Q4 2023 Bel Fuse Inc Earnings Call
Participants
Jean Marie Young; IR; Three Part Advisors, LLC
Dan Bernstein; President, CEO, & Director; Bel Fuse Inc
Lynn Hutkin; VP of Financial Reporting and IR & Company Secretary; Bel Fuse Inc
Farouq Tuweiq; CFO & Treasurer; Bel Fuse Inc
Jim Ricchiuti; Analyst; Needham & Company, LLC
Bobby Brooks; Analyst; Northland Capital Markets
Theordore O'Neill; Analyst; Litchfield Hills Research LLC
Hendi Susanto; Analyst; Gabelli Funds, LLC
Presentation
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 Marie Young
(audio cut) It 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 would be for 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, and 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. If material risks are summarized in the press release we issued after market close yesterday for 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 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 31st, 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 Presidentof Financial Reporting and Investor Relations.
With that, I'd like to call 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, our Q4 and 2223 years that small Bell celebrated its 75th year of being in business. This is no easy feat in Electronic Component business and a testament to the generation of great associates, customers and partners that we have a privilege to work in over the years. We have still the four principles are by far the stylish. We first started the company in 1949 for closely with our customer product development teams to benefit his car collaboration will enable the company to stay relevant and on the cutting edge of technology to establish and maintain relationships, quality suppliers three provide value to our shareholders has always centered Joe in our prize and made possible for building and operating successful businesses. And finally, attract and retain talented associates, balanced six successfully navigated the challenges faced over the years that has stood the test of time by relying on these corporates, 2023. I-many accounts was a challenging year for our English now enabled for better and most due to the diversity of our end markets and our unrelenting dedication to continuous improvement by our global teams. It was also a transformational year for us as we consolidate four manufacturing sites, sold a noncore Czech operation and divested for our former headquarter building and focus on optimizing production and business processes. We finished 2023 with a non-GAAP adjusted net sales, which excluded expedited fees slightly up in 2022 levels, which significantly improved profitability is also a year of record cash flow generation. This enabled us to explore a variety of 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 to repurchase up to 25 million of the company's outstanding shares in the open market, privately negotiated or brand of block transactions otherwise incurred in accordance with applicable laws and regulations of the SEC Rule 10 B-8 of the change and additional details regarding the stock repurchase program are contained in the eight 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 time.
As we look to 2024, I am excited about the road ahead was expected that year, the year will be off to a slow start as consistent with the broader semi throughout our industry. We do believe the second half of the year looks promising, assuming inventory levels in the channel aligns with our previously announced facility consolidations behind us, we enter 2024 with a much more efficient cost structure, which will serve us well, especially with the current sales level of our magnetic business.
Turning to the management team, we announced last month that Steve Dawson, taking the helm of Macau will provide Des Atkins retired in July. Steve Kean developed through his acquisition of Power won business from ABB in 2014 as an integral part of our turnaround story of the Power segment region. I've worked side-by-side with Dennis and the team for the past decade. Coupled with this technical benefit in this each period, he brings the right mix of continuity across perspective to evolve. I'm very excited to have him stepping up this summer as part of our going-forward executive.
Let me turn it over to Lynn to give us a financial update.
Lynn Hutkin
Thank you, Dan. From our 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 expedite fee revenue, were down 12% in the fourth quarter of 2023 versus Q4 22 and were up 1% for the full year 2023 over 2022. Consistent with prior quarters, there were large offsetting movements within our product segments, but pockets of strength within connectivity and power, helping to mitigate the significant declines in magnetic sale 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 favorable product mix and the successful execution of a variety of cost reduction and efficiency programs.
Before getting into the product segment discussion, there was one item to note which impacts our fourth quarter segment margin 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, it was 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 that, the year over year periods 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 204.
Now turning to our product groups. Sales of our Power Solutions and Protection products in Q4 23 amounted to $69 million, a 15% 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 and growth for the full year was mainly driven by higher demand for front end power products, which server and networking end market sales of our e-mobility and rail products also remained strong and helped offset declines in circuit protection and distribution sales. For full year 2023 sales of e-mobility 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. As for derivates that the gross margin increased by 760 basis points at 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 $15.6 million in the fourth quarter of 2023, an increase of 7.5% compared to Q4 22 and full year basis, 2020 free connectivity sales amounted to $211 billion, 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. And 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 period were favorably impacted by the higher overall sales volume, multiyear contract renewal and operational efficiencies implemented during 2023, partially offset by higher wage rates in Mexico and unfavorable fluctuation in exchange rates between the US dollar and Mexican peso in 2023 as compared to 2022.
