Patrick Kaltenbach: Yeah, I’ll start with it and Shawn, feel free to chime in. When you mentioned pipette tips, I think we’re done with the pipette tip stocking issue and the reason why I’m saying that is that we see now more normal order patterns, meaning customers are ordering more frequently, not at very high volumes, but the order pattern is back to normal. So while the volume is still a bit lower than during — or still lower than during the pandemic, the frequency of orders has normalized and that for me is an indication that the overstocking of pipette tips is behind us. We still are working down or our customers are still working down some inventory more on the process analytics business with the sensors they have ordered, mainly also in the biopharma area and we expect that to remain through Q1 and Q2 and then by the end of Q2 or towards the second half of the year, that’s at least what we’re hearing right now from the channels.
They should also have worked off that inventory as well.
Operator: We’ll go next to Joshua Waldman at Cleveland Research.
Joshua Waldman: Patrick, I’m wondering if you could — hey, guys. I’m wondering if you could give Patrick — hey, Patrick. Hey, Patrick, I’ll start with you. I’m wondering if you could give an update on just how you perceive visibility in the business. Has visibility improved or deteriorated over the last 90 days? I guess like you commented that market conditions seem to have stabilized or are not getting worse, but maybe also mentioned seeing a softer start to the year. Can you just kind of unpack what you’re seeing there?
Patrick Kaltenbach: Sure, absolutely. And again, I’ll probably give you some insights into the different regions, but also the different end markets. So, what we’re seeing is a lot of very good activity out there, meaning customers are really interested, especially in the new products that we have launched over the last year and that’s why we are so excited also about the future. There is good customer engagement. We have a lot of discussions. Still, it takes longer than normal to close the opportunities to orders, and that’s also a sign that our customers are still reluctant to really spend the budgets that they have now at hand, or maybe they have some reduced budgets, but there’s really very good activity, and if I look into the leads and the funnel that we have, the opportunities, I think we are quite positive about the momentum we are seeing there and we don’t see any further deterioration from what we had seen last year.
So, that’s why we positioned in saying, hey, the underlying market visions haven’t deteriorated further, whether it’s in the biopharma market, where it’s still soft, whether it’s in the industrial space, where we see actually a very good demand for industrial automation and digitalization efforts, and we have a great portfolio as well. We saw a bit softening, especially in Europe, on product inspection towards the — or throughout Q4, and also now starting into Q1 and that’s largely in Europe, and its big customers in the food area that are still holding back budgets. They have projects, but they are not ready to spend the money yet and I think that’s also based on the fact that they are under pressure. If you read the news, you hear a lot of news about these packaged food customers that are also under pressure with reduced profits and bigger demand as well.
But otherwise, I would say markets are stable. The regions have developed as we expected it, and China, I outlined already, the US, good demand, and Shawn has outlined the growth for the year for the different regions as well. The EU is a bit softer at the moment. It was very resilient last year. At the moment, it’s a bit softer than we have seen it last year, especially in Germany.
Joshua Waldman: Okay. Thanks for that. And then, Shawn, for the follow-up, I wondered if you could walk through the moving pieces on the ’24 EPS raise. How much of the raise was from the shipping-related revenue push-out versus other inputs like FX and maybe margin? I guess the impetus of the question is you missed the Q4 guide by calling it $1.20. Shouldn’t that have been added to the ’24 guide, or were there other moving pieces that were missing?
Shawn Vadala: Yeah, it’s very much related to how we position sales. Like, and I think I go back to Dan’s question towards the beginning, it’s very much how we position our sales guidance. In terms of margins and costs, there’s, of course, some moving pieces within there. There’s a couple of nits and gnats, but I’d say in the end, I feel like the margin is actually, I feel good about our margin guidance for the year. I think we’d already mentioned it earlier, but for the operating margin, it should go up about 30 basis points on a full-year basis and if you exclude currency, it’s probably about 70 basis points. So, Josh, I kind of go back. It’s very much to how we were thinking of a reflection of how we guided on the top line.
Joshua Waldman: Okay. Thanks, guys.
Operator: Next, we’ll go to Vijay Kumar with Evercore ISI.
Vijay Kumar: Hey, guys. Thanks for taking my question. A couple of guidance questions. Your Q1 minus 6% to minus 7% guidance, like, if I go back to Q4, pre-logistics, I think the guide was minus high single and if you assume the first half of ’24 to be similar to last year, one would have assumed Q1 to be down high singles, but now given the timing of these logistic push-out, the revenues push-out, shouldn’t Q1 have been a little bit better than the minus 6% to minus 7%? I’m just trying to think about the year-on-year versus the sequential cadence and how you’re looking at Q1 guidance.
Shawn Vadala: Yeah, sure, Vijay. I’m happy to answer that one. So, hey, just to clarify, our Q1 guidance and constant currencies is minus 4% to minus 6%. So, it’s minus 4% to minus 6% and as we mentioned, there is about a 5% benefit here from the shipping delays, which I can understand asking a question about that. But I think there’s also a few things that are very important to our first quarter. The first one is that comps really do matter. Yes, Q1 was our strongest quarter last year. We grew 7%, but I think it’s important to kind of go back to the couple of years before that, like what we’re growing on top of and we’re really cycling a very difficult multi-year comparison. If you kind of go back, we grew 14% in Q1 of 2022, and that was on top of 18% growth in Q1 of 2021.
So, I think it’s hard for us to ignore that as we’re looking at the first quarter here. China, of course, we were happy that it came in a little bit better than what we expected if you excluded the effect of the shipping delay, but nonetheless, it’s still down over 20% and as we kind of look here at the first quarter, we have 20% of our business kind of down, low to mid-20s in the first quarter. So, that’s another thing that’s a bit on our mind and again, that’s a bit of a comparison topic as well as kind of like this resetting that’s going on in the country. But just to be clear, we’re not seeing anything new in our end markets, but we do assume that customers here are going to likely start the year a bit more cautious with a more normalized budget flush at the end of the year, but of course, we acknowledge it’s early.
It’s difficult for us to tell at this point in time. March is a very important month in the first quarter, but that’s kind of how at least we were thinking about Q1 at this point in time.
Vijay Kumar: Understood. And then one on what’s being assumed for share count, share repurchases, and is free cash conversion expected to be similar to fiscal ’23?
Shawn Vadala: Yeah. So, our share buyback assumption is $850 million, which I think is the same or similar number as we’re thinking free cash flow for this year and that’s also assuming plus or minus right around 100% free cash flow conversion. So, we’re really happy with the focus around the company on cash flow. It’s something we always like to focus on and very pleased with the teams around the world, all the efforts on working capital and all the other things that go into efficient end-to-end processes that can drive an order to cash cycle. So, it’s something we’re going to continue to focus on this year.
Vijay Kumar: Understood. Thanks, guys.
Operator: We’ll take our next question from Dan Leonard at UBS.
Dan Leonard: Thank you. Two questions. First off, what was the pricing benefit in Q4 and what is your outlook for 2024?
Shawn Vadala: Yeah. So, for Q4, we came in pretty much as we expected. It was about 4%. That put us on a full year basis in 2023 at about 5% and as we kind of mentioned in previous quarters, we were benefiting a bit in the first half of the year from some pricing actions that we did in the second half of 2022, but we’re very pleased with how things came together this year. I think it really shows the value proposition that we have to customers. I feel I’ve said it many times, but I do feel like our value proposition has very much increased over the last few years, especially as the markets have moved towards topics like automation and digitalization. It really plays to a lot of the strengths of our portfolio that can provide tangible paybacks to customers.
