WESCO International, Inc. (NYSE:WCC) Q4 2022 Earnings Call Transcript

WESCO International, Inc. (NYSE:WCC) Q4 2022 Earnings Call Transcript February 14, 2023

Operator: Hello. And welcome to WESCO’s Fourth Quarter and Full Year 2022 Earnings Call. I would like to remind you that all lines are in listen-only mode throughout the presentation. Please note that this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President of Investor Relations. Please begin.

Scott Gaffner: Thank you, and good morning, everyone. Before we get started, I wanted to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance, and by their nature, are subject to inherent uncertainties. Actual results may differ materially. Please see our webcast slides as the company’s SEC filings for additional risk factors and disclosures. Any forward-looking information related on this call speaks only as of this date and the company undertakes no obligation to update the information to reflect the changed circumstances. Additionally, today, we will use certain non-GAAP financial measures. Required information about these non-GAAP measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com.

On the call this morning, we have got John Engel, WESCO’s Chairman, President and Chief Executive Officer; and Dave Schulz, Executive Vice President and Chief Financial Officer. And now, I will turn the call over to John.

John Engel: Thank you, Scott, and good morning, everyone. It’s a pleasure to be with you today. WESCO delivered a stellar encore performance in 2022, clearly demonstrating the power of our ongoing transformation and our ability to drive sustained growth and market outperformance. We again set new company records for sales, margin and profitability, and reduced leverage to below 3 times for the first time since 2019. With this trajectory, we have taken a significant step forward in the achievement of our long-term 10% plus EBITDA margin target. We also delivered record quarterly free cash flow and reduced net working capital in the fourth quarter, notably on the strength of double-digit organic sales growth that exceeded our expectations.

We are carrying very strong positive momentum into 2023 and I am confident that this year will be another transformational year, with advances in our digital capabilities, above-market growth, continued margin expansion and record free cash flow generation that supports our capital allocation priorities. Now turning to page four. The strength of our business model and the success of our integration efforts over the past two and a half years have established a track record of superior results for our company. This page highlights our record 2022 results compared to the pro forma pre-pandemic results of legacy WESCO plus legacy Anixter in 2019. As you can see, we have clearly outperformed the market, delivering impressive sales growth and margin expansion and we achieved record profitability all while rapidly deleveraging our balance sheet.

Most importantly, our dedicated team of WESCO associates continues to provide resilient and critical supply chain solutions for our customers around the world, capturing the benefits of our exposure to sustainable secular growth trends that are both deep and drive our future sales and profitability. Turning to page five. This page outlines our noteworthy performance over the last six years and it starts with WESCO’s standalone results in 2017 and 2018. It’s then followed by the WESCO plus Anixter pro forma results in 2019 and 2020 and that is followed by the results of the new WESCO, the result of combining WESCO and Anixter in 2021 and 2022. We delivered an impressive adjusted EBITDA CAGR of 24% from 2019 through 2022. These results would have been truly exceptional under normal circumstances, but they are even more impressive, given the tremendous challenges of combining two equal sized Fortune 500 companies against the backdrop of the pandemic over the last two and a half years.

Our three-year post-merger integration plan is coming to a close at the end of 2023, our digital transformation plan is progressing well, and we are on track to deliver advanced digital capabilities to create superior value for our customers and supplier partners and this is as we continue our march towards becoming a double-digit EBITDA margin business. Now moving to page six for a quick update on Rahi Systems, the acquisition we completed on November 1st. Rahi’s performance in November and December was absolutely outstanding, with sales of $112 million, far exceeding our expectation of $65 million to $85 million in sales. For the full year 2022, Rahi generated approximately $480 million in sales, which is substantially higher than our trailing 12-month revenue of $400 million as of the end of September 2022.

For 2023, the strong growth is expected to continue with sales up over 20%. Rahi is an excellent example of the type of acquisition that fits well within our strategy and our capital allocation priorities. It operates in a fast-growing market, is highly complementary to WESCO’s product and service capabilities, and it is easily integrated into our operations. Now shifting to page seven. As announced in our Investor Day last year, we substantially raised our free cash flow expectations for the new WESCO. This upsized cash generation of $3.5 billion to $4.5 billion through 2026 fully supports investing in our business for above — continued above-market growth and increasing our capital return to shareholders. For 2023, our capital allocation priorities include initiating a common stock dividend, which we expect to begin paying this quarter, subject to the Board’s final review and approval, as well as continuing share repurchases under our current $1 billion share repurchase authorization.

