Q3 2025 Bel Fuse Inc Earnings Call

Farouq Tuweiq: In addition to the sale of our Czech business in 2023, these actions have resulted in an over 600,000 plus net square footage reduction on any 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. 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.

In 2023, the exactions that have resulted in an over 600000, plus net square footage reduction or any manufacturing lines, while leaning into automation and investing for the future.

Future of our factories.

And I recall that again just to put a pin on it in terms of where we're heading which is the more important part as.

As we approach the end of 2025 and look ahead to 2026, our focus is and has been firmly on our go to market strategy and driving growth both organically and inorganically.

Throughout the past few months, we have been meeting with belts key leadership across the world to identify the areas methods and resources needed to better achieve top line growth.

Farouq Tuweiq: While we're in the early stages of strategic planning, I want to emphasize the exciting collaboration and energy within Bel's extended leadership team as we chart our next chapter. One of the common themes emerging is shifting our historical focus from products to end markets and customers to ensure we are delivering the totality of Bel to them. This mindset shift will take a while to cement, but is a logical step for a company such as Bel, given the impressive breadth of our product portfolio. This is an exciting effort and one that is key for a long cycle design business such as Bel. In addition to driving growth, we're investing in the foundational structures that support our business, especially around IT systems and data infrastructure.

While we are in the early stages of strategic planning I want to emphasize the exciting collaboration and energy within bells 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 delta them.

This mindset shifts will take a while to cement, but is a logical step for a company such as belt given the impressive breadth of our product portfolio. There is an exciting efforts and one that is key for our long cycle design business such as belt.

In addition to driving growth, we're investing in the foundational structure that support our business, especially around systems and data infrastructure.

Farouq Tuweiq: 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 is a tremendous amount of activity and excitement underway at Bel, all aligned to our common goals of growth and continued maturity. With that, I will turn the call over to Lynn to run through the financial highlights from the quarter and some color on the Q4 outlook. Lynn?

To give you an example of some of the current initiatives.

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.

These enhancements will enable leaders to make faster data driven decisions strengthen accountability and improve overall performance.

Standardizing our processes and terminology will also allow us to scale efficiently and seamlessly integrate future acquisitions. In summary, there is a tremendous amount of activity and excitement underway at bell all aligned towards 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. Thank.

Farouq Ghori: 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.

Thank you for it from a financial perspective, we delivered another strong quarter marked by continued margin expansion and robust sales growth across all segments third quarter 2025 sales totaled $179 million, representing a 44, 8% increase compared to the same quarter last year.

In addition to the $34 4 million of incremental revenue in the current quarter related to the Entercom acquisition each of our three product segments achieved double digit organic growth over last year's third quarter.

Profitability improved alongside sales lift gross margin rising to 39, 7% in Q3, 25% up from 36, 1% in Q3 dollars 24.

This margin expansion was driven by improved absorption of our fixed costs in our factories with the higher sales volumes and by strong execution within each of our segments and maintaining discipline around the SKU level profitability.

Farouq Ghori: 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 Q3 of last year. Excluding A&D, organic sales grew by $11.3 million or 23.2%, reflecting strong demand for our power products in key markets. Sales of power products for networking applications increased by $11.4 million. Growth within the networking market reflects both rebound in demand following a long period of inventory destocking and new incremental demand driven by AI.

Turning to some details at the product group level.

Power solutions and protection delivered another exceptional quarter with sales, reaching $94 4 million, representing a 94% increase compared to the third quarter of last year.

Excluding A&D organic sales grew by $11 3 million or 23, 2%.

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.

Farouq Ghori: As we've noted in the past, it is difficult to isolate exactly how much of this growth is AI driven. To provide a comparable metric to prior quarters, our third quarter 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 intra-quarter turns, which is a positive indicator for the overall business.

As we've noted in the past it is difficult to isolate exactly how much of this growth is AI driven but to provide a comparable metric to prior quarters, our third quarter sales into AI specific customers or.

$3 2 million in Q3, 25 up from $1 8 million in Q3 'twenty four.

Other areas of strength within the power segment, we're seeing in sales of our fuse products, which were up $1 8 million or 41% from Q3 'twenty four.

And an increase of sales into consumer applications of $2 3 million or 39% from Q3 and 'twenty four.

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.

Farouq Ghori: 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.

As an offsetting factor E mobility sales or $2 2 million in Q3 25 versus the $3 4 million in Q3 'twenty four.

And sales into the rail market were $8 million in Q3 25 versus.

First is $9 million in Q3 'twenty four.

Gross margin for the segment came in at 41, 8% for the quarter up 240 basis points from Q3 'twenty four.

Largely driven by the higher sales volumes and better absorption of fixed costs in our factories.

Turning to our connectivity solutions group sales for the third quarter of 2025 reached $61 9 million.

Up 11% compared to Q3 'twenty four.

Farouq Ghori: This growth was primarily driven by strong performance in commercial aerospace applications, where sales totaled $18.8 million, an increase of $6.3 million or 50.5% year-over-year. Connectivity product sales into defense applications also continued to be robust in 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.

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 55% year over year.

Connectivity product sales into defense applications also continued to be robust in the third quarter with sales rising $3 6 million.

A 31, 2% increase from the prior year quarter.

Contained within our defense number here, our sales into space applications, which amounted to $2 5 million in Q3 dollars 25.

Up 25% from Q3 'twenty four.

While connectivity sales through the distribution channel were down $1 9 million or nine 7% versus Q3 24. It's important to note that this reflects the shift to other end customer out of the distribution channel.

We are now servicing directly.

