Greetings. Welcome to the Distribution Solutions Group Fourth 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, Steven Hooser. You may begin.

Good morning, everyone and welcome to the Distribution Solutions Group fiscal year 2023 and fourth quarter 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 2023 financial results slide deck posted on the company's Investor Relations website at investor.distributionsolutionsgroup.com. Please note that statements on this call and in today's 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 expressed or implied. 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 no obligation to do so. Management will also refer to non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of the 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 March 21, 2024. I will now turn the call over to Bryan King. Bryan?

Thanks, Steven, and thank you all for joining us to review our 2023 annual and fourth quarter results. Let's begin with Slide 5 to review top-level financial results, our 2023 annual sales totaled $1.6 billion, up more than 36%, and comparable sales increased by almost 24% despite ending the year with a choppier sales environment in a few important end markets, most notably technology and renewables. We did see some destocking of inventory by our customers, mirroring our own efforts to optimize working capital within the channel collectively, which contributed to a 6% decline in organic sales for Q4. While this backdrop did not meet our expectation in the near-term, our two-year organic stack sales increased almost 17% for the full year. Our marketplace traction around expanded value-added capabilities offers us confidence that we assembled a platform of complementary specialty capabilities that will enjoy sustained market share growth. We ended 2023 with $157 million in adjusted EBITDA, up nearly 28%, and an EBITDA margin of 10%. During 2023, we generated significant cash from operations of $102 million, translating to a strong free cash flow conversion. 2023 was a successful year for Distribution Solutions Group, with tremendous work to drive long-term value balanced with a mindfulness towards current profitability and cash generation. I congratulate our team on a job well done in what became a more choppy marketplace environment in September. Throughout the year, we invested with confidence in key long-term initiatives, while adding critical talent and depth to our leadership teams. Our employees have fostered a culture of collaborative accountability, essential for driving revenue growth and achieving sustainably higher profitability, a goal shared by all stakeholders. This is being realized through enhanced cross-selling and value-added customer engagements, which are gaining traction in the marketplace. By streamlining processes and optimizing resources,…

Thank you, Bryan. And good morning everyone. You’ll see on the following few slides that we expanded information on the three segments to include year-to-date information as well as the fourth quarter information. Turning to Slide 6, I will first summarize our business on a pro forma basis, which includes acquisitions for the full twelve months of 2023. Lawson represents 30% of total DSG revenue, Gexpro Services represents 23% and the TestEquity Group represents 47% of revenue, all on an adjusted revenue basis for 2023. Our run rate adjusted revenue is now approximately $1.75 billion and we serve over 180,000 customers across more than 500,000 SKUs. Now turning to Slide 7, I will summarize reported results for the year and for the fourth quarter by segment. Consolidated revenue for the year was $1.57 billion, inclusive of the premerger activity for Lawson in the first quarter of 2022. This represents an increase of $301.1 million, or 23.7%. Post-merger DSG acquired four companies, which accounted for approximately $267.5 million of the increase. Excluding these acquisitions, organic sales for 2023 grew by 2.9%, or 16.7% on a two-year stacked basis. For the quarter, GAAP sales were $405.2 million, an increase of $76.4 million, or 23.2%, primarily due to the acquisition. Excluding the acquisitions not in Q4 a year ago, organic Q4 sales declined 6.4%, solely driven by the continued delay of capital spending within the test and measurement business at TestEquity and weaker sales in the technology end market at Gexpro Services. On a two-year stacked basis, organic sales were up approximately 10% for the quarter. Excluding these two headwinds, organic sales increased approximately 1% for the quarter. 2023 reflected strong growth in net margin dollars. Inclusive of the loss in premerger results in 2022, adjusted EBITDA increased to $157 million in 2023…

