BELFB

Good morning, and welcome to the Bel Fuse First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead.

Thank you, and good morning, everyone. 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 2026. 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 obligations to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by those forward-looking statements due to a number of risks, uncertainties or 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-K 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 available in the IR section of our website. Joining me on the call today is Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouq. Farouq?

Thank you, Jean, and good morning, everyone. We appreciate you joining our call today. We delivered a strong start to fiscal 2026. First quarter performance reflected broad-based momentum across the business and continued execution, both operationally and commercially. We also delivered solid profitability, supported by disciplined operational performance and favorable mix. Before we get into the quarter in more detail, I want to highlight an important step we took during Q1 to better position Bel for continued growth. We completed a business unit realignment designed to align our teams around how our customers buy and how we win, enabling greater customer intimacy, faster decision-making and a more coordinated approach to delivering our full portfolio of solutions across connectivity, power and magnetics. This structure strengthens our ability to bring more of Bel to each customer, expanding share of wallet through integrated selling, improved program execution and tighter alignment between engineering, operations and the commercial teams. Accordingly, Bel now operates 2 focused business units. First one, Aerospace Defense & Rugged Solutions, or ADRS, which combines our legacy connectivity business with Enercon, focused on mission-critical applications across commercial aerospace, defense, space and rugged industrial environments, and Industrial Technology and Solutions, or ITDS, which integrates our pre-Enercon power and magnetics businesses, focused on data solutions, transportation and industrial markets where performance, reliability and scale matter. This structure sharpens accountability, accelerates decision-making and increases the speed at which we translate engineering into customer wins but also enables product-agnostic access to Bel's full portfolio, so customers engage with us as a solutions partner aligned to their end market requirements. In that context, I am pleased to share that we closed the acquisition of dataMate from Methode Electronics in March for $16 million. dataMate adds approximately $18 million in annual sales with margins in line with Bel and is expected to be immediately accretive. It will operate within our Industrial Technology & Data Solutions business unit. Strategically, this expands our ethernet and broadband portfolio in a highly complementary way and positions us to grow in data centers, industrial automation, smart buildings and broadband deployment. It also strengthens our U.S.-based manufacturing and engineering footprint. We're excited to welcome the dataMate team. They bring new customers, differentiated technology and strong talent, and we look forward to what we'll accomplish together. Turning to business performance. Within ADRS, results were driven by robust demand in defense and commercial aerospace with continued strength across key platforms and programs, supported by strong demand and stable OEM build rates. We also saw ongoing progress in space as production schedules and program content continue to expand. Robust bookings during the first quarter within ADRS were driven by both sustained program demand and continued traction with our channel partners, resulting in a strong foundation heading into the back half of the year. We're also beginning to see the fruits of our organic growth initiatives over the past year. In Slovakia, for example, we secured 2 new defense design wins that are progressing through final certification steps and remain on track to complete in the second quarter. The win was initiated by Enercon with ramping up the Slovakia entity to produce an Enercon design, highlighting our global ability to deliver to our customers locally. In addition, we achieved our first bundled Cinch and Enercon win on a new design in Israel, which is a great early proof point of that -- of what this broader integrated portfolio can do when our teams collaborate across the organization. Within ITDS, we continue to see healthy demand signals across networking and data infrastructure with momentum improving in data center connectivity and high-performance compute applications. Customer activity remains elevated as the industry invests in AI-oriented architectures, driving opportunities for power conversion and protection as well as high-speed interconnect solutions that support next-generation switching and server platforms. We are expanding our design win funnel and investing in engineering and operational capabilities to support these growth vectors, including manufacturing resilience and multisite capacity to serve global data center customers. As we think about the broader environment, we remain mindful of trade policy and tariff dynamics as well as demand variability by end market. We continue to work closely with customers to manage these conditions, including pricing and supply chain actions where appropriate. We are seeing some general upward pressure in certain material and logistics inputs, and we remain prepared to use the levers within our control, procurement actions, pricing discipline and operational execution to support the overall direction we've laid out. With that overview, I'll turn it over to Lynn to walk through the financial results in more detail. Lynn?

Thank you, Farouq. From a financial standpoint, we had a solid quarter with continued sales growth, margin expansion at the gross profit line and healthy cash generation. Before walking through the results, I want to cover a couple of points of clarification related to our new segment structure. First, the realignment that Farouq mentioned became effective March 31, 2026. And as a result, our Q1 reporting and all prior periods presented have been recast to reflect the new structure. Further, we filed recast segment information by quarter for 2024 and 2025 in an 8-K filed on April 6 for reference. Second, beginning in Q1 2026, our end market sales figures will capture all sales into a given end market, including both direct-to-customer shipments and sales through the distribution channel. In the past, distribution channel sales were called out separately in total rather than allocated to individual end markets. We will provide prior period comparable figures where appropriate to help investors evaluate performance on a consistent basis. With those points in mind, let me turn to the quarter. In the first quarter, total sales were $178.5 million, up 17.2% from the prior year period. Gross profit margin was 39%, up 40 basis points from Q1 '25. The gross margin performance improved leverage of our fixed costs on the higher sales volume, partially offset by higher material costs and impacts from foreign currency fluctuation. Below the gross profit line, GAAP operating income was $23.7 million compared to $25 million last year, while adjusted EBITDA was $34.5 million versus $30.9 million in the prior year period. Now turning to results by reportable segment. In the Aerospace Defense & Rugged Solutions, or ADRS segment, sales for Q1 '26 were $99.8 million, up 20.1% versus Q1 '25. Growth was led by a $9.4 million increase in defense market sales, up 19% from Q1 '25 and a $3.9 million increase in commercial aerospace sales, up 22% from Q1 '25. ADRS gross profit margin was 41.5%, an improvement of 140 basis points from Q1 '25. This margin expansion was largely driven by improved leverage of fixed costs on the higher sales volume and a favorable shift in product mix. These benefits were partially offset by unfavorable foreign exchange movements, primarily related to the weakening of the U.S. dollar against the Israeli shekel and the Mexican peso. Within the Industrial Technology & Data Solutions segment, or ITDS, sales amounted to $78.7 million, up 13.8% from Q1 '25. Growth was primarily resulted from AI-driven strength in data solutions, coupled with the continued year-over-year recovery of sales into our enterprise networking customers. This growth was partially offset by lower transportation sales versus Q1 '25, particularly within the rail and e-mobility markets. ITDS gross profit margin was 36.6% compared to 37.3% in Q1 '25. The margin decline was primarily driven by higher material costs, particularly related to gold, copper and PCBs and unfavorable foreign exchange movements, particularly with the Chinese renminbi. Turning to operating expenses and cash flow. R&D expense increased to $8.5 million from $7.2 million last year, reflecting continued investment in technologies aligned with our targeted end markets. Of this increase in cost, we estimate approximately $400,000 related to foreign currency movements as we have a large engineering population in China and Israel. We anticipate R&D will run in the range of approximately $8 million on a quarterly basis going forward. SG&A increased to $36.7 million, up from $29.5 million in Q1 '25. Of the $7.2 million increase, we are estimating approximately $3 million was onetime in nature, including acquisition-related costs related to dataMate, segment leadership transition costs and a prior year benefit which was nonrecurring in the 2026 quarter. The remaining $4 million of the increase reflects targeted commercial and infrastructure investments to support growth in addition to an increase in commissions on higher sales and unfavorable foreign exchange impacts. On a go-forward basis, we expect SG&A expense to run at approximately $33 million to $35 million per quarter. We ended the quarter with $59.4 million of cash and securities. Net cash provided by operating activities was $13.8 million, up from $8.1 million during the first quarter of 2025. Capital expenditures were $2.6 million, generally in line with the prior period. During the quarter, we closed the dataMate acquisition, investing $15.2 million. To help fund that transaction while maintaining balance sheet flexibility, we had $7 million of net borrowings from the credit facility during the first quarter of 2026. To close on the financials, we delivered a very strong quarter, driven by solid execution and healthy demand across the business. Looking ahead, we see continued strength and momentum for the balance of the year and remain confident in our ability to perform. We are also operating in an environment of higher input costs, and we're actively managing that pressure by focusing on the levers we can control, pricing discipline, procurement actions and operational efficiencies. At the same time, we're enhancing our focus on the cash conversion cycle, improving inventory turns, receivables and payables discipline as a key enabler to generate cash, strengthen flexibility and accelerate Bel's growth strategy. With a strong quarter behind us and clear priorities in front of us, we're executing with urgency and discipline. With that, I'll turn the call back over to Farouq.

