BEL Fuse Inc: Form 10-Q for the period ended Mar 31, 2025

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s condensed consolidated financial statements and the related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2024 Annual Report on Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our 2024 Annual Report on Form 10-K. See Part II, Item 1A, “Risk Factors,” below and “Cautionary Notice Regarding Forward-Looking Information,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our Forward-Looking Statements. All amounts and percentages are approximate due to rounding and all dollars in the text are in millions, except per share amounts or where otherwise noted. When we cross-reference to a “Note,” we are referring to our “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1, of this Quarterly Report on Form 10-Q, unless the context indicates otherwise. All amounts noted within the tables are in thousands and amounts and percentages are approximate due to rounding.

Overview

Our Company

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.

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.

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).

We have little visibility into the ordering habits of our customers and we can be subjected to large and unpredictable variations in demand for our products. Accordingly, we must continually recruit and train new workers to replace those lost to attrition and be able to address peaks in demand that may occur from time to time. These recruiting and training efforts and related inefficiencies, and overtime required in order to meet any increase in demand, can add volatility to the labor costs incurred by us.

Key Factors Affecting our Business

We believe that in addition to recent global tariffs and inflationary pressures on the costs of goods and services in general, and ongoing conflicts/political unrest including in 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:

• Acquisition of Enercon - In November 2024, Bel acquired an 80% stake in Enercon. As a result, we will benefit from a full year of Enercon's sales in 2025 within its Power Solutions and Protection segment. Enercon is a global supplier of power supplies primarily into defense markets, and its sales and results of operations may vary depending on government spending on defense.
• Backlog – Our backlog of orders amounted to $395.7 million at March 31, 2025, an increase of $14.1 million, or 4%, from December 31, 2024. From year-end 2024 to March 31, 2025, we experienced a 7% rise in backlog within our Power Solutions and Protection segment and a 9% increase in our Magnetic Solutions segment. This growth was partially offset by a 5% decline in backlog within our Connectivity Solutions segment. Factors that could cause the Company to fail to ship all such orders include unanticipated supply difficulties, changes in customer demand and new customer designs. Due to these factors, backlog may not be a reliable indicator of the timing of future sales. The preceding statements regarding the Company’s backlog, including but not limited to estimates and anticipated timing of shipping, represent Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
• Product Mix – Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on our gross margin percentage. In general, our Power and Connectivity products are expected to have the highest contribution margins of our three product groups given the harsh environment and high-reliability nature of these products and the end markets they serve. Our Power products have a higher-cost bill of materials and are impacted to a greater extent by changes in material costs. As our Magnetic Solutions products are more labor-intensive in nature, margins on these products are impacted to a greater extent by minimum and market-based wage increases in the PRC and fluctuations in foreign exchange rates between the U.S. dollar and the Chinese renminbi. Fluctuations in revenue volume among our product groups will have a corresponding impact on our profit margins. See "Results of Operations - Summary by Operating Segment - Revenue and Gross Margin" below for further details.
• Pricing and Availability of Materials – There has been some stabilization of raw materials pricing since 2024; however, overall our cost of materials remains elevated. Supply constraints have eased related to components that constitute raw materials in our manufacturing processes, particularly with capacitors, resistors and integrated circuits ("IC's"). Sharp increases in metal commodity prices, particularly copper and gold over the years continue to impact cost structures and supplier pricing. Lead times are still extended though suppliers are now meeting the agreed delivery deadlines with more regularity. Additionally, our access to parts or materials, and our ability to contract with suppliers utilized previously, may be limited or prohibited from time to time by trade restrictions or other legal or regulatory enactments. Over the past year, we have experienced downward pressure on our Power sales given trade restrictions on one of our former suppliers previously utilized for this segment, which had historically supported approximately $3 to $4 million per quarter of our sales into the consumer end market. We are in the process of identifying alternative manufacturing options for the components previously supplied by this manufacturer. To the extent our suppliers in the PRC are negatively impacted by new or amended regulations, any such negative implications could adversely impact our supply chain, including in the form of increased costs, disruptions, shortages or unavailability of product or component parts, and/or other deleterious consequences, which could materially adversely affect our business and operating results. Further, governments may impose tariffs to raise domestic revenue, protect domestic industries or exert political leverage over another country. We are a global organization with a material volume of shipments of raw materials, work in progress and finished goods into and out of the U.S. to and from a number of other countries, including but not limited to the PRC, Israel, Dominican Republic, Mexico, India and throughout Europe. Any new or increase in tariffs imposed either by the U.S. government on foreign imports or by a foreign government on U.S. exports related to the countries in which we transact business could lead to reduced margins or increased prices that could cause decreased customer demand. See "Global Tariffs" below. The preceding discussion of "Pricing and Availability of Materials" contains Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
