Tommy Moll: That’s very clear and helpful, Dave. Thank you. Associated with that revenue trajectory, it’s clear that you should start to see some volume leverage on the OpEx line as the year progresses. And so if you look at what’s implied by your guidance for the EBITDA margin, I think it’s up a couple of hundred basis points second half versus first half. Is all of that substantially all of it volume? Or are there other dynamics you would call out? Thanks.
Dave Schulz: There’s a combination of things. First and foremost, it is volume, so we’re getting the operating leverage in the back half of the year. The other thing to keep in mind is that we will be seeing a sequential benefit from Q1 to Q2 on the gross margin line relative to the Integrated Supply divestiture. Now that doesn’t have a huge impact on total SG&A dollars because of what was sold as part of that divestiture. But again, we do have the restoration of incentive compensation and a merit increase effective from Q2. And we are laser-focused on continuing to drive those cost reduction actions that we took in the first quarter.
Tommy Moll: Great. Thank you, Dave. I’ll turn it back.
Operator: Thank you. And the next question comes from Christopher Glynn with Oppenheimer.
Christopher Glynn: Thanks. Good morning. Just picking up on Tommy’s question. Within the second quarter, relative to the down 2% April versus flattish 2Q guide, what’s the visibility confidence? Any particular nuances with May and June that we should be aware of?
Dave Schulz: There’s no particular nuances with May and June off of what we saw in the month of April. The 1 thing that I’ll just remind you is that, that divestiture occurred on April 1 so you’ve got to pull out the $700 million of sales on a reported basis in Q2 through Q4. But we are essentially anticipating that the second quarter shapes up in line with typical seasonality versus Q1. In the months within the second quarter, we’re expecting that typical seasonality as well. We typically see April down versus March. That is what we just delivered in line with typical seasonality with the decline in March. Then we see a rebound in May and June, particularly as you’re tying that back to the outlook that we provided for each of our business units.
We’re still very busy with project activity. We do have some expectations for some of the end markets like broadband, which we’ll see some recovery in the latter part of 2024. The comps get easier as well versus the prior year.
Christopher Glynn: Right. And I’m curious about OEM down high single digit in the first quarter, flattish for the year. I understand that, that’s probably significant destocking impact. Do you see that resolving in the near term and well within the first half? Or does that take kind of the full first half and second quarter to kind of get back to matching end demand and consumption? And EES question, I guess.
John Engel: Yes. So specifically on that EES OEM, it’s stabilizing. That’s a current state comment. It’s been stabilizing. We’re seeing signs of that through the first quarter, continues in the second quarter. And I think we’re positioned for some improvement as we get into the second half. So that remains to be seen but we’re well positioned for that, and that could be an upside driver. We’ll see.
Christopher Glynn: Okay. And the last one for me. The size of the inventory adjustment, maybe both absolute and the incremental or outsized portion?
Dave Schulz: Yes. The inventory adjustment versus the prior year in the first quarter was 15 to 20 basis points.
Christopher Glynn: Great. Thank you.
Operator: Thank you. And the next question comes from David Manthey with Baird.
David Manthey: Hi, good morning, everyone. Thank you.
Dave Schulz: Good morning, Dave.
David Manthey: First question is, could you just tell us what approximately the first quarter revenues were related to Bruckner so we can conceptualize what normal pro forma sequentials might look like?
Dave Schulz: There’s approximately $200 million of revenue from the Integrated Supply business that we recorded in the first quarter.
David Manthey: Got it.
John Engel: And Dave, that had very nice growth, too. It’s important to understand because if you take the $200 million-plus that what we’ve outlined as the bridge for the full year, the $700 million, we’ve been — we had several quarters in a row of nice growth, and then that supported an operating plan that had meaningful growth in 2024.
