Patrick Donnelly: Great. Thank you.
Operator: The next question comes from Rachel Vatnsdal with JPMorgan. Please go ahead.
Rachel Vatnsdal: Hey, good morning. Thanks for taking the question. So I wanted to ask on the trends 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 into early February? And have you noticed any differences by geography and market or customer type as well?
Michael Stubblefield: A couple of things I would say on that, Rachel. Firstly, I would reiterate the positive customer sentiment and just the level of activity that we’re seeing with our customers continues to be encouraging. And when I think about R&D budgets and the discussions we’re having with our customers on that front, I think 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 outlook, and we’ll bank that as upside as things improve throughout the year. Relative to what we’ve seen in the early days of the year, I’d say it’s consistent with the with the run rates that we experienced at the end of the year. And certainly, that’s reflected in our guidance or the direction that the Brent provided on what we’re anticipating for Q1.
Order books continue to modestly improve, but we’ve not yet seen an inflection point, but very consistent trending – moving sequentially from Q4 to Q1.
Rachel Vatnsdal: Okay. And then maybe just pushing on that 1Q guide a little bit further. I appreciate on the margin line, you have the reset on the incentive comp, and that’s kind of driving some of the sequential step down there. But can you walk us through the sequential on top line expectations. Organic declines is down 6.5 to down 5.5 in 1Q. 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 that? And then just lastly on my follow-up, I want to clarify some of your earlier comments on gross margin to Vijay’s question. So can you just clarify, are you implying gross margins for the year to be similar to 4Q ’23? And then where should we land on that gross margin line for 1Q as well? Thank you.
Brent Jones: Yes, sure. So on – I mean honestly ratio in Q1, it’s really the issue of the expense reset largely. If you go through it, I mean, we have well over 100 basis points just due to expense reset there, then you always have respective noise difference in the top line, you have a little less absorption related to that. So you just do that as a matter of math, and that’s very clear that that’s what Q1 wants to be there. There’s no unusual one-timer embedded in that, no big change in mix 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 [ph] and otherwise there. So just indicated, we do see year-over-year upside in connection with gross margin there.
I’m not going to get to guiding the quarters on gross margin, that given all we will on a quarterly basis there. But I think we largely have everything through the scope of the guidance disclosure we’ve made.
Operator: The next question comes from Matt Sykes with Goldman Sachs. Please go ahead.
Matt Sykes: Morning. 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 sequentially a little bit better than what the average for ’23 was. You had called out 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 segment end market?
Michael Stubblefield: Matt, a couple of things I would say about that end market. Our exposure is principally into two types of workflows: One, kind of 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 specked into our customers’ manufacturing process. In the case of aerospace and defense, that’s certainly true where we provide some extremely high-performance, high purity materials that are specked 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 probably for the quarter is a sequential improvement in the semiconductor end 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 improvements coming through in the quarter.
Matt Sykes: Got it. Thanks. That’s helpful. And then just as you think about 2024 and you think about the biopharma end 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 the 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 ’24?
Michael Stubblefield: Yes. So probably important to split my answer into the two ends of the workflow. In the research space, which – whether you’re 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 price, if you will. I’m encouraged by what we’re seeing on biotech. 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 and try to triangulate the disparate data points around funding, 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. The back half of the year on large pharma. Certainly, we saw the cautionary spending patterns work their way in, reprioritization of 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 if it does, in fact, work out that way. On the other end of the workflow in the production environment, we don’t really have much exposure to the biotech space, just given the way we manage these businesses, the biotech funding – biotech revenues tend to be in the research space.
And so the production segment really is reflecting the revenues associated with commercialized platforms, which, again, you’ve got just the patient demand on 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 here.
Matt Sykes: Got it. Thank you very much.
Operator: The next question comes from Andrew Cooper with Raymond James. Please go ahead.
Andrew Cooper: Hey, everybody. Thanks for the questions. A lot has been asked. So maybe just one from me. Just thinking 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 ratable improvement over the course of the year, it kind of put the exit rate as approaching that 20% level at the end of this year. Is there something I’m missing there? Or if not, is it that more of the cost saves maybe come in, in 2Q as opposed to 3Q or 4Q? Just trying to get a sense when the top line clearly is not 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?
Brent Jones: Well, Andrew, it’s Brent. Look, you’re going quick on your calculator there. I mean that – it depends upon how you phase the things in there. But look, I mean, that is the beauty of layering 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. But look, the self-help initiatives here are going to be very meaningful as we keep executing against them. And I think you broadly are thinking about that the right way.
Andrew Cooper: Okay. Helpful. I said I’d just ask one. So we’ll stop there and pick it up off-line. Thank you.
Operator: Your next question comes from Conor McNamara 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 – is any of that onetime 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 price above and beyond what you guys have guided to?
Brent Jones: Yes. So on the inflationary, 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 mirrored and we know wages are running somewhat higher there, but there’s not any dramatic or nefarious story in that connection, Conor. And then your second part of your question was…
Conor McNamara: Pricing? Yes, just on pricing, I mean, I think we all assumed that the inflationary pressures that we’ve seen over the past several years won’t persist. But if prices remain elevated or to go – continue to go higher, what’s your ability to take price above and beyond what you guided to?
