Hello, and welcome to the Gates Industrial Corporation Q4 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Rich Kwas, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us on our fourth quarter 2023 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our fourth quarter 2023 results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast, is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we've described in our most recent annual report on Form 10-K and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements. Before I turn it over to Ivo, we are hosting a Capital Markets Day on the afternoon of March 11 at the New York Stock Exchange. Instructions to RSVP will be sent next week, and we hope many of you can join us for an informative see. I'll now turn the call over to Ivo to review our results. Ivo?

Thank you, Rich. Good morning, everyone, and thank you for joining us today. Let's begin on Slide 3 of the presentation and review what we accomplished in 2023. I'm proud of what our Gates global teams achieved. Our team demonstrated resilience and fortitude through an uncertain macro environment and delivered strong margin expansion and cash conversion for the full year. Our global teams work diligently to service our customers and returned fill rates to pre-COVID performance levels progressively meeting our customers' expectations across most of our product portfolio. Our team's collective execution enabled us to deliver a 180 basis point year-over-year expansion in adjusted EBITDA margin. Importantly, the improvement was fueled by stronger commercial and operational execution, resulting in a 290 basis points increase in our gross margins. We believe this outcome demonstrates the resilience and quality of the business as well as our team's ability to manage through a challenging environment. The full year profitability increase was an important driver of our nearly 20% growth in adjusted EPS. Furthermore, our free cash flow conversion measured 110% and helped drive a 0.5 turn reduction in our net leverage ratio year-over-year while we returned $250 million of capital to shareholders via share repurchases in 2023. Our company-wide focused execution allowed us to surpass most of our initial financial guidance metrics for the year. We are in the relatively early stages of executing on our organically focused enterprise initiatives that we anticipate will be delivering performance benefits and enhancing shareholder returns over a multiyear horizon. Over an extended time frame, our business has demonstrated an ability to deliver strong profitability and cash flow generation. We are now focused on elevating the enterprise growth and enhancing profitability while staying focused on improving shareholder returns. I look forward to sharing more details on these…

Thank you, Ivo. I'll begin on Slide 7 and discuss our core revenue performance by region, starting with a brief overview. Regionally, we experienced mid-single digit declines in North America and EMEA, the two regions most impacted by the highlighted difficult year-over-year comparisons. While down slightly versus prior year, our China business exceeded our revised expectations. We realized positive core growth in South America. In North America, we experienced similar year-over-year percentage declines in automotive and industrial. Trends in EMEA were more divergent with high-single digit growth in automotive countered by an approximately 20% year-over-year decrease in industrial. In both North America and EMEA, the replacement channels performed better than first-fit. China core revenues declined slightly year-over-year. Automotive increased mid-single digits and On-Highway revenues expanded over 40% versus the prior year period, augmented by a favorable comparison. Diversified Industrial remains solid, declining high teens compared to last year's fourth quarter. In general, we started to experience more demand stability in China as we exited the year. South America grew mid-single digits, benefiting from relative strength in automotive, energy and on-highway, while East Asia's revenues were relatively flat with the prior year on a core basis. Shifting to Slide 8, we show the adjusted earnings per share bridge to last year's fourth quarter. Of note, this quarter's adjusted earnings per share was a fourth quarter high for the company. Relative to last year, stronger operating performance contributed approximately $0.07 in earnings per share. Lower tax and interest expense were modest tailwinds. I -- the contribution from other primarily reflects the benefit of a reduced share count. Moving to Slide 9 and cash flow results and our balance sheet. Our free cash flow for the fourth quarter was $165 million or 158% conversion of adjusted net income. Q4 was our highest free…

