Q4 2023 Waters Corp Earnings Call

Operator: Good morning and welcome to Waters Corporation's 4th Quarter 2023 Financial Results Conference. All of this will be in a list until the question and answer session. First of all, this has been recorded. If anyone has any questions,

Good morning, and welcome to Waters Corporation fourth quarter.

Q3 financial results conference call.

We'll be in a listen only until the question and answer session.

Unnamed Speaker: I pledge allegiance to the flag of the United States of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Thank you. Thank you all. Have a great day.

<unk>.

First of all being recorded if anyone has.

Please.

Unnamed Speaker: Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. And thanks for listening! Well, hey, it's her.

Pleasure.

Okay.

Peter.

Peter: Go ahead Sir.

Peter: Thank you Cedric.

Peter: Good morning, everyone and welcome to the Waters Corporation fourth quarter earnings call.

Cedric: Thank you, Cedric. Good morning everyone and welcome to the Waters Corporation's fourth quarter earnings. Today I am joined by Dr. Udit Batra, Waters President and Chief Executive Officer, and Amol Chhabal, Waters Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. I would like to first point out that our earnings released in the slide presentation supplementing today's call are available on the Investor Relations section of our website at ir.waters.com. In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future results and commentary on potential market and business conditions that may impact Waters Corporation over the first quarter of 2024 and full year 2024. These statements are only our present expectations, and actual events or results may differ materially.

Peter: I'm joined by Dr. <unk> departure, while this president and Chief Executive Officer.

Speaker Change: All travel Walters senior Vice President and Chief Financial Officer.

Speaker Change: Before we begin I will cover the cautionary language.

Speaker Change: I would like to first points out the earnings release and the slide presentation supplementing today's call are available on the Investor Relations section of our website at IR Dot waters Dot com.

Walters: In this conference call, we will make various forward looking statements regarding future events or future financial performance of the company.

Walters: In particular, we will provide guidance regarding possible future results and commentary on potential market and business conditions that may impact walkers cooperation over the first quarter of 2024 and full year 2024.

Statements are only our present expectations and actual events or results may differ materially.

Udit: For more details, please see the risk factors included in our most recent annual report on Form 10-K, our Form 10-Qs, and the cautionary language included in this morning's earnings release. During today's call, we will refer to certain non-GAAP financial measures, including in our discussions of the results of operations. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and in the appendix of our presentation, which is available on the company's website. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the fourth quarter of fiscal year 2022 in organic constant currency terms. In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are given on a comparable, organic, constant-currency basis.

Walters: For more details. Please see the risk factors included in our most recent annual report on Form 10-K form 10, Qs and the cautionary language included in this morning's earnings release.

Walters: During today's call, we will refer to certain non-GAAP financial measures, including in our discussions of the results of operations reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and in the appendix of our presentation, which are available on the company's website.

Walters: Unless stated otherwise references to quarterly results, increasing or decreasing are in comparison to the fourth quarter of fiscal year 2022, and organic constant currency terms. In addition, unless stated otherwise all year over year revenue growth rates and ranges given on today's call are given on a comparable organic constant currency base.

Walters: This.

Udit: Finally, we do not intend to update our guidance, predictions, or projections, except as part of a regularly scheduled quarterly earnings release or as otherwise required by law. Now, I'd like to turn the call over to Udit to deliver our key remarks, then Amal will provide a more detailed look at our financial results. After that, we will open up the phone lines to take questions, and will be here today. Thank you, Casper, and good morning, everyone.

Walters: Finally, we do not intend to update our guidance predictions or projections, except as part of our regularly scheduled quarterly earnings release or as otherwise required by law.

Speaker Change: Now I'd like to turn the call over to <unk> to deliver our key remarks than a mall will provide a more detailed look at our financial results. After we will open up the phone lines to take questions. Thank.

Speaker Change: Thank you Kasper and good morning, everyone.

Udit: I would like to begin today's call by expressing my gratitude to all my colleagues. 2023 was another transformative year for Waters. Throughout the year, our teams kept an unwavering focus on customers, launched innovative new products, and delivered strong business performance, all during highly eventful times with dynamic market conditions. As 2022 ended, the results of our transformation clearly showed on the top line, having delivered several years of very strong, above-average sales growth. Since then, in 2023, we have demonstrated our ability to manage exceptionally well through a downturn while continuing to make investments for growth. In 2023, we also initiated the next phase of our transformation with the acquisition of Vyatt.

Speaker Change: I would like to begin today's call by expressing my gratitude to all my colleagues 2023 was another transformative year for waters throughout the year. Our teams kept an unwavering focus on customers launched innovative new products and delivered strong business performance all.

Speaker Change: During highly eventful times of a dynamic market conditions.

Speaker Change: 2022 ended the results of our transformation clearly showed on the topline having delivered seven several years of very strong above average sales growth.

Speaker Change: Since then in 2023, we have demonstrated our ability to manage exceptionally well through a downturn, while continuing to make.

Speaker Change: <unk> for growth.

Speaker Change: In 2020, we also initiated the next phase of our transformation with the acquisition of Wyatt.

Udit: This brings with it a new vector for value creation for our shareholders through M&A, and we're off to a great start. As an added benefit, it has accelerated our journey into high-growth adjacent markets, where we have made continued progress with our organic investments over the course of the year. We launched new and innovative products in 2023, including our Alliance IS Next Generation LC platform. We expanded our Xevo TQ mass spec into clinical applications and developed size exclusion columns for viral vectors that pair with wired MALS instruments.

Speaker Change: This brings with it a.

Speaker Change: The new vectors for value creation to our.

Speaker Change: Shareholders through M&A, and we're off to a great stock.

Speaker Change: As an added benefit it has accelerated accelerated our journey into high growth adjacent markets, where we made continued progress with our organic investments over the course of the year.

Speaker Change: We launched new and innovative products in 2023, including our alliance is next generation LTE platform.

Speaker Change: We expanded our <unk> mass spec into clinical applications and developed size exclusion columns for viral vectors that bad with Wyatt Maus instruments, we even had our first light scattering launch as a combined company with data stock.

Udit: We even had our first light scattering launch as a combined company with Datastar. Finally, we were recognized as one of the world's most sustainable companies, achieving a variety of ESG awards. This includes our top five ranking on Barron's Most Sustainable Companies list, which ranks over 1,000 publicly traded companies based on 230 ESG performance indicators. We're very proud of what we've achieved at Waters in 2023. Today, as I share our fourth quarter and full year results, I have three key messages. First, we've continued to execute well. Second, our transformation is contributing to our results. And third, we are well positioned for future long-term growth. Turning now to our results. In the fourth quarter, sales declined 4.5%, as reported, which was in line with our expectations.

Speaker Change: Finally, we were recognized as one of the world's most sustainable companies achieving a variety of ESG Awards. This includes our top five ranking on Barron's most sustainable companies list with scores over 1000 publicly traded companies based on 230 ESG performance.

Speaker Change: <unk> indicators.

Speaker Change: We are very proud of what we've achieved at waters in 2023.

Speaker Change: Today as I share, our fourth quarter and full year results I have three key messages first we have continued to execute well.

Across the nation is contributing to our results and third.

Speaker Change: We are well positioned for future long term growth.

Speaker Change: Turning now to our results in the <unk>.

Speaker Change: Fourth quarter sales declined four 5% as reported which was in line with our expectations.

Udit: Our non-GAAP earnings per fully-delivered share landed at the high end of our guidance at $3.62, driven by strong margin performance. On a gap basis, EPS was $3.65. For the full year, sales declined 0.5% as reported and 2% in organic constant current.

Speaker Change: Our non-GAAP earnings per fully diluted share landed at the high end of our guidance at $3, 62% driven by strong margin performance.

Speaker Change: On a GAAP basis EPS was $3 65.

Speaker Change: For the full year sales declined, 5% as reported and 2% and organic constant currency.

Udit: Even with a constrained capex environment, all our regions outside of China grew in 2023 in organic constant currency terms. As expected, Wyatt successfully delivered an on-target M&A contribution of 2.5% to sales. And with a strong EPS result in Q4, non-GAAP earnings per fully diluted share came in at $11.75, which reflects underlying growth of approximately 2% before FX headwinds of 3% and 1% dilution from the Wyatt acquisition. I will now describe our sales results in more detail. The spending environment for instruments remained challenging into year-end.

Speaker Change: Even with a constrained capex environment, all our <unk>.

Speaker Change: <unk> outside of China grew in 2023, and organic constant currency terms as expected via successfully delivered on on target M&A contribution of two 5% to sales.

Speaker Change: With a strong EPS result in Q4 non-GAAP earnings per fully diluted share came in at $11 75, which reflects underlying growth of approximately 2% before FX headwinds of 3% and 1% dilution from the <unk> acquisition.

Speaker Change: I will now describe our sales results in more detail.

Speaker Change: The spending environment for instruments remained challenging into year end.

Udit: However... Q4 revenue increased versus Q3 levels in all our geographies, even China, as we continue to execute well in tough macro conditions. Reported sales were $108 million higher in the fourth quarter than the third quarter. This reflects a 15% ramp that was consistent with our guidance for a muted year-end budget flush. For the full year, our organic constant currency sales grew 3% year-over-year, excluding China. As I mentioned earlier, the Americas, Europe, and Asia, excluding China, all grew in 2023. This took a lot of effort from our sales team, who did a fantastic job capitalizing on the available opportunities in the market with our competitive portfolio. As a result, on a four-year stack basis, our ex-China growth remains at a healthy high single-digit rate. A key challenge in 2023 was the abrupt turn we saw in China, where conditions deteriorated as the year progressed. This was particularly the case in the pharma market, where our revenues are most heavily weighted. For the full year, Chinese sales declined more than 20% overall, which was a 5% headwind to our total growth.

Speaker Change: However.

Speaker Change: Q4 revenue increased increased versus Q3 levels in all our geographies even China.

Speaker Change: As we continue to execute well.

Speaker Change: Macro conditions.

Speaker Change: Our reported sales.

Speaker Change: 108 million higher in the fourth quarter than the third quarter. This reflects a 15% ramp that was consistent with our guidance for a muted year end budget flush.

Speaker Change: For the full year, our organic constant currency sales grew 3% year over year, excluding China.

Speaker Change: As I mentioned earlier, the Americas, Europe, and Asia, Excluding China. All grew in 2023. This took a lot of effort from our sales team, who did a fantastic job capitalizing on the available opportunities in the market, but a competitive portfolio as a result on a full year stack basis our.

Speaker Change: Ex China growth remains at a healthy high single digits.

Speaker Change: A key challenge in 2023 was the upturn we saw in China, the conditions deteriorated as the year progressed.

Speaker Change: This was particularly the case in the pharma market, where our revenues are most heavily weighted for.

Speaker Change: For the full year, China sales declined more than 20% overall, which was a 5% headwind to our total growth.

