Bel Fuse Inc. (BELFB) Q2 2026 Earnings Report, Transcript and Summary

And all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the call during the conference, please press 0 on your telephone keypad. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead.

Thank you, Dylan, and good morning, everyone. Before we begin, I would like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding our company's expected operating and financial performance for future periods including guidance for future periods in 2026. These statements are based on the company's current expectations and reflect the company's views only as of today which should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties and other factors. These material risks are summarized in the press release that we issued after the market closed yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance, and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission. Including our most recent annual report on Form 10-K and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and a reconciliation of our GAAP results to our non-GAAP results has been included in our press release. Our press release and our SEC filings are all available in the IR section of the website. Joining me on the call today is Farouq Tuweiq, President and CEO, and Lynn Hutkin, CFO. With that, I would like to turn the call over to Farouq. Farouq?

Thank you, Jean, and good morning, everyone. We appreciate you joining our call today. We are excited to have delivered another strong quarter in Q2 led by robustness across the majority of our end markets. And in particular, within data solutions and defense sectors. Our distribution partners have also seen a significant uptick in demand. This trend started earlier in the year and has become more pronounced in Q2 with channel sales at its highest level since mid-2022. Bel completed an equity raise in May, selling approximately 1.7 million shares into the market generating net proceeds of approximately $440 million. The proceeds were utilized to fully pay off our debt with the balance of the cash earmarked to fund the closing of the Enercon transaction in Q1 2027, and to invest in other initiatives to support Bel's growth. As announced last quarter, Bel is now organized under two end-market-based segments. Aerospace defense and rugged solutions or ADRS, and Industrial Technology & Data Solutions or ITDS. Q2 was the first full quarter for us under the new structure, and the team has made nice progress in our segment strategic initiatives. During the quarter, we achieved a notable milestone with Bel's facility in Slovakia gaining the required certification as a defense manufacturer in Europe. We noted on last quarter's call a European defense project win for the Slovakia site. We are excited to report that Q2 marked an additional eight project wins from European defense customers for the site. We anticipate these translating to sales beginning in the latter part of 2027, which is the normal monetization cycle of defense wins. From a people perspective, much of the year has been focused on building the team structure to support our growth. This initiative is across the board from operations and sales to IT finance, legal, and HR. In this area, we made notable progress in Q2. We anticipate having all of the key roles filled by the end of 2026. We have also been doubling down on building out the A&D sales team in Europe and have filled some key positions there as well. We are very excited about these additions. Shifting to what is ahead, it was another strong quarter of bookings across the business. Exceeding our level of sales for the sixth consecutive quarter. Based on the information available today, we are projecting sales for Q3 to be in the range of $205 to $225 million with gross margin in the range of 39% to 41%. Anticipated drivers of sequential growth from Q2 are a continuation of the same trends, defense, data solutions, and an increase in demand from components through our distribution partners. As a point of note, the recent project wins, robust bookings and overall favorable market conditions will enable us to take a fresh look at our product portfolio. In this regard, we anticipate there will be some revenue rotation in the coming quarters whereby higher growth, better-margin business will be emphasized ahead of our larger, lower-margin business and products. We continuously evaluate our business and now have the luxury of focusing on better ROI business. Overall, we are in exciting times. And there continues to be great momentum across the business. I am proud of and thankful for our global team for their collective efforts in pulling together, pushing forward, and achieving another remarkable quarter for our shareholders. And with that, I will turn the call over to Lynn for the financial review.