Thank you, Ron. We are pleased with 2023 and are even more excited about how our successful initiatives tackled during 2023 will drive our 2024 and 2025 performance. Our prioritized focus on cash flow generation resulted in significant free cash flow in 2023. Turning to Slide 12, we continue to operate under a disciplined capital deployment strategy that drives focus around reducing capital intensity where possible, increasing working capital efficiencies, which improves liquidity and reduces our net borrowings. We ended the year with $99.6 million of cash and have zero borrowed on our revolver while enjoying a $430 million investment in networking capital. We are focused on continuing to structurally increase the return profile of the business both through operational discipline and process improvements where we have a clear line of sight on those improvements and with our return profile additionally benefiting from key acquisitions that will enhance our long-term position in the marketplace. While the current challenged backdrop for a couple of our end markets can create a short-term distraction, we are passionate and committed to drive this business alongside deepening bench of innovative thought leadership with strong distribution experience. We are aligned and collectively committed as large shareholders along with a shared vision from the Board to capitalize on this excellent opportunity to further build this best-in-class specialty value-added distributor. With this shared vision and the strategy we are executing, we are managing our leverage appropriately at 2.9 times at year-end and we are confident that we are well-positioned to capitalize on accretive acquisitions to drive organic and inorganic growth to build a better DSG. We use a disciplined approach to prioritize our capital investing. Our acquisition priorities need to be informed by intensity of other operational and leadership priorities, financial leverage and periodic decisions to invest in…

Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is from Max Kane with Stephens Inc.

Good morning. Thank you for taking my questions.

Good morning, Max.

Good morning, Max.

Good morning. So on a sequential basis, how has 1Q consolidated DSGR revenue trended first 4Q and for the remainder of March, are there any noteworthy negative or positive factors that might change that trajectory going forward?

Yes. Max, this is Ron. I’ll take that. So keep in mind for us the seasonality that we generally experience within our overall business typically Q4 is our weakest quarter, probably followed by Q1 and then Q2 and Q3 are certainly the strongest quarters. Sequentially where we are today in terms of the first couple of months, I would call it kind of flat, versus where we exited the fourth quarter. In terms of March, it is a 21-day selling month for us this year. So I wouldn’t say, I know Bryan commented on some of the ordering process and so forth coming in, but the March is typically generally a 23-day month for us, this month a little bit shorter. So the first quarter only has 63 selling days. We won’t see quite a bit of a leverage advantage on a 21-day month as we would a 23. But to specifically answer your question, not – the first couple of months of the year are kind of flat sequentially versus Q4.

Got it. Thanks for the color. My second question is regarding adjust EBITDA margins kind of a similar question, but yes, on a sequential basis, how has consolidated margins trended first 4Q and are there any noteworthy factors in March that may change that trajectory?

Yes. I’ll jump in on that one as well. So, as you know, we don’t provide formal guidance in terms of the year. I know both Bryan and I made some comments in our prepared remarks that we do feel that will experience some of the margin pressure in Q1, similar to what we saw in Q4, just given where the overall sales are trending out. So nothing – I would say nothing unusual there in terms of what we’re expecting here in the month of March either. But again, without getting into too much specifics, I think we’re going to continue to see a little bit of that margin pressure here in the first quarter and probably early into the second quarter.

Thanks for the color, and I’ll turn it back.

Thanks, Max.

Your next question for today is from Kevin Steinke with Barrington Research.

Hey, good morning, Bryan and Ron.

Good morning, Kevin.

Good morning. I wanted to ask about, Ron, your comments about looking to return to positive organic growth in the second half of 2024. And you said it would be somewhat dependent on pickup in your some of the softer end markets. But just trying to get a sense as to your line of sight into potential pickup in those end markets. I know you talked about the pipeline building in Gexpro for technology and renewables, and then it sounds like you expect some capital spend return on test and measurement equipment and TestEquity. So just any more color on your expectations on the pickup and demand and the line of sight you have there?

Yes. So – yes, go ahead, Bryan.

