Operator: Thank you. Our next question comes from the line of Reuben Garner with The Benchmark Company. Please proceed with your question.
Reuben Garner: Congrats on the strong close to last year. Let’s see. So you mentioned kind of maybe a different go-to-market strategy with NokÄ“ and you brought up ACT. I was just curious if you could kind of elaborate on that. Does that mean there’s an effort to go after maybe some of the smaller operators and if so, what’s kind of the logic behind that move?
Ramey Jackson: Yes. I mean in terms of ACT; it was always a part of the integration for them to be more meaningful on the installation piece. They’re low voltage professionals and there’s centers of excellence around that. So our thinking was just to integrate that as quickly as possible. In terms of kind of customer profile, no, we’re covering the entire market, whether it’s a large operator, smaller operators, those operators that are utilizing the virtual management. And then, probably the biggest difference is we’re really leveraging the Janus sales team leveraging those relationships and things of that nature to accelerate growth.
Reuben Garner: Got it. And then, can you talk about your visibility. I guess for this year more so than kind of the long-term framework but kind of embedded in that 4% to 6%, like how are you thinking about volume and price? And I know you were kind of asked the recent order rate question, but just if things do turn in the economy, like how sensitive would your kind of results be in the near term?
Ramey Jackson: Yes, I’ll kind of start, Anselm, if you want to close it out. Look, in terms of our visibility, we’ve said many times that it’s a year or two in advance. We’re doing a lot of the drawings and unit mix on projects that are still a year or 2 out. So when you look at our dashboard, Reuben, it’s very positive. I mentioned that there is a focus on kind of the R3 whether refurbishment or conversion or expansion. But all of our indicators, which we rely on heavily are very positive on the self-storage side of it. So if you want?
Anselm Wong: Yes. And Reuben, let me just add a little more on that. Obviously, we don’t disclose our backlog, but it’s still very healthy in what we can see in that visibility to. And if you look at into 2023 from the growth rate, as you would expect, we still have the carry out of the commercial actions we had done in 2022. So a large portion of that 4% to 6% is commercial apps, it’s still bleeding its way into the year.
Ramey Jackson: Yes. And just last kind of to conclude, our practice is to set realistic expectations. And that’s what we’ve done in terms of laying out the guidance.
Reuben Garner: Yes. I definitely understand that. You’ve proven that in the last year. Just a quick follow-up on that. So once it’s in backlog, historically, are delays more likely than cancellations of projects? Is that how to think about it or do these tend to — once they’re in backlog, they tend to move forward kind of no matter what?
Ramey Jackson: Yes, they do. Typically, those projects have secured funding. So typically, delays are meaningful from a permitting office, whether it’s weather this time of year but once it hits the backlog, it typically turns into revenue, Reuben.
Reuben Garner: Great. Congrats again, guys, and good luck this year.
Operator: Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Andrew Maser: This is Andrew Maser on for Stanley. Thank you for taking my question. Related to the long-term growth and margin targets, I’m wondering what you’re assuming as far as growth for the NokÄ“ business. I think in an older slide deck, you all threw out a $1 billion market opportunity number assuming 20% penetration. Where does that market opportunity stand today? And where do you think it will go in the next 3 to 5 years?
Ramey Jackson: Yes, I can start there. We haven’t really disclosed that. But what I can tell you is, we expect NokÄ“ this year in ’23 to still be in the kind of the mid-$40 million range and we included that in our Investor deck, but you’ve heard us talk about the opportunity. It’s meaningful, it’s massive. And so we’re still very optimistic, and it’s still very early in growth. We’re still having to the industry is still having to understand the technology, understand how to operate their business, to improve their business with this technology and I think we’re making good head roads there. So again, we’re early in the cycle, but very optimistic.
Anselm Wong: Yes. I mean I think as you saw in our slides on NokÄ“, we added the kind of the unit’s growth. And you can see that it was up 50% up from ’21 to ’22. So still seeing good, strong growth in that NokÄ“ business. I would say like in the long range in terms of what we’ve assumed is, we just assumed that similar pattern that we’re growing it. We haven’t actually assumed any step change like we said because we don’t know when that’s going to happen, but it will happen that sometime when some big REIT takes over and says, it’s going to go across the board. And obviously, we’ll see the impact of that when that happens.