• Global Tariffs – On April 5, 2025, the Trump Administration enacted reciprocal tariffs on U.S. imports from a number of countries in which Bel’s manufacturing sites and/or suppliers are located. We currently estimate, based on information available today and our sales patterns at the present time, that approximately 75% of our global sales are not currently subject to these newly-enacted U.S. tariffs as the goods are either manufactured outside the U.S. and shipped to a customer who is located outside the U.S. or the goods are manufactured within the U.S. for local consumption. Of the approximately 25% of sales that we estimate are currently subject to the new tariffs, the countries of origin are the PRC (approximately10% of Bel’s global sales), Israel (8%), Slovakia (3%), Dominican Republic (1.5%), and other countries that each represent less than 1% of our U.S. imports. Imports into the U.S. from Mexico are currently exempt from tariffs as our products fall within the scope of the USMCA agreement as presently in force and are therefore not included in the aforementioned 25%. We are closely monitoring the evolving tariff landscape and are assessing possible alternatives aimed at potentially mitigating the impact of tariffs on Bel and our customers. The imposition of tariffs on our U.S. imports could result in reduced demand for our products and/or higher material costs. Our future sales and/or gross margins could be impacted as a result. The preceding discussion of “Global Tariffs” contains Forward-Looking Statements, including our estimates regarding our approximation of our global sales subject to the new tariffs, statements about the possible effects and impacts of tariffs, and statements about our present plans and intentions in connection therewith or in response thereto. See "Cautionary Notice Regarding Forward-Looking Information."
• Labor Costs – Labor costs represented 8.4% of revenue during the first three months of 2025 as compared to 8.0% of revenue during the first quarter of 2024. The period-over-period increase in labor costs as a percentage of sales for the first three months of 2025 was largely impacted by the retention of a certain level of direct labor associates within our Magnetic Solutions business to accommodate the anticipated rebound within this segment. In addition, beginning January 1, 2025, minimum wage increases went into effect at one of our factories in the PRC and are expected to result in approximately $0.4 million of higher labor costs at that facility in 2025 as compared to 2024. Also commencing January 1, 2025, a 10.7% wage increase went into effect at our factory in Reynosa, Mexico. We estimate the additional cost associated with this increase will be approximately $0.7 million annually. These and any future increases in minimum wage rates will have an unfavorable impact on Bel's profit margins. The preceding five sentences represent contain Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
• Inflationary Pressures - Inflationary pressures could continue to result in higher input costs, including those related to our raw materials, labor, freight, utilities, healthcare and other expenses. Our future operating results will depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost savings initiatives and sourcing decisions. The preceding two sentences contain Forward-Looking Statements. See "Cautionary Notice Regarding Forward-Looking Information."
• Impact of Foreign Currency – As further described below, during the three months ended March 31, 2025, labor and overhead costs were $0.6 million lower than the corresponding 2024 period primarily due to a favorable foreign exchange environment involving the Chinese renminbi, the euro and the Mexican peso, partially offset by unfavorable foreign exchange fluctuations attributable to the Israeli shekel as compared to the prior year period. We realized foreign exchange transactional gain of $4.3 million during the three months ended March 31, 2025, due to the fluctuation of the spot rates of certain currencies in effect when translating our balance sheet accounts at March 31, 2025 versus those in effect at December 31, 2024. Since we are a U.S. domiciled company, we translate our foreign currency-denominated financial results into U.S. dollars. Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our financial results and the revaluation of certain intercompany as well as third-party transactions to and from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact to our consolidated statements of operations and cash flows. We were favorably impacted by transactional foreign exchange gains in the first three months of 2025 due to the depreciation of the Chinese renminbi, euro, and Mexican peso against the U.S. dollar, as compared to exchange rates in effect during 2024. We have significant manufacturing operations located in in the PRC, Mexico and Israel where labor and overhead costs are paid in local currency. As a result, the U.S. dollar equivalent costs of these operations were approximately $0.2 million lower in the PRC, $0.5 million lower in Mexico, and $0.1 million lower in Europe, largely offset by higher costs in Israel of approximately $0.2 million, in the three months ended March 31, 2025 as compared to the comparable period in 2024. We monitor changes in foreign currencies and have historically implemented foreign currency forward contracts, and may continue to implement pricing actions to help mitigate the impact that changes in foreign currencies may have on our consolidated operating results. The preceding sentence represents a Forward-Looking Statement. See "Cautionary Notice Regarding Forward-Looking Information."
• Effective Tax Rate – Our effective tax rate will fluctuate based on the geographic regions in which our pretax profits are earned. Of the geographic regions in which we operate, the U.S. and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of our three geographical regions. See Note 12, “Income Taxes”.