Thanks, Lynn. As we look forward ahead, our focus remains on executing our commercial and operational priorities while navigating the external environment, including ongoing tariff and trade-related uncertainties and demand variability across our various end markets. Looking ahead, we have a strong outlook for the second quarter. We are guiding sales in the range of $195 million to $215 million with gross margin in the range of 38% to 40%. This outlook is supported by robust bookings across the business in recent quarters and is driven by higher demand from our defense, commercial aerospace and data solutions customers. Before we open the line for questions, I want to recognize Pete Bittner on his retirement after 35 years with Bel. Under Pete's leadership, we strengthened our connectivity platform and delivered meaningful profitability improvement while deepening customer relations. We are grateful for Pete's contributions and wish him and his family all the best. With that, I'll turn the call back over to Kerri to open up the line for questions.

[Operator Instructions] And our first question will come from Luke Junk with Baird.

Farouq, maybe hoping you could just provide some comments on book-to-bill trends. You mentioned robust bookings were one of the things that is supportive of the guidance. And within that, if there'd be any end market highlights you want to call out as well?

So on book-to-bill trends, I would characterize them as robust in the first quarter here. And that was really seen across the full business, both in both segments and across most of our subsegments. I think the only exception would be in transportation. But when it comes to aerospace, defense, data solutions, a very robust book-to-bill in Q1.

Got it. Second, you mentioned that the ITDS growth was primarily AI-driven with strength in data solutions. Just hoping you could provide a little more color on what you're seeing. And I don't know if you're going to be speaking out the AI dollars specifically going forward. And Farouq, you mentioned serving global data center customers as well. I was hoping we can maybe double-click on that trend too.

Yes. I think we obviously have seen our customers benefit from all things, data center build-out, obviously, AI and data generation and everything that we're reading out in the world is additive to that effort. And we're seeing that across our portfolio. Specifically on the AI customers that we service, we're definitely seeing a very healthy pickup in their bookings and customers and orders, and therefore that downstreams to us. So I think we would say that we characterize it as a very, very healthy environment. The bookings continue to be more robust. The outlook continues to strengthen and all the good things. And I'll defer to Lynn here on more specifics around that.

Yes. And Luke, so I know in the past we had called out AI-specific sales. As we're entering 2026 here, things are getting a little more blurred, and we had alluded to this last year where we had AI-specific customers, but also selling into our regular way enterprise networking customers where their demand was increasing due to AI demand as well. So I think going forward, we will be talking more generally about data solutions. But we did see it across both of those platforms, I would say, the AI-specific customers and into our more general enterprise networking customers where we saw strength in Q1 that, that was AI-driven.

Understood. Last question for me. Just curious to get your perspective on posture right now at U.S. and Israeli defense trends. It seems like there's a fairly obvious replenishment opportunity. Just how much of that is baked into the 2Q guidance sequentially. And as you look into the back half of the year, just qualitatively, the potential for some additional upside or just clarity on that opportunity.

Yes. And we talked about, obviously, the geopolitical events for us from an A&D business is helpful and additive. And we've said this in the past where we tend to be levered and a fair amount of exposure to all things on the missile side of the business. So whether it be things that are deploying or the launchers themselves, that's all additive to us. So as you had alluded to here, with the replenishment and the talk about national stockpiles and all that kind of discussion points, that is all additive to us. We agree that we think there has been a replenishment cycle going on starting out back in kind of the Ukraine days, it never felt like we caught up. And now we saw a lot of more usage of the stockpile. So we agree this will probably be a medium-term vector of growth and replenishment. Obviously, we are also seeing more overall investments going into new business and new platforms as the whole industrial A&D complex is being challenged to step up across the technological spectrum. So that all is additive to us. And we see in our business, whether the funneling and the opportunities are becoming a little bit more, a little bit bigger. So we do see more shots on goal. So whether it be the replenishment on existing platforms or new, we think that that's all additive. And also, as a reminder, we're not just seeing that, obviously, in the U.S. side of the business, but we're also seeing that in our European Israel business as well.

And our next question comes from Bobby Brooks with Northland Capital Markets.

It was great to hear about the first Cinch Enercon package win. Could you just discuss more how that win came about? And maybe what you felt was the piece that pushed the customer to give you that order?

Yes. I mean, I think, listen, it's -- I'm not sure -- I don't believe in one magical solutions in the sense that we didn't change one thing and it all worked out, right? We sell highly engineered complicated systems, whether it be on the components or on the system side of things. So we -- I would say, people are very busy, right? As we can imagine, A&D is -- our organization is very stretched in. And on top of that, we started partnering to make sure we deliver holistic solutions. So we were alluding to a couple of opportunities here to maybe just kind of expand the point. We had talked when we acquired Enercon potentially using our Slovakia facility to become our A&D footprint into Europe. And obviously, that takes a while to get certifications and sharing the drawings and ramping up the skill set. We had to invest in some CapEx. So we did do that. In conjunction with that, we were able to move some of the products. We had a European customer that wanted to have manufacturing done on the continent. That's where Slovakia came in. So all that effort, we were able to get the customer out to Slovakia. They saw the facility, they saw a signal capacity. Obviously, they know the products from the Enercon and engineering. So it was a very good team effort, both from engineering and operations and Enercon supporting Slovakia to get that facility up and going. And the customer saw it and was thoroughly impressed and we got a couple of POs thereafter. Now with the first one here, obviously, is the win, this becomes a very great one. On the other opportunity I was talking about basically -- can you hear me, Bobby?

Just curious, is that like, first, is that a specific drone company or...

Bobby, your line is open.

-- making drones second...

I think he's taking a phone call.

I'm not sure what's going on, so no worries. You can all appreciate how this goes. But I'll continue to answer your question. The other opportunity was taking an Enercon box, a power unit, and we put a Cinch component on it on the connector and cabling piece of it. So we're able to do the connectivity there. Now we end up solving obviously a few problems because we had both the power supply and the cable solution. So I think we got very good compliments from the customer. I think more importantly, it showed the team the art of the possible. And more importantly than these 2 wins, to be honest, is we are definitely seeing a more robust collaboration across the organization of ADRS. So when we hear the discussion that they're going through and the opportunities, I think people are significantly much more aware of the whole portfolio and going after it. I would also take a step further and say that we're seeing some of the A&D customers looking for more hardened industrial solutions. And now with our non-Enercon products, it's able to fill that gap. So we're able to fulfill the customer needs from a few different angles, I would say. But the discussion bottom line was significantly ahead of where it was, I would say, in the recent memory. I don't know if you're back, Bobby, but hopefully that answers your question.

Our next question comes from Christopher Glynn with Oppenheimer.

I'm going to ask a question and try to stick around. Just if there's background noise, just tell me to mute it, please. So just continuing with the defense because it's such a large proportion of your business in such a dynamic area and then you're generating your own dynamism within that. I'd say with these initial kind of greenfield design wins in the defense sector in Europe, is that kind of consistent with the time line you would have anticipated from an integration pathway or maybe pulling ahead a little bit? Just kind of curious of the actuals versus your expectations.

Yes. I'd say maybe a little bit ahead/on time. If you recall back to kind of Q4 2024, when we did do the Enercon acquisition, we said I don't think we're going to see anything probably until at least '26, probably towards the end of '26. So if that is the correct metric, we said back then, here we are roughly in Q1, we're seeing some of the early wins. I would say what took a little bit longer than anticipated was getting all the certifications and facility approvals. Obviously A&D is a heavily, heavily, heavily regulated market. You can't just be moving things around globally and in e-mails and so on. So as a result of that, the approval process from the local authorities in Slovakia was longer than we anticipated, partially because they're seeing a lot more investment in the overall country. But putting that aside, we're sitting here, let's call it, April, we had some nice wins. We had customers come through this. So like I said, I would say we're probably slightly ahead of schedule on schedule, somewhere in the middle of that.

Okay. Makes sense. And just given the obvious dynamism in defense procurement and everything and hot regions, these kind of design wins to revenue, are they pretty quick?

