Bel Fuse Inc. (BELFA) Earnings Call Transcript & Summary

Greetings, and welcome to the Bel Fuse First Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jean Marie Young with Three Part Advisors. Please go ahead, Jean.

Thank you, Darryl, and good morning, everyone. Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations and reflect the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties and other factors. These material risks are summarized in the press release that we issued after market close yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of the website. Joining me today on the call is Dan Bernstein, President and CEO; Farouq Tuweiq, CFO; and Lynn Hutkin, Vice President of Financial Reporting and Investor Relations. With that, I'd like to turn the call over to Dan. Dan?

Thank you, Jean. We are pleased with our first quarter results, which were in line with our expectations for the quarter. Our recent acquisition of Enercon continued to perform well and has helped to further diversify Bel from our end markets and geographic perspective. During the first quarter of 2025, the aerospace and defense or A&D end markets accounted for 38% of our global sales, making it our largest end market segment. Other highlights during the first quarter included AI, which contributed to $4.6 million of revenue and space, which contributed $2.3 million of revenue during the first quarter of 2025. This represents double-digit growth within each of these end markets compared to the first quarter of 2024. Other factors impacting the quarter were lower sales into our consumer market related to a banned Chinese supplier, e-mobility and a normalization of sales into our rail end market. We are definitely entering a new challenging phase with the global tariffs. However, based on our diversification strategy, our manufacturing and our product portfolio, I am confident that we will navigate through this. With that, I'm turning the call over to Lynn. Lynn?

Thank you, Dan. From a financial perspective, we observed continued margin expansion when comparing Q1 '25 to Q1 '24. Sales for the first quarter of '25 reached $152.2 million, reflecting an 18.9% increase from the first quarter of '24. The strong performance within our A&D end market and the improvement in sales in our Magnetics segment helped offset the year-over-year decline in our networking, consumer, rail and e-mobility end markets within our Power segment during the first quarter of 2025 compared to the same quarter of '24. Our gross margin improved to 38.6% in Q1 2025, up from 37.5% in Q1 2024, with these profitability gains primarily driven by our Magnetics and Connectivity segments. Gross margin increased by 110 basis points in Q1 2025 compared to Q1 2024. This margin improvement was supported by a favorable product mix and the successful implementation of various cost reduction and efficiency programs. Now turning to our product groups. Sales of Power Solutions and Protection in the first quarter of 2025 amounted to $83.1 million, reflecting a 37.9% increase compared to the same period last year. This growth was largely driven by our new aerospace and defense exposure, which contributed $32.4 million to the Power segment for the first 3 months of 2025. On the consumer side, sales decreased by $2.8 million in Q1 '25 compared to Q1 '24, primarily due to the trade restriction imposed on one of our suppliers in China, as mentioned in our prior earnings calls. Additionally, given e-mobility sales were still robust in Q1 of 2024, we saw a $1.6 million year-over-year decline in this end market in Q1 '25. Sales into the rail end market has started to normalize coming off an unusually strong 2024, resulting in a $1.5 million reduction during Q1 '25 compared to the same period of '24. These declines were partially offset by a $3.8 million increase in sales to our AI customers, bringing total AI sales for Q1 '25 to $4.6 million. Further, circuit protection sales increased by $700,000 in Q1 '25 compared to Q1 '24. The gross margin for the Power segment in the first quarter of '25 was 42.6%, reflecting a decline of 140 basis points from Q1 2024. This decrease was primarily attributed to nonrecurring items that were recorded at a 100% gross margin in Q1 2024. On the plus side, our power gross margins were favorably impacted by appreciation of the U.S. dollar versus the Chinese renminbi during the 2025 quarter. Turning to our Connectivity Solutions Group. Sales for Q1 2025 reached $50.7 million, a decrease of 6.5% compared to Q1 2024. Sales for commercial air applications in Q1 2025 were $12.9 million, which represents a decline of $1.7 million or 12% from Q1 2024. Additionally, sales into the industrial end markets fell by $800,000 compared to the same period last year. On the positive side, Connectivity products sold into defense applications totaled $12.2 million in Q1 2025, an increase of 13% from Q1 2024 and sales into the space end market reached $2.3 million in Q1 '25, up by 15% from Q1 '24. The gross margin for this group was 37.9% in the first quarter of 2025, representing an improvement of 180 basis points from Q1 2024. This margin expansion was largely attributable to operational efficiencies achieved through facility consolidations completed in 2024, along with favorable foreign exchange impacts related to the peso. These positive drivers were partially offset by minimum wage increases in Mexico that took effect in Q1 2025. Lastly, in the first quarter of 2025, our Magnetic Solutions Group recorded sales of $18.5 million, representing a 36.1% increase compared to the first quarter of 2024. This level of growth aligns with expectations discussed during last quarter's earnings calls, where we noted that sales volumes had stabilized, and we were beginning to see a rebound since the second quarter of 2024. The gross margin for this group improved to 24.7% in Q1 2025 compared to 16% in Q1 2024, marking an 870 basis point improvement year-over-year. This increase in margin was primarily driven by the higher sales volume in Q1 2025, as well as recent facility consolidations in China and favorable exchange rates related to the Chinese renminbi compared to Q1 2024. At the consolidated level, across all product segments, our total backlog of orders reached $395.7 million, reflecting an increase of $14.1 million or 4% compared to December 31, 2024. R&D expenses reached $7.2 million in Q1 '25, a higher level compared to Q1 '24, primarily due to the acquisition of Enercon and the inclusion of their expenses. We expect future quarters to generally align with the Q1 '25 expense. Selling, general and administrative expenses totaled $29.5 million, representing 19.4% of sales. Compared to the previous year, SG&A increased by $4.6 million in 2025. Again, the primary factor contributing to this rise in SG&A is the inclusion of Enercon expenses. Within SG&A, increases were seen in legal fees, salaries, fringe benefits and amortization expense, which were largely offset by a reduction in incentive compensation. As there were no unusual items in SG&A during Q1 '25, we believe this level of expense is generally indicative of the expected run rate for future quarters in 2025. Looking at our balance sheet and cash flow, we finished the quarter with $67 million in cash and securities, a decrease of $2 million from the $69 million we reported at the end of 2024. This change was mainly due to the repayment of long-term debt amounting to $7.5 million, $2.8 million spent on capital expenditures and a dividend payment of $829,000. These cash outflows were partially offset by $8.1 million in net cash generated from operating activities. I would now like to turn the call over to Farouq.

