BELFA earnings call analysis

NASDAQ:BELFA Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Lynn Hutkins | Chief Financial Officer: Good morning and welcome to the Bellevue's first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the call over to Jean Marie Young with three part advisors.

Please go ahead. Jean Marie Young | Vice President, Investor Relations

Thank you. Good morning, everyone. Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2026. These statements are based on the company's current expectations and reflect the company's views only as of today, and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligations to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by those forward-looking statements due to a number of risks, uncertainties, or other factors. These material risks are summarized in the press release that we issued after market close Yesterday, additional information about material risks and other important factors that could potentially impact our financial performance and cause actual results to differ material from our expectations is discussed in our findings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are available in the IR section of our website. Joining me on the call today is Farouk Tewik, President and CEO, and Lynn Hutkins, CFO. With that, I'd like to turn the call over to Farouk. Farouk?

Farouk Tewig | President and Chief Executive Officer

Thank you, Jean, and good morning, everyone. We appreciate you joining our call today. We delivered a strong start to fiscal 2026. First quarter performance reflected broad-based momentum across the business and continued execution, both operationally and commercially. We also delivered solid profitability supported by disciplined operational performance and favorable NICs. Before we get into the quarter in more detail, I want to highlight an important step we took during Q1 to better position Bell for continued growth. We completed a business unit realignment designed to align our teams around how our customers buy and how we win, enabling greater customer intimacy, faster decision-making, and a more coordinated approach to delivering our full portfolio solutions across connectivity, power, and magnetics. This structure strengthens our ability to bring more of Bell to each customer. expanding share of wallet through integrated selling, improved program execution, and tighter alignment between engineering, operations, and the commercial teams. Accordingly, Bell now operates two focused business units. First one, Aerospace Defense and Rugged Solutions, or ADRS, which combines our legacy connectivity business with Enercon. focused on mission-critical applications across commercial aerospace, defense, space, and rugged industrial environments, and industrial technology and solutions, or ITDS, which integrates our pre-Entercon power and magnetic businesses, focused on data solutions, transportation, and industrial markets where performance, reliability, and scale matter. This structure sharpens accountability, accelerates decision-making, and increases the speed at which we translate engineering into customer wins. It also enables product-agnostic access to Bell's full portfolio, so customers engage with us as a solutions partner aligned to their end market requirements. In that context, I am pleased to share that we closed the acquisition of Datamate from Method Electronics in March for $16 million. DataMate adds approximately $18 million in annual sales with margins in line with Bell and is expected to be immediately accretive. It will operate within our industrial technology and data solutions business unit. Strategically, this expands our Ethernet and broadband portfolio in a highly complementary way and positions us to grow in data centers, industrial automation, smart buildings, and broadband deployments. It also strengthens our U.S.-based manufacturing and engineering footprint. We're excited to welcome the DataMate team. They bring new customers, differentiated technology, and strong talent, and we look forward to what we'll accomplish together. Turning to business performance, within ADRS, results were driven by robust demand in defense and commercial aerospace, with continued strength across key platforms and programs, supported by strong demand and stable OEM build rates. We also saw ongoing progress in space as production schedules and program content continue to expand. Robust bookings during the first quarter within ADRS were driven by both sustained program demand and continued traction with our channel partners, resulting in a strong foundation heading into the back half of the year. we're also beginning to see the fruits of our organic growth initiatives over the past year. In Slovakia, for example, we secured two new defense design wins that are progressing through final certification steps and remain on track to complete in the second quarter. The win was initiated by Enercon with ramping up the Slovakia entity to produce an Enercon design, highlighting our global ability to deliver to our customers locally. In addition, we achieved our first bundled Cinch and Enercon win on a new design in Israel, which is a great early proof point of what this broader integrated portfolio can do when our teams collaborate across the organization. Within ITDS, we continue to see healthy demand signals across networking and data infrastructure, with momentum improving in data center connectivity and high-performance compute applications. Customer activity remains elevated as the industry invests in AI-oriented architectures, driving opportunities for power conversion and protection, as well as high-speed interconnect solutions that support next-generation switching and server platforms. We are expanding our design wind funnel and investing in engineering and operational capabilities to support these growth vectors, including manufacturing resilience and multi-site capacity to serve global data center customers. As we think about the broader environment, we remain mindful of trade policy and tariff dynamics, as well as demand variability by end market. We continue to work closely with customers to manage these conditions, including pricing and supply chain actions where appropriate. We are seeing some general upward pressure in certain material and logistics inputs, and we remain prepared to use the levers within our control, procurement actions, pricing discipline, and operational execution. to support the overall direction we've laid out. With that overview, I'll turn it over to Lynn to walk through the financial results in more detail. Lynn?

Lynn Hutkins | Chief Financial Officer

Thank you, Farouk. From a financial standpoint, we had a solid quarter with continued sales growth, margin expansion at the gross profit line, and healthy cash generation. Before walking through the results, I want to cover a couple of points of clarification related to our new segment structure. First, the realignment that Farouk mentioned became effective March 31, 2026. And as a result, our Q1 reporting and all prior periods presented have been recast to reflect the new structure. Further, we filed recast segment information by quarter for 2024 and 2025 and an 8K filed on April 6 for reference. Second, beginning in Q1 2026, our end market sales figures will capture all sales into a given end market, including both direct to customer shipments and sales through the distribution channel. In the past, distribution channel sales were called out separately in total rather than allocated to individual end markets. We will provide prior period comparable figures where appropriate to help investors evaluate performance on a consistent basis. With those points in mind, let me turn to the quarter. In the first quarter, total sales were 178.5 million, up 17.2% from the prior year period. Gross profit margin was 39%, up 40 basis points from Q1-25. The gross margin performance improved leverage of our fixed costs on the higher sales volume, partially offset by higher material costs and impacts from foreign currency fluctuations. Below the gross profit line, GAAP's operating income was $23.7 million compared to $25 million last year, while adjusted EBITDA was $34.5 million versus $30.9 million in the prior year period. Now turning to results by reportable segment. In the Aerospace Defense and Rugged Solutions, or ADRS, segment, sales for Q126 were 99.8 million, up 20.1% versus Q125. Growth was led by a $9.4 million increase in defense market sales, up 19% from Q125, and a $3.9 million increase in commercial aerospace sales, up 22% from Q125. ADRS gross profit margin was 41.5% an improvement of 140 basis points from Q125. This margin expansion was largely driven by improved leverage of fixed costs on the higher sales volume and a favorable shift in product mix. These benefits were partially offset by unfavorable foreign exchange movements, primarily related to the weakening of the U.S. dollar against the Israeli shekel and the Mexican peso. Within the industrial technology and data solution segment, or ITDS, sales amounted to 78.7 million, up 13.8% from Q125. Growth was primarily resulted from AI-driven strength and data solutions, coupled with the continued year-over-year recovery of sales into our enterprise networking customers. This growth was partially offset by lower transportation sales versus Q125, particularly within the rail and e-mobility markets. IPDS growth profit margin was 36.6% compared to 37.3% in Q125. The margin decline was primarily driven by higher material costs, particularly related to gold, copper, and PCBs, and unfavorable foreign exchange movements particularly with the Chinese renminbi. Turning to operating expenses and cash flow, R&D expense increased to 8.5 million from 7.2 million last year, reflecting continued investment in technologies aligned with our targeted end markets. Of this increase in cost, we estimate approximately 400,000 related to foreign currency movements as we have a large engineering population in China and Israel. We anticipate R&D will run in the range of approximately $8 million on a quarterly basis going forward. SG&A increased to 36.7 million, up from 29.5 million in Q125. Of the $7.2 million increase, we are estimating approximately $3 million was one time in nature, including acquisition-related costs related to data mate, segment leadership, transition costs, and a prior year benefit, which was non-recurring in the 2026 quarter. The remaining $4 million of the increase reflects targeted commercial and infrastructure investments to support growth in addition to an increase in commissions on higher sales and unfavorable foreign exchange impacts. On a go-forward basis, we expect SG&A expense to run at approximately 33 to 35 million per quarter. We ended the quarter with 59.4 million of cash and securities. Net cash provided by operating activities was 13.8 million. up from 8.1 million during the first quarter of 2025. Capital expenditures were 2.6 million, generally in line with the prior period. During the quarter, we closed the DataMate acquisition, investing $15.2 million. To help fund that transaction while maintaining balance sheet flexibility, we had 7 million of net borrowings from the credit facility during the first quarter of 2026. To close on the financials, we delivered a very strong quarter, driven by solid execution and healthy demand across the business. Looking ahead, we see continued strength and momentum for the balance of the year, and remain confident in our ability to perform. We are also operating in an environment of higher input costs, and we're actively managing that pressure by focusing on the levers we can control, pricing discipline, procurement actions, and operational efficiencies. At the same time, we're enhancing Our focus on the cash conversion cycle, improving inventory turns, receivables, and payables discipline as a key enabler to generate cash, strengthen flexibility, and accelerate Bell's growth strategy. With a strong quarter behind us and clear priorities in front of us, we're executing with urgency and discipline. With that, I'll turn the call back over to Farouk.

Farouk Tewig | President and Chief Executive Officer

Thanks, Lynn. As we look forward ahead, our focus remains on executing our commercial and operational priorities while navigating the external environment, including ongoing tariff and trade-related uncertainties and demand variability across our various end markets. Looking ahead, we have a strong outlook for the second quarter. We are guiding sales in the range of $195 million to $215 million, with a gross margin in the range of 38% to 40%. This outlook is supported by robust bookings across the business in recent quarters and is driven by higher demand from our defense, commercial airspace, and data solutions customers. Before we open the line for questions, I want to recognize Pete Benard and his retirement after 35 years of Bell. Under Pete's leadership, we strengthened our connectivity platform and delivered meaningful profitability improvement while deepening customer relationships. We're grateful for Pete's contributions and wish him and his family all the best. With that, I'll turn the call back over to Carrie to open up the line for questions.

Lynn Hutkins | Chief Financial Officer

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the start keys. And our first question will come from Luke Junk with Baird.

Luke Junk | Analyst, Baird

Good morning. Thanks for taking the questions. Rick, maybe you could just provide some comments on book-to-bill trends. You mentioned robust bookings were one of the things that is supportive of the guidance. And within that, if there would be any end-market highlights you'd want to call out as well. Thank you. Yes, sure.

Lynn Hutkins | Chief Financial Officer

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

Luke Junk | Analyst, Baird

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

Thank you. Farouk Tewig | President and Chief Executive Officer

Yeah, I think we have obviously seen our customers benefit from all things data center build out. Obviously, AI and data generation and everything that we're reading out in the world is additive to that effort. And we're seeing that across our portfolio, specifically on the, you know, AI customers that we service. We're definitely seeing a very healthy pickup in their bookings and customers and orders, and therefore that downstreams to us. So I think we would say that with Caritas, it's a very, very healthy environment. The bookings continue to be more robust. The outlet continues to strengthen and all the good things that I'll refer to Lynn here on more specifics around that.

Lynn Hutkins | Chief Financial Officer

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

Luke Junk | Analyst, Baird

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

Thank you. Farouk Tewig | President and Chief Executive Officer

Yeah, and we talked about, obviously, the geopolitical events for us from an A&D business is helpful and additive. And we've said this in the past where we tend to be levered in a fair amount of exposure to all things on the missile side of the business. So whether it be things that are deploying or the launchers themselves, that's all additive to us. So as you had alluded to here, with the replenishment and the talk about national stockpiles and all that kind of discussion points, that is all added to us. We agree that we think there has been a replenishment cycle going on. Starting out back in the Ukraine days, it never felt like we caught up, and now we saw a lot more usage of the stockpiles. So we agree this will probably be a medium-term vector of growth and replenishment. Obviously, we are also seeing more overall investments going into new business and new platforms as the whole industrial A&D complex is being challenged to step up across the technological spectrum. So that all is additive to us. And we see in our business, whether the funneling and the opportunities are becoming a little bit more, a little bit bigger. So we do see more shots at goal. So whether it be the replenishment on existing platforms or new, we think that that's all additive. And also, as a reminder, we're not just seeing that, obviously, in the U.S. side of the business, but we're also seeing that in our European and Israel business as well.

spk07

Appreciate the call. I'll leave it there.

Thank you. Lynn Hutkins | Chief Financial Officer

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

Bobby Brooks | Analyst, Northland Capital Markets

Hey, good morning, guys. Thank you for taking my question. It was great to hear about the first Cinch Enercom package win. Could you just discuss more how that win came about and maybe what you felt was a piece that pushed the customer to give you that order?

