George Chappelle: I’m basing it on a couple of things, Craig. One is the sentiment of our larger customers, both retail and manufacturing. And two is the economic environment, hopefully improving in the second half with interest rate reductions planned, at least at one time, a little more bullish, I get that, but still planned for the second half of the year that would free up disposable income for consumers. Generally, that builds consumer confidence, and that generally builds throughput increases in our customers. So it’s based on the economic news of interest rate declines, which, again, may be a little less bullish than it once was, but still people are saying in the second half of the year, it will come. And it also comes from coming into the part of the year when you should see natural growth with some of grilling season and then the holiday season. So it’s based on a number of factors in our largest partners and the economic news, we still believe will happen.
Craig Mailman: Okay. And then from a guidance perspective, it sounds like the G&A increase is predominantly IT spending related to kind of cyber initiatives. Is that kind of sticky G&A that you guys are going to be spending year in and year out now and you’re not going to back out related to the incident?
George Chappelle: Yes, I’ll hand this one to Jay. Go ahead, Jay.
Jay Wells: Yes. Craig, nice to meet you. It really is — it’s for additional cybersecurity will continue to be an expense. So on that side, sticky. And related to Project Orion, we’re moving from basically a server-based type IT approach to the cloud. And under the general accounting rules, you can capitalize it if you put it on a server and can touch it, but you don’t capitalize it if you foot in the cloud. So it basically is going to be continued expenses because we’re in a SaaS environment going forward.
Operator: Thank you. The next question comes from Ki Bin Kim from Truist Securities. Please proceed with your questions.
Ki Bin Kim : Thanks. Hi, everyone. So your economic occupancy dipped a little bit year-over-year, but your physical occupancy was down over 400 basis points. So a couple of questions. One, doesn’t that physical occupancy declines eventually have way on economic obviously? Obviously, if customers have just less inventory to store. I would imagine it would weigh on it. Yes. So let me stay with that one first.
George Chappelle: Yes. I would tell you, Ki Bin, that in the first quarter, particularly, but the first half of the year, you should always see a gap between economic occupancy and physical occupancy because almost by definition, when you go to a fixed commitment contract with us, you’re reserving space for the second half of the year. I mean, with most of our customers, that’s true. There may be some that aren’t seasonal as others, but for most of our customers, they would be paying the space in the first quarter and then sometimes the first half of the year that they intend to use in the second half of the year. So I’ll turn it over to Rob for a little more detail, but it’s not unusual and you should not expect really for economic occupancy and physical to be very close in the first quarter.
Rob Chambers: Yes. And I would just add that as we look out over the course of the year, the conversations we’re already having with our customers about either renewals of existing fixed commitments or the transition from a transactional environment into a fixed commitment scenario, we’re very confident that, that percentage is going to continue to increase our fixed or the amount of contracts under fixed commitment. So even if we see a little bit of dip in the physical occupancy, I think we’ll overcome that through our continued progress that we’ll make moving customers on to our fixed structure.
Ki Bin Kim : And how much is the European slowdown or the farmer protest seem to be growing? How much is that impacting your business?
George Chappelle: Not at all. I mean right now, I think, as Jay mentioned, we’re very happy with the European business. We actually grew NOI in our European business last year, 30%. We plan on growing another 20% this year to make a further point on the business, we ended the year this year on an NOI basis. I think it was close to $10 million higher than when we bought the company. I mean, so we’ve grown the business pretty significantly since we bought it. I mean, the impairment is a calculation that Jay explained, but we’re very happy with the business. We’re growing NOI year-over-year, which you’ll see in the results pretty significantly. It’s generating more profit, significantly more profit than when we bought it. And we’re on a very nice glide path in Europe, very bullish on it.
Ki Bin Kim : And if I can just squeeze a third one in, going back to the G&A topic. Your G&A in 2018 was $115 million and for your guidance in 2024 looking at $255 million. I’m just curious, like there doesn’t seem to be a ton of like scalability or economies of scale with the G&A. Any kind of broad observations. I know there’s cybersecurity and your transition to the cloud, but it just seems to be running hotter than I would say most people expected.
George Chappelle: I can’t take you all the way back to the beginning, but I can tell you that the two pieces we called out this year, I think we’re very transparent on for a number of quarters. I mean we talked about cybersecurity investment back in the second quarter of last year, and we talked about that going into SG&A. And we’ve talked about our software being cloud-based, which from an accounting standpoint means that the expense of that goes into SG&A and out of CapEx or OpEx. So I just — I don’t have the data in front of me to go all the way back as far as we’d like. But I can tell you that recent increases are exactly around the two things we’ve highlighted for a couple of quarters now.
Operator: Thank you. The next question comes from Josh Dennerlein from Bank of America. Please proceed with your questions.
Josh Dennerlein : Yes, hey, guys. Just a follow-up on the throughput comments that you’re flagging with a slowdown in mid-December call it. Does the 2024 guidance assume like a pickup starting in 1Q from that minus 7.4% or I guess kind of what’s the trajectory that your model or factoring into guidance?
George Chappelle: I would say that certainly not 1Q, we don’t expect. We’re not modeling an improvement. 2Q, we’re modeling the slightest of improvements, mostly because we do see the Memorial Day and then going to the summer should provide a natural lift. Now that could be better for the reason I mentioned earlier around CAGNY and a lot of the manufacturers there large manufacturers being more bullish on the second quarter throughput than I just described, but that’s where our guide is. And then the second half of the year, is where all the growth is. So that’s — which gets us to our mid of down 200 bps. So again, it’s really a second half recovery in our guide. And if the CAGNY recent news is real, that would be incremental to the guide because we do not have a lot of improvement in the second quarter, very little.
Josh Dennerlein : Okay. Okay. No, that’s helpful. And then I just want to move back to a question that was on the occupancy guide. It sounds like stock assumption is like flat to down. I think in the past, you’ve kind of made the message that you could build occupancy, and that was kind of driven by like your kind of view of driving a higher profit per box. Just kind of trying to reconcile the two comments here. Is this kind of like the optimal occupancy for your boxes or some kind of…?
George Chappelle: No, no. We’ve said we can get to the low 90s and we can. It’s simply that setting the record we have, which is — again, I’ve mentioned it a couple of times, which is really stealing share. I mean the frozen food industry did not grow 400 bps in the second half of last year. So when you consider it that way, it has nothing to do with our ability to get to the low 90s. We know we can do that. We just don’t know how much further we can go in this environment, setting the record we set and doing it the way we did. We’re going to attempt to keep growing it. There’s no question. But I think after the 400 bps improvement at any time in our history, we’re just wondering how far we can go in the short term. That’s all.
Operator: Thank you very much. Ladies and gentlemen, we have reached the end of the question-and-answer session. This does conclude today’s conference, and you may now disconnect your lines. Thank you very much for your participation.
