Bel Fuse Inc /Nj Q2 FY2025 Earnings Call

Good morning, and welcome to the Bel Fuse Second Quarter 2025 Earnings Call. 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.

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

Thank you, Jean, and good morning, everyone. We are very pleased with our second quarter performance, which surpassed our revenue expectations and delivered gross margins at the higher end of our projected range. The Bel team really came through strong, aided by a few factors, including end market performance and an uptick in our intra-quarter turns, which we have not really seen much in recent quarters, particularly in our Power and Magnetics segments. From an end market standpoint, commercial air, defense, and networking led the way along with certain pockets of distribution sales within the Power and Magnetics segments. These trends signal that we are heading into recovery as we have been anticipating following nearly two years of inventory destocking in the channel. They reinforce our confidence in continued growth as we move into the second half of the year, setting aside some of the geopolitical noise around tariffs. During our last quarterly call, the potential effects of tariffs on our sales and margins were uncertain. In retrospect, tariffs had a limited impact in the second quarter, accounting for about $2 million of our sales and having a minimal effect on margins. Although we have slightly better clarity now, there are still many variables at play regarding tariffs, and we will continue to adapt to this evolving landscape in collaboration with our suppliers and customers. Overall, we are encouraged by the strong results this quarter and are excited by the momentum building within the business as we head into the second half of the year. Looking ahead to the third quarter, we are optimistic about continued growth with sales guidance in the range of $165 million to $180 million and gross margins projected between 37% and 39%. Strong bookings in Q2 support our expectation of sequential growth for the remainder of the year, and we remain confident in our ability to deliver value to both our customers and shareholders. With that, I'll turn the call over to Lynn to run through financial highlights from the quarter. Lynn?

Thank you, Farouq. From a financial perspective, sales for the second quarter of 2025 reached $168.3 million, reflecting an increase of 26.3% from the second quarter of 2024. Strong performance in our A&D end market and improved sales in our Magnetics segment helped offset the year-over-year decline in our consumer, rail, and e-mobility end markets within our Power segment during the second quarter of 2025 compared to the same period of 2024. Turning to our product groups, sales of Power Solutions and Protection in the second quarter of 2025 amounted to $86.8 million, representing an increase of 48.2% compared to the same period last year. This growth was largely driven by our aerospace and defense exposure, which contributed $32.6 million to the Power segment for the second quarter of 2025. On the consumer side, sales decreased by $1.7 million in Q2 '25 compared to Q2 '24, primarily due to the trade restriction imposed on one of our suppliers in China, as mentioned in prior earnings calls. Additionally, given that e-mobility sales were still robust in Q2 of '24, we saw a $2.3 million year-over-year decline in this end market in Q2 '25. Sales into the rail end market have been normalizing in 2025, coming off a strong 2024, resulting in a $3.3 million reduction during Q2 '25 compared to the same period in '24. These declines were partially offset by a $2.3 million increase in sales to our AI customers, bringing total AI sales for Q2 '25 to $2.6 million. Further, circuit protection sales increased by $1.8 million in Q2 '25 compared to Q2 '24. The gross margin for the Power segment in the second quarter of 2025 was 41.9%, representing a decline of 380 basis points from Q2 '24. If you recall, we had called out in last year's second quarter that approximately 400 basis points of the Power gross margin resulted from nonrecurring items that were reported at 100% gross margin in Q2 '24, such as cancellation fees. Adjusting for that, Power margins were up slightly from Q2 '24 due to the inclusion of the higher-margin Enercon products. Turning to our Connectivity Solutions group, sales for Q2 '25 reached $59.2 million, an increase of 2.4% compared to Q2 '24. Sales for commercial air applications in Q2 '25 were $20.5 million, which represented an increase of $5.1 million or 33% from Q2 '24. Connectivity products sold into defense applications totaled $13.4 million in Q2 '25, an increase of 12% from Q2 '24. And sales into the space end market amounted to $2.3 million in Q2 '25, the same level as in Q2 '24. The gross margin for this group was 39.2% in the second quarter of 2025, representing an improvement of 30 basis points from Q2 '24. This margin expansion was largely attributable to operational efficiencies achieved through facility consolidations completed in 2024, along with favorable foreign exchange impacts related to the peso compared to the 2024 period. These positive drivers were partially offset by minimum wage increases in Mexico that took effect in 2025. Lastly, in the second quarter of 2025, our Magnetic Solutions group recorded sales of $22.3 million, representing an increase of 32.5% compared to the second quarter of 2024, led by a rebound in demand from our networking customers and through the distribution channel. This level of growth aligns with expectations discussed during last quarter's earnings call, where we noted this segment would be our highest percentage grower in 2025. The gross margin for the Magnetics group improved to 28.7% in Q2 '25 compared to 26.4% in Q2 '24, marking an improvement of 230 basis points year-over-year. This increase in margin was primarily driven by the higher sales volume in Q2 '25 as well as improved operational efficiencies from the recent facility consolidations in China. R&D expenses reached $8.1 million in Q2 '25, a higher level compared to Q2 '24, primarily due to the acquisition of Enercon. Our annual compensation increases also now occur in March each year, and this also contributed to the higher expense in Q2 '25. We expect future quarters to generally align with the Q2 '25 expense. Selling, general and administrative expenses totaled $30.9 million, representing 18.4% of sales. Compared to the prior year, SG&A increased by $6.8 million in the second quarter of 2025. The increase was primarily driven by Enercon's SG&A expenses, which contributed $6 million in the second quarter of 2025, in addition to annual compensation adjustments that took effect in March '25 and higher-than-anticipated medical claims during the second quarter of 2025. One last item to note on the P&L side as we look to Q3 is the foreign exchange environment that we're currently in and the weakening U.S. dollar versus each of the three currencies that Bel has exposure to, namely the Chinese renminbi, the Mexican peso, and the Israeli shekel. We have hedging programs in place for each of these currencies to help mitigate some of the financial impacts of the movements in these rates, but our gross margin guide for Q3 of 37% to 39% does factor in some potential downward pressure related to FX. Looking at our balance sheet and cash flow, we finished the quarter with $59.3 million in cash and securities. During the second quarter of 2025, we utilized $30 million of cash for repayment of long-term debt. This paydown in the second quarter alone results in a $1.7 million reduction in our annual interest expense. Other cash uses during the quarter included $3.9 million on capital expenditures and dividend payments of $800,000. These payments were largely offset by $20.7 million in cash flow generated from operating activities during the second quarter. That concludes our commentary on the second quarter results. And I'd now like to turn the call back to the operator to open the call for questions.