I would say a lot of good things about defense, but quick might not be the characterization of the world. I would generally say, right, because also when you win a program, you got to prove it out, they got to do all their testing and then it kind of scales over time. But the key is when there's a lot of investment and, let's say, spotlight and all things defense, you got to make sure you're getting into these things early. So as they scale, you're there. I would say if we were to paint a very potentially let's say, range, if it's an existing product, I'd say you generally get an initial order, but I would probably say before you start seeing kind of volumes 12 to 18 months. And if it's a brand-new kind of product or technology that's being developed by the customer, then it could be a little bit longer. But the key is being getting the award side of it, right? Because then you're going to there -- it might go through a couple of iterations along the way. But if it's an existing product or slightly existing, maybe it's a modified, I'd probably say 12 to 18 months before you start seeing some real dollars. That's just the nature of defense design cycles.

Right, right. So the replenishment orders are more kind of the quicker lead time drivers that you're seeing right now?

Correct. And I will also caveat is my earlier commentary on defense, not necessarily the fastest movers, I would say that is probably still true. I would say we are seeing areas where things are moving faster, right? So there it seems to be some buckling of maybe the historical norms. I'd also say there's regional nuances, right? So I think maybe we're seeing some different speeds in Europe versus the U.S., maybe Israel will be the fastest. So I think it's changing a little bit, but I would say, largely speaking, it is a slower moving industry.

Okay. And yes, just a quick check on how we think about the back half. Second quarter is obviously a pretty striking step change upward in the run rates. And I think you had some nice latency to some market trends that's showing through. So I'm not particularly thinking that the second quarter guide has some surge demand kind of factored in. Maybe there's a little onetime, but you talked about almost $30 million sequentially and is just a sliver of that. So is that really just a fundamental step in the -- how the run rates are developing with your end market exposure?

Yes. As Lynn said, we are fortunate to play in a lot of great end markets. So much more than not are in moving in growth mode. And as we closed out the quarter and headed into April, we're just seeing that continued robustness across the portfolio. I would also say that distribution is one of the things we're talking about. It started off very good in April. So as we look at backlog, customer chatter, outlook and the kind of nature of the world, we think we'd expect a very healthy second half. Obviously, keeping in mind, we do hit with some seasonality in Q3 and Q4, right? So Q3, we hit kind of the European slowdown a little bit throughout the summer months and some Labor Day and 4th of July type events. And then we head into Q4, we start getting into some of the holidays, whether it be Golden Week or some of the ones in Israel and overall holidays. But putting that aside, we expect a very healthy second half and continued strength.

And our next question will come from Greg Palm with Craig-Hallum.

This is Jackson Schroeder on for Greg Palm. I want to start out with -- you guys talked on gross margin a little bit and the cost there, but curious how you're feeling about the levers you're pulling on that. I don't know if there's any kind of timing-related things on that, how we might see that play throughout the year, especially as it relates to new bundled design win in Israel and some of the organic initiatives that you have. So curious if you're doing anything within those new contracts or investments to kind of offset that going forward?

Yes. So I think as we look across the full year of 2026, we're a little bit of a disconnect. As just mathematically, as sales grow, we will have better leverage on our fixed costs within COGS, leading to margin expansion. That's with all other things staying consistent. What we're seeing this year is a rise in input costs, primarily related to material costs. We do have some minimum wage increases around the world. And we are in an unusually unfavorable, I would say, FX environment where all 3 of the currencies that impact Bel are all moving in the wrong direction for us. So that's the Mexican peso, the Israeli shekel and the Chinese renminbi. So we do have things moving against us as sales are increasing. We are taking actions that are within our control, whether it's through pricing discipline or procurement initiatives or operational efficiencies, but those things take time to put in place. So what we're seeing is probably Q1, Q2, where there's more of a disconnect where we're paying those higher input costs, and we have not yet seeing the benefits of the initiatives that we're doing to offset those, so.

And then I'd also say, as we -- obviously we have done some pricing actions to offset these input costs. One of the things we got to be mindful about is touching the backlog. To some extent, to Lynn's point, we got to work through the backlog. So anything new, we've put price increases through. So we'll start seeing the benefit of that as -- maybe we might see some of that in Q2, but I think about it as Q3, Q4, where we'll start offsetting some of that. So I think that's a testament to the business here. We got a higher margin given the operational leverage and things we can control. And then the pricing elements that we did put through, we'll start seeing the benefits of those into Q3, Q4.

Got it. Super helpful. And then I also wanted to talk on the new business structure here, strategic realignment. Curious how you're processing that as it goes through the P&L as you look at inorganic -- sorry, organic growth specifically as we lap Enercon, looking at like the geographic breakdown where we can kind of size where we should be seeing growth here by segment, by geography, if you could do that.

Yes. I'd say we haven't given forward guidance on the growth piece of it. We, at the end of the day, are in a very unusual environment. So we haven't given any kind of long-term guidance on that. I think the overall message, we expect -- we've always said we're an end market-driven business, and we obviously want to be a little bit ahead of that. So as we think of the end markets, we think there's robustness in there. I would also say that when we look at our A&D business, it's been growing for a bunch of quarters sequentially, right, from a growth rate perspective, and we expect some of that to continue. But by definition, right, maybe some things, the hot percentages start to go up. But overall, we expect robustness and continued top line growth. So I'll leave it at that. On the ITDS side, the data solutions, data centers, AI, kind of all the infrastructure around data generation and transmission and some of the broadband and kind of the other things we've talked about just now, we also expect robustness there. Obviously we have a little bit more nuanced game and strategy in that market where we can make sure we can drive margins and get good return on our business. I would say our industrial technology part of it, which would include some of our transportation and e-mobility type applications and other industrial, I would say that one is a little -- kind of a little bit later to the game, but we're seeing some nice things in that part of the ITDS business. So all in all, we expect the growth piece of it, but I'll leave it at that.

And moving next to Hendi Susanto with Gabelli Funds.

Congrats on strong results. Farouq, I would like to understand more about your data center footprint and post the acquisition of dataMate. Like I think my first question is, is dataMate a growing business? What kind of sales trend? And then second one is when you talk about data center, AI data center, anything new, any new areas that you want to address, any new product portfolio that you want to develop?

Yes. So maybe the first question on dataMate, yes, we bought it with the expectation of growth. I would say we are a better home for it in terms of the end markets that they play in, the customers they serve and the kind of language that we do use. I would say, in certain of the products, which is their core products, they were the, let's call it, the dominant great reputation in our industry. So we're very excited for that team to join us. And when we look at the development product portfolio and things that they're working on, we're very impressed by. So yes, our expectation is that it grows or else I'm not sure we do the acquisition. And I think also what's the nice thing about dataMate, it gives us a footprint into manufacturing in the U.S. Obviously the team there, kudos to the dataMate team, it was a carve-out. So we had to relocate facilities, and those things are always bring a certain level of complexity, but we are in the new facility. We're up and going. The team did a great job. It was much more seamless than I probably had anticipated. So thank you to the team there. So that's the expectation of dataMate. I would say dataMate, there are some customers that they bring that we just haven't had inroads with historically that we hope to kind of land and expand the broader Bel portfolio. We have a much broader sales organization and reach globally that we think we can effectuate their growth. And I'd say more importantly, I think people are very excited internally to have access to that portfolio set and also just great engineering. The other thing I would say to your other question on the data centers, AI, I mean, look, we have a lot of SKUs that we're always seemingly winning new things. But at the end of the day, the drivers remain the same, which is AI build-out, AI deployment, data center build-out, data center deployment, routers and switches, right? That's kind of where we play. I would say that effectuates our legacy power and magnetics businesses from both sides. So I would say it's pretty broad-based. And as we've talked about, when we say AI, we think of that as a floor versus ceiling because sometimes we lose visibility to where our products are going. But when we look at the floor, which is the clear AI, we're seeing robustness in that growth. And so that's, let's call it the clear AI, if you will.

And just to add on to that, so within Data Solutions, we've talked in the past how our AI exposure is largely within our power products. So if we isolate Data Solutions just within power products, that increased by $4.8 million or about 27% from Q1 last year to Q1 this year. And much of that was driven by AI.

Yes. And a then Farouq, a number of companies have talked about the possibility of price increases in the second half. You mentioned pricing action. What are the puts and takes in terms of expectation on price increase in general in your industries in the second half?