Thank you, Lynn. Good morning, everybody. After coming out of a solid and predictable first quarter, we have less clarity as we looked ahead to the second quarter. In order to frame what we are seeing, let's first talk about our base business demand, putting tariffs aside. As we mentioned on our February call, we were largely optimistic entering into 2025 with the growth expected across the business with varying degrees. We said Magnetics was expected to be our largest percentage grower this year, followed by Enercon on a pro forma basis. The end markets of defense, space, AI were all robust and growing. We expected to see a rebound in networking and distribution sales as we went through the year, predominantly in the second half. Year-over-year challenges this year would largely be in our Power segment with tough comps to 2024 for the rail and consumer markets and continued softness in e-mobility. Each of these comments from our February call is still the current state of affairs of our base business. So the good news is, aside from tariffs, there are no changes to report at this time. Now on to the tariff discussion. To provide some broad context, approximately 25% of our consolidated sales are brought into the U.S. from countries outside of the U.S. and therefore, potentially could be subject to recent tariffs. The other 75%, the majority of our business is either manufactured outside the U.S. and shipped to customers located outside of the U.S. or is manufactured in the U.S. for local consumption. Of the 25%, a little over 10% is China, with the balance largely coming from Europe, India, Israel and Mexico, along with a few other places. Keep in mind that even these imports are not all equal, and certain of our products imported into the U.S. come through various trade advantage zones. For example, our Mexico products are covered under the USMCA trade agreement, and these are currently exempt from tariffs. A similar trade agreement exist between the U.S. and the Dominican Republic and the Caribbean border nations. However, those do appear to be subject to tariffs today. Even as it relates to imports from China, certain of our customers who are the importers of record operate within free trade zones in the U.S. and therefore, can receive product into the U.S. and ship it back out of the U.S. all on a tariff-free basis. As we look at the road ahead on trade, we view tariffs in 2 separate buckets, China and everybody else. China is its own concern as we all know about. So we leave that at that. As for the rest, we feel clarity will come in Q2 as agreements are reached with friendly nations such as India and Israel. The bottom line is, we will be looking to pass all tariff exposures onward. As of today, we have started to see push out request from some customers related to products coming into the U.S. from China, specifically until there is further clarity. We believe our second quarter will likely be the most impacted as customers remain in a holding pattern, while the administration works out the individual trade deals. In yesterday afternoon's earnings release, we noted a revenue guide for Q2 of a range from $145 million to $155 million. Given the information we have as of today, this is our best estimate of where the quarter will land based on underlying demand and taking into account some potential downside related to tariffs. Please keep in mind, this is a highly dynamic and changing environment that we are working closely with our customers to navigate. Today, we are better prepared to deal with these uncertain times as we have built a more nimble and resilient organization in recent years, including us starting to move some products from China into our India operations mid to late last year and expect to do more so as time goes on. While tariffs do create uncertainty, they also do create an opportunity for us and we will be looking for it on the sales and procurement side. On the sales front, we aim to develop and grow our Tier 2 customer base as a means of mitigating fluctuations that can happen with our Tier 1 customer volumes. New tools will enable our sales teams to engage in digital data mining and opportunity pipeline tracking. These items, coupled with enhancements our commission structure aim to drive growth within new customers. On the procurement side, a series of initiatives are currently underway. Rising geopolitical tensions are driving tariff increases and trade restriction, reinforcing the need for supplier diversification and regional sourcing strategies. Further, inflationary pressures are resulting in higher wages in the countries in which Bel operates, emphasizing the need for further automation. As we did on the SKU level profitability side a few years back and more recently, our procurement spend will be managed through data analytics and KPI tracking. Cost savings are expected to be realized over the next 12 to 18 months, driven by price negotiation, spend consolidation, identifying alternate suppliers, automation and other cost optimization opportunities. These are all things we are excited about. From a liquidity perspective, this has become more of a focus for us given the Murky near-term outlook. As a reminder, our credit facility is set to expire in September 2026 and our plan was to refinance the facility during the summer of 2025 to ensure a new arrangement was in place prior to the current facility going into a current liability classification. Given the current macro environment and uncertainty of how the market will look this summer, we decided it's best to be more proactive in this regard versus waiting until the summertime. We are currently and we have launched the process of working with our bank group to amend our existing credit facility to increase our capacity under the agreement and to extend the maturity date. We anticipate this will be finalized in the next week or 2. We're focused on debt paydown as well. While we did not pay as much as we had hoped in Q1, only about $7 million, this is understandable and expected as Q1 is a very heavy cash outflow quarter for Bel Fuse due to our various annual payment such as IT licenses, insurance dividend and annual bonuses. To put that in perspective, in April alone, by this coming Monday, Tuesday, we would have paid $10 million down further against our debt and expect to pay down an incremental $10 million to $15 million by end of this quarter, so May and June. In summary, while we are encouraged by our business demand and internal initiatives on the sales and procurement front, the current tariff landscape cannot be ignored. Bel will almost certainly be impacted by it in some way. However, we believe our exposure is contained to a relatively small percentage of our business, especially given the industries in which we operate. While the current levels of China tariffs are unprecedented, tariffs in general are not new to Bel and we have successfully navigated them in the past. Importantly, our business today is more diversified and less dependent on China than it has ever been. We'll continue to take actions within our control to mitigate those factors outside of us. With that, I'll turn the call over to Dan.