Farouq Ghori: Profitability within the Connectivity Solutions segment continued to improve, with gross margin for the group rising to 40.3% in Q3 2025 from 36.6% in Q3 2024. This margin expansion reflects the benefits of operational efficiencies achieved through facility consolidations completed last year and a more favorable product mix. These positive factors were partially offset by minimum wage increases in Mexico and foreign exchange pressures related to the peso. Lastly, our Magnetic Solutions group delivered a strong quarter, with sales reaching $22.7 million, an 18% increase compared to Q3 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.

Profitability within the connectivity segment continued to improve with gross margin for the group rising to 43% in Q3 dollars 25.

I'm 36, 6% in Q3 and 'twenty four.

This margin expansion reflects the benefits of operational efficiencies.

Through facility consolidations completed last year, and a more favorable product mix.

These positive factors were partially offset by minimum wage increases in Mexico, and foreign exchange pressures related to the peso.

Lastly, our magnetic solutions group delivered a strong quarter.

With sales, reaching $22 7 million, an 18% increase compared to Q3 'twenty four.

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 dollars 25.

From 27, 3% in Q3 'twenty four.

Farouq Ghori: This margin expansion was supported by higher sales base and the benefits of facility consolidations in China, which helped reduce fixed overhead costs. These gains were partially offset by minimum wage increases in China and unfavorable foreign exchange impacts related to the renminbi. At 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.

This margin expansion was supported by higher sales base.

And the benefits of facility consolidations in China, which helped to reduce fixed overhead costs.

These gains were partially offset by minimum wage increases in China, and unfavorable foreign exchange impacts related to the renminbi.

At September 32025, R&D expenses totaled $7 5 million.

In Q3, 25, representing an increase of $2 1 million compared to Q3 'twenty four.

This increase was primarily attributable to the inclusion of Entercom as R&D costs, which amounted to $2 million during Q3 dollars 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.

Farouq Ghori: 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. 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.

Our selling general and administrative expenses for the third quarter of 2025, or $32 8 million or 18, 3% of sales.

From $26 7 million in Q3 'twenty four.

Importantly, SG&A as a percentage of sales declined from 21, 6% last year.

Selecting 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 Entercom to SG&A expenses, which contributed $6 6 million for the quarter.

And our U S medical claims continued to be high in the third quarter.

As noted in prior quarters, our legacy level of SG&A expense was maintained during our period of reduced sales.

Such that we believe we are already spending the right amount on fixed SG&A infrastructure needed to support future growth.

Farouq Ghori: Turning to our balance sheet and cash flow, we closed the quarter with $57.7 million in cash and securities, down $10.5 million from year-end. This decrease was primarily driven by our proactive efforts to strengthen the balance sheet, including paying down $62.5 million in long-term debt, resulting in $225 million of total debt outstanding at 30 September 2025. Additionally, we made $two and a half million in dividend payments and invested $8.6 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and $1 million from the sale of held-to-maturity securities earlier in the year. Looking ahead to Q4 2025, we continue to see strength across all three segments.

Turning to our balance sheet and cash flow.

Closed the quarter with $57 7 million in cash and securities.

Down $10 5 million from year end.

This decrease was primarily driven by our proactive efforts to strengthen the balance sheet, including paying down $62 5 million in long term debt.

Resulting in $225 million of total debt outstanding at September 32025.

Additionally, we made $2 $5 million in dividend payments and invested $8 6 million in capital expenditures to support growth and efficiency initiatives.

Outflows were partially offset by $7 8 million in proceeds from property sales and $1 million from the sale of held to maturity securities earlier in the year.

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

Farouq Ghori: Historically, we have seen seasonality in Q4, with fewer production days due to the holidays being celebrated around the world. In light of this historical trend, and based on the information available as of today, we expect Q4 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, and 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.

In light of this historical trend and based on the information available as of today. We expect Q4 dollars 25 sales to be in the range of $165 million to $180 million.

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

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

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

Thank you.

Ladies and gentlemen, we will now begin the question and answer session.

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Ladies and gentlemen, we will wait for a moment, while we poll for questions.

Yeah.

The first question comes from the line of Bobby Brooks from Northland Capital markets. Please go ahead.

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, you know, something that caught my eye was bucking kind of the historical trend of Q4 being lower than Q3. You mentioned that, you know, trends of intra-quarter sales have resumed and that the range could assumes that continues in 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 because I feel like that's, you know, a really kind of exciting development for you guys.

Hey, good morning, guys. Thank you for taking my question.

Just wanted to circle back on those last the last piece I'd, let you were touching on for the fourth quarter Guide, obviously, some something that caught my eye was yes button kind of the historical trend of three <unk> being lower than <unk> and you mentioned that.

Trends of inter quarter sales have resumed in the range assumes that continues in the fourth quarter I was just wondering if we could.

Discuss discuss what other factors might be at play driving that outlook, a little bit more detailed because I feel like that.

Really kind of exciting development for you guys.

Farouq Tuweiq: Yeah. Hey, Bobby, just I'll let kind of Lynn jump in here with the more details. I just wanna 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?

Hey, Bob.

Kind of lift jumping here.

More details, but I just wanted to kind of call out a comment.

My ear here, which is this kind of step down over Q4.

I think you said bucking seasonality trend I think if you look at we see a potential of that if you just look at the range that we put out there 165 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 I mean at the end of the day, we're going to have fundamentally less working days as we head into the holiday season and year end and as we look at kind of around the world and also just various holidays would it be kind of Golden week.

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 and, 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.

