Prepared remarks
And all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the call during the conference, please press 0 on your telephone keypad. 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.
Thank you, Dylan, and good morning, everyone. Before we begin, I would 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 our 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 the market closed 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 a reconciliation of our GAAP results to our non-GAAP results has been included in our press release. Our press release and our SEC filings are all available in the IR section of the website. Joining me on the call today is Farouq Tuweiq, President and CEO, and Lynn Hutkin, CFO. With that, I would like to turn the call over to Farouq. Farouq?
Thank you, Jean, and good morning, everyone. We appreciate you joining our call today. We are excited to have delivered another strong quarter in Q2 led by robustness across the majority of our end markets, in particular within data solutions and defense sectors. Our distribution partners have also seen a significant uptick in demand. This trend started earlier in the year and has become more pronounced in Q2 with channel sales at its highest level since mid-2022. Bel completed an equity raise in May, selling approximately 1.7 million shares into the market, generating net proceeds of approximately $440 million. The proceeds were utilized to fully pay off our debt with the balance of the cash earmarked to fund the closing of the Enercon transaction in Q1 2027, and to invest in other initiatives to support Bel's growth. As announced last quarter, Bel is now organized under two end-market-based segments: Aerospace, Defense, and Rugged Solutions (ADRS), and Industrial Technology & Data Solutions (ITDS). Q2 was the first full quarter for us under the new structure, and the team has made nice progress in our segment strategic initiatives. During the quarter, we achieved a notable milestone with Bel's facility in Slovakia gaining the required certification as a defense manufacturer in Europe. We noted on last quarter's call a European defense project win for the Slovakia site. We are excited to report that Q2 marked an additional eight project wins from European defense customers for the site. We anticipate these translating to sales beginning in the latter part of 2027, which is the normal monetization cycle of defense wins. From a people perspective, much of the year has been focused on building the team structure to support our growth. This initiative is across the board from operations and sales to IT, finance, legal, and HR. In this area, we made notable progress in Q2. We anticipate having all of the key roles filled by the end of 2026. We have also been doubling down on building out the A&D sales team in Europe and have filled some key positions there as well. We are very excited about these additions. Shifting to what is ahead, it was another strong quarter of bookings across the business, exceeding our level of sales for the sixth consecutive quarter. Based on the information available today, we are projecting sales for Q3 to be in the range of $205 million to $225 million with gross margin in the range of 39% to 41%. Anticipated drivers of sequential growth from Q2 are a continuation of the same trends: defense, data solutions, and an increase in demand for components through our distribution partners. As a point of note, the recent project wins, robust bookings and overall favorable market conditions will enable us to take a fresh look at our product portfolio. In this regard, we anticipate there will be some revenue rotation in the coming quarters whereby higher-growth, better-margin business will be emphasized ahead of our larger, lower-margin business and products. We continuously evaluate our business and now have the luxury of focusing on better ROI business. Overall, we are in exciting times and there continues to be great momentum across the business. I am proud of and thankful for our global team for their collective efforts in pulling together, pushing forward, and achieving another remarkable quarter for our shareholders. With that, I will turn the call over to Lynn for the financial review.
Thank you, Farouq. From a financial standpoint, we delivered a strong second quarter. We grew revenue, expanded margins and materially improved liquidity. These results increased earnings quality and financial flexibility. In Q2, total sales were $210.7 million, up 25% from the prior year quarter. Growth was broad-based, led by the defense and data solutions sectors, as Farouq mentioned. The increase in sales through our distribution channel was most prominent among our component products, including fuses, integrated connector modules, and RF connectors. Gross margin was 39.9%, up 120 basis points year-over-year. The increase primarily reflected operating leverage from higher volume and improved execution. These benefits were partially offset by higher material costs and unfavorable foreign exchange impacts. Adjusted EBITDA was $48.9 million compared with $35.2 million a year ago, an increase of approximately 39%. Adjusted EBITDA margin increased to 23.2% from 20.9%. This improvement reflects stronger conversion of revenue growth into operating profit. From a segment perspective, ADRS revenue was $111 million, up $18.6 million or 20.6% from Q2 2025. Growth in ADRS was led by defense, which totaled $66.5 million in Q2 2026, a 28.4% increase from Q2 2025. Gains in industrial applications were also strong during the quarter, largely through the distribution channel. These areas of growth were partially offset by a decline in commercial air versus last year. ADRS gross margin was 41.1% compared with 41.4% last year. Higher sales volumes added leverage in the P&L, but those gains were more than offset by foreign exchange and material cost pressures during the quarter. Pricing increases implemented on new orders earlier in 2026 are expected to benefit Q3 and subsequent periods. We are also investing in capital