Good morning, and welcome to the Bel Fuse First Quarter 2024 Earnings Call. [Operator Instructions]. 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.

Dan?.

Thank you, Jean. Good morning, and thank you for joining our first quarter 2020 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 our last quarter earnings call.

It is encouraging to see our margins continue to track in the right direction as green light outline. 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 all largely within our expectations. In late February, we enhanced the Board approved a $25 million share repurchase program. Shortly thereafter open market purchases of both classes of stock were initiating pursuant to programs 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 ability on an on-going basis, including post quota and during our regular bias to make open market purchases in accordance with the company policies.

As of April 24, our program-to-date repurchase 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 order committee member, which turn will end at May 2024 annual share meeting. On behalf of the Board, I will -- and John has many contributions to Bel over these past 28 years.

John has insight and counsel that 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 with the electronic component industry, with companies included share interconnected EDS.

We're excited about the potential of adding Dave to the Board, given us tremendous wealth of knowledge in building old and management of team sales of global organization in our industry. [Indiscernible] experienced will be instrumented to Belgium continue to implement our growth strategy.

In addition to the changes at the Board level, as noted in our last earnings calls, they will be transitioned on the executive team in July with the retirement of Dennis Ackerman and promotion of Steve Dawson to the Power segment.

When these transactions become press prospective on the executive team and the Board, this will be welcomed as we said, our future strategy could go for years to come. And with that, I will now turn the call over to Lynn.

Lynn?.

Thank you, Dan. From a financial perspective in summary, we saw continued margin expansion on a lower sales base from losing at Q1 '24 versus Q1 '23. 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 segment as we will discuss further. Our gross margin increased to 37.5% in Q1 '24 from 31.1% in Q1 '23. And these profitability improvements were largely driven by our Power and Connectivity segment. Turning to some details about the product group level.

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 '23, reaching $10.3 million in sales in Q1 '24. 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 '23.

We are viewing approximately half of this improvement in Power margins as being sustainable as it was driven by more permanent factors, including cost reduction efforts, both on the procurement side and headcount side, the lower volume of low-margin expedited fees and overall product mix.

The balance of the basis point improvement in gross margin versus Q1 '23 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 '24 came in at $54.3 million, up 1.7% from Q1 '23. Q1'24 sales into commercial air applications amounted to $14.6 million, which is a level consistent with Q1 23. Products sold into defense applications totaled $10.7 million for Q1 '24, up 3.2% from Q1 '23.

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 Credit Group was 36.1% for the first quarter of 2024, a significant improvement from the 34.1% in the first quarter of 2023.

This margin expansion was made possible due to the operational efficiencies achieved through facility consolidations that were completed in 2023, along with 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 '24 and the unfavorable impact of FX related to the peso. Lastly, our Magnetic Solutions grew posted sales of $13.6 million in Q1 '24, representing a 62% decrease from Q1 '23.

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 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 '24, 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 '23.

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 '20.

Within SG&A, an increase in salaries, fringe benefits and amortization expense 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 '23, and these expenses did not recur in Q1 '24. There were no unusual items of note contained within SG&A during Q1 24.

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 our 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 have 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 kinetic as we continue to work through our own inventory on them. I'll now turn the call over to Farouq for additional commentary.

Farouq?.

Thank you, Lynn. Good morning, everyone. As noted on our last earnings call, we anticipated the first half of 2024 to be on the slower side. 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 onetime items in Q1, as mentioned by Lynn.

In summary, based on information available to us today, our outlook for Q2 sales 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 23 of $169 million to the expected range for Q2 2024, and we'll discuss these nearby segments.

On the Power side, our Q2 2023 sales included $5.7 million of expedite fee revenue that is not expected to reoccur in Q2 '24. Second, as previously noted on our last earnings call, Q2 '23 included estimated $10 million of tech up sales that resulted from past due orders connected to the raw material storage from 2022. These will not recur in Q2 24.

Third, our eMobility business is softer this year given the current interest rate environment, which has delayed capital investment projects at our customers and their customers. eMobility sales in Q2 '23 were $8.5 million, and we anticipate this will be down by roughly $3 billion to $4 billion in Q2 '24.

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 24 levels will represent a lower level from Q2 '2.

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 '24 from Q1 24 levels, accounting for approximately $10 million of the expected decline from Q2 '23.