Thank you, Farouq. From a financial standpoint, we delivered a strong second quarter. We grew revenue, expanded margins and materially improved liquidity. These results increased earnings quality and financial flexibility. In Q2, total sales were $210.7 million, up 25% from the prior year quarter. Growth was broad-based, led by the defense and data solutions sectors, as Farouq mentioned. The increase in sales through our distribution channel was most prominent among our component products, including fuses, integrated connector modules, and RF connectors. Gross margin was 39.9%, up 120 basis points year-over-year. The increase primarily reflected operating leverage from higher volume and improved execution. These benefits were partially offset by higher material costs and unfavorable foreign exchange impacts. Adjusted EBITDA was $48.9 million compared with $35.2 million a year ago. An increase of approximately 39%. Adjusted EBITDA margin increased to 23.2% from 20.9%. This improvement reflects stronger conversion of revenue growth into operating profit. From a segment perspective, ADRS revenue was $111 million, up $18.6 million or 20.6% from Q2 2025. Growth in ADRS was led by defense, which totaled $66.5 million in Q2 2026, a 28.4% increase from Q2 2025. Gains in industrial applications were also strong during the quarter, largely through the distribution channel. These areas of growth were partially offset by a decline in commercial air versus last year. ADRS gross margin was 41.1% compared with 41.4% last year. Higher sales volumes added leverage in the P&L, but those gains were more than offset by foreign exchange and material costs pressures during the quarter. Pricing increases implemented on new orders earlier in 2026 are expected to benefit Q3 and subsequent periods. We are also investing in capital projects and process improvements to increase throughput, efficiency and capacity. Turning to ITDS, revenue for this segment was $100 million, up $23.8 million, or 31.1% year-over-year. Growth was led by sales into the data solutions end market, which was up $20.7 million or 55% from Q2 2025. Higher demand within data solutions includes the beginning of a ramp related to recent project wins in the high-performance computing space. The acquisition of dataMate in March 2026 contributed $4.4 million of sales in Q2 2026 and is included within data solutions. While to a lesser extent, we also saw meaningful growth of sales into industrial and consumer applications, which rebounded nicely through our distribution channel in the second quarter. Strength in these end markets was partially offset by transportation, which declined modestly versus last year. ITDS gross margin was 38.8%, up from 36.6% last year. An improvement of 220 basis points. The increase was primarily driven by favorable product mix and operating efficiencies, including higher volume and improved utilization. These benefits were partially offset by foreign exchange impactss. The weaker US dollar relative to the renminbi increased costs at our Chinese manufacturing locations during the current year period. Turning to operating expenses. R&D was $9 million, up $900,000 year-over-year. The increase was primarily due to higher personnel costs in the 2026 period. SG&A was $36.3 million, up $5.4 million from last year. The increase here was primarily due to higher compensation and benefits and an increase in professional fees. some of which were nonrecurring during the quarter. We expect SG&A to run in the range of approximately $34 million to $35 million in future quarters. Turning to cash flow and liquidity. We ended the quarter with $306.1 million of cash and securities, up from $57.8 million at December 31. This largely resulted from the equity raise completed in May, which generated net proceeds of approximately $440 million. During the second quarter, as Farouq mentioned, we repaid our full debt balance of $197.5 million, resulting in no outstanding debt balance at June 30. This increase in cash materially improves liquidity and our ability to fund growth, manage volatility and pursue strategic opportunities. From a working-capital perspective, we have heavily invested in working capital to support growth through the first half of 2026. Accounts receivable increased $32 million based on higher sales volume. in Q2 2026 versus Q4 2025. Inventories increased $32 million as additional raw materials were procured to accommodate the increase in orders received during the first half of 2026. And accounts payable increased $33 million largely in line with the higher inventory levels. Capital expenditures were $4.9 million during the first half of 2026, We do anticipate a slightly higher level of CapEx in the second half of 2026. We are prioritizing projects expected to improve throughput drive growth, and have a quick ROI. Going forward, we will focus on improving the cash generation cycle through better receivables management and payables planning, We do expect inventory inventory turns to remain challenged in the near-term as we build up our inventory levels to support our growth projections. Longer term, the objective is to convert a greater portion of earnings into consistent free cash flow as the business grows. And with that, I will turn the call back over to Dylan to open the line for questions.

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Pick up your handset before pressing the star keys. One moment, while we poll for questions. Our first question comes from Bobby Brooks with Northland Capital Markets. Please go ahead.

Hey, good morning team and thank you for taking my question. First, was curious to hear more discussion on the Slovakia site gaining the A&D qualification, Because that seems like a very meaningful update for the efforts to grow Enercon product sales within the region. So could you expand on what this means for the long-term strategy? And I think it would also be helpful for folks to remind them of what the Slovakia site was before this.

Yeah, thanks for the question, Bobby, and good to connect with you here. So maybe start backwards from your question. Slovakia, historically, was our industrial power factory, so focus on things like rail and e-mobility. Laser cutting equipment, so kind of very high-power applications on the power side of the business. And we have been in the process of, modifying the facility so that it could also accommodate aerospace- and defense-type applications, from the acquired Enercon business to serve as a storefront for the European market as that market seeks to have more localized content. Obviously, it sounds a little bit easier than the reality of it. So the team has been hard at work here. For well over a year to a year and a half, gaining the appropriate certifications, government approvals, changing out some of the flow of the facility, acquiring new equipment, installing equipment, along with also training the team for these applications. So it is a pretty complicated effort. And that was the idea to meet our customers where they are. And that strategy, has started to take hold in terms of translating to wins. We mentioned it on the first quarter call, and we have more nice wins here in the second quarter. And I would say both of these outcomes were in advance of what we initially thought. When we started this a couple years ago at this point, we said we anticipate by end of 2026 to have some wins. So that is obviously driven by the market and the realities of the world. But also driven by our investments that we have done, and the headcount level, marketing level, attendance at conferences, and doubling down, our efforts with the customers. I would say as we are investing in our go-to-market and sales on the A&D side across Europe, it is really for the whole A&D portfolio. Right? Obviously, we have connectivity manufacturing sites in the UK serving the European Union, so we are also needing to push those sales. So when we think about A&D, it is across the portfolio. It is not just any one product line. So from our perspective, it is more of the same. Obviously, we flagged Slovakia just given the interest, and it is something we have talked about. But from our perspective, it is more normal investments in the business.

