Q4 2023 Avantor Inc Earnings Call

Good morning, My name is Emily and I'll be your conference operator today at this time I would like to welcome everyone to Ventose fourth quarter of 2023 earnings results Conference call. After the presentation, there will be the opportunity for any questions, which you can off by pressing star followed by the number one on your telephone.

Operator: Good morning, my name is Emily, and I'll be your conference operator today. At this time, I would like to welcome everyone to Avantor's fourth quarter 2023 earnings results conference call. After the presentation, there will be the opportunity for any questions, which you can ask by pressing start followed by the number one on your telephone keypad.

Pat I will now turn the call over to Christina Jones, Vice President of Investor Relations. Mrs. Jones, you may begin the conference.

Operator: I will now turn the call over to Christina Jones, Vice President of Investor Relations. Mrs. Jones, you may begin the conference. Good morning.

Christina Jones: Good morning, Thank you for joining us our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Brent Jones, Executive Vice President and Chief Financial Officer, The press release and the presentation accompanying this call are available on our Investor Relations website at IR.

Christina Jones: Thank you for joining us. Our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Brent Jones, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call.

Christina Jones: Our daughter, Baltimore Sciences Dot Com a replay of this webcast will also be made available on our website after the call.

Christina Jones: Following our prepared remarks, we will open the line for questions. During this call, we will be making some forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filing. The actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made.

Christina Jones: Following our prepared remarks, we will open the line for questions.

Christina Jones: During this call we will be making some forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future.

Christina Jones: These forward looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings.

Christina Jones: Actual results might differ materially from any forward looking statements that we make today.

Christina Jones: These forward looking statements speak only as of the date that they are made we do not assume any obligation to update. These forward looking statements as a result of new information future events or other developments.

Christina Jones: We do not assume any obligation to update these forward-looking statements as a result of new information, future events, or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website.

Christina Jones: This call will include a discussion of non-GAAP measures a reconciliation of these non-GAAP measures can be found in the press release and in our supplemental disclosure package on our Investor Relations website.

Christina Jones: At our Investor Day in December we announced a transformation of our operating model as of January 1st 2024, we have transitioned from our former regional structure to our two new business segments Laboratory solutions and Bioscience production.

Christina Jones: At our Investor Day in December, we announced a transformation of our operating model. As of January 1, 2024, we have transitioned from our former regional structure to our two new business segments, Laboratory Solutions and Bioscience Production. The fourth quarter of 2023 is our last quarter of reporting based on geographic segments, and we will report business performance under the new structure beginning with Q1 2024 results. In order to assist with comparability and modeling, this morning we released a Form 8-K with recast historical data following the new segment structure. We have also published an incremental supplemental disclosure package that is also available on our Investor Relations website. With that, I will now turn the call over to Michael. Thank you, CJ. And good morning, everyone.

Christina Jones: The fourth quarter of 2023 is our last quarter of reporting based on geographic segments, and we will report business performance under the new structure, beginning with Q1 'twenty 'twenty four results.

Christina Jones: In order to assist with comparability and modeling. This morning, we released a form 8-K with recast historical data following the new segment structure. We have also published an incremental supplemental disclosure package that is also available on our Investor Relations website.

Christina Jones: With that I will now turn the call over to Michael.

Michael Stubblefield: Thank you C J and good morning, everyone. I appreciate you joining us today I'm starting on slide three.

Michael Stubblefield: I appreciate you joining us today. I'm starting on slide three. We delivered fourth-quarter business results at the high end of our guidance across all key financial metrics, including a core organic revenue decline of 4.8%, an Adjusted EBITDA margin of 17.5%, and Adjusted EPS of 25 cents. Our free cash flow conversion was over 120% in the quarter, and we delivered approximately $725 million of free cash flow in the year. This exceeded our guidance range and enabled us to pay down approximately $850 million of debt.

Michael Stubblefield: We delivered fourth quarter business results at the high end of our guidance across all key financial metrics.

Michael Stubblefield: A core organic revenue decline of four 8%.

Michael Stubblefield: Adjusted EBITDA margin of 17.5% and.

Michael Stubblefield: And adjusted EPS of <unk> 25.

Michael Stubblefield: Our free cash flow conversion was over 120% in the quarter and we delivered approximately $725 million of free cash flow in the year.

This exceeded our guidance range and enabled us to pay down approximately $850 million of debt.

Michael Stubblefield: As anticipated market conditions in the fourth quarter were similar to conditions in recent quarters as inventory destocking and cautious customer spending continued to impact demand.

Michael Stubblefield: As anticipated, market conditions in the fourth quarter were similar to conditions in recent quarters as inventory destocking and cautious customer spending continued to impact demand. However, despite these industry-wide headwinds, we are encouraged by the relative stability we have seen over the past couple of quarters across our end markets. Our continued execution of our growth strategy led to a number of notable accomplishments in the fourth quarter. We won several new customer accounts in biotech and biopharma, and our sustained commercial intensity in higher education led to new relationships with multiple renowned academic and medical research institutions. Our focus on providing discovery-to-delivery solutions drove scope expansion with several biopharma customers, including services and bioprocessing contracts. In addition, we renewed multi-year agreements with two significant semiconductor customers. We also launched innovative new products, including our J.T. Baker viral inactivation solution to address a critical regulatory need in bioprocessing, and next-generation coatings and custom resins for 3D printing as part of our new cell high-purity silicone platform.

Michael Stubblefield: Despite these industry wide headwinds we are encouraged by the relative stability, we have seen over the past couple of quarters across our end markets.

Our continued execution of our growth strategy led to a number of notable accomplishments in the fourth quarter.

Michael Stubblefield: We won several new customer accounts in biotech and Biopharma and our sustained commercial intensity and higher education led to new relationships with multiple renowned academic and medical research institutions.

Michael Stubblefield: Our focus on providing discovery to delivery solutions drove scope expansion with several biopharma customers, including services and bio processing contracts.

Michael Stubblefield: In addition, we renewed multiyear agreements with two significant semiconductor customers.

Michael Stubblefield: We also launched innovative new products, including our J T Baker viral and activation solution to address a critical regulatory need in bio processing and next generation coatings and custom resins for three D printing as a part of our new cell high purity silicone platform.

Michael Stubblefield: Additionally, we continue to realize the impact of investments in our digital capability. For the full year, our multi-channel approach resulted in a double-digit increase in traffic to our e-commerce platform, and our Inventory Manager Digital Solution drove a double-digit increase in product pulse.

Michael Stubblefield: Additionally, we continue to realize the impact of investments in our digital capabilities.

Michael Stubblefield: For the full year, our multichannel approach resulted in a double digit increase in traffic to our E Commerce platform and our inventory manager digital solution drove a double digit increase in product pull through.

Michael Stubblefield: As a part of our continued commitment to sustainability, we set new science based climate targets and progressed, our renewable energy strategy with several solar projects coming online in multiple locations around the world.

Michael Stubblefield: As a part of our continued commitment to sustainability, we set new science-based climate targets and progressed our Renewable Energy Strategy with several solar projects coming online in multiple locations around the world. Looking ahead to 2024, while we do see early signs of a recovery and are encouraged by healthy customer activity levels and a modest improvement in our bioprocessing order book, we have not yet seen a clear inflection point.

Michael Stubblefield: Looking ahead to 2024.

While we do see early signs of a recovery.

Michael Stubblefield: And are encouraged by healthy customer activity levels, and a modest improvement in our bio processing order book.

Michael Stubblefield: We have not yet seen a clear inflection point.

Michael Stubblefield: Given limited visibility regarding the timing and shape of the expected recovery, our initial guidance is based on a continuation of trends from the last several quarters, giving us upside if a recovery does materialize within the year. Brent will walk you through our 2024 guidance in more detail later in the call. Our focus for 2024 is executing on our business model transformation and growth strategy for laboratory solutions and bioscience production, as well as driving our cost savings initiative that is expected to generate approximately $300 million of annual run rate savings by the end of 2026. We will continue to be agile as we navigate the current environment to ensure we are well positioned to achieve our long-term financial targets. I'll now turn it over to Brent to walk you through our Q4 and full year 2023 results and our 2024 guidance. Thank you, Michael. And good morning, everyone.

Michael Stubblefield: Given limited visibility regarding the timing and shape of the expected recovery. Our initial guidance is based on a continuation of trends from the last several quarters, giving us upside if a recovery does materialize within the year.

Michael Stubblefield: Brent will walk you through our 2024 guidance in more detail later in the call.

Michael Stubblefield: Our focus for 2024 is executing on our business model transformation and growth strategy for laboratory solutions and Bioscience production.

Michael Stubblefield: As well as driving our cost savings initiative that is expected to generate approximately $300 million of annual run rate savings by the end of 2026.

We will continue to be agile as we navigate the current environment to ensure we are well positioned to achieve our long term financial targets.

Michael Stubblefield: I'll now turn it over to Brent to walk you through our Q4 and full year 2023 results and our 2020 for guidance.

Brent Jones: Thank you Michael and good morning, everyone I'm, starting with the numbers on slide four reported revenue was $1 $72 billion for the quarter and $6 $97 billion for the full year.

Brent Jones: I'm starting with the numbers on slide four. Supported revenue was $1.72 billion for the quarter and $6.97 billion for the full year. While revenue declined 4.8% on a core organic basis in Q4, it was flat on a sequential as-reported basis, consistent with our expectations for the quarter. We continue to navigate industry-wide headwinds and view market conditions as stable but not yet inflecting upward momentum. Throughout the year, we delivered strong performance in our education and services platforms, and, despite an expected moderation in Q4, our biomaterials platform delivered double-digit growth in 2023. Adjusted gross profit for the quarter was $570 million, representing a 33.1% margin. For the year, it was $2.36 billion and 33.9%.

Brent Jones: While revenue declined four 8% on a core organic basis in Q4. It was flat on a sequential as reported basis consistent with our expectations for the quarter, we continued to navigate industry wide headwinds and view market conditions as stable, but not yet inflicting upward.

Brent Jones: Throughout the year, we delivered strong performance in our education services platforms and despite an expected moderation in Q4, our biomaterials platform delivered double digit growth in 2023.

Brent Jones: Adjusted gross profit for the quarter was $570 million, representing a 33, 1% margin for the year. It was $2 $3 $6 billion and 33, 9%.

Brent Jones: Our gross profit was impacted by lower sales volume, mix, inflation, and negative fixed cost leverage. However, we were able to partially offset these effects with productivity efforts, and we continue to work diligently on improving our cost base. We did experience better mix than expected, which helped our achievement versus expectations in Q4. Adjusted EBITDA was $302 million in Q4 and approximately $1.3 billion for the year, representing 17.5% and 18.8% adjusted EBITDA margin, respectively.

Brent Jones: Our gross profit was impacted by lower sales volume mix inflation and negative fixed cost leverage. However, we were able to partially offset these effects with productivity efforts and we continue to work diligently on improving our cost base, we did experience better mix than expected.

Brent Jones: Which helped our achievement versus expectations in Q4.