Yes. I mean, let's be honest, I don't think everybody welcomes us or anybody in the industry with open arms around price increases. But I think there's a general understanding and appreciation for the fact that things are going up. I would also say from an industry-wise, you are correct. It's become normal. I shouldn't say normal, but people have done it, and it's part of the world that we live in. So from our perspective, we need to do the right thing by our investors and make sure that we are passing on cost. Obviously, we try to mitigate where we can. But if not, then we will need to pass that on. And I think you hit on it correctly as we took pricing actions in Q1, but that's on the new business, right? So obviously, we have backlog, so we don't want to necessarily -- barring it being egregious or something really kind of crazy, generally, you want to update your price sheets and pricing for all the new stuff. So that's why we earlier said we'll start seeing the benefits of that, some of it in Q2, but we think about it more by Q3, Q4.

Got it. And then, Farouq, any insight into market recovery in industrials, especially on customers' and distributors' inventories?

Yes. So we're seeing -- I'd say distribution is a pretty broad -- obviously we touch a lot of end markets and a lot of customers, right? But I would say we've seen pockets of definitely robust strength, and we've seen pockets of still recovery side of things. So as a result of that, when we stitch it all together, we'd say it started getting a little bit more stronger as we can -- headed out of the quarter into April. So I would say we are seeing the strength in distribution, the recovery part of it, which I think is additive to our efforts and to earlier commentary as well.

We'll go next to Theodore O'Neill with Litchfield Hills Research.

Congratulations on the quarter. Two questions for you. The first one, last quarter you talked about weakness in the rail and e-mobility, and I'm wondering if anything has changed there? And my second question is about the strength in Q1. In the last 20 years, you companies reported a sequential growth in Q1 over Q4 only 3 other times. So what was driving the strength here in this sequential increase?

So I'll cover the initial question first. So on e-mobility and rail, it's, I would say it's relatively more of the same from Q4. I think on the e-mobility side, Q4 was probably the bottom that we saw. There was a slight uptick from Q4 to Q1, but nothing meaningful. Both of those areas, I would call them still depressed in Q1, similar to Q4. And then what was the other -- I'm sorry, the other part of the question?

The broader industrial.

The sequential increase in Q1 over Q4.

That's really rare.

In general, right. So as our end market mix is changing, so you're correct that historically Q4 to Q1 we always saw a -- or generally saw a decline. And that was largely due to the Chinese New Year holiday and production interruption that we would see in the January, February time frame with our large dependence on the China workforce. As more of our business is becoming aerospace and defense-centric, we are less reliant on China. So it's just having less of an impact. So we're becoming less seasonal as our end market mix shifts more towards A&D.

And we'll take a follow-up question from Bobby Brooks with Northland Capital Markets.

I was just curious on diving a little bit more into the guide. Obviously really nice sequential growth. And even if you back out the benefit from dataMate, we're still looking at like really nice double-digit year-over-year growth. So could you just expand a little bit on the factors that underpin that outlook? And do you have a visibility with the strong bookings already year-to-date, that type of sequential growth can keep occurring in the back half?

Yes. So I'll just answer kind of generally before I turn it over back to Lynn, Bobby. Yes, our backlog continues to build and grow from year-end, strength to strength, Q1 was very healthy. Obviously delivery could be kind of spread out. From our perspective, yes, we're seeing that. We're also seeing the robustness of the funnel opportunity and new opportunities and also just general, let's say, industry chatter with whether it be our customers or distribution partners. But yes, we put a guide here based on some very good orders that need to be shipped and scheduled to ship in Q2. Obviously, not all of our backlog is for Q2. So we have backlog into Q3 and Q4. Obviously it starts to scale down post Q2, a quarter out roughly. So but when we look at again the forecast, the guidance, the discussions, what we have in the backlog, right, that's how we think about it. That's why we said, yes, we do expect robustness. Now to the specific level, I think it will be largely kind of very healthy, putting aside some of the seasonality that comes in Q3 and Q4. So we expect to have a very good year. I think I'll kind of leave it at that. Lynn, I don't know if you want anything to add.

Yes. So Bobby, on the question about the Q2 guide, I think if you're comparing Q2 last year to what we're guiding for Q2 this year, the strength is really seen across both segments. Within ITDS, I would point to the Data Solutions portion, which is largely AI-driven. And then within ADRS, it's really commercial air, space, defense. We just have several of our end markets that are running very strong right now. So those are the key drivers, and it is supported by the orders received.

Awesome. That's super helpful color. And then just one last one for me is you guys have done a really good job kind of finding strong acquisition targets. Obviously just the dataMate looks like more of that. Just was curious to get your -- get a feel on capital allocation and your appetite for more M&A moving forward? Or maybe is it a pause just to let the dataMate get the integration, or? Just curious to hear that.

Yes. No pause here. We are always out and active on the M&A front. Obviously, if you were to kind of set aside a little bit the dataMate acquisition, the cash flow even for -- usually Q1 is our biggest cash, let's say, usage of the year, given its bonus and we pay our big IT and insurance and all other kind of good stuff. But putting that aside, I think it was a very good cash flow, and we obviously were able to pay for dataMate. As we look out to the balance of the year, we expect healthy cash flow generation. We have a good amount of opportunity on the access to capital side of things. So when we look at that married up with internal bandwidth and ability to execute upon an acquisition, we like both of the sides. So we are open for M&A. We're actively looking at M&A. It feels like we always have some kind of discussion going on around M&A. So we are not hitting the pause by any stretch of the imagination. I think what we would need to be mindful of, maybe how messy it is and how much integration and the M&A needs to stand on its own merits. So from our perspective, we're wide open for M&A.

And again, congrats on the great quarter.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Farouq Tuweiq for closing comments.

Yes. Thanks, Kerri, and thank you, everyone, for joining us today. A very important thank you to all of our team globally that delivered this outstanding Q1 and what we think will be a very healthy balance of the year starting out with Q2. So thanks, everybody, and looking forward to speaking again in July.

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

Good morning, and welcome to the Bel Fuse Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with Three-part advisers. Please go ahead, Jean.

Thank you, and good morning, everyone. Before we begin, I'd like to remind everybody 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 2026. These statements are based on the company's current expectations and reflects 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 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 as discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K 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 Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouq. Farouq?

Thank you, Jean, and good morning, everyone. We appreciate you joining our call today. I want to begin by expressing a big thank you to our global team for making customer service and meeting demand their top priorities and for delivering innovative technologies as a key partner to our customers. As a result, 2025 was a milestone year for Bell, with record revenue and EBITDA. We delivered net sales of $675.5 million for the full year, a 26.3% increase over 2024 and achieved a record GAP and non-GAAP EPS. We Fourth quarter sales reached $175.9 million, up 17.4% year-over-year. Our gross margins expanded to 39.1% for the year, reflecting strong execution and operational discipline. Aerospace and defense, including space, continued to be strong drivers for us in 2025. For the full year, A&D accounted for 38% of our consolidated sales with 28% from defense and 10% from commercial aerospace. Recovery in the networking end market and growth in AI applications also contributed to higher sales in 2025. Order volumes remained strong across multiple end markets throughout the year, resulting in the full year book-to-bill ratio of 1.1. We have seen continued improvement and strength heading into Q1. This sustained momentum in incoming orders highlights a healthy demand environment across our end markets and positions us well as we move into 2026. Our team delivered these record results despite headwinds from material pricing, particularly gold, copper and PCBs and unfavorable FX movements in the peso, renminbi and shekel. We're actively monitoring these factors and have and will continue to take pricing actions to mitigate incremental cost, ensuring continued margin strength. Operationally, we successfully completed the closure of our China facility in Q4, transitioning operations to a third-party supplier without interruption to the business. This move is part of our ongoing efforts to optimize our global footprint and drive cost efficiencies. We also made significant progress in strengthening our balance sheet, paying down our debt by $90 million during 2025. We -- this has created additional capacity and flexibility for future investments and potential acquisitions as we continue to pursue growth opportunities. Looking ahead to 2026, we anticipate continued growth in aerospace, defense, space and AI, the same revenue drivers that have benefited Bell over the past few quarters. Additionally, we have seen positive shift in sales across the networking, consumer premise wiring markets as well as through our distribution channel. The rebound in these areas are expected to continue into 2026. We also foresee increased raw material input costs and a weaker USD, which will require us to proactively manage pricing and pass costs along where appropriate. Our pipeline for M&A activity remains active, and we are excited about several opportunities currently in various stages of evaluation. We anticipate a better backdrop in terms of M&A opportunities as the market noise settles down a bit in 2026. As announced a few weeks ago, we're excited to welcome Tom Smelker to our executive team. Tom joins us from Mercury Systems, bringing valuable experience and a fresh perspective in aerospace and defense. His leadership will help us better align our organization with changing customer needs and industry trends. As we continue to evolve, we are reviewing our segment structures to ensure we're well positioned for future growth. With aerospace and defense now representing a significant portion of our business, we see opportunities to further tailor our leadership and strategy to the unique demands of these markets. Before turning the call over to Lynn here, I would like to take a moment to recognize Pete Bittner, President of our Connectivity Solutions business, who will be retiring in April after 23 years with Bell. Pete has been instrumental in shaping and growing this segment and leaving it in the great conditions as he pursues his next chapter, and we thank him for his many meaningful contributions. We wish you great luck, and you'll be missed, but will surely enjoy his time with his wife and family. I'd also like to take a moment to recognize Dan Bernstein, who transitioned out of the CEO role in May 2025. This last year has been 1 of significant transition for Bell, and I want to sincerely thank Dan for making it a seamless one. Our business transformation, which began years ago under Dan's leadership, laid a strong foundation for the company's continued success. His vision and commitment to Bell's growth have positioned us well for the future, and we're grateful for the guidance and dedication. On behalf of the entire organization, thank you, Dan, for your outstanding contributions and for setting Bel up for success. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and provide color on the outlook for Q1 2026. Lynn?