Thanks, Brooks. On Slide 12, I will offer a brief summary before taking your questions. We had a strong finish to 2023 and I'm proud of our team for their perseverance and ability to perform in an uneven economic environment. We were able to deliver a nice margin improvement while encountering choppy demand conditions, benefiting from a mix of internal initiatives and the normalization of the underlying operating environment. In a substantial way, our operations have returned to pre-COVID levels. In 2023, our team was able to showcase the underlying strength of our business model, which we intend to build upon moving forward. As we enter 2024, we are mindful of the underlying macro risks, but we believe there are many opportunities as well. We are taking a pragmatic approach to 2024, viewing the front half of the year has been more challenging due to normalization of business conditions, followed a gradually improving business environment in second half. While we cannot control the timing of improvement in broad-based business activity, we are firmly in control of improving our business operations for the long term. As such, we continue to build momentum of our enterprise initiatives in the areas of productivity, footprint optimization and 80/20. Moreover, we are thoughtful about making further investments in our business. As the business environment evolves, our priority is to stay close to our customers at the commercial front end as well as maintain tight operational proximity to optimize service levels and fill rates of our comprehensive portfolio of highly engineered mission-critical products. We are making investments in innovation, material science and process engineering to improve the competitive position of our portfolio while equipping our people with better analytics and empowering them to ramp up the execution of our growth initiatives. We are focused on being good stewards for all of our stakeholders, investors, the communities we operate in and our employees. On that note, most recently Newsweek recognized Gates as one of America's greatest workplaces for diversity for the second year in a row. Before I take your questions, I would like to extend my gratitude to the nearly 15,000 Gates employees globally for their hard work and accomplishments in 2023. And finally, as a reminder, our upcoming Capital Markets Day is scheduled for March 11 in New York, where we look forward to sharing more about our enterprise initiatives and business priorities. With that, I'll turn the call back to the operator to begin the Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning, everyone.

Good morning, Nigel.

Really good margin execution and cash flow production, so congratulations on that. Maybe just fill in the gaps. I think Brooks, you mentioned half of the end markets expected to be down in '24. So I'd be curious why you're seeing the down end markets. And then any thoughts on sort of the impact of inventory adjustments during the quarter, the sell-in versus sell-out dynamic?

Yeah. Good morning, Nigel. Let me take this. Look, I think we have put in the appendix a view of the anticipated 2024 end market conditions. And we feel kind of predominantly -- we see predominantly that the industrial On-Highway and the industrial Off-Highway will be more challenged in '24 than it was in '23. Obviously, ag has been challenged for a while, internationally in the second half of the year in the U.S. as well. We've managed to quite well, but we anticipate in '24 that's going to remain weak globally. On-Highway and had a terrific run of a couple of years, and it's more or less just normalizing in terms of demand, but we are seeing some strength in China in On-Highway as well, and that has been quite negative for a while. So some puts and takes in there. And then on diversified industrial, diversified industry has been quite weak. I mean, where or not it is logistics and distribution automation, the kind of discrete automation, it's been quite choppy over the last year, and we certainly don't anticipate that improving until sometimes into the back half of the year. So we've taken a reasonably muted view of that end market, but there are some positives as well. I mean the automotive replacement market, end market remains quite robust. The market dynamics are quite strong. The aged car park continues to grow, aged carpark in China continues to grow. So the underlying demand drivers remain positive. And then obviously, energy and resources, so oil and gas, mining and such, we remain quite optimistic about the underlying conditions of the market. Maybe on the last one on Personal Mobility, the underlying market is actually reasonably okay. You still see a very significant amount of new design wins coming to fore front particularly as in some of the developing economies, you start seeing electrification of the personal mobility gets stronger. And we have -- we've had a very strong amount of design wins. But the underlying largest -- I mean, the broadest exposure that we have presently is in the bike market and that has been dealing with post-COVID in kind of an overhang of inventory. And that we believe is going to work itself out as well kind of in the front end of the year and sometimes as you are exiting other parts of Q2, maybe in the middle of Q3, we believe that we should start seeing that overhang to start dissipating and the market should start growing for us as well. So puts and takes, not a fantastic backdrop, but we are managing quite well. And we believe that we are well positioned to deliver what would be presented in our guidance for 2024.

Thanks, Ivo. That's great. And then, I guess my follow-up question is on the margin bridge on Slide 11, the $0.07 from enterprise initiatives. And you provided a little bit of color in terms of some of the cost initiatives. I just wondered if maybe you could just build that out in terms of kind of what's driving that $0.07 and any sort of cost to achieve that we should think of as well.

Yeah. Hey, Nigel. This is Brook. This is being driven entirely by gross margin improvement, right? And so if you remember, right, I'm going to give a little history we talked about -- since COVID, we talked about the challenges related to the polymers and the resins and getting those and those were challenged because there were governments that were trying to get their hands on them for different reasons. And then there were other people that were getting out of the business and stuff like that. So it's a little bit of a challenge in terms of getting some of the raw materials that we needed, and that caused us some operational efficiencies and some gross margin headwinds, and as we work through those and we've stacked the enterprise initiatives on top of them, we've really seen our gross margins progressively come back through 2023, quite in line with what our expectations were. And so if you think about the fourth quarter, the normalization piece was probably about 250 bps of gross margin tailwind. We probably had between volume and mix, a couple of hundred basis points of gross margin headwind, and then the balance, which is about 400 basis points really comes from our enterprise initiatives around productivity, material cost out, freight cost out and 80/20, some of the strategic pricing stuff that we've done. And so just a combination of things that have happened over the course of 2023 that have helped drive those gross margins in the direction that we want to.

