Distribution Solutions Group, Inc. (NASDAQ:DSGR) Q3 2023 Earnings Call Transcript

Distribution Solutions Group, Inc. (NASDAQ:DSGR) Q3 2023 Earnings Call Transcript November 5, 2023

Operator: Greetings, and welcome to the Distribution Solutions Group Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Sandy Martin at Three Part Advisors. Ma’am, you may begin.

Sandy Martin: Good morning, everyone and welcome to the Distribution Solutions Group third quarter 2023 earnings call. Joining me on today’s call are DSG’s Chairman and Chief Executive Officer, Bryan King; and Executive Vice President and Chief Financial Officer, Ron Knutson. In conjunction with today’s call, we have provided a Q3 earnings presentation that has been posted on the company’s IR website at investor.distributionsolutionsgroup.com. Please note that statements on this call and in the press release contain forward-looking statements concerning goals, beliefs, expectations, strategies, plans, future operating results and underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those described.

In addition, statements made during this call are based on the company’s views as of today. The company anticipates that future developments may cause those views to change, and we may elect to update the forward-looking statements made today, but disclaim any obligation to do so. Management will also refer to the non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of our earnings release. The earnings press release issued earlier today was posted on the Investor Relations section of our website. A copy of the release has also been included in a current report on Form 8-K filed with the SEC. Lastly, this call is being webcast on the Internet via the Distribution Solutions Group Investor Relations page on the company’s website.

A replay of this teleconference will be available through November 16, 2023. I will now turn the call over to Bryan King. Bryan?

Bryan King: Thanks Sandy, and thank you all for joining us to review our third quarter results. In September, we hosted our first ever DSG Investor Day, which allowed our team to demonstrate the company’s strong market positions in key vertical channels that offer broad and differentiated specialty distribution solutions. We also introduced our deep leadership bench and explored how customers rely on us to provide high touch value-added distribution solutions for their MRO, OEM and industrial technology needs in our large addressable market of over $60 billion. It was constructive and valuable to meet and take questions from new and existing investors and sell-side analysts. We appreciate many of you joining us in Fort Worth and those that joined virtually.

We encourage you to review the Investor Day deck on the Investor Relations section of our website, where we shared our strategic plans for further top line growth, margin expansion and free cash flow generation as well as walking through our capital allocation priorities and plans to create long-term shareholder value. Now beginning on slide four. We reported total third quarter sales of $439 million, up over 26% from the prior year. And excluding the impact of Hisco, we increased EBITDA margin 70 basis points. As we discussed last quarter and highlighted during Investor Day, we generated strong double-digit organic sales results in last year’s third quarter, creating difficult comparisons. For the 2023 third quarter, total organic growth declined by 4%.

This pressure was isolated to softness in technology oriented markets, including semiconductor manufacturing, renewables and test and measurement capital equipment sales. These markets have strong secular tailwinds, and we purposely added differentiated capabilities to serve these important end markets. Softness in these important end markets was partially offset by organic growth within the Lawson vertical. The capital equipment softness further highlights the importance of adding Hisco as part of the industrial technology platform moving forward, given the more recurring nature of that business. We will provide updates on the integration milestones and progress later. DSG delivered strong quarterly growth and profitability despite pockets of choppy demand.

Our teams continued to focus on what we can control within the businesses as we march operating margins towards the long-term goals outlined during Investor Day. We worked hard this quarter to execute strategic operational initiatives that improve sales productivity and grow market share in each of our three verticals. For the third quarter, we reported adjusted EBITDA of $44 million or 10% of sales and adjusted earnings per share of $0.17 per share. As we signaled last quarter and at the time of the acquisition, Hisco’s results will initially pressure our EBITDA margins. Excluding Hisco, our adjusted EBITDA margin would have been 10.7% for the third quarter up from 10% in the prior year’s quarter. We generated significant cash from operations of $74 million year-to-date, which speaks to the power of our model and the discipline of our working capital management.

Our teams continue to perform well, and our sales transformation efforts resulted in further field rep productivity improvements. Additionally, we continue to invest in technology and remain resilient and flexible in operating the business. Moving to slide five. Let me briefly provide business updates and important sales and cost initiatives for our MRO, OEM and industrial technologies focused verticals. Lawson Products continues to be a leader in the MRO distribution of C-parts, offering vendor-managed inventory services. During the third quarter, Lawson grew organic sales by 6.3% on a same-day basis, and we also realized a strong double-digit EBITDA margin, which increased significantly over the prior year quarter and expanded sequentially over the second quarter.

