Q4 2024 Bel Fuse Inc Earnings Call

Speaker Change: Good morning and welcome to Bellfuse fourth quarter and full year 2024 earnings call.

Speaker Change: At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your cell phone keypad. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with three-part advices. Please go ahead, Jean.

Jean Marie Young: 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.

Thank you, and good morning, everyone.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Jean Marie Young: Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Daniel Bernstein, President and CEO, Farooq Tuweiq, CFO, and Lynn Hutkin, Vice President of Financial Reporting and Investor Relations. With that, I'd like to turn the call over to Dan. Dan?

that we issued after market closed yesterday.

additional information about the material risks.

and other important factors that could potentially.

impact our financial performance.

and cause actual results to differ materially from our expectations.

Speaker Change: is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K.

Speaker Change: 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.

Speaker Change: Our press release and our SEC filings are all available at the IR section of our website.

Speaker Change: Joining me today on the call is Dan Bermstein, President and CEO, Ruth Tuick, CFO, and Lynn Hutkin, Vice President of Financial Reporting and Investor Relations.

Daniel Bernstein: Thank you, Jean Marie Young, very much. Okay, we are pleased with our Q4 and full year 2024 results, both in terms of our legacy business as well as the first 2 months of performance from the recent acquired Enercon business. Overall, we achieved a 410 basis points improvement in gross margin to the full year 2024 versus 2023. Despite the 16% reduction in sales from last year, this was also the second-best year in Bel's history of earnings, EBITDA, and our highest stock price. Our focus throughout 2024 was on two core strategies. The first is the future growth of the company and the second, improve our cost controls. In this regard, we were successful on several fronts. We added two senior-level positions focused on sales and strategic procurement that we had not had previously. This is in addition to the other folks across the organization.

Dan Bermstein: With that, I'd like to turn the call over to Dan. Dan? Thank you, Jeanne, very much.

Dan Bermstein: Okay, we are pleased with our fourth quarter and full year 2024 results, both in terms of our legacy business as well as the first two months of performance from the recent active acquired and current business.

Dan Bermstein: Overall, we achieved a 410 basic points improvement in gross margin.

Dan Bermstein: to the full year 2024 versus 2023. Despite the 16% reduction in sales from last year, this was also the second best year in Bell's history of earnings even at our highest stock price.

A focus throughout 2024 was on two core strategies.

Bye-bye.

The first is the future growth of the

Dan Bermstein: In this regard, we were successful on several fronts. We added two senior level positions focused on sales and strategic procurement that we had not had previously. This is in addition to the other folks across the organization.

Daniel Bernstein: The acquisition of Enercon, the largest transaction in Bel Fuse history, has enhanced Bel's position as a supplier of mission-critical components into harsh environment applications. Further, over the past year, we engaged in 2 facility consolidations, 1 in Glen Rock, Pennsylvania under our connectivity segment, and the other related to the transition of our fuse product line in China within our power segment. The team continues to make good progress on each of these initiatives. In Q4, with the goal is to complete both in H1 of 2025. Majority of the costs associated with these consolidations were already occurred in 2024. From a cost savings perspective, in the aggregate, the company realized the savings of $1.5 million in 2024, with more to come in 2025 once these consolidations are completed and a full-year cost savings are realized.

Dan Bermstein: The acquisition of Enercon, the largest transaction in both use history.

Dan Bermstein: Has a chance, fails position as a supplier of mission-critical components into harsh environment applications.

Dan Bermstein: Further, over the past year, we have engaged in two facility-conducted consolidations.

Dan Bermstein: One in Glen Rock, Pennsylvania under our connectivity segment and the other related to the transition of our fused product line in China.

within our power segment.

Dan Bermstein: The team continues to make good progress on each of these initiatives, and the fourth quarter, the goal is to complete both in the first half of 2025.

Majority of the costs associated with

Dan Bermstein: From a cost-savings perspective and the algorithm, the company realized the savings of $1.5 million.

Dan Bermstein: The board had come in 2025 once these college consolidations were completed.

Daniel Bernstein: There are two other properties that have been held for sale in connection with these moves. Each property is currently under contract for sale, we expect them to close during H1 2025. Upon completion of these 2 projects, we have successfully implemented 6 facility consolidations globally in the past 3 years, resulting in an annual cost savings totaling $11.8 million across all the 6 projects. These efforts have further allowed us to reduce overhead count by 30% since the beginning of 2023, when we launched these activities. In closing our 2024, we have demonstrated our ability to maintain our enhanced margins profile even during a challenging year on top line.

Dan Bermstein: and a full-year cost savings are realized. Further, there are two other properties that have been held for sale in connection with these moves. Each property is currently under contract for sale, and we expect them to close during the first half of 2025.

Dan Bermstein: Upon completion of these two projects, we have successfully implemented six facility consolidations globally in the past three years, resulting in an annual cost savings totaling $11.8 million across all six projects.

Dan Bermstein: These efforts have further allowed us to reduce overhead costs by 30% since the beginning of 2023 when we launched these activities.

Dan Bermstein: In closing, on 2024, we have demonstrated our ability to maintain our enhanced margins profile even during a challenging year on top level.

Daniel Bernstein: These accomplishments of resetting Bel's financial foundation is a result of a full global team pulling together over the past 3 years on a variety of fronts to improve our underlying business. When I consider all the work that has been done to position Bel for long-term success, and with the collaboration with Farooq on the strategy reset, it was the right time for me to transition to the chairman role and hand over the reins to Farooq. Farooq will be the third CEO in Bel's 76-year history and makes the first time the office will be held by a person outside the Bernstein family. I am extremely excited to continue the journey with Farooq in a different capacity. I also want to thank our hardworking associates around the world for their dedication in ensuring Bel's continued commitment to success, resiliency, and ability to change. Farooq?

Dan Bermstein: These accomplishments of resetting those financial foundations is the result of a full global team pulling together over the past three years on a variety of fronts to improve our underlying business.

Speaker Change: When I consider all the work that has been done to position DOW for long-term success and with the collaboration with Falluk on the strategy we set, it was the right time for me to transition to the chairman role and hand over reins to Falluk.

Speaker Change: Rook will be the third CEO in a 76-year history and makes the first start of the office of the OWL by a person outside the Bernstein family.

Speaker Change: I am extremely excited to continue the journey of Baruch in a different capacity. I also want to thank our hard-working associates around the world for their dedication in ensuring God's continued commitment to success, resiliency, and ability to change. Baruch Adonai.

Farouq Tuweiq: Thank you, Dan. To echo Dan's sentiment, I think the team really pulled through this past year in making marked improvements in the areas which were within our control. We look to continue this momentum into 2025 with new team members around the table. On the team side, our Global Head of Sales, who joined BEL in October, has been fast at work in assessing the sales and marketing organization as they stand today, and what the future state should look like. Out of the gate, he has already improved upon the sales commission structure we put in place last year. As we head into 2025, the focus this year in this important area will be expanding customer depth and breadth that align well to our capabilities, allowing us to better return on our efforts.

Dan Bermstein: Thank you, Dan. To echo Dan's sentiment, I think the team really pulled through this past year and making marked improvements in the areas which were within our control. We look to continue this momentum into 2025 with new team members around the table.

Dan Bermstein: On the team side, our global head of sales who joined Bell in October has been fast at work in assessing the sales and marketing organization as they stand today, and what the future state should look like. Out of the gate is already improved upon the sales commission.

Dan Bermstein: structure we put in place last year. As we head into 2025, the focus this year in this important area will be expanding customer depth and breadth that align well to our capabilities, allowing us to better return on our efforts.

Farouq Tuweiq: We will also be focused on better opportunity targeting, customer tracking, and installing various efficiency tools to achieve such outcomes. From a cost perspective, there are a few key areas on our radar in 2025. On the positive side, we are excited about our new Global Head of all things procurement as well, who's taken a fresh look at our costs. While he has only been in the role for about 2 quarters, he has already identified a series of upcoming initiatives to streamline our supplier base and take advantage of our consolidated purchasing power across our global entities. While the potential cost savings here are not quantifiable at this moment, we're confident that his effort will be additive to Bel's financials over the coming years. As we look to 2025 from an end market perspective, we see trends as largely favorable in this upcoming year.

Dan Bermstein: We will also be focused on better opportunity targeting, customer tracking, and installing various efficiency tools to achieve such outcomes.

Dan Bermstein: From a cost perspective, there are a few key areas on our radar in 2025. On the positive side, we are excited about our new Global Head of All Things Procurement as well, who's taking a fresh look at our costs.

