Kieran O’Sullivan: We would expect the industrial and the distribution markets to rebound in the second half, John, to get there.
John Franzreb: Okay. Thanks for the clarity, Kieran. I appreciate you taking my questions.
Kieran O’Sullivan: All right. Thank you, John.
Operator: Thank you. [Operator Instructions] Our next question is from Hendi Susanto from Gabelli Funds. Hendi, please go ahead. Your line is open.
Hendi Susanto: Good morning, Kieran and Ashish.
Kieran O’Sullivan: Good morning, Hendi.
Ashish Agrawal: Good morning, Hendi.
Hendi Susanto: Yes. So Kieran, I think you highlighted the three areas of softness distribution, industrial end market and in the commercial vehicle market. Can you share whether you have seen the bottom of those? And I’m wondering whether some part may still be seeing decline for, let’s say, for the next six months, not just in Q1?
Kieran O’Sullivan: Hendi, I heard the commercial vehicle. What was the first part of that question? What was the other markets you mentioned?
Hendi Susanto: In each of those three areas that are weak, have you — like have we seen the bottom or whether we may see the bottom later in Q1? Or — and then the second one is whether there are still some weaknesses, such that we are still seeing decline perhaps from Q4 to Q1 and Q1 to Q2?
Kieran O’Sullivan: Hendi, it feels like on the industrial and the distribution side, it feels like we’re scrapping along at the bottom and that we should start to see improvement, whether that’s in Q1 or Q2, I can’t tell you at this stage, but the inventory levels will burn down. Commercial vehicle feels like it’s still in a downward trend. We said that there would be, from our perspective, a softer demand a more competitive environment going forward.
Hendi Susanto: Okay. And then a question for Ashish. Since you mentioned pricing pressure based on, let’s say, like annual contract price obligation. Any insight into the timing, whether it would start on January 1, whether some would stop later when it comes to the general price obligation and reductions?
Ashish Agrawal: Hendi, it depends on discussions with the customers. Contractually, it starts at the beginning of the year or depending on whatever the contract language says. But there’s generally a dialogue between the customers’ purchasing team and our sales team, and it all boils down to negotiations. And as Kieran highlighted, it revolves around new business awards and a bunch of other considerations. So there’s really no perfect clarity for us to say, this is when it will start kicking off. It can be scattered through the year based on the timing of the contracts.
Hendi Susanto: I see. Okay. Thank you, Kieran. Thank you Ashish.
Kieran O’Sullivan: You’re welcome.
Ashish Agrawal: Thanks, Hendi.
Operator: We have a follow-up from John. So, John, please go ahead. Your line is open.
John Franzreb: Yes, I might have missed this, but did you say what the target R&D spend is going to be for 2024?
Ashish Agrawal: We didn’t talk about specific dollars, John, we highlighted that there is an increase in the spend. And if you look at our investor presentation, we do have a range of 5% to 6% of sales, and we have been slightly under that number.
John Franzreb: Okay. Got it. Thank you, Ashish.
Ashish Agrawal: Sure.
Operator: Thank you. We have no further questions. I’d like to hand back to Kieran for any closing or further remarks.
Kieran O’Sullivan: Thanks, Daisy, and thank you all for your time. Despite the near-term headwinds, CTS is well positioned for future growth, driven by the megatrends of increased automation connectivity, energy efficiency and minimally invasive medical innovation. Overall, we are focused on our long-term goals to drive profitable growth, the solid wins in the quarter, expansion of customers and pipeline of opportunities underscore our strong confidence in our future. I want to thank our global teams for their support in driving our strategic initiatives, successfully launching several new products and continue to give back to those less fortunate in our communities. We also continue to work hard to enhance our operational performance. Thank you all for joining us today. This concludes our call.
Operator: Thank you, everyone, for joining today’s call. You may now disconnect your lines and have a lovely day.
