Q2 2025 Bel Fuse Inc Earnings Call
Operator: Good morning, welcome to the Bel Fuse Q2 2025 earnings call. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead, Jean.
Good morning and welcome to the Bel fuse second quarter 2025 earnings call.
If anyone should require operator assistance or in the conference, please press star zero on your telephone keypad. As a reminder, this call is being recorded.
Jean Murray: I would now like to turn the call over to Jean Murray young with 3-part advisors. 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.
Jean Murray: Thank you, and good morning everyone. Before we begin, I'd like to remind everyone. That drink space cockpits fall. We will make statements relating to our business. That will be considered forward-looking statements under Federal Security laws. Such as statements regarding, the company is expected, operating and financial performance for future periods. Including a guidance for future periods in 2025. These statements are based on the company's current expectations and response to the company's views only as of today. And should not be considered representative of the company's views as of any subsequent date, the company just explained to any obligation to update any, forward-looking statements, or Outlook,
Jean Murray: Actual results for future care is majorly between those projected by these forward list of statements, due to a number of risks, uncertainties and other factors.
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 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 Farooq. Farooq?
These material risks are summarized in the press release that we issued aftermarket 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 discussed in our finance with the Securities and Exchange Commission, including our most recent annual report on form 10K and our quarterly reports and other documents that we have filed for main file with the FCC from time to time. You may also discuss non-gaap results during this call and reconciliations of our Gap results to non Gap. Results have been included in our press release. Our press release, sends our FCC filings are all available on the IR section of our website. Joining me on the call today are through to it, president, and CEO, and Lynn hudkins CFO with that. I'd like to call turn the call over to Peru, Peru.
Farouq Tuweiq: Thank you, Jean, and good morning, everyone. We are very pleased with our Q2 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 by a few factors, including end market performance and an uptick in our intra-quarter terms, which we have not really seen much of in recent quarters, particularly in our power magnetic segments. From an end market standpoint, commercial air, defense, and networking led the way, along with certain pockets of distribution sales within the power magnetic segments. These trends signal that we are heading into recovery, as we have been anticipating following nearly 2 years of inventory destocking in the channel. They reinforce our confidence in continued growth as we move into the H2 of the year, setting aside some of the geopolitical noise around tariffs.
Jean Murray: Thank you Gene and good morning, everyone.
Jean Murray: 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,
8 where it came from strong, aided by a few factors, including in market performance and an uptick in our intra quarter terms, which we have not really seen much of in recent quarters particularly in our power, magnetic segments, from an in Market, standpoint commercial, air defense and networking. Led the way along with certain pockets of distribution sales within the power magnetic segments,
Jean Murray: These Trends signal that we are heading into recovery. As we have been anticipating following nearly 2 years of inventory, destocking in the channel.
Farouq Tuweiq: 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 Q2, 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 H2 of the year. Looking ahead to Q3, we are optimistic about continued growth, with sales guidance in the range of $165 to 180 million, and gross margins projected between 37% and 39%.
Jean Murray: and they reinforce our confidence and continue to grow as we move into the second half of the year setting aside, some of the geopolitical noise around tariffs,
Jean Murray: 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.
Jean Murray: Although we have slightly better clearing now, there are still many variables that play regarding tariffs and we will continue to adapt to this evolving landscape in collaboration with our suppliers and customers.
Jean Murray: Overall we are encouraged by the strong results of this quarter and are excited by the momentum building within the business as we head into the second half of the year.
Farouq Tuweiq: 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 Q2. Lynn?
Jean Murray: Looking ahead to the third quarter, we are optimistic about continued growth with sales guidance, in the range of 165 to 180 million in 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.
Lynn Hutkin: Thank you, Farooq. From a financial perspective, sales for Q2 2025 have reached $168.3 million, reflecting an increase of 26.3% from Q2 2024. Strong performance in our A&D end market and improved sales in our Magnetic Solutions helped offset the year-over-year decline in our consumer, rail, and e-mobility end markets within our Power Solutions and Protection during Q2 2025, compared to the same period of 2024. Turning to our product groups, sales of Power Solutions and Protection in Q2 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 Solutions and Protection for Q2 2025.
Speaker Change: With that, I'll turn the call over to Lynn to run through financial highlights from the quarter. Len, thank you, Peru. 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.
Len: Strong performance in our AMD and market and improved sales in our magnetic segment helped to offset the year-over-year, decline and our consumer Rail and e-mobility and markets within our power segment. During the second quarter of 2025 compared to the same period of 2024.
Len: Turning to our product group, sales of Power, Solutions and protection. And the second quarter of 2025 amounted to 86.8 million representing an increase of 48.2% compared to the same period last year.
Jean Marie Young: On the consumer side, sales decreased by $1.7 million in Q2 2025 compared to Q2 2024, primarily due to the trade restriction imposed on one of our suppliers in China, as mentioned in prior earnings calls. Given that e-mobility sales were still robust in Q2 2024, we saw a $2.3 million year-over-year decline in this end market in Q2 2025. 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 2025 compared to the same period in 2024. These declines were partially offset by a $2.3 million increase in sales to our AI customers, bringing total AI sales for Q2 2025 to $2.6 million. Circuit protection sales increased by $1.8 million in Q2 2025 compared to Q2 2024.
Len: 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 205 compared to Q2 24, primarily due to the trade restriction imposed on 1 of our suppliers in China as mentioned in Prior earnings calls.
Len: Additionally, given that e-mobility sales were still robust and Q2 of 24. We saw a 2.3 million year-over-year decline in this end markets. Thank you to 25.
Len: 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 255 to 2.6 million.
Len: Further circuit protection sales to increase by 1.8 million in q222 compared to Q2 24.
Jean Marie Young: The gross margin for the power segment in Q2 2025 was 41.9%, representing a decline of 380 basis points from Q2 2024. If you recall, we had called out in last year's Q2 that approximately 400 basis points of the power gross margin resulted from non-recurring items that were reported at 100% gross margin in Q2 2024, such as cancellation fees. Adjusting for that, power margins were up slightly from Q2 2024 due to the inclusion of the higher margin Enercon products. Turning to our Connectivity Solutions group, sales for Q2 2025 reached $59.2 million, an increase of 2.4% compared to Q2 2024.
Len: The gross margin for the power segment and the second quarter of 2025 was 41.9% representing a decline of 380 basis points from Q2 24.
If you recall, we have called out in last year's, second quarter about approximately 400 basis points of the power gross margin resulted from non-recurring items that were reported at 100% gross margin in Q2 24 such as cancellation fees.
Len: Adjusting for that power margins were up slightly from Q2 24, due to the inclusion of the higher margin and our comp products.
Turning to our connectivity solutions, group sales for Q2 25, reach, 59.2 million and increase of 2.4% compared to Q2 24.