Andrew Maser: And then in the press release, you mentioned expanding your share in commercial, industrial and other tangential areas. I’m wondering if you could expand on what you meant by other tangential areas. Thanks.
Anselm Wong: I think what we’re trying to just describe is just the opportunity because if you think of what we’ve done in our commercial business, it’s all been in that mainly the R&R space. And there’s a lot more opportunities in that commercial space for other products or other options that we can get into. And as we mentioned in other calls, we’re not in that spec side of the house of the business in commercial so there’s more opportunity there. So I think what we’re trying to articulate is that we’re still very small in the commercial business, and it’s just a lot more opportunity that we see out there that we can go grab.
Andrew Maser: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Daniel Moore: Congrats. Great quarter and certainly a positive outlook. Just in terms of the cadence, I want to make sure I heard, it sounds like margins may be a little higher in H2 versus H1. Is that right, Anselm? And maybe top-line, given you had kind of accelerating financial improvement through the year, is top-line growth maybe a little faster in the first half, even across the year? How do we think about that?
Anselm Wong: Yes. I think you just said it exactly, how we’ve actually been talking about it in terms of the second half being a bit stronger than the first half. But yes, that’s exactly how I would put it.
Daniel Moore: Got it. Switching gears a little bit. Just in terms of Nokē, obviously, recent new hire in terms of head of corporate strategy and leading that initiative. Just any early operational marketing, go-to-market changes being contemplated or even implemented?
Ramey Jackson: Yes. Look, I think, we’re always looking at ways to improve operations. And I guess you’re referring to Alessandro — his hire. So look, a long track record of success at Honeywell. He’s been in the technology sector for a long time, a lot of success. And so really, our intent here is just to bolster what we have. We have a great sales team. We have a great commercial division and then the integration with ACT. But his job is to really help us scale for the volume that we know that we’re going to have. And we spend a lot of time focusing on scalability and that’s really what you saw with that hire.
Daniel Moore: Got it. In terms of the balance sheet and cash flow, taking the long-term leverage target down maybe you had previously, and I missed it, by a half turn. Does that just reflect the higher interest rate environment any thoughts behind a slight delta there?
Anselm Wong: Yes. You’re right. We improved by about 0.5 turn. And I think it just really represents the strength of our generation of cash and continue the goal of deleveraging. So I think what we’re looking at is just like all the analysts and shareholders that have been talking to us about and say, hey, going to an uncertain environment. And it seems like a lot of feedback about having better leverage ratio. So that’s kind of how we landed there. It doesn’t mean that we’re going to not look at other opportunities for M&A that this company was built on that might push it a little. But I think in a steady state, that’s where we think the company is pretty comfortable with.
Daniel Moore: That makes sense. Last one, obviously, CapEx was modest, kind of CapEx, working capital and cash flow expectations for ’23 within the confines of that 75% to 100% conversion target long-term?
Anselm Wong: Yes, Dan. So in the short-term in this year, as you’ve seen the numbers, our business continues to grow. So our normal maintenance CapEx is still in that same range at 1.5%. And but we do have some investments in some new areas for equipment for growth as well as some factory improvements. So you’ll see it slightly blip up this year to support that growth but then it come back into normal that 1.5% range for maintenance CapEx.
Daniel Moore: Okay. And you talked a little bit about capital allocation priorities M&A seemingly back on the table now that we’re down below 3x. Is that the right way to think about it? In terms of default, is it pay down debt and consider buybacks? Just thoughts there.
Anselm Wong: Definitely, the cash position we’re in is great. We have a lot of optionality. I don’t think M&A has been off the table. I think it’s always on tail. I think the environment in the past year has not been the greatest, as you would expect, in terms of getting deals done. But that’s always on the table. And I think we’re assessing all the optionalities for the cash that we’re generating right now and obviously, pay down debt is one of the options that we can take.
