Q3 2025 Bel Fuse Inc Earnings Call

Speaker #4: Ladies and gentlemen . Good morning , and welcome to the Bellevue , Inc. . Third quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .

Speaker #4: A

Speaker #4: brief question and answer session will follow the formal presentation . If anyone requires operator assistance during the conference call , please signal the operator by pressing Star .

Jean Marie Young: Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations and reflect the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market close yesterday.

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: Due to a number of risks , uncertainties and other factors . These material risks are summarized in the press release that we issued after market closed yesterday .

Speaker #5: 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 .

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 as discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for the fiscal year ended 31 December 2024, and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Farouq Tuweiq, President and CEO, and Lynn Hutkin. With that, I'd like to turn the call over to Farouq.

Speaker #5: As discussed in our filings with the Securities and Exchange Commission , including our most recent annual report on Form 10-K for the fiscal year ended December 31st , 2024 , and our quarterly reports and other documents that we have filed or may file with the SEC from time to time .

Speaker #5: 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 #5: Our press release , and our SEC filings are all available at the IR section of our website . Joining me today on the call is Farooq , a president and CEO and Lynn Hutkin , CFO .

Speaker #5: With that , I'd like to turn the call over to Farooq .

Speaker #6: Thank you . Jean , and we appreciate everyone joining our call this morning . Thank you . During the third quarter , we continued to see robustness across most of our end markets , particularly within the commercial aerospace , defense and networking sectors .

Farouq Tuweiq: Thank you, Jean, and we appreciate everyone joining our call this morning. Thank you. During Q3, we continued to see robustness across most of our end markets, particularly within the commercial aerospace, defense, and networking sectors. We've continued steady rebound within our distribution channel and consumer lines. Our profitability this quarter surpassed our expectations, thanks to the continued dedication and discipline of our global team. This strong performance reflects our global team's dedication from pursuing strategic business opportunities and investing in key customers to effective procurement cost management, operational efficiencies, and improved fixed cost absorption resulting from increased sales volumes. As part of our ongoing commitment to operational excellence, we are continuously reviewing our global footprint with an eye towards scaling Bel for long-term performance.

Speaker #6: With continued steady rebound within our distribution channel and consumer lines . Our profitability this quarter surpassed our expectations thanks to the continued dedication and discipline of our global team .

Speaker #6: This strong performance reflects our global teams dedication from pursuing strategic business opportunities and investing in key customers to effective procurement , cost management , operational efficiencies and improved fixed cost absorption , resulting from increased sales volumes .

Speaker #6: As part of our ongoing commitment to operational excellence , we are continuously reviewing our global footprint with an eye towards scaling Bell for long term performance .

Speaker #6: In October , we made the strategic decision to transition operations from an additional facility in China to a subcontractor during the fourth quarter of 2025 .

Farouq Tuweiq: In October, we made the strategic decision to transition operations from an additional facility in China to a subcontractor during Q4 2025. This move follows a thorough evaluation of internal manufacturing costs versus outsourcing. Outsourcing, in this instance, proved to be the better alternative. We expect the transition to largely be completed by December 2025, with a fair amount of annualized cost savings to be occurring as we head into next year. We're also progressing with the restructuring initiative at our Glen Rock, Pennsylvania facility. Following the sale of the building in Q2 2025, we are now transitioning the remaining manufacturing operations to other Bel sites, with full completion expected by early 2026. The Glen Rock initiative is projected to incur minimal incremental restructuring cost in Q4 2025.

Speaker #6: This move follows a thorough evaluation of internal manufacturing costs versus outsourcing and outsourcing . In this instance , proved to be the better alternative .

Speaker #6: We expect that transition to largely be completed by December 2025 , with a fair amount of annualized cost savings to be occurring as we head into next year .

Speaker #6: We'll also progressing with the restructuring initiative at our Glen Rock , Pennsylvania facility following the sale of the building in the second quarter of 2025 .

Speaker #6: We are now transitioning the remaining manufacturing operations to other Bell sites with full completion expected by early 2026 . The Glen Rock initiative is projected to incur minimal incremental restructuring costs in Q4 2025 , and throughout this process , we have already realized significant annualized savings as we had previously discussed .

Farouq Tuweiq: Throughout this process, we have already realized significant annualized savings as we had previously discussed. To put this in perspective for some of our newer investors, our restructuring efforts over the past 4 years have resulted in 7 facility consolidations in addition to the sale of our check business in 2023. These actions have resulted in over 600,000-plus net square footage reduction on annual manufacturing lines while leaning into automation and investing for the future of our factories. I recall that again, just to put a pin on it in terms of where we are heading, which is the more important part. As we approach the end of 2025 and look ahead to 2026, our focus is and has been firmly on our go-to-market strategy and driving growth both organically and inorganically.

Speaker #6: To put this in perspective , for some of our newer investors , a restructuring efforts over the past four years have resulted in seven facility consolidations in addition to the sale of our Czech business in 2023 .

Speaker #6: These actions have resulted in an over 600,000 net square footage reduction . Our manufacturing lines , while leaning into automation and investing for the future of our factories , and I recall that again , just to put a pin on it in terms of where we are heading , which is the more important part as we approach the end of 2025 and look ahead to 2026 , our focus is and has been firmly on our go to market strategy and driving growth , both organically and inorganically .

Speaker #6: Throughout the past few months , we have been meeting with Bell's key leadership across the world to identify the areas , methods and resources needed to better achieve top line growth .

Farouq Tuweiq: Throughout the past few months, we have been meeting with Bel's key leadership across the world to identify the areas, methods, and resources needed to better achieve top-line growth. While we're in the early stages of strategic planning, I want to emphasize the exciting collaboration and energy within Bel's extended leadership team as we chart our next chapter. One of the common themes emerging is shifting our historical focus from products to end markets and customers to ensure we are delivering the totality of Bel to them. This mindset shift will take a while to cement, but is a logical step for a company such as Bel, given the impressive breadth of our product portfolio. This is an exciting effort and one that is key for a long cycle design business such as Bel.

Speaker #6: While we're in the early stages of strategic planning . I want to emphasize the exciting collaboration and energy within Bell's extended leadership team as we chart our next chapter .

Speaker #6: One of the common themes emerging is shifting our historical focus from products to end markets and customers to ensure we are delivering the totality of Bell to them .

Speaker #6: This mindset shift will take a while to cement , but is a logical step for a company such as Bell . Given the impressive breadth of our product portfolio , this is an exciting effort and one that is key for our long cycle design business , such as Bell .

Speaker #6: In addition to driving growth , we're investing in the foundational structures that support our business , especially around it systems and data infrastructure .

Farouq Tuweiq: In addition to driving growth, we're investing in the foundational structures that support our business, especially around IT systems and data infrastructure. To give you an example of some of the current initiatives, we are in the process of updating and implementing a CRM platforms, travel management software, developing some various dashboards tools for key financial and operational metrics, and KPIs. These enhancements will enable our leaders to make faster data-driven decisions, strengthen accountability, and improve overall performance. Standardizing our processes and terminology will also allow us to scale efficiently and seamlessly integrate future acquisitions. In summary, there's a tremendous amount of activity and excitement underway at Bel, all aligned to our common goals of growth and continued maturity. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and some color on the Q4 outlook. Lynn?

Speaker #6: To give you an example of some of the current initiatives , we are in the process of updating and implementing a CRM platforms , travel management software , developing various dashboards , tools for key financial and operational metrics and KPIs .

Speaker #6: These enhancements will enable our leaders to make faster data driven decisions , strengthen accountability , and improve overall performance . Standardizing our processes and terminology will also allow us to scale efficiently and seamlessly integrate future acquisitions .

Speaker #6: In summary , there is a tremendous amount of activity and excitement underway at Bell . All aligned to our common goal of growth and continued maturity .

Speaker #6: With that , I'll turn the call over to Lynn to run through the financial highlights from the quarter and some color on the Q4 outlook .

Speaker #6: Lynn .

Speaker #7: Thank you for from a financial perspective , we delivered another strong quarter marked by continued margin expansion and robust sales growth across all segments .

Lynn Hutkin: Thank you, Farouq. From a financial perspective, we delivered another strong quarter marked by continued margin expansion and robust sales growth across all segments. Q3 2025 sales totaled $179 million, representing a 44.8% increase compared to the same quarter last year. In addition to the $34.4 million of incremental revenue in the current quarter related to the Enercon acquisition, each of our three product segments achieved double-digit organic growth over last year's Q3. Profitability improved alongside sales, with gross margin rising to 39.7% in Q3 2025, up from 36.1% in Q3 2024. This margin expansion was driven by improved absorption of our fixed costs in our factories with the higher sales volumes, and by strong execution within each of our segments in maintaining discipline around the SKU level profitability.

Speaker #7: Third quarter 2025 sales totaled 179 million , representing a 44.8% increase compared to the same quarter last year . In addition to the 34.4 million of incremental revenue in the current quarter related to the Intercon acquisition , each of our three product segments achieved double digit organic growth over last year's third quarter .

Speaker #7: Profitability improved alongside sales , with gross margin rising to 39.7% in Q3 , 25 , up from 36.1% in Q3 24 . This margin expansion was driven by improved absorption of our fixed costs in our factories , with the higher sales volumes and by strong execution within each of our segments in maintaining discipline around the SKU level , profitability .

Speaker #7: Turning to some details of the product group level power solutions and protection delivered another exceptional quarter with sales reaching 94.4 million , representing a 94% increase compared to the third quarter of last year .

Lynn Hutkin: Turning to some details at the product group level. Power Solutions and Protection delivered another exceptional quarter, with sales reaching $94.4 million, representing a 94% increase compared to the Q3 of last year. Excluding A&E, organic sales grew by $11.3 million or 23.2%, reflecting strong demand for our power products in key markets. Sales of power products for networking applications increased by $11.4 million. Growth within the networking market reflects both rebound in demand following a long period of inventory destocking and new incremental demand driven by AI.