Within our Connectivity segment, we are estimating sales that are largely in line with Q2 '23, potentially up a bit given 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 clip switch and instead expect that it will be more of a slow and steady recovery as certain customers and end markets reserve their normal level of shipments upon inventory depletion. Shifting our view to medium-term growth drivers, 2 areas that we are excited about I wanted to highlight our space and AI.

Let's first discuss the end market space. This is an end market that is a very harsh environment. It takes years of design work to get into. Up until recently, the volume of product going into space applications for anyone was limited. Bel has successfully had its product and space since the 1970s.

As a result, we have already proven ourselves as a reliable supplier of connectors components segment withstand the harsh environment, and we're better in paying from this legacy today.

To that end, our Connectivity segment has been successful in securing 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 the space applications.

During the first quarter of 2024 alone, we shipped $2 million of product into this end market and are forecasting $77 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 hitting a breakout point for space applications in 2024.

We also continue to invest in this key market to grow our portfolio 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 area of AI.

While we do not have meaningful sales directly typed to AI today, our potential future benefit is becoming more clear. Number 3 segments, we view our Power segment as the biggest possible 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 a traditional system. Even if the number of data centers that we currently participate in remain the same, the power supply dollar content per AI server is expected to be 2 to 8x higher.

Another item of note here is that our existing products and capabilities will support this future need. There's no need for major new product designs for us to support AI is just additional volume of our existing Power products or perhaps some minor modifications.

While still in the very early stages, we are seeing an increased level of activity and discussions happen with our existing networking customers and also with specialty customers with high-performance computing. We're just starting 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 2020 is unlimited, and we are definitely seeing a shift here in 2024. This is consistent with what we've been talking about.

There appears to be a more robust pipeline of opportunities becoming available, and we continue to assess those that may be a good state 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, there are many areas that a team is energized about for the long term. Bel has a long history of evolving over the years to support new end markets, and we believe we are at that next pivotal point of evolution.

Space, AI, eMobility are viewed 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 range to Bel's future.

With that, if we can open up for questions?.

[Operator Instructions]. Our first question comes from the line of Theodore O'Neill with Litchfield Hills Research. .

Farouq I think you covered this a bit in your prepared remarks, but last quarter miss was primarily related to a single customer, it seems it's a slightly broader inventory issue now.

And does it concern you that 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. But remember that heading into the Q1, which is seasonally a little bit weaker, distribution, which touches obviously, a number of folks is a little bit fall in inventory. So we look at it as more continuation of inventory legislation.

So I would say from a Q4 to Q1 perspective, let's say, we still see the challenges from the same set of people that we largely saw in Q4. So there hasn't been any, call it, new struggles, if you will. In regard to the GDP side of the things, obviously, GDPs, we all are hoping for it to move more so in the right direction.

I think obviously, it will impact a little bit of our customers. But ultimately, given we participate in more of a technology solution industry and our customers do while it's not going to be disconnected from GDP. We do think that there is a different value proposition there. .

And 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 8x?.

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 in just 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 the pickup in 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 that same seasonal pickup from Q1 to Q2 within Magnetics, a little bit, but not 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 and the networking sector? Because just in terms of when they compare -- I guess, what we're trying to get to is when do the comparisons really get easier.

When do you start lapping that?.

Are you talking specific to Magnetics?.

Well, it sounds like the weakness in that market sector also touches a little bit on Power. But however you want to characterize it, we've seen a big falloff in that part of the business.

Did that happen in Q3 of last year? Did you start to see the real sharp decline?.

So if we're just talking about Magnetics, first, we started seeing a decline in Q2 of '23, is defined further in Q4. I think the most recent drop-off occurred in November of '23. So there were basically, call it, 2 months of that drop off in Q4.

We felt it in fall in Q1, and this is what we're projecting here for Q2 to still be in a similar environment. So on the Power side, that was very strong on the networking side in Q1 and Q2 last year. We didn't see as large as a drop-off, but it did start going down a bit in Q3. .

And this last question just relates to the whole environment in terms of destocking. And maybe if we try to break out the Magnetics piece, put that aside for a second.

How would you characterize what you're seeing in terms of distributor inventories and the whole destocking and 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's always pushed back 6 months. But I was in Europe, I was visiting some of our key distributors and the feeling is that we hit rock bottom in February, and things should start to improve.

But they're all saying today and might change that by the end of the fourth quarter, all the inventory should be crushed at and they go back to normal ordering processes. .

