Bel Fuse Inc. Price & Performance (BELFB)

Thank you Darryl and good morning everyone. Before we begin, I'd like to remind everyone that during today's conference call, will make statements relating to our business will be considered forward looking statements under federal securities laws. Such as statements regarding the company's 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 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 close yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual 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 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 of the website. Joining me today on the call is Dan Bernstein, President and CEO Fruit Tewick, CFO and Lynn Hutkin, Vice President of Financial Reporting and Investor Relations. With that, I'd like to turn the call over to Dan. Dan?

Thank you, Jean.

We were pleased with our first quarter results.

Which were in line with our expectations for the quarter. Our recent acquisition of Enercon continue to perform well. And has helped to to further diversify Bel from my end markets and geographic perspective. During the first quarter of twenty twenty five, the aerospace defense or A and D end markets accounted for 38% of our global sales. Making it our largest end market segment. Other highlights during the first quarter included AI, which contributed contributed to $4,600,000 of revenue and space which contributed $2,300,000 of revenue during the first quarter of twenty twenty five. This represents double digit growth in each of these end markets compared to the first quarter of twenty twenty four. Other factors impacting the quarter were lower sales into our consumer market related to a banned Chinese supplier. E mobility and a normalization of sales into our REL end market. We are definitely entering a new challenging phase with the global tariffs. However, based on our diversification, strategy or manufacturing and our product portfolio, I am confident that we will navigate through this. With that, I'm turning the call over to Lynn. Lynn?

Thank you, Dan. From a financial perspective, we observed continued margin expansion when comparing Q1 twenty twenty five to Q1 twenty twenty four. Sales for the first quarter of 'twenty five reached $152,200,000 reflecting an 18.9% increase from the first quarter of twenty twenty four. The strong performance within our A and D end market and the improvement in sales in our Magnetic segment helped offset the year over year decline in our networking, consumer, rail and e mobility end markets within our Power segment during the first quarter of twenty twenty five compared to the same quarter of twenty twenty four. Our gross margin improved to 38% in Q1 twenty twenty five, up from 37.5% in Q1 twenty twenty four. With these profitability gains primarily driven by our magnetic and Connectivity segments. Gross margin increased by 110 basis points in Q1 twenty twenty five compared to Q1 twenty twenty four. This margin improvement was supported by a favorable product mix and the successful implementation of various cost reduction and efficiency programs. Now turning to our product groups, Sales of power solutions and protection in the first quarter of twenty twenty five amounted to $83,100,000 reflecting a 37.9% increase compared to the same period last year.

This growth was largely driven by our new aerospace and defense exposure, which contributed $32,400,000 to the power segment for the first three months of twenty twenty five. On the consumer side, sales decreased by $2,800,000 in Q1 twenty five compared to Q1 twenty four primarily due to the trade restriction imposed on one of our suppliers in China as mentioned in our prior earnings calls. Additionally, given e mobility sales were still robust in Q1 of twenty twenty four, we saw a $1,600,000 year over year decline in this end market Q1 twenty twenty five? Sales into the Rail end market have started to normalize coming off an unusually strong 2024. Resulting in a $1,500,000 reduction during Q1 twenty five compared to the same period of twenty four. These declines were partially offset by a $3,800,000 increase in sales to our AI customers bringing total AI sales for Q1 twenty twenty five to 4,600,000.0 Further, circuit protection sales increased by 700,000 in Q1 twenty twenty five. Compared to Q1 twenty four. The gross margin for the Power segment in the first quarter of twenty five was 42.6%, reflecting a decline of 140 basis points from Q1 twenty twenty four.

This decrease was primarily attributed to non recurring items, that were recorded at a 100% gross margin in q one twenty twenty four. On the plus side, our Power gross margins were favorably impacted appreciation of the U. S. Dollar versus the Chinese renminbi during the twenty twenty five quarter? Turning to our connectivity solutions group. Sales for q one twenty twenty five reached 50,700,000.0, a decrease of 6.5% compared to Q1 twenty twenty four. Sales for commercial air applications in Q1 twenty twenty five were 12,900,000.0, which represents a decline of 1,700,000.0 or 12% from Q1 twenty twenty four. Additionally, sales into the industrial end markets fell by 800,000 compared to the same period last year. On the positive side, connectivity products sold into defense applications totaled 12,200,000.0 in Q1 twenty twenty five. An increase of 13% from Q1 twenty twenty four. And sales into the space end market reached 2,300,000.0 in q one twenty five up by 15% from q one twenty four. Gross margin for this group was 37.9% in the first quarter twenty twenty five, representing an improvement of 180 basis points from q one twenty twenty four. This margin expansion was largely attributable to operational efficiencies achieved through facility consolidations completed in 2024 along with favorable foreign exchange impacts related to the peso.