Your next question comes from the line of Julian Mitchell with Barclays Capital. Your line is open.

Hi. Good morning. Maybe just wanted to look at the seasonality. So you've got some commentary on Slide 10 about the half and so on. So I just wondered any sense of kind of how much of the EBITDA or the earnings we should expect in the first half as a proportion of the year? And sort of related to that, perhaps, I think you'd mentioned more muted price assumptions, which is very understandable. So just within the core sales guide, what is the price tailwind versus last year?

Yeah. So first question first. I mean, typically, from an EBITDA perspective, from a sales perspective, we're a little bit more front-end loaded. It tends to be kind of a 51-49 from a seasonality perspective first half versus second half. And then EBITDA is more 50-50 historically speaking. Those numbers kind of hold in terms of the comparison. I mean, we think from a sales perspective, it's going to be more of a 50-50 split. So a little bit more back-end loaded because we do expect things to get progressively better throughout the year. And then from an EBITDA perspective, maybe kind of a 49-51 split, which follows kind of the 50-50 that we just -- that I just talked about on the sales side. So not meaningfully divergent from what we see historically, but there is a little bit of a follow-on pattern where we're going to see a little bit more sales in the second half than we would normally expect to see from a seasonality perspective. From a price perspective, look, the kind of the inflation-based pricing is really rolling over as inflation normalizes on materials, and you actually start to see a little bit of deflation on the freight side. So we expect low single-digit pricing as we move through 2024. Having said that, a lot of the work that we've done around 80/20 is really around value pricing and strategic pricing in terms of our high-velocity items versus our low velocity items. And so we'll continue to look at opportunities to drive margin improvement by value pricing, all the different SKUs that we make. Remember, we make hundreds of thousands of SKUs throughout our network. And we still will look at that as a lever to drive margin enhancement as we move through 2024, but it's definitely going to be muted compared to what the last kind of eight to 10 quarters have been.

Thanks very much. And then just my follow-up around the margin year-on-year. So you've -- I think it's up 60 bps at the midpoint in first quarter, up, I think, similar for the year as a whole in your guidance. So just wondering if you get that better volume leverage through the year as the destocking fades and so forth, why wouldn't we see the margin expansion accelerate or increase as you go through the year as well?

Well, look, we've taken a pragmatic view of volumes for 2024, right? I mean we've seen as we talked about, the volumes decline in the back half of the year, we've got these different models that kind of -- that tell us what we think is going to happen in terms of volumes. And so we've taken a pragmatic view of that. Look, if volumes accelerate, if things get better, we expect to be able to stack that margin fall through on top of the enterprise initiatives, right? The enterprise initiatives we're working on are largely volume agnostic. So we feel pretty good about that. And so the business will inflect and it will drive additional gross margin, additional profitability as volume comes back.

Your next question comes from the line of Deane Dray with RBC Capital Markets. Your line is open.

Thank you. Good morning, everyone.

Good morning, Deane.

Hey. Maybe we can start with China. This quarter, there's been such a mixed range of performance in the country. Everyone seems to want to paint it with the same brush, but it really depends on what end markets you're exposed to and as long because it's not real estate, but you all have definitely shown the best sequential improvement in China. And to kind of take us through that, what did you see it was still down modestly, but just some color there on how you think it plays out over the near term.

Yeah. Thank you, Deane. Look, we're pretty well connected in China. We have a great business in China, and we like our business in China, and we are optimistic about it for the long term. We have seen a gradual recovery in '23, and we certainly are not forecasting that it's going to go from a gradual recovery as to boom (ph) times. So we are quite sober about what we anticipate is going to happen there. And I think that the continuation of the gradual improvement is probably right. Auto is doing really well. Whether or not it is OE or auto replacement or auto replacement franchises terrific in China and continues to deliver really nice growth rate for us even with the challenges that you have seen there. We still delivering kind of a mid-single-digit growth in in Q4 and for the year. So that remains quite robust. We are starting to see a steady recovery in On-Highway, which has been very much challenged in '23. Construction equipment is stabilizing after two really terrible years of excavator output in China and diversified industrial is stabilizing. So again, some puts and takes in auto doing well, and we anticipate that we're going to continue to see slow and steady performance out of our team in China, which is a great theme.