Brent Jones: Adjusted EBITDA was $302 million in Q4, and approximately $1 $3 billion for the year, representing 17, 5% and 18, 8% adjusted EBITDA margin respectively.

Brent Jones: Q4 margin was at the high end of our expectations for the quarter driven by top line results, which were also at the high end of our expected range year over year, our EBITDA margin performance was impacted by lower gross profit and negative fixed cost leverage on SG&A.

Brent Jones: The Q4 margin was at the high end of our expectations for the quarter, driven by top line results, which were also at the high end of our expected range. However, year over year, our EBITDA margin performance was impacted by lower gross profit and negative fixed cost leverage on SG&A. Interest and tax expenses were in line with our expectations. As a result, adjusted earnings per share came in at $0.25 for the quarter and $1.06 for the year, reflecting the flow-through of adjusted EBITDA performance.

Interest and tax expenses were in line with our expectations as a result adjusted earnings per share came in at 25 cents for the quarter and the dollar and <unk> for the year, reflecting the flow through of adjusted EBITDA performance.

Brent Jones: Moving to cash flow, we generated over $200 million and free cash flow in the quarter, bringing our full year free cash flow to approximately $725 million representing over 100% conversion of adjusted net income our free cash flow performance was enhanced by <unk>.

Brent Jones: Moving to cash flow, we generated over $200 million in free cash flow in the quarter, bringing our full-year free cash flow to approximately $725 million, representing over 100% conversion of adjusted net income. Our free cash flow performance was enhanced by continued discipline and working capital management. Our adjusted net leverage ended the quarter at 3.9 times adjusted EBITDA, and we paid down approximately $850 million of debt in 2023.

Brent Jones: <unk> discipline and working capital management.

Our adjusted net leverage ended the quarter at three nine times, adjusted EBITDA, and we paid down approximately $850 million of debt in 2023.

Brent Jones: Deleveraging remains our top capital allocation priority, and we continue to target an adjusted net leverage ratio below three times. Slide 5 outlines the components of our fourth quarter and full-year revenue performance. Starting with the fourth quarter, core organic revenue declined 4.8% in the quarter. COVID-related revenues represented a 1.1% headwind, resulting in a 5.9% organic revenue decline. Foreign exchange translation represented a 1.9% tailwind, driven by a modest depreciation of the euro, resulting in a reported revenue decline of 4% for the quarter. For the full year, core organic revenue declined 5.2%.

Brent Jones: Deleveraging remains our top capital allocation priority and we continue to target an adjusted net leverage ratio below three times.

Brent Jones: Slide five outlines the components of our fourth quarter and full year revenue performance, starting with the fourth quarter core organic revenue declined four 8% in the quarter.

Brent Jones: <unk> related revenues represented a one 1% headwind, resulting in a five 9% organic revenue decline foreign exchange translation represented a one 9% tailwind driven by a modest depreciation of the euro resulting in a reported revenue decline of 4% for the <unk>.

Brent Jones: <unk>.

Brent Jones: For the full year core organic revenue declined five 2% Covid represented a two 6% headwind, resulting in a seven 8% organic revenue decline foreign exchange translation represented a 0.5% tailwind leading to a seven 3%.

Brent Jones: COVID represented a 2.6% headwind, resulting in a 7.8% organic revenue decline. Foreign exchange translation represented a 0.5% tailwind, leading to a 7.3% reported revenue decline. Moving forward with 2024, as we did not highlight any COVID-related revenues in our 2023 results, we will simplify our revenue reporting by only showing organic and reported revenue. Moving on to slide 6. From a regional perspective, Americas declined 3.8% on a core organic basis in the quarter.

Brent Jones: Reported revenue decline.

Brent Jones: Moving forward with 2024, as we did not highlight any COVID-19 related revenues in our 2023 results, we will simplify our revenue reporting by only showing organic and reported revenue.

On to slide six from a regional perspective, the Americas declined three 8% on a core organic basis in the quarter.

Brent Jones: Our daily rate of sales was relatively consistent from Q3, while our growth rate benefited from an easier comparable we continued to experience pressure from destocking and lower demand in Biopharma healthcare and advanced technologies and applied materials end markets.

Brent Jones: Our daily rate of sales was relatively consistent from Q3, while our growth rate benefited from an easier comparison. We continue to experience pressure from de-stocking and lower demand in biopharma, health care, and advanced technologies, and applied materials, and markets. Our increased commercial intensity in education and government is driving share gains and led to the fourth consecutive quarter of growth, with higher education growing in high single digits in the quarter. Europe declined 6.8% on a core organic basis in the quarter, consistent with our expectations. On a year-over-year basis, Europe's performance was driven by weakness in the biopharma and healthcare end markets, with softer demand for lab consumables and single-use solutions driven by ongoing destocking. AMIA declined 3.5% on a core organic basis in the fourth quarter, driven by declines in lab consumables, as well as formulated solutions for our semiconductor customers.

Brent Jones: Our increased commercial intensity in education, and government is driving share gains and led to the fourth consecutive quarter of growth with higher education growing high single digits in the quarter.

Brent Jones: Europe declined six 8% on a core organic basis in the quarter consistent with our expectations.

Brent Jones: On a year over year basis, Europes performance was driven by weakness in the Biopharma and health care end markets with softer demand for lab consumables and single use solutions driven by ongoing destocking.

Brent Jones: EMEA declined three 5% on a core organic basis in the fourth quarter driven by declines in lab consumables as well as formulated solutions for our semiconductor customers. Despite the macroeconomic challenges, particularly in China, our business delivered another quarter of solid growth in bioprocess thing.

Brent Jones: Despite the macroeconomic challenges, particularly in China, our business delivered another quarter of solid growth in bioprocessing and biomaterials. Slide seven shows our core organic revenue change for the quarter and full year by end market and product. Biopharma, representing about 50% of our annual revenue, declined by high single digits in the quarter in both the research and production environment.

Brent Jones: Biomaterials.

Brent Jones: Slide seven shows our core organic revenue change for the quarter and full year by end market and product group.

Brent Jones: Pharma, representing about 50% of our annual revenue declined high single digits in the quarter in both the research and production environments.

Brent Jones: In the research environment, we saw a continuation of both destocking and the conservative approach to customer spending that began in the second quarter. However, while spending is constrained, customers continue to advance meaningful R&D pipelines and fund promising sites. In the production environment, sales were similar to our third quarter results as demand continues to be impacted by inventory de-stocking and customer campaign delays. Cell and gene therapy remains a bright spot, and we delivered another quarter of double-digit growth in several critical product lines targeting these workflows.

Brent Jones: In the research environment, we saw a continuation of both Destocking and the conservative approach to customer spending that began in the second quarter, while spending is constrained customers continue to advance meaningful R&D pipelines and fund promising science.

Brent Jones: In the production environment sales were similar to our third quarter results as demand continues to be impacted by inventory destocking and customer campaign delays cell and gene therapy remains a bright spot and we delivered another quarter of double digit growth in several critical product lines targeting these workflows.

Brent Jones: Within bio processing, we again saw promising market signals, but not enough to characterize as a recovery specifically order intake improved modestly compared to the third quarter customer inventory health continues to improve and customer sentiment remains positive.

Brent Jones: Within bioprocessing, we again saw promising market signals, but not enough to characterize as a recovery. Specifically, order intake improved modestly compared to the third quarter, customer inventory health continues to improve, and customer sentiment remains positive. And while we still have not seen the inflection, we believe that it is coming. Underpinned by another record year of approvals for new therapies and indications, together with robust pipelines across all modalities, we remain confident in the long-term potential of this critical end market. Healthcare, which represents approximately 10% of our annual revenue, declined by high single digits in the quarter on a core organic basis, driven by consumables destocking in Europe and the Americas and an expected moderation in our biomaterials business after several quarters of double-digit growth.

Brent Jones: And while we still have not seen the inflection we believe that it is coming.

Brent Jones: Underpinned by another record year of approvals for new therapies and indications together with robust pipelines across all modalities, we remain confident in the long term potential of this critical end market.

Brent Jones: Health care, which represents approximately 10% of our annual revenue declined high single digits in the quarter on a core organic basis, driven by consumables Destocking in Europe, and the Americas and an expected moderation in our biomaterials business after several quarters of double digit growth.

Brent Jones: Education and government, representing approximately 15% of our annual revenue grew mid single digits on a core organic basis in the fourth quarter, the fourth consecutive quarter of growth driven by share gains and higher education in the Americas.

Brent Jones: Education and government, representing approximately 15% of our annual revenue, grew mid-single digits on a core organic basis in the fourth quarter, the fourth consecutive quarter of growth, driven by share gains in higher education in the Americas. We are encouraged by our recent commercial wins and the success of our digital strategy and expect continued momentum on this platform. Advanced technologies and applied materials, representing approximately 25% of our annual revenue, declined low single digits on a core organic basis in the fourth quarter, driven by declines in the Americas and AMIA in our semiconductor business, partially offset by strong growth in our aerospace and defense business. By product group, proprietary materials and consumables offerings were down high single digits in the quarter, driven by customer inventory destocking within our bioprocessing and semiconductor platforms. Total proprietary materials sales were similar to Q3, while the growth rate improved modestly as a result of easier comparisons. Sales of third-party materials and consumables declined mid-single digits, impacted by continued destocking of lab consumables and cautious purchasing behavior across research settings.

Brent Jones: We are encouraged by our recent commercial wins and the success of our digital strategy and expect continued momentum in this platform.

Brent Jones: Advanced technologies and applied materials, representing approximately 25% of our annual revenue declined low single digits on a core organic basis in the fourth quarter driven by declines in the Americas and EMEA in our semiconductor business, partially offset by strong growth in our aerospace and <unk>.

Brent Jones: Defense business.

By product group proprietary materials and consumables offerings were down high single digits in the quarter driven by customer inventory Destocking within our Bioprocess, Inc. And semiconductor platforms total proprietary materials sales were similar to Q3, while the growth rate improved modestly.

Brent Jones: As a result of easier comparables.

Brent Jones: Sales of third party materials and consumables declined mid single digits impacted by continued destocking of lab consumables and cautious purchasing behavior across research settings are nominal sales rate was unchanged from Q3 levels.

Brent Jones: Our nominal sales rate was unchanged from Q3. Services and specialty procurement, which integrate us directly into our customers' critical operations, grew high single digits, the fourth consecutive quarter of mid-single digit or higher growth, while equipment and instrumentation declined high single digits, reflecting constrained capital spending in the current macro environment and the absence of a typical year-end budget plot. Turning to slide 8.

Brent Jones: Services, and specialty procurement, which integrate us directly in our customers' critical operations grew high single digits, the fourth consecutive quarter of mid single digit or higher growth.

Brent Jones: While equipment and instrumentation declined high single digits, reflecting constrained capital spending in the current macro environment and the absence of a typical year end budget flush.

Brent Jones: Turning to slide eight as of January one we successfully transitioned from three geographic segments to two new customer focused segments laboratory solutions and bioscience production.