Dan Bermstein: While he has only been in the role for about two quarters, he has already identified the series of upcoming initiatives to streamline our supplier base and take advantage of our consolidated purchasing power across our global entities.

Dan Bermstein: While the potential cost savings here are not quantifiable at this moment, we're confident that his effort will be additive to Bell's financials over the coming years.

Dan Bermstein: As we look to 2025 from an in-market perspective, we see trends as largely favorable in this upcoming year.

Farouq Tuweiq: We believe AI, defense, and space have potential to be the largest areas of new growth for us in 2025. A first full year with Enercon will be significantly additive to our revenue base given the current business it has, and we are actively working on identifying and executing on a variety of revenue synergy opportunities between our Cinch business and Enercon. This process is already underway, and while these initiatives will take time for realization, the early signs of potential are encouraging. The areas of distribution, networking, and industrial have faced challenges over the past 2 years due to inventory destocking. We continue to see signs of recovery in each of these areas during the Q4 and anticipate these markets to show signs of improvement in 2025 as compared to 2024.

Dan Bermstein: We believe AI, defense, and space have potential to be the largest areas of new growth for us in 2025.

Dan Bermstein: A first full year with Enercon will be significantly additive to our revenue base given the current business it has, and we are actively working on identifying and executing on a variety of revenue synergy opportunities between our Cinch business and Enercon.

Dan Bermstein: This process is already underway, and while these initiatives will take time for realization, the early signs of potential are encouraging.

Dan Bermstein: The areas of distribution, networking, and industrial have faced challenges over the past two years due to inventory destocking. We continue to see signs of recovery in each of these areas during the fourth quarter and anticipate these markets to show signs of improvement in 2025 as compared to 2024.

Farouq Tuweiq: As noted in the past 2 quarters, our consumer end market continues to struggle, and we anticipate this to persist through much of 2025. If you recall, this was the end market in which the US government placed trading restrictions on 1 of Bel's suppliers in the PRC. This will result in challenging year-over-year comparisons for this end market through the H1 of 2025, as approximately $6 million of sales related to this supplier in the H1 of 2024. Expanding our lens to the broader geopolitical situation we are in, tariffs are on the headlines all around us. Effective 4 February, an additional tariff of 10% was placed on imports into the US from China. As a reminder, we have already been operating in a 25% tariff world imposed on such imports, and an additional 10% will increase this to 35%.

Dan Bermstein: As noted in the past two quarters, our consumer end market continues to struggle and we anticipate this to persist through much of 2025. If you recall, this was the end market in which the U.S. government placed trading restrictions on one of Bell's suppliers in the PRC.

Dan Bermstein: This will result in challenging year-over-year comparisons for this end market through the first half of 2025, as approximately 6 million of sales related to this supplier in the first half of 2024.

Dan Bermstein: Expanding our lens to the broader geopolitical situation we are in, tariffs are on the headlines all around us.

Dan Bermstein: Effective February 4th, an additional tariff of 10% was placed on imports into the U.S. from China.

Dan Bermstein: As a reminder, we have already been operating in a 25% tariff world imposed on such imports, and an additional 10% will increase this to 35%. On a revenue basis in 2024, we had approximately 12-13% of our total revenue subject to tariffs.

Farouq Tuweiq: On a revenue basis in 2024, we had approximately 12% to 13% of our total revenue subject to tariffs. Historically, BEL has passed these incremental tariffs onto its customers, and we anticipate that will continue to be the case, resulting in minimal, if any, impact to BEL's financials. This is an overall concern for our customers, and we have been working with them on exploring other manufacturing sites out of China. Keep in mind, the 12% to 13% noted is for 2024. Obviously, with Enercon, that percentage will be a little bit less in heading into 2025. As for the tariffs in Mexico, and assuming they do go in place, barring any last-minute agreements, this would be new and impact to approximately $20 million of our 2024 revenue, representing just under 4% of sales.

Dan Bermstein: Historically, Bell has passed these incremental tariffs onto its customers and we anticipate that will continue to be the case, resulting in minimal, if any, impact to Bell's financials.

Dan Bermstein: This is an overall concern for our customers, and we have been working with them on exploring other manufacturing sites out of China. Keep in mind the 12 to 13% noted is for 2024, obviously with Enercon, that percentage will be a little bit less.

Dan Bermstein: heading into 2025. As for the tariffs in Mexico and assuming they do go in place barring any last-minute agreements, this would be new and impact to approximately 20 million of our 2024 revenue representing just under 4% of sales.

Farouq Tuweiq: We expect to handle these in the same way as China, but we'll see how that goes. Mexico overall is a key manufacturing location for a number of our competitors and us, thus, we are wrestling with what is happening. As for Canada tariffs, there's no exposure for us as we neither manufacture nor import/export to Canada. In looking at the business as a whole, we believe 2024 was the trough of many of our end markets, and we're generally optimistic entering into 2025. As we discussed on the October call, we expect growth across the business with varying degrees. Our largest percentage grower should come from Magnetic Solutions, led by networking and our key customer recovery. As for Connectivity Solutions, we expect growth as well, but do keep in mind this group has grown nicely over the last 3 years, driven by commercial air defense and space.

Dan Bermstein: We expect to handle these in the same way as China, but we'll see how that goes. Mexico overall is a key manufacturing location for a number of our competitors and us, and thus we are wrestling with what is happening. As for Canada tariffs, there is no exposure for us as we neither manufacture nor import or export to Canada.

Dan Bermstein: And looking at the business as a whole, we believe 2024 was the trough of many of our end markets. Now we're generally optimistic entering into 2025.

Dan Bermstein: As we discussed on the October call, we expect growth across the business with varying degrees.

Dan Bermstein: Our largest percentage grower should come from magnetics, led by networking and our key customer recovery. As for connectivity, we expect growth as well, but do keep in mind this group has grown nicely over the last three years, driven by commercial air defense and space.

Farouq Tuweiq: While exciting, any new growth will be, comparatively speaking, a little bit smaller on a percentage basis. As for power, when assessing year-over-year growth and excluding the impact of restricted Chinese supplier we discussed previously, we will anticipate that AI and distribution will be leading the way, and we expect that power segment to be a little bit more flat to up on a pre-Enercon basis. With Enercon, we expect a stronger performance and the growth as well. I should say that Enercon is expected to be most likely only second to magnetics in terms of percentage growth. In closing out on a personal note, I could not be more excited to be taking the helm in May. Dan has done an amazing job in not only building and diversifying Bel over his tenure, but in encouraging the vast changes that have taken place internally over the past three years.

Dan Bermstein: So, while exciting, any new growth will be, comparatively speaking, a little bit smaller on a percentage basis.

As for power, when assessing year-over-year growth,

Dan Bermstein: and excluding the impact of restricted Chinese supplier we discussed previously.

Dan Bermstein: We will anticipate that AI and distribution will be leading the way, and we expect that power segment to be a little bit more flat to up on a pre-Enercon basis. With Enercon, we expect a stronger performance and the growth as well. I should say that Enercon is expected to be most likely only second to Magnetics in terms of percentage growth.

Speaker Change: In closing out, on a personal note, I could not be more excited to be taking the helm in May. Dan has done an amazing job in not only building a diversifying bill over his tenure, but encouraging the vast changes that have taken place internally over the past three years.

Farouq Tuweiq: BEL has a very strong foundation today and is well positioned for future growth. With that, I'll turn the call over to Lynn to run through some financials. Lynn?

Speaker Change: Bell has a very strong foundation today and is well positioned for future growth. With that, I'll turn the call over to Lynn to run through some financials. Lynn?

Lynn Hutkin: Thank you, Farooq. Before getting into the financial results of Q4, I wanted to highlight a few changes to the reconciliation tables included in our earnings release. In Q4 2024, we modified our presentation of non-GAAP financial measures, including revising our definitions of adjusted EBITDA and non-GAAP EPS to additionally exclude from these non-GAAP measures the following 3 items. 1, stock-based compensation. 2, amortization of intangibles, which primarily relates to the amortization of finite lives, customer relationships, and technologies associated with the company's historical acquisitions, including those associated with the recent acquisition of Enercon. 3, unrealized foreign currency exchange gains and losses. We believe the change enhances investor insight into our operational performance. We have applied this modified definition of adjusted EBITDA and non-GAAP EPS to all periods presented.

Lynn Hutkin: Thank you, Farouk. Before getting into the financial results of the quarter, I wanted to highlight a few changes to the reconciliation tables included in our earnings release.

