Hello, and welcome to the Franklin Electric Reports Fourth Quarter 2023 and Full Year 2023 Results Conference Call. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Finance and Investor Relations, Sandy Statzer.

Thank you, Andrew, and welcome, everyone, to Franklin Electric's fourth quarter and full year 2023 earnings call. With me today is Gregg Sengstack, our Chairperson and Chief Executive Officer; and Jeff Taylor, our Chief Financial Officer. On today's call, Gregg will review our fourth quarter and full year 2023 business results, along with guidance for 2024. Jeff will provide additional detail on our financial performance. We will then take questions. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the Company's annual report on Form 10-K and today's earnings release. All forward-looking statements made during this call are based on information currently available and except as required by law, the Company assumes no obligation to update any forward-looking statements. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Franklin Electric's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the Company investor presentation, which is available on our website. With that, I will now turn the call over to Gregg.

Thank you, Sandy, and thank you all for joining us. We delivered a solid quarter and finished 2023. From Q3 to Q4, sequentially, we experienced more of the same market conditions with wetter weather and customer destocking continuing in the U.S. and to a lesser degree, Europe, and we experienced continued commodity pricing pressure in our Distribution business. Overall, reported sales were down $16 million or 3%, mainly driven by lower volume in Fueling Systems and a $13 million negative impact from foreign exchange, partially offset by favorable pricing. Even with soft demand, we delivered solid operating margins in water and fueling for the quarter. Our manufacturing margins remained healthy throughout 2023, driven by continued cost controls. For the full year of 2023, we delivered sales growth of 1%, driven by pricing, partially offset by negative foreign exchange and lower volumes in Fueling Systems. Operating income grew 2% due to the strong performance in Water Systems and cost management across the Company. Operating margins expanded in water and fueling with 140 basis points and 230 basis points improvements over 2022, respectively. Sales of our critical asset monitoring products within our fueling business also set a full year record. Our Distribution business was negatively impacted by commodity pricing pressure and destocking activity. Our continued focus on the management of working capital translated into strong cash flow generation in both the fourth quarter and the full year. Our operating cash flow improved by approximately $214 million as compared to 2022, resulting in free cash flow conversion of 142%. Free cash flow conversion was well above our five-year average of 106%. We use this cash to reduce our outstanding debt by over $115 million, completed several small acquisitions, and return cash to shareholders through increased dividends and stock repurchases. Our net debt is near zero and we delivered a nice step up in our return on invested capital to 17.2%, an increase of 70 basis points. I am incredibly proud of the Franklin team for their commitment to driving operational excellence. We are proud to be named in Newsweek's list of America's most responsible and trustworthy companies for two consecutive years. We were also recognized by USA Today as one of America's Climate Leaders for 2023. Turning to our segments. For the quarter, in Water Systems, sales declined less than 1%, overcoming a 5% foreign currency headwind. Demand in the U.S. for our large dewatering products was strong, setting a quarterly record with 13% growth and full-year record growth of 63%. In the U.S., demand for groundwater pumping systems was impacted by continued unfavorable weather patterns in the Western U.S. and customer destocking. Our water treatment product lines were challenged by soft housing starts and existing home sales. Outside the U.S., Water Systems had solid demand in Latin America, while EMEA and Asia Pacific were relatively flat. Operating income margin for the quarter was 15.8%, essentially flat with the prior year. For the full year, pricing actions and continued cost management more than offset inflationary challenges, driving an improvement in operating income margin of 16.3%, an increase of 140 basis points compared to last year. Fueling system sales and operating income decreased 23% and 20%, respectively in the fourth quarter, lapping a difficult year-over-year comparison of record fourth quarter revenue and operating income in 2022. While end market demand remains healthy, Fueling Systems was negatively impacted by the continuation of customer inventory destocking, driving lower volumes, higher