This represents our commitment to even higher shareholder returns and our strong confidence in the ongoing strength and future performance of WESCO. Overall, our stock price has performed well since closing the Anixter acquisition in June 2020, but we are still trading far below our expectations and our intrinsic value. This is especially so given our series of record setting results and positive — and our overall positive business momentum vector. We look forward with greater confidence than ever to a future of sustained growth and market outperformance. With that, I will now turn the call over to Dave.

Dave Schulz: Thanks, John, and good morning, everyone. Thank you for joining our call. I will start on slide eight with a summary of our fourth quarter results compared to the prior year. As John mentioned, sales were an all-time fourth quarter record and cross-sell again exceeded our expectations. Our ability to cross-sell WESCO and Anixter products and services contributed more than $260 million of sales in the quarter. I will provide more details on cross-sell synergies in a moment, including an increase to our expectations for 2023. On an organic basis, sales were up 14% in the quarter, driven by a combination of strong price and volume, along with share gains largely attributable to our cross-sell initiatives. We estimate pricing added approximately 6 points to sales growth, with the benefit primarily in our UBS and EES businesses.

On a reported basis, sales were up 15% as additional sales from Rahi were partially offset by a headwind due to differences in foreign exchange rates in the quarter. Supply chain challenges have continued to impact our business, although we are seeing signs of supply chain pressures easing in certain product categories. We continue to strategically invest in inventory to ensure we provide continuity of supply for our customers. Backlog continues to be at historically high levels. In total, backlog was up 44% year-over-year and was down approximately 1% sequentially from the end of September. The sequential change in backlog was primarily driven by increased availability of security products within our CSS business that allowed us to ship certain customer projects.

As we start the first quarter, demand has continued to be strong. Preliminary reported January results are encouraging, with sales up approximately 17% year-over-year, including the impact of a stronger dollar, which is expected to negatively impact first quarter sales growth by about 2 points and the Rahi acquisition providing about a 3-point benefit. Note that January is the easiest comparable of the first quarter as February and March were the primary drivers of last year’s 21% organic sales growth in Q1 of 2022. Gross margin was a fourth quarter record at 21.9%, up 110 basis points versus the prior year and down 20 basis points sequentially. This result was driven by our gross margin improvement program, a 40-basis-point benefit of higher supplier volume rebates in the quarter, the effective pass-through of supplier price increases and the absence of a COVID-related PPE inventory write-down in the prior year period.

Adjusted EBITDA, which excludes merger related and integration costs, stock-based compensation and other net adjustments was another fourth quarter record and 41% higher than the prior year. Adjusted EBITDA margin was 8.1% of sales or 150 basis points above the prior year. This result was driven by the combination of increased gross margin, a scale benefit of higher sales and realized cost synergies from our merger with Anixter. Adjusted diluted EPS for the quarter was $4.13, also a fourth quarter record and up 30% from the prior year. The primary driver of this increase was core operations as we recognized higher interest expense and a higher effective tax rate versus the prior year. Additionally, Rahi was accretive to EPS in the quarter with just two months of results.

Turning to page nine. This slide bridges the year-over-year increase in sales and adjusted EBITDA. Organic sales increased 14% versus the prior year, including a 6% benefit from price in the quarter, along with volume growth in our markets. The contribution from price moderated in the quarter relative to the first nine months of the year, as there were fewer supplier price increases, while the year-over-year magnitude of these increases remained relatively unchanged. Compounding this growth was the impact of the $262 million we generated in cross-sell in the quarter, as well as continued share gains. Adjusted EBITDA increased 41% versus the prior year. Higher sales and expanded gross margin drove the majority of the increase, along with the realization of cost synergies in the quarter.

Consistent with the first three quarters of the year, we continue to experience higher volume related operating costs, including shipping and sales commissions, as well as higher expenses for employee benefits and incentive compensation. Finally, in accordance with our plan, we continued our strategic investments in systems and digital tools. Overall, we delivered strong operating leverage as we generated a 41% increase in adjusted EBITDA, almost 3 times our organic sales growth of 14%. Turning to page 10. This table compares our full year 2022 adjusted results to the prior year. For the full year, sales reached a record $21.4 billion or up 18% organically compared to 2021, including double-digit growth in each of our strategic business units.