All right. Thank you, Farouq. Before opening the call for questions, as this is my last earning call as a CEO, I wanted to take this opportunity to thank all our associates around the world for the tremendous level of hard work and dedication to Bel over these many years. If you think back at the business my father founded over 75 years ago, he would be amazed at what we have achieved together as a team. It's been a true honor to lead such a talented group of individuals during my tenure as CEO. And to the Bel shareholders, thank you for your support and belief in Bel as we grow and continue to evolve and I'm grateful that you have chosen to be part of Bel during this journey. As a large shareholder myself, I'm confident that Farouq and the executive team will do an excellent job. With that, I'd like to turn the call back to Darryl to open up the call for questions.

[Operator Instructions] Our first questions come from the line of Bobby Brooks with Northland Capital Markets.

I just want to say, first, great color on the tariff impact, that's really appreciated. It seems like you guys have really good insulation from it. But I was just hoping maybe could you just discuss it a little bit by product segment between kind of contrasting how maybe Magnetics power and Connectivity are separately impacted. Maybe it is all the same between all 3, but I feel like there's probably a little bit divergence between the 3.

Sure. Bobby, this is Lynn. So by product segment, I guess let's first start with Connectivity. The vast majority of Connectivity is not impacted by the U.S. tariffs. They do the majority of their manufacturing in the U.S. and in the U.K. for local consumption in each of those regions. So there's a very small amount of impact there. So largely unimpacted, let's say. On the power side, we estimate that about 60% or thereabouts of power is not impacted by the U.S. tariffs. The balance of power, as you know, there's manufacturing in China, Slovakia, Israel. So a portion of those goods that are manufactured there do come into the U.S. and are currently subject to tariffs. On the Magnetic side, again, it's a similar percentage. About 60% there is not subject to U.S. tariffs. There is a portion that is manufactured in the DR, which, as Farouq mentioned is currently subject even though it is under CAFTA, it still appears to be subject to those 10% tariffs that are in place today. So that's how it breaks down by product group.

Got it. That's super helpful color. And then second, Connectivity the past several quarters has kind of been the bright spot for you guys in terms of like year-over-year growth. So, I was a little surprised to see it down 6.5% this quarter. You did mention that commercial air was down 12% year-over-year. Was that really the primary driver of this decline? Just was hoping to get more color on that decrease and maybe how you think that dynamic evolves going forward?