projects and process improvements to increase throughput, efficiency and capacity. Turning to ITDS, revenue for this segment was $100 million, up $23.8 million, or 31.1% year-over-year. Growth was led by sales into the data solutions end market, which was up $20.7 million or 55% from Q2 2025. Higher demand within data solutions includes the beginning of a ramp related to recent project wins in the high-performance computing space. The acquisition of dataMate in March 2026 contributed $4.4 million of sales in Q2 2026 and is included within data solutions. While to a lesser extent, we also saw meaningful growth of sales into industrial and consumer applications, which rebounded nicely through our distribution channel in the second quarter. Strength in these end markets was partially offset by transportation, which declined modestly versus last year. ITDS gross margin was 38.8%, up from 36.6% last year, an improvement of 220 basis points. The increase was primarily driven by favorable product mix and operating efficiencies, including higher volume and improved utilization. These benefits were partially offset by foreign exchange impacts. The weaker US dollar relative to the renminbi increased costs at our Chinese manufacturing locations during the current year period. Turning to operating expenses, R&D was $9 million, up $900,000 year-over-year. The increase was primarily due to higher personnel costs in the 2026 period. SG&A was $36.3 million, up $5.4 million from last year. The increase here was primarily due to higher compensation and benefits and an increase in professional fees, some of which were nonrecurring during the quarter. We expect SG&A to run in the range of approximately $34 million to $35 million in future quarters. Turning to cash flow and liquidity, we ended the quarter with $306.1 million of cash and securities, up from $57.8 million at December 31. This largely resulted from the equity raise completed in May, which generated net proceeds of approximately $440 million. During the second quarter, as Farouq mentioned, we repaid our full debt balance of $197.5 million, resulting in no outstanding debt balance at June 30. This increase in cash materially improves liquidity and our ability to fund growth, manage volatility and pursue strategic opportunities. From a working-capital perspective, we have heavily invested in working capital to support growth through the first half of 2026. Accounts receivable increased $32 million based on higher sales volume in Q2 2026 versus Q4 2025. Inventories increased $32 million as additional raw materials were procured to accommodate the increase in orders received during the first half of 2026. Accounts payable increased $33 million largely in line with the higher inventory levels. Capital expenditures were $4.9 million during the first half of 2026. We do anticipate a slightly higher level of CapEx in the second half of 2026. We are prioritizing projects expected to improve throughput, drive growth, and have a quick ROI. Going forward, we will focus on improving the cash generation cycle through better receivables management and payables planning. We do expect inventory turns to remain challenged in the near term as we build up our inventory levels to support our growth projections. Longer term, the objective is to convert a greater portion of earnings into consistent free cash flow as the business grows. And with that, I will turn the call back over to Dylan to open the line for questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Pick up your handset before pressing the star keys. One moment, while we poll for questions. Our first question comes from Bobby Brooks with Northland Capital Markets. Please go ahead.
Hey, good morning team and thank you for taking my question. First, I was curious to hear more discussion on the Slovakia site gaining the A&D qualification, because that seems like a very meaningful update for the efforts to grow Enercon product sales within the region. Could you expand on what this means for the long-term strategy? And I think it would also be helpful for folks to be reminded of what the Slovakia site was before this.
Yeah, thanks for the question, Bobby, and good to connect with you here. Maybe start backwards from your question. Slovakia historically was our industrial power factory, so focused on things like rail and e-mobility, laser cutting equipment—very high-power applications on the power side of the business. We have been in the process of modifying the facility so that it could also accommodate aerospace- and defense-type applications, from the acquired Enercon business to serve as a storefront for the European market as that market seeks to have more localized content. Obviously, it sounds a little easier than the reality of it. The team has been hard at work for well over a year to a year and a half gaining the appropriate certifications, government approvals, changing some of the facility flow, acquiring and installing new equipment, along with training the team for these applications. It is a pretty complicated effort. That was the idea: to meet our customers where they are. That strategy has started to translate to wins. We mentioned it on the first quarter call, and we have more nice wins here in the second quarter. I would say both of these outcomes were in advance of what we initially thought. When we started this a couple years ago, we anticipated by end of 2026 to have some wins. So this is driven by the market and the realities on the ground, but also by our investments and the headcount, marketing, conference attendance, and doubling down our efforts with customers. As we are investing in our go-to-market and sales on the A&D side across Europe, it is really for the whole A&D portfolio. We have connectivity manufacturing sites in the U.K. serving the European Union, so we are also pushing those sales. When we think about A&D, it is across the portfolio, not just any one product line. We flagged Slovakia given the interest, but from our perspective, it is more normal investments in the business.