Lynn Hutkin: Sales for commercial air applications in Q2 2025 were $20.5 million, which represented an increase of $5.1 million or 33% from Q2 2024. Connectivity products sold into defense applications totaled $13.4 million in Q2 2025, an increase of 12% from Q2 2024. Sales into the space end market amounted to $2.3 million in Q2 2025, the same level as in Q2 2024. The gross margin for this group was 39.2% in Q2 2025, representing an improvement of 30 basis points from Q2 2024. 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.
Len: Sales for commercial are applications and q222 for 20.5 million, which represented an increase of 5.1 million million for 333% from Q2 24.
Len: Kind of timely products sold into defense applications. Total 13.4 million in Q2 25.
Len: An increase of 12% from Q2 24.
Len: Exhales into the space and Market amounts of 2.3 million in Q2, 25 the same level as in Q2 24.
Len: The gross margin for this group was 39.2% and the second quarter of 2025 representing an improvement of 30 basis points from Q2 24.
Len: 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
Lynn Hutkin: Lastly, in Q2 2025, our Magnetic Solutions group recorded sales of $22.3 million, representing an increase of 32.5% compared to Q2 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 2025 compared to 26.4% in Q2 2024, marking an improvement of 230 basis points year over year. This increase in margin was primarily driven by the higher sales volume in Q2 2025, as well as improved operational efficiencies from the recent facility consolidations in China. R&D expenses reached $8.1 million in Q2 2025, a higher level compared to Q2 2024, primarily due to the acquisition of Enercon.
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. But by a rebound in demand from our networking customers entered the distribution Channel,
Len: This level of growth aligns with expectations discussed during last quarter's earnings call where we noted, the segment would be our highest percentage grower in 2025.
Len: The gross margin to the magnetics group improved to 28.7% in Q2 25.
Compared to 26.4% in Q2, 24 marketing and Improvement of 230 basis, points year-over-year.
Increase in margin was primarily driven by the higher sales volume and Q2 25 as well as improved operational efficiencies from the recent facility consolidations in China.
Lynn Hutkin: Our annual compensation increases also now occur in March each year, and this also contributed to the higher expense in Q2 2025. We expect future quarters to generally align with the Q2 2025 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 Q2 2025. The increase was primarily driven by Enercon's SG&A expenses, which contributed $6 million in Q2 2025, in addition to annual compensation adjustments that took effect in March 2025, and higher than anticipated medical claims during Q2 2025.
Len: R&D expenses, reached 8.1 million in Q2 255 a higher level compared to Q2 24 primarily due to the acquisition of intercom.
Len: Our annual compensation increases also. Now occur in March each year. And this also contributed to the higher expense in Q2 255,
Len: They expect future quarters to generally aligned with the 2q Q2 25%.
Len: Selling General and administrative expenses. Total 30.9 million representing 18.4% of sales.
Len: Compared to the prior year, sgna increased by 6.8 million in the second quarter of 2025.
Len: The increase was primarily driven by intercoms sgna expenses which contributed 6 million in the second quarter of 2025.
in addition to annual compensation adjustments, extra effect in March 25th, during the second quarter of 2025,
Lynn Hutkin: 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 US dollar versus each of the three 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 Q2 of 2025, we utilized $30 million of cash for repayment of long-term debt. This paydown in the Q2 alone results in a $1.7 million reduction in our annual interest expense.
Len: 1 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 US dollar versus each of the 3 currencies, that they'll have exposure to namely, the Chinese remedy, the Mexican peso, and the Israeli shekel.
Len: 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.
Len: but our gross margin guide for Q3 of 37 to 39%, does factor in some potential downward pressure related to FX
Len: looking at our balance sheet and cash flow. We finish the quarter with 59.3 million in cash and security.
Len: During the second quarter of 2025, we utilize 30 million of cash for repayment of long-term debt.
Len: This pay down and the second quarter alone, results in a 1.7 million reduction in our annual interest expense.
Lynn Hutkin: Other cash uses during the Q2 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 Q2. That concludes our commentary on the Q2 results, and I'd now like to turn the call back to the operator to open the call for questions. Robert?
Other cache uses during the quarter included, 3.9 million on Capital expenditures.
And dividend payments of 800,000.
Len: The payments were largely offset by 20.7 million in cash flow generated from operating activities during the second quarter.
Len: 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: Thank you. We will now be conducting a question and answer session. Thank you. Thank you. Our first question today comes from the line of Bobby Brooks with Northland Capital Markets. Please proceed with your questions.
Len: Thank you. We'll now be conducting a question and answer session.
Len: If you like to ask a question at this time, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Len: You may press star 2. If you'd like to withdraw your question from the queue,
Len: For participants using speaker equipment, you may be necessary to pick up your handset before pressing the star keys.
Len: Phone please while we pull for questions, thank you.
Thank you. And our first question today, comes from the line of Bobby Brooks with Northland Capital. Please receive your questions.
Bobby Brooks: Hey, good morning, guys, and congrats on the outstanding quarter. I was curious to hear a bit more about the trends you're seeing that underpin the guidance. The press release mentioned a rebound in networking and some other segments 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 H2. Maybe could we just expand on that? Is it old customers returning to normal ordering patterns, new customers coming into the fold, or maybe something different?
Bobby Brooks: Hey, good morning guys, and congrats on the outstanding quarter. Uh, I was curious to hear a bit more about the trends. You're seeing seeing that underpin, the guidance, the press release mentioned a rebound and networking and some other segments within distribution, uh, 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. Uh, maybe could we just expand on that? And is it is it old customers returning to normal ordering patterns, new customers coming into the fold, or maybe something different
Lynn Hutkin: Yeah. Bobby, what we had talked about earlier in the year is that orders had started to pick up in Q1, and we saw that trend continue in Q2.
Farouq Tuweiq: A lot of that has to do with the expected rebounding in networking, which largely impacts the power and magnetics groups, also within the distribution channel. 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 magnetic segments. That's where we're seeing the rebound in orders, and that's what we saw coming through in Q2, and we continue to see that trend moving forward into H2 of the year.
Bobby Brooks: Yeah, so Bobby, what we have talked about earlier in the year is that orders had started to pick up in the first quarter and we saw that Trend continue and the second quarter.
Bobby Brooks: A lot of that has to do with the expected rebounding.
Bobby Brooks: In networking, which largely impacts the power and magnetic groups. Um, and then also within the distribution channel. So, if you recall, uh, within connectivity distribution, had been fairly stable over the last couple of years for the connectivity segment, but it had been depressed with the, uh, the overstocking situation in the power and magnetic segments. Uh, so that's where we're seeing the, The Rebound in order.
Bobby Brooks: ERS and we're that's what we saw coming through in the second quarter. And we continue to see that Trend uh moving forward into the second half of the year.
Bobby Brooks: Got it. It seems like just kind of a return to norm there and not necessarily new customers or just any kind of commentary on maybe new business wins?