Thank you, Farouqu. From a financial standpoint, we had another strong quarter and year with continued margin expansion and solid sales growth across all segments. Fourth quarter 2025 sales were $175.9 million, up 17.4% from the same quarter last year. Full year 2025 sales totaled $675.5 million. a 26.3% increase over 2024. On an organic basis, sales grew by $41.5 million or 7.8% over 2024. All 3 product segments delivered organic growth for the quarter, demonstrating the strength of our diversified portfolio. Profitability improved alongside sales with gross margin rising to 39.4% and Q4 25, up from 37.5% in Q4 '24. I -- for the full year 2025, gross margin was 39.1% compared to 37.8% in 2024. This margin expansion was driven by improved absorption of fixed costs in our factories due to higher sales volumes and by strong execution within each segment, maintaining discipline around SKU level profitability. These results highlight our ability to drive value through operational efficiency and strategic focus. Now turning to our product groups. Power Solutions and Protection delivered another exceptional quarter with sales reaching $92.5 million in Q4 '25, an increase of 18.5% compared to the fourth quarter of last year. The sales growth in the Power Solutions segment was driven by several key end markets, including a $1.5 million increase in sales of our front-end power products, serving the network networking end market and Q4 '25 compared to Q4 last year. Fourth quarter sales into AI-specific customers reached $4 million in Q4 25 up from the $3.3 million in Q4 '24. Fuse product sales were up by $1.4 million in Q4 '25, a 31% increase from Q4 '24. Sales into consumer applications increased by $1.8 million in the current quarter, up 32% from Q4 '24. And just to note, in our Power segment, this is also where we had the acquisition last year. So there was some organic growth on the defense side as well. These areas of growth were partially offset by a decrease in sales of our rail products by $4 million and e-mobility sales were down $1.1 million as compared to Q4 '24. The gross margin for the Power segment was 44.5% for the fourth quarter of 2025, representing a 390 basis point improvement from Q4 '24. This improvement was primarily driven by higher power sales into the aerospace and defense end markets, a favorable shift in product mix and better absorption of fixed costs at our factories. Our Connectivity Solutions group achieved sales growth of 15.1% during the fourth quarter of 2025 as it reached $60.5 million compared to Q4 '24. This improvement was due to the continued strong performance in commercial aerospace applications, where sales totaled $18.2 million, an increase of $3.8 million or 26% year-over-year. Sales into space applications amounted to $2.6 million in Q4 '25, up 53% from Q4 '24. Connectivity sales through the distribution channel were up $3.8 million or 20% versus Q4 '24, primarily due to shipments into the defense end market through the distribution channel. Profitability within the Connectivity segment continued to improve with gross margin for the group rising to 37.2% in Q4 '25 from 36.6% in Q4 '24. This margin expansion reflects the benefits of operational efficiencies achieved through improved revenue, a more favorable product mix and facility consolidations completed last year. These positive factors were partially offset by minimum wage increases in Mexico. Lastly, our Magnetic Solutions group sales delivered a solid quarter with sales reaching $22.9 million in Q4 '25, a 19.1% increase compared to Q4 '24. This performance was primarily driven by higher shipments to a major networking customer. Gross margin for the group was 27.3% in Q4 '25 and down from 29.1% in Q4 '24. This margin differential was due to minimum wage increases in China, an increase in material costs, primarily in gold and PCBs and unfavorable foreign exchange impacts related to the renminbi. Research and development expenses totaled $8 million in Q4 '25 in representing an increase of $1.1 million compared to Q4 '24. This increase was primarily attributable to the inclusion of Entercom's R&D costs, which amounted to an incremental increase of $1 million during Q4 '25. We anticipate that R&D expenses in future quarters will generally remain consistent with the Q4 '25 level as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Selling, general and administrative expenses for the fourth quarter of 2025 and were $32.6 million, down $2.2 million from the $34.8 million in Q4 '24. -- primarily driven by lower acquisition-related legal and professional fees in 2025 compared to 2024. Turning to our balance sheet and cash flow. We closed the year with $57.8 million in cash, down $10.5 million from last year, primarily driven by our proactive efforts to strengthen our balance sheet, including paying down $90 million in long-term debt, resulting in $197.5 million of total debt outstanding at December 31, 2025. Additionally, we made $3.5 million in dividend payments and we invested $12 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales, and $1 million from the sale of held to mature securities earlier in the year. During the full year 2025, we generated cash flows from operations of $80.6 million. Taking into account our swap agreements, the weighted average interest rate on our debt balance at December 31, 2025, was 4.4%. Looking ahead to the first quarter of 2026, we continue to see strength across all 3 segments. Historically, our first quarter tends to be our lowest sales quarter of the year, given the impacts of the Lunar New Year holiday in China. In light of this historical trend and based on the information available as of today, we expect Q1 26 sales to be in the range of $165 million to $180 million. Gross margin is expected to be in the range of 37% to 39% and given anticipated headwinds related to higher material costs and the unfavorable FX environment we are in. Overall, our consistent performance strategic investments and operational excellence have positioned Bel for continued success. We remain committed to driving shareholder value, innovating for our customers and capitalizing on growth opportunities across our markets. I'd now like to turn the call back to the operator to open the call for questions.

[Operator Instructions] The first question is from Bobby Brooks from Northland Capital Markets.

So I wanted to touch on kind of sales initiatives moving forward. So you guys brought in the new head of sales about a year ago, right? And I'd just be curious to hear where he sees the most interesting opportunities for growth. Obviously, for Roop, when you initially joined as CFO a handful of years ago, you had a massive shift in the margin profile of the company, which A lot of that was sort of low. A lot of that was sort of like low-hanging fruit that you targeted. So I'm just curious to hear if that sort of same scenario. If Ooma has seen that sort of same scenario and again, like what he sees as the largest opportunities to go after.