interest rates, and labor constraints. Permitting delays caused some new station build plans to move into 2024. Favorable price and cost containment contributed to overall Fueling Systems fourth quarter operating margin of 29.5%, an increase of 110 basis points compared to the prior year. We continue to see strong growth for our critical asset monitoring products, which closed out a record year. Overall, the Fueling Systems team did an excellent job of delivering for our customers while managing costs to maintain our operating margins. The U.S. Distribution segment was impacted by normal seasonality, destocking, and continued unfavorable weather that reduced demand. Sales decreased by approximately 1% while operating income decreased by 66% due to continued commodity pricing pressure. The operating margin of 0.7% decreased 120 basis points compared to the prior year quarter. These results are a reminder that our Distribution segment is more seasonal with lower volume in Q4 and more earnings volatility than our manufacturing segments. As mentioned last quarter, we continue to make key investments to expand on-site inventory for large contractors. Year-over-year, we have 33% more on-site inventory or OSI containers deployed across the country, which is an integral part of our strategy to better serve our customers by making products available when and where they are needed. For the year, even with the demand and margin challenges, our Distribution segment delivered 5.1% operating income. You may recall that when we established this business in 2017, we stated that the anticipated operating income of this segment would range between 5% and 7%. Over the last four years, it has averaged around the midpoint of 6%. As the business continues to mature and we are able to gain efficiencies with our footprint and technology, we look to raise our expectations for operating income. We completed two small acquisitions in the fourth quarter. In early December, we acquired the assets of Action Manufacturing & Supply Incorporated, now part of our water treatment product line within our Water Systems segment. Action Manufacturing is a producer and wholesale distributor of residential water conditioning, filtration, and indoor, outdoor aeration systems with operations in Florida and North Carolina. Including this acquisition, our water treatment product sales are approaching $200 million a year. With a continued growth focus in our Distribution segment, we also acquired a professional groundwater distributor, Water Works Pump located in Springfield, Missouri, to expand our reach in Midwest markets. We welcome our new colleagues from Action and Water Works to the Franklin family. While we continue to invest and acquire businesses to further our strategy and growth, we also continue to maintain a conservative capital structure with a net leverage ratio near zero. We are well-positioned to execute on both organic growth and strategic acquisitions. Turning to our 2024 outlook. We anticipate 2024 to start much like 2023 ended and improve as we move through the year. Our outlook anticipates lower levels of destocking activities, normalizing weather conditions in the U.S., a reduction in large dewatering pump volume from our record 2023 performance, improved housing starts in existing home sales, and continued pricing pressure. We also anticipate continued supply chain improvements, greater confidence in lead times, lower rates of inflation, and productivity improvements. We look for demand for our groundwater pumps to continue to benefit from a large replacement business, a favorable concentration of activity across the agricultural, industrial, and mining markets, and only modest exposure to new construction in the U.S. housing market. We foresee this demand to similarly benefit our Distribution segment. We also expect our U.S. residential specialty pumps and water treatment product lines to face fewer headwinds from exposure to new home starts and existing home sales. Outside the U.S., we expect to see Latin America and South America business improve, Europe to stabilize, and Asia Pacific business to experience meaningful recovery. In our fueling business, major marketers in the U.S. have signaled they plan to maintain their investment plans in 2024, albeit at normalized levels after several robust years. Labor constraints are expected to ease and permit activity to return to normal. In our Distribution segment, we look to gain momentum through the year and build on our recent acquisition. Commodity pricing pressures, especially for pipe products, should stabilize as we enter 2024. With that, we are initiating 2024 guidance, with full-year sales expected to be between $2.1 billion and $2.17 billion, and diluted earnings per share, or EPS, to be between $4.22 and $4.40 per share. I'm now going to hand the call over to Jeff to review our financials in more detail.