Or some of the holidays for example, Israel. So I just want to be mindful that we do have less working days. So could it happen sure I think the good news is were expecting it to be a good quarter.

But maybe the Q3, but I just want to be mindful of that.

And I'll turn it over to Lynne here.

Farouq Ghori: Yeah, just to add to what Farooq 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. But to Farooq's point, just mathematically, there are fewer production days in the quarter. 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, 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.

So just to add to what Farooq said I think that we are seeing continued strength in areas like commercial air defense.

Hi space.

We are continuing to see the rebound coming through in networking and distributions. So all of these trends are continuing from Q3 into Q4.

So it's definitely end market strength continuing.

But to <unk> point, just mathematically there are fewer production days in the quarter. So theres Golden week in China, which was the first the first week of October.

Theres Thanksgiving and all of the winter holidays.

Throughout the world.

In December so.

It's really both.

Those are the pieces. So I mean, if you stripped out the holidays, the the messaging would likely be different but.

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

If you look back at our trend historically.

Having a dip from Q3 to Q4 is pretty natural for us so.

Bobby Brooks: Yeah. I really appreciate that.

I really appreciate about leases.

Farouq Ghori: Those are the different pieces.

Bobby Brooks: Yeah, really appreciate that color. I guess more so it's just I definitely can appreciate that, yeah, you know, a lot of the ranges would be Q4 being 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, and 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 just like on those legacy customers and kind of the order trends. Is it fair to assume that it seems like it's fair to assume that those are still trending positively.

Yes, really appreciate that color and I guess more so.

Absolutely appreciate that yes.

A lot of the ranges would be <unk> coming in lower than <unk>, but I guess, what caught my eye was the guidance that you gave matched what the guidance was for <unk> an unusually your guidance is for even the high end of the range being lower than what <unk> was but could appreciate those puts and takes you just laid out.

<unk>.

The other pieces just like on those legacy customers in kind of the order trends.

Is it fair to assume that it seems like it's fair to assume that those are still trending positively but.

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

Maybe could you give some more context as to like.

How to think about where they could go like obviously, we're coming off a trough levels in 'twenty four but do you think they can do you feel like they are like continuing to improve or are they just out of an improved level of now stabilizing just curious to hear more on that.

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. You overlay a lot of geopolitical, yeah, and economical 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.

I think if we look if we zoom out and we look at kind of let's say the last five years 2000, 22025, I think the industry would generally agreed 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 an extended dip if you will where the industry was kind of down for a longer time than normal.

And then you overlay a lot of geopolitical.

Yes, and economical uncertainties, let's say right. So I think the reason I point that out I'd say is it's still a little bit I would say not normal and I think what we're seeing is a little bit of.

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.

Maybe hesitation, if you will on the parts of the customers and kind of robustly coming back.

The good news is the attitudes have changed a little bit I think from a historical perspective, but what we are seeing in our business and we will look at backlog in discussions there is definitely a positive outlook right I think maybe if you look back at all.

Again, we're speaking we have a lot of customers and a lot of places and sort of just general terms here, but generally we'd see people, maybe coming back a little bit stronger and I think if you look at the industry wide and I was at a conference last week.

Theres a little bit of Tim in this so people are maybe not investing as much in a buffer stock and really more kind of just ordering as needed.

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 is their product 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, yippee about the world. Nonetheless, we like our positioning, we like where we are with our customers, and I think we'll have a pretty good outcomes here.

But what we really look at is the end demand or customer demand within our <unk> business. So what is their demand cycles look like what are their products going and are they growing and the answer is yes as reflected with our number and with our guys. So we like the outlook, but I think it's hard to generalize that everybody is feeling all you'd be about the world.

Nonetheless, we like our positioning we like where we are with our customers I think we'll have a pretty good outcomes here and there.

Farouq Ghori: Just to add, our book-to-bill, you know, was positive again this quarter. That's the 3rd consecutive quarter of a positive book-to-bill ratio. I mean, we haven't seen that trend since back in 2022. I think just generally we're seeing more activity, which is positive.

Just to add our our book to Bill.

And it was positive again this quarter. So that's the third consecutive quarter of a positive book to Bill ratio.

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

Bobby Brooks: Got it. Just last one for me is, I was really impressed, Lynn, when you were going through each kind of segment of the power, it really seems like 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?

Got it and then just last one for me is.

I was really impressed when youre going through each segment of the tower and it really seems like power was driven.

Robust results empower were driven across many different segments.

And it was nice to hear you break out what Entercom was as well and just curious on Entercom.

Yes.

As is the integration of them until you guys kind of wrapped up now or is there still a bit more to go and then just curious on obviously you guys are working on long lead time projects, but.

Any any early reads on kind of cross selling opportunities, maybe starting to bubble up here.

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 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 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.

Yes, so I would say I think we want to be mindful of the word integration because the plan was never kind of let's say classical approach to integration right. So form or 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.

Creating opportunities together and obviously.

In Europe, it's a little bit of a different playbook as we've talked about in the past right. Just in terms of China manufacturer, a little bit more there and be more present in our customers backyard.

But putting all that aside.

I think we're we're definitely moving in the right direction.

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. You know, 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. 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.

Theres nothing obviously more work to be done, but we are seeing some nice.

Let's say early Sparks.

Of where where one side of the house is bringing an opportunity to the other side of the house. So I think our let's call. It lead sharing co tackling is better but we do have more room to go keeping in mind.

While we also want to do that it is a very busy market right. So step one we've got to do our day jobs and get out and push.

