Earnings call transcript: Bel Fuse B Q4 2024 beats EPS forecast, stock rises

Bel Fuse (NASDAQ:BELFA) B Inc. reported strong fourth-quarter 2024 earnings, significantly surpassing analysts’ expectations. The company posted an earnings per share (EPS) of $1.53, nearly double the forecasted $0.7767. Revenue reached $149.9 million, exceeding the anticipated $123.21 million. Following these results, Bel Fuse B’s stock rose by 5.4% in after-hours trading, reflecting investor optimism. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.18, with current trading levels suggesting the stock is fairly valued based on comprehensive Fair Value calculations.

Key Takeaways

• Bel Fuse B’s EPS of $1.53 far exceeded the forecast of $0.7767.
• Revenue for Q4 2024 was reported at $149.9 million, beating expectations.
• The company’s stock price increased by 5.4% following the earnings release.
• Gross margin improved to 37.5% in Q4 2024 from 36.6% in the previous year.
• The company sees strong growth potential in AI and defense markets for 2025.

Company Performance

Bel Fuse B demonstrated robust performance in Q4 2024, with sales increasing to $149.9 million compared to $140 million in the same quarter last year. This growth was driven by strategic acquisitions and a focus on emerging markets such as artificial intelligence and defense. Despite a challenging year, the company managed to improve its gross margin and maintain a strong position in mission-critical components.

Financial Highlights

• Revenue: $149.9 million, up from $140 million in Q4 2023
• Earnings per share: $1.53, significantly exceeding the forecasted $0.7767
• Gross margin: 37.5%, up from 36.6% in Q4 2023
• Full-year sales: $535 million, down from $640 million in 2023
• Operating cash flow: $77.7 million in 2024

Earnings vs. Forecast

Bel Fuse B’s actual EPS of $1.53 represents a 97% surprise compared to the forecasted $0.7767, marking a significant beat. This performance is a positive deviation from previous quarters, showcasing the company’s resilience and strategic execution.

Market Reaction

The company’s stock rose by 5.4% in after-hours trading, closing at $86.54, up from the previous close of $82.11. This surge places the stock closer to its 52-week high of $92.61, indicating strong investor confidence in the company’s future prospects.

Outlook & Guidance

Looking ahead, Bel Fuse B projects growth across its business segments in 2025, with particular strength expected in the Magnetix and Enercon segments. The company anticipates AI and defense markets to be its largest growth areas, despite potential challenges from tariffs and geopolitical tensions. InvestingPro data reveals the company has maintained dividend payments for 23 consecutive years and holds more cash than debt on its balance sheet, though analysts anticipate a sales decline in the current year. For detailed analysis and growth projections, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

"We believe 2024 was the trough of many of our end markets and we’re generally optimistic entering into 2025," stated Farooq, the incoming CEO. Outgoing CEO Dan Bernstein added, "We have demonstrated our ability to maintain our enhanced margins profile even during a challenging year."

Risks and Challenges

• Potential impact of global tariffs on operations.
• Geopolitical tensions that could affect market stability.
• Continued struggles in the consumer end market.
• Dependency on defense market trends for growth.
• Cash and securities have decreased from $127 million in 2023 to $69 million in 2024.

Q&A

During the earnings call, analysts inquired about Enercon’s business outlook, the company’s focus on AI in data centers, and the potential impact of global tariffs. The management expressed openness to future mergers and acquisitions with a selective approach.

This comprehensive performance and strategic foresight position Bel Fuse B well for continued success in 2025, with investors responding positively to the company’s strong earnings beat and promising outlook.

Full transcript - Bel Fuse B Inc (BELFB) Q4 2024:

Operator: Good morning and welcome to BELFUS Fourth Quarter and Full Year twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead, Jean.

Jean Marie Young, Three Part Advisors Representative, Three Part Advisors: 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 2025. These statements are based on the company’s current expectations and reflect the company’s views only as of today and should not be considered representative of the company’s views as of any subsequent date. The company disclaims any obligation to update any forward looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward looking statements due to a number of risks, uncertainties and other factors.

These material risks are summarized in the press release that we issued after market 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 all available at the IR section of our website. Joining me today on the call is Dan Bernstein, President and CEO Ruud Tewig, CFO and Lynn Hetkin, Vice President of Financial Reporting and Investor Relations.

With that, I’d like to turn the call over to Dan. Dan?

Dan Bernstein, President and CEO (Outgoing), Belfus: Thank you, Jean, very much. Okay, we are pleased with our fourth quarter and full year 2024 results, both in terms of our legacy business as well as the first two months of performance from the recent active acquired Encomp business. Overall, we achieved a four ten basis points improvement in gross margin for the full year 2024 versus 2023. Despite the 16% reduction in sales from last year, this was also the second best year in Vale’s history of earnings, EBITDA and our highest stock price. Our focus throughout 2024 was on two core strategies.

