Bel Fuse Inc. Price & Performance (BELFB)

Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward looking statements under federal securities laws such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations, and reflect the company's views only as of today. And should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward looking statements, due to a number of risks, uncertainties and other factors. These material risks are summarized in the press release that we issued after market closed yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission including our most recent annual report on Form 10 ks and our quarterly reports and other documents that we have filed or may file with the SEC from time to time.

We may also discuss non GAAP results during this call and reconciliations of our GAAP results to non GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Dan Bernstein, President and CEO Vice President of Financial Reporting and Investor Relations. With that, I'd like to turn the call over to Dan. Dan?

Thank you, Jean, very much.

Okay. We are pleased with our fourth quarter and full year 2024 results.

Both in terms of our legacy business as well as first two months of performance from the recent acquisitions acquired Encomp business.

Overall, we achieved a four to 10 basis points improvement in gross margin So full year 2024 versus 2023.

Despite the 16% reduction in sales from last year, this was also the second best year in Vale's history [indiscernible] EBITDA at our highest stock price. [indiscernible] 2024 was our two core strategies, The first is the future growth of the company and the second cost controls. In this regard, we were successful on several fronts. We added two senior level positions focused on sales and strategic procurement that we have not had previously. This is in addition to the other folks across the organization. The acquisition of Enercon, the largest transaction in both these history, has enhanced Bell's position as a supplier of mission critical components into harsh environment applications. Further, over the past year, we have engaged in two facility consolidations. One in Glenrock, Pennsylvania under our Connectivity segment the other related to the transition of our huge product line Ojana. Within our Power segment, The team continues to make good progress on each of these initiatives. In the fourth quarter, the goal is to complete both in the first half of twenty twenty five. Majority of the costs associated with these consolidations were already occurred in 2024. From a cost savings perspective, in the aggregate, the company realized a savings of $1,500,000 in 2024 The water come in 2025.

Once these consolidations are completed. And a full year cost savings are realized. Further, there are two other property that have been held Each property is currently under contract for sale and we expect them to close during the first half of twenty twenty five. Upon completion of these two projects, we have successfully implemented six facility consolidations globally in the past three years resulting in an annual cost savings totaling $11,480,000 dollars across all the six projects. These efforts further allowed us to reduce overhead care by 30% since the beginning of twenty twenty three. When we launched these activities. In closing, our 2024 have demonstrated our ability to maintain our enhanced [indiscernible] Even during a challenging year, on top line, These accomplishments of resetting those financial family aging is the result of a full global team pulling together over the past three years. On a variety of fronts. To improve our underlying business. When I consider all the work that has been done to position Delta long term success, and with the collaboration with Luca on the strategy we set it was the right time for me to transition to the Chairman role and on over the reins to Volk.

Luc will be the third CEO of the seventy sixth year history.

And makes the first time the office be held by a person outside the Bernstein's Inn. I am extremely excited to continue the journey through in a different capacity.

I also want to thank our hardworking associates around the world for their dedication and ensuring Gus' commitment continued commitment to success [indiscernible] Thank you, Dan. To echo Dan's sentiment, I think the team really pulled through this past year and making marked improvements in the areas which were within our control. We look to continue this momentum into 2025 with new team members around the table. On the team side, our Global Head of Sales who joined Bell in October has been fast at work in assessing the sales and marketing organization where they stand today and what the future state should look like. Out of the gate, is already improved upon the sales conditions structure we put in place last year.

As we get into 2025, the focus this year this important area will be expanding customer depth and breadth that align well to our capabilities, allowing us to better return on our efforts. We will also be focused on better opportunity targeting customer tracking and installing various efficiency tools to achieve such outcomes. From a cost perspective, there are a few key areas on our radar in 2025. On the positive side, we are excited about our Global Head of Whole Things Procurement as Bel, who's taken a fresh look at our cost While he has only been in the role for about two quarters, he has already identified the series of upcoming initiatives to streamline our supplier base and take advantage of our consolidated purchasing entities. While potential cost savings here are not quantifiable at this moment, we're confident that this effort his effort will be additive to Bell's financials over the coming years. As we look to 2025 from an end market perspective, we see trends as largely favorable in this upcoming year.