Lynn Hutkin: In the fourth quarter of 2024, we modified our presentation of non-GAAP financial measures.

Lynn Hutkin: including revising our definitions of adjusted EBITDA and non-GAAP EPS to additionally exclude from these non-GAAP measures the following three items.

Lynn Hutkin: One, stock-based compensation. Two, amortization of intangibles, which primarily relates to the amortization of finite life, customer relationships, and technologies associated with the company's historical acquisitions.

including those associated with the recent acquisition of Enercon.

three, unrealized foreign currency exchange gains and losses.

Lynn Hutkin: We believe that change enhances investor insight into our operational performance.

Lynn Hutkin: We have applied this modified definition of adjusted EBITDA and non-GAAP ETFs to all periods presented.

Lynn Hutkin: Turning to the financial results, sales came in at $149.9 million for Q4, compared to $140 million for Q4 2023. Full year 2024 sales came in at $535 million, as compared to $640 million in 2023. The addition of Enercon sales and strength in our Connectivity Solutions helped to mitigate the continued year-over-year decline seen in our Magnetic Solutions and legacy power segments during 2024 versus the 2023 period. Gross margin reached 37.5% in Q4 2024 as compared to 36.6% in Q4 2023. Looking at the full year, gross margin was up by 410 basis points in 2024 as compared to 2023. Margin improvement continued to be led by favorable product mix and the successful execution of a variety of cost reduction and efficiency programs. Now turning to our product groups.

Lynn Hutkin: Turning to the financial results, sales came in at $149.9 million for the fourth quarter compared to $140 million for the fourth quarter of 2023.

Lynn Hutkin: Full year 2024 sales came in at $535 million as compared to $640 million in 2023.

Lynn Hutkin: The addition of Enercon sales and strength in our connectivity segment helped to mitigate the continued year-over-year decline seen in our magnetics and legacy power segment during 2024 versus the 2023 period.

Lynn Hutkin: Gross margin reached 37.5% in the fourth quarter of 2024, as compared to 36.6% in Q4'23.

Lynn Hutkin: Looking at the full year, gross margin was up by 410 basis points in 2024 as compared to 2023.

Lynn Hutkin: Margin improvement continued to be led by favorable product mix and the successful execution of a variety of cost reduction and efficiency programs.

Lynn Hutkin: Sales of Power Solutions and Protection products in Q4 2024 amounted to $78.1 million, a 13.2% growth from the previous year's Q4. The increase from Q4 2023 was attributable to the inclusion of Enercon, which contributed $20.8 million in sales to the power segment during Q4 2024. On a full year basis, the power segment showed a decrease of 21.8% compared to 2023, landing at $245.6 million in sales for 2024. The decline for the full year was mainly driven by lower sales of our front-end power products of $45.3 million and board mount power products of $9.5 million, both of which serve our networking end market. Sales of CUI products were down $21.2 million in 2024 as compared to 2023 due to the trade restriction placed on one of our suppliers in the PRC, as we discussed previously.

Now turning to our product group.

Lynn Hutkin: Sales of power solutions and protection products in Q4-24 amounted to $78.1 million, a 13.2% growth from the previous year's fourth quarter.

Lynn Hutkin: The increase from Q4-23 was attributable to the inclusion of Enercon, which contributed $20.8 million in sales to the power segment during the fourth quarter of 2024.

Lynn Hutkin: On a full-year basis, the power segment showed a decrease of 21.8% compared to 2023, landing at $245.6 million in sales for 2024.

Lynn Hutkin: The decline for the full year was mainly driven by lower sales of our front-end power products of $45.3 million and board mount power products of $9.5 million.

both of which serve our networking and market.

Sales RCUI products were down $21.2 million in 2024.

Lynn Hutkin: compared to 2023 due to the trade restriction placed on one of our suppliers in the PRC as we discussed previously.

Lynn Hutkin: Sales of our e-mobility end market decreased by $12.9 million in 2024 as compared to 2023. These declines were partially offset by an increase in sales of our rail products of $11.8 million, an increase in sales of fuse products by $2.6 million as compared to 2023, and the previously mentioned sales contribution of $20.8 million from Enercon. As a reference for full year activity, rail sales were $41.9 million for 2024, up 39% from 2023, and e-mobility sales were $15 million for the full year, down 46% from the 2023 level. The gross margin for the power segment was 40.6% for Q4 2024, representing a 40 basis point improvement from Q4 2023. On a full year basis, the gross margin increased by 430 basis points to 42.4% in 2024 as compared to 38.1% for 2023.

Lynn Hutkin: Sales of our e-mobility and market decreased by $12.9 million in 2024 as compared to 2023.

Lynn Hutkin: These declines were partially offset by an increase in sales of our rail products of $11.8 million.

Lynn Hutkin: an increase in sales of fused products by 2.6 million as compared to 2023, and the previously mentioned sales contribution of 20.8 million from Enercom.

Lynn Hutkin: As a reference for full-year activity, rail sales were $41.9 million for 2024, up 39 percent from 2023.

Lynn Hutkin: and e-mobility sales were $15 million for the full year, down 46 percent from the 2023 level.

Lynn Hutkin: The gross margin for the power segment was 40.6% for the fourth quarter of 2024, representing a 40 basis point improvement from Q4'23.

Lynn Hutkin: On a full-year basis, the gross margin increased by 430 basis points to 42.4% in 2024 as compared to 38.1% for 2023.

Lynn Hutkin: These increases were primarily driven by the acquisition of Enercon, pricing actions, favorable FX from the Chinese renminbi, and a favorable shift in product mix. Our Connectivity Solutions Group achieved sales of $52.5 million during Q4 2024, an increase of 4% compared to Q4 2023. On a full year basis, 2024 connectivity sales amounted to $220 million, an increase of almost 5% versus 2023. This improvement was due to the continued growth in the defense and aerospace industries. In 2024, we also experienced an increased volume of connectivity products sold through our distribution channels. For full year 2024, sales of products into the commercial aerospace end market amounted to $56.9 million, an increase of 7% from the 2023 level. Products sold into defense applications totaled $47 million for full year 2024, up 5% from 2023. Sales into space applications totaled $8 million for the full year 2024.

Lynn Hutkin: These increases were primarily driven by the acquisition of Enercon, Pricing Actions, Favorable FX from the Chinese R&D team.

and a favorable shift in product mix.

Lynn Hutkin: Our connectivity solutions group achieved sales of 52.5M during the 4th quarter of 2024, an increase of 4% compared to Q4-23.

Lynn Hutkin: On a full-year basis, 2024 connectivity sales amounted to $220 million, an increase of almost 5% versus 2023.

Lynn Hutkin: This improvement was due to the continued growth in the defense and aerospace industry.

Lynn Hutkin: In 2024, we also experienced an increased volume of connectivity products sold through our distribution channels.

Lynn Hutkin: For full year 2024, sales of products into the commercial aerospace and market amounted to $56.9 million, an increase of 7% from the 2023 level.

Lynn Hutkin: Products sold into defense applications totaled $47 million for full year 2024, up 5% from 2023.

Lynn Hutkin: Sales into states applications total to $8 million for the full year of 2024.

Lynn Hutkin: Products sold through distribution channels totaled $82 million for the full year of 2024, up 2.9% from 2023. The gross margin for this group was 36.6% in Q4 2024, up 730 basis points from 29.3% in the same quarter of 2023. On a full year basis, the gross margin improved by 290 basis points to 37.1%, compared to 34.2% in 2023. Gross margins for the 2024 periods were favorably impacted by the higher overall sales volume, favorable fluctuation in exchange rates between the US dollar and the Mexican peso in 2024, and operational efficiencies implemented during 2023, partially offset by higher wage rates in Mexico in 2024 as compared to 2023. Lastly, our Magnetic Solutions group sales declined by 6% from Q4 2023 levels to $19.2 million for Q4 2024.

Products sold through distribution channels.

Lynn Hutkin: total to $82 million for the full year of 2024, up 2.9% from 2023.

Lynn Hutkin: The gross margin for this group was 36.6% in the fourth quarter of 2024, up 730 basis points from 29.3% in the same quarter of 2023.

Lynn Hutkin: On a full-year basis, the gross margin improved by 290 basis points to 37.1 percent compared to 34.2 percent in 2023.

Lynn Hutkin: Gross margins for the 2024 periods were favorably impacted by the higher overall sales volume, favorable fluctuation in exchange rates between the U.S. dollar and the Mexican peso in 2024.

Lynn Hutkin: and operational efficiencies implemented during 2023, partially offset by higher wage rates in Mexico in 2024 as compared to 2023.

