Warren Kanders: Yes Matt, Neil will take you through, from start to finish, what he found, how we’re processing that, and what the future looks like. But one of the things I had him do was really to look at SKU rationalization. And you’ll see that in quite a bit of detail. By virtue of that, we will shrink the revenues somewhat, but margins will improve quite considerably. And I think when he goes through the plan and you look at the margin progression over the next couple of years, I think it will all come into focus.
Matt Koranda: Okay, that’s helpful. And then just, I guess the bigger broader question that I know we’re going to get here is basically that the guidance has revenue down at the midpoint for year-over-year, but EBITDA up pretty healthily, and I guess that implies. We’re sort of doing away with some unprofitable business and/or removing structural costs. I know you mentioned most of the improvements going to come from gross margin, but maybe just help us square all of that. And are there corporate costs that can come out now that Precision is no longer part of the portfolio here?
Warren Kanders: Yes. So we’ll get into all of that on Monday to provide all the detail that you’re going to need to put together the accurate models. The corporate overheads will be coming down during the course of the year. That’s our expectation. Some of the things that we’ve had in place we’re able to reset. The other thing that, as you know, we’ve given some guidance to what our legal expense has been for the 16(b) trading issue. And we have baked in to our guidance for this year the appropriate amount of legal expense to continue to pursue not just the 16(b) issue against HAP Trading, but also, as Mike said, we will be filing complaints against both Parallax and Caption. So that’s built into the numbers. But now, obviously, what’s not built into the numbers is obviously any interest income that we’ll get on our cash balances, which is now already at a 5% plus rate.
Matt Koranda: Okay. That makes sense. And then, I guess the PFAS commentary, can we just nail down and maybe I missed it, but did you guys quantify the exposure there? Obviously, there’s some exposure to inventory, which sounds minimal, but then the more interesting or maybe the thing I’m more interested in understanding is the vendor question that you mentioned. Maybe there are some commitments for minimum purchases and stuff like that, maybe just any way to think about that?
Warren Kanders: I think – go ahead, Mike.
Michael Yates: I was going to say, we didn’t quantify it. It all depends. It could be $3 million to $4 million or $5 million, but it depends how we execute that. That’s why we’re bringing it up, right? How the market absorbs this product. But as long as we work through this, as Warren alluded to, it’s the waterproof product.
Warren Kanders: It’s all great. It’s all great products. We’re just highlighting it, because it is conceivably a risk to our numbers. At this point, we don’t think it’s a material risk, but we’re just highlighting it again because every other company in the world also has a PFAS issue. And so, depending upon how that all processes through, it may be a little more challenging for us to sell the product. But again, we believe that product. People may buy this now because they won’t be able to get it in the future. And it is better. The waterproofing with PFAS is better than the other technologies that are out there that we have to use.
Michael Yates: And Matt, the charge that we took — we did take a charge in the fourth quarter related to PFAS. That was for commitments to take product that we said, no, we don’t want any more of this, so we didn’t want to compound our problem. So that’s key to understand, I think, is what you’re trying to get to. The inventory on hand or the inventory being built already is where the exposure is. And as long as we execute and move that inventory through our channels, as Warren said, we don’t think it’ll be material, but in the same breath, for some reason, we’re not able to move that inventory. We wanted to be upfront with the situation, because we do believe we’ve adjusted our inventory to the appropriate level. And if we do have an issue in the ’24, we didn’t want to ask you asking questions or those three asking questions, but hey, I thought you wrote down your inventory to the right levels at the end of last year.
So this is the one thing that’s out there that could potentially be a risk, but as we said, we think it’s a very good inventory. It’s a very good product that should move. But and we did take a charge in the fourth quarter for the stuff that we were committed to buy that we haven’t been bought yet. And that’s we put a line in the sand from that perspective. So the risk is just inventory on hand and inventory that’s being built that we have to take still.
Matt Koranda: Okay, no, that’s clear. Just timing on potential risk there, it sounds like you got to sell it into retail by summer, roughly?
Michael Yates: I would think so by the third quarter.
Warren Kanders: Max, most of it will go through the second quarter.
Matt Koranda: Okay, great guys. I’ll take the rest up on. Thank you.
Operator: Thank you. One moment for questions. Our next question goes from Anna Glaessgen with B. Riley. You may proceed.
Michael Yates: Hello, Anna.
Anna Glaessgen: Hi, good afternoon. Thanks for taking my question. I guess encouraging to hear that you’re starting to see some stabilization at wholesale in North America. I guess would you characterize their inventory levels now as having been mostly appropriately normalized and to what extent just the 2024?
Michael Yates: No.
Anna Glaessgen: Okay. And so I guess when would you expect that to normalize and what’s being assumed in the 2024 guide?