These positive drivers were partially offset by minimum wage increases in Mexico, that took effect in Q1 twenty twenty five. Lastly, in the first quarter of twenty twenty five, our Magnetic Solutions Group recorded sales of 18,500,000.0 representing a 36.1% increase compared to the first quarter of twenty twenty four. This level of growth aligns with expectations to discussed during last quarter's earnings calls, where we noted that sales volumes had stabilized and we were beginning to see a rebound since the second quarter of twenty twenty four. The gross margin for this group improved to 24.7% in Q1 twenty twenty five compared to 16% in Q1 twenty twenty four marking an eight seventy basis point improvement year over year. This increase in margin was primarily driven by the higher sales volume in Q1 twenty twenty five as well as recent facility consolidations in China and favorable exchange rates related to the Chinese renminbi. Compared to q one twenty twenty four. At the consolidated level, across all product segments, our total backlog of orders reached 3 and $95,700,000 reflecting an increase of 14,100,000 or 4% compared to December 31, 2024. R and D expenses reached 7,200,000.0 in Q1 twenty twenty five, a higher level compared to Q1 twenty twenty four, primarily due to the acquisition of Entercom and the inclusion of their expenses.

We expect future quarters to generally align with the Q1 twenty twenty five expense. Selling, general and administrative expenses totaled 29,500,000.0 representing 19.4% of sales. Compared to the previous year, SG and A increased by $4,600,000 in 2025. Again, the primary factor contributing to this rise in SG and A is the inclusion of expenses. Within SG and A, increases were seen in legal fees, salaries, fringe benefits, and amortization expense. Which were largely offset by a reduction in incentive compensation. As there were no unusual items in SG and A during Q1 'twenty five, we believe this level of expense is generally indicative of the expected run rate for future quarters in 2025. Looking at our balance sheet and cash flow, we finished the quarter with $67,000,000 in cash and securities, a decrease of 2,000,000 from the 69,000,000 we reported at the end of 2024. This change was mainly due to the repayment of long term debt amounting to $7500000.02800000.0 spent on capital expenditures, and a dividend payment of $829,000 These cash outflows were partially offset by 8,100,000.0 in net cash generated from operating activities. I would now like to turn the call over to Farooq.

Thank you, Lynn. Good morning, everybody.

After coming out of a solid and predictable first quarter, we have less clarity as we look ahead to the second quarter. In order to frame what we are seeing, let's first talk about our base business demand putting tariffs aside As we mentioned on our February call, we were largely optimistic entering into 2025. With growth expected across the business with varying degrees. Said magnetics was expected to be our largest percentage grower this year, followed by Enercon on a pro form a basis. The end markets of defense space, AI were all robust and growing. We expected to see a rebound in networking and distribution sales as we went through the year predominantly in the second half. Year over year challenges this year would largely be in our Power segment, tough comps to 2024 for the rail and consumer markets and continued softness in e mobility. Each of these comments from our February call is still the current state of affairs of our base business. So the good news is, aside from tariffs, there are no changes to report at this time. Now on to the tariff discussion. To provide some broad context, approximately 25% of our consolidated sales are brought into The U. S. From countries outside of The U. S. And therefore potentially could be subject to recent tariffs.

The other 75% majority of our business is either manufactured outside The U. S. And shipped to customers located outside of The U. S. Or is manufactured in The U. S. For local consumption. Of the 25% a little over 10% is China. With the balance largely coming from Europe India, Israel, and Mexico along with a few other places. Keep in mind that even these imports are not all equal. And certain of our products imported into The U. S. Come through various trade advantage zones. Example, our Mexico products are covered under the USMCA trade agreement and these are currently exempt from tariffs. A similar trade agreement exists between The U. S. And the Dominican Republic and the Caribbean broader nations. However, those do appear to be subject to tariffs today. Even as it relates to imports from China, certain of our customers who are the importers of record operate within free trade zones in The US. And therefore can receive product into The U. S. And ship it back out of The U. S. All on a tariff free basis. As we look at the road ahead on trade, we view tariffs in two separate buckets. China everybody else.

China is its own concern as we all know about so we have we believe that [indiscernible] As for the rest, we feel clarity will come in Q2 as agreements are reached with friendly nations such as India and Israel. The bottom line is we will be looking to pass full tariff exposures onward. As of today, we have started to see push out requests from some customers related to product coming into The U. S. From China. Specifically until there's further clarity. We believe our second quarter will likely be the most impacted as customers remain in a holding pattern while the administration works out individual trade deals. In yesterday afternoon's earnings release, we noted a revenue guide for Q2 of a range from 145,000,000 to $155,000,000 Given the information we have as of today, this is our best estimate of where the quarter will land. Based on underlying demand and taking into account some potential related to tariffs. Please keep in mind, this is a highly dynamic and changing environment that we're all working closely with our customers to navigate. Today, we are better prepared to deal with these uncertain times we have built a more nimble and resilient organization in recent years.