Speaker Change: Got it. So, not any. So it seems like just kind of a return to Norm there and not neces not necessarily new customers or just any, any kind of commentary on maybe new business ones.
Farouq Tuweiq: Yeah, I would say, remember, Bobby, we go through distribution, there's some quick turn business in things like fuses, right? We do have new wins and customers that do occur. Given our long cycle, on average, design business, you need a return to growth both from your OEMs and your distie. Distie obviously does touch a lot of new customers along the way, and some recurring. 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. We do see new, but just given the long cycle design of the business, you need your existing people with too much in the inventory to wake up and get going again. It's really an amalgamation of those factors.
Yeah, I would say, I mean, we remember Bobby we go through distribution, there's some quick turn business and things like fuses, right. So there you know, we 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 D Dy, obviously does touch a lot of new customers along the way and some recurring. So, when we look at the channels, you know, yes, we do see some new business and we have some really nice new wins in the quarter, uh, programs in our Aerospace defense business, for example. Um, so we do see new but you you just given the long seconds down the business. You need your existing people with too much in the inventory to wake up and get going again. So it's really an amalgamation of of those factors.
Bobby Brooks: Fair enough. That's helpful, Colin. Then just maybe any strategic growth initiatives or kind of margin enhancements plans through the rest of the year that should be on your radar? Is it more so just a continuous operational excellence in driving just general business efficiency? Maybe tie or dovetail that with the Glen Rock, Pennsylvania facility sale. I think that was in the connectivity segment, could you remind us kind of the rationale behind that, is there any other facilities that you might be eyeing to sell?
Fair announcements. Uh that's that's helpful caller. And then just maybe any any other strategy any strategic growth initiatives or kind of marginal enhancements plans through the rest of the year. Uh that should be on your radar or is it more? So just a continuous, you know, continuous operational excellence and driving, just general business.
Speaker Change: Was a sufficiency it may be taught, it does tail that with uh the Glenrock Pennsylvania facility sale. Can you I think that was going to be connectivity segment? But could you remind us kind of the rationale behind that? And is there any other facility that you might be eyeing to sell?
Farouq Tuweiq: Yeah. Maybe starting out backwards here a little bit on the Glen Rock piece. I think we announced that Q1 last year or February call last year in 2024, if I recall correctly. We were looking to drive margin improvements and drive efficiencies within the connectivity business, so better align internal resources and a physical footprint space. That's kind of really the genesis of that. We've largely kind of moved out equipment, and we've had the building held for sale for a while. Obviously, just given the environment there, it took a little bit longer to sell because we also wanted to make sure we got good value for it. 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.
Farouq Tuweiq: 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, in 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 magnitudes. As we've kind of gone into this week here leading up to this call with the senior team and kind of hearing and talking about what we do in the business and the travels that we've done throughout the Q2, there's a lot of energy and excitement, and quite frankly, the team is very busy.
Yeah, so the uh, maybe starting out backwards here a little bit on the Glenrock piece. Um, that was a, 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, uh, margin improvements and and drive efficiencies within the connectivity business. So better align the internal resources and the physical footprint space. Um, so that's going to really with the justice of that, um, and we've largely going to moved out of equipment and we've had the building held for sale for a while, uh, but obviously, just giving 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, and here, here we are. Now we we announced that, uh, which should probably allow us to generate some cash from the sale and then also pay down uh, some debts in terms of other buildings for sale. You know, nothing for us to talk about at this point. I think the the the buildings that we own have significantly gone down in number and count because remember, we
Farouq Tuweiq: I think the north guiding star here is always for us is how do we grow and how can we grow more? 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. 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're just going to throw a guess out there.
Speaker Change: Busy.
Farouq Tuweiq: We are in a very good place and a comfortable place. The question becomes is, there might be some room to go here and there, but we also have to be smart about it and make sure we don't dig out, because ultimately we have, let's say, a very high percentage of our OPEX in R&D space. We got to make sure that we are putting that part of our P&L to work. Yes, we're always minded on margins. There might be opportunity to push up. At the same time, we need to be smart about it. We're comfortable 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. We just want to be careful that there's not another 1,000 basis points expansion here, right?
Speaker Change: And I think the north guiding star here is always for us is, is how do we grow and how can we grow more? Uh, and we got to play to win and be efficient in in our way to go for it as we've talked in the past um putting the uh margin extension to your question Bobby. Obviously we have a mixed issue, right? Where magnetics is a lower margin business, obviously that kind of was a grower for us. So just putting that aside for a second. Um we we always do challenge margins uh where can we do more? Where can we do better? How can we be better? Um, I think we also need to be realistic in where we sit today on the margin side. We are you know, probably industry-leading if not in the 80th percentile 75th percentile, or if we're going to throw a guess out there. So we are in a very good place in a comfortable place. The question becomes is, can we? Uh, 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 pick out because ultimately, we have a let's say a very high
Bobby Brooks: Yeah. Great commentary. I'll return it to you. Thank you, guys.
Speaker Change: Percentage of our Architects and R&D sticks. We got to make sure that we are, you know, putting that part of our p&l to work. So yes, we're always minded on margins. There might be opportunity to push up, uh, but at the same time, we need to be smart about it. So we're comfortable with where they're at today. Uh, on the gross margin side. We're trending a little bit more in the right direction on the eidas side. Um, but would you want to be careful that there's not another, you know, 1,000 uh, bits expansion here, right?
Speaker Change: Yes. Yes, great commentary. I'll return to it to you. Thank you guys.
Farouq Tuweiq: Bye.
Bye.
Operator: Our next question comes from the line of Christopher Glynn with Oppenheimer. Please proceed with your questions.
Speaker Change: Our next question is coming from the line of Christopher, Glenn with Oppenheimer. Please assist you with your questions.
David Brown: Thanks. Good morning. Just wondering, you talked about improving orders trends in Q1 continuing to Q2. You also, I think, mentioned improving turns intra-quarter. Sounded a little bit more like a pivot dynamic that you saw, I guess perhaps shortly after the last earnings call. Just kind of wondering if we could dive into that cadence a little bit.
Uh, thanks. Good morning. Um,
Christopher Glenn: So, uh, yeah, just wondering you talked about, um, you know, improving orders Trends in the first quarter, continuing to the second quarter, y'all. You also I think mentioned uh, improving turns in intra quarter, sounded a little bit more like a pivot Dynamic that you saw, I guess, perhaps, shortly after the last earnings call. So just kind of wondering if we could dive into that. Uh, Cadence a little bit.
Farouq Tuweiq: Yeah. When we look at normal times, which means you'd probably have to go back 4 or 5 years ago, but usually you'd 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? 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. We head into over-inventory in the channel, right, which just kind of slows everything down.