Very helpful color. And then so just curious, there has been a continuous focus over the last several quarters by you and the team to pull internal levers to help spur growth. And now the last two quarters, we have seen really excellent growth that is pretty much all organic, right, as the year-over-year comparisons have included the Enercon benefit. And what you guided for, for 3Q are a continuation of that. So I was just curious to hear—maybe give you an opportunity to step back a little bit but just curious to hear which initiatives do you feel have been most successful and maybe which more recently enacted initiatives you are most excited about going forward as it relates to growth?

Yes. So I think that is a fair question. I think the wins in Q2 and Q1 are really the culmination would say that the wins in Q2 and Q1 are really more of the end of the journey in terms of a lot of the work that has been done by the team, earlier this year and last year. So these wins and as we have talked about especially on the A&D side, that it is a long chase cycle. So the fact that we are seeing the results in Q2, Q1 we would have to look significantly more into the rearview mirror. I would also say as we think about growth across the portfolio, It is not just one area. We are seeing great wins in data solutions We are seeing some great things on the industrial side. Also the distribution side. So there is a swelling effect of some of the successes that the team has been doing. The real question for us is not are we doing good and are we winning? Because I think the answer is yes. Our focus is are we fully living up to our potential? And to where we are today, we are still not at our potential. And therefore, the investments in people and systems and process driving the commercial organization harder is still happening. So for us, we talk about the strategic initiatives and put folks on it, but it is not like we have not been doing it for the last two to three years. It is just that we are starting to see some of the benefits of that. So we are still not where we need to be. Which is, I think, a great opportunity, especially given all the recent wins that we have been doing. But we think we can and should be doing more. So optimization is really what we are focused on versus okay. We are doing a good job. We are all going to take a break now. Right? So it is just that driving force for the relentless drive to our potential is kind of what we are getting at. So and we are still in the process of that. We have not fully arrived yet. I am not sure you ever do, we want to get a little bit closer to the potential. Sure. I can appreciate that. And maybe just any specific any specific ones that come to mind that you feel that maybe these are initiatives, yeah, enacted in, like, 2024 or early 2025 that you feel have kind of really helped spur? Is it just really an accumulation of several different pieces just all kind of flowing together and kinda benefiting at the same time or starting to flow through at the same time. Yeah. So if we were to put that discussion into two topics, people and process, on the people side of it, we have added headcount We have elevated some internal people that are helping to drive the teams. We have, also, know, are continuing to add also headcount, like we said, to the people side of it. We also had the right people with potential who were not in the right place. So I think on the people side, we have done a pretty fair amount of movement and reassignment and reestablishing KPIs and expectations of performance, which I think is important. On the process side of it and the process side of it could be anywhere from the data side. So are we collecting data? Are we putting eyes on it? and are we pushing the data piece of it? So we are still, I would say, in the process of that, but we are we are pretty dangerous today in terms of tracking and managing to that. So we are definitely excited about it. As we think about the dashboard, and CRMs and you know, I would say that stuff we are, kinda moving along on pretty good. The other side is the incentive scheme, and we will, you know, look into probably modify it as we continue to evolve. Just really rewarding performance and establishing and defining what performance means has been pretty important. And then another key element, as I said,, people and process is ensuring that there are outside partners, especially in the reps that we use, And if folks recall, we had to redo a lot of our agreements with them to favor and pay more for on new wins versus just legacy flow business. So I think that was a catalyst for change. And I think when we look at people process plus outside partners, reestablishing our expectations and contracts, I think that has together collectively been the momentum. The other thing I would say is we are seeing that resegmenting our business has also, I would say, been to be another lever and catalyst for focus. And helping driving the depth because we are really, at the end of the day, an end-market-driven business and kind of, you know, speaking the language and the way our customers do and driving those relationships more seriously. The other thing I would say on the process side, I forgot, as we talked about restructuring piece of it, You know, obviously, we restructured into two segments, but, also, we created more focus around business development and key account management and seeing also the great benefits of that. So we were missing some of these you know, let's call them, more basic structures. So I think that I am not sure there is 1 thing I can point to. I am very excited to see what our leaders are doing and the team is delivering on aided by process and outside reps. Super helpful, Farouq. Really appreciate it. And definitely makes a lot of sense. There is a lot of different pieces going to making a winning team like you have. So appreciate the time, and congrats on the good quarter.

Thanks, Bobby. Our next question comes from Wamsi Mohan with Bank of America. Please go ahead.