Lynn Hutkin: Lastly, our Magnetic Solutions Group sales declined by 6% from Q4'23 levels.

The 19.2 million for the 4th quarter of 2024.

Lynn Hutkin: This resulted in full year 2024 sales for the Magnetic Segment of $68.9 million as compared to $115 million in 2023. This segment has a large concentration of sales in the networking end market and is largely tied to the ordering patterns and end demand of a few large customers within that space. While quarterly sales within this segment remained at significantly depressed levels throughout 2024, volumes have stabilized and have been on a rebound since Q2 2024. The gross margin for the Magnetic Segment was 29.1% for Q4 2024, a 1,200 basis point improvement from the 17.1% gross margin in Q4 2023. On a full year basis, Magnetic's gross margin was 25.3% in 2024 as compared to 22% in 2023.

Lynn Hutkin: This resulted in full year 2024 sales for the magnetic segment of $68.9 million as compared to $115 million in 2023.

Lynn Hutkin: The segment has a large concentration of sales in the networking and market, and is largely tied to the ordering patterns and end demand of a few large customers within that space.

Lynn Hutkin: While quarterly sales within this segment remained at significantly depressed levels throughout 2024, volumes have stabilized and have been on a rebound since the second quarter of 2024.

Lynn Hutkin: The gross margin for the magnetic segment was 29.1% for Q4-24, a 1200 basis point improvement from the 17.1% gross margin in Q4-23.

Lynn Hutkin: On a full year basis, magnetic gross margin was 25.3% in 2024, as compared to 22% in 2023.

Lynn Hutkin: The recent facility consolidations in China and related elimination of the dual cost structure that was in place during the 2023 transition were the primary drivers for the improved margin profile of this segment. At the consolidated level across all product segments, our backlog of orders totaled $382 million. This is comprised of $263 million of legacy Bel backlog and $119 million of Enercon backlog at 31 December 2024. Selling, general and administrative expenses for the fourth quarter of 2024 were $34.8 million, up by $9.9 million from $24.9 million in Q4 2023. On a year-to-date basis, SG&A increased by $11.5 million during 2024. The primary drivers for the increases in SG&A during the 2024 period related to the acquisition of Enercon.

Lynn Hutkin: The recent facility consolidations in China and related elimination of the dual...

Lynn Hutkin: cost structure that was in place during the 2023 transition were the primary drivers for the improved margin profile of this segment.

Lynn Hutkin: At the consolidated level across all product segments, our backlog of orders totaled $382 million.

Lynn Hutkin: This is comprised of $263 million of Legacy Bell Backlog and $119 million of Enercon Backlog at December 31, 2024.

Lynn Hutkin: Selling general and administrative expenses for the 4th quarter of 2024 were $34.8 million, up by $9.9 million.

from $24.9 million in Q4'23.

Lynn Hutkin: On a year-to-date basis, SGNA increased by 11.5 million during 2024.

Lynn Hutkin: the primary drivers for the increases in SG&A during the 2024.

Lynn Hutkin: Non-recurring acquisition-related costs amounted to $8.6 million during Q4 and $12.9 million for the full year 2024, and the majority of these were included in SG&A. In addition, incremental amortization expense of approximately $1.3 million was recorded during Q4 2024 in SG&A related to the valuation of customer relationships acquired. Other SG&A expenses related to Enercon amounted to $2.5 million during Q4. Excluding these items related to Enercon, legacy Bel SG&A expenses showed a decline of $3.6 million during the full year 2024 versus 2023. This decrease was the result of reductions in incentive compensation, sales commissions, and business promotion expenses. Turning to our balance sheet and cash flow, we closed the year with $69 million in cash and securities, down $58 million from the $127 million we had at the end of 2023.

period related to the acquisition of Enercon.

Lynn Hutkin: Non-recurring acquisition-related costs amounted to $8.6 million during the fourth quarter and $12.9 million for the full year of 2024, and the majority of these were included in SG&A.

Lynn Hutkin: In addition, incremental amortization expense of approximately $1.3 million was recorded during the fourth quarter of 2024 in SG&A related to the valuation of customer relationships acquired.

Lynn Hutkin: Other SG&A expenses related to Endercon amounted to $2.5 million during the fourth quarter.

Lynn Hutkin: Excluding these items related to Enercon, Legacy Bell SG&A expenses showed a decline of 3.6 million during the full year of 2024 versus 2023.

Lynn Hutkin: This decrease was the result of reductions in incentive compensation, sales commissions, and business promotion expenses.

Lynn Hutkin: Turning to our balance sheet and cash flow, we closed the year with $69 million in cash and securities, down $58 million from the $127 million we had at the end of 2023.

Lynn Hutkin: This was primarily due to the utilization of $86 million in cash to fund the Enercon acquisition during Q4. During the full year of 2024, we generated cash flows from operating activities of $77.7 million. From a debt perspective, our outstanding balance increased to $287.5 million at the end of the year, largely due to the new debt of $240 million related to the Enercon acquisition. In taking into account our swap agreements, the weighted average interest rate on our debt balance at 31 December 2024 was 5.5%. As a reminder, our credit facility expires on September 2026, as a result, we will be looking to refinance the facility during the summer of 2025 to ensure a new agreement is in place prior to the current facility going into a current liability classification. Now turning to Enercon.

Lynn Hutkin: This was primarily due to the utilization of $86 million in cash to fund the Enercon acquisition during the fourth quarter.

Lynn Hutkin: During the full year of 2024, we generated cash flows from operating activities of $77.7 million.

Lynn Hutkin: From a debt perspective, our outstanding balance increased to $287.5 million at the end of the year, largely due to the new debt of $240 million related to the Enercon acquisition.

Lynn Hutkin: And taking into account our swap agreement, the weighted average interest rate on our debt balance at December 31st, 2024 was 5.5%.

Lynn Hutkin: As a reminder, our credit facility expires in September 2026, and as a result, we will be looking to refinance the facility during the summer of 2025 to ensure a new agreement is in place prior to the end of the year.

current facility going into a current

Lynn Hutkin: While we've touched upon this in pieces throughout our commentary today, we thought it would be helpful to highlight some of the financial impacts related to the acquisition. First, we utilized $86 million of cash and $240 million of new borrowings under our credit facility to finance the acquisition. Next, the current run rate of interest expense at the current interest rates and at our 31 December outstanding debt balance is approximately $4 million per quarter. At 31 December, our net leverage ratio, in accordance with the calculation outlined in our credit agreement, was 2.1 times. Keep in mind, our credit facility leverage ratio only nets out foreign cash. If netting out global cash, we were under the 2 times mark at 31 December. As Bel acquired 80% of Enercon, the Enercon financials are fully consolidated into Bel's financials.

Lynn Hutkin: Now, turning to Enercon, while we've touched upon this in pieces throughout our commentary today, we thought it would be helpful to highlight some of the financial impacts related to the acquisition.

Lynn Hutkin: First, we utilized $86 million of cash and $240 million of new borrowings under our credit facility to finance the acquisition.

Lynn Hutkin: Next, the current run rate of interest expense at the current interest rate and December 31st outstanding balance.

It's approximately $4 million per quarter.

Lynn Hutkin: At December 31st, our net leverage ratio in accordance with the calculation outlined in our credit agreement was 2.1 times.

Lynn Hutkin: Keep in mind our credit facility leverage ratio only nets out foreign cash, if netting out global cash, we were under the two times mark at December 31st.

Lynn Hutkin: As Bell acquired 80% of Enercon, the Enercon financials are fully consolidated into Bell's financials.

Lynn Hutkin: The 20% of net earnings attributable to the non-controlling interest is shown at the bottom of our P&L. Enercon contributed $20.8 million of revenue to Bel's financials during the 2 months in 2024. For modeling purposes, Enercon's annual R&D expenses are approximately $6.5 million, and its annual SG&A expenses are approximately $13.5 million. Enercon's blended tax rate is approximately 17%. The last item I'd like to touch upon is related to the redeemable non-controlling interest, which is a new line item on our balance sheet. This relates to the 20% of Enercon that Bel currently does not own, but for which there are put and call options which may be exercised in early 2027. Upon the acquisition of Enercon in November 2024, the fair value of the NCI was determined to be $72.3 million.

Lynn Hutkin: the 20% of net earnings attributable to the non-controlling interest is shown at the bottom of our P&L.

Lynn Hutkin: Enercon contributed $20.8 million of revenue to Bell's financials during the two months in 2024.