Very helpful color. There has been a continuous focus over the last several quarters by you and the team to pull internal levers to help spur growth. The last two quarters we have seen really excellent growth that is largely organic, as year-over-year comparisons included the Enercon benefit. Your guidance for Q3 is a continuation of that. Which initiatives do you feel have been most successful and which recently enacted initiatives are you most excited about going forward as it relates to growth?
I think the wins in Q1 and Q2 are really the culmination of a lot of the work the team did earlier this year and last year. As we have talked about, especially on the A&D side, it is a long chase cycle, so results in Q2 reflect efforts going back further. Growth across the portfolio is not just one area: we see wins in data solutions, industrial, and distribution. There is a swelling effect of several successes. The question for us is not whether we are winning—we are—but are we fully living up to our potential? We are still not at our potential. Therefore, investments in people, systems, and processes driving the commercial organization harder are ongoing. We talk about strategic initiatives and put people on them, but we have been doing this for the last two to three years; we are now starting to see benefits. Optimization is our focus: getting closer to potential. If we group the discussion into two topics—people and process—on the people side we have added headcount, elevated internal talent, reassigned and reestablished KPIs and performance expectations. On the process side that covers data: are we collecting it, putting eyes on it, and pushing the data piece? We are progressing there and are much better at tracking and managing to metrics, including dashboards and CRM use. The incentive scheme is another area; we will likely modify it to reward performance better and define what performance means. Another key element is ensuring strong outside partners, especially the reps we use. We had to redo many agreements to favor paying more for new wins versus legacy flow business, which catalyzed change. Re-segmenting the business has also been another lever, driving depth because we are an end-market-driven business and need to speak the customer's language. We also created more focus around business development and key account management within the new segment structure, which is showing benefits. I am excited about what our leaders and team are delivering aided by process and outside reps.
Thanks, Bobby. Our next question comes from Wamsi Mohan with Bank of America. Please go ahead.
Yes, thank you so much. Good to be on this call. I wanted to ask a little bit about the very strong defense growth you are delivering here. Do you see this sustaining through the rest of the year? Do you need to add capacity in defense? I know Lynn mentioned higher CapEx—what is that primarily geared towards? I have a follow-up as well.
We definitely think the outlook is looking pretty good. Revenue is a lagging indicator because it shows projects already won and being monetized. Forward-looking indicators include bookings and new wins. When we look at bookings and new wins, we are seeing robustness. We are expanding in Europe by increasing headcount. Capacity has not been a major concern; in fact, we would prefer to be more capacity constrained as demand grows. We are investing in CapEx, and the Slovakia site will add flexibility on capacity. The focus is on the commercial front end. We have the manufacturing capacity and ability to run the channel. A more interesting focus is supply-chain availability of materials rather than manufacturing capacity. From a manufacturing perspective, not so much capacity, but the supply of critical materials is a focus. We are adding more sales and engineering headcount on the A&D business, especially in Slovakia, to get ahead of commercial demand. Overall, we like how this is looking and are investing in the right opportunities.
As a follow-up, when you look at the incremental margins in the quarter, those took a nice step up and your guidance shows strong incremental margins, particularly at the operating margin level. How much of this is pricing versus mix versus other factors? Was there any pull-forward in the business that you would call out?
We had challenges on input materials, shipping costs, and FX earlier in the year. The margin improvement in Q2 was largely operational leverage. In February and March we implemented price increases on new orders and expect to see benefits of those in Q3 and Q4. Q2 showed that our model is working despite headwinds. We expect operational leverage and gradual price recovery to help margins in Q3; we will not recover full price immediately since increases were on new orders that ship over time.
Our next question comes from Christopher Glynn with Oppenheimer and Co. Please go ahead.
Hey, good morning. Regarding gross margin, this is the second quarterly guide in a row where you ticked up from the prior run rate. You noted an opportunity to press higher-margin, higher-growth products. Are you suggesting that some take rates and overall growth allow you to deemphasize lower-margin volume and therefore benefit from a mix lever as markets strengthen?
Yes, Christopher. When you have an abundance of wins or new opportunities, you think about where to allocate hours and money. We are starting to have that luxury, allowing us to allocate more effort to higher-ROI SKUs and deemphasize lower-return items. Our competitors do this regularly; for us, it's a new luxury that reflects our evolution. It is a testament to the team and allows us to rotate the portfolio towards better returns.
