Steve Tusa: Can you get there in, do you think 24?
David Fallon: I believe we can. And it — if you look at our issues, they’re all very fixable, right? Inventory increased this year that was probably up $250 million. It was definitely somewhat of a chaotic environment, but we have a game plan for this year. And that also goes for many of the components of working capital. So AR, we had some complex larger orders that we had a process in 2022 with multiple deliverables, very tactical issues that we can address. So I feel fairly confident we can get to that 90% number in ’24 and go forward. But let us get through 2023 first, and then we’ll provide some insight on what we think the timing would be for that number going forward.
Operator: Thank you. Your next question comes from Jeff Sprague of Vertical Research. Please go ahead. Your line is open.
Jeff Sprague: What did this pick up where Steve left off, just thinking about the actual process of deleveraging here and if there’s any leakage in the equation? I know there’s always noise at year-end, but it looks to me like net debt only declined by about 1/3 of what the free cash flow was in the quarter. So there’s like other uses somewhere, which I haven’t figured out and that time today to try to sort that out. But if you do $350 million of free cash flow in 2023, can we expect something in the neighborhood of deleveraging net cash — net debt improvement kind of in that range?
David Fallon: Yes. So, the significant use outside of free cash flow in the fourth quarter, Jeff, was related to the tax receivable agreement. There was a $75 million payment in the fourth quarter which takes that off our books completely. If you look at the leverage, if you look at the math at year-end, and you look at a trailing 12-month EBITDA number, I think our net debt leverage is about 5.6%, which certainly is much higher than we would like. But if you look at that same ratio looking at a forward-looking EBITDA number, meaning the approximately $865 of EBITDA anticipated for ’23. It’s about 3.5x levered. And then if you assume the $350 million of expected free cash flow is used to delever, whether sitting in cash on the balance sheet or to pay down debt.
The net leverage gets down to 3x. So if we execute upon our plan in 2023 there’s a relatively quick path to that deleveraging. And our long-term goal is to keep leverage between 2x and 3x that we’re willing to go either below or above that range for specific reasons. But in general, if we execute what we have on paper here in ’23, we should be closer to 3x levered as we exit ’23
Jeff Sprague: Great. And then just back to just kind of business conditions. Back on Slide 5, just to comment that the pricing environment remains favorable in many of our product segments sort of implies it’s not favorable and others. Could you just maybe talk about the tenor of price on new incoming orders? And where there might be softness if you’re implying there is some softness in that statement.
Giordano Albertazzi: Well, there are two different dynamics at play. One, what I mentioned as our pricing muscle so an ability to better price for the value that we deliver. We deliver to our customers. So that’s something that will always be there and something that we did not have at least not with the efficacy that we have now in the past. So that stays I think that shouldn’t read the phrase on the negative side. The message is despite an environment in which we see on the cost side in general, moderating inflation, but inflation nonetheless, we still see that in many parts of our business, we still can continue to work the price lever. And that’s what we’re doing. When it comes to 2023, in particular, a big chunk of our price is already in backlog.
And that price in our backlog of course is very important for us to deliver on our guidance. But also the price that is not yet in the backlog is a price that we see being realized with the orders that we are in taking. But expect over time a normalization also in terms of price, and when that happens, and it is not necessarily now in the market because, again, the inflationary trends are still there. When that happens, we are better equipped with an ability to price for value.
Operator: Your next question comes from Lance Vitanza of Cowen. Please go ahead.
Lance Vitanza: I had two questions, if I could. The first is actually back on Slide 4, the market environment. And I was hoping you could drill down a little bit more on the EMEA, which — cloud hyperscale which moved from green to yellow. And Gio, could you talk a little bit more about what’s driving that change? And is it linked to fears around an economic contraction? Or has that market just become somewhat saturated? And then, I guess, is the next move? Do we think is it more likely to be a move from yellow to red, or do we think it’s more likely to move back to green?
