Good morning, and welcome to Bel Fuse Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead, Jean.

[Technical Difficulty] …that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2024. These statements are based on the company's current expectations and reflect the company's views only as of today and 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 we issued after 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 for the fiscal year ended December 31, 2022, 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 reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me on the call today is Dan Bernstein, President and CEO; Farouq Tuweiq, CFO; and Lynn Hutkin, Vice President of Financial Reporting and Investor Relations. With that, I'd like to turn the call over to Dan. Dan?

Thank you, Jean, and good morning, and thank you for joining our call of Q4 and '22-'23 year-end. Last month, Bel celebrated its 75th year of being in business. This is no easy feat in electronic components business and a testament to the generation of great assertions, customers and partners that we have a privilege to working with. Over the years, we have instilled the four principles of father Bernstein [ph] when he first started the company in 1949. We worked closely with our customer and product development teams, the benefits of collaboration will enable the company to stay relevant and on the cutting edge of technology. Two, establish and maintain relationship with quality suppliers; three, provide value to our shareholders. This is always central in our priorities and made possible for building and operating successful businesses; and finally, attract and retain talented associates. Bel has successfully navigated the challenges faced over the years and has stood the test of time by relying on these four principles. 2023 on many accounts was a challenging year for our initiative. Bel was able to perform better than most due to diversity in our end markets and our unrelenting dedication to continuous improvement by our global teams. It was also a transformer year for us as we consolidated four manufacturing sites, sold on our non-core Czech operations and divested our former headquarter building and focused on optimizing production and business processes. We finished 2023 with a non-GAAP adjustable net sales, which excluded expedited fees slightly up from 2022 levels with significantly improved profitability. It's also a year of record cash flow generation. This enabled us to explore broadly ways to invest in the business and return capital to our shareholders. As announced in our earnings release, the Board of Directors has authorized a…

Thank you, Dan. From a financial perspective, sales came in at 140 million for the fourth quarter and 640 million for the full year of 2023. On a non-GAAP basis, our adjusted net sales, which exclude expedited fee revenue, were down 12% in the fourth quarter of 2023 versus Q4 '22, but were up 1% for the full year 2023 over 2022. Consistent with prior quarters, there were large offsetting movements within our product segment with pockets of strength within Connectivity and Power helping to mitigate the significant declines in Magnetics sales throughout 2023. Gross margin continued to increase on a year-over-year basis for the ninth consecutive quarter and reached 36.6% in the fourth quarter of 2023 as compared to 31% in Q4 '22. Looking at the full year, gross margin was up by 570 basis points in 2023 as compared to 2022. Margin improvement continued to be led by a favorable product mix and the successful execution of a variety of cost reduction and efficiency programs. Before getting into the product segment discussion, there is one item to note which impacts our fourth quarter segment margins. Historically, and including the 2023 year, we have accrued our global incentive compensation expense in the corporate segment throughout the year and pushed down the appropriate annual allocation to the product segments in the fourth quarter. Due to a shift in our incentive compensation program to a calendar year basis, there were five quarters of this expense pushed down to our segments in the fourth quarter of 2023. Aside from this, the year-over-year period disclosed in our earnings release are generally comparable. However, there is a larger disconnect if looking at segment margins on a sequential basis from Q3 '23 to Q4 '23. Now turning to our product groups. Sales of our Power…

Thank you, Lynn, and good morning, everyone. As Dan mentioned, 2023 was a solid year for us in terms of holding our revenue base and seeing significant improvement in profitability and cash flow generation. I wanted to take this opportunity to thank our global team for their tremendous efforts, creativity and ingenuity this past year as we push for continuous improvements in all areas of the business, and our team answered the call and delivered above expectations. The priority of 2023 was to strengthen Bel's foundation, and this was achieved with much of the housekeeping efforts now behind us, the focus of 2024 will be threefold. First is top line growth. This includes investing in customer relationships, identifying new sales strategies, determining which end markets and geographies to double down in and, most importantly, the development of new products to support Bel's growth in the future. A quick comment here on the sales team. We've done a lot of work on that in 2023. We've added some new team members across the globe. We also rolled out a brand-new compensation and incentive structure that went live as of January. And the intention there is to really reward success and delivery with direct alignment and motivation to our associates. Second is further leaning out the way we do business. While we have accomplished a number of items, we still have a few projects we are working on. For example, we just kicked off a new project in the Connectivity side where we're streamlining our operational -- operations there for our passive connector business, transitioning the manufacturing out of Pennsylvania into other existing Bel facilities. This new initiative is expected to be completed by the end of 2024 and is anticipated to yield incremental annual cost savings in 2024 to the tune…

Thank you very much, Farouq. At this time, we'd like to open up the call for questions.