Farouk Tewig | President and Chief Executive Officer

Yeah, I mean, I think, listen, you know, I'm not sure. I don't believe in one magical solutions in the sense that we didn't change one thing and it all worked out, right? We sell highly engineering products. engineered complicated systems, whether it be on the components or on the system side of things. So we, I would say people are very busy, right? As we can imagine, A&D, our organization is very stretched thin. And on top of that, we started partnering to make sure we deliver holistic solutions. So we were alluding to, you know, a couple of opportunities here to maybe just kind of expand the point. We had talked when we acquired Enercon potentially using our Slovakia facility to become our A&D footprint into Europe. And obviously that takes a while to get certifications and sharings of drawings and ramping up the skill set. We had to invest in some CapEx. So we did do that. In conjunction with that, we were able to move some of the products. We had a European customer, that wanted to have manufacturing done on the continent. That's where Slovakia came in. So all that effort, we were able to get the customer out to Slovakia. They saw the facility, they saw the technical capacity. Obviously, they know the product from the Enercon and the engineering. So it was a very good team effort, both from engineering and operations and Enercon supporting Slovakia to get that facility up and going. And the customer saw it and was thoroughly impressed, and we got a couple of POs thereafter. Now, with the first one here, obviously, is a win. You know, this becomes a very great one. On the other opportunity I was talking about, basically, can you hear me, Bobby?

Bobby Brooks | Analyst, Northland Capital Markets

I just was curious, is that, like, first, is that a specific drone company? Bobby, your line is open.

Lynn Hutkins | Chief Financial Officer

I think he's taking a phone call.

spk07

I'm not sure it was for us.

No worries. Farouk Tewig | President and Chief Executive Officer

You can all appreciate how this goes. But I'll continue to answer your question. The other opportunity was taking an Enercon box, a power unit, and we put a cinch component on it, on the connector and cabling piece of it, so we're able to do the connectivity there. Now, we ended up solving, obviously, a few problems because we had both the power supply and the cable solution. So I think we got very good compliments from the customer. I think more importantly it showed the team the art of the possible. And more importantly than these two wins, to be honest, is we are definitely seeing a more robust collaboration across the organization of ADRS. So when we hear the discussion that they're going through and the opportunities, I think people are significantly much more aware of the whole portfolio and going after it. I would also take a step further and say that we're seeing some of the A&D customers looking for more hardened industrial solutions. And now with our non-Entercon products, it's able to fill that gap. So we're able to fulfill the customer needs from a few different angles, I'd say. But the discussion about it lying was significantly ahead of where it was, I would say, in the recent memory.

spk07

I don't know if you're back, Bobby, but hopefully that answers your question. Maybe Carrie can move on to the next one.

Yep. Lynn Hutkins | Chief Financial Officer

Certainly. Our next question comes from Christopher Glenn with Oppenheimer.

Christopher Glenn | Analyst, Oppenheimer

Thanks. Good morning, guys. I'm going to ask a question and try to stick around. Just give, if there's background noise, just tell me to mute it, please. So just, you know, continuing with the defense, because it's such a large proportion of your business and such a dynamic area, and then you're generating your own dynamism within that i'd say with these uh you know initial kind of greenfield design wins in the defense sector in europe is that you know kind of consistent with the timeline you would have anticipated from an integration pathway or or you know maybe pulling ahead a little bit just kind of curious of the you know actuals versus your expectations yeah i'd say maybe a Farouk Tewig | President and Chief Executive Officer: little bit ahead slash on time. If you recall back to kind of Q4 2024, when we did do the interconnect position, we said, I don't think we're going to see anything probably till at least 26, probably towards the end of 26. So if that is the correct metric, we said back then, you know, here we are roughly in Q1, we're seeing some of the early wins. I would say what It took a little bit longer than anticipated, was getting all the certifications and facility approvals. Obviously, A&D is a heavily, heavily, heavily regulated market. You can't just, you know, be moving things around globally and in emails and so on. So as a result of that, the approval process from the local authorities in Slovakia was longer than we anticipated. Partially it's because they're seeing a lot more investment in the overall country. But putting that aside, we're sitting here, let's call it April. You know, we had some nice wins. We had customers, you know, come through. I would say we're probably slightly ahead of schedule slash on schedule, somewhere in the middle there.

Christopher Glenn | Analyst, Oppenheimer

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

Farouk Tewig | President and Chief Executive Officer

I would say a lot of good things about defense, but quick might not be the characterization of the world. I would generally say, right, because also when you win a program, you've got to prove it out. They've got to do all their testing and then, you know, it kind of scales over time. But the key is when there's a lot of investment and, let's say, spotlight and all things defense, you've got to make sure you're getting into these things early because So as they scale, you know, you're there. I would say if we were to paint a very potentially, you know, let's say range, if it's an existing product, I'd say, you know, you generally get an initial order, but I would probably say before you start seeing kind of volumes 12 to 18 months. And if it's a brand new kind of product or technology that's being developed by the customer, then it could be a little bit longer. Okay. but the key is getting the award side of it, right? Because then you're going to there, it might go through a couple iterations along the way. But if it's an existing product or slightly existing, maybe it's a modified, I'd probably say 12 to 18 months before you start seeing some real dollars. That's just the nature of defense design cycles.

Christopher Glenn | Analyst, Oppenheimer

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

Farouk Tewig | President and Chief Executive Officer

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

Christopher Glenn | Analyst, Oppenheimer

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

Farouk Tewig | President and Chief Executive Officer

Yeah, and as Lynn said, we are fortunate to play in a lot of great end markets. So much more than not are in moving and growth mode. And as we closed out the quarter and headed into April, we're just seeing that continued robustness across the portfolio. I would also say that distribution is one of these things we're talking about. It started off very good in April. So as we look at backlog, customer chatter, outlook, and the kind of nature of the world, we think we'd expect a very healthy second half. Obviously keeping in mind we do hit with some seasonality in Q3 and Q4, right? So Q3, we hit kind of the European slowdown a little bit throughout the summer months and some Labor Day and 4th of July type events. And then we hit into Q4, you know, we start getting into some of the holidays, whether it be Golden Week or some of the ones in Israel and overall holidays. But putting that aside, we expect a very healthy second half and continued strength.

spk07

Thanks. I'll turn it over.

Appreciate the answers. Lynn Hutkins | Chief Financial Officer

And our next question will come from Greg Poem with Craig Hellam. for Greg Poem\ Good morning. This is Jackson Schroeder on for Greg Poem. Appreciate you taking the questions. I wanted to start out with, and you guys talked on gross margin a little bit and the cost there, but curious how you're feeling about the leverage you're pulling on that. We want to know if there's any kind of timing related things on that, how we might see that play throughout the year. especially as it relates to a new bundle design one in Israel and some of the organic initiatives that you have. So I'm curious if you're doing anything within those new contracts or investments to kind of offset that going forward.

Lynn Hutkins | Chief Financial Officer

Yeah, so I think as we look across the full year of 2026, we're seeing a little bit of a disconnect. Just mathematically, as sales grow, we will have better leverage on our fixed costs within COGS, leading to margin expansions. That's with all other things staying consistent. What we're seeing this year is a rise in input costs, primarily related to material costs. We do have some minimum wage increases around the world. And we are in an unusually, you know, unfavorable, I would say, FX environment where all three of the currencies that impact Bell are all moving in the wrong direction for us. So that's the Mexican peso, the Israeli shekel, and the Chinese renminbi. So we do have things, you know, moving against us as sales are increasing. We are taking actions that are within our control, you know, whether it's through pricing discipline or procurement initiatives or operational efficiencies. But those things take time to put in place. So what we're seeing is probably Q1, Q2, where there's more of a disconnect, where we're paying those higher input costs, and we have not yet seen the benefits of the initiatives that we're doing to offset those.

Farouk Tewig | President and Chief Executive Officer

And then I also say, you know, as we obviously, you know, we have done some pricing actions to offset these input costs, one of the things we've got to be mindful about is touching the backlog. So to some extent, to Lynn's point, we've got to work through the backlog. So anything new, we've put price increases through. So we'll start seeing the benefit of that as, you know, maybe we might see some of that in Q2, but I think about it as Q3, Q4. we'll start offsetting some of that. So I think that's a testament to the business here. We got a higher margin given the operational leverage and things we control, and then the pricing elements that we did put through, we'll start seeing the benefits of those into Q3, Q4. for Greg Poem\ Got it. It's really helpful. And I also wanted to talk on the new business structure here, kind of strategic realignment. Curious how you're processing that as it goes through the P&L as we look at organic growth. specifically as we lap Enercon, looking at like the geographic breakdown where we can kind of size where we should be seeing growth here by segment, by geography.

You can do that. Farouk Tewig | President and Chief Executive Officer

Yeah, I'd say we haven't given forward guides on the growth piece of it. We, at the end of the day, are in very unusual environments. So we haven't given any kind of long-term guidance on that. I think the overall message we expect, as we've always said, we're an end-market-driven business, and we obviously want to be a little bit ahead of that. So as we think of the end markets, we think there's robustness in there. I would also say that when we look at our A&D business, it's been growing for a bunch of quarters already. sequentially, right, from a growth rate perspective, and we expect some of that to continue. But by definition, right, you know, maybe some things, the hot percentages start to go down, but overall we expect robustness and continued top-line growth. So I'll leave it at that. On the ITDS side, the data solutions, data centers, AI, you know, kind of all the infrastructure around data generation and transmission and some of the broadband and kind of the other things we've talked about just now, We also expect robustness there. Obviously, we have a little bit more nuanced game and strategy in that market where we can make sure we can drive margins and get good return on our business. I would say our industrial technology part of it, which would include some of our e-transportation and e-mobility type applications and other industrial. I'd say that one is kind of a little bit later to the game, but we're seeing some nice things in that part of the ITDS business. So all in all, we expect a growth piece of it, but I'll leave it at that.

spk07

I appreciate it.

Thank you. Lynn Hutkins | Chief Financial Officer

moving next to Hendy Sassanto with Gabelli Funds.

Hendy Sassanto | Analyst, Gabelli Funds

Good morning, Farouk and Lynn. Good morning, Hendy. Congrats on strong results. Farouk, I would like to understand more about your data center footprint and post-acquisition of data made. I think my first question is, is data made a growing business? What kind of sales trend? And then second one is, When you talk about data center, AI data center, anything new, any new areas that you want to address, any new product portfolio that you want to develop?

Farouk Tewig | President and Chief Executive Officer

Yeah, so maybe the first question in the data, yes, we bought it with the expectation of growth. I would say we are a better home for it in terms of the end markets that they play in, the customers they serve. and the kind of language that we do use. I would say in certain of the products, which is their core products, they were the, let's call it, you know, the dominant, great reputation in our industry. So we're very excited for that team to join us. And when we look at the development product portfolio and things that they're working on, we're very impressed by them. So yes, our expectation is that it grows. I'm not sure we do the acquisition And I think also what's the nice thing about DataMate, it gives us a footprint into manufacturing in the U.S. Obviously, the team there, and kudos to the DataMate team, it was a carve-out, so we had to relocate facilities, and those things always bring a certain level of complexity, but we are in the new facility. We're up and going. The team did a great job. It was much more seamless than I probably had anticipated, so thank you to the team there. So that's the expectation of Datamate. I would say Datamate, there are some customers that they bring that we just haven't had inroads with historically that we hope to kind of land and expand a broader Bell portfolio. We have a much broader sales organization and reach globally that we think we can effectuate their growth. And I'd say more importantly, I think people are very excited internally to have access to that portfolio set and also just great engineering. The other thing I would say to your other question on the data center's AI, I mean, look, we have a lot of SKUs. We're always simulating new things. But at the end of the day, the drivers remain the same, which is AI build-out, AI deployment, data center build-out, data center deployments. routers and switches, right, that's kind of where it played. I would say that effectuates our legacy power and magnetic businesses from both sides. So I would say it's pretty broad-based. And as we've talked about, when we say AI, we think of that as a floor versus ceiling because sometimes we lose visibility to where our products are going. But when we look at the floor, which is the clear AI, we're seeing robustness in that growth. So let's call it the clear AI, if you will.

