Darius Adamczyk: Yeah. Let me kind of — there’s sort of not one way to describe it, but I’ll give you a few metrics which indicate sort of the direction. I mean, I think the punchline, the summary punchline, it is improving, and we saw that. I mean we saw a reduction in our past two and three out of the four SBGs. The only one the past dues went up in Q4 was Aero. But we also saw very robust demand in Aero. So I think you have to offset that. Is that an issue? Is that an opportunity? And I would tell you that our Aero output on a year-over-year basis was up around 15%. So that’s actually a pretty good outcome, which also tells you that we’re migrating in the right direction and given that the past due is reduced and the other one.
So let me kind of split the discussion on two segments. One, for semiconductors, it is definitely getting better. It is improving, and we see that sort of really moderating towards a normal state before the end of this year. That’s sort of what we saw. We saw some clearing of the past dues. We still have some left, and that’s how we see it. In Aero, it’s also improving. The pace is likely going to be slower than what it was in semiconductors. Our level of decommits in Q4 was below 20%, which was a low for the year. Every year — every quarter prior to Q4, the level of decommits from our supply base was over 20%, actually, under 20%, which is also a good sign. So we see a slow and steady improvement as we move throughout the year. That’s sort of our expectation for the supply chain.
Operator: Thank you. One moment for our next question. And our next question comes from Nigel Coe from Wolfe Research. Your line is open.
Nigel Coe: Thanks. Good morning, everyone. Just wanted to —
Darius Adamczyk: Good morning.
Nigel Coe: Hi. Good morning. Just wanted to dive into SPS a bit more. So if we think about — maybe, first of all, can we just dive in a bit deeper into what happened with the PPS. I know there’s been some channel headwinds there, but that’s a big change from what we saw last quarter. And then, when we think about the 2023 outlook, it looks like Intelligrated down 15%, 20%. Is that representative of the market, or are you being more selective in terms of the projects that you’ve been accepting and therefore converting? And then on top of that, I know that’s only one question, but it looks like margins this year is high teens, maybe 20% range. When we normalize the mix beyond this year, are we going to be above 20%? Any color there would be helpful.
Darius Adamczyk: Can you repeat the last one, because I didn’t quite get the last question there, Nigel?
Nigel Coe: Yes. The last part of the one question is, when we normalize the mix to Intelligrated PPS in 2024, 2025, are we at 20 and above margins?
Darius Adamczyk: Yes. I think that one was going to be — it’s probably too early to tell, but what I will tell you is that, for — we already basically demonstrated we can get to 20% margins in SPS in Q4. So the target hasn’t changed. In terms of what’s happening overall with the business, again, Intelligrated is — the markets are down. I mean, we see it, the warehouse and distribution segment is down. There’s an overbuild that occurred in the year 2020 and 2021. The markets are absorbing that capacity. We do expect an uptick in orders and return to growth in 2024. We actually are encouraged by the pipeline that’s starting to form. And at the same time, we’re also are being a little bit more selective in terms of margin profile and so on.
And we have an algorithm in terms of the kinds of orders that want. So it’s a little bit of both. PSS has been a bit softer than in the prior. We got to remember that we’re coming off of record orders, particularly in the first half. But, overall, we expect to see a fairly strong robust level of business in the second half of this year, and we still have a backlog to draw from. So — and I don’t think there’s — there was nothing in SPS in Q4 that was out of expectations. It was actually incredibly consistent. And frankly, I was very encouraged by the margin rate, and that team has done a nice job in really managing to the cards they’re dealt from a revenue base, using our Accelerator operating system to really deliver a strong financial result, even with some revenue headwinds.
I don’t know, Vimal, if you —
Vimal Kapur: So, IGS, I think, I just want to add a comment on IGS. I think top line challenge will be there in 2023. But we are focused on margin in this business. Our aftermarket service business is growing double digits for last several years. That trend will continue in 2023. In fact, we want to do everything possible to continue to drive that at a higher rate and other margin improvement opportunity. But better operating efficiency, executing projects better and faster is going to be another focus area. So while the volumes are down, we are constantly looking at margin expansion strategy in Intelligrated business.
Operator: Thank you. One moment for our next question please. Our next question comes from Andrew Obin from Bank of America. Your line is open.
Andrew Obin: Hi. Yes. Good morning.
Darius Adamczyk: Good morning.
Andrew Obin: Just a couple of questions on PMT. So first, on decarbonization, I mean, clearly a big revenue driver. But are you seeing any delays in process and fund disbursement at the federal level because we, sort of, heard about just shortage of staffing there? So that’s question one. And second, if you could just talk about visibility on advanced material strength because that seems to be just get better and better every quarter? Thank you.
Vimal Kapur: So on the — Andrew, on the decarbonization, I would say, at least I see much stronger trend in orders in our Sustainable Technology Solutions business as we had forecasted, IRS at least helping. We had a pretty strong performance in our sustainable aviation fuel part of the portfolio. We see that further strengthening in 2023. But in addition, now we see activity happening in carbon capture and hydrogen space. So we see more active projects where customers are making decisions. So we remain very optimistic on good performance by STS business in 2023. On advanced materials, I would say the momentum on Solstice continue. We see more application adoption in newer areas. As an example, heat pump is becoming another exciting area where we are developing new applications.
And that business is all about expanding new applications and expanding new geographies. So we see that trend. There are pockets in advanced material where there is an economic headwind on residential side. So that’s a smaller part of the business, but there are headwinds. There are pockets in electronic materials, where there’s a server-related demand in PC. So we supply some products in that. But on an overall picture advanced materials has a strong momentum. And you said it rightly, the momentum will continue in 2023 also.
Darius Adamczyk: Yes. Maybe just to add a couple of things and a couple of specific numbers. I mean our orders in Q4, particularly in our flooring business, were very, very strong, I think, double-digit strong. Our LST business is strong. UOP is well-positioned for the year. Sparta business was extraordinarily strong on the acquisition we made in 2021. So all-in-all, I think it was a very strong orders quarter. As we pointed out on our track, if you remember, some of the very, very unusual cold weather that we faced around the Christmas time caused us some challenges in some of our process operations because, frankly, they’re just not built to operate in 5-degree weather. That’s not what you typically see in Louisiana in December. So all-in-all, I think that this is — our AM and PMT business is well positioned. Good orders growth and strong performance should be expected.
Operator: Thank you. One moment for our next question please. And our next question comes from Jeffrey Sprague from Vertical Research. Your line is open.
Jeffrey Sprague: Hi. Thanks. Good morning, everyone. Just a follow-up on Aero margins from me, if I could. Appreciate the color on the OEM incentives. Just trying to think about the next couple of years also, if you can give us some directional help, right? It’s not hard to imagine those incentives — continue to escalate the next couple of years as Boeing delivers more, but I think you might be getting some help going the other way in business jet or other parts of Aero. So can you just give us a sense of, is 2023, kind of, peak headwind for incentives?
Greg Lewis: Yes.