Brent Jones: As of January 1st, we successfully transitioned from three geographic segments to two new customer-focused segments, laboratory solutions and bioscience production. In Laboratory Solutions, which represents roughly two-thirds of our revenue, we provide an industry-leading platform of products and services to support our customers' research, diagnostic, and QC workflows. In our bioscience production segment, which represents about one-third of our revenue and over 45% of our enterprise profitability, we support our customers' production platforms by providing high-purity materials for bioprocessing, ultra-high-purity silicone for medical implants, and custom formulations for semiconductor and advanced technology applications. Echoing Michael's commentary, this has been a critical strategic move. It is sharpening our focus on accelerating growth, streamlining accountability, and unlocking additional cost savings and operating efficiency. While we are in the early days of our transition to the new operating model and cost optimization initiative, I'm encouraged by our initial progress. Now on to slide 9.

Brent Jones: In laboratory solutions, which represents roughly two thirds of our revenue we provide an industry leading platform of products and services to support our customers' research diagnostic and QC workflows, and our Bioscience production segment, which represents about one third of our revenue and over 45.

Brent Jones: 5% of our enterprise profitability, we support our customers' production platforms by providing high purity materials for bioprocess, saying ultra high purity silicone for medical implants, and custom formulations for semiconductor and advanced technology applications.

Brent Jones: Echoing Michael's commentary this has been a critical strategic move it is sharpening our focus on accelerating growth streamlining accountability and unlocking additional cost savings and operating efficiencies.

Brent Jones: While we are in the early days of our transition to the new operating model and cost optimization initiative I am encouraged by our initial progress.

Brent Jones: Onto slide nine.

Brent Jones: As a part of our transition, we have released some additional financial information today. In addition to filing our Form 10-K and our standard Q4 and fiscal year earnings materials with our legacy geographic segments, we have also filed a Form 8-K and provided a supplemental package containing historical information for the new segment. This is designed to help bridge our transition and assist with financial modeling. Beginning next quarter, we will only report under our new segment structure. Slide 10 shows our full-year 2024 guide. As Michael noted in his overview comments, we do see encouraging leading indicators supporting a market recovery, including improving order book trends and bioprocessing. However, our guidance is based on a continuation of current market conditions in both our laboratory and production business.

Brent Jones: As a part of our transition we have released some additional financial information today. In addition to filing our Form 10-K, and our standard Q4 and fiscal year earnings materials with our legacy geographic segments. We have also filed a form 8-K and provided a supplemental package.

Brent Jones: <unk> historical information for the new segments.

Brent Jones: This is designed to help bridge, our transition and assist with financial modeling beginning next quarter, we will only report under our new segment structure.

Brent Jones: Slide 10 shows our full year 2024 guidance.

Brent Jones: As Michael noted in his overview comments, we do see encouraging leading indicators supporting our market recovery, including improving order book trends in Bioprocess say however, our guidance is based on a continuation of current market conditions in both our laboratory and production businesses.

Brent Jones: Given limited visibility regarding the shape and timing of a recovery and the lack of a clear inflection in the business. We think it is prudent to base our guidance on current sales levels.

Brent Jones: Given limited visibility regarding the shape and timing of a recovery and the lack of a clear inflection in the business, we think it is prudent to base our guidance on current sales levels. To the extent that we do see a top-line recovery within the year, that would present upside to our current guidance. To get into specifics, we expect 4-year organic revenue growth of negative 2% to plus 1%.

Brent Jones: To the extent that we do see a topline recovery within the year that would present upside to our current guidance.

Brent Jones: To get into specifics, we expect full year organic revenue growth of negative 2% to plus 1% based on current FX rates, we expect a modest tailwind from FX of approximately <unk>, 3%, leading to reported revenue growth of negative one 7% to positive one.

Brent Jones: Based on current FX rates, we expect a modest tailwind from FX of approximately 0.3%, leading to reported revenue growth of negative 1.7% to positive 1.3%. This view reflects a continuation of current market conditions plus a modest contribution from price. On a segment basis, we expect low single-digit growth in lab solutions and a mid-single-digit decline in bioscience production.

Brent Jones: 3%.

Brent Jones: This view reflects a continuation of current market conditions, plus a modest contribution from price.

Brent Jones: On a segment basis, we expect low single digit growth in lab solutions and a mid single digit decline in bioscience production.

Brent Jones: Moving to profitability, we expect adjusted EBITDA margins of approximately 17.4% to approximately 17.9%. This reflects our 2023 second half exit rate, as well as incremental headwinds due to a reset of incentive compensation systems, wage inflation, and top-line expectations. These headwinds will be partially offset by approximately $75 million of gross cost savings from our transformation initiative, as well as customary productivity. While we are not calling this a growth inflection, when that does happen, our incremental margins will be very attractive. We expect interest expense to improve by roughly $35 million year over year, resulting in approximately $250 million of interest expense. We expect a full year tax rate of 22.5%.

Brent Jones: Moving to profitability, we expect adjusted EBITDA margins of approximately 17, 4% to approximately 17, 9%.

Brent Jones: This reflects our 2023 second half exit rate as well as incremental headwinds due to a reset of incentive compensation systems wage inflation and top line expectations.

Brent Jones: These headwinds will be partially offset by approximately $75 million of gross cost savings from our transformation initiative as well as customary productivity.

Brent Jones: While we are not calling a growth inflection when that does happen our incremental margins will be very attractive.

Brent Jones: We expect interest expense to improve by roughly $35 million year over year, resulting in approximately $250 million of interest expense and expect a full year tax rate of 22, 5%. Our adjusted EPS range is 96 to $1 <unk>.

Brent Jones: Our adjusted EPS range is $0.96 to $1.04. We also expect free cash flow performance of $600 million to $650 million prior to any one-time cash expenses associated with our cost savings initiative. We are confident in the outlook for the business. Our competitive position is strong, as evidenced by continued share gains in academia and biopharma, and our long-term growth entitlement is unchanged. This guidance is a well-balanced combination of prudence and confidence in our business positioning and our self-help transformation action. A couple of final comments on phasing. We expect Q1 organic revenue to decline approximately 6.5% to 5.5% and reported revenue to decline approximately 6% to 5%. Adjusted EBITDA margin is forecasted to be approximately 200 basis points below our full year 2024 adjusted EBITDA margin expectation. We expect interest expense of approximately $65 million in the first quarter.

Brent Jones: We also expect free cash flow performance of $600 million to $650 million prior to any onetime cash expenses associated with our cost savings initiative.

Brent Jones: We are confident in the outlook for the business our competitive position is strong as evidenced by continued share gains in academia and Biopharma and our long term growth entitlement is unchanged. This guidance is a well balanced combination of prudence and confidence in our business positioning and.

Brent Jones: Okay.

Brent Jones: On phasing, we expect Q1 organic revenue to decline approximately six 5% to five 5% and reported revenue to decline approximately 6% to 5% adjust.

Brent Jones: Adjusted EBITDA margin is forecasted to be approximately 200 basis points below our full year 2024, adjusted EBITDA margin expectation.

Brent Jones: We expect interest expense of approximately $65 million in the first quarter.

Brent Jones: Our guidance contemplates a very modest sequential increase in reported revenue dollars each quarter, driven by pricing modest seasonality timing of known orders and nominal billing day adjustments.

Brent Jones: Our guidance contemplates a very modest sequential increase in reported revenue dollars each quarter, driven by pricing, modest seasonality, timing of known orders, and nominal billing day adjustments. This results in approximately 49% of our revenue in the first half of the year and 51% of our revenue in the second half of the year. We also expect margins to increase each quarter driven by the phasing of our expected cost savings. We are laser focused on executing on the current transformation, and I am confident that our growth strategy and more efficient operating structure will set us up well to achieve our long-term targets. With that, I will turn the call back to Michael. Thank you, Brent.

Brent Jones: This results in approximately 49% of our revenue in the first half of the year and 51% of our revenue in the second half of the year.

Brent Jones: We also expect margins to increase each quarter driven by the phasing of our expected cost savings.

Brent Jones: We are laser focused on executing on the current transformation and I am confident that our growth strategy and more efficient operating structure will set us up well to achieve our long term targets.

Brent Jones: With that I will turn the call back to Michael.

Thank you Brent as I mentioned at the beginning of the call we are closely monitoring and market dynamics.

Michael Stubblefield: As I mentioned at the beginning of the call, we are closely monitoring end-market dynamics. While we are seeing encouraging trends, we are taking an appropriately prudent approach to our full-year guidance and are positioned for upside if a market recovery materializes within the year. Our new operating model, which became effective on January 1st, sharpens our focus on accelerating growth with our laboratory and production customers while unlocking significant operating efficiency. I am already seeing the benefits of the new model in practice.

Michael Stubblefield: While we are seeing encouraging trends, we are taking an appropriately prudent approach to our full year guidance and are positioned for upside if a market recovery materializes within the year.

Michael Stubblefield: Our new operating model, which became effective on January one.

Michael Stubblefield: <unk>, our focus on accelerating growth with our laboratory and production customers, while unlocking significant operating efficiencies.

I am already seeing the benefits of the new model and practice through the clarity it is bringing to our forecasting and operating processes.

Michael Stubblefield: Through the clarity it is bringing to our forecasting and operating processes. In addition, I am encouraged by the early progress we have been making on our cost optimization initiative. We have launched multiple work streams led by executive leadership team sponsors across each of our four focus areas, organizational efficiency, footprint optimization, reduced cost to serve, and procurement savings.

Michael Stubblefield: In addition, I'm encouraged by the early progress we've been making on our cost optimization initiative we.

Michael Stubblefield: We have launched multiple work streams led by executive leadership team sponsors across each of our four focus areas organizational efficiency footprint optimization reduced cost to serve and procurement savings.

Michael Stubblefield: As mentioned at our Investor Day. This is a multiyear initiative and we will keep you updated on our progress.

Operator: As mentioned at our Investor Day, this is a multi-year initiative, and we will keep you updated on our progress. In closing, while we continue to operate in a dynamic environment, we are implementing proactive initiatives to control costs, enhance productivity and efficiency, and accelerate growth. We remain confident in the rich set of opportunities across our end markets based on a strong pipeline of scientific innovation and our proven ability to win and retain customer relationships, solve scientific challenges, and grow share of wallets. I will now turn it over to the operator to begin the question and answer portion of our call. Thank you. If you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, that is start followed by two.

Michael Stubblefield: In closing, while we continue to operate in a dynamic environment, we are implementing proactive initiatives to control costs enhanced productivity and efficiency and accelerate growth.

Michael Stubblefield: We remain confident in the rich set of opportunities across our end markets based on our strong pipeline of scientific innovation and our proven ability to win and retain customer relationships. So all scientific challenges and grow share of wallet.

Speaker Change: I will now turn it over to the operator to begin the question and answer portion of our call.

Speaker Change: Thank you if you would like to ask a question today. Please do so now by pressing star followed by the number one on your kind of think keypad. If you change your mind I would like to <unk> from Macquarie.