This was achieved while concurrently accelerating Lawson’s sales transformation initiative, which we elaborated on during Investor Day. We continue to identify wallet share expansion opportunities with current customers as well as the strong market share expansion opportunities with new customers. Our lift in sales has largely been seen by lift in engagement with large strategic accounts as well as growth in select business verticals. We are enjoying a robust and growing strategic accounts pipeline and an accelerating sales cycle significantly enhanced through the collaborative cross-selling efforts focused on strongly embedded customer relationships of Gexpro Services and importantly, now Hisco. We continue to see mild customer level activity softness consistent with the third quarter in our core street business at Lawson.

It’s not unusual for Lawson’s customer order frequency to be unpredictable during the holidays. I’m pleased that the Lawson team drove nice organic growth through market and wallet share expansion. Also, we are confident that our sales transformation initiatives will better position Lawson to boost growth and customer engagement over the long-term. We’re finalizing our mobile enabled CRM tool at Lawson, which will be fully rolled out during the first quarter of 2024. The leadership team at Lawson continues to support our sales reps to improve productivity, allowing them to make more money, better serve customers and expand cross-sell opportunities. During the third quarter, our sales rep productivity increased by 18%, which represents success building on success this year.

Over the last two years, we have set up a more disciplined operating structure to invest in additional growth resources to constantly evaluate how to better serve our customers to enhance our customer experience, while becoming more differentiated in our solutions for them. In reflecting on each of our divisions and our shared but often competing objectives of driving high quality revenue growth while also committing across DSG greater discipline and operating efficiency to unlock structurally higher EBITDA and margins. We pour over the initiatives, balancing the tensions and timing around investing in additional growth resources and customer experience enhancements, while also optimizing our spend to unlock accelerating current profitability.

While the timing of income statement investments is not always perfect and linear, the discipline and commitment from our management team and the shareholders is. Across our leadership team, we are perfectly aligned with our shareholders, and I am convinced we are doing great work, and I thank our teams for us regularly. At the end of our remarks, I’ll talk about our capital allocation framework for reinvesting our collective cash flow and balance sheet, but the more nuanced and often less talked about framework, but equally as critical, is how we are investing more on the income statement and initiatives across DSG to drive growth, while also balancing those investments with initiatives to unlock more near-term earnings and cash flow. The sales productivity lift at Lawson is in what we consider the early innings of a broader commitment to our salesforce to help them grow their revenue engagements with resources in which we have been investing and to drive their compensation.

As I reflect on a series of decisions over the last two years of coming together and the benefits of being a part of one larger DSG company, Lawson’s MRO business has grown its third quarter revenue over third quarter 2021 prior to the merger by 22% and its EBITDA by 112%, taking EBITDA margins from 8.4% to 14.5% in less than two years. This is based on a collection of partially executed initiatives structured around being a part of the larger DSG family, and we are just now beginning to see the capability and cross-selling benefits accrue to Lawson and other businesses. Turning to Gexpro Services, which continues to be a leader in the supply chain solutions of largely C-parts, specializing in vendor-managed inventory programs for high spec OEM customers.

For the quarter, our sales were essentially flat over the prior year’s quarter. Our largest end market remains renewables, which combines electrical, mechanical and hardware product offerings with kitting supply chain services and domestic manufacturing, of which government-funded programs support many. We are seeing green shoots in the renewables markets. Given the rapidly changing geopolitical environment, we anticipate momentum to continue in aerospace and defense, with secular tailwinds for some time. We also see strength in the industrial power markets this quarter and this year. While our programs are still intact and being renewed, we have seen the largest softness this year in our highest margin business, which addresses the technology end market as activity in pulling our product through our customer facilities is down 45% this year versus last year, creating a $6.1 million EBITDA headwind we largely made up elsewhere.

That said, our pipeline across our verticals for new programs with our suite of capabilities is excellent. And although we have working quotes, timelines have slowed, likely due to the higher cost of capital environment. We continue to see growth in the retrofit and upgrade cycle for the installed base like in renewables. Gexpro Services is creating value from synergistic acquisitions, expanding kitting and project services, the successful launch of our ecommerce platform this year and continuing to refine how we offer our expanded core products and vendor managed inventory capabilities with the addition of Lawson’s MRO and now Hisco’s product leadership in key categories. We continue to emphasize embedding our products and services into new OEM programs and becoming more sticky as the provider of choice.