Farouq Tuweiq: Today, and 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. That is nice to see, because that indicates a little bit more healthiness in the channel and overall the market. It is an important indicator, I would say, that the market is functioning a little bit more than it's supposed to function, or in more of the right way it's supposed to be functioning.
Christopher Glenn: Yeah, when we look at normal times, you know, which means you probably have to go back 4 or 5 years ago, but usually you'd head into the quarter with some expectation of go get. Um, and those days, let's say absolutely, we have a lot of skus but generally your 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. Um obviously we headed into coid and postco year of where those extended uh, lead times. So it was we didn't really see much of that intra quarter turns and then we had into over inventory in the channel, right? Which just kind of slows everything down.
Christopher Glenn: But today, especially in our shorter lead time. Uh, businesses, for example, uses, uh, we, we, we, we are seeing, uh, heading into the quarter, um, 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, uh, because that indicates a little bit more healthiness, uh, uh, in the channel, uh, and overall the market. So it it is an important indicator. I would say, um, that that the market is functioning a little bit more than its supposed to function or the, the more in the right way, it's supposed to be functioning.
David Brown: Yeah. Thanks. I imagine it's a little tough to bifurcate, but sense of 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. Are you able to tease out kind of the end market is pivoting there?
Speaker Change: Yeah, thanks. And I I imagine it's a little tough to to berate but sense of like actual End Market Improvement in networking. I, I know that kind of stage 1 of lack of dto and back to normal that you just described as powerful considering the the depth and duration of the channel adjustments, but are you able to tease out, you know, kind of the End Market is pivoting, their
Farouq Tuweiq: Yeah. I think one of the challenges when we look at the distribution channel specifically, as a reminder for folks on the call, we do get POS data, right? We're effectively seeing what our customers' customers are buying off the shelf. When we look at what was coming off the shelf versus what we're selling to distribution, there was a mismatch, right? I would say when we look at our percentage decline in our businesses, it was more severe than what we would see, for example, the distribution levels. When you achieve a little bit of a normalcy, that's a little bit of healthiness. I think your question, Chris, is the numbers, even in the last couple of years, were not as bad as ours, if you will, because there was ordering patterns, and now it seems like we're closing the delta.
Speaker Change: yeah, I think 1 of the the the challenges when we look at the distribution Channel specifically
Uh, 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.
Farouq Tuweiq: We also see the inventory levels, those have come down to very low levels. 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.
Speaker Change: Levels and those have come down to very, very low levels. So now you get to more of that parody where orders go out the door and you're more likely to get an order is the way I can kind of think about it.
David Brown: Makes sense. Just want to ask about Enercon. You had your second full quarter here. I know you're out inter-quarter talking about it and it sounds very good. Just curious progress on the integration on the commercial sides. I don't think there's a whole lot of operating integration intent there, but perhaps you could clarify that.
Makes sense and um, just want to uh, you know, ask about intercon. Um,
Speaker Change: you know, you had your your second full quarter here. I know you're out in your quarter, talking about it and it sounds very good. Um, but uh, yeah, just curious progress on, on the integration on the commercial side. I I I don't think there's a whole lot of operating, uh, integration intent there, but, uh, perhaps you could clarify that
Farouq Tuweiq: Yeah. I think it's going as we anticipated. Obviously, it's a great team doing great products in a great end market. Given where they play in the product and supplying the way they go to market with it's been as advertised. I think the broader comment, and 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. 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, and the customers are very busy with some replenishment sometimes. We like the direction that we can go, but we could always do better, right?
Speaker Change: Yeah. So so I think it's, it's, uh, it's going, you know, kind of as, as we anticipated, obviously, it's, it's a great team. Uh, we're doing great products and a great End Market, um, and um, and, and given where they play in the product and supply and their the way they go to market with it. Um, it's, it's been, it's been as advertised, um, and you know, I think the broader comment moves to expand on your your question here. Chris as we think of this Advanced globally, right? We're seeing it in our connectivity business and we're seeing that expand. So, you know, we're we're, we are, um, in those markets today which is a good place to be. Um, you know, I think the team is is, is excited. We're we're uh, we're we're I say collaborating better. Um,
Farouq Tuweiq: I think we're situated very well to really capitalize on that acquisition, and especially in that end market. We remain excited and bullish on it.
Speaker Change: I think, you know, we have some some way to go as, as you know, this is a long second design business, and Regulatory and customers are very busy with some replenishment at sometimes. Uh, but uh, we we we like the direction that we can go, but we can always do better, right? Um, so I think we're situated very well to really, uh, capitalize on on that acquisition and especially in that end market. So, uh, we're we remain excited and bullish on it.
David Brown: Great. Thanks for the color.
Speaker Change: Great, thanks for the caller.
Farouq Tuweiq: Thanks, Chris.
Operator: Our next questions are from the line of James Ricchiuti with Needham & Company. Please proceed with your questions.
James Ricchiuti: Hi. Thanks. Good morning. I just wanted to ask about what was a modest sequential decline in the Power Solutions gross margins. Is that mainly a function of the sequential growth in the legacy power business, the increase in distie, and it looks like, Lynn, if I heard you correctly, it looks like the Enercon contribution was roughly flat with Q1?
Our next question is from the line of Jim Rudy with Native & Company. Please just use your questions.
Jim Rudy: Thanks. Good morning. Um, so I just wanted to ask about the what was a modest sequential decline in in the Power Solutions. Gross margins. Is that, um, is that mainly a function of the sequential growth in the, in the Legacy power, uh, business, you know, the increase in Disney. I mean, it looks like Lynn. If I heard you correctly, it looks like the intercon contribution was roughly flat with q1.
Lynn Hutkin: The Enercon contribution was roughly flat with Q1. Yes. Jim, are you asking about power margins from Q2 last year to Q2 this year, or Q1 to Q2?
James Ricchiuti: No. Q1 to Q2.
Lynn Hutkin: Okay
James Ricchiuti: if it's just a function of the legacy power business kicking up sequentially.
Speaker Change: The endocrine contribution was roughly flat with q1. Yes. Uh so Jim are you asking about power margins from Q2 last year to Q2 this year or q1 to Q2? No, no 2 2 1 to Q2 and and so I'm wondering if it's just a function of the, the Legacy power business, picking up sequentially,
Lynn Hutkin: That's correct.
James Ricchiuti: Okay.
Lynn Hutkin: Yeah.
James Ricchiuti: Is it the-
Lynn Hutkin: Right. The growth was related not to Enercon sequentially. They were flat quarter over quarter from Q1. It was the legacy power business, which historically is a lower margin product groups than the recently acquired Enercon business.
That's correct. Okay. Yeah. So, it's right. So the the growth was related, uh, not to and response sequentially. They were, they were flat quarter of a quarter from q1, uh, but it was the Legacy power business, which historically, you know, is
Speaker Change: Is a lower, uh, margin.
