Bel Fuse Inc. Q2 FY2026 earnings call

Overall Business Performance

• Delivered a strong second quarter of 2026 with broad-based growth, led by robust demand in data solutions and defense end markets. Channel sales reached their highest level since mid-2022, following a year-to-date uptick in distribution partner demand.
• Bookings have exceeded sales for six consecutive quarters, demonstrating strong ongoing demand momentum across the business.

Strategic and Operational Milestones

• Completed an equity raise in May 2026, selling 1.7 million shares to generate $440 million in net proceeds. Proceeds were used to fully repay all outstanding debt, with remaining cash earmarked to fund the closing of the remaining Enercon stake acquisition in Q1 2027 and support other growth initiatives.
• The company's Slovakia facility received required European defense manufacturer certification, marking a major milestone. The site secured 8 additional European defense project wins in Q2, following an initial win reported last quarter; sales from these wins are expected to begin in late 2027, aligned with the standard defense monetization cycle. Historically focused on industrial power applications, the site was reconfigured over 18+ months to serve European defense demand for localized content.

Organizational and Investment Updates

• Continued building out cross-functional teams (operations, sales, IT, finance, legal, HR) to support growth, with all key roles expected to be filled by the end of 2026. Key positions have been filled for the European aerospace and defense sales team.
• The new two-segment organizational structure (implemented last quarter) improved end-market focus and business depth, acting as a catalyst for growth. Additional organizational changes included the creation of dedicated business development and key account management functions, which have already delivered visible benefits.

Capital Structure and Cash Flow

• Ended the quarter with $306.1 million in cash and securities and no outstanding debt, materially improving liquidity and financial flexibility to pursue growth and strategic opportunities.
• Working capital was increased in H1 2026 to support growth: accounts receivable grew $32 million and inventories grew $32 million, aligned with higher order volumes. H1 2026 capital expenditures totaled $4.9 million, with a slightly higher CapEx level expected in H2 2026 focused on high-ROI projects that improve throughput and capacity.
• Inventory turns are expected to remain challenged in the near-term as inventory is built to support growth projections; the long-term goal is to convert a greater portion of earnings into consistent free cash flow as the business scales.

Bel operates two end-market-based segments: Aerospace Defense and Rugged Solutions (ADRS) and Industrial Technology & Data Solutions (ITDS). Total company revenue for Q2 2026 was $210.7 million, up 25% year-over-year.

• ADRS: Q2 2026 revenue was $111 million, up $18.6 million (20.6%) year-over-year. It contributed 52.7% of total company revenue. Growth was led by the defense sub-segment, which generated $66.5 million in revenue (28.4% year-over-year increase), with strong gains in industrial applications via the distribution channel, partially offset by a decline in commercial air. ADRS gross margin was 41.1%, down 30 basis points year-over-year, as material cost and foreign exchange pressures offset operating leverage gains from higher sales volumes.

• ITDS: Q2 2026 revenue was $100 million, up $23.8 million (31.1%) year-over-year. It contributed 47.3% of total company revenue. Growth was led by the data solutions sub-segment, which grew $20.7 million (55%) year-over-year to $58 million, including a $4.4 million contribution from the March 2026 dataMate acquisition and the start of a ramp for high-performance computing project wins. Meaningful growth was also seen in industrial and consumer applications via distribution, partially offset by a modest decline in transportation. ITDS gross margin was 38.8%, up 220 basis points year-over-year, driven by favorable product mix and operating efficiencies from higher volume, partially offset by unfavorable foreign exchange impacts.

• Q3 2026 sales are projected to be in the range of $205 to $225 million, with gross margin expected between 39% and 41%. Sequential growth is projected to be driven by continued strength in defense, data solutions, and growing distribution partner demand for components.
• SG&A is expected to range between $34 million and $35 million per future quarter, down from the Q2 2026 level of $36.3 million which included non-recurring professional fees.
• Pricing increases implemented on new orders in early 2026 are expected to begin delivering margin benefits starting in Q3 2026 and continuing through subsequent quarters, following no material benefit from these increases in Q2.
• Management expects revenue rotation over coming quarters, where resources will be reallocated to prioritize higher-growth, higher-margin, higher-ROI business over larger lower-margin product lines, enabled by strong current demand and booking momentum.
• Foreign exchange pressures from Q2 2026 (driven by weakness of the US dollar against the renminbi and shekel) are expected to stabilize or improve slightly in Q3, removing further downward margin pressure.

