Good morning, and welcome to the Bel Fuse First Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead, Jean. Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under the 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 that we issued after the 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 as 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 September 31, 2023, 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.

Thank you, Jean. Good morning, and thank you for joining our first quarter 2024 earnings call. Overall, we were pleased with our financial results for this quarter. Our sales came in at $128 million, which was within the forecast range we provided at our last quarter earnings call. It is encouraging to see our margins continue to trend positively. We continue to benefit from the diversity of our segments with strength in connectivity on the sales side and impressive profitability for both our Connectivity and Power segments. These areas help offset the softness in the Magnetic segment. These outcomes were largely within our expectations. In late February, we enhanced the Board-approved $25 million share repurchase program. Shortly thereafter, open market purchases of both classes of stock began pursuant to the program's authorization. As of March 31, we utilized $6.3 million to repurchase a total of 109,000 shares. A 10b5-1 plan has been in place, ensuring the company's broker has the ability on an ongoing basis, including post-quarter and during our regular buyback process, to make open market purchases in accordance with the company policies. As of April 24, our program-to-date has repurchased a total of $11.1 million, representing 189,000 shares. We expect to continue executing this program with the internal guidelines that we have established. In March, the company announced the upcoming retirement of John, a long-standing Board member and audit committee member, which will conclude at the May 2024 annual shareholder meeting. On behalf of the Board, I want to express our gratitude for John's many contributions to Bel over the past 28 years. John's insight and counsel will be missed, and we wish him the best in his retirement. With the upcoming vacancy, the Board nominated David Valleta as a new director at this upcoming meeting. Dave brings 40 years of sales and growth experience in the electronic component industry, including leadership roles at major interconnected firms. We're excited about the potential of adding Dave to the Board, given his tremendous wealth of knowledge in building large organizations within our industry. His experience will be instrumental as we continue implementing our growth strategy. Additionally, as noted in our last earnings call, there will be a transition on the executive team in July with the retirement of Dennis Ackerman and the promotion of Steve Dawson to the Power segment. When these transitions become effective, we will welcome them as they align with our future strategy for the years to come. And with that, I will now turn the call over to Lynn.

Thank you, Dan. From a financial perspective, in summary, we saw continued margin expansion on a lower sales base from Q1 2024 versus Q1 2023. First quarter 2024 sales came in at $128.1 million, representing a 25.7% decline from the first quarter of 2023. The majority of the sales fluctuation was driven by our Power and Magnetics segments, which we will discuss further. Our gross margin increased to 37.5% in Q1 2024 from 31.1% in Q1 2023. These profitability improvements were largely driven by our Power and Connectivity segments. Turning to some details about the product groups, Power Solutions and Protection sales for the first quarter of 2024 were $60.2 million, representing a 27.6% decline from Q1 last year. The decline in sales was mainly due to lower sales of our power products used in networking and consumer applications. However, we saw strength in sales of our rail products, which grew over 50% from Q1 2023, reaching $10.3 million in sales in Q1 2024. Despite the overall decline in sales, this segment posted a gross margin of 44% in the first quarter, reflecting an 830 basis point improvement from Q1 2023. We view approximately half of this improvement in Power margins as sustainable, driven by more permanent factors, including cost-reduction efforts, both on the procurement side and headcount wise, the lower volume of low-margin expedited fees, and overall product mix. The balance of the basis point improvement in gross margin versus Q1 2023 relates to items that are either nonrecurring or, in the case of favorable FX, temporary in nature and should not be factored into a normalized view of gross margin for this segment. Turning to our Connectivity Solutions Group, sales for Q1 2024 came in at $54.3 million, up 1.7% from Q1 2023. Q1 2024 sales into commercial air applications amounted to $14.6 million, consistent with Q1 2023. Products sold into defense applications totaled $10.7 million for Q1 2024, up 3.2% from Q1 2023. The year-over-year increase in sales was despite the divestiture of Connectivity's Tech business in June 2023, which previously contributed around $1.5 million per quarter to the segment. The gross margin in the Connectivity Group was 36.1% for the first quarter of 2024, a significant improvement from 34.1% in Q1 2023. This margin expansion was made possible due to the operational efficiencies achieved through facility consolidations completed in 2023, along with the implementation of contract renewals on more balanced terms. The favorable margin factors were partially offset by minimum wage increases in Mexico that went into effect in Q1 2024 and the unfavorable impact of FX related to the peso. Lastly, our Magnetic Solutions posted sales of $13.6 million in Q1 2024, representing a 62% decrease from Q1 2023. This reduced level of sales was generally in line with expectations discussed on last quarter's earnings call and largely related to lower shipments into a large networking customer as they work through their inventory on hand. The gross margin for this group was 16% in the first quarter of 2024 as compared to 22.8% in the first quarter of 2023. This change in margin was primarily driven by the lower sales volume in Q1 2024, partially offset by lower fixed overhead costs resulting from the facility consolidations in China, which were completed in late 2023, and favorable FX related to the Chinese renminbi versus Q1 2023. At the consolidated level across all product segments, our backlog of orders totaled $350 million at March 31, 2021. Our selling, general and administrative expenses were $24.9 million or 19.5% of sales, down from $25.3 million in Q1 last year. Within SG&A, an increase in salaries, fringe benefits and amortization expenses were largely offset by lower legal fees. If you recall, we incurred $1.6 million of legal fees related to the MTS motivation in Q1 2023, and these expenses did not recur in Q1 2024. There were no unusual items of note contained within SG&A during Q1 2024. Turning to balance sheet and cash flow items. We ended the quarter with $121.2 million in cash and securities, a reduction of $5.7 million from year-end. We generated $6.2 million in cash flows from operating activities during the first quarter of 2024 and had capital expenditures of $2.9 million. It should be noted that Q1 included seasonal payments related to our annual bonus and corporate insurance premiums. From an inventory perspective, the downward trend that we experienced over the past several quarters has continued into Q1, reflecting a $5.7 million reduction from year-end. The lower inventory levels were primarily in the areas of raw materials and components as we continue to work through our inventory on hand. I'll now turn the call over to Farouq for additional commentary.

