Resideo Technologies, Inc.

Ladies and gentlemen, at this time, I'd like to welcome everyone to the Resideo fourth quarter and full year 2021 earnings conference call. Today's call is being recorded. All participants will be in a listen-only mode until the formal question and answer portion of the call. It is now my pleasure to turn today's call over to Jason Willey, Vice President of Investor Relations at Mr. Willey, you may now begin.

Good afternoon, everyone, and thank you for joining us for Residio's fourth quarter and full year 2021 earnings call. On today's call will be Jake Elmacher, Residio's chief executive officer, and Tony Trunzo, our chief financial officer. A copy of our earnings release and related presentation materials are available on the investor relations page of our website at investors.residio.com. We would like to remind you that this afternoon's presentation contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Residio's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. With that, I will now turn the call over to Jay. Thank you, Jason, and good afternoon, everyone. 2021 was a record year for Resilio, with revenues growing 15% year over year, gross margin expanding by 80 basis points, an operating margin of 350 basis points. We generated 315 million of operating cash flow in 2021, up from 244 million in 2020 and 23 million in 2019. These results were well above the expectations we outlined at the beginning of 2021 and reflect positive underlying market conditions and strong execution across the organization. The significant improvement in financial performance was against the backdrop of a dynamic and challenging supply chain environment, continued inflationary pressures, and the ongoing challenges of navigating COVID. The team managed through all of this and made significant progress strengthening the foundation of the business and in driving key investment initiatives. We also unveiled our vision, purpose, and values and completed strategic planning initiatives at the corporate level and within the businesses. I would like to thank the entire Resideo team for their tremendous efforts in 2021. We delivered for our customers and partners while generating record financial results and taking important steps to position the business for long-term sustainable success. Thanks to improved profitability and cash flow, combined with favorable financings, we ended 2021 with a dramatically improved capital structure. This enabled us to execute on our strategic initiatives and focus on long-term value creation. Our announcement last week of an agreement to acquire First Alert, a leading provider of home safety products, highlights this financial flexibility and the value it brings. FirstAlert provides Resideo a highly complimentary suite of fire and carbon monoxide detection and fire suppression products with widely recognized and respected brands. FirstAlert expands our sensors within the home and occupies a highly strategic position on the ceiling. The transaction will more than double products and solution sales in the retail channel and provides new products for our professional partners. We are excited to bring the first alert team on board and expect to hit the ground running upon closing, which we anticipate to occur by the end of Q1. Moving to segment performance for 2021, products and solutions delivered 16% year-over-year growth with revenue reaching a record $2.5 billion. Demand was strong across our key markets, product categories, and channels. People continue to invest in their homes, and we are well positioned as the go-to partner for professional contractors and OEMs to capitalize on what we see as sustainable trends toward increased comfort through managing air, water, security, and energy. In 2021, we completed critical foundational work that positions the business for sustained growth. This includes investments in sales operations and business development, systems consolidations, introduction of a comprehensive integrated business planning process, and digital efforts to consolidate and refresh our web presence. We also launched the ProPerks loyalty program with professional security dealers and HVAC contractors. Much of this work was centered around solidifying systems and processes to ensure we are more deeply engaged with key customers and partners, and we have the visibility to better plan and meet their needs. We also accelerated investment in our engineering organization to strengthen our innovation engine and better focus new product development efforts. During 2021, we rolled out enhancements to our Pro Series security platform across the general market in North America, launched an innovative entry-level connected thermostat with Amazon, and refreshed our hydronic portfolio in Europe. We also consolidated software development efforts under one leader and made significant progress in development and platforming initiatives. At ADI, revenue grew 15% in 2021 to 3.4 billion with double digit growth in all key categories. This is a continuation of the consistent above market growth ADI has delivered over the past decade. Both residential and commercial markets saw accelerated activity in 2021. As the year progressed, vendor supply issues became more prevalent, particularly in categories such as video surveillance and intrusion, which resulted in significant backlog at year end. ADI also invested aggressively in 2021, including improvements to the e-commerce experience, pricing optimization, and Salesforce effectiveness tools. Pricing initiatives, which have provided the ADI sales team better real-time insight and the ability to price more efficiently, help the business deliver 100 basis points of year-over-year gross margin expansion. Our digital investments support more transactions flowing through touchless channels, allowing ADI to free up sales associates for more value-added selling. This allows for better leverage of these high-value individuals as ADI execute on this long-term growth strategy. The average revenue per sales employee grew by 14% in 2021 to over 2 million. During the year, we completed the acquisition and integration of the Shoreview and Norfolk businesses, expanding our presence in key strategic adjacencies of data communications and audiovisual markets. Yesterday, we announced the acquisition of Arrow Wire and Cable, a West Coast distributor of data communication products. The acquisition complements Norfolk geographically, strengthening our growing position in the data communications market. I'd like to welcome the Arrow team to Resideo. We are excited by the value creation opportunity we see for the combined organizations. With that, I will turn the call over to Tony to discuss our fourth quarter and full-year performance and 2022 outlook in more detail.

