Bel Fuse Inc (BELFA) September 10, 2026 Conference Transcript

Hello, everyone. Day three of Citi's Global TMT Conference here. I can't believe it's day three already. Asia Merchant here. I lead the tech hardware, tech supply chain coverage here at Citi. Very pleased to have Bellfuse, Lynn Hutkin. She's the CFO of Bellfuse here. This is an interactive conference, so I do have some questions here. I can turn it over towards the end. If you have some questions, just please do raise your hand so we can bring the mic to you. Before we get started, though, you know, I wanted Lynn to have to present Bell views, provide a few prepared commentary here. So, Lynn, over it back to you.

Great.

Thank you. And thanks so much for having us here today.

We appreciate it. So before we start, this is our safe harbor statement. So since it's our first year here, we thought it would be helpful to just give an overview of Bell for those who may not be familiar with with our company. We've been in business for over 75 years. We started in 1949. We design and manufacture electronic components, systems, solutions, based in West Orange, New Jersey, so just right over the river from here. Our annual sales are just under $750 million on a TTM basis, and our EBITDA margin is just over 21 percent, which I'll get into in a future slide on the recent financial transformation that we've gone through. From an overview perspective, we do manage the business in two segments today. This is something new that we started in March of this year. Prior to March, we managed the business by product group, and now we are looking at the business by end market. So in March, we introduced industrial technology and data solutions, which we refer to as ITDS. That is about 45% of our business today. And then aerospace defense and rugged solutions, which we refer to as ADRS. That's about 55% of the business. From a geographic perspective, about two-thirds of the business is North America-based. about a quarter in Europe in the balance in APAC. From a sales channel perspective, about three quarters of the business is direct to our OEM customers with the remaining quarter going through our distribution partners. So just to delve in a little bit on the segments and what we do, where we do it, where the products go. So for ITDS, the products here are largely power supplies, fuses, our integrated connector modules, transformers. So within this group, we're really servicing the networking applications. So anything that's going into data centers, we include our AI exposure in here as well, factory and automation systems. We have rail in here. So these are the main areas within ITDS. And as you can see from the chart at the bottom here, there was a large buildup in inventory back in 2022. This happened across the whole industry, not specific to Bell. We then went through two years of a de-stocking cycle. So that's where you see the large drop-off from 22 to 24. And we're starting to see that come back. So very much an industry factor there, but just wanted to outline that. Now, our gross margin, you'll see we've made significant improvements. So even though sales were lower, we've done a tremendous amount of work on our margins over the years, which I'll get to on the next slide here. On the ADRS side, we also supply power supplies here, networking systems, connectors, cable assemblies. And this is going into commercial aircraft. So Boeing is a customer of ours. This is where we have all of our defense exposure. So we do a lot of business with the U.S. and Israeli primes. So Lockheed, Raytheon, and then the main primes in Israel as well. And then we have space included here as well. So space is a small end market for us today, but is growing, and we think it will be meaningful for us as we move forward here. looking at the chart here we did do a large acquisition in this segment at the very end of 2024 we acquired Enercon in November of 24 so that's the the large increase in sales that you see there in 25 so just looking back at the last five years and I think that this is an important part of our story especially for those who aren't familiar with us who you know are thinking about where we've come from, where we're going next, why we're a good investment today. On the sales side, you can see there hasn't been a tremendous amount of growth. I mean, there has been some, but if you compare 21 to 24, we were pretty flat on the sales side. What we did do is there was a heavy focus on margin. So back in 2021, that's when Farouk Twick joined our company. He came in as CFO with, from the investment banking background, asking all of the right questions. You know, we had never looked at SKU level profitability. We did not have a pay for performance program in place. So there were, there were all of these things around the business that were just, you know, low hanging fruit once you, once you really started to look at it. And so over the course of 21, to call it 2025, there were a lot of initiatives in just going through our SKU level profitability, you know, pruning back any low margin products. We sold some businesses that just didn't fit with Bell Story going forward. We did six facility consolidations during that time. So we increased efficiency around the world. There were a lot of CapEx investments made to increase automation and throughput. The whole executive team was actually turned over in the last five years. And we really instilled a pay-for-performance mindset across the organization. with the key message being not every sales dollar is a good sales dollar, which is an important distinction. So if you look at the EBITDA side of the chart here, we've grown the business from being a mid-single-digit EBITDA business back in 2021 to being over 20% most recently. And And, you know, during this journey, a lot of investors would say, you know, well, this is great, but is this sustainable? How are you going to do in a year where sales are down? And that's why in our mind, you know, 2024 was a real test for us because sales did go down and our EBITDA margin continued to go up. So, you know, we were able to prove out the sustainability of the actions that we took So now that the margin part of our story is largely behind us, now to be clear, we will always be mindful of our margins and maintaining those margins, but it's just not the heavy lift of the last five years. So our focus is now shifting more towards top line growth. So as I showed on the prior slide, top-line growth was not something that we were very successful at doing over, you know, really the last couple of decades. And so today we are looking at these four kind of tiers of revenue growth. One is the core business. You know, we have great blue chip customers, quality products. We've been in the business for over 75 years. we've um we've always done i think a good job with partnering with our customers seeing what tomorrow's technology is seeing how we can support them and then developing those components and systems for their their applications of tomorrow so that's that's just our core business and that is is doing really well right now um and then there are certain end markets that we're in that are growing at a higher clip than what it would normally be. So I think if you look at the electronic industry in general, it's a mid-single-digit grower. Over a period of time, just average growth. I think as we're looking at the space today, aerospace, defense, space, AI, there are a lot of exciting markets that we're in that are growing at the above average growth rates, I would say. So that is kind of stacked on top. And then we have our internal sales initiatives. So similar to the margin story, where there were a lot of things that we just never focused on in the past, there are things on the sales side that we never focused on in the past. And we identified those items in the last, call it 12 to 18 months. And sales takes a longer period of time to affect. So we are starting to see some of that come through on the bookings. So these are just additional kind of Bell-specific sales initiatives that we're working on that would layer on top. And then, of course, M&A will always be part of our story. And that will be there. there. So yeah, hopefully that provides a brief background of who we are and where we are and where we're going. Okay.