Either one of us. But Kevin, Ron gave some and you just highlighted the three areas that we’ve been most focused on, because they’re where we’ve seen the only real softness. If you look at the Industrial Technology division or TestEquity, $23 million, of the $24 million of drag that we had on revenue last year was specifically from the test and measurement equipment. And there were specific inventory destocking dynamics that were going on in the marketplace there. And we maybe made the wrong decision, but we decided to step out of selling equipment at margins that we saw some competitors kind of try and blow out inventory to get their inventory levels at the end of the year right sized. And so that overhang of normalization of inventory levels from some of our peers seemed to work through the system. And we've seen quite a bit more requests for the activity level of quotation has gone up quite a bit as we've gone into this year, although, and we know that our customers have budgeted for spend, but we're not seeing the spending dollars being released yet at the pace that we would want to see to feel like that that business is normalized, but we expect that it will. And we also aren't seeing as the more undisciplined approach and some of our competitors have kind of gotten out of the marketplace with their inventory positions that they took on when our channel partners were struggling to get product. It was kind of the same issue that we've seen in other parts of our businesses, not just at DSG, where the supply chain led to people puffing orders or expanding their efforts to try and gather inventory. And then there was a destocking level that we saw…

All right, makes sense.

The only other thing, Kevin, in terms of just thinking about headwinds that we had last year, but also celebrating the great work that was done would be the sales force kind of transition that we did at Lawson. We got the benefit of more productivity out of our sellers. We've reorganized some of the ways that they serve their customers, and some of the efficiency with which we lean on those sellers in their particular selling territories. And so that has created some level of choppiness that – we think that – we kind of – we knew that it would probably lift margins but create some drag on organic growth last year. We just didn't expect that we would also have the drag on the other two verticals at the same time. So we thought we'd get the benefit of the EBITDA flow through with a little bit of a drag on organic sales growth at Lawson, while we would also – we were enjoying through the first half of last year and into the third quarter, really strong end market, still strength on a blended basis across the other two verticals, which we thought would kind of not highlight as much the drag of the sales force reorganization on organic growth. But that was very much of a deliberate objective to be able to bring the structural profitability of Lawson up closer to where we think it should be over time.

Okay, thank you. And just following-up on that, when you talk about the expectations for a better second half of 2024. In discussions with your clients, how much does the macro outlook play into the building pipelines and what have you? I guess, we've just been hearing more generally from various companies that they're getting more comfortable with the way inflation is trending and the possibility of interest rate cuts at some point this year. Is that kind of factoring into your clients thought process and starting to move forward with some spend on some of the more interest rate sensitive things like renewable development, et cetera?

Yes. Kevin, I mean, for me, the best example of that is just seeing the book-to-bill on some of the markets that have been more sensitive to inflation or to interest rates like the renewables. So the renewables have the highest book-to-bill currently of any of the markets that we serve. But that in and of itself to me is an indication that there's confidence in that end market anyway, which has been probably the most sensitive of our end markets to interest rates and kind of the overhang or concern about a recession. And they are moving forward with projects in their engagements with us around the request for proposals, and then obviously booking orders with us. But those won't translate into the revenue lift, we don't think, until later in the year than the first quarter. That's probably the best industry for me to use as a proxy for the question you asked. But I do think that there's two other elements that we're seeing is just like we were able to destock some quite a bit during last year, we watched our customers do the same. And so the concerns that we all had about inflation, and every time we reordered a product being having pricing pass through on us from our vendors. We had customers who were experiencing the same from us. And then everyone was puffing their orders some or carrying more inventory, both because of the concern about an inflationary price increase, as well as the concern around supply chain disruptions. Tested measurement was an area where we had seen a real overhang on supply chain disruption and distributors like us or rental companies that are similar to us took – kind of went out and took inventory positions in an effort to try…

Okay, great. Just lastly, I wanted to ask about the organic revenue trends in Lawson Products. You mentioned continued good progress with strategic Kent Automotive and government verticals, but some softening in Lawson’s core customer base. The organic growth rate just stepped down a bit sequentially 3Q to 4Q. Have you seen a more noticeable softening in that core customer basis or anything we should be thinking about as we kind of move into 2024 here on that front?