Thanks, Gregg, and good day, everyone. Fourth quarter 2023 consolidated sales were $473.0 million, a year-over-year decrease of 3%. Excluding the impact of foreign currency translation, sales were basically flat to last year. Our fully diluted earnings per share were $0.82 for the fourth quarter 2023 versus $0.84 for the fourth quarter 2022. While we don't report adjusted earnings, I do want to highlight the FX expense or foreign exchange expense below operating income related to foreign currency devaluation, primarily the Argentine Peso. The $1.1 million higher expense year-over-year would impact earnings per share by $0.02 in the quarter. Moving on Water Systems, sales in the U.S. and Canada were down 6% compared to the fourth quarter 2022, primarily due to lower volumes. The sales decline in the U.S. and Canada was primarily due to lower groundwater sales. Wet weather across parts of the U.S. and some destocking in the U.S. Pro channel led to lower sales of groundwater pumping equipment. Water Systems sales in markets outside the U.S. and Canada were up 7%. Foreign currency translation decreased sales outside the U.S. and Canada by 12%. Excluding the impact of foreign exchange, sales were led with double-digit increases in both Latin America and EMEA and a single-digit increase in the Asia Pacific market. Water Systems operating income was $44.1 million in the fourth quarter of 2023, down $0.5 million or 1% versus the fourth quarter of 2022. Operating income margin was 15.8%, down 10 basis points compared to last year. The decrease in operating income was primarily due to lower sales and higher operating expenses. Distribution's fourth quarter sales were $148.0 million versus fourth quarter 2022 sales of $148.9 million, a 1% decrease. The Distribution segment's operating income was $1 million for the fourth quarter, a year-over-year decrease of $1.9 million. Operating income margin was 0.7% of sales in the fourth quarter 2023 versus 1.9% in the prior year. The Distribution segment income was negatively impacted by adverse weather, consistent with our prior comments. Income was also negatively impacted by margin compression from lower pricing on commodity-based products sold through the business. Fueling Systems sales were $65.7 million in 2023 versus fourth quarter 2022 sales of $85.5 million, a 23% decrease. As a reminder, the current year represents a tough comparison for the Company as fourth quarter 2022 Fueling Systems sales represented an all-time fourth quarter record. Fueling Systems sales in the U.S. and Canada decreased 18% compared to the fourth quarter of 2022, as described by Gregg in his comments. Outside the U.S. and Canada, Fueling Systems sales decreased 35% due primarily to lower sales in the Asia Pacific region. Fueling Systems operating income was $19.4 million in the fourth quarter 2023 compared to $24.3 million in the fourth quarter 2022. The fourth quarter 2023 operating income margin was 29.5% compared to 28.4% of net sales in the prior year. Operating income decreased primarily due to lower volume, while the margin percentage increased due to a favorable product mix, gross margin expansion, and outstanding cost management. Franklin Electric's consolidated gross profit was $160.0 million for the fourth quarter of 2023, down from last year's fourth quarter gross profit of $166.2 million. The gross profit as a percentage of net sales was 33.8% in the fourth quarter 2023 versus 34.0% in the prior year. Selling, general and administrative or SG&A expense was $108.8 million in the fourth quarter of 2023 compared to $109.7 million in the fourth quarter of 2022. The decrease in SG&A expense was largely due to lower incentive-based compensation expenses in the quarter. SG&A cost as a percent of net sales increased to 23% in the fourth quarter of 2023 from 22.4% in the fourth quarter of 2022. Consolidated operating income was $50.8 million in the fourth quarter 2023, down $5.4 million or 10% from $56.2 million in the fourth quarter 2022, due to year-over-year declines in Fueling Systems and Distribution as previously discussed. The fourth quarter 2023 operating income margin was 10.7%, down from 11.5% in the fourth quarter of 2022. The effective tax rate was 18% for both fourth quarters of 2023 and 2022. We generated approximately $316 million of operating cash flow in 2023 compared to $102 million in operating cash flow in 2022, an improvement of $214 million. In 2022, we invested in higher levels of working capital, predominantly inventory, to compensate for longer lead times and decreased supply availability. In 2023, supply chain conditions have improved, working capital has returned to more normal levels, leading to higher levels of cash flow. We used the cash flow generated primarily to repay debt and return capital to shareholders via dividends and share repurchases. At the end of the year, our net debt was approximately $15 million compared to approximately $170 million at the end of 2022. The Company purchased approximately 144,000 shares of its common stock in the open market for about $13 million during the fourth quarter of 2023. At the end of the fourth quarter of 2023, the remaining share repurchase authorization was approximately 900,000 shares. On January 22, the Company announced a cash dividend increase of 11%, which marks the 32nd consecutive year that Franklin has increased our cash dividend paid to shareholders. This concludes our prepared remarks. We'll now turn the call over to Andrew for questions.