Yes. Thank you so much. Good to be on this call. I wanted to ask a little bit about the very strong defense growth you are delivering here. Do you see this sustaining through the rest of the year? And do you need to add capacity in defense? I know Lynn you mentioned higher CapEx. What is that primarily geared towards? And I have a follow-up as well.

We definitely think the outlook is looking pretty good, right? And let's keep in mind that when we look at revenue, revenue is a little bit of a lagging indicator, right, because it indicates that you have already won a project and that you are starting to monetize. So from a forward-looking indicator, which the near-term forward indicator is around bookings and the kind of medium-term indicator is new wins. So when we look at forward indicators, bookings, new wins, we are definitely seeing the robustness. And we are seeing the discussion change, on the defense side specifically. Also, we are expanding more on the, obviously,, European piece by increasing our headcount. In terms of capacity. We you know, capacity has not really been a big concern of ours, and we would like to actually be more capacity challenged in the sense that we are obviously investing in CapEx. But the other thing keeping in mind is as we get Slovakia going a little bit, that will naturally give a little bit more flex on the capacity piece of it. So capacity is not really a major concern of ours today. The focus is on the commercial front end of the house. We have the capacity and the ability to run the channel. The maybe more interesting thing where we are focused on, in addition to the wins is really the challenges with the supply-chain availability of materials. Is kind of the thing that we think about. From a manufacturing perspective, not so much. But in terms of sales teams, we are adding more because we think we will be more capacity-constrained. We are adding more engineers also on the A&D business specifically in a place like Slovakia. So all in all, we like how this is looking, and we are investing in the right opportunities to get ahead of it as well. Okay. Thanks, Farouq.

And then just as a follow-up, you know, when you look at the incremental margins in the quarter, those took a nice step up. Looks like in your guidance too, there is very strong incremental margins particularly at the operating margin level. How much of this is pricing versus mix versus other factors? And was there any pull forward as far as you can tell in the business in any areas that you would that you would call out if you saw any of it?

Yeah. So when we look back at our call that we had in the first quarter or for the first quarter, which we had in April, we had talked about the challenges around input material and cost really across the portfolio. Shipping costs were going up. FX was going against us. Raw material input was going against us. So the way I would think about the margin improvement is largely been operational leverage in nature. Which kinda helped drive this margin. So what we did back in February and March time frame, we did put some price increases on new orders, which we said we will start seeing the benefit of that in Q3 and Q4. So the good news is the way we look at Q2, while we did have headwinds, we know the model is working. Despite everything kind of going against us, we have seen the business deliver the operating leverage. So we have a proof point, if you will. And hopefully, as we head into Q3, we will start seeing the benefits of price recovery and operational leverage. We will obviously not recover the full price in Q3 because, right, it was on new orders that are going to get shipped out over time. So the expectation is we start seeing benefit of price, which I do not think we saw much of that in Q2. We will hopefully start seeing some of that in Q3. Okay. Great. Thanks a lot, partners.

Our next question comes from Christopher Glynn with Oppenheimer and Co. Please go ahead.

Hey. Good morning. So yeah, just in terms of the gross margin, you know, I think it is the second quarterly guide in a row where you ticked up from what had been the run rate of guidance for three or four quarters. Previously. And today, Farouq, you noted that you have got a nice opportunity to continue to press higher-margin, higher-growth products. Are you suggesting that just some of the take rates and the overall growth are allowing you to deemphasize more of the lower-margin end of your volume. And so you see a fresh kind of mix lever, that has become available as the economy and some of your end markets have strengthened?

Yeah. I think we called that out, Christopher. I think the normal expectation is, when you start having an abundance of wins or new opportunities is you are thinking about where do we allocate really two things, hours and money. And as we have done a nice job on the wins and we expect more out of the commercial organization, more wins, I think we can start thinking about, well, where do we want to allocate more of our time and effort, where we can get a better ROI on the hours and dollars spent. And I think we have done a good job here where we are afforded that luxury. And as a result—obviously, if we get better-ROI-type SKUs, right, it does all sorts of things. One, it frees up the team to go pursue other things. Maybe deemphasize some, let's call it, maybe noise. So it is nothing too special. I think when you look at the industry, our competitors do this on a regular basis. For us, it is a little bit of a new luxury. And we are calling it out because we are a company in an evolutionary stage. We have been on this evolution here for the last, you know, few years. We expect to continue to evolve. So from my perspective, this is a testament to the team allowing us to do some of these rotations.

So we just called it out really in the spirit of flagging behavior and messaging that we historically have not done as much of. Okay. Great. Thanks. And, a little bit on the Data Solutions side. I think Lynn said up 55%, maybe $20.7 million in sales, or did she say plus that amount? I am not sure. But, also key customers hitting scaling inflection has been kind of a topic year to date. For the Data Solutions business. I understand some of your customers in the AI space might, you know, have some optionality in take-rate opportunities. Are you seeing some of that start to play through?

