Bel Fuse Inc /Nj Q4 FY2025 Earnings Call

Good morning, and welcome to the Bel Fuse Fourth Quarter 2025 Earnings Call. This call is being recorded. I would now like to turn the call over to Jean Marie Young with Three-part advisers. Please go ahead, Jean.

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 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, our quarterly reports, and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouq.

Thank you, Jean, 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 EBITDA. 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 remained 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 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 a positive shift in sales across the networking and consumer premise wiring markets as well as through our distribution channel. The rebound in these areas is 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, 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 this segment and leaving it in great conditions as he pursues his next chapter, and we thank him for his many meaningful contributions. We wish you great luck, and you'll be missed, but will surely 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 last year has been one of 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.

Thank you, Farouq. 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 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 execution 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 Solutions 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. Fuse 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% 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% in Q4 '25 from 36.6% 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 and 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 renminbi. Research and development expenses totaled $8 million in Q4 '25, representing an increase of $1.1 million compared to Q4 '24. This increase was primarily attributable to the inclusion of Entercom's R&D costs, which amounted to an incremental increase of $1 million during Q4 '25. We anticipate that R&D expenses in future quarters will generally remain consistent with the Q4 '25 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 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 31, 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 Q1 26 sales to be in the range of $165 million 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.

The first question is from Bobby Brooks from Northland Capital Markets.

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, for Roop, when you initially joined as CFO a handful of years ago, you had a massive shift in the margin profile of the company, which a lot of that was sort of low-hanging fruit that you targeted. So I'm just curious to hear if that sort of same scenario. If Ooma has seen that sort of same scenario and again, like what he sees as the largest opportunities to go after.

Yes, thank you, Bobby, it's good to talk with you. That's a complex question. As a reminder, we primarily operate in medium- to long-term design cycle businesses. When we consider influence and A&D, I would suggest that a significant portion of E&D for 2026 will involve receiving orders from customers as they secure funding and deployment. If we think about new wins early this year and their funding, it typically takes at least one to two years before we can monetize those. In contrast, some of our shorter design cycle businesses, such as fuses, might allow for a win in a couple of quarters, which could lead to sales in our consumer sector. We are a long-cycle design business; there are no quick wins here. We specialize in technology and aim to engage deeply with customers, which takes time. The gains we've seen in recent quarters reflect the team's efforts globally across our various businesses. I would argue that the wins and performance were not predominantly the result of Q4 sales activities, as many of these developments occurred earlier in 2026. We are reaping the benefits of a committed global team. Across our business, we have new wins in nearly all end markets, although there’s been less activity in areas like e-mobility and rail, which has seen a slower year. Nevertheless, we consistently achieve new wins. When discussing our funneling process, our focus is on pursuing a strong set of worthwhile opportunities and converting them to sales, a process we initiated some time ago. However, I want to emphasize that we still have work to accomplish. In the last call, we mentioned CRM implementation in Q4, where we completed over three dozen contracts with our U.S. representatives to focus on new opportunities. We are striving to advance the entire system, from compensation structures to software and data improvements, and this evolution is ongoing. We’ve experienced wins, and we anticipate potential growth primarily in A&D, data centers, and AI, where there is significant interest. It’s worth noting that our consumer business performed very well last year. We appreciate our presence across various end markets and feel optimistic about their outlook as we approach 2026, more so than what we observed in early 2025 or 2024. To summarize my response, I want to caution that our business is not oriented toward quick returns; instead, we are focusing on design-in work and modified solutions rather than just off-the-shelf offerings.

Absolutely. I appreciate the detailed information provided. Now, turning to the first-quarter guidance, it's very impressive, but I’d like to delve deeper and obtain more specific expectations for growth across the three segments.

Sure, Bobby. So 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 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.

Got it. I appreciate the color there. Congrats on the great quarter.

The next question is from Christopher Glynn from Oppenheimer & Company.

I would like to expand on Bobby's question regarding the development of the commercial funnel. You mentioned that focusing on designing and modifying off-the-shelf burs is part of your strategy for developing this funnel, which makes sense. I'm curious if you have observed any improvements in win rates historically as you implement these strategies.

