Okay, thanks. Good afternoon, everyone. Happy to start off the afternoon with our fireside discussion with Lynn Hutkin, Bel Fuse's CFO. Really interesting story here. It's been one of the most exciting names for us to follow the past couple of years, we'll just get going right off. Lynn, was curious for you to discuss Bel's transformation process over the past five, seven years or so, how priorities have evolved and shifted as you've kind of, you know, made certain strides and leaned into other ones?
Yeah, sure. Chris, thanks for thanks for having me here today. You know, as we look at the last five years, I think we've gone through a tremendous transformation within the company on a number of fronts. You know, looking at our margin profile, the company has gone from, call it, mid-20s gross margin up to 39% in this most recent quarter that we presented last week. Several initiatives have gone into achieving that, really thanks to the team around the world. You know, I think the catalyst back in 2021, when our CEO at the time, Daniel Bernstein, was trying to figure out why there was a disconnect, right, with us financially versus our peers.
We had great, you know, engineering base, good quality product. We had been in business for, you know, over 70 years at the time, blue-chip customer base. All of the things that are hard to do in a business, we were getting right. There was just a disconnect on the financial side with our margins, both gross margin, the EBITDA margin, our trading multiple in the market. When he hired Farouq Tuweiq as our CFO at the time, and Farouq came in with an investment banking background. He had been at BMO working in their industrial technology space for nine years, very familiar with our industry, you know, came in asking all of the right questions.
You know, a couple of the things that we've gone through, I think, over the last five years is, you know, as an organization, realizing that not every sales dollar is a good sales dollar. You know, in the past, the mentality was, you know, grow and scale the business, you know, and we'll figure out margins later. Now the mentality is, no, we will only bring in sales dollars if they're at a certain threshold from a profitability standpoint. We instilled a measure-to-manage mindset, so very data-forward, not relying on stories. We've, you know, gone through and done a number of pricing adjustments over the years. There were periods of time where we just did not do any pricing adjustments with customers.
As material costs move on you, and minimum wage increases keep going up, it's just, it's not sustainable. We found ourselves in a really bad situation from a gross margin perspective, especially with certain of our products. Pricing adjustments, we've instilled a whole pay-for-performance mindset throughout the organization, all the way from the executive team, you know, down through the sales team, making sure that people are getting compensated for the hard work that they're putting in each day. The full executive team, as I'm sure you've seen in the last five years, has been entirely turned over. You know, Dan transitioned from our CEO to our Chairman of the Board last year, and that's when Farouq took over as CEO.
Now Farouq leads an entirely new team, versus the executive team that we had in place five or six years ago. Facility consolidations, procurement initiatives, you know, I mean, the list kind of goes on and on. I would say today it's, you know, a whole new culture. There's definitely a new sense of urgency and accountability throughout the organization. You know, with our foundation fixed, if you will, and our profitability levels, you know, where we need them to be, you know, the next chapter here for us is all on the growth side.
Okay, great. We'll certainly get into that in stages over the course of the next bit. Maybe to start in that avenue, if you could characterize kind of Bel's, you know, just main primary couple few end markets and if there's any material go-to-market differences, respectively for some of those markets.
Sure. For those who have followed us over the last couple of months here, we did go through a business realignment, where we restructured our segment profile. Previously we were product-centric with power connectivity magnetics. Getting into your question about the end markets, we are now end market focused. Our new segments are Aerospace, Defense and Rugged Solutions or ADRS, and Industrial Technology and Data Solutions, ITDS. The main reason for going through this realignment was really the customer experience. If you think about it, in the past, we would have people going in and having key accounts with these main tier one customers. It was designated for a certain product group.
We would have one person going into a customer selling one set of products, a different person going in selling a different set of products, and then we would realize that we would have an order from this same customer through the distribution channel for a third set of products. It was a very disjointed way of us going out to the customer. We were not very user-friendly, I'll say, from a customer perspective. The go-to-market strategy is what is really changing, and that just started in the last month when we did this realignment. To your question on how the go-to-market looks different across the end markets, I would say on the aerospace and defense, you know, this you're largely dealing with a few larger customers, right?
I mean, these are the, you know, the large commercial air customer that we deal with in the U.S. These are the defense primes in the U.S., Israel, Europe. A much smaller customer base, but many programs and platforms, you know, under that. Now, these customers, you know, are risk-averse. We tend to be sole source with them. This is largely customized product that is going into the A&D end markets. This is, you know, staying in touch with those customers, figuring out what platforms, what new platforms are coming up and working with our engineers on the design there. I would say on the IT/DS segment, this is different. This is, you know, quicker design cycles, more competitive.