Udit: This brings us now to our margin performance. We believe that the best reflection of good operational execution is effective margin management when things slow down. During 2023, we saw volume and FX headwinds while inflationary pressure continued. We responded with stronger pricing and added further discipline to our operational objectives. We redoubled our productivity efforts, including the opening of our Global Capability Center in Bangalore, India, and we undertook proactive cost alignment as the slowdown began to emerge.

Speaker Change: This brings us now to our margin performance.

Speaker Change: We believe that the best reflection of good operational execution is effective margin management when things slow down.

Speaker Change: During 2023, we saw volume and FX headwinds, while inflationary pressure continued weakness.

Speaker Change: We responded with stronger pricing and added further discipline to our operational objectives, we redoubled, our productivity efforts, including the opening of our global capability Center in Bangalore, India.

Speaker Change: And we undertook proactive cost alignment as a slowdown began to emerge.

Udit: This resilience, focus, and commitment allowed us to deliver excellent operational results in RP&L. Our full-year gross margin was 59.6%, which is 160 basis points better than the previous year. Our fully-adjusted operating margin was 30.9%, which is 70 basis points of expansion. Now, let me share our progress with the acquisition of wire technology.

Speaker Change: This resilience focus and commitment allowed us to deliver excellent operational results in our P&L.

Speaker Change: Our full year gross margin was 59, 6%, which is 160 basis points better than the previous year.

Speaker Change: Our full year adjusted operating margin was 39%, which is 70 basis points of expansion.

Speaker Change: Now, let me share our progress with the acquisition of biotechnology.

Udit: The strong start to lead sharing between Wyatt and Waters allowed us to offset a slowdown in biotech spending, resulting in an on-target M&A contribution of 2.5% to our full-year sales. I will now give some details on how our revitalized portfolio and alignment with higher growth segments are contributing to growth as part of our transformation. Our strong results in 2023 were supported by our innovative portfolio, which helped drive customer spending. Our new products are gaining good traction in the market, including PQ Absolute, Alliance IS, and MaxPeak Premier Columns, as well as several of our high-res mass spec instruments, such as Cyclic, G3, and MRT.

Speaker Change: The strong start to lead sharing with between wired and waters allowed us to offset a slowdown in biotech spending resulting in an on target M&A contribution of two 5% to our full year sales.

Speaker Change: Now give some detail.

Speaker Change: And how a revitalized portfolio and alignment with higher growth segments are contributing to growth as part of our transformation.

Speaker Change: Our strong results in 2023 was supported by our innovative portfolio, which helped drive customer spending.

Speaker Change: New products are gaining good traction in the marking market, including EQ absolute alliances.

Speaker Change: And Mack speak columns as well as several of our high res mass spec instruments, such as cyclic G III Marty.

Udit: From an adoption perspective, this puts us in an excellent position when instrument budgets begin to normalize. Turning now to our adjacencies, we have continued to invest in and expand into adjacent high-growth markets where our business model of solving problems in downstream regulated applications can be deployed. For bio-separations and bio-analytical characterizations, we've made organic investments, launched new products, and deployed capital to M&A. Large molecule applications are now 35% of our pharma revenues and expected to trend higher, up from around 20% just a few years ago. For diagnostics, we have invested in our clinical business and added workflows for specialty applications of mass spectrometry.

Speaker Change: From an adoption perspective, this puts us in an excellent position with instrument budgets begin to normalize.

Speaker Change: Turning now to our Adjacencies, we have continued to invest and expand into adjacent high growth markets, where our business model of solving problems in downstream regulated applications can be deployed.

Speaker Change: For bio separations, and bioanalytical characterizations, we've made organic investments launch new products and deployed capital to M&A.

Speaker Change: Large molecule applications are now 35% of our pharma revenues and expect it to trend higher up from around 20% just a few years ago.

Speaker Change: For diagnostics, we have invested in our clinical business and added workflows for specialty applications of mass spec.

Udit: This has transformed related revenue growth from that of low to mid-single digits to double digits over the past several years. Finally, our focus on batteries is paying dividends, where very strong growth has remained throughout the year. Revenues from battery applications are now at over 10 times 2019 revenue levels, and our TA business is increasingly aligned with less cyclical, faster growing applications. Each of these exciting growth areas is delivering incremental revenue to the company. Now I will share some facts supporting the long-term outlook for above-average growth and provide 2024 guidance. Since 2010.

Speaker Change: This has transformed related revenue growth from that of low to mid single digits to double digits in the past several years.

Speaker Change: Finally, our focus on batteries as being dividends, we have very strong growth has remained throughout the year.

Speaker Change: Revenues from battery applications are now at over 10 times 2019 revenue levels and our <unk> business is increasingly aligned with less cyclical faster growing applications.

Speaker Change: Each of these exciting growth areas is delivering incremental revenue to the company.

Speaker Change: Now I will share some fact supporting the long term outlook for above average growth and provide our 2020 for guidance in.

Speaker Change: In 2000 and since 2010.

Udit: Waters has grown on average 6% in organic constant currency. For instruments, while the standard deviation is high, long-term average growth has been 5%. For recurring revenues, the standard deviation is much lower, and the average growth is 7%.

Speaker Change: Waters has grown on average, 6% and organic constant currency terms.

Four instruments, while the standard deviation is high long term average growth has been 5%.

Speaker Change: Our recurring revenues the standard deviation is much lower than the average growth is 7%.

Udit: As we look ahead, several vectors make us confident that this growth could be even higher. The first is even faster volume growth in segments that we serve, driven by global prescription drug sales and environmental regulation. The second is increased use of analytical instruments for characterizing large molecules and novel modalities.

As we look ahead several vectors make us confident that this growth could be even higher.

Speaker Change: First is even faster volume growth in segments that we serve driven by global prescription drug sales and environmental regulations.

Speaker Change: <unk> is increased use of analytical instruments for characterizing large molecules and novel modalities.

Udit: And third, it's above historic pricing where we expect to sustain a 100 basis point long-term tailwind in incremental growth. Let's take each of these growth vectors in turn. There are at least two key drivers of testing volume acceleration.

Speaker Change: And third it's above historic pricing, where we expect to sustain a 100 basis points long term tailwind and incremental growth.

Speaker Change: Let's take each of these growth vectors endured.

Speaker Change: There are at least two key drivers of testing volume acceleration. The first is related to the adoption of <unk> drugs.

Udit: The first is related to the adoption of GLP-1, where Waters' instruments and columns are specified for in-process testing and QA-QC testing at the two leading manufacturers. We expect our position to contribute an average additional revenue growth of 30 basis points per year between now and 2030. The second is PFAS testing, where we've been gaining shares in a rapidly expanding market, in part driven by the sensitivity and compact size of our Zero TQ Absolute mass spec. We expect PFAS testing to contribute an additional 30 basis points to our revenue growth for the foreseeable future. Finally, Wyatt Light Scattering is a high-growth business serving attractive large-molecule applications.

Speaker Change: Waters is instruments and columns specified into in process testing and QA QC testing.

Speaker Change: At the two leading manufacturers.

Speaker Change: At the two leading manufacturers.

We expect our position to contribute an average additional revenue growth of 30 basis points per year between now and 2013.

Speaker Change: The second SB first testing, where we've been gaining share in a rapidly expanding market in part driven by the sensitivity and compact size of zero <unk> absolute mass spec.

Speaker Change: We expect beef as testing to contribute an additional 30 basis points to our revenue growth for the foreseeable future.

Speaker Change: Finally, why it light scattering is a high growth business, serving attractive large molecule applications we.

Udit: It also accelerates our ability to solve customer challenges in formulation development, bioanalytical characterization, and QA-QC testing, which has positive repercussions for our waters business as we increasingly tie our columns, LC, and mass spec into these workflows. I will now cover our 2024 full-year guidance. We expect customer spending caution to continue in the first quarter of the year with slow budget releases for downstream instrumentation. We then expect to see a gradual improvement for the remainder of the year as budgets open up, market conditions improve, and prior year comparisons become easier. We expect weakness in China to continue, particularly in the first half of the year, which also plays into the growth phasing of our guide.

Speaker Change: We expect it to contribute 40 basis points of core growth accretion to our business on an annualized basis. It also accelerates our ability to solve customer challenges in formulation development bioanalytical characterization and QA QC testing, which has positive repercussions for our waters business as we increasingly tie our columns.

Speaker Change: <unk> and mass spec into these workflows.

Speaker Change: I will now cover our <unk>.

Speaker Change: 100000 for full year guidance.

Speaker Change: We expect customer spending caution to continue in the first quarter of the year with slow budget release releases for downstream instrumentation. We then expect to see a gradual improvement for the remainder of the year as budgets open up market conditions improve and as prior year comparisons become easier.

Speaker Change: Weakness in China to continue particularly in the first half of the year, which also plays into the growth phasing of our guide.

Udit: With this initial outlook for 2024, we expect fully organic constant currency sales growth to be between negative 0.5% and positive 1.5%. We expect continued strong operational performance to build leverage in our P&L with 20 to 30 basis points of further operating margin expansion while still reinvesting for growth. And we expect adjusted EPS growth of 0 to 3% in the range of $11.75 to $12.05. Now, I will pass the call over to Amol to continue discussing our fourth quarter financial results in more detail and give additional commentary on our guidance for 2024. Amol

Speaker Change: With this initial outlook for 2024, we expect full year organic constant currency sales growth to be between negative <unk>, 5% to positive one 5%.

Speaker Change: We expect continued strong operational performance to build leverage in our P&L with 20 to 30 basis points of further operating margin expansion, while still reinvesting for growth and we expect adjusted EPS growth of zero to 3% in the range of $11 75 to $12 <unk> now.

Speaker Change: Now I will pass the call over to a mall to continue covering our fourth quarter financial results in more detail and give additional commentary on our guidance for 2024.

Amol: Thank you, Udit, and good morning, everyone. We delivered a solid close to a tough year in the fourth quarter with sales that were in line with our expectations. Despite Continued Market Challenges, and the quarter sales declined 4.5% as reported, which aligned with our expectations for a 15% increase in reported revenues versus Q3. Additionally, organic constant currency sales declined 8% against a high single-digit growth comparison last year.

Mall: Thank you and good morning, everyone. We delivered a solid close to a tough year in the fourth quarter with sales that were in line with our expectations. Despite continued market challenges in.

A mall: In the quarter sales declined four 5% as reported which are aligned with our expectations for 15% increase in reported revenues versus Q3.

A mall: Organic constant currency sales declined 8% against a high single digit growth comparison last year.

Amol: We did observe a budget flush in the fourth quarter as sales grew across all geographies in Q4 versus Q3. However, this year's budget flush was more muted than typical, consistent with our expectations. Our WIRED acquisition delivered excellent results again, adding over 3% growth to the reported... In constant currency by end market, pharma declined 11%, industrial declined 4%, and academic and government declined 9%. In pharma, our results were impacted by a further weakening in China, which declined 45% for the quarter. Outside of China, pharma sales declined 4% as instrument sales were impacted by a muted budget flush, in line with our expectations.