And our first question today comes from Bobby Brooks with Northland Capital.

Congrats on the outstanding quarter. I was curious to hear a bit more about the trends you're seeing that underpin the guidance. The press release mentioned a rebound in networking and some other segments within distribution along with the strong Q2 bookings, which I think you said lead you to believe that you're going to see sequential growth in the back half. Maybe can we just expand on that? And is it old customers returning to normal ordering patterns, new customers coming into the fold or maybe something different?

Yes. So Bobby, what we had talked about earlier in the year is that orders had started to pick up in the first quarter, and we saw that trend continue in the second quarter. A lot of that has to do with the expected rebounding in networking, which largely impacts the Power and Magnetics groups and then also within the distribution channel. So if you recall, within connectivity, distribution had been fairly stable over the last couple of years for the Connectivity segment, but it had been depressed with the overstocking situation in the Power and Magnetics segments. So that's where we're seeing the rebound in orders, and that's what we saw coming through in the second quarter, and we continue to see that trend moving forward into the second half of the year.

Got it. So not necessarily it seems like just kind of a return to norm there, not necessarily new customers or just any kind of commentary on maybe new business wins?

Yes, we do have new wins and customers coming in, especially through distribution, which includes some quick turn business like fuses. However, for our long design cycle business, we need a return to growth from both our OEMs and distributors. Distributors interact with many new and recurring customers. In our channels, we are seeing new business and had several significant wins in the quarter, particularly in our aerospace defense sector. But because of the long cycle of our business, we need our existing customers, who currently have excess inventory, to start ordering again. It’s really a combination of all these factors.

That's helpful information. Are there any strategic growth initiatives or plans for margin improvements for the rest of the year that we should be aware of? Or is it primarily about maintaining operational excellence and enhancing overall business efficiency? Additionally, regarding the sale of the Glen Rock, Pennsylvania facility, could you remind us of the reasons behind that decision? Are there any other facilities that you might consider selling?