It's rare to be sole source on this side of the house. There's usually, you know, two or three suppliers on the print here. So, you know, when we go to these customers, it's, you know, all about, you know, customer intimacy and hand-holding and making sure that they have the designs that they need and, you know, lead times, and sometimes there are pricing discussions, you know, with this side of the house. It's different based on A&D versus, you know, the industrial data solutions piece.
Great. Just wanted to talk about the distribution position as well.
Yeah.
In particular, it's a little different cross-section than the end market view per se. I think the distribution cuts across both of the segment. You know, what I'm really interested in getting at is Farouq's often described it as punching above your weight. Curious what your view is on Bel's particular strengths and future opportunities, leveraging your position with the distribution partners.
Sure. As we look at the distribution channel, we have several different tiers of distribution. There is the digital tier, so Digi-Key and Mouser of the world. This we view as really the seeding element of the business. This is where engineers will go out onto a website, similar, if you think about it, similar to an Amazon type website, but for electronic components. They'll order parts from us and parts from other companies, and it all comes in a single box to them the next day. It's critical to have those relationships because that is where all of the new designs happen is at the digital distributors.
Once volume starts to scale up, it's more of the broad line distributors, the Arrow and Avnet. We have the specialty distributors, which are more value-add in nature. Those we utilize more in the A&D end markets. You know, on your question around, you know, us punching above our weight, we feel that we have an excellent distribution team internally at Bel. They have very strong relationships with those distributors. We do have dedicated people, and we've had these dedicated people in place for years. They have very solid relationships with those distributors, making sure that our products are on their websites.
We do a lot of marketing with them, and we are utilizing the data to understand what is selling, what's not selling, you know, what products we should be creating and introducing to the market. Like, what products are missing from the distribution channel that Bel can then develop and put out on the market. It's, you know, I think those are some of the key things as we think about the distribution channel.
Okay. This gets into the CRM initiative too, which I think, you know, I was gonna ask generally, you know, you've accomplished so much sustained improvement over the past five plus years. I was curious, you know, any particular challenges or lagging areas getting up, you know, certain business functions or capabilities up to, you know, say like just the operational footprint and performance, which is really kind of you know, better, clear, obvious resounding success. I think CRM is one of the sort of lagging aspects of the business that you're bringing up to vision, so to speak. I don't wanna ask the question and answer it, so I better stop there and hear what you have to say about it.
Yeah, to your point, you know, as I look at what we've accomplished over the last five years and kind of where the laggards are and what we still need to get to, things that have proved to be a little bit more of a challenge for us, you know, I would kind of put it into three different buckets, and then they're all gonna wrap up into CRM, as you mentioned. You know, as I look at our sales initiatives, this is something that was definitely a phase two item. You know, as I talk through the last five years with the margin expansion initiative, that was solely focused on, you know, operational efficiencies and costs and pricing and all of that.
There was never targeted sales initiatives going on at the time, right? I mean, of course, we were focusing on sales, the main part of our focus was in getting our margins cleaned up. As we look back at our sales, you know, if you look back at Bel over the last 10 years and strip out all of our M&A, we are not good organic sales growers. We're just not. Like, it's just a fact. A year ago we've, you know, acknowledged that, realized that we had to make internal changes if we wanted to change that narrative. Everyone else in our industry is, has been successful at growing organically year-over-year, and Bel has not yet demonstrated that we're capable of doing that.
And we are looking to change that narrative. A little over a year ago, we brought Uma Pingali on as our first Global Head of Sales. And it's funny, similar to when Farouq came on board back in 2021 on the finance side, you know, Uma came in a little over a year ago asking really good questions, to which we didn't have a ton of answers to because we had a lot of work that had to get done. You know, it all comes down to systems and data, right? I mean, we're still working on a couple of different ERP systems.
We have realized as a global organization the value of data, and we have to be driving the business with data, and we have been doing that over the past five years, but it's not fully optimized yet, especially on the sales side, the go-to-market side, you know, tracking of, you know, opportunities and why we win and why we lose. I think those are the areas that are, that are really coming to the forefront now, and we've been spending a lot of time there over the last year. This isn't new, it's just newer, you know, I would say over the last 12 months or so.
Okay, great. You know, I think you were phasing into the CFO role well before you were, you know, officially title transitioned, so to speak. What have you found the most interesting and engaging in the process of leading Bel's financial organization? Maybe tie that into a little bit into your longer term background with the company.