[Operator Instructions]. Our first question is from Jim Ricchiuti with Needham and Company. Please proceed.

Hi, good morning. Thanks. I just wanted to go back to that comment about possible improvement in Magnetics looking out to Q2. How much of that is just a function of some of the perhaps the extended shutdowns in -- coming out of Chinese New Year picking up the business, picking up in Q2? Or is there actually some signs of improvement in demand?

Yes. So Jim, thank you for the question. So taking, again, a step back here with the over inventory, obviously, demand is down. So when we look at our suppliers and also our customers, they're taking this extended or longer maybe than usual time off for Chinese New Year to kind of address the situation. Obviously, the hope there is to contain cost and result in some inventory digestation. Do we expect that to digest through all that inventory? I don't think so. And then also -- so that's why we do expect it will be a little bit carrying through into Q2. The other thing I would note, and as you know, in our specifically kind of networking Magnetic side here, we've seen some of these press releases come out in the last month or so where this is pretty well documented on the inventory side and the various public statements out there also said roughly 2 quarters. We, I think, align on that here internally as well.

Okay. And just turning to the Power Solutions portion of the business, how would you characterize the overall demand level? I mean it was a bit of a weaker showing. You're still seeing signs, I think, of strength in some of the major end markets, including networking. But I wonder if you could just give some color on that. And Lynn, I don't know if it's possible, if you gave it, I may have missed it, you gave some breakdown on e-mobility for the year. What was it for the quarter, same thing on commercial air, if you would? And then I'll drop back in the queue. Thank you.

So maybe I'll take the first part of that, Jim. As we look at power and overall business, when we look at 2023, Q1 last year was our strongest quarter, and you followed our stock for a long time in our company, and I'm not sure that's ever happened. And part of that, specifically on Power, is there was these catch-up orders in Q1, Q2. And then, obviously, we saw a little bit of a step-down, but still strength in performance and impressive margins coming out of our Power group. When we overall assess the Power group, I would say we see pockets of strength, but also pockets of weakness. So when we look at, for example, distribution in power, that is a pocket weakness and has been, I think, probably for the majority of last year. We also do some -- see weakness in that segment within our fuses business. But we also see some strength, as talked about, in terms of industrial, rail and e-mobility. So stated differently is our Power business has been able to perform despite not humming along on all cylinders here, which I think is a testament to the work that's being done on the operational side of that segment. And then I'll turn over to Lynn on the eMobility.

Yes, sure. So just to quote some fourth quarter sales numbers for some of these end markets. Commercial air Q4 '23 sales were 11.4 million. Military, which is just dry there, was 10.8 million for the fourth quarter. eMobility was 5.7 million, and rail was 8.9 million. Those are all fourth quarter '23 numbers.

Got it. Thank you. I'll jump back in the queue.

Our next question is from Bobby Brooks with Northland Capital Markets. Please proceed.

Hey, good morning, guys. Thank you for taking my question. You know, obviously, a positive note coming out of the quarter was this $25 million buyback announcement. And I was just curious if you could help us frame how you expect executing that going forward. Reading the 8-K, I know that there's no expiration date on it. So maybe just some color on how you guys are thinking of using that as an additional capital return to shareholders?

Yes. Thanks, Bobby, for the question. As noted, as a company that's been on a journey of transformation, this is the first time where it will be out in the market doing a formalized buyback since 2012, so a better part of the decade. And our approach here is, I'm sure we'll kind of see how it goes and learn a little bit, but we do need to be mindful as we execute the buyback our average daily flow, right? So as we think about how do we do it in a fair manner is to kind of execute it in a more programmatic setting. So we will be doing that on the programmatic side. The lack of exploration dates, if you will, I would kind of phrase it this way, our intention is to not elongate this thing. But we need to be able to do purchases with the parameters of the program, but we do expect that to be, I'd say, relatively in a handful of quarters to be through that, pending market conditions, obviously.