Our first question comes from Matt Summerville with D.A. Davidson.

Thanks. Good morning. A couple of questions. Maybe can you talk across the three business segments about where you think your own inventories or comment on how you're feeling about your own inventory levels, and how much inventory still needs to come out of the channel to be fully normalized? And then I have a follow-up.

Yes, Matt. I'll give some high-level comments in terms of inventory. We don't disclose inventory by segment. But overall, inventory reduction, we finished this year at about $509 million. We finished last year at $545 million. So we had a nice reduction year-over-year. That translates into about 2.5 turns for the business for the full year. Our goal is to drive that closer to three turns. In terms of continued inventory reduction, that's the direction we're driving and where we want to go. When we look across the three segments, I think all three segments made nice progress in terms of normalizing their inventory levels as supply conditions have improved. Across all three businesses, Water has pulled their inventory levels down. Distribution has done a really nice job of pulling their inventories down on a year-over-year basis. They're a good indicator for us as to what would be happening in the channel. We believe that what our team has done is reflective of others and we think that most of the channel inventory destocking has taken place to this point, and we look forward to seeing an uptick in demand and then that pull through in 2024. Fueling has managed their inventory levels as good as anybody in the business, certainly given how their business has slowed down in 2024.

Got it. And then I think, Gregg, towards the end of your prepared remarks, you went through a number of factors impacting the business in the case as we move through the year. You referenced price pressure. I was wondering if you could put a little finer point on that? And then maybe, Jeff, if in a normal year, I kind of went back and looked. And on average, you guys do about 45% of your EPS in the first half, 55% in the back half. That's not every year, but I'm just kind of pointing to a general rule of thumb, given all the factors Gregg talked about, how should we be thinking about that first half, second half cadence this year? Thank you, guys.

Yes. So Matt, I would say that the pricing is behaving more like it was before the pandemic. That is where you're getting promotional activity in the market. Now I'm talking principally groundwater, principally in North America or the U.S. and Canada. It's more kind of normal conditions with inflation on input costs slowing. Again, as Jeff pointed out, there's still some excess inventory in the channel at manufacturers and maybe less at Distribution. So we're seeing more—I'll use hand-to-hand combat as a terminology for that in this case. On the spread of earnings, yes, you're correct, and Jeff can get into more detail about that. With the Distribution business, we were getting more, I think, a 50-50 break because distribution manufacturing does well in Q2. Distribution does better in Q3. But we're going to have a kind of a slower start to the year. So Jeff, do you want to give Matt your thoughts?

Sure. I think that's a great lead-in, Gregg, is we expect the start of 2024 to really kind of move sideways where we ended. Obviously, Q1 seasonally is typically the lowest quarter for us in the Company. I went back and looked at the past three years for Q1, earnings as a percent of full year is averaging about 18% in Q1. The range is from about 16% to 19%. This year, we would expect to see a similar profile and given that we expect to build as we go through the year, the first half, second half may be more heavily weighted towards the back half of the year.

Okay. Got it. Thank you.

Thanks, Matt.

Thank you. One moment, please, for our next question. And our next question comes from the line of Bryan Blair with Oppenheimer.

Thank you. Good morning, everyone.

Good morning, Bryan.

Action Manufacturing strikes us as strategically very important, expands into the Southeast for your water treatment platform. What is the revenue base there? You mentioned approaching $200 million in total for the platform. And then off of that base, how is your team thinking about 2024 growth?