Lastly, our Magnetic Solutions Group sales declined by 49% from Q2 or 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 demands of certain large customers within that space. The downward trend 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 our other segments. The inter-quarter sales that were expected in November and December simply did not transpire and has become evident that the rebound in the face it will take longer than originally anticipated.
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 to the magnetic segment compared with 2022. These factors were partially offset by favorable exchange rates with the Chinese renminbi. First would the USD on positive developments in the magnetics group we can confirm at this time that our large facility consolidation project 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 a consolidated level across all product segments for our backlog of orders totaled $373 million at December 31st, 2023, a level we still consider to be high based on our history.
Selling, general and administrative expenses for the fourth quarter of 2023 or $24.9 million, down slightly from the $25.1 million in Q4 22. This reduction was primarily due to lower sales commission and a reduction in professional fees on a year to date basis, SG&A increased by $6.7 million during 2023, mainly due to higher salary and fringe benefits in 2023. In addition, to the MPF litigation clock 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 flow from operating activities at $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 level 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 of 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 Bell 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, and most importantly, the development of new products to support sales 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, therefore, Passave connector business, transitioning that manufacturing out of Pennsylvania into other existing 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 secures 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 2020 fourth as we continue to upgrade aging equipment while introducing more automation to our manufacturing process against the backdrop of rising weakness 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 rebar 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 Q. 24 seven running through a few of these items to keep in mind first, our first quarter 23 sales included $7 million of expedited fees 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 was 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 segments due to their low margin profile for Q1 23 was one of our power segment's stronger quarters strongest quarters as they were finally able to ship orders that had been past due with the raw material shortages of 2022 easing by early 2023 these Cortelco catch-up orders from Q1 23 in Q2 23, largely tapered off during the second half of 2023, as expected, and these heightened volumes are not expected to repeat in Q1 2014, 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 in typical seasonality weakness. And while accounting for the over inventory in the channel, we expect to account for approximately $20 million decline compared to Q. 1.3. And lastly, due to the overall weaker demand within our industry right now, Bel's factories in China will be taking a 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 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 Q2 this rate.
And just a quick comment. Bell is operating in an industry currently as we all know that has been going through an over-inventory situation throughout 2023, the we performed pretty well against that backdrop. So this industry-wide phenomena is hitting Bell a little bit more than what we anticipated on the magnetic side and do see anticipate based on the conversations we are talking about to see light at the end of the tunnel here in the second quarter. Obviously, this is a very fluid situation that we are monitoring. And the other thing to note in magnetics is, as we've talked about a little bit earlier is the concentration of certain customers and end market. One of the thing is then also noted here is we've gone through this downcycle 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 defense rail is the 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 margin.
One other comment is during these softer times of inventory and the last two years, the engineering resources at our customers and industry was really focused more on fulfillment and finding alternative sources to production. And now with the inventory situation. We are seeing our customer engineering resources really pivot towards more MPI. and more growth oriented working on next-generation technologies. We are excited to embrace the challenges and opportunities of 2024 and are not deterred by this year. By this near term bumps in the road, we are on a journey and our focus continues to be on a growth and progress for the long term detriment of Dell.
With that, I'll turn the call back over to Dan. Dan?
Dan Bernstein
Thank you very much, Farouq. At this time. We'd like to open up the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Jim Ricchiuti, Needham & Company.
Jim 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 China and 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 a step back here with the over-inventory. Obviously, demand is down. So and we looked at our suppliers and also our customers, they are taking this extended or longer maybe than usual a time off for Chinese New Year to kind of address that situation. Obviously, the hope there is to contain costs and result in some inventory data station. Do we expect that to digest through all the inventory, I don't think so. And then also so that's why we do expect it will be a little bit in carrying through into Q2. The other thing I would note and as you know in our day are specifically going to 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 inventory side and the various public statements out there also said roughly two quarters. And we I think align on that here internally as well.