Including us starting to move some products from China into our India operations mid to late last year. And expect to do more so as time goes on. While tariffs do create uncertainty, they also do create an opportunity for us. And we will be looking for it on the sales and procurement sides. On the sales front, we aim to develop and grow our Tier two customer base as a means of mitigating fluctuations that can happen with our Tier one customer volumes. New tools will enable our sales teams to engage in digital data mining and opportunity of pipeline tracking. These items, coupled with enhancements to our commission structure and to drive growth, within new customers. On the procurement side, a series of initiatives are currently underway. Rising geopolitical tensions are driving tariff increases and trade restrictions reinforcing the need for supplier diversification and regional sourcing strategies. Further, inflationary pressures are resulting in higher wages the countries in which Bel operates. Emphasizing the need for further automation As we did on the SKU level profitability side a few years back and more recently, procurement spend will be managed through data analytics and KPI tracking. Cost savings are expected to be realized over the next twelve to eighteen months, driven by price negotiation, spend consolidation identifying of alternate suppliers, automation and other cost optimization opportunities.

These are all things we are excited about. From a liquidity perspective, this has become more of a focus for us given the murky near term outlook. As a reminder, our credit facility, is set to expire in September 2026. And our plan was to refinance the facility during the summer of twenty twenty five ensure a new arrangement was in place prior to the current facility going into a current liability classification. Given the current macro environment and uncertainty of how the market will look this summer, we decided [indiscernible] best to be more proactive in this regard versus waiting until the summertime.

We are currently and we have launched the process of working with our bank group to amend our existing credit facility, to increase our capacity under the agreement and to extend the maturity date. We anticipate this will be finalized in the next week or two. We're focused on that pay down as well. While we did not pay as much as we had hoped in Q1, only about $7,000,000 This is understandable and expected. As Q1 is a very heavy cash outflow quarter for Belfuse. Due to our various annual payments such as IT licenses, insurance dividend and annual bonuses. To put that in perspective, in April alone, by this coming Monday, Tuesday, we would have paid 10,000,000 down further against our debt and expect to pay down an incremental 10,000,000 to $15,000,000 by end of this quarter, so May and June. In summary, while we are encouraged by our business demand and internal issues on the sales and procurement fronts, the current tariff landscape cannot be ignored. Bel will almost certainly be intact, impacted by it in some way. However, we believe our exposure is contained to our relative small percentage of our business. Especially given the industry in which we operate.

While the current levels of China tariffs are unprecedented, tariffs in general are not new to Bel. We have successfully navigated them in the past. Importantly, our business today is more diversified and less dependent on China. Than it has ever been. We'll continue to take actions within our control to mitigate those factors outside of us. With that, I'll turn the call over to Deb.

All right. Thank you, Farooq. Before opening the call for questions, as this is my last earning call as a CEO, I wanted to take this opportunity to thank all our associates, around the world for the tremendous level of hardware hard work and dedication to Bel over these many years. To think back at the business my father founded over seventy five years ago, he would be amazed at what we have achieved together as a team. It's been a true honor to lead such a talented group of individuals during my tenure as CEO. And to the Bel shareholders, thank you for your support and belief in Bel as we grow and continue to evolve. I'm grateful that you've chosen to be part of Bel during this journey. As a large shareholder myself, I'm confident that Farooq and the executive team will do an excellent job. With that, I'd like to turn the call back to Daryl open up the call for questions.

Thank you. We will now be conducting a question and answer session. You may press 2 to remove yourself from the queue. [indiscernible] come from the line of Bobby Brooks with Northland Capital Markets. Please proceed with your questions. Hey, good morning, guys. Thank you for taking my question. I just want to say first, great call on the tariff impact. That's really appreciated. It seems like you guys have really good insulation from it.

But I was just hoping maybe could you just discuss it a little bit by product segment? Between, you know, kinda contrasting how maybe magnetics powered connectivity are separately impacted. Maybe it is all the same between all three, but I feel like there's probably a little bit divergence between the three.

Sure. Hi, Bobby. This is Lynn. So by product segment, I guess let's first start with connectivity. The vast majority of connectivity is not impacted by The US tariffs. They do the majority of their manufacturing in The US. And then The UK for local consumption. In each of those regions. So there's a very small amount of impact there, so largely unimpacted, let's say. On the Power side, we estimate that about 60% or thereabouts of power is not impacted by The US tariffs. The balance of power, as you know, there's manufacturing in China, Slovakia, Israel. A portion of those goods that are manufactured there do come into The U. S? And are currently subject to tariffs. On the magnetic side, again, it's a similar percentage. About 60% there is not subject to U. S. Tariffs. There is a portion that is manufactured in the Doctor which adds Farooq mentioned, is currently subject even though it is under CAFTA, it still appears to be subject to those 10% tariffs settled in place today. So that's how it breaks down by product group.

Got it.

That's super helpful color. And then second, connectivity to pass several quarters was kind of been the bright spot for you guys in terms of like year over year growth. I was just a little surprised to see it down 6.5% this quarter. You did mention that commercial air was down 12% year over year. Was that really the primary driver of this decline? Just was hoping to get more color that decrease and maybe how you think that dynamic evolves going forward?