Well, thanks a lot for that, Lynn. I think it's helpful just given this is the first time you're presenting here at Cities for that background. So if I can just start, you already talked about a few key end markets that have clearly upsided expectations. You talked about defense, you talked about space, aerospace, and you talked about data solutions. Just help us understand the durability, what gives you confidence that as you're looking ahead, 6 to 12 months out, 24 months out, that there is durability here. And it's not just given that we're hearing about tightness in the supply chain across many components, that this is not just some sort of like a pull forward ahead of some sort of a demand cliff that's going to erupt here. Right.

And I think it goes back to the end markets that we're in. So we are largely in aerospace, defense, data solutions, space. So these are things that are going through a longer term growth cycle right now. And what's nice with aerospace and defense is it's a very long cycle design business. So we have products in defense applications that have been there for 20 years, right? So as we get orders, it's for an extended period of time. So we have a tremendous amount of visibility on that part of the business. You know, we specifically do not like playing in consumer or auto because those tend to be more volatile, to your point. So we do feel that we have a lot of visibility and that at least for the next few years, we view defense as being strong with all of the government spending chatter. Not that we've seen it come through yet, at least on the U.S. side. And then commercial aerospace with new production build rates. I mean, those are published and those are increasing. So I think the end markets that we're in provide us some comfort that this is a longer term growth.

And then you just had growth that you posted 25% year on year. In 2Q, you have gross margins that are almost 40% now. And then if you think about your outlook, you're still looking at margin expansion over here. There is continued strength, like you said, in defense, data solutions. So just, you know, maybe some puts and takes relative to that outlook. It seems like momentum's really strong. We heard from some of your peers on defense. Clearly, this is a technology conference, so we've heard just constructive stuff on data solutions and data centers. Just what are some puts and takes to that outlook that you provided for third quarter? And as you see that momentum building into fiscal 27?