The first is the future growth of the company and the second, improve our cost controls. In this regard, we were successful on several fronts. We added two senior level positions focused on sales and strategic procurement that we have not had previously. This is in addition to the other folks across the organization. The acquisition of Enercon, the largest transaction in Belfuse history, has enhanced Bell’s position as a supplier of mission critical components into harsh environment applications.

Further, over the past year, we have engaged in two facility consolidations, one in Glenrock, Pennsylvania under our Connectivity segment and the other related to the transition of our Fuse product line in China within our Power segment. The team continues to make good progress on each of these initiatives. In the fourth quarter where the goal is to complete both in the first half of twenty twenty five. Majority of the costs associated with these consolidations were already occurred in 2024. From a cost savings in the aggregate, the company realized the savings of $1,500,000 in 2024, with more to come in 2025 once these consolidations are completed, and a full year cost savings are realized.

Further, there are two other properties that have been held for sale in connection with these moves. Each property is currently under contract for sale and then we expect them to close during the first half of twenty twenty five. Upon completion of these two projects, we have successfully implemented six facility consolidations globally in the past three years, resulting in annual cost savings totaling $11,800,000 across all the six projects. These efforts have further allowed us to reduce overhead count by 30% since the beginning of 2023 when we launched these activities. In closing, on 2024, we have demonstrated our ability to maintain our enhanced margins profile even during a challenging year on top one.

These accomplishments of resetting Bell’s financial foundation is a result of a full global team pulling together over the past three years on a variety of fronts to improve our underlying business. When I consider all the work that has been done to position Dow for long term success and with the collaboration with Faruk on the strategy reset, it was the right time for me to transition to the Chairman role and all the railings to Veruque. Veruque will be the third CEO in the seventy six year history and makes the first star in the office to be held by a person outside the Bernstein family. I am extremely excited to continue the journey of Verruckt in a different capacity. I also want to thank our hardworking associates around the world for their dedication and ensuring VAS’ continued commitment to success, resiliency and ability to change.

Varuk?

Farooq (Veruque), Incoming CEO, Belfus: Thank you, Dan. To echo Dan’s sentiment, I think the team really pulled through this past year and making marked improvements in the areas which were within our control. We look to continue this momentum into 2025 with new team members around the table. On the team side, our Global Head of Sales who joined Bell in October has been fast at work in assessing the sales and marketing organization as they stand today and what the future state should look like. Out of the gate, it has already improved upon the sales commission structure we put in place last year.

As we head into 2025, the focus this year in this important area will be expanding customer depth and breadth that align well to our capabilities, allowing us to better return on our efforts. We will also be focused on better opportunity targeting, customer tracking and installing various efficiency tools to achieve such outcomes. From a cost perspective, there are a few key areas on our radar in 2025. On the positive side, we are excited about our new Global Head of All Things Procurement as well, who’s taken a fresh look at our cost. While he has only been in the role for about two quarters, he has already identified the series of upcoming initiatives to streamline our supplier base and take advantage of our consolidated purchasing power across our global entities.

While the potential cost savings here are not quantifiable at this moment, we’re confident that his effort will be additive to Bell’s financials over the coming years. As we look to 2025 from an end market perspective, we see trends as largely favorable in this upcoming year. We believe AI, defense and space have potential to be the largest areas of new growth for us in 2025. Our first full year with Enercon will be significantly additive to our revenue base given the current business it has. And we are actively working on identifying and executing on a variety of revenue synergy opportunities between our Cinch business and Enercon.

This process is already underway and while these initiatives will take time for realization, the early signs of potential are encouraging. The areas of distribution, networking and industrial have faced challenges over the past two years due to inventory destocking. We continue to see signs of recovery in each of these areas during the fourth quarter and anticipate these markets to show signs of improvement in 2025 as compared to 2024. As noted in the past two quarters, our consumer end market continues to struggle and we anticipate this to persist through much of 2025. If you recall, this was the end market in which the U.

S. Government placed trading restrictions on one of Bell’s suppliers in The PRC. This will result in challenging year over year comparisons This will result in challenging year over year comparisons for this end market through the first half of twenty twenty five as approximately $6,000,000 of sales related to this supplier in the first half of twenty twenty four. Expanding our lens to the broader geopolitical situation we are in, tariffs are on the headlines all around us. Effective February 4, an additional tariff of 10% was placed on imports into The U.