Speaker #7: Excluding and organic sales grew by 11.3 million , or 23.2% , reflecting strong demand for our power products and key markets . Sales of power products for networking applications increased by 11.4 million .

Speaker #7: Growth within the networking market reflects both rebound in demand following a long period of inventory destocking and new incremental demand driven by a .

Speaker #7: As we've noted in the past , it is difficult to isolate exactly how much of this growth is AI driven . But to provide a comparable metric to prior quarters .

Lynn Hutkin: As we've noted in the past, it is difficult to isolate exactly how much of this growth is AI-driven, but to provide a comparable metric to prior quarters, our Q3 sales into AI specific customers were $3.2 million in Q3 2025, up from $1.8 million in Q3 2024. Other areas of strength within the power segment were seen in sales of our fuse products, which were up $1.8 million or 41% from Q3 2024, and an increase of sales into consumer applications of $2.3 million or 39% from Q3 2024. As an important note, fuse products and consumer-facing products have very short lead times and are generally the first areas where we see the pickup in inter-quarter turns, which is a positive indicator for the overall business.

Speaker #7: Our third quarter sales into AI specific customers were 3.2 million in Q3 , 25 , up from 1.8 million in Q3 24 . Other areas of strength within the power segment were seeing in sales of our fuse products , which were up 1.8 million , or 41% , from Q3 24 , and an increase of sales into consumer applications of 2.3 million , or 39% , from Q3 24 .

Speaker #7: As an important note , fuse products and consumer facing products have very short lead times and are generally the first areas where we see the pickup in intra quarter turns , which is a positive indicator for the overall business .

Speaker #7: As an offsetting factor . E-mobility sales were 2.2 million in Q3 , 25 versus the 3.4 million in Q3 24 , and sales into the rail market were 8 million in Q3 25 , versus 9 million in Q3 24 .

Lynn Hutkin: As an offsetting factor, eMobility sales were $2.2 million in Q3 2025 versus the $3.4 million in Q3 2024, and sales into the rail market were $8 million in Q3 2025 versus $9 million in Q3 2024. Gross margin for the segment came in at 41.8% for the quarter, up 240 basis points from Q3 2024, largely driven by the higher sales volumes and better absorption of fixed costs at our factories. Turning to our Connectivity Solutions Group. Sales for Q3 2025 reached $61.9 million, up 11% compared to Q3 2024. This growth was primarily driven by strong performance in commercial aerospace applications, where sales totaled $18.8 million, an increase of $6.3 million or 50.5% year-over-year.

Speaker #7: Gross margin for the segment came in at 41.8% for the quarter , up 240 basis points from Q3 24 , largely driven by higher sales volumes and better absorption of fixed costs that our factories .

Speaker #7: Turning to our connectivity Solutions group , sales for the third quarter of 2025 reached 61.9 million , up 11% compared to Q3 24 .

Speaker #7: This growth was primarily driven by strong performance and commercial aerospace applications . Where sales totaled 18.8 million , an increase of 6.3 million , or 50.5% year over year .

Speaker #7: Connectivity . Product sales into defense applications also continued to be robust in the third quarter , with sales rising 3.6 million , a 31.2% increase from the prior year quarter contained within our defense number here .

Lynn Hutkin: Connectivity product sales into defense applications also continued to be robust in Q3, with sales rising $3.6 million, a 31.2% increase from the prior year quarter. Contained within our defense number here are sales into space applications, which amounted to $2.5 million in Q3 2025, up 25% from Q3 2024. While Connectivity sales through the distribution channel were down $1.9 million, or 9.7% versus Q3 2024, it's important to note that this reflects the shift of an end customer out of the distribution channel and who we are now servicing directly. Profitability within the Connectivity segment continued to improve, with gross margin for the group rising to 40.3% in Q3 2025 from 36.6% in Q3 2024.

Speaker #7: Our sales into space applications , which amounted to 2.5 million in Q3 25 , up 25% from Q3 24 , while connectivity sales through the distribution channel were down 1.9 million , or 9.7% , versus Q3 24 .

Speaker #7: It's important to note that this reflects the shift of an end customer out of the distribution channel , and who we are now servicing directly .

Speaker #7: Profitability within the connectivity segment continued to improve with gross margin for the group rising to 40.3% in Q3 25 from 36.6% in Q3 , 24 .

Speaker #7: This margin expansion reflects the benefits of operational efficiencies achieved through facility consolidations completed last year , and a more favorable product mix . These positive factors were partially offset by minimum wage increases in Mexico and foreign exchange pressures related to the peso .

Lynn Hutkin: This margin expansion reflects the benefits of operational efficiencies achieved through facility consolidations completed last year and a more favorable product mix. These positive factors were partially offset by minimum wage increases in Mexico and foreign exchange pressures related to the peso. Lastly, our Magnetic Solutions delivered a strong quarter, with sales reaching $22.7 million, an 18% increase compared to Q3 2024. This performance was consistent with the expectations we shared on our last earnings call and was primarily driven by higher shipments to a major networking customer. Gross margin for the group improved to 29% in Q3 2025, up from 27.3% in Q3 2024. This margin expansion was supported by higher sales base and the benefits of facility consolidations in China, which helped reduce fixed overhead costs.

Speaker #7: Lastly , our magnetic Solutions group delivered a strong quarter with sales reaching 22.7 million and 18% increase compared to Q3 24 . This performance was consistent with the expectations we shared on our last earnings call , and was primarily driven by higher shipments to a major networking customer .

Speaker #7: Gross margin for the group improved to 29% in Q3 , 25 , up from 27.3% in Q3 24 . This margin expansion was supported by higher sales base and the benefits of facility consolidations in China , which helped reduce fixed overhead costs .

Speaker #7: These gains were partially offset by minimum wage increases in China and unfavorable foreign exchange impacts related to the renminbi . At September 30th , 2025 , R&D expenses totaled 7.5 million in Q3 25 , representing an increase of 2.1 million compared to Q3 24 .

Lynn Hutkin: These gains were partially offset by minimum wage increases in China and unfavorable foreign exchange impacts related to the renminbi. At 30 September 2025, R&D expenses totaled $7.5 million in Q3 2025, representing an increase of $2.1 million compared to Q3 2024. This increase was primarily attributable to the inclusion of Enercon's R&D costs, which amounted to $2 million during Q3 2025. Looking ahead, we anticipate that R&D expenses in future quarters will generally remain consistent with the Q3 2025 level as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Our selling, general, and administrative expenses for Q3 2025 were $32.8 million or 18.3% of sales, up from $26.7 million in Q3 2024.

Speaker #7: This increase was primarily attributable to the inclusion of Intercom's R&D costs , which amounted to 2 million during Q3 25 . Looking ahead , we anticipate that R&D expenses in future quarters will generally remain consistent with the Q3 25 level as we continue to invest in new technologies and solutions to support our customers and drive long term growth .

Speaker #7: Our selling , general and administrative expenses for the third quarter of 2025 were 32.8 million , or 18.3% of sales , up from 26.7 million in Q3 24 .

Speaker #7: Importantly , as a percentage of sales declined from 21.6% last year , reflecting continued progress in managing our cost structure as our business grows .

Lynn Hutkin: Importantly, SG&A, as a percentage of sales, declined from 21.6% last year, reflecting continued progress in managing our cost structure as our business grows. The increase in total SG&A dollars was primarily driven by the inclusion of Enercon's SG&A expenses, which contributed $6.6 million to the quarter, and our US medical claims continued to be high in Q3. As noted in prior quarters, our legacy level of SG&A expense was maintained during our period of reduced sales, such that we believe we are already spending the right amount on fixed SG&A infrastructure needed to support future growth. Turning to our balance sheet and cash flow, we closed the quarter with $57.7 million in cash and securities, down $10.5 million from year-end.

Speaker #7: The increase in total dollars was primarily driven by the inclusion of intercoms , G&A expenses , which contributed 6.6 million to the quarter , and our US medical claims continued to be high in the third quarter .

Speaker #7: As noted in prior quarters , our legacy level of expense was maintained during our period of reduced sales such that we believe we are already spending the right amount on fix to a infrastructure needed to support future growth .

Speaker #7: Turning to our balance sheet and cash flow . We closed the quarter with $57.7 million in cash and securities , down $10.5 million from year end .

Speaker #7: This decrease was primarily driven by our proactive efforts to strengthen the balance sheet , including paying down $62.5 million in long term debt , resulting in $225 million of total debt outstanding at September 30th , 2025 .

Lynn Hutkin: This decrease was primarily driven by our proactive efforts to strengthen the balance sheet, including paying down $62.5 million in long-term debt, resulting in $225 million of total debt outstanding at 30 September 2025. Additionally, we made two and a half million dollars in dividend payments and invested $8.6 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and $1 million from the sale of held-to-maturity securities earlier in the year. Looking ahead to Q4 2025, we continue to see strength across all three segments. Historically, we have seen seasonality in Q4, with fewer production days due to the holidays being celebrated around the world.

Speaker #7: Additionally , we made $2.5 million in dividend payments and invested $8.6 million in capital expenditures to support growth and efficiency initiatives . These outflows were partially offset by 7.8 million in proceeds from property sales and 1 million from the sale of held to maturity securities earlier in the year .

Speaker #7: Looking ahead to the fourth quarter of 2025 , we continue to see strength across all three segments . Historically , we have seen seasonality in the fourth quarter with fewer production days due to the holidays being celebrated around the world .

Speaker #7: In light of this historical trend , and based on the information available as of today , we expect Q4 25 sales to be in the range of 165 to 180 million .

Lynn Hutkin: In light of this historical trend, and based on the information available as of today, we expect Q4 2025 sales to be in the range of $165 to 180 million. We noted in Q2 and Q3 that the trend of inter-quarter sales has resumed. This range assumes that trend continues into Q4. With that, I'll now like to turn the call back to the operator to open it up for questions.

Speaker #7: We noted in the second and third quarters that the trend of intra quarter sales has resumed , and this range assumes that trend continues into the fourth quarter .

Speaker #7: And with that , I'll now like to turn the call back to the operator to open it up for questions .