Yes, Kevin, this is Ron. So yeah, you’re spot on in terms of where we saw most of the strength in 2023 was our strategic business. We continued to develop good customer relationships, servicing more of their locations. The Kent Automotive business continues to grow nicely. And so for us it’s a real balance, right. In terms of the sales rep productivity that we were able to achieve 15% on top of 18% in the third quarter. So we feel really good about that. Where we are seeing some weakness is within the core base, which does make up about 50% of Lawson’s customer base now. And I think, I would say it’s probably twofold. One is, as we’re signing more strategic accounts and more Kent Automotive business, we really have to have a focused effort on how that customer gets serviced. And I think part of that is probably naturally taking a little bit away from probably a little bit of cannibalization from our core customer base. The nice piece that we’ve done, really, throughout 2023 is we’ve made really pretty significant investments in inside sales, technical sales specialists, lead development reps, really the infrastructure that can help support our sales reps. And we have them actively working on those core customers that we’ve not seen a sale for in the last couple of months, let’s call it. So, yeah, a little bit of weakness there. But I would say that there is a heavy, heavy focus internally within Lawson. Not only do we need to be able to support these other growing kind of pieces of our business, but really getting our way back into our core customers to make sure that we can see growth there as well.

Ron, I want to just add something. Kevin, the salesforce transformation that we took on last year was one that was very deliberate around trying to expand profitability of Lawson. And it was both to expand profitability of Lawson, and it was absolutely focused on being able to expand the earnings opportunity for our outside sales team. And so to do that, we had to make sure that they were spending their time where they needed to be, spending it to drive longer term traction and revenue growth. And a lot of the time when you really broke it down, a lot of their time was being spent on a lot of very small customers that we don’t want to leave, but we needed to manage how our outside salespeople were engaging with them. And so when you really fully burdened their time and our resources, a lot of those little accounts were not profitable on a contribution basis. And so we knew that. That’s part of the reason why we’ve addressed them with some other tools on ways to cover them, so that the outside salesperson is not spending as much time inside of those accounts. So that core has got some movement in it. And so it’s not – so when I look at it, and I look at the drag in different pockets of it around organic revenue growth right now, I have to take some of the noise out of how we’re serving those customers differently today. Because we’re actually making more money on how we’re serving them on less dollars that are coming through that channel, that small, tiny end of our channel. And so there’s that compression element that we had to tackle. And certainly with not having as much of a tailwind of economic growth last year, at the end of the year, at the same time as we were doing that compression, it slowed the organic growth rate of loss like we anticipated it would, but more than we probably anticipated, just because of the backdrop.

Okay, fair enough. Thanks for taking the questions. I will turn it back over.

Thanks, Kevin.

Thank you, Kevin.

Your next question is from Ken Newman with KeyBanc Capital Markets.

Hey, good morning, Ken.

Hey, Ken.

Morning. So, first, I guess, obviously, it sounds like a bit of a slow start here into 2024. I think it sounds like you expect the benefits from the cost out initiatives and improving activity, maybe in the second half. Curious, I mean, do you think the operating leverage for EBITDA is able to get back to that, your target of 20% to 30% starting in the second half? Or is that more of a 2025 opportunity at this point?

Yes. Just to make sure I understand your question. Your question is on the flow through, correct? On the operating leverage?

Correct. Incremental EBITDA margins?

Yes. We believe that we can get there in the second half of this year. I mean it’s not a – we don’t believe that that’s going to take us into 2025 to get there. I think that it’s a natural follow through to some of the commentary this morning, just around seeing a stronger second half than the first half for us. So we’re not – even though we’re seeing some margin pressure here in the first quarter, as we look at bridging our way from Q1 into Q2 and into Q3, we clearly see incremental margin lift as we work sequentially from quarter-to-quarter. So, yeah, we’ve not backed away from that overall, call it 25% operating leverage as sales start to turn here later in the year.

