John Anderson: For Q1, Q1 is seasonally our lowest free cash flow and cash from ops quarter. You can go back to Q1 of ’22 or ’23 and you’ll see that. We have bonus payouts in Q1. That’s a big outflow. But from other components of net working capital, there’s not a huge swing. There will be some increases in inventory as we’re building — taking in raw materials and building for ramp-ups later in the year. So there may be a little headwind in the quarter. But again, Q1 is historically a slow quarter from a cash flow standpoint.
Jeffrey Niew: Even though Q1 is historically low, we’re still expecting for the full year to have a very robust year again in terms of free cash flow.
John Anderson: Similar, maybe a touch lower than 2023. But again, pretty strong cash flow for the full year. So I caution just looking at one quarter.
Operator: We’ll move next to Bob Labick at CJS Securities.
Lee Jagoda: It’s actually Lee Jagoda for Bob today. Just starting with the CMM business and the strategic alternatives process. Can you give us any kind of time frame for a decision one way or the other, whether it be first half, second half? Is it a 2025 event? And then I’ve got some follow-ups.
Jeffrey Niew: Obviously, we’re trying to move this process along as quickly as we can, but there’s no definitive time line at all to complete this. So that’s what I’d say for now. And the process is progressing.
Lee Jagoda: And then, I guess, in your prepared remarks, it sounds like the business is faring relatively well at the moment. What do you see as sort of the key drivers or variables to 2024 results? And how that might impact the process that’s going on?
Jeffrey Niew: Well, I mean, what I would say, you’re right, 2023, especially the back half, after a very difficult front half, specifically Q1 of ’23, the back half shaped up pretty well. And Q1 is looking very, very well as well. And so the dynamics here really are we’ve got a number of new product introductions on our side that are — and some of our customers do products, coupled with some share gains that we’ve seen. So we think we feel pretty — and some market recovery. So I think overall, I mean, we’re expecting modest growth on revenue side year-over-year. I wouldn’t expect some kind of crazy growth number this year. But we expect modest growth. And I think it’s in line with our expectations that we had three months ago.
Lee Jagoda: And then just one last one for me. So had you not had such strong free cash flow in Q4? It sounds like you would have hit your goal of sort of returning 50% of free cash flow to shareholders through repurchase…
John Anderson: Yes, good catch. Good catch. Yes. We came in at just under 50%, and it’s because December free cash flow was — really was stronger than we anticipated. But I think it’s close, IT’S probably 45%, versus the 50% return.
Lee Jagoda: And as we look out to 2024, even if we don’t have a sale to pay back some of the loan, is that how we should think about cash deployment?
John Anderson: Yes. I think there’s not a huge change in our capital allocation. Given where interest rates are and given the fact we do have debt borrowings under our revolver, now we are evaluating, is it more advantageous to pay down debt versus repurchasing shares. I think it will be a combination of — some combination of that. But we are evaluating it, given when we set that 50% of free cash flow return, interest rates were significantly lower. So, we’re evaluating.
Operator: We’ll move next to Tristan Gerra at Baird.
Tristan Gerra: Could you break down the revenue contribution from Cornell in Q4 and what’s embedded in the Q1 guidance? And then also, if you could expand on the accretion higher than expected that you expect from Cornell? What’s driving that now that you have some visibility on the business post the close of the purchase?
Jeffrey Niew: So you’re asking about the revenue from — specifically from Cornell in Q4?
Tristan Gerra: Correct. Q4 and Q1, if possible, yes.
Jeffrey Niew: Yes. It was roughly in line with our expectations for Q4, for two months, at about $20 million in revenue, and EPS neutral. And I would say that the monthly run rate probably slightly higher than that in Q1, starting to be a little bit higher in Q1 than the $10 million a month in Q1. I would say, if you remember on November 1 when we announced the closing of the deal, we kind of laid out some metrics. I think we’re — on the revenue side, what we said is pretty in line. I think the EBITDA is pretty close in line, maybe a tad higher. But I think the biggest thing we talk about here is on the synergies. We had, I think, committed to around $4 million on the cost side, as of closing date, within 36 months of the close.
I think we’re on target, maybe slightly ahead on that, the $4 million. But I think the biggest thing that we’ve come to bring to the table is that we think there’s an opportunity for what I’d call product management or pricing to actually raise prices with this business, which I think if you know, there was a lead time with distribution inventory, it may take a little bit of time for this to kind of really come in and show up in our actual results. So, we probably won’t see a lot of it start coming until the back half — starting in the back half of ’24. But I think what I’d say is, beyond the $4 million of cost savings, we see now, I would say, a reasonably significant, especially going into ’25, improvement in margins from this business just purely based on pricing.
