Nick Gangestad: Yes. There’s three things I’ll point out on that, Chris. The vast majority, I’ll say 75% of that margin expansion, is just coming from the volume increase in holding investment spending flat across the year. The second and third pieces are pretty equal. One is coming from the improved utilization of our factories that we’ll — and our supply chain that we’ll see as a result of that. And then the third is we saw good progress on our Lifecycle services margin, and we expect that to continue, and that’s also going to be part of our continued margin expansion from the first half to the second half.
Chris Snyder: Thank you. I appreciate that. And then on some of the supply chain constraints you guys called out that weighed on shipments in the first quarter. I don’t think I caught it, but could you provide any sort of magnitude on how much sales were impacted by that? And it does not seem like that’s coming back in the second quarter. It seems like they are then kind of deferred into the back half of the year. Is that right? Thank you.
Nick Gangestad: Yes, I would put the — we had originally guided that we expected low single-digit growth in the first quarter. We came in at 1. So, there is — there’s a portion, but it’s probably in the $50 million to $70 million range of what we’re talking about there. And yes, much of that is going into the second half of the year. That is correct.
Chris Snyder: Thank you.
Operator: Our next question comes from Julian Mitchell from Barclays. Please go ahead, your line is open.
Julian Mitchell: Hi, good morning. I just wanted to try and square sort of the comments on capacity utilization and the supply constraints with inventories. I think they’re running — we’ll wait for the Q for the end-December balance, but it sounds like those are sort of stable sequentially maybe. And they’ve been running at a mid-teens share of sales versus sort of 8%, 9% pre-COVID. And they rose a lot the last 12 months even as sales rose. So, I just want to understand sort of — it sounds like inventories to sales, inventory days, should fall in the balance of the year. But do you need sort of some — is that based on a much faster sell-through out of the plant? You need to sort of underproduce somewhat to get the inventory back down? Or do you think that inventories will stay much higher now as a share of sales medium term than pre-COVID for some reason, even though lead-times are normal?
Nick Gangestad: Yes, Julian, there’s a few things that will change there. First of all, you know our projection that we’re going to move from 140 days of inventory down to 125. That’s been there and that’s unchanged. Now, the mix of that, as we’re looking at this shift to more and more of our revenue coming from current quarter orders that we’re booking and billing, part of our action plans there is we see some increased needs for safety stock of those finished goods. So, as we go through the balance of this year, there will be some places where finished goods go up. But that will be more than offset by the reductions that we’re seeing in our components driven by the improved lead-times we have for those components as well as our work in progress. So, we’re expecting, as we progress through 2024, just to be seeing that kind of shift. The 125 days will still be well above our pre-pandemic levels where we were typically under 100 days of inventory.
Julian Mitchell: I see. But I guess — I get it. Sort of two years ago, sort of people would have said you need higher inventory because backlogs are very high and you need inventory to sort of satisfy projects and backlog. But now you’re saying as you go back towards a more normal book and ship business, that also requires sort of higher inventories. I just want to sort of understand what’s kind of changed in the thinking there.
Nick Gangestad: Yes, in order to have sufficient inventories to be able to ship products very quickly to our customers and our distributors when they want it, we’ve been working on getting our products recovery back to where we can ship. Now, part of the progress we’re making in the next couple of quarters is getting all of our safety stocks on our — for our finished goods to where we feel they should be in order to make sure we’re performing and executing to our customers’ expectations. That’s part of that plan. And so finished goods will not decline, but we expect all of our decline to be coming in the — in our raw materials and work in progress.
Julian Mitchell: That’s helpful. And just the follow-up on that would be, when you look at your sort of customers and distributors, how are you seeing them managing their inventories of kind of your product? And how are they feeling about those inventory levels today, please?
Blake Moret: Yes, we expect our distributors to be carrying a little higher amount of inventory given the customer service challenges that the industry has had over the last couple of years, we expect that equilibrium that distributors get to be a little higher level than it was pre-pandemic. And that’s with very specific discussions with them about how they’re thinking about the balance of customer service and working capital. We’re also seeing with our machine builders that, as I mentioned before, some of them are still continuing to work down inventory in their own system, but we expect that to be complete over the coming months. I don’t know of any difference in the way machine builders are looking at carrying levels of inventory and working capital. But with our distributors, we do expect them to normalize at a little higher level than they would have traditionally.