David Manthey: I see, okay. Second, as we look ahead here on SG&A, there’s a lot of moving parts, and I want to be sure I’m seeing them clearly. Could you tell us which factors were baked into the first quarter and which ones are incremental as we move from first to second? And the items I’m looking at are — that I think are in the first quarter, reinstated incentive comp, annual merit increases, and carryover from the 2023 cost saving benefits. And then new in the second quarter that were not in the first quarter would include the $20 million annualized cost actions you took at the end of the quarter, variable expenses on whatever the quarter-to-quarter sales delta is, and then the Integrated Supply cost, which you said had a small SG&A impact. But can you — any light you can shed on that for us, Dave, so we can make that bridge?
Dave Schulz: Certainly. So the — I’ll start with the fourth quarter. So rough numbers, $800 million of adjusted SG&A. We just reported about $810 million. So that $10 million sequential increase versus the fourth quarter was essentially the restoration of incentive compensation. The bridge to go from Q1 to Q2, we will still have the restoration of incentive compensation in the balance of the year but we also have the merit increase. So think about that in terms of a low single-digit increase to our people cost effective April 1. So that is the step up, which would be partially offset by the cost actions that were initiated with carryover in the prior year but then also the benefit of the $20 million of cost reduction actions, which were primarily people reductions that were effective just at the end of the first quarter.
David Manthey: Okay. Thank you very much.
Operator: Thank you. And the next question comes from Chris Dankert with Loop Capital.
Chris Dankert: Hey, good morning. Thank you for taking the questions. Forgive me if I missed it, but just focusing on that down 2% in April. Are we already seeing a rebound in the CSS business, just kind of given what the outlook is for the year here? Or is it more of a back half kind of dynamic when we’re thinking about the volume rebound in CSS specifically?
John Engel: So year-over-year, CSS and EES for April, these are preliminary sales results, are down low single digits. But UBS, which is now without list, so it’s utility and broadband, was flattish. So compared to Q1, we’re seeing UBS is kind of a little better year-over-year.
Chris Dankert: Understood. Thank you for that. And then just when we’re thinking about the technology spending and the digital transformation there, can you just maybe flag what some of the next modules are that go live in the near term or kind of key focuses on spending for that digital transformation into the back half here?
Dave Schulz: Yeah, certainly. So on digital transformation, I also want to clarify that we had expenses that were in our reported results in the prior year mergers, integration, including the digital transformation. For 2024, we no longer had the pure integration costs but we are continuing with our digital transformation. So we did record some expenses that were one-time in nature that we pulled out of our adjusted results. So on a go-forward basis, we would continue to spend dollars as associated with that digital transformation. Keep in mind that this is things like the financial package that we had initiated back in 2022 and into 2023. There are some digital applications associated with our global business services, so think about accounts payable, accounts receivable.
We will be providing more details about that digital transformation when we do our Investor Day in the second half of the year. But these are consistent with the initiatives that we had outlined back in late 2022 that are part of that how do we continue to transform the company, how do we continue to get better use of our data and then also get much more efficient from an SG&A perspective going forward.
Chris Dankert: Understood. Thanks a lot for the color there.
Operator: Thank you. And the next question comes from Ken Newman with KeyBanc Capital Markets.
Ken Newman: Hey, good morning, guys. Thanks for squeezing me in.
John Engel: Good morning.
Ken Newman: So obviously, very nice to see the improvement in the free cash flow guidance. You obviously talked about being more active on the share repurchases this quarter. But I am curious if you could talk about how you look to prioritize capital allocation between debt paydown versus M&A in the near term. I think your preferred stock becomes callable in the middle of next year. And then wondering if you — if we should think that you plan to make moves on the balance sheet ahead of that call date?
John Engel: Well, let me make a few comments. Dave, you can add. As we said, we’ve been very clear, the pref, we’re going to take out when that’s available and it’s June of next year. That’s very high priority for us. And we’ve said, we wanted to be balanced with our cash flow, debt reduction, buyback. And then M&A is episodic, right? So we need to be positioned when the deals can be done and come to fruition. So we continue to work our M&A pipeline, right? And I would tell you it’s a very robust pipeline. And I think I did mention this in a previous call. We’ve got a new Senior VP of Corporate Business Development who’s done an absolute phenomenal job since he joined our team in 2023. And so just we’ve got a tremendous pipeline of opportunities that we’re sorting through.