Lynn Hutkin: For modeling purposes, Enercom's annual R&D expenses are approximately $6.5 million, and its annual SG&A expenses are approximately $13.5 million.

Enercon's blended tax rate is approximately 17 percent.

Lynn Hutkin: The last item I'd like to touch upon is related to the redeemable non-controlling interest, which is a new line item on our balance sheet. This relates to the 20% of Enercon that Bell currently does not own, but for which there were put in call options, which may be exercised in early 2027.

Lynn Hutkin: Upon the acquisition of Enercon in November 2024, the fair value of the NCI was determined to be $72.3 million.

Lynn Hutkin: In accordance with GAAP accounting and the various policy elections the company made related to NCI accounting, the redeemable NCI on the balance sheet was remeasured to its redemption value at 31 December. This led to a $7.7 million increase in the NCI amount on the balance sheet, with the offset being attributable to the non-controlling interest at the bottom of our P&L. This in turn reduced the net earnings amount attributable to Bel shareholders. This item is included as a non-GAAP adjustment in our non-GAAP EPS reconciliation table. We wanted to highlight this one-time adjustment from fair value to redemption value as this resulted in Bel reporting a net loss on a GAAP basis during the Q4. I would now like to turn the call back to the operator to open the call for questions.

Lynn Hutkin: In accordance with GAAP accounting and the various policy elections the company made related to NCI accounting, the redeemable NCI in the balance sheet was remeasured to its redemption value at December 31st.

Lynn Hutkin: This led to a $7.7 million increase in the NCI amount on the balance sheet with the offset being attributable to the non-controlling interest at the bottom of our P&L.

Lynn Hutkin: This, in turn, reduced the net earnings amount attributable to Bell shareholders.

Lynn Hutkin: This item is included as a non-GAAP adjustment in our non-GAAP EPS reconciliation table.

We wanted to highlight this one kind of adjustment.

Lynn Hutkin: from fair value to redemption value, as this resulted in fellow reporting a net loss on a gap basis during the fourth quarter.

Lynn Hutkin: I would now like to turn the call back to the operator to open the call for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Christopher Glin with Oppenheimer. Please go ahead.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Lynn Hutkin: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue.

Lynn Hutkin: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.

One moment please, while we poll for questions.

Speaker Change: The first question comes from the line of Christopher Glynn with Oppenheimer, please go ahead.

Christopher Glin: Hey, good morning. Congrats on closing Enercon. Just wanted to connect the dots from some of the Q3 orders momentum you talked about for PSP and for Magnetics. We saw a nice counterseasonal core PSP sales increase ex Enercon. Not the case for Magnetics, but you had pointed out longer lead times there. Just want to revisit that contrast in lead times and also if the orders turn was pretty sticky relative to what you saw in Q3 versus maybe some continued intermittency.

Hey, good morning, congrats on closing Enercon.

Speaker Change: I just wanted to connect the dots from some of the third quarter orders momentum you talked about for PSP and for magnetics.

We saw a nice counter-seasonal corp PSP sales increase, ex-Entercon.

Speaker Change: Not the case for magnetic, but you had pointed out longer lead times there, so just want to, you know, revisit that contrast in lead times, and also if the order's turn was, you know, pretty sticky relative to

Speaker Change: what you saw in the third quarter versus maybe some continued intermittency.

Farouq Tuweiq: Yeah. Hey, Chris. Nice to connect here. On magnetics, it's seasonal, and generally we think of magnetics and largely power as having Q2, Q3 being the strongest quarters, and Q1 usually being the weakest, and Q4 somewhere in the middle. That's I'd say what's kind of expected on the magnetic side. On the power side, we did see some maybe more robust pull-ins, and that led us to be a little bit north of the midpoint of our previous guided range just for the Bel base business. We think some of the pull-ins that did come in was to get out ahead of some of the tariffs that were potentially coming in in Q1. Outside of that, I think everything kind of went and landed as we thought it would given the seasonality within both PSP and Magnetics.

Speaker Change: Yeah, so hey Chris, nice to connect here. On magnetics, it's seasonal and generally we think of magnetics and largely power as having Q2, Q3 being the strongest corridors.

Speaker Change: And Q1 usually being the weakest and Q4 somewhere in the middle, so that's kind of, I'd say, what's kind of expected on the magnetic side. On the power side, we did see some maybe more robust pull-ins.

Speaker Change: And that led us to be a little bit north of the midpoint of our previous guided range just for the Bell based business

Speaker Change: We think some of the pull-ins that did come in was to get out ahead of some of the tariffs that were potentially coming in in Q1.

Speaker Change: But, outside of that, I think everything kind of went and landed as we thought it would, given the seasonality within both PSP and Magnetix.

Christopher Glin: Okay, great. I think last quarter you expected growth in all segments in 2025. I think you referred more to flattish outlook for PSP for 2025, if you could verify if I heard that correctly, and also maybe go down a layer or two on the puts and takes to kind of defer growth recovery for PSP.

Speaker Change: Okay, great. And I think last quarter you expected, you know, growth in all segments in 2025. I think you referred more to flattish outlook for

Speaker Change: PSP for 25, if you could verify if I heard that correctly, and also maybe go down a layer or two on the puts and takes to kind of defer growth recovery for PSP.

Farouq Tuweiq: Yeah. On the PSP commentary I'm going to give, obviously excluding Enercon. A couple of things happened there throughout 2024. One is the Chinese supplier that we've talked about, and we had roughly, let's call it $5 million of pull-in that happened in Q4, which we were not expecting. When we look at the amalgamation of those two, just year-over-year comparison becomes a little bit harder for PSP, given both of those were largely impacting PSP. When looking at that, it kind of gives us this, let's call it, maybe flattish. Could it be more? Yes. I think we just need to see kind of how the world plays out from an end market perspective and some of the issues going on.

Yep, so, um, on.

Speaker Change: The PSP comment here I'm going to give obviously is excluding Enercon. So a couple of things happened there throughout 2024. One is the Chinese supplier that we've talked about, and we had roughly, let's call it 5 million of pull-in that happened in Q4.

Speaker Change: which we were not expecting. So when we look at the amalgamation of those two, just year over year comparison becomes a little bit harder for PSP given both of those were largely impacting PSP.

Um, so.

When looking at that, it kind of gives us this.

let's call it you know maybe flattish could it be

Speaker Change: More, yes. I think we just need to see kind of how the world plays out from the end market perspective and some of the issues going on.

Farouq Tuweiq: Given that, call it, optics harder comparison that will happen with the Chinese supplier and the pull-ins, that's going to what give us to guide that as we try to manage expectations here.

Speaker Change: Given that call it you know optics harder comparison that will happen with the Chinese supplier and the Poland that's kind of what you know gave us a guide that as we try to manage expectations here.

Christopher Glin: Okay, great. Congrats on the transitions, Dan and Farouq, across the company and in the CEO role in particular.

Speaker Change: Okay, great and congrats on the transitions Dan and Farouk across the company and in the CEO role in particular.

[Company Representative] (Bel Fuse): Thank you.

Farouq Tuweiq: Thank you.

Operator: Thank you. Next question comes on the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Thank you.

Thank you.

Speaker Change: Thank you. Next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Bobby Brooks: Hey, good morning, guys. Thank you for taking my question. I guess I just want to first start on the 1Q sales guide. Could you maybe just give us a sense of how much of that is attributable strictly from Enercon business?

Bobby Brooks: Hey, good morning guys, thank you for taking my question. I guess I just want to first start on the 1Q sales guide. Could you maybe just give us a sense of how much of that is attributable strictly from Enercom business?

Farouq Tuweiq: Yeah. I think, going forward, Bobby, we'll be blending them here. I think directionally, when we do look at it, we guided PSP to roughly, from a Q1 perspective, year over year, given the pull-ins, I'd say slightly down. Also remember, Q1 last year had the Chinese supplier in it, right? You have the Chinese supplier going against you, coupled with some of the pull-ins. PSP on a base level will be down Q1 2025 over Q1 2024. Obviously, Enercon would be additive to that.

Bobby Brooks: Yeah, so I think, you know, going forward, Bobby, we'll be blending them here. I think directionally, when we do look at it, we guided PSP to roughly, you know, from a Q1 perspective, year over year, and given the pull-ins, I'd say slightly down.

Bobby Brooks: And also remember Q1 last year had the Chinese supplier in it, right? So you have the Chinese supplier going against you, coupled with some of the pull-ins. So PSP on a base level will be down Q125 over Q124.