Got it. Okay.

Just to make sure that, I understand the question. I don’t know that, if anything, as we’re taking out expenses and we’re improving operating leverage in the business, the operating leverage has not been taken down. We’ve certainly suffered over the last several months into the fourth quarter, the January, February trend consistent with that, just the challenge of having fixed costs that are not getting carried by as much top line revenue. And so there’s the negative contribution margin that’s dragged some on EBITDA. But at the same time, we have very deliberate cost out measures that were in place that we had identified and been working through over the last 18 months, and many of those we couldn’t really tackle till November with the Hisco earn out being eclipsed. And so there is we should see and be able to talk about the $10 million that we alluded to in our last conference call, earnings call that we started tackling on the TestEquity is now being matched up with another $7 million or so that we’re able to work from the other side of the merger on kind of pulling together the Industrial Technology side. So there’s $17 million that we’re working on, costs out there that we should be able to realize this year. That’s something that, while we’ll get more visibility on it in a better kind of back half of the year selling environment is only taking operating leverage at some level up from whatever it was baselined before. We’ve also got spending leverage opportunities that we’re taking on where we’re able to improve our leverage on each dollar spent across the DSG platform. So that’s in addition to we had been working on that starting 18 months ago. Some of that didn’t roll all the way through the P&L last year. And then there were still initiatives that we were able and are able to tackle that are discrete initiatives that we identified as we’ve been working through the total consolidated spend objectives on the DSG platform. Those are expanding the operating leverage opportunity in the future. And so I want to make sure that we understand where the baseline is. Whatever the baseline was beforehand, we’ve not taken it down, we’ve actually expanded it. But our challenge has been having these in market softness pockets that are a real distraction for all of us. And then just I want to see more organic revenue growth out of our cross selling and getting to that sooner. And it’s taken a little bit more time to knock down some of the targets that we’d laid out there for specific customer opportunities that we have a line of sight on.

Yep. No, that makes a lot of sense. And it actually kind of leads a bit into my follow up here, which is maybe a follow up to Kevin’s last question here on Lawson. I mean Ron, is there any color on what pricing benefits have been in that segment this quarter? Because obviously you guys have seen or talked a little bit about customer destocking, maybe offset by some inflationary pricing benefits. Just how do we think about the flow through of price, through sales and margins, both into this last quarter and then first quarter, maybe the rest of the year? Because I would imagine that flow through might be a bit more extensive on the pricing aspect rather than on the volumes.

Yes, I would say, Ken, really, in the first half of the year, we were getting more of the price increases that were put in place later in 2022 that flowed through into early 2023. We look at our overall unit volume being shipped out the door. I would say that it’s kind of flattened out in that core. So we saw more of a decline in the core volume in the first half of the year and then really in the second half of the year and even here into January and February, it’s kind of hit that what we would call kind of a low point and has been running relatively flat. So, I think that some of that pressure that we saw on the core business is really more so, took place as we were transitioning some of the sales reps earlier in the year with some of the disruption that we did, or I wouldn’t call it maybe disruption, but it was some of the plan changes, but we’ve kind of leveled that off at this point and we don’t see volumes decreasing here in the second half of 2023. And actually it’s ticked up a little bit here in January and February. So, but you’re right. I mean, 2023, a big chunk of our overall growth was really related to price.

Especially in the first half of the year. Because we had significant pricing initiatives that Ron and Cesar and each of the teams put in place during 2022. And as we eclipsed those in 2023, we had the first half of 2023, we were getting the benefit of the 2022 pricing initiatives that had not rolled through for the full 12 months. And most all that was done by early or mid last year. I’m trying to think, Ron, if you can give us any specifics about pricing initiatives that we took on last year, there’s some small ones inside of, like Gexpro on resetting contract terms at around 12/31 metrics. And so when we’ve got a contract, those pricing resets don’t take place until the contract resets. But in terms of dynamic pricing activities, I’d say outside of kind of some dynamic pricing initiatives, we took some specific pricing actions during the inflationary. More the higher inflationary periods that we were feeling in 2022, coming from our suppliers.

