful contributions. Wish him great luck, and he'll be missed, but we're sure he'll enjoy his time with his wife and family. I'd also like to take a moment to recognize Dan Bernstein, who transitioned out of the CEO role in May 2025. This past year has been one of a significant transition for Bell, and I want to sincerely thank Dan for making it a seamless one. Our business transformation, which began years ago under Dan's leadership, laid a strong foundation for the company's continued success. His vision and commitment to Bell's growth have positioned us well for the future, and we're grateful for the guidance and dedication. On behalf of the entire organization, thank you, Dan, for your outstanding contributions and for setting Bell up for success. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and provide color on the outlook for Q1 2026. Lynn? Lynn Hutkin | CFO: Thank you, Farouk. From a financial standpoint, we had another strong quarter and year with continued margin expansion and solid sales growth across all segments. Fourth quarter 2025 sales were $175.9 million, up 17.4% from the same quarter last year. Full-year 2025 sales totaled $675.5 million, a 26.3% increase over 2024. On an organic basis, sales grew by $41.5 million, or 7.8% over 2024. All three product segments delivered organic growth for the quarter, demonstrating the strength of our diversified portfolio. Profitability improved alongside sales, with gross margin rising to 39.4% in Q4-25, up from 37.5% in Q4-24. For the full year of 2025, gross margin was 39.1% compared to 37.8% in 2024. This margin expansion was driven by improved absorption of fixed costs in our factories due to higher sales volumes, and by strong executions within each segment, maintaining discipline around SKU-level profitability. These results highlight our ability to drive value through operational efficiency and strategic focus. Now turning to our product groups. Power Solutions and Protection delivered another exceptional quarter, with sales reaching 92.5 million in Q4-25. an increase of 18.5% compared to the fourth quarter of last year. The sales growth in the power solution segment was driven by several key end markets, including a $1.5 million increase in sales of our front-end power products serving the networking end market in Q4-25 compared to Q4 last year. Fourth quarter sales into AI-specific customers reached $4 million in Q4-25, up from the 3.3 million in Q4-24. Fused product sales were up by 1.4 million in Q4-25, a 31% increase from Q4-24. Sales into consumer applications increased by 1.8 million in the current quarter, up 32 percent from Q4-24. And just to note, in our power segment, this is also where we had the acquisition last year, so there was some organic growth on the defense side as well. These areas of growth were partially offset by a decrease in sales of our rail products by $4 million, and e-mobility sales were down 1.1 million as compared to Q4-24. The gross margin for the power segment was 44.5% for the fourth quarter of 2025, representing a 390 basis point improvement from Q4-24. This improvement was primarily driven by higher power sales into the aerospace and defense end markets, a favorable shift in product mix, and better absorption of fixed costs at our factories. Our connectivity solutions group achieved sales growth of 15.1% during the fourth quarter of 2025, as it reached 60.5 million compared to Q4 24. This improvement was due to the continued strong performance in commercial aerospace applications, where sales totaled 18.2 million, an increase of 3.8 million, or 26% year over year. Sales into space applications amounted to 2.6 million in Q4-25, up 53% from Q4-24. Connectivity sales through the distribution channel were up 3.8 million, or 20%, versus Q4-24, primarily due to shipments into the defense end market through the distribution channel. Profitability within the connectivity segment continued to improve with gross margin for the group rising to 37.2 percent in Q4-25 from 36.6 percent in Q4-24. This margin expansion reflects the benefits of operational efficiencies achieved through improved revenue, a more favorable product mix, and facility consolidations completed last year. These positive factors were partially offset by minimum wage increases in Mexico. Lastly, our magnetic solutions group sales delivered a solid quarter with sales reaching 22.9 million in Q4-25, a 19.1% increase compared to Q4-24. This performance was primarily driven by higher shipments to a major networking customer. Gross margin for the group was 27.3% in Q4-25, down from 29.1% in Q4-24. This margin differential was due to minimum wage increases in China, an increase in material costs, primarily in gold and PCBs, and unfavorable foreign exchange impacts related to the remedy. Research and development expenses totaled $8 million in Q425, representing an increase of $1.1 million compared to Q424. This increase was primarily attributable to the inclusion of Endercon's R&D costs, which amounted to an incremental increase of $1 million during Q425. We anticipate that R&D expenses in future quarters will generally remain consistent with the Q425 level as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Selling general and administrative expenses for the fourth quarter of 2025 were 32.6 million, down 2.2 million from the 34.8 million in Q4-24, primarily driven by lower acquisition-related legal and professional fees in 2025 compared to 2024. Turning to our balance sheet and cash flow, we closed the year with 57.8 million in cash down $10.5 million from last year, primarily driven by our proactive efforts to strengthen our balance sheet, including paying down $90 million in long-term debt, resulting in $197.5 million of total debt outstanding at December 31, 2025. Additionally, we made $3.5 million in dividend payments, and we invested $12 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and $1 million from the sale of held to mature securities earlier in the year. During the full year of 2025, we generated cash flows from operations of $80.6 million. Taking into account our swap agreements, The weighted average interest rate on our debt balance at December 31st, 2025, was 4.4%. Looking ahead to the first quarter of 2026, we continue to see strength across all three segments. Historically, our first quarter tends to be our lowest sales quarter of the year, given the impacts of the Lunar New Year holiday in China. In light of this historical trend, and based on the information available as of today, we expect Q126 sales to be in the range of $165 to $180 million. Gross margin is expected to be in the range of 37% to 39% given anticipated headwinds related to higher material costs and the unfavorable FX environment we are in. Overall, our consistent performance, strategic investments, and operational excellence have positioned Bell for continued success. We remain committed to driving shareholder value, innovating for our customers, and capitalizing on growth opportunities across our markets. I'd now like to turn the call back to the operator to open the call for questions. Operator | Conference Operator: Thank you. We will now be conducting a 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 the 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. The first question is from Bobby Brooks from Northland Capital Markets. Please go ahead. Bobby Brooks | Analyst, Northland Capital Markets: Hey, good morning, team. Thank you for taking my call. So I wanted to touch on kind of sales initiatives moving forward. So you guys brought in the new head of sales about a year ago, right? And I'd just be curious to hear where he sees the most interesting opportunities for growth. Obviously, Farouk, when you initially joined as CFO a handful of years ago, you led a massive shift in the margin profile of the company, which a lot of that was sort of like low-hanging fruit that you targeted. So I'm just curious to hear if that's sort of same scenario, if Uma has seen that sort of same scenario, and again, like what he sees as the largest opportunities to go after. Farouk Tewaik | President and CEO: Yeah, thanks, Bobby, and good to speak with you here. I think that's a pretty nuanced question. As a reminder, we are largely in a medium to long-term design cycle businesses, right? So as we think about influence, and we think about A&D, I'd probably suggest the largest part of A&D for 2026 is going to be simply receiving orders from the customers as they get funding and deployment. So if we were to think about sitting early on in the year here about new wins and when they get funding, you're at least a year out, probably one to two years before you monetize them. In some of our shorter design cycle businesses on the other end, I would say something like Fuses you could probably see a win a couple of quarters out, and that translates to some sales or some of our consumer business. So we are a long-cycle design business. There's no quick wins here. We sell technology. We want to get in with the customer. We want to do the hard stuff, and therefore that does take a while. If we look at the past few quarters and some of the benefits that have been there, that has been a reflection of the work that the team has done at a global level, within the various businesses, right? So I would suggest that the wins and the performance that we had in Q4 was probably not much due to sales efforts that happened in Q4, right? This is stuff that probably happened earlier in 2026. So we are seeing the benefits of the global team folks in doubling down. When we look across the business, we have new wins across probably all of our end markets, maybe a little bit less so in places like e-mobility or Maybe some of our, you know, I'd say rail is kind of a little bit on a slow year, but I would say more often than not, we always have new wins. And when we think about the funneling process, right, we want to make sure we're going after a robust set of opportunities that are good opportunities and try to convert them to sales. And that process we started a while back. Now, that's not to suggest that we don't have work to do. On the last call, we talked about CRM implementation. In Q4, we redid, you know, a little over three dozen worth of contracts with our reps in the U.S. to really lean into new opportunities. So, you know, we're trying to move the whole system forward from compensation structures to software and data and and mindset shift, and it's been happening, right? It's evolutionary. So we've seen the wins. Where is it going to come from? I mean, we think probably, you know, there's a lot of money going into A&D, data centers, AI, a lot of obvious interest going in there. But, you know, quite frankly, our consumer business did very good last year. So I think what we like about us is we touch a lot of end markets. and we like the way they're looking today, heading in 2026, a little bit more maybe than early 25 or 24. So a long answer to yours. I just want to caution, we're not a quick-term business, and we're trying to sell more design-in type work or modified solutions versus just purely off-the-shelf stuff. Bobby Brooks | Analyst, Northland Capital Markets: Absolutely. Really appreciate that detail, Color Farouk. And then, maybe just turn into the one cue guide, very, very impressive, but just wanted to maybe unpack that a little bit more and maybe hoping to get a little bit more granular on the expectations for growth across the three segments. Lynn Hutkin | CFO: Sure, Bobby. So, you know, as we look to the first quarter, and I guess I'll compare it to this recent Q4 that just ended here, We're seeing a lot of the same areas of strength across all three segments, so not seeing much in the way of significant shifts or changes from Q4 to Q1. I think the only variable in there is the Lunar New Year holiday, which impacts primarily magnetics and then to a lesser extent power. So those are the areas where, you know, we may see a little bit of softness from Q4 to Q1. But other than that factor, everything is pretty similar to the Q4 drivers. Bobby Brooks | Analyst, Northland Capital Markets: Got it. Appreciate the call up there. Congrats on the great corner. I'll return to the queue. Operator | Conference Operator: Thank you. The next question is from Christopher Glenn from Oppenheimer and Company. Please go ahead. Christopher Glenn | Analyst, Oppenheimer & Company: Thank you. Good morning. I just want to build on Bobby's question about developing the commercial funnel. So you mentioned focus on design and then modified by modified bursts off shelf is how you're developing the funnel. That makes sense. We've heard that. I'm curious if you're noting any traction in win rates versus historical as you mature these strategies? Farouk Tewaik | President and CEO: I think we're doing a better job at defining what a win is and how we want it to be at certain levels of margin. The other thing I think we are moving more towards, as we head to 2026 and we talked about last call, is we want to really try to bring the whole Bell portfolio to our customers. I think historically we've been really more focused around selling a specific product, like a fuse or a connector or a power supply. And we do need to do a better job at doing a little bit more systems-type sales to our customers. Now, this is a little bit of a longer journey. But the idea there is we want to get more alignment to the customer, solve more of their problems and challenges, and really be – you know, a little bit more of a solutions, address the difficult things for our customers. So it's not just simply about more shots on goal, which we are seeing. We're seeing better shots on goal, but we still want to continue to evolve to, you know, higher content on goal. So, yes, we're seeing better. Also, the market's a little bit better place, right, which creates more opportunity for us. I think the team also, if you remember, we spoke on the last call where we started creating new internal groups and structures to align to that. So, for example, we created a key accounts group, right, which we have not had that most of the time. It was kind of sitting inside the BU's. Now we want to have a more Bell-focused key account groups that bring all of our products to the customers because we do have a lot of SKUs. um you know same thing on the business development efforts we're coalescing the teams around in markets as we think about products and directions so i would also argue customer service is an extremely important part of this as we create an easier user experience for our customers and we used to have a lot of different email addresses to customers and different forms and everything and the like or different pricing lists to our distribution partners So I think calling these things out to not underemphasize that there's a robustness in what we're doing that needs to be pervasive in our holistic approach to the market. So the short answer is yes there, Chris, but it's also more than just trying to get more shots on goal. Christopher Glenn | Analyst, Oppenheimer & Company: Great. Thanks. That was great, Colorfruit. And then on the AI customer base, you mentioned that as one of the continued drivers of growth next year. You know, you've often described it as being an early stage, I think, you know, with single source to well-funded more startups versus the headline big three or four. You're just curious if any of those customers are potentially, you know, positioning for, you know, adoption curve for their technology where you can coattail, you know, not necessarily, you know, first half of 26, but more conceptually? Farouk Tewaik | President and CEO: Yeah, I think the answer is yes. Sure. The body language from our customers, I'd say across the networking side, but specific to your question around AI, yes. And that is obviously reflected based on the bookings that came in, you know, towards the end of the year last year, the discussions that are ongoing with our customers, and obviously the ultimate outlook that we put out there in the quarter. So the answer is yes, we're seeing the positive momentum scaling and continue to move forward. And also, let's not forget, you know, there's a networking set of customers that bundle our product into their solutions that ultimately make it to folks like hyperscalers, right? So When we think about networking, it is obviously AI, and that is not an insignificant number for us, which is nice to see the team's efforts pay off there, but also the networking side is just as important, because we do touch AI in a couple of different ways, right? Christopher Glenn | Analyst, Oppenheimer & Company: Yep, understood. And then just defense, just wanted to I get a lot of questions about the mix. I think you're pretty broad-based, rotor, fixed-wing, munitions, comms, radars, maybe even. Just curious if all those categories, if that is accurate, you know, where the weightings are. Farouk Tewaik | President and CEO: Yes, in short. Christopher Glenn | Analyst, Oppenheimer & Company: Okay. Okay. Great. Understood. I understand. Farouk Tewaik | President and CEO: Yeah, I would say we want to be careful with kind of talking about it at our size here, right? But all the kind of main, you know, we're on all the major programs and some not major programs. So it's a very diversified portfolio. And we're, you know, to the things that you called out, munitions, things that fly, right? And we're doing more rounds. Obviously, space is a little bit tangent to that as well, but we cover encryption communication, right? So all the