Yes. So on the Connectivity side, the year-over-year decline was largely driven by the reduction in commercial air. And a lot of that just has to do with timing where their production levels are still down a bit. So that was the main driver. There was also some softness in the industrial area. But the balance of the segment was still strong and defense was up year-over-year. So I would say largely commercial air was the driver there.

And I think, Bobby, based on all the public comments that's out there, right, is there's that hope and expectation of continuing to ramp up the outputs as we go through the year and we see some of the requests coming into the FAA. The other thing keeping in mind that things kind of went on pause back in the fall time frame, with all the union negotiation. So all that's going to bring work on the system. I think when we look at the outlook and the backlog, we definitely expect this to recover, but just happen to play out here this way.

Fair enough. That makes a lot of sense. And then maybe last one for me. Obviously, you guys gave some pretty good nominal color on the AI benefits. It was like $4.6 million in the quarter, right, and that was up double digits year-over-year. Could you maybe just rehash for us, I think it would be helpful for everybody on the call to get reminded of, it's my understanding it's really the Power segment that is seeing that AI benefit. And could you just discuss like who these -- I know sometimes you don't have visibility because it's going through distribution, but any visibility you can have on like the type of AI customers and ultimately, what those products are being used for in the AI space, that would be helpful.

Yes. So Bobby, appreciate the question. And as you called it out, right, when we call out AI, we think of that as the floor because above that, some of our other products will make their way into AI-type applications through various channels, including some of our networking customers. So when we talk about AI, this is kind of undoubtable floor base case, if you will. And that revenue is largely going to GPU manufacturers. Now I want to be very careful with saying that because we are not aligned to the kind of headline grabbing guys, that are large public companies that we all read about. We are focused generally on more private, heavily funded next-gen type GP manufacturers in the U.S. largely. So -- and that's how really a testament to how Bel does things very well, which is we do a lot of hand -- handholding with our engineers, our customer engineers, we co-develop, and we become a true partner to them throughout their journey of growth. So in short, I would think of these as GPU manufacturers.

Super helpful color. Appreciate the call and congrats on the strong 1Q print. And Dan, cheers to the next step in your career.

Our next questions come from the line of James Ricchiuti with Needham & Company.

Hey, Dan, I'll echo my congratulations as well, wish you the best. Farouq and Lynn, couple of questions. I'm wondering if you could talk about the Enercon business, what you're seeing in that business? Maybe including, yes, if you can, the change in the business, the growth of the business on a pro forma basis year-over-year since we don't have a lot of experience with it for the March quarter.

Yes. So I'd say, Jim, it's kind of -- it is what it is. It's what we thought it was, which is all good, right?

Hey, we think it's better than what we thought it was a lot, don't want to sell, don't want to sell, Farouq that one.

Yes. No, it's a great business. It's interesting because Dan and I and [ Steve ] were just in Israel, the first -- roughly the first week in April. So we're kind of up to date there. But as you remember, Jim, we initially talked about this back in September, then we closed it in November. We talked about it in February and here we are again. And I think the theme of all throughout all these conversations is continued robustness and growth, excellent, excellent team, technology, alignment with customers, financial profile is kind of the growth side of things, the margin profile. So to Dan's point, we're very excited about having the team. And also, as we just think about on the Bel side of things, right, today, as Dan said, A&D is roughly 38% of our business in the quarter. So it's our largest market, good tailwinds and obviously, as Enercon is both suppliers into U.S. and Israel and some other places such as the Europeans and India. So we continue to be very excited about that. We also do see the opportunity to further accelerate that growth in places like Europe and in America. So there's a lot of exciting kind of things for us. So it is at a minimum as advertised, but it's roughly ahead for us, which is great. Dan, do you want to add to that? Or is that about cover?

I think, again, we do -- we were surprised again how much we do like it. We tend to be somewhat hesitant. And I think there's a lot of things going on at this time that they're looking outside the box that we don't want to discuss because it's too initial, but they are looking at a lot of exciting opportunities that personally we didn't have in our own house. So we think the future is very, very strong for them, and we just see a lot of upside. So I think it's a great deal for the company and our shareholders. And the price we paid was a very -- as you know, a very excellent price compared to what was being sold in the marketplace today.

And maybe a little early, and Farouq, you may have alluded to this in the answer you just gave, but are you seeing any revenue synergy opportunities yet? Or is that something you anticipate coming later on?

