Phil Gibbs : So net of all the contractors rather coming off and then the labor increases but you also have the headcount increases, you think that’s going to be — all as it rolls up, going to be neutral?
Denny Oates: I think it’s going to be neutral to a low single-digit number because the cost increase per hour will be offset by higher activity levels, less contractors. And our workforce is coming up a learning curve, which is intangible, I can’t quantify it, but it’s there. So as we move through 2023 and people gain experience, the throughput will accelerate, our cost will come down from a productivity standpoint, but the hourly rate that we’re paying will go up.
Phil Gibbs : Okay. And then on the net working capital side, I think that there was a little bit of reduction in inventory, as you mentioned. That will be, I’m sure, the biggest driver to net working capital. What should we expect on the inventory side in ’23?
Denny Oates: So on the inventory front, just some background on that, if I can use your question to further explain. If you recall in earlier calls, I mean, things were very difficult in the first half of the year and supply chains were very tight. We did buy on the heavy side to make sure that we could run and operate. Those supply chain issues have somewhat eased at this point in time. So as you look at the fourth quarter, we reduced the absolute volume of raw materials, number one. Number two, the price tag on those raw materials in the third and fourth quarter relative to the second quarter and first quarter were down. And then when you look at work in process, as those raw materials that were lower flow into our work in process in the fourth quarter production, the cost per pound and inventory of work in process inventory is down on our AOD products.
So that will come out in the first and second quarters of this year. So as you look at inventory, there’s — you’re right, there’s some moving parts. Our goal is to keep working capital under control and managed very carefully. And we don’t see the big ramp in raw material costs in the first half of the year and we see opportunities to reduce our inventory per pound shipped or in other words, increase our turnover in the first half.
Phil Gibbs : Okay. That’s helpful. And then I was going to ask after the labor piece. Any step-up in contractual consumables in ’23? Or anything other than outside of the spares that you mentioned, which are costly?
Denny Oates: If you look at maintenance spares, we still have supply chain issues in terms of very long lead times by historical standards and very unreliable delivery, which has made maintenance a challenge in terms of fixing things on a timely basis. So that’s an operating issue. As far as cost goes, throughout 2022, we saw double-digit increases pretty much in MRO as well as most of our consumables. As we come into 2023, we continue to see inflation. But instead of being up pushing 18% to 20% increases, we saw this time a year ago, we’re probably half of that high single digits. There are some standout items like grinding wheels, for example, are up 30% effective with January. That’s — it’s a large percent but a small buy in a total picture of things. But I would say, on average, we’re looking at high single-digit inflation here as we come into 2023.
Phil Gibbs : And then last question, just on interest expense. I think it was $1.5 million. You did have some increase in debt that phased through Q4. And I would assume you’re trying to manage the debt in and around current levels, if not bring it down. But what’s the interest expense moving forward? Thank you.