Thank you, Jay, and good afternoon, everyone. As Jay said, 2021 was a year of record financial performance for Resideo. We delivered strong top-line growth, higher gross margins, and operating leverage, resulting in meaningful expansion in earnings and cash flow. We achieved these results while managing through the most challenging sourcing and inflation environments in decades. In Q4, our ability to fully meet customer demand was again limited by the availability of critical components. Q4 revenue of $1.5 billion was down 3% compared to Q4 last year. Gross margin for the quarter was 27.2%, down 100 basis points compared to Q4 2020. while consolidated operating expenses for Q4 decreased by 6%, primarily due to a $19 million year-over-year reduction in corporate costs. Operating income of $141 million was 7% lower than the last Q4. Products and Solutions' fourth quarter revenue of $633 million was down 6% year-over-year and was essentially flat sequentially. Revenue was negatively impacted by the ongoing shortage of semiconductor components. Products and Solutions' gross profit margin in Q4 was 37.9 percent compared to 41.9 percent in the fourth quarter of 2020. The decline in gross margin was due to the deleveraging effect of lower volumes as well as materials price inflation and higher freight costs, all partially offset by price realization of approximately $40 million. Products and solutions segment operating profit was $125 million, or 19.7% of sales, compared with $166 million, or 24.6% of sales last year. Operating expense for products and solutions was unchanged year over year, reflecting lower transformation costs offset by increased investment and higher sales expense. ADI Q4 revenue of $821 million was flat year over year, but grew 8% on a daily sales average basis, reflecting higher volumes and increased pricing over five fewer selling days. ADI saw good activity in the quarter in fire, access control, and wire categories, while video surveillance and intrusion were constrained by product availability. E-commerce sales were up 27%, accounting for 17% of total ADI revenue in the quarter. ADI also continues to make progress in expanding its private brand sales, which were up over 30% year over year in the quarter. ADI gross profit margin in the fourth quarter was 19.1%, up from 17.5% last year. The higher gross margin was a result of improved product line margin, as ADI benefits from investment in tools to support pricing initiatives and increased private brands' contribution. Margins also benefited from positive industry pricing dynamics. ADI Q4 operating margin increased 130 basis points from last year to 8.5%. We continue to direct investment toward ADI, especially in the areas of digital and sales tools, which is reflected in higher year-over-year operating expenses. We're already seeing significant return from these investments, as evidenced in strong top-line performance and product line gross margin expansion. Corporate costs for the quarter were $54 million, or 4% of sales, compared with $73 million, or 5% of sales in the fourth quarter of 2020. During the quarter, we generated $112 million of cash from operations, and for the year, operating cash flow was $315 million, compared to $244 million in 2020. Over the past 12 months, we've made significant improvements to our capital structure, including refinancing all of our debt instruments. These transactions extended our debt maturities and will generate approximately $8 million in annualized interest expense savings. We ended Q4 with cash and cash equivalents of $779 million and total outstanding debt of $1.2 billion. Net debt stood at $451 million at the end of the year compared to $645 million a year earlier. I would also note that this morning we launched a $200 million add-on to our existing term loan B to provide incremental liquidity in anticipation of the first-order transaction. Looking toward 2022, we expect revenue for the year to be in the range of $5.95 billion to $6.2 billion. implying year-over-year growth of 4% at the midpoint. Consolidated gross margin is expected to be in the range of 27% to 28%, and gap operating profit is expected to be in the range of $610 million to $650 million. For the first quarter, revenue is expected to be in the range of $1.425 billion to $1.475 billion. Consolidated gross margin is expected to be in the range of 27.5% to 28.5%, and GAAP operating profit is expected to be in the range of $140 million to $150 million. Corporate expenses for the full year 2022 are expected to be approximately $240 million, down an additional $10 million compared to 2021. We also expect a positive impact to gross margin in Q1 due to a larger-than-normal annual inventory revaluation in the products and solutions business. Our first quarter and full-year operating profit outlook includes approximately $10 million in transaction costs associated with the PennDate First Alert acquisition. No other impact from First Alert is contemplated in our annual or first quarter outlook. Assuming a first quarter closing, we will provide an updated 2022 outlook, including first alert, on our first quarter earnings call. Additional outlook details can be found on page 12 of our earnings slides. I'll now turn the call back to Jay for a few concluding remarks before we take questions.

