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.
Kevin Steinke: Okay, fair enough. Thanks for taking the questions. I will turn it back over.
Ron Knutson: Thanks, Kevin.
Bryan King: Thank you, Kevin.
Operator: Your next question is from Ken Newman with KeyBanc Capital Markets.
Ken Newman: Hey, good morning, Ken.
Bryan King: Hey, Ken.
Ken Newman: 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?
Ron Knutson: Yes. Just to make sure I understand your question. Your question is on the flow through, correct? On the operating leverage?
Ken Newman: Correct. Incremental EBITDA margins?
Ron Knutson: 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.
Ken Newman: Got it. Okay.
Bryan King: 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.
Ken Newman: 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.