Speaker Change: I'll flip by Cade, we ask that you. Please limit yourself to one question and one follow up.

Operator: We ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Dan Arias with Steve. Please go ahead. Morning, guys.

Our first question comes from the line of Dan Arias with Stifel. Please go ahead.

Daniel Anthony Arias: Good morning, guys. Thanks for the questions here, Brian maybe just to start on the outlook.

Daniel Anthony Arias: Thanks for the questions here. Brent, maybe just to start on the outlook, certainly understand the need for prudence here, but it does sort of feel like the guidance approach is to say that business conditions 10 to 12 months from now are basically the same as they are today, which does seem a little bit out of line maybe with what the peer group is kind of pointing to and maybe even the hints of improvement that you've touched on when you mentioned things like bioprocess. So, you know, is that the base case that you see, or is this really just more about creating upside potential for the company... Yeah, Dan, thanks for the question, and I absolutely appreciate the sentiments there. You know, as I said in my prepared remarks, we're really looking at the business on a run rate basis now. We sort of reset to doing that after Q2 last year.

Daniel Anthony Arias: Certainly understand the need for prudency here, but it does sort of feel like the guidance approach is to say that business conditions 10 to 12 months from now are basically the same as they are today, which does seem a little bit out of line, maybe with what the peer group is kind of pointing to and maybe even the hints of improvement that you've touched on.

Daniel Anthony Arias: When you mentioned things like bioprocess being in sale et cetera. So is that the base case that you see or is this really just more about creating upside potential for the year.

Daniel Anthony Arias: Yes.

Daniel Anthony Arias: Dan Thanks for the question and absolutely appreciate the sentiments there.

Daniel Anthony Arias: As I said in the prepared remarks.

Daniel Anthony Arias: We're really looking at the business on a run rate basis, now, we sort of reset to doing that after Q2 last year.

Brent Jones: We believe that approach really served us well through the end of the year. You know, it is a dynamic environment, and we don't see the inflection yet. And, you know, you noted the comment about prudence.

Daniel Anthony Arias: That approach really served us well through the end of the through the end of the year.

Daniel Anthony Arias: It is a dynamic environment and we don't see the inflection yet and you noted the comment about Prudence. We really think this is the prudent and right way to show it here and I think a really important takeaway from this is we are not banking on it on a recovery to achieve these results. So.

Brent Jones: We really think this is the prudent and right way to show it here. And I think a really important takeaway from this is that we are not banking on a recovery to achieve these results. So, we just think it's the right way to forecast a year with what we're seeing now. We're basing our forecast on an order book, not on hope. Okay, fair enough. And then maybe just as a follow-up on the destocking phenomenon, I'm curious how you would describe bioprocess versus routine consumables separately. Is there a difference in terms of how far along in the process we are for one versus the other and when you think one might be flushed out of the system versus the other? Or are they more or less moving at the same pace and likely to resolve themselves? Yeah, Dan, thanks for the question. This is Michael.

Daniel Anthony Arias: We just think it's the right way to forecast the year with what we're seeing we're basing our forecast on order book.

Daniel Anthony Arias: Nope.

Speaker Change: Okay Fair enough and then maybe just as a follow up on the.

Speaker Change: The Destocking phenomenon I am curious how you would describe.

Speaker Change: Bioprocess versus routine consumables separately is there a difference in terms of how far along in the process. We are for one versus the other and when you think one might be flushed out of the system versus the other.

Speaker Change: Are they more or less moving it.

Speaker Change: Same pace and likely to resolve themselves at the same time.

Speaker Change: Yes, Dan. Thanks for the question. This is Michael I think as we've been saying throughout the last year or so they have seemingly been moving in similar directions.

Michael Stubblefield: I think, as we've been saying throughout the last year or so, they have seemingly been moving in similar directions in the lab segment. Of course, that's going to be the lab consumables where there was the excess inventory. We've seen that coming down at very similar rates as what we see on the single use offerings that we have in our bioprocessing platform. And our interactions with our customers would indicate very similar dynamics in terms of where their inventory help stands, which, as we've noted, continues to improve quarter by quarter. Maybe the one different dynamic I might call out within the bioprocessing business is, as you move downstream from our materials, I think part of what we're seeing in our business is a continual work down of our customers' inventory of drug and substance inventories that were built during the pandemic.

Michael Stubblefield: Segment of course, that's going to be the lab consumables, where there was the excess inventory we've seen that coming down at the very similar rates as what we see on the single use offerings that we have in our bio processing platform.

Michael Stubblefield: Interactions with our customers would indicate.

Michael Stubblefield: Yes, very similar dynamics in terms of.

Michael Stubblefield: Where their inventory stands which as we've noted.

Michael Stubblefield: Continues to improve quarter by quarter, maybe the one different dynamic I might call out within the bio processing business is as you move downstream from our materials I.

Michael Stubblefield: I think part of what we're seeing in our business is.

Michael Stubblefield: We will work down of.

Michael Stubblefield: Our customers inventory of drug.

Michael Stubblefield: Substance inventories that were built during during the pandemic and we see that improving as well, but that's probably the only.

Michael Stubblefield: And we see that improving as well. But that's probably the only different dynamics that I might call out between what we're seeing in the lab versus the production segment. Okay, appreciate it. The next question comes from Michael Riskin with Bank of America. Please go ahead.

Michael Stubblefield: Different dynamics that I might call out between what we're seeing in land versus the production segment.

Speaker Change: Okay I appreciate it.

Speaker Change: The next question comes from Michael <unk> with Bank of America. Please go ahead.

Michael Riskin: Great. Thanks, guys. The first question I want to ask is about the cost action you talked about, the $300 million to 2026, and then also how that plays out this year. You talked about the impact on the margins improving as you go through the year, as those are layered in. Just any additional color on where the cost actions are coming, and how should we think about the 2024-25-26 cadence, you know, relatively linear throughout, or any big milestones we should be keeping an eye on? And I have a follow-up. Okay, yeah Michael, it's Brent.

Speaker Change: Yes.

Michael Stubblefield: Great. Thanks, guys.

Michael Stubblefield: First question I wanted to ask is on the.

Michael Stubblefield: The cost actions you talked about the $300 million 26, and then also how that plays out this year you.

Michael Stubblefield: You talked about.

Michael Stubblefield: Impact on the margins improving as you go through the year as well.

Earlier in.

Just any additional color on where the cost actions are coming and how should we think about 2045 2016 in relatively linear throughout or any big milestones, we should be keeping an eye on.

Speaker Change: Follow up on that.

Speaker Change: Okay, Yes, Michael it's Brent Thanks for the note.

Brent Jones: No, thanks for the note. It's obviously a big focus we have here. We have clear line of sight, consistent with what we said in investor data, $75 million of cost savings this year, 25% of what we've talked about. We're obviously pushing to outperform on that, but $75 million is what you should assume in your modeling there. There aren't any particular milestones, I would say.

Brent Jones: It's obviously, a big focus we have here.

Brent Jones: We have clear line of sight consistent with what we said at Investor day to $75 million of cost savings this year, 25%.

Brent Jones: What we've talked about we're obviously pushing to outperform on that but $75 million is what you should assume that in your modeling there.

Brent Jones: When you sit there aren't any particular milestones I would say I think we will keep you updated very dynamically, but I'll say.

Brent Jones: I think we'll keep you updated very dynamically, but I'll say it's something we're working really hard at. I think we have really, really good traction. Consistent with what we said before, about a third of that will be organizational efficiency related. About 20% of it will be related to footprint, and then the balance through procurement and cost to serve broadly. And it's really important to think about this is that this is unlocked by these segments in this reorganization that Michael is talking about in the organizational realignment. That's what's allowing these things to happen.

Brent Jones: It's something we're working really hard at I think we are really really good traction.

Brent Jones: With what we said before about a third of that will be organizational efficiently efficiency related about 20% of that will be related to footprint and then the balance through procurement and cost to serve broadly but.

Brent Jones: And.

Brent Jones: It's really important to think about this is this is unlocked by the statements in this.

Brent Jones: Reorganization that Michael was talking about in the organization realignment, that's what's allowing these things to happen. So this is something we're dynamically doing everyday taking costs out of the business.

Brent Jones: So this is something we're dynamically doing every day, taking costs out of the business. Okay, and then a follow-up specifically as it relates to 1Q margin guidance, and you just said in the prepared remarks about 200 bits lower than the full year, so something in the 15.5 to 60% range, give or take, even a margin, relatively high number, even though, as you said, you're only taking costs out throughout the rest of the year. Is that just a mixed component in terms of the top line being down, sort of what's driving the lower margin in the first quarter? Thanks. Yeah, no, I, no, I appreciate that.

Brent Jones: Okay, and then follow up specifically as it relates to one two margin got it and then can you just said in the prepared remarks about 200 bps lower than the full year. So something in that 15, 5% range give or take EBIT margin.

Brent Jones: The relatively high number even though as you said youre only taking cost out throughout the rest of the year is that just a mix component.

Brent Jones: The top line being down what's driving the lower margin in the first quarter.

Speaker Change: Yes, no no.

Speaker Change: I appreciate that I appreciate that the largest driver is really the we set of incentive comp.

Brent Jones: I appreciate that note. No, the largest driver is really the reset of incentive comp. The, you know, how it goes through the years; the costs start right at the beginning of the year, and the cost actions are going to get feathered into the year as we achieve against them. So, it's literally the math of just having much higher expenses there. It's not an issue on the gross margin side at all. It's purely a cost piece there.

Speaker Change: How would go through the year as the costs start right at the beginning of the year and the cost actions, we're going to get feathered into the year as we achieve against them. So it's literally the math of just having much higher expenses. There. It's not an issue on the gross margin side at all it's purely a cost piece there.

Brent Jones: And Q1 will be the low point for the year. And then, as a reminder, as those phase in over the year, you'll see margin improvements that are driven by cost out, which will help both gross margin and SG&E. Great, thanks. Thank you. Our next question comes from Tejas Savant with Morgan's... Please go ahead.

Speaker Change: And Q1 will be the low point for the year and then as a reminder, as those phase in over the year Youll see margin improvement there driven by cost out which will help both gross margin and SG&A.

Speaker Change: Great. Thanks.

Thank you.

Speaker Change: Our next.

Speaker Change: Comes from Tejas Savant with Morgan Stanley. Please go ahead.

Tejas Savant: Hey, guys good morning, and I appreciate the time here.

Tejas Savant: Hey guys, good morning, and appreciate the time here. Michael, I have one for you that's sort of a follow-up to Dan's question at the beginning of the call. You know, specifically at the low end of the guide, you're talking about organic growth down 2%. Is it fair to say that, at least at that level, at the low point, you're actually baking in deterioration versus current trends? And then Brent, can you help us just build a bridge on the free cash flow side, similar to what you did on the margins, please? All right, yeah, Tejas, good morning.

Tejas Savant: Michael one for you that sort of a follow up to Dan's question on the top of the call.