When you say what's the revenue, are you asking specifically for Action Manufacturing?

Yes. Just what does that contribute to the approaching $200 million?

Yes, it will be in the $15 million to $20 million range overall for Action Manufacturing. In terms of operating margins, we expect to get that business in line with the rest of the water treatment business in 2024.

Okay. And the water treatment revenue base, all in? How is your team thinking about '24 growth prospects?

I think we see that, we've always said that the Water Systems has kind of GDP plus, 3% to 5% top-line growth. We see water treatment can be a little stronger than kind of the segment average there as we continue to grow that business and leverage it. I think top-line, that's typically what we expect for growth in Water Systems.

Okay. Understood. And specific to water treatment staying there, how does your deal funnel look coming into '24? Given the assets that you have in place, how is your team thinking about or prioritizing new technologies, further geographic expansion or penetration, and perhaps more of a move into commercial applications?

You covered all three points well. Yes, there is certainly moving into Florida in a meaningful way. It's a key market. There are other key markets around—in the Southwest, which we've acquired into. We have privately held companies that people are reaching out to us, which is always good to see. The opportunity to move up the complexity and size of the system into commercial industrial would be a next logical extension for us as well.

Understood. If I can sneak in one last one, I think you mentioned record revenue from critical asset monitoring. I understand that's off of a relatively small base. But if you could speak with the momentum there, what you're seeing going into '24, and how large that business may become medium term, that would be helpful?

Right now, the business is approaching about 10% of the fueling segment. When you look at the critical assets monitoring that relates to the grid, okay, what we call the grid business, it grew north of 20%. It's been growing at that rate now for several years, admittedly, again, off a small base. We're getting spec'd by more and more utilities. We're getting bigger orders from utilities. These are for monitoring devices that go on to high-voltage circuit breakers, medium-voltage circuit breakers, full-top transformers, also major transformers that are used to bring in power to communities. We're also into telco, server farms, and railroad crossing backup battery systems and so on. As our name gets out there, as we get more brand recognition, more specification, with the world moving more to electrification, we think we're in a good place with that business. It's kind of like where we started with fueling many, many years ago, is that we started with one product and we added that product. We listened to our customers. We listened to their pain points, and we helped solve their problems. We're beginning to see where customers across not only the U.S. but across the globe are talking with us about their pain points, and we hope to solve more challenges for them on a go-forward basis. We like the space.

That's encouraging. Appreciate the color.

Thank you, Bryan.

Thank you. One moment, please, for our next question. And our next question comes from the line of Ryan Connors with Northcoast Research Partners.

Good morning, gentlemen.

Morning, Ryan.

I have a few questions. Most of them are actually follow-ups on things you've discussed here in the Q&A already. The first was, you were talking with Mr. Blair there about the water treatment business. But in the press release, you do mention some softness, actually, in the quarter in that business. Can you talk specifically about what was behind that? Any particular markets or products? Is that more volume or price? Curious, what was the weakness there in the quarter itself?

Yes. Ryan, a couple of factors. One is, just like in other product lines in the U.S., we do sell in wholesale. Again, seeing a lack of enthusiasm for taking additional inventory or people taking inventories down, that's softer. The other thing is that the water treatment business is more housing start-related impact, as well as existing home sales. People often decide to install or upgrade a water treatment system when they move. With existing home starts being at the lowest level in 30 years, where they move, rather than drastic moves in interest rates, as it's been well talked about, this has certainly put downward pressure on that business. We now think that we're kind of lapping that. You’re seeing interest rates coming down a bit. You’re seeing home starts beginning to come up a little bit. We’re a little more optimistic about '24. The comparables will be easier in the back half of '24, like many companies in this area than in the front half.

Okay. Good. And then over to the fueling side and on this discussion of channel inventory destocking, we're trying to get comfortable with reconciling that with the comments you made regarding—Gregg regarding the underlying demand growth still being intact. Can you just discuss for us why we would be seeing destocking persist this long there if the demand effect is still robust underneath it? Obviously, lead times have come down. But at some point, we expect that to run its course. Can you talk about the timing where in fueling specifically what your base case is for when that dynamic kind of levels out and that growth will start to shine through?

