Gerben Bakker: Good morning.
Bill Sperry: Good morning.
Nicholas Amicucci: Just had a couple. Wanted to hone in on the Electrical Solutions segment, so obviously, it’s going to benefit somewhat this year from the footprint optimization, just wanted to see how much – I mean, how much more headroom do you guys have from an optimization perspective within that segment?
Gerben Bakker: Yes, I mean, I’d say that we still have projects that are – this year it will be consolidating locations, so you’d be absorbing volume in existing location. And then after you get to that, there’s always the chance to keep putting in bigger more scaled facilities. So you can answer your question with a very long perspective, but if you took it a little bit more narrowly, I’d say, in the next few years, we’d be at a stage where we’d be quite happy with the optimization process. You’re probably never done I guess point, but I think we’ll – we go a long way to achieving sort of our desired goals in just a few years.
Nicholas Amicucci: Sure. That’s fair. Then did want to touch upon too, so I think the guidance within the press release, it had indicated about $1.60 of the amortization, that’s within adjusted EPS, and so if you do the math, that’s roughly $86 million for the year. Within Utilities, I mean, I understand that there is a significant step-up in 4Q probably related to the Systems Control, but just wanted to get a better sense of the timing of that amortization and kind of break down between Utilities and Electrical Solutions.
Bill Sperry: Yes, so the increment – so we’ve been running at $1 for a while, so the $0.60 that’s new is all in Utility so as you separate them. And when you think about the amortization, a lot of it is going to customer value and in places that have quite a long – by long, I mean like 20-year, so it’s a pretty stable – it’s a pretty stable run rate.
Nicholas Amicucci: Got it. Perfect. Yes, that’s all I got, so thanks, guys.
Bill Sperry: Thank you.
Gerben Bakker: Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from Chris Snyder of UBS. Please go ahead.
Christopher Snyder: Thank you. I wanted to ask on Utility margins, and – specifically, I guess the expectation that on an organic margins will be flattish for 2024, I’m just asking because you guys are exiting the year well below where you started, and maybe M&A had a bit of a headwind in Q4, but it feels like organic is, in Q4, down a good deal versus the first half. So is it fair to – does the guide assume that Utility organic margins are down year-on-year in the first half and then return to growth into the back half or should we expect them up year-on-year throughout the year?
Bill Sperry: Yes, I would assume they’re kind of flattish through the – like I don’t think there’s anything – I think I look maybe at the shape of ’23 because I know exactly what you’re observing, right? You see a sequential step down in margin, some of that is attributable to some spending investing that we’re doing, some of it is attributable to the Aclara mix effect, some of it is attributable to the fact that the volumes inside of Power Systems were going through their destocking work with our customer channels partners. And – so I think, again, we just see that, Chris, returning to a more normal shape, and so I think the volume piece of Power Systems becomes quite important to that. I think we see the mix with Aclara start to balance to equal – more equal contributions. And so I think in a balanced world, we would expect margins in Q1 and Q4 to be below the margins in Q2 and Q3 and that that shape in ’24 should feel quite normal.
Christopher Snyder: Thank you. I appreciate that. And then just as a follow-up on Utility margins, so I know they’re always down sequentially into Q4, just lower revenue. This quarter came in quite a deal sharper than we expected, is the company starting to feel the impact of higher metal prices? I know steel has been up a lot over the last three, four months, was that starting to come through in Q4 on those Utility margins or is that still more maybe a ’24 dynamic? Thank you.
Bill Sperry: Yes, I mean, we certainly saw starting November, December steel move and I would say the way that works through the supply chain, there’s usually a couple of months lag on when we as a LIFO company pay those most recent prices. So I think we’ll feel those prices – those costs, if you will, in the first quarter, and maybe mid to end of the first quarter.
Christopher Snyder: Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Scott Graham of Seaport Research Partners. Please go ahead.
Scott Graham: Hi, good morning. Thanks for squeezing me in. Just really the question I have is about the portfolio management slide, and particularly now with Systems Control in the fold you have a couple of nice size bubbles under which to acquire, what is the outlook there for – what does the pipeline look like? I mean, you’ve got 1.4 net leverage, which is a really good number to work off of, sort of what are your aspirations in ’24, maybe even by telling us, would you be disappointed without another good-size deal this year?
Bill Sperry: Yes, it’s an interesting way to phrase the question. I had come at it from two perspectives. The first, you already raised, which is we’re very comfortable with our leverage levels, so we think financially, we certainly can afford to invest in acquisitions. And I would say, secondly, is kind of the integration perspective, and We’d like to make sure that we have Systems Control well-integrated, we’ve got a healthy amount of people kind of working together, so off to a great start. Our customers are happy with it. Feels like a good cultural fit. But it still takes work to make sure that it’s integrated and we don’t want to have too many plates spinning. So, your question maybe, well, revisited three months from now, but I agree with you that strategically we’d love to add businesses in the Northeast and financially – Northeast of this two-by-two matrix of higher-growth, higher-margin.
And yes, we feel we have capacity both in – cash flow generation will be up in the $800 million range this year plus, as you pointed out, I think balance sheet capacity. So, we are – so I think let’s just revisit that question maybe in three months and see how we feel, but it’s a good one, it’s a good question.
Scott Graham: Well, fair enough. I guess, I was just wondering also what the pipeline itself looks like, and you can put people off a little bit.
Bill Sperry: Yes, there is – there is a pretty decent pipeline and there’s quite a few things we’re expecting to at least probe the market in the second half of the year, so that doesn’t mean we’ll buy any of those or that they’ll be attractive, but there is an interesting amount of what appears to be inventory maybe coming to market, so.
Scott Graham: Thanks so much.
Bill Sperry: Yes.
Operator: Thank you. At this time, I’d like to turn it back to Gerben Bakker for closing remarks.
Gerben Bakker: Great. Thank you. I appreciate all the questions with the quite robust time we put out for that in this call to focus on our outlook. Maybe I’ll close by saying that I feel really good about the year and our ability to deliver on our commitments to you, to drive profitable growth after a few years of really outperformance. So look forward to our Investor Day later in the year and to our first quarter call, let’s talk about how we’re doing so far this year, so thanks so much.
Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.