A mall: We did observe a budget flush in the fourth quarter, our sales grew across all geographies in Q4 versus Q3.

A mall: However, this year's budget flush was more muted than typical <unk>.

A mall: Distant without expectations are.

A mall: Our Wi Fi acquisition delivered excellent results again, adding over 3% growth to the reported six.

A mall: In organic constant currency by end market volume declined, 11% industrial declined 4% and academic and government declined 9%.

A mall: In pharma our results were impacted by a further weakening in China, which declined 45% for the quarter.

A mall: Outside of China pharma sales declined 4% as instrument sales were impacted by a new big budget flush in line with our expectations.

Amol: In industrial, growth was flat outside of China against a tough, high-teens prior-year comparison. China declined approximately 20% as weakness broadened into non-pharma segments due to weak economic conditions. Overall, we observed continued strong growth in PFAS and battery-related applications, which have continued to partially offset weakness in more cyclical areas. In academic and government, our ex-China business continued to perform well with mid-single-digit growth. However, this was more than offset by a decline of almost 40% in China, where demand deteriorated after the benefits of stimulus ended in the second quarter. By geography, sales in Asia fell 16% as China's weakness more than offset mid-single-digit growth in the rest of Asia. The Americas declined 2% and Europe declined 6% driven by this year's muted budget flush dynamic. By products and services, instruments declined 20 percent.

A mall: In industrial growth was flat outside of China against tough high teens prior year comparison.

A mall: <unk> declined approximately 20%.

A mall: Weakness has broaden into non pharma segments due to weak economic conditions.

Overall, we observed continued strong growth in <unk> and battery related applications, which are continue to partially offset weakness in more cyclical areas.

A mall: In academic and government are ex China business continued to perform well with mid single digit growth. However, this was more than offset by a decline of almost 40% in China, where demand has deteriorated after the benefits of stimulus ended in the second quarter.

A mall: By geography sales in Asia fell, 16% as China weakness more than offset mid single digit growth in the rest of Asia.

A mall: <unk> declined 2% and Europe declined 6% driven by this year's muted budget flush dynamics.

A mall: By products and services instruments declined 20% recurring revenues grew mid single digits.

Amol: Recurring revenues grew mid-single digits, with continued high single-digit growth outside of China. Additionally, there was one additional day in the quarter versus the prior year. Looking now at our full year results, by end market, pharma declined 5%, industrial was flat, and academic and government grew 10%. Excluding China, Pharma and Industrial grew low single digits, and A&G grew mid-teens for the year, each reflecting solid results against double-digit comps. Now by geography, sales in Asia declined 7%, with China declining more than 20%, while Asia ex-China grew high single digits. The Americas grew 1%, and Europe grew 2%. By products and services, instruments declined 10%, which is primarily driven by China.

You had high single digit growth outside of China.

A mall: There was one additional day in the quarter versus the prior year.

A mall: Looking now at our full year results.

By end market Baltimore declined, 5% industrial was flat and academic and government grew 10%.

A mall: Excluding China pharma and industrial grew low single digits and the A&D grew mid teens for the year, each reflecting solid results against double digit comps.

A mall: Now by geography sales in Asia declined, 7% with China declining more than 20%, while Asia ex China grew high single digits. The Americas grew 1% and Europe grew 2%.

By products and services instruments declined, 10%, which was primarily driven by China, excluding China instruments declined low single digits in 2020.

Amol: Excluding China, instruments declined low single digits in 2023, reflecting healthy high single-digit four-year cadence. Recurring revenues grew 6% overall and high single digits outside of China, with robust growth throughout the year. Chemistry growth has been supported by strong customer demand for MaxPeak Premier columns serving large molecule workflows and adoption of e-commerce.

Selecting healthy high single digit four year CAGR.

A mall: Recurring revenues grew 6% overall and high single digit outside of China with robust growth throughout the year.

A mall: <unk> growth has been supported by strong customer demand for Max peak Premier columns solving large molecule workflows and adoption of e-commerce.

Amol: For service, growth has been supported by expansion of plan attachment. In 2023, we exceeded our objective for a further 100 basis points of service plan attachment and delivered a 200 basis point increase for the year. Now I will comment on our fourth quarter and full year non-GAAP financial performance versus the prior year. Despite headwinds from lower sales volumes, FX, and inflation, in 2023, our team responded to these challenges with resilience and commitment. Our continued focus on operational excellence with pricing, productivity, and proactive cost alignment, together with lower incentive compensation, allowed us to deliver a fourth quarter gross margin of 61.2% and an expansion of 170 basis points, and a Four Quarter Adjusted Operating Margin of 34.9%, an expansion of 120 basis points. For the full year, our focus and effort resulted in a gross margin of 59.6% and an expansion of 160 basis points. And an adjusted operating margin of 30.9%, an expansion of 70 basis points, which is after reinvesting in our high-growth economy. Our effective operating tax rate for the quarter was 17.1%, 50 basis points below the prior year quarter.

A mall: For service growth has been supported by expansion of plan attachment.

A mall: In 2023, we exceeded our objective for affordable hundreds of basis points of service plan attachment and delivered a 200 basis point increase for the year.

A mall: Yes.

A mall: Now I will comment on our fourth quarter and full year non-GAAP financial performance.

Speaker Change: The variety of.

Despite headwinds from lower sales volumes FX and inflation.

Speaker Change: 2023, our team responded to these challenges with the resilience and commitment.

Speaker Change: Our continued focus on operational excellence pricing productivity and proactive cost alignment together with lower incentive compensation allowed us to deliver a fourth quarter gross margin of 61, 2% an expansion of 170 basis points and fourth quarter.

Speaker Change: Adjusted operating margin of 34, 9% an expansion of 120 basis points.

Speaker Change: For the full year, our focus and effort resulted in gross margin of 59, 6% an expansion of 160 basis points.

Speaker Change: And then adjusted operating margin of 39% an expansion of 70 basis points, which is after reinvesting in our high growth Adjacencies.

Speaker Change: Our effective operating tax rate for the quarter was 17, 1% 50 basis points below prior year quarter for the full year. It was 16, 2%.

Amol: For the full year, it was 16.2 percent. Our average share count came in at 59.3 million shares, which is about 300,000 less than the fourth quarter of last year. Our non-GAAP earnings per fully diluted share were $3.62. On a GAAP basis, our earnings per fully diluted share were $3.65. For the full year, our non-GAAP earnings per fully diluted share were $11.75.

Our average share count came in at $59 3 million shares, which is about 300000 less than the fourth quarter of last year.

Speaker Change: Our non-GAAP earnings per fully diluted share were $3 and 62 six on a GAAP basis, our earnings per fully diluted share were $3 and 65.

Speaker Change: For the full year, our non-GAAP earnings per fully diluted share were $11 75.

Amol: Foreign exchange headwinds lowered our non-GAAP EPS growth by 3%, and there was a 1% dilution from the Wyeth acquisition. On a gap basis, EPS was $10.85. A reconciliation of our GAAP to non-GAAP earnings is attached to this morning's press release and in the appendix of our earnings call presentation. Now turning to free cash flow capital deployment on our balance sheet, we define free cash flows as cash from operations less capital expenditures and excludes special items.

Speaker Change: Foreign exchange headwinds lowered our non-GAAP EPS growth by 3%.

Speaker Change: And there was a 1% dilution from the Wyeth acquisition.

Speaker Change: On a GAAP basis, EPS was $10 84 things.

Speaker Change: A reconciliation of our GAAP to non-GAAP earnings is attached to this morning's press release and in the appendix of our earnings call presentation.

Speaker Change: Now turning to free cash flow capital deployment, and our balance sheet redefine free cash flows as cash from operations less capital expenditures and excludes special items.

Amol: In the fourth quarter of 2023, pre-cash flow was $192 million after funding $42 million of capital expenditures. For the full year, free cash flow was $554 million after funding $161 million of capital expansion. Excluded from free cash flow were payments of $72 million related to tax reform, $26 million for WIAT assumed liabilities, and $16 million related to investment in our Taunton Precision Chemistry operation.

Speaker Change: In the fourth quarter of 2023 free cash flow was $192 million after funding $42 million of capital expenditures.

Speaker Change: For the full year free cash flow was $554 million after funding 161 million of capital expenditures.

Speaker Change: Excluded from the free cash flow of payments of $72 million related to tax reform $26 million for wired assumed liabilities and $16 million related to investment in our plant.

Speaker Change: Precision chemistry operation.

Amol: We maintain a strong balance sheet, access to liquidity, and a well-structured debt maturity profile that allows us to prioritize investing in growth, including M&A, and returning capital to shareholders. We continue to evaluate M&A opportunities that will meaningfully accelerate value creation. At the end of the quarter, our net debt position further declined to $2 billion, a net debt to EBITDA ratio of about two times. This represents a decrease of approximately $150 million during the quarter as we deal with the wire tax position. As previously disclosed, our share buyback program has been temporarily suspended to enable us to pay down debt incurred as part of the WIRED transaction.

Speaker Change: We maintain a strong balance sheet access to liquidity and well structured debt maturity profile.

Speaker Change: This strength allows us to prioritize investing in growth, including M&A and returning capital to shareholders. We continue to evaluate M&A opportunities that will meaningfully accelerate value creation.

Speaker Change: At the end of the Caldwell netback position affordable declined two 2 billion.

Speaker Change: Net debt to EBITDA ratio of about two times.

Speaker Change: Net debt to EBITDA ratio of about two times.

Speaker Change: This represents a decrease of approximately $150 million.

Speaker Change: During the quarter as we de Levered the wire acquisition.

Speaker Change: As previously disclosed.

Speaker Change: Share buyback program has been temporarily suspended to enable us to pay down debt incurred as part of the wireless transaction.

Amol: We will evaluate the resumption of our share repurchase program throughout 2024 as part of our Balanced Capital Deployment objective. Now, as we look towards the year ahead, I would like to provide you with our high-level thoughts for 2020. Similar to others in the industry, our growth in 2024-3 was slower than usual, driven by unprecedented weakness in China and cautious spending from customers in other regions. We view these market conditions as temporary and anticipate a gradual recovery in sales growth throughout 2020 while our customers remain healthy. Market uncertainties still remain and necessitate prudence in our guidance. These dynamics support full year 2024 organic constant currency sales growth guidance of negative 0.5% to positive 1.5%. At current exchange rates, currency translation is expected to result in a negative impact of just under 1% on full-year sales.

Speaker Change: We will evaluate the resumption of our share repurchase program throughout 2024 as part of our balanced capital deployment objectives.

Speaker Change: Now as we look towards the year ahead, I would like to provide you with a high level thoughts for 2024.

Speaker Change: Similar to others in the industry our growth in 2023 was slower than usual driven by unprecedented weakness in China and cautious spending from customers in other regions.

Speaker Change: We view these market conditions as temporary and anticipate a gradual recovery in sales growth throughout 2024.

