Jeff Sprague: Hey, good morning. Thanks for the question. Just want to be clear, I think you said 70% of the organic growth guide was price, just confirming that. But the question is would that just be carryover price or are there other actions in flight for 2023? And maybe you could also just give us some perspective on just the total price/cost equation for 2023 embedded in the guide?
Vicente Reynal: Yes, Jeff. So yes, correct. 70% price as we will — we communicated. And the way to think about it is that on the price, a good portion of that is carryover. We’re still doing another regular price increase, but it’s that, that one is more normalized as we — what we have done in the past, which call it maybe 1% to 2% incremental new price that gets realized throughout the year. So that gives you the perspective in terms of what we’re seeing on price. And from a price/cost perspective, yes, we expect that we’re going to be price/cost positive and report it throughout the year. And with that, we have a (ph) — that the cost side basically stays at this level. So, we’re not assuming a major deflationary market.
Jeff Sprague: And then, just maybe totally shifting gears, just thinking about some of the initiatives in the — in particular the IIoT enabled initiative. To what extent are customers paying additional for that capacity? And to what extent, given the product actually has that capability, is it driving higher or kind of more profitable service or other revenue streams?
Vicente Reynal: Yes, great question there, Jeff. So, the paying additional comes in from as you now referenced to (ph), which is with the added services that we’re offering. So, we are having a remotely connected device. We’re able to have better service agreements with our customers and, therefore, that generates a higher recurrent revenue that — streams that we see. So that’s the whole purpose of why we want to have our IIoT ready and enable machines, because we want to generate new revenue streams that are more recurrent in nature on top of, obviously, selling the device. So, I think that’s what we’re seeing. And in terms of customers willing to pay for it, I’ll say, yes, I mean, because today there’s a lot of lack of skilled labor out there and customers are kind of more dependent on companies and OEMs like cost to be able to demonstrate the added benefits that we can have.
So yes, I think it’s just one of those that we see it as increased way to add services, increased way of adding energy efficiency. And net-net, it’s a very quick return for the customers on what they pay.
Jeff Sprague: Great. Thank you.
Operator: Thank you, Jeff. Your next question comes from the line of Rob Wertheimer of Melius Research. Please go ahead when you are ready.
Rob Wertheimer: Thank you. Good morning, everybody.
Vicente Reynal: Good morning, Rob.
Rob Wertheimer: So, I just wanted to go back to revenue outlook for — yes, hey, the revenue outlook for a minute, where you have backlog up, I think, 30%, and organic growth (ph), covered by price up 3% to 5%. And so, I think you mentioned earlier, Vicente, that you’re not assuming a whole lot of supply chain improvement in cost. Is the revenue still constrained by supply chain? If that loosens up, is there upside there? How do we sort of foot the backlog in the orders and the revenue outlook?
Vicente Reynal: Yes. Rob, I mean, some constraint by supply chain, but also keep in mind too as well labor. So, I think as we kind of continue throughout the year and we continue to see better productivity, but it’s really much more so on the prudency and why we say that backlog will stay at the current level as we continue to shift more towards our more normal phasing that we typically have. So, yes, some supply chain constraints, but the majority, I’ll say, more of labor constraints to be able to bring more people to factories and be able to ship more.
Rob Wertheimer: Okay, perfect. And then, I apologize if I missed in the prepared remarks, but ITS North America orders were kind of the only weak spot. Any additional color there? I don’t know if you’re seeing broad-based strength in small projects and large, or order (ph) or if things are fading away? Thank you.
Vicente Reynal: Yes, thanks. That’s a great question, Rob. We’re seeing actually a very good momentum acceleration of what we call the long cycle orders, which are basically driving strong CapEx cycles that we see. And as we get into more projects related to the growth of like secular trends, so for example, onshoring, energy efficiency, cargo capture, we see more of that. And what that creates is maybe sometimes a little bit of lumpiness quarter-to-quarter. But when ITS, when you look at the ITS America, and it’s something better to look at it first half to the second half, and you — we actually saw acceleration organically going into the second half from — compared to the first half. And that is because it’s important to note that also ITS Americas in the third quarter, we had one of the biggest quarters that we can recollect for where book to bill was close to 1.2 back in Q3.
So, again, I think we view it more from first half going into a second half. And what we saw was really order acceleration in the ITS Americas, which kind of gives us good confidence on continued kind of fundamental solid strength demand. And as we said also in the remarks, as we go into — here into the 2023, we’re seeing continued positive organic order momentum pretty much across all the regions, including the ITS Americans.
Rob Wertheimer: Great. Thank you.
Operator: Thank you. We now have Nigel Coe from Wolfe Research. Your line is open, Nigel.
Nigel Coe: Thanks. Good morning, everyone.
Vicente Reynal: Good morning.
Nigel Coe: So, it seems like — yes, good morning. You’re talking about this hydrogen order in the prior year and order in North America slipping into 2023. So, it seems like we’ve got larger lumpier orders coming through, which given these mega project decarb-reassuring type projects, we should expect, I mean, do you agree with that — particularly with that, that we will have lumpier orders sequentially from here? And my real question is, as we get larger orders, do we have comparable margins to — on these larger orders versus sort of run rate?
Vicente Reynal: So, to answer the first question, that’s really yes. I mean, we think that we see a lot of these kind of mega projects that are getting a lot of the CapEx release. And yes, I mean — and I can tell that historically, we have always said that these projects come in with pretty good margin to us well. And obviously, being large, so it will create a good flow-through as they kind of go in — through the P&L. So, it’s — for us, it’s good news that we’re seeing the release of these CapEx projects. They’re more long cycle, gives a better visibility. And at the same time, they’re pretty well aligned with a lot of our secular growth trends that we’re seeing around sustainability, energy efficiency, onshoring and the like.
Nigel Coe: Okay. Yes, nothing wrong with lumpy as long as they can (ph) to revenue. And then, I want to go on the service revenue growth. I think, you said 17% ex FX. Just so that implies, I don’t know, mid-teens — low mid-teens organic service growth, which is pretty good. So just wondering — to come back to Jeff’s question to what extent is the service growth being driven by, I don’t know, some kind of deferred catch-up? Or are we seeing this IIoT enabled devices starting to contribute meaningfully to revenue growth? And any thoughts there would be helpful.
Vicente Reynal: Yes. It is, I would say, it’s more of the latter in some regards. As you remember, during our Investor Day, we spoke about our care packages and service agreements that we developed as they get related to our IIoT-related services. And we’re definitely seeing very good acceleration of that driven by trends such as not been able — customers not able to find the skilled labor that is needed in the factory to be able to service, repair and maintain compressors or other devices where we can provide that. And in addition to that, we can provide an energy efficiency as a guarantee, but energy efficiency reduction that the customer can have and visibly see in addition to other benefits. So, it is actually good news for us to see that good solid momentum and teams are doing very well on that.
Nigel Coe: Great. I’ll leave it there. Thanks for the questions.
Vicente Reynal: Thank you.
Operator: Your next question comes from David Raso of Evercore ISI.