Speaker Change: Product group than the recently acquired under found business.
James Ricchiuti: Got it. Thanks. Farouq, you talked about some wins in A&D, it may be still pretty early in where we are with this, but 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?
Speaker Change: Got it. Um, thanks. Um, for you you talked about some wins in a and d and um
Speaker Change: Hey, maybe it may be still pretty early in in in where we are with this. But are you seeing, is there anything you can point to in terms of, uh, sales synergies, as it relates to intercon? Or are these just wins separate from from what your your, your ultimate plans are to drive more sales sales synergies with with this business,
Farouq Tuweiq: 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 across the wall here and there, but as a reminder, Jim, we had said we don't really expect any revenue synergy in 2025. 2026 is probably our best bet, probably in the back half of 2026, I think is more realistic because these are long cycle design businesses. It's a risk-averse customer base. As we think of just ability to manufacture, there's a fair amount of backlog on Enercon's side that they need to get to. It is a little bit of a belly full, but really driven by the customers' long design cycles.
Speaker Change: Yes, so we think of, you know, our, our connector team and, and, and the Anon team, they're both kind of winning on their own. Let's say, Merit today, uh, The Joint wins. And we've seen some opportunities come across the wall here and there. But as a reminder, Jim, we had said, we don't really expect any Revenue synergies in 2025 and and 2026 is is probably our best bet. Probably in the back half of 260, I think is more realistic because these are long cycle, design businesses. It's a uh risk averse customer base. Um, and
Farouq Tuweiq: Also we talked about kind of figuring out, well, what customers are we talking about, right? 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. I would say the market is just a long cycle design business. The good news is here, is the teams on their own prerogative are seeing some nice wins.
Speaker Change: Different Playbook where we uh uh really kind of Leverage, some of our European manufacturing footprint to service those guys.
Speaker Change: So, I would say it's it's uh, you know, we the market is just a long cycle design business, but the good news is here, is that teams on their own prerogative are are seeing some nice wins?
James Ricchiuti: Good. Last question from me, just on commercial air. Again, if I heard you correctly, Lynn, it sounded like you had some nice growth in that part of the business. What are you seeing there, and what kind of expectations do you have as you look out beyond the quarter in that part of the business?
Speaker Change: Good. Um, last question from me um just on Commercial are um, again if I heard you correctly, Lynn it sound like you had some, some nice growth in that part of the business. What are your, what are you seeing there? And you know what, kind of expectations do you have as you look out beyond the quarter and that that part of the business?
Lynn Hutkin: Jim, on commercial air, if you recall, in Q1 it was just under $13 million. In Q2 it was $20.5 million. Nice sequential growth there. I think the outlook for commercial air it's still robust. We do tend to see a bit of patchy ordering patterns, if you will, in that business. Will it be the exact same level as Q2? Unclear at this time, but we do expect it to be robust.
Jim Rudy: Yeah, so Jim. I'm
Jim Rudy: Uh, yeah. If you recall in q1, it was just under 13 million in Q2, it was 20.5 million. So nice sequential growth there. Uh, you know, I think the outlook for commercial air and 10, it's uh, still robust. Um, we do tend to see, um, a bit of, you know, patchy ordering patterns, if you will, in that business. Um, so will it be the exact same level as Q2, you know, unclear at this time, but we do expect it to be robust.
James Ricchiuti: Thanks a lot.
Speaker Change: Thanks a lot.
Operator: The next questions are from the line of Greg Palm with Craig-Hallum Capital. Please proceed with your questions.
Greg Palm: The next questions are from the line of Greg Palm with Greg Helm Capital. Please receive with your questions.
Greg Palm: Yeah, good morning, thanks. Congrats on the results. Going back to the last call, that $8 to 10 million of so-called paused revenue coming out of China, how much of that was recognized specifically in the quarter? Is the assumption that the entirety gets recognized over the course of Q3, whatever wasn't in Q2?
Greg Palm: Yeah, good morning. Thanks uh, in in, congrats on the results. Um, going back to the last call that that 8 to 10 million of, you know, so-called paused uh, Revenue coming out of China. How much of that was recognized specifically in the quarter and the, the assumption that, you know, the entirety gets, you know, recognized over the course of Q3 or whatever it was. And in Q2
Lynn Hutkin: Yeah. We took a look at that, Greg, and it was about two-thirds of it ultimately got shipped in Q2, and the balance is expected to go out in Q3.
Greg Palm: Yeah, so we took a look.
Greg Palm: At that, right? And it was about 2/3 of It, ultimately got shift.
Greg Palm: Second quarter and the balance is expected to go out in the third quarter.
Greg Palm: Okay. Farouq, I think you made a comment at the end of your prepared. You said, expect sequential growth for the remainder of the year. Are you saying you're expecting sequential growth in the December quarter in Q4 as well over Q3? I just wanted to clarify that.
Speaker Change: Okay, and for Farooq I, I think you made a comment at the end of your prepared, uh, you said it expects sequential growth for the remainder of the year. So are you saying, You're Expecting sequential growth in in the December quarter in Q4 as well? Over over Q3, I just wanted to clarify that
Farouq Tuweiq: Yeah, that's a good question. I think when we just look at H2, 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 Bel Fuse, our strongest is usually Q2 and/or Q3, but usually they're kind of the strongest quarter. Sometimes they move around a little bit. Then Q4 is somewhere in the middle, where there's the golden week out in Asia and the holiday seasons, and so on. 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.
Yeah, that's a good question. I think when we just look at at a second half weeks, like more or less. This I think when, you know, that's a good point. Uh, there Greg. Um, 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 or sometimes they move around a little bit. But then Q4 is somewhere in the middle. Um, you know, there is the golden week out in Asia and the United, the
Farouq Tuweiq: We do expect, obviously, overall by definition given that strong number in Q3 that we guided to in Q4 is going to be like Q1, we expect H2 to be better than H1 overall.
Speaker Change: Holiday seasons, um, and and, and, and kind of and so on. So, um, we're not ready to sign up for sequential Q4 at this point. Um, obviously we have to see the orders coming into Q3 if you get a better read on it. But uh, but we do expect obviously overall by definition, right. Given the strong number in Q3 that we guided to and Q4 Zero by q1. We expect H the second half to be better than the first half. Overall,
Greg Palm: Yep. Okay. That makes sense. I guess just sort of broadly speaking in terms of what you're seeing currently, how do you know that some of this is not pull-ins ahead of tariffs? 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?
Yep. Okay, that that, that that makes sense. And I guess just sort of
Speaker Change: Broadly speaking in terms of what you're you're seeing currently? I mean how
Speaker Change: How do you know that? That some of this is not, you know, pull in ahead of tariffs, like, what's your visibility levels to suggest that none of, this is sort of pulling orders to get ahead of, you know, something that's maybe coming.