Yeah. So on the connectivity side, the the year over year decline was largely driven by the reduction in commercial air. And a lot of that just has to do with timing, where there production levels are still down a bit. So that was the main driver. There was also some softness in the industrial area. But the balance of the the segment was still strong, and defense was up year over year. So I would say largely commercial air was the driver there.

And I think, Bobby, based on all the public comments that's out there, right, [indiscernible] there's a hope and expectation of continuing to ramp up the output as we go through the year and we see kind of the requests coming into the FAA The other thing keeping in mind that things kind of went on pause back in the fall timeframe with all the union negotiations. So all that's going to be a work on the system. Think when we look at the outlook and the backlog, we definitely expect this to to recover. Just happened to play out here this one.

Fair enough. That's that that makes a lot of sense. And then, maybe last one for me. Obviously, you guys gave some pretty good nominal color on the AI benefits. It was like $4,600,000 in the quarter, right? And that was up double digits year over year. Could you maybe just rehash for us to remind think it'd be helpful for everybody on the call to get reminded of it's my understanding, it's really the power segment that is seeing that AI benefit. Could you just discuss, like, who these I know sometimes you don't have visibility because it's going through distribution, but any visibility you can have on like the type of AI customers and ultimately what those products are being used for in the AI space, that would be helpful. Thank you.

Yes. So Bobby, I appreciate the question. And as you called it out, right? When we call out AI, we think of that as the floor. Because both of that some of our other products will make their way into AI type applications. Through various channels, including some of our networking customers. So when we talk about AI, this is going undoubtable floor base case, if you will. And that revenue is largely going to GPU manufacturers. Now I want to be very careful with saying that because we are not aligned to the kind of headline grabbing guys, the large public companies that we all read about. We are focused generally on more private heavily funded next gen type GPV manufacturers in The U. S. Largely. So and that's how really a testament to how Bel does things very well, which is we do a lot of hand to hand holding with our engineers. Our customer engineers. We co develop and we become a true partner to them. Throughout their journey of growth. So short, would think of these as GPU type manufacturers.

Super, super helpful color. I appreciate the call and congrats on the strong 1Q print. And Dan, cheers to the next the next step in your career. Thank you for all the help. I'll return to the queue. Thank you for the kind words. Thanks, Bobby.

Thank you. Our next questions come from the line of James Ricchiuti with Needham and Company. Please proceed with your questions.

Hi, good morning. Hey, Dan, I'll echo my congratulations as well. Wish you the best.

Farooq and Lynn, a couple of questions. I'm wondering if you could talk about the Enercon business. What you're seeing in that business, maybe including, yeah, you can, the change in the business the growth of the business on a pro form a basis year over year since we don't have a lot of experience with it. For the March.

Yes, so I'd say, Jim, it's kind of is what it is. It's what we thought it was, which is all good. Right?

We think it's better than what we thought it was. Come on.

There you go. Don't understand. Don't undersell it, bro. Come on.

Yeah. I know. It's it's a it's a great business. There you go. You know, it's it's it's interesting. Because Dan and I, and and Steve were just in Israel, the first rough the first week in April. So we're kind of, you know, kind of up to date there. But, you know, as you remember, Jim, we initially talked about this back in September, then we closed it in November, we talked about it in February, and here we are again And I think the theme of all throughout all these conversations is continued robustness and growth. Excellent, excellent team, technology, alignment with customers, financial profile, is kind of the growth side of things, the margin profile. So to Dan's point, we're very excited about having the team And also as we just think about on the Bel side of things, today, as Dan said, AMD is roughly 38% of our business in the quarter. So it's our largest market. Good tailwinds And obviously, as Entercon is both suppliers and to U. S. And Israel and some other places such as the Europeans and India. We continue to be very excited about that. We also do see the opportunity to further accelerate that growth in places like Europe and in America.

So there's a lot of, exciting, things for us. So it is at a minimum as advertised, but it's definitely ahead for us, which is great. Dan, you wanna add to that or does that about cover?

I think again, do we were surprised again how much we do like it. We tend to be somewhat hesitant And I think there's a lot of things going on at this time that they're looking outside the box that we don't wanna discuss. Because it's too initial. But they are looking at a lot of exciting opportunities that personally we didn't have in our own house. So we think the future is very, very strong for them. And we just see a lot of upside. So I it's a great deal for the company and our shareholders. The price we paid was a very, as you know, a very excellent price. Compared to what was being sold in the marketplace today.

It may be a little early. And Prarik, you may have alluded to this in the answer you just gave, are you seeing any revenue synergy opportunities yet or is that something you anticipate coming later on? Yes, no. So remember, putting aside that this is all defense, right?

