Brandon Couillard: Hey, thanks. Good morning. Patrick, the service business remains pretty healthy. You grew 10% last year against the double-digit comp. Where are you having the most success, driving attach rates, and what’s your outlook for that business in 2024?
Patrick Kaltenbach: Yeah, very good question, Brandon, thanks for that. Service, again, I’m super excited about our service opportunity. And by the way, it’s also an organization that we continue to invest in throughout 2023 while we had to make some adjustments in other areas. We continue to invest in service because we see a big opportunity out there. Broadening our service portfolio, there’s good demand from our customers. We have a large install base. Last year, if you said it, we grew 10%, and we expected to grow in a mid-single-digit range this year again. So another year where you will see services growing ahead of products. We continue to work with our sales teams to make sure that they can sell services at a point of sales, train them about the value of services, that they make sure they have value proposition when they talk to customers, increasing the connect rates and of course, these are different from product category to better product category, but we continue to make improvements there and I still see a lot of opportunity for us moving forward to increase our share of services.
Brandon Couillard: Thanks. And then just one more, Shawn on China, about Beijing, the first quarter being down, we caught low to mid-20s, does this imply that China is back to kind of double-digit growth in the second half of the year? How should we think about cadence, first half versus second half?
Shawn Vadala: Yeah. Again, I don’t want to get too specific, but I think if you do the math, you probably kind of get into that neighborhood for the second half of this year, but we’ll provide more guidance on our next call depending on how we’re thinking about the pacing with Q2 and everything. Right now we do see, for the full year, Lab being down more than the industrial business. So, kind of looking at Lab being down more like low teens, while industrial would be down like more mid-single digits. So, the industrial business was a pleasant surprise in the fourth quarter. We’re a little bit more cautious on it for Q1, but we’ll see how things play out here. Yeah. And just to read correctly, Brandon, that doesn’t mean that the algorithm going forward we’re expecting double-digit growth in China.
We just know that not only they have an easier comp. We know that they’re lapping a lot of things in the market. I think, one of the topics, there’s a few topics there, right? One of them was all the spending during COVID, potentially an acceleration of replacement cycles. But then the other thing is I think there’s just a lot of inventory, throughout the customers and I think just given the nature of the lockdowns during COVID and all the logistical challenges, there’s just more people purchasing a lot more inventory than in other regions and I think that’s one of the things that is kind of on our mind as well for the second half of the year. So, as we kind of go forward, just to reiterate what we said in the past, we kind of view China as more of a high single-digit growth opportunity more longer term.
Operator: Next, we’ll move to Patrick Donnelly at Citi.
Patrick Donnelly: Hey, guys. Thanks for taking the questions. Shawn, I wanted to pick up on that kind of the ramp question. I think Rachel and Brandon both hit on a little bit there. If we just back out the comps, because that’s pretty formulaic, just in terms of the consequential dollar improvement as you work your way through the year into the second half, China being obviously one example. You mentioned the month, month and a half of backlog. Can you just talk about, I guess, the visibility into it? Is it just the confidence level that, there was a lot of inventory in the channel in areas like China, and that just you guys are confident it normalizes as you get to the second half and dollars come back? Maybe just talk about, again, the confidence, comps excluded on that dollar ramp as we work our way through the year, China and otherwise.
Shawn Vadala: Yeah, of course, there’s also a lot of noise and sequentials right now, right? Like, you have a lack of a budget flush in Q4 of 2023 and now we add more complexity with these shipping delays and then we probably throw another one at you saying, like, we just expect customers to potentially start a little bit slower in Q4, Q1 of this year with a more normalized seasonality in the back half. But I think if you kind of cut through all that and you look at maybe longer term sequentials for us, I think we’re actually very consistent, and so that’s one thing, I think when we look at, like, multi-year comps and multi-year CAGRs and just kind of like cut through the whole COVID period, and you look at that by quarter, I think that gives us a lot of more confidence as well, too and then you kind of layer in some of these things that we know, like the one-year comps and some of these de-stocking topics, the comments I just made on China and then the final thing is, I think we are, you know, we are doing a lot inside the company to drive growth, too.
And so I think, nothing drives growth like new products, and we have some really cool things that we’re launching right now. We’re going to probably spend more time talking about that on our next call next quarter and I think those are types of things that will help and of course, Spinnaker 6, right, there’s a reason why we’re talking about it in the call. It’s, kind of like, I think, a preface to, like, a lot of things we’re doing to focus on growth in the company and the combination of all these digitalization things that are just continue to improve, plus all the things that we’re doing to further enhance that relationship with a customer. It’s a very powerful combination, and we think those things will gain momentum as we kind of get into the second half of the year as well.
Patrick Donnelly: Okay, that’s helpful. And then maybe just on the cost structure, I think you mentioned a few times, you guys want to come out of this stronger. Can you just talk about, I guess, the level of investments you’re making currently with the softer backdrop versus, trying to be mindful of protecting the margins? How nimble can you be on the cost side and how are you guys approaching that? Thank you.
Shawn Vadala: Yeah, hey, this has been a very important balancing act for us, something that we’ve been spending a lot of time as an executive team, really thinking about and reviewing over the last year. I feel like we have a really good balance. On one hand, we’re really looking at parts of the organization where we’ve lost productivity over the last year, and so we’re working on those areas. On the other hand, there are growth opportunities that we’re trying to make sure that we’re continuing to invest for those. Patrick mentioned service as an example, on a full-year basis. So we continue to invest in service throughout the year and that’s something that we’ll continue to do in 2024, but it’s not just service. There’s different regions of the world, there’s different — and there’s also things, like innovation that we talked about a few times already today, as well as other things that I think will help make us a stronger organization going forward.
So, when you kind of step back from that, I feel very good. Of course, we do have a headwind next year, too, with variable coming back to more normalized levels. So, there’s a lot of moving parts, but when you look through it all, I feel like good that we can still expand margins, even though it’s maybe a little bit lower than what we normally do. We can still expand margins next year with a low-growth year, and then if you look at 2023, we were able to hold our margins flat for the full year, despite a lot of the challenges that we had as well, too. So, I feel like, in the end, we have a good balance.
Operator: And there are no further questions at this time. I would like to turn the conference over to Adam Uhlman for closing remarks.
Adam Uhlman: Hey, thanks, Audra, and thank you, everybody, for joining our call today. If you have any questions, feel free to reach out to me. Hope you have a great rest of your day, and we’ll talk to you soon. Thank you.
Operator: And this concludes today’s conference call. Thank you for your participation. You may now disconnect.