things that you talked about, we probably touch it. Christopher Glenn | Analyst, Oppenheimer & Company: Great. And last one, just housekeeping, any thoughts on share class consolidation? I think one of your holders generated a headline. Farouk Tewaik | President and CEO: Yeah, I would say, you know, I think from the gist of it, our shareholder structure is a little bit more nuanced from the perspective of the economic differential between the two shares, right, versus just a vote-no vote. So that's one. I would say, you know, as an appropriate due course, we'll have a company that a response and views on that at the appropriate time. I don't want to speak on behalf of the board, but at the appropriate time, we'll address that. And also, I think what we're trying to do here, Chris, and we've really been at this for the last handful of years here, is we want our fiduciaries to serve the best interests of all of our shareholders, A's and the B's. And as we build a company that's set up for the future, with, you know, good performance, investing in our employees and our customers, ultimately that's kind of what moves the needle. So I just want to, you know, we're very aware of the fiduciary duty, but I think the board at the appropriate time will have a response that's a little more formal to this. Christopher Glenn | Analyst, Oppenheimer & Company: Thank you. Farouk Tewaik | President and CEO: Sure thing. Operator | Conference Operator: The next question is from Theodore O'Neill from Litchfield Hills Research. Theodore O'Neill | Analyst, Litchfield Hills Research: Please go ahead. Congratulations on the good quarter. Thank you, Theo. Thank you. Yep. So, are you guys seeing any impact from the spike in prices on memory? Farouk Tewaik | President and CEO: I was going to say, you know, our customers, I would say, largely are the ones that feel it. We not directly are impacted by that. Obviously, we have our other, let's say, spike in prices that we're dealing with, like cold and copper I spoke about. But on the memory specifically, it's more I'd say our customers are influenced by that. Theodore O'Neill | Analyst, Litchfield Hills Research: Okay. And on the gold, copper, and print circuit board side and the weaker dollar, do you have the ability to hedge some of those or do you pass the pricing on? How do you adjust for that? Farouk Tewaik | President and CEO: Yeah, that's a good point. Today we hedge our effects exposure from a raw material perspective. You know, we're in the business of providing solutions to our customers and technology, so we want to focus on what we're good at. We're not running a prop desk here trying to hedge everything, right? So I think our approach has been we want to try to do our best to mitigate and offset price increases, but to the ability and work with our customers to the extent that we can't. We unfortunately have to pass it along, and I think that's not unique to us and really kind of in line with the supply chain behavior. But ultimately, we want to be great partners. The extent we can offset it, sometimes we will find alternate sources. We want to be a solutions provider really to our partners. But in cases we can't, we need to do the unfortunate decision of passing it along. Theodore O'Neill | Analyst, Litchfield Hills Research: Okay. And finally, on the aerospace side, do you have any exposure to the drone market? Farouk Tewaik | President and CEO: I would say we generally do, yes. I think the drill market is going through some interesting things, right, where there is let's call it more consumer that tends to get retrofitted as we're seeing out in the world and like Ukraine, that's not really our market. We're more in the military kind of U S primes and, you know, some of the European and Israeli OEMs, the stuff they manufacture. So we're not in the, let's say drones that you and I are maybe buying where we're in the more sophisticated drone game. Theodore O'Neill | Analyst, Litchfield Hills Research: Okay. Thanks very much. Yeah. Operator | Conference Operator: The next question is from Greg Palm from Craig Hallam Capital Group. Please go ahead. Danny Agerchon | Analyst, Craig Hallam Capital Group: Yeah, thanks. This is Danny Agerchon for Greg today. Thanks for taking the questions. Maybe just hitting again on A&D and maybe unpacking how you saw that develop in the quarter, maybe between Enercon and Corbell and maybe what you saw in some cross-sell business. And then obviously we know kind of about the increased spend, but as you look into 2026 here, what gets you excited about the growth in this business and what kind of visibility do you have here? Lynn Hutkin | CFO: Yeah, so Danny, I'll take the first part of that question. So the growth that we saw, when we talk about defense, it's both in our legacy Cinch business and through Enercon. We definitely saw growth in the Enercon business. As we look at the Cinch business, I think it's important to also keep in mind what we sell through our distribution channel. So there are direct sales and then there are sales through distribution, which we don't really break out into those end markets today. But we did see, as we mentioned in the commentary, we did see a nice increase in distribution that related to growth in defense for that cinch business. So I would say that it was, pretty split between the two. So both, you know, Cinch and Enercon had robust growth in defense in Q4. Farouk Tewaik | President and CEO: One thing maybe just to add to that is it's 2026, right? We're seeing the build rates on the plain side continue to increase and head in the right direction. Also, a lot of the programs around munitions and given, you know, what's going on in the world, these are well-funded programs. Danny Agerchon | Analyst, Craig Hallam Capital Group: programs so we think there'll be a prioritization to make sure those get to fruition and the finish line so as we look at an allegation of that we feel pretty good as to where we stand compared to what's funded out there okay no that's that's very helpful thanks and maybe if I can just just touch on gross margin here which was pretty strong in the quarter especially in power I know you mentioned some of those headwinds with with FX and an input cost but any way to quantify those, and then as we kind of have that push-pull between these input costs and passing on price in any way to think about potential margin expansion in 26? Lynn Hutkin | CFO: Yeah, I think as we look at the fourth quarter, I think we thought that we may have had some additional FX headwinds in Q4, but we have had hedging programs in place, as Brooke mentioned, So we're still seeing the benefits of those prior hedging programs come through the current periods. So, you know, as we look to 26, we do foresee some margin pressure there on FX. I mean, if you look at the Peso, Remenbee, and Sheckle, they're all moving in an unfavorable direction. And we do hedge probably half of that, but that's going to start rolling off. So we definitely see pressures there. And then even on the material side, that's something that it takes time to ultimately come through our numbers, right? As we're buying raw materials today, that's something that will flow through our financials at a later date. So we do think that we will see margin pressures in 26. And this is why we're, you know, really being mindful of pricing actions that we may need to take with customers. Farouk Tewaik | President and CEO: And one thing to just kind of flag on the pricing, right, it's a little bit of – it's not as simple as we wake up and raise our prices, right? There's a little bit of cadence to that, you know, so that some of the contemplations are do you reprice the backlog? Do you come up with an updated pricing list for distribution, which takes, I think, something like 30 days before it's effective? Yeah. So there's a little bit of a time issue. The other thing I would say, and we've talked about this in the past, while our margins are great and we'll always continue to try and push margin expansion, we have pivoted from a margin gain to a growth gain. So we need to make sure that we are winning our fair share of business and opportunities out there that we can get in on. And to enable that, there is some potential investment that we've been doing a little bit around the door-to-market, the systems piece of it, and the people piece of it. So I just want to make sure, and I know the margins, it's a lot of discussions on the bell earnings, and obviously we're very proud of our margins, but we are heading in some headwinds, and we've got to make sure that we have a middle of this kind of growth that's coming that we're positioned appropriately for, not picking out too much. Danny Agerchon | Analyst, Craig Hallam Capital Group: Yeah, no, that all makes good sense. I appreciate the color. I'll leave it there. Operator | Conference Operator: The next question is from Luke Young from Baird. Please go ahead. Luke Young | Analyst, Baird: Thanks for taking the question. I just want to double click on what we've been talking about in terms of, you know, what you've been doing to realign the sales force really thinking more about you know how do you attack markets or key customers but something that you said in the um in the script kind of caught my attention in with tom coming into had the connectivity business that there might be it sounds like opportunities even further down in the organization am i hearing that right in terms of aligning operations maybe even from a, let's say, manufacturing footprint to better attack some of these discrete opportunities? Farouk Tewaik | President and CEO: Thanks for the question there, Luke. I would say a couple things just to maybe answer it from the back way of your question here. So on the operational side, you know, we've, I can't remember, seven, eight facilities. We've done a lot. So what's going to dictate facility moves is the current state of the business and the customer demand, right? We pride ourselves on working with our customers. So obviously for a while, it was a lot of discussion around China to India, then that froze. You know, if that kind of starts up, for some people it did start up, we were going to move some of our products to India. So I would say given the geopolitical world that we live in and realignment and localization of supply chains, We are in these, let's say, active discussions, right? But in terms of Bell and standalone basis, you know, putting aside geopolitical and supply chains, I think our facilities are pretty good. So we have to react to the fundamentals of the market. I think our biggest opportunity here is around the go-to market and sales piece of it. I think maybe just to highlight on, you know, moving a facility for us is a big task, right? And it's not simply as just moving equipment, building some buffer supply, moving equipment from place A to place B. You need to set up a lot of kind of the legal structures. And if you're talking about AMD, there's a lot of regulatory hurdles to jump through as we're setting up, for example, our Slovakia factory to be more AMD facing to the European markets. We're living through the complexity and spider web of getting all the clearances and certifications on defense weaponry control. In addition to that, customers usually always have to and want to come out to your facility and do audits, and usually there's feedback, and that takes a whole issue. So, you know, it's not easy. We don't take these decisions in moving facilities lightly. So we need our customer or market changing dynamics to force our hand on a cut on a facility move, go to markets, Our products today that we have that can be bundled together, that can be brought to bear, as we talked about the key accounts group earlier, that is our biggest opportunity at hand. And then operations, you know, there's always things to be done, sure. But I think we've done so many of them that we need to live in growth land. And if we're not going to move facility, unless it's going to help us grow, right? Luke Young | Analyst, Baird: Yeah, that was super helpful. Thank you. Nearer term, just curious from a guidance standpoint, you know, Lunar New Year obviously having a seasonal impact as we've normally seen the business, but it's pretty late this year. I think it's almost as late as it can be just from a calendar standpoint. Would you normally have maybe a little better feel for that seasonal impact in the typical year? Is there any conservatism just because of Lunar New Year timing in the guidance? Farouk Tewaik | President and CEO: You know, I think, you know, as you know, Luke, in public land, right, everybody's always trying to figure out the optimal way to guide the street. Our perspective from guidance is we want to land in range, and we build it around the midpoint, right? So we're not trying to – we don't build it to the high end point of our range and, you know, hope to God we go over range. We build it to the midpoint, right, to allow for some room for shifting from corridor to corridor. Obviously, we're an AMD. That tends to be kind of sometimes funny business. if we allow for some over-ordering on fuses. Yes, given how late we are in the quarter, talking about Q4 right here, we are roughly in the back of February. Yes, we have better visibility. But to put your comment and question specifically about Chinese New Year, it's two weeks off, right? Everybody contracts down. It's not just us. It's all the CMs. It's all our customers in the Far East, right? So as a result of that, everybody goes pencils down for two weeks. And when they come back, it doesn't just turn on a dime. Usually there's a week of, let's say, upstart time, getting back into the groove, getting things going. So you're probably talking somewhere between two to three weeks' loss on a three-month period. That's not insignificant. So I wouldn't say conservatism. I would say we want to do what we say we're going to do, and we're going to give it our best guess. So we're not trying to be conservative on that. Luke Young | Analyst, Baird: Fair enough. Just want to zoom out from my last question, you know, the power side of networking, obviously you've got some exposure there. I mean, the higher levels of power, the power of these more capable chips really becoming quite apparent in that world right now. And I'm just wondering to what extent you're seeing any pull through from a design cycle point of view for high voltage components from either your tier one customers or your direct customers in that world and especially if there's any IP that might be leverageable either, I think, rail or e-mobility both have some high voltage IP that might be interesting. Farouk Tewaik | President and CEO: Thank you. Yeah, I was going to say, I think there's a couple of things to unpack there, right? Specifically, the AI networking world, it's always going to go to more high power, higher density, less energy, right, more efficiency, right? So that's a constant theme over ever. Now, we are seeing, I would say, some new designs coming in relatively maybe in a short period of time. Maybe back in the day it was a three- to four-year design cycle. Things are coming in a little bit sooner. So we are, for example, selling some products at AI, but we're already working on the next-gen stuff. So that has happened a little bit quicker. I will also say generally, right, we do have exceptions, but we're not really an IP business, right? We R&D to fix or address a problem. And then what we want to do is we want to, we do a pretty good job at this inside of each of our business units, is how do we leverage what we've developed for somebody to either standardize it or slight modifications, and then we extend the reach of that product, whether it be through distribution or other similar customers. The other thing we are seeing is which is actually interesting, is some of our actual e-mobility products, given the nature of those products, we are starting to see some military folks looking at, let's say, high-end products and services but not quite military-grade, so kind of what I guess we're calling semi-military being used. So we are seeing that extension of the R&D effort that has gone to e-mobility and to other markets. Now, you know, we haven't won anything yet, but we're feeling good about potential wins coming, if that makes sense. So that's how we extend our R&D dollars. We're not looking to reinvent the world every time. Luke Young | Analyst, Baird: Yeah. Okay, cool. Appreciate it, Brooke. I'll leave it there for now. Thank you. Operator | Conference Operator: The next question is from Jacob Parsons from Needham and Company. Please go ahead. Jacob Parsons | Analyst, Needham & Company: Hi. Thanks for taking my call here. I'm just asking a question on behalf of Jim Rusciutti. So, you know, we've been kind of hearing a better tone in the commercial aerospace market. particularly with the leading domestic players in the marketplace. So how are you guys thinking about this area of the business in 2026 and potential for better growth within the connectivity solutions area? Farouk Tewaik | President and CEO: So as a release to commercial air specifically, right? I mean, for better or for worse, we are, from an OEM perspective, are attached to our largest North American customer. And the way that we're going to make more money, and to be clear, we service that customer both through our connectivity and our power A&D business. So the way we're going to grow revenue is a direct correlation to increase build rates, right? And we've lived the ugly side of that