Danny Eggerichs

Danny Eggerichs inquired about the development of A&D sales in Q4, specifically between Enercon and Cinch, cross-selling opportunities, and the visibility and excitement for A&D growth in 2026. He also asked for quantification of FX and input cost headwinds on gross margin and potential for margin expansion in 2026.

Answer

Lynn Hutkin (CFO) explained that Q4 defense growth was split between legacy Cinch (including distribution sales) and Enercon. Farouq Tuweiq (President and CEO) expressed excitement for 2026 A&D growth due to increasing plane build rates and well-funded munitions programs. Lynn Hutkin (CFO) noted that Q4 FX headwinds were mitigated by existing hedges, but anticipated pressure in 2026 from unfavorable Peso, Renminbi, and Shekel movements as hedges roll off, along with material cost increases. Farouq Tuweiq (President and CEO) added that pricing actions are complex and take time, and while proud of margins, Bel is now prioritizing growth and market share, which may involve investments.

Danny Eggerichs asked for details on the development of the Aerospace & Defense (A&D) segment in Q4, specifically the split between Enercon and core Bel, and cross-selling opportunities. He also inquired about 2026 growth drivers and visibility for A&D. Additionally, he asked about the strong gross margin in Q4, particularly in Power, and sought quantification of FX and input cost headwinds, as well as potential for margin expansion in 2026.

Answer

Lynn Hutkin, CFO, noted robust growth in Q4 defense sales for both legacy Cinch and Enercon, including defense sales through the distribution channel. Farouq Tuweiq, President and CEO, highlighted increasing commercial aerospace build rates and well-funded munitions programs as key drivers for 2026. Lynn Hutkin explained that Q4 FX benefits were due to prior hedging, but anticipates 2026 margin pressure from unfavorable FX (Peso, Renminbi, Shekel) and material costs. Farouq Tuweiq added that pricing actions have a cadence and emphasized a pivot from margin gain to growth gain, requiring investments in go-to-market strategies, systems, and people.

Danny Eggerichs, calling for Greg Palm of Craig-Hallum Capital Group, asked for more details on what surprised the company to the upside in the first quarter, especially given the recent guidance. He also inquired about progress and exciting opportunities in the defense business beyond the F-16 platform for fiscal 2026, and sought an update on the M&A pipeline, specifically if there's an acceleration or expectation for near-term transactions.

Answer

CFO Jeff DiGiovanni attributed the Q1 upside primarily to the timing of shipments, with some purchase orders arriving sooner than expected as customers cleared year-end processes. CEO Shahram Askarpour mentioned significant opportunities in defense, citing numerous RFPs for upgrades to aging DoD aircraft platforms, and noted the company is bidding with multiple prime integrators, ensuring content regardless of the winner. Regarding M&A, Mr. Askarpour confirmed expectations for a couple of near-term opportunities, explaining that previous potential deals were not strategically aligned or priced appropriately.

Danny Eggerichs asked for insights into the factors that contributed to the first quarter's upside surprise, particularly in the final weeks, given the recent guidance. He also questioned the progress and exciting opportunities within the defense business beyond the F-16 platform for fiscal 2026, and sought an update on the M&A pipeline, especially regarding near-term acquisition expectations.

Answer

CFO Jeff DiGiovanni attributed the Q1 upside to the timing of shipments, with some purchase orders arriving sooner than anticipated as customers cleared year-end activities. CEO Shahram Askarpour noted significant opportunities in the broader defense sector from RFPs for upgrades to aging DoD aircraft, with the company bidding on multiple platforms. Regarding M&A, Mr. Askarpour confirmed expectations for a couple of near-term opportunities, noting that previous deals were not strategically aligned or priced appropriately.

Danny Eggerichs inquired about the specific drivers behind the better-than-expected Aerospace & Defense (A&D) revenue, the timeline for new laser sensing program wins, and the factors contributing to the record product gross margin in Q2.

Answer

CFO Joseph Corso explained that the A&D outperformance was due to strong execution on existing programs, particularly increased amplifier sales for the HLSI-II program. He noted that new classified laser sensing programs remain on track for the second half of the year. Corso attributed the exceptional 38.5% product gross margin to a combination of higher volumes, favorable mix, better factory absorption, and strong operational execution, which are not forecasted to repeat at the same level in Q3.

Danny Eggerichs inquired about the specific drivers for the outperformance in Aerospace and Defense (A&D) revenue, sought updates on new laser sensing program wins and timelines, and asked for an explanation of the record-high product gross margin and the rationale for the guided sequential decrease.