I believe we are improving in defining what constitutes a win and how we want it to be at certain margin levels. As we look towards 2026, our aim is to present the entire Bel portfolio to our customers. In the past, we have primarily focused on selling specific products like fuses or connectors, but we need to enhance our systems-type sales approach. This will take time, but the goal is to align more closely with our customers, addressing their problems and challenges, and positioning ourselves as solutions providers. It's not just about increasing sales attempts; we are seeing higher-quality opportunities and we want to continue evolving to provide more valuable solutions. The market is also showing improvement, which offers us more opportunities. Additionally, we have initiated new internal groups and structures to better align with this strategy. For instance, we established a key accounts group distinct from our business units to ensure a Bel-focused approach in presenting our full range of products to customers, given the extensive number of SKUs we offer. Our business development efforts are organized around end markets to refine our product approaches. Customer service plays a critical role as we strive to improve the user experience. Currently, we have various email addresses, forms, and pricing lists for our distribution partners, and it's important to address these complexities in our comprehensive approach to the market. So, in short, yes, we are seeing progress, but it encompasses more than just increasing sales attempts.

Great. That was great color, Farouq. And then on the AI customer base, you mentioned that as one of the continued drivers of growth next year. You've often described it as being in the early stage. I think with single source to well-funded more start-ups for us the headline, big three or four. Just curious if any of those customers are potentially positioning for adoption curve to their technology where you can cotail, not necessarily first half of '26, but more conceptually.

Yes. I think the answer is yes in short. 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 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 continuing to move forward. And also, let's not forget, 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?

Yes. Understood. And then just defense, just wanted to clarify. 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, where the weightings are.

Yes, in short. Yes, we want to be cautious when discussing our position. We are involved in all the major and some minor programs, resulting in a very diversified portfolio that includes munitions and things that fly. We are also expanding into ground operations and space-related activities. Additionally, we cover encryption communication, so we are likely engaged in all the areas you mentioned.

Great. And last one, just a housekeeping question about share class consolidation. I think one of your shareholders had generated a headline.

Yes, I believe our shareholder structure is quite complex, particularly regarding the economic differences between the two classes of shares, beyond just voting rights. We will provide a company response and share our views on this matter at the appropriate time. I do not want to speak on behalf of the board, but we will address it when the time is right. Our focus, Chris, has been to fulfill our fiduciary duties to serve the best interests of all our shareholders, both Class A and Class B. As we position the company for future growth through strong performance and investments in our employees and customers, those efforts are what truly drive our progress. We understand our fiduciary responsibilities, and the board will have a more formal response to this issue when the time is right.

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

Congratulations on the good quarter.

Thank you, Theo.

So are you guys seeing any impact from the spike in prices on memory?

I was going to say, 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, spikes in prices that we're dealing with, like gold and copper we spoke about. But on the memory specifically, it's more, I'd say our customers are influenced by that.

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?

Yes, that's a good point. Today, we hedge our FX exposure from a raw material perspective, 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 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 extent that we can't, we unfortunately have to pass that 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 to the extent we can offset it. Sometimes we will find alternative 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.

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

I would say we generally do, yes. I think the drone 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 in, like Ukraine. That's not really our market. We're more in the military kind of U.S. primes and 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 or in the more sophisticated drone game.

The next question is from Greg Palm from Craig-Hallum Capital Group.

This is Dany Egerton for Greg today. Maybe just hitting again on A&D and maybe unpacking how you saw that develop in the quarter maybe between Enercon and Corbel 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?

Yes. 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 Sinch business and through Enercon. We definitely saw growth in the Enercon business. As we look at the 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 fine business. So I would say that it was pretty split between the two. So both Sinch and Enercon had robust growth in defense in Q4.

One thing we would just add is we're seeing the build rates on the plane side continue to increase and head in the right direction. Also, a lot of the programs around munitions and given kind of what's going on in the world, these are well-funded programs. So we think there will be a prioritization to make sure those get to fruition and the finish line. So as we look at the amalgamation of that, we feel pretty good as to where we stand compared to what's funded out there.

Okay. No, that's very helpful. Then maybe if I can 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 FX and input costs, but any way to quantify those? And then as we kind of have that push-pull between input costs and passing on price in any way to think about potential margin expansion in '26?

Yes. As we approach the fourth quarter, we anticipated some additional foreign exchange challenges. However, we have hedging programs in place, as Bruce mentioned, and we continue to benefit from those previous hedging efforts. We do expect some margin pressure related to foreign exchange, particularly with the peso, renminbi, and shekel all moving unfavorably. While we hedge around half of this, those hedges will start to expire, so we expect to see pressure there. Additionally, on the materials side, there is a lag before the impact of current raw material purchases is reflected in our financials. We predict margin pressures in 2026, which is why we are carefully considering pricing actions we may need to implement with our customers.