Yes. Starting with the Glen Rock situation, we announced that last year, aiming to enhance margins and efficiencies within the Connectivity business by better aligning internal resources and our physical footprint. We've mostly exited equipment and have had the building for sale for some time. Given the current market conditions, it took longer than expected to sell, but we wanted to ensure we received good value. We’ve announced the sale, which allowed us to generate cash and pay down some debt. Currently, there’s nothing else to mention regarding buildings for sale. The number of buildings we own has significantly decreased, with just one still held for sale and no new properties being considered at this time. Regarding strategic initiatives, our team is consistently engaged in various projects of different scales that drive energy and excitement throughout the organization. As we prepare for this call, there’s a strong focus on growth. Our primary goal is to explore how we can enhance our growth while maintaining efficiency. In terms of margin expansion, we do have a mix issue with our lower-margin Magnetics segment that has been growing for us. We continually assess where we can improve margins and our current position. I believe we are in a strong place, likely within the 75th to 80th percentile in the industry concerning margins, which is quite comfortable. There may be some room for improvement, but we must be prudent to ensure our operational expenditures, particularly in R&D, are effectively utilized. We are optimistic about margins, seeing some positive trends on the EBITDA side, but we need to be cautious about expecting excessive expansion.

Our next questions come from the line of Christopher Glynn with Oppenheimer.

So yes, just wondering, you talked about improving orders trends in the first quarter continuing to the second quarter. You also, I think, mentioned improving turns intra-quarter. It sounded a little bit more like a pivot dynamic that you saw, I guess, perhaps shortly after the last earnings call. So just kind of wondering if we could dive into that cadence a little bit.

When we look at normal times, which means you probably have to go back four or five years ago, but usually, you head into the quarter with some expectation of go get. In those days, let's say, obviously, we have a lot of SKUs, but generally, your lead times are anywhere from 8 weeks to 12 weeks, let's say, right? So the things that were a little bit more quicker turns, you would see some of that intra-quarter turn. Obviously, we headed into COVID and post-COVID years where there was extended lead times. So we didn't really see much of that intra-quarter turns. And then we head into over inventory in the channel, right, which just kind of slows everything down. But today, especially on our shorter lead time businesses, for example, fuses, we are seeing heading into the quarter and not having orders and then all of a sudden, the order comes in, we ship it out within the quarter. So that is nice to see because that indicates a little bit more healthiness in the channel and overall the market. So it is an important indicator, I would say, that the market is functioning a little bit more than it's supposed to function or more the right way it's supposed to be functioning.

Yes. And I imagine it's a little tough to bifurcate, but sense of like actual end market improvement in networking. I know that kind of Stage 1 of lack of destock and back to normal that you just described is powerful considering the depth and duration of the channel adjustments. But are you able to tease out kind of the end market pivoting there?

Yes. One of the challenges we face in the distribution channel is that we receive point-of-sale data, which allows us to see what our customers' customers are purchasing from the shelves. There was a discrepancy between what was being sold off the shelves and what we were selling to distribution. Our decline in business was steeper compared to what we observed at the distribution levels. Achieving a degree of normalcy indicates some improvement. In response to your question, Chris, the numbers over the past couple of years weren't as unfavorable as ours, largely due to different ordering patterns. Now, it appears we are beginning to close that gap. Additionally, inventory levels have significantly decreased. This brings us closer to a state where orders are fulfilled efficiently and it becomes more likely that we will receive orders.

Makes sense. And just want to ask about Enercon, you had your second full quarter here. I know you're out intra-quarter talking about it, and it sounds very good. But yes, just curious progress on the integration on the commercial side. I don't think there's a whole lot of operating integration intent there, but perhaps you could clarify that.

Yes. So I think it's going as we anticipated. Obviously, it's a great team doing great products in a great end market. And given where they play in the product and supply and the way they go to market with it, it's been as advertised. And I think the broader comment, just to expand on your question here, Chris, is we think of just defense globally, right? We're seeing it in our Connectivity business, and we're seeing that expand. So where we are in those markets today, which is a good place to be. I think the team is excited. We're, I'd say, collaborating better. I think we have some way to go. As you know, this is a long-cycle design business and regulatory. The customers are very busy with some replenishment sometimes. But we like the direction that we can go, but we can always do better, right? So I think we're situated very well to really capitalize on that acquisition and especially in that end market. So we remain excited and bullish on it.

Our next questions are from the line of Jim Ricchiuti with Needham & Company.