Thank you, Tony. As we look to 2022, we see another year of growth. margin expansion, and increased cash generation, building off the significant progress delivered in 2021. We continue to expect pressure on material input costs, freight prices, and labor costs. While visibility into how these dynamics will play out over 2022 is imperfect, we are running the business on the assumption that current conditions related to supply chain and cost headwinds will persist throughout the year. helping offset these cost pressures, our price realization within products and solutions, and continued benefits from pricing initiatives and digital investments at ADI. We remain excited by the opportunities that exist across the markets we serve. With the steps we have taken over the past 18 months, we are well positioned to continue to navigate these challenges to deliver for customers and drive increased growth and profitability in the business. ADI is focused and continued to be an indispensable partner of choice for our customers and suppliers. This begins with building on our momentum in 2021 to deliver the leading omni-channel user experience for the pro. We will continue to broaden our offering of exclusive brands and technologies, not only in traditional security categories, but also with our expansion into adjacent categories in audiovisual and data communications. In 2022, ADI will further enhance its digital and sales enablement tools and expand its private brand offerings, each of which are already delivering returns. We expect to continue to drive growth in private brands as a percentage of ADI sales over time. Within products and solutions, the team has continued to execute on better leveraging our footprint in the home through product innovation and, over time, increased value-added service offerings. Our 2022 budget calls for a significant increase in R&D with a specific focus on platform and connected ecosystems development to support new products, services, and revenue streams. Our product roadmap has progressed significantly over the past year, and our development pipeline is building across our portfolio. This includes specific programs targeting the expansion of our services offerings for enabling the professional and leveraging our broad portfolio of partners across our ecosystem, including utilities and in residential new construction. This concludes our prepared remarks. Operator, we are now ready for questions.

At this time, I would like to remind everyone, in order to ask a question, press star 1 on your telephone keypad. If you would like to withdraw your question again, press star one. Your first question comes from the line of Ryan Merkel with William Blair. Your line is open.

Hey, thanks. Good afternoon. Um, so a couple of questions, first off, is there any way you can size the backlog? Whether that's, you know, I'm really curious about P and S, but if you want to include ADI, that's fine. Or just how big is it versus normal? And then what's sort of the timing of selling it through?

