Bel Fuse Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Performance: Continued robustness in most end markets like commercial aerospace, defense, and networking; consumer lines and distribution channel rebounded. Profitability surpassed expectations due to strategic opportunities, procurement cost management, operational efficiencies, and fixed cost absorption from increased sales volumes.
• Strategic Moves: In October 2025, transitioned operations from a China facility to a subcontractor, expected to be mostly completed by Dec 2025 with annualized cost savings. Restructuring at Glen Rock, PA facility with remaining manufacturing operations transitioning to other Bel sites by early 2026, incurring minimal incremental costs in Q4 '25.
• Growth Focus: Shift from products to end markets and customers to deliver the totality of Bel. Investing in IT systems and data infrastructure, including updating CRM platforms, travel management software, and developing dashboards for metrics and KPIs to enable data-driven decisions and support growth.

Segment Performance

• Power Solutions and Protection: Sales reached $94.4 million in Q3 '25, a 94% increase vs Q3 '24. Excluding A&D, organic sales grew by $11.3 million or 23.2%. Networking applications sales increased by $11.4 million. Fuse products sales up $1.8 million or 41% from Q3 '24, consumer applications sales up $2.3 million or 39% from Q3 '24. eMobility and rail sales down. Gross margin was 41.8%, up 240 basis points from Q3 '24.
• Connectivity Solutions Group: Sales were $61.9 million in Q3 '25, up 11% vs Q3 '24. Strong in commercial aerospace (up $6.3 million or 50.5%) and defense applications (up $3.6 million or 31.2%), with space applications sales at $2.5 million, up 25% from Q3 '24. Distribution channel sales down $1.9 million or 9.7%. Gross margin rose to 40.3% from 36.6% in Q3 '24.
• Magnetic Solutions group: Sales were $22.7 million in Q3 '25, an 18% increase vs Q3 '24. Driven by higher shipments to a major networking customer. Gross margin improved to 29% from 27.3% in Q3 '24. Impacted by minimum wage increases in China and unfavorable foreign exchange related to the renminbi.

Guidance

• Q4 '25 sales expected in the range of $165 million to $180 million, considering seasonality but continuing trends of intra-quarter sales.
• Book-to-bill ratio was positive for the third consecutive quarter, last seen in 2022.
• Proactive in paying down debt, with $62.5 million paid down in Q3 '25, aiming to continue reducing debt going forward.

Risks

• Medical Claims: U.S. medical claims in SG&A were high in Q2 and Q3 '25, introducing variability as a self-insured plan.
• Foreign Exchange: Fluctuations in currencies like the peso, renminbi, and shekel impact gross margins.
• Geopolitical and Economic Uncertainties: Uncertainties in the global economy and geopolitical issues may affect customer investment and spending patterns.

Question and Answer

Q: Just wanted to circle back on those last -- the last piece that Lynn, you were touching on for the fourth quarter guide. Obviously, something that caught my eye was, yes, bucking kind of the historical trend of 4Q being lower than 3Q. And you mentioned that trends of intra-quarter sales have resumed and that the range assumes that continues in the fourth quarter. I was just wondering if we could just discuss what other factors might be at play, driving that outlook a little bit more detail because I feel like that's a really kind of exciting development for you guys.

A: Bobby, I'll let kind of Lynn jump in here with more details. But I just want to kind of call out a comment that caught my ear here, which is this kind of step down over Q4. I think you said bucking the seasonality trend. I think if you look at -- we see a potential of that, if you just look at the range that we put out there, $165 million to $180 million versus, let's say, the $179 million that was delivered, so possibly. But when we look at the range, I think it's broader than that in the sense that we do expect some seasonality, right? I mean, at the end of the day, we're going to have fundamentally less working days as we head into the holiday season and year-end and as we look kind of around the world and also just various holidays, whether it be kind of Golden Week and/or some of the holidays, for example, in Israel. So, I just want to be mindful that we just do have less working days. So could it happen? Sure. I think the good news is we're expecting it to be a good quarter, but maybe we beat Q3, but I just want to be mindful of that. And I'll turn it over to Lynn here.

Q: Okay. And what's the M&A opportunity looking like for you right now?

A: Yes. I mean, we've been very clear. We like our balance sheet. We continue to pay down our balance sheet. We like where the direction of just paying down more heading into Q4 and into next year is going. So, we feel like we are in a very good position to do an M&A deal. I think really the question as we kind of think about is how big and what is it. And when I say how big, it's both in terms of just size and scale, complexity and also purchase price, right? So today, I would say it's still not a healthy M&A environment, but I think we are seeing a step-up in terms of opportunities versus Q1, Q2 this year. So, we are seeing more shots on goal. I would not classify it as normal yet, but we definitely have some opportunities ahead of us that we're kind of working through. I would also say is it feels like if you look at our course of a quarter, we always have something live. The question is, do you want to strike and do you like the business fundamentals? So, that kind of -- hopefully that answers your question, Theo.

Q: Congratulations on the good quarter. Lynn, you mentioned in your prepared remarks, you saw a shift -- you had a shift of a customer out of distribution to service directly. And I have 3 questions related to that. How often does that happen? What determines the shift? And how does the distributor feel about it?

A: So, I would say -- first of all, thank you for the question there, Theo. I'd say we've kind of talked about in the past, distribution is a very dynamic channel and they're great and key partners for us and within our industry. And it's really hard to paint this in a broad stroke, but I'll try my best. Some customers, while we may design and work with them directly, ultimately, they want the distributor to aggregate all their purchases, right? So, we may start the relationship direct and it goes into the distribution channel to give them some kind of fixed fee. And the inverse of that also happens where a customer comes to us through distribution and then we develop something together, and it can be distributed and worked through the distributor or sometimes it does come out. So it happens both ways. And I would also say the -- some of the guiding principles on that include minimum order quantity. So if it's something smaller, we wanted to go through distribution. So sometimes we push people into the distribution channel to really maximize our cost to service these customers' model. So, I would say it's definitely a dynamic channel. And I would say when we look at distribution, it's a great discovery channel for new customers. So, I wouldn't say we're doing anything unusual in our industry because at the same time, we're not looking to burn the relationships, right? So this is pretty standard, I would say. The other thing is not all distributors are the same. There are some folks that really focus on kind of low quantities and as things scale, they don't want you in the channel, so you take it out directly. Other folks more if it's big and opening up doors. So, I'd say the answer is it depends, but I wouldn't say anything unnatural or odd happened here.