Yeah, sure. Yeah, so I've been with Bel for 18 or almost 19 years now. A long journey. You know, I think looking back, I, it was always interested in continuous improvement. It's funny, I don't think I ever imagined I would stay beyond, you know, four or five years, but that's how much continuous improvement there was to do at Bel. Fast-forward 18 years and still a lot to do.
As I think about running the global finance organization, one thing that, you know, has been really exciting, and it's something that we didn't really get to touch upon in the last five years, I mean, I started on it, you know, since I've been CFO about a year ago, but it was always a priority, but there were so many priorities, right, when Farouq joined, that we just couldn't get to everything. As I look at the finance organization, I mean, finance is an enabling function, right? I mean, there's the operations, but then things like finance and IT and HR, like, those are the enabling functions.
You know, I've given a lot of thought to how can we as a global finance organization better support, you know, the operations side of the business and running and growing a profitable business. I mean, it comes down to, you know, cash flow generation, right? Making sure that we have, you know, cash off of the balance sheet so that we can fund future M&A and fund CapEx and bring on new talent. You know, one thing because we've been so acquisitive over the years, we've done 16 acquisitions since I've been here, and we have 120 finance people globally spread across 20 plus locations. We're very decentralized. And one thing that I've really been working hard on is bringing the team together, breaking down silos, acknowledging people's strengths, right?
Even with KPIs like DSO and DPO, like measuring those at the entity level and acknowledging who's really good at those, at getting their entity in the right level of metric, and then cross-pollinating those strengths to the other entities within Bel. I think in the past people may have thought that they were in this, you know, isolated little entity, as it turns out, we have a whole host of finance folks around the world, and it's a very talented team. I've been doing a lot of cross-pollinating across the team, you know, just helping us professionalize the organization.
I think you sort of lead into that. That's where your priority has shifted for the next handful of years is degrees of professionalization? I don't, you know, I don't wanna put words in your mouth, but just trying to continue the thread a little on this.
Yeah. Yeah. I think, you know, and there's I have some background noise here, so I apologize. I think, you know, as we look at the finance organization, I think we've had a bad rap in the past about just being, you know, report generators and reporting on, you know, what happened in the past. Going forward, you know, it's all about how do we become the, those, strategic financial partners to the operational leaders, and how do we help, you know, guide the business, set the strategy for the business going forward, when it comes to, you know, investments, making sure that they're the right ones, right? I mean, we get requests all the time when it comes to, you know, looking at M&A transactions or CapEx investments or hiring people.
You know, I think that the biggest mistake that we can make is, you know, investing dollars but investing them in the wrong place. You know, I think our finance team is critical in making sure that we are, you know, looking at all those investments, looking at the ROIs, making sure that they're the right investments to support the future growth of the, of the company.
Yeah. I think, earlier in this part of the discussion, you gave some metric that, characterized the degree of decentralization. I didn't quite catch that, if you recall.
Yeah, on the.
Yeah.
team? Yeah. We have about 120 folks in our global finance department that are spread across 20 locations. We are decentralized.
Mm-hmm.
You know, but we've been making strides in getting people together, so bringing together, you know, a credit and collection roundtable call so that everyone who does, you know, collections can start leveraging off of each other.
Yeah.
Let's start getting our terms aligned across our entities. There's still quite a bit of work to do.
Gotcha.
In that area. Yeah.
Okay. Cool. That's all sort of early days relatively.
Yes. Yep.
Great. On market trends, we think, you know, it wasn't long ago we wonder when this acute destocking's gonna end and, you know, low visibility, the channels were purging, customers were purging. Much different now. I mean, your book to bills have been really strong the past couple quarters. That's at a broad high level. Curious if you could think of a couple, one or two market trends that have shifted. What do you think's been the most dramatic, you know, whether expected or unexpected, that you found striking over the past 12-18 months? Because it's really been like, you know, a very much a whirlwind in transitioning to the strength that you're seeing now.
Yeah, you know, it's interesting. If, if you look at our business in the past, it was rare for all of our end markets to be running hot all at the same time. You know, historically, you know, something would be up and then, you know, some other end market would be struggling and net net, you know, there was this balance and, you know, our focus was to build the business, diversified so that it was a more resilient business, right?
If something like, you know, commercial air wasn't doing well, well maybe, you know, data centers or defense was running strong and could help offset that. Where we find ourselves now, which is interesting, and this has really been the case probably over the past year or so, is many of our end markets are running well right now. I think the exception there is on the transportation side within ITDS, and that's where we have the rail end market and the eMobility end market. You know, if you recall, eMobility was, you know, growing nicely. It was almost $30 million in sales per year. That has gone down significantly. That was under $10 million for the most recent year.