So, hey, Ryan, it's Tony. We're not in a position to give the absolute numbers. And the main reason for that is typically backlog isn't a significant factor for us. And our expectation is that over time it's going to go back to not being a significant factor. I mean, this is very much in both businesses kind of a book and ship. That said, we've got delinquent backlog, backlog that we could shift if we could get the parts in P&S and the products in ADI that's meaningful. And in P&S, it continues to grow, actually. It ticked up in Q4, and it's ticking up again. I mean, we're not in a position to satisfy all the demand. The backlog at ADI became more of an issue in the second half of the year, and it's really centered around the video surveillance part of their business. There's the manufacturers there that supply us are having some challenges with their supply chains, and there was a significant amount of revenue that we didn't realize in both businesses in Q4 simply because we couldn't ship product.

I would add also, Ryan, as I mentioned there, as I closed off my statements, that, you know, as we've modeled the business, both businesses for this, for 2022, the various challenges that we faced with the material shortages, in particular in the semiconductor space, you know, we've modeled in for just like we saw in 21 for 22, because it's just an imperfect world right now in terms of the crystal ball of when that will improve.

I was just going to say that, you know, what Jay said there kind of leads me to my next question. The guidance for 2022 revenue is up 4 percent, you know, at the midpoint. You know, I guess first off, how much price is in that number? And then secondly, just given the backlog, I think Jay just answered it, it sounds like you're not expecting supply chain to ease all that much. You're not really assuming a whole lot of volume acceleration, and that's one of the reasons.

Yeah, so Ryan, we're roughly assuming for P&S, we're roughly planning for flat volumes in 2022. So pretty much all of the revenue growth in P&S that you're seeing is price, and a significant majority of that is flow-through of price increases that have already taken effect in the latter part of 2021. Our expectation in that business absolutely is that we don't see significant relief in the backlog. It will fluctuate, but we don't see a significant change in the delinquent backlog in that business. So, you know, it's pretty much all of that four points, four or five, four points-ish is price. At ADI, it's a mix. We do see some volume expansion at ADI. but we also see a little bit of continued inflation. So it's more of a 50-50 split at ADI.

And I would just add, you know, there's certain things in the market that maybe are a little bit clearer than others in terms of some of the supply chain things. But again, it's too imperfect now to stick our neck out. And so that's why we've modeled it the way we have for this year. Yep, completely understand.

Okay, I'll get back in line. Thanks.

Thank you, Ryan. Appreciate the question.

Your next question comes from the line of Amik Draynani with Evercore. Your line is open.

Great. This is Michael on for Amit. Thanks for taking my question. I was curious. So on the gross margin guide with the first quarter coming in a little bit higher than the full year.

I mean, I think that's kind of the opposite of what we've we've seen in the past year. So I was just wondering, you know, what we saw last year. So I was wondering if there's maybe some different dynamics at play that we should be aware of. Yeah, I mean, there's really one dynamic in Q1 relative to the rest of the year, and it relates to what I referred to on my script, this revaluation of the inventory associated with our cost rolls. That's really it. Okay, great. Thanks. Yeah, my my call dropped out for about 10 minutes. So I probably missed that commentary. But then on the inventory levels as well. I'm kind of curious.

I mean, are you guys like securing maybe higher levels of inventory than usual? And that's something you expect to continue through the year?

So our inventory turns have slowed a little bit, and that's really relative to us trying to have effectively safety stock in the areas that we can't. It hasn't been dramatic. I think it's a little less than one turn. um but we are we are trying to build safety stock the challenge is there are certain components that we're still hand to mouth so the inventory itself it um you know there's stuff in the inventory that if we had a typical balance of raw materials um we'd be flowing through and we'd see those inventory turns you know back to kind of in that six and a half times range which which is where we were maybe a year and change ago.

Yeah, I would agree with Tony. Again, hate to beat a dead horse, but I know we're not the only people in that same situation. But you want to make sure you have the parts on hand so that when the parts that are short do come in, you're able to turn around and ship it to customers. And so that's always a balancing act, but that's our job to do that.