We believe AI, defense and space have potential to be the largest areas of new growth for us in 2025, Our first full year with Enercon will be significantly additive to our revenue base given the current business it has. And we are actively working in identifying and executing on a variety of revenue synergy between our Cinch business and Enercon. This process is already underway and while these initiatives will take time for realization, the early signs of potential are encouraging. The areas of distribution, networking and industrial have faced challenges over over the past two years due to inventory destocking. We continue to see signs of recovery in each of these areas during the fourth quarter and anticipate these markets to show signs of improvement in 2025 as compared to '20 As noted in the past two quarters, our consumer end market continues to struggle and we anticipate this to persist through much of 2025. If you recall, this was the end market in which the U. S. Government placed trading restrictions on one of Bill's suppliers in this [indiscernible] This will result in challenging year over year comparisons for this end market through the first half of twenty twenty five as approximately $6,000,000 of sales related to this supplier in the first half of twenty twenty four.

Expanding our lens to the broader geopolitical situation we are in, Tariffs are on the headlines all around us. Effective February 4, an additional tariff of 10% was placed on imports into The U. S. From China. As a reminder, we have already been operating in a 25% tariff world with imports and an additional 10% will increase this to 35%.

On a revenue basis in 2024, we had approximately 12% of our total revenue subject to tariffs. Historically, Bellis Bel these incremental tariffs onto its customers and we anticipate resulting in minimal if any impact to Bell's financials. This is an overall concern for our customers and we have been working with them on exploring other manufacturing sites out of China. Keep in mind the 12% to 13% noted is for 2024 obviously with Enercon that percentage will be a little bit less. Heading into 2025. As for the tariffs in Mexico and assuming they do go in place barring any last minute This would be new and Infantac to approximately $20,000,000 of our 2024 revenue representing just under 4% of sales. We expect to handle these in the same way as China.

But we'll see how that goes. Next to Core overall is a key manufacturer location for a number of our competitors in Austin thus we are wrestling with what is happening. As for Canada tariffs, there is no exposure for us as we neither manufacture nor import export to Canada.

And looking at the business as a whole, we believe 2024 was the trough of many of our end markets and we're generally optimistic entering into 2025.

As we discussed on October call, we expect growth across the business with varying degrees. Our largest percentage to grower should come from magnetics led by networking and our key customer recovery. As for connectivity, we expect growth as well, but due keep in mind this group has grown nicely over the last three years driven by commercial, air defense and space. So while exciting, any new growth will be comparatively speaking a little bit smaller on a percentage basis. As for Power, when assessing year over year growth, And excluding the impact of restricted Chinese supplier, we discussed we will anticipate that AI and distribution will be leading the way and we expect that Power segment to be a little bit more flat to up on a free Enercon base and the growth as well. I should say that Enercon is expected to be Most likely only second to Magnetics in terms of percentage growth. In closing out on a personal note, I could not be more excited to be taking the helm in May. Dan has done an amazing job in not only building a diversifying Bel over his tenure, but encouraging the vast changes that have taken place internally over the past three years.

Bell has a very strong foundation today and is well positioned for future growth. With that, I'll turn the call over to Lynn to run through some financials.

Thank you for Before getting into the financial results of the quarter, I wanted to highlight a few changes to the reconciliation tables included in our earnings release. In the fourth quarter of twenty twenty four, we modified our presentation of non GAAP financial measures. Including revising our definitions of adjusted EBITDA and non GAAP EPS, to additionally exclude from these non GAAP measures the following three items. One, stock based compensation two, amortization of intangibles which primarily relates to the amortization of finite lives customer relationships and technologies associated with including those associated with the recent acquisition of Entercom. And three, unrealized foreign currency exchange gains and losses.