Our customer-centric approach, combined with the breadth and scale of our strategic acquisitions, has materially expanded our resources, products, footprint and collective expertise across the platform. Using the same two-year lens as I did with Lawson, we track the success we have enjoyed both growing and transforming the profitability of our acquisitions as they are folded into their vertical and more broadly our DSG network. We’ve committed to our investors that we are not buying EBITDA unless it supports our broader strategic objectives. In reviewing the five acquisitions we’ve added to the Gexpro Services vertical over the last two years, they have an average increase in their organic revenue of 49% and together have more than doubled their EBITDA as their value-added capabilities are leveraged more broadly across our network, allowing our offerings to our collective customers to be more uniquely differentiated.

During this same period, our core Gexpro Services organic revenue has grown 10%, and our EBITDA has been largely flat. Challenges are referenced by a significant mix shift away from our most profitable and we believe sectorally attractive technology end market, which is currently in a tough part of their industry cycle and where we have visibility that our offerings will continue to secure us more programs and market share. Lastly, moving to Industrial Technologies to discuss TestEquity, along with our initiatives to integrate Hisco. With each day, we are even more confident with our decision that Hisco is key to our broader DSG strategy and our focus on rebalancing test equities consumable supplies versus capital mix to support the full electronic cycle.

Our major work streams associated with integrating Hisco into TestEquity continue to progress on schedule. We are pleased to report that TestEquity’s inventory is now available for sale on the Hisco ecommerce website, which is a win for us and for our customers. During the third quarter, TestEquity was under pressure from a sales standpoint with comparable sales down in the mid-teens range, largely from pressure within test and measurement and some of the capital assets that complement an environment supporting test and measurement equipment like in a laboratory. We saw downward pressure on outlays in the technology and R&D sectors due to capital spending deferrals. And we’ve seen some excess products try to get pulled through the channel, especially in the second half of 2023.

A year ago, it was a product supply issue and now that has flipped to excess market supply on lower industry demand. Our customers are telling us that higher capital costs continue to drive capital expenditure delays, and our vendors continue to reiterate our market leading distribution position within these categories. In conjunction with our work streams to integrate Hisco and rebalancing the collective cost structure, we identified and recently commenced action on over $10 million of annual run rate cost savings that will improve the overall margin profile going forward in the Industrial Technologies vertical. The earnout period has passed and we are implementing these initiatives, along with the sales team’s collaboration and other mission-critical activities.

Our vendor managed inventory, or VMI, solutions, continue to show sustained growth and are on track to show their highest profitability to date. Our chambers business continues to perform well and we anticipate accelerating product line growth as well as gross margin expansion in this business. We have rebaselined operating expense spend across the industrial technology vertical to better position us heading into 2024 as we focus on driving profitability of this vertical to our stated goal of exiting 2024 at a 10% or higher EBITDA margin. We continue to capture cost synergies and production efficiencies, resulting in improved delivery times and lower shipping costs. As we discussed at Investor Day, we’re accelerating work streams to build a higher structural margin business that benefits from expanded engagement around cross-selling through our other verticals and businesses.

Looking back across the last two years of acquisition performance in our Industrial Technology vertical, four of the five are structurally more profitable with higher earnings, although three of them have been challenged at some level of revenue softness from the current capital spending pressure TestEquity has also faced. Our enthusiasm continues to build as we continue uncovering all the capabilities and levers and how Hisco will significantly transform this vertical and the broader revenue and profitability opportunity across the DSG platform. Bringing leadership and expertise in key product categories, embedded strategic customer relationships, expanded industry engagement, value-added services and a prominent presence in Latin America for the other verticals to draft.

With that, I would like to turn the call over to Ron to walk through the financials. Ron?

Ron Knutson: Thank you, Bryan and good morning, everyone. Turning to slide seven, let me summarize Q3 results. Consolidated revenue for Q3 was $438.9 million, up $91.8 million or 26.4%. Although acquisition revenue in 2022 and 2023 resulted in incremental sales of $106.3 million, organic sales declined by 4.2%. If we look at this from a cumulative two-year basis, organic sales were up approximately 11% versus 2021 through a combination of strategic price and volume expansion. Third quarter results reflect strong growth in margin dollars. We reported a $9 million improvement in adjusted EBITDA growing to $43.7 million or 10% of sales and an increase of 25.9% versus last year’s adjusted EBITDA of 34.7%. As Bryan mentioned, excluding Hisco, our adjusted EBITDA would have been 10.7% for the quarter.