And we're seeing the benefits of that strategy, but also want to make sure that we're more aligned so I would say we like what we're doing we can do a little bit more and we plan on doing a little bit more.

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

Fair enough I appreciate the color and congrats on the great quarter I'll return to the queue.

Farouq Tuweiq: Thanks, Bobby.

Farouq Ghori: Thank you.

Thanks, Bob we are thinking.

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

Thank you we take the next question from the line of Theodore O'neill from Litchfield Hills Research. Please go ahead.

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

Yes, thanks, very much and congratulations on the good quarter.

Lynn you mentioned in your prepared remarks, you saw a shift you had a shift of a customer out of distribution to service directly.

I have three questions related to that.

How often does that happen.

What determines the shift and how does the distributor feel about it.

Farouq Tuweiq: I would say, 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, and they 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.

So so I would say.

First of all I think for the question.

I would say.

We've kind of talked about in the past distributions are very dynamic channel and they are great and key partners for us and within our industry and it's really hard to paint with 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 of their purchases right. So we may start the relationship directly goes into the distribution channel and to give them some kind of a fixed fee.

And the inverse of that also happens where.

Customer comes to us through distribution.

And then we develop something together and it can be distributed and work 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, but '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.

And I would also say the.

Some of the guiding principles on that include minimum order quantities. So if it's something smaller we'd wanted to go through distribution. So sometimes we push people into their distribution channel to really maximize our cost to serve to service. These customers model. So I would say, it's definitely a dynamic channel.

And I would say when we look at distributions.

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 relationships right. So this is pretty.

Standard I would say the other thing is not all distributors are the same there are some folks that really focus on kind of low quantities as things scale. They don't want you in the channels. So you take it out directly.

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.

They're folks more if it's big in opening up doors. So I'd say the answer is it depends but I wouldn't say anything unnatural or odd happened here.

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

Okay. Thanks for the color on that and what's the M&A opportunity is looking like for you right now.

Farouq Tuweiq: 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 we tend to 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.

Yes, I mean, I think we've been very clear, we like our balance sheet, we continue to pay down our balance sheet, we like where the direction of just paying down more heading into Q4 and into next year is going so we feel like we are in a very good position to do an M&A deal I think really the question is we tend to think about is how big.

And what is it.

And when I say, how big it is both in terms of the size and scale complexity and also purchase price right.

So today I'd say, it's still not a healthy M&A environment, but I think we are seeing a step up in terms of opportunities versus Q1 Q2. This year. So we are seeing more shots on goal I would not classify it as normal yet.

Farouq Tuweiq: I would not classify it as normal yet, 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.

We definitely have some opportunities ahead of us that we're kind of working through.

Also say as it feels like if you look at our quarter over quarter. We always have something live. The question is do you want to strike and do you like the business fundamentals. So.

That can look over the answers your question Bill.

Theodore O'Neill: Yep. Thanks very much.

Yes.

Thanks very much.

Farouq Tuweiq: Thank you.

Thank you.

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

Thank you we take the next question from the line of Jim Ricchiuti from Needham and company. Please go ahead.

Jim Ricchiuti: Thanks. Good morning. Apologize if you gave some of this detail in the presentation, but 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? You know, to what extent this is gonna have an impact on margins, or is it fairly small?

Thanks, Good morning, I apologize if you gave some of this detail in the presentation.

I joined a little late but I did hear something.

Regarding.

The ongoing.

Transition with some of your manufacturing footprint I think did you say you're divesting a facility in China. If I understood. You correctly are you partnering with a contract manufacturer on these products and if I missed it did you provide any detail on which product areas are affected and.

To what extent this is going to have an impact on margins or is it fairly small.

Okay.

Farouq Ghori: 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.

So Jim its.

It's within our magnetics segments.

And we are we basically went through an analysis of whether it was more cost efficient for us to be manufacturing internally versus outsourcing that manufacturing and in this case, we chose that outsourcing was the better alternative.

As far as.

Impact on gross margin.

That would be about a $1 million.

Farouq Tuweiq: 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.

Yes.

Give or take obviously, we're in the process of moving that but it will be positive and more importantly, I'd say then that Jim has allowed us focus on the things that we sell apps right. So hopefully it unlocks more bandwidth them bring with for us to pursue things.

Have a better ROI for us.

Jim Ricchiuti: Got it. Yeah, 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.

Got it and.

The strength youre seeing in networking.

I'm wondering if you could maybe drill down into that a little bit is that is that being driven by just the increased AI investments that we're all hearing about or is it simply the distribution channel, having just burned off the excess inventory that was out there maybe it's a combination of both.

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

Yes, so and 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.

I'm talking about networking because you did highlight that as one of the year, yes, yes, so that was.

Farouq Ghori: Yep.

Jim Ricchiuti: that kind of stood out.

Farouq Ghori: Yep. That was 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.

So if we're talking about the power segment.

We had mentioned it's really a combination of both of those factors that you. Just said so there is some rebound happening coming off of a couple of years of Destocking that we went through.

But then we're also seeing new incremental demand related to AI.

It's a mix of those shale that's driving the growth in networking.

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

And then you mentioned I thought book to Bill was above one is that right and did you can you characterize the bookings by the three main product areas, whether there was much variability among the three.

Farouq Ghori: Each of the segments were above 1.

So each of the segments were above one.

Jim Ricchiuti: Okay.

Farouq Ghori: We saw positive book-to-bill across all three segments.

Okay, we thought positive positive book to bill across all three segments.

Jim Ricchiuti: Great. Thank you.

Great. Thank you.

Farouq Ghori: Sure.

Sure.