Thank you, Lynn. Good morning, everyone. As noted on our last earnings call, we anticipated the first half of 2024 to be slower. Our first quarter results were in line with our expectations. The second quarter of 2024 is expected to be largely similar to the first quarter in terms of sales volume with margins expected to normalize a bit, given the impact of one-time items in Q1, as mentioned by Lynn. In summary, based on information available to us today, our outlook for Q2 sales is in the range of $125 million to $135 million with gross margins in the range of 34% to 36%. There are several items to keep in mind when bridging our Q2 2023 of $169 million to the expected range for Q2 2024, and we'll discuss these by segments. On the Power side, our Q2 2023 sales included $5.7 million of expedited fee revenue that is not expected to reoccur in Q2 2024. Second, as previously noted on our last earnings call, Q2 2023 included an estimated $10 million of tech-up sales that resulted from past-due orders connected to raw material shortages in 2022. These will not recur in Q2 2024. Third, our eMobility business is softer this year due to the current interest rate environment, which has delayed capital investment projects at our customers and their customers. eMobility sales in Q2 2023 were $8.5 million, and we anticipate this will decline by roughly $3 million to $4 million in Q2 2024. The balance of the expected decline in power relates to a continuation of lower sales into our distribution partners and consumer end markets, which, while similar to Q1 2024 levels, will represent a lower level than Q2 2023. On the Magnetics segment side, given the current status of shipments into our large networking and distribution customers, we're projecting only a slight rebound in Q2 2024 from Q1 2024 levels, accounting for approximately $10 million of the expected decline from Q2 2023. Within our Connectivity segment, we are estimating sales that are largely in line with Q2 2023, potentially up a bit due to recent contract renewals. Looking to the second half of 2024, we remain optimistic that some level of recovery will occur, though the degree and speed of rebound will likely vary by product line and end markets. Overall, we do not anticipate a quick turnaround and instead expect a slow and steady recovery as certain customers and end markets return to their normal level of shipments upon inventory depletion. Shifting our view to medium-term growth drivers, two areas that we are excited about are space and AI. Let's first discuss the end market space. This is a very harsh environment that requires years of design work to enter. Until recently, the volume of product going into space applications for anyone was limited. Bel has successfully had its products in space since the 1970s. As a result, we have proven ourselves as a reliable supplier of connectors and components that can withstand harsh environments, and we are better positioned today because of this legacy. Our Connectivity segment has secured significant design wins in multiple commercial and military satellite platforms as well as ground-based support applications for both copper and optical connectivity products. We believe these design wins will accelerate connectivity growth in the space market, with 50% year-over-year growth in that market expected in 2024. To provide some context, in the full year of 2023, we had sales of $4.5 million in space applications. During the first quarter of 2024 alone, we shipped $2 million of product into this end market and are forecasting $7 million for the full year of 2024. Similar to our eMobility business, this has a longer development cycle and will take time to ramp up, but we believe we are reaching a breakout point for space applications in 2024. We continue to invest in this key market to grow our portfolio of space-rated products and expand our internal capabilities, allowing us to support our customers' most extreme connectivity requirements. The second area of note is in the realm of AI. While we do not have significant sales directly tied to AI today, our potential future benefits are becoming clearer. We view our Power segment as the biggest potential beneficiary of the industry's transition to AI. While we have products in each segment that support general networking applications, the systems that will support AI consume significantly more power than traditional systems. Even if the number of data centers that we currently participate in remains the same, the power supply dollar content per AI server is expected to be 2 to 8 times higher. Another item of note is that our existing products and capabilities will support this future need, requiring no major new product designs for us to support AI—just an additional volume of our existing Power products or possibly some minor modifications. While still in the very early stages, we are seeing an increased level of activity and discussions happening with our existing networking customers and also with specialty clients in high-performance computing. We are beginning to see early production volume orders from many of these customers, which is exciting for us. The last item I'll touch on is the M&A market. The volume of M&A opportunities available to us in 2024 is substantial, and we are observing a shift here. There appears to be a more robust pipeline of opportunities becoming available, and we continue to assess those that may be a good fit for us. There's nothing to report here today, but we're actively reviewing a variety of potential targets. Overall, beyond the near-term uncertainties surrounding timing and scale of recovery, many areas are energizing for our team in the long term. Bel has a long history of evolving to support new end markets, and we believe we are at a pivotal point of evolution. Space, AI, and eMobility are seen as the next new end markets for Bel products. We're excited about our current positioning in each of these areas and the growth potential they present for Bel's future. With that, if we can open up for questions?