Lynn Hutkins | Chief Financial Officer

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

Hendy Sassanto | Analyst, Gabelli Funds

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

Farouk Tewig | President and Chief Executive Officer

Yeah, I mean, let's be honest. I don't think everybody welcomes us or anybody in the industry with open arms around price increases. But I think there's a general understanding and appreciation for the fact that things are going up. I would also say from an industry-wise, you are correct. It's become normal. I shouldn't say normal, but people have done it and it's part of the world that we live in. So from our perspective, we need to do the right thing by our investors and make sure that we are passing on costs. Obviously, we try to mitigate where we can, but if not, then we will need to pass that on. And I think you hit on it correctly is we took pricing actions in Q1, but that's on the new business, right? So obviously, we have backlog, so we don't want to necessarily – Barring it being egregious or something really kind of crazy, generally you want to update your price sheets and pricing for all the new stuff. So that's why we earlier said we'll start seeing the benefits of that, some of it in Q2, but we think about it more about Q3, Q4.

Got it. Hendy Sassanto | Analyst, Gabelli Funds

Farouk, any insight into market recovery in industrials, especially on customers' and distributors' inventories?

Farouk Tewig | President and Chief Executive Officer

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

Hendy Sassanto | Analyst, Gabelli Funds

Thank you, Farouk. Thank you, Lynn.

Farouk Tewig | President and Chief Executive Officer

Thanks, Andy.

Lynn Hutkins | Chief Financial Officer

We'll go next to Theodore O'Neill with Litchfield Hills Research. Theodore O’Neill | Analyst, Litchfield Hills Research: Thanks, and congratulations on the quarter. Two questions for you. The first one, last quarter you talked about weakness in the rail and e-mobility and wondering if anything's changed there. And my second question is about the strength in Q1. In the last 20 years, companies reported a sequential growth in Q1 over Q4 only three other times. So what was driving the strength here in this sequential increase?

Lynn Hutkins | Chief Financial Officer

Yeah, good morning, Theo. So I'll cover the initial questions first. So on the e-mobility and rail, I would say it's relatively more of the same from Q4. I think on the e-mobility side, Q4 was probably the bottom that we saw. There was a slight uptick from Q4 to Q1, but nothing meaningful. Both of those areas, I would call them still depressed in Q1. similar to Q4. And then what was the other, I'm sorry, the other part of the question? The broader industrial. Theodore O’Neill | Analyst, Litchfield Hills Research: The sequential increase in Q1 over Q4.

That's really rare. Lynn Hutkins | Chief Financial Officer

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

spk07

Okay, thanks very much.

Lynn Hutkins | Chief Financial Officer

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

Bobby Brooks | Analyst, Northland Capital Markets

Hey, good morning. Thank you guys for taking the follow-up.

Bobby Brooks | Analyst, Northland Capital Markets

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

spk07

Yeah, so I'll just answer kind of generally here before I turn over back to Land Bobby.

Farouk Tewig | President and Chief Executive Officer

Yes, our backlog continues to build and grow from year end, strength to strength. Q1 was very healthy. Obviously, delivery, you know, could be kind of spread out. From our perspective, yes, we're seeing that. We're also seeing the robustness of the funnel opportunity and new opportunities and also just general, let's say, industry chatter with whether they're customers or distribution partners. But yes, we put a guide here based on, you know, some very good orders that need to be shipped and scheduled to ship in Q2. Obviously, not all of our backlog is for Q2, so we have backlog into Q3 and Q4. Obviously, it starts to scale down post-Q2, you know, a quarter out roughly. So, but when we look at Again, the forecast, the guidance, the discussions, what we have in the backlog, right, that's how we think of it. That's why we said, yes, we do expect robustness. Now, to the specific level, you know, I think we'll be largely kind of very healthy, putting aside some of the obscenity that comes in a Q3, Q4. So we expect to have a very good year. I think I'll kind of leave it at that. I don't feel anything to add.

Lynn Hutkins | Chief Financial Officer

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

Bobby Brooks | Analyst, Northland Capital Markets

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

Farouk Tewig | President and Chief Executive Officer

Yeah, no pause here. We are always out and active on the M&A front. Obviously, you know, if you were to kind of set aside a little bit the data made to acquisition, the cash flow, usually Q1 is our biggest cash, let's say, usage of the year, given its bonus, and we pay our big IT and insurance and all this other kind of good stuff. But putting that aside, I think it was a very good cash flow, and we obviously were able to pay for a data made. So as we look out to the balance of the year, we expect healthy cash flow generation. We have a good amount of opportunity on the access to capital side of things. So when we look at that married up with internal bandwidth and ability to execute upon an acquisition, we like both of the sides. So we are open for M&A. We're actively looking at M&A. It feels like we always have some kind of discussion going on around M&A. so we are not hitting the pause by any stretch of the imagination. I think what we would need to be mindful of, maybe how messy it is and how much integration, and the M&A needs to stand on its own merit. So from our perspective, we're wide open for M&A.

Bobby Brooks | Analyst, Northland Capital Markets

Really appreciate the caller, and again, congrats on this great quarter. Awesome. Thanks, Bobby.

Thank you. Lynn Hutkins | Chief Financial Officer

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

Farouk Tewig | President and Chief Executive Officer

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

Lynn Hutkins | Chief Financial Officer

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day. jsPDF 3.0.3 D:20260606090004-00'00'

NASDAQ:BELFA Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good morning and welcome to the Belfu's fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with three part advisors. Please go ahead, Jean.

Jean Marie Young | Investor Relations, Three Part Advisors

Thank you, and good morning, everyone. Before we begin, I'd like to remind everybody that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2026. These statements are based on the company's current expectations and reflects the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market close yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call. And reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Farouk Tuik, President and CEO, and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouk.

Farouk Tewaik | President and CEO

Thank you, Gene, and good morning, everyone. We appreciate you joining our call today. I want to begin by expressing a big thank you to our global team for making customer service and meeting demand their top priorities and for delivering innovative technologies as a key partner to our customers. As a result, 2025 was a milestone year for Bell with record revenue and EBITDOT. We delivered net sales of $675.5 million for the full year, a 26.3% increase over 2024, and achieved a record GAAP and non-GAAP EPS. Fourth quarter sales reached $175.9 million, up 17.4% year over year. Our gross margins expanded to 39.1% for the year, reflecting strong execution and operational discipline. Aerospace and defense, including space, continued to be strong drivers for us in 2025. For the full year, A&D accounted for 38% of our consolidated sales, with 28% from defense and 10% from commercial aerospace. Recovery in the networking end market and growth in AI applications also contributed to higher sales in 2025. Order volumes remain strong across multiple end markets throughout the year, resulting in a full-year book-to-bill ratio of 1.1. We have seen continued improvement and strength heading into Q1. This sustained momentum in incoming orders highlights a healthy demand environment across our end markets and positions us well as we move into 2026. Our team delivered these record results despite headwinds from material pricing, particularly gold, copper, and PCBs, and unfavorable FX movements in the peso, renminbi, and shekel. We're actively monitoring these factors and have and will continue to take pricing actions to mitigate incremental costs, ensuring continued margin strength. Operationally, we successfully completed the closure of our Pingwao China facility in Q4. transitioning operations to a third-party supplier without interruption to the business. This move is part of our ongoing efforts to optimize our global footprint and drive cost efficiencies. We also made significant progress in strengthening our balance sheet, paying down our debt by $90 million during 2025. This has created additional capacity and flexibility for future investments and potential acquisitions as we continue to pursue growth opportunities. Looking ahead to 2026, we anticipate continued growth in aerospace, defense, space, and AI, the same revenue drivers that have benefited Bell over the past few quarters. Additionally, we have seen positive shifts in sales across the networking, consumer, premise wiring markets, as well as through our distribution channel. The rebound in these areas are expected to continue into 2026. We also foresee increased raw material input costs and a weaker USD, which will require us to proactively manage pricing and pass costs along where appropriate. Our pipeline for M&A activity remains active, and we are excited about several opportunities currently in various stages of evaluation. We anticipate a better backdrop in terms of M&A opportunities as the market noise settles down a bit in 2026. As announced a few weeks ago, we're excited to welcome Tom Smelker to our executive team. Tom joins us from Mercury Systems, bringing valuable experience and a fresh perspective in aerospace and defense. His leadership will help us better align our organization with changing customer needs and industry trends. As we continue to evolve, we are reviewing our segment structures to ensure we're well positioned for future growth. With aerospace and defense now representing a significant portion of our business, we see opportunities to further tailor our leadership and strategy to the unique demands of these markets. Before turning the call over to Lynn here, I would like to take a moment to recognize Pete Bittner, president of our connectivity solutions business. who will be retiring in April after 23 years with Bell. Pete has been instrumental in shaping and growing the segment, and leaving it in great conditions as he pursues his next chapter. And we thank him for his many meaningful contributions. Wish him great luck, and he'll be missed, but we're sure he'll enjoy his time with his wife and family. I'd also like to take a moment to recognize Dan Bernstein, who transitioned out of the CEO role in May 2025. This past year has been one of a significant transition for Bell, and I want to sincerely thank Dan for making it a seamless one. Our business transformation, which began years ago under Dan's leadership, laid a strong foundation for the company's continued success. His vision and commitment to Bell's growth have positioned us well for the future, and we're grateful for the guidance and dedication. On behalf of the entire organization, thank you, Dan, for your outstanding contributions and for setting Bell up for success. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and provide color on the outlook for Q1 2026. Lynn?

Lynn Hutkin | CFO

Thank you, Farouk. From a financial standpoint, we had another strong quarter and year with continued margin expansion and solid sales growth across all segments. Fourth quarter 2025 sales were $175.9 million, up 17.4% from the same quarter last year. Full-year 2025 sales totaled $675.5 million, a 26.3% increase over 2024. On an organic basis, sales grew by $41.5 million, or 7.8% over 2024. All three product segments delivered organic growth for the quarter, demonstrating the strength of our diversified portfolio. Profitability improved alongside sales, with gross margin rising to 39.4% in Q4-25, up from 37.5% in Q4-24. For the full year of 2025, gross margin was 39.1% compared to 37.8% in 2024. This margin expansion was driven by improved absorption of fixed costs in our factories due to higher sales volumes, and by strong executions within each segment, maintaining discipline around SKU-level profitability. These results highlight our ability to drive value through operational efficiency and strategic focus. Now turning to our product groups. Power Solutions and Protection delivered another exceptional quarter, with sales reaching 92.5 million in Q4-25. an increase of 18.5% compared to the fourth quarter of last year. The sales growth in the power solution segment was driven by several key end markets, including a $1.5 million increase in sales of our front-end power products serving the networking end market in Q4-25 compared to Q4 last year. Fourth quarter sales into AI-specific customers reached $4 million in Q4-25, up from the 3.3 million in Q4-24. Fused product sales were up by 1.4 million in Q4-25, a 31% increase from Q4-24. Sales into consumer applications increased by 1.8 million in the current quarter, up 32 percent from Q4-24. And just to note, in our power segment, this is also where we had the acquisition last year, so there was some organic growth on the defense side as well. These areas of growth were partially offset by a decrease in sales of our rail products by $4 million, and e-mobility sales were down 1.1 million as compared to Q4-24. The gross margin for the power segment was 44.5% for the fourth quarter of 2025, representing a 390 basis point improvement from Q4-24. This improvement was primarily driven by higher power sales into the aerospace and defense end markets, a favorable shift in product mix, and better absorption of fixed costs at our factories. Our connectivity solutions group achieved sales growth of 15.1% during the fourth quarter of 2025, as it reached 60.5 million compared to Q4 24. This improvement was due to the continued strong performance in commercial aerospace applications, where sales totaled 18.2 million, an increase of 3.8 million, or 26% year over year. Sales into space applications amounted to 2.6 million in Q4-25, up 53% from Q4-24. Connectivity sales through the distribution channel were up 3.8 million, or 20%, versus Q4-24, primarily due to shipments into the defense end market through the distribution channel. Profitability within the connectivity segment continued to improve with gross margin for the group rising to 37.2 percent in Q4-25 from 36.6 percent in Q4-24. This margin expansion reflects the benefits of operational efficiencies achieved through improved revenue, a more favorable product mix, and facility consolidations completed last year. These positive factors were partially offset by minimum wage increases in Mexico. Lastly, our magnetic solutions group sales delivered a solid quarter with sales reaching 22.9 million in Q4-25, a 19.1% increase compared to Q4-24. This performance was primarily driven by higher shipments to a major networking customer. Gross margin for the group was 27.3% in Q4-25, down from 29.1% in Q4-24. This margin differential was due to minimum wage increases in China, an increase in material costs, primarily in gold and PCBs, and unfavorable foreign exchange impacts related to the remedy. Research and development expenses totaled $8 million in Q425, representing an increase of $1.1 million compared to Q424. This increase was primarily attributable to the inclusion of Endercon's R&D costs, which amounted to an incremental increase of $1 million during Q425. We anticipate that R&D expenses in future quarters will generally remain consistent with the Q425 level as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Selling general and administrative expenses for the fourth quarter of 2025 were 32.6 million, down 2.2 million from the 34.8 million in Q4-24, primarily driven by lower acquisition-related legal and professional fees in 2025 compared to 2024. Turning to our balance sheet and cash flow, we closed the year with 57.8 million in cash down $10.5 million from last year, primarily driven by our proactive efforts to strengthen our balance sheet, including paying down $90 million in long-term debt, resulting in $197.5 million of total debt outstanding at December 31, 2025. Additionally, we made $3.5 million in dividend payments, and we invested $12 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and $1 million from the sale of held to mature securities earlier in the year. During the full year of 2025, we generated cash flows from operations of $80.6 million. Taking into account our swap agreements, The weighted average interest rate on our debt balance at December 31st, 2025, was 4.4%. Looking ahead to the first quarter of 2026, we continue to see strength across all three segments. Historically, our first quarter tends to be our lowest sales quarter of the year, given the impacts of the Lunar New Year holiday in China. In light of this historical trend, and based on the information available as of today, we expect Q126 sales to be in the range of $165 to $180 million. Gross margin is expected to be in the range of 37% to 39% given anticipated headwinds related to higher material costs and the unfavorable FX environment we are in. Overall, our consistent performance, strategic investments, and operational excellence have positioned Bell for continued success. We remain committed to driving shareholder value, innovating for our customers, and capitalizing on growth opportunities across our markets. I'd now like to turn the call back to the operator to open the call for questions.

