Melissa Fairbanks: That sounds about right. Sounds good. All right. Thanks very much. That’s all for me. Thanks.
Todd Kelsey: Okay. Thanks Melissa.
Operator: One moment for your next question. The next question comes from the line of Jim Ricchiuti of Needham & Company. Jim, please go ahead.
Chris Grenga: Hi, good morning. This is Chris Grenga on for Jim. Congrats on the solid results. And thank you for taking the questions. You mentioned that within the funnel, you’re seeing a greater number of larger opportunities. Just curious if you could elaborate. Is that a strategic or is that just a function of the market? And then is that across end markets? Are you seeing that concentrated in any particular end market in particular? Thank you.
Todd Kelsey: Yes. It’s across the markets, Chris, and they’re up kind of across the board, these larger opportunities. And I would say it’s a little bit of a both. It’s a bit of a sign of the market and the views of OEMs in that market. But it also has to do with our go-to-market strategy and the way our teams are approaching the markets and opportunities that are out there. So I suspect we’ll continue to increase those numbers of larger opportunities. And we typically think of something greater than $20 million as a larger opportunity. But I think we’ll continue to see that increase over time.
Chris Grenga: Great, thank you very much. And then just could you help me understand or reconcile, I guess, the cadence of sequential increases in health care life science wins versus the expectation that that end market might be a little bit softer in the near term? And are there any particular applications within life science that you’re seeing more challenged than the average in the near term? Thank you.
Todd Kelsey: Yes. So there’s a number of factors that are going on with healthcare life sciences as we look into fiscal 2024. And I’d start with the fact that we’re coming off of two outstanding growth years of 18% and 20% in 2022 and 2023. So there is a strong or I would call it a difficult comparison that the sector is going up against. But then there’s a number of factors that are turning 2024 into a little bit of a challenging year from a growth standpoint. One is, I talked about the reduction of procurement of parts at above market prices to more normalized levels. That was most pronounced in the Healthcare/Life Sciences marketplace in the tune of north of $100 million. So you think about that as impacting the revenue comparison right off the top.
There’s also factors going on with inventory corrections with certain customers who maybe got a bit ahead of what their demand was. And that’s a near-term issue that’s happening right now. There’s a bit of softening that’s going on with certain end markets like imaging, for instance, we’re seeing a bit of softening. And then finally, the program ramps that Steve referred to. So when you combine all those together, there’s a bit of a headwind within that sector. Now one thing I want to do, though, is highlight the strong opportunities within the other sector. So within aerospace and defense and industrial market, which includes semi-cap, we’re expecting very strong double-digit growth in both of those in fiscal 2024.
Chris Grenga: Great, thank you very much.
Shawn Harrison: Hey, Chris. It’s Shawn Harrison here. Just wanted to get back to the part of your earlier question as well about wins versus near-term revenues because of the complexity of the markets we play in health care, life sciences, a program win in that incubation period from time of win to revenue could be two years, could be three years, it could be a little bit longer depending upon the regulatory approvals required to ramp that. As Steve said earlier, these programs are extremely complex. So winning something today and the strong win rate doesn’t really mean anything to revenue in the near term. But it is a great indicator over the long-term.
Chris Grenga: Great, thank you very much. Appreciate the color.
Operator: One moment for our last question. The last question comes from the line of Anja Soderstrom of Sidoti. Anja, please go ahead.
Anja Soderstrom: Hi, thank you for taking my questions. And congratulations on a great quarter. I’m just curious for the aerospace and defense, how much of that growth is driven by the demand versus sort of backlog build as component has become more available?
Steve Frisch: Yes. This is Steve. I’ll take that one. The demand through fiscal 2023 for commercial aerospace was there. It’s always been there. We’ve had a pretty significant backlog of activity. And so as we talked about a little bit in fiscal 2023, that sector was a little bit slower pipelining than materials. We now have much higher confidence with our customers in terms of the pipeline and materials. We’re starting to see some ease constraints on some of the lagging and semiconductor components. So we’re able to flow that through into shipment products for our customers, which we expect to continue at a better rate here in 2024 than we did in 2023, given the environment. So strong demand continues, easing of components sets us up for a pretty good fiscal 2024 as it relates to commercial aerospace we believe.
Anja Soderstrom: Okay, thank you. And in terms of inventory I think Pat you noted you expect that to improve throughout fiscal 2024. Do you think you’re going to get back to historical levels ever in terms of inventory or is there sort of a new normal we should expect there longer term?
Pat Jermain: Yes, there’s – I think it’s going to be tough to get back to the pre-pandemic levels. But I just think with some of the new processes we put in place and as we see lead times coming down, I mean we can make some really significant efforts and improvements. Keep in mind Anja too, with the company growing at the rate it’s growing, we’re just going to see more working capital investments required. So from a dollars perspective, I don’t think we’ll get back to those levels. From a day’s perspective, I think we’ll see improvement whether it’s to the pre-pandemic level, we’ll wait and see. That could be a little further out to see that type of level.
Oliver Mihm: Specifically this is Oliver, Anja, talking to what we’re seeing in our commodities, weighted average lead times are coming down. So if you look at it across our entire commodity base, we’re just under 15% lead time coming back reducing quarter-over-quarter. Specific to semiconductors, which has historically been a stickier spot for us. We saw lead times come down just over –sorry, just under 20% quarter-over-quarter, moving from about nine months to move in the out seven months. But the point here, getting back to your question is at seven months, that’s still 2.5x what we would have historically considered a normal lead time for semiconductor commodity. So as Pat noted, as that comes down, we expect to see inventory reduced, but we’re still quite a bit of ways from what we would consider normal lead times.