Farouq Tuweiq: I mean, listen, if we're to look at 1 singular order somewhere that-- sure, 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. Just by definition, you're going to be beyond these deadlines that got placed. As we looked at July, we also continued to see robustness in the bookings, which would be beyond the, let's call it, moving deadline of tariffs, whatever it is now. Also when we look at where it's coming from, it's coming from really all parts of the business.
Speaker Change: I mean, listen, if we're to look at 1 singular order somewhere that sure, I mean, we we could see that but it's not a pervasive uh, 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 I 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, uh, you know, moving deadline of tariffs, whatever it is now.
Farouq Tuweiq: Also if you remember, our revenue that we talked about 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 where they're shaken out at, I would say the market has digested that, so it's no longer the boogeyman in the room like when it was in the hundreds in terms of tariffs. 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. It's not just people that are usually exposed to Chinese tariffs, and that's where the orders are coming from. It's much more pervasive than that.
Speaker Change: So uh and also when we look at where it's coming from it's coming from really old parts of the business. Uh and also if you remember our Revenue that we talked about in in uh on the last call, roughly 10% of that kind of 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, um, when we look at the Tariff levels today,
Lynn Hutkin: Just to add to that, Greg, we did survey the global customer service team, who would have their finger on the pulse there, to see if there were pull-ins. 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. We did not have any material input from that survey as well.
Speaker Change: Really kind of exposed to Santiago and that's where the orders are coming from. It's it's much more pervasive than that.
Speaker Change: And just to add to that, uh, Greg we did survey, uh, you know, the the global customer service team. Uh, who would be kind of have their their finger on the pulse there, uh, 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, they would need to put in that request, that would go to our customer service department. So um and we did not, we did not have any, you know, material, uh input from from that survey as well.
Greg Palm: Okay. Yeah, appreciate that color. 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 either programs, end markets, applications. I know it's broad-based, but is there anything that you have maybe outsized exposure to in the defense side specifically?
Speaker Change: Okay. Yeah, appreciate that caller and last 1, you know, for me, you know, AMD which is, you know, become the biggest most important in Market. You covered commercial Aerospace. Well, but in terms of defense, and maybe this is includes undercon or outside. Undercon, just can you remind us like what, you know, either programs and markets applications? Like what, what do you have? I know it's broad-based, but is there anything that you have maybe outsized exposure to and the defense side specifically,
Farouq Tuweiq: I would caveat the answer by saying, there's a handful of primes, for example, in the US and in Israel. Is there a technical customer concentration? Sure. Really what matters is the program concentration. When we look at the program level at a broader, let's call it Bel Fuse A&D, I don't think there's a singular high level of concentration. It's a pretty diverse program business. It's not like a commercial air where there is some concentration. It's a pretty diverse business.
Speaker Change: I mean I I would say as caviar the answer by saying you know there's a handful of primes for example in the US 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,
Speaker Change: At a, at a broader. Uh, let's call it belt, use a and d. I, i, i don't think there's, um, there is kind of a singular, uh, kind of high level of concentration. So it's a pretty diverse program, um, uh, business. So so it's not, you know, it's not like a commercial are where there is, you know, some concentration, right? Uh, so so it's a pretty diverse business.
Greg Palm: Got it. You have exposure to missile defense, I guess where does that sort of stack up in terms of programs or?
Speaker Change: Got it it but you you have you have exposure to missile defense, I guess. How, where does that sort of Stack Up in terms of you know, programs or
Farouq Tuweiq: 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. Generally, I would say things that fly. We obviously do other things as well. Just general munitions and planes is where we're on average levered.
Speaker Change: Missile defense in total. I I I I I would say not sure. We we added that all up, but I would say we're generally heavily heavier lever towards munitions.
Um, and, and, and generally, I would say things that fly. Um, uh, we obviously, do always other things as well, uh, but just general, Munitions and planes, uh, is is kind of where we're an average Leverage.
Greg Palm: Got it. All right. Appreciate all the color. Thanks.
Speaker Change: Got it. All right. Appreciate all the caller. Thanks.
Farouq Tuweiq: Yep.
Operator: Thank you. The next questions are from the line of Luke Junk with Baird. Please proceed with your questions.
Speaker Change: Thank you. The next question is from the line of Lucia with beard, please receive your questions.
Luke Junk: Hi, good morning. Thanks. I'll take the questions. Bruce, maybe hoping to start with the Q3 guidance. Beat the high end this quarter, obviously. At the midpoint, you're implying a few million of sequential improvement into Q3, but you were at that high end. It'd be another 7 points of growth into Q3. 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, then gearing to your comments about the orders being robust overall? I don't know if there's any book-to-bill context you could give us also. Thank you.
Hi, good morning, thanks for taking the question. Um, Ruth maybe hoping to start with the um the third quarter guidance to beat the high in this quarterly at the midpoint you're implying a few million of sequential Improvement into 3Q, but you were at that high end. It'd be another 7 points of growth into the third quarter. Just where should we think that upside leverages in the model? Is that networking or should? We think it's more broad-based? I guess in Gering to your comments, about the orders being robust overall? And I don't know if there's any book to build context so you could give us also. Thank you.
Lynn Hutkin: Hi, Luke Junk. It's Lynn Hutkin. As we look to Q3, it's really continued strength in aerospace defense and then the rebound in networking and the distribution channel. 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. I think the range is to take into account the potential for more intra-quarter turns. 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. Depending on the level of intra-quarter turns turning back on, that kind of is the broader range on the higher side.
Christopher Glenn: Hi, Lucas Glenn. Uh, so
Speaker Change: Strength in. Um,
Christopher Glenn: Aerospace defense.
Christopher Glenn: And then the rebound in networking and the distribution channel. So if we're looking at Q2 to Q3 and and um, potential growth drivers sequentially,
Christopher Glenn: uh, it would really be more in the areas of networking and distribution.
Christopher Glenn: Coupled with with strong defense and I think the the range is to take into account the potential for more intricate order terms.
Christopher Glenn: so there there's still not at the level that they were at, uh, historically, but, but we did definitely see an improvement this quarter from from where they had been
Christopher Glenn: So depending on the the level of inter quarter turns uh turning back on that, that kind of is the the broader range on the higher side.
Luke Junk: Okay, that's helpful. Thank you. Maybe taking a step back, just bigger picture. I'm thinking of the efforts you've taken in terms of sales force-related efforts, be it leadership, be it the incentive structure, Just the timing of starting to see some of that bear fruit relative to your longer design cycles and the sales cycle. Farouq Tuweiq, maybe if you could just give us a snapshot of some of the progress markers that you're seeing as of mid-year here that maybe aren't obvious in the business from the outside looking in, but maybe contribute later this year into 2026.
6.