Yeah. I will let Lynn comment on that. But overall, your assessment is correct. We are seeing inflection points. We are seeing growth. I think we have played it pretty wisely to where we want to allocate resources on that. And we are seeing those efforts really maybe two, three, or four years ago efforts paying off today. Lynn, you want to comment on that?

Yeah. So, thanks, Christopher. Just to clarify the numbers there on data solutions. So it was about $58 million in Q2 2026, up from $38 million in Q2 last year. So it was a $20.7 million, or 55%, increase year-over-year. To clarify those numbers.

Great. Thanks for that. And, yeah, last one for me. I think you mentioned eight new European defense design wins. And last quarter, you mentioned a couple. Just curious about the spectrum of size of those applications. I know Enercon specializes in small lots. You know, what is the breadth? Is this a couple of customers, or is it a wide range of customers? And just kind of small lots versus potentially larger lots. Just curious about a little more context.

Yeah, kind of a combination of that, right, by default. Europe, you know, not too dissimilar to the American side. You know, there tends to be concentration of OEMs. Right? But we tend to think about it around the platforms that you are on. And, ideally, you want platform diversity whether it be things that fly or things that are on the ground or things on the water. And for us, we want to measure and see diversity of programs because, generally, it is different engineering teams, and sometimes you are up in different countries where these things get done. When we look at the diversity, we like the diversity. So it is not—yes. There are some kind of you know, if you look at it from a customer perspective, OEMs, which is normal for us, right, on the A&D side. But we are seeing the diversity of platforms. In terms of scale, we think these are-- these are, you know, multimillion-dollar opportunities collectively over and we think about it, and these are over the life cycle of the program. So these could potentially turn into some very nice big wins for us. So yes, they are large, but, you know, I would not say there was one dominant one which we kind of like that diversity play a little bit as well. Because, also, funding cycles, you know, tend to go to maybe differing technologies or different applications. Make sure you have enough diversity. So if something gets funded, you are on it. I will give you, obviously, an example on that. We have pretty heavy presence in the U.S. side. on the missile side of it, which is, you know, a topic that is all in vogue. We are pretty diversified on those, whether it be the launchers or the missile side of the application. So now we will be benefiting from that growth. Why? Because we had a few, diverse opportunities, over our history. So diversity is kind of what we are focused on, along with new wins. That is going to be really the only control. But we cannot control funding cycles or anything like that. We want to make sure that we have diverse new wins, and we can say we have accomplished that at least in this small, sample size that we are talking about. Sounds great. Thank you.

Thank you. Our next question comes from James Ricchiuti with Needham and Co. Please go ahead.

Hi. Thank you. Good morning. I was wondering if you could provide any color on the bookings in ITDS and ADRS, where you see strength? Obviously, called out data solutions and defense, but just if you can give me if you can give us a little bit of color on the bookings activity you are seeing.

Yes. So, Jim, thanks for the question. I think on the bookings, as we mentioned, we have been seeing positive book-to-bill ratios for 6 consecutive quarters now. That has been broad-based, so it has really been across both segments most of our product lines, most of our end markets. I would say it is largely in defense and data solutions. And also through our distribution channels. So this is something that had been you know, soft for the last couple of years, and we are seeing that rebound nicely over these excuse me, last couple of quarters. And Q2 was particularly strong. So you know, things that go through distribution, as I mentioned on the call, it is, you know, things like fuses and our ICMs and RF connectors. So it is components that kind of go into a wide variety of applications. So it is I would say there is a concentration in defense and data solutions, but it is not contained to those. It is much more broad-based.

What about the replenishment that is going to be required on the defense side particularly in missile area. Are you seeing that yet, or is that something you are anticipating? That potentially comes later in the year, early 2027?

So obviously, public discourse and discussion leads the money. So the discussions obviously are happening for any casual observer of the news, as I am sure everybody can follow here. We are seeing positive momentum on that front. But I would say there is a gap still between the required funding that people want to get to replenish what we are seeing. So it still has not trickled all the way down. So in short, we are seeing benefits of that. We are seeing some orders of that. The chatter in the channel around expectations and build rates is great. But still waiting on, all sorts of kind of government funding to come through. So the nice news is we are seeing increased orders, but still, I think the funding needs to be more to achieve, let's call it, maybe normalization of stockpiles, which obviously as you, I am sure, read in the news, not going to happen in the next year or two. So it will be an ongoing effort for the near future.

Are you seeing more activity in the space market? I am wondering if-- obviously, that is also been in the news. Can you quantify perhaps what kind of revenues you are seeing or the growth in this part of the business? I know it is an area that you have been putting more resources.