Yeah. That's great to see. And then the second question, just -- it's a broader question regarding CapEx. And you've demonstrated the ability consistently strong free cash flow. You've done the debt pay down and you're making some more CapEx investments here. And I know you're going to talk more about it at the Analyst Day, but just broadly, at a high level, this enterprise footprint optimization project. Just as you just kind of share with us some of the key inputs when you look at where and how you may deploy our resources for these facilities. Is there an IRR analysis on each project? What are kind of the inputs that you have and the assumptions that you're making? Again, I know you got -- it's going to be more detail at the Analyst Day, but just broadly, if you could share some of that thinking here this morning.

Yeah. Absolutely. Look, our guidance for 2024 CapEx is still very much within the frame of what we guide for the long term, which is 2% to 3% of revenue. So we're not anticipating that we're going to be breaking through the ceiling of our investments. We are very much focused on ensuring that while we are investing in NPI and our material science, we're also investing in manufacturing process engineering and equipment that gives us the biggest opportunity to leverage driving productivity forward. So as you said, IRRs obviously, are very important on any project that we do. And generally speaking, these IRRs are in excess of 30%. So those are very good projects. When we talk about optimization of footprint that I have highlighted in the prepared remarks, look, it's a great set of opportunities that we have ahead of us in India. We are very bullish on what is happening in India, the infrastructure builds that are happening in there, the demands that we see for heavy-duty equipment, which is very positive. And so we believe that over the midterm, we want to be ready to ensure that we capitalize on the India opportunity just like we have done in China. Brazil in similar vein, has very unique set of operating dynamics, you got high tariffs. And the opportunities that we see there are quite robust, and we feel that being to close proximity to our customers with local manufacturing is the right thing to do. Those are kind of maybe a couple of projects that we've highlighted out there. But I would say more broadly, we want to be very pragmatic about making sure that we stay contemporary with our manufacturing processes, and we can leverage the NPI and then ultimately position ourselves to a situation where we can accelerate our organic growth, which, as you know, has not been insignificant. We have delivered organic growth, very much in line with the high multiple premium industrial peer set.

Yeah. The one thing I'll add to that is, if you remember, I've said this multiple times before, even as we're working on some of these enterprise initiatives and these bigger footprint optimization projects, they still fall well within the 2% to 3% guidance that we give on CapEx every year. So we don't feel the need to ramp up CapEx to an abnormal level in any given year, we can handle all these investments and all these enterprise initiatives well within the framework work of what our capital spending is on a year-on-year basis.

Your next question comes from the line of Andy Kaplowitz with Citigroup. Your line is open.

Hey. Good morning, everyone.

Good morning.

Good morning.

Brooks, I just wanted to flush out the enterprise initiatives a little bit more in terms of how they ramp up in '24, -- are they kind of linear? And then you obviously just talked about factory optimization. You've talked about 80/20 in productivity. Is it kind of equally split when we look at that $0.07. And do you have even more of an impact as you go into '25, for instance, than '24?

Yes. So yes, so let me -- I want to be a little bit careful here because there's a lot of moving parts here. First of all, in 2024, I think our enterprise initiatives will definitely lean more toward the material cost outside than some of the more factory productivity side, and we'll be working through the footprint optimizations. And I think those are definitely more 25, 26 in type things. And so we definitely lean more towards the material savings side the factory productivity in a down volume environment is tough, right? I mean it's a tough nut to crack. We're going to get some. But as volume comes back, that's when the factory productivity will really start to stack up. And then the 80/20 work we're going to do in terms of strategic pricing and in terms of going out and driving better value demand from our end customers is going to be a big driver as well. So I would say kind of the summary of that is definitely more weighted toward material cost in 2024 on the enterprise initiative side.

And in '25, you should start seeing some benefits from some of the footprint optimization that we'll be talking more about, obviously, -- we -- again, as Brook said, lots of moving pieces on the footprint optimization, notification of employees and so on and so forth with a number of terrific projects that we are quite bullish about. And we anticipate that '25 should be a beneficiary of the restructuring there.

Very helpful guys. And then I just want to go back to the seasonality question again for -- like if I look at historically, Q1 is almost always a decently sequentially versus Q4. At the midpoint, you guys have a kind of flattish I think global auto production is supposed to be down in Q1 versus Q4, but you guys, as you know, are not big in first-fit anymore. Is there anything else sort of going on or is it just sort of this pragmatic view around destocking Q1, that you already mentioned that keeps you where your guidance is for Q1?