Yeah, you know, when we look at our outlook for the next quarter, and we generally only guide one quarter out. That's just our level of visibility across the whole business. And I would say on the aerospace and defense side of the business, it's pretty solid because it's a longer term design cycle. Customers are placing orders well in advance. We have a lot of visibility there. Now, even within A&D, you can still have customer requests for pull-ins or push-outs, which we have to manage. So that's some of it. But I think most of the puts and takes are on the ITDS side of the business. And that is where we have things like fuses that are sold through the distribution channel. And they tend to have a lot of intra-quarter turns. So we don't have those bookings in our backlog when we're starting the quarter, we kind of see what that demand is during the quarter. So that's something that can pivot up or down unexpectedly. And I would say also within ITDS is where we have the AI exposure, and we've talked about a customer in that space who is ramping up, that depending on their ramp schedule. I mean, we communicate very closely with them, but depending on if it's slower than expected or quicker than expected, that could also have an impact on the guide.

All right. And then just within these end markets, not looking for a guide here, but just strength that you see across these end markets fairly evenly. I mean, I know you said commercial defense and aerospace or commercial aerospace and defense, a little bit longer cycle, so you feel good about the visibility, IT data solutions, just, you know, and distribution, there tends to be a lot of turns. Just anything you can talk about on visibility there or just demand momentum as you look ahead?

Yeah, I would say for demand momentum, I would say that the top is probably defense. We are seeing certain regions move faster than others. So I would say that Israel is quicker to move and quicker to provide funding for programs than the U.S. We've also seen, you know, in the news, there have been European countries who are, you know, engaging the Israeli primes to put in their own infrastructure, their defense infrastructure for their particular country. So we're seeing a lot more of country-specific initiatives, and that will help the Enercon business. So our Israel business will benefit from that. I think on the AI side, it's interesting. I mean, we're kind of in a wait and see mode. We are working very closely with our customers there. They are still small. They, you know, we have been talking about a ramp coming. We'll provide more color on that when we see the orders. But we are taking actions today in terms of, you know, CapEx additions and, you know, making sure that we're able to meet that ramp capacity.

Okay. All right. So one of the questions that I get is, you know, how does Bellfuse differentiate themselves against your peers? Where is your moat? And maybe we can dig into each of these end markets, because I'm sure it's very different. The moat that you have across each of these end markets may be dependent on the products that you're supplying to these end markets. But you do have some very large players as well that you compete against, two of them that were here just yesterday, also talking about strength in military and defense. So if you can just, and IT data solution. So just if you can take it a level down and say, okay, where does Belfuse really differentiate yourself when you are competing in some of these end markets against some of these very, very large players with global footprints?

Right. You know, and we get that question a lot from investors. I think the answer there is we are the right blend of being a big enough supplier for you know in defense the primes where we have longevity we have quality products we have top-notch engineers you know we we've been developing um these products for decades you know i mean we we've been we we've been um supplying the defense contractors for decades. And so we have global reach where we're near their engineers. So we kind of check all of the boxes for being the benefits of a large company. At the same time, we are obviously much smaller than some of our peers. And I think that brings a level of customer intimacy where we will, you know, we just don't have the layers within Bell that I think some of our larger competitors have. So if we have a million dollar account for us, it's meaningful. We, you know, if that customer wants to have a call with Farouk, that's that's possible um we we have just a very lean structure internally so there's a lot of customer hand-holding um and i'm sure our competitors have similar but i think our smaller size we're just more we're more nimble we're agile we just we don't have the same like levels for customers to go through for things to get escalated as needed.

Okay. All right. And then just on the defense side, just because that's been, you know, a topic that we've seen some of your other peers also talk about very, and it obviously grew also like, you know, high 20s year on year for you guys as well. I think you talked about bookings, new program wins as well there. Just where are you seeing the greatest opportunity in defense? Is it is it very broad based or is Belfuse like particularly concentrated in whether it's airborne, it's missiles, it's ground systems, it's naval applications? There's so there's such a variety in that in market. Can you double click a little bit into sort of where you are seeing the strength and, you know, or where you differentiate or where you think that, you know, you have sort of top leading positions?