Bobby Brooks: Okay. I appreciate that. I don't think we've talked about this before, but just wanted to kind of circle back on it now that you've had Enercon under your own ownership, is how quickly do you think it'll take for real cross-selling opportunities to begin to emerge here? Just trying to get a sense of that.

Obviously, Enercon would be additive to that.

Okay, I appreciate that and then

Bobby Brooks: You know, I don't think we've talked about this before, but just wanted to kind of circle back on it now that you've had Enercom under.

Bobby Brooks: Under your own ownership is how quickly do you think? It'll take for real cross-selling opportunities to begin them to begin a merge here Just trying to get a sense of how just trying to get a sense of that

Farouq Tuweiq: Yeah, I think similar to anybody touching defense, it's a slow-moving environment in terms of either unseating an incumbent or new designs. I think that generally holds globally true, whether it be European defense, American defense, or Israeli defense. My guess is we probably are not going to see much, if any, in 2025 on the cross-sell. We could see it, right? It just kind of really depends. To manage expectations here, I think what's important for us though is, one, are there opportunities out there for cross-pollination and bringing the resources of Bel to bear to customers? The answer is yes. Two, is ensuring that our teams are talking together with the proper incentives to really motivate people to jointly go out there and tackle the world. We've done that on the process and people incentive side of it.

Speaker Change: Yeah, I think similar to anybody touching defense, it's a slow-moving environment in terms of either unseating an incumbent or new designs.

Speaker Change: And I think that generally holds globally true, whether it be European defense, American defense, or Israeli defense.

Speaker Change: So my guess is we, you know, we probably are not going to see much, if any, in 2025 on the cross sell, but we could see it, right? It's just going to really depends. But to manage expectations here, I think what's important for us, though,

Speaker Change: Is one, are there opportunities out there for cross-pollination and bringing the resources of Bell to bear to customers?

Speaker Change: Two, is ensuring that our teams are talking together with the proper incentives to really motivate people to jointly go out there and tackle the world. And we've done that. It's on the process and people incentive side of it. So I'd leave it at that. But generally defense is a slow moving existence.

Farouq Tuweiq: I'd leave it at that, but generally, defense is a slow-moving existence.

Bobby Brooks: Fair enough. Maybe this kind of ties into that last point that you made there. Your new global head of sales, he's had some time now to get adjusted into the seat. You talked about it a little bit, some of the stuff that he's already implemented, you kind of touched on it there right in the previous answer, could you maybe just dive a little bit deeper and highlight some of the initiatives he's kicked off or changes he's made, and maybe just compare that to what kind of previously was the case?

Speaker Change: Fair enough. And then maybe this kind of ties into that last point.

Speaker Change: that you made there, but so your new global head of sales, he had some time now to get adjusted into the sea. You talked about it a little bit, some of the stuff that he's already implemented and you kind of touched on it there right in the previous answer, but could you maybe just...

Speaker Change: Dive a little bit deeper and highlight some of the initiatives. He's kicked off or changes He's made and maybe just compare that to what kind of previously was the case

Farouq Tuweiq: Yeah. I appreciate that question there, Bobby. As I tend to think about things, I tend to say to myself, People, process, performance. People, process, performance. On the people side of it, we have maybe moved some things around a little bit in terms of responsibility and reporting structure, and making sure that we are better aligned as a team. That's on the people side of it. I'll kind of leave it at that. On the process side of it's really a question of: Where are we going to sell? Who are we targeting the selling? Right? How do we establish further breadth and depth within the customers and new customers? We've spent a fair amount of time with Uma, really understanding where do we go deeper with certain customers, and where is the parallel pathways for us to grow.

Peace.

Speaker Change: Yeah. So, I appreciate that question there, Bobby. You know, as I kind of think about things, you know, I kind of say to myself, people process performance, people process performance.

Speaker Change: on the people side of it We have you know, maybe move some things around a little bit in terms of responsibility and reporting structure And making sure

Speaker Change: that we are better aligned as a team. So that's on the people side of it. I'm gonna leave it at that. On the process side of it, it's really a question of where are we going to sell? Who are we targeting the selling, right? So how do we establish further breadth and depth within the customers and new customers?

Speaker Change: So, we've spent a fair amount of time with UMA really understanding where do we go deeper with certain customers and where is the parallel pathways for us to grow. So, we'll be really thinking a little bit harder, especially on the parallel or competitors that we should be going after in side lanes.

Farouq Tuweiq: We'll be kind of really thinking a little bit harder, especially on the parallel or competitors that we could be going after in side lanes. The performance piece of it is making sure if your people are performing, enabled by the process, that there is recognition on the performance side of it and measuring performance. That's to my earlier commentary on the commission structure changes that we have implemented. We've added more bells and whistles than we did last year. We've also established a structure whereby we reward, let's call it cross-selling between our connectivity segment and Enercon, and then making sure we measure it and compensate for it. That's how we kind of think about it is from a well-rounded perspective.

Speaker Change: And the performance piece of it is making sure if your people are performing enabled by the process that there is recognition on the performance side of it and measuring performance.

Speaker Change: So, that's to my earlier commenter and the commission structure changes that we have implemented.

Speaker Change: And we've added more built-in whistles than we did last year. We've also established a structure whereby we reward, let's call it, cross-selling between our connectivity segments at Enercon.

Speaker Change: and then making sure we measure it and compensate for it. That's how we're going to think about it.

Daniel Bernstein: Just to add a little bit to that, Farooq came from a very strong e-commerce distributor. For us, as we move forward, we know more and more sales in the past were direct sales between our people, the reps, and the engineering communities. As we move forward, we know the future engineers don't want to talk to people. They want to get their product as quick as possible off the internet, either from us or from Digi-Key, Mouser, these e-commerce distributors. His focus is really where we do well, is on the key customers, the Ciscos of the world, and the Honeywell and Boeing people. Where we need help is really addressing the 2-tier, 3-tier, 4-tier accounts and building those relationships.

from a well-rounded perspective.

Speaker Change: And just to add a little bit to that, you know, fruit came from a very strong

e-commerce distributor.

Speaker Change: So, for us, as we move forward, we know more and more sales in the past were direct sales between our people, the reps.

and to engineering communities as we move forward.

Speaker Change: We know the future engineers don't want to talk to people. They want to get their product as quick as possible off the internet, either from us or from digital e-mails or these e-commerce distributors. His focus is really, what we do well is on the key customers, the Cisco's of the world.

Honeywell.

Speaker Change: and Boeing people. What we need help is really addressing the second-tier, third-tier, fourth-tier accounts and building those relationships.

Daniel Bernstein: I think the other problem is we have been historically very siloed in our approach to sales and how do we combine our total sales force to work as efficient as possible. It might be two sales forces, it might be one sales force, but he's really taking a hard look of how we go to market and what's the best strategy to make sure that we cover all the bases. So far we're very pleased in the direction we're moving, and we're moving a lot quicker than we thought.

Speaker Change: And I think the other problem is we have been historically very siloed in our approach to sales.

Speaker Change: and how do we combine our total sales force to work as a team.

Speaker Change: efficient as possible. It might be two sales force, it might be one sales force, but he's really taking a hard look of how we go to market and what's the best strategy to make sure that we cover all the bases. So, so far we're very pleased in the direction we're moving and we're moving a lot quicker than we thought.

Bobby Brooks: That's terrific color. I appreciate it, guys. Congrats, Dan, on the great career and Farooq on the step up to CEO. I'll return to the queue.

Speaker Change: That's terrific caller I appreciate it guys and congrats Dan on the great career and Farouk on the step up to CEO. I'll return to the queue.

Operator: Thank you. Next question comes from the line of James Ricchiuti with Needham & Company. Please go ahead.

Thank you. Next question comes from the

James Ricchiuti: Hi. Thanks. Good morning. I'll echo my congratulations to both of you. Looks like it's going to be a smooth transition, and I wish you both the best. First question just relates to Enercon. I know you've only had the business for, what, about three months or so, but I'm wondering, as you had discussions with your colleagues there, what's your sense as to the business outlook? I think, Farooq, you said it, next to Magnetics, I think you said it was going to be the second strongest growing business. Is there an element of replenishment in the business in Israel? Tell us about the activity you're seeing outside Israel in terms of, I know they have a fair amount of exposure in North America as well.

Speaker Change: All right, thanks. Good morning. So I'll echo my congratulations to both of you looks like it's going to

Speaker Change: be a smooth transition, and I wish you both the best. So, first question just relates to Enercon. You know, I know you've only had the business for what, about three months or so, but I'm wondering as you

Speaker Change: discussions with your colleagues there. What's your sense as to, you know, the business outlook? I think, Perouk, you said it next to Magnetics, I think you said it was going to be the second strongest growing business. Is this, is there an element of replenishment in the business in Israel?