Which takes a little bit of a while. So really it starts out with filling up the funnel and let's call it new opportunities. So as we think about the funneling process, we definitely see some of the benefits of flagging things, let's say between the Enercon folks and the Belfuse folks. And we are we have a program in place to kind of really push this to ensure that our sales team and our business development, market intelligence folks are aligned. So as we see about filling in the funnel right beyond what was already in the funnel right benefits of synergies? We are definitely seeing some of those opportunities. And we have referred some of these opportunities to each other, if you will. So we're definitely excited. But, know, in terms of monetization, you know, this is a little bit of a longer design cycle, but step one, fill up the funnel, which we are seeing and doing, which is good to see. And then, when we do look at the underlying fundamentals, what's going on in broader defense, things are moving quicker just given the global world that we're living in today. So we think that potentially be an accelerant than base than base normal time.

Right? So I think we are in a in a in a good market, in a good time. And we have the right team around the table So I think all that should yield pretty good outcomes for us.

Final question for me is just think last call you talked about a couple of facility consolidation [indiscernible] the product transition line, the fuse line in China. Any update and any other plans for consolidation or changes in the footprint, just given what we're seeing out in the market?

Yes, it's a good question there, Jim. So correct, we are fully out of the fuse and we have a fully empty facility. I think we're out of there first maybe a week or two in January. So that's another one that we'll say we're fully out now. We're just in the process of winding that out from a entity and a building perspective. So that's good to see. And we're seeing the cleanup in that in that operational structure, which is which is great to see. In terms of operations, everything's kind of proceeding path, nothing new to announce, maybe to extend your question there a little bit. And I alluded to it into my comments. Obviously there's China and there's everybody else in this day and age that we're living in. And we have started moving some of our products, both on the power and the magnetic side from China into our India facility. Remember, we acquired a India facility there back in 2021, and that's kind of our foothold there into India. So we started that roughly, I think, Q3 last year to Q4, we're getting the lines up and going. And we did that in advance of, obviously, any of the tariffs or even new administration coming in.

So as we look for the rest of the year, we will be looking to shift more, let's call it, at risk revenue into our Indy operations. As we said earlier, roughly 10% of our revenue is subject to China. And we'll want to [indiscernible] move some of that as we can into extent that we can into other places. So I'd say the team has really done an excellent job on being nimble and forward [indiscernible] tight partnership with our customers. To really try to kind of move this thing. And our teams have been great, both in China and India. So that maybe an extension of your question there, Jim, a little but that's not to be slept on as we build a more connected organization globally. We're putting in the plumbing to more dynamically move things across facilities, which is very good in this day and age.

Thanks very much.

Thank you. Our next questions come from the line of Christopher Glynn Oppenheimer. Please proceed with your questions.

Thanks.

Good morning, everyone.

As much as [indiscernible] over the past few years, it sounds like, Dan, you're still adding some value to his curve there with the advice on answering Enercon. And good luck in the future. Wanted to ask about the $8 to $10,000,000 allowance there. Couple of things. Do you see that as deferred or migrated from [indiscernible] And hypothetically say, if you think if tariffs were maybe cut in half would would that break in an impasse? Because it seems like the implication of the allowance is that you're holding price discipline and not willing to eat any tariffs?

Yes, so that's a good question. Chris, right? So what we're seeing is I'd say, you know, largely maybe the distributors, but also some OEMs as well. And [indiscernible] I'm gonna put some broad strokes here because there's there's always, obviously exceptions. So if you're going to take products coming in from China and pay let's use my numbers, 150% tariff, And then the tariffs gets resolved for, let's say, in a month, then all of a sudden you have this really expensive product right, that that you have paid for to bring it into The US and then how do you sell that, right, if now the gates of cheaper products or lower tariffs come in? So as people wrestle with having expensive goods coming in, that that's one piece of it. So we're seeing a few folks just say, listen. Let's just take a breather here. I got some componentry in the inventory.

Let me chew into that inventory just until we get a little bit of clarity. So to your question, well, what happens? I think there's a few different outcomes. One, people really go deep into their inventory and becomes over depleted, and then all of a sudden, you could potentially start getting this let's say, make up ordering or acceleration of ordering, so more of a push out type approach. So that is a possibility. The other possibility is it's also gonna depend on, well, what happens with some of this great trade zone and that we keep hearing about and what happens to the others, So to put in perspective, India today is 27%, I believe, right? So if today it's a 50 tera versus 27%, you know, that that's a pretty big difference. But if India goes to zero, and China comes down to 40% or 50%, I think you might be back into the same game because there's a lot of efficiencies to be gained in places like China. So it's hard to just look at China because we've to look at what happens to everybody else. Would say some of the other locations globally got hit a lot harder, including Vietnam and Thailand, which are not necessarily places for us.

So could it be this is a push out or a pause? Yes. Could it be you, you know, you get a I don't want to say a floodgate, but you know, a makeup orders, if you will, sure. Could you also lose some of this revenue? I'd say maybe yes in more of our commodity consumer business, but for other business, I'd say that it's a little bit more sticky. So the answer is yes, we think there could be deferred, if you will. The question is when and how long? And that's why I said earlier, think Q2 as we think about the rest of the world, working out with these one on one trades with the Trump administration, we think there'll be a lot of clarity in May and June.