And I think, Jim, we also just hit on that as well, right? It's not like a flip of a switch. So it will be kind of a rolling type pickup mix. So to Dan's point, something come earlier, something come later. But it's just one can be mindful, it all clears out on day 1. .

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

I would like to get more insight on how to think about your gross margin. I think given the lower scales, Bel Fuse has demonstrated resilient gross margin.

So how should we be thinking of gross margin when, let's say, market recovery has taken place and then the sales has gained meaningful recovery? Like how much gross margin expansion can we expect? Or should we expect that the sensitivity on the scale of revenue is somewhat not meaningfully enough?.

So Hendi I'd say a couple of things to that mix really plays a part. So again when we start seeing recovery in letting Magnetics that's a lower gross margin business, by definition, it will compress your gross margin. But obviously, when our Magnetics business is running healthy, it has really nice operating profit and EBITDA.

So while the gross margin may not be the best out there, it's a real nice contributor on the profit line. So one, this mix will play a factor. Two is within each of our product groups like Power and Connectivity there is also some things that we need to be mindful. So the way we tend to think about it is we guided to 34% to 36% at our current levels.

If there is increased revenue, that's going to be operational leverage, and we expect that, that would be additive. So the fact is the way we think about it, guiding to 34, 36 at the current levels and able to deliver on our EPS. We look at that as a great new durability of what we are doing here.

And anything more above and beyond that should be positive to the upside. And Lynn called out a little bit of the fluctuations here as we covered in her commentary. .

Would you be able to give more color and insights about the exciting growth opportunities in space and AI specifically, could you talk about with application, which end products, let's say, for AI or space? Like should we pay attention to Leo satellite or should it be centralized in general? And then for AI, do you have more presence in networking versus computing?.

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

So I'd characterize our relationships is given our legacy there is it's a broad based and uptime the household names that you hear both on the commercial and on the military side is where we participate, the orbit. So we have things obviously going up in space as evident by our revenue growth.

These are long design cycles, is business with a pastor years, but generally on the satellite, like you said, both commercial and military. So some things we can talk about some things we're not able to talk about.

But as we think about space as an end market and more is going up there, we know that there's going to be more overall fundamental drivers that will be beneficial to us. On the AI side, when we look at AI, we do know that there is a fundamental requirement side of things.

So there's for higher power, need for more power density and also just more of customer management. So where we succeed in developing these exact products, we've been doing it for years. We have very high power density on some of the shelves.

We also have really good relationships with the wafer scale chip manufacturers and also that's kind of where we play. But when we look at where we find it, specifically, there's the big cloud giants, kind of the big 4 that everybody could at hears about. That will be not necessarily our focus given the heavy commoditization there.

So where we will be more suited better is on the networking players. So where we have existing relationships, and we have been developing for time. On the compute side, there's some new and emerging players there that have better, quite frankly, bigger, more powerful chips than maybe some of the headline in folks out there.

So it will come for us, we look at it as a two-pronged approach. There are the new players on the compute side and in our existing customers, maybe a little bit to the one well on the networking side. And the contents of these systems obviously have really shifted and come up expanded.

So we expect exciting things from there and similar to space, we'll be able to talk maybe more about that a little bit as time goes on here. But it was nice to see. The one thing I would also say about AI is we're going to talk about identifiable AI and identify with AI.

What I mean by that is because of the general purpose nature of our Power products, we know or we send it to our customer, we may or may not know is going to an AI because of the general purpose they drove it. But then there are other applications that we know we can identify that this is specifically to AI.

So we do know that there is a good amount of unidentifiable AI, but we will generally limit our competition as things that we can speak to with clarity. The other thing I would say on the AI is there is a whole ecosystem that supports a lot of the direct players through various testing equipment.

So we'll have a secondary impact here because we do supply a lot of stuff into the tens equipment that's required by the AI. So we touch it from a few different angles. .

And then Farouq, given the rapid bit on AI, development and investment, I think speed is their #1 priority now.

How should we be thinking about the AI opportunity will be toward second half of 2024 or will it be beyond like 2024?.

So I just want to be careful with this, Hendi, so nobody is saying, we're going to make $100 million of revenue in the next 3 -- so may be a little bit careful here. We started seeing from these, call it, what we talked about, the compute guys, we started seeing some nice orders in Q1 and more coming into Q2 and also some of the networking guys.