Yeah. Well, I mean, I think there's a nuance here as you move from Q4 to Q1, we have a -- we're taking a pragmatic view on volume. So we have volumes down, and that's partially offset by FX, because FX is a little bit of a tailwind as we move from Q4 to Q1. And so it's really more of a pragmatic view based on how we think the demand environment is going to play out to the first half of 2024. And so that's really the best visibility we have right now in terms of what's going to go on with demand.

Yeah. And Andy, I would also probably suggest that people start thinking about as the operations have recovered to normalize. And again, as I said on the call, in the prepared remarks, we are pretty much back to pre-COVID level of operational cadence. Our customers are taking advantage of the fact that we are much more predictable in how we have fulfill demand. Lead times have been normalizing. And we want to ensure that our service levels remain high and that just gives everybody an opportunity to really just order more in line with what the underlying demand is. And that's kind of how you should think about it.

Your next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Yes. Hi. Good morning, everyone.

Good morning.

I'm wondering if you could just talk about a little bit more on the capital deployment plan for this year. Obviously, stock buyback over $100 million is in the works. But can you expand on that because you're set to generate pretty significant free cash flow and with EBITDA growing, leverage just naturally coming down. Would love to hear more Brooks, if you don't mind.

Yeah. So look, we -- as you just said, I'll take the words out of your mouth. As you just said, we generated substantial free cash flow year in and year out, right? And so we are going to continue to pull the levers that move us toward our medium-term goal of 1.5 times leverage, right, which means we're going to continue to pay down debt. And that's going to be our primary vector for capital deployment here in the short to medium term. Having said that, because we generate a substantial amount of cash flow, we want to make sure that we have all avenues open to us in terms of deploying capital to reward our shareholders. And so we took out the stock repurchase authorization for $100 million. And we'll use that also as a vector to help reward shareholders here through the short and medium term. But I would say we're still primarily focused on debt reduction. Debt reduction and profitability improvement is a way to improve to get to our medium-term leverage target of 1.5 turns. But we want to make sure that we have all avenues available to us in terms of capital deployment.

And Brooks, I didn't hear you mention M&A within that context, how attractive is it today versus the bolt-on M&As we saw you folks do in the last cycle?

Yeah. Look, I mean we always look at opportunities, but we feel that presently, kind of in 2023, we've made some commitments about getting our balance sheet to be very much in line with what our premium industrial peer group looks like. There are significant benefits in a lower interest expense and that can generate more free cash flow. And our stock is so inexpensive that we believe that that's the best way of deploying capital. And so those would be the two levers in the short term. And I think that none of that should be surprising to what would we have signaled and communicated to the markets over the last kind of 12 months. So we'll stay true to that and some great opportunities appear, and we feel that we would be able to generate very substantial returns on going out to the markets and doing some M&A, we generate enough cash to be able to do that. And our leverage, it is coming down pretty dramatically as we said. So we are in a very good shape to be able to now start thinking about all three of these avenues of potential capital deployment.

Right. And I would say, too, that as we focus on debt paydown as our primary lever to get to 1.5 turns. That also leaves us maximum flexibility in terms of dry gunpowder to do whatever to deploy capital in whatever way is going to best reward our shareholders.

Your next question comes from the line of David Raso with Evercore ISI. Your line is open.

Hi. Thank you very much. Sorry if I missed this, but I'm still trying to make sure I understand the cadence of the organic sales year-over-year. So the down one for the year, is that -- if I could sort of maybe play this out, it looks like it's downsized in in the first quarter, is second quarter the idea of down 3% in the back half of the year is up 2%. I'm just trying to get a sense of the cadence for my first question.

Yeah. So look, we're not going to -- we're not forecasting second quarter quite yet. I would say if you look at -- we expect there to be a progression of things getting better throughout the year. And so we've given our first quarter guidance, second quarter does it come in minus 3%, minus 2%. It remains to be seen how quickly things inflect. We think we've taken a pragmatic view from a volume perspective. And so if things get better, faster, that's good for us. Margins will improve faster and things will get better. But we think we've taken a pragmatic view and we'll continue to update as we move through the year.

But to be clear, though, the second half of the year, do you expect the return to growth to be in the third or fourth quarter? Because I'm thinking about the personal mobility comment earlier that, that destock continues beyond the first half I'm just trying to level set when do we think we return to growth? And then the follow-up, if you can give us some sense between the business segments, which one do you think will be kind of above the company guide on which one below? I was just trying to get a sense of perspective on the business segments and the cadence? Thank you.