Farouq Tuweiq: Yeah, I think given the diversity of our business geographically in markets and SKUs, I think it's hard to say this thing did exactly this thing. We have had so many shots on goal that we're seeing the outcomes of that. For example, one of the comments you mentioned, Luke, was around the commission structure. We initially put that in place back in 2024, and then we modified it and enhanced it heading into 2025. 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 surprise and getting after things a little more efficiently, I think that mindset and then the we play to win type attitude, we're seeing that come through.
Farouq Tuweiq: Also remembering that for the sales folks to win, you have to be able to produce things in a cost-efficient manner. When we look at a 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 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. 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 legacy power and magnetics group, right?
Christopher Glenn: Yeah. I I think uh given the diversity of our business geographically in markets and skus. I think it's hard to say this thing did exactly this thing. So and then we have had so many shots on goal that we're seeing the, the, the outcomes of that. So, for example, 1 of the comments, you mentioned Luke was around the commission structure. So we initially put that in place back in 2024, um, and then we modified it and, and, and enhanced it heading into 2025. So, you know, the results of of, I think maybe some of the Windsor we're seeing is, is probably a little bit of modification on the incentive structure. Uh, really starting out last year. Um, as we also think around just setting targets and pushing out certain products and getting after things, a little more efficiently I think that mindset. And then the the the the the the the we play to win uh as I've added to the we're we're seeing that come through but also remembering that, you know, for the sales folks to win
Christopher Glenn: you have to be able to reduce things in in 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 the last 2 years in 2023. And in 2024 to automate our factories and lean into, uh, more lean Tech Concepts, we're seeing the benefits of that. So if you have a sales team that's heading in shooting in the right direction, we have a Manufacturing.
Christopher Glenn: Team, that's doing great in terms of uh manufacturing effectively but also procurement is very important, right? We got to make sure that we're procuring things.
Farouq Tuweiq: We want to make sure we're getting things at a decent price point so we can make our margins. 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 three heading into 2025. As we look at the ranges of what drove this, I think it's amalgamation of these things. 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. I think that's kind of the mindset we're leading with. I'm generally not a fan of one trick ponies, because if that goes the other way, then you may get burnt.
Christopher Glenn: At a good price point, especially places in our, 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. Um, as we think quite frankly on the executive team compensation rail line that 2023 was the first year where we really set out clear, um, um, revenue and even dot targets for the team to hit. And now we're in our year, 3 heading into 2025.
Farouq Tuweiq: 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. We like what we're seeing. 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.
Christopher Glenn: So, as we look at the ranges of what drove this, I think it's amalgamation of these things. Um, so I I and I and I, I would say, it's, it's a robustness, uh, it is a team effort. It's an orchestra, whether it be for a customer service, to sales, to R&D, to manufacturing, to procurement everything matters, and I think that's kind of the, the, the mindset we're leading with. So I I I'm generally not a fan of, you know, 1 Rick ponies, because if that goes the other way there you may get burnt. I think what I like about it is the swelling of team effort, to to win, we're not perfect and we got we got room to grow and get better. Uh, but but we like what we're seeing and obviously I think some of the outputs of what we're seeing today is those, that work, uh, that we've seen in the last few years.
Luke Junk: Appreciate the color. I'll leave it there. Thank you.
Christopher Glenn: Uh, appreciate the caller. I'll I'll leave it there. Thank you.
Farouq Tuweiq: Thank you.
Christopher Glenn: Thank you.
Operator: Our next questions are from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your questions.
Theodore O'Neill: Yeah, great. Congratulations on the good quarter. Lynn, you sort of touched on this. Connectivity Solutions was up fairly significantly sequentially Q1 to Q2. Were the trends any different there than what you're seeing year-over-year?
Speaker Change: Our next question is from the line of Theodore O'Neal, with Litchfield Hills research, please receive your questions.
Speaker Change: Yeah, great. Uh, congratulations on the good quarter.
Speaker Change: Uh, Leon you sort of touched on this, but connectivity Solutions was up.
Speaker Change: To Q2, we're at the transit different there than what you're seeing here over a year.
Lynn Hutkin: From Q1 to Q2 versus sequentially? That's the question to you?
Speaker Change: So, from q1 to Q2 versus sequentially.
Theodore O'Neill: I'm sorry, sequentially versus year-over-year.
Speaker Change: That 1 year sequentially versus year-over-year.
Lynn Hutkin: Right. If we're looking year-over-year, there was an increase in commercial air, not as pronounced, versus the sequential increase from Q1. Commercial air in Q2 last year was just over $15 million, versus just under $13 million in Q1 of 2025, and then the $20.5 million in Q2 2025. I guess looking year-over-year, we did see a drop in their distribution sales. While we saw distribution waking up in power and magnetics during the quarter, we did see a slight step back in connectivity distribution. That was also a driver from Q2 last year to Q2 this year.
Speaker Change: So we did see um so if we're looking year over year um there was an increase in commercial are not as pronounced. Um,
Speaker Change: Versus the the sequential increase from q1. So commercial air and Q2 last year was, uh, just over 15 million.
Speaker Change: versus, uh, just under 13 million in q1 and 25 and then the 2025 million and in Q2 255
Speaker Change: Um, I guess looking year-over-year, we did see a um, a drop in their distribution sales. Uh, so while we saw a distribution waking up in power and magnetics during a quarter, we did see a slight, uh, step back and connectivity distribution. Um, so that that was also a driver from Q2 last year to Q2 this year.
Theodore O'Neill: And Lynn-
Lynn Hutkin: Does that answer the question for you?
Theodore O'Neill: Yes, sure. On depreciation, it's almost doubled year over year. What's happening there?
Speaker Change: And and does that answer the question for you?
Speaker Change: Yes, sure and um on depreciation it's up it's almost doubled. Year-over-year What's um what's happening there?
Lynn Hutkin: With the acquisition of Enercon in November, we brought on all of their PP&E, and we had the step-up. Depreciation and the amortization went up quite a bit year-over-year just because of the new tangible and intangible assets that we brought onto the books.
Speaker Change: Brought on their, you know, all of their PTA and we have the the step-ups uh, so depreciation and amortization went up quite a bit uh, year-over-year. Just because of the uh, the new tangible and intangible assets that we brought onto the books.
Theodore O'Neill: Okay. Thanks very much.
Speaker Change: Okay, thanks very much.
Operator: Thank you. Our final question is from the line of Hendi Susanto with Gabelli Funds. Please proceed with your questions.
Thank you.
Speaker Change: Our final question is from the line of hendy Santo with gabelli funds. Please receive your questions.
Hendi Susanto: Good morning, Farouq and Lynn. Congratulations on strong results.
Good morning, farro and Lan. Congratulations on strong results.
Lynn Hutkin: Thank you.
Farouq Tuweiq: Thank you.
Speaker Change: Thank you.
