Bel Fuse Inc. Class A Aktie

Good morning, everyone. I am Dan Bernstein, Chairman of the Board of Bel Fuse Inc., and I'd like to welcome you to Bel Fuse Inc. 2026 Annual Meeting of Shareholders, being held via remote communication.

I shall act as Chairman of the meeting and request Lynn Hutkin to act as Secretary of the meeting. In addition to Lynn Hutkin, joining me today are our directors, Eric Nowling, Mark Segall, Dave Valletta and Farouq Tuweiq, our Chief Executive Officer.

In addition, representatives from Grant Thornton LLP and Deloitte & Touche LLP are presented and are available to answer any order related questions from shareholders. Later in the call, we have an opportunity to answer questions that you have submitted. Only validating Class A shareholders will be able to ask questions in designated field on our web portal. We will attempt to answer as many questions as time allows, but only questions that are relevant to the meeting will be addressed.

Holders of Class B common stock that have questions may submit them to us at [email protected], and we do our best to retain either during or after the meeting. I will now ask Lynn to present proof of the calling of this meeting and review certain procedure matters. Lynn?

Mr. Chairman, this is Lynn Hutkin. I present a copy of the notice of annual meeting and proxy statement dated April 10, 2026, which states the time, place and purpose of this meeting and the means of remote communication to be used.

This document has been posted on the company's virtual annual meeting webcast site and is also available at www.belfuse.com. I further submit the complete list certified by Continental Stock Transfer & Trust Company, the transfer agent for the company of the holders of Class A common stock as of the close of business on the record date fixed by the Board of Directors for shareholders entitled to notice of and to vote at the company's annual meeting.

This shows that as of the close of business on the record date, there were 2,115,263 shares of Class A common stock of the company outstanding, all of which are eligible to vote. I further submit the affidavit of distribution of the representative of Continental Stock Transfer & Trust Company, showing that it caused to be mailed to each of the shareholders of record a notice of Internet availability of proxy materials and to be made available to such shareholders in accordance with SEC rules.

A copy of the notice of meeting, proxy materials and Bel's annual report to shareholders, which contains the consolidated financial statements of Bel Fuse Inc. and its subsidiaries for the year ended December 31, 2025.

The notice of meeting and proxy materials were filed with the Securities and Exchange Commission on April 10 2026. Please note that the company's bylaws provide that any business brought before an annual meeting by a stockholder, which is not specified in the notice of meeting must be submitted in writing in advance of the company and that the notice meets certain requirements.

The company did not receive any such notice, and as such, voting will be confined to the 5 proposals outlined in the proxy statement. Please note that any non-historical statements that the company will make today will constitute forward-looking statements under the Private Securities Litigation React of 1995.

Actual results could differ materially from these statements as a result of a number of risks and uncertainties, including the risks that the company has cited in its most recent 10-K and 10-Q filings with the Securities and Exchange Commission, and that Bel Fuse typically cites in its press releases.

Also, I would like to remind everyone that this meeting is not a public forum for purposes of the SEC's Regulation FD. As a result, while the company would be happy to provide you with general background information about the company, we will not be able to provide you with material nonpublic information at this meeting.

Ms. Lynn is directed to incorporate a copy of the notice of the annual meeting and proxy statement dated April 10, 2026, together with the affidavit of distribution as part of the minutes of this meeting.

Continental Stock Transfer & Trust Company has been appointed inspector of the election and has qualified by taking describing to an oath safely to execute the duties of inspector at this meeting.

I direct the oath be filed with the minutes of this meeting and that the inspector take a poll of the shares representing at this meeting in person on this webcast or by proxy.

Mr. Chairman, this is Stacy Akley from Continental Stock Transfer & Trust Company. They are present in person on this webcast or by proxy at this meeting substantially more than 1/2 of all of the shares of Class A common stock outstanding entitled to vote at this meeting.

By reason of the fact the holders of the record of a majority of the outstanding Class A common stock of the company entitled to vote at this meeting are present in person on this webcast or by proxy, a quorum is presented for all purposes.

I declare this meeting lawfully and properly convened and now competent to proceed to the transaction of the business for which it has been called and as stated in the notice therefore.

The first order of business for shareholders action at this meeting is to elect two directors for 3-year terms or until their successors are elected or qualified. Mr. Segall will present the nomination of the Board of Directors.

This is Mark Segall. I nominate Dr. Rita Smith and Jacqueline Brito, each for a 3-year term to expire at the 2029 Annual Meeting.

This is Eric Nowling. I second the motion.

There being no other nominations other than provision in our bylaws, I declare the nominations for directors closed. The chair recognized, Mr. Valetta.

Mr. Chairman, I move the ratification of the designation of Deloitte & Touche LLP to audit Bel's books and accounts for 2026.

This is Mark Segall. I second the motion.

The Chair recognizes Mr. Nowling.

Mr. Chairman, as set forth in the proxy statement as proposal 3, the say-on-pay vote, I move a vote for the approval of the following advisory resolution. Resolved that the compensation paid to the company's named executive officers as disclosed in the company's 2026 proxy statement pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion is hereby approved.

This is Dave Valetta. I second the motion.

The Chair recognizes Mr. Segall.

Mr. Chairman, as set forth in the supplementary proxy materials as proposal for I move a vote for the approval of the Bel Fuse Inc. 2026 Equity Compensation Plan.

This is Eric Nowling. I second the motion.

As you know, a shareholder proposal was included in our proxy statement. Is there anyone here from GAMCO who would like to move the proposal?

Yes, Mr. Chairman.

You have heard the nominations and proposals -- go ahead.

Yes, Mr. Chairman. My name is George Maldonado, Director of Proxy Voting Services, a representative of GAMCO Asset Management, Inc., beneficial owner of approximately 3% of Bel Fuse Class A common stock.

I'm here on behalf of our clients to formally present GAMCO's shareholder proposal. The proposal reads as follows: Resolved that the shareholders of Bel Fuse Inc. request that the Board of Directors take all necessary steps, including proposing any amendments to the company's bylaws and/or Certificate of Corporation as needed and subject to any required shareholder approvals, to permit holders of the Class A common stock to convert their shares into the Class B common stock at their option on a share-for-share basis.

The Board may implement reasonable safeguards, such as caps, timing windows or pro rata mechanics to ensure compliance with existing charter provisions and to avoid any unintended consequences to the company's capital structure. The case is straightforward, GAMCO is a long-term shareholder of Bel Fuse, and while we applaud the board for successful steps to surface shareholder value, the Class A shares trade at approximately $20 per share discount to Class B that is a persistent inefficiency in the company's capital structure.

Optional conversion would unlock immediate value, let investors choose between voting power and enhance dividends, it's voluntary, not mandatory, reserves Class A voting rights and gives the Board full flexibility to design appropriate safeguards. On behalf of GAMCO we urge all shareholders to vote for this proposal.

Thank you, Mr. Chairman and fellow Bel Fuse shareholders for the time.

Thank you. You've heard the nominations in the proposal. The polls are now open. If there are any registered holders of Class A common stock or persons who held legal proxies from such registered holders who desire to vote who haven't already done so, who wish to change the vote that can be done through the remote annual meeting webcast site at this time.

While we allow time for any final voting to take place in the web portal, I would like to ask Lynn to read any questions that have come through the web portal. Lynn?

Mr. Chairman, I'm not showing that any questions have come in through the IR e-mail. I'll turn it over to Farouq to check the webcast portal.

Thanks, Lynn. Hello, Mr. Chairman. There are no questions that have come through the portal at this time.

Let's give it another 10 seconds. All right, Lynn, any other questions you see? Farouq?

No further -- no questions at this time the far, Mr. Chairman.

No questions on the IR e-mail. Mr. Chairman.

There being no questions for the shareholders, I will pause a momentarily and then close the polls. The polls are now closed. Lynn?

Mr. Chairman, the Inspector of Election has presented a preliminary vote -- preliminary report of the voting. That report reflects that holders of a substantial majority of the shares of Class A common stock voted at this meeting have voted in favor of the Board's nominees to serve as directors. In favor of the ratification of Deloitte & Touche LLP to audit Bel's books for 2026 in favor of the advisory resolution approving the compensation of Bell's named executive officers in favor of the Bel Fuse Inc. 2026 Equity Compensation Plan and against the shareholder proposal.

Thank you for your participation in our meeting. The final voting results will be published by the company in an 8-K to be filed by the company in the next few days. I'll instruct Ms. Hutkin to file the shareholders' list, proxies and ballots among the records of the company.

At this time, I will entertain the motion to adjourn.

This is Dave Valletta. I second the motion.

Thank you for joining our meeting today, and the meeting is adjourned.

Good morning, and welcome to the Bel Fuse First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead.

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 2026. 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 obligations to update any forward-looking statements or outlook.

Actual results for future periods may differ materially from those projected by those forward-looking statements due to a number of risks, uncertainties or 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 available in the IR section of our website. Joining me on the call today is Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouq. Farouq?

Thank you, Jean, and good morning, everyone. We appreciate you joining our call today.

We delivered a strong start to fiscal 2026. First quarter performance reflected broad-based momentum across the business and continued execution, both operationally and commercially. We also delivered solid profitability, supported by disciplined operational performance and favorable mix.

Before we get into the quarter in more detail, I want to highlight an important step we took during Q1 to better position Bel for continued growth. We completed a business unit realignment designed to align our teams around how our customers buy and how we win, enabling greater customer intimacy, faster decision-making and a more coordinated approach to delivering our full portfolio of solutions across connectivity, power and magnetics. This structure strengthens our ability to bring more of Bel to each customer, expanding share of wallet through integrated selling, improved program execution and tighter alignment between engineering, operations and the commercial teams. Accordingly, Bel now operates 2 focused business units.