Jim Ricchiuti
Okay. And just turning to the Power Solutions portion of the business, how would you characterize the overall demand level? I mean there was a bit of a weaker showing you still seeing signs, I think a strength in some of the major end markets, including networking. But I'm wondering 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 if you gave them 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, there was these catch-up orders in Q1, Q2. And then obviously we saw a little bit of step down, but still strength in performance and impressive margins coming out of our power group. When we overall assess the power, I would say we see pockets of strength but also pockets of weakness. So when we look at, for example, distribution and power, that is a pocket of weakness and have 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 I talked about in terms of industrial rail and e-mobility. So stated differently, 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 been done on the operational side of that segment.
Then I'll turn over to Lynn on the mobility.
Lynn Hutkin
Yes, sure. So just to quote some fourth quarter sales numbers for some of these end market, but on commercial air, Q4 23 sales were $11.4 million and military, which just threw out there was $10.8 million for the fourth quarter for e-mobility was $5.7 million and rail was $8.9 million. Those are all four quarter 23 numbers.
Jim Ricchiuti
Got it. Thank you. I'll jump back in the queue.
Operator
Bobby Brooks, Northland Capital Markets.
Bobby Brooks
Hey, good morning, guys. Thank you for taking my question. I mean, obviously a positive news coming out of the quarter was $25 million buyback announcement and I was just curious if you could help us frame how you expect, you know, executing that going forward in all reading the 8-K? I know that there is no expiration date on it. So maybe just some color on how you kind of how you guys are thinking of using that as an additional minimum capital return to shareholders.
Farouq Tuweiq
Yes. Thanks for the question. As noted as a company that's been on a journey of transformation. This is the first time we'll be out in the markets, doing a formalized buyback since 2012. So better part of the decade. And our approach here is I'm sure we'll 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 at our average daily flow rate. So as we think about how do we do it in a our fair manner is to kind of execute it in a more programmatic setting. And so we will be doing that on a program X, but the lack of exploration have a date, if you will.
I would kind of phrase it this way. Our intention is to not elongate this thing, but we need to play. We need to be able to pursue the progress of the program, but we do expect that to be, you know, I'd say relatively in a handful of quarters to be through that pending market conditions.
Bobby Brooks
Got it. And then just talking about so I think the verbiage in your press release and just on this call and the shift to focusing on growth, I think is interesting. You talked a little bit new for you talked a little bit about identifying new sales sales strategies, developing new products and figuring out geographically works where Rob, where you should focus on that growth. Could you were about two months into the first quarter. Could you maybe talk about any early results or trends that you've seen from that reemphasis on top-line growth? And and maybe talk about what products, what product verticals, are you really really looking to focus on developing new products and why why that will focus going forward for on those new products? And maybe I would guess are the primary lines of what you're seeing in end market demand.
Farouq Tuweiq
So maybe thinking that. Right. Obviously, we partner with our customers to develop new products. And as we've talked about in 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 fulfillments, okay. And 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. We pivot and focus on generation 2.0, 3.0 and kind of the next generation of technology. So as we're seeing that we 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 it 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 at 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 that decent, you know, call it seven plus bigger type orders. So these are great products to be. And so that's just an example of an connectivity. So when we look at the power side of it, obviously we have had 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 from an investment going there because we think our power business will these are power hungry units that support level infrastructures will be under pressure. So we're seeing some nice chat or in discussions ramp-up. In addition, as we've talked about e-mobility, 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, you know, these are the sales cycles in a downmarket 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 does a disfavor to a lot of the good stuff that we do have going on. One comment I will make though, you know, we talked to us in our 10 K. We do have a concentration of call it a couple of key customers within our networking side, channel partners, channel partners so as a result of that, and this is not a, you know, kind of a broader things a little more contained. We will turn it over to Dan.
Dan Bernstein
I guess for Carl, I think probably when you look at new opportunities, I think we really have tried to focus over the two years. How do we test the new young engineers and our focus was if you go back 10, 20 years ago, most engineers would have dealt with that guys and knock on the door, either a rep company that will work off of commission for an arrow Avnet data deals, salespeople as times change. Nobody has gone 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 are leading the charge, and this one is called Digi-Key of a company called Mount Isa, which is owned by Berkshire Hathaway. Both companies are multi-billion 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 relationships with those two key e-commerce distributors.