I just wanted to ask about the modest sequential decline in the Power Solutions gross margins. Is that mainly due to the sequential growth in the legacy Power business and the increase in distribution? And it looks like, Lynn, if I heard you correctly, the Enercon contribution was roughly flat compared to Q1.

The Enercon contribution was roughly flat with Q1, yes. So Jim, are you asking about power margins from Q2 last year to Q2 this year or Q1 to Q2?

No. Q1 to Q2. And so I'm wondering if it's just a function of the legacy Power business picking up sequentially or has it...

Correct. Yes. So it's right. So the growth was related not to Enercon sequentially. They were flat quarter-over-quarter from Q1, but it was the legacy Power business, which historically is a lower margin product group than the recently acquired Enercon business.

Got it. I heard you discuss some successes in A&D. It might still be early in this process, but are you noticing any sales synergies related to Enercon? Or are these just separate wins from your broader plans to drive more sales synergies with this business?

Yes. If we look at our Connector team and the Enercon team, they are both achieving success independently at this point. We have seen some opportunities overlap occasionally. However, as a reminder, we mentioned that we don’t anticipate any revenue synergies in 2025, and it’s likely that 2026 is when we might see something, probably in the latter half of that year. This is due to the long design cycles in these businesses and the cautious nature of our customer base. Additionally, there’s a significant backlog on the Enercon side that needs addressing. It’s mostly about long design cycles driven by customers. We also need to consider which customers we're targeting; for our European clients, we need a slightly different strategy, leveraging our European manufacturing capabilities to meet their needs. Overall, the market operates on long design cycles, but fortunately, both teams are independently securing some positive outcomes.

Good. Last question from me, just on commercial air. Again, if I heard you correctly, Lynn, it sounded like you had some nice growth in that part of the business. What are you seeing there? And what kind of expectations do you have as you look out beyond the quarter in that part of the business?

Yes. So Jim, on commercial air, yes, if you recall, in Q1, it was just under $13 million. In Q2, it was $20.5 million. So nice sequential growth there. I think the outlook for commercial air trend is still robust. We do tend to see a bit of patchy ordering patterns, if you will, in that business. So will it be the exact same level as Q2? Unclear at this time, but we do expect it to be robust.

The next questions are from the line of Greg Palm with Craig-Hallum Capital.

Congrats on the results. Going back to the last call, that $8 million to $10 million of so-called paused revenue coming out of China, how much of that was recognized specifically in the quarter? And is the assumption that the entirety gets recognized over the course of Q3, whatever it wasn't in Q2?

Yes. So we took a look at that, Greg, and it was about two-thirds of it ultimately got shipped in the second quarter, and the balance is expected to go out in the third quarter.

Okay. And Farouq, I think you made a comment at the end of your prepared, you said expect sequential growth for the remainder of the year. So are you saying you're expecting sequential growth in the December quarter in Q4 as well over Q3? I just wanted to clarify that.

Yes, that's a good question. When we look at the second half, we expect more strength. Generally, Q1 is our weakest quarter, while Q2 and Q3 are typically our strongest, although there can be some variation. Q4 tends to fall somewhere in between. Additionally, we have the Golden Week in Asia and the holiday seasons to consider. Therefore, we are not ready to commit to sequential growth in Q4 at this moment. We need to observe the orders coming in for Q3 to assess it more accurately. However, given our strong guidance for Q3 and Q4, we do expect the second half to outperform the first half overall.

Yes. Okay. That makes sense. And I guess just sort of broadly speaking, in terms of what you're seeing currently, I mean, how do you know that some of this is not pull-ins ahead of tariffs? Like what's your visibility levels to suggest that none of this is sort of pull-in orders to get ahead of something that's maybe coming?

If we consider a single order, it's possible to see some effects, but it's not a widespread issue. It's important to note that we had strong bookings during the quarter, which means we're beyond previous deadlines for orders. In July, we continued to experience strong bookings that extend beyond current tariff deadlines. The orders are coming from all areas of the business. Previously, about 10% of our revenue was related to China, but now we're seeing growth across the board. Regarding tariffs, the current levels have been absorbed by the market, which no longer perceives them as a major concern like when they were much higher. The market seems comfortable with the lower tariffs, and orders are coming from various sectors of our business, not just those traditionally affected by Chinese tariffs.