First one, Aerospace Defense & Rugged Solutions, or ADRS, which combines our legacy connectivity business with Enercon, focused on mission-critical applications across commercial aerospace, defense, space and rugged industrial environments, and Industrial Technology and Solutions, or ITDS, which integrates our pre-Enercon power and magnetics businesses, focused on data solutions, transportation and industrial markets where performance, reliability and scale matter. This structure sharpens accountability, accelerates decision-making and increases the speed at which we translate engineering into customer wins but also enables product-agnostic access to Bel's full portfolio, so customers engage with us as a solutions partner aligned to their end market requirements.

In that context, I am pleased to share that we closed the acquisition of dataMate from Methode Electronics in March for $16 million. dataMate adds approximately $18 million in annual sales with margins in line with Bel and is expected to be immediately accretive. It will operate within our Industrial Technology & Data Solutions business unit. Strategically, this expands our ethernet and broadband portfolio in a highly complementary way and positions us to grow in data centers, industrial automation, smart buildings and broadband deployment. It also strengthens our U.S.-based manufacturing and engineering footprint. We're excited to welcome the dataMate team. They bring new customers, differentiated technology and strong talent, and we look forward to what we'll accomplish together.

Turning to business performance. Within ADRS, results were driven by robust demand in defense and commercial aerospace with continued strength across key platforms and programs, supported by strong demand and stable OEM build rates. We also saw ongoing progress in space as production schedules and program content continue to expand. Robust bookings during the first quarter within ADRS were driven by both sustained program demand and continued traction with our channel partners, resulting in a strong foundation heading into the back half of the year.

We're also beginning to see the fruits of our organic growth initiatives over the past year. In Slovakia, for example, we secured 2 new defense design wins that are progressing through final certification steps and remain on track to complete in the second quarter. The win was initiated by Enercon with ramping up the Slovakia entity to produce an Enercon design, highlighting our global ability to deliver to our customers locally. In addition, we achieved our first bundled Cinch and Enercon win on a new design in Israel, which is a great early proof point of that -- of what this broader integrated portfolio can do when our teams collaborate across the organization.

Within ITDS, we continue to see healthy demand signals across networking and data infrastructure with momentum improving in data center connectivity and high-performance compute applications. Customer activity remains elevated as the industry invests in AI-oriented architectures, driving opportunities for power conversion and protection as well as high-speed interconnect solutions that support next-generation switching and server platforms. We are expanding our design win funnel and investing in engineering and operational capabilities to support these growth vectors, including manufacturing resilience and multisite capacity to serve global data center customers.

As we think about the broader environment, we remain mindful of trade policy and tariff dynamics as well as demand variability by end market. We continue to work closely with customers to manage these conditions, including pricing and supply chain actions where appropriate. We are seeing some general upward pressure in certain material and logistics inputs, and we remain prepared to use the levers within our control, procurement actions, pricing discipline and operational execution to support the overall direction we've laid out.

With that overview, I'll turn it over to Lynn to walk through the financial results in more detail. Lynn?

Thank you, Farouq. From a financial standpoint, we had a solid quarter with continued sales growth, margin expansion at the gross profit line and healthy cash generation. Before walking through the results, I want to cover a couple of points of clarification related to our new segment structure. First, the realignment that Farouq mentioned became effective March 31, 2026. And as a result, our Q1 reporting and all prior periods presented have been recast to reflect the new structure. Further, we filed recast segment information by quarter for 2024 and 2025 in an 8-K filed on April 6 for reference.

Second, beginning in Q1 2026, our end market sales figures will capture all sales into a given end market, including both direct-to-customer shipments and sales through the distribution channel. In the past, distribution channel sales were called out separately in total rather than allocated to individual end markets. We will provide prior period comparable figures where appropriate to help investors evaluate performance on a consistent basis.

With those points in mind, let me turn to the quarter. In the first quarter, total sales were $178.5 million, up 17.2% from the prior year period. Gross profit margin was 39%, up 40 basis points from Q1 '25. The gross margin performance improved leverage of our fixed costs on the higher sales volume, partially offset by higher material costs and impacts from foreign currency fluctuation. Below the gross profit line, GAAP operating income was $23.7 million compared to $25 million last year, while adjusted EBITDA was $34.5 million versus $30.9 million in the prior year period.

Now turning to results by reportable segment. In the Aerospace Defense & Rugged Solutions, or ADRS segment, sales for Q1 '26 were $99.8 million, up 20.1% versus Q1 '25. Growth was led by a $9.4 million increase in defense market sales, up 19% from Q1 '25 and a $3.9 million increase in commercial aerospace sales, up 22% from Q1 '25. ADRS gross profit margin was 41.5%, an improvement of 140 basis points from Q1 '25. This margin expansion was largely driven by improved leverage of fixed costs on the higher sales volume and a favorable shift in product mix. These benefits were partially offset by unfavorable foreign exchange movements, primarily related to the weakening of the U.S. dollar against the Israeli shekel and the Mexican peso.

Within the Industrial Technology & Data Solutions segment, or ITDS, sales amounted to $78.7 million, up 13.8% from Q1 '25. Growth was primarily resulted from AI-driven strength in data solutions, coupled with the continued year-over-year recovery of sales into our enterprise networking customers. This growth was partially offset by lower transportation sales versus Q1 '25, particularly within the rail and e-mobility markets. ITDS gross profit margin was 36.6% compared to 37.3% in Q1 '25. The margin decline was primarily driven by higher material costs, particularly related to gold, copper and PCBs and unfavorable foreign exchange movements, particularly with the Chinese renminbi.

Turning to operating expenses and cash flow. R&D expense increased to $8.5 million from $7.2 million last year, reflecting continued investment in technologies aligned with our targeted end markets. Of this increase in cost, we estimate approximately $400,000 related to foreign currency movements as we have a large engineering population in China and Israel. We anticipate R&D will run in the range of approximately $8 million on a quarterly basis going forward.

SG&A increased to $36.7 million, up from $29.5 million in Q1 '25. Of the $7.2 million increase, we are estimating approximately $3 million was onetime in nature, including acquisition-related costs related to dataMate, segment leadership transition costs and a prior year benefit which was nonrecurring in the 2026 quarter. The remaining $4 million of the increase reflects targeted commercial and infrastructure investments to support growth in addition to an increase in commissions on higher sales and unfavorable foreign exchange impacts. On a go-forward basis, we expect SG&A expense to run at approximately $33 million to $35 million per quarter.

We ended the quarter with $59.4 million of cash and securities. Net cash provided by operating activities was $13.8 million, up from $8.1 million during the first quarter of 2025. Capital expenditures were $2.6 million, generally in line with the prior period. During the quarter, we closed the dataMate acquisition, investing $15.2 million. To help fund that transaction while maintaining balance sheet flexibility, we had $7 million of net borrowings from the credit facility during the first quarter of 2026.

To close on the financials, we delivered a very strong quarter, driven by solid execution and healthy demand across the business. Looking ahead, we see continued strength and momentum for the balance of the year and remain confident in our ability to perform. We are also operating in an environment of higher input costs, and we're actively managing that pressure by focusing on the levers we can control, pricing discipline, procurement actions and operational efficiencies.

At the same time, we're enhancing our focus on the cash conversion cycle, improving inventory turns, receivables and payables discipline as a key enabler to generate cash, strengthen flexibility and accelerate Bel's growth strategy. With a strong quarter behind us and clear priorities in front of us, we're executing with urgency and discipline. With that, I'll turn the call back over to Farouq.

Thanks, Lynn. As we look forward ahead, our focus remains on executing our commercial and operational priorities while navigating the external environment, including ongoing tariff and trade-related uncertainties and demand variability across our various end markets.

Looking ahead, we have a strong outlook for the second quarter. We are guiding sales in the range of $195 million to $215 million with gross margin in the range of 38% to 40%. This outlook is supported by robust bookings across the business in recent quarters and is driven by higher demand from our defense, commercial aerospace and data solutions customers.

Before we open the line for questions, I want to recognize Pete Bittner on his retirement after 35 years with Bel. Under Pete's leadership, we strengthened our connectivity platform and delivered meaningful profitability improvement while deepening customer relations. We are grateful for Pete's contributions and wish him and his family all the best.

With that, I'll turn the call back over to Kerri to open up the line for questions.

[Operator Instructions] And our first question will come from Luke Junk with Baird.

Farouq, maybe hoping you could just provide some comments on book-to-bill trends. You mentioned robust bookings were one of the things that is supportive of the guidance. And within that, if there'd be any end market highlights you want to call out as well?

So on book-to-bill trends, I would characterize them as robust in the first quarter here. And that was really seen across the full business, both in both segments and across most of our subsegments. I think the only exception would be in transportation. But when it comes to aerospace, defense, data solutions, a very robust book-to-bill in Q1.

Got it. Second, you mentioned that the ITDS growth was primarily AI-driven with strength in data solutions. Just hoping you could provide a little more color on what you're seeing. And I don't know if you're going to be speaking out the AI dollars specifically going forward. And Farouq, you mentioned serving global data center customers as well. I was hoping we can maybe double-click on that trend too.

Yes. I think we obviously have seen our customers benefit from all things, data center build-out, obviously, AI and data generation and everything that we're reading out in the world is additive to that effort. And we're seeing that across our portfolio. Specifically on the AI customers that we service, we're definitely seeing a very healthy pickup in their bookings and customers and orders, and therefore that downstreams to us. So I think we would say that we characterize it as a very, very healthy environment. The bookings continue to be more robust. The outlook continues to strengthen and all the good things. And I'll defer to Lynn here on more specifics around that.

Yes. And Luke, so I know in the past we had called out AI-specific sales. As we're entering 2026 here, things are getting a little more blurred, and we had alluded to this last year where we had AI-specific customers, but also selling into our regular way enterprise networking customers where their demand was increasing due to AI demand as well. So I think going forward, we will be talking more generally about data solutions. But we did see it across both of those platforms, I would say, the AI-specific customers and into our more general enterprise networking customers where we saw strength in Q1 that, that was AI-driven.

Understood. Last question for me. Just curious to get your perspective on posture right now at U.S. and Israeli defense trends. It seems like there's a fairly obvious replenishment opportunity. Just how much of that is baked into the 2Q guidance sequentially. And as you look into the back half of the year, just qualitatively, the potential for some additional upside or just clarity on that opportunity.