Tejas Savant: Specifically at the low end of the guide you're talking of organic growth down 2% is it fair to say that at least at that level at the low point, you're actually baking in deterioration versus current trends and then Brian can you help us build a bridge on the free cash flow side similar to what you did on the on the margins. Please.

Brian: Alright, yes, tejas good morning, Thanks for joining the call today on your on your first question regarding the minus two at the low end of our full year guide.

Michael Stubblefield: Thanks for joining the call today. Regarding the minus two at the low end of our full-year guide, really, what you're picking up there is just the year-over-year, you know, comparables. Q1 last year was the high-water mark, and things deteriorated a bit as we moved through throughout the year, as the cautious, you know, spending pattern, you know, worked its way in. In the way we've guided the business, you know, just with Brent's remarks is, you know, kind of looking at where we exited the year, assuming that that, you know, continues throughout the year, plus, you know, So, you know, that range kind of reflects, you know, just what I would say normal volatility in the business, the impact of price, and then just the year-over-year comparables.

Speaker Change: Really what you are picking up there is just the year over year.

Speaker Change: Comparable.

Brian: Q1 last year was the high watermark and.

Brian: In it.

Brian: It's deteriorated a bit as we move through throughout the year as some of the cautious spending pattern work their way in.

Brian: We've guided the business just with brents remarks, as you're kind of looking at where we exited the year assuming that that continues.

Brian: Out the year, plus a modest contribution from price so.

Brian: That range kind of reflects.

Brian: Just normal volatility in the business.

Brian: The impact of the price and then just the year over year Comparables.

Speaker Change: Hey, Paul.

Brent Jones: Hey, Tejas, following up on the free cash flow bridge, I mean, that free cash flow is largely routable to what we're seeing on an EBITDA basis there, so you can largely think of that in the walk. You know, our performance in 2023 was really exceptional on free cash flow conversion, so our guidance still reflects in excess of 90% conversion, which is exactly what we talked about with our long-term financial model there. I would also say we had really, really nice performance on the working capital side, particularly ending 2023. You know, the second half of the year, we did really, really well on the DSO side, and really, the story of the year was dramatic work on inventory. So, you know, I'd like to tell you we can get to a higher entitlement. I think this is sort of the right place, and let's continue to execute on that. Got it. That's super helpful.

Speaker Change: Coming up in the free cash flow bridge that that free cash flow is largely ratable to what we're seeing on an EBITDA basis. There. So you can largely think of that in the work.

Speaker Change: Our performance in 2023 was really exceptional and free cash flow conversion, sorry, sorry guidance still reflects in excess of 90% conversion, which is exactly what we talked about with our long term financial model. There I would also say we had really really nice performance on the working capital side, particularly ending 2020.

Speaker Change: Three the second half of the year, we did really really well on the DSO side and really a story of the year was dramatic work on inventory so.

Speaker Change: I'd like to tell you we can get to a higher entitlement I think this is sort of the right place and let's continue to execute against that.

Speaker Change: Got it that's super helpful and just a follow up there Michael on your comment on pricing any color you can share on those new customer wins, you flagged in pharma and semi is especially how does the pricing look there and more broadly what are you baking in for pricing at the midpoint of the guide I believe you you said modest benefit that from pricing.

Michael Stubblefield: And just a follow-up there, Michael, on your comment on pricing. Any color you can share on those new customer wins you flagged in pharma and semis, especially how the pricing looked there, and more broadly, what are you baking in for pricing at the midpoint of the guide? I believe you said modest benefit there from pricing. Yeah, maybe I'll take them in reverse order.

Michael Stubblefield: Yes, maybe we'll take them in reverse order.

Michael Stubblefield: You know, consistent with kind of our long-term algorithm, you know, we're still in kind of one to two points of price, you know, flowing into our outlook for the year. And then I would say, you know, probably nothing out of the ordinary to call out regarding the new customer wins. I think they're in line with, you know, the pricing and margins of the rest of the business. Nothing, nothing, you know, specific or notable there.

Michael Stubblefield: Consistent with our long term algorithm.

Michael Stubblefield: And then kind of one to two points of price flowing into our our outlook for the year and then I would say probably nothing.

Michael Stubblefield: Out of the ordinary to call out regarding the new customer wins I think they are in line with.

Michael Stubblefield: The pricing and margins.

Michael Stubblefield: The rest of the business nothing nothing specific.

Vijay Muniyappa Kumar: Got it. Thanks, guys. The next question comes from Vijay Kumar with Evercore ISD. Please go ahead. Hi Michael.

Michael Stubblefield: Notable there.

Speaker Change: Got it thanks guys.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Vijay Muniyappa Kumar: Hi, Michael Thanks for taking my question.

Michael Stubblefield: Thanks for taking my question. Just one on, I guess, the revenue guidance assumption here, you know, bioproduction down mid-singles, base organic coming off of, minus high singles. I think most of your peers are assuming perhaps a first half similar to the back half of last year and some improvement in the second half. I'm curious what your bioproduction segment assumptions are. Is there any quarterly cadence?

Vijay Muniyappa Kumar: Just one on I guess the revenue guidance assumption here.

Vijay Muniyappa Kumar: Bioproducts.

Vijay Muniyappa Kumar: Mid singles base.

Vijay Muniyappa Kumar: Base organic coming off of.

Vijay Muniyappa Kumar: Minded high singles.

Vijay Muniyappa Kumar: Most of your peers are assuming perhaps first half similar to back half of last year and some improvement in.

Second half.

Vijay Muniyappa Kumar: I'm curious which of bio <unk>.

Vijay Muniyappa Kumar: Production segment assumptions are is there any quarterly cadence it looks like you certainly have easier comps given you guys saw a step down into Q versus Europe here. So maybe just help us understand the bio production, which is driving that minus mid singles.

Michael Stubblefield: Looks like you certainly have easier comps given you guys saw a step down in 2Q versus your peers. So maybe just help us understand the bioproduction which is driving that minus mid-singles assumptions. Yeah, Vijay, thanks for the question. Thanks for joining the call today. I think it's important to just start with: we continue to be extremely bullish on this space. We're coming off another year of record approvals, and the pipelines are full, and a lot of new modalities are getting traction. I think it's also important to recognize the trends we've seen in the order book, as we talked about over the last couple of months. The Q4 order rate of intake did improve sequentially from Q3, and we've seen that.

Vijay Muniyappa Kumar: Assumptions.

Yeah Vijay Thanks for the question thanks for joining the call today.

Vijay Muniyappa Kumar: It's important to just start with we continue to be extremely bullish on this on this space, we're coming off another year of record.

Vijay Muniyappa Kumar: Approvals and the pipelines are full and a lot of new modalities are getting traction.

Vijay Muniyappa Kumar: It's also important to recognize that the trends we've seen in the order book as we talked about.

Vijay Muniyappa Kumar: The last couple of months Q.

Vijay Muniyappa Kumar: Q4 order rate of intake did improve sequentially from Q3, and we've seen that trend.

Michael Stubblefield: This trend will continue into the early days of Q1, but to be clear, we've not yet seen what we would consider to be a step change in the order book. We finished the year last year with what I would think is probably the best in class performance for that platform down mid single digits, and we're expecting, you know, kind of similar performance in the year ahead. And the way we've guided, the way that gets reflected in our guidance, of course, is looking at kind of exit run rates at the end of 23, flowing that through on a full year basis with modest benefit coming from pricing. The quarter numbers, you know, while the absolute numbers are going to look pretty similar, on a rate basis, you will see, you know, a step down in Q1, just given the comparable of what we're running into on So, you know, Q1's going to want to be down probably in the mid-teens, Vijay, but not because we see a difference in revenue. It's just, you know, the year-over-year math that flows into that. So, assuming, you know, a full year of being down in single digits.

Vijay Muniyappa Kumar: Trend continue into the early days of Q1, but to be clear, we've not yet seen what we would consider to be a step change in the order book.

Vijay Muniyappa Kumar: We finished the year last year with what I would think is probably best in class performance for that platform it down mid single digits.

Vijay Muniyappa Kumar: We're expecting kind of similar performance in.

Vijay Muniyappa Kumar: The year ahead, and the way we've guided.

Vijay Muniyappa Kumar: Gets reflected in our guidance of course is looking at kind of exit run rates at the end of 'twenty three flowing that through on a full year basis with modest.

Vijay Muniyappa Kumar: Your benefits coming from pricing.

Vijay Muniyappa Kumar: Quarter numbers, while the absolute numbers are going to look pretty similar.

Vijay Muniyappa Kumar: Rate basis, you will see.

Vijay Muniyappa Kumar: Stepped down in Q1, just given the comparable of what we're running into on a on a year over year basis. So.

Vijay Muniyappa Kumar: Q1 is going to want to be down probably mid teens, Vijay, but not because we see a difference.

Vijay Muniyappa Kumar: And the revenue and just the year over year math that flows into that so.

Vijay Muniyappa Kumar: Full year of down mid single digits.

Michael Stubblefield: And that would imply 2Q to 4Q sort of improves, maybe flattish. Is that what the guidance is assuming? I think you're assuming a normalization, but I'm curious if your guidance is human. Yeah, but not because the guidance is human.

Vijay Muniyappa Kumar: And that would imply <unk> sort of it improves maybe flattish is that what the guidance is GM and I think Peter Siris CMA.

Vijay Muniyappa Kumar: Amortization, but I'm curious is your guidance.

Vijay Muniyappa Kumar: But not because it is the guidance assume.

Peter: Yes, the guidance assumes a similar absolute revenues throughout the year Vijay you might you might see a little bit.

Michael Stubblefield: Yeah, the guidance assumes, you know, similar absolute revenues throughout the year. Vijay, you might see a little bit, you know, based on the number of days in a quarter or, you know, how the pricing phase is going, you might see some differences there, but nothing fundamentally different from an underlying demand perspective. Of course, the way we've guided this does imply that you're going to be, you know, roughly flattish by the time you exit the year, but not because we're, you know, forecasting an inflection in the order book. That's helpful, Michael. And Brent, maybe one for you on the margins here.

Peter: Based on a number of days in a quarter or how the pricing phases and you might see some differences there, but nothing fundamentally different from an underlying demand perspective of course the way. We've guided this does imply that youre going to be roughly flattish by the time you exit the year, but not because we're forecasting an inflection in the order book.

Speaker Change: That's helpful, Michael and Brent maybe one for you on.

Speaker Change: The margins here.

Brent Jones: Are you assuming OPEX dollars to be slightly up or down year on year? I'm trying to understand, is this margin mostly a function of gross margins and volume leverage, or are you assuming operating expenses on a dollar basis to go up? Well, definitely, I mean, implicit in some of the other comments here, we have real headwinds on the OPEX side year over year. We are getting productivity to offset that, but it will not be enough to fully offset that. So, yes, there are meaningful year-over-year OPEX headwinds there. And so gross margin, I guess when you look at the 100 basis points of margin step down year on year, how much of that is gross margin versus operating margin? Well, I would say we have some opportunities for gross margin there in our productivity efforts, and then we're going to keep going with our cost savings initiative here to try and blunt as much of the SG&A margin headwinds as we can. But that's really the math of how it comes together.