Speaker #4: Thank you . Ladies and gentlemen , we will now begin the question and answer session . If you would like to ask a question , please press star One on your telephone keypad .

David Brown: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Bobby Brooks from Northland Capital Markets. Please go ahead.

Speaker #4: A confirmation tone will indicate your line is in the question queue . You may press star and two . If you would like to remove your question from the queue .

Speaker #4: For participants using speaker equipment , it may be necessary to pick up your handset before pressing the star keys . Ladies and gentlemen , we will wait for a moment while we poll for questions .

Speaker #4: The first question comes from the line of Bobby Brooks from Northland Capital Markets . Please go ahead .

Speaker #8: Hey good morning guys . Thank you for taking my question . Just wanted to circle back on those last the last piece that Lin you were touching on for the fourth quarter guide .

Bobby Brooks: Hey, good morning, guys. Thank you for taking my question. Just wanted to circle back on the last piece that, Lynn, you were touching on for the Q4 guide. Obviously, some, you know, something that caught my eye was bucking kind of the historical trend of Q4 being lower than Q3. You know, trends of interquarter sales have resumed and that the range could assumes that continue to the Q4. I was just wondering if we could just discuss what other factors might be at play driving that outlook a little bit more detail, 'cause I feel like that's, you know, a really kind of exciting development for you guys.

Speaker #8: Obviously some you know , something that caught my eye was yeah , bucking kind of the historical trend of three four cube being lower than three Q and you mentioned that , you know , trends of intra quarter sales have , have resumed and that the range could assumes that continues in the fourth quarter .

Speaker #8: I was just wondering if we could just discuss discuss what other factors might be at play , driving that outlook a little bit more detail , because I feel like that's , you know , a really kind of exciting development for you guys .

Speaker #6: Yeah . Hey , Bobby , just I'll let Lin jump in with a more details , but I just want to kind of call out a comment that caught my ear here , which is this kind of step down over Q4 .

Speaker #6: Yeah . Hey , Bobby , just I'll let Lin jump in with a more details , but I just want to kind of call out a comment that caught my ear here , which is this here 165 to 180 versus , let's say , the 179 that was delivered .

Farouq Tuweiq: Yeah. Hey, Bobby, I'll let kind of Lynn jump in here with the more details, but I just want to kind of call out a comment that caught my ear here, which is this kind of step down over Q4, I think you said bucking the seasonality trend. I think if you look at, you know, we see a potential of that if you just look at the range that we put out there, $165 to $180 versus, let's say, the $179 that was delivered, so possibly. When we look at the range, I think it's broader than that in the sense that we do expect some seasonality, right?

Speaker #6: I think you said bucking the seasonality trend . I think if you look at , you know , we see a potential of that .

Speaker #6: So possibly . But when we look at the range , I think it's broader than that in the sense that that we do expect some seasonality , right .

Speaker #6: I mean , at the end of the day , we're going to have fundamentally less working days as we head into the holiday season and year end .

Farouq Tuweiq: I mean, at the end of the day, we're gonna have fundamentally less working days as we head into the holiday season and year-end and as we look kind of around the world and also just various holidays, whether it be kind of Golden Week or some of the holidays, for example, in Israel. I just wanna be mindful that we just do have less working days. Could it happen? Sure. I think the good news is we're expecting it to be a good quarter, but maybe we beat Q3, but I just wanna be mindful of that. I'll turn that over to Lynn here.

Speaker #6: And as we look kind of around the world and also just various holidays , whether it be kind of Golden Week and or some of the holidays , for example , in Israel .

Speaker #6: So I just want to be mindful that we just do have less working days . So could it happen ? Sure . I think the good news is we're expecting it to be a good quarter .

Speaker #6: But but and maybe we beat Q3 . But I just want to be mindful that that and I'll turn that over to Lin here .

Speaker #7: Yeah. So just to add to what Farooq said, I think that we are seeing continued strength in areas like commercial air defense, AI, and space.

Lynn Hutkin: Yeah. Just to add to what Farouq said, I think that we are seeing continued strength in areas like commercial air, defense, AI, space. We are continuing to see the rebound coming through in networking and distribution. All of these trends are continuing from Q3 into Q4. It's definitely end market strength continuing. To Farouq's point, just mathematically, there are fewer production days in the quarter. There's Golden Week in China, which was the first week of October, you know, and then there's Thanksgiving and all of the winter holidays throughout the world, you know, in December. It's really those are the pieces. I mean, if you stripped out the holidays, the messaging would likely be different.

Speaker #7: We are continuing to see the rebound coming through in networking and distribution . So all of these trends are continuing from Q3 into Q4 .

Speaker #7: So it's definitely an market strength continuing . But to Farouk's point , just mathematically , there are fewer production days in the quarter .

Speaker #7: So there's Golden Week in China , which was the first the first week of October , you know , and then there's Thanksgiving and all of the winter holidays throughout the world .

Speaker #7: You know , in December . So it's really those are the pieces . So I mean , if you stripped out the holidays , the the messaging would likely be different .

Speaker #7: But , you know , if you look back at our trend historically , you know , having a dip from Q3 to Q4 is pretty natural for us .

Lynn Hutkin: You know, if you look back at our trend historically, you know, having a dip from Q3 to Q4 is pretty natural for us.

Speaker #7: So .

Bobby Brooks: Yeah. I really appreciate that.

Speaker #8: Really appreciate .

Speaker #7: That .

Lynn Hutkin: Those are the different pieces.

Speaker #8: Yeah , really appreciate that color . And I guess more so it's just I definitely can appreciate that . Yeah . The you know , a lot of the range is would be forthcoming coming in lower than three .

Bobby Brooks: Yeah, really appreciate that color. I guess more so it is just I definitely can appreciate that a lot of the ranges would be Q4 coming in lower than Q3. I guess what just caught my eye was the guidance that you gave matched what the guidance was for Q3, usually your guidance is for even the high end of the range being lower than what Q3 was. Can appreciate those puts and takes you just laid out. The other piece is on those legacy customers and kind of the order trends, it seems like it is fair to assume that those are still trending positively.

Speaker #8: Q but I guess what just caught my eye was the guidance that you gave matched what the guidance was for . Three Q and and usually your guidance is for even the high end of the range being lower than what three Q was .

Speaker #8: But can appreciate those puts and takes you just laid out the the other piece is just like on on those legacy customers and kind of the order trends .

Speaker #8: Is it fair to assume that those, it seems like it's fair to assume that those are still trending positively? But maybe could you give some more context as to how to think about where they could go?

Bobby Brooks: Maybe could you give some more context as to, like, how to think about where they could go? Obviously, we're coming off, like, trough levels in 2024.

Speaker #8: Like , obviously we're coming off like trough levels in 24 , but do you think they can like do you feel like they are like continuing to improve or are they just at an improved level now stabilizing ?

Bobby Brooks: Do you think they can, like do you feel like they are, like, continuing to improve, or are they just at an improved level now stabilizing? Just curious to hear more on that.

Speaker #8: Just curious to hear more on that .

Speaker #6: I think if we look , if we zoom out and we look at kind of , let's say the last five years , 20 , 20 , 2025 , I think the industry would generally agree with the statement that it's been anything but normal in terms of the extreme extended lead times that happened in the earlier part of the time frame .

Farouq Tuweiq: I think if we zoom out and we look at kind of, let's say, the last 5 years, 2020, 2025, I think the industry would generally agree with the statement that it's been anything but normal in terms of the extreme extended lead times that happened in the earlier part of the timeframe I just laid out to, you know, an extended dip, if you will, where the industry was kinda down for a longer time than normal. Then you overlay a lot of geopolitical and economic uncertainties, let's say, right? I think the reason I point that out, I'd say, is it's still a little bit, I would say, not normal.

Speaker #6: I just laid out to , you know , an extended dip , if you will , where the industry was kind of down for a longer time than normal .

Speaker #6: And then you overlay a lot of the geopolitical and economical uncertainties , let's say . Right . So I think the reason I point that out , I'd say , is it's still a little bit I would say not normal .

Speaker #6: And I think what we're seeing is a little bit of a maybe hesitation , if you will , on the parts of the customers and kind of robustly coming back .

Farouq Tuweiq: I think what we're seeing is a little bit of a maybe hesitation, if you will, on the parts of the customers in kind of robustly coming back. The good news is that the attitudes have changed a little bit, I think, from a historical perspective. What we are seeing in our business, and when we look at backlog and discussions, there's definitely a positive outlook, right? I think maybe if you look back at. Again, we have a lot of customers in a lot of places, so just general terms here. Generally, we'd see people maybe coming back a little bit stronger. I think if you look at the industry wide, and I was at a conference last week, you know, there's a little bit of timidness.

Speaker #6: So the good news is , I think the , the attitudes have changed a little bit . I think from a historical perspective .

Speaker #6: But what we are seeing in our business , and when we look at backlog and discussions , there's definitely a positive outlook , right ?

Speaker #6: I think maybe if you look back at again , we're we have a lot of customers and a lot of places . So just general terms here .

Speaker #6: But generally we'd see people maybe coming back a little bit stronger . And I think if you look at the industry wide and I was at a conference last week , you know , there was a little bit of timidness .

Speaker #6: So people are maybe not investing as much in a buffer stock and really more kind of just ordering as needed . But what we really look at is the end demand , right ?

Farouq Tuweiq: People are maybe not investing as much in a buffer stock and really more kind of just ordering as needed. What we really look at is the end demand, right? Our customer's demand. We're in a B2B business. What does their demand cycles look like? Where are their products going, and are they growing? The answer is yes, as reflected with our number and with our guide. We like the outlook, but I think it's hard to generalize that everybody is feeling all, you know, yippy about the world. Nonetheless, we like our positioning, we like where we are with our customers, and I think we'll have pretty good outcomes here.

Speaker #6: Our customers demand . We're a B2B business , so what is their demand cycles look like where their products going and are they growing ?

Speaker #6: And the answer is yes . As reflected with our number and with our guide . So we like the outlook . But I think it's hard to generalize that everybody is feeling all you know .