• Forward-looking projections of future financial performance are inherently uncertain, and actual results may differ materially due to a range of unforeseen risks and uncertainties, which are detailed in the company's SEC filings including Form 10-K and quarterly reports.
• Foreign exchange volatility creates margin pressure, particularly from weakness of the US dollar relative to the Chinese renminbi (which increases costs at the company's Chinese manufacturing facilities) and the Israeli shekel.
• Sustained higher raw material and input costs continue to create upward pressure on operating costs, partially offset by operating leverage and pricing increases.
• Near-term inventory turns will remain challenged as the company builds inventory to support projected growth.
• Government defense funding cycles are unpredictable, and full stockpile replenishment for missile programs is not expected to be completed for multiple years, leading to delayed revenue realization for some opportunities.
• The space market, while offering long-term growth potential, is currently constrained by launch bottlenecks that delay revenue recognition for existing design wins.

Q: What does the Slovakia defense certification and accelerated project wins mean for the company's long-term European A&D strategy, and what was the site's prior purpose? / A: Historically, the Slovakia site focused on industrial power applications for rail and e-mobility. It was reconfigured over 18+ months to add defense manufacturing capabilities, meet European requirements for localized defense content, and serve as a regional hub for the acquired Enercon business. Certification and 8 new project wins in Q2 2026 came much earlier than the original end-of-2026 target, driven by shifting European defense policy that prioritizes onshore production. The expansion supports sales of the full A&D portfolio across Europe, not just Enercon products, and the company continues to add sales headcount to capture more regional opportunities.

Q: What key initiatives have driven the recent strong organic growth, and what is the company's outlook for future improvements? / A: Recent growth is the culmination of multi-year investments across people, process, and partner strategy. Key changes included restructuring into end-market-focused segments, adding key headcount, reassigning internal talent to align with growth priorities, and updating KPIs and incentive structures to reward new performance. The company also renegotiated rep agreements to prioritize pay for new wins over legacy flow business, and invested in data tracking, CRM systems, and dedicated business development/key account management functions. Management believes the company has not yet reached its full growth potential, and will continue investing to capture additional opportunity.

Q: Is the recent strong defense growth sustainable, and what is driving the recent gross margin improvement? / A: Strong defense growth is expected to continue, as forward-looking indicators including bookings and new design wins show robust demand. The company has sufficient current manufacturing capacity, with the new Slovakia site adding additional flexibility; the main current constraint is supply-chain material availability, not in-house production capacity. Q2 2026 gross margin improvement was driven primarily by operating leverage from higher sales volume, not the early-2026 pricing increases, which will not deliver material benefits until Q3 and beyond. Pricing increases will gradually flow through as new orders are shipped over time.

Q: What is the company's approach to M&A now that it has a strengthened balance sheet? / A: The company's long-term M&A strategy remains unchanged: it will focus on disciplined acquisitions that align with medium and long-term growth opportunities in attractive technology and end markets, and will not overpay for deals. Management has observed excessive, irrational premiums for many current acquisition opportunities in the market, so it will remain patient and disciplined rather than pursuing unappealing deals. Organic growth remains the core near-term focus of the existing team, while M&A runs as a separate parallel track.

Q: What is the expected magnitude and timing of benefits from the recently acquired and integrated dataMate business? / A: The dataMate facility transition and ERP conversion are complete, and the combined business is already starting to deliver benefits: the dataMate team has integrated well, and additional business development investment has already identified new opportunities. dataMate contributed $4.4 million in Q2 2026 revenue, and was an ~$18 million annual revenue business at acquisition, so it is not expected to be a material driver of overall company revenue in the near term, but offers solid long-term growth potential within the ITDS segment.