Andrew Buscaglia: Yes. Okay. Okay. Just, I think some investors are also somewhat confused by that the small portion of the sales. It seems like a small portion of Digital Imaging is driving sort of a profound — these profound declines. Can you, can you kind of walk through within Digital Imaging? We know Machine Vision is weak, but that’s probably only low double digits as a percentage of that segment. Can you walk through the other items beyond just Machine Vision and tell us how much that is as a percentage of that segment sales, just so we could get some more clarity around what’s affecting the overall decline?
Robert Mehrabian: Sure. First, let’s start with Machine Vision specifically. Approximately $600 million in 2023. We’re projecting a decline of about $120 million of that. So the reason it’s affecting other things is that the highest margin businesses that we have in Digital Imaging and overall there are — when you put the two parts together, which is DALSA, e2v, TS&I and FLIR, our total revenue there is going to be down about, by year end, about 1.5%. So it’s not a big number, right, 1.5%. But that’s 1.5% with something like over $2.1 million — $2.1 billion. So it’s meaningful only because the top line 3.1 is significant, and it’s our highest margin business. By year end, we’re projecting that basically the declines would be 1.5% overall with FLIR up and DALSA to be down because of that. I don’t know if that answers your question.
Andrew Buscaglia: Okay
Robert Mehrabian: The numbers, when you look at them, look large, but in retrospect, it’s not huge. It’s 1.5% of the total.
Andrew Buscaglia: Yeah. Okay. And beyond Machine Vision, what other areas are short cycle that are out of favor?
Robert Mehrabian: Well, the only other one that I would say is out of favor. I wouldn’t call it out of favor. I’d say, it’s decline. It’s Test and Measurement. Test and Measurement is the oscilloscopes and protocol solutions that we have. Last year, we had $340 million of revenue there. We expect right now that — in January we thought it remained flat. Now we’re expecting it to go down about 10%. So that’s $30 million in revenue. A good part of that is that its margins are remaining very healthy and at the very high-end of all of our margins. And we can take that decline in revenue without having a big hit anywhere else, because Marine is making up those sales declines.
Andrew Buscaglia: Okay.
Robert Mehrabian: The last area, which is a little different, is Engineered System. In 2023, we had $440 million in revenue. Right now, we’re projecting about a 10% decline, or about $35 million to $40 million decline. If there’s a good part to it, is that that’s only 7% of our portfolio, and it’s our lowest margin business at 10% or less. So that’s why, well the surprise here is that, yeah, we do have declines, but we’re saying we’re going to keep our revenue the same as last year and our operating margins are going to be the same as last year in an environment that’s a little more constricted for our Digital Imaging short cycle business.
Andrew Buscaglia: Yep. Okay. Thanks, Robert.
Robert Mehrabian: Thank you.
Operator: [Operator Instructions] Next, we will go to Kristine Liwag with Morgan Stanley. Please go ahead.
Unidentified Analyst: Hi, good morning, guys. This is [Gaby] (ph) on for Kristine. Thanks for taking the question. So I was just wondering if you can provide some, a little bit of color if you’ve been seeing improvements in the supply chain and your expectations for the supply chain going forward and how that’s going to impact the business throughout the year?
Robert Mehrabian: Thank you very much. Great question. The supply chain improved in 2023 significantly versus 2022. It has improved further this year. Just to give you an exact number, we — when we buy from brokers, we pay higher percentages of price. Last year in the first quarter, we bought about $10 million for electronic suppliers brokers. This year, first quarter we only bought a little over $2 million. So I think there’s been significant improvement. Having said that, there are a couple of suppliers that make very sophisticated board or device, semiconductor devices that are still lagging and it’s more of a delay problem rather than a price problem. So I think the supply chain is okay. We’re all experiencing some delays of some sophisticated part. Other than that, I think that’s behind it.
Unidentified Analyst: Great. Thank you so much.
Robert Mehrabian: For sure.
Operator: And our next question is going to come from Noah Poponak from Goldman Sachs. Please go ahead.
Noah Poponak: Hey, good morning, everyone.
Robert Mehrabian: Good morning, Noah.
Noah Poponak: Robert, to have the second quarter revenue be about flat from the first quarter, the year-over-year rate of decline would need to accelerate. Is that right? Is that what you’re anticipating?
Robert Mehrabian: Right now, we’re anticipating that it will be flat, only because — the answer is yes, only because we don’t think where we have really good backlog is going to kick in until the third quarter. The decline about 4.5% from last year — year-over-year in second quarter, yes.
Noah Poponak: Okay. Yeah. And then I guess that would imply kind of mid-single digit organic revenue growth in year-over-year in the back half. I was going to ask you just alluded to it, but I was going to ask how much of that is kind of purely visibility from longer cycle things in the backlog versus what’s the assumption embedded in that on the short cycle side?
Robert Mehrabian: I think primarily, it’s what we have in the long cycle. The majority of that recovery is in what we have in our backlog, maybe 3.5% to 4% improvement in revenue in the second half. There is a little bit of positivity in some of our short cycle businesses only because our larger customers or platforms on which we serve, like semiconductors, the data shows that it’s better than it was last year and improving, it’s up. So we have a little of that in mind. That — I think, that’s there. But we’re not counting on industrial automation, other things to improve significantly, because frankly, we have no visibility.
Noah Poponak: Okay. What are the pieces of the Engineered Systems margin in the quarter? I assume there’s some kind of cumulative catch up adjustment mark-to-market writedown in that?
Robert Mehrabian: Yes. What happens in that business is that, as you well know, we’re obligated to do 606 accounting. And so you estimate your cost and completion timing. When we went back and looked pretty hard, we saw that some of the costs were higher than we had anticipated, so we adjusted those. I think that took a kick out of our sales. But when you do cost-to-cost once you take sales down, let’s say several million dollars, you have to take the profit down the same amount. So that’s what took the hit. But I think we know exactly what happened. We’ll fix it. We are fixing it, and we should get beyond that as we move forward.