Answer

CFO Joe Corso attributed the A&D strength to excellent execution on existing programs, particularly the ramp-up in amplifier sales for the HLSI-II program. He confirmed that new classified laser sensing programs are progressing, with one expected to enter a low-rate initial production (LRIP) phase in the second half of 2025. Regarding margins, Corso explained that Q2's record 38.5% product gross margin was driven by a combination of higher volumes, favorable mix, better factory absorption, and exceptional operational execution, noting the Q3 guidance is more conservative and does not assume a repeat of this level of outperformance.

Danny Eggerichs from Craig-Hallum Capital Group, on for Greg Palm, inquired about the factors driving confidence in the significant second-half step-up for the core Protective Packaging Solutions (PPS) business. He also asked about the automation segment's projected EBITDA drag for the second half and if a quarterly breakeven point is anticipated.

Answer

Chairman & CEO Omar Asali explained that confidence in the second-half PPS outlook is driven by large enterprise wins in North America being installed for the peak season, stabilizing trends in Europe, and new wins in Asia Pacific. He also highlighted an imminent multi-year, nine-figure automation deal with a major North American customer. EVP & CFO William Drew added that the automation backlog is robust and largely contracted. Regarding profitability, Drew stated the automation segment will see a small drag in Q3 but is expected to be approximately breakeven in Q4 2025.

Danny Eggerichs, on behalf of Greg Palm, asked for more detail on geographic performance, specifically the March weakness in Europe/APAC and subsequent stabilization. He also questioned the timing of automation projects pushed from Q1 to Q2, the confidence in the 50% annual growth target, and the expected gross margin trajectory for upcoming quarters.

Answer

Chairman and CEO Omar Asali confirmed robust North American growth, contrasting it with softness in Europe and mixed results in APAC, but expressed confidence in overall volume growth. He attributed automation project shifts to normal timing variations and reaffirmed the 50% growth target, citing strong demand from large accounts. CFO William Drew addressed margins, forecasting a sequential improvement from Q1 to Q2, with more significant gains in Q3 and Q4 as pricing and cost initiatives take full effect.

Danny Eggerichs, on for Greg Palm at Craig-Hallum, asked for more color on the rebound in consumables sales and customer utilization, and also inquired about capital allocation priorities following the Fortissimo investment.

Answer

CFO Eitan Zamir noted that consumables revenue returned to the $62-$63 million level, driven by higher utilization as customers shift more toward manufacturing. He reiterated the expectation for full-year 2025 consumables revenue to exceed 2024. CEO Yoav Zeif stated that the primary use of the new capital is for inorganic growth (M&A), positioning Stratasys to lead industry consolidation. He stressed that any acquisition must align with their strategy of focusing on proven use cases, recurring revenue, and profitability.

Danny Eggerichs from Craig-Hallum Capital Group asked for an update on demand from a geographic perspective, seeking to identify any pockets of strength or lagging regions. He also inquired about activity from REITs in the current interest rate environment and the performance of the builder-developer channel.

Answer

President and CEO William Boor identified the Southeast and Texas as continuing to be strong markets, while noting that Florida remains a laggard. Regarding REITs, he explained that demand for filling existing communities is expected to be solid, whereas new development projects might be more sensitive to capital costs. He confirmed that the builder-developer channel, similar to communities, continues to trend upward as a percentage of total business.

Danny Eggerichs, on for Greg Palm, inquired about the potential timing for achieving profitability in 2025 and asked for more detail on the size and opportunity of the Application Innovation Group (AIG).

Answer

CEO Jeffrey Graves stated that while he couldn't give a specific number for 2025 profitability, he is encouraged by rising application interest and cost management opportunities that could lead to positive EBITDA during the year. He clarified that the AIG's revenue is not material to the P&L, but its 26% year-to-date revenue growth is a critical positive indicator of future customer demand, especially in markets like semiconductors and data centers.

Inquired about the revenue contribution from the Automation Alley deal, whether it was a previously delayed deal, and the current state of the broader demand environment and sales cycles.

Answer

The Automation Alley deal for 125 OnyxPro units was smaller than the analyst's estimate and was not a previously delayed deal; other large deals are still in play. The company's Q4 sequential growth was not dependent on this single deal. The demand environment remains challenging but is showing slight improvement, and sales cycles are getting slightly better.