Gross margin was 21.8%, a new record for the company and 100 basis points higher than the prior year. Adjusted EBITDA was $1.726 billion, also a record level and 47% higher than 2021. As a percentage of sales, adjusted EBITDA was a record 8.1%, representing an increase of 160 basis points compared to 2021 and an increase of almost 300 basis points compared to 2019. Relative to the outlook we provided in early November, we came in at the high end of our organic sales range and slightly better on adjusted EBITDA margin. The operating beat also resulted in EPS above the high end of the outlook range. Turning to page 11. This slide provides the same sales and EBITDA bridges that we reviewed a moment ago but for the full year 2022 results. Organic sales increased 18% versus the prior year, including an 8% benefit from price, along with growth in our markets.

Compounding this growth was the impact of more than $850 million we generated in cross-sell, $500 million more than in 2021, as well as continued share gains. Adjusted EBITDA increased 47% versus the prior year to a record 8.1% of sales. Higher sales and expanded gross margin drove the majority of the $550 million increase in adjusted EBITDA. We also recognized the benefit of $270 million of cumulative cost synergies. As you would expect, in a strong demand and inflationary environment, we continued to experience higher volume related operating costs, including shipping and sales commissions, as well as higher expenses for employee benefits and incentive compensation. Turning to slide 12. Sales in our EES segment were up 11% year-over-year in the fourth quarter on an organic basis.

Of note is the sequential organic growth of 1% for the segment versus a normal seasonal sequential decline of low to mid-single digits. The sequential and year-over-year growth reflects continued strong construction sales driven by the ongoing recovery of the non-residential market, as well as momentum in our industrial and OEM end markets. Backlog was a record in the quarter, 41% higher than the prior year and up 4% sequentially at the end of the quarter. Adjusted EBITDA was $198 million for EES, up 31% from the prior year. Adjusted EBITDA margin was 9.1%, 160 basis points higher year-over-year. The increase reflects continued gross margin expansion, strong cost synergy realization and operating cost leverage. Full year sales were a new record, up 17% with record adjusted EBITDA that was 41% higher than prior year.

As a percentage of sales, adjusted EBITDA was 9.6% for the year, also a record and representing an increase of 170 basis points. Turning to slide 13. Sales in our CSS segment were a quarterly record and up 12% versus the prior year on an organic basis. Of critical importance was the building momentum that CSS experienced in Q4, as year-over-year organic sales growth accelerated in each months of the quarter. We saw stronger growth in network infrastructure driven by data center and hyperscale projects, as well as continued investments in cloud-based applications, professional audio-visual installations and security solutions. Backlog was up 9% over the prior year and decreased 15% sequentially as we were able to release more projects from backlog due to improved availability of product and reduction in certain product category lead times.

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2023 is off to a great start. Book-to-bill in January was significantly above 1.0 as demand for our products and services remains robust. Profitability was also strong, with record adjusted EBITDA and adjusted EBITDA margin of 9.6%, 130 basis points higher than the prior year driven by operating leverage, integration cost synergies and the execution of our margin improvement initiatives. For the full year, CSS sales were a record and up 12% from the prior year. Adjusted EBITDA was up 25%, with adjusted EBITDA margin of 9.4%, a segment record and 100-basis-point increase over the prior year. Turning to slide 14. Record sales in our UBS segment were up 22% versus the prior year on an organic basis in the quarter, marking the fifth consecutive quarter of organic growth above 20%.

All operating groups grew again in the quarter over the prior year, led by utility sales, which were up more than the segment average. Backlog was a record in the quarter, up 86% over the prior year and up approximately 1% sequentially. Profitability was also strong with an adjusted EBITDA margin of 11.4%, 180 basis points higher than the prior year, driven by our gross margin improvement initiatives, operating leverage and integration cost synergies. Full year sales were a new record, up 27%, with record adjusted EBITDA that was 58% higher than prior year. As a percentage of sales, adjusted EBITDA was 10.9% for the year, also a record and representing an increase of 210 basis points. Now moving to page 15. The size of the cross-sell opportunity of combining WESCO and Anixter continue to exceed our expectations.

