David Williams: Good morning and thanks for letting me sneak in a question here. So, I guess, Dave, if we kind of think about the inventory rebalancing, it feels like this has been ongoing for some time. And in the electronics segment, at least the last four quarters or so, so I guess my question is, how should we think about the normalized run rate here just kind of given that maybe you’ve been over shipping to consumption over the last several quarters?
David Heinzmann: Yes. I — let me start with the backdrop, but I’m not sure what normal is anymore over the last handful of years with COVID-related challenges and massive supply chain issues. But if you look back at our history, obviously, in the electronics products, we ship a great deal of our product through distribution to a very broad customer base. That model certainly does create a swing in inventory as demands increase and lead times go out, then as lead times begin to shorten and availability comes down or demand starts to soften, then there’s a correction that takes place. Historically, what would be kind of normal for us there would be kind of from a peak to trough of about a four to five-quarter sort of cycle there.
And so certainly, kind of about this time last year is really where we were seeing the big peaks within the electronics side of our business. So, we’re clearly going through that cycle. We’ve been going through destocking actions by our channel partners over the last couple of quarters. We certainly saw it for the bulk of this year. We kind of expect that to go through this year to get through that peak to trough that we need to. The good news is underlying design-in activity continues to be quite robust, and we see pockets where we continue to see really good strength. Still softness in kind of consumer-facing sorts of products, but we’re kind of working our way through that normal cycle.
David Williams: Okay, great. Thanks for the color. And then maybe one for you, Meenal. At the current midpoint of the guidance, the revenue profitability seems to be deteriorating about the three times that of the topline, at least on a percentage basis. How should we think about the leverage, again, whatever normalized may be, but how do we think about that leverage going forward as sales begin to rebound and you really start to see the benefits of the strategy come into play?
Meenal Sethna: Yes. No, great question and maybe going back to one of the earlier ones. I talked about the fact when you take a look at sequentially, what’s happening and really where we’re seeing a lot of the transitory destocking is coming through electronics, which, as we know, has our strongest margins today. So, that incremental variable — variable margin, I’d call it, tends to be pretty strong and the upswing. And so when we see this destocking environment, we tend to see a bit of a higher decline than normal, I’d say, over that 50% mark. As part of what we do, knowing that, that’s part of what we see, we quickly react to making sure that we’re sizing our operations and adjusting our cost structure to really manage through that and mitigate some of that. But that’s really where you’re seeing some of that degradation coming through.
David Williams: Great. Thanks so much for that. And then one more, if I can, real quick. Just, Dave, you talked about the product and customer profitability optimization. Can you give us a little color on what the process is there? And maybe anything around what the expectation should be?
Meenal Sethna: Yes, sure. So, this is pretty standard of things we normally do. And especially when we talk about acquisitions and we talk about this idea of integration, this is absolutely something that we do with every acquisition coming into the portfolio. So, between both areas like Carling, which is specific to transportation, but even C&K, we’ll do a lot of work in, I call it, a deep dive into really understanding the products, the mix, the customers, geographies, a whole bunch of things. Recall last year, where we normally would have done that all in year 1, we were really spending a lot of time working with customers. It was a pretty significant backlog going on. So, that was really our priority last year. Given where we are now, especially in the current environment, we’re really shifting our focus to make sure we go through that assessment.
And also, I would say, even in legacy parts of our portfolio, where we’ve seen that price/cost equation move around, we think there’s an opportunity for us to just make sure that we are still on the right path and the right priority focus on that. So, that’s really what we’re going to be going through in the next few quarters.
Trisha Tuntland: Appreciate your questions David. We’ll take our next caller please.
Operator: Thank you. Next, we’ll go to David Silver with CL King. Your line is open.
Trisha Tuntland: Good morning David.