In addition to that, we surveyed the global customer service team, who are closely monitoring the situation, to check for any pull-ins. For someone to request a pull-in from their scheduled ship date, they need to submit a request to our customer service department. However, we did not receive any significant input from that survey.

Okay. Yes, I appreciate that color. And last one for me, A&D, which has become the biggest, most important end market, you covered commercial aerospace well. But in terms of defense and maybe this includes Enercon or outside Enercon, just can you remind us like what either programs, end markets, applications, like what do you have? I know it's broad-based, but is there anything that you have maybe outsized exposure to in the defense side specifically?

I would say there are a few primary customers in the U.S. and Israel. So yes, there is some technical customer concentration. However, what’s really important is the diversity of the programs. When we examine the program level within Bel Fuse A&D, it doesn’t show a significant concentration at a high level. The program business is quite diverse and not comparable to commercial aerospace, which does have some concentration. Overall, it's a varied business.

Got it. But you have exposure to missile defense. I guess how does that sort of stack up in terms of programs or...

Missile defense in total, I would say not sure we added that all up, but I would say we're generally heavier levered towards munitions. And generally, I would say, things that fly. We obviously do other things as well, but just general munitions and planes is kind of where we're on average levered.

The next questions are from the line of Luke Junk with Baird.

Farouq, maybe hoping to start with the third quarter guidance. So you beat the high end this quarter, obviously, at the midpoint, you're implying a few million of sequential improvement into 3Q, but you were at the high end, it'd be another 7 points of growth into the third quarter. Just where should we think that upside leverage is in the model? Is it networking? Or should we think it's more broad-based? I guess, I'm gearing to your comments about the orders being robust overall. And I don't know if there's any book-to-bill context you could give us also.

Luke, it's Lynn. So as we look to Q3, I mean, it's really continued strength in aerospace, defense, and then the rebound in networking and the distribution channel. So if we're looking at Q2 to Q3 and potential growth drivers sequentially, it would really be more in the areas of networking and distribution, coupled with strong defense. And I think the range is to take into account the potential for more intra-quarter turns. So they're still not at the level that they were at historically, but we did definitely see an improvement this quarter from where they had been.

Okay. That's helpful. Maybe taking a step back, just bigger picture. I'm thinking of the efforts you've taken in terms of sales force-related efforts, be it leadership, be it the incentive structure and just the timing of starting to see some of that bear fruit relative to your longer design cycles and the sales cycle. Farouq, maybe you can just give us a snapshot of some of the progress markers that you're seeing as of midyear here that maybe aren't obvious in the business from the outside looking in, but maybe contribute later this year into '26.

Yes, given the variety of our operations in different regions and across various product lines, it's challenging to pinpoint specific causes and effects. We've taken numerous initiatives, and we are beginning to witness their results. For instance, regarding the commission structure you mentioned, we implemented it in 2024 and made further enhancements as we approached 2025. Some of our recent successes may be attributed to adjustments in the incentive structure that began last year. Additionally, we are focused on setting objectives and promoting certain products more efficiently, which reflects our winning mentality. It's essential for our sales team to operate effectively, and they must also produce goods cost-efficiently. We began optimizing our facility layout two or three years ago, and we've made significant investments in capital expenditures and automation over the past two years, which are now yielding benefits. Our sales team's strategic direction aligns with our manufacturing team's efficiency, and effective procurement is crucial as well. We need to secure materials at favorable prices, especially in our legacy Power and Magnetics division, to maintain our margins. Furthermore, in terms of executive compensation, 2023 was the first year we established explicit revenue and EBITDA targets for the team, and we are now in our third year as we head into 2025. The factors contributing to our progress are diverse, and it's a collaborative effort involving all aspects of the business, from customer service to sales, R&D, manufacturing, and procurement. This holistic approach is crucial, as relying on a single strategy can be risky. I appreciate the collective team effort toward achieving our goals. While we are not perfect and have areas for improvement, we are pleased with our current progress and believe it's a result of the hard work invested over the past few years.

Our next questions are from the line of Theodore O'Neill with Litchfield Hills Research.

Yes. Congratulations on the good quarter. Lynn, you sort of touched on this, but Connectivity Solutions was up fairly significantly sequentially Q1 to Q2. Were the trends any different there than what you're seeing year-over-year?

So from Q1 to Q2 versus sequentially?

I'm sorry, sequentially versus year-over-year.

