BEL FUSE INC /NJ

Previous wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

We design, manufacture and market a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the defense, commercial aerospace, networking, telecommunications, computing, general industrial, high-speed data transmission, transportation and eMobility industries. Bel's portfolio of products also finds application in the automotive, medical and consumer electronics markets.

Current wording

We design, manufacture and market a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the defense, commercial aerospace, networking, telecommunications, computing, general industrial, high-speed data transmission, transportation and eMobility industries. Our portfolio of products also finds application in the automotive, medical and consumer electronics markets.

Previous wording

We operate through three product group segments. In the three months ended March 31, 2025,54.6% of our revenues were derived from Power Solutions and Protection, 33.3% from our Connectivity Solutions and 12.1% from our Magnetic Solutions operating segment.

Current wording

We operate through three product group segments. In the six months ended June 30, 2025,53% of our revenues were derived from Power Solutions and Protection, 34% from our Connectivity Solutions and 13% from our Magnetic Solutions operating segment.

Previous wording

Our operating expenses are driven principally by the cost of labor where the factories that we use are located, the cost of the materials that we use and our ability to effectively and efficiently manage overhead costs. As labor and material costs vary by product line and region, any significant shift in product mix can have an associated impact on our costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include materials, labor cost and fringes and related allocations of factory overhead. Our products are manufactured at various facilities in the United States, Mexico, Dominican Republic, United Kingdom, Slovakia, India and the People’s Republic of China (PRC).

Current wording

Our operating expenses are driven principally by the cost of labor where the factories that we use are located, the cost of the materials that we use and our ability to effectively and efficiently manage overhead costs. As labor and material costs vary by product line and region, any significant shift in product mix can have an associated impact on our costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include materials, labor cost and fringes and related allocations of factory overhead. Our products are manufactured at various facilities in the United States, Mexico, Dominican Republic, United Kingdom, Slovakia, Israel, India and the People’s Republic of China (PRC).

Previous wording

We believe that in addition torecent global tariffs and inflationary pressures on the costs of goods and services in general, and ongoing conflicts/political unrest includingin or near the countries in which Bel operates, the key factors affecting and or potentially affecting our results for the three months ended March 31, 2025 and/or future results include the following:

Current wording

We believe that in addition torecent global tariffs and inflationary pressures on the costs of goods and services in general, and ongoing conflicts/political unrest includingin or near the countries in which Bel operates, the key factors affecting and/or potentially affecting our results for the six months ended June 30, 2025 and/or future results include the following:

Previous wording

Our revenue and gross margin by operating segment for the three months ended March 31, 2025 and 2024 were as follows:

Current wording

Our revenue and gross margin by operating segment for the three and six months ended June 30, 2025 and 2024 were as follows:

Previous wording

Sales of our Magnetic Solutions products increased by$4.9 million (36.1%) during the three months ended March 31, 2025, as compared to the same period of 2024. Demand for our Magnetic Solutions products from our networking customers and through our distribution channels has been the primary driver of the sales increase. Recent facility consolidations in the PRC, diligent cost management, product mix, and afavorable exchange rate with the Chinese renminbi versus the U.S. dollar, were the primary drivers of gross margin improvement for this product group during the first three months of 2025 as compared to the first quarter of 2024.

Current wording

Sales of Magnetic Solutions products increased by $5.5 million (32.5%) in the second quarter of 2025 and $10.4 million (34.1%) in the first half of 2025 compared to the same periods in 2024. This growth was primarily driven by higher demand from networking customers and increased sales through distribution channels. Gross margin improvements for this product group during the first half of 2025 were supported by recent facility consolidations in the PRC, effective cost management, and beneficial exchange rates between the Chinese renminbi and the U.S. dollar.

Previous wording

Cost of sales as a percentage of revenue for the three months ended March 31, 2025 and 2024 consisted of the following:

Current wording

Cost of sales as a percentage of revenue for thethree and six months ended June 30, 2025 and 2024 consisted of the following:

Previous wording

Material costs as a percentage of sales during thethree months ended March 31, 2025 were higher comp ared to the first quarter of 2024, due to a shift in product mix accompanying the increase in sales of our Power products, which generally have a higher material content. Labor costs in the 2025 period as a percentage of sales have increased compared to the first quarter of 2024 due to the increase in sales of our labor-intensive Magnetic products during the 2025 quarter coupled with the increase in minimum wage rates described above, partially offset by favorable fluctuations in the Chinese renminbi and Mexican peso exchange rates versus the U.S. dollar.