Operator | Conference Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from Bobby Brooks from Northland Capital Markets.

Please go ahead. Bobby Brooks | Analyst, Northland Capital Markets

Hey, good morning, team. Thank you for taking my call. So I wanted to touch on kind of sales initiatives moving forward. So you guys brought in the new head of sales about a year ago, right? And I'd just be curious to hear where he sees the most interesting opportunities for growth. Obviously, Farouk, when you initially joined as CFO a handful of years ago, you led a massive shift in the margin profile of the company, which a lot of that was sort of like low-hanging fruit that you targeted. So I'm just curious to hear if that's sort of same scenario, if Uma has seen that sort of same scenario, and again, like what he sees as the largest opportunities to go after.

Farouk Tewaik | President and CEO

Yeah, thanks, Bobby, and good to speak with you here. I think that's a pretty nuanced question. As a reminder, we are largely in a medium to long-term design cycle businesses, right? So as we think about influence, and we think about A&D, I'd probably suggest the largest part of A&D for 2026 is going to be simply receiving orders from the customers as they get funding and deployment. So if we were to think about sitting early on in the year here about new wins and when they get funding, you're at least a year out, probably one to two years before you monetize them. In some of our shorter design cycle businesses on the other end, I would say something like Fuses you could probably see a win a couple of quarters out, and that translates to some sales or some of our consumer business. So we are a long-cycle design business. There's no quick wins here. We sell technology. We want to get in with the customer. We want to do the hard stuff, and therefore that does take a while. If we look at the past few quarters and some of the benefits that have been there, that has been a reflection of the work that the team has done at a global level, within the various businesses, right? So I would suggest that the wins and the performance that we had in Q4 was probably not much due to sales efforts that happened in Q4, right? This is stuff that probably happened earlier in 2026. So we are seeing the benefits of the global team folks in doubling down. When we look across the business, we have new wins across probably all of our end markets, maybe a little bit less so in places like e-mobility or Maybe some of our, you know, I'd say rail is kind of a little bit on a slow year, but I would say more often than not, we always have new wins. And when we think about the funneling process, right, we want to make sure we're going after a robust set of opportunities that are good opportunities and try to convert them to sales. And that process we started a while back. Now, that's not to suggest that we don't have work to do. On the last call, we talked about CRM implementation. In Q4, we redid, you know, a little over three dozen worth of contracts with our reps in the U.S. to really lean into new opportunities. So, you know, we're trying to move the whole system forward from compensation structures to software and data and and mindset shift, and it's been happening, right? It's evolutionary. So we've seen the wins. Where is it going to come from? I mean, we think probably, you know, there's a lot of money going into A&D, data centers, AI, a lot of obvious interest going in there. But, you know, quite frankly, our consumer business did very good last year. So I think what we like about us is we touch a lot of end markets. and we like the way they're looking today, heading in 2026, a little bit more maybe than early 25 or 24. So a long answer to yours. I just want to caution, we're not a quick-term business, and we're trying to sell more design-in type work or modified solutions versus just purely off-the-shelf stuff.

Bobby Brooks | Analyst, Northland Capital Markets

Absolutely. Really appreciate that detail, Color Farouk. And then, maybe just turn into the one cue guide, very, very impressive, but just wanted to maybe unpack that a little bit more and maybe hoping to get a little bit more granular on the expectations for growth across the three segments.

Lynn Hutkin | CFO

Sure, Bobby. So, you know, as we look to the first quarter, and I guess I'll compare it to this recent Q4 that just ended here, We're seeing a lot of the same areas of strength across all three segments, so not seeing much in the way of significant shifts or changes from Q4 to Q1. I think the only variable in there is the Lunar New Year holiday, which impacts primarily magnetics and then to a lesser extent power. So those are the areas where, you know, we may see a little bit of softness from Q4 to Q1. But other than that factor, everything is pretty similar to the Q4 drivers.

Bobby Brooks | Analyst, Northland Capital Markets

Got it. Appreciate the call up there. Congrats on the great corner.

I'll return to the queue. Operator | Conference Operator

Thank you. The next question is from Christopher Glenn from Oppenheimer and Company.

Please go ahead. Christopher Glenn | Analyst, Oppenheimer & Company

Thank you. Good morning. I just want to build on Bobby's question about developing the commercial funnel. So you mentioned focus on design and then modified by modified bursts off shelf is how you're developing the funnel. That makes sense. We've heard that. I'm curious if you're noting any traction in win rates versus historical as you mature these strategies?

Farouk Tewaik | President and CEO

I think we're doing a better job at defining what a win is and how we want it to be at certain levels of margin. The other thing I think we are moving more towards, as we head to 2026 and we talked about last call, is we want to really try to bring the whole Bell portfolio to our customers. I think historically we've been really more focused around selling a specific product, like a fuse or a connector or a power supply. And we do need to do a better job at doing a little bit more systems-type sales to our customers. Now, this is a little bit of a longer journey. But the idea there is we want to get more alignment to the customer, solve more of their problems and challenges, and really be – you know, a little bit more of a solutions, address the difficult things for our customers. So it's not just simply about more shots on goal, which we are seeing. We're seeing better shots on goal, but we still want to continue to evolve to, you know, higher content on goal. So, yes, we're seeing better. Also, the market's a little bit better place, right, which creates more opportunity for us. I think the team also, if you remember, we spoke on the last call where we started creating new internal groups and structures to align to that. So, for example, we created a key accounts group, right, which we have not had that most of the time. It was kind of sitting inside the BU's. Now we want to have a more Bell-focused key account groups that bring all of our products to the customers because we do have a lot of SKUs. um you know same thing on the business development efforts we're coalescing the teams around in markets as we think about products and directions so i would also argue customer service is an extremely important part of this as we create an easier user experience for our customers and we used to have a lot of different email addresses to customers and different forms and everything and the like or different pricing lists to our distribution partners So I think calling these things out to not underemphasize that there's a robustness in what we're doing that needs to be pervasive in our holistic approach to the market. So the short answer is yes there, Chris, but it's also more than just trying to get more shots on goal.

Christopher Glenn | Analyst, Oppenheimer & Company

Great. Thanks. That was great, Colorfruit. And then on the AI customer base, you mentioned that as one of the continued drivers of growth next year. You know, you've often described it as being an early stage, I think, you know, with single source to well-funded more startups versus the headline big three or four. You're just curious if any of those customers are potentially, you know, positioning for, you know, adoption curve for their technology where you can coattail, you know, not necessarily, you know, first half of 26, but more conceptually?

Farouk Tewaik | President and CEO

Yeah, I think the answer is yes. Sure. The body language from our customers, I'd say across the networking side, but specific to your question around AI, yes. And that is obviously reflected based on the bookings that came in, you know, towards the end of the year last year, the discussions that are ongoing with our customers, and obviously the ultimate outlook that we put out there in the quarter. So the answer is yes, we're seeing the positive momentum scaling and continue to move forward. And also, let's not forget, you know, there's a networking set of customers that bundle our product into their solutions that ultimately make it to folks like hyperscalers, right? So When we think about networking, it is obviously AI, and that is not an insignificant number for us, which is nice to see the team's efforts pay off there, but also the networking side is just as important, because we do touch AI in a couple of different ways, right?

Christopher Glenn | Analyst, Oppenheimer & Company

Yep, understood. And then just defense, just wanted to I get a lot of questions about the mix. I think you're pretty broad-based, rotor, fixed-wing, munitions, comms, radars, maybe even. Just curious if all those categories, if that is accurate, you know, where the weightings are.

Farouk Tewaik | President and CEO

Yes, in short.

Christopher Glenn | Analyst, Oppenheimer & Company

Okay. Okay.

Great. Understood. I understand. Farouk Tewaik | President and CEO

Yeah, I would say we want to be careful with kind of talking about it at our size here, right? But all the kind of main, you know, we're on all the major programs and some not major programs. So it's a very diversified portfolio. And we're, you know, to the things that you called out, munitions, things that fly, right? And we're doing more rounds. Obviously, space is a little bit tangent to that as well, but we cover encryption communication, right? So all the things that you talked about, we probably touch it.

Christopher Glenn | Analyst, Oppenheimer & Company

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

Farouk Tewaik | President and CEO

Yeah, I would say, you know, I think from the gist of it, our shareholder structure is a little bit more nuanced from the perspective of the economic differential between the two shares, right, versus just a vote-no vote. So that's one. I would say, you know, as an appropriate due course, we'll have a company that a response and views on that at the appropriate time. I don't want to speak on behalf of the board, but at the appropriate time, we'll address that. And also, I think what we're trying to do here, Chris, and we've really been at this for the last handful of years here, is we want our fiduciaries to serve the best interests of all of our shareholders, A's and the B's. And as we build a company that's set up for the future, with, you know, good performance, investing in our employees and our customers, ultimately that's kind of what moves the needle. So I just want to, you know, we're very aware of the fiduciary duty, but I think the board at the appropriate time will have a response that's a little more formal to this.

Christopher Glenn | Analyst, Oppenheimer & Company

Thank you.

Farouk Tewaik | President and CEO

Sure thing.

Operator | Conference Operator

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

Theodore O'Neill | Analyst, Litchfield Hills Research

Please go ahead. Congratulations on the good quarter. Thank you, Theo. Thank you. Yep. So, are you guys seeing any impact from the spike in prices on memory?

Farouk Tewaik | President and CEO

I was going to say, you know, our customers, I would say, largely are the ones that feel it. We not directly are impacted by that. Obviously, we have our other, let's say, spike in prices that we're dealing with, like cold and copper I spoke about. But on the memory specifically, it's more I'd say our customers are influenced by that.

Theodore O'Neill | Analyst, Litchfield Hills Research

Okay. And on the gold, copper, and print circuit board side and the weaker dollar, do you have the ability to hedge some of those or do you pass the pricing on? How do you adjust for that?

Farouk Tewaik | President and CEO

Yeah, that's a good point. Today we hedge our effects exposure from a raw material perspective. You know, we're in the business of providing solutions to our customers and technology, so we want to focus on what we're good at. We're not running a prop desk here trying to hedge everything, right? So I think our approach has been we want to try to do our best to mitigate and offset price increases, but to the ability and work with our customers to the extent that we can't. We unfortunately have to pass it along, and I think that's not unique to us and really kind of in line with the supply chain behavior. But ultimately, we want to be great partners. The extent we can offset it, sometimes we will find alternate sources. We want to be a solutions provider really to our partners. But in cases we can't, we need to do the unfortunate decision of passing it along.

Theodore O'Neill | Analyst, Litchfield Hills Research

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

Farouk Tewaik | President and CEO

I would say we generally do, yes. I think the drill market is going through some interesting things, right, where there is let's call it more consumer that tends to get retrofitted as we're seeing out in the world and like Ukraine, that's not really our market. We're more in the military kind of U S primes and, you know, some of the European and Israeli OEMs, the stuff they manufacture. So we're not in the, let's say drones that you and I are maybe buying where we're in the more sophisticated drone game.

Theodore O'Neill | Analyst, Litchfield Hills Research

Okay.