Reported operating income was $12.8 million compared to $22 million a year ago quarter, excluding nonrecurring merger related costs, acquisition costs, stock-based compensation, severance and other nonrecurring items, operating income would have been $26.7 million, up from $25.7 million in the year ago quarter. We reported GAAP diluted loss per share of $0.03 for the third quarter compared to earnings per share of $0.42 a year ago. On an adjusted basis, adjusted diluted EPS was $0.17 for the quarter versus $0.32 for a year ago quarter. This reflects the impact of acquisition related D&A expenses and higher share count compared to the prior year period. We continue to show strong cash flow generation from operations and good working capital management with $47 million of the $74 million of cash generated from operations that Bryan mentioned being realized in the third quarter.

We ended the quarter with unrestricted and restricted cash of over $100 million. Turning to slide eight. Let me now comment briefly on each of the businesses. Starting with Lawson, sales were $114.5 million, up 4.6% for the quarter and representing a 6.3% increase on a same-day basis. The increase over a year ago was driven by strong performance within the strategic business, Kent Automotive and government military. As Bryan mentioned, the core street business was somewhat softer, which continues into the fourth quarter. Similar to the second quarter, Lawson’s growth in Q3 was achieved through increased wallet share with existing customers and new customers in both our strategic accounts and our Kent Automotive businesses. As we discussed at our Investor Day, Lawson’s initiatives to transform the sales team were executed this past summer, which resulted in an 18% lift in sales rep productivity this quarter.

Lawson’s adjusted EBITDA improved to $16.7 million compared to adjusted EBITDA of $9.7 million a year ago quarter. This increase was primarily driven by the sales increase in gross margin improvements, partially offset by increased compensation on higher sales levels and channel investments to better position Lawson on a longer term basis. Lawson’s adjusted EBITDA as a percent of sales was 14.6% in the quarter versus 8.8% a year ago quarter and improved sequentially from 13.5% in the second quarter of 2023. Turning to Gexpro Services on slide nine. Total sales were $103.2 million for the third quarter, essentially flat versus $103.7 million in a year ago period. Like last quarter, Gexpro saw a decline in sales in their highest margin technology end market, offset by growth in aerospace and defense and industrial power markets.

The leadership team is reallocating resources to better align with demand to maintain profitability and margin goals set for the business for this year. Gexpro Services largest vertical is renewables, which are expected to have secular strength over the next several quarters and years. We are reinvesting and growing the business and being cautious about weaker markets or ones more sensitive to current macroeconomic issues. At Gexpro Services, we are focused on existing relationships in market share gains from new customers through our value creation offerings, including kitting, project services and the ability to deliver world-class support to the OEM production cycle. Gexpro Services adjusted EBITDA was $11.6 million or 11.2% of sales versus $12.5 million or 12% of sales for the year ago quarter, with much of the decrease being a shift driven by sales mix.

Realigning our costs to align with our sales and improving gross margins will benefit us yet this year and beyond. Lastly, I will turn to TestEquity, including Hisco on slide 10. Q3 sales grew to $207.7 million primarily due to $106.3 million of acquired revenue, offset by a decrease of 13.2% in organic sales. Given the strong third quarter organic growth from last year on a cumulative two-year basis, TestEquity is still up approximately 3.7% compared to 2021 sales levels. As Bryan mentioned, test and measurement sales were soft, and our Q3 key supplier shipments through the entire channel were down even more dramatically than the TestEquity results might suggest. In other words, TestEquity performed well in Q3, especially given the market dynamics in this space.

While we continue to see choppiness in capital spending, the bright spots in the quarter were the continued growth in the chambers business, enhancements within our BMI offering and progress within digital into our own brand offering. Although not a big part of the business, we do value our owned brands as a way of improving the mix of higher margin business over time. TestEquity’s adjusted EBITDA for the third quarter was $14.3 million or 6.9% of sales. In EBITDA dollars, this was an increase of $4.2 million or 42% over the same period a year ago, of which approximately $8.3 million was generated from the acquired businesses. Although we are actively making progress to optimize the expense structure through the TestEquity and Hisco integration, we are working on operating expense rebaselining to align sales to align with sales volumes for TestEquity, which includes Hisco.

While this is a work in progress, we’ve made good progress this year, which collectively should exceed $10 million on an annualized basis. Moving on to slide 11. We ended the quarter with $279 million of liquidity, including $80.5 million of unrestricted cash and cash equivalents and $198.3 million under our existing credit facility. Our amended credit facility was expanded earlier this year from $500 million to $805 million. Over the last 18 months, we’ve reduced our net debt leverage from 3.6 times at the close of the merger on April 1, 2022, down to 2.9 times, all while acquiring four businesses. We continue to focus on deleveraging the balance sheet through operating and working capital improvements with our target leverage ratio remaining in the three to four times range.