Speaker Change: While our customers remain healthy market uncertainty still remains and necessitates prudence in our guide.

Speaker Change: These dynamics support full year 'twenty 'twenty four organic constant currency sales growth guidance of negative <unk>, 5% to positive one 5%.

Speaker Change: At current exchange rates currency translation is expected to result in a negative impact of just under 1% on full year sales.

Amol: We expect the WIRED transaction to add approximately 1.3% M&A contribution to our full year 2024 revenues from inorganic sales incurred in the first four and a half months of the year. Therefore, our total reported sales growth guidance is approximately 0% to 2%. We expect to extend our strong margin performance into 2024 and deliver a gross margin of 59.8% for the full year, which is 20 basis points of expansion versus 2020. We also expect to deliver 20 to 30 basis points of additional operating margin expansion versus 2023, resulting in an adjusted operating margin of slightly over 31%. We expect our full-year net interest expense to be approximately $80 million.

Speaker Change: We expect <unk> transaction to add approximately one 3% M&A contribution to full year 'twenty 'twenty four revenues from inorganic sales incurred in the first four and half months of the year.

Speaker Change: Our total reported sales growth guidance is approximately zero percent two 2%.

Speaker Change: We expect to extend our strong margin performance into 2024 and delivered a gross margin of 59, 8% for the full year, which is 20 basis points of expansion versus 2023.

Speaker Change: We also expect to deliver 20 to 30 basis points of additional operating margin expansion. What is 2023, resulting in an adjusted operating margin of slightly over 31%.

Speaker Change: We expect our full year net interest expense to be approximately $80 million.

Amol: Our full-year tax rate is expected to... remain largely consistent with 2023 levels at 16.3 percent. Additionally, our average diluted 2024 share count is expected to be approximately 59.79%. Now rolling all this together on a non-gap basis, our full year 2024 earnings per fully diluted share guidance is projected in the range of $11.75. Turning now to our expectations for the first quarter of 2024, we believe that customer budget release timing will be slower than typical in the, In addition, current levels of market weakness in China are not fully reflected in last year's first quarter comparison. Last year's deterioration picked up significantly in the second quarter and thereafter. The first quarter also last year benefited from A&G Stimulus Injection. As a result, we expect our China business to decline approximately 40% year-over-year in Q1.

Our full year tax rate is expected to.

Speaker Change: We remain largely consistent with <unk> levels at 16, 3%.

Our average diluted 'twenty 'twenty four share count is expected to be approximately $59 7 million.

Speaker Change: Now rolling all this together on a non-GAAP basis, our full year 'twenty 'twenty four earnings per fully diluted share guidance is projected in the range of $11 75.

Speaker Change: $12 five.

Speaker Change: Which is approximately zero to 3% growth and includes an estimated headwind of approximately 2% due to unfavorable foreign exchange.

Speaker Change: Turning now to our expectations for the first quarter of 2024, we believe that customer budget release timing will be slower than typical in the first quarter.

Speaker Change: Tradition current levels of market weakness in China are not fully reflected in last year's first quarter comparison last year's deterioration picked up significantly in the second quarter and thereafter. The first court also last year benefited from AMG stimulus in China.

Speaker Change: As a result, we expect our China business to decline approximately 40% year over year in Q1.

Speaker Change: Given these dynamics, we expect organic constant currency sales growth in the range of negative 11% to negative 9% at current rates currency translation is expected to subscribe approximately 1%. While why are these expected to add approximately three 5% to sales for the quarter.

Amol: Given these dynamics, we expect organic constant currency sales growth in the range of negative 11% to negative 9%. At current rates, Currency Translation is expected to subtract approximately 1%, while Wyeth is expected to add approximately 3.5% to sales for the... Therefore, our total first quarter reported sales growth guidance is negative 8.5% to negative 6.5%. Based on these revenue expectations, first quarter non-GAAP earnings per fully diluted share are estimated to be in the range $2.05 to $2.15, which includes a negative currency impact of approximately 4 percentage points at the current FX rate. Now I would like to turn the call back to Udit for some summary comments. Udit.

Speaker Change: Therefore, our total first quarter reported sales growth guidance is negative eight 5% to negative six 5%.

Speaker Change: Based on these revenue expectations first quarter non-GAAP earnings per fully diluted share are estimated to be in the range $2 <unk>.

Speaker Change: $2.15, which includes a negative currency impact of approximately four percentage points.

Speaker Change: Current FX rates.

Speaker Change: Now I would like to turn the call back to <unk> for some summary comments.

Udit: Thank you, Amol. So, in summary, another transformative year for Waters. We will continue to navigate the current market environment well and deliver earnings growth for our shareholders in 2024. Before I close, I would like to share a few updates on our ESG efforts. We've made strong progress towards our environmental goals, with 70% and 77% of our electricity now sourced from renewable or low carbon sources. In 2023, we started working with the Science-Based Targets Initiative to build on this progress and develop further emissions reduction targets. We've also enhanced our climate-related disclosure with our TCFD-related reporting. Waters was recognized as one of the best companies to work for by U.S. News and World Report, and we achieved a perfect score of 100 on the Human Rights Campaign Foundation's Corporate Equality Index. We're also proud that our governance has been recognized. Waters Board of Directors was named the 2024 Public Company Board of the Year by the National Association of Corporate Directors, New England Chapter.

Speaker Change: Thank you all.

So in summary, another transformative year for waters, and we will continue to navigate the current market environment as well and deliver earnings growth for our shareholders in 2024.

Speaker Change: Before I close I would like to share a few updates on our ESG efforts, we have made strong progress towards our environmental goals with 70%, 77% of our electricity now sourced from renewable or low carbon sources. In 2023, we started working with the science based targets initiative.

Speaker Change: Good on this progress and develop further emissions emissions reduction targets. We've also enhanced our climate related disclosure without DC FTE related reporting.

Speaker Change: <unk> was recognized as one of the best companies to work for but like the U S News and World report and we achieved a perfect score of 100 on the human rights campaign Foundation's corporate equality index.

Speaker Change: We're also proud that our governance has been recognized.

Speaker Change: Waters' Board of Directors was named the 2020 for public Company Board of the year by National Association of corporate Directors, New England chapter so with that I'll turn the call back over to gas.

Udit: So with that, I'll turn the call back over to Cass. Thanks, Souda. That concludes our formal comments. We are now ready to open the phone lines for questions. Thank you. Now the first question comes from Vijay Kumar with Evercore ISI. Your line is open.

Gas: Thank you that concludes our formal comments, we are now ready to open the phone lines for questions.

Gas: Thank you and our first question comes from Vijay Kumar with Evercore ISI. Your line is open.

Vijay Muniyappa Kumar: Hey guys, thanks for taking my question. Udit, just on the annual guidance here, you know, at the midpoint, I think it's about 50 basis points of growth. What is the guide assuming for price and can you talk about end markets, pharma, government, academia, industrial sort of assumptions. I know you gave the China assumption, China is expected to be down, but could you just parse out between China versus non-China for those end markets? Sure.

Vijay Muniyappa Kumar: Hey, guys. Thanks for taking my question.

Vijay Muniyappa Kumar: Just on the annual guidance here.

<unk> point, I think it's about 50 basis points.

Vijay Muniyappa Kumar: What is the guidance for price and can you talk about.

Vijay Muniyappa Kumar: End markets pharma Goldman Academia industrial sort of assumptions I know you gave the year, China assumption, China is expected to be down, but could you just parse out between China versus non China.

Vijay Kumar: To this end markets.

Speaker Change: Sure. So thanks for the question and good morning.

Udit: So thanks, Vijay, for the question, and good morning. Look, I mean, a couple of high-level comments, and then I'll go to the end markets, and I'll let Amol comment on the pricing question. The 2024 guidance, in general, assumes that the trends that we saw in 2023 continue in large part, right? So you start off just looking at what happened in 2023.

Speaker Change: A couple of high level comments, and then I'll go to the end markets that are more comment on the pricing question.

Speaker Change: The 2024 guidance in general.

Speaker Change: Homes that the trends that we saw in 2023, continuing large block right. So you start off.

Speaker Change: Just looking at what happened in 2023 outside of China All.

Udit: Outside of China, all end markets and geographies grew low single digits or thereabouts, right? So all geographies were low single digits, and we assume the same trend for the balance of the year, and all end markets were in a similar sort of zip code. And in China, we assume a roughly sort of mid-teens to high-teens decline for 2024. Now, when you do the arithmetic, you basically look at the comps.

Speaker Change: End markets and geographies grew low single digits or thereabouts right. So all geographies were low single digits and we assume the same trend for the balance of the year and all end markets within the similar sort of Zip code.

Speaker Change: And in China, we assume roughly sort of mid teens to high teens decline for 2020 for now when you do the arithmetic you basically look at the comps the first half of the year will be slower than the second half right. The first half of the year has significantly higher comps when you look at the academic and government stimulus, especially in China and then the second half of the year.

Udit: The first half of the year will be slower than the second half, right? The first half of the year has significantly higher comps when you look at the academic and government stimulus, especially in China, and then in the second half of the year, that alleviates, so you start to see a bit of growth. So now to your question on the full year and the assumption for different end markets. For the full year, pharma, we are expecting to grow low single digits, and this is, again, on the back of what we saw in 2023. Industrial production was flat in 2023 for the full year.

Speaker Change: That alleviates that youll start to see a bit of a bit of a growth. So now to your question on the full year and the assumption for different end markets for the full year.

Speaker Change: Pharma, we are expecting to grow low single digits and this is again on the back of what we saw in 2023 industrial was flat in 2023 for the full year, we expect to be there or thereabouts low single digit growth and AMG with a very strong year, roughly 10% to 12% for 2023.

Udit: We expect to be there or thereabouts with low single-digit growth. And A&G, with a very strong year, roughly 10-12% for 2023, we expect it to be a low double-digit decline. Basically, in China, declining quite significantly because of high comps, and the rest of the world, you sort of go back to the long-term trends of low single-digit growth. So really, overall, I'm expecting the same execution that we saw in 2023. Basically, really nice performance in markets outside of China with low single-digit growth in China, a mid-teens decline, and by end market, sort of similar trends continuing in pharma due to our QAQC focus. I'm all about the pricing. Yeah. Thanks, Vijay. And look at the pricing.

Speaker Change: Expect it to be a low low double digit decline basically in China.

Speaker Change: Climbing quite significantly because of high comps and the rest of the variety of sort of go back to.

Speaker Change: The long term trends of low single digit growth so really overall.

Speaker Change: Expected the same execution that we saw in 2023, basically really nice performance in markets outside of China with low single digit growth in China, a mid teens decline and by end market saw a similar trend strength continuing in pharma due to our QA QC.

Speaker Change: Due to our to our QA QC focus them all on the pricing.

Speaker Change: Thanks, Vijay and look on pricing when we started 23, you started with an assumption of 250 basis points, whereas the year round out our team gathered strength quarter after quarter and Youll see full year refinished about 300 basis points on price right now.