when there was kind of all the union negotiation. If you recall, I think it was Q4 last year, there was a shutdown. It kind of, you know, threw our business a little bit out of whack or back in the days of the grounding of the MACs. So we are going to see how that correlates to the build rates. So what we always point folks to is I think, you know, they're very public about build rates and what's going to get approved and not approved. So take a view on that. And that should have a direct correlation back to us. On the connectivity business, so not the power business, there is an MRO element to it, right? So as we think about MRO cycles, I tend to think about are people on the planes flying being consumed and miles being put on these planes? And so often, those planes need to be kind of retrofitted or MROs, right? So we think flights, and when we look at the earnings of some of the flight operators out there, you know, people are flying and planes are moving. So we feel both good on the OEM and MRO side. Jacob Parsons | Analyst, Needham & Company: Yeah, that's all super, super helpful. And if I can just kind of get one more in. So I'm curious, has the book to build – ratio varied much by market vertical, and which areas of the business have you guys seen the biggest changes relative to last quarter? Lynn Hutkin | CFO: Yeah, so I think on the book-to-bill side, you know, Farouk had mentioned we were at 1.1 for the full year. You know, I think our book-to-bill has strengthened as the year progressed. In Q4, our book-to-bill was 1.3, and And I would say that strength was seen across all three product segments. So there's not one segment that is really high while someone else is below one. All three are very strong in Q4. Jacob Parsons | Analyst, Needham & Company: Awesome. Thank you for taking my questions. Operator | Conference Operator: The next question is from Hendy Susanto from GetBellySons. Please go ahead. Hendy Susanto | Analyst, GetBellySons: Good morning, Farouk and Lynn. I have several questions. Theodore O'Neill | Analyst, Litchfield Hills Research: Good morning, Indy. Hendy Susanto | Analyst, GetBellySons: Farouk, can you help unpack more details on your AI opportunities in terms of end products or end devices to help us build better ideas? Some products that come to mind are like power modules, network switches, traditional compute, AI servers, and optical networking. Perhaps you can help us build better ideas of your end devices? Farouk Tewaik | President and CEO: Yeah, I would say, Hindi, we want to be a little bit careful here, but our projects I go into are more around the power side of the business. And, you know, the bell power is kind of where it's at, I would say, from a direct where we know things are going for AI. Obviously, our magnetic business is also beneficial from the networking guys. and they're kind of the RJ45s, kind of what we call our magnetic solutions, which is really more maybe a potential interconnect product. So that's how we go at it largely. Our connectivity business doesn't do too much into those end markets, given that we're really more low-volume, medium-volume, harsh environment applications, and that price is coupled with it being more copper-based. So that's how we kind of go at the AI piece of it. And I should say, generally, we do some stuff with the hyperscalers, but that's not really our focus markets. If you remember, we got in trouble there back in 2020. So we want to make sure we pick spots where technology and service matters versus just a copy product with a race to the bottom of pricing. Hendy Susanto | Analyst, GetBellySons: And Farouk, may I quickly check if there are products that may carry some opportunity for physical AI or humanoid robots? Farouk Tewaik | President and CEO: I think the humanoid market is still getting settled. Today it's definitely not a big dollar amount. It's very much R&D-centric. I think there's a question around, from a humanoid perspective, is that ultimately a consumer product like auto, or is that going to be a technology play? I still think we're far out from mass production, but today it has not been a discussion level for us that's a dominant one. Hendy Susanto | Analyst, GetBellySons: Okay. And then what are your latest view and outlook on pockets of market recovery and inventory rebuild activities among customers? Farouk Tewaik | President and CEO: I don't think we, you know, right, I think the inventory rebuild is kind of stacking up the shelf really on the customers. I think given that everybody... I'd say went through a pretty difficult lesson back in 23 and 24 and overlaid with the terror of geopolitical world we're in. I'd say people are generally ordering more to demand versus building up the shelf. And, you know, quite frankly, I think that's probably a good thing in the sense where if you want to build the shelf, then you've got to deal with the hangover. So today we feel largely, I'm sure there's exceptions, obviously we touch a lot of markets, But largely, we feel it's like ship-to-demand versus ship-to-put-on-a-shelf-and-build-a-buffer stock. Because obviously with tariffs, if things move, the things that you put on the shelf all of a sudden really change pretty quickly. So I think there's a little bit of nervousness around that from our customer perspective. Hendy Susanto | Analyst, GetBellySons: Yeah. And then, Lynn, I have a question on seasonality of sales in aerospace and defense. If I look at Endercorn sales, I'm trying to figure out what seasonality we need to model and then plus considering that you may also like winning like more design. So what kind of seasonality can we expect in 2026 in aerospace and defense? Farouk Tewaik | President and CEO: I'd say generally aerospace and defense is not a seasonal business where we play, right? North America, Israel, Europe, right? I would say it's really more around, you know, sometimes they move it from one court to the other when things get funding, right? That's kind of where the choppiness comes from. But it's not really a seasonal to seasonal play. I would say, you know, if there was a seasonality element, not to the intercom business, obviously, or connected business, but there is some less working days generally in Q4, just with the holidays and Thanksgiving and some of the Jewish holidays in October. But other than that, I would not say it's a seasonal business. Hendy Susanto | Analyst, GetBellySons: Okay. And then I have a question on capital allocation and debt payment, especially following the $90 million of debt payment in 2025. What is your playbook for capital allocation and debt payment? Luke Young | Analyst, Baird: Go ahead, Lynn. Lynn Hutkin | CFO: So I think as we look at capital allocation, you know, Priority number one is reinvesting in the business through CapEx. We have regular way dividends that we continue to pay. Barring anything on the M&A front, debt pay down is where it would be. And I think from a dollar perspective, the last couple of quarters, they've been robust debt pay downs to the tune of, call it between $20 and $30 million a quarter. And we would look to continue doing that going forward. Now, keep in mind Q1 tends to be a heavy cash utilization quarter, just with our annual bonus payment, insurance payments, things like that. So I expect Q1 would be on the lower side. But as we look to Q2, Q3, Q4, that would be around the level of debt pay down, assuming there isn't anything on the M&A front. Hendy Susanto | Analyst, GetBellySons: Got it. Thank you, Farouk. Thank you, Lynn. Jacob Parsons | Analyst, Needham & Company: Thanks, Andy. Operator | Conference Operator: Thanks, Andy. The next question is from Bobby Brooks from Northland Capital Markets. Please go ahead. Bobby Brooks | Analyst, Northland Capital Markets: Hey, thanks for taking the follow-up. So just wanted to circle back and ask specifically kind of on Enercon and cross-selling opportunities there. Obviously, you mentioned this, and more specifically with aerospace and defense, these are long-cycle programs, right? So these aren't happening one quarter and seeing the outcome the next. But just curious to hear if maybe that's still on the back burner just because demand was so robust in 2025 and the segments kind of just had to deal with the demand that they were seeing. So just kind of curious to hear more on that. Farouk Tewaik | President and CEO: Yeah, no back burners here. Yes, we understand we got to prioritize, but also remember we have to live in new wind land, right? Because we can't influence when orders come from our customers, right? When the program gets funding, can they sell it, right? What does the military budgets look like? And then you get an order. The thing that we can influence is going after new programs and aligning ourselves to new wins and new design cycles, right? So as we go after these, we are doing a better job at collaborating. I think we're doing a better job at ensuring that both the connectivity and the power side of the house understand what they're going after and weekly calls and putting in some incentives along the way, we can do a little bit better job, but that process is in place. What's interesting is we're definitely seeing some of this, let's say, go to market. There was a couple of interesting quotes in Israel where I was alluding to earlier from our e-mobility products that there was a need locally in Israel that our team flagged, but they didn't need quite the let's say high-levelness of the military stuff, but they needed really complex products, which our e-mobility and Slovakia teams do a great job at. So we're trying to quote those into Israel. So I classify that as kind of a real-time opportunity that we're chasing. Now, we've seen a few of those as well. Another example of this is there was a cabling need at our, let's say, U.S. Enercon business, which our connectivity group can assist with. So they're working on kind of getting all that qualified and approved. Normally, in this case, Enercon would have had to go outside and deal with others, but we're able to capture more of this spend. So the opportunities are real, but in the spirit of greediness, we'd always love to do more. But I think as we're getting more bids out there now at a joint level, we're seeing some nice traction. Hopefully we continue to do that and kick that into gear a little bit more. Bobby Brooks | Analyst, Northland Capital Markets: Awesome to hear. And again, congrats on the great quarter. Thanks, Bobby. Operator | Conference Operator: There are no further questions at this time. I would like to turn the floor back over to Farouk Tewaik for closing comments. Farouk Tewaik | President and CEO: Thank you for that. And, again, could not be more proud of the team for the great year. Again, also thank you for all of you guys joining the call today and taking interest in what we think is a very, very exciting times for Bellevue. So thank you. I look forward to speaking to you in a couple of months from now. Operator | Conference Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090005-00'00'

NASDAQ:BELFA Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: All participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference call, please signal the operator by pressing star, then 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 advices. Please go ahead. Jean Marie Young | Investor Relations, Three-Part Advisors: Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations and reflect the company's views only as of today. and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market closed yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations as discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for the fiscal year ended December 31st, 2024, and our quarterly reports and other documents that we have filed or may file 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 today on the call is Farouk Tewik, President and CEO, and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouk. Farouk Tewik | President & CEO: Thank you, Jean. And we appreciate everyone joining our call this morning. Thank you. During the third quarter, we continue to see robustness across most of our end markets, particularly within the commercial aerospace, defense, and networking sectors, with continued steady rebound within our distribution channel and consumer lines. Our profitability this quarter surpassed our expectations thanks to the continued dedication and discipline of our global team. This strong performance reflects our global team's dedication from pursuing strategic business opportunities and investing in key customers to effective procurement cost management, operational efficiencies, and improved fixed cost absorption, resulting from increased sales volumes. As part of our ongoing commitment to operational excellence, we are continuously reviewing our global footprint with an eye towards scaling Bell for long-term performance. In October, we made the strategic decision to transition operations from an additional facility in China to a subcontractor during the fourth quarter of 2025. This move follows a thorough evaluation of internal manufacturing costs versus outsourcing, and outsourcing in this instance proved to be the better alternative. We expect the transition to largely be completed by December 2025 with a fair amount of annualized cost savings to be occurring as we head into next year. We're also progressing with the restructuring initiative at our Glenrock, Pennsylvania facility. Following the sale of the building in the second quarter of 2025, we are now transitioning the remaining manufacturing operations to other bell sites, with full completion expected by early 2026. The Glenrock initiative is projected to incur minimal incremental restructuring cost in Q4 2025. And throughout this process, we have already realized significant annualized savings as we had previously discussed. To put this in perspective for some of our newer investors, our restructuring efforts over the past four years have resulted in seven facility consolidations in addition to the sale of our check business in 2023. These actions have resulted in over 600,000 plus net square footage reduction in our manufacturing lines while leaning into automation and investing for the future of our factories. And I recall that, again, just to put a pin on it in terms of where we are heading, which is the more important part. As we approach the end of 2025 and look ahead to 2026, our focus is and has been firmly on our go-to-market strategy and driving growth, both organically and inorganically. Throughout the past few months, we have been meeting with Bell's key leadership across the world to identify the areas, methods, and resources needed to better achieve top-line growth. While we're in the early stages of strategic planning, I want to emphasize the exciting collaboration and energy within Bell's extended leadership team as we chart our next chapter. One of the common themes emerging is shifting our historical focus from products to end markets. and customers to ensure we are delivering the totality of Bell to them. This mindset shift will take a while to cement, but is a logical step for a company such as Bell, given the impressive breadth of our product portfolio. This is an exciting effort and one that is key for a long cycle design business such as Bell. In addition to driving growth, we're investing in the foundational structures that support our business, especially around IT systems and data infrastructure. To give you an example of some of the current initiatives, we are in the process of updating and implementing the CRM platforms, travel management software, developing various dashboards, tools for key financial and operational metrics and KPIs. These enhancements will enable our leaders to make faster data-driven decisions, strengthen accountability, and improve overall performance. Standardizing our processes and terminology will also allow us to scale efficiently and seamlessly integrate future acquisitions. In summary, there's a tremendous amount of activity and excitement underway at Bell, all aligned to our common goals of growth and continued maturity. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and some color on the Q4 outlook. Lynn? Lynn Hutkin | CFO: Thank you, Farouk. From a financial perspective, we delivered another strong quarter marked by continued margin expansion and robust sales growth across all segments. Third quarter 2025 sales totaled 179 million, representing a 44.8% increase compared to the same quarter last year. In addition to the 34.4 million of incremental revenue in the current quarter related to the Enercon acquisition, Each of our three product segments achieved double-digit organic growth over last year's third quarter. Profitability improved alongside sales, with gross margin rising to 39.7% in Q3 25, up from 36.1% in Q3 24. This margin expansion was driven by improved absorption of our fixed costs in our factories with the higher sales volumes, and by strong execution within each of our segments in maintaining discipline around the SKU level profitability. Turning to some details at the product group level, power solutions and protection delivered another exceptional quarter with sales reaching 94.4 million, representing a 94% increase compared to the third quarter of last year. Excluding A and B, organic sales grew by 11.3 million or 23.2%. reflecting strong demand for our power products in key markets. Sales of power products for networking applications increased by 11.4 million. Growth within the networking market reflects both rebound in demand following a long period of inventory destocking and new incremental demand driven by AI. As we've noted in the past, it is difficult to isolate exactly how much of this growth is AI driven. but to provide a comparable metric to prior quarters, our third-quarter sales into AI-specific customers were 3.2 million in Q3-25, up from 1.8 million in Q3-24. Other areas of strength within the power segment were seen in sales of our FUSE products, which were up 1.8 million, or 41%, from Q3-24, and an increase of sales into consumer applications of 2.3 million, or 39%, from Q3 24. As an important note, FUSE products and consumer-facing products have very short lead times and are generally the first areas where we see the pickup in inter-quarter turns, which is a positive indicator for the overall business. As an offsetting factor, e-mobility sales were 2.2 million in Q3 25 versus the 3.4 million in Q3-24, and sales into the rail market were 8 million in Q3-25 versus 9 million in Q3-24. Gross margin for the segment came in at 41.8 percent for the quarter, up 240 basis points from Q3-24, largely driven by the higher sales volumes and better absorption of fixed costs at our factories. Turning to our connectivity solutions group, sales for the third quarter of 2025 reached 61.9 million, up 11% compared to Q3 24. This growth was primarily driven by strong performance and commercial aerospace applications, where sales totaled 18.8 million, an increase of 6.3 million, or 50.5% year over year. Connectivity product sales into defense applications also continued to be robust in the third quarter, with sales rising 3.6 million, a 31.2 percent increase from the prior year quarter. Contained within our defense number here are sales into space applications, which amounted to 2.5 million in Q3-25, up 25 percent from Q3-24. While connectivity sales through the distribution channel were down 1.9 million or 9.7% versus Q3 24, it's important to note that this reflects the shift of an end customer out of the distribution channel and who we are now servicing directly. Profitability within the connectivity segment continued to improve with gross margin for the group rising to 40.3% in Q3 25 from 36.6 percent in Q3 24. This margin expansion reflects the benefits of operational efficiencies achieved through facility consolidations completed last year and a more favorable product mix. These positive factors were partially offset by minimum wage increases in Mexico and foreign exchange pressures related to the peso. Lastly, our magnetic solutions group delivered a strong quarter with sales reaching 22.7 million, an 18% increase compared to Q3 24. This performance was consistent with the expectations we shared on our last earnings call and was primarily driven by higher shipments to a major networking customer. Gross margin for the group improved to 29% in Q3 25, up from 27.3% in Q3 24. This margin expansion was supported by higher sales base and the benefits of facility consolidations in China, which helped reduce fixed overhead costs. These gains were partially offset by minimum wage increases in China and unsavorable foreign exchange impacts related to the remedy. At September 30, 2025, R&D expenses totaled $7.5 million in Q3, 2025. representing an increase of 2.1 million compared to Q3 24. This increase was primarily attributable to the inclusion of Enercon's R&D costs, which amounted to 2 million during Q3 25. Looking ahead, we anticipate that R&D expenses in future quarters will generally remain consistent with the Q3 25 level, as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Our selling general and administrative expenses for the third quarter of 2025 were 32.8 million, or 18.3 percent of sales, up from 26.7 million in Q3 24. Importantly, SG&A as a percentage of sales declined from 21.6 percent last year. reflecting continued progress in managing our cost structure as our business grows. The increase in total SG&A dollars was primarily driven by the inclusion of Enercon's SG&A expenses, which contributed $6.6 million to the quarter, and our U.S. medical claims continued to be high in the third quarter. As noted in prior quarters, our legacy level of SG&A expense was maintained during our period of reduced sales, such that we believe we are already spending the right amount on fixed SG&A infrastructure needed to support future growth. Turning to our balance sheet and cash flow, we closed the quarter with $57.7 million in cash and securities, down $10.5 million from year end. This decrease was primarily driven by our proactive efforts to strengthen the balance sheet, including paying down $62.5 million in long-term debt. resulting in $225 million of total debt outstanding at September 30 of 2025. Additionally, we made $2.5 million in dividend payments and invested $8.6 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and 1 million from the sale of health maturity securities earlier in the year. Looking ahead to the fourth quarter of 2025, we continue to see strength across all three segments. Historically, we have seen seasonality in the fourth quarter with fewer production days due to the holidays being celebrated around the world. In light of this historical trend and based on the information available as of today, we expect Q4 25 sales to be in the range of 165 to 180 million. We noted in the second and third quarters that the trend of inter-quarter sales has resumed, and this range assumes that trend continues into the fourth quarter. And with that, I'll now like to turn the call back to the operator to open it up for questions. Operator | Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Bobby Brooks from Northland Capital Markets. Please go ahead. Bobby Brooks | Analyst, Northland Capital Markets: Hey, good morning, guys. Thank you for taking my question. I just wanted to circle back on the last piece that, Lynn, you were touching on for the fourth quarter guide. Obviously, something that caught my eye was the historical trend of 4Q being lower than 3Q. And you mentioned that trends of inter-quarter sales have have resumed and that the range assumes that continues in the fourth quarter. I was just wondering if we could just discuss, discuss what other factors might be at play driving that outlook a little bit more detail. Cause I feel like that's, you know, a really kind of exciting development for you guys. Farouk Tewik | President & CEO: Yeah. Hey Bobby, just, I'll let kind of Lynn jump in here with the more details, but I just want to kind of call out a comment that caught my ear here, which is, this kind of step down over Q4, I think you said bucking the seasonality trend. I think if you look at, you know, we see a potential of that if you just look at the range that we put out there, 165 to 180 versus, let's say, the 179 that was delivered, so possibly. But when we look at the range, I think it's broader than that in the sense that we do expect some seasonality, right? I mean, at the end of the day... we're going to have fundamentally less working days as we head into the holiday season and year end and as we look kind of around the world and also just various holidays, whether it be kind of Golden Week or some of the holidays, for example, in Israel. So I just want to be mindful that we just do have less working days. So could it happen? Sure. I think the good news is we're expecting it to be a good quarter, and maybe we beat Q3, but I just want to be mindful of that. And I'll turn that over to Lynn here. Lynn Hutkin | CFO: Yeah, so just to add to what Farouk said, I think that we are seeing continued strength in areas like commercial air, defense, AI, space. We are continuing to see the rebound coming through in networking and distribution. So all of these trends are continuing from Q3 into Q4. So it's definitely end market strength continuing. But to Farouk's point, just mathematically, there are fewer production days in the quarter. So there's Golden Week in China, which was the first week of October. And then there's Thanksgiving and all of the winter holidays throughout the world in December. So those are the pieces. So I mean, if you stripped out the holidays, the messaging would likely be different. you know, if you look back at our trend historically, you know, having a dip from Q3 to Q4 is pretty natural for us. So. Bobby Brooks | Analyst, Northland Capital Markets: Yeah, I really appreciate that color. And I guess more so it's just, I definitely can appreciate that. Yeah. You know, a lot of the ranges would be for QB coming in lower than three Q, but I guess what just caught my eye was the guidance that you gave matched what the guidance was for three Q and, And usually your guidance is for even the high end of the range being lower than what 3.2 was. But I can appreciate those puts and takes you just laid out. The other piece is just like on those legacy customers and kind of the order trends, is it fair to assume that those, it seems like it's fair to assume that those are still trending positively, but maybe could you give some more context as to like how to think about where they could go like obviously we're coming off like trough levels in 24 but do you think they can like do you feel like they are like continuing to improve or are they just at an improved level now stabilizing just curious to hear more on that i think if we look if we zoom out and we look at kind of let's say the last five years 2020 2025 i think the industry would generally agree with the statement that it's been anything but normal Farouk Tewik | President & CEO: in terms of the extreme extended lead times that happened in the earlier part of the timeframe I just laid out to an extended dip, if you will, where the industry was kind of down for a longer time than normal. And then you overlay a lot of geopolitical and economical uncertainties, let's say, right? So I think the reason I point that out, I'd say is It's still a little bit, I would say, not normal. And I think what we're seeing is a little bit of maybe hesitation, if you will, on the part of the customers and kind of robustly coming back. So the good news is that the attitudes have changed a little bit, I think, from a historical perspective. But what we are seeing in our business, and we're looking at backlog and discussions, there's definitely a positive outlook. I think maybe if you look back at, again, we have a lot of customers in a lot of places, so just general terms here. But generally, we'd see people maybe coming back a little bit stronger. And I think if you look at the industry-wide, and I was at a conference last week, there was a little bit of timidness. So people are maybe not investing as much in a buffer stock and really more kind of just ordering as needed. But what we really look at is the end demand, right? Our customers' demand. We're in a B2B business. So what does their demand cycles look like? Where are their products going? And are they growing? And the answer is yes, as reflected with our number and with our guide. So we like the outlook, but I think it's hard to generalize that everybody is feeling all, you know, yippy about the world. So nonetheless, we like our positioning. We like where we are with our customers. And I think we'll have pretty good outcomes here. Lynn Hutkin | CFO: And just to add, our book-to-bill was positive again this quarter. So that's the third consecutive quarter of a positive book-to-bill ratio. And I mean, we hadn't seen that trend since back in 2022. So I think just generally, we're seeing more activity, which is positive. Bobby Brooks | Analyst, Northland Capital Markets: Got it. And then just last one for me is, It was really impressive when you were going through each kind of segment of the power, and it really seems like power was driven, this robust results in power were driven across many different segments. And it was nice to hear you break out what Enercom was as well. And just curious on Enercom, You know, is the integration of them into you guys kind of wrapped up now, or is there still a bit more to go? And then just curious on, obviously, you guys are working on long lead time projects, but any early reads on kind of cross-selling opportunities maybe started to bubble up here? Farouk Tewik | President & CEO: Yeah, so I would say I think we want to be just mindful of the word, you know, integration, because the plan was never... kind of a, let's say, classical approach to integration, right? So for our, when we think about integration, it's really around alignment from a go-to-market and tackling opportunities and co-selling and making sure that we are kind of creating opportunities together. And obviously, in Europe, it's a little bit of a different playbook as we've talked about in the past, right, just in terms of trying to manufacture a little bit more there and be more present in our customers' backyards. But putting all that aside, I think we're definitely moving in the right direction. There's definitely obviously more work to be done, but we are seeing some nice, let's say, early sparks of where one side of the house is bringing an opportunity to the other side of the house. I think our, let's call it, lead sharing, co-tackling is better, but we do have more room to go, keeping in mind that while we also want to do that, it is a very busy market, right? So step one, we've got to do our day jobs and get out and push, and we're seeing the benefits of that strategy, but also want to make sure that we're more aligned. So I would say we like what we're doing. We could do a little bit more, and we plan on doing a little bit more. Bobby Brooks | Analyst, Northland Capital Markets: Fair enough. Appreciate the call and congrats on the great quarter. Our turn of the queue. Farouk Tewik | President & CEO: Thanks, Bobby. Bobby Brooks | Analyst, Northland Capital Markets: Thank you. Operator | Conference Operator: Thank you. We take the next question from the line of Theodore O'Neill from Litchfield Health Research. Please go ahead. Theodore O'Neill | Analyst, Litchfield Health Research: Yeah, thanks very much and congratulations on the good quarter. Lynn, you mentioned in your prepared remarks you saw a shift, you had a shift of a customer out of distribution to service directly. And I had three questions related to that. How often does that happen? What determines the shift? And how does the distributor feel about it? Farouk Tewik | President & CEO: So I would say, first of all, I thank you for the question there, Theo. I'd say, you know, we've kind of talked about in the past, distribution is a very dynamic channel. And they're great and key partners for us and within our industry. And it's really hard to paint this in a broad stroke, but I'll try my best. Some customers... while we may design and work with them directly, ultimately they want the distributor to aggregate all their purchases, right? So we may start the relationship direct and it goes into the distribution channel to give them some kind of fixed fee. And the inverse of that also happens where a customer comes to us through distribution and then we develop something together and it can be distributed and worked through the distributor or sometimes it does come out. So it happens both ways. And I would also say some of the guiding principles on that include minimum order quantity. So if it's something smaller, we'd want it to go through distribution. So sometimes we push people into the distribution channel to really maximize our cost to service these customers' model. So I would say it's definitely a dynamic channel. And I would say when we look at distribution, it's a great discovery channel for new customers. So I wouldn't say we're doing anything unusual in our industry. But because at the same time, we're not looking to burn the relationships, right? So this is pretty, pretty standard, I would say. The other thing is not all distributors are the same. There are some folks that really focus on kind of low quantities. And as things scale, they don't want you in the channel. So you take it out directly. Other folks more, you know, if it's big and opening up doors. So I'd say the answer is depends. But I wouldn't say anything unnatural or odd happened here. Theodore O'Neill | Analyst, Litchfield Health Research: Okay, thanks for the color on that. And what's the M&A opportunity looking like for you right now? Farouk Tewik | President & CEO: Yeah, I mean, I think we've been very clear. We like our balance sheet. We continue to pay down our balance sheet. We like where the direction of just paying down more heading into Q4 and into next year is going. So we feel like we are in a very good position to do an M&A deal. I think really the question is we tend to think about is how big and what is it? And when I say how big, it's both in terms of just size and scale, complexity, and also purchase price, right? So today, I'd say it's still not a healthy M&A environment, but I think we are seeing a step up in terms of opportunities versus Q1, Q2 this year. So we are seeing more shots on goal. I would not classify it as normal yet. but we definitely have some opportunities ahead of us that we're kind of working through. I would also say is it feels like if you look at our course of a corner, we always have something live. The question is, do you want to strike and do you like the business fundamentals? So that kind of answers our question, Theo. Theodore O'Neill | Analyst, Litchfield Health Research: Yep. Thanks very much. Farouk Tewik | President & CEO: Thank you. Operator | Conference Operator: Thank you. We