Yeah. So space for this quarter was $3 million. So it is up slightly from where it was last year. So it continues to be small for us, but it is an area that we think that there is a lot of potential in, especially as we look out over the next couple of years. I think, you know, Jim, that is another example of, right, we are on, I think, we have over 250 customers. We are on a lot of platforms and designs. The bottleneck is the ability to launch things into space. So until that bottleneck gets fixed before maybe we see some bigger numbers, But we are well positioned given the wins and where we are and who we are speaking to and the number of customers, but they have got to figure out how they get it into space given the bottleneck there. So that is kind of been a good example of we need to focus on wins. We do not control when the revenue happens exactly. But design wins is really the leading indicator for us.

Thank you. Thank you. Our next question is from Luke Junk with Baird. Please go ahead.

Good morning. Thanks for taking the questions. Farouq, I want to start in Europe. The eight project wins in Slovakia, I think you said that was better than expected, especially relative to the timing of those awards. Can you just say, what it means about the pipeline that you are seeing in some of the commercial development activity that is driving that from an internal standpoint as well? Thank you.

Yeah. So when we acquired Enercon back in Q4 2024, and we talked about this was going to be a more commercial synergy play and Europe being a very important piece of that commercial play. And we said at the time, you know, because we know we had to do some work, whether it was our Slovakia facility, adding some headcount, restructuring the business. And giving the pace that the Europeans were going to move at. You know, we said we would expect to see some of the benefits of the commercial synergies, you know, end of 2026. And the fact that we can point to some wins in Q1 and Q2 of 2026, by definition, you know, ahead of schedule. Partially attributed to the dynamics changing between, obviously, the change in administration in 2024, the realities of the ground of changes, and the tone and political discourse has changed. So that has allowed for acceleration of on continent, let's say, production and leaning into their independence. So think that has moved up a little bit more. I think we are seeing a lot more opportunities. And part of the restructuring, we said we have added some headcount I mean, the selling of defense products is a very intimate long cycle design sale process. So we have added some headcount, which we are seeing some nice more shots on goal, which we hopefully will translate to new wins. We are still looking to add a few more headcount in Europe, but we are not fully ramped up there on the team side yet. So as we bring on new people and the new people get their legs underneath them across countries in Europe. We continue to expect, more robustness in our growth. And then at some point, right, as it just becomes a normal part of the business for us, But Europe is kind of the biggest opportunity in both what you know, the connectivity, business and on the power business because we have a, end market sales agnostic sales team in Europe that are selling all of our A&D products. Well, thank you.

Lynn, you mentioned in your remarks that the higher demand in data solutions included the beginning of a program ramp in high-performance compute. Can you just expound on that in terms of materiality and looking into the back half of the year? Is this one of the things that we are seeing in the up in the revenue guidance walking into 3Q?

Yeah. So, yes. It is feeding into that. We are seeing as I said, as you noted, here, Luke, programmatic wins. Obviously, these are some of the things that we have won, you know, quite a while back. But now we are starting to see our-- right? Because as our as our customers gain customers, and as our customers deploy their products, it kind of reverberates back to us, which is great. So when we look at the bookings, which lead this indicator, our-- and obviously, the chatter with our discussion and the intimacy as they are getting customers, our expectation is further ramp as we close out the year. And as we head into next year. So the markers, the indicators, whether it be bookings on the books, bookings are promised to come, or general, do you partners have capacity? I know you are ramping up. Let's figure out planning discussions. All of that is indicating an upward healthy upward trend. Got it.

And then maybe bigger picture for you. Just curious to get your updated filter lens for M&A now, some dry powder on the balance sheet and a little bit of noise in the market. In general.

Yeah. I think one of the things that we tend to think about is we have we are a long cycle design business. So while we appreciate public markets are having, let's say, a lot of changes and shifts that are going on, we are focused on, investing in the business for the medium and long-term where we think there is good growth, good technology needs, good alignment with our customers, So we will continue to invest in the business, whether it be technologies or capacity additions or new end markets. So we are we are nothing has really changed from our perspective. What we are seeing in the market is you know, I would say, a fair amount of, let's maybe call it, aggressiveness or irrationality around premiums. So we have seen some of our peers do acquisitions that we just think are not for us. So we will focus on us. So we will be disciplined We appreciate, our investors' trust in, in our recent equity offering. And, obviously, those are with us for a while, to be honest with you. So we will be disciplined We are not looking to, go all the way crazy. So we will be disciplined in our approach. Despite the market doing some maybe irrational things. And, you know, so the pipeline from our perspective, is you know, there is a lot of opportunities and I think it comes a question of how hard do we want to compete, how crazy we want to get. So that is going to be a balance for us. But, ultimately, we are going to be balanced and mature in our approach of doing things. Not overly conservative. Got it. I appreciate the perspective. I will leave it there. Thank you. Thank you.

Our next question comes from Gregory William Palm with Craig Hallum Capital Group. Please go ahead.