So we expect it to be, let's call it, a steady climb. I think as the year goes on, we would probably expect to have more meaningful percentage jumps from 25 over 24, 26 over 25 and so on. So I think we just wanted to reveal a little bit more, but we will talk more about AI once we start to be a little more comfortable with that. .

And then I have one more question.

Given the weaknesses in EV, any update on your milestone and expectation on the electric investment?.

So I would say the electric is largely seeing the same things as our EV business with our electric investment, obviously, I would say, from a milestone perspective, it's largely on track. When we did this investment early last year, we knew it was not a 23-24 thing. And the reason there is some of the development that's going on.

So there's some interesting products that are being worked on and developed. So as we think about those in terms of coming out in an ideal world, we get through this bumpiness of 2024 out in the market, and we expect their products to be ready for market in 2025.

So we look at it as on track and not, but we do see some of the same challenges within their customer base. .

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

So very strong buyback number, I think that surprised it came in far above where managed locations was, so what I'm wondering is should we assume that it stays around that level? And just maybe more broadly, how should we think of the pace of the buyback going forward? Obviously, Dan, you mentioned as of the 24th of April, you guys did repurchased an additional $4 million.

So that's beating the pace that you did in the first quarter. So I'm just trying to get a gauge on how to think about that buyback going forward.

Do you stay at that pace that the stock stays in the $55, $60 range?.

So the way we think about it, Bobby, is, obviously, these are always moving, so we've got to assess this a little bit real time. Our expectation is in terms of getting through the program is a 2024 event. Obviously, if things move that may extend a little bit, but our expectation is to be largely through that in 2024.

We're roughly $11 million through the $25 million program. As Dan also noted that we're in our blackout period. So the purchase program is it an autopilot. We come out of our blackout here in 2, 3 days, and we'll take another look at it. Our buyback program has -- depending on the price fluctuates a little bit of how much we bought back.

So maybe a long way of answer to your question is we expect to be down this program through end of the year, but it may change a little bit in terms of the pace we're doing at that depending on how the market and the stock price is going. .

And then maybe just a follow-up on that is, you just mentioned in terms of how the market is doing. Is it something where you're comparing Bel Fuse or a peer group in terms of stock year-to-date stock performance? Are you more so basing it off of the broader indices? Or is it more so just looking at a certain price range.

You don't need to give that price range, obviously, or is it more based on Bel Fuse's stock price relative to where you think it is in isolation. .

So really, it's an amalgamation of factors that would lead us to try and delay to where we need to be at. But I would say where we're in the market, we're aware of where the industry is. But I think one of our views always has been our stock price is not really respective of the value.

So I would say that is probably our north guiding start in terms of where we think it should be. So we'll look at it as to where it is, and that's how we scale it up and down, that will be from the different factors. And obviously, on it goes without saying. We have a very strong cash position, but anything were to change with that, that may change.

But for the most part, we feel pretty good about it. .

I want to follow up on your guys early reads on the growth initiatives that you guys detailed on the fourth quarter call. That was really interesting and positive. And just speaking to those initiatives, I'm most interested in that the revamped European sales force. And I know, Dan, you mentioned that you're just in Europe in the past quarter.

So curious to hear any early reads, I know it might take a few colors for it to inflect on financials, but just curious any ranges on those growth initiatives that you mentioned?.

I think, again, as we mentioned last time, we put in a new sales director with a very strong distribution background. She was the distribution manager for [Indiscernible]. She has a great entree from a people standpoint and from a relationship standpoint with people like Avnet.

So for example, we have seen 3 opportunities that we never saw before we've got in fuses. Each opportunity is over $1 million. And I think we're pretty confident that we can capture 2 of them. So again, there's a lot of planning of seeds.

But again, it's a direct sales force that we have pretty well covered over to Europe and so forth, things look very, very costly. But it's definitely going to take some time, but we're hoping, like again, if some there's use opportunities when we're talking $1 million of users, that's a pretty big order they'll get to more in it.

And we have 3 of those opportunities coming to us. So again, very exciting. And again, how well it does in Europe might change our position on how we look at Asia and how we're working out. .

And I think to expand on Dan's point as well, I don't know, Dan, if you'd agree, but 6 months 2-year design cycles, so we're a little bit long design cycle. So the key for us in this environment with inventory is we're seeing a lot more NPI development.

So for us, it's getting out there better alignment with the customers, pursuing the opportunities because once the inventory works through, we'll see some of the legacy product pick up, but we'll also see a more rich environment of new products.