Our first question comes from Theodore O'Neill with Litchfield Hills Research.

Farouq, I think you covered this a bit in your prepared remarks, but last quarter's miss was primarily related to a single customer; it seems it's a slightly broader inventory issue now. And does it concern you that the GDP growth rate for Q1 is sequentially lower than it was for Q4?

I think you're referencing the Q4 numbers heading into Q2, correct? We did miss largely with one customer. But remember that heading into Q1, which is seasonally a bit weaker, distribution—a number of folks—experienced a slight inventory fall. So we view it as a continuation of inventory destocking. From a Q4 to Q1 perspective, we still see challenges from the same set of issues we largely saw in Q4. Therefore, there haven't been any, let's say, new struggles, if you will. Regarding the GDP side, obviously, we all hope for it to move in the right direction. I think it will impact our customers a little, but ultimately, given we participate in more of a technology solution industry alongside our customers, while it's not entirely disconnected from GDP, we do believe there is a different value proposition.

Following up on that comment, would you mind repeating what you said about the dollar value for the power supply transformers in the AI space? Was it 2 to 8 times?

Correct.

Our next question comes from the line of Jim Ricchiuti with Needham & Co.

A couple of questions. Normally, when you come out of Q1, there's a bit of a seasonal pickup related to the Chinese New Year. Is that less of a driver for you this year, just given the current environment?

Yes, Jim, that's historically been the case. But this year, because our Magnetics business was so low in Q1, that's normally the area where we do see that pickup from Q1 to Q2. But it's just Magnetics at a depressed level right now as we're waiting for these large customers to turn around. So we're just not seeing the same seasonal pickup from Q1 to Q2 within Magnetics, a little bit, but not to the same degree.

Remind us again, as we think about the back half of the year, when did you see the really sharp falloff in sales in the networking sector? When do the comparisons really get easier?

If we are just talking about Magnetics first, we started seeing a decline in Q2 of 2023, defined further in Q4. I think the most recent drop-off occurred in November of 2023. So there were basically two months of that drop-off in Q4. We felt it in the fall in Q1, and this is what we're projecting here for Q2 to still be in a similar environment. On the Power side, that was very strong on the networking side in Q1 and Q2 last year. We didn't experience as large of a drop-off, but it did start to decline a bit in Q3.

This last question relates to the whole environment in terms of destocking. How would you characterize what you're seeing in terms of distributor inventories and the whole destocking in the rest of the business? Has that improved much? Or do we still have a couple of quarters where we might have to see that?

This is Daniel Bernstein. It always pushes back six months. I was in Europe visiting some of our key distributors, and the sentiment is that we hit rock bottom in February, and things should start to improve. However, they are saying that by the end of the fourth quarter, inventory should be normalized and they can return to normal ordering processes.