Although we continue to support a robust working capital investment portfolio, we are carefully managing inventories, accounts receivables and accounts payables as evidenced by our ability to generate cash flows from operations of $47 million for the quarter. Net capital expenditures, including rental equipment were $14.7 million for the first nine months of the fiscal year and we expect full year CapEx to be in the range of $16 million to $20 million or approximately 1% of revenue. With that, I would now like to turn it back over to Bryan.

Bryan King: Thank you, Ron. Let’s turn to slide 12 to recap our capital allocation framework. DSG is focused on a prudent balance of organic and acquisitive growth where we use a disciplined approach to track working capital intensity, leverage and periodic discussions and decisions to invest in our own stock. Our goals at DSG are to scale our business even further while improving the return profile of our specialty distribution platform, benefit from our fortified competitive moat in our verticals with unique and well-positioned products and solutions, serve our customers with high touch, value-added specialty products, services and solutions, maintain our asset-light capital structure with planned growth through sustainable working capital investments as well as highly strategic acquisitions that expand our offerings and improve our unique and highly differentiated value proposition for our customers.

Finally, all creating long-term shareholder value by elevating our earnings structure and generating significant cash flow per share. Turning to slide 13. Third quarter results demonstrated our ability to benefit from our diverse end markets to achieve a 10% EBITDA margin or 10.7%, excluding our recent Hisco acquisition. As your partners and as the leaders of the business, we are excited shareholders as we see significant levers, some of which are outlined on slide 13, available to us to unlock significantly higher earnings over the coming years regardless of how the current economic cycle unfolds. We are committed to work hard on the elements of the business that we control, like the current focus on improving the salesforce productivity, sharing best practices and reducing costs across DSG where scale and we’re pulling together businesses with redundant capabilities, is allowing us to continue to uncover spending we can eliminate, which continues to be an everyday opportunity where the management teams are collaborating and finding new opportunities.

Additionally, constructive collaboration is a key part of our cross-selling initiatives, which are a priority and are both growing and paying off and we are finding better and different ways to increase sales through long-standing relationships with our best customers. Enhancing our offering and value to our customers is adding to our management team’s enthusiasm as they see an expanded opportunity complementing the DSG platform we are building with the Hisco acquisition and the role it plays in accelerating differentiated revenue growth initiatives. We also identified more cost reduction benefits and margin improvement opportunities as Hisco becomes more integrated with TestEquity in our Industrial Technologies vertical. We are committed to driving our elevated margin objectives in that business in that vertical over the next several quarters, similar to what we’ve done in the other verticals.

We continue to engage in numerous discussions around strategic assets to buy, and we have accelerated interest from businesses that see the value in and want to be a part of the differentiated specialty distribution business we are building with DSG. Several of them we would like very much to add to our business and we expect we will get the opportunity to. But we have a high bar and a disciplined framework and commercial logic that must exist for us to add businesses to our fold, and then expect a lot of profitability growth as we optimize them for the benefit of each of our verticals, consistent with the financial success on our last 10 acquisitions like we’ve outlined today. All of our management teams have to be supportive and committed that an acquisition is key to their success and own that accountability for us to bring an acquisition on board and for it to enjoy similar success to what we’ve enjoyed.

With that, operator, we would like to take questions from analysts and investors.

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Q&A Session

Operator: Thank you. At this time, we will be conducting our question-and-answer session. [Operator Instructions] Thank you. Our first question is coming from Kevin Steinke with Barrington Research. Your line is live.

Kevin Steinke: Hey, good morning.

Bryan King: Good morning, Kevin.

Ron Knutson: Good morning, Kevin.

Kevin Steinke: I wanted to start off just by asking about — you mentioned some of the pockets of choppy demand or demand softness related to the technology vertical, renewables and test and measurement equipment. Do you think that’s an environment that is something that persists as long as the cost of capital is higher? Any insight from your customers as to when maybe some of those areas start to kind of turn around or pick up again? Just — I know you’re bullish on those areas over the longer term, but just kind of wondering what your thoughts are in the current environment over the next couple of quarters.