On Data Solutions, Lynn said it was up 55% or $20.7 million. Also, customers hitting scaling inflections have been discussed year to date. Some customers in the AI space may have optionality in take rates—are you seeing that starting to play through?
Thanks, Christopher. To clarify, data solutions revenue was about $58 million in Q2 2026, up from $38 million in Q2 last year. So it was a $20.7 million, or 55%, increase year-over-year.
Great, thanks. Last one: you mentioned eight new European defense design wins and a couple last quarter. Can you comment on the spectrum of sizes of those applications? Enercon specializes in small lots—what's the breadth? A couple of customers or a wide range? Small lots versus larger lots?
It's a combination. Europe has concentration of OEMs and platform diversity is what we target—things that fly, are on the ground, or on the water. We like platform diversity because it involves different engineering teams and countries. There is some OEM concentration, which is normal, but we see diversity of platforms. In terms of scale, collectively these are multimillion-dollar opportunities over the life cycle of the programs and could turn into very meaningful wins. We would not say one dominant customer; we like the diversity because funding cycles differ across technologies and applications. On the U.S. side, we have a heavy presence in missile applications and are diversified across launchers and missile systems, which will benefit us from broader A&D spending.
Thank you. Our next question comes from James Ricchiuti with Needham and Co. Please go ahead.
Hi, thank you. Could you provide any color on bookings in ITDS and ADRS—where you see strength? You called out data solutions and defense, but any additional color on bookings activity would be helpful.
Jim, on bookings we have had positive book-to-bill ratios for six consecutive quarters. That has been broad-based across both segments, most product lines, and most end markets. I would say it is largely defense and data solutions, and also through our distribution channels. Items that go through distribution include fuses, ICMs, and RF connectors—components that feed a wide variety of applications. So while there is concentration in defense and data solutions, booking strength is broad-based.
What about replenishment required on the defense side, particularly in missiles—are you seeing that yet, or is that something you expect later in the year or early 2027?
Public discourse leads money, so discussions are happening and we are seeing positive momentum, but there's still a gap between expected replenishment needs and actual funding. We are seeing increased orders and channel chatter about build rates, but funding needs to flow through government channels for full normalization. We are seeing benefits and increased orders, but full replenishment will be an ongoing effort over the near term.
Are you seeing more activity in the space market? Can you quantify what kind of revenues or growth you are seeing there? I know it's an area you've been putting more resources into.
Space was $3 million this quarter, up slightly from last year. It remains small but has potential over the next couple of years. We have many customers and are on many platforms and designs; the bottleneck is the ability to launch things into space. Until that bottleneck is resolved, numbers will remain constrained. Design wins are a leading indicator for us, and we are well positioned as launches normalize.
Thank you. Our next question is from Luke Junk with Baird. Please go ahead.
Good morning. Farouq, regarding Europe and the eight project wins in Slovakia, you noted they were better than expected, especially relative to timing. What does that say about the pipeline and commercial development activity driving that outcome from an internal standpoint?
When we acquired Enercon in Q4 2024, we expected a commercial synergy play with Europe being a key part. We knew work would be required—modifying Slovakia, adding headcount, restructuring, and adjusting to the European pace. We expected benefits by the end of 2026, and wins in Q1 and Q2 2026 are ahead of that schedule. Dynamics such as changes in administration and political discourse have accelerated continental production and local content expectations. We've added headcount and are seeing more 'shots on goal' from the selling effort. We still need more headcount in Europe and are not fully ramped, so as new people come online we expect continued robustness in growth. Europe is a big opportunity across connectivity and power because our end-market-focused sales teams there sell the full A&D portfolio.
Lynn mentioned higher demand in data solutions including the beginning of a program ramp in high-performance compute. Can you expound on materiality and how that plays into the back half of the year? Is that part of the reason for the revenue guidance into Q3?
Yes, it feeds into the guidance. Programmatic wins from prior periods are starting to monetize as our customers deploy products. Bookings and planning discussions indicate further ramp as we close out the year and head into next year. The indicators—bookings on the books and partners' capacity plans—point to a healthy upward trend.
On M&A, with dry powder on the balance sheet, how are you thinking about acquisitions given market noise and some aggressive valuations?
We are focused on investing in the business for medium- and long-term growth—technology, capacity additions, and new end markets that align with customers. We will be disciplined. We have seen peers pay premiums we find unattractive. We will be balanced and mature in our approach—neither overly conservative nor reckless. The pipeline has many opportunities; the question is how aggressively we want to compete. We will remain disciplined.
Our next question comes from Gregory William Palm with Craig Hallum Capital Group. Please go ahead.
Good morning. Quick follow-up on the Enercon purchase: that extra 20% coming next year—is that simply 20% of the original $400 million, or should we expect an adjustment?