Yes. No, so remember it, putting aside, that is all defense, right, which takes a little bit of a while. So really it starts out with filling up the funnel in, let's call it, new opportunities. So as we think about the funneling process, we definitely see some of the benefits of flagging thing, let's say, between the Enercon folks and the Bel Fuse folks. And we have a program in place to kind of really push this to ensure that our sales teams and our business development market intelligence folks are aligned. So as we see about filling in the funnel, right, beyond what was already in the funnel, right, just the benefit of synergies, we are definitely seeing some of those opportunities. And we have referred some of these opportunities to each other, if you will. So we're definitely excited. But in terms of monetization, this is a little bit of a longer design cycle, but step one, fill up the funnel, which we are seeing and doing, which is good to see. And then when we do look at the underlying fundamentals of what's going on in broader defense, things are moving quicker just given the global world that we're living in today. So we think that potentially be an accelerant than base normal times, right? So I think we are in a good market, in a good time and we have the right team around the table. So I think all that should yield pretty good outcomes for us.

Got it. Final question for me is just, I think last call, you talked about a couple of facility consolidations and the product transition line of the fuse line in China. Any update and any other plans for consolidation or changes in the footprint, just given what we're seeing out in the market?

Yes. It's a good question there, Jim. So correct, we are fully out of the Fuse, and we have a fully empty facility. I think we're out of there in the first maybe a week or 2 in January. So that's another one that we say we're fully out. Now we're just in the process of winding that out from a entity and a building perspective. So that's good to see and we're seeing the clean-up in that operational structure, which is great to see. In terms of operations, everything is kind of proceeding on, nothing new to announce, maybe just to extend your question there a little bit, and I alluded to it into my comments. Obviously, there's China and there's everybody else in this day and age that we're living in. And we had started moving some of our products, both on the power and the magnetic side from China into our India facility. Remember, we acquired a India facility there back in 2021 and that's kind of our foothold there into India. So as we started that roughly, I think, Q3 last year to Q4, we're getting the lines up and going and we did that in advance of, obviously, any of the tariffs or even the new administration coming in. So as we look for the rest of the year, we will be looking to shift more, let's call it, at-risk revenue into our India operations. As we said earlier, roughly 10% of our revenue is subject to China and we'll want to move some of that as we can into -- to the extent that we can into other places. So I'd say the team has really done an excellent job on being nimble and forward with along tight partnership with our customers to really try to kind of move these things. And our teams have been great, both in China and India. So that maybe an extension of your question there, Jim, a little bit, but that's not to be stuck as we build a more connected organization globally. We're putting in the plumbing to more dynamically move things across facilities, which is very good in this day and age.

Our next questions come from the line of Christopher Glynn with Oppenheimer.

As much as Farouq added to insight and execution over the past few years, it sounds like, Dan, you're still adding some value to the -- his curve there with the advice on answering Enercon and good luck in the future. I wanted to ask about the $8 million to $10 million allowance there. A couple of things. Do you see that as deferred or migrated from Bel? And hypothetically say, if you think -- if tariffs were maybe cut in half, would that break an impasse? Because it seems like the implication of the allowance is that you're holding price discipline and not willing to eat any tariffs.

Yes. So that's a good question, Chris, right? So what we're seeing is, I'd say, largely maybe the distributors, but also some OEMs as well. And the -- I'm going to put some broad strokes here because there's always obviously exceptions. So, if you're going to take product coming in from China and pay, let's use round numbers, 150% tariff and then the tariff gets resolved for, let's say, in a month, then all of a sudden, you have this really expensive product, right, that you have paid for to bring it into the U.S. And then how do you sell that, right, if now the gates of cheaper products or lower tariffs come in. So as people wrestle with having expensive goods coming in, that's one piece of it. So we're seeing a few folks just say, listen, let's just take a breather hair. I got some componentry in the inventory. Let me chew into that inventory just until we get a little bit of clarity. So to your question, well, what happens? Yes, I think there's a few different outcomes. One, people really go deep into their inventory and becomes over depleted and then all of a sudden, you could potentially start getting this, let's say, makeup ordering or acceleration of ordering, so more of a push out type approach. So that is a possibility. The other possibility is it's also going to depend on, well, what happens with some of this great trade zone that we keep hearing about and what happens to the others, right? So to put in perspective, India today is at 27%, I believe, right? So if today it's 150% tariff versus 27%, that's a pretty big difference. But if India goes to 0 and China comes down to 40% or 50%, I think you might be back into the same game because there's a lot of efficiencies to be gained in places like China. So it's hard to just look at China because we've got to look at what happens to everybody else. I would say some of the other locations globally got hit a lot harder, including Vietnam and Thailand, which are not necessarily places for us. So could it be this is a push out or a pause? Yes. Could it be you get a -- I don't want to say a flood gate, but a make-up orders, if you will? Sure. Could you also lose some of this revenue? I'd say maybe, yes, in more of our commodity consumer business, but some of our other business, I'd say it's a little bit more sticky. So the answer is yes, we think there could be deferred, if you will. The question is when and how long. And that's why I said earlier, I think Q2, as we think about the rest of the world working out these one-on-one trades with the Trump administration, we think there'll be a lot of clarity in May and June and the dust will settle. And I think it sounds like the public chatter, I think there's mixed messages on what's going on with China, but we are seeing potentially some people trying to get to something. So I think people are just saying, let's just take a breather here unless I absolutely need it, and it could be deferred.