Operator: Thank you. We take the next question from the line of Greg Burns from Craig-Hallum. Please go ahead.

Thank you we take the next question from the line of Greg Palm from Craig Hallum. Please go ahead.

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

Hey, guys. This is Danny <unk> 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.

I think I think just first off maybe kind of a broader question on on demand Youre seeing from your each of your respective geographies.

Anything to call out in terms of outperformance or.

Underperformance and then maybe specifically on on China, I know last quarter, we saw kind of a pause and then the resumption of order patterns. So maybe just kind of what youre seeing current day and whether those have kind of just return 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, kind of taking a step back and saying we're, you know, the numbers move around a little bit, but by far, 2/3 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 within lens of the end markets, you know, I'd say to you know, can US-based customers, and Israeli-based customers are probably leading the way. Then also keep in mind, on the networking side also, those are the vast majority of the people we spend time with.

Yes, I would say.

That's a good question I think giving our end markets. So so understanding right tend to take a step back and saying, we're the numbers move around a little bit but by far two thirds plus of our business is going to exposed to U S based customers right.

And when we look at those we also see that.

A&D is our largest end market today, which kind of lends itself both to the U S. Israel and Europe. So when we look at geographies with the lens of the.

The end markets.

Say that you know kind of U S based customers.

And it's really based customers are probably leading the way.

And then also goodbye the networking side also those are the vast majority of people who spend time with Asia is our smallest exposure.

Farouq Tuweiq: Asia is our smallest exposure, and then Europe/Israel is in the middle, right? From a mathematical perspective, we're going to really kinda 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. EV and eMobility, 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.

And then Europe slashes rail.

As in the middle right. So from a mathematical perspective, we're going to really kind of move the needle as we are seeing as we see our U S and Israel business moves predominantly.

In terms of demand environment, I would say the U S seems a little bit more healthier broadly speaking.

When we look at Europe, I think it's a little bit of a mixed bag. So our rail business has a fair amount in Europe. For example, right. We've talked about so that was a little bit a little bit down.

V E mobility, which sits in our power group tends to be more European exposure. Obviously, there is other things going in our sector, but Europe I'd say, it's a mixed bag. It really depends on what it is youre talking about in terms of end market exposure.

Farouq Tuweiq: 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 market business. We're not auto. 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 spot. We can do more in Asia.

Is that kind of an interesting place for us it is a small place, but we have.

Throughout this year invested in the senior leadership within our sales organization in Asia, and I think we're seeing some nice opportunities coming out of that so we like what we're seeing but Asia generally the smaller play for us.

But also keep in mind that for us in the end markets. We play in right. We're not really a heavy consumer mark business, we're not auto.

And we obviously, we're not a race to the bottom on pricing. So Asia for US is a selective strategic play where we pick our spots. So we can do more in Asia, we were planning on doing more in Asia.

Farouq Tuweiq: We were planning on doing more in Asia. I'd say that, you know, that's gonna be just round robin there on geographies.

But I'd say that death.

Beth can be round robin there on geographies.

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

Yeah got it that's all really helpful.

Maybe if I can hit on on the power.

Segment, and specifically kind of the gross margin there I think kind of same thing we saw last quarter, where even the scores. 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 a legacy business outgrowing.

Entercom and kind of being a negative mix factor there. So I guess, how should we think about that as power continues its growth trajectory.

And when when should we think about kind of that gross margin hooking up with the revenue growth and seeing some expansion there.

Farouq Ghori: 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.

Yes, I think on the gross margin side for power I mean, there's a few different factors going on.

Obviously, the <unk> acquisition is is additive to our legacy power margins I think the one thing to keep in mind.

Both in Q3 and going forward here is there are two currencies within the power segment that where there can be margin pressure. So we have the Israeli shekel.

Related to the Entercom business and then also the the renminbi.

Related to the the China facility that we have within power and we don't have a natural hedge in place we do have some hedging programs, but theyre not hedging our exposure.

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

So that's something that we.

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 eMobility 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 a 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 kinda something we're thinking about, kind of how do we smartly think about that to ultimately drive EPS all the way down. 'Cause as we've said in the past to a large degree, you know, there are some our SG&A and R&D are relatively range bound.

And then also keeping in mind some of our other margin businesses like E mobility and rail are down and those tend to be higher margin.

I think the bigger.

I think discussion is today, we're at a point, where I would say we're at a great levels of gross margin and if we're trying to think about growth right. What is the opportunity there to expand to new customers new offerings and new products.

Versus having an extremely strict line on gross margin right. So that's something we're thinking about.

Kind of how do we smartly.

Think about that to ultimately drive EPS, all the way down because as we've said in the past to a large degree there is some our SG&A and R&D are relatively range bound.

Farouq Tuweiq: 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.

So how do we really get some operational leverage from that cost structure to continue to drive the top line. So these are the things that we're all kind of thinking about but I would say today, we are definitely up there in terms of performance on margins.

Danny Eggerichs: Okay. Yeah, and maybe that kind of plays into my last question here, which is kind of the Q4 guide and the gross margin range. Just looking back year to date, the gross margin's kind of been at like a 39%. 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?

Okay, Yes, maybe maybe that kind of plays and them. My last question here, which is kind of the Q4 guide.

And the gross margin range, just just looking back year to date gross margins kind of been at like a 39% and obviously revenue levels in Q4 that that suggests higher than quite a bit higher than what we saw in the first half at the midpoint here. So.

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 theres, a little bit of conservatism built in there.

Any thoughts there.