It is a purchase of the remaining 20% equity interest and will be measured off EBITDA with a multiple applied to determine equity value. There is a cap on upside: 135% of what it was when we did the acquisition. So it is not simply 20% of $400 million; it is based on actual EBITDA and has a cap. We accrue for it each quarter.
To add, on the balance sheet we have a redeemable noncontrolling interest line. As of June 30, it was $102.6 million, representative of value at that date. As Enercon's TTM EBITDA increases, that value increases. There is a cap, as Farouq mentioned. Also, there is another earn-out: a $5 million earn-out based on 2025 results that was paid in early 2026, and a similar one based on 2026 results that would be paid in early 2027. Those are two components of cash needs related to the transaction.
Perfect. On organic versus inorganic focus, can you size your excitement for organic growth, the elevated CapEx on short-term ROI projects, and how much emphasis will be organic versus inorganic going forward?
We treat organic and inorganic tracks separately. Organic growth is driven by sales initiatives, hiring, CapEx, and operational improvements—those are our day jobs. Inorganic pursuits have a separate team that works with senior leaders. We are not deemphasizing one over the other; both tracks run in parallel and we expect robust performance on both. We will be disciplined in M&A and opportunistic on organic investments.
Our next question is from Tomo Sano with JPMorgan. Please go ahead.
Hi, good morning. With the dataMate facility transitions and ERP conversions completed, what steady-state benefits should we expect and when should they show up in the numbers?
As we restructured and created a key accounts group and business development within ITDS—where dataMate sits—we are starting to see benefits. The dataMate team that joined us has been strong, handling a facility move and ERP conversion while continuing business development. We have fed them into the Bel organization and identified opportunities. The acquired business was around $18 million at acquisition, so it is not a massive mover on its own, but the strategic integration and BD activities will contribute to growth over time.
Our next question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.
Congratulations on the good quarter. With Enercon giving you more presence to capitalize on A&D spend in the EU, do you worry that could cannibalize spending at U.S. levels?
If it were normal times, you might see some geographic shifts. But current global events and increases in A&D spending—NATO catch-up, resilience investments due to regional conflicts—are creating net positive demand. The U.S. has also gained new customers internationally, so net we expect these dynamics to be a benefit. We are focused on capturing opportunities on both sides and do not see cannibalization as a meaningful risk today. We are also seeing investments in new technologies and new players, and we feel well positioned to tackle changes across geography and technology.
Our next question is from Asiya Merchant with Citigroup. Please go ahead.
Thanks and apologies if I missed this. Between the two segments, could you peel back demand dynamics and how we should think about what is baked into the guidance for top line and gross margins? ITDS took a nice step up in gross margin—Farouq, you talked about price recovery in the second half—can you help us think about the gross margin ramp between the two segments?
On ADRS, the main driver was defense spending and production. On ITDS, the leader was data solutions, with robust performance in industrial technology as well. Across both segments we saw increased distribution demand. The gross margin step-up in Q2 was largely operational leverage. We implemented broad-based price increases in February and March, which will begin to show benefit in Q3 and Q4. Heading into Q3, margin expansion will be a combination of operational leverage and some pricing benefit, with pricing benefit ramping over time since increases were on new orders.
On FX, Q2 had sizeable pressure from the Chinese renminbi and the Israeli shekel. Those trends have stabilized and are starting to recover slightly in recent weeks, so we do not expect further downward FX pressure from Q2 to Q3. If those currencies move more favorably, it will assist margin expansion.
Our last question comes from Hendi Susanto with Gabelli Funds. Please go ahead.
Thank you, and congrats on great results. Two questions: Farouq, could you share the magnitude of the price increase? Second, on revenue rotation into higher-margin products, can you share timing and which product lines or groups are involved, or is it broad-based?
We implemented a surgical price increase across many SKUs where input costs increased and the market could tolerate it. It was broad-based and varied by SKU, so we are not providing a single percentage. On rotation, this is most relevant within ITDS and data solutions, where we are seeing wins that justify allocating more resources to higher-ROI products. We expect to start rotating resources and seeing impacts into Q4 and into 2027, but we will be measured and not provide a specific dollar amount at this time.
We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Farouq Tuweiq for closing comments.
Thank you, everyone, for joining our call today. We definitely enjoy these questions. We think we have an exciting story and we continue to deliver despite some of the market choppiness. We are excited to be halfway through the year and look forward to a good close for the year. Thanks again to everyone for their vote of confidence. Looking forward to our next call, and everybody enjoy the rest of your summer.
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