We believe that change enhances investor insight into our operational We have applied this modified definition of adjusted EBITDA and non GAAP EPS to all periods presented. Turning to the financial results. Sales came in at $149,900,000 for the fourth quarter, compared to $140,000,000 for the fourth quarter of twenty twenty three. Full year 2024 sales came in at $535,000,000 as compared to $640,000,000 in 2023. The addition of Enercon sales and strength in our connectivity segment helped to mitigate the continued year over year decline Seen in our Magnetics and Legacy Power segments, during 2024 versus the 2023 period. Gross margin reached 37.5% in the fourth quarter of twenty twenty four as compared to 36.6% in Q4 twenty twenty three. Looking at the full year, gross margin up by four ten basis points in 2024 as compared to 2023. Margin improvement continued to be led by favorable product mix, and the successful execution of a variety of cost reduction and efficiency programs. Now turning to our product groups. Sales of Power Solutions and Protection products in Q4 twenty twenty four amounted to $78,100,000 a 13.2% growth from the previous year's fourth quarter. The increase from Q4 'twenty three was attributable to the inclusion of Entercon, which contributed $20,800,000 in sales to the Power segment during the fourth quarter of twenty twenty four.

On a full year basis, the Power segment showed a decrease of 21.8% compared to 2023 planning at $245,600,000 in sales for 2024. The decline for the full year was mainly driven by lower sales of our front end power products of $45,300,000 and Board Mountpower products of 9,500,000.0 both of which serve our networking end market. Sales of our CEUI products were down $21,200,000 in 2024 as compared to 2023 due to the trade restriction placed on one of our suppliers in the PRC, as we discussed previously. Sales of our eMobility end market decreased by $12,900,000 in 2024 as compared to 2023. These declines were partially offset by an increase in sales of our rail products, of $11,800,000 an increase in sales of Fuse products by $2,600,000 as compared to 2023 the previously mentioned sales contribution of $20,800,000 from Entercom. As a reference for full year activity, rail sales were $41,900,000 for 2024, up 39% from 2023 e mobility sales were $15,000,000 for the full year. Down 46% from the 2023 level. The gross margin for the Power segment was 40.6% for the fourth quarter of twenty twenty four, representing a 40 basis point improvement from Q4 'twenty three.

On a full year basis, the gross margin increased by four thirty basis to 42.4% in 2024 as compared to 38.1%. For 2023. These increases were primarily driven by the acquisition of [indiscernible] pricing actions, favorable FX from the Chinese remedy, And a favorable shift in product mix. Our Connectivity Solutions Group achieved sales of $52,500,000 during the fourth quarter of twenty an increase of 4% compared to Q4 twenty twenty three. On a full year basis, 2024 connectivity sales amounted to $220,000,000 dollars an increase of almost 5%. Versus 2023. This improvement was due to the continued growth in the defense and aerospace industries. In 2024, we also experienced an increased volume of connectivity products sold through our distribution channels. For full year 2024, sales of products into the commercial aerospace end market amounted to $56,900,000 an increase of 7% from the 2023 level.

Products sold into defense applications, totaled $47,000,000 for full year 2024. Up 5% from 2023. Sales into SAFE applications totaled $8,000,000 for the full year of 2024.

Products sold through distribution channel totaled $82,000,000 for the full year of 2024, up 2.9% from 2023. The gross margin for this group was 36.6% in the fourth quarter of twenty twenty four, up seven thirty basis from 29.3% in the same quarter of 2023. On a full year basis, the gross margin improved by two ninety basis points to 37.1% compared to 34.2% in 2023. Gross margins for the 2024 periods were favorably impacted by the higher overall sales volume, favorable fluctuation in exchange rates between the U. S. Dollar and the Mexican peso in 2024? And operational efficiencies implemented during 2023, partially offset by higher wage rates in Mexico in 2024 as compared to 2023. Lastly, our Magnetic Solutions Group sales declined by 6% from Q4 twenty twenty three levels. To $19,200,000 for the fourth quarter of twenty twenty four.