Farouq Ghori: I think it's a couple of factors. You know, one is our Magnetic Solutions 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 Magnetic Solutions 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, seasonally we're down a bit in Q4 versus Q3. If that happens, you have less leverage, you know, within your fixed cost absorption. That could have some potential gross margin pressure.

That's why I think it's a couple of factors one is our magnetics group has been depressed over the last couple of years right so as that rebounds.

It is our lowest gross margin segment. So if youre looking at our gross margin in total on a consolidated basis that would have some downward pressure on it as magnetics grows into a larger piece of the overall pie. So thats one piece to keep in mind.

I think the.

<unk>.

If we're looking at Q3 sales to Q4.

It seasonally were down a bit in Q4 versus Q3, so if that happens to have less.

Leverage.

Within your fixed cost absorption so that that could have some potential gross margin pressure and then as I mentioned on the FX side with the peso they ran in the in the shackle.

Farouq Ghori: 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.

Those those do directly impact our margins. So those are some of the factors that come into play when we are putting out archived for margin for the fourth quarter.

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

Okay got it I'll leave it there thanks for all the color.

Farouq Tuweiq: Thank you.

Farouq Ghori: Thank you.

Thank you. Thank you.

Operator: Thank you. We take the next question from the line of Christopher Glynn from Oppenheimer & Co. Please go ahead.

Thank you we take the next question from the line of Christopher Glynn from Oppenheimer and company. Please go ahead.

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 that 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.

Yes. Thanks.

Morning, and congrats on the nice results.

Curious in terms of the development of the commercial multiple that you've described in some detail.

Where are you seeing the kind of leading end of progress early adopters so to speak.

In terms of.

Design cycles, new business opportunities generating seems like AI, maybe defense you noted a little progress in Asia.

There is some cross sections to bring into the discussion as well.

Yeah.

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?

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

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

Yes, yes, exactly and maybe a little color on.

New business opportunities.

The growth there year over year.

Farouq Tuweiq: In general terms, right, as an engineering-led organization, 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 kind of 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? I would obviously, as Lynn said, we do have some intra-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?

Yeah. So in general terms right, we as an engineering led organization.

We've talked about this where our medium to long term kind of design cycle business. So really the actions and the results that we're seeing today in Q3.

You can almost got to look back at least one to two to three years to see what was done then and kind of seeing where these wins have come right. So.

Obviously as Lynn said, we do have some intra quarter turns that do happen, but generally I would say what happened in Q3 here is probably not a whole lot in large in terms of new business. The things that happened in Q2, maybe some Q1 stuff okay.

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 kind of tip of the spear activities? When we look at the activity around new developments and new wins that we saw, for example, in Q3, it's definitely, you know, exciting for us, to be honest with you. We're seeing some nice new wins, some bigger wins than maybe we historically have, some new customers that we historically were not maybe competitive or didn't kinda co-tackle it appropriately.

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

So the question is okay, well how are we as a team tackling go to market and what are their sales initiatives and what is our data side of things to help lead those kind of tip of the spear activities. When you look at the activity around new developments and new wins that we saw for example in Q3.

<unk>.

Exciting for us to be honest with you we're seeing some nice new wins, some bigger wins that maybe we historically have some new customers that we historically were not maybe competitive or did it kind of co tackle it appropriately.

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? 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.

Obviously with the customers we've had for a very long time, we I.

I would say probably constantly win new programs Ryan when we look at obviously defense, which is our biggest market nowadays.

It sounds like Theres, a whole lot of price.

Right.

So really there we look at are we getting more shots on goal or are we getting new opportunity design wins I think the answer is yes, when I speak to the teams across Bel fuse.

There's a there's a there's a pretty fair aggressiveness in terms of hunting for the new defined we are defining what new is we want certain margin profile of the 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.

Farouq Tuweiq: Again, we've always done this throughout our 76-year history, but 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 kinda 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.

Round it.

In recent times and this was kind of my earlier commentary here, Chris where when today. Our business is really kind of we think about things to some extent from a product perspective, but we have a lot of products that go to the same customers. So how can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing.

Cable or a connector or a few sale because we are selling a power system.

So when we look at our product portfolio I think we can do more with it.

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 is 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.

And this is back to my earlier commentary around we've got to invest in the systems and structures that we can make sure we're going after the highest ROI opportunities and really Matt measuring performance.

There's a little bit of a new muscle for us, but I think the early signs in the wins, we're seeing today, we kind of got to look back probably before 2025 to be honest with you.

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

Okay, Great and then just curious on Entercom and if there are.

Cut up on shipments I think they had a little delivery.

Sure.

Snag last quarter.

Farouq Tuweiq: Yep.

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

Yep.

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 kind of, 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 kind of 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.

Yes, both.

It continues to go from strength to strength, there was a little bit of catch up but also just kind of depends on where the catch up we're talking about is the biggest issue Julian as you may recall, just flight stopped coming in.

From India and out of Israel, So thats going on but it wasn't a very long pause right.

So and obviously there is local consumption that happens inside of Israel.

So there was some catch up but also yes growth, whether it be sequentially or year over year.

Christopher Glynn: Great. Thanks for that.

Alright, thanks for that.

Farouq Tuweiq: Thank you.

Thank you.

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

Thank you we take the next question from the line of Luke junk from Baird. Please go ahead.

Luke Junk: Morning. Thanks for taking the question. Farouq Tuweiq, wanna circle back to gross margins and maybe more of a, you know, 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, 3 straight quarters, 39% plus in general. Just love to get your thoughts on kind of your feel for volume leverage in the business on a go-forward basis, especially as you continue to layer on those new design wins, just relative to your understanding of the improved cost structure and kind of what that can mean incrementally as you do add volume. Thank you.