Speaker Change: Are you seeing, you know, tell us about the activity you're seeing outside Israel in terms of, I know they have a fair amount of exposure in North America as well.

Farouq Tuweiq: Yes. I would say, I think the messaging is really the same, whether it be on the US or Israeli side. Obviously, as a reminder, roughly 40% of their sales is Israel, 50% US, and 10% various European, India, and the like. I think the message is, and this was kind of one of our investment thesis in defense, we think that it'll be a multi-year good tailwinds for that end market. There will be a replenishment cycle, obviously, with some of the issues with Ukraine and the war in Israel. There is a natural replenishment cycle after a period of conflict, so that will be additive.

Speaker Change: Yes, I would say I think the messaging is really the same, whether it be on the U.S. or Israeli side. And obviously, as a reminder, roughly 40% of their sales is Israel, 50% U.S. and 10% various European, India.

Speaker Change: and the like. And I think the message is, and this was kind of one of our investment thesis in defense, we think that it'll be a multi-year kind of good tailwinds for that end market.

Speaker Change: There will be a replenishment cycle, obviously with some of the issues with Ukraine and that war in Israel, there is a natural replenishment cycle after a period of conflict.

Farouq Tuweiq: We also think that a global posture around defense and defense spending has changed, and we're seeing more investment going, whether it be into new technologies or just increasing overall spending, and we see some of this commentary running through the news. Between replenishment, rearmament, and stepping up defense spending, all that is additive. The other thing we're seeing, and I think there's a fair amount of coverage of this coming out of is in Israel specifically, where we're seeing the export side of that defense sector really expanding. As we look at all these factors, increased spending, increased defense postures, increased investment in new technologies, all that is additive to Enercon. Obviously also they do sell into commercial air. As we think about just that commercial air tailwinds, we also think it's additive.

Speaker Change: So that will be additive. We also think that the global posture around defense and defense spending has changed.

Speaker Change: and we're seeing more investment going, whether it be into new technologies or just increasing overall spending. And we see some of this commentary running through the news. So between replenishment, rearmament, and stepping up defense spending.

Speaker Change: All that is additive. The other thing we're seeing, and I think there's a fair amount of coverage of this coming out in Israel specifically, where we're seeing the export side of that defense sector really expanding.

Speaker Change: So as we look at all these factors, increased spending, speed, defense, postures, increased investment, new technologies, all that is additive to Enercon.

Speaker Change: And obviously also they do sell into commercial air, as we think about just that commercial air tailwinds, we also think it's additive. Also as a reminder, defense is around 93% of their business and 7% is commercial air.

Farouq Tuweiq: Also as a reminder, defense is around 93% of their business and 7% commercial air.

James Ricchiuti: Thanks. That's helpful. You mentioned AI several times this morning. I'm wondering as we think about the opportunity, where are you seeing the biggest impact from that? Are you in a position yet where you could actually quantify how much of the revenues that could be AI driven in some of the business units?

Speaker Change: Thanks, that's helpful. Yeah, you mentioned AI several times this morning and I'm wondering as we think about the opportunity, where are you seeing the biggest impact from that and are you in a position yet where you can actually quantify?

Speaker Change: how much of the revenues that could be AI driven in some of the business units.

Farouq Tuweiq: In terms of AI, our biggest beneficiary across our segments is in the power group. I think it's safe to say when we say AI, that's the large main driver. As we've talked about before, James, we know where our product is going AI, when we say AI, that's a direct line from us to an AI type application. We also do know that we have some other products that go through our customers, our intermediary customers, that end up in AI that becomes a little bit harder for us to track. When we say AI, we're talking about hard line. I would say also just as a reminder from AI, we're generally not selling to the hyperscalers given the cost pressures there and just our business doesn't lend itself for a competitive side of things. We tend to do non-hyperscalers.

Speaker Change: So in terms of AI, our biggest beneficiary across our segments is in the power group. So I think it's safe to say when we say AI, that's the large main driver. And as we've talked about before, Jim.

Speaker Change: We know where our product is going AI, so when we say AI, that's a direct line from us to an AI type application.

Speaker Change: But we also do know that we have some other products that go through our customers or intermediary customers that end up in AI that becomes a little bit harder for us to track. But when we say AI, we're talking about a hard line.

Speaker Change: I would say we're, and also just as a reminder from AI, we're generally not selling to the hyperscalers.

Speaker Change: Given the cost pressures there and just you know, our business doesn't lend itself for a competitive side of things so we can Do not hyper scale as we get to them We get to them through our networking customers indirectly

Farouq Tuweiq: We get to them through our networking customers and directly. In terms of the AI growth, and we talked about this on our October call as we started heading into Q4, so back in the September-October timeframe, we started some of the business that we've been chasing for a fair amount of time started to turn some nice orders for us. I would say as we start heading into Q4, that's when we really start seeing AI, I would say is for 2024, and we're just starting that climb, is around $7 million for us out of power, and we expect that number to grow, let's call it, definitely very nicely into 2025.

Speaker Change: in terms of the AI growth, and we talked about this on that.

Speaker Change: October call, as we started heading into Q4, so back in the September-October time frame, we started some of the business that we've been chasing for a fair amount of time started to turn some nice orders for us.

Speaker Change: So I would say as we start heading into Q4, that's when we really start seeing AI.

Speaker Change: You know, AI, I would say is for 2024 and we're just starting that climb is around seven-ish million for us out of power. And we expect that number to grow, let's call it, you know, definitely very nicely into 2025.

James Ricchiuti: Thanks. That's helpful. Last question from me, just as it relates to what you're seeing at the distributor level, where do we stand relative to destocking at some of your major distributors? Is that in the rear-view mirror, or are we still working through some of that in certain areas of the business?

Speaker Change: Thanks, that's helpful. Last question for me, just as it relates to what you're seeing at the distributor level.

Speaker Change: where do we stand it relative to the stocking at some of your major distributors? Is that in the rearview mirror or are we still working through some of that in certain areas of the business?

Daniel Bernstein: We were with a major distributor, one of the top two. They felt that in January they hit bottom and that things should start improving. Again, I think we heard that song for the past 18 months. We're keeping our fingers crossed that we have hit the bottom, we're starting to see improvement. If you look at our circuit protection, they're the first ones. Because they're low-cost items, people order them first and they're easy to order, we're starting to see some backlog increases there. Hopefully that's a good sign. I'd be surprised if we don't see improvement in distribution this year. We should see it start coming the end of this Q1.

Speaker Change: We were with a major distributor, one of the top two, and they felt that in January they hit bottom and that things should start improving, but again, I think we heard that song.

For the past 18 months

Speaker Change: So we're keeping our fingers crossed that we have at the bottom we started to see improvement if you look at our circuit protection

Speaker Change: They are the first ones that we started because they are low-cost items. People order them first and they are easy to order, so we are starting to see some backlog increases there, so hopefully that is a good sign. I would be surprised if we do not see improvement in distribution this year.

Speaker Change: And we should see it start coming, you know, the end of this first quarter.

James Ricchiuti: Got it. Thanks. Again, congratulations on the announcements and the results.

Thanks, and again, congratulations on the announcements and the results.

Daniel Bernstein: Thanks, John.

Operator: Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Daniel Bernstein for closing comments.

Thanks, Jim.

Thank you.

Speaker Change: Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Dan Bernstein for closing comments.

Daniel Bernstein: Once again, thank you very much for joining the call today.

Operator: This is the operator. Just want to take the next in line. That is Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Speaker Change: So once again, thank you very much for joining us all today. We appreciate it.

Operator: This is the operator. I just want to take the next in line. That is Theodore O'Neill with Litchfield Hill Research. Please go by it.

Theodore O'Neill: Thanks very much. Congratulations on the quarter. I just want to follow up on the previous question about AI. Is that application primarily in data centers?

Thanks very much. Congratulations on the quarter.

Theodore O'Neill: I was I was I just want to follow up on the previous question about AI. Is that application primarily in data centers?

Farouq Tuweiq: Yes.

Theodore O'Neill: Given the contribution from Enercon in the quarter, does that change the potential earn-out or the timing for acquiring the remaining 20%?

Yes.

Theodore O'Neill: And given the contribution from Enercon in the quarter, does that change the potential earn out or the timing for acquiring the remaining 20%?

