Morning. Welcome to the 27th Annual Needham Growth Conference. We're going to have a fireside chat coming up with Bel Fuse. We are happy to have with us from senior management, the CFO, Farouq Tuweiq, and with us also is Lynn Hutkin, Vice President of Financial Reporting and Investor Relations. So Bel Fuse has had a long history of producing and manufacturing a broad array of components that power, protect, and connect electronic circuits. The company has also had an extensive track record of M&A, the most recent being the acquisition of Enercon, which we're going to talk about. My name, by the way, is Jim Ricchiuti, Senior Analyst in the Equity Research Department at Needham, covering industrial technology companies. So why don't we start? First of all, welcome, Lynn. Welcome, Farouq. Appreciate you guys joining. Let's start with two topical developments, and we'll break this up for both Lynn and Farouq as we go through the presentation. But two topical developments, one very specific to Bel, the other potentially affecting the broader electronic supply chain. So let's start with the latter, namely the issue of tariffs, and then we can dive into Bel's recent acquisition of 80% of Enercon, and we can discuss the broader Bel business. Sounds good. Sure. So Lynn, maybe early days, we don't know what the tariffs are going to look like. And so first of all, how closely are you monitoring this just in terms of the trade tariff actions with the incoming administration? And maybe remind us of what happened on the last go-round. First of all, also how significant is Bel's manufacturing footprint in China? Probably be worth telling people about that. Thanks. Sure. Sure. And thanks for having us here today, Jim. We really appreciate it. So on the tariff front, if we look at Bel's manufacturing footprint, we do have about 60% of our square footage in China. So fairly significant manufacturing presence in China. But that said, it's important to keep in mind we kind of think about it broken down by each of our three product segments. So if you look at our magnetics business, which is almost entirely manufactured in China, most of that stays within Asia. So most of the product being manufactured there is being shipped to other contract manufacturers that are in Asia. So on Bel's watch, there's very little in terms of potential tariff impact. There may be some items going through distribution into the U.S., but it's a pretty small percentage. If we flip to connectivity, all of that manufacturing is done in the U.S. and Europe, a tiny, tiny bit in China. So there we're really talking about raw material imports from China, a little bit of exposure there, but not a tremendous amount. But the large part that we see is in our power business. And this is a little bit of a change from when we last dealt with tariffs back in 2018, 2019. And that's largely because we acquired CUI back, if you recall, in late 2019. And that's a private label business. All of the manufacturing is done in China. It's largely coming into the U.S. So that is an area within power that would be impacted. The good news, if there is good news here, is that CUI is largely the consumer end market, which has been soft lately. It's also the part that was impacted by our recent supplier ban in China that we announced a couple of quarters ago. That business has been down pretty significantly. Our exposure today is less than it would have been, call it a year ago. If we look at it in total, we're estimating 12%-13%, give or take, of our revenue kind of is potentially tariffable. It's manufactured in China, shipped into the U.S. Now, that's on the legacy Bel side. Obviously, you introduce Enercon, which we recently acquired. They do not have any China supplier base. They would serve to minimize that impact and bring us sub 10%. Got it. And that's actually a good opportunity for you to segue to the Enercon acquisition, which Bel completed in late November. Why don't you tell us about the business, its financials, what the purchase price was, and what was it about Enercon that appealed to Bel? Yeah. So, thanks, Jim. Also, just to echo, Lynn, I appreciate the long-time coverage and obvious invite to the Needham conference here. So, Enercon, maybe taking a step back, when we look at Bel Fuse and look at where we win and how we compete, we generally do a little bit better in kind of low/medium-volume type businesses where there is a fair amount of customization or customer hand-holding, engineer-to-engineer type relationship. And we find ourselves a really kind of value add there where we can build a moat a little bit around the business and kind of really ingratiate ourselves with the customer. Coupled with, we want to try to not be front and center in all things that are being consumed by our larger kind of Asian competition where prices are relevant. When we look at where we do those things, we do them better in defense. We do them better in commercial air. We do it in space. We do it in rail, kind of these kind of mission-critical type applications. As we think about where we want to go and what we want to do, Enercon lends itself nicely to where we have historically won, and this further expands those applications. Enercon, obviously, is largely defense, right? Roughly call it 93% defense on $120 million of revenue and 7% aerospace. Markets that we've competed in, we know well, we win, a lot of hand-holding, a lot of customization, low volume. To put it in perspective, Enercon, a minimum order quantity, so an MOQ for Enercon