Bel Fuse Inc 2026 Q3 Earnings Call

Please go ahead, Jean. 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 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 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 Farooq.

Farooq? Thank you, Jean. Good morning, everyone.

We appreciate you joining our call today. We are pleased to have delivered another strong quarter led by continued momentum in our data solutions and industrial end markets. We also saw increased demand through our distribution partners, which contributed positively to our performance during the quarter. It was a nice quarter to see the team deliver these results with lost productivity in certain operations due to summer vacations and holidays in places like Israel. We are very proud of the performance of our global team and the quality of its execution in a heightened demand environment. Our factories did an outstanding job securing materials, increasing manufacturing capacity, and strengthening business resiliency. The operational discipline enabled us to deliver growth despite continued variability and uncertainty in global markets. We're also moving faster and operating with a more entrepreneurial mindset.

We are making decisions closer to the customers, responding more quickly to changing market conditions, and acting decisively on opportunities. Growth was led by our data solutions business, including the broadening AI ecosystem, as well as our industrial applications. This performance demonstrates the strength of our global operating platform, the resilience of our business, and the ability of our people to execute at a high level. As previously discussed, and as some of you know, Bel is now organized under two end market-based segments, and we are entering an important period as we plan under the new organizational structure. We will be holding our second global leadership offsite in November, bringing together our global leadership teams for the first time since establishing the two new segments.

The session will focus on further defining our operating model and strategic priorities, as well as continuing to identify segment initiatives that unlock the full value of our structure. I am excited about this one as we have had some new teammates at the executive level and among our key leaders at the VP level. On another note, we continue to see strong bookings across the business with record all-time high bookings, again, exceeding our level of sales during the quarter. This provides us with continued confidence in the momentum across the markets we serve. Based on information available today, we expect fourth quarter net sales to be in the range of $220 million-$240 million, with gross margin between 40%-42%. This outlook reflects continued momentum across our key markets, including data solutions, industrials, and defense, as well as ongoing demand through our distribution partners.

Overall, we are excited about our performance this year and how the year is shaping up. I am proud of our global team's focus on execution, their commitment to advancing the organization, and their continued efforts to deliver another remarkable quarter for our shareholders. With that, I will turn the call over to Lynn for the financial review.

Lynn? Thank you, Farooq. From a financial perspective, we delivered a strong third quarter with double-digit year-over-year revenue growth across both segments, improved gross margin, and higher adjusted EBITDA margin.

Third quarter sales were $220.5 million, up 23.2% compared with the prior year quarter. Growth was strong across multiple end markets led by data solutions and industrials. We also saw an uptick in activity through our distribution channel with strong end customer demand coming from both segments.

Gross margin was 40.9%, up 120 basis points year-over-year. The increase was driven primarily by operating leverage from higher volumes, pricing, and stronger execution. These benefits were partially offset by higher material costs and unfavorable foreign exchange impacts. Adjusted EBITDA was $52.5 million compared to $39.2 million a year ago, an increase of approximately 34%. Adjusted EBITDA margin increased to 23.8% from 21.9%, reflecting strong conversion of revenue growth into operating profit. From a segment perspective, ITDS revenue was $106.6 million, up $10.3 million or 10.7% compared to Q3 2025. Growth was led by sales into industrial applications, largely through the distribution channel, followed by defense. These areas of growth were partially offset by a decline in commercial air due to the timing of shipments into this market. ITDS gross margin was 39.6% compared to 41.1% last year.

The decrease was largely attributable to market and channel mix, in addition to unfavorable FX movements related to the Israeli shekel and Mexican peso. Turning to ITDS. Revenue for the segment was $113.9 million, up $31.2 million or 37.8% year-over-year. Growth was led by the data solutions end market, which was up $27 million or approximately 61% compared to Q3 2025. We continue to see strong growth with our AI-focused customers, where Q3 revenue totaled approximately $12.4 million. As a reminder, this amount is what we refer to as our AI floor, as we have additional exposures to AI that leaves visibility within our general data solutions customers. This is an increase of $9.2 million from Q3 2025. Also, the dataMate acquisition in March 2026 contributed $4.9 million to data solutions revenue during the quarter.

Strength across these end markets was partially offset by a decline in transportation revenue during the quarter. ITDS gross margin was 42.7%, up from 38% last year, an improvement of 470 basis points. The increase was primarily driven by higher volumes, improved utilization, and pricing actions. These benefits were partially offset by foreign exchange impacts related to the Chinese renminbi and higher material costs. Regarding operating expenses for the quarter, R&D expense was $8.8 million, up $1.3 million year-over-year. The increase was primarily attributable to higher personnel costs. SG&A expense was $39.4 million, up $6.6 million from last year. The increase was primarily driven by higher compensation and benefits, including stock compensation, an increase in legal and professional fees, higher costs in USD as a result of FX movements, and the inclusion of dataMate's SG&A expenses in the 2026 period.