One is on the Patient Direct side. So, we’re aggressively adding commercial people because we believe, with the proven commercial model we have, as we scale that up, that can drive long term growth and we started adding personnel in the fourth quarter, teammates in the fourth quarter. We’re continuing that in Q1 and Q2. What also should be noted is, if we’re going to add, call it, 70-plus percent teammates in the commercial organization on that side of the business, those teammates don’t have a positive return or they breakeven after around 12 months and then they start to show very strong positive returns. So that’s an example of taking some of that profit or savings and putting it into long term profit investments. The other thing in Patient Direct is really around focusing on the sleep journey and making sure that we can have unique technology to capture and maintain our patients in that side of the business.
So those are just two simple examples on that side of the business. The other aspect on the savings is, again, pouring it back into investments and, again, not just pulling it through to earnings. But on Products and Healthcare Services, it’s really around a couple areas. It’s around our investment in our category management. And I think the thing that’s important on that is, as a company, we’ve been talking for years about expanding our proprietary portfolio. We’re putting in the infrastructure, so that way, we can do that. So there’s significant investment being made in personnel to expand that proprietary product portfolio, understand the marketing, partnering with our customers, and then the commercial front end of that. In addition to that, investments in technology around some of our services we offer, as well as in data analytics.
I say that as a backdrop because what I don’t want the market to get confused on is we have operating model realignment that generated more than $40 million of benefit this year$, 100 million run rate that all of that is going to get pushed through to the bottom line, we’re actually taking that and reinvesting that in the business for future growth and future EBITDA benefits as we move forward. So that I think helps capture the earnings part of EBITDA. Alex, I think if there’s any other highlights outside of that, besides covering in the operating model realignment, how that carries through?
Alexander Bruni: On adjusted EBITDA, we are obviously working hard to deliver in line with our guidance last year and fell a little bit short, frankly, of where we expect it to be. And so, as we head into 2024, we do feel good about where we’ve reset for the year. And it does reflect, as Ed mentioned, the investment. It also reflects some of the normalization of PPE pricing. So, for gloves, for instance, at the end of 2023 and into 2024, we think that that sort of normalizes here in in the first half of the year. So those are a couple of areas from a broad brushstroke standpoint. As we think about the complexities around LIFO and stock comp, we expect both of those to normalize this year, which should provide us greater visibility and less volatility around adjusted EBITDA.
Edward Pesicka: I’ll add one last comment on the 75/25 comment. Legislation continues to be discussed throughout Congress on that. But the way we thought about it is we built in the impact that it would have on us. In addition to that, identifying ways to offset that as we move forward throughout the year.
Kevin Caliendo: Just in terms of free cash flow this year, I know you had some benefits from working capital in 2023 AR and the like. Would you expect the free cash flow to sort of match what you did in 2023 and 2024? Is there any directional guidance you can give us around maybe working capital if you don’t want to give us the free cash flow numbers?
Alexander Bruni: In 2024, we expect cash flow to normalize. We obviously had an extraordinary year in 2023. We expect to end the year with some debt paid down and just to be slightly north of the 3 times leverage.
Edward Pesicka: I’ll just add one other comment. As we start to see growth in our medical distribution and our global products business, whether that’s through implementation of new wins, whether that’s through expanding our proprietary product portfolio, we are going to make the appropriate investments in inventory. So that way, as we scale and that business grows, we have the ability to service our customers. In addition to that, just so everyone understands, the cycle of bringing on new proprietary products, generally, you’re going to have them in inventory before you start to sell them in the market. In addition to that, you want to make sure you bring in the right amount. So as that ramps, you don’t have service issues.
So there are going to be some investments in inventory in 2024 really related to three things. One is new win implementations. The second aspect of that is proprietary product portfolio expansion. And third is your ability to drive higher levels of service. And those are all good reasons to add inventory.
Operator: Your next question comes from the line of John Stansel from J.P. Morgan.
John Stansel: Just kind of following up around the new SKU launches that you highlighted at Investor Day. It sounds like what you’re saying is that this is part of the driver for SG&A uptick and it’ll be more of a contributor in 2025. Is that the right way to kind of frame the significant investment you’re making in product line expansion? Or should we think about it as a near term driver?
Edward Pesicka: No, I think it’s more of a long term driver. And I used two examples, one on both sides of this each segment on the personnel adds and the teammate adds on the commercial side in our Patient Direct business. We know clearly, after 12 months or so, that becomes breakeven and then highly profitable as it accelerates. So, yes, on Patient Direct side. And then very similar on the Products and Healthcare Services side of the business, building out the teams to do that, that is going to be an SG&A investment upfront, with benefit as time progresses.
