Prepared remarks
Good morning, and welcome to the Bel Fuse First Quarter 2026 Earnings Call. 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 two focused business units. First, 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 Data 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 two 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 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 2025. 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 2026 were $99.8 million, up 20.1% versus Q1 2025. Growth was led by a $9.4 million increase in defense market sales, up 19% from Q1 2025 and a $3.9 million increase in commercial aerospace sales, up 22% from Q1 2025. ADRS gross profit margin was 41.5%, an improvement of 140 basis points from Q1 2025. 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 2025. Growth 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 2025, particularly within the rail and e-mobility markets. ITDS gross profit margin was 36.6% compared to 37.3% in Q1 2025. 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 2025. Of the $7.2 million increase, we are estimating approximately $3 million was one-time 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.
Questions and answers
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, 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 have seen our customers benefit from data center build-out, AI and data generation, and everything that we're reading out in the world is additive to that effort. 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 orders, and therefore that downstreams to us. So I would characterize it as a very healthy environment. The bookings continue to be more robust. The outlook continues to strengthen. I'll defer to Lynn here on more specifics around that.
And Luke, in the past we had called out AI-specific sales. As we're entering 2026, things are getting a little more blurred, and we had alluded to this last year where we had AI-specific customers but also were selling into our regular enterprise networking customers where their demand was increasing due to AI demand as well. So going forward, we will be talking more generally about data solutions. But we did see it across both AI-specific customers and our more general enterprise networking customers where we saw strength in Q1 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 Q2 guidance sequentially? And as you look into the back half of the year, qualitatively, the potential for some additional upside or just clarity on that opportunity.
We talked about geopolitical events; for our A&D business it is helpful and additive. We've said in the past we tend to be leveraged to the missile side of the business whether it be things that are deploying or the launchers themselves. So replenishment and national stockpile discussions are additive to us. We agree there has been a replenishment cycle starting in the Ukraine period; it never felt like we caught up, and now we've seen more usage of stockpiles. This will probably be a medium-term vector of growth and replenishment. We are also seeing more investments going into new business and new platforms as the industrial A&D complex is being challenged to step up across the technological spectrum. So we see more shots on goal. Whether replenishment on existing platforms or new platforms, we think that's all additive. We are not just seeing that in the U.S.; we're also seeing that in our European and Israeli 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?
I wouldn't point to one magical solution in the sense that we didn't change one thing and it all worked out. We sell highly engineered, complicated systems, whether on the components or on the system side. People are very busy in A&D, and our organization was stretched. We started partnering to deliver holistic solutions. For example, with the Enercon acquisition, we considered using our Slovakia facility to become our A&D footprint into Europe. That takes time to get certifications and facility approvals. We invested in CapEx and were able to move some products. A European customer wanted manufacturing on the continent, so Slovakia came in. The customer saw the facility, saw signal capacity, knew the products from Enercon engineering, and was impressed, and we received a couple of POs thereafter. On another opportunity, we took an Enercon power unit and put a Cinch connector and cabling solution on it. We solved several problems because we had both the power supply and the cable solution. We got good compliments from the customer, and more importantly it showed the team the art of the possible. We're seeing more robust collaboration across ADRS; teams are more aware of the whole portfolio and are going after it. Some A&D customers want more hardened industrial solutions, and our non-Enercon products can fill that gap. Overall, the collaboration and the ability to offer multiple elements of the solution were key drivers. I don't know if you're back, Bobby, but hopefully that answers your question.
Just curious, is that like, first, is that a specific drone company or...?
Bobby, your line is open.
I will continue to answer. The other thing is that the first win is important; it becomes a strong proof point. We're definitely seeing more collaboration across the organization and more awareness of the portfolio. We are seeing A&D customers looking for more hardened industrial solutions and our broader portfolio can fulfill those needs from several angles. The discussion is significantly ahead of where it was in recent memory.
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, tell me to mute it, please. So continuing with the defense because it's such a large proportion of your business and then you're generating your own dynamism within that: with these initial greenfield design wins in the defense sector in Europe, is that consistent with the timeline you would have anticipated from an integration pathway or maybe pulling ahead a little bit? Curious about actuals versus your expectations.
I'd say a little ahead or on time. When we did the Enercon acquisition in Q4 2024, we said we probably wouldn't see results until at least 2026, probably towards the end of 2026. If that was the metric, here in Q1 we're seeing some early wins. What took longer than anticipated was certifications and facility approvals; A&D is heavily regulated, and approval processes in Slovakia were longer than we anticipated, partly because the country is receiving more investment. Putting that aside, in April we had some nice wins and customer visits. So I'd say slightly ahead or on schedule.
Given the dynamism in defense procurement and hot regions, design wins to revenue: are they pretty quick?
Defense is not typically the fastest. When you win a program, you need to prove it out; they test it and then it scales over time. The key is to get in early so as it scales you're there. If it's an existing product, you generally get an initial order but volumes often come 12 to 18 months later. If it's a brand-new product or technology being developed, it could be longer. The key is getting the award side; then there may be iterations along the way.
So the replenishment orders are more the quicker lead-time drivers you're seeing right now?
Correct. I will caveat my earlier commentary: while defense is generally slower moving, some areas are moving faster and regional nuances exist. Europe may be moving differently than the U.S.; Israel may be the fastest. The industry is changing a bit, but largely it remains a slower-moving industry.
A quick check on the back half: Q2 guide is a striking step-up sequentially. I don't think Q2 guide assumes a surge; is this a fundamental step in the run rates developing with your end market exposure?