When you look at everything else, when you look at commercial air, Defense, space, AI, I mean, everything is shifting in a favorable direction. You know, just kind of double-clicking on those, on the commercial air side, we are largely tied to new production build rates for the U.S. large manufacturer there. There's some aftermarket exposure, but it's largely tied to new production build rates. As that increases, we should see our sales in the commercial air end market increase. As we look to Defense, you know, everything that you read in the news, every country it seems is increasing their Defense spending. We feel very much levered to the U.S., Israel, European Defense markets.
We, we now have manufacturing, you know, around the world to support this end market. We, we feel that we have the relationships with not only the primes, but also the kind of up-and-coming defense tech companies that may become larger players down the road. We're establishing those relationships as well. That we, we view as a longer-term, you know, tailwind for us. Within space, we are, it's still small today. It was about $10 million of sales in the most recent year. We have sales across 250 different customers within the space end market. As that grows and gains traction and, you know, satellite launch rates go up, we should see an increase in sales there.
Then on the AI front, you know, we've been clear that we do not work directly with the hyperscalers. We're just not the athlete for that. We don't have the scale for that. But we're working with, you know, the regular Wayfair Professional customers and also some of the smaller, startup-type companies, and we feel that we're well-positioned there. When and if they gain traction within the market for their products, we should see a, you know, a relatively similar uptick, you know, a step change, I should say, as they gain market acceptance.
Long, long answer to your question, Chris, but, you know, I think those are kind of the four areas that we've seen over the last 12 to 18 months, and it just so happens that they're all moving in an upward direction, you know, for the foreseeable future.
Yeah. Yeah. It sounds like some of those AI customers starting to see some traction, that was one of the particular developments in the last quarter, if we cut to some of the color behind the scenes properly there.
Yeah. On the, on the AI side, you know, as I mentioned, it has been small. If we limit it to just the AI customers who are smaller, you know, in nature, more startup-y, we had sales to them collectively of about $14 million in 2025. You know, when the sales are so small, if any one of those, you know, starts to take off a little bit, you know, we can see more of a step change there. We're starting to see an uptick in orders, you know, as mentioned on the last earnings call. You know, we will kind of go as they go, but it is a small piece of our business.
Just to reiterate, we're not doing anything directly with the hyperscalers.
Right. Okay. Well, it sounds like that'll be an interesting one to continue to track in coming quarters for sure. Just kind of a higher level one in our last few minutes. You know, we've talked a lot about developing the go-to-market, the commercial strategies to be more purposeful and, I think, you know, one of the ways you track that internally would be, you know, the number of shots on goal, the quality or size of shots on goal, or your win rate. Appreciate any comments on describing the trends there. I'm certainly interested in, you know, if it's pretty quantifiable for you to track things in those terms or if it's, you know, maybe a little more art involved.
Right now it's a little more art. The goal is to, you know, ultimately have all of this. I know these were, you know, Uma's first questions when he came on board, and these were things that we weren't tracking. You know, have we started tracking these things? Yes. Do we have any sort of trend yet? No. I would say that as we go forward over the next year, I mean, this is something that is a high priority for us because it's critical, right, to understand, to your point, how many shots on goal did we have? What was our win rate? Why did we lose? What can we do better?
These are things that we never had a full understanding of in the past because we didn't have a CRM system. You know, we are new at this, we are new to measuring these things, but it's definitely something that's happening today, but we just don't have kind of the track record or the trending to really speak to, you know, well, how much better is it today versus a year ago because we didn't have the data a year ago, right? It's something that will evolve over time. Right now I would still put it in the, put it in the art-
Yep.
Bucket.
Makes sense. I'm sure with everything else that's going on, that those things are moving in the right direction. It just, in terms of quantifying it, speaking to it that way, it's gonna take a little bit of time. You know, just to close out, I think, you know, obviously orders have ripped lately, growth has stepped up really nicely. Are you starting to quote any longer lead times to your customers?
Lead times have gone up a little bit. I would say nothing significant. Sure, there are some lead time extensions happening. You know, when we think about the order volumes received and the increase in our backlog, you know, if we think about it in terms of, well, how much of that's demand related, how much of that is, you know, extended lead times and people just placing orders sooner, you know, I would characterize it as the majority of that increase is related to higher demand. There's certainly a component in there related to longer lead times, but it's not a significant component.
Okay. I think we'll cut it off there with a minute to spare, appreciate you joining our conference this year.
Yeah. Thank you.
Nice to speak to you. We'll talk soon.
Okay, great. Thanks Chris.
Thanks. Bye.