It's important to note that adjusting our pricing isn't as straightforward as simply increasing prices overnight. There’s a process involved. We need to consider whether to adjust our backlog pricing or create a new pricing list for distribution, which takes about 30 days to become effective. Timing is a factor here. Additionally, while our margins are strong and we will always aim for margin improvement, we have shifted our focus from margin gains to pursuing growth. We need to ensure we capture our fair share of business and opportunities available. To support this strategy, we are making some investments related to our go-to-market approach, systems, and team. While there is much discussion about margins, and we take pride in our performance, we are facing some challenges, and it’s crucial that during this growth phase, we are well-positioned to manage our margins effectively.

The next question is from Luke Junk from Baird.

I would like to elaborate on the discussion regarding the realignment of the sales force and the approach to targeting markets or key customers. What you mentioned about the new leadership in the connectivity business caught my attention. It seems there could be additional opportunities further down in the organization. Am I correct in understanding that you might be aligning operations, possibly looking at the manufacturing footprint, to better seize some of these discrete opportunities?

Thanks for the question there. Look, I would say a couple of things to maybe answer it from the back way of your question here. So on the operational side, we 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 our customers. So obviously, for a while, there was a lot of discussion around China and India then that froze. If that kind of starts up for some people at a startup, we were going to move some of our products to India. So I would say, given the geopolitical world that we live in and the realignment of localization of supply chains, we are in these, let's say, active discussions, right? But in terms of Bel as a stand-alone basis in putting a political supply chains, 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 moving a facility for us is a big task, and it's not simply moving equipment, building some buffer supply, moving equipment from place A to place B. You need to set up a lot of legal structures. And if you're talking about A&D, there's a lot of regulatory hurdles to jump through. As we're setting up, for example, our Slovakia factory to be more A&D 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 want to come up to your facility and do audits and usually, there's feedback and that takes a huge issue. So it's not easy. We don't take these decisions on moving facilities lightly. So we need our customer market changing dynamics to force our hand on a facility move. Go-to-market 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, 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 a facility unless it's going to help us grow.

Yes. That's super helpful. Near term, just curious from a guidance standpoint, 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 from a calendar standpoint. Would you normally have maybe a little better feel for that seasonal impact in the fiscal year? Is there any conservatism just because of your timing and the guidance?

As you know, Luke, in public land, everyone tries to determine the best way to guide the market. Our approach to guidance is to aim for a range, focusing on the midpoint. We're not setting our expectations at the high end and hoping to exceed that; instead, we base it around the midpoint to provide some flexibility for shifts from quarter to quarter. In A&D, things can be unpredictable. Given how late we are in the quarter, specifically discussing Q4, we have better visibility now that it's nearly the end of February. Regarding your question about the Chinese New Year, it's just two weeks away, and like everyone else, we slow down during this period. It's not just us; our customers in the Far East are affected too, which means everyone takes a break. When they return, it takes time to get back into the routine, usually resulting in a one-week adjustment period. So, over a three-month span, you could lose two to three weeks of productivity, which is significant. I wouldn’t label it as conservatism; we aim to stick to our commitments and provide our best estimate. We're not trying to be overly cautious here.

Fair enough. And then I just want to zoom out for my last question. The Power side of networking. Obviously, you've got some exposure there. I mean, the higher levels of power that power these more capable chips is 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 1 customers or your direct customers in that world? And especially if there's any IP that might be leverageable either, I think, rail or mobility, both have some high-voltage IP that might be interesting.

Yes, I think there are a few key points to consider. In the AI networking space, the trend is always towards higher power, greater density, and improved energy efficiency. This has been a consistent objective over time. We're observing some new designs emerging sooner than in the past; previously, the device cycle was around three to four years, but now things are coming in more quickly. For instance, while we are selling certain products, we are already developing the next generation. We typically address specific challenges through our R&D efforts. Our aim is to leverage our developments within each business unit to standardize or modify them and then extend those products to our distribution or other customers. Additionally, in our e-mobility product line, we are noticing interest from military customers looking for high-end products that are not fully military-grade, which we refer to as semi-military. This trend indicates that our R&D efforts in e-mobility are reaching into other markets. Although we haven't secured any contracts yet, we feel optimistic about upcoming opportunities. This approach allows us to make the most of our R&D investment without aiming to completely reinvent our offerings each time.

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

I'm just asking a question on behalf of Jim Ricchiuti. So we've been kind of hearing a better tone in the commercial aerospace market. Really, 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?