So I it's really across the board. Um, so we are on over a thousand different platforms within defense. So it's, you know, land, sea, launchers, missiles, um, you know, anything that flies. Uh, we, we do, um, you know, communication and encryption applications. Uh, we have components that are, are worn on the soldiers. So it's really across the board. I would say that there's no one program that is more than 5% of our defense exposure. So it's really broad-based, which I think is good because, you know, whenever you have a program concentration, if something loses funding, then all of a sudden, you know, there's exposure there. But so I would say it's it's very broad based. And then geographically, I would say right now we're seeing, you know, obvious strength in in Israel. uh there's strength in the u.s although we we expect that to increase as you know that the years go on here we have not seen yet on the u.s side a major um you know funding kind of trickle down right i mean we need government funding to go to the primes to then come to us so we have not yet seen that yet and then the other thing that i'll note on the defense side is we are trying to further penetrate in Europe. Yeah.

Yeah, that was my next question. So European defense, you know, I think you received certification for that. And you talked a lot about some wins that you've seen there, especially during Q2. What can you just help us size that European opportunity? Like, how should we think about that relative to what's going on in Israel, for example, for you guys? And how big can that be for Belfuse?

You know, it's interesting. So we started the process of getting our Slovakia entity certified as a defense manufacturer about a year ago. And in tandem with that, we were working on the sales, right? So going to the European defense contractors and letting them know that we were going to be having manufacturing capability in Europe. And I think it happened much quicker than anticipated, where we actually had project wins before that facility was even certified. So I think that is definitely a testament to the demand that that's out there in Europe. So of the programs that we've received, um, to date, you know, it's, it's definitely multi-million dollar, um, programs. They tend to start small and then scale over time. So they're, you know, they'll be small to start. Um, but, but we do think it's a, a larger opportunity for us. And I'll also say that we are, um, heavily investing in our sales team in Europe to, um, to further penetrate that European defense market.

Okay. All right. Switching a little bit to data solutions, maybe, if we can. You've talked about this ramp for a high-performance computing win. Can you double-click on that? How much visibility you have here? I know you said it's ramping. You're waiting to see how it does. But just given your conversations with your customers, with your customer that's ramping here, how do you think about that visibility and the ramp that's going to be, I guess, most of the momentum will be in calendar 27. Or are we starting calendar second half here? Yeah.

Yeah. So what we mentioned in the last earnings call was we did start to see a ramp in Q2. We expect similar levels in Q3 and then a further ramp in Q4. We have been speaking with, you know, the customer about their plans for 27 and 28. And, you know, this is where I mentioned, so we don't yet have the orders to go along with what they're talking about. So, but it could be a very meaningful ramp for us if that transpires. So right now, we are, you know, making sure that we have the capacity, making sure that we have the capex, but, you know, at the same time need to be mindful of making sure that those orders come in.

Okay. And then within the, I mean, I'm sure they're selling it to, are they in other data centers? Is it just, they are then selling this high performance computing to their customers in the data centers? Okay. AI, I know it's a small part of your and you've talked about that as well but um you know there is opportunity obviously for you guys to sell your power products your connectivity again where it is and you guys don't directly sell to hyperscalers that's right right you sell to oems that then support that again over here how does bell differentiate i mean because these are like large customers right so again just like you talked about where defense where you guys see sort of your differentiation maybe just given the scale of some of these projects and the fact that they're then selling to other large customers. Where does Bell differentiate themselves here?

So I think that we differentiate ourselves on the front end. So it goes back to that customer intimacy, the engineer-to-engineer work that goes into those new designs. So, you know, we will work with customers for years i mean that this this particular customer you know who's going through a ramp right now i mean we we've been working with them for 10 years um so we will put in the time and the effort um and really work with their engineers to develop that that next product and so and it's definitely a balance because we don't sell directly to the hyperscalers and the reason for that is we're not the athlete for it. We're not as big as our competitors are. And so we don't have the scale. We do have our margin profile that we're looking to maintain. And at some point with the hyperscalers, that high of volume, we're just not the athlete for it. So we tend to work with smaller customers or tier two customers um and we will help them scale um and then at some point we will get to the point where where we need to find that balance between still supplying them with with with products and the engineering assistance but making sure it makes sense for us from a margin perspective okay so if this project were to ramp quite meaningfully like Like, is this customer then second sourcing for this? I'm sure they will. Most customers, that's the normal trajectory.

Just let me see if there's any questions in the audience.

You said two and somewhat related. Just the mic.