Speaker #6: Yippee about the world . So nonetheless , we like our positioning . We like our where we are with our customers . And I think we'll have a pretty good outcomes here .

Speaker #7: And just to add our our book to Bill , you know , was positive . Again , this quarter . So that's the third consecutive quarter of a positive book to bill ratio .

Lynn Hutkin: Just to add, our book to bill, you know, was positive again this quarter. That's the third consecutive quarter of a positive book to bill ratio. I mean, we hadn't seen that trend since back in 2022. I think just generally, we're seeing more activity, which is positive.

Speaker #7: And I mean , we hadn't seen that trend since back in 2022 . So I think just generally we're seeing more more activity , which is positive .

Speaker #8: Got it . And then just last one for me is it was really impressed , Lynn , when you were going through each kind of segment of the power .

Bobby Brooks: Got it. Just last one for me is I was really impressed, Lynn, when you were going through each kinda segment of the Power, and it really seems like Power was driven, this robust results in Power were driven across many different segments. it was nice to hear you break out what Enercon was as well. Just curious on Enercon, you know, is the integration of them into you guys kinda wrapped up now, or is there still a bit more to go? Just curious on, obviously, you guys are working on long lead time projects, but any early reads on kind of cross-selling opportunities maybe starting to bubble up here?

Speaker #8: And it really seems like power was driven the robust results in power were driven across many different segments , and it was nice to hear you break out what Entercom was as well .

Speaker #8: And just curious on Entercom , you know , is has is the integration of them into you guys kind of wrapped up now or is there still a bit more to go ?

Speaker #8: And then just curious on obviously you guys are working on lead long lead time projects , but any any early reads on kind of cross-selling opportunities , maybe starting to bubble up here .

Speaker #6: Yeah . So I would say I think we want to be just mindful of the words , you know , integration because the plan was never kind of a , let's say , classical approach to integration .

Farouq Tuweiq: Yeah. I think we wanna be just mindful of the word, you know, integration, 'cause the plan was never kind of a, let's say, classical approach to integration, right? From our when we think about integration, it's really around alignment from a go-to-market and tackling opportunities, and co-selling and making sure that we are kinda creating opportunities together. Obviously, in Europe, it's a little bit of a different playbook as we've talked about in the past, right, just in terms of trying to manufacture a little bit more there and being more present in our customers' backyards. Putting all that aside, you know, I think we're definitely moving in the right direction.

Speaker #6: Right ? So from our when we think about integration , it's really around alignment from a go to market and tackling opportunities . And co-selling and making sure that we are kind creating opportunities together .

Speaker #6: And obviously in Europe , it's a little bit of a different playbook . As we talked about in the past , right . Just in terms of trying to manufacture a little bit more , there and be more present in our customers backyards .

Speaker #6: But putting all that aside , you know , I think we're we're definitely moving in the right direction . You know , there's there's definitely obviously more work to be done .

Farouq Tuweiq: You know, there's definitely, obviously more work to be done, but we are seeing some nice, let's say, early sparks, of where one side of the house is bringing an opportunity to the other side of the house. I think our, let's call it, lead sharing, co-tackling is better, but we do have more room to go. Keeping in mind that while we also wanna do that, it is, you know, a very busy market, right? Step one, we gotta do our day jobs and get out and push, and we're seeing the benefits of that strategy, but also wanna make sure that we're more aligned. I would say we like what we're doing. We could do a little bit more, and we plan on doing a little bit more.

Speaker #6: But we are seeing some nice , let's say , early sparks of where , where is bringing an opportunity to the other side of the house .

Speaker #6: So I think our let's call it lead sharing , code tackling is better . But but we do have more room to go .

Speaker #6: Keeping in mind that while we also want to do that , it is a very busy market , right ? So step one , we got to do our day jobs and get out and push .

Speaker #6: And we're seeing the benefits of that strategy, but also want to make sure that we're more aligned. So, I would say we like what we're doing.

Speaker #6: We could do a little bit more . And we plan on doing a little bit more .

Speaker #8: Fair enough . Appreciate the color and congrats on the great quarter . I'll return of the Q .

Bobby Brooks: Fair enough. Appreciate the call, and congrats on the great quarter. I'll return you to the queue.

Speaker #6: Thanks , Bobby .

Farouq Tuweiq: Thanks, Bobby.

Speaker #7: Thank you .

Jim Ricchiuti: Thank you.

Speaker #4: Thank you . We take the next question from the line of Theodore O'Neill from Litchfield Hills Research . Please go ahead .

David Brown: Thank you. We take the next question from the line of Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Speaker #9: Yeah . Thanks very much . And congratulations on the good quarter . Lynn , you mentioned in your prepared remarks you saw a shift .

Theodore O'Neill: Yeah, thanks very much, and congratulations on the good quarter. Lynn, you mentioned in your prepared remarks you had a shift of a customer out of distribution to service directly, and I had three questions related to that. How often does that happen? What determines the shift, and how does the distributor feel about it?

Speaker #9: You had a shift of a customer out of distribution to service directly . And I had three questions related to that . How how often does that happen ?

Speaker #9: What determines the the shift and how does the distributor feel about it .

Speaker #6: So so I would say first of all , thank you for the question . There , Theo . I'd say , you know , we've kind of talked about in the past , distribution is a very dynamic channel .

Farouq Tuweiq: Well, first of all, thanks for the question there, Theo. I'd say, you know, we've kind of talked about in the past, distribution is a very dynamic channel, and they're great and key partners for us and within our industry. It's really hard to paint this in a broad stroke, but I'll try my best. Some customers, while we may design and work with them directly, ultimately, they want the distributor to aggregate all their purchases, right? We may start the relationship direct, and it goes into the distribution channel to give them some kind of fixed fee. The inverse of that also happens, where a customer comes to us through distribution, and then we develop something together, and it can be distributed and worked through the distributor, or sometimes it does come out.

Speaker #6: And there are great and key partners for us . And within our industry . And it's really hard to paint this in a broad stroke .

Speaker #6: But I'll try my best some customers , while we may design and work with them directly , ultimately they want to distributor to aggregate all their purchases , right ?

Speaker #6: So we may start the relationship direct and it goes into the distribution channel and give them some kind of fixed fee . And the inverse of that also happens where a customer comes to us through distribution .

Speaker #6: And then we develop something together and it can be distributed and worked through the distributor . Or sometimes it does come out . So it happens both ways .

Farouq Tuweiq: It happens both ways. I would also say some of the guiding principles on that include minimum order quantity. If it's something smaller, we'd want it to go through distribution. Sometimes we push people into the distribution channel to really maximize our cost to service these customers' model. I would say it's definitely a dynamic channel. I would say when we look at distribution, it's a great discovery channel for new customers. I wouldn't say we're doing anything unusual in our industry, 'cause at the same time, we're not looking to burn the relationships, right? This is pretty standard, I would say. The other thing is not all distributors are the same.

Speaker #6: And I would also say the some of the guiding principles on that include minimum order quantity . So if it's something smaller , we'd want it to go through distribution .

Speaker #6: So sometimes we push people into distribution channel to really maximize our cost to serve , to service these customers . Model . So I would say it's definitely a dynamic channel .

Speaker #6: And I would say when we look at distribution , it's a it's a great discovery channel for new customers . So I wouldn't say we're doing anything unusual in our industry , but because at the same time , we're not looking to burn the relationships , right ?

Speaker #6: So this is pretty , pretty standard . I would say . The other thing is , not all distributors are the same . There are some folks that really focus on kind of low quantities .

Farouq Tuweiq: There are some folks that really focus on kinda low quantities, and as things scale, they don't want you in the channel, so you take it out directly. Other folks more, you know, if it's big and opening up doors. I'd say the answer is depends, but I wouldn't say anything unnatural or odd happened here.

Speaker #6: And as things scale , they don't want you in the channel . So you take it out directly . Other folks more , you know , if it's big and opening up doors .

Speaker #6: So I'd say the answer is depends , but I wouldn't say anything unnatural or odd happened here .

Speaker #9: Okay, thanks for the color on that. And what's the M&A opportunity looking like for you right now?

Theodore O'Neill: Okay. Thanks for the color on that. What's the M&A opportunity looking like for you right now?

Speaker #6: Yeah , I mean I think we've been very clear . We like our balance sheet . We continue to pay down our balance sheet .

Farouq Tuweiq: Yeah, I mean, look, I think we've been very clear. We like our balance sheet. We continue to pay down our balance sheet. We like where the direction of just paying down more heading into Q4 and to next year is going. We feel like we are in a very good position to do an M&A deal. I think really the question as we kinda think about is how big and what is it? When I say how big, it's both in terms of just size and scale, complexity, and also purchase price, right? Today, I would say it's still not a healthy M&A environment, but I think we are seeing a step up in terms of opportunities versus Q1, Q2 this year. We are seeing more shots on goal.

Speaker #6: We like where the direction of just paying down more heading into Q4 and next year is going . So we feel like we are in a very good position to do an M&A deal .

Speaker #6: I think really the is we tend to think about is how big and what is it ? And when I say how big , it's both in terms of just size and scale complexity and also purchase price , right .

Speaker #6: So today I would say it's still not a healthy M&A question But I think we are seeing a step up in terms of opportunities versus Q1 and Q2 this year .

Speaker #6: So we are seeing more shots on goal . I would not classify it as normal yet , but we definitely have some opportunities ahead of us that we're kind of working through .

Farouq Tuweiq: I would not classify it as normal yet, but we definitely have some opportunities ahead of us, that we're kinda working through. I would also say it feels like if you look at our course of a quarter, we always have something live. The question is, do you wanna strike, and do you like the business fundamentals? That kind of hopefully answers your question, Theo.

Speaker #6: I would also say is it feels like if you look at our course of a quarter , we always have something live . The question is , do you want to strike and do you like the business fundamentals ?

Speaker #6: So that kind hopefully answers your question Theo .

Speaker #9: Yep . Thanks very much .

Theodore O'Neill: Yep, thanks very much.