This resulted in full year 2024 sales for the Magnetic segment of $58,900,000 as compared to $115,000,000 in 2023.

This segment has a large concentration of sales the networking end market and is largely tied to the ordering patterns and end demand of a few large customers within that space. Full quarterly sales within this segment remained at significantly depressed levels throughout 2024, Volumes have stabilized and have been on a rebound since the second quarter of twenty twenty four. The gross margin for the 29.1% for Q4 twenty twenty four a 1,200 basis point improvement from the 17.1% gross margin in Q4 'twenty three. On a full year basis, Magnetics gross margin was 25.3% in 2024 as compared to 22% in 2023. The recent facility consolidations in China and related elimination cost structure that was in place during the 2023 transition. Were the primary drivers for the improved margin profile of this segment. At the consolidated level across all product segments, our backlog of orders totaled $382,000,000 This is comprised of $263,000,000 of legacy Bell Bel, and $119,000,000 of Entercom backlog at December 31, 2024.

Selling, general and administrative expenses for the fourth quarter of twenty twenty four were $34,800,000 up by 9,900,000.0 from 24,900,000.0 in Q4 twenty twenty three. On a year to date basis, SG and A increased by $11,500,000 during 2024, The primary drivers for the increases in SG and A during the 2024 period related to the acquisition of Entercom. Non recurring acquisition related costs amounted to $8,600,000 during the fourth quarter and $12,900,000 for the full year of 2024 and the majority of these were included in SG and A. In addition, incremental amortization expense of approximately 1,300,000.0 was recorded during the fourth quarter of twenty twenty four and SG and A related to evaluation of customer relationships. Other SG and A expenses related to Entercon amounted to $2,500,000 during the fourth quarter. Excluding these items related to Entercom, legacy Bell SG and A expenses showed a decline of $3,600,000 during the full year of 2024. Versus 2023. This decrease was the result of reductions in incentive compensation, sales commissions, and business promotion expenses. Turning to our balance sheet and cash flow. We closed the year with $69,000,000 in cash and securities, down $58,000,000 from the $127,000,000 we had at the end of 2023.

This was primarily due to the utilization of the $86,000,000 in cash to fund the Enercon acquisition during the fourth quarter.

During the full year of 2024, we generated of 77,700,000.0 From a debt perspective, our outstanding balance increased to $287,500,000 at the end of the year largely due to the new debt of $240,000,000 related to the UnderCon Act And taking into account our swap agreements, the weighted average interest rate on our debt balance at 12/31/2024 was 5.5%. As a reminder, our credit facility And as a result, we will be looking to refinance the facility during this summer of twenty twenty five.

Ensure a new agreement is in place, prior to the current facility going into a current liability classification. Now turning to Enerco, While we've touched upon this in pieces throughout our common [indiscernible] related to the acquisition. First, we utilized $86,000,000 of cash and $240,000,000 of new borrowings under our credit facility to finance the acquisition. Next, the current run rate of interest expense at the current interest rates and at our December 31 outstanding debt balance, is approximately $4,000,000 per quarter. At December 31, our net leverage ratio in accordance with the calculation outlined in our credit agreement was 2.1 times.

Keep in mind, our credit facility leverage ratio only nets out four in cash.

If netting out global cash, we were under the two times mark. At December 31.

Envelope acquired 80% of Entercom, the Enercon financials are fully consolidated into 20% of net earnings attributable to the non controlling interest is shown at the bottom of our P and L. Enercon contributed $20,800,000 of revenue to Bell's financials during the two months in 2024.