Jim, we also touched on that, right? It’s not a switch being flipped. So it will be a rolling type of pickup. To Dan's point, some will come earlier, some will come later. This won't clear all at once.

Our next question comes from the line of Hendi Susanto with Gabelli Funds.

I would like to get more insight into how to think about your gross margin. Given the lower sales, Bel Fuse has demonstrated resilient gross margin. How should we view gross margin when the market recovery occurs and sales gain meaningful recovery? How much gross margin expansion should we expect? Or should we expect that the sensitivity on the scale of revenue is not meaningfully enough?

Hendi, I'd say a couple of things that play into this mix. The Magnetics segment is lower gross margin by definition, which will compress your overall gross margin as we start seeing recovery. However, when our Magnetics business is running healthy, it contributes significantly to operating profit and EBITDA. This mix will play a factor in our gross margin. Within each of our product groups, like Power and Connectivity, we need to be mindful of some variables as well. The way we tend to think about it is we guided to 34% to 36% at our current levels. Increased revenue will provide operational leverage and should be additive. We view 34% to 36% as a durable level given our current initiatives, and anything above that should positively impact our bottom line. Lynn outlined some of the fluctuations we covered during our commentary.

Could you provide more insights about the exciting growth opportunities in space and AI specifically? Which applications and end products should we pay attention to? Should we be focusing on Leo satellites or centralized applications? For AI, do you have a more significant presence in networking versus computing?

I think for space we're working very closely with Amazon. We have filed products for all the Amazon satellites now and are looking to build a relationship with SpaceX.

Our relationships in space are broad-based due to our legacy. We participate with many well-known commercial and military clients. As the number of products launched into space increases, it will benefit us. Regarding AI, we face a fundamental requirement for higher power density. We have been developing products for years that cater to this. We also maintain strong relationships with wafer-scale chip manufacturers––those are key areas for us. When we look at AI, we know there is an opportunity to enhance support at different levels. We closely monitor any major data center moves. We expect increased orders from existing clients in networking and computing—those early signs are encouraging.

Given the rapid developments and investments in AI, how should we think about the timeline of AI opportunities? Will they materialize in the second half of 2024 or beyond?

I want to be cautious here, Hendi; we are not projecting $100 million in revenue in the next three years. However, we began to see orders from these vendors in Q1 and more coming in Q2. We envision a steady growth pattern over time, likely increasing percentage jumps as the year progresses.

Given the current weaknesses in electric vehicles, what updates do you have on your milestones and expectations for electric investments?

I would say our electric investments are on track. We are facing similar challenges as our EV business. When we made these investment decisions earlier last year, we recognized it wouldn't yield results until later. We expect products developed in this line to arrive in the market around 2025.

Our next question comes from the line of Bobby Brooks with Northland Capital Markets.

You mentioned a very strong buyback number, which far exceeded expectations. Should we assume this level continues? What does that mean for the pace of the buyback going forward?

We must assess the buyback program in real-time, and our expectation is that 2024 will be the year we work through the program. We've conducted approximately $11 million out of $25 million in our planned repurchase, and we are in a blackout period now but will monitor the situation as it evolves.

Regarding those growth initiatives mentioned on the last call, particularly about the revamped European sales force, do you have any early reads on progress?

As we mentioned last time, we have a new sales director with a strong distribution background. We've already seen three unique opportunities that exceed $1 million each. We are confident about capturing two of these. While progress will take time, we are optimistic about these developments.

To add to Dan's point, our design cycles are long—months to years. Thus, while we note some inventory changes, there is an uptick in new product introductions as we align with customers. We're witnessing positive performance in our European business, which offers significant potential in the future.

Can you discuss how you're planning to continue to grow in the space segment? Could we see doubling revenues into that market in fiscal 2025? What is the three-year outlook?

The funding for space is rapidly increasing. It's an evolving sector with many resources dedicated to launching more products into space. There's a natural lifecycle for satellites and new technologies. Previously, we saw revenues of $2 million to $3 million, growing to $4.5 million last year, and we're targeting $7 million for this year. Doubling revenues in 2025 is feasible depending on the development cycle. From a margin perspective, we are keen to expand into new markets as we grow. The growth for us aligns with higher-margin opportunities, which we expect to see as we increase our work in this sector.

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

Thank you for joining us today, and we look forward to speaking to you soon.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.