And then we'll we'll we'll the dust will settle. And I think it sounds like the public chatter, I think there's mixed messages what's going on with China. But we are seeing potentially some people trying to get to something. So I think people are just saying, let's just take a breather here, unless I absolutely need it. And it could be deferred.

Great. Thank you for all that color. And just wanted to dive into the networking market a little bit. I think we have a good glimpse of how that is playing through at magnetics with the comparisons and some normalization there. You touch on networking as pertains to the other two segments, please?

Sure. So on the power side, when we look at networking and we'll carve out AI from that, right, because we talked about AI separately. So AI is strong for power. On the networking side though, we have seen some downward pressure in networking. From last year versus this year. However, we have started to see an increase in bookings there, so it does seem to be coming back later this year. But in Q1, networking was down. So that's an area of rebound that we're still waiting to come back. And then on the connectivity side, there is a little bit of networking in there, connectivity is largely A and D, industrial, and with a portion of it going through distribution. So it's not as not as much networking exposure in connectivity.

I think, Chris, that dovetails with our expectation, right? We're seeing kind of the back come in. I should say, throughout the quarter, in general, we've seen some very nice bookings come through and which kind of reaffirmed kind of what I was saying earlier about our outlook for the year. So and then [indiscernible] Aside from tariffs. [indiscernible] And last one for me. How are you seeing design and activity in general? Is there any kind of consternation in the pacing relative to trade? Is it totally separate And in an absolute sense, how is design in activity?

I think some things, because of COVID, we still have effects of COVID. Where basically everybody's looked focusing on sourcing and so forth. I think it's leveled off now. To a certain extent. However, are we are pushing it hard. And I think the point of bringing in our new head of revenue is really a go to market strategy is really focused on what do we have to do to jump start and do a better job than we have done in the past. So as Farooq mentioned, we're taking a whole unique different approach for us. Of how we go to market, the strategy we're using, how to address second tier, third tier customers, We're very fortunate to have the person that came to us came to one of the largest distributors in the world. His revenue was about 1,600,000,000.0 and he oversold over 500 people. So we do have high expectations for him. To turn around our our strategy of how we go to market going forward. So for us, think there's too many exciting opportunities out there.

Think that's the overarching view there, Chris, when we kind of lay it into kind of end markets, obviously, AI bucks that trend, right? It's kind of what Dan talked about. And then defense, right? We're seeing some nice stuff there, obviously. And so I think our overarching theme is, I think we're we're in a good place. But to Dan's point, we want more and and we think we'll we're driving to a lot of them, this will be a big year to put down the plumbing for that. But in some areas, just given the dynamics of the world we're in, we're seeing some good stuff. You know, it's interesting. Dan's comments remind me is if you remember on our consumer side, always talk about that Chinese supplier that got banned in Q2 last year. And when we look at our business within consumer aside from that Chinese consumer, it's actually experiencing really nice growth.

Which is I think a testament to the team. Now it's obviously out of smaller dollar amounts. But the growth we're seeing there is a percentage perspective is very good. And I think some of the shift in the way we're thinking about things we're we're seeing it you know, some bright spots [indiscernible] move things a little bit here. But ultimately we want more going forward. [indiscernible] Our next questions come from the line of Greg Palm with Craig Hallum. Please proceed with your questions.

Yes. Thanks. Good morning, everybody. And Dan, would just like to echo my congratulations as well on a very successful tenure and career at Bel.

Thank you so much.

Can we maybe just start on the quarter It was sort of at the upper end of the guidance. I'm curious did you see any pull in of orders ahead of those tariffs?

Yes, so much this go around. We saw the inverse of that. So I would say no, there might be an exception here and there, but it wasn't a theme for us this quarter.

Okay. And as you kinda think ahead, as a reaction to these tariffs, I mean, quickly can you move manufacturing around into other regions if this becomes a permanent thing? And I guess the bigger question is what kind of capacity you have?

Let me just answer that. I think the question is to you is where do we move? I mean, I think that was the concern we had four years ago. A lot of our competitors a lot of our customers moved to Mexico. Or Vietnam. I know those at this point have been hit very hard. And that's our biggest problem is where do we go and so forth. But we have done a good job of building a base in India Four years ago, we had no operation in India. Today, have three different operations. In India.

I think we're looking for a third. So we really are focused to prepare ourselves. To be able to move quickly if it needs to be. Farooq?