Brent Jones: Are you, assuming opex dollars to be flattish up or down year on year.

Brent Jones: Trying to understand is this margin.

Brent Jones: Mostly a function of gross margins and volume leverage.

Brent Jones: Operating expense on a dollar basis to go up.

Well definitely.

Implicit in some of the other comments, we have real headwinds on the opex side year over year.

Brent Jones: We are getting productivity to offset that but will not be enough to fully offset that so yes, there are meaningful year over year opex headwinds there.

Brent Jones: And so gross margin I guess when you look at the 100 basis points margin step down year on year, how much of that is gross margin versus op margin.

Brent Jones: Well, we I.

Brent Jones: I would say we have some real we have some opportunities in gross margin there and our productivity efforts and then we're going to keep going.

Brent Jones: Our cost savings initiative here to try and one as much of the of the SG&A margin headwinds as we can.

Brent Jones: That's really the math of how it comes together very consistent with sort of the exit rate.

Brent Jones: It's very consistent with sort of the exit rate. And when you compare it, you can say because we exited higher in Q4 than we originally expected there, we had some goodness in the mix. We had a lot of things run right in Q4 there.

Brent Jones: And then when you're comparing you can say because we exited higher in Q4.

Brent Jones: Originally expected there we had some goodness in mix, we had a lot of things run rate in Q4, there so but on a rate basis. We expect this year to play out exactly as we had signaled earlier there on a margin basis.

Brent Jones: So, on a rate basis, we expect this year to play out exactly as we had signaled earlier on a margin basis. It's a gross margin similar to Q4, and that's what the guidance is assuming for Fiscal Year 24? No, no, no. I'm sorry.

Brent Jones: So gross margins similar to Q4 Thats, what the guidance is assuming for fiscal 'twenty four.

Speaker Change: No Im sorry.

Brent Jones: I said the, you know, the event on margin coming out very similar to the back half with those additional headwinds because we had somewhat better achievement in Q4. We, we believe there's some upside in the year to gross margin from the four levels, correct? Or the fiscals, sorry, I'm just asking.

Speaker Change: The EBITA margin coming out very similar to the back half with those additional headwinds because we had somewhat better achievement. In Q4. We believe there is some upside in the year to gross margin.

Speaker Change: From the floor levels correct.

Speaker Change: The fiscal sorry, Im just asking okay fantastic thanks, guys.

Brent Jones: Okay, fantastic. Thanks, guys. The next question comes from Dan Brennan with KDK. Please go ahead.

Speaker Change: Okay.

Speaker Change: The next question comes from Dan Brennan with TD Cowen. Please go ahead.

Daniel Gregory Brennan: Hey, thanks for taking the questions.

Daniel Gregory Brennan: Hey, thanks for taking the questions. Maybe first for Michael, in prior quarters, you talked about inventories getting close to normal under three months. Just wondering if you can describe kind of what you're seeing amongst your customers there, and if that's the case. Appreciate the conservative guidance, but is there something different with sell-through or your share such that if inventories are down at that level, I would assume we should see some kind of pickup here, whether it's the first half or, you know, certainly by mid-year. Yeah, thanks for the question.

Daniel Gregory Brennan: Maybe first one Michael in prior quarters, you've talked about inventory is getting close to normal under three months.

Daniel Gregory Brennan: Just wondering if you can describe kind of what you're seeing amongst your customers there and if that's the case.

Daniel Gregory Brennan: Appreciate the conservative guidance, but it's something different which sell through.

Daniel Gregory Brennan: Or your share such that if inventories are down at that level I would assume we should see some kind of pickup here, whether it's first half or certainly by mid year.

Speaker Change: Yes, thanks for the question.

Michael Stubblefield: You know, I think the trend has continued when we look at the input we're getting from our customers. The inventory health, as I noted in my prepared remarks, does continue to improve. But we haven't yet seen an inflection or what we'd consider to be an inflection.

Speaker Change: The trend has continued when we look at the input we're getting from our customers the inventory health as I noted in my prepared remarks does continue to.

Speaker Change: Improve.

Speaker Change: We haven't yet seen an inflection or what we would consider to be an inflection we continued to see sequential.

Michael Stubblefield: We continue to see, you know, sequential improvement in the order book, but nothing that we would consider to be a step change. Relative to your last point around just the performance of the business relative to the peer set, our 2023 performance, I think, speaks for itself, but, you know, although we're not jumping up and down with a business that's down mid-single digits, I think you'll find that it is best in class, you know, relative to other players that are exposed to the space. And even if you account for maybe more limited exposure to China, I still think that that statement holds up.

Speaker Change: Improvement in the order book.

Speaker Change: But nothing that we would consider to be a step change relative to your last point around just performance of the business relative to the peer set.

Speaker Change: Our 2023 performance I think speaks for itself, although we're not jumping up and down with our business is down mid single digits I think youll find that is.

Speaker Change: Best in class.

Speaker Change: Relative to other players that are exposed to the space and even if you account for maybe more limited exposure to China I still think that that that statement holds up so we've had a long standing.

Michael Stubblefield: So, you know, we've had a longstanding track record here, at least over the last decade, of outgrowing the broader bioprocessing and market by 300 to 400 basis points. And I think, you know, that's reflected again in the 2023 numbers. I can't speak to, you know, the ins and outs of how others have guided the, you know, the year ahead, but, you know, I'm confident that our business will hold up as well as anybody's here and likely, you know, outperform as we have done in previous years. Great. Thank you for that. And we don't have the quarterly dollar numbers yet for bioprocess. I don't think we have any.

Speaker Change: Track record here at least over the last decade of outgrowing.

Broader bio processing end market by 3% to 400 basis points and I think.

Speaker Change: That's reflected again in the 2023 numbers I can't speak to.

Speaker Change: The ins and outs of how others have guided that the <unk>.

Speaker Change: Year ahead, but I'm confident that our business will hold up as well as anybody's here and likely outperform as we have done in previous years.

Speaker Change: Yes.

Speaker Change: Great. Thank you for that and.

Speaker Change: We don't have the quarterly dollar numbers yet for bioprocess I don't think we have I think we just have the growth numbers going back historically, so I'm. Just wondering can you just comment I know you said bookings grew modestly was that the first quarter bookings grew modestly and any color on like book to Bill and does your guidance anticipate like when would that book to Bill get above one for your guidance in the core bioprocess.

Michael Stubblefield: We just have the growth numbers going back historically. So, Ms. Warner, can you just comment? I know you said bookings grew modestly. But was that the first quarter where bookings grew modestly in any color on, like, book-to-bill? And does your guidance anticipate, like when would that book-to-bill ratio get above one for your guidance in the core bioprocess? Thank you. Yeah, so a couple of time periods that we've talked about in terms of sequential improvement in the order book, you know, firstly, you know, from Q4 to Q1, relative to Q3, we definitely did see a modest improvement in the rate of order intake. And we've seen that trend of sequential improvement continue into Q1, albeit at a slower rate of improvement than what we would hope for that would ultimately enable us to call for a full recovery

Speaker Change: Thank you.

Speaker Change: Yes, so a couple of time periods that we've talked about in terms of the sequential improvement in order book Firstly.

Speaker Change: From a Q4 to Q relative to Q3, we definitely did see a.

Speaker Change: <unk> a modest improvement in the rate of order intake and we've seen that trend of sequential improvement continue into Q1, albeit at a slower rate of improvement in what we would.

Speaker Change: Hope for that.

Speaker Change: Enable us to call for full recovery here, but we're encouraged I think the activity levels remained strong customer sentiment remains quite positive.

Michael Stubblefield: But we're encouraged; I think the activity levels remain strong, customer sentiment remains quite positive, and, you know, we're certainly our teams are busy, you know, working with our customers on, you know, supporting their new innovation. From a book-to-bill perspective, I don't think that's something that we've typically or historically quoted, so I don't have a number to give you on that, but we do continue to see modest improvements in the rate of order. Good.

Speaker Change: And.

Speaker Change: We're certainly our teams are certainly busy working with our customers on.

Speaker Change: Supporting their new innovations.

Speaker Change: From a book to Bill perspective, I don't think that's something that we've that we've typically or historically quoted so don't have a number to give you on that but we do continue to see.

Speaker Change: Modest improvements in the rate of order intake.

Speaker Change: Great. Thank you.

Patrick Donnelly: Thank you. Thank you. The next question comes from Patrick Donnelly with... Please go ahead.

Speaker Change: Yeah.

Speaker Change: Next question comes from Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly: Hey, guys. Good morning, Thanks for taking my questions.

Michael Stubblefield: Hey, guys, good morning. Thanks for taking the questions. Michael, maybe another one just on the recovery path. You know, at the analysts' meetings, you talked about kind of the timeframe to get there and that 20% margin exit rate. You know, any more clarity as to the timeframe, and how you're seeing that play out? Obviously, it seems like things are stabilizing a bit, but I'm not yet calling that an inflection point. Just trying to get a sense for, as we go through the year, how to think about approaching that margin rate and, again, the recovery path on the process. Yeah, thanks for the question, Patrick.

Patrick Donnelly: Michael maybe another one just on the recovery path at the analyst day.

Patrick Donnelly: Talked about kind of the timeframe to get there in that 20% kind of margin exit rate.

Patrick Donnelly: Any more clarity as to the timeframe, how youre seeing that play out obviously it seems like things are stabilizing a bit but not yet calling that inflection just trying to get a sense for as we go through the year, how to think about approaching that margin rate and again the recovery path on the bioprocess side.

Speaker Change: Yes, thanks for the question Patrick.

Michael Stubblefield: My conviction on, you know, what I've said before about, where we see things exiting 2025 is, is unchanged. We would see us, you know, in that time period performing at or better than, you know, kind of where we were in 2021 on both the top line and margins, which does set us up for a year in 2026 with adjusted EBITDA margin performance above 20%. The end market fundamentals remain robust, which is something I certainly look at to support our view that a recovery is coming. Again, record levels of new drug approvals, really robust pipelines, and positive customer sentiments. You know?

Speaker Change: Conviction on.

Speaker Change: What I've said before about where we see things exiting 2025 is unchanged.

Speaker Change: We would see us in that time period, performing at or better than kind of where we're at on 2021 on both top line and margins, which does set us up for.

Speaker Change: A year in 2026 with adjusted EBITDA margin performance above 20%.

Speaker Change: The end market fundamentals remain robust.

Speaker Change: It is something I, certainly look at that to support our view that the recovery is coming again record levels of new drug approvals really robust pipeline positive customer sentiment.

Speaker Change:

Michael Stubblefield: Can we look at the funding environment, I think, has stabilized some pockets, including some of the biotech capital market funding levels, you know, improving. I think there's, there's a lot of encouraging leading indicators here. And, you know, we've taken an approach here to guide the year, not trying to call the timing of recovery and, you know, would consider that upside when it happens. But as we think about, you know, over the course of the next couple of years, we are, you know, optimistic about the recovery. And when you look at the margin rate that we've guided to for, you know, 2026, we can largely get there, you know, just with the self-help measures that we talked about on investor day and that we spend a little bit more time on here today. So we remain quite optimistic about what we've said about this recovery. Okay, that's helpful.