For modeling purposes, Entercom's annual R and D expenses are approximately 6,500,000.0 and its annual SG and A expenses are approximately 13,500,000.0 Enercon's blended tax rate is approximately 17%.

The last item I'd like to touch upon is related to the redeemable non controlling interest, which is a new line item on our balance This relates to the 20% of Enercon that Bell currently does not own. But for which there are put in call options which may be exercised in early twenty twenty seven. Upon the acquisition of Enercon in November 2024, The fair value of the NCI was determined to be 72,300,000.0 In accordance with GAAP accounting, and the various policy elections the company made, related to NCI accounting the redeemable NCI Bel the balance sheet, was remeasured to its redemption value at December 31. This led to a $7,700,000 increase in the NCI amount on the balance sheet. With the offset being attributable to the non controlling interest at the bottom of our P and L. This in turn reduced the net earnings come out attributable to Bell shareholders Bel.

These items included as a non GAAP adjustment and our non GAAP EPS reconciliation table. We wanted to highlight this one time adjustment from fair value to redemption value. As this resulted in Bel reporting a net loss on a GAAP basis during the fourth quarter.

I would now like to turn the call back to the operator to open the call for questions.

Thank you. We will now be conducting a question and answer session. The first question comes from the line of Christopher Klynn with Oppenheimer. Please go ahead. Hey, good morning. Congrats on closing Enercon.

Just wanted to connect the dots from some of the third quarter orders momentum. You talked about for PSP and for Magnetix.

You saw a nice counter seasonal [indiscernible] [indiscernible] Not the case for Magnetic, but you had pointed out longer lead times there. So just want to revisit that contrast in lead times and also if the orders turn was pretty sticky relative Bel what you saw in the third quarter versus maybe some continued intermittency?

Yes. So, hey, Chris, nice to connect here.

On Magnetics, it's seasonal and generally, we think of Magnetics and largely power as having Q2, Q3 being the strongest quarters. And Q1 usually being the weakest and Q4 somewhere in the middle. So that's kind of I'd say what's going to be expected on the magnetic side. On the power side, we did see some maybe more robust pull ins And that led us to be a little bit north of the midpoint of our previous guided range just for the Bel base business. We think some of the pull ins that did come in was to get out ahead of some of the tariffs that were potentially coming in, in Q3 Q1 But outside of that, I think everything kind of went and landed as we thought it would given the seasonality within both VSP and Magnetix.

Okay, great. And I think last quarter you [indiscernible] growth in all segments in 2025. I think you referred more to flattish outlook for PSP for 2025. If you could verify if I heard that [indiscernible] and also maybe go down a layer or two on the puts and takes to kind of defer growth recovery for PSP?

Yes. So on DSP commentary I'm going to give obviously is excluding Inner Con. So a couple of things happened there throughout 2024. One is the Chinese supplier that we've talked about and we had roughly, let's call it, dollars 5,000,000 of pull in That happened in Q4. Which we were not expecting.

So when we look at the amalgamation of those two just year over year comparison becomes a little bit harder for PSP given both of those were largely impacting PSP. So when looking at that, it kind of gives us this let's call it, maybe flattish Could it be more? Yes. I think we just need to see kind of how the world plays out from an end market perspective. [indiscernible] given that call it optics harder comparison that will happen with the Chinese supplier and the full ends that's kind of what gave us to guide that as we try to manage expectations here.

Okay, great. And congrats on the transitions, Dan and Farooq across the company. And in the CEO role in particular.

Thank you. Thank you.

Thank you. Next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Hey, good morning guys. Thank you for taking my question. I guess I just want to first start on the 1Q sales guide.

Could you maybe just give us a sense of how much of that is attributable Bel strictly from Entercom business?