Yeah. And I think, Greg, just keeping in mind that our product is we're not making stuff and just selling it, right? It comes with audits, customers have to take a look at it, they got to sure the facility does what they needed to do. Need customer approvals before you can move facilities. In places like defense, that takes a very long time. In places. So we're not doing kind of the more heavily commodity stuff. For us, takes a little bit of while. And a result of that, you know, we start putting, you know, the plumbing in, like I said, to India right, from back in Q3 last year. The question becomes is we've always contemplated where do we go in India was was a very natural thing. I think we have a very friendly relations with India. I think ultimately all the body language indicates that we will work something out. But we have contemplated in the past looking at places like in Thailand, and Vietnam. And when we look at the tariffs, those guys got hit with, you know, it's [indiscernible] God we didn't spend all that money. Moving to those places just to mean, I'm gonna with some crazy tears.

So think we'll get some clarity on, you know, who's we're who what nations we're really friendly with. And we think India will be in that. And I think that's gonna probably be a focus of ours.

Yep. Understood. And then, I guess, lastly on on the AI related revenue. So that was a pretty big step up in this quarter relative to the annual in 2024. I'm curious, is that a function of current customers ramping up? Is that expansion of new customers? What exactly are you seeing in that particular vertical?

I'd say it's a combination. I mean, it's right? When we go after these kind of customers and to be clear, it's a little bit of a different extent, but when we look at space, for example, right, obviously, it's been around for a a little bit longer but we've seen kind of that 15% year over year growth. And when we looked at e mobility before, e mobility cooled down, right, you align yourself with these customers, you get in early, you design with them, then as they start ramping up their sales efforts and getting customers, you will see that, you know, pretty big step function. So I would look at the AI jump as people we've had a relationship with for a long time. And as they start proving out their technology and selling their technology on the GPU side, we see big steps. So I think what you're seeing right now is we're going through these big steps. I'd say these customers that we speak to are relatively new ish type companies. And so they're not kind of like I said, the main headline guys that you read into the newspapers. So these people are, I'd say, they're all newish customers.

But for us, newish means we've been with them for a while, we've talked to them for while, but now newish in a sense start seeing the revenue side of it.

Understood. All right. Best of luck. Thanks.

Appreciate it.

Thank you. Our next question come from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your questions.

Thanks very much and congratulations on the good quarter. So I was wondering if looking at your opportunities at in sort of in new products, design wins, and new customers, does this change in the environment change the way you focus on those those issues?

Yeah, you know, it's it's you know, we we tend to kind of and I very cliche manner think about market unsettleness in terms of opportunity.

So obviously, as we think about China tariffs, right? So we're going to feel that a little bit on the 10% side, but, know, we also have other competitors out there. So I'm not totally sure. I think it changes maybe, let's say, our operations. So we've always been focused on operations. Where should we be? What should we like, to Dan's point, where do you go? So we're going to get some clarity on that. And we've been already kind of laying on the pipe work into India. So from an operational perspective, sure. I think from a sales perspective, we do think there is opportunity And in these times, these are the times that we need to be out there supporting our customers. And ingratiating ourselves and leading with our minds versus kind of commodities. So does it change a little bit? Sure, but ultimately we are a long design business. And if you remember, over 90% of our business, our customers themselves are B2B. Right? So businesses will invest and we're they're part of the technology solution. So I would say it changes a little bit, creates opportunity, but we are we're committed on on kind of where we go from here.

And again, there's been around since 2018, 2019, right? So it's not a now nobody, I think thought it would escalate to this level, but we do think cooler heads at some point will prevail.

And, my last question is, given what's going on in market, what's the level of activity you're seeing in terms of potential acquisitions?

Yeah, so we're redoing our facility to get more capacity We're focused on now paying down because we think that's just kind of a good thing to do. And one of the reasons is maybe we'll see how the world goes out here, but may create opportunity on that side of it. I would say overall, we started seeing a little bit of a healthier M and A market in Q1. But then as the tariff discussions start taking hold, companies that were going to come out or people that were entertaining a sale kinda went to pause a little bit. I think there's just a lot of wait and see similar to our customers we're seeing in NA side. So I would say the M and A market is quiet. It's a wait and see approach. So q two, would say, we expect it's probably largely quiet. And then maybe we'll see where the rest of the year shakes out. But I'd say we were on a good glide path initially. From just the overall market activity in Q1 before we kind of hit little bit of a pause there.

Okay. Thanks very much. And good luck to you, Dan. Thank you very much. Thank you. Our next question comes from the line of Hendi Susanto with Gabelli Funds. Please proceed with your question.

Good morning. And then first of all, to Dan, thank you for all these, many years, and all the best for your next chapter.

I might have to call you up every quarter because I miss you so much.

This is Nathan. So, my first question is, now that we have tariffs and tariff challenges, what is the latest status of the inventory correction and expectation on market recovery in some areas that you haven't discussed? [indiscernible] So there was a three tariffs. We knew consumer would be a little bit challenged going to later on through the year. But tariff kind of changed some of that. But I remember tariffs, while we've said it's around 25% of our business, it's not all the same. So we kind of look at the 10% coming out of China as the really big question mark and what happens there. The other 15%, I think, kind of acceptable and some of that's going kind of really growing into end markets like defense. So I would say, you know, over that 15%, there's good market growth and recovery in some areas. It's the China piece that we're waiting to get some clarity on. So I'd say overall, and this is kind of why we repeated what we talked about in February, where we do expect the recovery. So I think we just need to get a little bit clarity on Q2, but ultimately, we think we'll get through it and have a little clarity heading in.

