So we feel good about that progress. And then I’d say outdoor specifically, actually sales at the start the year have held up pretty well. We see the channel getting ready for a spring season, which looks promising. We actually feel good about the order rates in January for outdoors. The channels are putting some inventory in to reflect their expectations in the spring.
Nicholas Fink: And just add to as Dave mentioned the weather just interesting. We also saw exceptional uptake through our e-commerce channels for Flo over the last two weeks. Now small base, it will take some time to build, but just we’re going to dig further into it, to the extent there’s a correlation between the piece like that. We saw a lot of homes damaged and we did a lot of leaks and kind of seeing it come through in e-commerce. So it’s a very interesting point.
Matthew Bouley: Great, yes. That is interesting. Thank you for that Nick and Dave. Second one, I appreciate all that color. That was perfect. Just a high-level question on cash flow. You’re speaking to kind of normalizing to that 100% conversion in 2024. Obviously, the portfolio has evolved relative to where you were before the spin, recent acquisitions. You’ve got a whole organizational realignment. What’s kind of the right way to think about cash conversion through the cycle going forward with the sort of new portfolio as it stands today? Thank you.
David Barry: Yes, I’m happy to touch on that. And I think as evidenced by our results this year, the business can and will be extremely cash generative. We drove almost $800 million of free cash flow — cash conversion near 200%. And interestingly, if you step back and look at the prior three years for this business, we’re now averaging over 100% cash conversion. And so I feel like this — the end result in ’23 kind of got us through the last of the post-COVID supply chain challenges, inventory management challenges, demand swings or back to a steady base. So going forward, working hard to deliver 100% free cash flow conversion of net income or better, while continuing to invest in the business from a capital expenditure standpoint around key strategic initiatives and capacity where needed.
And then I think if you look at what we did with that cash flow, in 2023, we were able to fulfill our capital deployment goal quite effectively. So we’ve acquired and closed on the assets from ASSA ABLOY, $800 million. We’ve invested about $255 million in the CapEx about $160 million of that was for capacity in our water business and Outdoors business. We paid about $120 million of dividends and repurchased $150 million of shares while deleveraging down to 2.5 times net debt-to-EBITDA. And so I think a really good proof point of the aligned organization driving cash and then us deploying it effectively, and we look to continue that going forward into 2024.
Matthew Bouley: All right. Thanks guys. Good luck.
Nicholas Fink: Thank you.
Operator: Thank you. Our next question is from Phil Ng with Jefferies. Please proceed with your question.
Philip Ng : Hey, guys. The Security business had a quite strong quarter from a margin standpoint for 4Q as well as the full year. But you’re guiding to kind of flattish margins for 2024. So I’m just trying to gauge if there was any one-offs in the fourth quarter and why perhaps had a bigger step-up in profitability just because the integration of ASSA seems to becoming along very well.
Nicholas Fink: Yes. Phil, thanks, this is great question. Why don’t I take just a minute here to give you some perspectives around Security and Dave can break it down. But we’re feeling really good about the Security business, as the top line progress and the margin progress. And again, sort of back to that philosophy, we want a business that can generate healthy margins so we can invest, drive growth and move it from what was historically a GP grower into something quite a bit more exciting and the team has executed fabulously on that path. And so we’re really there, and we’re seeing that progress now. And so before I hand it over to Dave, he’ll break it out for you between the organic piece and the acquisition just now it’s made great progress, and we very much feel that this business is on the path to do what we want to.
David Barry: And Phil, I’d say the simple answer, the organic business, will continue to expand margin, and we expect them to deliver a margin in the high teens in 2024. And then we’re — as you know, we’re absorbing half a year of Yale and August. In that business, the margins are going to fluctuate a bit quarter-to-quarter, just based on investment timing on and customer generation and load-ins, et cetera. And so we expect we’re comping the acquisition in the first half so their margin is more like a high single digit. So that’s where you’re seeing the dilution come into the overall Security segment. But the base business is performing well. We’re accelerating, as we mentioned in the prepared remarks, accelerating some retail wins, some online wins with Yale and August and really excited about that business going forward.
Nicholas Fink: And just I’ll just add there, on the business, our contribution margins comparable to the portfolio and then really investing for double-digit growth with that digital conversion.
Philip Ng : Okay. Super. And then, I guess, Dave, you were talking about back to business back to normal in terms of supply chain and stuff like that. Certainly a lot of news flow on the Red Sea side of things. Any impact in terms of importing components and stuff of that nature? And then how should we think about inflation as well — sorry.
David Barry: Sorry, go on.
Philip Ng: And how should we think about inflation as well? How is that kind of playing out? Has that started to calm down? I do appreciate you guys are expecting a favorable price cost spread, but talk us through some of the components.
Nicholas Fink: Yes. So I’ll start there and David will talk a bit about the inflation. Obviously, the Red Sea and the impacts of the Panama Canal are not kind of lost on us. And those two things sort of working hand-in-hand. Our team has done a great job to maintain service levels. That will mean we will put a bit more capital to work this year to ensure that we don’t have disruption for our customers. We may have to put it more expense to work this year to ensure that we don’t have service disruptions for our customers, but we always feel that’s preferable to protect the business, protect service levels. It does seem to be improving somewhat in the Panama Canal, which is good news because that allows us to take the lines off of the Red Sea, which has obviously been very challenging. But with the protective measures, we think that we find from customer service perspective may absorb the some onetime capital or other expense in order to do that.