Speaker Change: When you look at funding environment, I think has stabilized some pockets, including some of the biotech capital market funding levels improving.

Speaker Change: I think theres a lot of <unk>.

Speaker Change: <unk> leading indicators here.

Speaker Change: We've taken an approach here to guide the year not trying to call the timing of recovery and would consider that upside when it happens, but as we think about over the course of the next couple of years we are.

Speaker Change: Optimistic about the recovery and when you look at the margin rate that we've guided to for 2026, we can largely get there just with the self help measures that we've talked about at Investor day, and we spent a little bit more time on here today. So we remain.

Speaker Change: You are quite optimistic about what we've said about this recovery period.

Speaker Change: Okay. No that's helpful and maybe a quick non bio processing question just in terms of semi industrial demand, maybe just give a little more color on what youre seeing there and then expectations as we work our way through 'twenty four here. Thank you guys.

Michael Stubblefield: And maybe a quick non-bioprocessing question, just in terms of semi-industrial demand, maybe just give a little more color on what you're seeing there and then expectations as we work our way through 24 here. Thank you. As we've said before, Semise is a relatively small portion of our business, although it did take up a disproportionate amount of airtime in 2023, just given how aggressively that end market took out their excess inventories. Similar dynamics to what we see in the life sciences space; they just moved a bit more aggressively to reset the inventories on the back end of the supply chain. As we noted, as we moved through the back half of the year, and certainly in Q4, we have seen the business improve, and we expect a return to modest growth in 2024, which, as we realize that, certainly is factored into our guidance, just given the trending that we saw at the end of the year. Hopefully, it's a platform that we don't need to spend a whole lot of time talking about in the year ahead Great, thank you.

Speaker Change: Alright, as we've said before semis.

Speaker Change: <unk> small portion of our business, although it did take up a disproportionate amount of the airtime in 2023, just given how aggressively that end market took out their excess inventories similar dynamics as what we've seen in our life Sciences space. They just moved a bit more aggressively to.

Speaker Change: To reset the inventories on the back end of the supply chain reset.

Speaker Change: As we noted as we move through the back half of the year and certainly in Q4.

Speaker Change: We have seen the business improve.

Speaker Change: And we expect a return to modest growth in 2024, which.

Speaker Change: As we realize that certainly is factored into our.

Speaker Change: Our guidance just given the trends that we saw at the end of the year.

Speaker Change: Hopefully, it's a platform that we don't need to spend a whole lot of time talking about.

Speaker Change: For the year ahead.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Michael Stubblefield: Thank you. Thank you. Thank you. The next question comes from Rachel Ransdell with JPMorgan. Let's go back.

Speaker Change: Yes.

Speaker Change: The next question comes from Rachel <unk> with J P. Morgan.

Rachel Ransdell: Great, good morning, and thanks for taking the question. So, I wanted to ask you about the trends that you've seen so far since the start of the year. You know, we've had some of your peers talk about how spending has been slow out of the gate. So, can you spend a minute talking about how orders have trended in January and into early February, and have you noticed any differences by geography and market or customer type as well? A couple of things I would say on that, Rachel. First of all, I would reiterate the positive customer sentiment and, you know, just the level of activity that we're seeing with our customers continues to be encouraging. And when I think about, you know, R&D budgets and, you know, the discussions we're having with our customers on that front, you know, I think the majority of them are anticipating, you know, modest growth in R&D budgets, albeit maybe a bit second half weighted.

Rachel: Please go ahead.

Rachel: Great. Good morning, Thanks for taking the question. So I wanted to ask on the trend that you've seen so far since the start of the year. We've had some of your peers talk about how spending has been slow out of the gate. So can you spend a minute talking about how orders have trended in January and early February and have you noticed any differences by geography and market or customer type as Bob.

Bob: A couple of things I would say on that Rachel firstly.

Bob: I would reiterate the positive customer sentiment.

Bob: Just the level of activity that we're seeing with our with our customers continues to be encouraging and when I think about R&D budgets in the discussions we're having with our customers on that front.

Bob: The majority of them are anticipating modest growth of R&D budgets, albeit maybe a bit second half weighted we've not tried to reflect that in our in our outlook.

Rachel Ransdell: We've not tried to reflect that in our outlook, and, you know, we'll bank that as upside as things, you know, improve throughout the year. Relative to what we've seen in the early days of the year, I'd say it's consistent with. You know, with the run rates that we experienced at the end of the year, and certainly that's reflected in our guidance or, you know, the direction that Brent provided on what we're anticipating for, for Q1 order books, you know, continue to modestly improve, but we've not yet seen an inflection point, but very consistent, you know, trending, moving sequentially from Q4 to Q5. Okay, and then maybe just pushing on that one-queue guide a little bit further.

Bob: We think that as upside.

Bob: Things.

Bob: Improved throughout the year relative to what we've seen in the early days of the year I would say it's consistent with.

Bob: The.

Bob: With the run rates that we experienced at the end of the year.

Bob: And certainly that's reflected in our.

Bob: Guidance for the direction of the Brent provided on.

Bob: What we're anticipating for Q1 order book continued to modestly improve but.

Bob: Not yet an inflection point, but.

Bob: Very consistent.

Trending moving sequentially from Q4 to Q1.

Speaker Change: Okay, and then maybe just pushing on that once you guide a little bit further.

Rachel Ransdell: I appreciate on the margin line, you have the reset on the incentive comp, and that's kind of driving some of the sequential stuff down there. But can you walk us through the sequentials on top line expectations? Organic declines were down six and a half to down five and a half in one-queue, just a bit more from a seasonality standpoint than we would have expected typically. So are there any other one-timers that we should be aware of then?

Speaker Change: I appreciate it on the margin line you have the reset on the incentive comp that's kind of driving some of the sequential step down there, but can you walk us through the sequential down top line expectation.

Speaker Change: Organic declines as down second half down slightly that happened <unk>, just a bit more from a seasonality standpoint than we would have expected typically there are there any other one timers that we should be aware of that and then just lastly on my follow up I wanted to clarify some of your earlier comments on gross margin to be J's question. So can you just clarify are you implying gross margins for the year to date.

Brent Jones: And then just lastly, in my follow-up, I want to clarify some of your earlier comments on gross margin in response to Vijay's question. So can you just clarify, are you implying gross margins for the year to be similar to four-queue 23? And then where should we land on that gross margin line for one-queue as well? Thank you. Yeah, sure. So, On the other hand, I mean, I mean, honestly, Rachel and Q1, it's really the issue of the expense reset. Largely, you go through, I mean, we have well over 100 basis points just due to expense reset there, then you always have a respective noise difference in the top line. You have a little less absorption related to that.

Speaker Change: Similar to <unk> 23, and then where should we leaned on that gross margin line for <unk> as well. Thank you.

Speaker Change: Yes sure so.

Speaker Change: On.

Speaker Change: I mean honestly ratio in Q1, it's really the issue of the expense reset largely can you go through I mean, we have well over 100 basis points just due to expense reset. There then you always have respective noise is different from the top line a little less absorption related to that so yeah.

Brent Jones: So you just do that as a matter of math. And that's very clear. That's what Q1 wants to be there. There's no unusual one-timer embedded in that.

Speaker Change: Just do that as a matter of math and Thats very clear that's what Q1 wants to be there. There is no unusual one time were embedded in that no big change in mix or.

Brent Jones: No big change in mix or, or anything else there. Following up on the comment in connection with gross margins, that was a year-over-year comment. I mean, we are running the transformation. We have improvements in rooftops and otherwise there.

Speaker Change: Or anything else there.

Speaker Change: Following up on the comment. It can include gross margins that was a year over year comment that we are running the transformation we have.

Speaker Change: Improvements in rooftops and otherwise there. So just indicated we do see year over year upside in connection with gross margin there.

Brent Jones: So, just to indicate, we do see year-over-year upside in connection with gross margin. Not going to get to guiding the quarters on gross margin, that is given all we will on a quarterly basis there. I think we wanted to have everything through the scope of the guidance disclosure we made. Bye. The next question comes from Matt Sykes with Goldberg. Please come back. Good morning.

Speaker Change: Not going to get to guiding the quarters on gross margin that have given all we will honor.

Speaker Change: Quarterly basis, there, but.

Speaker Change: I think we want to have everything through the scope of the guidance disclosure we've made.

Speaker Change: Your next question comes from Mac Sykes with Goldman Sachs. Please go ahead.

Mac Sykes: Hey, good morning, Thanks for taking my question, maybe the first one just shifting over to see advanced Tech and applied materials end market.

Matt Sykes: Thanks for taking my question. Maybe the first one, just shifting over to the advanced tech and applied materials end market, in Q4, it looks like you had a, you know, sequential slightly better than what the average for 23 was. You mentioned aerospace and defense as having strong growth. Can you maybe talk about some of the drivers within the A&D segment within this end market and kind of what's driving that and what your expectations are for 24 within that particular end market? Matt, a couple of things I would say about that in-market. Our exposure is principally to two types of workflows. One, QA-QC workflows to support our customers' testing of their finished goods, and then, similar to our bioprocessing or other life science platforms, we also have custom materials that are spec'd into our customers' manufacturing processes.

Mac Sykes: In Q4, it looks like you had a.

Mac Sykes: Sequentially a bit better than what the average for 2003 was you called out aerospace.

Mac Sykes: Defense is having strong growth can you maybe talk about some of the drivers within the A&D segment within this end market and kind of what's driving that and what your expectations are for for 24 within that particular segment or end market.

Speaker Change: Matt a couple of things I would say about that end market. Our exposure is principally into two types of workflows, one QA QC workflows to support our customers.

Speaker Change: Testing of their finished goods.

Matt: And then similar to our bio processing or other life science platforms. We also have custom.

Matt: Materials that are specced into our customers' manufacturing process.

Matt: In the case of aerospace and defense, that's certainly true where we provide.

Michael Stubblefield: In the case of aerospace and defense, that's certainly true, where we provide some extremely high-performance, high-purity materials that are spec'd into those platforms, and so that reflects just the continued growth and momentum and positioning of our technology in that space. The other thing to call out for the quarter is a sequential improvement in the semiconductor in-market that I mentioned earlier in response to one of the questions. That had been such a drag on the business throughout the year, just given the inventory reset and certainly seeing some of the benefits of that modest improvement coming through in the quarter. Got it, thanks. That's helpful.

Matt: Some extremely.

Matt: High performance high purity materials that are specced into those platforms and so.

Matt: That reflects just the continued growth and momentum and positioning of our technology in that space. The other thing to call out probably for the for the quarter is a sequential improvement in.

Matt: The semiconductor end market that I that I mentioned earlier.

Matt: Earlier in response to one of the questions that had been such a drag on the business throughout the year, just given the inventory reset and certainly seeing some of the benefits of that modest improvements coming through in the quarter.