is one piece, which is, I think, arguably very low. I think like 50% of their revenue comes from 10-piece orders. And they define high volume as 25 pieces and up. So when we think about that, we would classify that as low volume and a lot of hand-holding and engineer-to-engineer kind of relationships. And therefore, the vast, vast, vast majority of their revenue is sole source. So it plays in kind of the exact situations where we like. It plays in the end markets that we like. The other thing about Enercon that's nice is it also largely competes in places that we know. So 50% of their revenue is U.S., despite it being an Israeli-based company. So we know a lot of the customers, all the primes in the U.S., right? There are some platforms that we overlap on, our connectivity group at Enercon, but there's no cannibalization. There are some platforms and programs that we have more connectivity in and depth, and then they also have more connectivity and depth. So we think it's complementary in terms of expanding both of our relationships. From a design perspective, I think there's an internal debate between Enercon and our connectivity guys, but I think where we settled on as connectivity guys tend to see drawings first, and they tend to see things come out earlier on the design process, so now we think there's an opportunity to bring in the Enercon guys earlier into the design process, so that's on the U.S. side. On the Israel side, which is 40% of their revenue, we do roughly $0 nowadays in Israel, and relationships matter there, so now Enercon being kind of the household name there in the defense space, we think there's an opportunity to sell our connectivity products there. We know our competitors sell products there. So we think that's an interesting opportunity. Europe, which is, call it 5%-10% of Enercon's revenue, we know there's a lot of demand, and we know there's a lot of opportunity. The challenge has always been for Enercon in Europe is they don't have any manufacturing there. So as a result of that, it's an impediment for growth. Before we acquired them, they were looking at various manufacturing locations. But today with Bel, we have a big power facility in Slovakia, which is part of the EU. So now all of a sudden, we can accelerate and kind of address some of the customer concerns in terms of having manufacturing localized. So we're looking to see what does that all play together. And then also, the nice thing with Europe is our connectivity team out of the U.K. has two factories in the U.K. servicing all the Europeans. So they have all the customer relationships. They have all the contacts, and there's already history in knowing how to sell defense products in Europe. So we think that's a great multi-revenue synergy. I should say we didn't bake any of those in our price because we paid such a good multiple for it. We know that they're there. And then, hopefully, the name of the game is to under promise and over deliver. So that's kind of it. And then on the product set, one thing I should say is we think about a moat. There's really limited competition for Enercon. Today, really, their biggest competition is the internal R&D groups of their customers. As engineering resources are getting a little bit more scarce, we're seeing more opportunities come out to Enercon now that they've created and established themselves as a reference design house for somebody to come over to them, so to speak. That's really nice. We see some standard products on the shelf of some of our competitors out there that service the defense market, but they're not custom-built. Ours, Enercon is custom-built, purpose-built. That just has much better performance tolerances and so on. When we look at all that stuff, we really like the story, the growth. When we look at the end market, as we look at defense, we think defense is in a multi-year kind of growth phase here. Whether it be the replenishment side, a lot of kind of what's going on post-Ukraine or during Ukraine here and obviously the Israel war, we think there's going to be a lot of investment going into new technologies and kind of the next generation of warfare. The other interesting thing, there's an interesting article in The Wall Street Journal talking about how, and this was part of our investment thesis, so we haven't really talked about too much, is the Israeli primes have really established themselves now that they've proven out the technology and they have some kind of world-class technology, are becoming bigger and bigger in exports. There's an article, I think, in The Wall Street Journal this week or last week talking about how there's increased growth. So luckily for us, we're now in the mix of that. So we like this business from a number of perspectives. On the math side of things, we like the pro formas. It's gross margin, EBIT, EBITDA, and non-GAAP EPS, all accretive out of the gate. It gives defense our largest end market now, aerospace defense. We like. Give me a sense of that, for just given that as you layered in Enercon, what does the end market profile look like? That might be helpful for folks. Yeah. So before pre-Enercon, our aerospace and defense business was, let's call it 17% of our sales. And combined, it was third or fourth largest market for us. Networking was the biggest, then distribution, and then really industrial and/or A&D. On a pro forma basis, our defense and commercial aerospace business pops up to roughly 32%, 33%, give or take. So now a third of our business, our largest market, is aerospace