With that in mind, when we acquired CUIP. percentage, did you buy CUR. because it was a Powercom we bought UI. because of the digital marketing capabilities they had and the relationship they have with Digi-Key. So with the addition of CUI. to our product portfolio. We're now ranked number 15 at Digi-Key and now have over 5,000 suppliers. And the same thing with mouse, we made tremendous inroads and Bowser will our per salesperson was voted a salesperson of the year, four years in a row at NASA. I think there's only three people obtain that goal. So our focus is as the world changes, as we say, we have to change with it and we really have to retrench ourselves for these e-commerce service hubs moving forward, I give you the best example at Cisco, we have two direct people, salespeople, Cisco, we have two engineers with a badges at Cisco, and we also used to rep companies. So at any point, a day. We probably have 10 people calling at Cisco on Bell's behalf. However, we did receive a fuse order awhile back and we called up our rep company. We called up our direct salespeople. We cooperate at the ease and see where it came from and it came from Digi-Key. And this is what we see more and more that our engineers are working through them to get components quickly. And that's what we really have spent tremendous amount of time and we should see a lot more success as a key planning NorSea.
Bobby Brooks
Got it. That's and that's really good color on the new product growth going forward. But not maybe seeing any just early, you know, any any early reads on the of the growth initiatives that you're looking to do in the first quarter in terms of seeing any certain geographic areas of R&D and I kind of start to focus on, I think the area that we thought that was funded under developed less for us was Europe.
Dan Bernstein
We went in and we hired us a Molex, 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 short background. I think now we're represented every with a direct person, every person in Europe. However, for our products with 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 similarly 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 again, I'm hoping by summer that we can bear some fruit, but we have, for example, we have to fuse opportunities in Europe, which is each $1 billion and one we already got approval. So to get 1 billion views 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.
Operator
Theodore O'Neill, Litchfield Hills Research.
Theordore O'Neill
Great, thank you. I wanted to follow up on the e-mobility side of the business, you can't miss the the bad press is coming out on the EV side with Rivian and Lucid reporting recently.
Dan Bernstein
Are you positioned sort of better in that space because you've got a greater focus on charging infrastructure and commercial vehicles. So I just wondering if you could give us some.
I don't think again, we're trying to keep away from the Tesla is on the on the power side. Anything that's high value for your concern about?
So no. So again, when we look at Meridian and Lucent, we are testing, we are more in the circuit protection side of that business where we feel that it's a more feasible and you're not going to get killed if there's a down market. However, our focus is more on niche markets, for example, school buses, heavy duty equipment, marine equipment. So we're not really looking at high volume of our EV business.
Farouq Tuweiq
Yes, exactly. And I think we're up to maybe take a step back. These products that we are doing are going into. And 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 value commodity passenger vehicles. That's one too, is when we look at the customer base and that it ranges from, call it, startup 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 out of those players. These if these price points are very expensive, let's say, and from a from there to the end users as a result of that, there is investment. And also generally, the users are our customers' customers, if you will, it can have 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 challenged. So walking out with a 40% increase year over year at his great low divide expectations for us. But nonetheless, we think this is here to stay and we think this is temporary. It kind of thing in the market right Okay. Thanks very much.
Operator
Hendi Susanto, Gabelli Funds.
Hendi Susanto
Good morning, Dan of Arrow and lane. I'm wondering my first question is about the possible rebound in the second half. Do you have any anticipation which areas will be rebound earlier versus later?
Dan Bernstein
But we haven't we haven't heard anything in the marketplace stating that at all, I think everybody is saying the second half of this year. So now I'll they've already jump back on here.
Theordore O'Neill
I see. And then, Dan, what is the likelihood that the rebound will take place in Q4 instead of Q3.