Speaker #6: Thank you .

Farouq Tuweiq: Thank you.

Speaker #4: Thank you . We take the next question from the line of Jim Ricchiuti from Needham and Please go ahead .

David Brown: Thank you. We take the next question from the line of Jim Ricchiuti from Needham & Company. Please go ahead.

Speaker #10: Thanks . Good morning . I apologize if you gave some of this detail in the presentation . I joined late , but I did hear something regarding the ongoing transition with some of your manufacturing footprint .

Jim Ricchiuti: Thanks. Good morning. Apologize if you gave some of this detail in the presentation, I joined a little late. I did hear something regarding the ongoing transition with some of your manufacturing footprint. I think, did you say you're divesting a facility in China, if I understood you correctly? Are you partnering with a contract manufacturer on these products? If I missed it, did you provide any detail on which product areas are affected and, you know, to what extent this is gonna have an impact on margins, or is it fairly small?

Speaker #10: I think . Did you say you're divesting a facility in China ? If I understood you correctly , are you partnering with a contract manufacturer on these products ?

Speaker #10: And if I missed it , did you provide any detail on which product areas are affected ? And you to what extent this is going to have an impact on margins , or is it fairly small ?

Lynn Hutkin: So, Jim, it's within our magnetics segment. We basically went through an analysis of whether it was more cost-efficient for us to be manufacturing internally versus outsourcing that manufacturing. In this case, we chose that outsourcing was the better alternative. As far as impact on gross margin, that would be about $1 million a year.

Speaker #7: So so , Jim , it's it's within our magnetics segment and we are we basically went through an analysis of whether it was more cost efficient for us to be manufacturing internally versus outsourcing that manufacturing .

Speaker #7: And in this case , we we chose that outsourcing was the better alternative as far as impact on gross margin , that would be about $1 million this year .

Speaker #6: Yeah , give or take . Obviously , we're in the process of moving that , but it will be positive . And more importantly , I'd say than that , Jim is allowing us to focus on the things that we excel at .

Farouq Tuweiq: Yes. Yeah, give or take. Obviously, we're in the process of moving that, but it will be positive. More importantly, I'd say than that, Jim, is allowing us to focus on the things that we excel at, right? Hopefully it unlocks more bandwidth and brainwidth for us to pursue things that have a better ROI for us.

Speaker #6: Right ? So hopefully it unlocks more bandwidth than brain width for us to pursue things that have a better ROI for us .

Speaker #10: Got it . And you know , the strength you're seeing in networking . I was wondering if you a little could maybe drill down into that a little bit .

Jim Ricchiuti: Got it. You know, the strength you're seeing in networking, I was wondering if you could maybe drill down into that a little bit. Is that being driven by just the increased AI investment that we're all hearing about? Or is it simply the distribution channel having just burned off the excess inventory that was out there? Or maybe it's a combination of both.

Speaker #10: Is that is that being driven by by just the the , you know , the increased AI investment that we're all hearing about ?

Speaker #10: Or is it simply the distribution channel having just burned off the excess inventory that was out there ? Or maybe it's combination of both ?

Speaker #7: Yeah . So in networking and if we talk about are you asking about a particular segment or just in general ? Jim .

Lynn Hutkin: Yeah. In networking and if we talk about, are you asking about a particular segment or just in general, Jim?

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

Speaker #10: I'm talking about networking because you did highlight that as one of the areas that .

Lynn Hutkin: Yep

Jim Ricchiuti: that kind of stood out.

Speaker #7: So so that was right . So , you know , if we're talking about the the power segment , we had mentioned , it's really a combination of both of those factors that you just said .

Lynn Hutkin: Yep. Right. You know, if we're talking about the power segment, we had mentioned it's really a combination of both of those factors that you just said. There is some rebound happening coming off of the couple of years of destocking that we went through. We're also seeing new incremental demand related to AI. It's a mix of those two that's driving the growth in networking.

Speaker #7: So there is some rebound happening coming off of a couple of years of destocking that we went through . But then we're also seeing new incremental demand related to AI .

Speaker #7: So it's it's a mix of those two that's driving the growth in networking . .

Speaker #10: And Lynn , you mentioned I thought book the bill was above one . Is that right ? And did you can you characterize the bookings by the the three main product areas , whether there was much variability among the three .

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

Speaker #7: So each of the segments were above one . So we saw positive positive book to bill across all three segments .

Lynn Hutkin: Each of the segments were above one.

Jim Ricchiuti: Okay.

Lynn Hutkin: We saw positive book-to-bill across all three segments.

Speaker #10: Great . Thank you .

Jim Ricchiuti: Great. Thank you.

Speaker #11: Sure .

Lynn Hutkin: Sure.

Speaker #4: Thank you . We take the next question from the line of Greg Palm from Craig-hallum . Please go ahead .

David Brown: Thank you. We take the next question from the line of Danny Eggerichs from Craig-Hallum. Please go ahead.

Danny Eggerichs: Hey, guys. This is Danny Eggerichs on for Greg today. Congrats on the solid results here.

Farouq Tuweiq: Thank you.

Danny Eggerichs: I think just first off, maybe kind of a broader question on demand you're seeing from each of your respective geographies. Anything to call out in terms of outperformance, underperformance, and then maybe specifically on China. I know last quarter we saw kind of the pause and then the resumption of order patterns. Maybe just kind of what you're seeing, you know, current day and whether those have kind of just returned to business as usual.

Farouq Tuweiq: Yeah, I'd say, I think that's a good question. I think giving our end markets. Understanding, right, taking a step back and saying we're, you know, the numbers move around a little bit, but by far, two-thirds plus of our business is kinda exposed to US-based customers, right? When we look at those, we also see that, you know, A&D is our largest end market today, which kind of lends itself both to the US, Israel, and Europe. When we look at geographies with the lens of the end markets, you know, I'd say, you know, kind of US-based customers and Israeli-based customers are probably leading the way.

Farouq Tuweiq: Keep in mind, on the networking side also, those are the vast majority of the people we spend time with. Asia is our smallest exposure, Europe/Israel is in the middle, right? From a mathematical perspective, we're gonna really kind of move the needle as we've seen, as we see our, I'd say, US and Israel business moves predominantly. In terms of demand environment, I'd say the US seems a little bit more healthier, broadly speaking. When we look at Europe, I think it's a little bit of a mixed bag. Our rail business is a fair amount in Europe, for example, right? We talked about. That was a little bit down.

Farouq Tuweiq: EV and e-mobility, which sits in our power group, tends to be more European exposure. Obviously, there's other things going in that sector, but Europe, I'd say, is a mixed bag. It really depends on what it is you're talking about in terms of end market exposure. Asia is a kind of an interesting place for us. It is a small place, but we have, throughout this year, invested in the senior leadership within our sales organization in Asia, and I think we're seeing some nice opportunities coming out of that. We like what we're seeing, but Asia generally is a smaller play for us. Also keep in mind that for us in the end markets we play in, right, we're not really a heavy consumer mark business. We're not auto.

Farouq Tuweiq: We, you know, obviously, we're not a race to the bottom on pricing. Asia for us is a selective strategic play where we pick our spots. We can do more in Asia. We are planning on doing more in Asia. I'd say that, you know, that's kinda just round robin there on geographies.

Danny Eggerichs: Yeah. Got it. That's all really helpful. Maybe if I can hit on the power segment and specifically kind of the gross margin there. I think it's kind of same thing we saw last quarter where, you know, even this quarter you see even a bigger sequential step up in revenue, but that gross margin kind of stays flat or maybe even slightly steps down. I know last quarter was kind of the legacy business outgrowing Enercon and kind of being a negative mix factor there. I guess, how should we think about that as power continues its growth trajectory? When should we think about kind of that gross margin hooking up with the revenue growth and seeing some expansion there?

Lynn Hutkin: I think on the gross margin side for power, I mean, there's a few different factors going on. Obviously, the Enercon acquisition is additive to our legacy power margins. I think the one thing to keep in mind, you know, both in Q3 and going forward here is there are two currencies within the power segment that where there could be margin pressure. We have the Israeli shekel related to the Enercon business, and then also the renminbi related to the China facility that we have within power. We don't have a natural hedge in place. We do have some hedging programs, but it's, you know, they're not hedging in all exposure.

Lynn Hutkin: That's something that we just need to be mindful of because that can move margins a little bit.

Is going on. Um, obviously the intercon acquisition is, is additive um, to our Legacy uh, Power margins. I think the 1 thing to to keep in mind, um, you know, both in in Q3 and uh, and going forward here is there are 2 currencies within the power segment that um where there could be margin pressure. So we have the Israeli shekel uh related to the undertone business. And then also the uh the remman be uh related to the the China facility, um, that that we have within power. And we don't have a natural hedge in place. We, we do have some hedging programs, but it's, you know, they're they're not hedging and all exposure.

So that's something that we um, we just need to be mindful of because that that can move margins a little bit.

Farouq Tuweiq: Also keeping in mind, you know, some of our other margin businesses like e-mobility and rail are down, and those tend to be higher margin. I think the bigger, you know, I think discussion is today we're at a point where I would say we're at great levels of gross margin. If we're trying to think about growth, right, you know, what is the opportunity there to expand to new customers, new offerings, and new products, versus having an extremely strict line on gross margin, right? That's kind of something we're thinking about, kind of how do we smartly think about that to ultimately drive EPS all the way down.

Farouq Tuweiq: As we've said in the past, to a large degree, you know, there is some our SG&A and R&D are relatively range bound. How do we really get some operational leverage from that cost structure to continue to drive the top line? These are kinda things that we're all kinda thinking about, but I would say today we're definitely up there in terms of performance on margins.