Thanks very much. Yeah. Operator | Conference Operator

The next question is from Greg Palm from Craig Hallam Capital Group.

Please go ahead. Danny Agerchon | Analyst, Craig Hallam Capital Group

Yeah, thanks. This is Danny Agerchon for Greg today. Thanks for taking the questions. Maybe just hitting again on A&D and maybe unpacking how you saw that develop in the quarter, maybe between Enercon and Corbell and maybe what you saw in some cross-sell business. And then obviously we know kind of about the increased spend, but as you look into 2026 here, what gets you excited about the growth in this business and what kind of visibility do you have here?

Lynn Hutkin | CFO

Yeah, so Danny, I'll take the first part of that question. So the growth that we saw, when we talk about defense, it's both in our legacy Cinch business and through Enercon. We definitely saw growth in the Enercon business. As we look at the Cinch business, I think it's important to also keep in mind what we sell through our distribution channel. So there are direct sales and then there are sales through distribution, which we don't really break out into those end markets today. But we did see, as we mentioned in the commentary, we did see a nice increase in distribution that related to growth in defense for that cinch business. So I would say that it was, pretty split between the two. So both, you know, Cinch and Enercon had robust growth in defense in Q4.

Farouk Tewaik | President and CEO

One thing maybe just to add to that is it's 2026, right? We're seeing the build rates on the plain side continue to increase and head in the right direction. Also, a lot of the programs around munitions and given, you know, what's going on in the world, these are well-funded programs.

Danny Agerchon | Analyst, Craig Hallam Capital Group

programs so we think there'll be a prioritization to make sure those get to fruition and the finish line so as we look at an allegation of that we feel pretty good as to where we stand compared to what's funded out there okay no that's that's very helpful thanks and maybe if I can just just touch on gross margin here which was pretty strong in the quarter especially in power I know you mentioned some of those headwinds with with FX and an input cost but any way to quantify those, and then as we kind of have that push-pull between these input costs and passing on price in any way to think about potential margin expansion in 26?

Lynn Hutkin | CFO

Yeah, I think as we look at the fourth quarter, I think we thought that we may have had some additional FX headwinds in Q4, but we have had hedging programs in place, as Brooke mentioned, So we're still seeing the benefits of those prior hedging programs come through the current periods. So, you know, as we look to 26, we do foresee some margin pressure there on FX. I mean, if you look at the Peso, Remenbee, and Sheckle, they're all moving in an unfavorable direction. And we do hedge probably half of that, but that's going to start rolling off. So we definitely see pressures there. And then even on the material side, that's something that it takes time to ultimately come through our numbers, right? As we're buying raw materials today, that's something that will flow through our financials at a later date. So we do think that we will see margin pressures in 26. And this is why we're, you know, really being mindful of pricing actions that we may need to take with customers.

Farouk Tewaik | President and CEO

And one thing to just kind of flag on the pricing, right, it's a little bit of – it's not as simple as we wake up and raise our prices, right? There's a little bit of cadence to that, you know, so that some of the contemplations are do you reprice the backlog? Do you come up with an updated pricing list for distribution, which takes, I think, something like 30 days before it's effective? Yeah. So there's a little bit of a time issue. The other thing I would say, and we've talked about this in the past, while our margins are great and we'll always continue to try and push margin expansion, we have pivoted from a margin gain to a growth gain. So we need to make sure that we are winning our fair share of business and opportunities out there that we can get in on. And to enable that, there is some potential investment that we've been doing a little bit around the door-to-market, the systems piece of it, and the people piece of it. So I just want to make sure, and I know the margins, it's a lot of discussions on the bell earnings, and obviously we're very proud of our margins, but we are heading in some headwinds, and we've got to make sure that we have a middle of this kind of growth that's coming that we're positioned appropriately for, not picking out too much.

Danny Agerchon | Analyst, Craig Hallam Capital Group

Yeah, no, that all makes good sense. I appreciate the color.

I'll leave it there. Operator | Conference Operator

The next question is from Luke Young from Baird.

Please go ahead. Luke Young | Analyst, Baird

Thanks for taking the question. I just want to double click on what we've been talking about in terms of, you know, what you've been doing to realign the sales force really thinking more about you know how do you attack markets or key customers but something that you said in the um in the script kind of caught my attention in with tom coming into had the connectivity business that there might be it sounds like opportunities even further down in the organization am i hearing that right in terms of aligning operations maybe even from a, let's say, manufacturing footprint to better attack some of these discrete opportunities?

Farouk Tewaik | President and CEO

Thanks for the question there, Luke. I would say a couple things just to maybe answer it from the back way of your question here. So on the operational side, you know, we've, I can't remember, seven, eight facilities. We've done a lot. So what's going to dictate facility moves is the current state of the business and the customer demand, right? We pride ourselves on working with our customers. So obviously for a while, it was a lot of discussion around China to India, then that froze. You know, if that kind of starts up, for some people it did start up, we were going to move some of our products to India. So I would say given the geopolitical world that we live in and realignment and localization of supply chains, We are in these, let's say, active discussions, right? But in terms of Bell and standalone basis, you know, putting aside geopolitical and supply chains, I think our facilities are pretty good. So we have to react to the fundamentals of the market. I think our biggest opportunity here is around the go-to market and sales piece of it. I think maybe just to highlight on, you know, moving a facility for us is a big task, right? And it's not simply as just moving equipment, building some buffer supply, moving equipment from place A to place B. You need to set up a lot of kind of the legal structures. And if you're talking about AMD, there's a lot of regulatory hurdles to jump through as we're setting up, for example, our Slovakia factory to be more AMD facing to the European markets. We're living through the complexity and spider web of getting all the clearances and certifications on defense weaponry control. In addition to that, customers usually always have to and want to come out to your facility and do audits, and usually there's feedback, and that takes a whole issue. So, you know, it's not easy. We don't take these decisions in moving facilities lightly. So we need our customer or market changing dynamics to force our hand on a cut on a facility move, go to markets, Our products today that we have that can be bundled together, that can be brought to bear, as we talked about the key accounts group earlier, that is our biggest opportunity at hand. And then operations, you know, there's always things to be done, sure. But I think we've done so many of them that we need to live in growth land. And if we're not going to move facility, unless it's going to help us grow, right?

Luke Young | Analyst, Baird

Yeah, that was super helpful. Thank you. Nearer term, just curious from a guidance standpoint, you know, Lunar New Year obviously having a seasonal impact as we've normally seen the business, but it's pretty late this year. I think it's almost as late as it can be just from a calendar standpoint. Would you normally have maybe a little better feel for that seasonal impact in the typical year? Is there any conservatism just because of Lunar New Year timing in the guidance?

Farouk Tewaik | President and CEO

You know, I think, you know, as you know, Luke, in public land, right, everybody's always trying to figure out the optimal way to guide the street. Our perspective from guidance is we want to land in range, and we build it around the midpoint, right? So we're not trying to – we don't build it to the high end point of our range and, you know, hope to God we go over range. We build it to the midpoint, right, to allow for some room for shifting from corridor to corridor. Obviously, we're an AMD. That tends to be kind of sometimes funny business. if we allow for some over-ordering on fuses. Yes, given how late we are in the quarter, talking about Q4 right here, we are roughly in the back of February. Yes, we have better visibility. But to put your comment and question specifically about Chinese New Year, it's two weeks off, right? Everybody contracts down. It's not just us. It's all the CMs. It's all our customers in the Far East, right? So as a result of that, everybody goes pencils down for two weeks. And when they come back, it doesn't just turn on a dime. Usually there's a week of, let's say, upstart time, getting back into the groove, getting things going. So you're probably talking somewhere between two to three weeks' loss on a three-month period. That's not insignificant. So I wouldn't say conservatism. I would say we want to do what we say we're going to do, and we're going to give it our best guess. So we're not trying to be conservative on that.

Luke Young | Analyst, Baird

Fair enough. Just want to zoom out from my last question, you know, the power side of networking, obviously you've got some exposure there. I mean, the higher levels of power, the power of these more capable chips really becoming quite apparent in that world right now. And I'm just wondering to what extent you're seeing any pull through from a design cycle point of view for high voltage components from either your tier one customers or your direct customers in that world and especially if there's any IP that might be leverageable either, I think, rail or e-mobility both have some high voltage IP that might be interesting.

Farouk Tewaik | President and CEO

Thank you. Yeah, I was going to say, I think there's a couple of things to unpack there, right? Specifically, the AI networking world, it's always going to go to more high power, higher density, less energy, right, more efficiency, right? So that's a constant theme over ever. Now, we are seeing, I would say, some new designs coming in relatively maybe in a short period of time. Maybe back in the day it was a three- to four-year design cycle. Things are coming in a little bit sooner. So we are, for example, selling some products at AI, but we're already working on the next-gen stuff. So that has happened a little bit quicker. I will also say generally, right, we do have exceptions, but we're not really an IP business, right? We R&D to fix or address a problem. And then what we want to do is we want to, we do a pretty good job at this inside of each of our business units, is how do we leverage what we've developed for somebody to either standardize it or slight modifications, and then we extend the reach of that product, whether it be through distribution or other similar customers. The other thing we are seeing is which is actually interesting, is some of our actual e-mobility products, given the nature of those products, we are starting to see some military folks looking at, let's say, high-end products and services but not quite military-grade, so kind of what I guess we're calling semi-military being used. So we are seeing that extension of the R&D effort that has gone to e-mobility and to other markets. Now, you know, we haven't won anything yet, but we're feeling good about potential wins coming, if that makes sense. So that's how we extend our R&D dollars. We're not looking to reinvent the world every time.

Luke Young | Analyst, Baird

Yeah. Okay, cool. Appreciate it, Brooke. I'll leave it there for now.

Thank you. Operator | Conference Operator

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

Please go ahead. Jacob Parsons | Analyst, Needham & Company

Hi. Thanks for taking my call here. I'm just asking a question on behalf of Jim Rusciutti. So, you know, we've been kind of hearing a better tone in the commercial aerospace market. particularly with the leading domestic players in the marketplace. So how are you guys thinking about this area of the business in 2026 and potential for better growth within the connectivity solutions area?

Farouk Tewaik | President and CEO

So as a release to commercial air specifically, right? I mean, for better or for worse, we are, from an OEM perspective, are attached to our largest North American customer. And the way that we're going to make more money, and to be clear, we service that customer both through our connectivity and our power A&D business. So the way we're going to grow revenue is a direct correlation to increase build rates, right? And we've lived the ugly side of that when there was kind of all the union negotiation. If you recall, I think it was Q4 last year, there was a shutdown. It kind of, you know, threw our business a little bit out of whack or back in the days of the grounding of the MACs. So we are going to see how that correlates to the build rates. So what we always point folks to is I think, you know, they're very public about build rates and what's going to get approved and not approved. So take a view on that. And that should have a direct correlation back to us. On the connectivity business, so not the power business, there is an MRO element to it, right? So as we think about MRO cycles, I tend to think about are people on the planes flying being consumed and miles being put on these planes? And so often, those planes need to be kind of retrofitted or MROs, right? So we think flights, and when we look at the earnings of some of the flight operators out there, you know, people are flying and planes are moving. So we feel both good on the OEM and MRO side.

Jacob Parsons | Analyst, Needham & Company

Yeah, that's all super, super helpful. And if I can just kind of get one more in. So I'm curious, has the book to build – ratio varied much by market vertical, and which areas of the business have you guys seen the biggest changes relative to last quarter?

Lynn Hutkin | CFO

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

Jacob Parsons | Analyst, Needham & Company

Awesome. Thank you for taking my questions.

Operator | Conference Operator

The next question is from Hendy Susanto from GetBellySons.

Please go ahead. Hendy Susanto | Analyst, GetBellySons

Good morning, Farouk and Lynn.

I have several questions. Theodore O'Neill | Analyst, Litchfield Hills Research

Good morning, Indy.

Hendy Susanto | Analyst, GetBellySons

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

Farouk Tewaik | President and CEO

Yeah, I would say, Hindi, we want to be a little bit careful here, but our projects I go into are more around the power side of the business. And, you know, the bell power is kind of where it's at, I would say, from a direct where we know things are going for AI. Obviously, our magnetic business is also beneficial from the networking guys. and they're kind of the RJ45s, kind of what we call our magnetic solutions, which is really more maybe a potential interconnect product. So that's how we go at it largely. Our connectivity business doesn't do too much into those end markets, given that we're really more low-volume, medium-volume, harsh environment applications, and that price is coupled with it being more copper-based. So that's how we kind of go at the AI piece of it. And I should say, generally, we do some stuff with the hyperscalers, but that's not really our focus markets. If you remember, we got in trouble there back in 2020. So we want to make sure we pick spots where technology and service matters versus just a copy product with a race to the bottom of pricing.