defense, followed by distribution and then followed by networking, given some of the changes there. So the other thing I should say, distribution, which historically has been a third of our business, give or take, now really kind of comes down to probably like 20% going forward or the give or take. So it changes kind of the profile, the stickiness of where that and obviously revenue is different than EBITDA, right? So as we look at the gross margins of 45% for Enercon or EBITDA, 30-plus%, that additive of the profit profile that's coming out of some of these kind of sole-source defense businesses definitely increases. The other thing on the math piece of it that we really liked, we feel we paid a very good multiple for it. And Jim, as you know, in the U.S., these businesses trade well 15x-16x for completely subpar margin profile businesses compared to Enercon. And then also we like that we didn't have to lever up to anything crazy, modest leverage, given the cash position we built into the business. And it really just opens up the next frontier of Bel Fuse, right? We are moving from some of the consolidation and pulling the story together at Bel Fuse to really kind of growth and leaning into our SG&A to get some EPS and kind of build that future outlook, so to speak. So it's a very transformative acquisition on a number of fronts, and we didn't have to pay a crazy price for it. Good. You alluded to some of their customers. And obviously, I guess the big three in Israel are customers. If we think about the customer concentration, probably a high concentration among those big three in Israel, but is it fair to say a decent amount of program diversity within those customers? So that's kind of the nice thing, right? Similar to the U.S., right? There's always kind of the primes that when we look at it, we say there's concentration, but really what drives the business is the platforms are on. And within those primes, where are you on what platform? A lot of times these are separate engineering teams, separate procurement, and it's a really different kind of things that they focus on. And given the different parts of the defense ecosystem that Enercon does touch, these are very different teams. So you're correct in the sense that we don't have any really, let's call it program concentration. I think for 2024, I don't think any program accounted for more than 5% or 6%, Lynn, correct me if I'm wrong, on any single platform. So there is kind of that nice platform diversity. Lynn. Yeah. And that's correct, Farouq. And they're on over 1,500 different platforms. So to your point, there is customer concentration, but once you peel it back down one layer at the program level, there's a lot of diversity across the programs. You guys have been operating the business for, what, a couple of months. Early observations, it sounds like you see synergy potential. But just in general, just your observations, and certainly it sounds like there's nice accretion potential. Yeah. No, I think doing a deal in Israel is very different than doing a deal in the U.S. There's a little bit more authenticity. And I think because we had some nice connectivity there at the board level and management level, I think it kind of came as advertised, which is great to see. So for us, I would say there's been no surprises. If anything, it's more confirmatory. And it has gotten us more excited. And the confirmatory side of it is really the level of sophistication this team operates in and professionalism. Great A-plus team. Everybody has a growth mindset, hunting mindset, excellence mindset. And they're very eager to integrate as part of a bigger platform to create opportunities for them and also address the power piece, the Europe piece of it. So I would say it's been very nice. I would say they're definitely pushing us. And that's just kind of in their DNA of performance and excellence, which is great to have it. And also, this is kind of one of our first ones where we're really trying to put our heads together. So one plus one equals way greater than two. But also, it's not like we're operating in the sense of we got to close a facility and we got to do that first before we do anything else. So this is really how do we go and grow from here discussions, which has been great to have for sure. We'll certainly hear more about it when you guys report the quarter on a pro forma basis. How does the balance sheet look like for post-deal? And again, based on Q3 pro forma. So do you want to take that? Sure. So on a pro forma basis, obviously, we have the debt now on the books. As we mentioned, $240 million of debt. We utilized $85 million of cash. So that would have come down from the $930 million balance. As far as the rest of the balance sheet, we have not yet put out our PPA. We do have a preliminary look there. It's still under review. But obviously, there will be intangibles added to the books in the way of customer relationships, technologies. We'll have the normal inventory and PP&E step up. But that will be put out there in our 8-K, which will be filed by the end of January. So there will be additional information coming out to the public on that shortly. And I think ultimately, we said it'll be from a GAAP basis, accretive within the first year, on a non-GAAP basis, accretive out of the gate. I think from a leverage perspective, obviously, we're looking to see where the world of interest rates shakes out here and how much we pay down. But we think we'll be in the two range a little bit under there in pretty