Yes. So I think going forward, Bobby, we'll be blending them here. I think directionally, when we do look at it, we guided PSP to roughly from a Q1 perspective year over year given the pull ins at least slightly down. And also remember Q1 last year had the Chinese supplier in right? So you have the Chinese supplier going against you coupled with some of the pull ins. So PSP on a base level will be down. Q1 twenty five over Q1 twenty four. Obviously Enercona would be additive to that.

Okay. I appreciate that. And then I think we've talked about this before, but just wanted to kind of circle back on it now that [indiscernible] under your own ownership is how quickly do you think it'll take for real cross selling opportunities to begin to to begin to merge here. Just trying to get a sense of how it's trying to get a sense of that Yes, I think similar to anybody touching defense, it's a slow moving environment and either unseating an incumbent or new designs.

And I think that generally holds globally true, whether it be European defense, American defense or Israeli defense.

So my guess is we probably are not going to see much if any, in 2025 on the cross Bel. But we could see it, right? It's just going to really depends. But demand expectations here. I think what's important for us though is one, are there opportunities out there for cross pollination and bringing the resources of Bell to bear to customers? And the answer is yes. Two is ensuring that our teams are talking together with the proper incentives to really motivate people to jointly go out there and tackle the world and we've done that on the process people incentive side of it. So I'd leave it at that, but generally defense is a slow moving existence. Fair enough Bel.

And then maybe this kind of ties into that last point. That you made there. But so your new Global Head of Sales, you had some time now to get adjusted into the sea. You talked about it a little bit some of the stuff that he's already implemented and you kind of touched on it there. Right.

In the previous answer, but could you maybe just dive a little bit deeper and highlight some of the initiatives he's kicked off or changes he's made and maybe just compare that to what kind of previously was the case? Yes. So I appreciate that question there, Bobby.

As I kind of think about things, I kind of say to myself, people process performance, people process On the people side of it, we have maybe with some things around a little bit in terms of responsibility and reporting structure. And making sure we are better aligned as a team. So that's on the people side of it. I'll hop on to leave it at that. On the process side of it, it's really a question of where are we going to Bel, who are we targeting to selling, right? So how do we establish further breadth and depth with Tinder customers and new customers. So we spent a fair amount of time with Ooma really understanding where do we go deeper with certain customers and where is the parallel pathways for us to grow? So we'll be kind of really thinking a little bit harder, especially on the parallel or competitors that we could be going after inside lanes. The performance piece of it is making sure if your people are performing enabled by the process that there is recognition on the performance side of it measuring performance. So that's to my earlier commentary on the commission structure.

Changes that we have implemented.

And we've added more Bel and whistles than we did last year. We've also established a structure whereby we reward let's call it cross selling between our Connectivity segment at Enercon. And then making sure we measure it and compensate for it. That's how we kind of think about it is [indiscernible] well rounded perspective. Just to add a little bit to that, Fruh came from a very strong [indiscernible] So for us, as we move forward, we know more and more sales in the past were direct sales between our people The reps and engineering communities.

As we move forward, we know the future engineers don't want to talk to people. They want to get their practice quickest possible. Off the Internet either from us or from DigiKey Maals or these e commerce distributors. And his focus is really what we do well is on the key customers, the Cisco's of the world.

And the Honeywell and Boeing people. What we need help is really addressing the second tier and third tier fourth tier accounts and building those relationships. I think the other problem is we have been historically very siloed in our approach to sales and how do we combine our total sales force to work as as efficient as possible. It might be two sales force, it might be one sales force, but he's really taking a hard look at how we go to market, what's the best strategy to make sure that we cover all the bases. So far, we're very pleased in the direction of moving and we're moving a lot quicker than we thought.

That's terrific color. I appreciate it guys. And congrats, Stan, on the great career and Farooq on the step up to CEO. I'll return to the queue.

Thank you.

Next question comes from the line of James Rakuten with Needham and Co. Please go ahead.

