And then ATS, we are expecting that we will start to recover in the fourth quarter of this year. So if you put all of that together, that is sort of what we have in terms of at the midpoint about 5% revenue growth in the top line.
Operator: Your next question comes from the line of Saree Boroditsky from Jefferies.
Saree Boroditsky: I believe book-to-bill was below 1 again this quarter. So when would you expect this to turn positive? And how do you think about backlog levels as you exit this year?
Sundaram Nagarajan: If you look at our backlog, as we have noted in our release as well as in our conversations, $750 million, it is higher than where we normally would run for this size of a business. A historic normalized level will be about $600 million to $650 million, something like that. Order entry in most of the businesses have returned to normal order patterns. What we mean by that is we don’t have any anxiety in the customer order patterns, right? So, if you go back even four quarters ago, you still had people – might be still concerned about supply chain constraints, and that doesn’t exist anymore. So I would say vast majority of our businesses, order entry has gotten to its historical levels, and the organic growth are based on those order entry rates.
Stephen Shamrock: And maybe another data point I’d add to there as well, just to Naga’s comments, if you think about the backlog, we consumed about $200 million last year for the full year as we transitioned more to a normalized environment. And in Q1, we consumed about $50 million. So, we’re still on that, I’ll say, normalized pace.
Saree Boroditsky: So, you know the impact of the Chinese New Year in the second quarter, I believe in the past you’ve talked about it being a $15 million to $20 million impact. So would that still be the right way to think about the shift for this year?
Stephen Shamrock: What I would tell you, as I think about the second quarter and the guidance we gave, and the timing of the Chinese New Year, I’d say, is roughly about a $10 million to $15 million impact. That’s what we’re seeing. And if you really think about that, right, the guidance that we gave for the second quarter here at the midpoint, we’ve got sales growth of 1%, which would imply negative organic growth of 4%. Again, we’re still expecting ARAG to contribute 5% and FX to be neutral. If you think about that, that’s about – half of that negative organic growth is coming from the Chinese New Year. Obviously, we had the opposite effect in Q1 as well, right? So even on a quarter-to-quarter basis, the organic growth rates in Q2 is not as bad on the surface as they look based on that.
Operator: Your next question comes from the line of Mike Halloran from Baird.
Michael Halloran: Just want to follow up on that last comment there. Maybe you could talk about the seasonality as you think of the year here, right? I think this was the first year that I can see in my numbers that wasn’t up sequentially, at least double digits, if not handsomely in the double-digit level. So I get the Chinese New Year impact. I get that you’re shifting the semiconductor recovery to the back half of the year. Just making sure there’s nothing else going on that’s unusual in the second quarter. When you get to the back half of the year, can you help us with that cadence thing and maybe help us out relative to normal seasonality? In other words, are you shifting that significant kind of sequential uptick into the third quarter? Is this more steady in the third quarter versus 2Q and then a more sizable uptick in the fourth quarter?
Stephen Shamrock: I’ll start with that from that perspective. If you look at the second quarter guide there, right, what I would tell you is what, you’re what you’re not seeing, again, is the weakness in electronics end market that’s also weighing down the second quarter as well in the ATS segment. So, from that perspective, if I think about the second half, as Naga referenced earlier, the comps should get easier for sure from an ATS perspective, particularly with the expected pickup in the fourth quarter. So I think that’s what gives us confidence there if we talk about seasonality and how that works from quarter to quarter, at least with respect to ATS.
Michael Halloran: Can you just talk about the trends within ARAG and what’s the expectations there? Just thinking kind of the impact. You’ve already given that. I’m more thinking, what are the underlying trends you’re seeing? How does that compare on more of an organic basis in any context?
Sundaram Nagarajan: Mike, that was on ARAG, right? On ARAG, I’ll make couple of broad comments. Hopefully, I will answer the questions because I had little trouble hearing you completely. So if I don’t answer all of your questions, please do follow up. Integration is going very well. Great technology, great team, contributed to sales and the EBITDA margins. The differentiation of their product categories and the resulting gross margins all confirmed during our ownership of the business here. So, pretty excited about the business, how that is integrating. All is well from that point of view. We also expect that ARAG to contribute 5%. There is no change there. A couple of things to remember about this business. Approximately 45% of the revenue is aftermarket parts in this business, right?
So many of these parts are short life replacement cycle businesses, like nozzles that need to undergo more periodic replacement. If you think about it, they sell mostly critical, low class components for their customers, which drive efficiency and reduce usage of material, costly fluids like fertilizers and chemicals. And then the next point to remember about this business is we’re not tied to people selling tractors. We’re tied to folks that manufacture implements, implements that are used to spray, implements that are used to plant. And so, from that perspective, even when you defer a large CapEx spend, you definitely try to update and continuously able to have better implements, so that you can deliver on productivity and efficiency for an individual farmer or a farm organization.