S. From China. As a reminder, we have already been operating in a 25% tariff world imposed on such imports and an additional 10% will increase this to 35%. On a revenue basis in 2024, we had approximately 12% to 13% of our total revenue subject to tariffs. Historically, Bell has passed these incremental tariffs on to its customers and we anticipate that will continue to be the case, resulting in minimal if any impact to Bell’s financials.

This is an overall concern for our customers and we have been working with them on exploring other manufacturing sites out to China. Keep in mind that 12% to 13% noted is for 2024. Obviously with Enercon that percentage will be a little bit less heading into 2025. As for the tariffs in Mexico and assuming they do go in place barring any last minute agreements, this would be new and Infosat to approximately $20,000,000 of our 2024 revenue representing just under 4% of sales. We expect to handle these in the same way as China, but we’ll see how that goes.

Mexico overall is a key manufacturing location for a number of our competitors and us and thus we are wrestling with what is happening. As for Canada tariffs, there is no exposure for us as we neither manufacture nor export to Canada. And looking at the business as a whole, we believe 2024 was the trough of many of our end markets and we’re generally optimistic entering into 2025. As we discussed on the October call, we expect growth across the business with varying degrees. Our largest percentage grower should come from Magnetix, led by networking and our key customer recovery.

As for connectivity, we expect growth as well, but do keep in mind this group has grown nicely over the last three years driven by commercial air defense and space. So while exciting, any new growth will be comparatively speaking a little bit smaller on a percentage basis. As for Power, when assessing year over year growth and excluding the impact of restricted Chinese supplier we discussed previously, we will anticipate that AI and distribution will be leading the way and we expect that Power segment to be a little bit more flat to up on a free Enercon basis. With Enercon, we expect a stronger performance and the growth as well. I should say that Enercon is expected to be most likely only second to Magnetix in terms of percentage of growth.

In closing out on a personal note, I could not be more excited to be taking the helm in May. Dan has done an amazing job in not only building and diversifying Bell over his tenure, but encouraging the vast changes that have taken place internally over the past three years. Bill has a very strong foundation today and is well positioned for future growth. With that, I’ll turn the call over to Lynn to run through some financials. Lynn?

Lynn Hetkin, Vice President of Financial Reporting and Investor Relations, Belfus: Thank you, Furritt. Before getting into the financial results of the quarter, I wanted to highlight a few changes to the reconciliation tables included in our earnings release. In the fourth quarter of twenty twenty four, we modified our presentation of non GAAP financial measures, including revising our definitions of adjusted EBITDA and non GAAP EPS to additionally exclude from these non GAAP measures the following three items: one, stock based compensation two, amortization of intangibles, which primarily relates to the amortization of finite light customer relationships and technologies associated with the company’s historical acquisitions, including those associated with the recent acquisition of Enercon and three, unrealized foreign currency exchange gains and losses. We believe this change enhances investor insight into our operational performance. We have applied this modified definition of adjusted EBITDA and non GAAP EPS to all periods presented.

Turning to the financial results. Sales came in at $149,900,000 for the fourth quarter compared to $140,000,000 for the fourth quarter of twenty twenty three. Full year 2024 sales came in at $535,000,000 as compared to $640,000,000 in 2023. The addition of Enercon sales and strength in our Connectivity segment helped to mitigate the continued year over year decline seen in our Magnetics and Legacy Power segment during 2024 versus the 2023 period. Gross margin reached 37.5% in the fourth quarter of twenty twenty four as compared to 36.6% in Q4 twenty twenty three.

Looking at the full year, gross margin was up by four ten basis points in 2024 as compared to 2023. Margin improvement continued to be led by favorable product mix and the successful execution of a variety of cost reduction and efficiency programs. Now turning to our product groups. Sales of Power Solutions and Protection Products in Q4 twenty twenty four amounted to $78,100,000 a 13.2% growth from the previously previous year’s fourth quarter. The increase from Q4 twenty twenty three was attributable to the inclusion of Enercon, which contributed $20,800,000 in sales to the Power segment during the fourth quarter of twenty twenty four.

On a full year basis, the Power segment showed a decrease of 21.8% compared to 2023, landing at $245,600,000 in sales for 2024. The decline for the full year was mainly driven by lower sales of our front end Power products of $45,300,000 and board mount power products of $9,500,000 both of which serve our networking end market. Sales of our CUI products were down $21,200,000 in 2024 as compared to 2023 due to the trade restriction placed on one of our suppliers in the PRC as we discussed previously. Sales of our eMobility end market decreased by $12,900,000 in 2024 as compared to 2023. These declines were partially offset by an increase in sales of our rail products of $11,800,000 an increase in sales of used products by $2,600,000 as compared to 2023 and the previously mentioned sales contribution of $20,800,000 from Enercon.

