We currently expect a year-end 2024 net leverage ratio to be between 3x and 3.5x depending on cash flow generation and share repurchase execution, among other factors. Overall, we expect 2024 to be a rebound year for the business once we clear the channel inventory rebalancing and expect to see more normalized trends in the back half of the year. I will now pass the call back to John for some closing remarks on Slide 14. John?
John Lowe: Thanks Jeff. To summarize, 2023 was a challenging year for the market, and we believe the first half of 2024 will continue to be affected by cautious customer spending, but we expect growth to gradually return over the course of the year. We are focused on continuing to win business and gain share with our existing portfolio, while also expanding our addressable market over the long term through the introduction of adjacent product and service solutions. We generated strong free cash flow in 2023 despite the decline in net income, and our outlook projects to return to slight sales growth in 2024, with declines in the first half of the year, offset by growth in the second half. Our leadership team is very excited about the future and proud of the strong team of employees we have in place, and I want to take a moment to thank all of our employees for their continued dedication and commitment to serving our customers well.
Thank you for joining our call today, and we will now open the call for any questions.
Operator: [Operator Instructions] We’ll go first to Jaeson Schmidt at Lake Street Capital Markets.
Jaeson Schmidt: Hi, guys. Thanks for taking my questions. Just curious if you’re seeing any cancellations or some of these headwinds are just due to push outs and delays in new programs?
John Lowe: Good morning, Jaeson. Good to talk to you again. No, I wouldn’t say anything is related to cancellations. I would say, more related to just cautious spending that remains in the market, continuous inventory rebalancing, if you will. But as we said on the call, we expect the first half to continue to kind of be a little bit choppy, rebalancing to continue, but we expect in the second half to return to growth. But we’re not necessarily seeing any cancellations or reductions of orders, if you will. It’s more just overall slowness in the market.
Jaeson Schmidt: Got you. And then you noted expanding into some adjacent areas. Do you expect to see sort of meaningful inroads this year? Or is this year mortgage more about learning about the market and some of the opportunities there?
John Lowe: Yes. Great question. We’ve been working on adjacencies for a number of years. As an example, I think you probably heard us in prior quarters talk about growth in the health account space that’s HSA cards, flexible spending account cards. But the big areas that we’re trying to grow into prospectively are push provisioning essentially where we’re pushing a digital credential to a customer’s wallet. That’s an area where we feel like we have differentiation in the market because we’re essentially agnostic to a core and processor that the small to medium bank issuers we work with Hughes. So I wouldn’t say it would be meaningful this year to the financials. But we definitely feel like over the longer term, it will be meaningful to the business. So kind of kicking it off and growing but not substantial this year.
Jaeson Schmidt: Okay. That’s helpful. And then just the last one for me, and I’ll jump back into queue, and serve a good segue to it. It was on that push provisioning. Do you guys expect to receive an incremental fee for this? Or is this just more an added service to increase the value proposition?
John Lowe: Yes. So the economics of it are similar to unit cost for card sales. You’re essentially adding on an additional service. So every time someone pushes that digital credential to their wallet, we are earning a fee off of that a processing fee, if you will, similar to what we do within our Card@Once instant issuance solution, so think of our Card@Once instant issuance solution, how we have transaction processing fees that occur every day across our 15,000 branches, push provisioning is a similar kind of economic animal, if you will. So every time someone pushes to their wallet, we get a fee.
Jaeson Schmidt: Okay, perfect. Appreciate the call, you guys. Thanks a lot.
John Lowe: Thanks Jaeson.
Operator: We’ll move to our next question from [Andrew Scott] at ROTH MKM.
Unidentified Analyst: Hi, good morning, and thank you for taking my questions. First one for me. I was wondering if you could provide a bit more details around the new Indiana facility and if you could help us quantify the potential capacity expansion. It sounds like the building is double the size of the existing facility. And any additional details around the build-out time line may be helpful as well.
John Lowe: Yes. Good morning. Well, I’ll give an overview and then hand it off to Jeff. Our Indiana facility, we’ve been in for a number of years. We love Fort Wayne, Indiana. They do a great job for us. That’s a facility where the leases expiring in 2026. It gives us an opportunity to really move that facility, but in doing so, build out what I would call a state-of-the-art facility. That’s efficiencies, it’s both digital and physical kind of enablement, if you will, to tie everything together in the plant. And ultimately, we’ll double our capacity in Indiana. But keep in mind that the expansion that we’re doing in Indiana is roughly 10% of our overall footprint. So it’s definitely a growth in capacity, but it’s not significant to the overall business, but it will be a good growth to support our secured card business over the longer term.
Jeff Hochstadt: Andrew, this is Jeff. We are really excited about Indiana and the expansion opportunities there. So as we stated, it will probably be about a $20 million investment over the next several years, about $13 million cash flow impact over the next two years. And we’ll probably be in that facility at the end of 2025. So a couple of years — and that’s really the time line. We’re starting to build it out now, but that’s probably when it will be ready.