In Q4, we recognized $262 million of cross-sell revenue, bringing the cumulative total to more than $850 million for the year and over $1.2 billion since the beginning of the program. Our pipeline of sales opportunities remains healthy and our cross-sell initiatives continue to deliver. We are capitalizing on the complementary portfolio of products and services, as well as the minimal overlap between legacy WESCO and legacy Anixter customers. As we look at the remaining 12 months of the program in 2023, we are increasing our expected cumulative total to $1.6 billion or 9 times greater than the original target we set when the Anixter merger closed. Turning to slide 16. This is a slide we have shown throughout the integration, with the realized cumulative run rate cost synergies of $188 million in 2021 and $270 million in 2022.

We remain on track to meet our expected target of $315 million by the end of 2023. The largest remaining synergies are those that take longer to execute, including those related to supply chain and field operations. Turning to page 17. On this page, you can see a free cash flow bridge for both the fourth quarter and full year. Note that the impact of the Rahi acquisition is included in these free cash flow reconciliations. We delivered record quarterly free cash flow of almost $400 million in the quarter, with significant improvement in all three working capital accounts of $190 million. Also, as we discussed last quarter, we expected to deliver substantial free cash flow in the fourth quarter, based on a seasonal decline in revenue and reducing levels of working capital.

This seasonal decline did not occur as we delivered sequential sales growth but still reduced net working capital. Furthermore, Rahi’s exceptional fourth quarter growth increased net working capital by approximately $57 million for both the fourth quarter and full year. Excluding this impact, free cash flow for WESCO would have been approximately $456 million in Q4 and up $36 million in fiscal year 2022. For the full year, you can see that working capital was a use of cash in 2022, driven by our strategic investment in inventory in response to global supply chain shortages and increases in receivables due to our exceptionally high level of sales growth. You can see that the CapEx and IT spend, which reflects the investment related to our ongoing digital transformation and supply chain optimization.

This amount increased in the second half of the year, as we accelerated several digital projects and operational investments to drive the efficiency of our facilities. For the full year, this spend totaled $165 million, which was above our expectations provided last quarter. The increase was largely driven by the acceleration of high return projects that are supporting our supply chain optimization and IT transformation, enabling growth ahead of historical levels. Moving to slide 18. Reducing our leverage has been a top priority since we announced the acquisition of Anixter. In the fourth quarter, we reduced leverage 0.3 times trailing 12-month adjusted EBITDA and brought our leverage ratio down to 2.9 times, approaching the midpoint of our target range of 2 times to 3.5 times.

Note that this decrease includes the $217 million purchase of Rahi Systems and reflects a net debt reduction of $142 million sequentially. This represents a decrease of 2.8 leverage turns since closing the acquisition in June 2020. Now moving to page 19. This slide shows the uniquely strong position of our company to drive growth and profitability in the years ahead. The end-to-end solutions that we provide to our global customer base are directly aligned with the six secular growth trends shown on the left side of this page. Our participation in these trends, coupled with increasing public sector investments in infrastructure, broadband and partnerships with the private sector make WESCO positioned exceptionally well. As we outlined at our Investor Day last year, we expect to grow 2% to 4% above the market due to the combined benefit of secular trend growth and increasing share.

In short, WESCO is transforming into a secular growth company. Moving to page 20, you can see our 2023 outlook. We are encouraged by the demand trends and positive business momentum as we closed out 2022. In 2023, market growth is expected to contribute approximately 4% to 6% to the topline, which is a combination of volume and price. We expect U.S. GDP to be flat in 2023 with our secular tailwinds providing 1 point to 2 points of volume growth. Price carryover in 2023 will be 3 points to 4 points based on rollover pricing from 2022 actions. Recall that our guidance does not incorporate any additional future impact from price. In addition to market growth, we believe our scale and continued cross-selling efforts will contribute an additional 1% to 2% above the market, driving total organic growth of 5% to 8%.

After factoring in the additional revenue from Rahi and the impact of working days and foreign exchange, we estimate our reported sales growth will be in the range of 6% to 9%. For our strategic business units, we expect EES reported sales to increase by mid-single digits versus 2022, with both CSS and UBS up high-single digits. Please note that in the appendix, we have highlighted some account transfers from EES to CSS and UBS that will take effect in 2023. In 2022, these accounts represented approximately $200 million of sales with approximately 85% moving to CSS and 15% moving to UBS. For adjusted EBITDA margin, our outlook is for a range of 8.1% to 8.4%, which represents approximately 20 basis points of expansion at the midpoint. We expect adjusted earnings per share between $16.80 to $18.30 and free cash flow of between $600 million and $800 million.

