Bel Fuse Inc. (NASDAQ:BELFB) Q4 2023 Earnings Call Transcript

Bel Fuse Inc. (NASDAQ:BELFB) Q4 2023 Earnings Call Transcript February 22, 2024

Bel Fuse Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: 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.

Jean Marie Young: [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?

Dan Bernstein: 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 new program for the repurchase of up to $25 million of the company’s outstanding shares in the open market, privately negotiated or block transactions or otherwise in accordance with applicable laws and regulations of the SEC, including Rule 10b-18 of the Exchange Act. Additional details regarding the stock repurchase program are contained in the 8-K that was filed yesterday. Despite the many wins of 2023, we’re not able to be as acquisitive as we had hoped, given the limited availability of viable targets. As we look to 2024, I’m excited about the road ahead.

While it’s expected that the year will be off to a slower start, as consistent with the Board assessment throughout our industry, we do believe the second half of the year looks promising, assuming inventory levels in the channel normalize. With our previously announced facility consolidations behind us, we entered 2024 with a much more efficient cost structure, which will serve us well, especially with the current sales level of our Magnetics business. Turning to the management team. We announced last month that Steve Dawson will be taking the helm of Bel Power Group upon Dennis Ackerman’s retirement in July. Steve came to Bel through its acquisition of Power-One business from ABB in 2014 as an integral part of our turnaround story over the Power segment in recent years.

I’ve worked side by side with Dennis and the team for the past decade, coupled with his technical background and industry experience. Steve brings the right mix of continuity and fresh perspective to the role. I’m very excited to have him stepping up this summer as part of our going-forward executive team. And with that, I’ll turn over the call to Lynn to give us a financial update. Lynn?

Lynn Hutkin: 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 Solutions and Protection products in Q4 ’23 amounted to 69 million, a 16% decline from the previous year’s fourth quarter. On a full year basis, 2023 showed an increase of 9% compared to 2022, reaching 314 million in sales. The growth for the full year was mainly driven by higher demand for front and power products, which serve our networking end market. Sales of our eMobility and rail products also remained strong and helped us offset declines in circuit protection and distribution sales.

For full year 2023, sales of eMobility products amounted to 27.8 million, an increase of approximately 40% from the 2022 level. Products sold into rail applications totaled 30.1 million for full year 2023, up 33% from 2022. The gross margin for the Power segment was 40.2% for the fourth quarter of 2023, representing a 720 basis point improvement from Q4 ’22. On a full year basis, the gross margin increased by 760 basis points to 38.1% in 2023 as compared to 30.5% for 2022. These increases were primarily driven by a favorable shift in product mix, cost reduction efforts and favorable effects from the Chinese remedy. Our Connectivity Solutions group achieved sales of 50.6 million in the fourth quarter of 2023, an increase of 7.5% compared to Q4 ’22.

On a full year basis, 2023 Connectivity sales amounted to 211 million, an increase of almost 13% versus 2022. This improvement was due to the continued growth in the defense and aerospace industry, partially offset by softer demand from our premise wiring customers. For full year 2023, sales of products into the commercial aerospace end market amounted to 53.3 million, an increase of 72% from the 2022 level of 31 million. Products sold into defense applications totaled 44.7 million for full year 2023, up 25% from the 35.9 million in 2022. The gross margin for this group was 29.3% in the fourth quarter of 2023, up from 23.6% in the same quarter of 2022. On a full year basis, the gross margin improved by 830 basis points to 34.2% compared to 25.9% in 2022.

Gross margins for the 2023 periods were favorably impacted by the higher overall sales volume, multiyear contract renewals and operational efficiencies implemented during 2023, partially offset by higher wage rates in Mexico and an unfavorable fluctuation in exchange rates between the U.S. dollar and Mexican peso in 2023 as compared to 2022. Lastly, our Magnetic Solutions group sales declined by 49% from Q4 ’22 levels to $20.5 million in the fourth quarter of 2023. This resulted in full year 2023 sales for the Magnetic segment of 115.1 million as compared to 178.8 million in 2022. This segment has a large concentration of sales in the networking end market and is largely tied to the ordering patterns and end demand of certain large customers within that space.