Yes. Thanks, Bobby, and good to speak with you here. I think that's a pretty nuanced question. As a reminder, we are largely in a medium- to long-term design cycle businesses, right? So as we think about influence, and we think about A&D, I'd probably suggest the largest part of E&D for 2026 is going to be simply receiving orders from the customers as they get funding and deployment. So if we were to think about sitting early on in the year here about new wins and when they get funding, you're at least a year out probably 1 to 2 years before you monetize them. And some of our shorter design cycle businesses on the other end, I would say something like fuses you could probably see a win a couple of quarters out, and that translate into some sales of some of our consumer business. So we are a long-cycle design business. There's no quick claims here. We sell technology. We want to get in with the customer. We want to do the hard stuff. -- and therefore, that does take a while. If we look at the past few quarters on some of the benefits I have in there, that has been a reflection of the work that the team has done at a global level. within the various businesses, right? So I would suggest that the wins and the performance that was probably not much due to sales efforts that happened in Q4, right? This is stuff that probably happened early on in 2026. So we are seeing the benefits of the global team folks in doubling down. When we look across the business, we have new wins across probably all of our end markets, maybe a little bit less so in places like e-mobility or maybe some of our, I'd say, rail is kind of a little bit of a slow year. But I would say more often than not, we always have new wins. And when we think about the funneling process, right, we want to make sure we're going after a robust set of opportunities that are good opportunities and try to convert them to sales. And that process, we started a while back. Now that's not to suggest that we don't have work to do. On the last call, we talked about CRM implementation in Q4. We did 3 -- a little over 3 dozen worth of contracts with our reps in the U.S. to really lean into new opportunities. So we're trying to move the whole system forward from compensation structures to software and data to a shift and it's been happening, right? It's evolutionary. So we've seen the wins. Where is it going to come from? I mean we think probably there's a lot of money going into A&D data centers, AI, a lot of obvious interest going in there. But quite frankly, our consumer business did very good last year. So I think what we like about us is we touch a lot of end markets, and we like the way they're looking today heading in 2026, a little bit more maybe than early '25 or '24. So a long answer to your I just want to caution, we're not a quick turn business, and we're trying to sell more design-in type work or modified solutions versus just purely off-the-shelf stuff.

Absolutely. Really appreciate that detail color for. And then -- maybe just turn into the 1Q guide, very, very impressive, but just wanted to maybe unpack that a little bit more and maybe hoping to get a little bit more granular on the expectations for growth across the 3 segments?

Sure, Bobby. So as we look to the first quarter, and I guess I'll compare it to this recent Q4 that just ended here. We're seeing a lot of the same areas of strength across all 3 segments. So not seeing much in the way of significant shifts or changes from Q4 to Q1. I think the only variable in there is the Lunar New Year holiday, which impacts primarily magnetics and then to a lesser extent, power. So those are the areas where we may see a little bit of softness from Q4 to Q1. But Other than that factor, everything is pretty similar to the Q4 drivers.

Got it. I appreciate the color there. Congrats on the great quarter.

The next question is from Christopher Glynn from Oppenheimer & Company.

I just want to build on Bobby's question about developing the commercial funnel. So you mentioned focus on designing and modified by modified burs off-shelf is how you're developing the funnel that makes sense. We've heard that. Curious if you're noting any traction in win rates for us historical as you mature this -- these strategies.

I think we're doing a better job at defining what a win is and how we want it to be at certain levels of margin. The other thing I think we are moving more towards 2026, and we talked about last call, is we want to really try to bring the whole Bel portfolio to our customers. I think historically, we've been really more focused around selling specific products like fuse or a connector power supply. And we do need to do a better job at doing a little bit more systems type sales to our customers. Now this is a little bit of a longer journey. . But the idea there is we want to get more alignment to the customer, solve more of their problems and challenges and really be a little bit more of a solutions address the difficult things for our customers. So it's not just simply about more shots on goal, which we are seeing. We're seeing better shots on goal, but we still want to continue to evolve to higher content on goal. So Yes, we're seeing better also the markets a little bit better place, right, so which creates more opportunity for us. I think the team also remember, we spoke on the last call, where we started creating new internal groups and structures to align to that. So for example, we created a key accounts group, right, which we have not had that most of the time it was kind of sitting inside the BUs, now we want to have a more Bel focused key account groups that bring all of our products to the customers because we do have a lot of SKUs. Same thing on the business development efforts. We're [indiscernible] the teams around end markets as we think about products and directions. So I would also argue customer service is an extremely important part of this as we create an easier user experience for our customers. And we just have a lot of different e-mail addresses to customers in different forms and everything and the like or different pricing list to our distribution partners. So I think calling these things out to not underemphasize that there is a robustness in what we're doing that needs for you a pervasive in our holistic approach to the market. So the short answer is yes, there, Chris, but it's also more than just trying to get more shots on goal.

Great. That was great color, for. And then on the AI customer base, you mentioned that as one of the continued drivers of growth next year. You've often described it as being in early stage. I think with single source to well funded more start-ups for us the headline, big 3 or 4. Just curious if any of those customers are potentially positioning for adoption curve to their technology where you can cotail, not necessarily first half of '26, but more conceptually.

Yes. I think the answer is yes in short. The body language from our customers, I'd say, across the networking side. But specific to your question around AI, yes, and that is obviously reflected based on the bookings that came in towards the end of the year last year, the discussions that are ongoing with our customers and obviously, the ultimate outlook that we put out there in the quarter. So the answer is yes, we're seeing the positive momentum scaling and continuing to move forward. And also, let's not forget, there's a networking set of customers that bundle our product into their solutions that ultimately make it to folks like hyperscalers, right? So when we think about networking, it is obviously AI, and that is not an insignificant number for us, which is nice to see the team's efforts pay off there, but also networking side is just as important because we do touch AI in a couple of different ways, right?

Yes. Understood. And then just defense, just wanted to clarify. I get a lot of questions about the mix. I think you're pretty broad-based rotor, fixed wing, munitions, comms, radars, maybe even just curious if all those categories, if that is accurate, where the weightings are.

Yes, in short.

Okay. Okay. Great. Understood. I understand it...

Yes, I would say we want to be careful with kind of talking about at our side here, right? But all the kind of mean -- we're on all the major programs and some not major programs. So it's a very diversified portfolio anywhere to the things that you called out, munitions, things that fly, right? And we're doing more ground obviously, space is a little bit tangible to that as well. But we cover encryption communication, right? So all the things that you talked about, we probably touch it.

Great. And last one, just a housekeeping -- any thoughts on share class consolidation. I think 1 of your holders had generated a headline.

Yes. I would say I think from the gist of it, the -- our shareholder structure is a little bit more nuanced from the perspective of the economic differential between the 2 shares, right, versus just a vote, no vote. So that's one. I would say, as an appropriate due course, we'll have a company response and views on that at the appropriate time. I don't want to speak on the behalf of the board, but at the appropriate time, we'll address that. And also we -- I think the -- what we're trying to do here, Chris, and we've really been at this for the last handful of years here, is we want to our fiduciary dairies to serve the best interest of all of our shareholders, As and the Bs. And as we build a company that's set up for the future, with good performance and investing in our employees and our customers, ultimately, that's kind of what moves the needle. So I just wonder, we're very aware of the fiduciary duty, but I think the Board at the appropriate time, will have a response. That's a little more formal to this.

The next question is from Theodore O'Neill from Litchfield Hills Research.

Congratulations on the good quarter. .

Thank you, Theo.

So are you guys seeing any impact from the spike in prices on memory? .

I was going to say, our customers, I would say, largely are the ones that feel it. We not directly are impacted by that. Obviously, we have our other let's say, spike in prices that we're dealing with, like gold and copper we spoke about. But on the memory specifically, it's more, I'd say our customers are influenced by that.

Okay. And on the gold, copper and print circuit board side and the weaker dollar, do you have the ability to hedge some of those? Or do you pass the pricing on? How do you adjust for that?

Yes, that's a good point. Today, we hedge our FX exposure from a raw material perspective, we're in the business of providing solutions to our customers and technology. So we want to focus on what we're good at. We're not running a prop desk care trying to hedge everything, right? So I think our approach has been we want to try to do our best to mitigate and offset price increases, but to the ability -- and work with our customers to the extent that we can't. We, unfortunately, have to pass that along, and I think that's not unique to us and really kind of in line with the supply chain behavior. But ultimately, we want to be great partners to the extent we can offset it. Sometimes we will find alternative sources. We want to be a solutions provider really to our partners. But in cases we can't, we need to do the unfortunate decision of passing it along.

Okay. And finally, on the Aerospace side, do you have any exposure to the drone market.

I would say we generally do, yes, I think the drill market is going through some interesting things, right, where there is, let's call it, more consumer that tends to get retrofitted as we're seeing out in the world in, like Ukraine. That's not really our market. We're more in the military kind of U.S. primes and some of the European and Israeli OEMs, the stuff they manufacture. So we're not in the, let's say, drones that you and I are maybe buying or in the more sophisticated drone game. .

The next question is from Greg Palm from Craig-Hallum Capital Group.