No, and I think in some ways it's actually a good thing that you guys can secure some excess inventory because not everyone can. But that, I mean, I assume, you know, we can kind of model that staying the same throughout the year, right? There's probably not going to be a significant change in supply that would cause you to get kind of lower inventory levels? No, I don't think so.

You know, I hope as we get towards the latter part of the year, more things become, you know, more predictable, more visible, and I think it will. But to what degree is hard to predict today? Great. Thanks for taking my questions.

Yeah. You bet, Michael. Your next question is from the line of Paul Chung with JP Morgan. Your line is open.

Hi. Thanks for taking my questions. So, you know, very nice progression on ADI, you know, operating margins this year. You know, how should we think about the pace of, you know, margin expansion in 22? And can you also kind of quantify the impact of, supply shortages freight that kind of hit the quarter and maybe your expectations of that that hit for 22.

Yeah, so so thanks for the questions, Paul. ADI ADI has. done a great job, obviously, not just in progression of margin, but keeping the revenue growth solid and strong and, frankly, integrating their acquisitions and really just executing. We did see in the second half of the year, second half of 21, some part of the margin expansion was the result of the flow through of some inflationary dynamics. That is, it's measured in, you know, a few tens of basis points. It's not all of the margin expansion, but some part of it came from inflation. Our current expectation is that's going to level off in the latter part of the year, and we won't see that lift. That said, you know, that business is tracking really well toward its margin targets a couple of years out. And your second question was on freight. Um, for, for what, what period for Q4?

Q4 the year and, uh, expectations for 22.

Uh, let me get all four of those to you, um, here on the call. Do I have all, do I have, we have, we roughly have the first two at least. Yeah. I want to say it was nine and 40 for Q4 and the year, but let me, let me get to you.

And while they're looking at that fall, I'll just say that it's, um, Because I don't think we're going to get that many more big surprises on freight. I think that is becoming a little more visible. So I think we've probably modeled that in a way that I think we're comfortable with. We'll see, of course. And one is on cost, of course. The other is predictability in terms of transit time. So both of those are very important as we run the business.

Oh, I've only got two of the three numbers for you.

Okay.

I'm looking at Jason's cheat sheet. For P&S, the freight impact for the quarter was $9 million. Like I said, the impact for the year 2021 was $49 million. I don't have the 22 impact handy, but we don't expect it to be of that magnitude incrementally.

Okay.

And I guess to point out about freight, it hasn't come down significantly. Overall, it's bounced, right? Right. Overall, our freight costs haven't come down from these elevated levels. Right.

Right. And then just on first alert, you know, quite a material transaction kind of relative to, you know, some of the tuck-ins you've done in the past. You know, how long were you looking at this asset? What kind of spurred the decision there? And then moving forward, should we kind of expect, you know, continued tuck-ins, you or are you embarking on more material acquisitions like First Alert in the coming quarters and years? Thank you.

So, thanks for the questions, Paul. So, you know, First Alert is, in many ways, it's the perfect first sizable acquisition for us. We've been looking at it for a while, and the business it's consistent with what we've communicated in terms of our overall M&A strategy, because we've talked about the fact that ADI in particular has the opportunity to do some small and medium-sized roll-ups, including the one that we just announced this week, in addition to the ones that were done last year. That part of the strategy continues to march forward, and I'd expect that you'll continue to see those transactions. In aggregate, they're not material, but overall, they're additive, and the ones that we did last year are now 100% fully integrated, and they're performing above the level that we expected them to in terms of synergy and their own growth and margins. First of all, it falls into a different bucket, and we've tried to communicate this, and the bucket really is what we'll call the kind of regular way products and solutions, product line expansion type acquisitions. We always thought those would be more sizable. From a size standpoint, I think FirstAlert is a good example of the, I hate to say, appropriate size, but it's not too big, it's not overwhelming, but it's of scale. And most importantly, it's probably the best hardware product fit in the market available for us. I mean, we really believe that First Alert is, and we think we're the perfect owner for that business. In fact, going back 30 years, First Alert and our security business were together in the same entity, even before that entity was owned by Honeywell. So we're kind of bringing them back together. And the opportunity here is, this is a good business that we bought. Newell disposed of it because it didn't fit their portfolio. They're not an electronics manufacturing shop. But they took very good care of this business. They invested in R&D. They invested in advertising and promotion. They invested in some factory automation. So we're getting a very healthy business. The reason we can achieve the synergies that we can is because of the very close adjacency of the product lines, really the adjacency of the manufacturing and distribution facilities themselves. And from our perspective, given the valuation and the opportunity here, we see meaningfully more upside than we do risk from a deal like this in our hands.