Yes. And we talked about, obviously, the geopolitical events for us from an A&D business is helpful and additive. And we've said this in the past where we tend to be levered and a fair amount of exposure to all things on the missile side of the business. So whether it be things that are deploying or the launchers themselves, that's all additive to us.

So as you had alluded to here, with the replenishment and the talk about national stockpiles and all that kind of discussion points, that is all additive to us. We agree that we think there has been a replenishment cycle going on starting out back in kind of the Ukraine days, it never felt like we caught up. And now we saw a lot of more usage of the stockpile. So we agree this will probably be a medium-term vector of growth and replenishment.

Obviously, we are also seeing more overall investments going into new business and new platforms as the whole industrial A&D complex is being challenged to step up across the technological spectrum. So that all is additive to us. And we see in our business, whether the funneling and the opportunities are becoming a little bit more, a little bit bigger. So we do see more shots on goal. So whether it be the replenishment on existing platforms or new, we think that that's all additive. And also, as a reminder, we're not just seeing that, obviously, in the U.S. side of the business, but we're also seeing that in our European Israel business as well.

And our next question comes from Bobby Brooks with Northland Capital Markets.

It was great to hear about the first Cinch Enercon package win. Could you just discuss more how that win came about? And maybe what you felt was the piece that pushed the customer to give you that order?

Yes. I mean, I think, listen, it's -- I'm not sure -- I don't believe in one magical solutions in the sense that we didn't change one thing and it all worked out, right? We sell highly engineered complicated systems, whether it be on the components or on the system side of things. So we -- I would say, people are very busy, right? As we can imagine, A&D is -- our organization is very stretched in.

And on top of that, we started partnering to make sure we deliver holistic solutions. So we were alluding to a couple of opportunities here to maybe just kind of expand the point. We had talked when we acquired Enercon potentially using our Slovakia facility to become our A&D footprint into Europe. And obviously, that takes a while to get certifications and sharing the drawings and ramping up the skill set. We had to invest in some CapEx. So we did do that.

In conjunction with that, we were able to move some of the products. We had a European customer that wanted to have manufacturing done on the continent. That's where Slovakia came in. So all that effort, we were able to get the customer out to Slovakia. They saw the facility, they saw a signal capacity. Obviously, they know the products from the Enercon and engineering. So it was a very good team effort, both from engineering and operations and Enercon supporting Slovakia to get that facility up and going. And the customer saw it and was thoroughly impressed and we got a couple of POs thereafter.

Now with the first one here, obviously, is the win, this becomes a very great one. On the other opportunity I was talking about basically -- can you hear me, Bobby?

Just curious, is that like, first, is that a specific drone company or...

Bobby, your line is open.

-- making drones second...

I think he's taking a phone call.

I'm not sure what's going on, so no worries. You can all appreciate how this goes. But I'll continue to answer your question. The other opportunity was taking an Enercon box, a power unit, and we put a Cinch component on it on the connector and cabling piece of it. So we're able to do the connectivity there. Now we end up solving obviously a few problems because we had both the power supply and the cable solution. So I think we got very good compliments from the customer. I think more importantly, it showed the team the art of the possible. And more importantly than these 2 wins, to be honest, is we are definitely seeing a more robust collaboration across the organization of ADRS. So when we hear the discussion that they're going through and the opportunities, I think people are significantly much more aware of the whole portfolio and going after it.

I would also take a step further and say that we're seeing some of the A&D customers looking for more hardened industrial solutions. And now with our non-Enercon products, it's able to fill that gap. So we're able to fulfill the customer needs from a few different angles, I would say. But the discussion bottom line was significantly ahead of where it was, I would say, in the recent memory. I don't know if you're back, Bobby, but hopefully that answers your question.

Our next question comes from Christopher Glynn with Oppenheimer.

I'm going to ask a question and try to stick around. Just if there's background noise, just tell me to mute it, please. So just continuing with the defense because it's such a large proportion of your business in such a dynamic area and then you're generating your own dynamism within that. I'd say with these initial kind of greenfield design wins in the defense sector in Europe, is that kind of consistent with the time line you would have anticipated from an integration pathway or maybe pulling ahead a little bit? Just kind of curious of the actuals versus your expectations.

Yes. I'd say maybe a little bit ahead/on time. If you recall back to kind of Q4 2024, when we did do the Enercon acquisition, we said I don't think we're going to see anything probably until at least '26, probably towards the end of '26. So if that is the correct metric, we said back then, here we are roughly in Q1, we're seeing some of the early wins.

I would say what took a little bit longer than anticipated was getting all the certifications and facility approvals. Obviously A&D is a heavily, heavily, heavily regulated market. You can't just be moving things around globally and in e-mails and so on. So as a result of that, the approval process from the local authorities in Slovakia was longer than we anticipated, partially because they're seeing a lot more investment in the overall country.

But putting that aside, we're sitting here, let's call it, April, we had some nice wins. We had customers come through this. So like I said, I would say we're probably slightly ahead of schedule on schedule, somewhere in the middle of that.

Okay. Makes sense. And just given the obvious dynamism in defense procurement and everything and hot regions, these kind of design wins to revenue, are they pretty quick?

I would say a lot of good things about defense, but quick might not be the characterization of the world. I would generally say, right, because also when you win a program, you got to prove it out, they got to do all their testing and then it kind of scales over time. But the key is when there's a lot of investment and, let's say, spotlight and all things defense, you got to make sure you're getting into these things early. So as they scale, you're there.

I would say if we were to paint a very potentially let's say, range, if it's an existing product, I'd say you generally get an initial order, but I would probably say before you start seeing kind of volumes 12 to 18 months. And if it's a brand-new kind of product or technology that's being developed by the customer, then it could be a little bit longer.

But the key is being getting the award side of it, right? Because then you're going to there -- it might go through a couple of iterations along the way. But if it's an existing product or slightly existing, maybe it's a modified, I'd probably say 12 to 18 months before you start seeing some real dollars. That's just the nature of defense design cycles.

Right, right. So the replenishment orders are more kind of the quicker lead time drivers that you're seeing right now?

Correct. And I will also caveat is my earlier commentary on defense, not necessarily the fastest movers, I would say that is probably still true. I would say we are seeing areas where things are moving faster, right? So there it seems to be some buckling of maybe the historical norms. I'd also say there's regional nuances, right? So I think maybe we're seeing some different speeds in Europe versus the U.S., maybe Israel will be the fastest. So I think it's changing a little bit, but I would say, largely speaking, it is a slower moving industry.

Okay. And yes, just a quick check on how we think about the back half. Second quarter is obviously a pretty striking step change upward in the run rates. And I think you had some nice latency to some market trends that's showing through. So I'm not particularly thinking that the second quarter guide has some surge demand kind of factored in. Maybe there's a little onetime, but you talked about almost $30 million sequentially and is just a sliver of that. So is that really just a fundamental step in the -- how the run rates are developing with your end market exposure?

Yes. As Lynn said, we are fortunate to play in a lot of great end markets. So much more than not are in moving in growth mode. And as we closed out the quarter and headed into April, we're just seeing that continued robustness across the portfolio.

I would also say that distribution is one of the things we're talking about. It started off very good in April. So as we look at backlog, customer chatter, outlook and the kind of nature of the world, we think we'd expect a very healthy second half. Obviously, keeping in mind, we do hit with some seasonality in Q3 and Q4, right? So Q3, we hit kind of the European slowdown a little bit throughout the summer months and some Labor Day and 4th of July type events. And then we head into Q4, we start getting into some of the holidays, whether it be Golden Week or some of the ones in Israel and overall holidays. But putting that aside, we expect a very healthy second half and continued strength.

And our next question will come from Greg Palm with Craig-Hallum.

This is Jackson Schroeder on for Greg Palm. I want to start out with -- you guys talked on gross margin a little bit and the cost there, but curious how you're feeling about the levers you're pulling on that. I don't know if there's any kind of timing-related things on that, how we might see that play throughout the year, especially as it relates to new bundled design win in Israel and some of the organic initiatives that you have. So curious if you're doing anything within those new contracts or investments to kind of offset that going forward?

Yes. So I think as we look across the full year of 2026, we're a little bit of a disconnect. As just mathematically, as sales grow, we will have better leverage on our fixed costs within COGS, leading to margin expansion. That's with all other things staying consistent. What we're seeing this year is a rise in input costs, primarily related to material costs. We do have some minimum wage increases around the world.

And we are in an unusually unfavorable, I would say, FX environment where all 3 of the currencies that impact Bel are all moving in the wrong direction for us. So that's the Mexican peso, the Israeli shekel and the Chinese renminbi. So we do have things moving against us as sales are increasing. We are taking actions that are within our control, whether it's through pricing discipline or procurement initiatives or operational efficiencies, but those things take time to put in place. So what we're seeing is probably Q1, Q2, where there's more of a disconnect where we're paying those higher input costs, and we have not yet seeing the benefits of the initiatives that we're doing to offset those, so.

And then I'd also say, as we -- obviously we have done some pricing actions to offset these input costs. One of the things we got to be mindful about is touching the backlog. To some extent, to Lynn's point, we got to work through the backlog. So anything new, we've put price increases through. So we'll start seeing the benefit of that as -- maybe we might see some of that in Q2, but I think about it as Q3, Q4, where we'll start offsetting some of that.

So I think that's a testament to the business here. We got a higher margin given the operational leverage and things we can control. And then the pricing elements that we did put through, we'll start seeing the benefits of those into Q3, Q4.

Got it. Super helpful. And then I also wanted to talk on the new business structure here, strategic realignment. Curious how you're processing that as it goes through the P&L as you look at inorganic -- sorry, organic growth specifically as we lap Enercon, looking at like the geographic breakdown where we can kind of size where we should be seeing growth here by segment, by geography, if you could do that.