Yes. Ryan, I'd say that we were a little surprised at the lack of appetite in Q4. Like many others, we've been talking about destocking and figuring like, okay, now it's over, now it's over. It seems to extend. We talked again with major marketers. A couple of them are public. With the public major marketers, they're putting out their bid schedules—their build schedules, and they have a say-do commitment to the street like we do. So you get that visibility. With some private firms, things kind of move to the right. With that and with improved lead times, if you think about it, in Distribution in the fueling space, you have to have that product available when the station starts to build on a relatively tight schedule. Distributors had little appetite. We didn't see the normal year-end activity that we would see many people to hit rebate levels. There was very little incentive or interest in hitting rebate levels at the end of the year. I think that’s why our customers looked at the year and said, look, we’re going to let this go by and restart in '24. Certainly, there were good station builds even through COVID with all the challenges, but I think what we’re looking at is that station builds may be kind of more like, again, 2019, 2020 levels, which are down a little bit from the last couple of years. Again, the major marketers are consolidating; we’re gaining spec with them, that’s why we feel that we’re going to have a reasonable '24. We were even a little surprised at the kind of lack of appetite in the fourth quarter. But the marketers are telling us that they’re going to have a good build schedule in 2024, the best we’ve seen.

Got it. That’s very thorough. I appreciate the detail. And then I did have one last one.

Sure.

This issue of price and destocking and these commodity-oriented products, can you just unpack that for us a little bit? Some additional color on what proportion of the total line card for headwaters are we talking about here? Just kind of scale it for us. You also mentioned that you expect that to abate as the year progresses. So any additional sequencing color there would be helpful as well?

Sure, Ryan. So call it commodity-type product in the groundwater channels around 40% to 50% of the products that are handled. What we were seeing in '23 in particular with pipe, which is a large portion of that, both plastic and steel, with plastic, is that capacity came online and manufacturers wanted to shift in big ways. This began a price war. Anything you had on hand seemed to be worth less and where we got squeezed. The fourth quarter is disappointing as the results were on an absolute basis, down about 120 basis points compared to the fourth quarter of last year. Compared to a 300 basis points decline overall during the year, this slowing and pressure on margins seems to be abating a bit. Q1 is always tough in the groundwater business. We expect normal weather. It’s been well-documented in January, with one of the wettest months again in the West, flooding in California, big snowstorms on the East Coast. These things will impact the start. As we go through the year, as inventories have normalized, as supply has matched demand, we should see a more normal pricing environment. As mentioned before, we see more one-offs, specials, promos, and responding to competitive threats.

Got it. I appreciate the time this morning.

Sure.

Thank you. One moment, please, for our next question. One moment, please. And our next question comes from the line of Walter Liptak with Seaport Research.

Hi, thanks. Good morning, guys.

Good morning, Walter.

Good morning.

Just wanted to ask about pricing and, if it is a more normal year for pricing and inflation, what's the timing for any actions and maybe, what kind of magnitude are you looking at?

Yes. We certainly see pricing becoming more like it has been several years ago in terms of the industry, certainly in the water business, but fueling to some extent as well. They had more annual price increases. We think it’s returning to a more normal state. Back in late '21 and '22, we had monthly or quarterly price increases just to manage inflation pressures. The frequency of it will return to more normal. Typically, price increases around 2% to 4%, assuming inflation is in check at more normalized levels. We want to recover our costs and maintain margins. The global business environment is different between regions. For parts of our business outside of North America, inflation and currency devaluation are in double digits, which we’re managing well. Our teams do a nice job of recovering that lost sales or currency devaluation impact in pricing.

Okay. Yes, that's great. And then maybe, on the cash flow looks great. Balance sheet is in great shape. I wonder if you could just talk about the capital structure and anything that you’re looking at that could utilize your balance sheet? Are you going to try and increase the number of M&A deals? Is there something else that you can do?