Farouq Tuweiq: Nothing that's been discussed as of right now, and we put this in the filings that we have in terms of the contract. Right now, it stipulates we're going to measure end of 2026 and going to put call option at early in 2027. There's no accelerators built in, so to speak. If there was an acceleration to occur, it would have to be an agreement between the two parties. As of right now, there is no such accelerators in there.

Theodore O'Neill: Nothing that's been discussed as of right now and we put this in the filings that we have in terms of the contract. Right now it stipulates we're going to measure end of 2026 and kind of book call option it early in 2027.

Theodore O'Neill: If there was any kind of, there's no accelerators built in, so to speak, if we, if there was an acceleration to occur, it would have to be an agreement between the two parties. But as of right now, there is no such accelerators in there.

Theodore O'Neill: Okay. My last question is, if Europe decides it needs to dramatically increase defense spending, would this be particularly positive for Enercon?

Speaker Change: Okay, and my last question is, if Europe decides it needs to dramatically increase defense spending, would this be particularly positive for Enercon?

Farouq Tuweiq: I would say As I said earlier, roughly 10% of Enercon sales is not Israel, not the US, and kind of spread out between the Europeans and from India. Overall spending increase would be additive to Enercon. Obviously, just given European defense manufacturing is a little bit less from overall, it's additive for sure. Would also benefit from that on the Connectivity Cinch side. More spending from the Europeans, the question also becomes: where do they buy it from, right? Are they importing it from places like Israel and the US, which would be additive, or is it all local? Just kind of depends a little bit where they're buying it from.

Speaker Change: I would say, as I said earlier, roughly 10% of Enercon sales is not Israel, not the U.S., and kind of spread out between the Europeans and from India.

Speaker Change: So overall spending increase would be additive to Enercon, obviously just given it's a European defense manufacturing is a little bit less from overall. It's additive for sure.

Speaker Change: I would also benefit from that on the connectivity thing side. More spending from the Europeans, the question also becomes where do they buy it from, right? Are they importing it from places like Israel and the US, which would be out of it, or is it all local? So just kind of depends a little bit where they're buying it from.

Theodore O'Neill: Okay, thanks very much.

Farouq Tuweiq: Yep.

Operator: Thank you. Next question comes from the line of Christopher Glin with Oppenheimer. Please go ahead.

Okay, thanks very much.

Yep.

Speaker Change: Thank you. Next question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead.

Christopher Glin: Thanks. Just a housekeeping question on modeling. We have a different algorithm to calculate adjusted EPS. Just would like maybe a level set quantity, what we should use, the intangibles amortization and stock comp add backs per quarter or annualized going forward.

Bye.

Speaker Change: Thanks. Just a housekeeping question. On modeling, we have a different...

Speaker Change: You know, algorithms calculate adjusted EPS, so just like a maybe level set quantity, what we use the intangibles amortization and stock comp ABACs per quarter or annualized going forward.

Lynn Hutkin: Yeah. On the stock comp, we're estimating it will be a fairly similar level to what we had in 2023, and maybe up a little bit. For modeling, maybe call it around $4 million or so, maybe a little higher than that. On the amortization of intangibles, we had 2 months worth of incremental amortization in the 2024 numbers. That can be used as a proxy for going forward. That should be pretty straight lined.

Yeah, so I would have to be.

Com

Bye. Bye-bye.

Speaker Change: We're estimating it will be a fairly similar level to what we had in 2023, maybe up a little bit. So, for modeling, you know, maybe call it around $4 million or so, maybe a little higher than that.

Speaker Change: And then, on the amortization of intangibles, we had two months' worth of incremental amortization in the 2024 numbers, so that's...

Speaker Change: that can be used as a proxy for going forward. That should be pretty straight lines.

Christopher Glin: Great. Thank you.

Great. Thank you.

Operator: Thank you. Next question comes from the line of Hendi Susanto with Gabelli Funds. Please go ahead.

Speaker Change: Thank you. Next question comes to the line of Andy Susanto with Gabelli Funds. Please go ahead.

Hendi Susanto: Good morning, and congratulations, Dan. Congratulations, Farooq.

Bye-bye.

Good morning and congratulations, Dan, congratulations, Farouk.

Daniel Bernstein: Thank you very much.

Farouq Tuweiq: Thank you.

Hendi Susanto: Two questions from me. Would you remind us areas that may be impacted by, let's say, global tariff and potential areas of mitigation? Would you remind us about China for China?

Speaker Change: Two questions for me. Would you remind us of areas that may be impacted by global tariffs and potential areas of mitigation? And would you remind us about China for China?

Farouq Tuweiq: Yeah. I would say it's a little bit of a moving target, right? I think for us, China. As we think specifically of the US-China revenue, we talked about 12% to 13% of 2024 was tariffed, and then roughly a little bit under 4% Mexico exposure. I would say if that's kind of things are coming to the US, we do send some stuff from Europe to the US and some from the UK as well. If that becomes more of a thing, then obviously, it'll be a headwind. Generally, we manufacture around where our customers are. A lot of, for example, our Magnetic Solutions, which is manufactured in China, stays within Asia, right? It's either getting sent out to CMs in the Philippines and India, or stays in China. Generally more localized manufacturing.

Speaker Change: Yeah, so I would say it's a little bit of a moving target, right? I think for us, China, and as we think specifically of the U.S., China revenue, we talked about 12% to 13% of 2024 was tariffed.

and then roughly a little bit under 4% Mexico exposure.

Speaker Change: I would say if that's kind of, you know, that things are coming to us, we do send some stuff from Europe to the U.S.

Speaker Change: and some from the UK as well. So if that becomes more of a thing, then it'd be, obviously, it'd be a headwind. Generally, we manufacture around where our customers are. So a lot of, for example, our magnetic.

Speaker Change: which is manufactured in China, stays within Asia, right? So it's either getting sent out to CMs in the Philippines and India, or stays in China. So generally more localized manufacturing.

Farouq Tuweiq: I think that's one of the nice things of our business. I think in Europe, product flows within Europe, I think we feel pretty decent about. Product flows within Asia, seemingly pretty decent. It's really when you touch the US, right? Given that we're the ones trying to institute these policies. Is it a concern, a headwind? Of course, tariffs are just generally not additive, and I think the bigger concern is it's more of a moving target. It seems every day we get a new target, and I think that's the issue and the challenge that we have. Ultimately, our process is the same. We work with our customers on trying to be cost-effective and efficient, and then also where we can pass it on, that's the goal.

Speaker Change: And I think that's one of the nice things of our business.

I think in Europe.

Speaker Change: Product flows within Europe. I think we feel pretty decent about product flows within Asia, you know seemingly pretty decent

Speaker Change: It's really when you touch the U.S., right, given that we're the ones trying to institute these policies. So is it a concern? A headwind? Of course, tariffs are just generally not additive. And I think the bigger concern is it's more of a moving target. It seems every day we get a new target. And I think that's the issue and the challenge that we have. But ultimately, our...

Speaker Change: The process is the same, we work with our customers on trying to be cost effective and efficient and then also where we can pass it on, that's the goal.

Hendi Susanto: Yep. Second question, how should we think about your M&A capacity post the acquisition of Enercon?

Speaker Change: Second question, how should we think about your M&A capacity for the acquisition of Enercon?

Farouq Tuweiq: Yeah. I think, similar to our discussion, we talked about it when we did announce Enercon. We appreciate that we have more leverage today than we did. I would say we are open for business, more selective both on quality and size. We are open for business. We understand where some of the, let's call it, lack of tolerance or red lines are. Ultimately, there are things. It's a higher hurdle. If we're going to add something to the family, I think we're going to make sure that it's additive in some capacity at the right circumstance.

Thank you.

Thank you very much.

Yes, I think, you know, similar to our discussion.

Speaker Change: We talked about it when we did announce it in our con. We appreciate that we have more leverage today than we did. I would say we are open for business, more selective, both on quality and size.

Speaker Change: but we are open for business. We understand where some of the, let's call it, lack of tolerance or red lines are, but ultimately there are things. So it's a higher hurdle. If we're gonna add something to the family, I think we're gonna make sure that it's additive.

Hendi Susanto: Okay. Thank you.

some capacity at the right circumstance.

Farouq Tuweiq: Yep.

Operator: Thank you. As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Daniel Bernstein for closing comments.

Okay. Thank you.

Speaker Change: Thank you. As there are no further questions, ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Dan Bernstein for closing comments.

Daniel Bernstein: Again, thank you for joining us today. We look forward to speaking to you in April. Have a good day.

Speaker Change: Okay, thank you for joining us today and we look forward to speaking to you in April. Have a good day.

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

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

[music]