Current wording

Material costs as a percentage of sales increased during the three and six months ended June 30, 2025, compared to the same periods in 2024, primarily due to a shift in production mix driven by higher sales of Power products, which typically have greater material content. Labor costs as a percentage of sales also rose in the 2025 relative to the comparable 2024 periods, reflecting increased sales of labor-intensive Magnetic products and higher minimum wage rates, partially offset by favorable exchange rate fluctuations in the Chinese renminbi and Mexican peso versus the U.S. dollar.

Previous wording

The other expenses noted in the table above include fixed cost items such as support labor and fringe, depreciation and amortization, and facility costs (rent, utilities, insurance). While our legacy expenses remained relatively steady, the period-over-period percentage of other expenses as a cost of sales has decreased during the three months ended March 31, 2025 relative to the corresponding 2024 period, due to the higher sales volume in the 2025 period presented as compared to the same period of 2024.

Current wording

Other expenses, including fixed costs such as support labor and fringe, depreciation and amortization, and facility costs (rent, utilities, insurance), remained relatively stable aside from the inclusion of Enercon's overhead expenses in the 2025 periods. However, as a percentage of sales, these expenses decreased during the three and six months ended June 30, 2025, compared to the same periods in 2024, benefiting from higher sales volumes in the 2025 periods.

Previous wording

SG&A expenses were $29.5 million for the first quarter of 2025, an increase from $24.9 million in the first quarter of 2024. The increase was primarily driven by Enercon SG&A expenses which amounted to $6.0 million. This overall increase in SG&A expenses was partially offset by a $1.4 million reduction in Legacy-Bel related to an adjustment in variable compensation in the first quarter of 2025 compared to the first quarter of 2024.

Current wording

SG&A expenses totaled $30.9 million in the second quarter of 2025, an increase of $6.8 million compared to $24.1 million in the second quarter of 2024. For the six months ended June 30, 2025, SG&A expenses rose to $60.4 million, up from $49.1 million in the same period of 2024. The increase was primarily driven by Enercon's SG&A expenses, which contributed $6.0 million in the second quarter of 2025 and $11.9 million for the first half of 2025. This was partially offset by a $0.6 million reduction in expenses of the legacy Bel business, stemming from an adjustment in variable compensation during the six-month period ended June 30, 2025, compared to the same period in 2024.

Previous wording

The Company incurred interest expense of $4.2 million and $0.4 million in the three months ended March 31, 2025 and 2024, respectively. The increase of $3.8 million from the first quarter ended March 31, 2024 was primarily due to the higher level of outstanding borrowings under the Company's Credit Agreement due to the Enercon acquisition (see Note 3, “Acquisition” for additional details). See "Liquidity and Capital Resources", below, and Note 11, "Debt" for further information on the Company's outstanding debt.

Current wording

Interest expenses were $4.0 million for the three months ended June 30, 2025, compared to $0.4 million for the same period in 2024. For the six months ended June 30, 2025, interest expenses totaled $8.1 million, up from $0.8 million in the same period of 2024, reflecting increases of $3.6 million and $7.3 million for the three- and six-month periods, respectively. These increases were primarily driven by higher outstanding borrowings under the Company's Credit Agreement, including those incurred to finance the Enercon acquisition and related costs (refer to Note 3, "Acquisition" for additional details). For further information on the Company's outstanding debt, see "Liquidity and Capital Resources" below and Note 11, "Debt."

Previous wording

The provision for income taxes for the three months ended March 31, 2025 and 2024 was $5.5 million and $4.5 million, respectively. The Company’s earnings before income taxes for the three months ended March 31, 2025 were $3.4 million higher when compared with the first quarter of 2024, primarily attributable to an increase in income from the Europe and Asia regions, offset by a decrease in the North America region. The Company’s effective tax rate was 23.0% and 22.0% for the three months ended March 31, 2025 and 2024, respectively. Our tax rate for the first quarter of 2025 remained relatively consistent compared to the first quarter of 2024, affected by rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions. See Note 12, “Income Taxes”.