Great. And just wanted to dive into the networking market a little bit. I think we have a good glimpse of how that is playing through at Magnetics with the comparisons and some normalization there. Could you touch on networking as it pertains to the other 2 segments, please?

Sure. So on the power side, when we look at networking, and we'll carve out AI from that, right, because we talked about AI separately. So AI is strong for Power. On the networking side, though, we have seen some downward pressure in networking from last year versus this year. However, we have started to see an increase in bookings there. So it does seem to be coming back later this year. But in Q1, networking was down. So that's an area of rebound that we're still waiting to come back. And then on the Connectivity side, there is a little bit of networking in there, but Connectivity is largely A&D, industrial and with a portion of it going through distribution. So it's not as much networking exposure in Connectivity.

And I think, Chris, it dovetails with our expectation, right? We're seeing kind of the backlog come in. I should say throughout the quarter, in general, we've seen some very nice bookings come through and which kind of reaffirmed kind of what I was saying earlier about our outlook for the year. So -- and then aside from tariff.

Yes. And last one for me, how are you seeing design-in activity in general? Is there any kind of consternation in the pacing relative to trade? Or is it totally separate? And in an absolute sense, how is design-in activity?

I think some things because of COVID, we still have effects of COVID, where basically everybody is focusing on sourcing and so forth. I think it's leveled off now to a certain extent. However, we are pushing it hard. And I think the point of bringing in our new Head of Revenue is really a go-to-market strategy is really focused on what do we have to do to jump start and do a better job than we have done in the past. So as Farouq mentioned, we're taking a whole unique -- different approach for us of how we go to market and the strategy we're using, how to address second-tier and third-tier customers. We're very fortunate to have a person that came to us, came to one of the largest distributors in the world. His revenue was about $1.6 billion, and he oversold over 500 people. So we do have high expectation for him to turn around our strategy on how we go to market going forward. So for us, we think there's still many exciting opportunities out there.

I think that's the overarching view there, Chris, when we kind of lay it into kind of end markets, obviously, AI bucks that trend, right, kind of what Dan talks about and then defense, right? We're seeing some nice stuff there, obviously. And so I think our overarching theme is, I think we're in a good place. But to Dan's point, we want more and we think we're driving to a lot of them. This will be a big year to put down the plumbing for that. But in some areas, just given the dynamics of the world we're in, we're seeing some good stuff. It's interesting. Dan's comments remind me is if you remember on our consumer side, we always talk about that Chinese supplier that got banned in Q2 last year. And when we look at our business within consumer aside from that Chinese consumer, it's actually experiencing really nice growth, which is, I think, a testament to the team. Now it's obviously a smaller dollar amounts, but the growth we're seeing there is from a percentage perspective is very good. And I think some of the shift in the way we're thinking about things, we're seeing some bright spots. But obviously, I think tariff is going to move things a little bit here. But ultimately, we want more going forward.

Our next questions come from the line of Greg Palm with Craig-Hallum.

And Dan would just like to echo my congratulations as well on a very successful tenure in career at Bel.

Thank you so much.

Can we maybe just start on the quarter? It was sort of at the upper end of the guidance. I'm curious, did you see any pull-in of orders ahead of those tariffs?

Yes, not so much this go on. We saw the inverse of that. So I would say no. There might be an exception here and there, but it wasn't a theme for us this quarter.

Okay. And as you kind of think ahead as a reaction to these tariffs, I mean, how quickly can you move manufacturing around into other regions if this becomes a permanent thing? And I guess the bigger question is, what kind of capacity do you have?

Let me just answer. I think the question is to you is where do we move? I think that was the concern, we had 4 years ago. A lot of our competitors, a lot of our customers moved to Mexico or Vietnam. And I know those at this point have been hit very hard. And that's our biggest problem is where do we go and so forth. But we have done a good job of looking -- building a base in India. 4 years ago, we had no operation in India. Today, we have 3 different operations in India. I think we're looking to -- I'm sorry, we're looking for a third. So we really are focused to prepare ourselves to be able to move quickly if it needs to be.