And as I comment on Europe, I'd say, our European business is definitely performed, I would say, above market for us in Q1, which is this a testament to the team and our approach and how we're getting out there. So we are excited about Europe. On the U.S.

side, we've also have added a couple of strategic positions as well and we're continuing to do the team. But we're seeing some nice stuff coming out of that team here as well. .

And then maybe just on the last point, circling back on the space. Guys you gave excellent color and that's for sure, an exciting end market where you guys clearly already have an edge given the long history of reliability of the harsh environment.

So what I was curious on is, could you discuss how you're planning to continue to grow that? And maybe is there a path where you could see doubling revenues into that end market in fiscal '25 or maybe ask differently, what do you think the revenue opportunity is in the space market over maybe the 3-year outlook?.

I think it's moving pretty quickly. As we look at the funding, that's going in there we know it's rapidly evolving. We internally joke about it, that it's the new leach right, where for years, you'r testing and sampling and low volume and then you start clicking pretty rapidly into the growth side of things.

Obviously, space has a very different customer base and tailwinds versus the EV business. So I would just say there's a lot of funding going into it. There's a lot of increasing just sheer number of things going up in space.

And the nice thing about this space, as we think of us this is satellites, there will be a natural depletion rate where there's a useful life for these things that ultimately will have to come back down to earth and new ones go up.

So as a result of that, we think that will be both expansion in terms of number of sellers up there, but also a replenishment rate. And to maybe just point for this, maybe historically, I would say it was a low-volume business, maybe we're, call it, $2 million, maybe $3 million a year on the high end.

And then in 2023, we saw it grow up to that $4.5 million, and we're projecting, call it, 7-ish this year. Again, as we tip a little bit more wins coming our way.

So we do expect that we'll have nice growth rates in terms of where -- in terms of also our commitment to it, we're doing some things on the marketing side as we, let's call it, create a more targeted campaign for customer awareness and to drive us further into the space side of things, both via our website, but also just trade shows and more your typical way of expanding our reach.

So we're planning on hitting that a few different ways. But we'll see where it goes. I mean doubling is not off the table for us in '25, but we'll see how the year progresses here. .

And then maybe just last question on space. So I talked about how historically, it was a low margin, $1 million, $2 million a year end market for you.

So are these new orders like at a much higher margin because there's more technology in it? Or is it just you guys taking a more approach where you're only working with customers who value the value what you guys bring to the table and therefore, you guys get better pricing? And then secondly that's just that point first. .

No, it was never a little margin. From a margin perspective, we definitely want more of this. I'll leave it at that. And so that's the way we think about it. So the growth there will have a very positive mix, let's call it, from a gross margin perspective. .

And the second point I was going to make was so right, you guys shipped $2 million. I think the number was you said you shipped $2 million of products in the first quarter.

Could you maybe give us a sense of like how much of that $2 million was towards new product development or small run testing stuff versus actual production orders?.

I would say it's probably a little bit of a mix, but I would say as well that these things are they're ramping up, we're definitely ramping up. So I'd say the majority of it is probably small runs. We do expect some maybe larger runs, call it, into maybe Q3 end of Q2, some in that as we into Q4.

So again, similar to the EV business, we are expecting a bigger number of things to go into space. So it's in the, I would say, but largely probably a little bit more diversity of customers, if that makes sense. .

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

I have one follow-up. Dan, you mentioned that based on your conversations with distributors in factory flash out may fairly like some may take place earlier, some may of this year.

Do you have any insight into what packing orders in terms of when inventory flush out may take place like the one that we'll see like sooner versus the one that will see like later?.

Could this be existent in relation to Dan's comment?.

Like essentially, if there's any indication with the inventory correction maybe basically completion like solar versus the one that may see inventory correction like towards late 2024?.

So Hendi, are you asking specifically by distributor or distributor types, who we to --.

No, no, by product group or by areas. .

Ultimately, I think it really depends on the customer and the end market there. .

I think if you look at our military aerospace to distribute, that's very strong. What we're getting hit is more in the consumer from our CDI product group, our huge product group by Magnetic bingo, things that go into network and consumer is really where they have the old inventory situation.

And basically, that is based on the people own products thinking that we're going to get to semiconductor. They never got the semiconductors in, but they received the passive components. In our channel, most of the problem is coming from the kinetic group, circuit retention and power support. .

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

Thank you for joining us today, and we're looking forward to speaking to you soon. .

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