Hi, thanks. Good morning. So I'll echo my congratulations to both of you. Looks like it's going to be a smooth transition and I wish you both the best. So first question just relates to Anadarkan. Khan, I know you've only had the business for one, Beth, three months or so, but I'm wondering as you had discussions with your colleagues there, What's your sense as to the business outlook I think, Pruthi, you said next to Magnetics, I think you said it was going to be second strongest growing business. Is this is there an element business in Israel, are you seeing Bel us about the activity you're seeing outside Israel in terms of I know they have a fair amount of exposure in North America as Bel.

Yes. So I would say think the messaging is really the same whether it be on The U. S. Or Israeli side. And obviously, as a reminder, roughly 40% of their sales is Israel 50% U. S. And 10% various European, India and the like. I think the message is and this was kind of one of our investment thesis in defense. We think that it will be a multiyear Good tailwinds for that end market. There will be a replenishment cycle, obviously, with some of the issues with Ukraine and that war in Israel, there is a natural replenishment cycle after a period of [indiscernible] So that will be additive We also think that the global posture around defense and defense spending has [indiscernible] And we're seeing more investment going whether it be into new technologies or just increasing overall spending and we see some of this commentary running through the news. Between replenishment, rearmament, and stepping up defense spending, all that is additive. The other thing we're seeing, and I think there's a fair amount of coverage of this coming out is in Israel specifically. Where we're seeing the export side of that defense sector are really expanding.

So as we look at all these factors, spending, speed defense postures, increase investment in new technologies, all that is additive to enter And obviously also they do sell into commercial air and as we think about just that commercial air tailwinds we also think it's additive. Also as a reminder defense is around 93% of their business and 7% is commercial You mentioned AI several times. This morning. And I'm wondering as we think about the opportunity, where are you seeing the biggest impact from that And are you in a position yet where you could actually quantify how much of the revenues that could be AI driven in some of the business units?

So in terms of AI, our biggest beneficiary across our segments is in the power group. So I think it's safe to say when we say that's the large main driver. And as we talked about before Jim, we know where our product is going, AI. So when we say AI, that's a direct line from us to an AI type application. But we also do know that we have some other products that go through our customers, our intermediary customers that end up in AI that becomes a little bit harder for us to track. But when we say AI, we're talking about a hard line I would say we're and also just as a reminder from AI, we're generally not selling to the hyperscalers given the cost pressures there and just Our business doesn't lend itself for a competitive side of things. So we tend to do non hyper scalers. We get to them We get to through our networking customers and directory. In terms of the AI growth, and we talked about this on our October call as we started heading into Q4, so back in the September, October timeframe, we started some of the business that we've been chasing for a fair amount of time, started to turn some nice orders for us.

So I would say as we start heading into Q3 that's when we really start seeing AI. AI, I would say is 2024 and we're just starting that climb is around $7 ish million for us. Out of power. And we expect that number to grow very nicely into 2025.

Thanks. That's helpful. Last question for me, just as it relates to what you're seeing at the the distributor level, Where do we stand relative to these destocking at some of your major distributors? Is that in the rearview mirror? Or are we still working through some of that in certain areas of the business?

We will be the major distributor. We're the top two They felt that in January Bel hit bottom. And that things should start improving. But again, I think we heard that song So we're keeping our fingers crossed that we have at the bottom We're starting to see improvement. If you look at our circuit protection, they're the first ones that we started because they're low cost items. People order them first. And they're easy to order. So we're starting to see some backlog increases there. So hopefully that's a good sign. So we should I'd be surprised if we don't see improvement in distribution this year. And we should see it start coming at the end of this first quarter.

Got it.

Thanks. And again, congratulations on the announcements and the results.

Thanks, sir. Thank you.

Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Dan Bernstein for closing comments.

Once again, thank you very much for joining the call today.

We This is Sia Bata. Just want to take the next in line that is Theodora O'Neill with Litchfield Hill Research. Please go ahead.

Thanks very much.

Congratulations on the quarter.