Yes. I'd say we haven't given forward guidance on the growth piece of it. We, at the end of the day, are in a very unusual environment. So we haven't given any kind of long-term guidance on that. I think the overall message, we expect -- we've always said we're an end market-driven business, and we obviously want to be a little bit ahead of that. So as we think of the end markets, we think there's robustness in there.

I would also say that when we look at our A&D business, it's been growing for a bunch of quarters sequentially, right, from a growth rate perspective, and we expect some of that to continue. But by definition, right, maybe some things, the hot percentages start to go up. But overall, we expect robustness and continued top line growth. So I'll leave it at that.

On the ITDS side, the data solutions, data centers, AI, kind of all the infrastructure around data generation and transmission and some of the broadband and kind of the other things we've talked about just now, we also expect robustness there. Obviously we have a little bit more nuanced game and strategy in that market where we can make sure we can drive margins and get good return on our business. I would say our industrial technology part of it, which would include some of our transportation and e-mobility type applications and other industrial, I would say that one is a little -- kind of a little bit later to the game, but we're seeing some nice things in that part of the ITDS business. So all in all, we expect the growth piece of it, but I'll leave it at that.

And moving next to Hendi Susanto with Gabelli Funds.

Congrats on strong results. Farouq, I would like to understand more about your data center footprint and post the acquisition of dataMate. Like I think my first question is, is dataMate a growing business? What kind of sales trend?

And then second one is when you talk about data center, AI data center, anything new, any new areas that you want to address, any new product portfolio that you want to develop?

Yes. So maybe the first question on dataMate, yes, we bought it with the expectation of growth. I would say we are a better home for it in terms of the end markets that they play in, the customers they serve and the kind of language that we do use. I would say, in certain of the products, which is their core products, they were the, let's call it, the dominant great reputation in our industry. So we're very excited for that team to join us. And when we look at the development product portfolio and things that they're working on, we're very impressed by. So yes, our expectation is that it grows or else I'm not sure we do the acquisition.

And I think also what's the nice thing about dataMate, it gives us a footprint into manufacturing in the U.S. Obviously the team there, kudos to the dataMate team, it was a carve-out. So we had to relocate facilities, and those things are always bring a certain level of complexity, but we are in the new facility. We're up and going. The team did a great job. It was much more seamless than I probably had anticipated. So thank you to the team there. So that's the expectation of dataMate.

I would say dataMate, there are some customers that they bring that we just haven't had inroads with historically that we hope to kind of land and expand the broader Bel portfolio. We have a much broader sales organization and reach globally that we think we can effectuate their growth. And I'd say more importantly, I think people are very excited internally to have access to that portfolio set and also just great engineering.

The other thing I would say to your other question on the data centers, AI, I mean, look, we have a lot of SKUs that we're always seemingly winning new things. But at the end of the day, the drivers remain the same, which is AI build-out, AI deployment, data center build-out, data center deployment, routers and switches, right? That's kind of where we play. I would say that effectuates our legacy power and magnetics businesses from both sides. So I would say it's pretty broad-based.

And as we've talked about, when we say AI, we think of that as a floor versus ceiling because sometimes we lose visibility to where our products are going. But when we look at the floor, which is the clear AI, we're seeing robustness in that growth. And so that's, let's call it the clear AI, if you will.

And just to add on to that, so within Data Solutions, we've talked in the past how our AI exposure is largely within our power products. So if we isolate Data Solutions just within power products, that increased by $4.8 million or about 27% from Q1 last year to Q1 this year. And much of that was driven by AI.

Yes. And a then Farouq, a number of companies have talked about the possibility of price increases in the second half. You mentioned pricing action. What are the puts and takes in terms of expectation on price increase in general in your industries in the second half?

Yes. I mean, let's be honest, I don't think everybody welcomes us or anybody in the industry with open arms around price increases. But I think there's a general understanding and appreciation for the fact that things are going up. I would also say from an industry-wise, you are correct. It's become normal. I shouldn't say normal, but people have done it, and it's part of the world that we live in. So from our perspective, we need to do the right thing by our investors and make sure that we are passing on cost. Obviously, we try to mitigate where we can. But if not, then we will need to pass that on. And I think you hit on it correctly as we took pricing actions in Q1, but that's on the new business, right?

So obviously, we have backlog, so we don't want to necessarily -- barring it being egregious or something really kind of crazy, generally, you want to update your price sheets and pricing for all the new stuff. So that's why we earlier said we'll start seeing the benefits of that, some of it in Q2, but we think about it more by Q3, Q4.

Got it. And then, Farouq, any insight into market recovery in industrials, especially on customers' and distributors' inventories?

Yes. So we're seeing -- I'd say distribution is a pretty broad -- obviously we touch a lot of end markets and a lot of customers, right? But I would say we've seen pockets of definitely robust strength, and we've seen pockets of still recovery side of things. So as a result of that, when we stitch it all together, we'd say it started getting a little bit more stronger as we can -- headed out of the quarter into April. So I would say we are seeing the strength in distribution, the recovery part of it, which I think is additive to our efforts and to earlier commentary as well.

We'll go next to Theodore O'Neill with Litchfield Hills Research.

Congratulations on the quarter. Two questions for you. The first one, last quarter you talked about weakness in the rail and e-mobility, and I'm wondering if anything has changed there?

And my second question is about the strength in Q1. In the last 20 years, you companies reported a sequential growth in Q1 over Q4 only 3 other times. So what was driving the strength here in this sequential increase?

So I'll cover the initial question first. So on e-mobility and rail, it's, I would say it's relatively more of the same from Q4. I think on the e-mobility side, Q4 was probably the bottom that we saw. There was a slight uptick from Q4 to Q1, but nothing meaningful. Both of those areas, I would call them still depressed in Q1, similar to Q4.

And then what was the other -- I'm sorry, the other part of the question?

The broader industrial.

The sequential increase in Q1 over Q4.

That's really rare.

In general, right. So as our end market mix is changing, so you're correct that historically Q4 to Q1 we always saw a -- or generally saw a decline. And that was largely due to the Chinese New Year holiday and production interruption that we would see in the January, February time frame with our large dependence on the China workforce. As more of our business is becoming aerospace and defense-centric, we are less reliant on China. So it's just having less of an impact. So we're becoming less seasonal as our end market mix shifts more towards A&D.

And we'll take a follow-up question from Bobby Brooks with Northland Capital Markets.

I was just curious on diving a little bit more into the guide. Obviously really nice sequential growth. And even if you back out the benefit from dataMate, we're still looking at like really nice double-digit year-over-year growth. So could you just expand a little bit on the factors that underpin that outlook? And do you have a visibility with the strong bookings already year-to-date, that type of sequential growth can keep occurring in the back half?

Yes. So I'll just answer kind of generally before I turn it over back to Lynn, Bobby. Yes, our backlog continues to build and grow from year-end, strength to strength, Q1 was very healthy. Obviously delivery could be kind of spread out. From our perspective, yes, we're seeing that. We're also seeing the robustness of the funnel opportunity and new opportunities and also just general, let's say, industry chatter with whether it be our customers or distribution partners.

But yes, we put a guide here based on some very good orders that need to be shipped and scheduled to ship in Q2. Obviously, not all of our backlog is for Q2. So we have backlog into Q3 and Q4. Obviously it starts to scale down post Q2, a quarter out roughly. So but when we look at again the forecast, the guidance, the discussions, what we have in the backlog, right, that's how we think about it. That's why we said, yes, we do expect robustness.

Now to the specific level, I think it will be largely kind of very healthy, putting aside some of the seasonality that comes in Q3 and Q4. So we expect to have a very good year. I think I'll kind of leave it at that. Lynn, I don't know if you want anything to add.

Yes. So Bobby, on the question about the Q2 guide, I think if you're comparing Q2 last year to what we're guiding for Q2 this year, the strength is really seen across both segments. Within ITDS, I would point to the Data Solutions portion, which is largely AI-driven. And then within ADRS, it's really commercial air, space, defense. We just have several of our end markets that are running very strong right now. So those are the key drivers, and it is supported by the orders received.

Awesome. That's super helpful color. And then just one last one for me is you guys have done a really good job kind of finding strong acquisition targets. Obviously just the dataMate looks like more of that. Just was curious to get your -- get a feel on capital allocation and your appetite for more M&A moving forward? Or maybe is it a pause just to let the dataMate get the integration, or? Just curious to hear that.

Yes. No pause here. We are always out and active on the M&A front. Obviously, if you were to kind of set aside a little bit the dataMate acquisition, the cash flow even for -- usually Q1 is our biggest cash, let's say, usage of the year, given its bonus and we pay our big IT and insurance and all other kind of good stuff. But putting that aside, I think it was a very good cash flow, and we obviously were able to pay for dataMate.

As we look out to the balance of the year, we expect healthy cash flow generation. We have a good amount of opportunity on the access to capital side of things. So when we look at that married up with internal bandwidth and ability to execute upon an acquisition, we like both of the sides. So we are open for M&A. We're actively looking at M&A. It feels like we always have some kind of discussion going on around M&A. So we are not hitting the pause by any stretch of the imagination. I think what we would need to be mindful of, maybe how messy it is and how much integration and the M&A needs to stand on its own merits. So from our perspective, we're wide open for M&A.

And again, congrats on the great quarter.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Farouq Tuweiq for closing comments.

Yes. Thanks, Kerri, and thank you, everyone, for joining us today. A very important thank you to all of our team globally that delivered this outstanding Q1 and what we think will be a very healthy balance of the year starting out with Q2. So thanks, everybody, and looking forward to speaking again in July.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Good morning, and welcome to the Bel Fuse Fourth Quarter 2025 Earnings Call.

[Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with Three-part advisers. Please go ahead, Jean.

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 as 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 Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO.

With that, I'd like to turn the call over to Farouq. Farouq?