take the next question from the line of Jim Ricciuti from Needham and Company. Please go ahead. Jim Ricciuti | Analyst, Needham & Company: Thanks. Good morning. I apologize if you gave some of this detail in the presentation. I joined a little late, but I did hear something regarding the ongoing... transition with some of your manufacturing footprint. I think, did you say you're divesting a facility in China, if I understood you correctly? Are you partnering with a contract manufacturer on these products? And if I missed it, did you provide any detail on which product areas are affected and to what extent this is going to have an impact on margins, or is it fairly small? Lynn Hutkin | CFO: So, Jim, it's within our magnetics segment and we basically went through an analysis of whether it was more cost efficient for us to be manufacturing internally versus outsourcing that manufacturing. And in this case, we chose that outsourcing was the better alternative. As far as impact on gross margin, that would be about $1 million. Farouk Tewik | President & CEO: Yeah, give or take. Obviously, we're in the process of moving that, but it will be positive. And more importantly, I'd say than that, Jim, is allowing us to focus on the things that we excel at, right? So hopefully it unlocks more bandwidth and brain width for us to pursue things that have a better ROI for us. Jim Ricciuti | Analyst, Needham & Company: Got it. And, you know, the strength you're seeing in networking – wondering if you could maybe drill down into that a little bit. Is that is that being driven by by just the increased AI investment that we're all hearing about? Or is it simply the distribution channel having just burned off the excess inventory that was out there? Or maybe it's combination of both? Lynn Hutkin | CFO: Yeah, so in networking, and if we talk about, are you asking about a particular segment or just in general, Jim? Jim Ricciuti | Analyst, Needham & Company: And I'm talking about networking because you did highlight that as one of the areas that kind of stood out. Lynn Hutkin | CFO: So that was right. So if we're talking about the power segment, we had mentioned it's really a combination of both of those factors that you just said. So there is some rebound happening coming off of a couple of years of destocking that we went through. But then we're also seeing new incremental demand related to AI. So it's It's a mix of those two that's driving the growth in networking. Jim Ricciuti | Analyst, Needham & Company: And, Lynn, you mentioned I thought book-to-bill was above one. Is that right? And can you characterize the bookings by the three main product areas, whether there was much variability among the three? Lynn Hutkin | CFO: So each of the segments were above one. So we saw positive book-to-bills. across all three segments. Jim Ricciuti | Analyst, Needham & Company: Great. Thank you. Operator | Conference Operator: Thank you. We take the next question from the line of Greg Baum from Craig Hallam. Please go ahead. for Greg Baum\ Hey, guys. This is Danny Agerchon for Greg today. Congrats on the solid results here. Thank you. I think just first off, maybe kind of a broader question on demand you're seeing from each of your respective geographies, anything to call out in terms of outperformance, underperformance, and then maybe specifically on China. I know last quarter we saw kind of the pause and then the resumption of order patterns. So maybe just kind of what you're seeing, you know, current day and whether those have kind of just returned to business as usual. Farouk Tewik | President & CEO: Yeah, I'd say, I think that's a good question. I think giving our end markets, so understanding, right, kind of taking a step back and saying we're, you know, the numbers move around a little bit, but by far, two-thirds plus of our business is going to expose to U.S.-based customers, right? And when we look at those, we also see that you know, A&D is our largest end market today, which kind of lends itself both to the U.S., Israel, and Europe. So when we look at geographies with the lens of the end markets, you know, I'd say the U.S.-based customers and Israeli-based customers are probably leading the way. And then also on the networking side, also those are the vast majority of the people we spend time with. Asia is our smallest exposure. and then Europe slash Israel is in the middle, right? So from a mathematical perspective, we're going to really kind of move the needle as we've seen, as we see our, I'd say, U.S. and Israel business moves predominantly. In terms of demand environment, I'd say the U.S. seems a little bit more healthier, broadly speaking. When we look at Europe, I think it's a little bit of a mixed bag. So our rail business is a fair amount. In Europe, for example, right, we talked about. So that was a little bit down. EV and e-mobility, which sits in our power group, tends to be more European exposure. Obviously, there's other things going on in that sector. But Europe, I'd say, is a mixed bag. It really depends on what it is you're talking about in terms of in-market exposure. Asia is kind of an interesting place for us. It is a small place. But we have, throughout this year, invested in the senior leadership within our sales organization in Asia. And I think we're seeing some nice opportunities coming out of that. So we like what we're seeing, but Asia generally is a smaller play for us. But also keep in mind that for us in the end markets we play in, right, we're not really a heavy consumer business. We're not auto. And we, you know, obviously we're not a race to the bottom on pricing. So Asia for us is a selective strategic play where we pick our spot. So we can do more in Asia. We were planning on doing more in Asia. But I'd say that, you know, that's kind of just round robin there on geographies. for Greg Baum\ Yeah, got it. That's all really helpful. Maybe if I can hit on the power segment and specifically the kind of the gross margin there, I think, is kind of the same thing we saw last quarter where, you know, even this quarter you see even a bigger sequential step up in revenue, but that gross margin kind of stays flat or maybe even slightly steps down. I know last quarter was kind of the legacy business outgrowing Enercon and kind of being a negative mix factor there. So I guess how should we think about that as power continues its growth trajectory and when should we think about kind of that gross margin hooking up with the revenue growth and seeing some expansion there? Lynn Hutkin | CFO: Yeah, so I think on the gross margin side for power, I mean, there's a few different factors going on. Obviously, the Enercon acquisition is additive to our legacy power margins. I think the one thing to keep in mind, you know, both in Q3 and going forward here is is there are two currencies within the power segment where there could be margin pressure. So we have the Israeli shekel related to the UNRCON business, and then also the remandee related to the China facility that we have within power. And we don't have a natural hedge in place. We do have some hedging programs, but they're not hedging in all exposure. So that's something that we just need to be mindful of because that can move margins a little bit. Farouk Tewik | President & CEO: And then also keeping in mind, you know, some of our other margin businesses like e-mobility and rail are down and there's going to be a higher margin. I think the bigger, you know, I think discussion is today we're at a point where I would say we're at great levels of gross margin. And if we're trying to think about growth What is the opportunity there to expand to new customers, new offerings, and new products versus having an extremely strict line on gross margin? So that's kind of something we're thinking about. How do we smartly think about that to ultimately drive EPS all the way down? Because as we've said in the past to a large degree, our SG&A and R&D are relatively range-bound products. So how do we really get some operational leverage from that cost structure to continue to drive the top line? So these are kind of things that we're all kind of thinking about, but I would say today we're definitely up there in terms of performance on margins. for Greg Baum\ Okay, yeah, and maybe that kind of plays into my last question here, which is kind of the Q4 guide and the gross margin range. Just looking back year to date, the gross margin's kind of been at like a 39%, and Obviously, revenue levels in Q4, that suggests, you know, higher than, quite a bit higher than what we saw in the first half, you know, at the midpoint here. So I'm sure it's a lot of those factors that you just talked about, but any other things within that gross margin assumptions maybe mix or maybe there's a little bit of conservatism built in there. Any thoughts there? Lynn Hutkin | CFO: Dr. Yeah, so I think it's a couple of factors. You know, one is our magnetics group has been depressed over the last couple of years, right? So, as that rebounds, it is our lowest gross margin segment. So, if you're looking at our gross margin in total on a consolidated basis, that would have some downward pressure on it as magnetics grows into a larger piece of the overall pie. So, that's one piece to keep in mind. I think, the, you know, if we're looking at Q3 sales to Q4, you know, seasonally, we're down a bit in Q4 versus Q3. So if that happens, you have less leverage, you know, within your fixed cost absorption, so that could have some potential gross margin pressure. And then, as I mentioned, on the FX side, with the peso, the renminbi, and the shekel, those do directly impact our margins. So those are some of the factors that come into play when we are putting out our guide for margin for the fourth quarter. for Greg Baum\ Okay, got it. I will leave it there. Thanks for all the color. Lynn Hutkin | CFO: Thank you. Thank you. Operator | Conference Operator: Thank you. We take the next question from the line of Christopher Glynn from Oppenheimer and Company. Please go ahead. Christopher Glynn | Analyst, Oppenheimer & Co.: Yeah, thanks. Good morning and congrats on the nice results. Just curious in terms of the development of the commercial multiple that you've described in some detail, where are you seeing the kind of leading end of progress, early adopters, so to speak, in terms of design cycles, new business opportunities generating? Seems like AI, maybe defense. You noted a little progress in Asia. Maybe there's some other cross-sections to bring into the discussion as well. Farouk Tewik | President & CEO: Thanks for that, Chris. I think your question is just more commercial across the business and where they're coming from, the new wins. Christopher Glynn | Analyst, Oppenheimer & Co.: Yeah, yeah, exactly. And maybe a little color on, you know, new business opportunities. You know, what's the growth there year over year? Farouk Tewik | President & CEO: Yeah. So in general terms, right, we, as an engineering-led organization, and we've talked about this, we're a medium to long-term kind of design cycle business. So really the actions and the results that we're seeing today in Q3, you know, you kind of almost got to look back at least one to two, three years to see what was done then. and kind of seeing where these winds have come, right? So I would, obviously, as Lynn said, we do have some inter-quarter turns that do happen. But generally, I would say what happened in Q3 here is probably not a whole lot in large in terms of new business, things that happened in Q2, maybe some Q1 stuff, okay? So this puts a big pressure on us to make sure that today we are working Q3 or Q4 here. We're working for Q2, Q3, Q4 next year and beyond. So the question is, okay, well, how are we as a team tackling go-to-market and what is our sales initiatives and what is our data side of things to help lead those kind of tip of the spear activities? When we look at the activity around new developments and new wins that we saw, for example, in Q3, it's definitely, you know, exciting for us, to be honest with you. We're seeing some nice new wins, some bigger wins than maybe we historically have, some new customers that we historically were not maybe competitive or didn't kind of co-tackle it appropriately. Obviously, with the customers we've had for a very long time, we, I would say, probably constantly win new programs, right? When we look at, obviously... Defense, which is our biggest kind of market nowadays, you know, it's not like there's a whole lot of primes in the U.S., right? So really there we look at are we getting more shots on goal? Are we getting new opportunities as I win? And I think the answer is yes. When I speak to the teams across Bell Pews, I think there's a pretty fair aggressiveness in terms of hunting for the new. We're defining what new is. We want certain margin profiles of business and learning how to win. Again, we've always done this throughout our 76-year history, but I think we're putting more fire around it in recent times. And this was kind of my earlier commentary here, Chris, where When today our business is really kind of, we think about things to some extent from a product perspective, but we have a lot of products that go to the same customer. So how can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing, you know, a cable or a connector or a fuse sale because we're selling a power system. So when we look at our product portfolio, I think we can do more with it. And this is back to also my earlier comment here around we've got to invest in the systems and structures that we can make sure we're going after highest ROI opportunities and really measuring performance. It was a little bit of a new muscle for us, but I think the early signs and the wins we're seeing today, we've kind of got to look back, you know, probably before 2025, to be honest with you. Okay, great. Christopher Glynn | Analyst, Oppenheimer & Co.: And then just curious on Enercon, if they're – you know, caught up on shipments. I think they had a little delivery snags last quarter. And, you know, did the quarter include some catch up? Or is that just the sequential scaling that the business is generating? Farouk Tewik | President & CEO: Yeah, both. It continues to kind of go from strength to strength. There was a little bit of catch-up, but also just kind of depends on where the catch-up we're talking about is. The biggest issue end of June, as you may recall, just flights stopped coming in, specifically from India and out of Israel. So that's kind of the catch-up, but it wasn't a very long pause, right? And obviously there was local consumption that happened inside of Israel. So there was some catch-up, but also, yes, growth, whether it be sequentially or year-over-year. Great. Thanks for that. Thank you. Operator | Conference Operator: Thank you. We take the next question from the line of Luke Jung from BED. Please go ahead. Luke Jung | Analyst, BED: Morning. Thanks for taking the question. Brooke, I want to circle back to gross margins and maybe more of a philosophical, a bit bigger picture, certainly. You know, if we look at the gross margin trend this year, it's been above the high-ended guidance through straight quarters, 39% plus in general. And just love to get your thoughts on kind of your feel for volume leverage in the business on a go-forward basis, especially as you continue to layer on those new design wins, just relative to your understanding of the improved cost structure and kind of what that can mean incrementally as you do add volume. Thank you. Farouk Tewik | President & CEO: I appreciate that question, Luke. And it's a question we've been thinking a lot about in general is where should you be, right? And I think by all accounts, putting aside our mix between magnetics and the other segments, yes, we're seeing an uplift in margin as sales grow and we are getting operational leverage. The question is, Now that we are really trying to shift our mindset away from just operations and cost efficiency, which always just become regular way table stakes, how do you drive growth? So as we launch new products and go after new customers, invest in new relationships and new technologies, we need to be honest with ourselves and say, okay, what is the pricing strategy on things? So for example, let's say there's a very nice piece of business that was, I don't know, $1 million, $2 million. That was a little bit below corporate averages. But over time, we can scale it up and also get new opportunities. Would we take that business? I think we really need to consider that if it's a strategic relationship. I think the gross margin strategy, let's say, has not been one that was available to us through our history. So now we've got to look at it as an asset and as a tool. Now, keeping in mind, we worked very hard to get our gross margins here, right? We don't want to arbitrarily... uh you know can i get it you know footer into that 37 39 so i think there's a little bit of self-discovery to be honest with you as to where we should be i think when we look at gross margins today i want to make sure we're not pigging out too much um and just and really missing the boat on on eps growth um given that we talked about the range boundness of our sgna and r d so that's i think the sense of maybe a little bit of conservatism there i think the the I appreciate in public markets that everybody's looking to manage a certain level of expectations. But our intention, and we've talked about this internally, is we want to land in range, right? We don't really want