Yes. First of all, I really like our capital structure, Walt. We effectively have no leverage on the balance sheet. Net debt leverage is 0.1 times; that gives us a lot of flexibility. We’re very pleased with the strong cash flow generation we saw in the year and free cash flow conversion at 142%, certainly well north of our target of 100% free cash flow conversion. Full-year EBITDA was over $300 million. Great performance from both the balance sheet and cash flow perspective for the Company. Gregg can comment here as well. We expect to generate strong cash flow going forward. We’re well-positioned to take advantage of opportunities as they present themselves. We would be excited to see more deals and be more active on the M&A front. However, we maintain a disciplined focus when evaluating them to ensure they make sense for us and are a good deal for our shareholders. To the extent that we have excess cash flow, we have a long history of paying a reasonable dividend. We’ve increased that dividend for 32 years. The board and management team are committed to continuing to pay and hopefully increase dividends. Also, we can repurchase shares if it’s accretive and makes sense for our shareholders as we continue to grow the business.

Okay. Great. Thank you.

Thank you. One moment, please, for our next question. And our next question comes from the line of Michael Halloran with Baird.

Hi. Good morning, everyone. You have Pez on for Mike. I wanted to take a look at fueling again. Can you perhaps size how much of a headwind the declines in destocking versus the pushouts were in the quarter? And then, is there any green shoots you're seeing that there's light at the end of the tunnel on destocking within fueling specifically?

Yes. The short answer is probably no, but let me attempt to answer here Pez. In terms of fueling, if we look at the business and the pullback that we've seen in volume, we believe that destocking is the largest factor driving that decrease. That’s based on discussions our team is having with our customers and who we sell to in terms of the distributors that sell through in this market as well as the major marketers that are out there. We also know there have been delays. Higher interest rates have been discussed earlier. As major marketers continue to grow in size, they become more sophisticated. They understand that higher financing costs impact their ability to carry high inventory levels; they’ve all pulled back on that. Supply availability and lead times have improved, which plays a big factor. Those are the big factors we talk about. Demand in 2024 in fueling is normalizing. Let me unpack that is, if you replay the last several years, coming out of the pandemic, there was certainly some recovery, as fueling was most impacted. Capital got shut down at the marketers. When that came back, there was some level of recovery in 2021. In 2022, demand was solid and strong in the fueling business, for installations and replacement upgrades of existing stations. However, there was a buildup of inventory in the channel, and I think we see that more clearly now than we did when it was happening, but as we move into 2024, based on our discussions with our customers and major marketers, we see that demand is normalizing, but it’s not going to revert back to 2022 levels. The business is solid. The end market is healthy, and the major marketers are continuing to invest. We do provide them safety in the industry, and the lowest total cost of ownership, which we support after the sale.

No, that’s super helpful color and a very robust answer. I appreciate it. Maybe on the margin side of fueling, you have an impressive margin despite the volume levels. Thinking about margins in 2024, are there any puts and takes we should consider as demand normalizes? Is there a mix consideration we need to be mindful of? Or do we feel like we can increment at relatively normal levels?

Yes. Historically, we've said this business is at 25% to 27% operating income margin. We've been exceeding that for several quarters now. As our grid solutions and critical asset monitoring continue to increase in the mix, that helps our business from a margin perspective. Some core fueling products may shift down, which will keep us within the margin range. We expect to be at the high end of that range or possibly higher. I expect that we are not predicting we'll return to 30%-32% operating margins, but we will be in the high 20s and possibly touch over 30%, depending on how things proceed.

Super helpful. Thank you. I'll pass it on.

Thank you. I will now hand the call back over to Chairperson and CEO, Gregg Sengstack, for any closing remarks.

Well, thank you all for joining us this morning for this call. Please have a safe week, and we'll look forward to speaking to you after the first quarter and with our first quarter results.

Thank you, and thank you for participating. This does conclude today's program, and you may now disconnect.