Got it. Got it. And then just talking about -- so I think the verbs in your press release and just on this call the shift to focusing on growth, I think, is interesting. You talk a little bit your -- you talk a little bit about identifying new sales strategies, developing new products and figuring out geographically where you should focus on that growth. Could you -- we're about two months into the first quarter. Could you maybe talk about any early results or trends that you've seen from that re-emphasis on top line growth? And maybe talk about what products -- what product verticals are you really looking to focus on developing new products? And why that's the focus going forward for -- on those new products? And maybe I would guess that it probably aligns with what you're seeing in end market demand?

Yes. So maybe taking a step back here, Bobby, you're right, obviously, we partner with our customers to develop new products. And as we talked about on the call, our customer engineers in the last, call it, two to three years, because of the supply chain challenges, were focused on finding alternate sources for products and qualifying new components on their systems to get products out the door, so what we call fulfilments, okay? As the supply chain has eased up and some inventory has been building up in the channel, we're seeing more of those engineering resources re-pivot and focus on Generation 2.0, 3.0 and kind of the next generation of technology. So as we're seeing that re-pivot, we are obviously there at the forefront of these discussions with our customers. Now despite some of the guidance that we gave here, we are seeing some nice signs of win, I'd say, across our portfolio. So for example, if we look at the connectivity side, while there is challenges through, for example, the on-premise wiring, we're seeing robustness as we talked about commercial air and defense. But from a new market kind of perspective, space, we believe, is an emerging and will be an emerging and growing area. We've been going after that for some time. And we're seeing some nice conversions into decent, call it, seven-plus figure type orders. So these are great products to be in. So that's just an example on connectivity. So when we look at the power side of it, obviously, we have, I said, some softness, but we see some areas of nice new development, whether it be in some of the legacy industries we're in such as rail, we are seeing some nice increase, let's say, discussions being had around AI and some of the investment going on there because we think our Power business will -- these are power-hungry units that support the whole infrastructure, so would be [indiscernible]. So, we're seeing some nice chatter and discussions wrap up. In addition, as we talked about eMobility, and obviously, we're exploring some new other areas. Within also Magnetics, we do see some nice green shoots of growth as well that we're going after. But again, these are the sales cycles in a down market take a little bit longer. So I think the revenue situation of Bel Fuse in Q4 and the guidance we gave out for Q1 here, I think this favors a lot of the good stuff that we do have going on. One comment I will make, though, we talked about this in our 10-K, we do have a concentration of, call it, a couple of key customers within our networking side, partners -- channel partners. So as a result of that, this is not a kind of a broader thing. So it's a little more contained. Maybe I'll turn it over to Dan can give some color?

I think, Bob, when you look at new opportunities, I think when we really have tried to focus over the two years, how do we address the new young engineers. And our focus was, if you go back 10, 20 years ago, most engineers were dealt with guys that knock on the door, either a rep company that will work up for commission or an [indiscernible] deal sales people. As times changed, nobody asked him I'm to talk to people, they want to get on the Internet and get their components as fast as possible, the Amazon model. There's two leading companies that are leading the charge in this. One is called DigiKey, the other company is called Mouser, which is owned by Berkshire Hathaway. Both companies are multibillion-dollar companies. And their whole focus is how to get products to the engineering community a lot faster than they have done in the past. Over the past two or three years, we made a major effort and to build our relationship with those two key e-commerce distributors. With that in mind, when we acquired CUI, people said to you, did you buy CUI because it was a power company? We bought CUI because of the digital marketing capabilities they had and the relationship they have with DigiKey. So with the addition of CUI to our product portfolio, we're now ranked number 15 at DigiKey and they have over 5,000 suppliers. And the same thing with Mouser, we made tremendous inroads in Mouser where our salesperson was voted a salesperson of the year four years in a row at Mouser. I think there's only three people that obtained that goal. So our focus is as the world changes, as we say, we have to change with it. And we really have to entrench ourselves with these e-commerce distributors moving forward. I'll give you the best example. At Cisco, we have two direct people, salespeople at Cisco. We have two engineers with badges like Cisco, and we also use two rep companies. So at any point a day, we probably have 10 people calling at Cisco on Bel's behalf. However, we did receive a fuse order a while back, and we call up our rep company, we call up our direct salespeople. We call it our FAEs and see where it came from, and it came from DigiKey. And this is what we see more and more that engineers are working through them to get components quickly. And that's what we really have spent a tremendous amount of time, and we should see a lot more success as they keep planting more and more seeds.

Got it. That's really good color on the new product growth going forward. But maybe any just early -- any early reads on the growth initiatives that you're looking to do in the first quarter in terms of seeing any sort of geographic areas that you're going to kind of start to focus on?