Good morning, Thanks for taking the question.

Bruce I wanted to circle back to gross margins and maybe more of a philosophic.

Philosophical, but bigger picture certainly.

If we look at the gross margin trend. This year, it's been above the high end of guidance through straight quarters, 39% plus in general.

Just love to get your thoughts on kind of your feel for volume leverage in the business on a go forward basis, especially as you continue to layer on those new design wins, just relative to your understanding of the improved cost structure and kind of what that can mean incrementally as you do add valence volume. Thank you.

Farouq Tuweiq: No, I appreciate that question, Luke, and it's a question we've been thinking a lot about in general, is where should you be, right? 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?

I appreciate that question Lucas question, we've been thinking a lot about and generals, where should you be right and I think by all accounts, putting aside our mix between magnetics in the other segments.

Yes, we're seeing an uplift in margin as sales grow and we are getting operational leverage.

Question is now that we are really trying to shift our mindset away from just operations and cost efficiency, which always just become regular way table Stakes, how do you drive growth. So as we launch new products and go after new customers invest in new relationships and new technologies.

We need to be honest with ourselves and say, okay. What is the pricing strategy on things. So for example, let's say there is a very nice piece of business.

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, but over time we can scale it up and also get new opportunities. Would we take that business? I think we really need to consider that if it's a strategic relationship. I think the gross margin strategy, let's say, has not been one that was available to us through our history. 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 wanna arbitrarily, you know, kind of 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.

That was I don't know $1 $2 million that was a little bit below corporate averages, but over time, we can scale. It up and also get new opportunities would we take that business I think we really need to consider that if it's a strategic relationship I think the gross margin.

Strategy, let's say has not been one that was available to us through our history. So now we've got to look at it as an asset and have the tools now keeping in mind, we worked very hard to get our gross margins here right, we don't want to arbitrarily.

Can I get it put it into that 37, 39%. So I think theres a little bit of self discovery to be honest with you as to where we should be I think we look at gross margins today, we want to make sure we're not picking out too much.

Farouq Tuweiq: I think when we look at gross margins today, we wanna 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 think I appreciate in public markets that everybody's looking to manage certain level of expectations. Our intention, and we've talked about this internally, is we want to land in range, right? We don't really wanna blow the range on the top or on the bottom. I think we give the optics here the last three quarters, to your point. I think we could see some conservatism in it. That's fair.

And really missing the boat on an EPS growth given that we talked about the range bound Miss of our SG&A and R&D. So thats I think the sense of maybe a little bit of conservatism there I think the.

I appreciate the public markets that are looking to manage a certain level of expectations, but our intention and we've talked about this internally is we want to land in range right. We don't really want to blow the range on the top on the bottom so I think our we.

We give the optics here over the last few quarters to your point I think we can we can see some conservatism. That's fair the question is.

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.

As we go throughout next year.

Where do we want to be the good news is we have a lot of we have a buffet of options to play while delivering good returns good gross margins, so our investors and thats kind of the front and center. So it's a little bit of a self discovery journey, we're going through to be honest.

Luke 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.

That's all very helpful.

Second question.

Just curious if we could double click on networking and AI specifically in terms of the.

Design win activity and just tilting the organization to growth overall, I guess that'd be especially interested in power and just how you think going forward I mean, we're seeing this rebound obviously in demand from our inventory standpoint, and those direct AI sales, but as you think about building the pipeline just the the opportunity.

You said with empower specifically thank you.

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 a, 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.

Yes, no today with an improved cost structures and the investment that has gone into the factories from an automation perspective, the improvements R&D teams that have done in terms of moving quicker to launch products, our sales team being more mindful of what we're going after I think today, we're in a better position to go after opportunities.

Be a little bit maybe more serious about it than we have been able to in the past. Okay. So as a result of that as we think about networking there is obviously a.

As Lynn talked about earlier, we know where our AI products are going but thats 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 <unk>, how do you measure it as a different different complexity to it.

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, maybe a little bit too much in our comfort zone. We're seeing some of that newness as well.

Because our products are high end products that can go to AI or other applications, but I think it's hard to say that all things going on 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.

We have I would 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 it 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 on the networking side given that there's a lot of investment and focus on it broadly speaking we are seeing new entrants into.

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.

Markets.

With newer technologies. So all of that I think at the end of the day is additive for us from a networking perspective.

So we want to make sure that that we're not just simply waiting for those same customers. We had three or four years ago to come back yes, that's a benefit obviously.

But I would also say we want to make sure we're investing in new relationships and within the existing relationships I think we're doing a little bit of a better job learning how to more service our customers to more ingratiate ourselves into that relationship and get more opportunities on goal because if you look at some of our big customers. We can do so much more.

Farouq Tuweiq: 'Cause 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? That's kinda what we're trying to really push the team. Quite frankly, we're seeing some nice results of that.

How can you do so much more right and thats kind of what we're trying to really push the team and quite frankly, we're seeing some.

Some nice results of that.

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, 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.

Oh really great color just a quick one for Brian last question.

And then you called out for the second straight quarter that there was some increased medical expense in the SG&A line, just how we should think about that sequentially into the fourth quarter. If you have any visibility and then.

Into next year to the extent that that doesn't repeat would it be reasonable to assume some normalization in SG&A. Thank you.

Farouq Tuweiq: Yeah, 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 kinda 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, but the variability is hard to get a read on it, right?

