Cindy Taylor: I think that what we are looking at right now is trying to look internally and say, how is our technology and where is it on the competitive continuum against the landscape that we operate in, and that’s why we’ve invested both R&D money and engineering time in 2023 to bring an upgraded suite of products to the domestic market, which is the technology that I referenced in my call notes. And then, in addition to that, most of our international activity has been more P&A oriented, which can be extraordinarily cyclical and lumpy depending on activity. And so, we’re really working to really get more international steady revenues around the completion side of the business, the shorter guns, as well as the charges that go internationally to more stabilize the ongoing cost absorption in our international side of the business.
But those are the major focus initiatives that we are entering 2024 with. And we do expect to see improvement over 2023 because of the technology introductions. Now, first quarter is a weak quarter. I’ll be the first one to tell you that these natural gas basins are weak right now. And again, those are comments that I also offered to you in my call. But we do think that upgraded technology gets legs and some footing to help us be the most competitive in both the U.S. market and the international market. You do mention the landscape, and I would say it’s generally stable. It’s no secret that DMC Global is evaluating what to do with the DynaEnergetics business, but I would just say at this point, we don’t have clarity around whether it really changes anything in the landscape.
So, we’ve got to do what we can control, which is enhance our technology offering to our customer base.
Unidentified Analyst: Got it. Thank you. And then also just shifting gears a little bit to OMP. I was curious if you could provide some color on what’s on the backlog and how this should kind of flow through to margins in 2024.
Cindy Taylor: Yeah. Our margins have been pretty steady. The key for us is the mix and backlog. But as I mentioned, production infrastructure, capital drilling equipment, service revenues, those are really favorable to our margin profile and mix. Then it becomes one of just kind of timing and absorption across our facilities. Even though we had a really good 2023, our short cycle piece of the business, which has a little bit of a land focus, obviously suffered some declines late in 2023, and it’ll be slow to kick off in 2024. That’s really why we’ve guided on a consolidated basis that the first quarter will be the weakest quarter for us.
Unidentified Analyst: Got it. Thank you. And if I could squeeze one more in, I’d appreciate it for bearing with me here. Just on the — so, when we’re thinking about 2024, I know you said there’s some variability given the assets held for sale. But I’m just curious if you could provide some details on what you’re expecting in terms of just working capital, capital spending, and just the free cash flow conversion. I think you said it was 40% in 2024.
Cindy Taylor: Yeah. I’m — really, thanks…
Unidentified Analyst: Yeah…
Cindy Taylor: Go ahead, Alec, I’m sorry, I thought you were done.
Unidentified Analyst: No, almost. And then I was just around that, I was wondering if you could just comment on the patent defense charges during the fourth quarter and if that’s expected to continue where that stands.
Cindy Taylor: Perfect. I’ll kick off and Lloyd will pick up along the way. I’m really glad you asked the question about kind of free cash flow generation. And I mentioned in the notes there’s quite a lot of variability in our free cash flow because of these facility sales. And I just want to be clear that what we’ve included in the guidance of roughly $40 million is the Singapore facility sale and the Batam CapEx construction simply because that Singapore facility is currently under contract. We’ve not yet included the cash proceeds from the Houston facility sale, because we don’t know the timing. It’s not under contract. We do expect it to sell. So, there could be upside to that cash flow. I’m trying to give you the guidance that, to some degree, would be the floor, I would say, in terms of EBITDA conversion and free cash flow generation.
Now I’m going to ask Lloyd to comment on working capital, but I’ll just say importantly, the shift towards more offshore and international revenue, i.e., growth in that, does it carry with it percentage of completion accounting and therefore some increases in average working capital because of project duration, he’s got the numbers for you. I’m looking at him right now to offer comments.