I would add also to that that you know, timing-wise in terms of where we're at with products and solutions and what's in the marketplace, I think it's a really super timing for this acquisition. And, you know, it gives us additional sensors in terms of our total ecosystem. It gives us access to the ceiling for the types of products that First Alert has. As you know, taking a look at how we integrate our many different products uh into a total ecosystem is this fits perfectly and so we're excited about this opportunity and and look forward to moving forward with this deal paul at the risk of beating this horse i mean it really um our objective here is to have

sensor-based real estate in the home. And this significantly advances that strategy and puts us in a position where we can really lead the integration of their products from a connected standpoint with the ones that we have in the home.

Great. Thank you.

Your next question is from the line of Eric Woodring with Morgan Stanley. Your line is open. Thank you. Congrats, guys, on the nice

one QN22 guide here. Maybe if we just circle back to an earlier question talking about the guidance.

Tony, you mentioned for PNS, four points of tailwind is priced kind of flat volumes.

Should I interpret that as you guys implying both PNS and ADI kind of grow at the same rate in 2022, around 4%, or should we think of the divergence between the growth rates perhaps

more so matching kind of how you think about those two segments going through 2024, at least the relative difference between the two.

And then I have a follow-up. I think relatively. Eric, thanks for the nice comments and thanks for the question. Yeah, we're not giving specific guidance to the individual segments in terms of revenue growth. So the number I threw out was kind of directional. And so just to be clear. But in general, yeah, the businesses are going to grow, we think, at rates this year that are relatively closer to each other than what we've seen in the past. Okay. And then maybe, you know, Tony or Jay, either one for you. You know, you guys talk about underlying demand trends remaining solid. Maybe can you just help us give an example or two of KPIs that you follow or conversations that you're having with your customer base that kind of reinforce that? And then any change in behavior you've seen in, you know, 1Q versus 4Q as it relates to potentially inflation concerns or labor headwinds or anything that might have changed in the last few weeks? Thanks. So I don't have any specific KPI I can point you to other than we do as a result of some of the, you know, enhancements we've made to our loyalty and partnership programs with our pros, we do get better insight into their channel inventory than we used to. We don't, I mean, you know, our product line is super broad, right? So it's hard to look at, you know, at one sort of, channel, if you will, and understand and have a view that spans the whole enterprise. But by and large, I think we get a pretty reasonable view of our channel inventory. We mentioned this at the beginning of last year. We have initiated an account management activity and a sales operations activity that really has helped us get a better our better arms around that. I'll also say we, you know, we're talking to our customers, we're listening to them in terms of what they have to say about their expectations of demand and, you know, pretty darn consistent with kind of what we laid out.

I'd also add, I think you asked Eric about changes over the last 12 months in terms of labor situation out there, probably both in terms of availability as well as cost. You know, knock on wood, I mean, we are not facing now any relative labor shortages. And I think we have a pretty good understanding of what the cost will be now after going through 2021. So that's one thing I don't wake thinking about at three in the morning.

We are seeing... add-on, we are seeing wage inflation in Mexico. We're not having an availability problem. That's right. It's a pretty efficient market, particularly in the areas that we operate in, but we are seeing wage inflation that is, you know, in the teens. Yeah, yeah, I would agree. And it's all baked in. And then maybe if I just sneak one last one, you know, you mentioned pricing increases in 2021. You know, how are you thinking about that dynamic for 2022?