Thank you, Jean, 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 EBITDA. We delivered net sales of $675.5 million for the full year, a 26.3% increase over 2024 and achieved a record GAP and non-GAAP EPS. We 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 remained strong across multiple end markets throughout the year, resulting in the 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 cost, ensuring continued margin strength. Operationally, we successfully completed the closure of our 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. We -- 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 shift 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 this segment and leaving it in the great conditions as he pursues his next chapter, and we thank him for his many meaningful contributions. We wish you great luck, and you'll be missed, but will surely 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 last year has been 1 of 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 Bel 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?

Thank you, Farouqu. 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 3 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% and Q4 25, up from 37.5% in Q4 '24. I -- for the full year 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 execution 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 Solutions segment was driven by several key end markets, including a $1.5 million increase in sales of our front-end power products, serving the network networking end market and 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. Fuse 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% 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% in Q4 '25 from 36.6% 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 and 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 renminbi.

Research and development expenses totaled $8 million in Q4 '25 in representing an increase of $1.1 million compared to Q4 '24. This increase was primarily attributable to the inclusion of Entercom's R&D costs, which amounted to an incremental increase of $1 million during Q4 '25. We anticipate that R&D expenses in future quarters will generally remain consistent with the Q4 '25 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 and 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 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 31, 2025, was 4.4%.

Looking ahead to the first quarter of 2026, we continue to see strength across all 3 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 Q1 26 sales to be in the range of $165 million to $180 million. Gross margin is expected to be in the range of 37% to 39% and 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 Bel 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 Instructions] The first question is from Bobby Brooks from Northland Capital Markets.

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, for Roop, when you initially joined as CFO a handful of years ago, you had a massive shift in the margin profile of the company, which A lot of that was sort of low. A lot of that was sort of like low-hanging fruit that you targeted. So I'm just curious to hear if that sort of same scenario. If Ooma has seen that sort of same scenario and again, like what he sees as the largest opportunities to go after.

Yes. 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 E&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 1 to 2 years before you monetize them. And 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 translate into some sales of some of our consumer business.

So we are a long-cycle design business. There's no quick claims 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 on some of the benefits I have in 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 was probably not much due to sales efforts that happened in Q4, right? This is stuff that probably happened early on 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, I'd say, rail is kind of a little bit of 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 did 3 -- a little over 3 dozen worth of contracts with our reps in the U.S. to really lean into new opportunities.

So we're trying to move the whole system forward from compensation structures to software and data to a 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 there's a lot of money going into A&D data centers, AI, a lot of obvious interest going in there. But 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 your I just want to caution, we're not a quick turn business, and we're trying to sell more design-in type work or modified solutions versus just purely off-the-shelf stuff.

Absolutely. Really appreciate that detail color for. And then -- maybe just turn into the 1Q 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 3 segments?

Sure, Bobby. So 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 3 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 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.

Got it. I appreciate the color there. Congrats on the great quarter.

The next question is from Christopher Glynn from Oppenheimer & Company.

I just want to build on Bobby's question about developing the commercial funnel. So you mentioned focus on designing and modified by modified burs off-shelf is how you're developing the funnel that makes sense. We've heard that. Curious if you're noting any traction in win rates for us historical as you mature this -- these strategies.

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 2026, and we talked about last call, is we want to really try to bring the whole Bel portfolio to our customers. I think historically, we've been really more focused around selling specific products like fuse or a connector 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 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 higher content on goal. So Yes, we're seeing better also the markets a little bit better place, right, so which creates more opportunity for us. I think the team also 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 BUs, now we want to have a more Bel focused key account groups that bring all of our products to the customers because we do have a lot of SKUs. Same thing on the business development efforts. We're [indiscernible] the teams around end 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 just have a lot of different e-mail addresses to customers in different forms and everything and the like or different pricing list to our distribution partners.

So I think calling these things out to not underemphasize that there is a robustness in what we're doing that needs for you a 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.

Great. That was great color, for. And then on the AI customer base, you mentioned that as one of the continued drivers of growth next year. You've often described it as being in early stage. I think with single source to well funded more start-ups for us the headline, big 3 or 4. Just curious if any of those customers are potentially positioning for adoption curve to their technology where you can cotail, not necessarily first half of '26, but more conceptually.

Yes. I think the answer is yes in short. 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 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 continuing to move forward. And also, let's not forget, 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 networking side is just as important because we do touch AI in a couple of different ways, right?

Yes. Understood. And then just defense, just wanted to clarify. 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, where the weightings are.

Yes, in short.

Okay. Okay. Great. Understood. I understand it...

Yes, I would say we want to be careful with kind of talking about at our side here, right? But all the kind of mean -- we're on all the major programs and some not major programs. So it's a very diversified portfolio anywhere to the things that you called out, munitions, things that fly, right? And we're doing more ground obviously, space is a little bit tangible to that as well. But we cover encryption communication, right? So all the things that you talked about, we probably touch it.

Great. And last one, just a housekeeping -- any thoughts on share class consolidation. I think 1 of your holders had generated a headline.

Yes. I would say I think from the gist of it, the -- our shareholder structure is a little bit more nuanced from the perspective of the economic differential between the 2 shares, right, versus just a vote, no vote. So that's one. I would say, as an appropriate due course, we'll have a company response and views on that at the appropriate time. I don't want to speak on the behalf of the board, but at the appropriate time, we'll address that. And also we -- I think the -- 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 to our fiduciary dairies to serve the best interest of all of our shareholders, As and the Bs. And as we build a company that's set up for the future, with good performance and investing in our employees and our customers, ultimately, that's kind of what moves the needle. So I just wonder, 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.

The next question is from Theodore O'Neill from Litchfield Hills Research.

Congratulations on the good quarter. .

Thank you, Theo.

So are you guys seeing any impact from the spike in prices on memory? .

I was going to say, 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 gold and copper we spoke about. But on the memory specifically, it's more, I'd say our customers are influenced by that.

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?

Yes, that's a good point. Today, we hedge our FX exposure from a raw material perspective, 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 care 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 that 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 to the extent we can offset it. Sometimes we will find alternative 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.

Okay. And finally, on the Aerospace side, do you have any exposure to the drone market.

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 in, like Ukraine. That's not really our market. We're more in the military kind of U.S. primes and 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 or in the more sophisticated drone game. .

The next question is from Greg Palm from Craig-Hallum Capital Group.

This is Dany Egerton for Greg today. Maybe just hitting again on A&D and maybe unpacking how you saw that develop in the quarter maybe between Enercon and Corbel 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?

Yes. 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 singe business and through Enercon -- we definitely saw growth in the Enercon business. As we look at the 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 fine business. So I would say that it was pretty split between the 2. So both Sinch and Enercon had robust growth in defense in Q4.

One thing we would just add [indiscernible] 6, right? We're seeing the build rates on the plan side continue to increase and head in the right direction. Also a lot of the programs around munitions and given kind of what's going on in the world, these are well-funded 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 the amalgamation of that, we feel pretty good as to where we stand compared to what's funded out there. .

Okay. No, that's very helpful. Then maybe if I can 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 FX and input costs, but any way to quantify those? And then as we kind of have that push-pull between input costs and passing on price in any way to think about potential margin expansion in '26?

Yes. 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 Bruce mentioned. So we're still seeing the benefits of those prior hedging programs come through the current period. So as we look we do foresee some margin pressure there on FX. I mean if you look at the peso rent and chuckle, 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 really being mindful of pricing actions that we may need to take with customers.

And 1 thing to just kind of flag in 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. So 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. 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 game. 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 go-to-market, the systems piece of it and the people piece of it.

So I just want to make sure -- and I know the margin gets a lot of discussions on the Bell earnings. And obviously, we're very proud of our margins. But we are hitting some headwinds that we've got to make sure that we have in the middle of this kind of growth that's coming that we're positioned appropriately for not picking up too much.

The next question is from Luke Junk from Baird.

Just wanted to double click on what we've been talking about in terms of what you've been doing to realign the sales force really thinking more about how do you attack markets or key customers, but something that you said in the script, kind of caught my attention in -- with oncoming in to head the connectivity business, that there might be some 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?

Thanks for the question there. Look, I would say a couple of things to maybe answer it from the back way of your question here. So on the operational side, we I can't remember 7, 8 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 and were our customers. So obviously, for a while, there was a lot of discussion around China and India than that froze. If that kind of starts up for some people at a startup, we were going to move to some of our products to India.

So I would say, given the geopolitical world that we live in and the realignment of localization of supply chains, we are in these, let's say, active discussions, right? But in terms of Bel as a stand-alone basis in putting a political supply chains, 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 moving a facility for us is a big task, and it's not simply is 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 A&D, there's a lot of regulatory hurdles to jump through. As we're setting up, for example, our Slovakia factory to be more A&D 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 want to come up to your facility and do audits and usually there's feedback and that takes a whole issue. So it's not easy. We don't take these decisions on moving facilities lightly. So we need our customer market changing dynamics to force our hand on a facility move. Go-to-market 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, 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 a facility unless it's going to help us grow, right?

Yes. That's super helpful. Near term, just curious from a guidance standpoint, 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 fiscal year? Is there any conservatism just because of your timing and the guidance?

I think as you know, Luke, in public land, right, everybody is always trying to figure out the optimal way to guide the Street. Our perspective from guidance is we want to land in a range and we build it to around the midpoint, right? So we're not trying to -- we don't build it to the high end point of our range and hope to guide we go over a range. We build it to the midpoint. -- right, to allow for some room for shifting from quarter-to-quarter. Obviously, we're in A&D, that tends to be kind of sometimes funny business. If we allow for some overordering 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 on question specifically about Chinese New Year, it's 2 weeks off, right? Everybody can trust down. It's not just us. It's all the CNs, it's all our customers in the Far East, right? So as a result of that, everybody goes pencils down for 2 weeks. And when they come back, it doesn't just turn on a dime. Usually, there's a week of, let's say, tough start time getting back into the groove, getting things going. So you're probably talking is somewhere between 2 to 3 weeks loss on a 3-month period, all right? That's not insignificant.

So I wouldn't say conservatism. I would say we wanted to do what we say we're going to do and we're in our best guess. So we're not trying to be conservative on that.