Amol: When we started in 2023, we started with an assumption of 200-250 basis points. But as the year panned out, our team gathered strength quarter after quarter. And you see, full year, we finished about 300 basis points on price, right? Now, long-term, we've said we'll do about 100 basis points better than what we've historically done. And historically, we did 50 to 75 basis points.

Speaker Change: Now long term, we've said, we'll do about 100 basis points better than what we've historically done in historically, we had done 50 to 75 basis points. So that's where our guide assumption is started being roughly around 200 basis points of pricing gains in 2024, but again the underlying trend is I mean, we're doing better than that.

Amol: So that's where our guide assumption is starting, roughly around 200 basis points of pricing gains in 2024. But again, the underlying trend is, I mean, we're doing better than that. And we're better able to see it, right?

Speaker Change: And where better to see it right I mean, it reflects loud and clear in our gross margin expansion, which is where it should show up and then I think just to sort of emphasize that point, even more what gives me sort of a lot of confidence is what we saw on our gross margin and our operating margin in such an environment. We took proactive cost actions operating margin.

Udit: I mean, it reflects loud and clear in our gross margin expansion, which is where it should show up. Yeah. And then I think just to sort of emphasize that point even more, what gives me sort of a lot of confidence is what we saw in our gross margin and our operating margin. I mean, in such an environment, we took proactive cost actions; operating margin for the full year expanded by 70 basis points, and gross margin by 160 basis points. I mean, you can talk a good game on pricing, but in the end, it has to show up in the PNL, and that's what we're really proud of. Absolutely, that's a helpful comment too.

Speaker Change: For the full year expanded by 70 basis points and gross margin by 160 basis points. I mean, you can talk a good game on pricing, but at the end it has to show up in the P&L and that's what we're really proud of.

That's helpful commentary.

Unnamed Speaker: One for you, operating margin expansion, that's really pretty impressive, considering revenues are almost flattish here, organically. Is that all being driven by gross margins? I think in the past, you noted FX could have an impact on gross margins. Maybe just talk about what's driving OMX and FX assumptions on margins.

Speaker Change: One for you.

Operating margin expansion, that's really pretty impressive considering revenues were almost flattish year.

Speaker Change: <unk> is that all being driven by gross margins I think in the past.

Speaker Change: Noted.

Speaker Change: Could be.

Speaker Change: Have an impact on gross margins, maybe just talk about whats driving on Max and FX assumptions on margins.

Unnamed Speaker: Yeah, look, I mean, you know, we expanded our full-year margins by 70 basis points. And on a constant currency basis, that's 120 basis points of expansion because we had a good 50 basis points of FX headwind during the year. The negative leverage from volume was partially offset by MEEX and AIP, so net-net, it was negative 40 basis points, pricing added 110 basis points, freight and material savings another 60 basis points, cost actions added another 60 basis points, and then we invested about 70 basis points in nurturing higher demand. So that's roughly the break. All hands on deck, please.

Speaker Change: Yes look I mean, we expanded our full year margins by 70 basis points and on a constant currency basis. That's a 120 basis points of expansion because we had a good 50 basis points of FX headwind during the year.

Speaker Change: <unk>.

Speaker Change: The negative leverage from volume.

Speaker Change: It was partially offset by mix and AIP. So net net it was negative 40 basis points pricing added 110 basis points freight and material savings. Another 60 basis points cost actions added another 60 basis points and then we invested about 70 basis points and nurturing higher growth adjacencies. So.

Speaker Change: That's roughly the breakdown.

Speaker Change: All hands on deck basically.

Unnamed Speaker: Okay, thank you. Our next question comes from Matt Sykes with Goldman Sachs. Your line is open. Hi, good morning.

Okay. Thank you and our next question comes from Matt <unk> with Goldman Sachs. Your line is open.

Matt Mishan: Thanks for taking my questions. Maybe just the first one, a higher level question. Just on the replacement cycle impact, just given the outsized growth we saw in instruments during the sort of COVID period, what kind of impact do you think this has had on the replacement cycle? Particularly in biopharma, given a lot of the spend was concentrated there, do you think the replacement cycle has been pushed out, or do you think that you'll see the impact of that coming back? this year, or is it more of a, It's a great question, Matt, and thank you for that.

Matt: Hi, good morning, Thanks for taking my questions.

Matt: Maybe just the first one a higher level question.

Matt: On the replacement cycle impact just given the outsized growth we saw in instruments. During this COVID-19 period.

Matt: What kind of impact do you think this is hot on replacement cycles, particularly in Biopharma.

Matt: A lot of the spend Wisconsin or do you think the replacement cycle has been pushed out.

Or do you think that you will see the impact of that coming back in this year or is it more of a 2025.

Speaker Change: Yeah, It's a great question, Matt and thank you. Thank you for that so let me start by first just talking about what we have seen in Q4.

Udit: So let me start by just talking about what we saw in Q4. You would have seen that our sales ramped from Q3 to Q4 by about 15%, and this is typical in a QA, QC-driven business. But, it's muted versus historical trends, which are roughly 24% for Waters.

Speaker Change: You would have seen that.

Q4.

Speaker Change: Our sales ramp from Q3 Q4 by about 15% right and this is typical in a QA QC driven business and its muted versus historical trends, which are roughly 24% for waters, but in the QA QC driven business you do see.

Udit: But in a QA, QC-driven business, you do see a ramp in replacement towards the end of the year, right? So that trend is very much intact, especially outside of China, right? So it's, I think, naive to think that replacement cycles have suddenly stopped, right? This Q4 ramp tells us that replacement cycles are still ongoing. Now the underlying question is, what is driving these replacement cycles, and how do you trigger them, right? So when you're in a muted CapEx environment...

Speaker Change: Ramp in replacement towards the end of the year.

Speaker Change: That impact is that trend is very much intact.

Speaker Change: Especially outside of outside of China. So.

Speaker Change: That is it.

Speaker Change: I think naive to think that replacement cycles have suddenly stopped late Q4 ramp delta replacement cycles are still ongoing now the question.

Speaker Change: The underlying question is what are driving these replacement cycles, and when and how do you trigger them.

Speaker Change: When you're in a muted capital music.

Speaker Change: Muted capex environment.

Speaker Change: The conversations we've had with customers on replacements have largely centered around new product site <unk>, which have both gained a lot of nice receptivity likes of new products allow you to continue to have that conversation and you see that reflected in our sort of pharma results outside of China and as you compare to our peer group now to your question.

Udit: The conversations we've had with customers on replacements have largely centered around new products, right, RKH, PLC, and Alliance IS, which have both gained a lot of nice receptivity, right? So new products allow you to continue to have that conversation, and you see that reflected in our sort of pharma results outside of China and as you compare them to our peer group. Now, to your question about whether we saw an outsized replacement during the post-COVID years, I mean, it's very difficult to tell.

Speaker Change: Did we see an outsized replacement during the during the post Covid years, I mean, it's very difficult to tell we think it was more of a pushback from the depression that you saw in the India during Covid and I would say it's execution that we saw due to the replacement cycle that we had not had <unk>.

Udit: We think it was more a pushback from the depression that you saw during COVID and outsized execution that we saw due to the replacement cycle that we had not had from 2018 to 2020. So pent-up demand sort of helped us get really outsized growth. Now, to corroborate that point, if you just look at LC, LC is 70% a replacement business, and if you look at how we ended... The full year 2023, right?

Speaker Change: From 2018 to 2020, so pent up demand sort of helped us get really outsized growth now to corroborate that point. If you just look at LC LC is 70% of replacement business and if you look at how we ended.

Speaker Change: The full year 2023.

Udit: So LC, and again, once you look at long-term trends, on a long-term basis, LC is growing roughly 1% on a four-year kegger basis, which is well below the long-term average of about four to 5%. And you add pricing, so it's actually for four ish percent, sort of below in volume versus the long term trend of four to 5% LC growth. So we do expect LC replacement to start imminently. Now, don't ask me exactly when that inflection point is.

Speaker Change: As seen and again once you look at long term trends on a long term basis.

Speaker Change: Is roughly one 1% growth on a four year CAGR. So LTE is growing roughly 1% on a four year CAGR basis, which is well below the long term average of about 4% to 5%.

Speaker Change: And you add pricing so it's actually four ish percent below in volume versus versus the long term trend of 4% to 5% as C Corp. So we do expect LTE replacement to stock.

Speaker Change: Imminently now don't ask me exactly when that inflection point is.

Udit: Short term, we have a ton of visibility with a lot of data and a lot of conversations with customers. Long term, we think the trends are going to revert back to the mean or even better, given what we've talked about in our prepared remarks, the inflection point, you don't get any extra marks to call it that. So in 2024, we've assumed the same trends as 2023 to persist. But definitely, we believe LC is due to come up in growth rate. So, long answer, but I hope that gives you a lot of context on how we are thinking. Yeah, that's a great color.

Speaker Change: Short term, we have a ton of visibility with a lot of data and a lot of conversations with customers long term. We think the trends are going to revert back to the mean or even better given what we've talked about in our prepared remarks. The infection point, you don't get any extra amongst I'll call. It. So in 2024, we've assumed the same trends as 2023 to persist, but definitely we believe.

Speaker Change: <unk> LC is do you took.

Speaker Change: To come up in growth rates, so long answer, but I hope that gives you a lot of context on how we're thinking about it.

Speaker Change: Yes, that's great color. Thank you and then just a quick one on <unk> you mentioned in the slide deck.

Matt Mishan: Thank you. And then just a quick one on PFAS. You mentioned on the slide deck that the market is starting to expand into food, which is probably earlier than we had expected, just given the potential size of the food market relative to water. One, how big do you assume the food market will be over the long term? And two, how much of that 30 basis points?

Speaker Change: The market is starting to expand into food, which is probably earlier than we had expected just given the potential size of the market of food relative to water.

Speaker Change: One how big do you assume the food market to be over the long term and two how much of that 30 basis points.

Udit: Annual contribution from PFAS actually comes from food relative to water in your assembly. Early days, Matt. I mean, we've assumed roughly $50 to $75 million for now in the food market. And over time, we expect it to expand. As you point out, that could be a pretty significant market. We want to be a bit cautious here, right? So the 30 basis points are largely on the back of water testing and not much from food testing at this point. But that said, the PFAS market is super dynamic. So we've gone from water testing to expansion into food testing, into tissue samples, into soil samples, into sewage, and into industrial companies sort of purchasing mass specs to analyze their effluent stream. So it's a market that's going to significantly expand. We're a bit cautious in trying to... Transcribed by https://otter.ai. Thank you. Our next question comes from Rachel Von Staal with J.P. Morgan. Your line is open. Great. Good morning. Thanks for taking the questions. I just want to dig into this one cue guide a little bit.

Speaker Change: Annual contribution from Keith Haas actually comes from soon relative to water in your assumptions.

Speaker Change: Early days Matt.