Yes. And I think, Greg, just keeping in mind that our product is -- we're not making stuff and just selling it, right? It comes with audits. Customers have to take a look at it. They got to make sure the facility does what they need it to do. You need customer approvals before you can move facilities in places like defense, that takes very long time in places. So we're not doing kind of the more heavily commodity stuff. So for us, it takes a little bit of while. And as a result of that, we started putting the plumbing in, like I said, into India, right, from back in Q3 last year. The question becomes is, we've always contemplated where do we go in India was a very natural thing. I think we have a very friendly relations with India. And I think ultimately, all the body language indicates that we will work something out. But we have contemplated in the past, looking at places like in Thailand and Vietnam. And when we look at the tariffs, those guys got hit with, it's -- I would say, thank God, we didn't spend all that money moving to those places just to -- I mean, I'm getting with some crazy tariff. So, I think we'll get some clarity on whose -- what nations we're really friendly with and we think India will be in that. And I think that's going to probably be a focus of ours.

And then I guess, lastly, on the AI-related revenue. So that's a pretty big step-up in this quarter relative to the annual in '24. I'm curious, is that a function of current customers ramping up? Is that expansion of new customers? What exactly are you seeing in that particular vertical?

I think it's a combination, I mean it's interesting, right? When we go after these kind of customers and to be clear, to a little bit of a different extent. But when we look at space, for example, right? Obviously, it's been around for a little bit longer, but we've seen kind of that 15% year-over-year growth. And when we looked at e-Mobility before e-Mobility cooled down, right, you align yourself with these customers, you get in early, you design with them. And then as they start ramping up their sales efforts and getting customers, you will see that pretty big step function. So I would look at the AI jump as people we've had a relationship with for a long time. And as they start proving out their technology and selling their technology on the GPU side, we see big steps. So I think what you're seeing right now is we're going through these big steps. I'd say these customers that we speak to are relatively new-ish type companies. And so they're not kind of, like I said, the main headline guys that you read into the newspapers. So these people are, I'd say, they're all new-ish customers. But for us, new-ish means we've been with them for a while. We've talked to, but now new-ish in a sense we start seeing the revenue side of it.

Our next questions come from the line of Theodore O'Neill with Litchfield Hills Research.

Congratulations on a good quarter. So, I was wondering if -- looking at your opportunity set in sort of new products, design wins and new customers, does this change in the environment change the way you focus on those issues?

It's -- we tend to kind of in a very cleeshay manner think about market unsettleness in terms of opportunity. So obviously, as we think about China tariffs, right? So we're going to feel that a little bit on the 10% side, but we also have other competitors out there. So I'm not certainly sure. I think it changes maybe, let's say, our operations. So we've always been focused on operations, where should we be? What should we -- to Dan's point, where do you go? So we're going to get some clarity on that. And we've been already kind of laying on the pipe work into India. So from an operational perspective, sure. I think from a sales perspective, we do think there's opportunities. And in these times, these are the times that we need to be out there supporting our customers and ingratiating ourselves and leading with our minds versus kind of commodities. So, does it change a little bit? Sure. But ultimately, we are a long design cycle business. And if you remember, over 90% of our business, our customers themselves are B2B, right? So businesses will invest and where they're part of the technology solution. So I would say, it changes a little bit, creates opportunity, but we're committed on kind of where we go from here. And again, there has been around since 2018, 2019, right, when -- so it's not a -- now nobody, I think, thought it would escalate to this level, but we do think cooler heads at some point will prevail.

And my last question is, given what's going on in the market, what's the level of activity you're seeing in terms of potential acquisitions?

Yes. So we're redoing our facility to get more capacity. We're focused on now paying down because we think that's just kind of a good thing to do. And one of the reasons is maybe we'll see how the world goes out here but may create opportunity on that side of it. I would say, overall, we started seeing a little bit of a healthier M&A market in Q1. But then as the tariff discussions start taking hold, companies that were going to come out or people that were entertaining a sale kind of went to pause a little bit. I think there's just a lot of wait and see similar to our customers we're seeing in the M&A side. So I would say the M&A market is quiet. It's a wait-and-see approach. So Q2, I would say, we expect it to probably largely quiet. And then we'll see where the rest of the year shakes out, right? But I'd say we were on a good glide path initially from just the overall market activity in Q1 before we kind of hit a little bit of a pause there.

Our next questions come from the line of Hendi Susanto with Gabelli Funds.

And then first of all, to Dan, thank you for all these many years and all the best for your next chapter.

I have to call you up every quarter because I miss you so much.

So my first question is now that we have tariffs and tariff challenges, what is the latest status of inventory correction and expectation on market recovery in some areas that you haven't discussed?