Good morning. This is Jackson Schroeder on for Gregory William Palm. Appreciate partners taking the questions. Quick follow-up to that M&A piece. Just kind of a basic one for me. That extra 20% left for Enercon coming next year, is that as simple as just the 20% coming off that $400 million, or should we expect some kind of, like, upward or downward adjustment for that?

Yeah. So it is, and this is, you know, for those that want all the exciting details, we have put this back in our public disclosures back in 2024. It is a it is a purchase of the remaining 20% equity interest in the business. And we will be taking measurements of EBITDA and paying a multiple off of that and then figuring out down to equity value, that is how we are going to get to the 20%. We put a, let's call it, a cap on the upside. To the tune of 135% of what it was back when we actually did the acquisition. So there is a cap but it is not 20% of the $400 million. It is going to be 20% of the actual EBITDA of the business. And we do accrue for all that. I will let Lynn hit on that here.

Yeah. And just so each quarter, in case you are tracking it, so on the balance sheet, we do have a redeemable noncontrolling interest line there. As of the end of June, it was $102.6 million. So that is representative of what it would have looked like as of that date. Obviously, as Enercon continues to do well, you know, that number increases as their TTM EBITDA increases. But to point, there, we will get to the point where there is a cap there. But that is the current value of it as of June. And then just to remind you, there also is another earn-out payment. If you recall, there was a $5 million earn-out that they had achieved. Based on 25 results that was paid out in early 26. There is a similar one based on 26 results that would be paid in early 27. So those are kind of two components as far as you know, cash needs related to that.

Perfect. And then just on the organic versus inorganic side, can you kind of size, you know, your excitement and what you are seeing with organic growth, some the elevated CapEx that you have on some sort of short-term high ROI projects, How much of that focus kind of going forward is really in the organic versus inorganic?

I would say they are we appreciate that. Some folks will commingle those. For us, those are distinctly separate. Our organic play and the team, the sales initiatives, all things that we have been talking about is the organics. So our team and our day jobs is focusing on the organic piece of it and driving. So as we think about CapEx or hiring people or investing in technology, From our perspective, it is organic. Inorganic, we have we have a team that obviously partners with our leadership and our, senior leaders to identify, pursue, and go after. But we are not deemphasizing one over the other. So we kinda look at them as two separate tracks, and the objective is for each of those tracks to run as hard as they can. So we are not looking at commingling, but our discussions here are generally around the organic piece of the business. We do not put any kind of long-term sizing or targets on that, but we expect continued robustness from here. Perfect. I will leave it there. Thank you.

Thank you. Our next question is from Tomo Sano with JPMorgan. Please go ahead.

Hi, good morning, everyone. Thanks for taking my question. With the dataMate facility transitions and ERP conversions, completed could you talk about like, what the steady-state benefits, should we expect, and when should they, show up in the numbers, please?

Sorry. You kind of broke up there, Tomo. So the question is around the data. Okay. And then So, obviously, as we restructured our business and created key accounts group and business development within ITDS specifically because dataMate sits within ITDS, where we are seeing the benefits of that. Right? So whether it be on the BD side and the team that did come over to us with dataMate has been great. And they have been really you know, doing their day jobs in addition to a facility move, in addition to an ERP conversion, we just keep seem to be throwing more at them, and they are fully embracing the journey. And we are seeing some of the benefits of that with robustness on the backlog and opportunities. We, have fed them into the Bel machine I would say we are I cannot say that we are fully up and going, obviously, given the nature of our business. But we are starting to see the benefits of that. We invested a little bit more in the BD side for their products, and we have already identified a few opportunities. So we will see that coming. Keeping in mind that from a revenue percentage perspective, when we acquire dataMate, it was around $18 million. So if you were to think about that, from a-- obviously, you know, you know, 18 is a is a great number, but it is in itself is not going to be a massive mover for the ITDS or Bel's business. Thank you, Farouq. Appreciate it. That is all. Thank you.

Our next question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Congratulations on the good quarter. I have just got 1 question here. Obviously, with Enercon, you are in a much better place to capitalize on the A&D spend in the EU. But I am I am wondering, do you worry that it will cannibalize spending in US levels?

I think the if this was normal times where there was not a ramp or increase due to global events, You know, maybe instead of “Buy American”, they kind of start building locally. We could see that. But the reality of the matter is we are seeing big spend whether it be NATO catching up, whether it be strengthening and driving resilience into the infrastructure in Europe as we think about Ukraine and the issues going on there. Also remembering that the U.S. has also gained you know, a lot of new customers in terms of sales, whether it be the Saudis, some of the other partners. So even if there is a little bit of a drawdown into the Europeans, which we hope to benefit from that, I think we are seeing also increased you know, sales of US equipment and also consumption. So we do not think that is the case, and we definitely have not seen it. Sure. Maybe some things are shifting around, but, ultimately, we want to make sure that we are capturing on both sides. So net, we do think that all of the things going on today in A&D is a net benefit to us. Unfortunately, given the world that we are in today. Thanks, Farouq. Yep. Another thing I would say, you know, to that point, we are seeing more investments in new technologies. Right? And we are seeing emergence of new players. So we feel like we have a pretty good job at tackling the change in the in the end markets here, whether it be geographic, technological, or manufacturers, I feel like we are doing a pretty good job of tackling it from all fronts here. Thank you. Yep.