Matt: We've assumed roughly $50 million to $75 million for now in the food market and over time, we expect it to expand as you well pointed out that could be a pretty significant market. We wanted to be a bit cautious here right. So the 30 basis points is largely on the back of water testing and not much from food testing at this point, but that said.

Matt: The PFS market as Super dynamic so they've gone from water testing the expansion into food testing into tissue samples into soil samples into sewage and into industrial companies sort of purchasing loss specs to analyze their effluent streams. So.

Matt: It's a market that's going to significantly expand a.

Matt: A bit cautious in trying to.

Matt: Trying to guess exactly what that size is what we're focused on is sort of going after each and every opportunity in these in these segments and you'll see that with roughly 40% growth. So stay tuned I mean, as we find out more you progressively see the increased market sizes or better information in March.

Speaker Change: Thank you the next.

Speaker Change: Question comes from Rachel <unk> with Jpmorgan. Your line is open.

Rachel: Hey, good morning, Thanks for taking the question.

Rachel Von Staal: You know, this was weaker than most of us had anticipated. Appreciate that the market's pretty dynamic, and you have some really difficult comps in China during one cue. But are there any other one-timers in terms of why you would have that level of sequential step down? And you know, was there any pull forward that may have helped four cue that led to that softer one-cue guide as well? Yeah, no, Rachel.

Rachel: I just wanted to dig into the <unk> guide a little bit weaker than most of US had anticipated I appreciate that the market is pretty dynamic and you have some really difficult comps in China. During <unk>, but are there any other one timers in terms of why you would have that level of sequential step down and was there any pull forward that may have <unk> that led to that softer <unk> guide as well.

Rachel: You are not neutral.

Udit: Thanks for your question. And good morning. I mean, the one-timer companies are largely in China, right? You had the stimulus last year in A&G and the level of weakness we are seeing now in China. Last year's Q1 baseline doesn't reflect that at all. In the rest of the world, we are assuming that customers will be slow out of the gate, and that's based on the trend that we saw, and that sort of thing. Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES, was almost 7.5-8% down versus the previous year, and we're assuming at the midpoint of the guide Q1 is roughly 10% down. We expect, as Amol said, the trends from Q4 to persist into Q1, right, low single-digit-ish growth or So no real challenge, and I mean, I'll just sort of say one more thing.

Speaker Change: Thanks for your question and good morning.

Speaker Change: I mean, the one timers that are largely in China right. I mean, you had those stimulus last year in EMG and the level of weakness we are seeing now in China last year's Q1 baseline doesn't reflect that at all.

Speaker Change: In the rest of the World we are assuming.

Speaker Change: Customers will be slow out of the gate versus what we typically see and Thats based on the trend that we saw in Q4, we had the budget flush was new bid and that will somehow we think reflect in how quickly budget southern leased to customers and that sort of playing out in the guidance.

So Rachel just to sort of build on what <unk> said.

Rachel: All in all different than what we saw in Q4 overall rate in Q4.

Rachel: Was almost 758% down versus previous year, and we're assuming at the midpoint of the guide Q1 is roughly 10% down we expect them. All said the trends from Q4 to persist into Q1 rate low single digit ish growth or flat growth in ex China and in China, roughly 40% decline due to the heavy comps from especially.

Rachel: From AMG last year, where we had the benefit of the stimulus was coming coming through so no real challenge.

Speaker Change: I'll, just sort of say one more thing in.

Udit: In pharma, in China in particular, we're starting to see a bit of stabilization, right? We're starting to see biotech spending start to reemerge. We're starting to see CDMO spending on recurring revenues.

Speaker Change: In pharma in China in particular.

Speaker Change: Starting to see a bit of stabilization right. We're starting to see biotech spending start to reemerge, we're starting to see <unk> spending on recurring revenues and we're also in the branded generic segment, which is <unk>, which is roughly 50% of our pharma market, where more and more cities and more and more hospitals are starting to open up so we see that.

Udit: And we're also in the branded genetic segment, which is roughly 50% of our pharma market, where more and more cities and more and more hospitals are starting to open up. So we see that trend, but we are cautious in calling it at this point in Q1. So Q1, basically, similar trends to Q4. And just keep in mind that Q1 is our smallest quarter, right? So small changes have a... Great, that's helpful. And then just my follow up on this assumed gradual improvement that you guys are embedding throughout the year. Can you just dig a little bit more into those assumptions?

Speaker Change: And but we are cautious in in and calling that at this point in Q1. So Q1 basically similar trends to Q4 and just keep in mind Q1 is our smallest quarter nitriles small changes have a meaningful impact on the bottom.

Speaker Change: Great. That's helpful. And then just my follow up on this it's been gradual improvement that you guys are embedding throughout the year can you just dig a little bit more into those assumptions, which markets and which geographies are you assuming more of an improvement than others.

Rachel Von Staal: Which markets and which geographies are you assuming will see more improvement than others? You talked about some of China and the comp dynamic. So how much do comps really have to do with that improvement that you're expecting throughout the year as well? Thank you.

Speaker Change: Talk about some of the China in the comp dynamic and so how much the comps really have to do with that improvement that you're expecting throughout the year. It's Bob.

Speaker Change: Yes.

Bob: Yes, great question and look I mean, we sort of looked at it from various different vantage points.

Udit: And look, I mean, we've sort of looked at it from various different vantage points. If you look at sort of how we've performed ex-China, we've grown sort of low single digits, and we expect that. Subject Matter, later part of the year. China, you know, you will see this is a pretty big line, as we talked about in Q1 because the baseline is pretty strong. But as we get into the second half of China, we, transcribed by Edwards, For the second half, we sort of grow mid-single digits. When you look at it on a five-year stack versus 2019, roughly, it's mid-single digit growth, both for the first half and the second half. I mean, similar trends in Q1 in the first half and second half, just the arithmetic is that the comps in the first half are higher than the second half. Okay, thank you.

Bob: If you look at sort of how we've performed ex China, we've grown sort of low single digits and we expect that to be the case for the full year.

Bob: Sums slow out of the gate with how the budgets are at least in Q1, and then you sort of thing.

Bob: Budget flush baseline towards the later part of the year.

Bob: China.

Bob: You will see decline as we've talked about in Q1, because the baseline is pretty strong.

Bob: But as we get into the second half of China.

Bob: Things will normalize because lot of the demand slowness is reflected.

Bob: So if you sort of look at it from that vantage point for the first half we sort of decline mid single digits for the second half, we sort of grow mid single digits. When you look at it on a five year stack versus 2019, roughly mid single digits growth both for the first half as well as the second half.

Speaker Change: Yeah, Let me similar trends in Q1 in the first half and second half just the arithmetic is.

Speaker Change: Is that the comps in Q1 are higher than at constant half or the first half are higher than the second half.

Speaker Change: Yes.

Speaker Change: Okay. Thank you and our next question comes from Doug Schenkel with excuse me Wolfe Research. Your line is open.

Doug Schenkel: And our next question comes from Doug Schenkel with Wolf Research. Your line is open. Okay, good morning, guys, and thanks for taking the questions. Actually, I want to look at China in a different way. And I'm just doing some quick math on the fly, which is always dangerous.

Doug Schenkel: Hey, good morning, guys. Thanks for taking the questions.

Doug Schenkel: Yes.

Doug Schenkel: Actually I wanted to look at China, a different way.

Doug Schenkel: Im just doing some quick math on the fly which is always dangerous, but one thing as I look back the last few years I've noticed is.

Udit: But one thing as I look back on the last few years, I've noticed is that I think Q1 revenue in China is typically about 70% of Q4 revenue in China. Just kind of thinking about the historical sequential pattern to the extent you can do that over the last few years, given how different that has been. But if we use that as precedent, it seems like you're essentially embedding that pattern into your guidance this year again. So when I keep that in mind, and I look at Q3 and Q4 revenue in China, which were about $100 million each. Well, the comps are really tough, and growth is not going to look great in the first half of the year. Are you at some level kind of assuming a normalization of sequential growth over the course of 2024 relative to Q4 on a sequential basis? It's a great question, and welcome back, Doug. Look, you nailed it, right? I mean, we've.

Doug Schenkel: Thank you Juan revenue in China is typically about 70% of Q4 revenue in China, just kind of thinking about historical sequential pattern to the extent you can do that over the last few years given how.

Doug Schenkel: How different that has been but if we use that as a precedent.

It seems like you're essentially embedding that pattern into your guidance this year or so.

Doug Schenkel: Keep that in mind and I look at Q3, and Q4 revenue in China, which were about $100 million each.

Doug Schenkel: Well the comps are really tough and the growth is not going to look great. In the first half of the year are you at some level kind of assuming a normalization of sequential growth over the course of 2024 relative to Q4 on.

Doug Schenkel: On a sequential basis.

Speaker Change: Yeah, It's a great question and welcome back.

Speaker Change: Doug.

Speaker Change: Look it's you nailed it right I mean, we've.

Speaker Change: And when we gave our Q4 guidance also last year. There was a lot of questions on how did you come up with the guidance and we use similar sort of math you basically look at 15 years of data, which is what we have.

Udit: And when we gave our Q4 guidance also last year, there were a lot of questions on how you came up with the guidance. And we used a similar sort of math, right? You basically look at 15 years of data, which is what we have, and you look at sequential changes mathematically. Then you look at the funnel itself and look at what the funnel is saying in terms of orders. And third, you have conversations with customers. And during a difficult time, visibility, I mean, ironically, people say visibility is pretty low. Well, visibility in the short term is incredibly high. We just don't like what we're seeing. And so people keep saying visibility is low, but it is pretty high.

Speaker Change: And you look at sequential changes mathematically then you'll look at.

Speaker Change: The funnel itself and look at what the funnel is saying in terms of the orders and third conversations with customers and during a difficult time.

Speaker Change: The visibility I mean, ironically people say visibility is pretty pretty low visibility in the short term is incredibly high we just towards like what we're seeing and so we will keep things visibility as though the visibility is very high analytical if we're looking at things very carefully we're talking about a ton of customers. We're just executing really really well just getting <unk>.

Udit: Analytically, we're looking at things very carefully. We're talking to a ton of customers. We're just executing really, really well, just taking every opportunity that's in front of us.

Speaker Change: Every opportunity Thats in front of us so to answer your question, Yes, we are.

Udit: So to answer your question, yes, we are using that math of sequential growth quarter on quarter, and that's embedded in the full year guidance. Now, if that improves, I mean, I'm sort of anticipating the next question. If that improves, of course, you see upside, right? And we are starting to see trends... from Q4, especially in China, look a bit better in Q1, especially in the largest end market, which is China, which is Pharma. In the ex-China geographies, in Q1, we assumed that the same trends continue from Q4, and customers are cautious like they were cautious in Q1, which is what we are sort of hearing from many of our customers. They want to see how Q1 lands before they start releasing CapEx. But you've got one of the elements of our guide philosophy nailed, yes. Okay, this is super helpful.