As a reference for full year activity, rail sales were $41,900,000 for 2024, up 39% from 2023 and e mobility sales were $15,000,000 for the full year, down 46% from the 2023 level. The gross margin for the Power segment was 40.6% for the fourth quarter of twenty twenty four, representing a 40 basis point improvement from Q4 twenty twenty three. On a full year basis, the gross margin increased by four thirty basis points to 42.4% in 2024 as compared to 38.1% for 2023. These increases were primarily driven by the acquisition of Entercon, pricing actions, favorable FX from the Chinese Renminbi and a favorable shift in product mix. Our Connectivity Solutions Group achieved sales of 52,500,000 during the fourth quarter of twenty twenty four, an increase of 4% compared to Q4 twenty twenty three.

On a full year basis, 2024 connectivity sales amounted to $220,000,000 an increase of almost 5% versus 2023. This improvement was due to the continued growth in the defense and aerospace industries. In 2024, we also experienced an increased volume of connectivity products sold through our distribution channels. For full year 2024, sales of products into the commercial aerospace end market amounted to $56,900,000 an increase of 7% from the 2023 level. Products sold into defense applications totaled $47,000,000 for full year 2024, up 5% from 2023.

Sales into safe applications totaled $8,000,000 for the full year of 2024. Product sold through distribution channel totaled $82,000,000 for the full year of 2024, up 2.9% from 2023. The gross margin for this group was 36.6% in the fourth quarter of twenty twenty four, up seven thirty basis points from 29.3% in the same quarter of 2023. On a full year basis, the gross margin improved by two ninety basis points to 37.1% compared to 34.2% in 2023. Gross margins for the 2024 periods were favorably impacted by the higher overall sales volume, favorable fluctuation in exchange rates between the U.

S. Dollar and the Mexican peso in 2024 and operational efficiencies implemented during 2023, partially offset by higher wage rates in Mexico Twenty Twenty Four as compared to 2023. Lastly, our Magnetic Solutions Group sales declined by 6% from Q4 twenty twenty three levels to $19,200,000 for the fourth quarter of twenty twenty four. This resulted in full year 2024 sales for the Magnetic segment of $68,900,000 as compared to $115,000,000 in 2023. This segment has a large concentration of sales in the networking end market and is largely tied to the ordering patterns and end demand of a few large customers within that space.

While quarterly sales within this segment remained at significantly depressed levels throughout 2024, volumes have stabilized and have been on a rebound since the second quarter of twenty twenty four. The gross margin for the Magnetic segment was 29.1% for Q4 twenty twenty four, a 1,200 basis point improvement from the 17.1% gross margin in Q4 twenty twenty three. On a full year basis, Magnetic gross margin was 25.3% in 2024 as compared to 22% in 2023. The recent facility consolidations in China and related elimination of the dual cost structure that was in place during the 2023 transition were the primary drivers for the improved margin profile of this segment. At the consolidated level across all product segments, our backlog of orders totaled $382,000,000 This is comprised of $263,000,000 of legacy Bell backlog and $119,000,000 of Entercom backlog at 12/31/2024.

Selling, general and administrative expenses for the fourth quarter of twenty twenty four were $34,800,000 up by $9,900,000 from $24,900,000 in Q4 twenty twenty three. On a year to date basis, SG and A increased by $11,500,000 during 2024. The primary drivers for the increases in SG and A during the 2024 period related to the acquisition of Entercom. Non recurring acquisition related costs amounted to $8,600,000 during the fourth quarter and $12,900,000 for the full year of 2024 and the majority of these were included in SG and A. In addition, incremental amortization expense of approximately $1,300,000 was recorded during the fourth quarter of twenty twenty four in SG and A related to valuation of customer relationships acquired.

Other SG and A expenses related to Enercon amounted to $2,500,000 during the fourth quarter. Excluding these items related to Enercon, legacy Bell SG and A expenses showed a decline of $3,600,000 during the full year of 2024 versus 2023. This decrease was the result of reductions in incentive compensation, sales commissions and business promotion expenses. Turning to our balance sheet and cash flow, we closed the year with $69,000,000 in cash and securities, down $58,000,000 from the $127,000,000 we had at the end of twenty twenty three. This was primarily due to the utilization of $86,000,000 in cash to fund the Enercon acquisition during the fourth quarter.