Yes. So kind of -- so there was a 3 tariffs. New consumer be a little bit challenged in later on through the year, but tariff kind of changed some of that. But remember, tariffs, while we've said it's around 25% of our business, it's not all the same. So we kind of look at the 10% coming out of China as the really big question mark and what happens there. The other 15%, I think, is kind of acceptable and some of that's going to kind of really growing into end markets like defense. So I would say of that 15%, there's good market growth and recovery in some areas. It's the China piece that we're waiting to get some clarity on. So I think overall and this is kind of why we repeated what we talked about in February, where we do expect the recovery. So I think we just need to get a little bit clarity on Q2. But ultimately, we think we'll get through it and have a little more clarity heading in. And that's why we called out in our earnings release last night, Hendi, some of the, let's call it, revenue that maybe got impacted with this pause that we're in right now.

And then of the 10% of sales that has exposure, any insight into how much of those where Bel Fuse has a single supplier positions, like Bel Fuse is the only supplier? And then any -- is there also any insight where customers may have multiple suppliers, but all of those have the same challenge. In other words, is everyone is on par with one another, and there's no alternative of like shifting to, let's say, like non-China location?

Yes. I appreciate the question. I'd say it kind of runs the gamut. Some of it is, we're sole source and some of it is multi-source. Some of it is highly engineered custom work that we do and some of it is commodity like some of our consumer stuff. So I would just say it runs the gamut. So that's why even when we do look within that number, it's not one big brush where we could say, okay, it all goes out of the window or all stays, right? So it will be a few different shades of that. To your point about maybe some of the more kind of commodity stuff, could somebody switch buying from, let's say, China to a place in Vietnam? Sure, but it's not like Vietnam today has 0 tariffs, right? So it is a better tariff level, but China has a lot of efficiencies, right? So mathematically, sure, it's lower tariff. But as we think about the efficiency side of things, China still is very, very good into that world. So, will we expect maybe to lose some of that in more commodity stuff? Sure. But I think there's a lot of wait and see just in the market right now because, again, our industry, switching is not the easiest of choices to happen overnight. Generally, there needs to be a little bit of a plan for it.

Yes. And then may I clarify how much exposure Enercon business has to tariff?

Yes. So I would say we do have some of their products that gets shipped in from Israel. So that would get tariff and maybe a couple of other locations as well. But remember, that's all kind of largely defense sole source, right? So that stuff, we are passing it on. I would say that's a high, high, high switching cost. Again, nobody likes paying those, but I think those we feel solid about or more comfortable with.

And the majority, Hendi, there is, as you know, there are a couple of manufacturing facilities for Enercon in the U.S. And part of their production process brings in partially assembled product from the Israel site. So it's largely intercompany. So the tariffs would be at Bel's cost currently. But to Farouq's point, everything goes into defense for the most part.

Got it. Yes. And then this is a hypothetical question like, but let's say, if tariff persist based on how you dealt with tariff in the past, do you foresee negotiation on a customer-by-customer basis? And then do you expect like a quick or like prolonged negotiation? Like what are some lessons learned from, let's say, like negotiation on how to split the tariff with your customers in the past?

Yes. I think I'll give the commentary there a little bit high level, Hendi. But generally, our nature of our business is customer to customer, right? So we're -- so any time we do a purchase order or order or anything, customer to customer. So therefore, we're not just putting something on the shelf and then people come buy them, right? So it's everything we do is really one-to-one. Within those one to one, there's different level of SKUs depending on the customer of what products we're selling, right? So it's -- again, it's hard to paint a broad brush. But generally, our approach is, we are not really in a position to be eating the tariffs. And our industry, broadly speaking and including Bel Fuse did that back in 2018, 2019, and we did operate under those tariffs and the industry has done that. Now it's a different dollar amount to your point. But for us, from a scale perspective, the kind of value engineering that we bring, we're not really in a position to be eating those things. The other thing I would say is roughly 70% of Lynn correct me if I'm wrong, of our imports are coming to U.S., our customer is the importer of record. And what that basically means is, we're delivering the product somewhere, let's say, for example, in Hong Kong, and they're bringing it into the U.S. So they're dealing with the tariffs, right, and so on. So -- and I think that's a pretty important thing. I mean, ultimately, the tariffs are getting paid, but we're not the ones that are standing front and center on that. So again, we realigned our shipping, let's say, routes over the last 2, 3 years to include more of this record of import, importer of record off to the customer versus us getting into the shipping business. So a long way of saying is, it's all one-to-one and our operating mantra, barring any exceptions is to pass it on.

Thank you. This now concludes our question-and-answer session. I would now like to turn the floor back over to Dan Bernstein for closing comments.

Just again, I'd like to thank everybody for following us and I can't tell you how pleased I am to have Farouq aboard and the executive team we put together over the past 2 years. As I said, I'm extremely successful on the future of the company. And once again, I truly want to thank everybody for your support over these years. You made my job a lot easier. So I would say I'd speak to you in a quarter, but I'm not going to speak to you in a quarter. But I will speak to you at the annual meeting if you ever want to come to the annual meeting. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines, and have a wonderful day.