Timothy Thein: Got it. Okay. And then and Ted, maybe on the notion of — when looking at the conversion from EBITDA to free cash flow, specifically on cash taxes, there’s a tax bill proposed in Congress who knows it can actually passes, but it would restore 100% bonus depreciation — what — I don’t know even thought through that, but implications, maybe as it is if it doesn’t go through how we should think about cash taxes or 2024 or 2025 and then if that were to go through, what — if you thought of it, what is the potential implications of that?
William Ted Grace: Yes, yes. So I’ll take those in reverse order. If, and it’s obviously a big if, but if that were to pass our understanding is it would actually even be retroactive. So in 2023, that would be worth certainly several hundred million dollars of incremental cash flow to us given the benefit it would have to our cash taxes. Taking the first part of the question, as you think about cash taxes going forward, you obviously see a significant step up in 2024 versus 2023. I think if you look at our investor presentation, the guidance is cash taxes of about $990 million. We paid about $500 million in 2023. So you see a $500 million step-up. That number is not at all representative of how to think about this on a go-forward basis.
I would remind people, one of the benefits we had in 2023 from a cash tax perspective was the expensing of the Ahern fleet acquisition. So that was worth about $300 million of benefit. So apples-to-apples, you would say the step up 2024 versus 2023 is more like $200 million. And so as you think about that going forward, as you see this assuming you don’t have that bill passed and we’re stuck with this sun setting provision within 2017 tax reform. You would see, depending on your assumptions on obviously, pretax income growth and CAPEX, you would see a gradual increase in our cash taxes that’s there. But we think is obviously very manageable and something that has been known since the legislation was passed in 2017. So from a planning perspective, it’s something that we’ve been aware of and obviously built into all of our expectations from a forecasting a capital allocation and balance sheet strategy perspective.
Does that help, Tim? I’m happy to get to you if you want.
Timothy Thein: No, no, that’s sufficient, thank you Ted. And then maybe last one, we’re kind of deep in the call here, so maybe an appropriate time. But I noticed there was — within the risk statement in the K, something about how you’re doing more things within specialty and offering more services and activity that it introduces more risks to United. I’m just curious, is that meant to maybe foreshadow something in terms of adding more legs to the stool within specialty or just something the lawyers made you drop in?
William Ted Grace: I think it’s much more the latter. Yes, just more the latter. I mean there’s nothing that’s changed structurally.
Timothy Thein: Okay, very good. Thank you.
William Ted Grace: Thanks Tim.
Operator: Thank you. Our next question comes from Steven Fisher with UBS. Please go ahead.
Steven Fisher: Thanks, good morning. So it seems like you’ve put yourself in a pretty good position to make some of these long-term investments even while the growth is slowing. I’m wondering if you can just kind of quantify the investments you’re making in 2024, either in dollar terms or what the impact on the flow-through is? And then are these going to be kind of like ongoing investments through 2025 or is it more just sort of a onetime headwind in 2024?
William Ted Grace: So I’ll take that one matter, at least start. So it would be hard to dimensionalize in isolation what the headwinds are. Maybe another way to think about this is if you wanted to say, what’s the difference from an EBITDA perspective or a cost perspective, just framing it as cost to get from $46 million to $50 million for the sake of argument, you’d be looking at something like $50 million EBITDA, which is materially less than 1% of our cash operating cost. So that is the net effect of that drag from cold starts, which again are excellent investments. We don’t get into showing kind of what the year one margin profile of the cold start is. But I don’t think it surprises anybody that it’s a drag as you kind of get those fully up to speed both from a revenue perspective and an efficiency perspective.
On the technology side, again, we don’t call out specifics there, but I think people understand the cost of investing in technology. It’s not insignificant. It’s again, not going to move the needle in the context of a company with $15 billion of revenue that can move it dramatically. But these are smart investments, right. If you think about things going on let’s just say, I don’t want to get into the AI term, but certainly, if you look at a lot of the work we do around machine learning, optimization, and I will even stretch as far as saying leveraging AI, when you bring in third parties, those pro fees can be substantial, but you — we think you get great return for that investment. And so again, could it be a short-term headwind this year?
Yes, that is our expectation. In terms of what it looks like in 2025, we’ll address it at that point, it will be a function of growth and the decisions we make around what incremental investments we may or may not need to make. Matt, would you?
Matthew J. Flannery: Yes. No, I think well said. I think the real tone of why we make the conversation, there’s a difference between 46% and 50% flow-through in a transition year, so to say, is not something that would cause us to have an austerity program, right. We’re going to run the business as we run it continue to improve the systems that we have, the tools that we have and grow the footprint for future growth. That’s really it. If we were in a different environment, we have the playbook, you guys saw a little bit of it during COVID. Then you’d run a different play, and we’re nowhere near that world nor do we expect to be for a few years.
Steven Fisher: Got it. That’s very helpful. And then maybe if I could just dig into the manufacturing and industrial vertical a little bit. I know it’s an area that you’re still looking for some strength. Can you just talk about your sense for how that market is going to be different in 2024 versus 2023. Obviously, it was very strong in 2023. Kind of what are your field managers and customers telling you about how 2024 ill look relative to 2023. Obviously, you still mentioned semiconductors and EVs, but just curious kind of how this year is going to be different than last year?
Matthew J. Flannery: Well, I think it will continue to be strong, and I think it will carry a good part of the growth this year, specifically a big part of the mega projects. When you’re thinking about the plants we talked about and the on shoring of manufacturing. We saw it play through all the way in Q4, where that was our largest growing vertical that we track in Q4 in the industrial sector, it was industrial manufacturing. We haven’t even really touched on LNG nor has it kicked off in a big way yet. That’s yet another opportunity in the industrial space. So we feel really good about the industrial end markets. I mean outside of oil and gas and really the upstream which was down. You guys all probably see that in the rig count. That was down in Q4, and we expect to be down next year. Outside of that, we think it’s going to continue to be another strong year in the industrial end markets.
Steven Fisher: Terrific, thank you.
Matthew J. Flannery: Thanks Steve.
Operator: Thank you. Our next question comes from Seth Weber with Wells Fargo. Please go ahead.
Seth Weber: Hey guys, good morning. Matt, I appreciate the comment about normalizing CAPEX. I just wanted to dig in on that a little bit. So I think historically, first quarter CAPEX is sort of like low double-digit percentages of your total. Is that kind of the right number we should be thinking about because that would suggest the down year in the first quarter for CAPEX — for gross CAPEX, is that how you’re thinking about it?