Our next question is from Asiya Merchant with Citigroup. Please go ahead.

Great. Thanks for squeezing me in here. And I apologize if this is asked earlier because I was, on another call as well. But between the 2 segments, could you maybe peel back a little bit about demand dynamics, how we should think about what is baked into the guidance here? Both on the top line as well as how we think about gross margins because it did take a nice step up for the ITDS segment. I think, Farouq, you talked a little bit about price recovery here in the second half. So if you could just help us between the 2 segments, how we think about the gross margin ramp as well? Thank you.

Yes. Maybe if I am looking at both segments separately. The main driver on ADRS was defense spending and production. And on the ITDS side, it was I would say that maybe the leader there was data solutions, but also from a percentage perspective, but we are seeing great things in terms of what we call our industrial technology business, which would include a large amount of other industrial type applications and rail and so on. But, also, it the factor that cuts across both segments is the increase in distribution. So we are seeing it, on all fronts from an end market, perspective. Also same thing as we look at the bookings that came out in Q2 is kind of broad-based, which is kind of a good thing versus concentration. The other thing I would say on the gross margin piece because we put in let's call it, a holistic price increase in February and March, We said we are not really going to see the benefit of that until Q3 into Q4. I would say the step up in the gross margin that happened in Q2 was operational leverage and thanks to a lot of internal, work done by the team. So I would not characterize that as pricing. As we head into Q3, it will be a combination of operational leverage and some pricing. And because of you know, as we can all appreciate the pricing cost dynamic was still a little bit slow in Q2, not as not as maybe big of a percentage, but Q2 had some pricing pressures as well. Heading into the next quarter in terms of bookings. So we will see a little bit of both but I probably argue that the you know, the the majority of our gross margin step up is going to be operational leverage in nature.

And the other thing that I will add is on the FX side, that was a large pressure point for us in Q2, especially with the Chinese renminbi and the Israeli shekel. And looking at those trends, they have both stabilized and are starting to recover a tiny bit. You know, in the current weeks here. So we are not expecting further downward pressure from Q2 to Q3 on FX. If anything, it looks like it may improve a little bit. So and that does have a big impact on our margin. So if those 2 currencies do move more favorably, that will also assist the margin expansion. Thank you.

Our last question comes from Hendi Susanto with Gabelli Funds. Please go ahead.

Thank you, Lynn. Thank you, Farouq, and congrats on great results. I will squeeze my two questions into one. Farouq, would you be able to share the magnitude of the price increase? that is one. And then second, you talk about revenue rotation into favorable higher margin products. Can you share more colors in terms of timing, and which product lines or product groups or whether it is broad-based?

Yeah. I appreciate the question. Here, Hendi. I think our pricing remember, we have a lot of SKUs for a company our size and customers. So it was really a surgical effort around what input costs went up where coupled with the ability for the market to tolerate it right? We have to kinda make some strategic decisions. Also, along the lines of, well, what is it that we are working on and expect to come up here? So when we kinda look at all of that, I would say it was pretty broad-based. And a pretty wide range. So that is one. But we are not going to I am not going to put a specific percentage on that I do not think that will do us well. And then the in terms of rotation, you know, it is really within ITDS. I would say, and maybe more specifically, we think about, data solutions, we are seeing some nice wins and outcomes that maybe we want to, you know, kinda shift the portfolio and allocate resources Again, I would not say there is anything special about that or unique. I think that is a very normal business approach. My guess is we will start rotating some of that and having new discussions and impact as we head into I do not know, Q4 into 2027. We will be measured, obviously, in our approach. But, you know, I think we have more than enough growth here to handle the business. Right? So partially as we continue to grow and continue to pay our bills, and get the operational leverage. So it is a little bit of balance, but we are not we are not looking to commit to a dollar amount on that because I think it will be a little too arbitrary. Thank you. Thank you.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Farouq Tuweiq for closing comments.

So thank you, everyone, for joining our call today. We definitely enjoy these questions here. We think we have an exciting story, and we continue to deliver despite some of the choppiness out in the market. So we are excited to be halfway through the year here and continue to look to hopefully a good close for the year. So thanks again to everyone for their vote of confidence. Looking forward to, our next call, and everybody enjoy the rest of your summer.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.