And we think that a lot of that sticks here as we move forward.
Alexander Perry: Great. And sorry, just to clarify, you said EBITDA margins and gross margins favorable versus 4Q for the first quarter, right?
Mike Yates: Yes.
Operator: Our next question comes from the line of Randy Konik with Jefferies.
Randal Konik: I guess — just first quickly, I guess, for Mike. Just on the EBITDA margin guidance for next year and for the year, just how much of that is gross margin expansion versus SG&A rate change? Just can you give us — just clarify that for us first?
Mike Yates: No, we haven’t been that specific, but it’s over 100 basis points of margin improvement compared to where we finished this year on a reported basis. So like I’ve just mentioned to Alex, those initiatives that we’ve been driving under Aaron Kuehne’s leadership, they’re sticky. So I’d say over 100 basis points. Q – Randal Konik 100 basis — over 100 basis points of gross margin?
Mike Yates: Yes.
Randal Konik: Got it. Okay. And then, I guess, John, for you. As the leadership bench continues to expand, maybe I know Neil Fiske from his days at Bath & Body Works. He did a good job of kind of elevating the perception of the brand there. He wrote a book Trading Up that I’ve read. Maybe give us some perspective of the conversations you’ve had with Niel about what he focused on or going to be focused on in his first year ahead at Black Diamond. Any kind of broad strokes do you think he’s going to be attacking for that particular brand in the next 12 months?
John Walbrecht: Yes. Fantastic question. Thank you, Randy. Good to hear from you again. As we look to 2023, two aspects that Neil will be focusing on, first and foremost, is continuing to accelerate the Innovate and Accelerate strategy across the brand today, continue to innovate in the apparel footwear segment as well as the expansion of distribution within headlamps, tracking poles, gloves, patch, you name it. As we look beyond that, the real goal is how do we continue to think about BD, its place in the market space, brand awareness, new category expansion, new retail, more focused on consumer direct and our community-centric model and the long-term competitive growth of Black Diamond beyond what we’ve achieved up to 2023.
Randal Konik: Got it. I guess my last question is, I think on the guidance, you guys talked about, I guess, the free cash flow generation expectation of $35 million to $40 million. How do you think about the utilization of that free cash? Are you just going to kind of support it in the bank, take a pause on acquisitions for 2023, given the market uncertainty? Change to look at debt paydown or anything like that? Just curious on what you’re thinking about in terms of utilization of free cash flow going forward?
Mike Yates: Sure, Randy. Let me take that one. We’ve been very specific about investing in organic growth and doing M&A — strategic M&A finding in the next Super Fan brand. For the first six months of the year, we’re going to focus on generating cash and paying down debt, though this year, right, in rightsizing, improving our working capital, et cetera. So it’s going to be kind of an internal book, right, that’s focused on paying down debt with that cash flow generation. Now we only have $18 million, in my prepared remarks, outstanding under the revolver. We have about $10 million of required payments under the term loan. So that’s $28 million. So we should be building cash at some point throughout — through the year, right? And that’s, in my prepared remarks, I said we’d get back to looking more aggressively at M&A in the back half of the year or in 2024.
Randal Konik: Understood. Thanks guys. Really appreciate it.
Mike Yates: Thanks Randy.
Operator: Thank you. Our next question comes from the line of Joe Altobello with Raymond James.
