Noah Poponak: Okay
Mark Hartman: I just want to be clear that. This is not stable right now. I just want to be clear about that.
Noah Poponak: Okay. No, that’s helpful. On the product rationalization piece or the SKU review, is that all industrial? Is there any Aerospace and what are the characteristics? Is it too much OE, not enough aftermarket, too much competition? What are the disruptors in those things?
Chip Blankenship: Well, I mean, the simple answer is too many part numbers. If I showed you all the things we made here, I think you’d be surprised. And a number of whom we don’t make very often and when we do, it’s very disruptive to the value stream we inserted into. So there’s hidden costs associated with that, as well that show up on the — maybe a manufacturing overhead or a period cost that isn’t trapped in cost of goods sold just, because of what it takes to actually bring that product to life that quarter. So getting better alignment with an understanding of what we should make and what we should offer and how we should price it. These things are — you might say basic product management, but that’s the tool we’re going to use to improve our ability to serve customers and generate higher margins.
Noah Poponak: And what percentage of the SKUs are under review roughly?
Mark Hartman: All of them.
Noah Poponak: All of them?
Mark Hartman: Well, all of them really. I mean, but we’ll do it in groups. It’s — there are some logical groupings.
Noah Poponak: Last one for me. Mark, just on the free cash plan. Understanding it’s a back half loaded year, just the ramp from 1Q to 4Q implied is pretty steep, compared to history and especially with the elevated capital plan this year? Anything, you can add to that on how you do that if its working capital related or something else?
Mark Hartman: Yes. So a couple of comments there. So you hit the last — the most impactful one first. It really is that working capital improvement I mentioned earlier on the call as to we are significantly higher on inventory that we have initiatives that we’ll be working and that improvement in the second half of the year will be — what will help drive that cash flow. We have had, I’ll say, cash flow seasonality in the past. If you do go back and look at Q3 and Q4 free cash flow generation that has historically been consistently strong for us. And so it obviously with where we’re at today and where inventory balance is today, we’ll be a back half story like we’re, kind of, implying with the reduction in past dues, getting the inventory out and then getting the collections and the customers that working capital piece will be important.
Your CapEx note there, we guided to $80 million, we did spend more than just the $20 million here in Q1, so it was a little first half loaded. The other one was the timing of tax payments, that’s going to — we talked back in November, we will have higher cash tax payments, primarily related to the R&D, the U.S. Tax law change for R&D deduction here. And so that has an impact too. But really, I mean, the big one comes down to the production capability getting the past due improved and which will allow us to reduce inventories and collect that cash.