Speaker Change: We are using that math, all sequential sequential growth quarter on quarter and thats embedded in the full year full year guidance now if.

Speaker Change: If that improves.

Speaker Change: I'm sort of anticipating the next question if that improves of course, you'll see upside right and we're starting to see trends.

Speaker Change: From Q4, especially in China look a bit better in Q1, especially in our largest end market, which is China leverages because pharma.

Speaker Change: The ex China.

Speaker Change: Geographies in Q1, we've assumed that the same trends continue from from Q4 and customers are cautious like they were cautious in Q1, which is what we're sort of hearing from many of our customers. They want to see how Q1 land before.

Speaker Change: Before they start releasing capex, but.

Speaker Change: You've got one of the elements of our.

Speaker Change: Guide philosophy nailed yes.

Okay Super helpful and then.

Doug Schenkel: And then, Udit, either for you or for Amal, I was wondering if you'd be willing to delineate between large and small molecule growth on the chemistry side. I'm just curious how that's been trending, and you know what's incorporated into guidance. That may be cutting things in an unfair way, but if you're willing to indulge us, I think it would be really interesting just to hear how that's been trending and how you're thinking about it for 2024. Thank you. I think we should look at clean results ex-China, which is where things are not sort of not affected by shutdowns and the like, right? Overall, I can give you the overall statistics.

Speaker Change: Food at either for you or for a mall.

Speaker Change: Wondering if you'd be willing to delineate between large and small molecule growth on the chemistry side.

Speaker Change: I'm just curious how that's been trending and whats incorporated into guidance.

That may be cutting things in an unfair way, but if you're willing to indulge us I think that would be really interesting just to hear how that's been trending and how youre thinking about it for 2024. Thank you.

Speaker Change: I think let's look at Athene results ex China, which is where things are not sort of not have affected by shutdowns and the like right. Overall I mean I can give you. The overall statistics back in 2020 are the revenues from bio <unk> biologics out of out of our total pharma revenues were less than 20.

Udit: Back in 2020, the revenues from biologics out of our total pharma revenues were less than 20%. Now that number is in excess of 35%. 400 basis points of that is wired, but the rest of it is the base organic acceleration in large molecule applications. I can't tell you off the top of my head how much of that comes from chemistry and how much of that comes from instruments. It's a mix.

Speaker Change: 8% now that number is in excess of 35%.

Speaker Change: 400 basis points of that is wired, but the rest of it is the base organic acceleration and large molecule large molecule applications now.

Speaker Change: I can't tell you off the top of my head how much of that comes from chemistry, and how much of that comes from instruments. It's a mix I would argue.

Udit: I would argue at this point it's basically a mix of the two, BioAccord sort of picking up, Zevo G3 picking up. But in chemistry, what I can tell you is roughly 70 to 80 percent of our R&D spend is now on large molecule and biologics applications. MaxPeak Premier Column, in its third year, is growing in excess of 30 percent. We've introduced a new gene therapy column.

Speaker Change: At this point, it's basically a mix of the two.

<unk> sort of picking up <unk> III picking up but in chemistry, and what I can tell you is roughly 70% to 80% of our R&D spend is now on large molecule biologics application Mack speak Premier column in its third year is drilling in excess of 30%. We have introduced a new gene therapy column so rarely.

Udit: So really, really pleased with what we're doing on large molecule applications, with 35 percent of our pharma revenues now coming from biologics. Thank you. The next question comes from Dan Brennan on your line. Hi, this is Tom Stephens on to Dan Brennan today.

Speaker Change: Really pleased with what we're doing on large molecule large molecule applications with 35% of our pharma revenue is now coming from biologics.

Speaker Change: Okay. Thank you and our next question comes from Dan Brennan with TD Cowen Your line is open.

Speaker Change: Hi, This is Tom Stephens.

Dan Brennan: And today thanks.

Tom Stephens: Thanks for taking my question. I guess my first one is just on the industrial guide. And, you know, given the strength of that category with PFAS testing and battery testing alike, what kind of gives you confidence that momentum kind of continues in the back half and why we shouldn't see maybe a rest of the world cyclical slowdown? So that was my first one, and I've got a couple of others to follow up. So Tom, thank you for the questions. Look, I mean, industrial finished 2023 roughly flat, right? And flat in a year where there were significant macro challenges, right?

Tom Stephens: Thanks for taking my question I guess my thoughts one is just on on the industrial side, given the strength of that category <unk> testing.

Tom Stephens: As we test and the like.

Tom Stephens: What kind of gives you confidence that momentum kind of continues in the back half and why we shouldn't see maybe a rest of world will slow down.

Speaker Change: My first one I've got a couple of others to follow up.

Speaker Change: So Tom Thank you for the question look I mean industrial finished 2023.

Tom Stephens: Roughly flat right.

Tom Stephens: And flat in a year, where there were significant macro challenges and this was largely this was largely due to be fast and battery testing offsetting the other macro sensitive segments in our industrial business site.

Udit: And this was largely due to PFAS and battery testing offsetting the other macro-sensitive segments in our industrial business, right? And DA, we've not talked about that business in a while, but the DA business for the full year grew 3%.

Tom Stephens: And we've not talked about that business.

Tom Stephens: In a while but the da business for the full year grew 3%.

Udit: In a year where growth was very difficult to get, and that number includes China, right? Now, as you look into the year 2024, we assume that the full year will be there or thereabouts, low single-digit growth. Ex-China growing low single digits, really on the back of PFAS battery and a bit of recovery on food and environmental. And China really now, given this large, the large comps in, in 2023, in negative territory, in the low single, low to mid single digit.

Tom Stephens: Right.

Tom Stephens: <unk> growth was very difficult to get and that included that number include China right. Now as you look into <unk> into 'twenty into 2024, we assume that the full year will be there or thereabouts low single digit growth.

Tom Stephens: Ex China growing low single digits really on the back of DFAST battery and a bit of recovery on food and environmental.

Tom Stephens: And China really now given this large the large comps in 2023 in the negative territory in the low single low to mid single digits. So expecting 2024 to look similar to 2023 overall, especially ex China, a little bit of.

Tom Stephens: So expecting 2024 to look similar to 2023 overall, especially ex-China, with a little bit of stronger sort of comps in China, maybe a bit of muted growth. So you should assume that the industry will be sort of flat to low single-digit growth in 2024. Great, that's really, really helpful.

Tom Stephens: It's a stronger sort of comps in China make maybe a bit of muted growth. So you should assume that industrial would mean sort of flat to low single digit growth in 2024.

Speaker Change: Great that's really helpful.

Udit: You know, just to pivot to LCs and that kind of long-term trajectory, could you remind us kind of what the net contribution of China was, you know, in the kind of prior four years on a trend basis, and then maybe how you think that kind of long-term market trajectory is different with a potentially muted China going forward, or you're kind of mixed into kind of larger molecule applications. Yeah, so look, I mean, China, if you look at 2019 or Now, where we finished in 23, it's about. All right.

Just Tim as Lcs longtime trajectory could.

Speaker Change: Could you remind us kind of what the net contribution of China ones.

Tim: In the prior four years on a trend basis.

Tim: And then maybe how you think that kind of long term market.

Tim: <unk> different with it.

Tim: You need to China going forward.

Tim: Or you are kind of mixed into kind of large molecule applications.

Speaker Change: Yes, so look I mean, China, if you look at 2019 or was.

Speaker Change: <unk> was roughly 17% to 19% of our revenue now.

Speaker Change: Now, where we finished in 'twenty three it's about 15% of our revenue.

Udit: Thank you. Thank you. When you look at sort of the different issues compounding the current situation, we generally feel barring.

Speaker Change: When you look at sort of different issues compounding the current situation in China.

Speaker Change: But we generally feel barring.

Udit: Maybe one or two smaller issues. Most of these issues are... For example..., struggling with ore capacity as well as Branded Generics, Pulling Back Spare Parts because of anti-corruption, or Industrial and environmental slowing down because of government pulling back reimbursement. We think these issues will all come back. It's just a question when, and it's very hard, when that will happen.

Speaker Change: Maybe one or two small loans shoes more.

Speaker Change: Most of these issues are.

Speaker Change: Political rather than structural so for example, <unk>.

Speaker Change: <unk>.

Speaker Change: Struggling with oil capacity as well as geopolitical challenges.

Speaker Change: Our branded genetics pulling back spend.

Speaker Change: Cause of <unk>.

Speaker Change: Anticorruption campaign.

Speaker Change: Our industrial business, especially food and indeed on Lincoln slowing down because of government pulling back reimbursement.

Speaker Change: These issues are.

Speaker Change: Largely cyclical they will all come back.

Speaker Change: It's just a question when it's really hard to predict when that will happen.

Udit: On the other hand, you know, the biotech funding and the resultant volume they placed on Tier 2, Tier 3 CDMF. That, we think, is structural. In the near term, they're not going to be at the levels of 21-22 spending, but at least on that issue, which is structural, the good news is... I think we've found the bottom on that issue because newer molecules are starting to see funding, but there is going to be sort of a 30 to 40 million correction to our 22 base. The remaining issues, we think, eventually will come back, and that's the business that is today. And then, as we've said before, what we are super excited about is this whole push for innovation, and there's a whole new vector opening up in China, and we think that will create significant value.

Speaker Change: On the other hand.

Speaker Change: The biotech funding and the result in volume they placed on tier two tier three.

Speaker Change: <unk> that we think is structural.

Speaker Change: In the near term, we're not going to be at the levels of <unk> spending, but at least on that issue would you structure. The good news is I think we found the bottom on that issue because newer molecules are starting to see funding.

Speaker Change: But there is going to be sort of $30 million to $40 million correction.

Speaker Change: <unk> baseline.

Speaker Change: The remaining issues, we think eventually will come back and that's the business that is today and then as we've said before right. What we are Super excited about is this whole push for innovative medicines.

Speaker Change: And there is a whole new rector opening up in China, and we think that will create significant value and we absolutely want to be part of that equation and we are taking steps.

Udit: We absolutely want to be part of that equation, and we are taking steps so that we have a local presence and participate in that journey. Just to sort of embellish on that, Amol covered it extremely well. Tom, LC, as I mentioned earlier, I mean, two or three facts to keep in mind. On a long-term basis, it's moving well below our long-term averages, right? So, in general, on a four or five-year stack basis, you should expect LC to be mid-single digits. But it's actually very low, flat to one percent.

Speaker Change: So that we'd have local presence and participate in that journey.

Speaker Change: <unk> closely.

Speaker Change: Just to sort of embellish on that I'm always covered it extremely well Tom.

As see as I mentioned earlier, I mean, two or three factors to keep in mind on a long term basis is diverse and well below our long term averages right. So in general.

Speaker Change: On a four five year stack basis, you should expect <unk> to be mid single digits, it's actually.

Speaker Change: That the 1% you look at that number for 2023.