Fair enough. And then I just want to zoom out for my last question. The Power side of networking. Obviously, you've got some exposure there. I mean, the higher levels of power that power 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 1 customers or your direct customers in that world? And especially if there's any IP that might be leverageable either, I think, rail or mobility, both have some high-voltage IP that might be interesting.

Yes, I would just 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. 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 of the day, it was a 3- to 4-year device cycle, things are coming in a little bit sooner. So we are, for example, selling some products -- 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 select modifications and then we extend the recap products, whether we do distribution or other similar customers.

The other thing we are seeing, which is actually interesting in 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 grades. So kind of 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 into other markets. Now we haven't won anything yet, but we're feeling good about potential wins coming if that makes. So that's how we extend our R&D dollars. We're not looking to reinvent the world every time.

The next question is from Jacob Parsons from Needham & Company.

I'm just asking a question on behalf of Jim Ricchiuti. So we've been kind of hearing a better tone in the commercial aerospace market. Really, 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.

So as it relates to commercial air specifically, right? I mean for better or for worse, we are -- from an OEM perspective are attached to the hit 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 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 the all the union negotiation. If you recall, I think it was Q4 last year, there was a shutdown at kind of threw our business a little out of whack or back in the days of the grounding of the MAX.

So we are going to see how that correlates to the build right. So what we always point close to is, I think 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 element to it, right? So as we think about MRO cycle, I can think about are people on the planes flying being consumed and miles are being put on these planes. And up to every so often, those mine to be kind of retrofitted or MRO, right? So we think flights and when we look at the earnings of the -- some of the flight operators out there, people are flying and planes are moving. So we feel both good on the OEM and MRO side.

Yes. That's all super, super helpful. And if I can just kind of get 1 more in. So I'm curious, how's the book-to-bill ratio varied much by market vertical and which areas of the business have you guys seen the biggest changes relative to last quarter?

Yes. So I think on the book-to-bill side, Farouq had mentioned we were at 1.1% for the full year. I think our book-to-bill has strengthened as the year progressed. In Q4, our book-to-bill was 1.3. And I would say that strength was seen across all 3 product segments. So there's not 1 segment that is really high, while someone else is below 1. All 3 are very strong in Q4.

The next question is from Hendi Susanto from Gabelli Funds.

I have several questions. Park, can you help unpack more details on your AI opportunities in terms of end products or devices to help us build better ideas. Some products that come to mind are like power modules, network switches, traditional compute, AI surfaces and optical networking. Perhaps you can help us build better ideas of your devices?

Yes. I would say, Hendi, we want to be a little bit careful here, but our products are going to are more around the power side of the business, and the Bel Power is kind of where it's at. I would say from a direct where we know things are going for AI. Obviously, our magnetics business is also beneficiary from the networking guys and then they're kind of the RJ-45s kind of what we call 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 in that product that coupled with it being more copper based. So that's how we kind of go at the AI piece of it.

Generally, we do some stuff with the hyperscalers, but that's not really our focus market. So if you remember, we got in trouble there back in 2020. So we want to make sure we pick slots where technology and service matters versus just a copy product with a race to the bottom on pricing.

Yes. And if I may quickly check if there are products that may carry some opportunity for physical AI or humanoid robots?

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 humanoids 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.

Okay. And then what are your latest view and outlook on pockets of market recovery and inventory rebuild activities among customers?

I don't think we -- 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 tariff geopolitical world we're in, I'd say people are generally ordering more to demand versus building up the shelf. And quite frankly, I think that's probably a good thing in the sense, right? If you want to be able to shelf then you've got to deal with the hangover.

So today, we feel largely and I'm sure there's exceptions. Obviously, we touch a lot of markets. But largely, we feel to shift 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 changed pretty quickly. So I think there's a little bit of nervousness around that from our customer perspective.

Yes. And then, Lynn, I have a question on seasonality of sales in aerospace and defense. Is there a -- like if I look at Enercon cells, I'm trying to figure out what seasonality we need to model? And then plus considering that you are -- you may also like winning like more design. So what kind of seasonality can we expect in 2026 in aerospace and defense?

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 sometimes they move for a core to the other when things get funding, right? That's kind of where the choppiest comes from. But it's not really a seasonal to seasonal play, I would say, if there was a seasonality I mean not to the Enercom business, obviously, our connector business. But there is some less working days generally in Q4 just with the holidays and Thanksgiving but -- and some of the Jewish holidays in October. But other than that, I would not say it's a seasonal business.

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?

Yes, Go ahead, Lynn. .

So I think as we look at capital allocation, Priority #1 is reinvesting in the business through CapEx. We have regular weight dividends that we continue to pay. Barring anything on the M&A front, debt paydown is where it would be. And I think from a dollar perspective, the last couple of quarters, it's -- they've been robust debt paydowns to the tune of, call it, between $20 million and $30 million a quarter. and we would look to continue doing that going forward. Now keep in mind, Q1 tends to be a cash -- 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, 3, 4, that would be around the level of debt paydown, assuming there isn't anything on the M&A front.

The next question is from Bobby Brooks from Northland Capital Markets.

So just wanted to circle back and ask specifically kind of on Enercon and cross-selling opportunities there. Obviously, obviously, you mentioned this spend more specifically with aerospace and defense, these are long-cycle programs, right? So these aren't happening in 1 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 a deal with the demand that they were seeing. So just kind of curious to hear more on that.

Yes. No back burners here. Yes, we understand we've got to prioritize. But also remember, we have to live in new wins, 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, weekly calls and putting in some incentives along the way, we can do a little bit better job, but that process is in place. .

And what's interesting is we're definitely seeing some of this, let's say, go to market. So there was some -- a couple of interesting quotes in Israel, where I was lining to earn 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 need really complex products, which are 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. And 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. Enercom business, which our competivity Group can assist with. So they're working on kind of getting all that qualified and approved normally, in this case, Entercom had to go outside and deal with others, but we're able to capture more of this. And so the opportunities are real but in the spirit of greeting is, 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 to gear a little bit more.

There are no further questions at this time. I would like to turn the floor back over to Farouq Tuweiq for closing comments. .

Thank you for that. Again, I 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, taking interest in what we think is a very, very exciting time for Bel. So thank you, and look forward to speaking to you in a couple of months from now. .

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, good morning, and welcome to the Bel Fuse Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead.

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 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 for the fiscal year ended December 31, 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 Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO.

With that, I'd like to turn the call over to Farouq.

Thank you, Jean. And we appreciate everyone joining our call this morning. Thank you.

During the third quarter, we continued 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 Bel 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 Glen Rock, Pennsylvania facility. Following the sale of the building in the second quarter of 2025, we are now transitioning the remaining manufacturing operations to other Bel sites, with full completion expected by early 2026. The Glen Rock initiative is projected to incur minimal incremental restructuring costs 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 4 years have resulted in 7 facility consolidations in addition to the sale of our Czech business in 2023. These actions have resulted in an over 600,000-plus net square footage reduction on 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 Bel'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 Bel'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 Bel to them. This mindset shift will take a while to cement, but is a logical step for a company such as Bel 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 Bel.

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 is a tremendous amount of activity and excitement underway at Bel, all aligned to our common goal 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?

Thank you, Farouq.

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 3 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 and 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&D, 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 intra-quarter turns, which is a positive indicator for the overall business. As an offsetting factor, eMobility 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% 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 in 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% 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% 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 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% 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 unfavorable foreign exchange impacts related to the renminbi.

At September 30, 2025, R&D expenses totaled $7.5 million in Q3 '25, 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% of sales, up from $26.7 million in Q3 '24.

Importantly, SG&A as a percentage of sales declined from 21.6% 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, 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 held-to-maturity securities earlier in the year.

Looking ahead to the fourth quarter of 2025, we continue to see strength across all 3 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 million to $180 million. We noted in the second and third quarters that the trend of intra-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 Instructions] The first question comes from the line of Bobby Brooks from Northland Capital Markets.

Just wanted to circle back on those last -- the last piece that Lynn, you were touching on for the fourth quarter guide. Obviously, something that caught my eye was, yes, bucking kind of the historical trend of 4Q being lower than 3Q. And you mentioned that trends of intra-quarter sales have resumed and that the range assumes that continues in the fourth quarter. I was just wondering if we could just discuss what other factors might be at play, driving that outlook a little bit more detail because I feel like that's a really kind of exciting development for you guys.

Yes. Bobby, I'll let kind of Lynn jump in here with 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 -- we see a potential of that, if you just look at the range that we put out there, $165 million to $180 million versus, let's say, the $179 million 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 and/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, but maybe we beat Q3, but I just want to be mindful of that.

And I'll turn it over to Lynn here.

Yes. So just to add to what Farouq 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 Farouq'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 it's really -- those are the pieces. So, I mean, if you stripped out the holidays, the messaging would likely be different. But if you look back at our trend historically, having a dip from Q3 to Q4 is pretty natural for us. So...

Yes. I really appreciate that color. And I guess more so, it's just -- I definitely can appreciate that, yes. A lot of the ranges would be 4Q being coming in lower than 3Q. But I guess what just caught my eye was the guidance that you gave matched what the guidance was for 3Q. And usually, your guidance is for even the high end of the range being lower than what 3Q 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 -- 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 -- 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 5 years, 2020-2025, I think the industry would generally agree with the statement that has been anything but normal. In terms of the extreme extended lead times that happened in the earlier part of the time frame, 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 a maybe hesitation, if you will, on the parts 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 look at backlog and discussions, there's definitely a positive outlook, right?

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's 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 is 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 yippie about the world. So nonetheless, we like our positioning. We like our -- where we are with our customers. And I think we'll have pretty good outcomes here.

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 haven't seen that trend since back in 2022. So, I think just generally, we're seeing more activity, which is positive.

Got it. And then just last one for me is, I was really impressed, Lynn, when you were going through each kind of segment of power, and it really seems like power was driven -- these robust results in power were driven across many different segments. And it was nice to hear you break out what Enercon was as well. And just curious on Enercon, 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 starting to bubble up here?