Speaker Change: Got it. Thanks, that's helpful. And then just as you think about 2024 and you think about the Biopharma end market. If you could kind of characterize large pharma versus sort of emerging biotech and where you see the potential delta or upside in each of those kind of customer cohorts, where do you see sort of the best chance.

Michael Stubblefield: And then, just as you think about 2024 and you think about the biopharmaceutical market, if you can kind of characterize large pharma versus sort of emerging biotech and where you see the potential delta or upside in each of those kind of customer cohorts, where do you see sort of the best chance of upside coming from? I know that emerging biotech really depends on capital markets conditions to a certain extent, but I'm just wondering if you can characterize those two customer cohorts and where you see the upside for 2024. Yeah, so it's probably important to split my answer into the two, you know, ends of the workflow. In the research space, which, you know, whether you're a large pharma or biotech, those revenues are going to be captured in our new lab segment.

Speaker Change: Of upside coming from I know that the emerging biotech really depends on capital markets conditions to certain extent, but I'm. Just wondering if you can characterize those two customer cohorts and where you see the upside for 'twenty four.

Speaker Change: Yes, so probably important to split my answer into the two ends of the workflow in the research space.

Speaker Change: Whether your large pharma or biotech those revenues are going to be captured in our new lab segment and the way we forecasted that of course is a continuation of kind of Q4 run rates adjusted for a bit of a bit of price if you will.

Michael Stubblefield: And, you know, the way we forecasted that, of course, is, you know, a continuation of kind of Q4 run rates adjusted for, you know, a bit of a bit of price, if you will. But, I'm encouraged by what we're seeing in biotech. You know, we probably saw the last step down in Q1 a year ago, and things were relatively stable through the back three quarters of the year. And when I look at the external data, try to triangulate the disparate data points around funding, you know, I think there are some green shoots there that give us a little bit of hope that they're on their road to recovery. But certainly, we're encouraged by the stability that we've seen there.

Speaker Change: I'm encouraged by what we're seeing on biotech, we probably saw the last step down.

Speaker Change: In Q1, a year ago, and things were relatively stable through the back three quarters of the year and when I look at the external data and try to triangulate.

Speaker Change: The disparate data points around funding.

Speaker Change: I think there are some some green shoots there that give us.

Speaker Change: A little bit of hope.

They are on their road to recovery, but certainly.

Speaker Change: We're encouraged by the stability that we've seen there the back half of the year on large pharma certainly we saw the cautionary spending patterns work their way in.

Michael Stubblefield: In the back half of the year, on large pharma, certainly, we saw the cautionary spending patterns work their way in reprioritizing pipelines and such. As I mentioned earlier, I think the sentiment and the expectation for most of those large pharma accounts is to see modest growth as we move through the year, particularly in the back half of the year. We haven't factored that in, and we'll realize that, you know, if it doesn't in fact work out that way. On the other end of the production environment, we don't really have much exposure to the biotech space, you know, just given, you know, the way we manage these businesses, the biotech funding or biotech revenues, you know, tend to be in the research space.

Speaker Change: Re prioritization of pipelines and such as I mentioned earlier, I think the sentiment and the expectation for most of those large pharma accounts as to see.

Speaker Change: Modest growth as we move through the year, particularly in the back half of the year, we haven't factored that in and we'll realize that.

Speaker Change: If it does in fact work out that way on the other end of the workflow in the production environment, we really have much exposure to the biotech space just given.

Speaker Change: The way we manage these businesses the biotech funding biotech revenues tend to be in the research space.

Michael Stubblefield: And so the production segment really is, you know, reflecting the revenues associated with commercialized platforms, which again you've got just patient demand on the one hand, and then the launch of new molecules, which continues to run at a high level as key drivers for that platform. And we continue to be extremely well positioned. Got it. Thank you very much. The next question comes from Andrew Cooper with Raymond. Please go ahead. Hey, everybody. Thanks for the questions. A lot's been asked, so maybe just one from me.

And so the the.

Speaker Change: Production segment really is.

Speaker Change: Reflecting the revenues associated with commercialized platforms, which again, you've got just the patient demand on one hand, and then the launch of a new molecules, which continues to run at a high level as key drivers for that platform and we continue to be extremely well positioned here.

Speaker Change: Got it thank you very much.

Speaker Change: Okay.

Speaker Change: The next question comes from Andrew Cooper with Raymond James. Please go ahead.

Andrew Cooper: Hey, everybody. Thanks for the question a lot's been asked so maybe just one for me.

Andrew Cooper: If you think about the commentary on EBITDA pacing, you said 1Q about 200 bps lower than the full year. I guess just thinking through that, to me, if we get a ratable improvement over the course of the year, it kind of puts the exit rate as approaching that 20% level at the end of this year. Is there something I'm missing there?

Andrew Cooper: Just thinking about the commentary on EBITDA pacing.

Andrew Cooper: Ted <unk> about 200 bps lower than the full year I guess, just thinking through that to me is if we get ratable improvement over the course of the year. It kind of puts the exit rate is approaching that 20% level at the end of this year is there something I'm missing there or if not is that more of the cost saves maybe come in in <unk>.

Andrew Cooper: Or, if not, is it that, you know, more of the cost saves may be coming in 2Q as opposed to 3Q or 4Q? Just trying to get a sense when the top line clearly isn't assuming we're done with that recovery cycle in 24, how we should think about the exit rate of 24 in terms of EBITDA margins relative to that entry point in the, call it, mid-teens. Andrew, it's Brent. Look, you're good and quick with your calculator there. I mean, it depends upon how you phase the things in there.

Andrew Cooper: As opposed to <unk>, just trying to get a sense when the topline clearly is not assuming we're done with that recovery cycle in 2000 and for how we should think about the exit rate of 24 in terms of EBITDA margins relative to that that entry point in the call it mid teens.

Andrew Cooper: Well, Andrew it's Brent look you're you're good and quick on your calculator, there I mean that it depends upon how you face the things in there, but look I mean that is the beauty of layering in the cost saves against that and the way. We're doing the guide we won't get really specific as to the exit rates or otherwise there.

Brent Jones: But look, I mean, that is the beauty of layering the cost savings against that and the way we're doing the guide. We won't get really specific as to the exit rates or otherwise there, but look, the self-help initiatives here are going to be very meaningful as we keep executing against them. And I think you are broadly thinking about that the right way. Okay, helpful. I said I had just asked one, so I will stop there and pick it up offline. Thank you. We. The next question comes from Conor McNamara with RBC Capital. Please go ahead.

Andrew Cooper: But look the the self help initiatives here are going to be very meaningful as we keep executing against them and I think you broadly or thinking about that the right way.

Speaker Change: Okay helpful. I thought I'd, just ask one so I will stop there and pick it up offline. Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: The next question comes from Kannan, <unk> with Nomura with RBC capital markets. Please go ahead.

Conor Mcnamara: Hey, good morning, and thanks for taking the questions. Just on the wage pressures that you talked about this year, how much of that is any of that one-time catch-up from underpayment from prior years, or is that a new baseline for wages? And then on the inflationary pressures, if inflation were to persist throughout this year, what's your ability to take prices above and beyond what you guys have guided to? Yeah, so on the inflationary pressures, I mean, there's a piece there that the reset of the incentive comp, which is less inflationary and just more of a year-over-year comp, and then that's just merit. And we know wages are running somewhat higher there, but there's not any dramatic or nefarious story in that connection, Connor. And then your second question was:

Speaker Change: Yes.

Kannan: Hey, good morning, Thanks for taking the questions just on the wage pressures that you talked about this year.

Kannan: Much of that is.

Kannan: Is there any of that onetime catch up from under payable from hires or is that a new baseline for <unk>.

Speaker Change: For wages and then on.

Speaker Change: While the inflationary pressures.

Speaker Change: If inflation were to persist throughout this year.

Speaker Change: Your ability to take price above and beyond what you guys have guided to.

Speaker Change: Yes, so on the.

Speaker Change: The inflationary I mean, theres a piece there that the reset of the.

Speaker Change: Reset of the incentive comp which is less.

Speaker Change: Less inflationary in just more of a year over year comp and then that's just mirrored in we know wages are running somewhat higher there, but theres not theres not any dramatic or nefarious story in that connection Connor.

Speaker Change: Okay.

Speaker Change: And then.

Speaker Change: Question one.

Speaker Change: Yes.

Speaker Change: Yes, just on pricing I mean, I think we all assume that.

Brent Jones: Yeah, just on pricing. I mean, I think we all assume that the inflationary pressures that we've seen over the past several years won't persist, but if prices remain elevated or continue to go, you know, continue to go higher, what's your ability to take prices above and beyond what you guided? Well, look, I think we should just stick to where we are in the guidance on the pricing there. We've been very consistent with the entitlement we've been able to drive there, sort of no matter the weather. So I think you should assume that we always try and execute appropriately there. I think you should also assume that we take the long view with our customers on all of those. And we get a nice price entitlement annually here anyway.

Speaker Change: The inflationary pressures that we've seen over the past several years with both persist but.

Speaker Change: If prices remain elevated or to go continue to go higher on what's your ability to take price above and beyond what you what you guided to.

Speaker Change: Well look I think let's just stick to where we are in the guidance on the pricing there we've been very consistent with the entitlement, we have been able to drive their sort of sort of no matter the weather so.

Speaker Change: Thank you should assume we're always trying to execute appropriately. There I think you can also assume that we take the long view with our customers on all of those and we get a nice price entitlement Angela here anyway. So if we execute better youll see it through but I wouldn't assume more.

Brent Jones: So, you know, if we execute better, you'll see it through, but I wouldn't assume more. Great. Thanks for that, Brad. Thank you. Unfortunately, those are all the questions we have time for today, so I'll turn the call back to Michael for closing.

Speaker Change: Okay. Thanks for that Bob.

Speaker Change: Thank you.

Speaker Change: Unfortunately those are older.

Speaker Change: We have time for today, so I'll turn the call back to Michael for closing comments.

Michael Stubblefield: Yes. Thank you all for joining us today as we conclude I'd just like to reiterate that while we're certainly encouraged by the trends that we're seeing where we're also taking an appropriately prudent approach to our full year guidance.

Michael Stubblefield: Yeah, thank you all for joining us today. As we conclude, I'd just like to reiterate that while we're certainly encouraged by the trends that we're seeing, we're also taking an appropriately prudent approach to our four-year guidance and indeed our position for upside if a market recovery does materialize within the year. I'd also like to thank our associates around the world for their many contributions and for their continued commitment to our customers. I look forward to updating you when we meet next, and until then, be well, everyone. Have a great Valentine's Day. Thank you everyone for joining us today. This concludes our call. You may now disconnect your line.

Michael Stubblefield: And indeed are positioned for upside if a market recovery does materialize within the year I'd also like to thank our associates around the world for their many contributions and for their continued commitment to our customers I look forward to updating you. When we meet next and until then be well everyone have a great Valentine's day.

Speaker Change: Thank you everyone for joining us today. This concludes our call you may now disconnect your lines.

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