Current wording

The provision for income taxes for the three months ended June 30, 2025 and 2024 was $6.9 million and $4.1 million, respectively. Earnings before income taxes for the three months ended June 30, 2025 increased by $10.8 million compared to the same period in 2024, primarily due to higher income from the Europe and Asia regions, partially offset by a decrease in income from the North America region. The Company’s effective tax rate for the three months ended June 30, 2025 was 20.5%, compared to 17.8% for the same period in 2024. The increase in the effective tax rate was primarily driven by a reduction in the tax benefit from the reversal of uncertain tax positions due to statute expirations, as well as changes in foreign taxes and the relative amounts of income earned in those jurisdictions. See Note 12, “Income Taxes.”

Previous wording

Our principal sources of liquidity include $65.9 million of cash and cash equivalents at March 31, 2025, $1.0 million of held to maturity investments in U.S. Treasury securities, cash provided by operating activities and borrowings available under our credit facility. We expect to use this liquidity for operating expenses, investments in working capital, capital expenditures, interest, taxes, lease and purchase obligations, pension benefit obligations, dividends, purchases of common stock under our Repurchase Program, and debt obligations and other long-term liabilities. Our liquidity may also be utilized to fund potential acquisitions in future periods, as well as potential future cash requirements related to the Enercon acquisition, including potential Earnout Payments that may become due and the put-call options under the Enercon shareholders agreement, pursuant to which Bel has the current intention to purchase the remaining 20% interest by early 2027. See the “Liquidity and Capital Resources” discussion appearing in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. We believe that our current liquidity position and future cash flows from operations will enable us to fund our operations, both in the next twelve months and in the longer term.

Current wording

Our principal sources of liquidity include $59.3 million of cash and cash equivalents at June 30, 2025, cash provided by operating activities and borrowings available under our credit facility. We expect to use this liquidity for operating expenses, investments in working capital, capital expenditures, interest, taxes, lease and purchase obligations, pension benefit obligations, dividends, purchases of common stock under our Repurchase Program, and debt obligations and other long-term liabilities. Our liquidity may also be utilized to fund potential acquisitions in future periods, as well as potential future cash requirements related to the Enercon acquisition, including potential Earnout Payments that may become due and the put-call options under the Enercon shareholders’ agreement, pursuant to which Bel has the current intention to purchase the remaining 20% interest by early 2027. See the “Liquidity and Capital Resources” discussion appearing in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. We believe that our current liquidity position and future cash flows from operations will enable us to fund our operations, both in the next twelve months and in the longer term.

Previous wording

During the three months ended March 31, 2025, our cash and cash equivalents decreased by $2.3 million. This decrease was primarily due to the following:

Current wording

During the six months ended June 30, 2025, our cash and cash equivalents decreased by $9.0 million. This decrease was primarily due to the following:

Previous wording

During the three months ended March 31, 2025, our accounts receivable decreased by $8.2 million due to the lower sales volume of the legacy-Bel business in the first quarter of 2025 as compared to the fourth quarter of 2024. Days sales outstanding (DSO) was 61 days at March 31, 2025 and 68 days at December 31, 2024. Inventory increased by $2.5 million at March 31, 2025 compared to December 31, 2024, primarily driven by an increase in raw materials and work in progress, partially offset by a decline in finished goods. Inventory turns were 2.1 at each March 31, 2025 and December 31, 2024.

Current wording

During the six months ended June 30, 2025, our accounts receivable increased by $8.2 million due to higher sales volume in the second quarter. Days sales outstanding (DSO) was 66 days at June 30, 2025 and 68 days at December 31, 2024. Inventory increased by $0.1 million at June 30, 2025 compared to December 31, 2024, primarily driven by an increase in raw materials and work in progress, partially offset by a decline in finished goods. Inventory turns were 2.2 at June 30, 2025 as compared to 2.1 at December 31, 2024.