I was I just want to follow-up on previous question about AI. Is that application primarily in [indiscernible] Yes. [indiscernible] given the contribution from Enercon in the quarter, does that change potential earn out or the timing for acquiring the remaining 20%?

Nothing that's been this put this in the filings that we have in terms of the contract Right now, it stipulates we're going to measure end of twenty twenty six and kind of book call option it early in 2027. If there was any kind of there's no accelerators built in so to speak. If we if there was an acceleration to occur, it has to be an agreement between the two parties. But as of right now, there is no such accelerators in the Okay. And my last question is, if Europe decides it needs to dramatically increase defense spending, this be a particularly particularly positive for Entercom?

Would say [indiscernible] as I've said earlier, roughly 10% of Enercon sales is not Israel, not The U. S. And that's spread out between the Europeans and some India. So overall spending increase would be additive to Enercon obviously, just given the European defense manufacturing is a little bit less from overall. It's additive for sure. I would also benefit from that on the connectivity thin side. More spending from the Europeans, the question also becomes where do they buy it from? Right? Are they importing it from places like Israel and U. S. Which would be additive or is it all local? Just kind of depends a little bit where they're buying it from. [indiscernible] Thank you. Next question comes from the line of Christopher Glynn Oppenheimer. Please go ahead.

Thanks. Just a housekeeping question. On modeling. We have a different So, algorithms calculate adjusted EPS. So just like maybe level set quantity what we could use the intangibles amortization and stock comp add backs per quarter or annualized going forward?

Yes. So on the On this We're estimating it will be a fairly similar level to what we have had in 2023 and maybe up a little bit.

So for modeling, maybe call it around $4,000,000 or so maybe a little higher than that. And then on the the amortization of intangibles Bel, we had two months' worth of incremental amortization in '24 numbers.

So that's Great.

Thank you. Next question comes from the line of Andy Susanto with Gabelli Funds.

Please go ahead. [indiscernible] [indiscernible] Thank you very much.

Thank you. Two questions for me. Would you remind us areas that may be impacted by such like global tariffs and potential areas of mitigation and would you remind us about China for China We Yes. So I would say it's a little bit of a moving target. Right? I think for us, [indiscernible] as we think specifically The U. S, China revenue, we talked about 12% to 13% of 2024 Bel tariff. And then roughly a little bit under 4% Mexico exposure.

I would say If that's kind of that things are coming to U. S. We do send some stuff from Europe to The U. S. And some from The UK as well. So if that becomes more of a thing, it'd be obviously it'd be a headwind Generally, we manufacture around where our which is manufactured in China stays within Asia. Right? So it's either getting sent out to CMs in The Philippines and India or states in China. So generally more localized manufacturing. And I think that's one of the nice things of our business. I think in Europe, product flows within Europe, I think we feel pretty decent about product flows within Asia. Seemingly pretty decent. It's really when you touch The U. S. Right, given that we're the ones trying to institute these policies. So is it a concern and a headwind of course tariffs and just generally not I think the bigger concern is it's more of a moving target. It seems every day we get a new target. And I think that's the issue and the challenge that we have. But ultimately, our process is the same. We work with our customers on trying to be cost effective and efficient and then also where we can pass it on.

That's the goal.

Yes. And then second question, how should we think about your M and A capacity post the acquisition of Enercon?

Yes. So I think similar to our discussion we talked about when we did announce Enercon, we appreciate that we have more leverage today than we did. I would say we are open [indiscernible] More selective both on quality and size. But we are open for business. We understand where some of the call it lack of tolerance or red lines are But ultimately, there are things. So it's a higher hurdle if we're going to add them in a family think we're going to make sure that it's additive to some capacity at the right circumstance.

Okay. Thank you. Reached the end of question and answer session. I would now like to turn the floor over to Dan Bernstein for closing comments.

Thank you for joining us today and we look forward to speaking to you at Agro.

Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. You for your participation. [indiscernible]