to blow the range on the top or on the bottom. So I think our – and we get the optics here, the last three quarters here point. I think we can see some conservatism in it. That's fair. The question is, you know, okay, as we go throughout next year, you know, where do we want to be? The good news is we have a lot of, we have a buffet of options to play while delivering good returns, good gross margins to our investors, and that's kind of the front and center. So it's a little bit of a self-discovery journey we're going through, to be honest. Luke Jung | Analyst, BED: That's all very helpful. Second question, just curious if we could double-click on networking and AI specifically in terms of the design win activity and just tilting, you know, the organization to growth overall, I guess I'd be especially interested in Power and, you know, just how you think going forward. I mean, we're seeing this rebound, obviously, in demand from an inventory standpoint and whatnot and those direct AI sales. But as you think about building the pipeline, just the opportunity set within Power specifically. Thank you. Farouk Tewik | President & CEO: Yeah, no, today with an improved cost structures and the investment that has gone into the factories from an automation perspective, the improvements R&D teams that have done in terms of moving quicker to launch products, our sales team being more mindful of what we're going after. I think today we're in a better position to go after opportunities and be a little bit maybe more serious about it than we have been able to in the past. Okay. So as a result of that, as we think about networking, there's obviously, as Lynn talked about earlier, we know where our AI products are going, but that's a floor, right? And we know that we sell to some other networking folks that are servicing directly AI. So we know that our products that we're selling to networking guys are probably also being impacted by AI. How do you measure it is a different complexity to it, right? Because our products are high-end products that can go to AI or other applications. But I think it's hard to say that all things going on in the AI data center world is not positively impacting us. The other thing I would say is with the improved operational structure and more focus on the markets is we have, I'd say, started to open up doors with some customers that maybe in the past we were not cost competitive or we're not focused on maybe a little bit too much in our comfort zone. So we're seeing some of that newness as well. The other thing I would say in the networking side, given that there's a lot of investment and focus on it, broadly speaking, we are seeing new entrants into the markets. with newer technologies. So all that, I think, at the end of the day is additive for us from a networking perspective. So, you know, we want to make sure that we're not just simply waiting for the same customers we had three or four years ago to come back. Yes, that's a benefit, obviously. But I would also say we want to make sure we're investing in new relationships. And within the existing relationships, I think we're doing a little bit of a better job learning how to more service our customers to more ingratiate ourselves into that relationship and get more opportunities on goal. Because if you look at some of our big customers, we can do so much more. The question is, how can you do so much more, right? And that's kind of what we're trying to really push the team. And quite frankly, we're seeing some nice results of that. Luke Jung | Analyst, BED: All really great, Collin. Just a quick one for my last question. Lynn, you called out for the second straight quarter that there was some increased medical expense in the SG&A line. Just how we should think about that sequentially into the fourth quarter, if you have any visibility, and then going into next year to the extent that that doesn't repeat, would it be reasonable to assume some normalization in SG&A? Thank you. Farouk Tewik | President & CEO: Yeah, I would say the – can I give some context here? We're really talking about the U.S. side of the business, and obviously we all read and feel what's going on in all things world of health care and medical care. We are a self-insured plan, right? And whenever we do kind of market checks on it, it still is the most cost advantageous way to do it. So every kind of few years we go out there and check and make sure it's the right. So today we are self-insured. The downside of self-insurance is there could be variability in claims that come in the door. And we're seeing that in Q2 and Q3. But the variability is hard to get a read on it, right? We just don't know when somebody is going to have a major medical issue that comes our way. The plus side of going to a regular way healthcare is you have a fixed cost, but every year somebody comes and, you know, the healthcare companies will give you a big increase, right? So from our perspective, we're still in a cost advantageous way, but it does introduce variability to your point. The other thing I would say is, you know, as just, you know, the overall age of our organization, right, medical claims are not unexpected. So what does that mean for next year? I think that's a tough question to answer for us. But then we obviously saw a spike in Q2 and Q3 a little bit here. Operator | Conference Operator: Fair enough. I'll leave it there. Thanks, Brooke. Thank you. Thank you. We take the next question from the line of Hendy Susanto from Gabelli Funds. Please go ahead. Hendy Susanto | Analyst, Gabelli Funds: Good morning, Farouk and Lynn. Congrats on strong results. Thank you. My first question is you talk about rebound in networking and distribution customers. Can you talk about rebound or sign-off rebounds across other areas, specifically let's say in magnetic, connectivity, and then some major areas? Lynn Hutkin | CFO: Sure. So I think for... So you're looking for a breakdown by product group, Hendy, or just other end markets aside from networking? Hendy Susanto | Analyst, Gabelli Funds: I think besides networking and distribution channels, are there early signs of inventory rebound, customers rebuilding their inventory, or maybe whether you have some outlook or expectation on where rebounds would start to take place in other areas? Lynn Hutkin | CFO: Yeah, I think the other two areas that we've been seeing a rebound, which had been depressed in prior periods, is in the consumer end markets. If you recall last year, that was the end market that was impacted by one of our large suppliers in China. And so that had been depressed for several quarters. We did see a rebound in that business in the third quarter. So that was nice to see now that we have some new suppliers identified getting product back out into the market at this point. So there's been rebound there. And then also on the fuses side, I mean fuses go into everything, but that's something that had been softer in the past and we're seeing that rebound now. So I think those are probably the other two areas in addition to networking and distribution. Hendy Susanto | Analyst, Gabelli Funds: Got it. And then magnetic cells is still significantly below pre-COVID levels. Any push and take in terms of expectation on magnetic cells, let's say like going forward, like whether recovery is somewhat likely in the short to mid-term? Farouk Tewik | President & CEO: So I think when we look at Magnetics India, I think when we look at the industry, and we've seen this in our power, right, there was a very unnatural spike that happened back in 2022, 2023, where customers were literally buying and renting new warehouses just to store a lot of these components. Um, so there was a, let's say unnatural behavior there today. So we, you know, if we're to kind of put a range on where we've been, let's say it was 175 to roughly 75. If we look at peak to trough, roughly speaking, I would say 175 is, is, is, you know, probably not on the cards for the next few years. Cause also remember we walked away from certain business and we are being prudent after what business we're going after. And also keeping in mind that the magnetics, as we talked about, there is a product concentration and a two-end market concentration, which is networking and distribution largely. So if we were to look at the ranges of 75 to 175, I would say the range is 180 to 70. So I'll let you kind of decide where we are, but we're seeing the year-over-year overgrowth But 2022 at 180 was extremely unnatural, and we've slimmed down the business since then, so I would not really anchor to that. So I'll kind of leave it at that, but we do think that we got some ways to go here. Got it. Hendy Susanto | Analyst, Gabelli Funds: And then, Lynn, may I ask how we should think and project the pace of potentially early debt payments? Lynn Hutkin | CFO: The pace of debt payments going forward? Hendy Susanto | Analyst, Gabelli Funds: Yes. Lynn Hutkin | CFO: Yep. So, I mean, barring, you know, an M&A opportunity coming up or anything like that, we've been running, you know, at a rate of, you know, call it 20 to 25 million a quarter just based on our cash flows. So, we would continue to pay down debt. That would be our first, you know, priority barring anything on the M&A side. Hendy Susanto | Analyst, Gabelli Funds: Thank you, Farouk. Thank you, Lynn. Thank you. Operator | Conference Operator: Thank you. Ladies and gentlemen, with that, we conclude the question and answer session. I would now hand the conference over to Farouk Twig for his closing comments. Farouk Tewik | President & CEO: Again, I want to thank everybody for joining us here and a very big thank you for the BellFuse team around the world and our customers that helped us deliver this great quarter. and we'll put our head down to continue to work throughout the year here heading into 2026. Wishing everybody a great holiday season as we head into year end, and I'm sure we'll be talking soon. Thank you very much for joining us this morning. Operator | Conference Operator: Thank you. Ladies and gentlemen, the conference of Bell Fuse, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines. jsPDF 3.0.3 D:20260606090007-00'00'

NASDAQ:BELFA Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good morning, and welcome to the Bell Fuse second quarter 2025 earnings call. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with three-part advisors. Please go ahead, Jean. Jean Marie Young | Investor Relations, Three-Part Advisors: Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations and reflect the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. the company just claims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market closed yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and to cause actual results to differ materially from our expectations. This discussed in our findings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file 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 releases. Our press release and our SEC filings are all available on the IR section of our website. Joining me on the call today are Farouk Tewik, President and CEO, and Lynn Hudkins, CFO. Jean Marie Young | Investor Relations, Three-Part Advisors: With that, I'd like to turn the call over to Farouk. Farouk? Thank you, Jean, and good morning, everyone. Farouk Tewik | President and Chief Executive Officer: We are very pleased with our second quarter performance, which surpassed our revenue expectations and delivered gross margins at the higher end of our projected range. The Bell team really came through strong aided by a few factors, including in-market performance and an uptick in our inter-quarter terms, which we have not really seen much of in recent quarters, particularly in our power magnetic segments. From an in-market standpoint, commercial air defense and networking led the way along with certain pockets of distribution sales within the power magnetic segments. These trends signal that we are heading into recovery as we have been anticipating following nearly two years of inventory destocking in the channel. And they reinforce our confidence and continued growth as we move into the second half of the year, setting aside some of the geopolitical noise around tariffs. During our last quarterly call, the potential effects of tariffs on our sales and margins were uncertain. In retrospect, tariffs had a limited impact in the second quarter, accounting for about 2 million of our sales and having a minimal effect on margins. Although we have slightly better clarity now, there are still many variables at play regarding tariffs, and we will continue to adapt to this evolving landscape in collaboration with our suppliers and customers. Overall, we are encouraged by the strong results this quarter and are excited by the momentum building within the business as we head into the second half of the year. Looking ahead to the third quarter, we are optimistic about continued growth with sales guidance in the range of $165 to $180 million. and gross margins projected between 37% and 39%. Strong bookings in Q2 support our expectation of sequential growth for the remainder of the year, and we remain confident in our ability to deliver value to both our customers and shareholders. With that, I'll turn the call over to Lynn to run through financial highlights from the quarter. Lynn? Lynn Hudkins | Chief Financial Officer: Thank you, Farouk. From a financial perspective, sales for the second quarter of 2025 reached $168.3 million. reflecting an increase of 26.3% from the second quarter of 2024. Strong performance in our AMD end market and improved sales in our magnetic segment helped offset the year-over-year decline in our consumer rail and e-mobility end markets within our power segment during the second quarter of 2025 compared to the same period of 2024. Turning to our product groups, Sales of power solutions and protection in the second quarter of 2025 amounted to $86.8 million, representing an increase of 48.2% compared to the same period last year. This growth was largely driven by our aerospace and defense exposure, which contributed $32.6 million to the power segment for the second quarter of 2025. On the consumer side, sales decreased by 1.7 million in Q2 of 25 compared to Q2 of 24, primarily due to the trade restriction imposed on one of our suppliers in China, as mentioned in prior earnings calls. Additionally, given that e-mobility sales were still robust in Q2 of 24, we saw a $2.3 million year-over-year decline in the SEND market in Q2 of 25. Sales into the rail end market have been normalizing in 2025, coming off a strong 2024, resulting in a $3.3 million reduction during Q2 25 compared to the same period in 24. AC climbs were partially offset by a $2.3 million increase in sales to our AI customers, bringing total AI sales for Q2 25 to 2.6 million. Further, circuit protection sales increased by 1.8 million in Q2-25 compared to Q2-24. The gross margin for the power segment in the second quarter of 2025 was 41.9%, representing a decline of 380 basis points from Q2-24. If you recall, we had pulled out in last year's second quarter about approximately 400 basis points of the power gross margin resulted from non-recurring items. that were reported at 100% gross margin in Q2 24, such as cancellation fees. Adjusting for that, power margins were up slightly from Q2 24 due to the inclusion of the higher margin Enercon products. Turning to our connectivity solutions group, sales for Q2 25 reached 59.2 million, an increase of 2.4% compared to Q2 24. Sales for commercial air applications in Q2 25 were 20.5 million, which represented an increase of 5.1 million, or 33%, from Q2 24. Connectivity products sold into defense applications totaled 13.4 million in Q2 25, an increase of 12% from Q2 24. And sales into the space and market amounted to 2.3 million, in Q2 25, the same level as in Q2 24. The gross margin for this group was 39.2% in the second quarter of 2025, representing an improvement of 30 basis points from Q2 24. This margin expansion was largely attributable to operational efficiencies achieved through facility consolidations completed in 2024, along with favorable foreign exchange impacts related to the PESO compared to the 2024 period. These positive drivers were partially offset by minimum wage increases in Mexico that took effect in 2025. Lastly, in the second quarter of 2025, our magnetic solutions group recorded sales of 22.3 million, representing an increase of 32.5% compared to the second quarter of 2024. Led by a rebound in demand from our networking customers and through the distribution channel. This level of growth aligns with expectations discussed during last quarter's earnings call, where we noted this segment would be our highest percentage grower in 2025. The gross margin for the magnetics group improved to 28.7% in Q2 25 compared to 26.4% in Q2 24, marking an improvement of 230 basis points year over year. This increase in margin was primarily driven by the higher sales volume in Q2-25, as well as improved operational efficiencies from the recent facility consolidations in China. R&D expenses reached 8.1 million in Q2-25, a higher level compared to Q2-24, primarily due to the acquisition of Enercon. Our annual compensation increases also now occur in March each year, And this also contributed to the higher expense in Q2 25. We expect future quarters to generally align with the Q2 25 expense. Selling general and administrative expenses totaled $30.9 million, representing 18.4% of sales. Compared to the prior year, SG&A increased by $6.8 