This free cash flow outlook of $700 million at the midpoint would represent the highest free cash flow in our history. Through the cycle, we still expect the company will deliver free cash flow equivalent to net income. In 2023, we expect to continue to make selective investments in inventory as supply chains heal and order lead times return to historical levels. Consistent with the expectations we outlined during our Investor Day in September, we expect to generate $3.5 billion to $4.5 billion of operating cash flow during the period of 2022 through 2026. To note, we expect free cash flow in Q1 to be a use of cash as we will make the 2022 incentive compensation payment in March. This outlook reflects a handful of assumptions that I’d like to walk you through.

Our short-term compensation structure is reflected in our margin outlook at a target payout. This is a tailwind of approximately 20 basis points compared to 2022, which incurred higher short-term compensation costs due to outperformance of EBITDA. This tailwind is slightly lower than what you originally anticipated as we didn’t pay out on our free cash flow objective for the year. We expect transportation and logistics costs will be an incremental headwind to margin in 2023 of approximately 20 basis points. We expect depreciation and amortization will be in line or slightly below the 2022 level. Interest expense is expected to be in the range of $330 million to $370 million due to higher variable interest rates and timing of debt paydown in 2023.

This outlook reflects an effective tax rate of about 27%. This is slightly above our ETR of the past few years, primarily due to the implementation of certain rules in our Canadian business related to hybrid debt instruments. 2022 also benefited from certain one-time discrete items, primarily related to a change to U.S. tax law regarding the valuation allowance on certain foreign tax credits and one-time discrete benefits in Canada. In 2023, we expect to spend approximately $100 million on capital expenditures and an additional $40 million on capitalized cloud-based computing arrangements related to our digital transformation. On the statement of cash flows, $100 million were flowed through capital expenditures and approximately $40 million will flow through changes in other assets.

Our outlook assumes an average diluted share count of 52 million to 53 million shares for the year. This outlook reflects our expectation that 2023 will be the third consecutive year of record results, with record sales, gross and EBITDA margins and record free cash flow and is consistent with the long-term financial framework we presented at our Investor Day in September of last year. We will complete our integration with Anixter at the end of the year and expect the results in 2023 to substantially outperform the expectations we set at the time the transaction closed. As it relates to the first quarter, preliminary reported January sales were up 17%. Recall that sales grew 21% organically in Q1 of 2022 as February and March were exceptionally strong.

Moving to slide 21 and before opening the call for questions, let me provide a brief summary of what we covered this morning. 2022 was an exceptionally strong year of growth and profitability. We had record sales in all three of our business units, along with record gross margin, operating profit, adjusted EBITDA and adjusted EBITDA margin. WESCO’s EBITDA margin expanded 160 basis points over the prior year to 8.1%. We took share through sales execution and our cross-sell program and we are again increasing our revenue synergies outlook for 2023. WESCO delivered a quarterly record of approximately $400 million of free cash flow in the fourth quarter, reflecting the power and inherent cash generation characteristics of our business model. Our pace of deleveraging has exceeded our expectations.

We are now approaching the midpoint of our target leverage range just two and a half years after closing the acquisition of Anixter, well ahead of expectations. Lastly, we are making excellent progress on our IT and digital roadmap, and are exceptionally well positioned to benefit from the secular growth trends and increasing public sector investments that John discussed earlier. With that, let’s open the call to your questions.

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Q&A Session

Operator: Our first question today comes from Deane Dray with RBC Capital Markets. Please go ahead.

Deane Dray: Thank you. Good morning, everyone.

John Engel: Good morning, Deane.

Dave Schulz: Hi, Deane.

Deane Dray: I was hoping to start with some what would be real-time color on the demand outlook, so daily stock and flow, bid activity, product availability. And John, as you take us through this, we are all trying to gauge what does normalization look like, there’s some references to the supply chain getting better, but you are still — it sounds like you are adding some buffer inventory in some places. So just kind of take us through the real-time update and then kind of frame for us about normalization to any degree in 2023?