The trends on top line in this segment is a continuation and further deterioration of what we saw in the second and third quarters of 2023. With lead times being down and new orders being shipped in the same quarter, this segment does not have the same visibility as for other segments. The intra-quarter sales that were expected in November and December simply did not trend prior and has become evident that the rebound in this space will take longer than originally anticipated. The gross margin for the Magnetic segment was 17.1% for Q4 ’23 as compared to 29.5% in Q4 ’22. On a full year basis, Magnetic gross margin was 22% in 2023 as compared to 27.6% in 2022. The lower sales volume and dual cost structure in place throughout much of 2023 were the primary drivers of gross margin reduction for the Magnetic segment compared with 2022.

These factors were partially offset by favorable exchange rates with the Chinese renminbi versus the U.S. dollar. On positive developments in the Magnetics group, we can confirm at this time that our large facility consolidation projects in China that will benefit this segment is complete. The leaner, more efficient operations and elimination of the dual cost structure should aid the margins of this group going forward. At the consolidated level across all product segments, our backlog of orders totaled 373 million at December 31, 2023, a level we still consider to be high based on our history. The selling, general and administrative expenses for the fourth quarter of 2023 were 24.9 million, down slightly from the 25.1 million in Q4 ’22. This reduction was primarily due to lower sales commissions and the reduction in progression fee.

On a year-to-date basis, SG&A increased by 6.7 million during 2023, mainly due to higher sovereign and fringe benefits in 2023, in addition to the MPS litigation block incurred earlier in 2023. Turning to our balance sheet and cash flow. We closed the quarter with 127 million in cash and securities, a significant increase from the 70 million we had at the end of 2022. During the fourth quarter of 2023, we generated cash flows from operating activities of 27.4 million, a 69% improvement from Q4 ’22. Looking at the full year of 2023, we generated cash flows from operating activities of 108.8 million, an improvement of 170% from 2022. Capital expenditures amounted to 2.5 million in the fourth quarter of 2023 and 12.1 million for the full year of 2023.

We continue to make progress on reducing our inventory levels and have achieved a $33.6 million reduction in inventory since the end of 2022. From a debt perspective, our outstanding balance remains at 60 million and is effectively subject to a fixed interest rate of 2.5% through our swap agreements that are in place through 2026. I’ll now turn the call over to Farouq for additional commentary. Farouq?

Farouq Tuweiq: 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 of $1 million. Third is capital deployment. It is evident, as Dan noted, that we are building up cash and now securities at a respectable pace, and we want to be good stewards of this capital. As such, and as Dan noted, we launched our first stock repurchase program since 2012. And this authorization is a proud moment for the Board and management team as we look to return cash to our shareholders. This was done at a time where our stock was discovering new milestones. To be clear, M&A is a top priority for us and must be aligned strategically and financially with our long-term goals. We’ll also look to reinvest in the business to support organic growth.

Increased investments in R&D to bolster new product introductions will be key. Additionally, another year of most likely elevated CapEx spend is expected in 2024 as we continue to upgrade aging equipment while introducing more automation to our manufacturing processes, again, the backdrop of rising wages globally. Now pivoting to 2024 and looking at that, as Dan mentioned and noted in our release, we expect a slow start to the year with a potential rebound in the second half. For the first quarter of 2024, based on currently available information and taking into account various financial and economic indicators, including what we see in our backlog and what we are hearing from our customers, we expect sales to be in the range of $125 million to $135 million.

Aside from the anomaly we saw in Q1 last year, 2023, there is a typical step down in sales from Q4 to Q1 due to the Chinese New Year shutdowns that do occur in this quarter, and this historical trend is expected to continue this year. When looking at Q1 2023, there are a few items to keep in mind as we bridge from the $172 million that was last year to the expected range of Q1 ’24. So I’m going to run you through these items to keep in mind. First, our first quarter ’23 sales included 7 million of expedited fee revenues that is not expected to recur in Q1 ’24. These sales previously benefited our Power segment. Second, if you recall, we divested our Connectivity business in the Czech Republic during mid-2023, which contributed around annual sales of around $5 million.