And then also keeping in mind, you know, some of our other margin businesses, like e-mobility and rail are down and it was going to be higher margin. And I, I think the bigger, you know, I think discussion is, is today, we are at a point where I would say we're, we're at a great levels of gross margin. And if we are trying to think about growth, right, you know what is the opportunity, there to expand your new customers, new offerings and new products, uh, versus having an extremely strict line on on gross margin, right? So that's kind of something where we're thinking about, um, uh, kind of, how do we smartly, uh, uh, think about that, to ultimately Drive, EPS all the way down. Because as we've said in the past to to a large degree, you know, there was some our sgna and R&D are relatively range bound. So, how do we really get some operational? Leverage from that cost structure to continue to drop the Top Line. So these are kind of things that we're all going to thinking about, but I would say,

Danny Eggerichs: Okay. Yeah. Maybe, maybe that kind of plays into my last question here, which is kind of the Q4 guide and the gross margin range. Just looking back year to date, the gross margin's kind of been at like a 39%, and obviously revenue levels in Q4 that suggests, you know, higher than, quite a bit higher than what we saw in H1, you know, at the midpoint here. I'm sure it's a lot of those factors that you just talked about, but any other things within that gross margin assumptions, maybe mix or maybe there's a little bit of conservatism built in there. Any thoughts there?

Today, we're we're definitely up there in terms of performance on margins.

Lynn Hutkin: Yeah. I think it's a couple of factors. You know, one is our magnetics group has been depressed over the last couple of years, right? As that rebounds, it is our lowest gross margin segment. If you're looking at our gross margin in total on a consolidated basis, that would have some downward pressure on it as magnetics grows into a larger piece of the overall pie. That's one piece to keep in mind. I think the, you know, if we're looking at Q3 sales to Q4, you know, it seasonally we're down a bit in Q4 versus Q3. If that happens, you have less leverage, you know, within your fixed cost absorption, so that could have some potential gross margin pressure.

Okay. Yeah. And maybe maybe that kind of plays into my last question here, which is kind of the, the Q4 guide. Um, and and the gross margin range. Just just looking back year to date that gross margins kind of been at like a 39% and obviously Revenue levels and Q4 that that suggests, you know, higher than quite a bit higher than what we saw and and the first half, you know, at the midpoint here. So, um, I'm sure it's it's a lot of those factors that you just talked about, but any other thing um, within that gross margin assumptions, maybe mix or maybe there's a little bit of conservatism built in there. Um, any thoughts there?

That's what I think it's a couple of.

Factors, you know, 1 is our magnetic screw has been depressed over the last couple of years, right? So as that rebounds,

Um, grows into a larger piece of the overall pie. So that's 1 piece to keep in mind. Uh, I I think the, um,

Lynn Hutkin: As I mentioned on the FX side with the peso, the renminbi, and the shekel, those do directly impact our margins. Those are some of the factors that come into play when we are putting out our guide for margin for Q4.

You know, if we were looking at Q3 sales to Q4, you know, it seasonally, we're we're down a bit in Q4 versus Q3. So, if that happens, you you have less uh, leverage, you know, with within your your fixed costs absorption so that that could have some potential, uh, gross margin pressure. And then, as I mentioned, um, the FX side, with the peso, the revenue, and the shackle, um, those, those do directly impact our our margins. So those are some of the factors that that come into play. When we are putting out our guide for margin for the fourth quarter,

Danny Eggerichs: Okay. Got it. I will leave it there. Thanks for all the color.

Farouq Tuweiq: Thank you.

Lynn Hutkin: Thank you.

Okay, got it, I will leave it there. Thanks for all the caller.

David Brown: Thank you. We take the next question from the line of Christopher Glynn from Oppenheimer & Company. Please go ahead.

Thank you. Thank you.

Christopher Glynn: Yeah. Thanks. Good morning, and congrats on the nice results. Just, you know, curious in terms of the development of the commercial multiple that you've described in some detail. You know, where are you seeing the kinda leading end of progress, the early adopters, so to speak, in terms of design cycles, new business opportunities generating? Seems like AI, maybe defense. You noted a little progress in Asia. Maybe there's some other cross-sections to bring into the discussion as well.

Thank you. We take the next question, from the line of Christopher, Glenn from Oppenheimer and Company. Please go ahead.

Uh, yeah, thanks. Uh, good. Good morning and, uh, congrats on the nice results. Just, um, you know, curious in terms of the development of the commercial multiple that you've described in some detail, you know, where you seeing the, the kind of leading end of progress that early adopters, so to speak. Um, in terms of uh, design Cycles, new business opportunities generating seems like AI may be defense. You noted a little progress

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

In Asia. Um, maybe there's some other cross-sections to bring into the discussion as well.

Christopher Glynn: Yeah, exactly. Maybe a little color on, you know, new business opportunities. You know, what's the growth there year over year?

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

Farouq Tuweiq: Yeah. In general terms, right, we as an engineering-led organization, and we've talked about this, we're a medium to long-term kind of design cycle business. Really the actions and the results that we're seeing today in Q3, you know, you can almost gotta look back at least 1 to 2, 3 years to see what was done then and kind of seeing where these wins have come, right? I would obviously, as Lynn said, we do have some inter-quarter turns that do happen. Generally, I would say what happened in Q3 here is probably not a whole lot in large in terms of new business that things that happened in Q2, maybe some Q1 stuff. Okay?

Uh, yeah, yeah, exactly. And maybe a little color on, you know, new business opportunities. That, you know, what's the growth year-over-year?

Farouq Tuweiq: This puts a big pressure on us to make sure that today we are working Q3 or Q4 here, we're working for, you know, Q2, Q3, Q4 next year and beyond. The question is, okay, well, how are we as a team tackling go-to-market and what is our sales initiatives and what is our data side of things to help lead those kinda tip of the spear activities? When we look at the activity around new developments and new wins that we saw, for example, in Q3, it's definitely, you know, exciting for us, to be honest with you. We're seeing some nice new wins, some bigger wins than maybe we historically have. Some new customers that we historically were not maybe competitive or didn't kinda co-tackle it appropriately.

So, so in in, in general terms, right? We as an engineering-led organization, and we've talked about this, we're a medium to long-term kind of design cycle business, so, so really the actions and the results that we're seeing today in Q3, you know, you can almost got to look back, at least 1, to 2, 3 years to see what was done then, and kind of seeing where these wins have come, right? So, so it it I I would obviously, as Lynn said we do have some inter quarter turns that do happen. But generally I would say, what happened in Q3 here is, is probably not a whole lot in large in terms of new business, that things that happen in Q2 maybe some q1 stuff. Okay.

So, this puts a big pressure on us to make sure that today we are in Q3 or Q4 here. We're working for, you know, Q2 Q3 Q4 next year and Beyond.

Farouq Tuweiq: Obviously, with the customers we've had for a very long time, you know, I would say, you know, probably constantly win new programs, right? When we look at, obviously, defense, which is our biggest kinda market nowadays, you know, it's not like there's a whole lot of primes in the US, right? Really there we look at are we getting more shots on goal? Are we getting new opportunities on wins? I think the answer is yes. When I speak to the teams across Bel Fuse, I think there's a pretty fair aggressiveness in terms of hunting for the new. We're defining what new is. We want certain margin profiles of business and learning how to win.

Um so the question is okay well how are we as a team tackling go to market and what is our sales initiatives? And what is our data side of things to help lead? Those kind of tip of the spear activities when we look at the activity around new developments and new wins that we saw. For example, in Q3, it's definitely, you know, exciting for us. To be honest with you, we're seeing some nice new wins, some bigger wins and maybe we historically have some new customers that we historically. We're not maybe competitive or didn't kind of co-ack appropriately. Um, obviously with the customers we've had for a very long time, you know? We I would say, you know, probably constantly win new programs, right? When we look at obviously defense, which is our biggest kind of Market nowadays, you know, it's not like there's a whole lot of primes in the US, right? So really there, we look at, are we getting more shots on goal? Are we getting new opportunity to design wins? And I think the answer is yes, when I speak to the teams across, Belle views, I think there's a there's a

There's a pretty fair aggressiveness.

Farouq Tuweiq: Again, we've always done this throughout our 76-year history, I think we're putting more fire around it, you know, in recent times. This was kind of my earlier commentary here, Chris, where when today our business is really kind of we think about things to some extent from a product perspective, but we have a lot of products that go to the same customer. How can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing, you know, a cable or a connector or a fuse sale because we're selling a power system. When we look at our product portfolio, I think we can do more with it.

In terms of hunting for the new we defined or defining what new is we want certain margin profiles of business and learning how to win again. We've always done this throughout our 76 year history but I think we're putting more fire around it uh you know in recent times and this was kind of my earlier commentary here. Chris where when today our business is really kind of. We think about things to some extent from a product perspective. But we have a lot of products that go to the same customer. So how can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing, you know, a cable or a connector or a fuse sale because we're selling a power system?

Farouq Tuweiq: This is back to also my earlier commentary around we gotta invest in the systems and structures that we can make sure we're going after highest ROI opportunities and really measuring performance. It was a little bit of a new muscle for us, but I think the early signs and the wins we're seeing today, we kinda gotta look back, you know, probably before 2025, to be honest with you.

So when we look at our product portfolio, I think we can do more with it. Um, and this is back to also my earlier commentary around. We got to invest in the systems and structures that we can make sure we're we're going after highest Roi opportunities and really measuring performance

Christopher Glynn: Okay, great. Just curious on Enercon, if they're, you know, caught up on shipments? I think they had a little delivery snags last quarter.

And the winds were seeing today, we kind of got a look back, you know, probably before 2025, to be honest with you.

Okay, great. And then, uh, just curious on intercon if if they're, uh, you know, cut cut up on shipments. I I think they had a little delivery, um,

Farouq Tuweiq: Yep, yep.

Christopher Glynn: You know, did the quarter include some catch-up or is that just the sequential scaling that the business is generating?

Farouq Tuweiq: Yeah, both. You know, it continues to kinda, you know, go from strength to strength. There was a little bit of catch-up, but also just, you know, kinda depends on where the catch-up we're talking about is. The biggest issue end of June, as you may recall, just, you know, flights stopped coming in, specifically from India and out of Israel. That's kinda the catch-up. It wasn't a very long pause, right? Obviously there was local consumption that happened inside of Israel. There was some catch-up, but also, yes, growth, whether it be sequentially or year over year.

