Brian Magstadt: Yeah. Tim, this is Brian. So it would be just a modest, small pullback in gross margin for 2024 relative to 2023 for those items that you mentioned, additional warehousing costs, additional labor costs, factory and tooling costs. One of the things that is, part of our overall manufacturing operation is as we bring new equipment online, we will take a fair amount of depreciation expense in the year that comes online, and when they come online in the fourth quarter, it’s a little bit more of an impact. But as we look at the major elements of our cost of sales, I’d say, raw materials are relatively flat as a percent of revenue. The other drivers are going to be the labor and the factory tooling and then some warehousing costs.
Tim Wojs: Okay. Okay. That’s helpful. And then just on the investments, I mean, would you characterize some of the higher SG&A spend in Q4 as kind of an acceleration of some of the investments? And was it anything specific or is it just generally, you thought it was an advantageous time to pull some of that into 2023?
Mike Olosky: Well, as we look at a lot of the investments we’re planning for, in particular, we’ve got some investments we’ve made in the technology space to be able to help us win business. I mean, that was one of the big contributors for us, not what we spent in Q4, but in general, technology helped us win, top 10 component manufacturer in 2023. And it’s those types of investments that we’re looking at that is helping pave the way for future market share wins and gains. When we look at product development, we’ve noted record number of products that were launched and we need to keep that in 2023. We need to keep that trajectory in order for us to hit our ambition of continuing to achieve that above market growth.
We also had some customer conversions and sometimes we’ve got to buy back competitive product to get our product in there, because we want our product in on the shelves as soon as possible. So there’s a number of areas that would contribute to that. And we want to get to the end of the day these customer end market wins as soon as we can, and if that means getting software development done quicker or sooner, getting some of these products launched and the activities associated with those done sooner. We want do that, we want to make sure we’re positioning our teams to be able to go after and win in those key end markets.
Tim Wojs: Okay. Okay. All right. That makes a lot of sense. And then just the last one on revenue growth, just want to make sure I understand it. So if the expectation now is for low single-digit growth in kind of the consolidated North American end market and you’ve outgrown that by 250 basis points. Are you saying that you should at least grow the revenue in North America by mid-single digits, is that kind of what you would tell us?
Brian Magstadt: Yes. Yes. Market assumption, low-single digits and we want to continue to be at least 250 basis points above the market.
Tim Wojs: Okay. Okay. Very good. Awesome. Thanks for the call guys. Good luck on 2024.
Mike Olosky: Thank you.
Brian Magstadt: Thanks.
Operator: Thank you. And our next question comes from the line of Kurt Yinger with D.A. Davidson. Please proceed with your question.
Kurt Yinger: Great. Thanks, and good afternoon, Mike and Brian.
Mike Olosky: Hello, Kurt.
Brian Magstadt: Hi, Kurt.
Kurt Yinger: I mean, it sounds like warehouse — the new warehouses and distribution hubs that you guys opened will be a little bit of a gross margin drag in 2024. But I guess longer term, how do you think about the opportunities from some of those investments on the gross margin line, and as you look across your North American footprint, I mean, are there more opportunities for you to take some of that business in-house and is that something that’s going to drive, I guess, increased capital spending levels going forward or how are you thinking about that?
Mike Olosky: Good question, Kurt. So real tangible example, Kurt, as you know, we’re moving away from two-step distribution across the Board and moving that needle in the West is kind of the last part of that process. And now as we start to go to our end channel partners or our distributors, we can have interaction with them, we can explain the whole product line, we can tell them everything we’re doing to drive specs, we can tell them everything we’re doing with builders to pull things through, and by having now access to a couple of these distribution customers, we’ve been able to make some really nice gains. And one in particular, there was a customer, I think it was mid-single-digit number of stores, they actually didn’t carry any of our product line.
We went in and we started telling them everything we can do to help them and help their end customers. Not only did we pick up the connector business, Kurt, we also picked up the fastener and the anchor business. And that’s exactly why we want to go direct and to be able to service and support that, we need the warehouses close to our customers to provide that fantastic service level. Ideally, we want to be within one-day shipping of all of our end customers and right now we’re pretty close to that, but not exactly there. As we shift away from the two-step distribution, we need those sites to provide that customer service. We’ve got a couple more that we think we can do to provide good support. That also enables us to provide some same day support via local windows and a couple of other things.
So we continue to do that, we think that helps us pick up share, and then the margin, obviously, that we had with our two steppers, that part goes away. Some of that we get on the topline and some of that we say, we invest, because we need to provide the service to be able to support that.
Kurt Yinger: Got it. Okay. So it’s more of a customer service, hopefully some share gains and then an opportunity to maybe reinvest any sort of margin uplift associated with that. So it’s not a huge gross margin driver over time. It’s more of a competitive positioning strategy. Is that the right way to think about it?
Mike Olosky: Yeah. Yeah. Help us better serve and support our customers and help us drive more growth.
Kurt Yinger: Got it. Okay. Makes sense. And then, in terms of new residential construction, it’s kind of a tale of two markets between single-family and multifamily. Could you maybe just remind us, content per single-family versus multifamily unit on average and how you think about, the growth on the single-family side, perhaps being, dampened or offset by weakness in multifamily or whether, the backlog of units under construction, you think can carry you kind of through 2024. How do you think about that dynamic?
Mike Olosky: Yeah. So on average across the U.S., Kurt, we think our content on multifamily is similar to the average content in single-family, on average. Obviously, on the West Coast and in the hurricane areas, there’s more content per house, less maybe in the Midwest. But if you look at multifamily, since they tend to be multi-stories, they tend to have garages below them, there’s more engineering. So there’s more hardware in general on those, kind of balancing out what we typically see extremes. And multifamily, I mean, a single-family on the West Coast, Southeast versus Midwest. The summary of that is relatively consistent content-wise. Now, from a multifamily perspective, depending upon how the different markets talk about it, it’s roughly 30% of sales — of a total single-family sales.
Brian Magstadt: Sorry, total starts.
Mike Olosky: Total starts, sorry.
Brian Magstadt: Multifamily.
Mike Olosky: Yeah.
Brian Magstadt: Right.
Mike Olosky: Roughly 30% of total starts. If you look at the multifamily segment, we think about one-third of that is predominantly wood construction, where we would have that apples-to-apples comparison. The other two-thirds could be steel or concrete construction or maybe our applications on those wouldn’t be nearly as high as they would in — from a wood construction perspective. So long story short, the mix between single-family and multifamily, we don’t expect to be a huge driver one way or another over the last couple of years. We’ve kind of seen that balance out and we think we’ll see that again this year.