Yes. So, I would say, I think we want to be just mindful of the word integration because the plan was never kind of a, let's say, classical approach to integration. right? So from 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 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. So 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 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 can do a little bit more, and we plan on doing a little bit more.

We take the next question from the line of Theodore O'Neill from Litchfield Hills Research.

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 have 3 questions related to that. How often does that happen? What determines the shift? And how does the distributor feel about it?

So, I would say -- first of all, thank you for the question there, Theo. I'd say 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 the -- some of the guiding principles on that include minimum order quantity. So if it's something smaller, we wanted 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 because at the same time, we're not looking to burn the relationships, right? So this is 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 if it's big and opening up doors. So, I'd say the answer is it depends, but I wouldn't say anything unnatural or odd happened here.

Okay. And what's the M&A opportunity looking like for you right now?

Yes. 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 as we kind of 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 would 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 quarter, we always have something live. The question is, do you want to strike and do you like the business fundamentals? So, that kind of -- hopefully that answers your question, Theo.

We take the next question from the line of Jim Ricchiuti from Needham & Company.

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?

So Jim, it's within our Magnetics segment. And we are -- 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 a year.

Yes, 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 allow us to focus on the things that we excel at, right? So hopefully, it unlocks more bandwidth than beamwidth for us to pursue things that have a better ROI for us.

Got it. And the strength you're seeing in networking, I was wondering if you could maybe drill down into that a little bit. Is that being driven 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 a combination of both.

Yes. So in networking, and if we talk about -- are you asking about a particular segment or just in general, Jim?

I'm talking about networking because you did highlight that as one of the areas.

Yes. So, that was right. So if we're talking about the Power segment, we mentioned it's really a combination of both of those factors that you just said. So, there is some rebound happening coming off of the couple of years of destocking that we went through. But then we're also seeing new incremental demand related to AI. So it's a mix of those 2 that's driving the growth in networking.

And Lynn, you mentioned, I thought book-to-bill was above 1. Is that right? And did you -- can you characterize the bookings by the 3 main product areas, whether there was much variability among the 3?

So, each of the segments were above 1. We saw positive book-to-bill across all 3 segments.

We take the next question from the line of Greg Palm from Craig-Hallum.

This is Danny Eggerichs on for Greg today. Congrats on the solid results here. I think just first off, maybe kind of a broader question on demand you're seeing from your -- 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 current day and whether those have kind of just returned to business as usual.

Yes. I'd say, Dan, that's a good question. I think, giving our end markets -- so understanding, right, kind of taking a step back and saying we're -- the numbers move around a little bit. But by far, 2/3 plus of our business is kind of exposed to U.S.-based customers, right? And when we look at those, we also see that 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, I'd say the kind of U.S.-based customers and Israeli-based customers are probably leading the way. And then also combining the networking side, also, those are the vast majority of the people we spend time with.

Asia is our smallest exposure and then Europe/Israel is in the middle, right? So from a mathematical perspective, we're going to really kind of move the needle as we see our, let's 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 eMobility, which sits in our Power group tends to be more European exposure. Obviously, there's other things going in the sector. But Europe, I'd say, is a mixed bag. It really depends on what it is you're talking about in terms of end 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. And also keep in mind that for us and the end markets we play in, right, we're not really a heavy consumer market business. We're not auto. And 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 are planning on doing more in Asia. But I'd say that, that's going to just round robin there on geographies.

Yes. Got it. That's all really helpful. Maybe if I can hit on the Power segment and specifically kind of the gross margin there, I think it's kind of the same thing we saw last quarter where 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?

Yes. 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, both in Q3 and going forward here is there are 2 currencies within the Power segment where there could be margin pressure. So, we have the Israeli shekel related to the Enercon business and then also the renminbi 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.

And then also keeping in mind some of our other margin businesses like eMobility and rail are down and those tend to be higher margin. I think the bigger -- 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, right, what is the opportunity there to expand to new customers, new offerings and new products versus having an extremely strict line on gross margin, right?

So that's kind of something we're thinking about kind of 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, there is some -- our SG&A and R&D are relatively range bound. 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.

Okay. Yes. 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 has kind of been at like a 39%. And obviously, revenue levels in Q4 that suggests higher than -- quite a bit higher than what we saw in the first half 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?

So, I think it's a couple of factors. 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 -- if we're looking at Q3 sales to Q4, seasonally, we're down a bit in Q4 versus Q3. So if that happens, you have less leverage 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.

We take the next question from the line of Christopher Glynn from Oppenheimer & Company.

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? It 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.

Thanks for that, Chris. I think your question is just more commercial across the business and where they're coming from, the new wins?

Yes. Yes, exactly. And maybe a little color on new business opportunities, what's the growth there year-over-year?

Yes. So in general terms, right, 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 can almost got to look back at least 1 to 2, 3 years to see what was done then and kind of seeing where these wins have come, right? So I would -- obviously, as Lynn said, we do have some intra-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 that things that happened in Q2, maybe some Q1 stuff, okay?

So, this puts a big pressure on us to make sure that today, in 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 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, 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 opportunity design wins? And I think the answer is yes. When I speak to the teams across Bel Fuse, I think there's a pretty fair aggressiveness in terms of hunting for the new. We are 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 customers. So how can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing 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 commentary around we 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 kind of got to look back probably before 2025, to be honest with you.

Okay. Great. And then just curious on Enercon, if they're caught up on shipments. I think they had a little delivery snags last quarter. And did the quarter include some catch-up? Or is that just the sequential scaling that the business is generating?

Yes, 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.

We take the next question from the line of Luke Junk from Baird.

Farouq, I want to circle back to gross margins and maybe more of a philosophical but bigger picture, certainly. If we look at the gross margin trend this year, it's been above the high end of guidance 3 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?

No, I appreciate that question, Luke. 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, right, 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 got to look at it as an asset and as a tool.

Now keeping in mind, we work very hard to get our gross margins here, right? We don't want to arbitrarily kind of get it further 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, we want to make sure we're not picking out too much and just really missing the boat on EPS growth, given that we talked about the range boundness of our SG&A and R&D. So that's, I think, the sense of maybe a little bit of conservatism there.

I think the -- I appreciate in public markets that everybody is 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 give the optics here in the last 2 quarters to your point, I think we could see some conservatism. That's fair. The question is, okay, as we go throughout next year, 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.

That's all very helpful. Second question on -- just curious if we could double-click on networking and AI specifically in terms of the design win activity and just tilting the organization to growth overall. I guess I'd be especially interested in Power and 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?

Yes, no. I mean, 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 a -- and 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 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, we want to make sure that we're not just simply waiting for the same customers we had 3, 4 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.

All really great color. Just a quick one for my last question. And then 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?

Yes. I would say the -- just 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 health care is you have a fixed cost, but every year somebody comes and the health care 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 as just 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, and we obviously saw a spike in Q2 and Q3 a little bit here.

We take the next question from the line of Hendi Susanto from Gabelli Funds.

Congrats on strong results. My first question is you talk about rebound in networking and distribution customers. Can you talk about rebound or sign of rebounds across other areas, specifically, let's say, in Magnetic, Connectivity and then some major areas?

Sure. So, I think for -- so you're looking for a breakdown by product group, Hendi, or just other end markets aside from networking?

Yes. I think like where -- like besides networking and distribution channels, are there like 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?

Yes. I think the other 2 areas that we've been seeing a rebound, which had been depressed in prior periods is in the consumer end market. 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 a 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 2 areas in addition to networking and distribution.

Got it. And then Magnetics sales is still significantly below pre-COVID levels. Any puts and takes in terms of expectation on Magnetics sales, let's say, like going forward, like where the recovery is somewhat -- is likely in the short to midterm?

Yes. So, I think when we look at Magnetics, Hendi, 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. So, there was a, let's say, unnatural behavior there today. So if we were to kind of put a range on where we've been, let's say, it was $175 million to roughly $75 million, we would look at peak to trough, roughly speaking. I would say $175 million is probably not in the cards for the next few years because 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, there is a product concentration and 2 end market concentration, which is networking and distribution largely. So if we look at the ranges of $75 million to $175 million, I would say the -- or I should say $70 million, sorry, the range was $180 million to $70 million. So, I'll let you kind of decide where we are, but we're seeing the year-over-year over growth. But 2022 at $180 million was extremely unnatural, and we've slimmed down the business since then. So, I would not really anchor to that. So, I'll leave it at that, but we do think that we got some ways to go here.

Got it. And then, Lynn, may I ask how we should think and project the pace of potentially early debt payment?

The pace of debt payments going forward?

Yes. Yes.

So, I mean, barring an M&A opportunity coming up or anything like that, we've been running at a rate of, call it, $20 million to $25 million a quarter just based on our cash flows. So, we would continue to pay down debt. That would be our first priority, barring anything on the M&A side.

Ladies and gentlemen, with that, we conclude the question-and-answer session. I would now hand the conference over to Farouq Tuweiq for his closing comments.

Again, I want to thank everybody for joining us here and a very big thank you for the Bel Fuse 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 and 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.

Thank you. Ladies and gentlemen, the conference of Bel Fuse Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.

Good morning, and welcome to the Bel Fuse Second Quarter 2025 Earnings Call. [Operator Instructions] 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.

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 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 on the IR section of our website.

Joining me on the call today are Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO.

With that, I'd like to turn the call over to Farouq. Farouq?

Thank you, Jean, and good morning, everyone.

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 Bel team really came through strong aided -- came through strong, aided by a few factors, including end market performance and an uptick in our intra-quarter turns, which we have not really seen much in recent quarters, particularly in our Power and Magnetics segments. From an end market standpoint, commercial air, defense and networking led the way along with certain pockets of distribution sales within the Power and Magnetic segments. These trends signal that we are heading into recovery as we have been anticipating following nearly 2 years of inventory destocking in the channel. And they reinforce our confidence in 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 million 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?

Thank you, Farouq.