Hendy Susanto | Analyst, GetBellySons

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

Farouk Tewaik | President and CEO

I think the humanoid market is still getting settled. Today it's definitely not a big dollar amount. It's very much R&D-centric. I think there's a question around, from a humanoid perspective, is that ultimately a consumer product like auto, or is that going to be a technology play? I still think we're far out from mass production, but today it has not been a discussion level for us that's a dominant one.

Hendy Susanto | Analyst, GetBellySons

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

Farouk Tewaik | President and CEO

I don't think we, you know, right, I think the inventory rebuild is kind of stacking up the shelf really on the customers. I think given that everybody... I'd say went through a pretty difficult lesson back in 23 and 24 and overlaid with the terror of geopolitical world we're in. I'd say people are generally ordering more to demand versus building up the shelf. And, you know, quite frankly, I think that's probably a good thing in the sense where if you want to build the shelf, then you've got to deal with the hangover. So today we feel largely, I'm sure there's exceptions, obviously we touch a lot of markets, But largely, we feel it's like ship-to-demand versus ship-to-put-on-a-shelf-and-build-a-buffer stock. Because obviously with tariffs, if things move, the things that you put on the shelf all of a sudden really change pretty quickly. So I think there's a little bit of nervousness around that from our customer perspective.

Hendy Susanto | Analyst, GetBellySons

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

Farouk Tewaik | President and CEO

I'd say generally aerospace and defense is not a seasonal business where we play, right? North America, Israel, Europe, right? I would say it's really more around, you know, sometimes they move it from one court to the other when things get funding, right? That's kind of where the choppiness comes from. But it's not really a seasonal to seasonal play. I would say, you know, if there was a seasonality element, not to the intercom business, obviously, or connected business, but there is some less working days generally in Q4, just with the holidays and Thanksgiving and some of the Jewish holidays in October. But other than that, I would not say it's a seasonal business.

Hendy Susanto | Analyst, GetBellySons

Okay. And then I have a question on capital allocation and debt payment, especially following the $90 million of debt payment in 2025. What is your playbook for capital allocation and debt payment?

Luke Young | Analyst, Baird

Go ahead, Lynn.

Lynn Hutkin | CFO

So I think as we look at capital allocation, you know, Priority number one is reinvesting in the business through CapEx. We have regular way dividends that we continue to pay. Barring anything on the M&A front, debt pay down is where it would be. And I think from a dollar perspective, the last couple of quarters, they've been robust debt pay downs to the tune of, call it between $20 and $30 million a quarter. And we would look to continue doing that going forward. Now, keep in mind Q1 tends to be a heavy cash utilization quarter, just with our annual bonus payment, insurance payments, things like that. So I expect Q1 would be on the lower side. But as we look to Q2, Q3, Q4, that would be around the level of debt pay down, assuming there isn't anything on the M&A front.

Hendy Susanto | Analyst, GetBellySons

Got it. Thank you, Farouk. Thank you, Lynn.

Jacob Parsons | Analyst, Needham & Company

Thanks, Andy.

Operator | Conference Operator

Thanks, Andy. The next question is from Bobby Brooks from Northland Capital Markets.

Please go ahead. Bobby Brooks | Analyst, Northland Capital Markets

Hey, thanks for taking the follow-up. So just wanted to circle back and ask specifically kind of on Enercon and cross-selling opportunities there. Obviously, you mentioned this, and more specifically with aerospace and defense, these are long-cycle programs, right? So these aren't happening one quarter and seeing the outcome the next. But just curious to hear if maybe that's still on the back burner just because demand was so robust in 2025 and the segments kind of just had to deal with the demand that they were seeing. So just kind of curious to hear more on that.

Farouk Tewaik | President and CEO

Yeah, no back burners here. Yes, we understand we got to prioritize, but also remember we have to live in new wind land, right? Because we can't influence when orders come from our customers, right? When the program gets funding, can they sell it, right? What does the military budgets look like? And then you get an order. The thing that we can influence is going after new programs and aligning ourselves to new wins and new design cycles, right? So as we go after these, we are doing a better job at collaborating. I think we're doing a better job at ensuring that both the connectivity and the power side of the house understand what they're going after and weekly calls and putting in some incentives along the way, we can do a little bit better job, but that process is in place. What's interesting is we're definitely seeing some of this, let's say, go to market. There was a couple of interesting quotes in Israel where I was alluding to earlier from our e-mobility products that there was a need locally in Israel that our team flagged, but they didn't need quite the let's say high-levelness of the military stuff, but they needed really complex products, which our e-mobility and Slovakia teams do a great job at. So we're trying to quote those into Israel. So I classify that as kind of a real-time opportunity that we're chasing. Now, we've seen a few of those as well. Another example of this is there was a cabling need at our, let's say, U.S. Enercon business, which our connectivity group can assist with. So they're working on kind of getting all that qualified and approved. Normally, in this case, Enercon would have had to go outside and deal with others, but we're able to capture more of this spend. So the opportunities are real, but in the spirit of greediness, we'd always love to do more. But I think as we're getting more bids out there now at a joint level, we're seeing some nice traction. Hopefully we continue to do that and kick that into gear a little bit more.

Bobby Brooks | Analyst, Northland Capital Markets

Awesome to hear. And again, congrats on the great quarter. Thanks, Bobby.

Operator | Conference Operator

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

Farouk Tewaik | President and CEO

Thank you for that. And, again, could not be more proud of the team for the great year. Again, also thank you for all of you guys joining the call today and taking interest in what we think is a very, very exciting times for Bellevue. So thank you. I look forward to speaking to you in a couple of months from now.

Operator | Conference Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090005-00'00'

NASDAQ:BELFA Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: All participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference call, please signal the operator by pressing star, then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with three-part advices.

Please go ahead. Jean Marie Young | Investor Relations, Three-Part Advisors

Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations and reflect the company's views only as of today. and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market closed yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations as discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for the fiscal year ended December 31st, 2024, and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Farouk Tewik, President and CEO, and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouk.

Farouk Tewik | President & CEO

Thank you, Jean. And we appreciate everyone joining our call this morning. Thank you. During the third quarter, we continue to see robustness across most of our end markets, particularly within the commercial aerospace, defense, and networking sectors, with continued steady rebound within our distribution channel and consumer lines. Our profitability this quarter surpassed our expectations thanks to the continued dedication and discipline of our global team. This strong performance reflects our global team's dedication from pursuing strategic business opportunities and investing in key customers to effective procurement cost management, operational efficiencies, and improved fixed cost absorption, resulting from increased sales volumes. As part of our ongoing commitment to operational excellence, we are continuously reviewing our global footprint with an eye towards scaling Bell for long-term performance. In October, we made the strategic decision to transition operations from an additional facility in China to a subcontractor during the fourth quarter of 2025. This move follows a thorough evaluation of internal manufacturing costs versus outsourcing, and outsourcing in this instance proved to be the better alternative. We expect the transition to largely be completed by December 2025 with a fair amount of annualized cost savings to be occurring as we head into next year. We're also progressing with the restructuring initiative at our Glenrock, Pennsylvania facility. Following the sale of the building in the second quarter of 2025, we are now transitioning the remaining manufacturing operations to other bell sites, with full completion expected by early 2026. The Glenrock initiative is projected to incur minimal incremental restructuring cost in Q4 2025. And throughout this process, we have already realized significant annualized savings as we had previously discussed. To put this in perspective for some of our newer investors, our restructuring efforts over the past four years have resulted in seven facility consolidations in addition to the sale of our check business in 2023. These actions have resulted in over 600,000 plus net square footage reduction in our manufacturing lines while leaning into automation and investing for the future of our factories. And I recall that, again, just to put a pin on it in terms of where we are heading, which is the more important part. As we approach the end of 2025 and look ahead to 2026, our focus is and has been firmly on our go-to-market strategy and driving growth, both organically and inorganically. Throughout the past few months, we have been meeting with Bell's key leadership across the world to identify the areas, methods, and resources needed to better achieve top-line growth. While we're in the early stages of strategic planning, I want to emphasize the exciting collaboration and energy within Bell'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 Bell to them. This mindset shift will take a while to cement, but is a logical step for a company such as Bell, given the impressive breadth of our product portfolio. This is an exciting effort and one that is key for a long cycle design business such as Bell. In addition to driving growth, we're investing in the foundational structures that support our business, especially around IT systems and data infrastructure. To give you an example of some of the current initiatives, we are in the process of updating and implementing the CRM platforms, travel management software, developing various dashboards, tools for key financial and operational metrics and KPIs. These enhancements will enable our leaders to make faster data-driven decisions, strengthen accountability, and improve overall performance. Standardizing our processes and terminology will also allow us to scale efficiently and seamlessly integrate future acquisitions. In summary, there's a tremendous amount of activity and excitement underway at Bell, all aligned to our common goals of growth and continued maturity. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and some color on the Q4 outlook. Lynn?

Lynn Hutkin | CFO

Thank you, Farouk. From a financial perspective, we delivered another strong quarter marked by continued margin expansion and robust sales growth across all segments. Third quarter 2025 sales totaled 179 million, representing a 44.8% increase compared to the same quarter last year. In addition to the 34.4 million of incremental revenue in the current quarter related to the Enercon acquisition, Each of our three product segments achieved double-digit organic growth over last year's third quarter. Profitability improved alongside sales, with gross margin rising to 39.7% in Q3 25, up from 36.1% in Q3 24. This margin expansion was driven by improved absorption of our fixed costs in our factories with the higher sales volumes, and by strong execution within each of our segments in maintaining discipline around the SKU level profitability. Turning to some details at the product group level, power solutions and protection delivered another exceptional quarter with sales reaching 94.4 million, representing a 94% increase compared to the third quarter of last year. Excluding A and B, organic sales grew by 11.3 million or 23.2%. reflecting strong demand for our power products in key markets. Sales of power products for networking applications increased by 11.4 million. Growth within the networking market reflects both rebound in demand following a long period of inventory destocking and new incremental demand driven by AI. As we've noted in the past, it is difficult to isolate exactly how much of this growth is AI driven. but to provide a comparable metric to prior quarters, our third-quarter sales into AI-specific customers were 3.2 million in Q3-25, up from 1.8 million in Q3-24. Other areas of strength within the power segment were seen in sales of our FUSE products, which were up 1.8 million, or 41%, from Q3-24, and an increase of sales into consumer applications of 2.3 million, or 39%, from Q3 24. As an important note, FUSE products and consumer-facing products have very short lead times and are generally the first areas where we see the pickup in inter-quarter turns, which is a positive indicator for the overall business. As an offsetting factor, e-mobility sales were 2.2 million in Q3 25 versus the 3.4 million in Q3-24, and sales into the rail market were 8 million in Q3-25 versus 9 million in Q3-24. Gross margin for the segment came in at 41.8 percent for the quarter, up 240 basis points from Q3-24, largely driven by the higher sales volumes and better absorption of fixed costs at our factories. Turning to our connectivity solutions group, sales for the third quarter of 2025 reached 61.9 million, up 11% compared to Q3 24. This growth was primarily driven by strong performance and commercial aerospace applications, where sales totaled 18.8 million, an increase of 6.3 million, or 50.5% year over year. Connectivity product sales into defense applications also continued to be robust in the third quarter, with sales rising 3.6 million, a 31.2 percent increase from the prior year quarter. Contained within our defense number here are sales into space applications, which amounted to 2.5 million in Q3-25, up 25 percent from Q3-24. While connectivity sales through the distribution channel were down 1.9 million or 9.7% versus Q3 24, it's important to note that this reflects the shift of an end customer out of the distribution channel and who we are now servicing directly. Profitability within the connectivity segment continued to improve with gross margin for the group rising to 40.3% in Q3 25 from 36.6 percent in Q3 24. This margin expansion reflects the benefits of operational efficiencies achieved through facility consolidations completed last year and a more favorable product mix. These positive factors were partially offset by minimum wage increases in Mexico and foreign exchange pressures related to the peso. Lastly, our magnetic solutions group delivered a strong quarter with sales reaching 22.7 million, an 18% increase compared to Q3 24. This performance was consistent with the expectations we shared on our last earnings call and was primarily driven by higher shipments to a major networking customer. Gross margin for the group improved to 29% in Q3 25, up from 27.3% in Q3 24. This margin expansion was supported by higher sales base and the benefits of facility consolidations in China, which helped reduce fixed overhead costs. These gains were partially offset by minimum wage increases in China and unsavorable foreign exchange impacts related to the remedy. At September 30, 2025, R&D expenses totaled $7.5 million in Q3, 2025. representing an increase of 2.1 million compared to Q3 24. This increase was primarily attributable to the inclusion of Enercon's R&D costs, which amounted to 2 million during Q3 25. Looking ahead, we anticipate that R&D expenses in future quarters will generally remain consistent with the Q3 25 level, as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Our selling general and administrative expenses for the third quarter of 2025 were 32.8 million, or 18.3 percent of sales, up from 26.7 million in Q3 24. Importantly, SG&A as a percentage of sales declined from 21.6 percent last year. reflecting continued progress in managing our cost structure as our business grows. The increase in total SG&A dollars was primarily driven by the inclusion of Enercon's SG&A expenses, which contributed $6.6 million to the quarter, and our U.S. medical claims continued to be high in the third quarter. As noted in prior quarters, our legacy level of SG&A expense was maintained during our period of reduced sales, such that we believe we are already spending the right amount on fixed SG&A infrastructure needed to support future growth. Turning to our balance sheet and cash flow, we closed the quarter with $57.7 million in cash and securities, down $10.5 million from year end. This decrease was primarily driven by our proactive efforts to strengthen the balance sheet, including paying down $62.5 million in long-term debt. resulting in $225 million of total debt outstanding at September 30 of 2025. Additionally, we made $2.5 million in dividend payments and invested $8.6 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and 1 million from the sale of health 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. In light of this historical trend and based on the information available as of today, we expect Q4 25 sales to be in the range of 165 to 180 million. We noted in the second and third quarters that the trend of inter-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 | Conference Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Bobby Brooks from Northland Capital Markets.