Results of Operations - Summary by Operating Segment

Revenue and Gross Margin

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

Power Solutions and Protection:

Sales of our Power Solutions and Protection products were higher by $22.8 million (37.9%). Power sales into aerospace and defense applications contributed $32.4 million during in the three months ended March 31, 2025, a new end market within Bel’s power segment which did not exist during the first quarter of 2024. Further, sales into AI applications increased by $3.8 million, and sales of our circuit protection products increased by $0.7 million during the three months ended March 31, 2025, compared to the same period of 2024. These favorable contributions were partially offset by lower sales in networking applications of $4.8 million, other industrial applications of $3.7 million, consumer applications of $2.8 million, railway applications of $1.5 million, and eMobility applications of $1.6 million as compared to the first quarter of 2024.

Our gross margin for the Power segment declined in the first quarter of 2025, compared to the same period of 2024 as the first quarter 2024 included non-recurring items which were at 100% gross margin (i.e. cancellation fees). This decline was partially offset by a favorable exchange rate fluctuation with the Chinese renminbi versus the U.S. dollar.

Connectivity Solutions:

Sales of our Connectivity Solutions products decreased by $3.6 million (6.5%) during the three months ended March 31, 2025, as compared to the first quarter of 2024. This decrease was primarily due to declines of $1.7 million (11.8%) in the commercial aerospace end market, $0.8 million (20.5%) in the industrial market and $0.9 million (4.5%) of lower sales through the distribution channel during the quarter ended March 31, 2025, as compared to the same period of 2024. These declines were partially offset by higher sales of Connectivity products into the military end market of $1.4 million (13.2%) during the three months ended March 31, 2025, as compared to the first quarter of 2024. Gross margins for the 2025 period as compared to the 2024 period were favorably impacted by favorable fluctuation in exchange rates between the U.S. dollar and Mexican peso, and operational efficiencies from the facility consolidations completed in 2024.

Magnetic Solutions:

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 a favorable 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.

Cost of Sales

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

Material costs as a percentage of sales during the three months ended March 31, 2025 were higher compared 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.

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.

Research and Development ("R&D") Expense

R&D expense amounted to $7.2 million and $5.2 million during the three months ended March 31, 2025 and 2024, respectively. The increase was largely due to the inclusion of Enercon’s R&D expenses, which amounted to $1.7 million in the first quarter of 2025.

Selling, General and Administrative Expense (“SG&A”)

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.

Interest Expense

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.

Interest Income

The Company earned interest income of $0.3 million in the first three months ended March 31, 2025, a $0.8 million decline compared to the first quarter of 2024, primarily related due to lower investments in U.S. Treasury Bills during the 2025 period compared to the 2024 period.

Other Income, Net

Other income, net was $2.6 million and $1.8 million for the three months ended March 31, 2025 and 2024, respectively. The year-over-year change within this line item was largely driven by the market fluctuations in our SERP investments which resulted in a gain of $0.3 million and loss of $0.6 million during the three months ended March 31, 2025 and 2024, respectively. The Company also recorded income of $0.3 million and $0.2 million associated with its investment in innolectric during the first quarters of 2025 and 2024, respectively. We also realized foreign exchange transactional gains of $4.3 million and $0.6 million during the three-month periods ended March 31, 2025 and 2024, respectively, due to the fluctuation of the spot rates of certain currencies in effect when translating our balance sheet accounts at March 31 each year versus those in effect at December 31.

Provision for Income Taxes

The Company’s effective tax rate will fluctuate based on the geographic regions in which the pretax profits are earned. Of the jurisdictions in which the Company operates, the U.S. and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company’s three geographic regions. See Note 12, “Income Taxes”.

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”.

Liquidity and Capital Resources

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.

Cash Flow Summary

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:

• net repayments of long-term debt of $7.5 million;
• dividend payments of $0.8 million; and
• purchases of property, plant and equipment of $2.8 million; partially offset by
• net cash provided by operating activities of $8.1 million.

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.

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.

Future Cash Requirements

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.

Credit Facility

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.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements include certain amounts that are based on management's best estimates and judgments. We base our estimates on historical experience and on various other assumptions, including in some cases future projections, that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Different assumptions and judgments could change the estimates used in the preparation of the condensed consolidated financial statements, which, in turn, could change the results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis.

Based on the above, we have determined that our most critical accounting estimates are those related to business combinations, inventory valuation, goodwill and other indefinite-lived intangible assets, and those related to our pension benefit obligations. For a detailed discussion of our critical accounting estimates, refer to “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. There have been no material changes in our critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to those disclosed in our 2024 Annual Report on Form 10-K.