This is Dany Egerton for Greg today. Maybe just hitting again on A&D and maybe unpacking how you saw that develop in the quarter maybe between Enercon and Corbel and maybe what you saw in some cross-sell business. And then obviously, we know kind of about the increased spend. But as you look into 2026 here, what gets you excited about the growth in this business? And what kind of visibility do you have here?

Yes. So Danny, I'll take the first part of that question. So the growth that we saw when we talk about defense, it's both in our legacy singe business and through Enercon -- we definitely saw growth in the Enercon business. As we look at the business, I think it's important to also keep in mind what we sell through our distribution channel. So there are direct sales and then there are sales through distribution, which we don't really break out into those end markets today. But we did see, as we mentioned in the commentary, we did see a nice increase in distribution that related to growth in defense for that fine business. So I would say that it was pretty split between the 2. So both Sinch and Enercon had robust growth in defense in Q4.

One thing we would just add [indiscernible] 6, right? We're seeing the build rates on the plan side continue to increase and head in the right direction. Also a lot of the programs around munitions and given kind of what's going on in the world, these are well-funded programs. So we think there'll be a prioritization to make sure those get to fruition and the finish line. So as we look at the amalgamation of that, we feel pretty good as to where we stand compared to what's funded out there. .

Okay. No, that's very helpful. Then maybe if I can just touch on gross margin here, which was pretty strong in the quarter, especially in power. I know you mentioned some of those headwinds with FX and input costs, but any way to quantify those? And then as we kind of have that push-pull between input costs and passing on price in any way to think about potential margin expansion in '26?

Yes. I think as we look at the fourth quarter, I think we thought that we may have had some additional FX headwinds in Q4. But we have had hedging programs in place, as Bruce mentioned. So we're still seeing the benefits of those prior hedging programs come through the current period. So as we look we do foresee some margin pressure there on FX. I mean if you look at the peso rent and chuckle, they're all moving in an unfavorable direction. And we do hedge probably half of that, but that's going to start rolling off -- so we definitely see pressures there. And then even on the material side, that's something that -- it takes time to ultimately come through our numbers, right, as we're buying raw materials today, that's something that will flow through our financials at a later date. So we do think that we will see margin pressures in '26. And this is why we're really being mindful of pricing actions that we may need to take with customers.

And 1 thing to just kind of flag in the pricing, right? It's a little bit of -- it's not as simple as we wake up and raise our prices, right? There's a little bit of cadence to that. So some of the contemplations are do you reprice the backlog, do you come up with an updated pricing list for distribution, which takes, I think, something like 30 days before it's effective. So there's a little bit of a time issue. The other thing I would say, and we've talked about this in the past, while our margins are great, and we'll always continue to try and push margin expansion, we have pivoted from a margin gain to a growth game. So we need to make sure that we are winning our fair share of business and opportunities out there that we can get in on. And to enable that, there is some potential investment that we've been doing a little bit around the go-to-market, the systems piece of it and the people piece of it. So I just want to make sure -- and I know the margin gets a lot of discussions on the Bell earnings. And obviously, we're very proud of our margins. But we are hitting some headwinds that we've got to make sure that we have in the middle of this kind of growth that's coming that we're positioned appropriately for not picking up too much.

The next question is from Luke Junk from Baird.

Just wanted to double click on what we've been talking about in terms of what you've been doing to realign the sales force really thinking more about how do you attack markets or key customers, but something that you said in the script, kind of caught my attention in -- with oncoming in to head the connectivity business, that there might be some like opportunities even further down in the organization. Am I hearing that right in terms of aligning operations, maybe even from a, let's say, manufacturing footprint to better attack some of these discrete opportunities?

Thanks for the question there. Look, I would say a couple of things to maybe answer it from the back way of your question here. So on the operational side, we I can't remember 7, 8 facilities. We've done a lot. So what's going to dictate facility moves is the current state of the business and the customer demand, right? We pride ourselves and were our customers. So obviously, for a while, there was a lot of discussion around China and India than that froze. If that kind of starts up for some people at a startup, we were going to move to some of our products to India. So I would say, given the geopolitical world that we live in and the realignment of localization of supply chains, we are in these, let's say, active discussions, right? But in terms of Bel as a stand-alone basis in putting a political supply chains, our facilities are pretty good. So we have to react to the fundamentals of the market. I think our biggest opportunity here is around the go-to-market and sales piece of it. I think maybe just to highlight on moving a facility for us is a big task, and it's not simply is just moving equipment, building some buffer supply, moving equipment from place A to place B., you need to set up a lot of kind of the legal structures. And if you're talking about A&D, there's a lot of regulatory hurdles to jump through. As we're setting up, for example, our Slovakia factory to be more A&D facing to the European markets we're living through the complexity and spider web of getting all the clearances and certifications on defense weaponry control. In addition to that, customers usually always have to want to come up to your facility and do audits and usually there's feedback and that takes a whole issue. So it's not easy. We don't take these decisions on moving facilities lightly. So we need our customer market changing dynamics to force our hand on a facility move. Go-to-market our products today that we have that can be bundled together that can be brought to bear as we talked about, the key accounts group earlier, that is our biggest opportunity at hand. And then operations, there's always things to be done, sure. But I think we've done so many of them that we need to live in growth land. And if we're not going to move a facility unless it's going to help us grow, right?

Yes. That's super helpful. Near term, just curious from a guidance standpoint, New Year, obviously, having a seasonal impact as we've normally seen the business, but it's pretty late this year. I think it's almost as late as it can be just from a calendar standpoint. Would you normally have maybe a little better feel for that seasonal impact in the fiscal year? Is there any conservatism just because of your timing and the guidance?

I think as you know, Luke, in public land, right, everybody is always trying to figure out the optimal way to guide the Street. Our perspective from guidance is we want to land in a range and we build it to around the midpoint, right? So we're not trying to -- we don't build it to the high end point of our range and hope to guide we go over a range. We build it to the midpoint. -- right, to allow for some room for shifting from quarter-to-quarter. Obviously, we're in A&D, that tends to be kind of sometimes funny business. If we allow for some overordering fuses, yes, given how late we are in the quarter, talking about Q4 right here, we are roughly in the back of February, yes, we have better visibility. But to put your comment on question specifically about Chinese New Year, it's 2 weeks off, right? Everybody can trust down. It's not just us. It's all the CNs, it's all our customers in the Far East, right? So as a result of that, everybody goes pencils down for 2 weeks. And when they come back, it doesn't just turn on a dime. Usually, there's a week of, let's say, tough start time getting back into the groove, getting things going. So you're probably talking is somewhere between 2 to 3 weeks loss on a 3-month period, all right? That's not insignificant. So I wouldn't say conservatism. I would say we wanted to do what we say we're going to do and we're in our best guess. So we're not trying to be conservative on that.

Fair enough. And then I just want to zoom out for my last question. The Power side of networking. Obviously, you've got some exposure there. I mean, the higher levels of power that power these more capable chips really becoming quite apparent in that world right now. And I'm just wondering to what extent you're seeing any pull-through from a design cycle point of view for high-voltage components from either your Tier 1 customers or your direct customers in that world? And especially if there's any IP that might be leverageable either, I think, rail or mobility, both have some high-voltage IP that might be interesting.

Yes, I would just say -- I think there's a couple of things to unpack there, right? Specifically the AI networking world, it's always going to go to more high power, higher density, less energy right, more efficiency. So that's a constant theme over ever. Now we are seeing, I would say, some new designs coming in relatively maybe in a short period of time, maybe back of the day, it was a 3- to 4-year device cycle, things are coming in a little bit sooner. So we are, for example, selling some products -- but we're already working on the next gen stuff. So that has happened a little bit quicker. I will also say, generally, right, we do have exceptions, but we're not really an IP business, right? We R&D to fix or address a problem. And then what we want to do is we want to -- we do a pretty good job at this inside of each of our business units is how do we leverage what we've developed for somebody to either standardize it or select modifications and then we extend the recap products, whether we do distribution or other similar customers. The other thing we are seeing, which is actually interesting in some of our actual e-mobility products, given the nature of those products, we are starting to see some military folks looking at, let's say, high-end products and services but not quite military grades. So kind of I guess, we're calling semi military being used. So we are seeing that extension of the R&D effort that has gone to e-mobility into other markets. Now we haven't won anything yet, but we're feeling good about potential wins coming if that makes. So that's how we extend our R&D dollars. We're not looking to reinvent the world every time.

