Milt Childress: And Steve, what you will remember is if you look at just the cadence of AST last year, notwithstanding some of the weakness we saw in part of the business starting in Q4 of ’22. We did have a relatively strong first quarter, second quarter of the year before things turned down in a more demonstrable way in Q3 so part of what you’re seeing now is working through the trough, which is going to be a year-over-year decline, and that’s the reason that for the year, it’s flattish on sales.
Steve Ferazani: Okay. Any reason why Q1 for AST is worse in Q4?
Milt Childress: It’s just the order patterns and nothing in particular…
Steve Ferazani: Because your Q4 was much better than Q3, as you noted on AST. Did anything specifically hit in AST or it was just that was the order pattern?
Eric Vaillancourt: Just the order pattern. There’s nothing specific.
Steve Ferazani: Okay. The CapEx guidance was a little higher than I would have expected. Could you just point to where specific investment is coming in ’24?
Eric Vaillancourt: Yes. We have several projects. We want to name them, small, well.
Milt Childress: Well, Yes.
Eric Vaillancourt: It’s basically geographic expansion when you look at it. You see our investment in Asia. We also continue to up-fit our Arizona facility. Joe and I were there last week. We expect to start testing in the second half of this year and be ready for revenue as soon as our customers are somewhere in ’25. And so we continue to make investments there, and then you’ll see some geographic expansion and capabilities to Asia.
Milt Childress: And you look at two of the key proms, Steve, of our semiconductor strategy that’s been in place for better part of a decade. It’s technology differentiation and geographic diversification are two of the pillars — two of the three pillars. And so these investments are really supporting both of those both geographic expansion and then just keeping us on leading edge, whether it’s expansion and what we’re doing on the cleaning side of our business or its machining capability that give us capabilities that differentiate ourselves from others in the industry.
Steve Ferazani: Okay. If I could just get one more in.
James Gentile: Probably is we’re still investing in areas to support kind of new product development and efficiency projects, modernization, etcetera.
Steve Ferazani: Given the higher CapEx in ’24 and the overall guidance, any kind of thoughts you can provide on expectations for cash flow in ’24 or cash conversion or anything around that?
Milt Childress: Well, I would say roughly in the $120 million range for the year is what we would expect.
Steve Ferazani: And anything changing on your —
Milt Childress: That’s free cash flow.
Steve Ferazani: Yes. Right. And any changes in your capital allocation plans beyond that of your CapEx?
Milt Childress: No, it’s investing to take advantage of the organic growth that’s before us in AST. And then in sealing, it’s continued to invest in pockets of growth in markets that are growing faster than the overall economy. So strategy remains the same.
Steve Ferazani: Thanks, Eric. Thanks, Milt. Thanks, James.
James Gentile: You’re welcome, Steve.
Operator: Thank you. Our next questions come from the line of Ian Zaffino with Oppenheimer. Please proceed with your questions.
Isaac Sellhausen: This is Isaac Sellhausen on for Ian. Thanks for taking our questions. The first on Sealing’s. I guess outside of the OEM weakness, you’ll see in commercial vehicle. Could you maybe touch on the aftermarket side and how you expect that portion of the business performance for the year? And then maybe what you’ve seen as far as pricing there? And do you expect to remain some pricing — or to maintain some pricing power as we move through the year? Thanks.
Eric Vaillancourt: The aftermarket sales are strong, and they’ll continue to be strong. Usually, when you see the OEM build go down, you end up serving more maintenance. And so the aftermarket is still very good. The mix does change and the mix is helpful to us, but we can — we need a certain amount of volume to also drive outstanding profitability there. But overall, the business is strong and continuing to do well and really don’t have any concerns once the market recovers on the OEM piece. In terms of pricing, the aftermarket pricing will hold, and we’ll give a little bit back when not much in the OEM piece here or there over time.
Milt Childress: I think this won’t surprise you because it’s true for all companies. The environment for pricing is not the same. The backdrop for pricing is not the same as — currently as it was a year ago, 18 months ago just because of moderating inflation. So just to note that, so it’s unlikely we see the same year-over-year impact from pricing, as you saw in 2023.
Isaac Sellhausen: Yes, that makes sense. And then just as a follow-up, could you discuss the AMI acquisition and the growth profile of that business maybe as we look at it for this year and the longer-term growth algorithm compared to maybe some of the other Sealing’s, industrial end markets. Thanks.
Milt Childress: We see AMI at kind of mid-single-digit growth, roughly, maybe a little bit more. But it positions us with new capabilities and compositional analysis that we’re quite excited about. The primary focus of the business currently is on midstream oil and gas, although we — the company does sell into other industry segments, and part of our excitement is to take composition of analysis into other applications.
Isaac Sellhausen: All right. Perfect. That’s all I had. Thanks so much guys.
Operator: Thank you. Our next questions come from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your questions.
Jeff Hammond: Hey guys. Just a couple of follow-ups here. Just on AMI, maybe just talk about — I know the financial metrics make a lot of sense but just talk about fit within the business and how you think of it. I think it’s in the Sealing segment. But — and then just, I think, Milt, you said mid-single-digit growth. I thought the historical growth rate was higher than that. Maybe just clarify what AMI has been growing at the last four, five years. Thanks.