short order here. So we like that part of the math as well in terms of the leverage part. Let's turn to the base Bel business. So I guess it's fair to say, and Bel's not alone, but the inventory overhang that we've heard from so many component companies and other players, that overhang in the channel has just gone on longer than I think many of us expected. So where are we? Just with respect to destocking, you did highlight, I think, back in the Q3 call, a bit of a pickup in bookings. Where are you seeing some signs of improving orders? And should we think that Q3, Q4, which I think you've touched on in the Q3 call, that you see it as kind of the trough for the legacy Bel business? And Lynn, you may want to take that. Yeah, yeah, sure. So yeah, that's correct, Jim. So as we mentioned in the third quarter, we did view that as being the trough to your point. And we did start to see some green shoots in orders. And it was largely in power and magnetics. So if you recall, connectivity was kind of even throughout the whole thing. We didn't see the large drop-off in connectivity like we did in power and magnetics in prior quarters. So the destocking situation, we're just starting to see it starting to rebound. We've seen a rebound in fuses, which kind of touches everything. So it's a good indicator of things starting to turn around. We've seen pockets within distribution, not everywhere, but certainly not in consumer yet. That's something that we view will be a bit of a laggard, and consumer may not turn back on until late 2025. But we have seen other pockets starting to pick back up a little bit. And even in the networking space, we're starting to see that come back a bit. So those are kind of the areas. But we do think that the worst is behind us and that it will be a slow but steady kind of ramp throughout 2025. Two of the areas that we've heard folks talking about strong demand, including at the Needham Conference this week, has been one that's been very obvious and very much in the business press, data centers, commercial space. These markets that Bel is participating in, tell us about your exposure to some of these newer areas and the kind of growth potential, how attractive are they as you think about this over the next couple of years? Yeah. So I think both of those areas will be definite growth drivers for us going forward. On the networking side, data centers, it's an area that's been a challenge for us lately just with the destocking, and demand has been down. We're starting to see that come back a bit, both in power and magnetics. And the way that we look at it is it's really AI that we view as being the growth driver within our networking space going forward. And that will largely be on the power side. So the way that we view AI, we kind of view it in three different buckets, right? There's the hyperscalers, which we've chosen not to participate in. It's just not our strong spot. The middle section is our regular OEM networking customers, right? Cisco, HP, Dell, they may be utilizing some of their networking for AI. Our regular way power products serve AI applications just like they do other networking applications. So when they place an order, we're not sure what they're actually using it for. Could be an AI application, could be regular way networking. So it's not going to be something that we can really identify, but we do anticipate there being some uplift from those customers as well. Then the third bucket that we look at is what we call identifiable AI. So these are smaller customers, more start-up-y in nature that they are AI-specific. So if you think of NVIDIA, but not NVIDIA, they're not one of our customers, but similar to that, those are the ones that we are starting to see orders from. And still small dollars. It's similar to how EV was. If you look at our EV business several years ago where it was $1 million, $2 million. So we're starting to see some life there and some growth, but we do view AI as being a definite growth driver for us over the next few years here. And then to your question on space, this is an area that we've talked about over the past few quarters. Again, it's been very small dollars in recent years, but we are starting to see orders come through related to the commercial applications of space. And that's on our connectivity segment. So we were anticipating around $7 million-$8 million of sales in 2024 related to space. So still small, but it's a piece of the business that didn't exist a few years back. And Bel has been in space for decades. So we have put in those investments. We are tried and tested in that harsh environment. So we feel that we're well positioned for the growth in that area. Thank you for that. One of the things that I'm asked frequently is the competitive landscape that the company faces, which you compete against some large players in the market, including those in Asia. What is it that you think differentiates Bel from some of these others? And again, it's a pretty large competitive field with big players. Yeah. I mean, we are undoubtedly in a competitive space, the industry that we're in. So as I was mentioning with the AI buckets, if you will, we need to be very thoughtful and strategic on where we spend our time and resources. So to the example of AI with the hyperscalers, that's not an area that we can be successfully competitive in. And so we are opting out of that piece of it. So we tend to do best in low-medium volume where there is high engineering content on those products that's valued by the customers