That's two quick related questions. One is, and I don't know if you've given any sort of longer term targets, you showed a very nice margin improvement. is, do you have a target where you think you can get either gross or EBITDA margin and maybe revenue growth as well? And then related to that, I'd like to hear a little bit more about the internal sales goals. Like what exactly are you doing there?

Sure. So I would say on the first question, um, we, so we, we don't have long-term targets out there. I'll, I'll just put that out there to start. But what we have said, I think, on the gross margin side is we are probably in the 90th percentile of the industry from a gross margin perspective. So we have made a tremendous amount of progress over the last five years. You know, we do get the question a lot of, you know, well, if sales go up, wouldn't gross margin go up because of the leverage? Mathematically, yes. Now, is that a goal of ours to have our gross margin higher? Not really. So we are looking at the business in total. We're taking a portfolio approach. I think we're generally happy with where our gross margins are. Could they get higher with higher sales volumes? I mean, that's just how the math would work. But we do have FX working against us. we do have higher material costs coming through, I feel like there's always a bit of a revolving door when it comes to margins. And that's why we did guide from Q2 to Q3 that our margins would be flat. So we were around 40% in Q2, and our Q3 guide is 39% to 41%. now on the EBITDA margin side it's a little bit of a different story we we do think that that there's still some room to go there as you look at us versus our peers and a lot of what's below the gross margin line so R&D and SG&A is relatively fixed so there is some um variability in there with commissions and and and bonuses which which may fluctuate you know as sales go go up but there's a lot of fixed components in there so we do expect as we see sales growth that there will be more of a drop through on the the EBITDA margin side so we don't have any targets out there but that's kind of just um you know in in general where we're looking Um, and then I would say on your other question on sales initiatives, it's, I would say it's really broad based. So as I was mentioning earlier on the gross margin story, when we looked at sales and why are we having trouble in growing sales, we realized we didn't even have the basic building blocks when it when it comes to growing sales so we didn't have a crm system in place uh we didn't know what percentage of opportunities we were winning we didn't know why we were losing uh you know is it price is it design is it you know our timing uh so all of those things are important right as you look to pivot and and change how you're going after it uh so we are we've been working on getting the new CRM system in place. Any new system takes some time and some adoption and a little bit of heartaches internally to get people using it, but we're making good progress there. There are other things like in the distribution channel, we actually see where all of our product is being sold onto. So we'll sell products to, you know, DigiKey or Mouser. They then provide us with POS reports that show us where they're selling our products to. So the end customer, we know who they are, what they bought, how much they bought. We've never done anything with that data. We've never reached out to them to say, hey, what are you building? Do you want to buy a, you know, do you need a complimentary product? Do you need something customized? So, you know, that's just another kind of basic example of just not having the right focus on certain things to help with that organic sales growth. And then I would say our tier two customer base. We were very good with tier one. We were good with the distribution channel outside of the thing I just mentioned. And but, you know, having our sales team really going after those smaller customers, those tier two customers, there just wasn't as much of a focus there. And there is today. So we've been really investing in our sales folks around the world and bringing new people on board. OK.

All right. Last few here from my side, Lynn, just, you know, you guys raised some equity here. You paid down debt. So you have your net debt of zero. And you have your mark, some of those proceeds, obviously, to buy out some remainder of in your European, sorry, in your intercon interest there. So if you think about going forward, you did talk about M&A being part of your sort of overall long-term objectives. So help investors just understand, you know, what's the algorithm here in terms of when you think about organic growth versus cash allocated towards investments to support that organic growth versus acquisitions and share buybacks or dividends as well?

Yeah. So I would say that we have the two separate paths, right? Organic growth, which we will invest in through CapEx, through working capital investments as needed. So that is definitely a priority. And then separately is M&A. So we have two different you know, sets of teams working on each of those. I would say from a dollar perspective, M&A is probably where the larger dollars will ultimately go. Now, of course, we're subject to the availability of targets. It has been a more robust environment this year, a more robust pipeline, but very competitive still. So we're very active in, you know, evaluating candidates It's, yeah, so I would say organic growth and M&A. Other than that, I mean, we, you know, we have our regular way dividend that we expect to continue and we do have a stock repurchase program that still has about $9 million left on it.

Well, thanks a lot for coming to our tech conference and hope to see more of you. Thank you so much for having us.