Yes, that’s right. There was limited price. I mean, we were very selective around price increases in the second half of 2023. But you’re right, Bryan, that the majority of it was the carryover effect of what we did in 2022 and then being surgically going after just specific products or specific areas that we knew we had to keep margins up on in the latter half. But it was pretty limited.

Got it. That’s helpful. Maybe if I could just squeeze one more in here, just on the supply chain. I know there’s a lot of moving pieces, but curious if you have any color on just how much of your inventory is coming from over the water. Maybe from the Red Sea and the shipping lane dynamics there, and maybe just any color on whether you’re seeing some impacts from transport and logistics expenses, creeping one way or the other.

Yes, from an expense standpoint, on the transportation side, we certainly felt more of it in 2022, 2023 really seemed to normalize for us. We’ve not seen anything 10 at this point. That is starting to have a dramatic impact on us. From an overall cost standpoint, we’re just not seeing it yet. If it’s yet to come, but we’ve not seen it here in the second half of 2023, or at least in the first couple of months into 2024.

On your middle question on margins, I’ve been reminded in here that we do have very specific initiatives that are more surgical, that are a part of our gross margin strategy, that we’re walking gross margins up in some different parts of the different verticals, in different parts of the – in – that’s – but that’s not going to be, that the sort of stuff where you see 10 bps or 25 bps at a time. That’s not kind of the more pricing initiatives that we took. That would be the ones that you would wonder whether or not, when you see a top line number, whether or not that’s volume versus pricing, these are more very specific gross margin objectives that we’ve got that are taking place at the vertical levels to drive gross margins up to a more appropriate level.

Got it. Very helpful. Thanks.

Yep.

Your next question is from Brad Hathaway with Far View.

Morning, Brad. We lose Brad.

One moment. Brad, your line is live.

Do you hear me now?

We got you. Yes. I was worried that 75 minutes into the call that we lost you completely.

No, understood. I’ll try to be quick.

No, you’re good.

So appreciate the incremental color on kind of, I guess, some of the macro headwinds because I guess, obviously, I think people kind of look at the overall macro environment and feel more benign about it. But I guess the PMI is sub 50 and you’re seeing some things in your specific industries. What I was curious though, to ask, that’s having been covered pretty well, was with regards to Hisco. So you haven’t really started the integration yet till December, correct?

Yes. I’d say that we started taking some actions in November, but they really didn’t have any impact to either top line or profitability.

Okay.

But yes, that’s right. So we weren’t allowed to start taking actions until November. Really in November, when we started moving things around, it was on the TestEquity side, not on the Hisco side.

Understood. Because I think for, I guess, now we’ll call TestEquity or Industrial Technologies. You made a comment that you kind of see this midterm path to, I think, 12% margins, if that’s correct. And I guess I was wondering, is the Hisco integration the major factor in that, or are there other building blocks you can kind of point to, to get from where we are now and kind of TestEquity to that kind of more midterm goal?

Yes, so there are other building blocks. Brad, the way that I kind of have bridged it is that, in my mind, in any way, and that we’ve got very discreet numbers that we’re working through. But there’s about 200 basis points of cost leveraging or spend leveraging on an EBITDA basis, kind of 200 basis points of revenue that we have a line of sight that we’re working through this year, or that we should get the benefit of this year. There’s another equal amount that won’t flow through the P&L until fully flow through it until the 2025, or in some cases, 2026. So there’s kind of a total of 400 basis points that the team has identified in kind of synergistic opportunities there. And then there is in addition to that, and that’s across the total volume of that Industrial Technologies Group, there are additional elements that we are working towards to drive volume, leveraging, profitability that we see in terms of being able to bring the Hisco capabilities to all of DSG. An example that it lifts margins quite a bit for everybody was one that we will work through in the last day, as we had everybody together, would be the printing and labeling capabilities that are owned by Hisco, taking on volume that is needed from Gexpro for instance. And so you end up with a lift because we’re getting more throughput on a facility that was a very good facility, but not one that was operating at a level of kind of capacity utilization that would pull the gross margins and EBITDA margins of that alliance printing business to where it really drops a lot more dollar. So there’s a number of those things. There’s also things like, there’s other capabilities that are specific kind of value-added capabilities that Gexpro is leaning into Hisco or leaning into TestEquity that expands the structural margins of TestEquity and Hisco in certain categories. And those are outside of the 400 basis points that I alluded to earlier.