Recent Accounting Pronouncements

The discussion of new financial accounting standards applicable to our Company is incorporated herein by reference to Note 1, “Basis of Presentation and Accounting Policies”.

The Company is exposed to market risk primarily from changes in foreign currency exchange rates, changes in interest rates associated with its long-term debt and fluctuations in commodity prices. Under the Company’s risk management strategy, the Company periodically uses foreign currency forward contracts to manage its short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. To partially mitigate risks associated with the variable interest rates on revolver borrowings under the Company's Credit Agreement (see Note 11, “Debt”, to the condensed consolidated financial statements herein, and Note 11, “Debt”, to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024), the Company maintains two pay-fixed, receive-variable interest rate swap agreements with two multinational financial institutions (see Note 10, “Derivative Instruments and Hedging Activities”, to the condensed consolidated financial statements herein, and Note 13, “Derivative Instruments and Hedging Activities”, to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024). The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. The Company enters into these contracts in the normal course of business to mitigate risks and not for speculative purposes. The Company utilizes various metals in the production of its products, including copper, zinc, tin, gold, and silver. Fluctuations in the prices of these and other commodities can lead to significantly higher production costs. The Company believes it has adequate primary and secondary sources for each of its key materials. While facing potential volatility in metal prices and anticipating increased material costs, the Company actively monitors these risks. To mitigate any possible negative impacts from these changes, it has implemented and may continue to implement various strategies, including price adjustments and productivity improvements. There have not been any material changes with regard to market risk during the three months ended March 31, 2025. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for further discussion of market risks.

Controls and Procedures

Disclosure controls and procedures: As of the end of the period covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in internal controls over financial reporting: There has not been any change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The information presented below supplements the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The risk factor set forth below, together with the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, should be carefully considered before making an investment decision. The risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by the information presented below, are the risk factors that we consider to be the most significant risk factors, but they are not the only risk factors that should be considered in making an investment decision. This Quarterly Report on Form 10-Q also contains Forward-Looking Statements that involve risks and uncertainties. See the "Cautionary Notice Regarding Forward-Looking Information," above. Our business, consolidated financial condition and consolidated results of operations could be materially adversely affected by any of the risk factors, assumptions and uncertainties described, under "Cautionary Notice Regarding Forward-Looking Information" or with respect to specific Forward-Looking Statements presented herein. The trading price of our securities could decline due to any of these risks, and investors in our securities may lose all or part of their investment. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially adversely affect our business in the future. Except as required by the federal securities law, we undertake no obligation to update or revise any risk factor, whether as a result of new information, future events or otherwise.

Changes in global tariff policies and international trade relations could materially and adversely affect our global business, financial condition and result of operations.

The current global tariff environment remains highly volatile, particularly with respect to tariffs imposed on goods imported into the U.S. Ongoing trade tensions and retaliatory tariffs have created uncertainty related to the cost of materials, components and finished goods critical to our operations. Increased tariffs on imports could significantly raise our cost of goods sold, disrupt supply chains, delay product availability and negatively impact customer demand due to higher prices.

As of the time of this filing, the U.S. government has imposed tariffs of approximately 150% on imports from China and tariffs of 10% on imports from most other countries. We currently estimate based on information available as of the time of this filing and our sales patterns at the present time that approximately 25% of our consolidated global sales are subject to these newly-enacted tariffs, with approximately 10% of our products being sourced from or manufactured in China.

As a result of the current tariffs in place on imports from China, certain of our customers have requested a pause on any shipments from China into the U.S. while the supply chain awaits additional clarity on the longer-term tariff policy with China. If the current environment is prolonged and if customers continue to pause or reduce shipments from China due to concerns over the tariffs, it could lead to disruptions in our supply chain, decreased customer demand, or delays in the delivery of our products. This may result in a reduction in revenue and potential difficulty in maintaining market share in the impacted segments. Furthermore, prolonged tariff-related uncertainty could impact our customers’ buying behavior, as they may seek alternative suppliers or adjust their purchasing patterns. There is no certainty and there can be no assurances that trade relations between the U.S. and China (or between the U.S. and any other countries) will improve, that the current tariff policy will change in a manner more favorable to us, that additional clarity on the tariff situation will be obtained, or that the present uncertainty in the markets surrounding tariffs will be resolved, in each case on any particular timeframe or at all, and the continuation of these tariffs, as well as any new or increased tariffs, together with continuing uncertainty in tariff policies and international trade relations, may materially and adversely affect our financial results, operations and ability to meet customer demand.

Our efforts to mitigate the impact of tariffs, such as negotiating with suppliers, adjusting pricing or sourcing components and products from alternate markets may not be successful or may require significant time and resources. As a result, the prolonged continuation of the current global tariff environment could materially and adversely affect our business, financial condition and operating results.