I think the area that we felt that was underdeveloped was for us was Europe. We went in and we hired Molex [ph], a sales person that knows the market very well. Our focus was, hey, guys, we need a lot more people in the territory to be successful. She hired a whole new team of people, and they all have very strong backgrounds. I think now we're represented every -- with a direct person, every person in Europe. However, for all products on how we sell, it takes us about six months to a year on the Magnetic side and on the Power side to get approvals. On the Connector side, you're talking two years minimum to get products approved. So what we're using now is seeing how Europe works with a more direct sales force, more involvement and compare that to what we have throughout the world today. So it's -- again, I'm hoping by summer that we can bear some fruit. But we have -- for example, we have two fuse opportunities in Europe, which is each $1 million and one we already got approval. So to get $1 billion fuse or I think we get maybe one every 10 years. So we are seeing that they are opening up substantial opportunities that we haven't seen in the past.

Got it. I’ll return to the queue. Thank you, guys.

Thank you, Bobby.

Our next question is from Theodore O'Neill with Litchfield Hills Research. Please proceed.

Thank you. I want to follow up on the e-mobility side of the business. You can't miss the bad press that's coming out on the EV side with Rivian and Lucent reporting recently. Are you positioned sort of better in that space because you've got a greater focus on charging infrastructure and commercial vehicles? I just wonder if you could give us some...

I don't think, again, we've tried to keep away from the Tesla’s on the power side, anything that's high volume, what you're concerned about. So, again, when we look at Rivian and Lucent or Tesla were more in the circuit protection side of that business, where we feel that it's more feasible and you're not going to get killed if there's a down market. However, our focus is more in niche markets, for example, school buses, heavy-duty equipment, marine equipment. So we're not really looking at high volume of our EV business. Do you want?

Exactly. I think we're -- maybe taking a step back, these products that we are doing are going into these niche applications have a lot of software and firmware on them. And there's a lot of, let's call it, demand requirements on what we do, so not high-volume commodity passenger vehicles. That's one. Two, is when we look at the customer base in that it ranges from, call it, start-up, new companies trying to do some things that are very interesting and forward to regular way household names. So I think we're covering a pretty broad gamut of those players. These price points are very expensive, let's say, from -- to the end users. So as a result of that, there is an investment. And also generally, the users, our customers' customers, if you will, have kind of a big vision around either kind of sort of incentives or mandates along with views of being more green. So what drives those decision purposes a little bit more now to -- we ended up the year a little bit less than where we thought we would end up because as we've seen some of the more start-up folks that are reliant on capital raises be a little bit -- folks that are reliant on capital raises, be a little bit challenge. So walking out with a 40% increase year-over-year is great, a little bit behind expectations for us. But nonetheless, we think this is here to stay, and we think this is a temporary kind of thing in the market right now.

Okay. Thanks very much.

Our next question is from Hendi Susanto with Gabelli Funds. Please proceed.

Good morning, Dan, Farouq, and Lynn.

Good morning.

My first question is about the possible rebound in the second half. Do you have any anticipation which areas will rebound earlier versus later?

We haven't heard anything in the marketplace stating that at all. I think everybody is saying the second half of this year. So no, I don't think we're ready to jump back on yet.

I see. And then, Dan, what is the likelihood that the rebound will take place in Q4 instead of Q3?

If I do that, I wouldn't be working at Bel Fuse.

Maybe taking a step back, right? We look at -- and Dan can correct me upon this. But historically, when we've gone through periods of softness, I'd say, one to three quarter is probably the norm, maybe four quarters worth. When we look at the industry, it started going through this softness roughly around Q4 '22. So if that is true, in Q4 '22 was the date, we are roughly five quarters in, right? And now we're heading into the sixth quarter. So probably a little bit extended from a historical perspective. So as kind of we talk to our customers, both distributors and OEMs, various industry literature, when we look at the point-of-sale data, the distributors, we're seeing demand come through just the shelf, not getting replenished, all of that kind of leads to amalgamation of us coming up the best guess assessment of second half growth, first half digestation. And then we also look at some of these other public companies out there on the hardware side that serve some of the end markets we serve, it kind of reaffirms our belief. But at the same time is that bulletproof answer to that, unfortunately, I don't think so. But we are optimistic that we came into this softness after the industry maybe. And hopefully, we exit of around the same time as they do, assuming our air-related guess is aligned on that.