And that's why we called out in our earnings release last night and some of the let's call it revenue that maybe got impacted with this pause that we're in right now.

And then the 10% of cells that has exposure, any insight into how much of those where Bel Fuse has a single [indiscernible] like Belvieu is the only supplier? And then any else and is there also any insight where customers may have multiple suppliers, but all of those have the same challenge. In other words, it's everyone is on par with one another. And there's no alternative of shifting to let's say like non China location.

Yes. I appreciate the question. The uptake kind of runs the gamut. Some of it is we're sole source, and some of it is multi source. Some of it is highly engineered custom work that we do, and some of it is commodity, like some of our consumer stuff. So I would just say it runs the gamut So that's why you know, even when we do look within that number, it's not one big brush where we could say, okay. It all goes out the window or all stays. Right? So it will be a few different shades of that. To your point about, maybe some of the more kind of commodity stuff, could somebody, you know, switch buying from, let's say, China to a place in in Vietnam, Sure, but it's not like Vietnam today has zero tariffs. Right? So it is better tariff level, but China has a lot of efficiencies, right? So mathematically, sure, it's lower tariffs, But as we think about the efficiency side of things, China still is very, very good into that world. So will we expect maybe to lose some of that and more commodity stuff? Sure. But I think there's a lot of weight and see just in the market right now because, again, our industry switching is not the easiest of choices to happen overnight.

Generally, there needs to be a little bit of a plan for Yeah. And then may I clarify how much exposure Amarcon business has to tariffs?

Yeah, so I would say, you know, we do have some of their products that gets shipped in from, Israel. So that would get tariffed, and, you know, maybe a couple other locations as well. But remember, that's all kind of largely defense sole source. Right? So that stuff, we are passing it on. I would say that's a high, high, high switching cost. Again, nobody likes paying those, but I think those we feel solid about or more comfortable with.

And the majority, Hendi, there is as you know, are a couple of facilities for Enercon in The U. S. And part of their production process brings in partially assembled product from the Israel site. So it's largely intercompany. So the tariffs would be at at Bel's Cost Currently. But To Perth's point, everything goes into defense. For the most part.

Got it. Yeah. And then, this is a hypothetical question. Let's say if tariff persists based on how you dealt with tariff in the past Do you foresee negotiation on a customer by customer basis? And then do you expect like a quick or, like, prolonged negotiation? Like, what are some lessons learned from let's say, like negotiation on how to split the tariffs with the with the your customers in the past?

Yeah, I think I'll keep the commentary there a little bit level, Hendi. But generally, our nature of our business, it's customer to customer. Right? So so we're so anytime we do a p a purchase order or order or anything, it's customer to customer. So therefore, we're not just putting something on a shelf and then people come by them, right? So it's everything we do is is really one to one Within those one to one, there's different levels skewed between the customer, what products we're selling, right? So it's it's it's again, it's hard to paint a broad brush but generally our approach is is we are not really in a position to be eating the tariffs. And our industry, broadly speaking, including Belvieu's did that back in 2018, 2019. And we've been operating under those tariffs and the industry has done that. Now it's a different dollar amount to your point. But for us, from a scale perspective, the kind of value engineering that we bring, we're not really in a position to be, getting those things. The other thing I would say is roughly 70% of, and Link can correct me if I'm wrong, of our imports are coming to The US, our customer is the importer of record.

And what that basically means is we're delivering the product somewhere, let's say, for example, in Hong Kong, and they're bringing it and to The U. S. So they're dealing with the tariffs, right, and so on. So and I think that's a pretty important thing. I mean, ultimately, tariffs are getting paid, but we're not the ones that are standing front and center on that. So again, we realigned our shipping let's say, routes over the last two, three years to include more of this record of imports importer of records off to the customer. Versus us getting into the shipping business. So long way of saying is, you know, it's all one to one, and and our operating mantra, barring any exceptions, is to pass it on.

Thank you so much, Dan, Baruch, [indiscernible] [indiscernible] Thank you.

Thank you.

Thank you. This now concludes our question and answer session. I would now like to turn the floor back over to Dan Bernstein for closing comments.

Just again, I'd like to thank everybody for following us. I can't tell you how pleased I am to have Farooqa Board the executive team we put together over the past two years As I said, I'm extremely successful. On the future of the company. And once again, I truly to thank everybody for your support over these years. You made my job a lot easier. So generally, I would say I'd speak to you in a quarter, but I'm not going to speak to you in a quarter. But I'll speak to you at the annual meeting if you ever want to come to the annual meeting.

Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines. And have a wonderful day.