Bel Fuse Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Performance: Second quarter performance surpassed revenue expectations with gross margins at the higher end of projected range. End markets like commercial air, defense, and networking led, with an uptick in intra-quarter turns.
• Tariffs: Tariffs had limited impact in Q2, accounting for ~$2M in sales and minimal margin effect.
• Financials: Sales $168.3M, up 26.3% y-o-y. R&D expenses up due to Enercon acquisition and compensation. SG&A up due to Enercon's expenses, compensation, and medical claims. Cash $59.3M, with $30M used for debt repayment, $3.9M CAPEX, and $800k dividends.

Segment Performance

• Power Solutions and Protection: Sales in Q2 2025 were $86.8 million, representing a 48.2% increase from the same period last year. This growth was largely driven by aerospace and defense exposure, contributing $32.6 million. Consumer sales decreased by $1.7M, e-mobility by $2.3M, rail by $3.3M, but offset by $2.6M in AI sales and $1.8M increase in circuit protection. Gross margin was 41.9%, a 380 basis point decline from Q2 2024.
• Connectivity Solutions: Sales reached $59.2 million, up 2.4% y-o-y. Commercial air applications saw a $5.1M increase to $20.5M, defense up 12% to $13.4M, space flat. Gross margin was 39.2%, a 30 basis point improvement from Q2 2024.
• Magnetic Solutions: Sales were $22.3 million, up 32.5% y-o-y, led by networking and distribution. Gross margin improved to 28.7%, a 230 basis point increase from Q2 2024.

Guidance

• Q3: Sales guidance $165M-$180M, gross margins 37%-39%. Optimistic about continued growth supported by strong Q2 bookings.
• Outlook: Expect second half to be better than first half, but not committing to sequential Q4 growth yet; reliant on Q3 orders.

Risks

• Tariffs: Uncertainties remain, though impact in Q2 was limited.
• Chinese Supplier: Previous issues with a Chinese supplier affected sales, but efforts to replace suppliers are ongoing.
• Foreign Exchange: Weakening USD vs CNY, peso, shekel could pressure margins, but hedging programs in place.

Question and Answer

• Q: Trends underpinning Q3 guidance? A: Orders picked up in Q1/Q2, rebounding in networking, distribution channel, strong defense.
• Q: Glen Rock facility sale rationale? A: To drive margin improvements and efficiencies in Connectivity business.
• Q: Enercon integration progress? A: Going as anticipated, team collaborating well, but long-cycle design and regulatory challenges.
• Q: Power margins decline? A: Due to legacy Power business (lower margin) vs Enercon (higher margin) being flat q-o-q.
• Q: Inventory rebuild and tariffs impact? A: Customers cautious, but market has digested tariffs, bookings robust across business.