Ed Breen: Yes. No, we’re definitely going to take the absorption this quarter. We’re in the third quarter, about $40 million and the same in the fourth quarter as our plan. So we’re really getting inventory aligned up very well with demand. So we just feel it’s the prudent thing to do right now. So that’s what’s baked into the plan that we’ve given here today.
Lori Koch: Yeah, we saw a nice improvement in inventory in the second quarter, about $80 million of a reduction. We’ll look to continue to drive that down as we get into the end of the year. We had an improvement sequentially in both cash generation and cash conversion. We’ll look to continue to improve that as we get into the back half of the year. Our third quarter is typically our strongest quarter for cash generation, because we don’t have an interest payment which we have in the second and the fourth quarter, which we pay our annual bonus in the first quarter. So the third quarter is the clean end from that perspective. And just the notes, that I had mentioned on the script just to make sure that you caught it, we will move to a continuing ops basis presentation in cash flow.
So we’ll take out all the noise from the discontinued ops components, which are primarily in this year, the funding of the escrow account, which will take place at some point in the second half and then the funding of the other end-of-use items. So, we will pull that out and just kind of, focus on continuing makes fast generation.
Mike Leithead: Great. Thank you.
Operator: Your next question comes from Josh Spector from UBS.
Josh Spector: Yeah, hi. Thanks for taking my questions. I guess, first, I wanted to ask on the 3Q guidance. So if we look at organic sales and EBITDA, you’re kind of guiding flat sequentially but you’re talking about ICS up mid-single digits. It sounds like raw materials could be a little bit better with health. Typically with ICS up, you get a mix benefit there. So what drives that flat EBITDA? What are some of the offsetting items that would keep EBITDA flat versus having it up sequentially on an organic basis?
Lori Koch: Yeah. So the three biggest items that we had mentioned, first being the water deceleration. So we see some moderation in water as we get into the back half of the year, coming off of a really strong quarter in the second quarter. We had also mentioned that we expect to have to get back some price primarily in the Shelter business within water. And then the third, probably smallest piece but something we’re raising was we do see some small destocking within biopharma. So it’s been pretty well telegraphed across some of the other players, and we are starting to see that a little bit within our video business and the Industrial Solution business in Shanghai.
Josh Spector: Okay. That’s helpful. And I guess when I think about ICS, a look into 2024, so I haven’t done the full math, but maybe organic, you’re down something like 10% this year. I guess when we look at smartphone growth, PC growth, there’s not a massive inflection next year. There’s better growth forecasted, maybe low-single-digits. I guess, how do you think about that ICS business performing relative to that? Do we overbuild some inventory so we don’t get the full bounce back? Or do you expect it stronger? If you could frame that, that would be helpful. Thanks.
Lori Koch: Yeah. I mean it’s kind of hard to say at this point how the restocking potentially could happen in those two spaces. We would expect it to perform nicely alongside the market. The one tailwind that will happen for us in a year-over-year perspective on EBITDA, we won’t have those absorption headwinds that we had in 2022. So the predominance of those absorption happens for reasons within both ICS and semis those create a tailwind for us as we head into 2023.
Josh Spector: Okay. Thank you.
Operator: Your next question comes from Vincent Andrews from Morgan Stanley.
Vincent Andrews: Thank you and good morning, Wondering if you can speak just a little bit about the cost work you’ve been doing kind of past president in the future? Just looking at the income statement, I’ve got SG&A down about $76 million year-to-date, R&D down 32, and then sundry expense down 40. And maybe you can kind of contextualize those decreases and how they play out over the balance of the year and which segments, presumably we’re seeing the most and the ones that are having the most macro concerns? And maybe just also remind us what sundry expense actually is?
Lori Koch: Yeah. So the predominance of sundry is really not even in operating EBITDA it’s where our interest income comes in. It’s also where some gains on asset sales that don’t get reported in operating EBITDA or adjusted EPS come in. So it’s not really primarily related to our operating investment. There’s detail in the queue when that comes out tomorrow about what all of the other specifics are. But that’s not really a reflection at all of any of our efforts to control discretionary spend. From that perspective, though, we have been very aggressive on control and the discretionary spend to minimize the decrementals that we’ve been policing. And I think we’ve done a nice job doing that. So in the first half, our decrementals as reported were 40%.
But if you take out the headwinds from the absorption that we’ve been driving to reduce inventory were more down in the mid-20s. And so that’s really a reflection of the aggressive actions we’ve taken from both. We did a small restructuring to be able to reduce some headcount primarily in the G&A space. So we’re really trying to keep R&D and marketing and sales pretty clean. And then we have been taking some reductions to our annual discretionary consultations or bonus. And so that’s what you’re seeing more so coming in through the R&D line that would be a use of that. And then on the SG&A line would be the small license that we took to reduce headcount as well as the discretionary spend.
Ed Breen: Yeah. By the way, we’re are – we’ve been tensioning real good is our travel and entertainment budgets. We’re trying to keep them. The salespeople are traveling the application engineers, but we’re really being sure of holding people, holding management meetings all over the world and all that. So we’re just being — we’ve really put the word out to our team, hey, while we’re in a tougher environment here will come out of it nice, but just watch anything on the discretionary side.
Vincent Andrews: Okay. And then just as a follow-up, Ed, nothing happening presumably on the bolt-on M&A side of the table for the rest of the year or any thoughts there?
Ed Breen: No. No, I don’t think you’ll see anything obviously, the rest of this year and at least well into next year. I think, I said on the last call, a good year pause. We love where we’ve got the balance sheet at, as I think Lori mentioned on the call I did — we’re going to have leverage action in here somewhere around 2x. That’s where we want to be. And we’re in a great spot. And I don’t feel like we need to do anything. So we are — we got to where we need to be.