and the end markets that we serve. The harsh environment, high reliability applications like rail, commercial air, military, those are the areas that we tend to do really well in. And even on the networking side, it needs to have high technical content for us on the competitive side. If we look at the competitive landscape, to your point, there are big players. There are small players. I think our benefit is that we are the right mix of being both big and small. And what I mean by that is we are small enough that a $1 million account is very meaningful to us, right? We can get people on the phone with them. The president of the business unit or even Dan, our CEO, will get on the phone with a customer because a $1 million account is meaningful to us. That may not be the case with larger competitors. But we are big enough, if you're comparing ourselves to some of the mom-and-pop shops, where we do have geographic reach. We do have talented engineers. So we can service them where they are located, and we can be right next to their engineers and do that whole engineer-to-engineer sale. So it's kind of the right mix of not too big, but not too small so that we can satisfy that particular group of customers. And when you're looking at the larger peers in our space, because of our size, we can be very nimble. Like I said, it's more of a user-friendly approach. We're very, very accessible. Our customers know that they can pick up the phone and call us and get right to the top as needed if things need to be resolved. So that's kind of what we do. Do you have any other? Yeah, go ahead. I was just going to say that's helpful. Having watched the company over the years, the relationships, I think, come through. But the other thing that we've seen over the years, as you go, as Bel has gone through the cycles and that so many component companies go through, what stands out, and to your credit, I think to the company's credit, operationally, you've made some real improvements that have allowed margins to hold up pretty well in this environment. Tell us maybe about some of the benefits that we've seen and what we might see going forward from some of these cost actions. But certainly, it's helped preserve the margins in the business during this weak top-line environment, hasn't it? Yeah, yeah, for sure. No, it's been quite the journey over the last four years, as I think we can all attest to. So just to highlight some of the areas that we've worked on for those that might not be as familiar with our story. So back in 2021 is when Farouq joined the team as our first CFO, and he came to us from the outside, from the investment banking background. And I think it was evident when Farouq first came on board that we didn't have a lot of data within the company. I mean, it was there, but it wasn't available to us in a quick, timely fashion. It didn't allow us to run the business with data at our hands quickly. So by mid-2021, we had, for the most part, completed our ERP system implementation. So over the years, we had done all of these acquisitions. We had six or seven different ERP systems. We were able to consolidate them down onto a common system. And by the end of 2021, we finally had things like SKU-level profitability. I remember when Farouq first joined, that was maybe his second question was, "Can I see SKU-level profitability?" And we didn't have it. Sure, it was in the bowels of the system somewhere, but there was no report to quickly get it and use it as a tool to manage the business. So once we had that data available, we very quickly pivoted to the mindset of having to measure to manage. So we just started measuring everything and setting targets and really holding people accountable to those metrics. Having that quick data visibility, it just gave us a way to kind of put out standardized metrics across all of the segments, just holding people accountable to the same set of standards. That was one. From there, it was really this cascading series of events. We've gone through a set of facility consolidations. The first, there are six in total. Most of them are now complete. A lot of the larger ones happened in China. But we had some in the U.S. and the U.K. The sixth one is underway right now. That's a facility in the U.S. With these facility consolidations, it's really enabled us to do a few things. Not only have there been overhead cost reductions, but we've been able to introduce operational efficiencies and lean initiatives. We've been able to introduce additional CapEx to increase automation in our factories, right? When you're so spread out, the CapEx, it doesn't have the same ROI, right? If you have to buy three machines at three different sites, now that you're all under one facility, you can buy a single machine and the ROI makes more sense. So we're leaning a lot more into automation. Just our headcount alone has gone down 30% in the last couple of years with all of these initiatives. In addition to that, we've been doing a lot of focus on our sales process and procurement. So as we announced in the last couple of months, we just brought on board our first global head of sales and our first global head of procurement and contracts. So those are two positions at the corporate level that just didn't exist in the past. So we're focusing on kind of the broader business and how we're managed. I think lastly is there's been this focus over the last couple of years on making sure that people are compensated for the work that they do. So in the past, we never had a sales