Yeah, David. We anticipate a modest growth in the second half, as we have outlined in our prepared remarks, I mean it's natural taking into account where we are guiding Q1. And I'll leave it at that. And I did state that we anticipate that the personal mobility should start recovering in the second half of the year after about four or five quarters of rather significant inventory destock. So that's really where I would probably leave it with you. And we've provided you with a framework on the end market performance, and that's probably a good amount of outlines that should give you an ability to take a look and develop a model.

Your next question comes from the line of Jeff Hammond with KeyBanc. Your line is open.

Hey. Good morning, everyone.

Good morning.

EMEA was one of your better growth markets. It seems like there's maybe some broadening weakness there. Just speak to how you're thinking about Europe into '24?

Yeah. So Europe, the anticipation, Jeff, is that ag is going to continue to remain weak as the construction end market. Other remains kind of flattish to plus LSD. Diversified Industrial still reasonably negative core growth and all the news flow from places like Germany and Italy is not necessarily terrific. So who am I to predict that it's going to get dramatically better short term. So we anticipate that, that's going to remain somewhat weak and maybe as the second half progresses, start getting less bad. And On-Highway, we anticipate is going to be down versus 23%. So Europe, I think, is dealing with more fundamental slowdown than perhaps any other region that we participate in.

Okay. And then I was at super compute and saw some of your houses on some liquid cooling applications. And certainly an area of strength and conversation. Just wondering if you can speak to that opportunity. I'm not sure if it's a rounding error or if something we should get excited about. Thanks.

If I get excited about every opportunity, when you sit in my chair, every opportunity is a great opportunity. But we will speak actually a little bit more about the hyperscale data centers and the liquid cooling in dose. We actually have a couple of really interesting technologies that I will share more about both on the electric water pump side that helps to provide efficient cooling and on leak-free applications for conveyance of the fluids that cools these data centers. So yeah, we're actually excited about it. I'm not prepared to size the opportunity for you at this point in time. It's early stages, but we're excited that we have lots of -- actually have lots of really interesting technologies that are being adopted in what I kind of term the new economy from hyperscale to broad-based electrification and industrial automation. So we'll share more on March 11 in New York.

Your next question comes from the line of Mike Halloran with Baird. Your line is open.

Good morning, everyone. A couple of questions. First, on the -- just on the guide one last time here. I look at just normal sequentials and it kind of gets you to the middle part of the range. Normal sequentials doesn't necessarily imply anything better from here from an end market perspective. So you've commented on gradual improvement in the back half of the year. I'm just kind of curious what that means from your perspective? And if that's even really required to hit the midpoint of the range versus just kind of float along at current levels?

Yeah, Jeff, I think that -- I would say that certainly, the back half of the year has significantly easier comps as well, right? So that's going to be part of it, to be quite frank. And we kind of feel that Q1 is, frankly, a continuation of what we have seen in Q4, in terms of the demand dynamics. And then just steady normalization of demand as inventories have normalized as the underlying purchases are very much aligned to the underlying demand for the products and the applications that we service. So it really doesn't -- again, we're being very pragmatic, but we don't believe that we require any significant improvement in the end markets to be able to deliver the guidance. And again, it's an early guidance. That's why we are quite forefront and fore-right about making sure that we have to put a pragmatic view of what we believe the world's economy is going to do.

And then on the M&A side of things, how developed is that pipeline at this point? You've been out of the market for a bit focused on other areas of capital usage certainly understand your comments about how many expensive your stock is and that makes it a priority. But if the opportunity comes up, how invested or how in the market are you on the M&A side to be able to identify and go after some of those areas?

Yeah. Look, because we don't necessarily talk about it front and center, doesn't mean that we don't develop a strong pipeline. We have a good pipeline of opportunities, but again, the issue is that our stock is undervalued. And we just believe that, that is just -- it's just tough to compete with generating strong returns on deploying that capital, and we believe that it's in the best interest of our shareholders to go further reduce our debt and opportunistically deploy capital through share buybacks. And that's going to put the company in the strongest and very forward-leaning footings as the time moves forward over the next kind of four, five, six quarters, you're going to be in a situation where you can start thinking about maybe better, bigger deals, if that's what you ultimately want to do, getting the stock and the valuation normalize because, again, I certainly feel that the stock is quite undervalued. And we've got to do everything that we can to take advantage of that.

There are no further questions at this time. I will turn the call to Rich Kwas for closing remarks.

Thank you, everyone, for participating today. If you have any follow-up questions, please feel free to contact me. Thanks, and have a great day.

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.