During the full year of 2024, we generated cash flows from operating activities of $77,700,000 dollars From a debt perspective, our outstanding balance increased to $287,500,000 at the end of the year, largely due to the new debt of $240,000,000 related to the Enercon acquisition. And taking into account our swap agreement, the weighted average interest rate on our debt balance at 12/31/2024 was 5.5%. As a reminder, our credit facility expires in September 2026. And as a result, we will be looking to refinance the facility during the summer of twenty twenty five to ensure a new agreement is in place prior to the current facility going into a current liability classification. Now turning to Enercon.

While we’ve touched upon this in pieces throughout our commentary today, we thought it would be helpful to highlight some of the financial impacts related to the acquisition. First, we utilized $86,000,000 of cash and $240,000,000 of new borrowings under our credit facility to finance the acquisition. Next (LON:NXT), the current run rate of interest expense at the current interest rate and at our December 31 outstanding debt balance is approximately $4,000,000 per quarter. At December 31, our net leverage ratio in accordance with the calculation outlined in our credit agreement was 2.1 times. Keep in mind, our credit facility leverage ratio only nets out foreign cash.

If netting out global cash, we were under the two times mark at December 31. As Bell acquired 80% of Entercom, the Entercom financials are fully consolidated into Bell’s financials. The 20% of net earnings attributable to the non controlling interest is shown at the bottom of our P and L. Enercon contributed $20,800,000 of revenue to Bell’s financials during the two months in 2024. For modeling purposes, Entercom’s annual R and D expenses are approximately $6,500,000 and its annual SG and A expenses are approximately $13,500,000 Enercon’s blended tax rate is approximately 17%.

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

This item is included as a non GAAP adjustment and our non GAAP EPS reconciliation table. We wanted to highlight this one time adjustment from fair value to redemption value as this resulted in sell reporting a net loss on a GAAP basis during the fourth quarter. I would now like to turn the call back to the operator to open the call for questions.

Operator: Thank you. We will now be conducting a question and answer session. The first question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead.

Christopher Glynn, Analyst, Oppenheimer: Hey, good morning. Congrats on closing Enercon. Just wanted to connect the dots from some of the third quarter orders momentum you talked about for PSP and for Magnetix. You saw a nice counter seasonal corp PSP sales increase ex Enercon. Not the case for Magnetic, but you had pointed out longer lead times there.

So just want to revisit that contrast in lead times and also if the orders turn was pretty sticky relative to what you saw in the third quarter versus maybe some continued intermittency?

Farooq (Veruque), Incoming CEO, Belfus: Yes. Hey, Chris, nice to connect here. On magnetics, it’s seasonal and generally we think of magnetics and largely power as having Q2, Q3 being the strongest quarters, and Q1 usually being the weakest and Q4 somewhere in the middle. So that’s kind of, I’d say, what’s kind of expected on the magnetic side. On the power side, we did see some maybe more robust pull ins and that led us to be a little bit north of the midpoint of our previous guided range just for the Bell based business.

We think some of the pull ins that did come in was to get out ahead of some of the tariffs that were potentially coming in, in Q1. But outside of that, I think everything kind of went and landed as we thought it would given the seasonality within both PSP and Magnetix.

Christopher Glynn, Analyst, Oppenheimer: Okay, great. And I think last quarter you expected growth in all segments in 2025. I think you referred more to flattish outlook for TSP for 2025, if you could verify if I heard that correctly. And also maybe go down a layer or two on the puts and takes to kind of defer growth recovery for PSP?

Farooq (Veruque), Incoming CEO, Belfus: Yes. So on the DSP comments here I’m going to give obviously excluding Enercon. So a couple of things happened there throughout 2024. One is the Chinese supplier that we’ve talked about and we had roughly, let’s call it, $5,000,000 of pull in that happened in Q4, which we were not expecting. So when we look at the amalgamation of those two, just year over year comparison becomes a little bit harder for PSP given both of those were largely impacting PSP.

So when looking at that, it kind of gives us this, let’s call it, will be flattish. Could it be more? Yes. I think we just need to see kind of how the world plays out from an end market perspective and some of the issues going on. So given that, call it, optics harder comparison that will happen with the Chinese supplier and the full end, that’s kind of what gave us to guide that as we try to match expectations here.

Christopher Glynn, Analyst, Oppenheimer: Okay, great. And congrats on the transitions, Dan and Farooq, across the company and in the CEO role in particular.

Dan Bernstein, President and CEO (Outgoing), Belfus: Thank you. Thank you.

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

Bobby Brooks, Analyst, Northland Capital Markets: Hey, good morning guys. Thank you for taking my question. I guess I just want to first start on the 1Q sales guide. Could you maybe just give us a sense of how much of that is attributable strictly from Entercom business?