John Engel: Yeah. Good question, Deane. I’d, first of all, start with January because that’s in the record books. Very strong start to the year, after delivering an encore performance last year, we turned the calendar page. In January, I’d say, the beat goes on and just a very strong start with 14% growth plus the additional incremental contribution of Rahi. So as we look to the balance of the first quarter, the comps are a little bit more challenging, but I will tell you that momentum vector that we had in January is continuing so far in February. So I will also say that margins are holding up very, very well. So it’s just — it’s an excellent start, sales and margin wise so far. I would say, our outlook for the year and what does normalization look like, I think, it’s going to be a multi-speed economy.

You look at our end markets, there’s parts of the end market that will experience some significant pressure, but the good news is that’s not lined up with our portfolio. Residential construction faces some headwinds but we don’t serve into that market. When you look at our EES business, non-resi is off — got record backlog entering the year, strong momentum vector and performed sequentially stronger in Q4 versus Q3 versus normal seasonality. Industrial end markets holding up very well and strong. You move to CSS and that business was particularly supply chain constrained, Deane, as we talked about all through last year. Those constraints started to heal in Q4. Not fully healed yet, but I think, we will see that healing as we move through 2023 and you saw the significant step-up in momentum vector of CSS in Q4 and that’s continued as we started 2023.

And then, UBS, just an absolute breakout year of growth, tremendously strong results. As Dave mentioned in his commentary, utilities actually leading the pack with broadband being right there as a very strong double-digit growth driver. So our momentum vector is very strong. I think the economic cycle, we will see the parts of the economy will be up, parts will be down. We think inflation continues this year, albeit not at the same rates that they were last year. But we think inflation continues through all of 2023, quite frankly, and we will see that in labor and wages and benefits and transportation costs. The commodities will move around a bit. But in general, demand is still outstripping supply from our perspective. Our book-to-bill ratio in January was above 1 and so we are off to an excellent start, I think.

When you look at what we have guided for the year, it would be another transformational year and another year of record setting results. So we are not — I think the normalization — the short answer to the normalization question is, you will see that as we move through the year, but I think what you will see and what is outlined in our outlook fundamentally is strong market outperformance and it’s driven by the execution of our initiatives, the tremendous cross-sell, which were taken up again and these secular growth trends that we think fundamentally have shifted the company to a secular growth company. Again, we have said that as we moved through this last two and a half years of post-Anixter-WESCO coming together, we think we have fundamentally mix shifted the company in the higher growth markets.

I think we have clearly seen that over the last 10 quarters, but given where we are in the economic cycle and given kind of a multi-speed economy, I think, you will see that outperformance to an even greater degree as we separate ourselves even further from the pack in 2023.

Deane Dray: All right. That’s comprehensive. Really appreciate all the color. And just as a follow-up, like to put the spotlight on free cash flow, if we could and this was an exceptionally strong quarter by our estimates, like 2x your seasonal free cash flow conversion. So, for Dave, can you just take us through expectations on the cadence of free cash flow for the year? You said first quarter would be a use, you called that out on stock comp. Maybe some color on buffer inventory, because the extent to which you start peeling that out, that should have a positive impact to free cash flow and are we kind of stuck with this hockey stick fourth quarter, just kind of gauging what that cadence is through the year? Thanks.

Dave Schulz: Yeah. Certainly. So let me start by providing the historical context of generally, in a normal demand environment, we would see our free cash flow generation split 30% first half, 70% the second half, 40% of that free cash flow generation in a year typically occurred in the fourth quarter primarily because we would see the sequential decline in sales, we would then release both accounts receivable and inventory. I mentioned that we do anticipate that our first quarter will be a draw. That’s primarily because we are going to be making the incentive compensation payment in March. But after that, we should expect to see things begin to normalize from a free cash flow perspective. As you mentioned, Deane, supply chains haven’t healed yet, so we would anticipate that we would begin to see inventory releasing in the second half of the year as those supply chains heal.

Deane Dray: That’s really helpful. Thank you.

Operator: The next question comes from Sam Darkatsh with Raymond James. Please go ahead.

Sam Darkatsh: Good morning, John. Good morning, Dave. How are you?

Dave Schulz: Good morning, Sam.

John Engel: Good.