Please go ahead. Bobby Brooks | Analyst, Northland Capital Markets

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

Farouk Tewik | President & CEO

Yeah. Hey Bobby, just, I'll let kind of Lynn jump in here with the more details, but I just want to kind of call out a comment that caught my ear here, which is, this kind of step down over Q4, I think you said bucking the seasonality trend. I think if you look at, you know, we see a potential of that if you just look at the range that we put out there, 165 to 180 versus, let's say, the 179 that was delivered, so possibly. But when we look at the range, I think it's broader than that in the sense that we do expect some seasonality, right? I mean, at the end of the day... we're going to have fundamentally less working days as we head into the holiday season and year end and as we look kind of around the world and also just various holidays, whether it be kind of Golden Week or some of the holidays, for example, in Israel. So I just want to be mindful that we just do have less working days. So could it happen? Sure. I think the good news is we're expecting it to be a good quarter, and maybe we beat Q3, but I just want to be mindful of that. And I'll turn that over to Lynn here.

Lynn Hutkin | CFO

Yeah, so just to add to what Farouk said, I think that we are seeing continued strength in areas like commercial air, defense, AI, space. We are continuing to see the rebound coming through in networking and distribution. So all of these trends are continuing from Q3 into Q4. So it's definitely end market strength continuing. But to Farouk's point, just mathematically, there are fewer production days in the quarter. So there's Golden Week in China, which was the first week of October. And then there's Thanksgiving and all of the winter holidays throughout the world in December. So those are the pieces. So I mean, if you stripped out the holidays, the messaging would likely be different. you know, if you look back at our trend historically, you know, having a dip from Q3 to Q4 is pretty natural for us.

So. Bobby Brooks | Analyst, Northland Capital Markets

Yeah, I really appreciate that color. And I guess more so it's just, I definitely can appreciate that. Yeah. You know, a lot of the ranges would be for QB coming in lower than three Q, but I guess what just caught my eye was the guidance that you gave matched what the guidance was for three Q and, And usually your guidance is for even the high end of the range being lower than what 3.2 was. But I can appreciate those puts and takes you just laid out. The other piece is just like on those legacy customers and kind of the order trends, is it fair to assume that those, it seems like it's fair to assume that those are still trending positively, but maybe could you give some more context as to like how to think about where they could go like obviously we're coming off like trough levels in 24 but do you think they can like do you feel like they are like continuing to improve or are they just at an improved level now stabilizing just curious to hear more on that i think if we look if we zoom out and we look at kind of let's say the last five years 2020 2025 i think the industry would generally agree with the statement that it's been anything but normal Farouk Tewik | President & CEO: 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 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 maybe hesitation, if you will, on the part of the customers and kind of robustly coming back. So the good news is that the attitudes have changed a little bit, I think, from a historical perspective. But what we are seeing in our business, and we're looking at backlog and discussions, there's definitely a positive outlook. I think maybe if you look back at, again, we have a lot of customers in a lot of places, so just general terms here. But generally, we'd see people maybe coming back a little bit stronger. And I think if you look at the industry-wide, and I was at a conference last week, there was a little bit of timidness. So people are maybe not investing as much in a buffer stock and really more kind of just ordering as needed. But what we really look at is the end demand, right? Our customers' demand. We're in a B2B business. So what does their demand cycles look like? Where are their products going? And are they growing? And the answer is yes, as reflected with our number and with our guide. So we like the outlook, but I think it's hard to generalize that everybody is feeling all, you know, yippy about the world. So nonetheless, we like our positioning. We like where we are with our customers. And I think we'll have pretty good outcomes here.

Lynn Hutkin | CFO

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

Bobby Brooks | Analyst, Northland Capital Markets

Got it. And then just last one for me is, It was really impressive when you were going through each kind of segment of the power, and it really seems like power was driven, this robust results in power were driven across many different segments. And it was nice to hear you break out what Enercom was as well. And just curious on Enercom, You know, is the integration of them into you guys kind of wrapped up now, or is there still a bit more to go? And then just curious on, obviously, you guys are working on long lead time projects, but any early reads on kind of cross-selling opportunities maybe started to bubble up here?

Farouk Tewik | President & CEO

Yeah, so I would say I think we want to be just mindful of the word, you know, integration, because the plan was never... kind of a, let's say, classical approach to integration, right? So for our, when we think about integration, it's really around alignment from a go-to-market and tackling opportunities and co-selling and making sure that we are kind of creating opportunities together. And obviously, in Europe, it's a little bit of a different playbook as we've talked about in the past, right, just in terms of trying to manufacture a little bit more there and be more present in our customers' backyards. But putting all that aside, I think we're definitely moving in the right direction. There's definitely obviously more work to be done, but we are seeing some nice, let's say, early sparks of where one side of the house is bringing an opportunity to the other side of the house. I think our, let's call it, lead sharing, co-tackling is better, but we do have more room to go, keeping in mind that while we also want to do that, it is a very busy market, right? So step one, we'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 could do a little bit more, and we plan on doing a little bit more.

Bobby Brooks | Analyst, Northland Capital Markets

Fair enough. Appreciate the call and congrats on the great quarter. Our turn of the queue.

Farouk Tewik | President & CEO

Thanks, Bobby.

Bobby Brooks | Analyst, Northland Capital Markets

Thank you.

Operator | Conference Operator

Thank you. We take the next question from the line of Theodore O'Neill from Litchfield Health Research.

Please go ahead. Theodore O'Neill | Analyst, Litchfield Health Research

Yeah, 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?

Farouk Tewik | President & CEO

So I would say, first of all, I thank you for the question there, Theo. I'd say, you know, we've kind of talked about in the past, distribution is a very dynamic channel. And they're great and key partners for us and within our industry. And it's really hard to paint this in a broad stroke, but I'll try my best. Some customers... while we may design and work with them directly, ultimately they want the distributor to aggregate all their purchases, right? So we may start the relationship direct and it goes into the distribution channel to give them some kind of fixed fee. And the inverse of that also happens where a customer comes to us through distribution and then we develop something together and it can be distributed and worked through the distributor or sometimes it does come out. So it happens both ways. And I would also say some of the guiding principles on that include minimum order quantity. So if it's something smaller, we'd want it to go through distribution. So sometimes we push people into the distribution channel to really maximize our cost to service these customers' model. So I would say it's definitely a dynamic channel. And I would say when we look at distribution, it's a great discovery channel for new customers. So I wouldn't say we're doing anything unusual in our industry. But because at the same time, we're not looking to burn the relationships, right? So this is pretty, pretty standard, I would say. The other thing is not all distributors are the same. There are some folks that really focus on kind of low quantities. 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. So I'd say the answer is depends. But I wouldn't say anything unnatural or odd happened here.

Theodore O'Neill | Analyst, Litchfield Health Research

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

Farouk Tewik | President & CEO

Yeah, 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's both in terms of just 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. but we definitely have some opportunities ahead of us that we're kind of working through. I would also say is it feels like if you look at our course of a corner, we always have something live. The question is, do you want to strike and do you like the business fundamentals? So that kind of answers our question, Theo.

Theodore O'Neill | Analyst, Litchfield Health Research

Yep.

Thanks very much. Farouk Tewik | President & CEO

Thank you.

Operator | Conference Operator

Thank you. We take the next question from the line of Jim Ricciuti from Needham and Company.

Please go ahead. Jim Ricciuti | Analyst, Needham & Company

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?

Lynn Hutkin | CFO

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

Farouk Tewik | President & CEO

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

Jim Ricciuti | Analyst, Needham & Company

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

Lynn Hutkin | CFO

Yeah, so in networking, and if we talk about, are you asking about a particular segment or just in general, Jim?

Jim Ricciuti | Analyst, Needham & Company

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

Lynn Hutkin | CFO

So that was right. 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. So it's It's a mix of those two that's driving the growth in networking.

Jim Ricciuti | Analyst, Needham & Company

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

Lynn Hutkin | CFO

So each of the segments were above one. So we saw positive book-to-bills.

across all three segments. Jim Ricciuti | Analyst, Needham & Company

Great.

Thank you. Operator | Conference Operator

Thank you. We take the next question from the line of Greg Baum from Craig Hallam. Please go ahead. for Greg Baum\ Hey, guys. This is Danny Agerchon for Greg today. Congrats on the solid results here. Thank you. 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. So maybe just kind of what you're seeing, you know, current day and whether those have kind of just returned to business as usual.

Farouk Tewik | President & CEO

Yeah, I'd say, I think that's a good question. I think giving our end markets, so understanding, right, kind of taking a step back and saying we're, you know, the numbers move around a little bit, but by far, two-thirds plus of our business is going to expose to U.S.-based customers, right? And 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 U.S., Israel, and Europe. So when we look at geographies with the lens of the end markets, you know, I'd say the U.S.-based customers and Israeli-based customers are probably leading the way. And then also on the networking side, also those are the vast majority of the people we spend time with. Asia is our smallest exposure. and then Europe slash Israel is in the middle, right? So from a mathematical perspective, we're going to really kind of move the needle as we've seen, as we see our, I'd say, U.S. and Israel business moves predominantly. In terms of demand environment, I'd say the U.S. seems a little bit more healthier, broadly speaking. When we look at Europe, I think it's a little bit of a mixed bag. So our rail business is a fair amount. In Europe, for example, right, we talked about. So that was a little bit down. EV and e-mobility, which sits in our power group, tends to be more European exposure. Obviously, there's other things going on in that sector. But Europe, I'd say, is a mixed bag. It really depends on what it is you're talking about in terms of in-market exposure. Asia is kind of an interesting place for us. It is a small place. But we have, throughout this year, invested in the senior leadership within our sales organization in Asia. And I think we're seeing some nice opportunities coming out of that. So we like what we're seeing, but Asia generally is a smaller play for us. But also keep in mind that for us in the end markets we play in, right, we're not really a heavy consumer business. We're not auto. And we, you know, obviously we're not a race to the bottom on pricing. So Asia for us is a selective strategic play where we pick our spot. So we can do more in Asia. We were planning on doing more in Asia. But I'd say that, you know, that's kind of just round robin there on geographies. for Greg Baum\ Yeah, got it. That's all really helpful. Maybe if I can hit on the power segment and specifically the kind of the gross margin there, I think, is kind of the same thing we saw last quarter where, you know, even this quarter you see even a bigger sequential step up in revenue, but that gross margin kind of stays flat or maybe even slightly steps down. I know last quarter was kind of the legacy business outgrowing Enercon and kind of being a negative mix factor there. So I guess how should we think about that as power continues its growth trajectory and when should we think about kind of that gross margin hooking up with the revenue growth and seeing some expansion there?