Hendi Susanto: Farouq, my first question is about the market recovery and inventory rebuild. Some sales will go toward inventory rebuild. On the other hand, 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. Let's say, in 2025, you will see some benefits on inventory rebuild, but at the same time, how should we manage our expectation and what are some guideposts so that we are not overly optimistic because inventory rebuild may take some time?
Speaker Change: Please call me and inventory rebuild. Some cells will go toward inventory, rebuild, on the other hand, like short lead times may not necessitate inventory, rebuild to be done like in the past. And there's also some uncertainty on the path that may drive customers to, um, to be more cautious when it comes to building inventory. So, let's say, like in 2025, you will see some benefits on inventory rebuild, but at the same time, um, like how should we manage our expectation and uh, what are some guide posts? So that we are not overly optimistic because in terms of we build may take some time.
Farouq Tuweiq: Yeah. 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's been in there roughly 2 years. When we look at that 2-year context compared to history, that is a very long time. Now we're coming out of a 2-year prolonged trough cycle. I think we do see customers being overall more cautious and hesitant. Quite frankly, we potentially thought growth would have come maybe end of last year or where we would have seen those really low inventory levels. We are operating from a customer universe where people are just more hesitant given tariffs and geopolitical concerns and the world we come in.
Yeah, I I would say Hindi, you know, that's a good question. Um, I think maybe a couple of things is is is our industry and belt use obviously has been in this in this, uh, trough for a very long time. Let's call it. Maybe an industry has been in there, roughly 2 years and when we look at that 2-year context compared to history, that is, you know, a very long time. Um, so and now where we're coming out of a 2-year, prolonged trough cycle. Um, I think we do see customers being overall more cautious and hesitant
Speaker Change: And and quite frankly, we we potentially thought growth would have come maybe end up last year or or or is where we would have seen those really really low inventory levels.
Farouq Tuweiq: 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. Sure, you build up some inventory along the way, but when inventory builds up, usually the system is not working appropriately. Now we're heading into, hopefully, the other side of the cycle where the system is working a little more appropriately.
Speaker Change: So we are operating from a customer Universe, where people are just more hesitant to give give give and tariffs and geopolitical concerns and the world we come in.
Speaker Change: 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 of the material on 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.
Hendi Susanto: Okay. My next question is, the setback due to special Chinese supplier situation that has started several quarters ago, can we revisit that, whether it is now fully behind?
Okay. Um, and then my next question is um, the setback. Do you choose special Chinese supplier situation? Uh, that
Speaker Change: has started like 74 years ago. Can we revisit that? Whether it is now fully behind
Farouq Tuweiq: I'd caution with that. Generally the Chinese suppliers, we were selling some consumer end markets and distribution. With the weakness in that channel, obviously we lost the revenue and that hurt. Step 1 to rebuild that lost revenue is to find alternative suppliers, and the team has done a really good job at finding alternative suppliers. I think we've replaced, from a supplier concentration perspective, a lot of those SKUs. Now the question becomes is, can we put those in the market and get them designed in and therefore get the orders going? I would say the team has done a great job at rebuilding the 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.
Speaker Change: I mean, it's fully. I i, i, i i i caution with that because the generally, the Chinese supplier, we were selling, you know, some consumer and markets and, you know, uh, and distribution. So with the weakness in that channel, um, it was a little bit, uh, uh, you know, obviously we we lost the revenue and that hurt. So Step 1 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 of concentration perspective. A lot of those skus
Farouq Tuweiq: We like where we're going, and I would say they're a little bit ahead of schedule in terms of what we thought they'd rebuild that business into.
Lynn Hutkin: Hendi, just to add to that Chinese supplier, the revenue related to that dropped off in May of last year. If you're looking at the year-over-year headwinds, that is behind us for the comps will be apples to apples starting in Q3.
Speaker Change: Now the question becomes is, can we put those in the market and 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. Um as we look out to the year end here and we think well you know we might recover some of that Revenue so we'd 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 revealed that business into
Speaker Change: Andy just to add to that. That Chinese supplier, the revenue related to that, uh, dropped off in May of last year. So if you're looking at the year-over-year,
Speaker Change: That that is behind us for the comps will be able to avoid starting to decrease.
Hendi Susanto: Yeah. Farouq and Lynn, would you talk about the pricing trends this year, whether there's some pricing decline embedded in the contract? What is the usual timing of pricing trend or whether or not you are able to sustain your pricing?
Speaker Change: Yeah. Um, and um, would you talk about the pricing Trends this year? Uh, whether whether there's some
Speaker Change: 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.
Farouq Tuweiq: I think that's a very big question, Hendy, and I think I want to caution we're not more of a semi cycle where there's too much inventory and everybody prices down. Our products are designed in, and it really depends what end market we're talking about. Aerospace and Defense, we tend to think of that as a price flat, price up environment, right? Some of the other areas, sure, could be a price flat, price down. Overall, I would say we haven't really seen the pricing pressures. Generally pricing pressure has come in better markets where you will have also new products launching hopefully with higher margins. We tend to think about pricing, we're in maintenance mode versus we're heading through growth or everything gets priced down, like maybe doing a more of a semi side of things.
Yeah, I I think that's a very big question, Hindi. And I think I want to caution
Speaker Change: We're not.
Farouq Tuweiq: 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 margins. We got some good Defense business that is a usual price-flat, price-up environment. It's a big question for us given the diversity of our SKUs and pricing powers.
Speaker Change: Defense. You know, we we tend to think of that as a price flat price up in the environment, right? Uh, some of the other areas, sure. It would be a price flat price down. But overall, I would say, we haven't really seen the the, the pricing pressures. But generally press the pressure is coming 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, uh, versus you know, we're heading to growth or or, you know, and everything gets priced down like maybe doing a more of a semi, uh, uh, uh, uh, side of things. So for us, obviously, we're always mindful of it, you know, we'll have customers ask for it. Sure. But we're also launching new products at higher margins 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.
Hendi Susanto: Thank you, Farouq. Thank you, Lynn.
Speaker Change: Thank you for thank you, Lynn.
Farouq Tuweiq: Thanks, Hendy.
Lynn Hutkin: Thanks.
Speaker Change: Thanks Andy.
Operator: Thank you. At this time, I'll turn the call back to Farouq for closing remarks.
Thank you at this time. I'll turn the call back to fourroux for closing remarks.
Farouq Tuweiq: Thank you everyone for joining our call here this morning. We are excited about the results that came in here and look forward to connecting with you again as we go through H2 of the year. Appreciate everyone's time, and have a good day.
Speaker Change: Uh, thank you everyone, for joining our call here this morning. Uh, where we are excited about the results that came in here and look forward to, uh, connecting with you again, as we go through the second half of the year. Uh, appreciate everyone's time and have a good day.
Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Speaker Change: This will conclude today's conference. May disconnect your lines at this time and thank you for your participation and have a wonderful day.