So hopefully that helps frame the guide a little.
Dan Brennan: Great. Thank you, guys.
Operator: Our next question will come from Vijay Kumar with Evercore ISI. Please go ahead.
Rainer Blair: Good morning, Vijay.
Vijay Kumar: Good morning, Rainer. And thanks for taking my question. So I guess I’ll start off with those last comments from Matt. The Q1 guidance here, Rainer, on biotech and bioprocess being down in low 20s, I guess we did see sequential order improvements in Q4 for bioprocess. What is driving, and comps to get easier for you for Q4 to Q1 on biotech comps to get easier. So what is driving the minus 20% maybe thought process around the Q1 guidance assumptions? And also have you – I know there was a no-fee cancellation policy. Has that stopped for Danaher?
Matt McGrew: Yes, Vijay, it’s Matt. Maybe I’ll take a first stab at it. So, if we think about kind of the first half here, I think it’s probably instructive to sort of remember where we were. If you remember, our base business core growth in Q1 last year was actually up low single-digits. And for the first half of 2023, we were only down kind of low to mid-single-digits in total, right? The second half, we were down mid-teens or high-teens, as everybody remembers. But we do have that comp coming in the first quarter. And so, when you think about year-over-year, that’s really the biggest factor. As far as sequential goes, kind of Q4 to Q1, I would tell you that we would, you know, I think we talked about this in January. Our Q3 to Q4 sequential, that’s pretty normal.
That’s a normal Q3 to Q4 step up. I think we attributed that to a normal seasonality when we were out at JPMorgan. And it’s very also normal to see Q4 to Q1 step down. So, just maybe some numbers to that. Q4 is usually 27%, 28% of our year, and Q1 is usually 24% and 25% of revenue for the year. So, I mean, it’s pretty normal for us to see it. I think we saw it even, in kind of a heyday of ’21 to ’22, we saw it step down. So, I think there’s a normal seasonality. And I think the other big thing to remember is, and it kind of ties into your last question there, Vijay. We are actively trying to continue to destock and get as much of this behind us as we can. And so I think, we’ve been pretty aggressive with that. We’re going to remain aggressive with that.
I think you’re seeing that hopefully, here in the first half that we are. And back to your kind of no-fees question, it depends is the answer. But rest assured, we are doing what we can to get to the second half of the year.
Vijay Kumar: Understood. And I guess my follow-up here, Rainer, is when you look at customer activity levels or consumption, if you will, what’s been the underlying activity at customer levels, when we think about drug volumes being up high singles in that space, is that still intact? And sort of, I guess, one on diagnostics, if you will, last year you guys did base diagnostics up double-digits. And I think you mentioned mid-singles for this year. So is that just a comp issue? Why diagnostics would slow down?
Rainer Blair: Thanks, Vijay. Well, starting with the activity level here for bioprocessing. We’ve really seen no change in the activity level, which continues to be along the long-term growth rate that we’ve been talking about, high single-digits, 10%. And that’s what’s been important in terms of drawing the inventories down. So and it aligns with how we spoke about the regional developments here. Which Western Europe and North America are drawing down inventories more rapidly than perhaps regions that are more, small biotech, emerging biotech companies such as China. So, the activity level continues to be strong. I mentioned to you during the prepared remarks that we’ve seen a historic level of both approvals as well as number of projects in the biologic development pipeline. So, we continue to be very confident in a – continued positive development there.
Vijay Kumar: Thank you. And sorry, on diagnostics, Rainer?
Rainer Blair: Yes Vijay, I mean, I think it’s just – it’s all going to be mostly a comp issue. The base business, the business outside of, I should say, respiratory continues to do well for Cepheid. All of the other businesses in diagnostics, no real change, to the underlying demand. So it’s going to be a comp issue.
Vijay Kumar: Thanks, guys.
Rainer Blair: All of diagnostics, yes.
Vijay Kumar: Fantastic. Thank you.
Rainer Blair: Thanks, Vijay.
Operator: Our next question comes from Scott Davis with Melius Research. Please go ahead.
Rainer Blair: Good morning, Scott.
Scott Davis: Hi good morning, guys. Good morning, Rainer, Matt and John. Guys, can you help us, when volumes are kind of still moving negative in the first half of the year, it’s hard to get your arms around kind of what you’ve done to the cost structure with the 50 basis point guide up. Is there anything we can look at, any KPIs you can share around, like, headcount reductions or rooftops or anything that you guys have kind of tangibly done internally on costs that, you can share that helps us understand, perhaps what that impact on margins will be and not just ’24, but going forward? Thanks.
Matt McGrew: Yes. Yes I mean, maybe the way to think about the OP kind of at a high level Scott, is we ended 2023 with an adjusted operating margin of call of, almost approximately 28.5%, and we think, like you said, it’s going to be up 50 bps here in the year. We had $350 million of sort of one-time costs last year, some of that, if I think about what that was and the metrics around it, I would tell you that there’s a lot of heads that did come out. And largely that was reflective of the lower volumes that we saw last year, particularly at Cepheid as we went from 70 million tests down to 35 million. We sort of knew there would come a day when we were going to need to pull back some of that capacity, and largely last year we did that.
I think you also saw it at some of the other businesses in the second half as well in life sciences and some others that have seen a little bit more difficult growth profiles. I think largely it is heads. There are some rooftops here and there, but I think it’s more trying to get after the cost structure to right-size it, for what’s going to be a difficult first half, so that we’re in a good spot. So, that $350 million of benefit that, would have been about 150 basis points on its own, Scott. But we do have the lower volumes, as you mentioned, in bioprocessing, respiratory, and that basically offset all of it. And so really the cost savings, if you will, from that $350 million that we deployed, is what we’re getting and flowing through as the 50 bps of margin expansion.
So that should be pretty durable as we go. And hopefully, with a little bit better volume here, and the gross and adjusted operating margins, we have, a little bit of volume is going to go a long way.
Scott Davis: Got it. I would imagine so. Guys, can you help us understand China? I understand that, I guess consistent with last quarter and the guide and such, still pretty conservative. How do you kind of separate the cyclical versus kind of, what I’ll call the secular, which is perhaps maybe government policy and other impacts are out there? I haven’t been to China in a while, so perhaps maybe you guys can help us understand the puts and takes there, and is that market still attractive long-term, or has there been some sort of change at the margin there that perhaps makes it less interesting? I’ll just kind of open it up to that. It’s a lot of white space, if you will? Thanks.