Farooq (Veruque), Incoming CEO, Belfus: Yes. So I think going forward, Bobby, we’ll be blending them here. I think directionally, when we do look at it, we guided PSP to roughly from a Q1 perspective year over year given the pull ins slightly down. And also remember Q1 last year had the Chinese supplier in it, right? So you have the Chinese supplier going against you coupled with some of the pull ins.

So PSP on a base level will be down Q1 twenty five over Q1 twenty four. Obviously Enercon would be additive to that.

Bobby Brooks, Analyst, Northland Capital Markets: Okay. I appreciate that. And then I think we’ve talked about this before, but just wanted to kind of circle back on it now that you’ve had Enercom under your own ownership is how quickly do you think it’ll take for real cross selling opportunities to begin to merge here. Just trying to get a sense of how just trying to get a sense of that.

Farooq (Veruque), Incoming CEO, Belfus: Yes, I think it’s similar to anybody touching defense. It’s a slow moving environment in terms of either unseating an incumbent or new designs. And I think that generally holds globally true whether it be European defense, American defense or Israeli defense. So my guess is we probably are not going to see much if any, in 2025 on the cross sell. But we could see it, right?

It’s just going to really depends. But to manage expectations here, I think what’s important for us though is one, are there opportunities out there for cross pollination and bringing the resources of Bell to bear to customers? And the answer is yes. Two, is ensuring that our teams are talking together with the proper incentives to really motivate people to jointly go out there and tackle the world. And we’ve done that on the process and people incentive side of it.

So I’d leave it at that, but generally defense is a slow moving existence.

Bobby Brooks, Analyst, Northland Capital Markets: Fair enough. And then maybe this kind of ties into that last point that you made there. But so your new global head of sales, you had some time now to get adjusted into the seat. You talked about it a little bit some of the stuff that he’s already implemented and you kind of touched on it there right in the previous answer, but could you maybe just dive a little bit deeper and highlight some of the initiatives he’s kicked off or changes he’s made and maybe just compare that to what kind of previously was the case?

Farooq (Veruque), Incoming CEO, Belfus: Yes. So I appreciate that question there, Bobby. As I tend to think about things, I tend to say to myself people process performance, people process performance. On the people side of it, we have maybe moved some things around a little bit in terms of responsibility and reporting structure and making sure that we are better aligned as a team. So that’s on the people side of it.

I’m going to leave it at that. On the process side of it, it’s really a question of where are we going to sell? Who are we targeting the selling, right? So how do we establish further breadth and depth within the customers and new customers? So we’ve spent a fair amount of time with Ooma (NYSE:OOMA) really understanding where do we go deeper with certain customers and where is the parallel pathways for us to grow.

So we’ll be kind of really thinking a little bit harder, especially on the parallel or competitors that we could be going after inside lanes. The performance piece of it is making sure if your people are performing enabled by the process that there is recognition on the performance side of it measuring performance. So that’s to my earlier commentary and the commission structure changes that we have implemented. We’ve added more bells and whistles than we did last year. We’ve also established a structure whereby we reward, let’s call it cross selling between our connectivity segment and Enercon and then making sure we measure it and compensate it for us.

That’s how we kind of think about it is from a well rounded perspective.

Dan Bernstein, President and CEO (Outgoing), Belfus: Just to add a little bit to that,

Bobby Brooks, Analyst, Northland Capital Markets: fruit came from a very strong

Dan Bernstein, President and CEO (Outgoing), Belfus: e commerce distributor. So for us, as we move forward, we know more and more sales in the past where direct sales between our people, the reps and engineering communities. As we move forward, we know the future engineers don’t want to talk to people. They want to get their product as quick as possible off the Internet either from us or from digit emails or these e commerce distributors. And his focus is really what we do well is on the key customers, the Ciscos of the world and the Honeywell (NASDAQ:HON) and Boeing (NYSE:BA) people.

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

Bobby Brooks, Analyst, Northland Capital Markets: That’s terrific color. I appreciate it guys. And congrats, Dan, on the great career and Farooq on the step up to CEO. I’ll return to the queue.

Operator: Thank you. Next question comes from the line of James Ricchiuti with Needham and Co. Please go ahead.

James Ricchiuti, Analyst, Needham and Co: Hi, thanks. Good morning. So I’ll echo Mike’s congratulations to both of you. Looks like it’s going to be a smooth transition and I wish you both the best. So first question just relates to Anadarkon.

I know you’ve only had the business for about three months or so, but I’m wondering as you had discussions with your colleagues there, what’s your sense as to the business outlook? I think, Pruf, you said next to Magnetix, I think you said it was going to be the second strongest growing business. Is this is there an element of replenishment in the business in Israel? Are you seeing tell us about the activity you’re seeing outside Israel in terms of I know they have a fair amount of exposure in North America as well.