We observed an increase in commercial air year-over-year, although it was not as significant as the sequential increase from Q1. In Q2 of last year, commercial air revenue was just over $15 million compared to just under $13 million in Q1 of '25, and it rose to $20.5 million in Q2 of '25. However, there was a decline in distribution sales year-over-year. While we experienced an upswing in distribution for Power and Magnetics this quarter, there was a slight decline in Connectivity distribution, which impacted the comparison between Q2 last year and Q2 this year. Does that answer your questions, Theo?

And Lynn, yes, sure. Regarding depreciation, it has almost doubled year-over-year. What is driving that increase?

With the acquisition of Enercon in November, we added all of their property, plant, and equipment, resulting in step-ups. This led to a significant increase in depreciation and amortization year-over-year due to the new tangible and intangible assets that we recorded.

Congratulations on strong results. Farouq, my first question is about the market recovery and inventory rebuild. Some sales will go towards inventory rebuild. On the other hand, like short lead times may not necessitate inventory rebuild to be done like in the past, and there's also some uncertainty on the tariff that may drive customers to be more cautious when it comes to building inventory. So let's say, like in 2025, you will see some benefit on inventory rebuild. But at the same time, like how should we manage our expectation? And what are some guideposts so that we are not awfully optimistic because inventory rebuild may take some time?

Yes. I would say, Hendi, that's a good question. I think maybe a couple of things is our industry and Bel Fuse, obviously, has been in this trough for a very long time, let's call it, maybe the industry has been in the roughly 2 years. And when we look at that two-year context compared to history, that is a very long time. So now we're coming out of a two-year prolonged trough cycle, I think we do see customers being overall more cautious and hesitant. And quite frankly, we potentially thought growth would have come maybe end of last year or where we would have seen those really, really low inventory levels. So we are operating from a customer universe where people are just more hesitant given tariffs and geopolitical concerns and the world we come in. But at the same time, in a normal cycle, people are not necessarily building inventory, right? They are trying to order things to make products and get it out the door. And sure, you build up some inventory along the way. But when inventory builds up, usually the system is not working appropriately. So now we're heading into hopefully the other side of the cycle where the system is working a little more appropriately.

Okay. And then my next question is the setback due to special Chinese supplier situation that has started like several quarters ago. Can we revisit that, whether it is now fully behind?

I would caution that while we have experienced weakness in sales channels with Chinese suppliers, particularly in consumer end markets and distribution, we've lost revenue as a result of that. The first step to recover this revenue is to identify alternative suppliers, and our team has successfully found many alternatives. We have significantly reduced our dependence on those specific suppliers for several SKUs. The next challenge is to effectively market these new suppliers and secure orders. Overall, the team has excelled in rebuilding our supplier base, which has strengthened our business as we approach year-end, and we anticipate some revenue recovery. We're optimistic about our progress and believe we're ahead of schedule in revitalizing this sector of the business.

And Hendi, just to add to that, that Chinese supplier, the revenue related to that dropped off in May of last year. So if you're looking at the year-over-year headwind, that is behind us where the comp will be apples-to-apples starting in Q3.

And then, Farouq and Lynn, would you talk about the pricing trends this year, whether there's some pricing decline embedded in the contract? And what is the usual timing of pricing trends or whether or not you are able to sustain your pricing?

Yes. I think that's a very big question, Hendi, and I think I want to caution, we're not kind of like more of a semi-cycle where there's too much inventory and every price is down. Our products are designed in, and it really depends on what end market we're talking about. Aerospace and defense, we tend to think of it as a price flat, price up environment, right? Some of the other areas, sure, it could be a price flat, price down. But overall, I would say we haven't really seen the pricing pressures, but generally, pricing pressures come in better markets where you will have also new products launching hopefully with higher margins. So we tend to think about pricing, we're in maintenance mode versus we're heading to growth or not everything gets priced down like maybe doing more of a semi side of things. So for us, obviously, we're always mindful of it. We'll have customers ask for it, sure, but we're also launching new products at higher margin, but we got some good defense business that is a usual price flat, price up environment. So it's a big question for us given the diversity of our SKUs and pricing powers.

At this time, I'll turn the call back to Farouq for closing remarks.

Thank you, everyone, for joining our call here this morning, where we are excited about the results that came in here and look forward to connecting with you again as we go through the second half of the year. I appreciate everyone's time, and have a good day.

This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation, and have a wonderful day.