We play in many strong end markets that are largely in growth mode. As we closed out the quarter and into April, we saw continued robustness across the portfolio. Distribution was strong in April. Looking at backlog, customer chatter and orders, we expect a healthy second half. Keep in mind seasonality: Q3 can see a European slowdown over the summer, and Q4 has holiday effects, but overall 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 with gross margin and how you're feeling about the levers you're pulling on that. Any timing-related things on that, how we might see that play throughout the year, especially as it relates to new bundled design wins in Israel and some of the organic initiatives you have? Curious if you're doing anything within those new contracts or investments to offset that going forward.
As sales grow, we will have better leverage on fixed costs within COGS, leading to margin expansion, assuming all else equal. This year we see a rise in input costs—material costs, some minimum wage increases globally—and an unusually unfavorable FX environment where the Mexican peso, Israeli shekel and Chinese renminbi are all moving against us. We are taking actions within our control—pricing discipline, procurement initiatives and operational efficiencies—but those take time to implement. So in Q1 and Q2 there's more of a disconnect where we're paying higher input costs and have not yet seen the full benefits of our initiatives.
Got it. And then on the new business structure and strategic realignment, how are you processing that through the P&L as you look at organic growth, especially as you lap Enercon? Any geographic breakdowns where we should be seeing growth by segment and geography?
We haven't given forward growth guidance. We're an end market-driven business. The A&D business has been growing for several quarters, and we expect some continuation of that robustness. On ITDS, data solutions, data centers and AI-related infrastructure also look robust. The industrial technology part, including transportation and e-mobility, is a bit slower but we're seeing nice things there. Overall, we expect growth, but we're not providing long-term guidance at this time.
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 post the acquisition of dataMate. First, is dataMate a growing business? What kind of sales trend? Second, when you talk about data center, AI data center, anything new—any new areas you want to address or new product portfolio you want to develop?
On dataMate: yes, we bought it expecting growth. We are a better home for it given the end markets they serve. In certain core products they have a dominant reputation. The team did a great job through the carve-out and relocation; the facility is up and running in the U.S. DataMate brings customers we haven't had inroads with historically and we hope to land-and-expand the broader Bel portfolio. Internally, people are excited to have access to that portfolio and strong engineering. On data centers and AI: we have many SKUs and keep winning new things. The drivers remain AI build-out, data center build-out, routers and switches. This supports our legacy power and magnetics businesses across the board. When we say AI, we think of that as a floor versus a ceiling; the clear AI-driven demand is robust.
To add, within Data Solutions we've discussed that our AI exposure is largely within our power products. 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. Much of that was driven by AI.
A number of companies have talked about 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?
Nobody welcomes price increases, but there is a general understanding that input costs are rising. Companies have taken price actions, and it has become part of the landscape. From our perspective, we need to do the right thing by our investors and pass on costs where necessary, while mitigating where we can. We took pricing actions in Q1 on new business, so we'll start seeing the benefits perhaps in Q2 but more meaningfully in Q3 and Q4 as we work through backlog.
Any insight into market recovery in industrials, especially customers' and distributors' inventories?
Distribution is broad; we touch many end markets and customers. We've seen pockets of robust strength and pockets still recovering. Stitched together, it's become stronger as we moved out of the quarter into April. Distribution recovery is additive to our efforts and aligns with earlier commentary.
We'll go next to Theodore O'Neill with Litchfield Hills Research.
Congratulations on the quarter. Two questions. First, last quarter you talked about weakness in rail and e-mobility; has anything changed there? Second, on the strength in Q1: over the last 20 years, companies reported sequential growth in Q1 over Q4 only three other times. What was driving the strength in this sequential increase?
On e-mobility and rail, it's relatively more of the same from Q4. On e-mobility, Q4 was probably the bottom; there was a slight uptick from Q4 to Q1 but nothing meaningful. Both areas remain depressed in Q1, similar to Q4. Regarding the Q1 sequential increase: as our end market mix shifts more toward aerospace and defense, we are less reliant on China. Historically, Q4 to Q1 declines were driven by the Chinese New Year production interruption in January and February because of our China workforce. As our mix shifts to A&D, we are becoming less seasonal and thus less impacted by those interruptions.
And we'll take a follow-up question from Bobby Brooks with Northland Capital Markets.
I was curious about the guide. Even excluding dataMate, it's still strong double-digit year-over-year growth. Could you expand on the factors underpinning that outlook? Do you have visibility with the strong bookings year-to-date that such sequential growth can continue into the back half?
Our backlog continues to build and grow from year-end. Q1 was very healthy. Delivery timing varies, but we have good orders scheduled to ship in Q2. Not all backlog is for Q2; some extends into Q3 and Q4. We set guidance based on orders that are scheduled to ship in Q2, and we expect continued robustness while acknowledging seasonality.
If you're comparing Q2 last year to the Q2 guide this year, strength is seen across both segments. Within ITDS, look at the Data Solutions portion, which is largely AI-driven. Within ADRS, it's commercial air, space and defense. Several end markets are running very strong and the Q2 guide is supported by orders received.
One last question: you've done well finding acquisition targets; dataMate looks like more of that. What's your appetite for more M&A going forward? Or is there a pause to let dataMate integrate?
No pause. We're always active on the M&A front. Q1 is usually our biggest cash usage period, but the quarter produced good cash flow and we were able to pay for dataMate. We expect healthy cash flow for the balance of the year and have access to capital. We are open for M&A and actively looking; we always have discussions. The key is how messy an opportunity is and how much integration is required, but we're wide open.
Again, congrats on the great quarter.
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.