Farooq (Veruque), Incoming CEO, Belfus: Yes. So I would say I think the messaging is really the same, whether it be on The U. S. Or Israeli side. And obviously some as a reminder, roughly 40% of their sales is Israel, Fifty Percent U.

S. And 10% various European, India and the like. And I think the message is and this was kind of our one of our investment thesis in defense. We think that it will be a multi year kind of good tailwinds for that end market. There will be a replenishment cycle, obviously, with some of the issues with Ukraine and that war in Israel.

There is a natural replenishment cycle after a period of conflict. So that will be additive. We also think that the global posture around defense and defense spending has changed and we’re seeing more investment going whether it be into new technologies or just increasing overall spending and we see some of this commentary running through the news. So between replenishment, rearmament and stepping up defense spending, all that is additive. The other thing we’re seeing and I think there’s a fair amount of coverage of this coming out is in Israel specifically, where we’re seeing the export side of that defense sector really expanding.

So as we look at all these factors, increased spending, increased defense postures, increased investment in new technologies, all that is additive to Enercon. And obviously also they do sell into commercial air and as we think about just that commercial air tailwinds, we also think is additive. Also as a reminder, defense is around 93% of their business and 7% is commercial air.

James Ricchiuti, Analyst, Needham and Co: Thanks. That’s helpful. Yes, you mentioned AI several times this morning. And I’m wondering as we think about the opportunity, where are you seeing the biggest impact from that? And are you in a position yet where you could actually quantify how much of the revenues that could be AI driven in some of the business units?

Farooq (Veruque), Incoming CEO, Belfus: So in terms of AI, our biggest beneficiary across our segments is in the Power group. So I think it’s safe to say when we say AI, that’s the large main driver. And as we talked about before, Jim, we know where our product is doing AI. So when we say AI, that’s a direct line from us to an AI type application. But we also do know that we have some other products that go through our customers or intermediary customers that end up in AI that becomes a little bit harder for us to track.

But when we say AI, we’re talking about hard line. I would say we’re and also just as a reminder from AI, we’re generally not selling to the hyperscalers given the cost pressures there and just our business doesn’t lend itself for a competitive side of things. So we tend to do non hyperscalers. We get to them through our networking customers and directors. In terms of the AI growth and we talked about this on our October call as we started heading into Q4.

So back in the September, October timeframe, we started some of the business that we’ve been chasing for a fair amount of time, started to turn some nice orders for us. So I would say as we start heading into Q4, that’s when we really start seeing AI. AI, I would say is for 2024 and we’re just starting that climb is around 7 ish million for us out of Power. And we expect that number to grow, let’s call it, definitely very nicely into 2025.

James Ricchiuti, Analyst, Needham and Co: Thanks. That’s helpful. Last question for me, just as it relates to what you’re seeing at the distributor level, where do we stand relative to destocking at some of your major distributors? Is that in the rearview mirror or are we still working through some of that in certain areas of the business?

Dan Bernstein, President and CEO (Outgoing), Belfus: We were with a major distributor with the top two. They felt that in January they hit bottom and that things should start improving. But again, I think we heard that song for the past eighteen months. So we’re keeping our fingers crossed that we have hit the bottom. We’re starting to see improvement.

If you look at our circuit protection, they’re the first ones that we start to because they’re low cost items. They order people order them first and they’re easy to order. So we’re starting to see some backlog increases there. So hopefully that’s a good sign. So we should I’ll be surprised if we don’t see improvement in distribution this year.

We should see it start coming at the end of this first quarter.

James Ricchiuti, Analyst, Needham and Co: Got it. Thanks. And again, congratulations on the announcements and the results.

Farooq (Veruque), Incoming CEO, Belfus: Thank you.

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

Dan Bernstein, President and CEO (Outgoing), Belfus: Once again, thank you very much for joining the call today. We appreciate

Operator: This is the operator. Just want to take the next in line that is Theodore O’Neill with Litchfield Hill Research. Please go ahead.

Theodore O’Neill, Analyst, Litchfield Hill Research: Thanks very much. Congratulations on the quarter. I was I just want to follow-up on the previous question about AI. Is that application primarily in data centers?

Dan Bernstein, President and CEO (Outgoing), Belfus: Yes.

Theodore O’Neill, Analyst, Litchfield Hill Research: And given the contribution from Enercon in the quarter, does that change the potential earn out or the timing for acquiring the remaining 20%?

Farooq (Veruque), Incoming CEO, Belfus: No. Nothing that’s been discussed as of right now and we put this in the filings that we have in terms of the contract. Right now it stipulates we’re going to measure end of twenty twenty six and kind of book call option early in 2027. If there was any kind of there’s no accelerators built in, so to speak, if we if there was an acceleration to occur, it would have to be an agreement between the two parties. But as of right now, there is no such accelerators in there.

