Tony Trunzo: Those guys, I want to say one other thing about that, Jay I don’t know that team has done a great job. I mean, that team has been in place for a really long time, they’ve been executing in this marketplace for a really long time and I think we said this early on after the acquisition. When we make acquisitions, one of the things you really count on is having a solid management team to lead it and we definitely got that with First Alert.
Jay Geldmacher: Yes, I’ve agreed 100%.
Operator: Thank you. We go next now to Paul Dircks of William Blair.
Paul Dircks: Hi, good afternoon. Thank for taking my questions. So first question for me within Products — the P&S business, can you remind us here at the end of 2022, what percent of sales are by channel OEM versus distribution et cetera and maybe you could tie into that comment what gives you confidence that first quarter will in fact be the destocking a low point?
Tony Trunzo: Let me try to answer the second part of that question, because you’re going to send us scrambling for numbers here to try to provide some context. We track — I think we’ve talked about this last quarter, but for our top 26 trade customers we get information from them and collaborate with them and we get not only our sell-in, but their point of sale and their inventory levels in terms of days, as well as their sort of inventory level objectives. And what we’ve seen particularly in January is that we talked about this last quarter too, I think, at that time. I think we were a little uncertain as to the slope of the decline and just how far it was going to go and how long it was going to take, I think we’re coming out with the feeling that Q1 is going to be the low point and the point-of-sale data that we’re seeing is still pretty darn good, inventory levels have come down not to the desired levels, but as point of sale continues to hold up, I think we feel like maybe there’ll be a little less destocking than we had originally anticipated as well.
Paul Dircks: Got it. That’s helpful. Okay, I guess maybe I can follow-up offline regarding the sales guys.
Tony Trunzo: I got roughly trade plus or minus 40% OEM somewhere in the 25% zip code.
Paul Dircks: Okay, I appreciate that. Thank you. Next question for me, speaking about the manufacturing optimization plans, go back I realize it’s a different market, but in early 2021 at your Investor Day obviously manufacturing optimization, that was one of the key components behind the 2024 operating margin target of 20% to 30% in P&S. So I guess maybe today can you help me walk through what the right read is thinking about what’s realistic for an operating margin target exiting 2023? And I guess related to that as well, is there an internal appetite, I’m almost sensing there is to start fast-forwarding beyond manufacturing optimization plans you’ve announced here today to accelerate those plans and to try to bring some of those savings to the P&L here exiting the year?
Jay Geldmacher: Let me make a couple of comments, I don’t know if Tony has some follow-up on. As I was mentioning a few minutes ago, we have a — I think a really good playbook of things beyond what we even at the time of the €˜21 Investor Day. And again, we were very cautious during €˜21 and ’22, because of the world we’re all living in, but there is definitely opportunity there, and it isn’t just factory optimization, it’s factory automation, it’s automation, it’s a variety of different things that we have access to and levers on as part of the playbook for this. And as I said before, I’m excited about being able to leverage the strength of my operations group that we have to take a look at these opportunities to even though we thought through a variety of different dynamics as Tony had talked about before that we have the opportunity to take that and move those levers and benefit by. Let’s see Tony’s.
Tony Trunzo: Yes, I guess — so Paul, from my perspective, we are — there are clearly other actions to follow on beyond what we reserved for in Q4. The cadence of those we’re going to manage, I would say, somewhat more carefully. The business cases remain at least as strong as they were two years ago. So the opportunity is at least as good as it was then. And we did not have the another call-out to first where we didn’t have to the due to the factory automation, factory automation opportunity in those plans in €˜21 and we think we’re going to learn from First Alert over the next year, year and a half, but we think that’s pretty real as well. So the opportunity suite there is significant and probably bigger than it was in €˜21.
The cadence at which we unwind it we’re going to be patient, because we were successful over the last couple of years making sure that we were able to meet our customer demand better than others and to be a good supplier and to build those relationships, and I would say that we have more of a focus on supply chain resilience today than we maybe did then. So, we’re going to balance those two things as we proceed through what’s going to be a multiyear process.
Paul Dircks: Got it. Very helpful color. Last one for me and switching to the ADI business, I agree with your comments that the performance and the outlook into 2023 is quite a bit better certainly from the margin side than many other distributor peers. I do think part of that has to relate to your investments internally and expanding the business increasingly into the digital world. So my question is, could you remind us of the margin difference for your business touchless versus traditional? And also maybe could you talk briefly about some of the other investments whether it’s into increasing channel business or perhaps expanding into adjacent categories or into further exclusive brand sales that you think will be powerful drivers here in 2023?
Tony Trunzo: You just gave an excellent list. I guess so a few things, the difference in margin between touchless and sort of in branch is not huge, it’s there but it’s not huge. The real motivation behind our migration to touchless relates to some other initiatives, which is around sales enablement and creating and enabling our branch associates to do what they do best which is to be collaborative, consultative sales folks and to work and build relationships with our customers that are enduring, but also provide the appropriate level of margin for us. So maybe that’s a little bit of a different view than maybe just we want to push it all to touchless because we want to drive cost out of the brand because we want to get margin just exclusively from that action, it’s a more nuanced approach than that, and if Rob’s listening, he probably think I butchered that explanation, but it is a nuanced approach.
The exclusive brands piece is — that margin differential is significant and the growth trajectory in that business has been significant, and as we’ve talked about, we are very focused on being a great partner with our third-party suppliers and we’re not going to stop that, but we have found that there is an ability to grow that exclusive brands business in ways that in don’t harm the third-party relationships at all, and in some cases, they are fine with it. So I think those two things are really the critical investments but I’d also call out, I mean, we — the operating expenses in that business relative to sales have not gone down and we could have driven them down and we didn’t and we are in the position that we’re in today, because we made those investments, and this year there was going to be another chunk, because we’re building out the new ERP system that I think is going to drive sort of the next wave of initiatives that enablement around the business.
Jay Geldmacher: The only thing else I’d add, and you mentioned that is the adjacent space and I think we’ve talked about what adjacencies that they’ve moved into a very successful with and still growing like datacom and so they are continuing as part of their own strategy will continue to look at that as other opportunities there, that’s not a complete adjacency like slip out in left field that they match up well with the rest of the products that they offers. So they’ve done a nice job with that.
Paul Dircks: Appreciate the color. Thank you, guys.