Uh, snags last quarter and, uh, yep. Yep, you know, did the quarter include some catch-up, or is that just the sequential scaling that the business is generating?

Christopher Glynn: Great. Thanks for that.

Yeah, both, uh, you know, it's continuing to kind of, you know, go from strength to strength. There was a little bit of catch-up, but also, you know, it kind of depends on where the catch-up we're talking about is. The biggest issue at the end of June, as your mayor called, just, you know, flights stopped coming in, specifically from India and out of Israel. So, that's kind of the catch, but it wasn't a very long pause, right? Um, so, um, and obviously there was local consumption that happens inside of Israel. Um, so there was some catch-up, but also, yes, growth, whether it be sequentially or year-over-year.

Farouq Tuweiq: Thank you.

For that.

David Brown: Thank you. We take the next question from the line of Luke Junk from Baird. Please go ahead.

Thank you.

Luke Junk: Morning. Thanks for taking the question. Farouq, wanna circle back to gross margins and maybe more of a, not philosophical, but bigger picture certainly. You know, if we look at the gross margin trend this year, it's been above the high end of guidance, three straight quarters, 39% plus in general. Just love to get your thoughts on kinda your feel for volume leverage in the business on a go-forward basis, especially as you continue to layer on those new design wins, just relative to your understanding of the improved cost structure and kinda what that can mean incrementally as you do add volume. Thank you.

Thank you. We take the next question from the line of Luke junk from bed. Please go ahead.

Farouq Tuweiq: No, I appreciate that question, Luke. It's a question we've been thinking a lot about in general is where should you be, right? I think by all accounts, putting aside our mix between magnetics and the other segments, yes, we're seeing an uplift in margin as sales grow, and we are getting operational leverage. The question is, now that we are really trying to shift our mindset away from just operations and cost efficiency, which always, you know, just become regularly table stakes, how do you drive growth? As we launch new products and go after new customers, invest in new relationships and new technologies, we need to be honest with ourselves and say, Okay, what is the pricing strategy on things? For example, right?

Good morning. Thanks for taking the question. Um, Brooke want to Circle back to gross margins. And maybe more of a um you know, a philosophical, but bigger picture. Certainly um you know, if we look at the gross margin Trend, this year it's been above the high in the guidance, through Straight quarters 39% Plus in general and just love to get your thoughts on kind of your fuel for volume leverage in the business on a go forward basis. Especially as you continue to layer on those new design wins, just relative to your understanding of the improved cost structure and kind of what that can mean incrementally. As you do add volume, thank you.

Farouq Tuweiq: Let's say there's a very nice piece of business that was, I don't know, $1 million, $2 million that was a little bit below corporate averages. Over time we could scale it up and also get new opportunities. Would we take that business? I think we really need to consider that if it's a strategic relationship. I think the gross margin strategy, let's say, has not been one that was available to us through our history. Now we gotta look at it as an asset and as a tool. Now, keeping in mind we worked very hard to get our gross margins here, right? We don't wanna arbitrarily, you know, kinda get it, you know, further into that 37%, 39%. I think there's a little bit of self-discovery, to be honest with you, as to where we should be.

No, I appreciate that question, Luke. And this question, we've been thinking a lot about in general. Is where should you be right? And and I think by all accounts putting aside our mix between magnetics and and the other segments, um, yes, we're seeing an uplift in margin as sales grow and we are getting operational. Leverage, the question is now that we are really trying to shift our mindset away from just operations and cost efficiency, which always, you know, just become regular weight table Stakes. How do you drive growth? So, as we launch new products, and go after new customers, invest in new relationships and new technologies, we need to be honest with ourselves and say, okay, what is the pricing strategy on things? So for example, right, let's say there's a very nice piece of business. That was, I don't know, a million 2 million dollars that

Farouq Tuweiq: I think when we look at gross margins today, we want to make sure we're not pigging out too much, and really missing the boat on EPS growth, given that we talked about the range boundness of our SG&A and R&D. That's, I think, the sense of maybe a little bit of conservatism there. I appreciate in public markets that everybody's looking to manage certain level of expectations, but our intention, and we've talked about this internally, is we want to land in range, right? We don't really want to blow the range on the top or on the bottom. I think we give the optics here the last 3 quarters to your point, I think we could see some conservatism in it. That's fair.

That was a little bit below, corporate averages, but over time, we can scale it up and also get new opportunities. Would we take that business? I think we really need to consider that if it's a strategic relationship. I think the gross margin, uh, strategy. Let's say, has not been 1, that was available to us through our history, so now we got to look at it as an asset and as a tool. Now, keeping in mind, we worked very hard to get our gross margins here, right? We don't want to arbitrarily, uh, you know, kind of get it, you know, further into that 373%. So I think there's a little bit of self-discovery to be honest with you, as to where we should be. I think we we look at gross margins today. We want to make sure we're not picking out too much um and just and really missing the boat on on EPS growth. Um, given that we talked about the range boundness of our sg&a and R&D. So that's, I think the sense of maybe a little bit of the conservatism there. I think the, the, I appreciate the public markets that everybody's looking to manage certain level of expectations. But Our intention and we've talked about this internally

Farouq Tuweiq: The question is, you know, okay, as we go throughout next year, you know, where do we wanna be? The good news is we have a buffet of options to play while delivering good returns, good gross margins to our investors, that's kind of the front and center. It's a little bit of a self-discovery journey we're going through, to be honest.

Is we want to land in range, right? We don't really want to blow the range on the top or on the bottom. So I think our and we give the Optics here. The last 3 quarters here point, I think we could we could see some conservatism in it. That's fair. The question is you know okay as we go throughout next year you know where do we want to be? The good news is we have a lot of we have a buffet of options to play while delivering good returns. Good, gross. Margins are investors and that's kind of the front and center. So it's a little bit of a self-discovery journey.

Luke Junk: That's all very helpful. Second question, just curious if we could double-click on networking in AI, specifically in terms of the design win activity and just tilting, you know, the organization to growth overall. I guess I'd be especially interested in power and, you know, just how you think going forward. I mean, we're seeing this rebound, obviously, in demand from an inventory standpoint and whatnot and those direct AI sales. As you think about building the pipeline, just the opportunity set within power specifically. Thank you.

They were going through to be honest.

That's uh, all very helpful. Um,

Farouq Tuweiq: Yeah, no, I mean, today with an improved cost structures and the investment that has gone into the factories from an automation perspective, the improvements R&D teams that have done in terms of moving quicker to launch products, our sales team being more mindful of what we're going after. I think today we're in a better position to go after opportunities, and be a little bit maybe more serious about it than we have been able to in the past, okay? As a result of that, as we think about networking, there's obviously and as Lynn talked about earlier, we know where our AI products are going, but that's a floor, right? We know that we sell to some other networking folks that are servicing directly AI.

Second question. Um just curious if we could double-click on networking in AI specifically in terms of the design when activity and just tilting, you know, the organization to growth overall I guess that'd be especially interested in power and you know, just how you think going forward. I mean, we're seeing this rebound, obviously in demand from an inventory standpoint and whatnot and those direct AI sales, but as you think about building the pipeline, just the, um, the opportunity side with Empower specifically, thank you.

Farouq Tuweiq: We know that our products that we're selling to networking guys are probably also being impacted by AI. How do you measure it is a different complexity to it, right? Because our products are high-end products that can go to AI or other applications. I think it's hard to say that all things going on AI data center world is not positively impacting us. The other thing I would say is with the improved operational structure and more focus on the markets is we have, I'd say, started to open up doors with some customers that maybe in the past we were not cost competitive or we're not focused on or maybe a little bit too much in our comfort zone. We're seeing some of that newness as well.

From an automation perspective, the improvements R&D teams that have done in terms of moving quicker to launch products. Our sales team being more mindful of what we're going after. I think today, we're in a better position to go after opportunities. Uh, and and be a little bit, maybe more serious about it than than we have been able to in the past. Okay? So as a result of that, as we think about networking, there's obviously a, a a, as Lynn talked about earlier, we know where our AI products are going, but that's a floor, right? And we know that we sell to some other networking folks that are servicing directly AI. So we know that our products that we're selling to networking guys are probably also being impacted by a how do you measure it? Is a different different complexity to it, right? Because our products are high-end products that that, that can go to AI or other applications. But I think it's hard to say that all things going on, AI data center world is not positively impacting us.

Farouq Tuweiq: The other thing I would say in the networking side, given that there's a lot of investment and focus on it, broadly speaking, we are seeing new entrants into the markets with newer technologies. All that, I think at the end of the day, is additive for us from a networking perspective. You know, we wanna make sure that we're not just simply waiting for the same customers we had 3, 4 years ago to come back. Yes, that's a benefit, obviously. I would also say we wanna make sure we're investing in new relationships. Within the existing relationships, I think we're doing a little bit of a better job learning how to more service our customers, to more ingratiate ourselves into that relationship and get more opportunities on goal.

The other thing I would say is that with the improved operational structure and a more focused approach on the markets, we have, I'd say, started to open up doors with some customers that maybe in the past we were not cost-competitive or weren't focused on—maybe a little bit too much in our comfort zone. So we're seeing some of that newness as well. The other thing I would say in the networking side, given that there's a lot of investment and focus on it, broadly speaking, we are seeing new entrants into the markets with newer technologies. So all that, I think, at the end of the day is additive for us from a networking perspective.

Farouq Tuweiq: If you look at some of our big customers, we can do so much more. The question is: How can you do so much more, right? And that's kinda what we're trying to really push the team, and quite frankly, we're seeing some nice results of that.

Um so you know we want to make sure that that we're not just simply waiting for the same customers. We had 3 4 years ago to come back. Yes, that's a benefit obviously but I would also say we want to make sure we're investing in new relationships and within the existing relationships, I think we're doing a little bit of a better job. Learning how to more service our customers to more ingratiate ourselves into that relationship and get more opportunities on goal. Because if you look at some of our big customers, we can do so much more, the question is, how can you do so much more, right? And, and, and that's kind of what we're trying to really push the team. And quite frankly, we're seeing some

Luke Junk: All really great color. Just a quick one for my last question. Lynn, you called out for the second straight quarter that there was some increased medical expense in the SG&A line. Just how we should think about that sequentially into Q4, if you have any visibility. Going into next year, to the extent that that doesn't repeat, would it be reasonable to assume some normalization in SG&A? Thank you.