Theodore O’Neill, Analyst, Litchfield Hill Research: Okay. And my last question is, if Europe decides it needs to dramatically increase defense spending, would this be a particularly positive for Enercon?

Farooq (Veruque), Incoming CEO, Belfus: I would say the as I said earlier, roughly 10% of Enercon sales is not Israel, not The U. S. And kind of spread out between the Europeans and from India. So overall spending increase would be additive to Enercon. Obviously, just given the European defense manufacturing is a little bit less from overall, it’s additive for sure.

We’d also benefit from that on the connectivity Cinch side. More spending from the Europeans, the question also becomes where do they buy it from, right? Are they importing it from places like Israel and The U. S, which would be additive or is it all local? So just kind of depends a little bit where they’re buying it from.

Theodore O’Neill, Analyst, Litchfield Hill Research: Okay. Thanks very much.

Operator: Thank you. Next question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead.

Christopher Glynn, Analyst, Oppenheimer: Thanks. Just a housekeeping question on modeling. We have a different algorithms calculated adjusted EPS. So just like maybe level set quantity what we should use the intangibles amortization and stock comp add backs per quarter or annualized going forward?

Lynn Hetkin, Vice President of Financial Reporting and Investor Relations, Belfus: Yes. So on the stock comp, we’re estimating it will be a fairly similar level to what we had in 2023 and maybe up a little bit. So for modeling, maybe call it around $4,000,000 or so, maybe a little higher than that. And then on the amortization of intangibles, we had two months’ worth of incremental amortization in the 2024 numbers. So that can be used as a proxy for going forward.

That should be pretty straight lines.

Dan Bernstein, President and CEO (Outgoing), Belfus: Great. Thank you.

Operator: Thank you. Next question comes from the line of Andy Susanto with Gabelli Funds. Please go ahead.

Andy Susanto, Analyst, Gabelli Funds: Good morning and congratulations Dan. Congratulations Farooq.

Dan Bernstein, President and CEO (Outgoing), Belfus: Thank you very much.

Farooq (Veruque), Incoming CEO, Belfus: Thank you.

Andy Susanto, Analyst, Gabelli Funds: Two questions for me. Would you remind us areas that may be impacted by, let’s say, like global tariffs and potential areas of mitigation? And would you remind us about China for China?

Farooq (Veruque), Incoming CEO, Belfus: Yes. So I would say it’s a little bit of a moving target, right? I think for us, China and as we think specifically The U. S, China revenue we talked about 12% to 13% of 2024% was tariffed and then roughly a little bit under 4% Mexico exposure. I would say if that’s kind of that things are coming to U.

S, we do send some stuff from Europe to The U. S. And some from The UK as well. So if that becomes more of a thing, it would be obviously, it would be a headwind. Generally, we manufacture around where our customers are.

So a lot of, for example, our magnetic, which which is manufactured in China stays within Asia, right? So it’s either getting sent out to CMs in The Philippines and India or stays in China. So generally more localized manufacturing. And I think that’s one of the nice things of our business. I think in Europe product flows within Europe, I think we feel pretty decent about product flows within Asia, seemingly pretty decent.

It’s really when you touch The U. S, right, given that we’re the ones trying to institute these policies. So is it a concern and a headwind? Of course, tariffs are just generally not additive. And I think the bigger concern is it’s more of a moving target.

It seems every day we get a new target. And I think that’s the issue and the challenge that we have. But ultimately our process is the same. We work with our customers on trying to be cost effective and efficient. And then also where we can pass it on, that’s the goal.

Andy Susanto, Analyst, Gabelli Funds: Yes. And then second question, how should we think about your M and A capacity for the acquisition of Enercon?

Farooq (Veruque), Incoming CEO, Belfus: Yes. So I think similar to our discussion we talked about when we did announce Enercon, we appreciate that we have more leverage today than we did. I would say we are open for business, more selective both on quality and size, but we are open for business. We understand where some of the, let’s call it, lack of tolerance or red lines are, but ultimately there are things. So it’s a higher hurdle if we’re going to add some in a family, I think we’re going to make sure that it’s additive in some capacity at the right circumstance.

Andy Susanto, Analyst, Gabelli Funds: Okay. Thank you.

Operator: Thank you. As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Dan Bernstein for closing comments.

Dan Bernstein, President and CEO (Outgoing), Belfus: Again, thank you for joining us today and we look forward to speaking to you in April. Have a good day.

Operator: Thank you. This concludes our today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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