commission program. So that's something that went in place at the beginning of 2024. So now we have a sales group that's incentivized to sell and to sell things that are profitable. So it's just a change in mindset. We also had an overhaul on the executive compensation to something that's more pay-for-performance, which we've outlined in our proxies. We've done things like revamping our whole European sales team. So we've done a lot of work on people and processes, but it's all data-driven. So it's just a real change in mindset and culture, which you now see kind of flowing through the financials, right? And I mean, I think we've shown that over the last few years, we've made these huge improvements in our margin profile. And they've been sustainable even in times of challenging top-line environments. And it's because there's been a change in mindset and a change in how the business is being managed. So I think just to wrap up on this one, your question on how much is left, I think a lot of the heavy lifting is complete at this point. I mean, we'll always be looking at our global footprint, looking to implement operational efficiencies, making sure that things make sense. But I think it'll be more things around the fringes at this point and that a lot of the larger initiatives have either been complete or are currently underway. Great. Farouq, if we think about capital deployment, what are the priorities going forward? You added some debt to the balance sheet with the acquisition. Is the near-term plan just to pay down debt? How are you thinking about share repurchase and potentially additional M&A as Enercon is integrated? Yeah, I think for the time being here, given the interest rate environment maybe changed a little bit, that may be what we had thought back in November. Obviously, we're seeing a little bit less potential cuts in 2025. We'll see what the tariffs does on inflation and how everybody reacts to that. Obviously, there's some mixed data, some positive that came out earlier this week, but a little bit of wait and see. But what we do know for a fact is we have a refi coming up. I think we'll probably launch it in July or August timeframe before we build out our current facility. So to set ourselves up there for the most favorable terms, similar to what we did back in 2021. And obviously, there are a lot of terms that go around the interest rate side of it. So we want to try to make a decent headway on the outstanding amount of debt that we do have. So I think for the near term is let's get ourselves in a position to get a really good deal done and set us up for the next phase of that credit deal. So in the meantime, we're going to be focused on paying that down here for, call it, the next six months or so. And then we'll revisit. We obviously have still some authorization left on the buyback that we put a little bit on pause. We'll keep that on pause a little bit. In terms of your question on M&A, we know that we were in a net cash position today. We're finding ourselves in a net debt position. Nothing too egregious or crazy in terms of the valuation side. So I would say we still have M&A appetite for M&A, but we also understand that we have a little bit less capacity today than we did yesterday. So we're going to be a little bit more picky with it and probably at a different scale for the near term here. So we kind of know where the boundaries are a little bit more given that we did put on some debt on our balance sheet that we haven't had. So that's how we tend to think about that. And obviously, CapEx is still pretty critical for us as we automate against the backdrop of rising wages globally. I know you can't be specific, but as you do look and go forward at some point and revisit M&A areas that might be of interest, because Enercon came out and it was a little surprising to us, but certainly looks like a great acquisition in terms of the margins. But just in general, areas that might be of interest. Yeah. So similar to kind of what we were talking about earlier, we like in markets that we can compete and have had history of doing it. So as we think about defense and rail and space and commercial air, right, these are kind of natural things. I would say what we're not necessarily looking to change. We like our geographic mix, right? We have, especially with Enercon, some 10% exposure to Asia. We're really heavy in North America, Europe, and now Israel. So we like that geographic mix. Distribution now goes down a little bit more as a slice of the pie. So that's okay. We're not looking to get into consumer and auto at this point. So we kind of naturally look at the other stuff. So we like geographic. We like our go-to-market OEM versus distribution. I think maybe one of the things, obviously, back to create a little bit more harmony in the portfolio today, power is over 50% of our product group. So maybe a little bit more rebalance wouldn't be a bad thing. Ultimately, you don't get a lot of choice. But obviously, on the math side of it, so margin, additive, accretive out of the gate, or we can get there on our own prerogative pretty quickly, kind of like we saw with RMS back a few years back. So ultimately, we want something that's additive to our story top-line and bottom-line within the boundaries of end markets that we like and go-to-market and geography. It's kind of the way we think about it. Terrific. I think we're going to have to end it there. Farouq, thank you. Lynn, thank you. Thanks for joining us at the Needham Conference today. Great. Thank you.