Got it.

There’s no does need to be, there is no doubt about it. To get to the 12%, we’ve got to get back to the normalized top line. So there’s a full 200 basis points. That is leveraging the spend dollars that we expect that we’ll get just from getting through this test and measurement overhang of product and delayed purchasing and then also getting the organic revenue baseline back to where it should be.

Okay, so just to make sure I’m clear, in Q4 2023 is roughly 6%. So to bridge that 600 bps, it’s roughly 400 bps from kind of synergies and 200 bps from volume leverage, is that kind of correct?

That’s about right, yes.

Okay, great. Excellent. That’s all I have right now. Thank you.

Okay, thank you.

Your next question is from John Krueger with JAG Capital.

Hey, Bryan. Thanks for taking the question. I just want to ask you how you’re thinking about buybacks and keeping that free float available to other investors.

Yes. Look, I think that’s you tell me where the stock price is and I’ll tell you what we’re doing on the buyback. Not really, but I mean we’re that specific in what we’re looking at exactly what the terminal value that we’re trying to build in the business is. And we’ve got a capital allocation model that’s quite specific. It’s taken us longer to get some of our M&A done candidly, during the last half of last year. The disruption in some of these pocketed end markets that we’ve talked about this morning, like renewables or semiconductors specifically, as well as some other noisiness in the channels, have impacted some of the people that we have direct dialogues with that are not in our process, that aren’t necessarily having to sell their business, but want to be a part of DSG. And so it’s slowed down some of our kind of getting to the goal line on M&A that are specific capabilities or expansions of our reach that we want to have in some of our kind of long-term value proposition that we want to pull together with DSG. So as those things have slowed kind of, now we have good line of sight on some of those right now, but as those have kind of not happened as quickly and we’re generating cash, we want to make sure that we’re mindful of exactly what we’re doing with our shareholders cash while we’re sitting on that additional liquidity. And so if the stock price is where it’s too significant of a discount of what we think the terminal value of the business would be, if we wanted to sell the company, then we’re going to buy back shares. But we don’t want to buy back shares, so but it’s part of a very disciplined capital allocation. I wanted to make sure that we continued to improve the float. That’s why we did the stock split. That’s why we’re making sure that we try and get out in the marketplace and see shareholders like yourself and go on the road. But that’s to make sure that our shareholders are confident in what we’re trying to execute on and that where we can, we want to improve liquidity for everybody. But we’re not sellers and I’m a net buyer, so and the business itself is doing what we want it to do. At its core, the team is performing really well against a lot of very discrete objectives to drive value longer term for all of us. And so if we think that the right thing to do for all the shareholders is to use liquidity to buy shares, then we’ll do it.

I appreciate it. Thanks.

Sure. Thank you for your support.

We have reached the end of the question-and-answer session and I will now turn the call over to Bryan for closing remarks.

Thank you. Well, we look forward to speaking with you everyone, again when we report our first quarter results in early May. Additionally, just I alluded to it just a minute ago, we are planning a multi city, non-deal roadshow starting on the east coast and covering parts of the Midwest during the last week of March. We also have an several investor conferences scheduled for this spring. We appreciate everybody’s time today and we absolutely thank the 3700 DSG associates for a great 2023. They put a lot into it and thank you. Have a great day.

Thank you. This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.