Chris Dankert: Yeah. Good morning guys. Thanks for taking the question. I guess, looking at the comments you guys have had on UBS specifically, I mean, you’re still expecting high single-digit organic growth for the year. I mean, pretty hot start in the first quarter. I mean, you’re implying a pretty sharp deceleration mid-singles for the rest of the year kind of a thing. Is it the broadband piece — like can you walk us through what you’re expecting shape for the year in UBS, just a little of the deceleration is so dramatic?
John Engel: Yeah. I think what we said specifically, Chris, was high single to low double. And so clearly, we’re at a nice double-digit start. It would have been much stronger had it been — had we not had a low double-digit decline in broadband. Now that’s not a large piece of the portfolio, but it’s very attractive secular growth trends, and we’re very bullish on mid to long-term. So I don’t want to guide our guide and tell you where we are in those ranges. But just to put a fine point on it, we have outstanding momentum in our UBS business overall driven by the new part of UBS right now. We’re incredibly bullish on utility. I believe it’s a secular growth end market now, never used to be if you go decade ago, but clearly is going forward, and so is broadband.
We also have our integrated supply business inside UBS, which technically serves in the industrial end market, and we’ve taken you through this before. Why is it there? Because it’s that business model we took as a starting point and evolved it on how we serve these utility, IOU customers and public tower customers directly with a customized integrated supply model utility that we’re attempting to bring that into the broadband value chain, too, which we think has tremendous upside. That integrated supply business grew double digits in the quarter, and that’s industrial. So I guided the guide, even though I’m not going to technically officially guide the guide. There you go.
Chris Dankert: No, I really appreciate the color there. Thanks so much for that. And then just secondly, on the digital investment costs, it looks like yields were up $30-ish million year-over-year give or take. Can you just talk us through some of the key priorities on the digital investment side and where you’re really focusing the investment there?
Dave Schulz: Yeah, Chris. It’s Dave Schulz. So we have some enterprise programs that we’re implementing. We’ve talked about some of those already. That includes some of the — our financial systems, along with some of our HR systems. We also have a series of digital applications that we have been working on. So think about this as not only improvements to our margin improvement program, which is heavily digitalized, but there are some other applications that we’re providing to our field reps to allow them to better sell our value proposition. So there are a series of investments that we have continued to make in that area. I know we gave you a little bit of an overview of that during the Investor Day. And as we learn more and we’re able to provide you more details as they begin to launch, we intend to do so.
Chris Dankert: Perfect. Thanks so much.
Operator: The next question is from Ken Newman with KeyBanc Capital Markets. Please go ahead.
Ken Newman: Hey good morning guys. Thanks for squeezing me in.
Dave Schulz: Good morning, Ken.
Ken Newman: Good morning. Dave, curious if you could talk a little bit about — in the past, on past calls, you talked about the margin profile of some of the new orders that were taken into backlog. I’m curious, any color on whether the orders taken in the first quarter at — or at or above 1Q corporate margin average?
Dave Schulz: Hey Ken. I would say that the margins in our backlog are consistent with how we just reported our results. So again, there’s some volatility there, depending on the end unit and the type of project. But for the most part, I mean, we’re not seeing any significant change of the margin in the backlog.
Ken Newman: Got it. And just to clarify on some of the inventory challenges you mentioned earlier. I’m curious if you could just dig into what you’re seeing specifically relative to the backlog portion of your business versus the stock and flow portion. Any change in momentum across those, whether it’d be in the quarter or even on April to-date?
Dave Schulz: We haven’t seen any significant change in the composition of our inventory between stock and flow versus project. I would tell you that our expectation is that as these supplier lead times normalize we will be able to be holding less inventory for fewer months in order to ship a complete order. And so a lot of the spike that we’ve been seeing in our inventory, going back to late 2021, has really been as we have built our backlog, which — a reminder, our backlog is a firm customer order. So as we built that backlog, and we’ve got a Stage Kitten store for some of those larger projects, we’ve had to hold inventory for a longer period of time just to ensure that we can meet the customer service metrics. So as those supply chains normalize, our expectation is that we’ll be holding inventory for fewer weeks.
And therefore, our net inventory will be coming down. We are always looking at what is the right mix between stock and flow inventory by location, by business. And we are tweaking that all of the time. But right now, I would tell you that our inventory issue is a large number, because we have a large backlog. Those are customer orders that we expect to ship. So that is a key driver of our inventory days reduction plan going through 2023.
Ken Newman: Right. That’s very helpful. Maybe if I could just squeeze one more in, more higher level. John, looking at slide 14 of the deck, I think these are — this is helpful to kind of see just the drivers from secular trends. I’m curious if you guys have done any work on just quantifying the actual exposure or benefit you expect from these secular drivers either in 2023 or 2024. You kind of mentioned none of the benefit from infrastructure heading quite yet. How do you guys think about that opportunity going forward?
John Engel: Yes. Ken, it’s a great question. Thanks for that. I’d point you back to our Investor Day because what — we didn’t show you the detail by secular trend, but we did so in aggregate what our outlook was in terms of market growth and market outgrowth, i.e., market outperformance driven — and that was a result of the secular growth trends as well as our cross-sell execution. And we gave a framework where we increased our expectation of market outperformance, i.e., how much will we outperform the market by. So we’ve done substantial work and continue to do substantial work internally, but we haven’t detailed and taken that externally yet, but you can — I will tell you that was behind and supporting what we outlined at our Investor Day last year.
Good question. Thanks. These are long term in nature, too, Ken. I think just to give you a sense, they are secular. And so I think just as we continue to move forward into 2024, 2025, 2026, because secular trends are enduring, they’re strong, they’re expanding, and then we have the increased infrastructure investments that are not in our value chain yet. If you look at where we play in the value chain, I put a fine point on it, when ground is broken, our packages go in, typically six, 12, 18 months later, depending on the size and complexity of the project.
Ken Newman: That’s helpful. Thank you.
Operator: This concludes our question-and-answer session. I’ll now turn the conference back over to John Engel for any closing remarks.
John Engel: So I think we’re at the top of hour. I’ll bring the call to a close. Thank you all for your support. It’s greatly appreciated. We do have a robust calendar this quarter in engagement. We look forward to speaking to many of you. We will be participating in the Oppenheimer Industrial Growth Conference, the Wolfe Research Global Transportations and Industrial Conference as well as the KeyBanc Industrials and Basic Materials Conference during the second quarter. So with that, I know we’ve got a lot of follow-up calls scheduled. We look forward to engaging with you. Thanks. Have a great day.