Yes, I would say the boost could I give some context here, we're really talking about the U S side of the business and obviously, we all read and feel what's going on in all things world of healthcare.

And medical care.

We are a self insured plan right and whenever we do market checks on it.

<unk> is the most cost advantageous.

Way to do it. So every kind of few years regarding check to make sure. It's the right. So today, we are self insured.

The downside of self insurance is there could be variability and claims that come in the door, so and we're seeing that.

In Q2, and Q3, but the variability is hard to get a read on it right. We just don't know when somebody is going to have a major medical issue.

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.

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 in the health care companies will give you a big increase right. So from our perspective, we're still in a cost advantageous way, but it does introduce variability to your point. The other thing I would say is.

The overall age of our organization right with medical claims are not unexpected so how what does that mean for next year I think thats a tough question to answer.

For us.

But then we obviously saw a spike in Q2 and Q3, a little bit here.

Farouq Ghori: I'll leave it there. Thanks, Farouq.

Fair enough I'll leave it there thanks Farooq.

Farouq Tuweiq: Thank you.

Thank you.

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

Thank you.

The next question from the line of Hendi <unk> from Gabelli funds. Please go ahead.

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

Good morning, Farooq and Lynn Congrats on strong results.

Farouq Ghori: Thank you.

Farouq Tuweiq: Thank you.

Thank you. Thank you my first question is.

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

You talk about rebound in networking and distribution customers.

Can you just talk about rebound or sign off the bounce across other areas, specifically, let's say in the connectivity and then some major areas.

Yeah.

Farouq Ghori: Sure. I think for you're looking for a breakdown by product group, Hendy, or just other end markets?

Sure So I think for <unk>.

How do you say youre looking for a breakdown by byproduct group Hendi or just other end markets aside from network.

Hendi Susanto: Yes.

Farouq Ghori: aside from networking?

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

Wed like.

Besides networking and distribution channels okay.

Farouq Ghori: Okay.

Hendi Susanto: -um, are there-

Farouq Ghori: 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.

Are there like early signs of inventory rebound customers rebuilding that inventory or maybe.

Whether you have some.

Outlook or expectation on where rebounds.

Talk to take place in other areas.

Farouq Ghori: Yeah. I think the other two 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 one 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 identify 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.

Yes, I think the other two areas that we've been seeing a rebound which had been did compress to in prior periods is in the consumer end market.

If you recall last year that was the <unk>.

End market that was impacted by one of our large suppliers in China.

And so that had been depressed for several quarters, we did see a rebound.

In that business in the third quarter. So that was nice to see now that we have some new suppliers identified getting product back out into the market at this point.

Theres been rebound there and then also on the uses side I mean, if he doesn't go into go into everything.

But thats something that had been softer in the past and we're seeing that that rebound now. So I think those are probably the other two areas. In addition to networking and in distribution.

Farouq Ghori: I think those are probably the other two areas in addition to networking 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 is likely in the short to midterm?

Got it.

And then my second itself is still significantly below pre COVID-19 levels.

Any puts and takes in terms of expectation on mechanism.

Mechanistic sales.

Let's say like.

Going forward.

Where the recovery is somewhat.

Somewhat is likely.

In the short to mid term.

Farouq Tuweiq: I think when we look at magnetics, Hendy, 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, 'cause also remember, we walked away from certain business, and we are being prudent after what business we're going after.

So I think when we looked at magnetics 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, and 2023, where customers were literally by renting new warehouses just to store a lot of these components.

So there was a let's say unnatural behavior there today so we.

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 I.

I would say 175 is 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.

Farouq Tuweiq: Also keeping in mind that the magnetics, as we talked about there is a product concentration and a 2 end market concentration, which is networking and distribution, largely. The range was $180 to $70. We, you know, I'll let you kind of decide where we are, but we're seeing the year-over-year over growth. I, you know, 2022 at $180 was extremely unnatural, and we've slimmed down the business since then, I would not really anchor to that. I'll kind of leave it at that, but we do think that we got some ways to go here.

And also keeping in mind the magnetics as we've talked about there is a product concentration and to end market concentration, which is networking and distribution largely so.

If we look at the ranges of 75 to $1 75.

I would say.

Or I should say sorry, the range was $182 70.

So I'll, let you kind of decide where we are but we're seeing the year over year over growth, but 2020 to a 180 was was extremely unnatural and we've slimmed down the business. Since then so I would not really anchor to that so I'll tell I'll leave it at that but we do think.

That we got some ways to go here.

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

Got it got it.

And then Lynn.

Us.

How we should thing and project the pace of potentially early debt payments.

Farouq Ghori: The pace of debt payments going forward?

The pace of debt payments going forward, yes.

Hendi Susanto: Yes. Yep.

Farouq Ghori: 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.

So I mean barring.

M&A opportunity coming up or anything like that we've been running at a rate of call it 20% to $25 million a quarter.

Just based on our cash flows. So we would continue to pay down debt that would be our first.

Priority barring anything on the M&A side.

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

Okay. Thank you Farooq. Thank you Lynne.

Farouq Tuweiq: Thank you.

Okay.

Farouq Ghori: Thank you.

Operator: 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.

Ladies and gentlemen, with that we conclude the question and answer session I would now hand, the conference over to tweak.

For his closing comments.

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.

Again want to thank everybody for joining us here.

On a very big thank you for the Bel fuse team around the world and our customers that helped us deliver a great quarter.

And then we will put our head down and continue to work throughout the year here heading into 2026 wishing everybody a great holiday season, as we head into year end and I'm sure we'll be talking soon thank you very much for joining us this morning.

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

Thank you.

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

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