Third, we announced during Q3 ’23 that we walked away from roughly 9 million of annual sales within the Magnetic segment due to their low margin profile. Fourth, Q1 ’23 was one of our Power segment’s strongest quarters as they were finally able to ship orders that have been past due with the raw material shortages of 2022 easing by early 2023. These “catch-up orders” from Q1 ’23 and Q2 ’23 largely tapered off during the second half of 2023, as expected, and these heightened volumes are not expected to repeat in Q1 ’24. We estimate that there were approximately 10 million of these catch-up sales in Power in Q1 ’23 that will not occur. Fifth, on the differential between Q1 ’23 actuals and Q1 ’24 projections, we’re estimating that Magnetic sales will trend down further in Q1 and typical seasonality weakness and while accounting for the over inventory in the channel, we expect to account for approximately $20 million decline compared to Q1 ’23.

And lastly, due to the overall weaker demand within our industry right now, Bel’s factories in China will be taking an extended Chinese New Year holiday for a few additional days. While this is being done as a cost containment measure, it does result in a few manufacturing and shipping days. And one comment to point on that is we’re seeing our suppliers and also our customers and their contract manufacturers taking a longer Chinese New Year as opposed to last year. One — those were kind of the bridges from Q1 last year to this and just a quick comment. Bel is operating in an industry currently, as we all know, that has been going through an over-inventory situation throughout 2023, that we performed pretty well against that backdrop. So this industry-wide phenomena is hitting Bel a little bit more than we anticipated on the Magnetic side and do see — anticipate based on the conversations we are talking about to see a light at the end of the tunnel here in the second quarter.

Obviously, this is a very fluid situation that we are monitoring. The other thing to note in Magnetics is, as was talked about a little bit earlier, is the concentration of certain customers and end markets. One other thing is, as Dan also noted here, is we’ve gone through this down cycle in the past and will not be the last time. We’re confident in our ability to manage through this period, and we’ll be well positioned when the industry does rebound. Taking a big step back and looking at more macro 2024, we remain very excited and optimistic about some of our other resilient end markets such as commercial air, dispense, rail, EV, niche industrial and, more recently, space. We do expect a recovery in our distribution business, which, as a reminder, accounts for almost 30% of our revenue with very healthy gross margins.

One other comment is during these softer times of inventory in the last 2 years, the engineering resources at our customers and industry was really focused more on fulfilment and finding alternative sources to production. Now with the inventory situation, we are seeing our customer engineering resources re-pivot towards more NPI and more growth-oriented working on next-generation technology. We are excited to embrace the challenges and the opportunities of 2024 and are not deterred by this year — by this near-term bump in the road. We are on a journey, and our focus continues to be on a growth and progress for the long-term betterment of Bel. With that, I’ll turn the call back over to Dan.

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

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Q&A Session

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

James Ricchiuti: 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?

Farouq Tuweiq: 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.

James Ricchiuti: 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.

Farouq Tuweiq: 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.

Lynn Hutkin: 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.

James Ricchiuti: Got it. Thank you. I’ll jump back in the queue.

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

Bobby Brooks: 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?

Farouq Tuweiq: 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.

Bobby Brooks: 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?

Farouq Tuweiq: 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?

Dan Bernstein: 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.

Bobby Brooks: 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?

Dan Bernstein: 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.

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

Dan Bernstein: Thank you, Bobby.

Operator: Our next question is from Theodore O’Neill with Litchfield Hills Research. Please proceed.

Theodore O’Neill: 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…

Dan Bernstein: 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?

Farouq Tuweiq: 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.

Theodore O’Neill: Okay. Thanks very much.

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

Hendi Susanto: Good morning, Dan, Farouq, and Lynn.

Dan Bernstein: Good morning.

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

Dan Bernstein: 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.

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

Dan Bernstein: If I do that, I wouldn’t be working at Bel Fuse.

Farouq Tuweiq: 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.

Hendi Susanto: 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?