Mike Dennison: Alex one of the things that Dennis said that I want to double click on which I think is important to understand is when we think about what the interest rate does to us when we get a lot of questions I know you’ve asked in the past what’s the interest rate due to your buyer of a vehicle or you’re a buyer of a buyer you’re a buyer of a lot of our products. And we’ve always said our buyers are really more affluent and they tend to buy at the high end of the range at least products kind of regardless of the interest rates because they are cash buyers. Interestingly enough what we saw in kind of post Labor Day September and what we’re seeing in Q4 is obviously the consumer is under pressure. But just as importantly whether you’re a car dealer or a bike dealer or a distributor in our business you’re having to finance your inventory and your floor plan.
And what we really saw was those interest rates climbing so significantly that nobody wants to hold inventory. Somebody that would have held their quarters worth of inventory in the past maybe they want to hold a month at most. So, it’s a nuance in this weird environment that we’re all in that we’re all kind of learning about. And so Dennis’ comments were right in that. There’s other things also playing out here that we’re trying to rationalize and understand.
Dennis Schemm: Yes. We’re acting no different, right? I mean think about what I highlighted on the call we talked about taking our inventory down another $9 million right? Why are we doing that? The cost of capital is much more expensive today. So, you take a look at what we’re paying on rates today versus what it was a year and a half ago, it is dramatically different. So, our focus is on the balance sheet right and rightly so. And guess what? So, our distributors and dealers as well and staying within customers.
Alex Perry: Yes, that’s really helpful. Would you say that the impact in terms of the higher rate environment impacting the carrying of inventory is most pronounced in the upfitting versus your bike retailers. Like is that really where you’re seeing the impact like they’re only willing carry x amount of trucks versus y last year? And then just my second question is just a little more help on SSG as we move through 2024. I know the sort of long-term guide there is mid to high single-digits. It sounds like 1H 2024 is challenged. Does that mean up for like down year-over-year? What does that sort of mean? Thank you.
Mike Dennison: Alex, I’ll give Dennis the second half of that. I’ll take the first half of it. It’s actually pretty much across the board. When you think about, how dealers are responding and one of the things you’ll see in bike as an example is that, dealers are taking down their inventories as quickly as they can, so they can be more nimble. And you obviously OEMs who are trying to flush this bike inventory through the system. And in a lot of cases, they’re doing an online direct and they’re discounting it heavily. So, that’s just that you can kind of see it play out to the dealers don’t want to hold the inventory. So the OEMs are kind of taking into their own hands to push it through as big discounts as fast as they can and then direct-to-consumer fashion.
I do agree with you though that dealers in automotive floorplan financing is a significant issue. And I’d say it’s not just automotive, it’s also in powersports. And you’re seeing some of that play out in some of the comments that we get from our customers in that space as well. Dennis, do you have a…
Dennis Schemm: Yes, on the bike side of things right, as Mike mentioned, we are seeing some OEs doing a really good job here and they are growing with us and they’re continuing to grow in the back half of this year and into the first half of next year. But the way I would contextualize this is, if you take a look at the back half of ’23, I’d say we’d be up modestly in the first half of 2024. And then, this is going to help with bikes business overall as they start to grow and move into those ’24 models, ’25 models in the second half of 2024. That’s our expectation.
Alex Perry: That’s incredibly helpful. Best of luck going forward.
Dennis Schemm: Thanks.
Operator: [Operator Instructions] Our next question comes from Craig Kennison, Baird.
Craig Kennison: Yes, thanks for taking my question. I wanted just to ask quickly about the quarter itself. R&D spend was down dramatically. I’m wondering if that was a timing dynamic or if that’s an area where you elected to cut cost?
Dennis Schemm: Yes. We are not going to cut costs when it comes to R&D for CapEx back into the business or with our sales and marketing spend. That is going forward one of the most important things we can do to continue to grow and command the higher margins down the line. So what you saw there was basically, if you remember we talked about the tax rate being lower in Q3. This was R&D tax credits coming through.
Mike Dennison: Yes, Craig, if we’re going to cut back, we’re going to cut back on infrastructure. We will not cut back on R&D until those are two key elements of our business that get capital allocation before anything else.
Craig Kennison: So that tax benefit comes through on the R&D line?
Mike Dennison: What’s that again sorry?
Craig Kennison: Does the tax benefit come through on the R&D line?
Dennis Schemm: Well, I was just saying, that’s part of it. There were some credits that came through that basically offset some of the spend there in that line.
Craig Kennison: Okay. Thank you. And as it relates to the Marucci transaction, just I guess my question is, what can FOX add through that business that CODI could not?