Lynn Hutkin | CFO

Yeah, so I think on the gross margin side for power, I mean, there's a few different factors going on. Obviously, the Enercon acquisition is additive to our legacy power margins. I think the one thing to keep in mind, you know, both in Q3 and going forward here is is there are two currencies within the power segment where there could be margin pressure. So we have the Israeli shekel related to the UNRCON business, and then also the remandee related to the China facility that we have within power. And we don't have a natural hedge in place. We do have some hedging programs, but they're not hedging in all exposure. So that's something that we just need to be mindful of because that can move margins a little bit.

Farouk Tewik | President & CEO

And then also keeping in mind, you know, some of our other margin businesses like e-mobility and rail are down and there's going to be a higher margin. I think the bigger, you know, I think discussion is today we're at a point where I would say we're at great levels of gross margin. And if we're trying to think about growth What is the opportunity there to expand to new customers, new offerings, and new products versus having an extremely strict line on gross margin? So that's kind of something we're thinking about. 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, our SG&A and R&D are relatively range-bound products. So how do we really get some operational leverage from that cost structure to continue to drive the top line? So these are kind of things that we're all kind of thinking about, but I would say today we're definitely up there in terms of performance on margins. for Greg Baum\ 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%, and Obviously, revenue levels in Q4, that suggests, you know, higher than, quite a bit higher than what we saw in the first half, you know, at the midpoint here. So I'm sure it's a lot of those factors that you just talked about, but any other things within that gross margin assumptions maybe mix or maybe there's a little bit of conservatism built in there. Any thoughts there?

Lynn Hutkin | CFO

Dr. Yeah, so I think it's a couple of factors. You know, one is our magnetics group has been depressed over the last couple of years, right? So, as that rebounds, it is our lowest gross margin segment. So, if you're looking at our gross margin in total on a consolidated basis, that would have some downward pressure on it as magnetics grows into a larger piece of the overall pie. So, that's one piece to keep in mind. I think, the, you know, if we're looking at Q3 sales to Q4, you know, seasonally, we're down a bit in Q4 versus Q3. So if that happens, you have less leverage, you know, within your fixed cost absorption, so that could have some potential gross margin pressure. And then, as I mentioned, on the FX side, with the peso, the renminbi, and the shekel, those do directly impact our margins. So those are some of the factors that come into play when we are putting out our guide for margin for the fourth quarter. for Greg Baum\ Okay, got it. I will leave it there. Thanks for all the color.

Lynn Hutkin | CFO

Thank you.

Thank you. Operator | Conference Operator

Thank you. We take the next question from the line of Christopher Glynn from Oppenheimer and Company.

Please go ahead. Christopher Glynn | Analyst, Oppenheimer & Co.

Yeah, thanks. Good morning and congrats on the nice results. Just curious in terms of the development of the commercial multiple that you've described in some detail, where are you seeing the kind of leading end of progress, early adopters, so to speak, in terms of design cycles, new business opportunities generating? 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.

Farouk Tewik | President & CEO

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

Christopher Glynn | Analyst, Oppenheimer & Co.

Yeah, yeah, exactly. And maybe a little color on, you know, new business opportunities. You know, what's the growth there year over year?

Farouk Tewik | President & CEO

Yeah. So in general terms, right, we, as an engineering-led organization, and we've talked about this, we're a medium to long-term kind of design cycle business. So 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 one to two, three years to see what was done then. and kind of seeing where these winds have come, right? So I would, obviously, as Lynn said, we do have some inter-quarter turns that do happen. But generally, I would say what happened in Q3 here is probably not a whole lot in large in terms of new business, things that happened in Q2, maybe some Q1 stuff, okay? So this puts a big pressure on us to make sure that today we are working Q3 or Q4 here. We're working for Q2, Q3, Q4 next year and beyond. So the question is, okay, well, how are we as a team tackling go-to-market and what is our sales initiatives and what is our data side of things to help lead those kind of tip of the spear activities? When we look at the activity around new developments and new wins that we saw, for example, in Q3, it's definitely, 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 kind of co-tackle it appropriately. Obviously, with the customers we've had for a very long time, we, I would say, probably constantly win new programs, right? When we look at, obviously... Defense, which is our biggest kind of market nowadays, you know, it's not like there's a whole lot of primes in the U.S., right? So really there we look at are we getting more shots on goal? Are we getting new opportunities as I win? And I think the answer is yes. When I speak to the teams across Bell Pews, 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. Again, we've always done this throughout our 76-year history, but I think we're putting more fire around it in recent times. And this was kind of my earlier commentary here, Chris, where When today our business is really kind of, we think about things to some extent from a product perspective, but we have a lot of products that go to the same customer. So how can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing, you know, a cable or a connector or a fuse sale because we're selling a power system. So when we look at our product portfolio, I think we can do more with it. And this is back to also my earlier comment here around we've got to invest in the systems and structures that we can make sure we're going after highest ROI opportunities and really measuring performance. It was a little bit of a new muscle for us, but I think the early signs and the wins we're seeing today, we've kind of got to look back, you know, probably before 2025, to be honest with you. Okay, great.

Christopher Glynn | Analyst, Oppenheimer & Co.

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

Farouk Tewik | President & CEO

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

Thanks for that. Thank you. Operator | Conference Operator

Thank you. We take the next question from the line of Luke Jung from BED.

Please go ahead. Luke Jung | Analyst, BED

Morning. Thanks for taking the question. Brooke, I want to circle back to gross margins and maybe more of a philosophical, a bit bigger picture, certainly. You know, if we look at the gross margin trend this year, it's been above the high-ended guidance through straight quarters, 39% plus in general. And just love to get your thoughts on kind of your feel for volume leverage in the business on a go-forward basis, especially as you continue to layer on those new design wins, just relative to your understanding of the improved cost structure and kind of what that can mean incrementally as you do add volume.

Thank you. Farouk Tewik | President & CEO

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? And I think by all accounts, putting aside our mix between magnetics and the other segments, yes, we're seeing an uplift in margin as sales grow and we are getting operational leverage. The question is, Now that we are really trying to shift our mindset away from just operations and cost efficiency, which always just become regular way table stakes, how do you drive growth? So as we launch new products and go after new customers, invest in new relationships and new technologies, we need to be honest with ourselves and say, okay, what is the pricing strategy on things? So for example, let's say there's a very nice piece of business that was, I don't know, $1 million, $2 million. That was a little bit below corporate averages. But over time, we can scale it up and also get new opportunities. Would we take that business? I think we really need to consider that if it's a strategic relationship. I think the gross margin strategy, let's say, has not been one that was available to us through our history. So now we've got to look at it as an asset and as a tool. Now, keeping in mind, we worked very hard to get our gross margins here, right? We don't want to arbitrarily... uh you know can i get it you know footer into that 37 39 so i think there's a little bit of self-discovery to be honest with you as to where we should be i think when we look at gross margins today i want to make sure we're not pigging out too much um and just and really missing the boat on on eps growth um given that we talked about the range boundness of our sgna and r d so that's i think the sense of maybe a little bit of conservatism there i think the the I appreciate in public markets that everybody's looking to manage a certain level of expectations. But our intention, and we've talked about this internally, is we want to land in range, right? We don't really want to blow the range on the top or on the bottom. So I think our – and we get the optics here, the last three quarters here point. I think we can see some conservatism in it. That's fair. The question is, you know, okay, as we go throughout next year, you know, where do we want to be? The good news is we have a lot of, we have a buffet of options to play while delivering good returns, good gross margins to our investors, and that's kind of the front and center. So it's a little bit of a self-discovery journey we're going through, to be honest.

Luke Jung | Analyst, BED

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, 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. But as you think about building the pipeline, just the opportunity set within Power specifically.

Thank you. Farouk Tewik | President & CEO

Yeah, 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 and be a little bit maybe more serious about it than we have been able to in the past. Okay. So as a result of that, as we think about networking, there's obviously, as Lynn talked about earlier, we know where our AI products are going, but that's a floor, right? And we know that we sell to some other networking folks that are servicing directly AI. So we know that our products that we're selling to networking guys are probably also being impacted by AI. How do you measure it is a different complexity to it, right? Because our products are high-end products that can go to AI or other applications. But I think it's hard to say that all things going on in the AI data center world is not positively impacting us. The other thing I would say is with the improved operational structure and more focus on the markets is we have, I'd say, started to open up doors with some customers that maybe in the past we were not cost competitive or we're not focused on maybe a little bit too much in our comfort zone. So we're seeing some of that newness as well. The other thing I would say in the networking side, given that there's a lot of investment and focus on it, broadly speaking, we are seeing new entrants into the markets. with newer technologies. So all that, I think, at the end of the day is additive for us from a networking perspective. So, you know, we want to make sure that we're not just simply waiting for the 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. The question is, how can you do so much more, right? And that's kind of what we're trying to really push the team. And quite frankly, we're seeing some nice results of that.

Luke Jung | Analyst, BED

All really great, Collin. 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 the fourth quarter, if you have any visibility, and then going into next year to the extent that that doesn't repeat, would it be reasonable to assume some normalization in SG&A?

Thank you. Farouk Tewik | President & CEO

Yeah, I would say the – can I give some context here? We're really talking about the U.S. side of the business, and obviously we all read and feel what's going on in all things world of health care and medical care. We are a self-insured plan, right? And whenever we do kind of market checks on it, it still is the most cost advantageous way to do it. So every kind of few years we go out there and check and make sure it's the right. So today we are self-insured. The downside of self-insurance is there could be variability in claims that come in the door. And we're seeing that in Q2 and Q3. But the variability is hard to get a read on it, right? We just don't know when somebody is going to have a major medical issue that comes our way. The plus side of going to a regular way 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? 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, you know, as just, you know, the overall age of our organization, right, medical claims are not unexpected. So what does that mean for next year? I think that's a tough question to answer for us. But then we obviously saw a spike in Q2 and Q3 a little bit here.

Operator | Conference Operator

Fair enough. I'll leave it there. Thanks, Brooke. Thank you. Thank you. We take the next question from the line of Hendy Susanto from Gabelli Funds.

Please go ahead. Hendy Susanto | Analyst, Gabelli Funds

Good morning, Farouk and Lynn. Congrats on strong results. Thank you. My first question is you talk about rebound in networking and distribution customers. Can you talk about rebound or sign-off rebounds across other areas, specifically let's say in magnetic, connectivity, and then some major areas?

Lynn Hutkin | CFO

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

Hendy Susanto | Analyst, Gabelli Funds

I think besides networking and distribution channels, are there early signs of inventory rebound, customers rebuilding their inventory, or maybe whether you have some outlook or expectation on where rebounds would start to take place in other areas?

Lynn Hutkin | CFO

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

Hendy Susanto | Analyst, Gabelli Funds

Got it. And then magnetic cells is still significantly below pre-COVID levels. Any push and take in terms of expectation on magnetic cells, let's say like going forward, like whether recovery is somewhat likely in the short to mid-term?

Farouk Tewik | President & CEO

So I think when we look at Magnetics India, I think when we look at the industry, and we've seen this in our power, right, there was a very unnatural spike that happened back in 2022, 2023, where customers were literally buying and renting new warehouses just to store a lot of these components. Um, so there was a, let's say unnatural behavior there today. So we, you know, if we're 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, is, is, you know, probably not on the cards for the next few years. Cause also remember we walked away from certain business and we are being prudent after what business we're going after. And also keeping in mind that the magnetics, as we talked about, there is a product concentration and a two-end market concentration, which is networking and distribution largely. So if we were to look at the ranges of 75 to 175, I would say the range is 180 to 70. So I'll let you kind of decide where we are, but we're seeing the year-over-year overgrowth But 2022 at 180 was extremely unnatural, and we've slimmed down the business since then, so I would not really anchor to that. So I'll kind of leave it at that, but we do think that we got some ways to go here.

Got it. Hendy Susanto | Analyst, Gabelli Funds

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

Lynn Hutkin | CFO

The pace of debt payments going forward?

Hendy Susanto | Analyst, Gabelli Funds

Yes.

Lynn Hutkin | CFO

Yep. So, 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. So, we would continue to pay down debt. That would be our first, you know, priority barring anything on the M&A side.

Hendy Susanto | Analyst, Gabelli Funds

Thank you, Farouk. Thank you, Lynn.

Thank you. Operator | Conference Operator

Thank you. Ladies and gentlemen, with that, we conclude the question and answer session. I would now hand the conference over to Farouk Twig for his closing comments.

Farouk Tewik | President & CEO

Again, I want to thank everybody for joining us here and a very big thank you for the BellFuse team around the world and our customers that helped us deliver this great quarter. and we'll put our head down to continue to work throughout the year here 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 | Conference Operator

Thank you. Ladies and gentlemen, the conference of Bell Fuse, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines. jsPDF 3.0.3 D:20260606090007-00'00'