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 A&D end market and improved sales in our Magnetics 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 '25 compared to Q2 '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 this end market in Q2 '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. These declines 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 called out in last year's second quarter that approximately 400 basis points of the Power gross margin resulted from nonrecurring 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 end 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 Enercon'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 3 currencies that Bel has exposure to, namely the Chinese renminbi, 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 paydown 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.

[Operator Instructions] And our first question today comes from the line of Bobby Brooks with Northland Capital.

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 within 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 can 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?

Yes. So 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 Magnetics groups and then also within the distribution channel. 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 Magnetics 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.

Got it. So not necessarily 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 wins?

Yes. 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 for -- given our long cycle on average design business, you need a return to growth both from your OEMs and your disti. Disti obviously does touch a lot of new customers along the way and some recurring. So when we look at the channels, yes, we do see some new business, and we had some really nice new wins in the quarter, programs in our aerospace defense business, for example. So we do see new. But just given the long cycle of the business, you need your existing people with too much in inventory to wake up to get going again. So it's really an amalgamation of those factors.

Fair enough. That's helpful color. And then just maybe any other -- any 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 and driving just general business efficiency? And maybe dovetail that with the Glen Rock, 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?

Yes. So the -- maybe starting out backwards here a little bit on the Glen Rock 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 align internal resources and the physical footprint space. So that's kind of really the genesis of that. And we've largely kind of moved out of 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, 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 seemingly constantly across the organization of different scale and magnitude. 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 the 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 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 mix 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 here if we to kind of throw a guess out there. So we are in a very good place in a comfortable place. The question becomes is, can we -- there might be some room to go here and there, but we also need 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 OpEx in R&D space. We got to make sure that we are 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 1,000 bps expansion here, right?

Our next questions come from the line of Christopher Glynn with Oppenheimer.

So yes, just wondering, you talked about improving orders trends in the first quarter continuing to the second quarter. You also, I think, mentioned improving turns intra-quarter. It 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.

When we look at normal times, which means you probably have to go back 4 or 5 years ago, but usually, you head into the quarter with some expectation of go get. In those days, let's say, obviously, we have a lot of SKUs, but generally, your lead times are anywhere from 8 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 on 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 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 the right way it's supposed to be functioning.

Yes. And I imagine it's a little tough to bifurcate, but sense of like actual end market improvement in networking. I know that kind of Stage 1 of lack of destock 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 kind of the end market is pivoting there?

Yes. 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 to your question, Chris, is the numbers and 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 kind of think about it.

Makes sense. And just want to ask about Enercon, you had your second full quarter here. I know you're out intra-quarter talking about it, and it sounds very good. But yes, 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.

Yes. So I think it's going kind of as we anticipated. Obviously, it's a great team 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, just to expand on your question here, Chris, is we think of just defense globally, right? We're seeing it in our Connectivity business. and we're seeing that expand. So where we are in those markets today, which is a good place to be.

I think the team is excited. We're, I'd say, collaborating better. I think we have some way to go. As you know, this is a long-cycle design business and regulatory. The customers are very busy with some replenishment sometimes. 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 and especially in that end market. So we remain excited and bullish on it.

Our next questions are from the line of Jim Ricchiuti with Needham & Company.

I just wanted to ask about the -- 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 disti? And it looks like -- Lynn, if I heard you correctly, it looks like the Enercon contribution was roughly flat with Q1.

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?

No. Q1 to Q2. And so I'm wondering if it's just a function of the legacy Power business picking up sequentially or has it...

Correct. Yes. So it's 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 is a lower margin product group than the recently acquired Enercon business.

Got it. I heard 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?

Yes. 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 had said we don't really expect any revenue synergy in 2025 and 2026 is probably our best bet probably in the back half of '26, 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 customers' 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 -- we -- the market is just a long-cycle design business. But the good news is here is the teams on their own prerogative are seeing some nice wins.

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 your -- 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?

Yes. So Jim, on commercial air, yes, if you recall, in Q1, it was just under $13 million. In Q2, it was $20.5 million. So nice sequential growth there. I think the outlook for commercial air trend is still robust. We do tend to see a bit of patchy ordering patterns, if you will, in that business. So will it be the exact same level as Q2? Unclear at this time, but we do expect it to be robust.

The next questions are from the line of Greg Palm with Craig-Hallum Capital.

Congrats on the results. Going back to the last call, that $8 million to $10 million of so-called paused revenue coming out of China, how much of that was recognized specifically in the quarter? And is the assumption that the entirety gets recognized over the course of Q3, whatever it wasn't in Q2?

Yes. So we took a look at that, Greg, and it was about 2/3 of it ultimately got shipped in the second quarter and the balance is expected to go out in the third quarter.

Okay. And Farouq, I think you made a comment at the end of your prepared, you said expect sequential growth for the remainder of the year. So are you saying you're expecting sequential growth in the December quarter in Q4 as well over Q3? I just wanted to clarify that.

Yes, that's a good question. I think when we just look at the second half, we expect more robustness, 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 3, but usually, they're kind of the strongest quarter, sometimes they move around a little bit. And then Q4 is somewhere in the middle. There's the Golden Week out in Asia and you go into the holiday seasons and kind of -- 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, right, given the strong number in Q3 that we guided to in Q4 and in Q1, we expect the second half to be better than the first half overall.

Yes. 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 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 something that's maybe coming?

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, Greg, 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 continue to see robustness in the bookings, which would be beyond the, let's call it, moving deadline of tariffs, whatever it is now. So -- 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 in -- on the last call, roughly 10% of that from the previous year was kind of 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 bogeyman 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 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.

And just to add to that, Greg, we did survey 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. So -- and we did not have any material input from that survey as well.

Okay. Yes, I appreciate that color. And last one for me, A&D, which has become the biggest, most important end 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 either programs, end 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?

I mean I would say I'd caveat the answer by saying 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, Bel Fuse A&D, I don't think there's kind of a singular kind of high-level concentration. So it's a pretty diverse program business. So it's not -- it's unlike a commercial air where there is some concentration, right? So it's a pretty diverse business.

Got it. But you have exposure to missile defense. I guess how -- where does that sort of stack up in terms of programs or...

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 is kind of where we're on average levered.

The next questions are from the line of Luke Junk with Baird.

Farouq, maybe hoping to start with the third quarter guidance. So you 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 7 points of growth into the third quarter. Just where should we think that upside leverage is 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.

Luke, it's Lynn. 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.

Okay. That's helpful. Maybe taking a step back, just bigger picture. I'm thinking of the efforts you've taken in terms of sales force-related 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. Farouq, maybe you can just give us a snapshot of some of the progress markers that you're seeing as of midyear here that maybe aren't obvious in the business from the outside looking in, but maybe contribute later this year into '26.

Yes. 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 then we have had so many shots on goal 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 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 that we play to win type attitude, we're seeing that come through. But also remembering that 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 2, 3 years ago at this point, where we've been investing a lot in CapEx and automation in the last 2 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 terms of manufacturing effectively, but also procurement is very important, right? We got to make sure that we're procuring things at a good price point, especially places in our like legacy Power and Magnetics 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 EBITDA targets for the team to hit, and now we're in our year 3 heading into 2025. So as we look at the ranges of what drove this, I think it's amalgamation of these things. So -- 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, then you may get burned. I think what I like about it is the swelling of team effort to win. We're not perfect, and we 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.

Our next questions are from the line of Theodore O'Neill with Litchfield Hills Research.

Yes. 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?

So from Q1 to Q2 versus sequentially?

I'm sorry, sequentially versus year-over-year.

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 just under $13 million in Q1 of '25 and then the $20.5 million in Q2 '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 Magnetics during the quarter, we did see a slight step back in Connectivity distribution. So that was also a driver from Q2 last year to Q2 this year. Does that answer your questions, Theo?

And Lynn -- yes, sure. And on depreciation, it's up -- it's almost doubled year-over-year. What's happening there?

So with the acquisition of Enercon in November, we brought on their -- all of their PP&E, and we have the step-ups. So depreciation and amortization went up quite a bit year-over-year just because of the new tangible and intangible assets that we brought on to the books.

Our final question is from the line of Hendi Susanto with Gabelli Funds.

Congratulations on strong results. Farouq, my first question is about the market recovery and inventory rebuild. Some sales will go towards 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 be more cautious when it comes to building inventory. So let's say, like in 2025, you will see some benefit 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 awfully optimistic because inventory rebuild may take some time?

Yes. I would say, Hendi, that's a good question. I think maybe a couple of things is our industry and Bel Fuse, obviously, has been in this trough for a very long time, let's call it, maybe the industry has been in the roughly 2 years. And when we look at that 2-year context compared to history, that is a very long time. So now we're coming out of a 2-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 end of 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. But at the same time, in a 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 sure, 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.

Okay. And then my next question is the setback due to special Chinese supplier situation that has started like several quarters ago. Can we revisit that, whether it is now fully behind?

I mean it's fully -- I'd caution with that because generally, the Chinese suppliers, we were selling some consumer end markets and distribution. So with the weakness in that channel, it was a little bit -- 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 of 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.

And Hendi, 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 headwind, that is behind us where the comp will be apples-to-apples starting in Q3.

And then, Farouq and Lynn, 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 trends or whether or not you are able to sustain your pricing?

Yes. I think that's a very big question, Hendi, and I think I want to caution, we're not kind of like more of a semi-cycle where there's too much inventory and every price is down. Our products are designed in, and it really depends on what end market we're talking about. Aerospace and defense, we tend to think of it as a price flat, price up environment, right? Some of the other areas, sure, it could 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 tend to think about pricing, we're in maintenance mode versus we're heading to growth or not everything gets priced down like maybe doing more of a semi side of things. So for us, obviously, we're always mindful of it. We'll have customers ask for it, sure, but we're also launching new products at higher margin, but we 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.

At this time, I'll turn the call back to Farouq for closing remarks.

Thank you, everyone, for joining our call here this morning, where 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. I appreciate everyone's time, and have a good day.

This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation, and have a wonderful day.