The next question is from Jacob Parsons from Needham & Company.

I'm just asking a question on behalf of Jim Ricchiuti. So we've been kind of hearing a better tone in the commercial aerospace market. Really, particularly with the leading domestic players in the marketplace. So how are you guys thinking about this area of the business in 2026 and potential for better growth within the Connectivity Solutions area.

So as it relates to commercial air specifically, right? I mean for better or for worse, we are -- from an OEM perspective are attached to the hit to our largest North American customer. And the way that we're going to make more money and to be clear, we service that customer both our Connectivity and our Power A&D business. So the way we're going to grow revenue is a direct correlation to increase build rates right? And we've lived the ugly side of that when there was kind of the all the union negotiation. If you recall, I think it was Q4 last year, there was a shutdown at kind of threw our business a little out of whack or back in the days of the grounding of the MAX. So we are going to see how that correlates to the build right. So what we always point close to is, I think they're very public about build rates and what's going to get approved and not approved. So take a view on that, and that should have a direct correlation back to us. On the Connectivity business, so not the Power business, there is an element to it, right? So as we think about MRO cycle, I can think about are people on the planes flying being consumed and miles are being put on these planes. And up to every so often, those mine to be kind of retrofitted or MRO, right? So we think flights and when we look at the earnings of the -- some of the flight operators out there, people are flying and planes are moving. So we feel both good on the OEM and MRO side.

Yes. That's all super, super helpful. And if I can just kind of get 1 more in. So I'm curious, how's the book-to-bill ratio varied much by market vertical and which areas of the business have you guys seen the biggest changes relative to last quarter?

Yes. So I think on the book-to-bill side, Farouq had mentioned we were at 1.1% for the full year. I think our book-to-bill has strengthened as the year progressed. In Q4, our book-to-bill was 1.3. And I would say that strength was seen across all 3 product segments. So there's not 1 segment that is really high, while someone else is below 1. All 3 are very strong in Q4.

The next question is from Hendi Susanto from Gabelli Funds.

I have several questions. Park, can you help unpack more details on your AI opportunities in terms of end products or devices to help us build better ideas. Some products that come to mind are like power modules, network switches, traditional compute, AI surfaces and optical networking. Perhaps you can help us build better ideas of your devices?

Yes. I would say, Hendi, we want to be a little bit careful here, but our products are going to are more around the power side of the business, and the Bel Power is kind of where it's at. I would say from a direct where we know things are going for AI. Obviously, our magnetics business is also beneficiary from the networking guys and then they're kind of the RJ-45s kind of what we call magnetic solutions, which is really more maybe a potential interconnect product. So that's how we go at it largely. Our connectivity business doesn't do too much into those end markets given that we're really more low volume, medium volume harsh environment applications in that product that coupled with it being more copper based. So that's how we kind of go at the AI piece of it. Generally, we do some stuff with the hyperscalers, but that's not really our focus market. So if you remember, we got in trouble there back in 2020. So we want to make sure we pick slots where technology and service matters versus just a copy product with a race to the bottom on pricing.

Yes. And if I may quickly check if there are products that may carry some opportunity for physical AI or humanoid robots?

I think the humanoid market is still getting settled. Today, it's definitely not a big dollar amount. It's very much R&D-centric. I think there's a question around from a humanoids perspective, is that ultimately a consumer product like auto, or is that going to be a technology play? I still think we're far out from mass production. But today, it has not been a discussion level for us. That's a dominant one.

Okay. And then what are your latest view and outlook on pockets of market recovery and inventory rebuild activities among customers?

I don't think we -- right. I think the inventory rebuild is kind of stacking up the shelf really on the customers. I think given that everybody, I'd say, went through a pretty difficult lesson back in '23 and '24 and overlaid with the tariff geopolitical world we're in, I'd say people are generally ordering more to demand versus building up the shelf. And quite frankly, I think that's probably a good thing in the sense, right? If you want to be able to shelf then you've got to deal with the hangover. So today, we feel largely and I'm sure there's exceptions. Obviously, we touch a lot of markets. But largely, we feel to shift to demand versus ship to put on a shelf and build a buffer stock because obviously, with tariffs, if things move, the things that you put on the shelf all of a sudden really changed pretty quickly. So I think there's a little bit of nervousness around that from our customer perspective.

Yes. And then, Lynn, I have a question on seasonality of sales in aerospace and defense. Is there a -- like if I look at Enercon cells, I'm trying to figure out what seasonality we need to model? And then plus considering that you are -- you may also like winning like more design. So what kind of seasonality can we expect in 2026 in aerospace and defense?

I'd say generally, aerospace and defense is not a seasonal business where we play, right? North America, Israel, Europe, right? I would say it's really more around sometimes they move for a core to the other when things get funding, right? That's kind of where the choppiest comes from. But it's not really a seasonal to seasonal play, I would say, if there was a seasonality I mean not to the Enercom business, obviously, our connector business. But there is some less working days generally in Q4 just with the holidays and Thanksgiving but -- and some of the Jewish holidays in October. But other than that, I would not say it's a seasonal business.

Okay. And then I have a question on capital allocation and debt payment, especially following the $90 million of debt payment in 2025. What is your playbook for capital allocation and debt payment?

Yes, Go ahead, Lynn. .

So I think as we look at capital allocation, Priority #1 is reinvesting in the business through CapEx. We have regular weight dividends that we continue to pay. Barring anything on the M&A front, debt paydown is where it would be. And I think from a dollar perspective, the last couple of quarters, it's -- they've been robust debt paydowns to the tune of, call it, between $20 million and $30 million a quarter. and we would look to continue doing that going forward. Now keep in mind, Q1 tends to be a cash -- heavy cash utilization quarter just with our annual bonus payment, insurance payments, things like that. So I expect Q1 would be on the lower side. But as we look to Q2, 3, 4, that would be around the level of debt paydown, assuming there isn't anything on the M&A front.

The next question is from Bobby Brooks from Northland Capital Markets.

So just wanted to circle back and ask specifically kind of on Enercon and cross-selling opportunities there. Obviously, obviously, you mentioned this spend more specifically with aerospace and defense, these are long-cycle programs, right? So these aren't happening in 1 quarter and seeing the outcome the next. But just curious to hear if maybe that's still on the back burner just because demand was so robust in 2025 and the segments kind of just had a deal with the demand that they were seeing. So just kind of curious to hear more on that.

Yes. No back burners here. Yes, we understand we've got to prioritize. But also remember, we have to live in new wins, land, right, because we can't influence when orders come from our customers, right? When the program gets funding, can they sell it, right? What does the military budgets look like? And then you get an order. The thing that we can influence is going after new programs and aligning ourselves to new wins and new design cycles, right? So as we go after these, we are doing a better job at collaborating I think we're doing a better job at ensuring that both the connectivity and the power side of the house understand what they're going after, weekly calls and putting in some incentives along the way, we can do a little bit better job, but that process is in place. . And what's interesting is we're definitely seeing some of this, let's say, go to market. So there was some -- a couple of interesting quotes in Israel, where I was lining to earn from our e-mobility products that there was a need locally in Israel that our team flagged, but they didn't need quite the, let's say, high levelness of the military stuff but they need really complex products, which are e-mobility and Slovakia teams do a great job at. So we're trying to quote those into Israel. So I classify that as kind of a real-time opportunity that we're chasing. And we've seen a few of those as well. Another example of this is there was a cabling need at our let's say, U.S. Enercom business, which our competivity Group can assist with. So they're working on kind of getting all that qualified and approved normally, in this case, Entercom had to go outside and deal with others, but we're able to capture more of this. And so the opportunities are real but in the spirit of greeting is, we'd always love to do more. But I think as we're getting more bids out there now at a joint level, we're seeing some nice traction. Hopefully, we continue to do that and kick that to gear a little bit more.

There are no further questions at this time. I would like to turn the floor back over to Farouq Tuweiq for closing comments. .

Thank you for that. Again, I could not be more proud of the team for the great year. Again, also thank you for all of you guys joining the call today, taking interest in what we think is a very, very exciting time for Bel. So thank you, and look forward to speaking to you in a couple of months from now. .

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