million in the second quarter of 2025. The increase was primarily driven by Intercom's SG&A expenses, which contributed $6 million in the second quarter of 2025, in addition to annual compensation adjustments that took effect in March 25 and higher than anticipated medical claims during the second quarter of 2025. One last item to note on the P&L side as we look to Q3 is the foreign exchange environment that we're currently in. and the weakening U.S. dollar versus each of the three currencies that they'll have exposure to, namely the Chinese remedy, the Mexican peso, and the Israeli shekel. We have hedging programs in place for each of these currencies to help mitigate some of the financial impacts of the movements in these rates, but our gross margin guide for Q3 of 37% to 39% does factor in some potential downward pressure related to FX. Looking at our balance sheet and cash flow, we finished the quarter with $59.3 million in cash and securities. During the second quarter of 2025, we utilized $30 million of cash for repayment of long-term debt. This pay down in the second quarter alone results in a $1.7 million reduction in our annual interest expense. Other cash uses during the quarter included $3.9 million on capital expenditures, and dividend payments of $800,000. These payments were largely offset by $20.7 million in cash flow generated from operating activities during the second quarter. That concludes our commentary on the second quarter results, and I'd now like to turn the call back to the operator to open the call for questions. Robert? Operator | Conference Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw 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. Thank you. Thank you, and our first question today comes from the line of Bobby Brooks with Northland Capital. Please receive your questions. Bobby Brooks | Analyst, Northland Capital: Good morning, guys, and congrats on the outstanding quarter. I was curious to hear a bit more about the trends you're seeing that underpin the guidance. The press release mentioned a rebound in networking and some other segments. with the distribution along with the strong Q2 bookings, which I think you said lead you to believe that you're going to see sequential growth in the back half. Maybe could we just expand on that? And is it old customers returning to normal ordering patterns, new customers coming into the fold, or maybe something different? Lynn Hudkins | Chief Financial Officer: Yes, Bobby. What we had talked about earlier in the year is that orders had started to pick up in the first quarter, and we saw that trend continue in the second quarter. A lot of that has to do with the expected rebounding in networking, which largely impacts the power and magnetic groups, and then also within the distribution channels. So if you recall, within connectivity, distribution had been fairly stable over the last couple of years for the connectivity segment, but it had been depressed with the overstocking situation in the power and magnetic segments. So that's where we're seeing the rebound in orders, and that's what we saw coming through in the second quarter, and we continue to see that trend moving forward into the second half of the year. Bobby Brooks | Analyst, Northland Capital: Got it. So it seems like just kind of a return to norm there, not necessarily new customers or just any kind of commentary on maybe new business ones? Farouk Tewik | President and Chief Executive Officer: Yeah, I would say, I mean, we remember, Bobby, we go through distribution. There's some quick-turn business and things like fuses, right? So we do have new wins and customers that do occur. But given our long cycle, on average, design business, you need a return to growth both from your OEMs and your DISTY. DISTY obviously does touch a lot of new customers along the way and some recurrent. So when we look at the channels, you know, yes, we do see some new business and we have some really nice new wins in the quarter programs in our aerospace defense business, for example. So we do see new, but given the long cycle of the business, you need your existing people with too much in the inventory to wake up and get going again. So it's really an amalgamation of those factors. Bobby Brooks | Analyst, Northland Capital: Fair enough. That's a helpful caller. And then just maybe any other strategic growth initiatives or kind of margin enhancements plans through the rest of the year that should be on your radar, or is it more so just a continuous operational excellence in driving just general business efficiency? And maybe dovetail that with the Glenrock Pennsylvania facility sale. Can you remind, I think that was in the connectivity segment, but could you remind us kind of the rationale behind that? And is there any other facilities that you might be eyeing to sell? Farouk Tewik | President and Chief Executive Officer: Yeah, so the, maybe starting out backwards here a little bit on the Glenrock piece, that was, I think we announced that Q1 last year or February call last year in 2024, if I recall correctly. And we were looking to drive margin improvements and drive efficiencies within the connectivity business. So better aligned internal resources and a physical footprint space. So that's kind of really was the gist of that. And we've largely kind of moved out of the equipment and we've had the building held for sale for a while. But obviously, just given the environment there, it took a little bit longer to sell because we also want to make sure we got good value for it. And here we are now. We announced that. which obviously allowed us to generate some cash from the sale and then also pay down some debt. In terms of other buildings for sale, you know, nothing for us to talk about at this point. I think the buildings that we own have significantly gone down in number and count, because remember, we have one currently kind of held for sale, if you will, but nothing kind of new beyond that for the time being. When we look at strategic initiatives, we have strategic initiatives going on, you know, seemingly constantly across the organization of different scale and magnitudes. And as we've kind of gone into this week here and leading up this call with the senior team and kind of hearing and talking about what we're doing in business and the travels that we've done throughout the second quarter, there's a lot of energy and excitement. And quite frankly, the team is very busy. And I think the north guiding star here is always for us is how do we grow and how can we grow more? And we've got to play to win and be efficient in our way to go for it. As we've talked in the past, putting the margin expansion to your question, Bobby, obviously we have a mixed issue, right, where magnetics is a lower margin business. Obviously that kind of was a grower for us. So just putting that aside for a second, we always do challenge margins. where can we do more, where can we do better, how can we be better? I think we also need to be realistic in where we sit today on the margin side. We are probably industry leading, if not in the 80th percentile, 75th percentile, or if we're just going to throw a guess out there. So we are in a very good place and a comfortable place. The question becomes is, there might be some room to go here and there, but we also have to be smart about it and make sure we don't dig out because ultimately, We have, let's say, a very high percentage of our APEX and R&D states. We've got to make sure that we are, you know, putting that part of our P&L to work. So, yes, we're always minded on margins. There might be opportunity to push up, but at the same time, we need to be smart about it. So we're comfortable with where they're at today on the gross margin side. We're trending a little bit more in the right direction on the EBITDA side, but we just want to be careful that there's not another, you know, 1,000 bits expansion here, right? Unknown Participant | Analyst: Yeah. Great commentary. I'll return to it, too. Thank you, guys. Bye. Operator | Conference Operator: Our next question comes from the line of Christopher Glenn with Oppenheimer. Please proceed with your questions. Christopher Glenn | Analyst, Oppenheimer: Thanks. Good morning. So, yeah, just wondering, you talked about, you know, improving orders, trends in the first quarter, continuing to the second quarter. You also, I think, mentioned improving turns intra-quarter sounded a little bit more like a pivot dynamic that you saw, I guess, perhaps shortly after the last earnings call. So just kind of wondering if we could dive into that cadence a little bit. Farouk Tewik | President and Chief Executive Officer: When we look at normal times, which means you'd probably have to go back four or five years ago, but usually you'd head into the quarter with some expectation of go-getting. In those days, let's say, obviously, we have a lot of SKUs, but generally, your lead times are anywhere from eight weeks to 12 weeks, let's say, right? So, the things that were a little bit more quicker turns, you would see some of that intra-quarter turn. Obviously, we headed into COVID and post-COVID years where there was extended lead times. So, we didn't really see much of that intra-quarter turns. And then we head into over-inventory in the channel, right, which just kind of slows everything down. But today, especially in our shorter lead time businesses, for example, fuses, we are seeing heading into the quarter and not having orders. And then all of a sudden the order comes in, we ship it out within the quarter. So that is nice to see because that indicates a little bit more healthiness in the channel, right? and overall the market. So it is an important indicator, I would say, that the market is functioning a little bit more than it's supposed to function, or more in the right way it's supposed to be functioning. Christopher Glenn | Analyst, Oppenheimer: Yeah, thanks. And I imagine it's a little tough to bifurcate, but sense of actual end market improvement in Networking, I know that kind of stage one of lack of D-stock and back to normal that you just described is powerful considering the depth and duration of the channel adjustments. But are you able to tease out, you know, kind of the end market is pivoting there? Farouk Tewik | President and Chief Executive Officer: Yeah, I think one of the challenges when we look at the distribution channel specifically, as a reminder for folks on the call, we do get POS data, right? So we're effectively seeing what our customers' customers are buying off the shelf. So when we look at what was coming off the shelf versus what we're selling to distribution, there was a mismatch, right? So I would say we, when we look at our percentage decline in our businesses, it was more severe than what we would see, for example, the distribution levels. So when you achieve a little bit of normalcy, that's a little bit of healthiness. So I think your question, Chris, is the numbers, even in the last couple of years, were not as bad as ours, if you will, because there was ordering patterns. And now it seems like we're closing the delta. We also see the inventory levels, and those have come down to very, very low levels. So now you get to more of that parity where orders go out the door and you're more likely to get an order is the way I can think about it. Christopher Glenn | Analyst, Oppenheimer: Makes sense. Just want to, you know, ask about Enercon. You know, you had your second full quarter here. I know you're out inter-quarter talking about it, and it sounds very good. But, yeah, just curious progress on the integration on the commercial side. I don't think there's a whole lot of operating integration intent there, but perhaps you could clarify that. Farouk Tewik | President and Chief Executive Officer: Yeah, so I think it's – It's going kind of as we anticipated. Obviously, it's a great team. We're doing great products in a great end market. And given where they play in the product and supply and the way they go to market with it, it's been as advertised. And I think the broader comment, let me just expand on your question here, Chris, is we think of this defense globally, right? We're seeing it in our connectivity business. And we're seeing that expand. So, you know, we are in those markets today, which is a good place to be. You know, I think the team is excited. We're, I'd say, collaborating better. I think, you know, we have some way to go. As you know, this is a long cycle design business and regulatory. Customers are very busy with some replenishment at some times. but we like the direction that we can go, but we can always do better, right? So I think we're situated very well to really capitalize on that acquisition, especially in that end market. So we remain excited and bullish on it. Operator | Conference Operator: Great. Thanks for the call. Jean Marie Young | Investor Relations, Three-Part Advisors: Thanks, Chris. Operator | Conference Operator: Our next questions are from the line of Jim Rashudi with Needham & Company. Please proceed with your questions. Jim Rashudi | Analyst, Needham & Company: Hi, thanks. Good morning. I just wanted to ask about what was a modest sequential decline in the power solutions gross margins. Is that mainly a function of the sequential growth in the legacy power business, the increase in Disney? And it looks like, Lynn, if I heard you correctly, it looks like the intercom contribution was roughly flat with Q1. Lynn Hudkins | Chief Financial Officer: The Enercon contribution was roughly flat with Q1, yes. So, Jim, are you asking about power margins from Q2 last year to Q2 this year or Q1 to Q2? Jim Rashudi | Analyst, Needham & Company: No, Q1 to Q2. And so I'm wondering if it's just a function of the legacy power business picking up sequentially. That's correct. Okay. Lynn Hudkins | Chief Financial Officer: Yeah, so it is. Right, so the growth was related not to Enercon. Sequentially, they were flat quarter over quarter from Q1, but it was the legacy power business, which historically, you know, is a lower margin product group than the recently acquired Enercon business. Jim Rashudi | Analyst, Needham & Company: Got it. Thanks. Brooke, you talked about some wins in A&D, and... It may be still pretty early in where we are with this, but are you seeing, is there anything you can point to in terms of sales synergies as it relates to Enercon, or are these just wins separate from what your ultimate plans are to drive more sales synergies with this business? Farouk Tewik | President and Chief Executive Officer: Yeah, so if we think of our connector team and the Enercon team, They're both kind of winning on their own, I'd say, merit today. The joint wins, and we've seen some opportunities kind of cross the wall here and there. But as a reminder, Jim, we've said we don't really expect any revenue centers in 2025. And 2026 is probably our best bet. Probably in the back half of 2026, I think, is more realistic because these are long cycle design businesses. It's a risk-averse customer base. And then also, as we think of just ability to manufacture, there's a fair amount of backlog on the Enercon side that they need to get to. So it is a little bit of a belly full, but really it's driven by the customer's long design cycles. And also we talked about kind of figuring out, well, what customers are we talking about, right? So for the Europeans, We need a little bit of a different playbook where we really kind of leverage some of our European manufacturing footprint to service those guys. So I would say it's, you know, the market is just a long cycle design business. But the good news is here is that teams on their own prerogative are seeing some nice wins. Jim Rashudi | Analyst, Needham & Company: Good. Last question from me, just on commercial air. Again, if I heard you correctly, Lynn, it sounded like you had some nice growth in that part of the business. What are you seeing there, and what kind of expectations do you have as you look out beyond the quarter in that part of the business? Lynn Hudkins | Chief Financial Officer: Yeah, so, Jim, on commercial air, yeah, if you recall, in Q1, it was just under $13 million. In Q2, it was $20.5 million, so nice sequential growth there. still robust. We do tend to see a bit of, you know, patchy ordering patterns, if you will, in that business. So will it be the exact same level as Q2? You know, unclear at this time, but we do expect it to be robust. Jean Marie Young | Investor Relations, Three-Part Advisors: Thanks a lot. Operator | Conference Operator: The next questions are from the line of Greg Palm with Craig Helm Capital. Please receive your questions. Greg Palm | Analyst, Craig Helm Capital: Yeah, good morning, thanks, and congrats on the results. Going back to the last call, that $8 to $10 million of so-called paused revenue coming out of China, how much of that was recognized specifically in the quarter and the assumption that the entirety gets recognized over the course of Q3, whatever it was in Q2? Lynn Hudkins | Chief Financial Officer: Yeah, so we took a look at that, Greg, and it was about two-thirds of it ultimately got shipped in the second quarter. and the balance is expected to go out in the third quarter. Greg Palm | Analyst, Craig Helm Capital: Okay. And Farouk, I think you made a comment at the end of your prepareds. You said expect sequential growth for the remainder of the year. So are you saying you're expecting sequential growth in the December quarter and Q4 as well over Q3? I just wanted to clarify that. Farouk Tewik | President and Chief Executive Officer: Yeah, that's a good question. I think when we just look at the second half, I think that's a good point there, Greg. As a reminder, just for everybody on the call, usually Q1 is our weakest quarter of the year. And our strongest is usually Q2 and or three. But usually they're kind of strongest quarter. Sometimes they move around a little bit. And then Q4 is somewhere in the middle. You know, there's the golden week out in Asia and the holiday seasons. and so on. So we're not ready to sign up for sequential Q4 at this point. Obviously, we have to see the orders coming into Q3 to get a better read on it. But we do expect, obviously, overall by definition, given the strong number in Q3 that we guided to and Q4 is divided by Q1, we expect the second half to be better than the first half overall. Greg Palm | Analyst, Craig Helm Capital: Yep. Okay. That makes sense. And I guess just sort of Broadly speaking, in terms of what you're seeing currently, I mean, how do you know that some of this is not, you know, pull-ins ahead of tariffs? Like, what's your visibility levels to suggest that none of this is sort of pull-in orders to get ahead of, you know, something that's maybe coming? Farouk Tewik | President and Chief Executive Officer: I mean, listen, if we're to look at one singular order somewhere, that sure, I mean, we could see that, but it's not a pervasive thing that we've seen. The other thing I would keep in mind, right, as we said, is we got really good bookings in the quarter. So just by definition, you're going to be beyond these deadlines that got placed. And as we looked at July, we also continued to see robustness in the bookings. which would be beyond the, let's call it, moving deadline of tariffs, whatever it is now. And also, when we look at where it's coming from, it's coming from really all parts of the business. And also, if you remember, our revenue that we talked about on the last call, roughly 10% of that from the previous year was going to China, but we're seeing it across the business. The other thing I would say on the tariff commentary is – When we look at the tariff levels today and kind of where they're shaking out at, I would say the market has digested that, so it's no longer the boogeyman in the room like when it was in the hundreds in terms of tariffs. So I think the market has recognized that. I think they're okay with these lower levels of tariffs, and we're seeing it come from different parts of our business. So it's not just, you know, people that are usually kind of exposed to China tariffs, and that's where the orders are coming from. It's much more pervasive than that. Lynn Hudkins | Chief Financial Officer: And just to add to that, Greg, we did survey, you know, the global customer service team who would be kind of have their finger on the pulse there to see if there were pull-ins, right? In order for someone to actually have something pulled in from its regular scheduled ship date, they would need to put in that request that would go to our customer service department. And we did not have any, you know, material available. input from that survey as well. Greg Palm | Analyst, Craig Helm Capital: Okay, yeah, I appreciate that color. And last one, you know, for me, you know, A&D, which has, you know, become the biggest, most important in market, you covered commercial aerospace well, but in terms of defense, and maybe this includes Enercon or outside Enercon, just can you remind us like what, you know, either programs and markets applications, like what do you have? I know it's broad-based, but is there anything that you have maybe outsized exposure to in the defense side specifically? Farouk Tewik | President and Chief Executive Officer: I would caveat the answer by saying, you know, there's a handful of primes, for example, in the U.S. and in Israel, right? So is there a technical customer concentration? Sure. But really what matters is the program concentration, right? So When we look at the program level at a broader, let's call it, Belfuse A&D, I don't think there's kind of a singular kind of high level of concentration. So it's a pretty diverse program business. So it's not like a commercial air where there is some concentration, right? So it's a pretty diverse business. Greg Palm | Analyst, Craig Helm Capital: Got it. But you have a... You have exposure to missile defense. Where does that sort of stack up in terms of programs? Farouk Tewik | President and Chief Executive Officer: Missile defense in total, I would say, not sure we added that all up, but I would say we're generally heavier levered towards munitions and generally I would say things that fly. We obviously do other things as well, but just general munitions and planes are is kind of where we're on average leverage. Jean Marie Young | Investor Relations, Three-Part Advisors: Got it. All right. Appreciate all the callers. Thanks. Operator | Conference Operator: Thank you. The next questions are from the line of Luke Young with Baird. Please receive your questions. Luke Young | Analyst, Baird: Good morning. Thanks for taking the questions. Ruth, maybe hoping to start with the third quarter guidance. Beat the high end this quarter, obviously. At the midpoint, you're implying a few million of sequential improvement into 3Q, but You were at the high end. It'd be another seven points of growth into the third quarter. Just where should we think that upside leverages in the model? Is it networking? Or should we think it's more broad-based? I guess I'm gearing to your comments about the orders being robust overall. And I don't know if there's any book-to-bill context you could give us also. Thank you. Lynn Hudkins | Chief Financial Officer: Hi, Luke Gislin. So as we look to Q3, I mean, it's really continued strength in – Aerospace, defense, and then the rebound in networking and the distribution channel. So if we're looking at Q2 to Q3 and potential growth drivers sequentially, it would really be more in the areas of networking and distribution coupled with strong defense. And I think the range is to take into account the potential for more intra-quarter turns. So they're still not at the level that they were at historically, but we did definitely see an improvement this quarter from where they had been. So depending on the level of intra-quarter turns turning back on, that kind of is the broader range on the higher side. Luke Young | Analyst, Baird: Okay, that's helpful. Thank you. Maybe taking a step back, just bigger picture, I'm thinking of the efforts you've taken in terms of Salesforce-led efforts, be it leadership, be it the incentive structure, and just the timing of starting to see some of that bear fruit relative to your longer design cycles and the sales cycle. Maybe just give us a snapshot of some of the progress markers that you're seeing as of mid-year here that maybe aren't obvious in the business from the outset looking in, but maybe contribute later this year into 26? Farouk Tewik | President and Chief Executive Officer: Yeah, I think given the diversity of our business geographically in markets and SKUs, I think it's hard to say this thing did exactly this thing. And we have had so many shots on goals. that we're seeing the outcomes of that. So, for example, one of the comments you mentioned, Luke, was around the commission structure. So we initially put that in place back in 2024, and then we modified it and enhanced it heading into 2025. So, you know, the results of I think maybe some of the wins that we're seeing is probably a little bit of modification on the incentive structure really starting out last year. As we also think around just setting targets and pushing out certain products and getting after things a little more efficiently, I think that mindset and then the we play to win type attitude, we're seeing that come through. But also remembering that, you know, for the sales folks to win, you have to be able to produce things in a cost-efficient manner. So when we look at the facility footprint, We started that work maybe two, three years ago at this point, where we've been investing a lot in CapEx and automation the last two years, in 2023 and in 2024, to automate our factories and lean into more lean type concepts. We're seeing the benefits of that. So if you have a sales team that's heading and shooting in the right direction, we have a manufacturing team that's doing great in or that we're procuring things at a good price point, especially places in our legacy power and my medicine group, right? We want to make sure we're getting things at a decent price point so we can make our margins. So that's also good. As we think, quite frankly, on the executive team compensation realignment, 2023 was the first year where we really set out clear revenue and even dot targets for the team to hit. And now we're in our year three heading into 2025. So as we look at the ranges of what drove this, I think it's amalgamation of these things. And I would say it's a robustness. It is a team effort. It's an orchestra, whether it be from customer service to sales to R&D to manufacturing to procurement. Everything matters. And I think that's kind of the mindset we're leading with. So I'm generally not a fan of one-trick ponies because if that goes the other way, you may get burnt. I think what I like about it is the swelling of team effort to win. We're not perfect, and we've got room to grow and get better, but we like what we're seeing. And obviously, I think some of the outputs of what we're seeing today is that work that we've seen in the last few years. Jean Marie Young | Investor Relations, Three-Part Advisors: Appreciate the call. I'll leave it there. Thank you. Thank you. Operator | Conference Operator: Our next questions are from the line of Theodore O'Neill with Litchfield Hills Research. Please receive your questions. Theodore O'Neill | Analyst, Litchfield Hills Research: Yeah, great. Congratulations on the good quarter. Lynn, you sort of touched on this, but connectivity solutions was up fairly significantly sequentially Q1 to Q2. Were the trends any different there than what you're seeing year over year? Jean Marie Young | Investor Relations, Three-Part Advisors: So from Q1 to Q2 versus sequentially? Theodore O'Neill | Analyst, Litchfield Hills Research: I'm sorry, sequentially versus year-over-year. Lynn Hudkins | Chief Financial Officer: Right. So we did see – so if we're looking year-over-year, there was an increase in commercial air, not as pronounced, versus the sequential increase from Q1. So commercial air in Q2 last year was just over $15 million. versus $213 million in Q1 of 25 and then the $20.5 million in Q2 of 25. I guess looking year over year, we did see a drop in their distribution sales. So while we saw distribution waking up in power and magnetic stern recorder, we did see a slight step back in connectivity distribution. So that was also a driver from Q2 last year to Q2 this year. Jean Marie Young | Investor Relations, Three-Part Advisors: Does that answer the question for you? Theodore O'Neill | Analyst, Litchfield Hills Research: Yes, sure. And on depreciation, it's almost doubled year over year. What's happening there? Lynn Hudkins | Chief Financial Officer: So with the acquisition of Enercon in November, we... We brought on all of their PP&E, and we have the step-ups. So depreciation and the amortization went up quite a bit year over year just because of the new tangible and intangible assets that we brought onto the books. Theodore O'Neill | Analyst, Litchfield Hills Research: Okay. Thanks very much. Operator | Conference Operator: Thank you. Our final question is from the line of Hendy Sassanto with Gabelli Funds. Please receive your question. Hendy Sassanto | Analyst, Gabelli Funds: Good morning, Farouk and Lynn. Congratulations on strong results. Jean Marie Young | Investor Relations, Three-Part Advisors: Thank you. Hendy Sassanto | Analyst, Gabelli Funds: Farouk, my first question is about the market recovery and inventory rebuild. Some sales will go toward inventory rebuild. On the other hand, like short lead times may not necessitate inventory rebuild to be done like in the past. And there's also some uncertainty on the tariff that may drive customers to... to be more cautious when it comes to building inventory. So let's say, like, in 2025, you will see some benefits on inventory rebuild, but at the same time, like, how should we manage our expectation and what are some guideposts so that we are not overly optimistic because inventory rebuild may take some time? Farouk Tewik | President and Chief Executive Officer: Yeah, I would say, you know, that's a good question. I think maybe a couple of things is... Our industry and Bell Fuse obviously has been in this trough for a very long time. Let's call it maybe the industry has been in there roughly two years. And when we look at that two-year context compared to history, that is a very long time. So now we're coming out of a two-year prolonged trough cycle. I think we do see customers being overall more cautious and hesitant. And quite frankly, we potentially thought growth would have come maybe in the last year or where we would have seen those really, really low inventory levels. So we are operating from a customer universe where people are just more hesitant given tariffs and geopolitical concerns and the world we come in. At the same time, in that normal cycle, people are not necessarily building inventory, right? They are trying to order things to make products and get it out the door. And it's true you build up some inventory along the way, but when inventory builds up, usually the system is not working appropriately. So now we're heading into hopefully the other side of the cycle where the system is working a little more appropriately. Hendy Sassanto | Analyst, Gabelli Funds: Okay. And then my next question is the setback to special Chinese supplier situation that has started like several quarters ago. Can we revisit that whether it is now fully behind? Farouk Tewik | President and Chief Executive Officer: I mean, it's fully, I caution with that because generally the Chinese supplier, we were selling, you know, some consumer end markets and, you know, and distribution. So with the weakness in that channel, It was a little bit, you know, obviously we lost the revenue and that hurt. So step one to rebuild that lost revenue is to find alternative suppliers. And the team has done a really good job at finding alternative suppliers. So I think we've replaced, from a supplier concentration perspective, a lot of those SKUs. Now the question becomes is can we put those in the market and get them designed in and therefore get the orders going? I would say the team has done a great job at rebuilding supplier base. I would say that we're definitely more robust on that business as we look out to the year end here, and we think we might recover some of that revenue. So we like where we're going, and I would say they're a little bit ahead of schedule in terms of what we thought they'd rebuild that business into. Lynn Hudkins | Chief Financial Officer: And, D, just to add to that, That Chinese supplier, the revenue related to that, dropped off in May of last year. So if you're looking at the year-over-year headwinds, that is behind us, where the comps will be apples to apples starting to increase. Hendy Sassanto | Analyst, Gabelli Funds: And Farouk, I mean, would you talk about the pricing trends this year, whether there's some pricing decline embedded in the contract and what is the usual timing of pricing trend or whether or not you are able to sustain your pricing? Farouk Tewik | President and Chief Executive Officer: Yeah, I think that's a very big question, Hindi, and I think I want to caution we're not, you know, kind of like more of a semi-cycle where, you know, there's so much inventory and every price is down. Our products are designed in and it really depends what end market we're talking about. Aerospace defense We tend to think of that as a price-flat, price-up environment. Some of the other areas, sure, can be a price-flat, price-down, but overall, I would say we haven't really seen the pricing pressures, but generally pricing pressures come in better markets where you will have also new products launching, hopefully with higher margins. So we've got to think about pricing. We're in maintenance mode versus, you know, we're heading to growth or, you know, and everything gets priced down, like maybe doing a more semi side of things. So for us, obviously, we're always mindful of it. You know, we'll have customers ask for it, sure, but we're also launching new products at a higher margin, but we've got some good defense business that is a usual price flat, price up environment. So it's a big question for us given the diversity of our SKUs and pricing powers. Jean Marie Young | Investor Relations, Three-Part Advisors: Thank you, Farouk. Thank you, Lynn. Thanks, Cindy. Operator | Conference Operator: Thank you. At this time, I'll turn the call back to Farouk for closing remarks. Farouk Tewik | President and Chief Executive Officer: Thank you, everyone, for joining our call here this morning. We are excited about the results that came in here and look forward to connecting with you again as we go through the second half of the year. Appreciate everyone's time and have a good day. Operator | Conference Operator: This will conclude today's conference. May it disconnect your lines at this time. Thank you for your participation and have a wonderful day. jsPDF 3.0.3 D:20260606090008-00'00'