Is there anything kind of

that that is on the docket that we should expect or is it kind of you know we'll see how it goes and react from there and that's it for me thanks and congrats again thanks eric i i definitely think it's a see how it goes dynamic um we took a lot of price last year we and you know particularly at the end of the year we got you know we moved price pretty significantly we did it in as partnering away as we could with with our channels and with our customers, and the realization against our increases was actually quite high. But I think we want to be cautious. We'll react to, you know, if the marketplace changes and our costs increase, we'll obviously, beyond what we expect, we'll react to that. But overall, I think we're being cautious in terms of planning additional meaningful price moves in 22 that would benefit 22.

Yeah, I'd add that I think we've mentioned it in prior earnings releases, but reflective, if you go back to first quarter of last year, You know, crystal ball wasn't very good in terms of what was going on out there and some of the price increases, as well as even in many areas the tighter supply chain. And so we may have waited a hair too long before we really started laying out the price increases, which we did, as Tony was just saying. So we're hypersensitive to that, and we'll be on top of that.

Perfect. Thanks, guys. Your next question is from the line of Ian Zaffino with Oppenheimer. Your line is open.

I agree. Thank you very much. You know, not to, I guess, be the dead horse on the guidance, but, you know, can you maybe just talk about sort of what your assumptions are for market growth? Are you sort of assuming, I guess, in P&S, you know, the market will be flat and just sort of push through pricing, and then you just kind of hold your share? And then maybe, and I know you always give perfect details on each area of the segment, but can you maybe tell us where you would expect better growth, maybe not as good growth, or maybe some highlights or maybe just some lowlights in P&S? Thank you.

Yeah, Ian, so thanks for the questions. Yeah, I think in general, our expectation, you know, this kind of ties back to some of the other questions that folks were asking. Broadly, the markets that P&S serves we think are going to be, in aggregate, flattish for the year, and we think we're going to broadly hold share. We're not making any assumptions about dramatic share change. We're really just trying to reflect the market, which, by the way, I mean, you know, demand is really good. You know, it's going to be flattish, we think, off of a big year, right? I mean, we grew revenue last year a lot. And, you know, we see that level of volume being sustained. So that's kind of the view there. In terms of where are things going to be stronger and maybe not as strong, I think we're probably looking at security being a little less, executing a little less favorably in 22 than maybe some of the other channels, particularly some of the trade channels. But it's not, you know, I wouldn't point you to any huge dramatic move there either.

All right. Thank you very much.

Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from the line of Brian Ruttenberg with Imperial Capital. Your line is open.

Thank you very much. Great quarter and guidance. Quick question on, and I know it's been talked about a little bit, but want to dig down a little bit further on operating cash for 2022. A lot of moving pieces here. And maybe you can directionally tell us which way you think you did 315, I believe, in operating cash, cash from ops, excuse me, in 2021. Directionally, do you see that going higher? in 2022.

Yeah. Brian, I think at the margin, we do see better cash flow in 2022, a higher number than what we saw in 2021, just reflective of the growth. I think cash conversion is going to be – I don't think it's going to be better. I think the conversion is going to be equal to or maybe a little less than last year. And as is usual, it's going to be skewed to the second half of the year. So bear in mind the sort of dynamic of cash flow in this business. We tend to have pretty significant cash outflows in q1 uh arising largely from stuff that's acute accrued in q4 we pay bonuses we pay rebates so q1 tends to be a softer quarter and as it was in 21 q4 will much most likely be the strongest quarter great thank you very much there are no further questions at this time i will now turn the call back over to jason willey To say thank you again, everyone, for participating today in your continued interest. We look forward to speaking with you over the coming days and weeks and hopefully increasingly seeing many of you in person. So please take care. Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now exit.