Bel Fuse Inc. Q2 FY2025 earnings call

• The second quarter performance surpassed revenue expectations and delivered gross margins at the higher end of the projected range. - End markets like commercial air, defense, and networking led the way. - Tariffs had a limited impact in the second quarter, accounting for about $2 million of sales. - For Q3, sales guidance is $165 million to $180 million with gross margins projected between 37% and 39%. - In the Power segment, growth in aerospace and defense offset declines in other end markets. - Connectivity Solutions saw growth in commercial air and defense, with margin expansion due to operational efficiencies. - Magnetic Solutions rebounded with higher sales volume and operational efficiencies. - The Glen Rock, Pennsylvania facility sale was to drive margin improvements and align resources.

Power Solutions and Protection: Sales in the second quarter of 2025 were $86.8 million, an increase of 48.2% from the same period last year. This growth was driven by aerospace and defense exposure, contributing $32.6 million. However, there were declines in consumer, e-mobility, and rail end markets. The gross margin for the Power segment was 41.9%, a decline of 380 basis points from Q2 '24. Connectivity Solutions: Sales reached $59.2 million, a 2.4% increase from Q2 '24. Growth was seen in commercial air and defense applications. The gross margin was 39.2%, an improvement of 30 basis points from Q2 '24. Magnetic Solutions: Sales were $22.3 million, a 32.5% increase from Q2 '24, led by networking demand. The gross margin improved to 28.7%, a 230 basis point increase from Q2 '24.

• Q3 sales guidance is in the range of $165 million to $180 million. - Gross margins projected between 37% and 39% for Q3. - Strong bookings in Q2 support expectations of sequential growth for the remainder of the year.

• Geopolitical noise around tariffs, though impact was limited in Q2 but variables remain. - Foreign exchange rate movements, with the gross margin guide for Q3 factoring in potential downward pressure. - Inventory rebuild challenges and potential caution with supplier situations in China.

Q: Congrats on the outstanding quarter. Was curious to hear a bit more about the trends underpinning the guidance.

A: Lynn Hutkin mentioned orders started picking up in Q1 and continued in Q2, with rebounding in networking and distribution channel. Farouq Tuweiq added there are new business wins and it's an amalgamation of existing people waking up and new business.

Q: Any strategic growth initiatives or margin enhancements plans?

A: Farouq Tuweiq said there are strategic initiatives constantly, margin expansion is considered, and the Glen Rock facility sale was to drive margin improvements and align resources.

Q: Talked about improving orders trends and intra-quarter turns. Can you dive into that?

A: Farouq Tuweiq explained that for shorter lead time businesses like fuses, they're seeing orders come in within the quarter, indicating healthiness in the channel.

Q: Progress on Enercon integration?

A: Farouq Tuweiq said integration is going as anticipated, team is excited, and they're situated well to capitalize on the acquisition.

Q: Modest sequential decline in Power Solutions gross margins. What's the reason?

A: Lynn Hutkin said it's due to the legacy Power business picking up sequentially, which is a lower margin product group compared to Enercon.

Q: Last call mentioned $8 million to $10 million paused revenue from China. How much recognized in Q2?

A: Lynn Hutkin said about 2/3 was shipped in Q2 and balance expected in Q3.

Q: Third quarter guidance and upside leverage?

A: Lynn Hutkin said it's due to continued strength in aerospace, defense, rebound in networking and distribution, and potential for more intra-quarter turns.

Q: Market recovery and inventory rebuild?

A: Farouq Tuweiq said coming out of a long trough, customers are cautious but system is working more appropriately. On Chinese supplier situation, team has found alternative suppliers and is rebuilding the business.

Q: Pricing trends?

A: Farouq Tuweiq said it depends on end market; aerospace and defense tend to be price flat/up, others could be price flat/down, but pricing pressures not widely seen.