Previous wording

Cash and cash equivalents, held to maturity U.S. Treasury securities and accounts receivable comprised approximately 18.1% and 19.0% of our total assets at March 31, 2025 and December 31, 2024, respectively. Our current ratio (i.e., the ratio of current assets to current liabilities) was 3.3 to 1 at March 31, 2025 and 2.9 to 1 at December 31, 2024. At March 31, 2025 and December 31, 2024, $44.6 million and $48.4 million, respectively (or 68% and 71%, respectively), of our cash and cash equivalents was held by our foreign subsidiaries. We repatriated $5.5 million from outside of the U.S. during the three months ended March 31, 2025. We continue to analyze our global working capital and cash requirements and the potential tax liabilities attributable to further repatriation, and we have yet to make any further determination regarding repatriation of funds from outside the U.S. to fund our U.S. operations in the future. In the event these funds were needed for our U.S. operations, we would be required to accrue and pay U.S. state taxes and any applicable foreign withholding taxes to repatriate these funds.

Current wording

Cash and cash equivalents, held to maturity U.S. Treasury securities and accounts receivable comprised approximately 19.0% of our total assets at each June 30, 2025 and at December 31, 2024. Our current ratio (i.e., the ratio of current assets to current liabilities) was 3.1 to 1 at June 30, 2025 and 2.9 to 1 at December 31, 2024. At June 30, 2025 and December 31, 2024, $45.1 million and $48.4 million, respectively (or 76% and 71%, respectively), of our cash and cash equivalents was held by our foreign subsidiaries. We repatriated $15.0 million of funds from outside of the U.S. during the six months ended June 30, 2025. We continue to analyze our global working capital and cash requirements and the potential tax liabilities attributable to further repatriation, and we have yet to make any further determination regarding repatriation of funds from outside the U.S. to fund our U.S. operations in the future. In the event these funds were needed for our U.S. operations, we would be required to accrue and pay U.S. state taxes and any applicable foreign withholding taxes to repatriate these funds.

Previous wording

We expect foreseeable liquidity and capital resource requirements in the ordinary course to be met through existing cash and cash equivalents, held to maturity investments in U.S. Treasury securities and anticipated cash flows from operations, as well as borrowings available under our revolving credit facility, if needed. Our material cash requirements arising in the normal course of business are outlined in Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. There were no material changes to our future cash requirements during the three months ended March 31, 2025.

Current wording

We expect foreseeable liquidity and capital resource requirements in the ordinary course to be met through existing cash and cash equivalents and anticipated cash flows from operations, as well as borrowings available under our revolving credit facility, if needed. Our material cash requirements arising in the normal course of business are outlined in Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. There were no material changes to our future cash requirements during the six months ended June 30, 2025.

Previous wording

The Company had $45 million of available borrowings under its revolving credit facility at March 31, 2025, as further described below and in Note 11, "Debt". There are no mandatory principal payments due on the credit facility borrowings during 2025. The current balance of $280 million is due upon expiration of the credit facility on September 1, 2026. Anticipated interest payments due amount to $23.9 million, of which $12.6 million is expected to be paid in 2025 based on our debt balance and interest rate in place at March 31, 2024. At March 31, 2025, we were in compliance with our debt covenants, including the most restrictive covenant, the Fixed Charge Coverage Ratio. The unused credit available under the credit facility at March 31, 2025 was $45.0 million, all of which we had the ability to borrow without violating our Leverage Ratio covenant based on our existing consolidated EBITDA.

Current wording

The Company had $150 million of available borrowings under its revolving credit facility at June 30, 2025, as further described below and in Note 11, "Debt". There are no mandatory principal payments due on the credit facility borrowings during 2025. The current balance of $250 million is due upon expiration of the credit facility on September 1, 2028. Anticipated interest payments due amount to $47.4 million, of which $7.5 million is expected to be paid in 2025 based on our debt balance and interest rate in place at June 30, 2025. At June 30, 2025, we were in compliance with our debt covenants, including the most restrictive covenant, the Fixed Charge Coverage Ratio. The unused credit available under the credit facility at June 30, 2025 was $150 million, all of which we had the ability to borrow without violating our Leverage Ratio covenant based on our existing consolidated EBITDA.