Okay. And Farouq, the backlog order, I believe, is the $373 million. You indicated that it's still considered to be relatively high based on history. What backlog order level should we think when you will feel it's somewhat like closer to normal to history?

Maybe I can take this one. Sorry to jump in. I think post COVID, I don't know if there's normal any ever again from us. So before COVID, we used to get quarterly quotes. We have to bid our products every quarter. And the average purchasing person would give us 4 different purchase orders for a part number. Since COVID, that stretch to, we were getting very old every 24 months. So that's coming back a little bit. So we don't know where it's going to end up. But if I'm a head of a purchasing department, why do I want to want to order 4 times a year, when I can order once a year, I can cancel a product down the road. So I think that's still filtering out where it's going to be, but I don't think we're going to get back to $150 million level, which was our pre-COVID level.

Correct. I mean -- and maybe I think about to kind of Dan's point is historically, it's been roughly that quarter. And during the extended times, it was roughly, call it, four-ish quarters, a little bit less. So if the bookings is 1 and 4, right, do we go all the way back to 1? We don't think so. We think there's some new order behaviour and new ways of doing things. And also people obviously are coming through some rough times with some scarring tissue here. But to Dan's point is, we don't know where it kind of settles down. So that's why we continue to say for right now, it's elevated. And also, when you got kind of really kind of peel it back a little bit, we'd probably look at magnetics as probably normalized. And then we'd probably see power is a little bit elevated and connectivity is maybe somewhere in the middle to elevated.

Okay. Yes. And then any insight into pricing environment in 2024?

Historically, again, going back historically, as lead times come down, we do see more price pressure. But at this point in time, we haven't faced an abundance of price pressure. And again, I don't know if it’s a price pressure. And again, if things are going to change or not, but historically, as lead times do come down, we do face a little bit more price pressure. But we have not seen that yet to date.

And the flip side of that equation, correct me if I'm wrong here, Dan, is when lead taps come down, it means we're back into the regularly normal ordering pattern. So therefore, volumes normalize, right? So the idea here is generally is there's usually kind of a concession to a little bit of price to get a little more volume type thing, right? So I think when that normal cycle, we have not -- we're not there yet, I would say.

I see. And then last question. Do you have updates on Bel Fuse investment in electric in terms of what activities in 2024, whether there are some milestones in 2024?

I think, again, we took a minority position in it. We're running, I think, at this point a year late.

I'd say we had -- I think our bullish case was maybe we see something transacted end of 2024. But now we're thinking probably more on our base case, which is a 2025 event. There's a lot of development going on, on the, call it, second generation products and also in their kind of first-generation products, some of the, I'd say, some of the customer challenges that we talked about on our eMobility business, they're seeing a little bit of that. So, when we kind of put the second-generation products with some of the challenges they're having in the first generation in terms of their customers' challenges, we don't foresee any kind of milestones in terms of any kind of triggers on calls or anything like that in 2024. And we think 2025 is probably kind of our base case at some point.

But we are working with them very closely. Our sales team, our purchasing team, how we manufacture. So we are truly aligned that if they hit the target or small they hit when we do merge, that we're very -- 2 organizations that are very working close together. So I'm pleased by the relationship we have today.

Thank you, Dan, Farouq, and Liam.

Our next question is a follow-up from Jim Ricchiuti with Needham and Company. Please proceed.

Thanks. Going back over the past year and continuing now, you guys have done quite a bit of work in terms of restructuring, and it's been evident in the gross margins. So I'm wondering, just given the kind of guidance we're looking at for Q1, how should we be thinking about gross margins in terms of the puts and takes for with that? And these are obviously lower levels of revenue, but you've also been restructuring the business.

So Jim, I think for Q1, what we had mentioned in the earnings release was that from a margin perspective, we expect to hold with the full year '23 margins. So it is a step down from Q4 margin levels. And a lot of that has to do with the lower sales volume that we're seeing in addition to just Chinese New Year, it's typically a lower margin quarter for us. Looking beyond Q1, we would expect those margins to normalize a bit back to where the 2023 later quarters had been running, but we do see a step down there in Q1.

Great. And that's helpful, Lynn, because that's also where I was going with that as we start potentially seeing some improvement in Q2 and hopefully in the back half of the year, you're actually starting off with a higher level of margins than we've seen historically with these kind of revenue levels. Okay. Thank you.

You're welcome.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Dan Bernstein for closing remarks.

Once again, we appreciate everybody joining the call and say thank you very much. And looking forward to improved results as we move along in the year. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.