Udit: You look at that number for 2023, LC overall declined almost 10%, 11%. And the bulk of that decline came from China, right? So China declined roughly 30, 40, maybe actually close to 40, 45% in LC. Outside of China, we were sort of low single-digit decliners in LC, right?

Speaker Change: Overall.

Speaker Change: Declined almost almost 10%, 11% and bulk of that decline came from China. So China declined roughly 34 actually close to 40% 45%.

Speaker Change: See outside of China, we were sort of low single digit decliners in LC.

Udit: So to your question on how the recovery will be impacted, coming back to growth in China, we expect that in the first half of the year we'll see similar trends that we saw in the second half of the year in LC, and in the second half of the year, we will start to see a bit of relief and growth. And as we talk to our customers, to our largest customer segment, which is pharma, we're starting to see biotechs start to spend again. We're starting to see CDMOs, especially recurring revenue, come back. And in brandy genetics, more and more hospitals are opening up. So it's going to be a mix of replacement cycles beginning again in ex-China markets and Chinese recovery in pharma. So put those two together, and you should start to see LC come back.

Speaker Change: So to.

Speaker Change: To your question on on how will the recovery be impacted with with coming.

Speaker Change: Coming back to growth in China.

Speaker Change: We expect that in the first half of the year will we will see similar trends that we saw in the second half of the year and <unk> in the second half of the year, we will start to see a bit of a bit of a relief in growth and as we talk to our customers to our largest second largest customer segment, which is pharma, we're starting to see biotechs start to spend again.

Speaker Change: And we're starting to see <unk> was especially to cutting revenue come back and in branded generics more and more hospitals are opening up so it's going to be a mix of replacement cycles, beginning again in developed in ex China markets and in China recovery and pharma. So put those two together and you should start to see LTE.

Udit: We're not assuming that in our guide at this point, but definitely, there are trends in that direction. Thank you. Our next question comes from Catherine Schulte with Bayard. Your line is open.

Speaker Change: Come back we're not assuming it assuming that in our guide at this point, but definitely there are trends in that direction.

Speaker Change: Thank you and our next question comes from Katherine <unk> with Baird. Your line is open.

Catherine Ramsey Schulte: Hey guys, thanks for the question. Maybe first, just touching on some of your commercial initiatives. Any comments on what you're targeting for service attachment rates or e-commerce improvements in 24? Sure.

Katherine: Hey, guys. Thanks for the question, maybe first just touching on some of your commercial initiatives any comments on what youre targeting for service attachment rates or e-commerce improvements in 2012.

Katherine: Sure.

Udit: Thank you for that question, Catherine. So really, it's continuing the trend, right? So we went from about 20, it's for e-commerce from about 20% to 35% already, 35 plus percent already in e-commerce, and we expect that to grow closer to 40% by the end of 2024. And in service attachment, I mean, having already seen roughly 500 basis points of service attachment increase from the time we started the initiative three years ago, we are planning for another 100 basis points of service attachment increase in 2024. Continuing on with our commercial. Thank you. Our next question comes from Derik DeBrow with Bank of America. Your line is open. Hi, good morning, and thanks for taking my question. I've got a couple.

Katherine: Thank you for that question Kathryn So really continuing the trend right. So we went from about 20 its e-commerce from about 20% to 35% already 35 plus percent already.

Katherine: In.

Speaker Change: In E Commerce, and we expect that to grow closer to 40% by the end of 'twenty 2024.

Speaker Change: And then service attachment I mean, having already seen roughly 500 basis points of service attach increase from the time, we started the initiative three years ago.

Speaker Change: Planning for another 100 basis points of service attachment increase in 2024 to.

Speaker Change: So continuing on with our with our commercial initiatives.

Speaker Change: Thank you. The next question comes from Derik de Bruin with Bank of America. Your line is open.

Speaker Change: Hi, good morning, and thanks for taking my question. So I've got a couple could you comment on order trends in Q4, if I missed it I apologize I mean did you see orders pick up sequentially.

Derik de Bruin: Could you comment on order trends in Q4? If I missed it, I apologize. I mean, did you see orders pick up sequentially? And how should we think about the tax rate sort of in 2025 as we work through the Pillar 2 stuff? And I have one more question. Sure, so I'll start with the order and then I'll let Amol talk about the tax piece.

And how should we think about the tax rate sort of in 2025 as we worked through the pillar two stuff.

Speaker Change: And I have one more follow up.

Speaker Change: Sure. So I'll start with the order and then I'll, let let him talk about the tax tax piece orders are in line with sales again.

Udit: Orders are in line with sales again, Derik, so there's no real difference between the two for Q4. And the trend from Q3 to Q4, I mean, it's almost a 15% ramp from Q3 to Q4, same thing we saw with orders, really as expected. So Q4 really landed as we had talked about, Amol on tax. Yeah, Derik, great question on taxes. So look, I mean, if you trace the last few years with us, the tax rate has gone up roughly about...

Speaker Change: Derrick So no real difference between between the two four for Q4 and the trend from Q3 to Q4.

Speaker Change: I mean, it's.

Speaker Change: A 15% ramp from Q3 to Q4 same thing we saw with orders really.

Derrick: As expected so Q4 really landed as we had as we had talked about a mulan on tax very good question on packs. So look I mean, if you place last few years with us.

Derrick: The tax rate has gone up roughly about 150 to 200 basis points and bulk of that is really coming from the U S. R&D capitalization and as a company we've sort of taken a position that section 174 changes.

Amol: The bulk of that is really coming from the U.S. R&D capitalization. And as a company, we've sort of taken a position that Section 174 changes have an ongoing effect on our BNL, and absent future legislation, we are not excluding those charges from our non-GAAP P&L, which is different from some of us in the sector, right? But we think those expenses are part of our non-GAAP P&L, and that's the bulk of it. The other things that are creeping in are Singapore going from 0% to 5% and Ireland adopting Biller 2.0. I think 25. The big one is will Singapore adopt it, and in what form and in what offsets they provide when they do adopt that.

Derrick: A an ongoing effect on our P&L and absent of future legislation, we are not excluding those charges from our non-GAAP P&L, which is different from some of us in the sector right.

Derrick: But we think those expenses are part of our non-GAAP P&L and that's the bulk of the change the other things that are creeping in Singapore going from zero to 5% and Ireland are not being below 15.

Derrick: <unk>, 15%.

Derrick: I think 25.

Derrick: A big one Israel, Singapore adult.

Derrick: And in what form and what offsets that they provide.

Derrick: They do adopt that so that remains to be seen we are closely watching that.

Amol: So that remains to be seen. We are closely watching that, and as that plays out, we will provide more commentary when that happens. Great. And one final one, if I may.

Derrick: And as that plays out we will provide more commentary when that happens.

Speaker Change: Great and one final one if I may.

Derik de Bruin: You know, I would have expected, you know, why it was a great deal, a nice fit in, your leverage is down; I would have expected you to potentially restart the buyback program. Could you sort of talk about what other technologies you could potentially be thinking about in terms of how to augment? You know, I'm just sort of curious in terms of what your capital deployment outlay is. Thank you. So look, I mean, Derek, a fantastic question.

Speaker Change: I would've expected.

Speaker Change: <unk> why it was a great deal nice fit in.

Speaker Change: Your leverage is down I would have expected you to potentially restart the buyback program could you just sort of talk about about what other technologies you could potentially be thinking about in terms of how to augment.

Speaker Change: It's just sort of curious in terms of what your capital appointment outweighs. Thank you.

Speaker Change: Fantastic question.

Udit: I mean, our goal in bioanalytical characterization is to make it as simple as it is in small molecules. The QA, QC environment for large molecules and cell and gene therapy should become just as simple. And to do that, you need to take some, Mature, so some high-end technology, simplify it, move it into downstream applications so they're simple to use. LC is already there.

Speaker Change: Golden Bioanalytical characterization as to make it.

Speaker Change: As simple.

Speaker Change: As it is in small molecules the QA QC environment for large molecules into LNG and therapy should become just a simple and to do that you need to take some <unk>.

So some high end technologies simplify them move them into downstream applications. So they're simple to use LTE already their mass spec with bio <unk> has made great strides.

Udit: MassSpec with BioAccord has made great strides. Light Scattering is ahead of MassSpec, so it's going to enter QAQC sooner. And there are a couple of other technologies, like Raman, Cellular Analysis, that also belong in the QAQC and the Process Analytical Testing domain. But all of this hinges on having a simple software that the regulators trust, like Empower.

Speaker Change: <unk> is ahead of mass spec, so it's going to enter QA QC sooner and there are a couple of other technologies like ramen like cellular analysis.

Speaker Change: That also belong in the QA QC.

Speaker Change: And the process analytical testing domain, but all of this hinges on having a simple software that the regulators trust like in Butler.

Udit: So our single largest initiative with WIAT, after commercial, delivering our commercial results, is to get WIAT Light Scattering software onto Empower. And we will have a beta version of that by the end of the year. And I think that's the primary requirement for QAQC in large molecules to become like small.

Speaker Change: Our single largest initiative with via <unk>.

Speaker Change: After a commercial delivering our commercial results is to.

Speaker Change: To get White light scattering software ongoing bottler, and we will have a beta version of that by the end of the year and I think that's the primary requirement for QA QC and large molecules to become like small.

Udit: Stay tuned, really exciting area, and we're investing in the future while we're navigating the present really, really carefully. Thank you very much. That concludes our Q&A session. I'd now like to turn the call back over to Udit to deliver our closing remarks. So, thank you, Kasper. Thank you, Amol. Thank you, everyone, for listening. 2023 has been an unprecedented and challenging year. We've navigated extremely well. As you look at our results outside of China, every end market, every geography grew, which is unusual in this environment amongst our peer group as well. And what is even more pleasing is our focus on cost management. So really, third 70 basis points of margin expansion in a year where the top line went down dramatically is quite an achievement. And we've done that while setting ourselves up very well for the future. We expect the long-term growth of our business to be very much intact and accelerate based on what more than I described to you. So, thank you again for your interest and your attention. Thank you. That concludes today's conference. You may all disconnect at this time.

Speaker Change: Stay tuned really exciting area and we're investing in the future. While we are navigating the present really very carefully.

Speaker Change: Okay.

Speaker Change: Thank you very much that concludes our Q&A session I would now like to turn the call back over to the to deliver our closing remarks. So thank you Kasper. Thank you Omar and thank you everyone for listening look.

Speaker Change: It's 2023 that has been an unprecedented and challenging year.

Speaker Change: <unk> extremely well as you look at our results outside of China. Every every end market every geography grew which is unusual in this environment amongst our peer group as well and what is even more pleasing pleasing is.

Speaker Change: Our focus on cost management, so really towards 70 basis points of margin expansion in a year, where the topline went down dramatically as quite a quite an achievement and we've done that while setting ourselves up very well for the future. We expect the long term growth of our business to be very much intact and accelerate based on what.

More than I described to you. So thank you again for your interest and your attention.

Speaker Change: Thank you and that concludes today's conference you may all disconnect at this time.