In terms of our commercial air business, we are closely tied to the challenges faced by our largest North American customer from an OEM standpoint. Our revenue growth will directly correspond to increased build rates. We've experienced the difficulties associated with this, particularly during union negotiations and past shutdowns that disrupted our operations, like during the grounding of the MAX. The correlation between build rates and our performance is something we monitor closely, as there is public information about expected approvals. As for our Connectivity business, separate from Power, we consider the maintenance, repair, and overhaul (MRO) cycle. The increasing miles flown means these planes may require retrofitting or maintenance. We see positive trends on both the OEM and MRO fronts as flight operators report activity.

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

Yes. So I think on the book-to-bill side, Farouq had mentioned we were at 1.1% for the full year. I think our book-to-bill has strengthened as the year progressed. In Q4, our book-to-bill was 1.3. 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.

The next question is from Hendi Susanto from Gabelli Funds.

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

Yes. I would say, Hendi, we want to be a little bit careful here, but our products are going to be more around the power side of the business, and the Bel Power is kind of where it's at. I would say from a direct where we know things are going for AI, obviously, our magnetics business is also beneficiary from the networking guys and then they're kind of the RJ-45s kind of what we call 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 in that product that coupled with it being more copper based. So that's how we kind of go at the AI piece of it. Generally, we do some stuff with the hyperscalers, but that's not really our focus market. So if you remember, we got in trouble there back in 2020. So we want to make sure we pick slots where technology and service matter versus just a copy product with a race to the bottom on pricing.

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

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.

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

I don’t believe we’re quite there yet. The inventory rebuild is really piling up on the customers. After going through a challenging period in 2023 and 2024, along with the current geopolitical tariff situation, people are generally ordering more based on demand rather than just to stock up their shelves. This is probably a positive development. If you want to maintain your inventory, you have to manage the repercussions of overstocking. Right now, we feel the shift is more towards fulfilling demand instead of shipping products for inventory buildup. With the tariffs in play, any stock on the shelves can change in value very quickly, which has created a certain level of apprehension from our customers.

Yes. Lynn, I have a question about the seasonal patterns of sales in aerospace and defense. If I look at Enercon sales, I'm trying to understand what kind of seasonality we should expect. Additionally, considering that you may be securing more designs, what kind of seasonal trends can we anticipate in 2026 for aerospace and defense?

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 sometimes they move for a core to the other when things get funding, right? That's kind of where the choppiest comes from. But it's not really a seasonal to seasonal play, I would say, if there was a seasonality I mean not to the Enercon business, obviously, our connector 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.

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?

Yes, go ahead, Lynn.

As we consider capital allocation, our top priority is reinvesting in the business through capital expenditures. We consistently pay our regular dividends. If there are no changes on the M&A front, debt paydown is the next focus. In recent quarters, we've made significant debt paydowns, averaging between $20 million and $30 million each quarter, and we plan to maintain this approach moving forward. However, it's important to note that the first quarter typically involves higher cash utilization due to annual bonus payments and insurance expenses, so I expect lower debt paydowns in Q1. Looking ahead to Q2, Q3, and Q4, we aim to sustain similar levels of debt paydown, assuming there are no developments on the M&A front.

The next question is from Bobby Brooks from Northland Capital Markets.

So just wanted to circle back and ask specifically kind of on Enercon and cross-selling opportunities there. Obviously, obviously, you mentioned this spend more specifically with aerospace and defense, these are long-cycle programs, right? So these aren't happening in 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.

Yes, we have no plans on the back burner. We recognize the need to prioritize, but we also have to focus on securing new wins because we cannot control when orders come in from our customers or when programs receive funding. We need to be proactive in targeting new programs and aligning with new opportunities in the design cycles. As we pursue these, we are improving our collaboration. Our teams are doing a better job of ensuring that both the connectivity and power divisions understand their goals, hold weekly meetings, and implement some incentives. While we can still improve, these processes are already in motion. Interestingly, we're seeing results in our go-to-market strategies. For example, in Israel, our team identified a need for our e-mobility products that, while not as complex as military offerings, still require sophisticated solutions that our Slovakia teams excel at. We are working on quoting these opportunities in Israel. Another case is a cabling requirement at our U.S. Enercon business, where our Connectivity Group is stepping in to assist. Although Entercom initially had to seek external help, we are now poised to capture more of these needs. The opportunities are genuine, and while we would love to do more, we are gaining momentum with our joint bids and starting to see positive traction. We hope to continue this progress.

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

Thank you for that. Again, I 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, taking interest in what we think is a very, very exciting time for Bel. So thank you, and look forward to speaking to you in a couple of months from now.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.