Dan Bernstein
I guess if I do that, I would add that when we were here, Bill, keep slipping maybe taking a step back, right yes, we look at and again, Greg grip on this. But historically, when we've gone through periods of softness, I'd say one to three quarters is probably the norm, maybe four quarters worth when we look at the industry, it started going through 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 second quarter. So probably a little bit extended from a historical perspective. So as kind of we talk to our customers, both distributors and OEN.s, various industry literature. When we look at the point of sale data to distributors, we're seeing demand come through the shelf, not getting replenished all of that kind of leads to amalgamation of us coming up the best assessment of second half growth, first half digest stations. 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. You know, it kind of reaffirms our belief, but at the same time is that, you know, bullet proof answer to that. Unfortunately, I don't think so. But we are optimistic that we came into this, you know, softness after the industry maybe and hopefully we exit. I'll cover off, sometimes they do assuming everything gets is aligned on.
Hendi Susanto
And if I look at the backlog order, I believe is the $373 million you indicated that is still considered to be relatively high based on history. What backlog order left for should we thing win? You will feel it somewhat closer to normal?
Dan Bernstein
I guess history, maybe I can take this one. So I'll jump in here. I think we have post COVID. I don't know if there's no any aggregate funds. So before COVID, we used to get quarterly quotes, you know, we have been on products every quarter and the average purchasing person would give us four different purchase orders for our partner since COVID that stretched to we were getting to a lower every one or every 24 months. So that's coming back a little bit. So we don't know where it's going to end up that follow-up of my head have a purchasing department. Why do I want to want to or four times a year linking oil once a year, I can cancel products down the road. So I think that's still filtering out of where it's going to be. But I don't think I don't think we're going to get back to $150 million level, which was our pre-COVID level correct.
I mean, maybe if I think about kind of data point is historically, it's been roughly a quarter and during the extended times, it was roughly, call it, four ish quarters a little bit less. So if the bookends as one and four, right, do we go all the way back to one? We don't think so. We think there's some new order behavior 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. And we know it's elevated that also when you got to kind of really kind of peel it back a little bit, we'd probably look at magnetics as probably normalized and then would probably say Power's a little bit elevated and connectivities, maybe somewhere in the middle to elevated.
Theordore O'Neill
Okay. And then any insight into pricing environment in 2024?
Dan Bernstein
As you know, 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 things are going to change or not. But historically, as we've tried to do come down, you do face some over more price pressure, but we have not seen that yet to date.
And the flip side of that equation privilege homeowner, that is when when lead times come down, it means we're back into the regular way normal ordering pattern. So therefore, volumes normalize, right. So the idea here is, you know, generally is there is that kind of a concession to a little bit price to get a little more volume type thing rights. So I think when that normal cycle, we have not we're not there yet, I would say.
Hendi Susanto
And then last question, do you have updates on Bel Fuse investment in E&I in electric in terms of what activities in 2024, whether there are some milestone in 2024?
Dan Bernstein
Yes, I think again, we took a minority position in it. We running, I think, at this point a year, how may be or not, but I'd say, you know, we had I think a bullish case was maybe we see something transact end of 2024, but now we're thinking probably more in 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 and some of their I say some of the customer challenges that we talked about, our ion mobility 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 the first generation in terms of their customers' challenges. We're a 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 and purchasing team we manufacture. So we are truly aligned that if they get the times they are supposed to hit when we do merge that were very two organizations that are very working close together. So I'm pleased by that relationship we have today.
Theordore O'Neill
Thank you, Dan, Farouq, and Lynn
Operator
Jim Ricchiuti, Needham & Company.
Jim Ricchiuti
It's you know, going back over the past year and considering 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 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. These are obviously lower levels of revenue, but you've also been restructuring the business.
Lynn Hutkin
So Jim, you know, I think for Q. bond. What we had mentioned in the earnings release was that from a margin perspective, we expect to hold with the full year 23 margin in U.S. So it is a step down from Q4 margin level. And a lot of that has to do with the the lower sales volume that we're seeing in addition to just Chinese New Year, we it's typically a lower margin quarter for us. As you know, 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 Q2.
Jim Ricchiuti
Great. Eventually, that's helpful 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 that with a higher level of margins than we've seen historically with these kind of revenue levels.
Dan Bernstein
Okay. Thank you.
Operator
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.
Dan Bernstein
Once again, we appreciate everybody joining the call say thank you very much and looking forward to improved results as we move along in the year. Thank you.
Operator
Thank you. This does conclude today's conference. You made connect your lines at this time and thank you for your participation.