Bryan King: Kevin, it’s a really fair question, and I was actually asked it yesterday in a different context. Renewables — we thought that the renewables end market would start accelerating after the Inflation Reduction Act or the production tax credit was renewed. There were a lot of projects in the queue that we were aware of and our market share there is very high. So we were going to get to enjoy those. As interest rates rose and cost of capital went up, it fought some of the economic benefits of the production tax credit because those projects are largely project financed. And so there’s been certainly some delays associated with those projects, but there’s a lot of pressure to get them started. And so we’re kind of in a holding pattern there, where we’ve seen a lot more interest and we expect to see an acceleration in demand on the renewables side has been on the retrofit, which some of our tuck-in acquisitions that we did on Gexpro were really done to allow us to have some additional capabilities to address electrical, mechanical and kitting so that we could be a key supplier to the long-term cycle of retrofitting all the existing install base, which is more of a maintenance side of — it’s a multiyear cycle of maintaining renewable infrastructure that’s already in place.

And those projects we expect will get released. But it’s really in the early cycle for us of seeing those projects take off. On the test and measurement side — well, then on the semiconductor and the technology side, we’ve seen kind of a real challenging backdrop, particularly for Gexpro Services there, as I alluded to it in the call. That was our most profitable and has been historically in market. And while secularly, we think that that space in North America is going to benefit with the CHIPS Act, there’s definitely been a slowness in the pull-through from our customers of our products. Those cycles on the semiconductor side, we’ve all — most of us have invested in semiconductor stocks over the years, they’ve watched the rise and fall there.

We had one particular customer that has had more challenges in their pull-through with us, which probably negatively impacted that revenue more than I would think about just the baseline on the semiconductor activity domestically for North America. When I think about the test and measurement side, there’s been a lot of deferral of purchasing. We made some decisions over the last year there that had to do with pricing discipline, which candidly, as end markets soften, probably impacted us more than we would have expected. There was a customer that we had that was a reseller that is a customer that we had supported over the last several years that is a veteran and it’s just kind of a reseller in the channel and the margins there just weren’t attractive relative to the amount of capital we were tying up.

And so we walked to that customer during this year. And that had an additional impact to our top line in the — when matched with a tougher industry backdrop. Aerospace and defense, which has been a real strength for Gexpro Services on the MRO side has been a real soft area for TestEquity. And we know that our customers there are healthy. We know that they’ve got capital spending needs that they are deferring on test and measurement equipment. But given their businesses are obviously the macro environment globally is causing their businesses to be strong, but deferred some purchasing on the capital side. And so I don’t know how — it’s hard to predict when those end markets are going to pick back up, but we certainly feel like that our market share position is strong and there’s — I don’t know that I would anticipate that they’re going to pick back up here in the fourth quarter.

I think that what we’ve seen so far this fourth quarter has been pretty consistent with what we felt during the third quarter, although sales on test and measurement have turned. So we bottomed there and they have — in the first month or the fourth quarter has been better than the trough in the third certainly. And so we would expect that some of the purchasing is picking back up that we thought was being deferred. And we think that some of the inventory that was in the system that people were kind of being more aggressive on pricing where we were not willing to participate. It was some of our customers where we were quoting and doing the engineering work and specking things out and then somebody else would come in and low-ball us on a customer that we have a longstanding relationship with somebody that’s caught with some inventory wanted to get out.

And we were trying to maintain a lot of the discipline that we’ve tried to put in place to drive margins, and it just impacted us a little bit more on volume in the test and measurement side this quarter — this past quarter.

Ron Knutson: Kevin, this is Ron. Just one — maybe one additional comment on top of Bryan’s comments. As we look at the next couple of quarters, just keep in mind that we are up against some pretty tough comps into Q4 and into the first quarter of 2024 versus 2023 as well. So all three of the businesses had nice organic growth in Q4 versus Q4 of 2022 versus 2021. So just keep that in mind that we are up against some pretty tough comps as we enter into the fourth and first quarter of next year.

Bryan King: Kevin — that’s a good point, Ron. And kind of along those lines, I just — two other things that I didn’t touch on. Hisco, when we bought Hisco there were a couple of programs in there that we knew like they had a great relationship with Abbott, and they had a program that was a COVID testing kits, which we know COVID testing kits have kind of decelerated a lot. We expected a couple of these programs that when we bought the business. We forecasted that there would be some softness there. So Hisco’s business is performing how we expected it would. So, we’re real pleased with kind of the Hisco side on the top line. There were some construction programs there and then there was a couple of these pharmaceutical programs that were effectively sunsetting based on — the construction stuff was in market related the Abbott or some of the pharmaceutical programs were more COVID related.