Some nice results of that.

Farouq Tuweiq: Yeah, I would say, can I give some context here? We're really talking about the US side of the business, and obviously we all read and feel what's going on in all things world of healthcare and medical care. We are a self-insured plan, right? Whenever we do kind of market checks on it still is the most cost advantageous way to do it. Every kind of few years we go out there and check and make sure it's the right. Today we are self-insured. The downside of self-insurance is there could be variability in claims that come in the door. We're seeing that in Q2 and Q3, the variability is hard to get a read on it, right?

Oh, oh, really great caller. I'm just a, a quick one for my last question. Um, and then you called for the second straight quarter that there was some, uh, increased medical expense in SG&A in a line. Uh, just how we should think about that sequentially into the fourth quarter, if you have any visibility, and then going into next year, to the extent that that doesn't repeat, would it be reasonable to assume some normalization in SG&A? Thank you.

It it? Yeah I would say the there's can I give some context here we're really talking about the US side of of the business and obviously we all read and feel what's going on in all things world of healthcare.

Farouq Tuweiq: We just don't know when somebody is gonna have a major medical issue that comes our way. The plus side of going to a regular way healthcare is you have a fixed cost, but every year somebody comes and, you know, the healthcare companies will give you a big increase, right? From our perspective, we're still in a cost advantageous way, but it does introduce variability to your point. The other thing I would say is, you know, as just, you know, the overall age of our organization, right? Medical claims are not unexpected. What does that mean for next year? I think that's a tough question to answer for us. We obviously saw a spike in Q2 and Q3 a little bit here.

Um, and medical care. We are a self-insured plan, right? And whenever we do kind of Market checks on it, it it still is the most cost advantageous, uh, way to, to do it. So, every kind of a few years, we go out there and check and make sure it's the right. So today we are self-insured. Um, the, the downside of Self insurance is there could be variability in in in claims that come in the door. So, and we're seeing that uh, in in Q2 and Q3 but the variability is hard to get a read on it, right? We just don't know when somebody is going to have a major medical issue. Uh, that comes our way. Um the the plus side of going to a regular way Health Care is you you have a fixed cost but every year somebody comes and you know, the the health care companies will give you a big increase, right? So from our perspective we're still in a cost advantageous way but it does introduce variability to to your point. The other thing I would say is you know, as as as just you know the overall age of our organization, right. We medical claims are not

Unexpected. So, how what does that mean for next year? I think that's a tough question to answer, uh, for us. Uh,

We obviously saw.

Luke Junk: Fair enough. I'll leave it there. Thanks, Farouq.

Farouq Tuweiq: Thank you.

Thanks B.

David Brown: Thank you. We take the next question from the line of Hendi Susanto from Gabelli Funds. Please go ahead.

Thank you.

Hendi Susanto: Good morning, Farouq and Lynn. Congrats on strong results.

Thank you. We take the next question from the line of Handy susanto from gabelli funds. Please go ahead.

Farouq Tuweiq: Thank you.

Farouq Tuweiq: Thank you.

Hendi Susanto: My first questions, is you talk about rebound in networking and distribution customers. Can you talk about rebound or sign of rebounds across other areas, specifically, let's say, in magnetic connectivity and then some major areas?

Good morning, Faruk and Lane, congrats, I'm strong results. Um, thank you. My first question is, um, you talked about Rebound in a networking and distribution customers. Um, can you talk about rebound or sign of rebounds across other areas? Specifically let's say in magnetic connectivity and then some um, major areas

Lynn Hutkin: Sure. You're looking for a breakdown by product group, Hendy, or just other end markets?

sure, so I I think,

for um,

Hendi Susanto: Yes.

Lynn Hutkin: aside from networking?

Hendi Susanto: Yeah. I think, like, where, like, besides networking and distribution channels.

Lynn Hutkin: Okay.

Hendi Susanto: -um, are there-

Lynn Hutkin: Okay.

Hendi Susanto: Like early signs of inventory rebound, customers rebuilding their inventory? Maybe, whether you have some outlook or expectation on where rebounds would start to take place in other areas.

Lynn Hutkin: Yeah. I think the other 2 areas that we've been seeing a rebound, which had been, you know, depressed in prior periods, is in the consumer end market. If you recall last year, that was the end market that was impacted by 1 of our large suppliers in China. That had been depressed for several quarters. We did see a rebound in that business in Q3. That was nice to see now that we have some new suppliers identified getting product back out into the market at this point. There's been rebound there. Also on the fuses side, I mean, fuses go into everything. That's something that had been softer in the past, and we're seeing that rebound now.

Channels, okay? Um, are there like early signs of inventory rebound? Customers rebuilding the inventory or maybe, uh, whether you have some, um, Outlook or expectation on where we bounced would start to take place, uh, in other areas?

Lynn Hutkin: I think those are probably the other two areas in addition to networking and distribution.

Yeah, I I think the other 2 areas that we've been seeing a rebound which had been, you know, depressed in Prior periods is in the consumer, End Market. Um, if, if you recall last year, that was the, um, the End Market that was impacted by 1 of our large suppliers and in China. And so that had been depressed for several quarters, we did see a rebound, um, in that business, uh, in the third quarter. So, that was nice to see. Now that we have some new suppliers identify getting product back out into the market at this point. Um, so that's there's been rebound there and then also on the fuses side and I mean, fuses go into go into everything. Um, but that's something that had been softer in the past and we're seeing that that rebound now. So I think those are probably the other 2 areas in addition to networking and uh, and distribution.

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

Got it. Um, and then mathematics sales is still significantly below pre-covid.

And he puts and text in terms of uh expectation on.

Magnetic cells. Um, let's say, like,

um,

Farouq Tuweiq: Yeah. I think when we look at magnetics, Hendi, and I think when we look at the industry, and we've seen this in our power, right? There was a very unnatural spike that happened back in 2022 to 2023, where customers were literally buying and renting new warehouses just to store a lot of these components. There was a, let's say, unnatural behavior there today. We, you know, if we were to kind of put a range on where we've been, let's say it was 175 to roughly 75, if we look at peak to trough, roughly speaking. I would say 175 is, you know, probably not in the cards for next few years because also remember, we walked away from certain business, and we are being prudent after what business we're going after.

going forward like uh, whether recovery is somewhat. Um, somewhat is likely in the in the short to midterm.

And so I think when we look at magnetics in India, and I think when we look at the industry, and we've seen this in our power, there was a very unnatural spike that happened back in 2022 to 2023 where customers were literally buying and renting new warehouses just to store a lot of these components.

Um so there was a let's say unnatural Behavior there today. So we you know, if we were to kind of put a range on where we've been let's say it was 175 to roughly 75 we would look at Peak to trough roughly speaking.

Farouq Tuweiq: Also keeping in mind the magnetics, as we talked about, there is a product concentration and a 2 end market concentration, which is networking and distribution, largely. If we were to look at the ranges of 75 to 175, I would say, you know, or I should say 70, sorry. The range was 180 to 70. You know, so I will let you kind of decide where we are, but we are seeing the year-over-year growth. I, you know, 2022 at 180 was extremely unnatural, and we have slimmed down the business since then. I would not really anchor to that. I will kind of leave it at that, but we do think that we got some ways to go here.

I would say 175 is, is, is, you know, probably not in the cards for next few years. Because also remember, we walked away from certain business and we are being prudent after our business, we're going after. Um, and also keep in mind that the magnetics as we talked about there, there is a product concentration and a 2 in Market concentration, which is networking and distribution, uh, largely. So if we were to look at the ranges of 75 to

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

175, uh, I I would say, you know, the, the or I should say 70. Sorry, the range was 180 270, um, we, you know, so I'll let you kind of decide where we are but we're seeing the year-over-year overgrowth. But I, you know, 2022 at 180 was was extremely unnatural and we've slimmed down the business since then. So I would not really anchor to that. So I I'll I'll leave it at that. But we do think uh, that we we got some ways to go here.

Got it, got it. And, um,

Lynn Hutkin: The pace of debt payments going forward?

and then um Lynn um may I ask um how we should think and project, the pace of potentially early death payment,

Hendi Susanto: Yes. Yep.

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

The the pace of, uh, debt payments going forward? Yes.

so I, I'm borrowing

Hendi Susanto: Okay. Thank you, Farooq. Thank you, Lynn.

You know, an m&a opportunity coming up or anything like that, we've been running, you know, at a rate of, you know, call with 20 to 25 million, a quarter, um, just based on our our cash flows. So we would continue to pay down debt. That would be our our first, uh, you know, priority borrowing anything uh, on the m&a side.

Farouq Tuweiq: Thank you, Hendy.

Okay, thank you for thank you Lynn.

Lynn Hutkin: Thank you.

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

Thank you. Thank you.

Thank you.

Ladies and gentlemen, with that, we conclude the question and answer session.

Farouq Tuweiq: Again, wanna thank everybody for joining us here, and a very big thank you for the Bel Fuse team around the world and our customers that helped us deliver this great quarter. We'll put our head down to continue to work throughout the year here heading into 2026. Wishing everybody a great holiday season as we head into year-end, and I'm sure we'll be talking soon. Thank you very much for joining us this morning.

I would now have the conference over to week for his closing comments.

David Brown: Thank you.

Again, want to thank everybody for joining us here, uh, and a and a very big, thank you for the Bell fuse team around the world, and our customers that helped us deliver this great quarter. Um, and we'll put our head down continue to work throughout the year here, heading into 2026. Wishing everybody a great holiday season as we head into year end. And I'm sure we'll be talking soon. Thank you very much for joining us this morning.

Lynn Hutkin: Thank you.

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

Patient. You may now disconnect your line.