Repligen Corporation (NASDAQ:RGEN) Q4 2022 Earnings Call Transcript February 22, 2023
Operator: Good day, ladies and gentlemen, and welcome to the Repligen Corporation’s Fourth Quarter of 2022 Earnings Conference Call. My name is Chuck, and I will be your coordinator. All participants will be in a listen-only mode. . Please note that there will be a question-and-answer session following the company’s formal remarks. In order to accommodate all individuals who wish to ask a question, there will be a limit of two questions at that time. I would now like to turn the call over to our host for today’s call, Ms. Sondra Newman, Head of Investor Relations for Repligen. Please go ahead, ma’am.
Sondra Newman: Thank you, Chuck, and welcome everyone to our fourth quarter and year-end report. On this call, we will cover business highlights and financial performance for the three and 12-month periods ended December 31, 2022. We’ll also provide financial guidance for the full year 2023. Repligen’s President and CEO, Tony Hunt; and our CFO, Jon Snodgres, will deliver our report, and then we’ll open the call up for Q&A. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly report on Form 10-Q, our annual report on Form 10-K, the current report of Form 8-K which we are filing today, and other filings that we make with the Securities and Exchange Commission.
Today’s comments reflect management’s current views, which could change as a result of new information, future events or otherwise. The company does not obligate or commit itself to update forward-looking statements, except as required by law. During this call, we are providing non-GAAP results and guidance. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to our Web site and on sec.gov. Non-GAAP figures in today’s report include the following. Revenue growth at constant currency; gross profit and gross margin; operating expenses, including R&D and SG&A; operating income and operating margin; income tax expense; net income and earnings per share; as well as EBITDA and adjusted EBITDA.
These adjusted financial measures should not be viewed as an alternative to GAAP measures but are intended to better enable investors to benchmark Repligen’s current results against historical performance and the performance of our peers when evaluating investment opportunities. Now I’ll turn the call over to Tony Hunt.
Tony Hunt: Thank you, Sondra. Good morning, everybody, and welcome to our 2022 year-end report. We are really pleased with the way the year played out given the market dynamics in the bioprocessing industry, especially in the second half of the year, where we dealt with FX headwinds, changing order patterns, declining COVID vaccine demand and cost inflation. We finished the year at close to 802 million in revenue driven by base business growth. Organically, our base business was up 35% in the quarter and 39% for the full year while overall organic growth for the company was up 4% in the quarter and 22% for the year. Our Q4 sales were especially impressive, given we essentially recovered $38 million drop in COVID-related revenue year-over-year with an increase in base revenue.
For the year 2022, our overall business performance was outstanding, driven primarily by our filtration and chromatography franchises, which were up 23% and 45%, respectively. Within each of these franchises, our base business was up over 50%. Overall, our results demonstrate our ability to continue to differentiate ourselves in the bioprocessing market, which has allowed us to consistently grow above the market growth rate. As we progress through the year, our product mix did change as COVID revenues declined and this became one of the major drivers of margin performance in the fourth quarter, which I will discuss in more detail later. Before moving into the discussion of our Q4 performance and outlook for 2023, I want to highlight some of our key accomplishments and our progress against our five strategic priorities in 2022.
Priority number one was advancing innovation. Over the last few years, we have focused on increasing the pace of R&D product launches to build on our foundation of disruptive and innovative technologies. 2022 was no exception, with our R&D team delivering 10 new products during the year. We launched four ARTeSYN systems, three infiltration and one in chromatography, giving us a complete set of systems with low holdup volumes and a common software architecture. We are now well positioned to sell our filtration and chromatography consumables and flow paths with these systems increasing the recurring consumable stream for the company. 2023 will be about optimizing this portfolio to meet the needs of the mRNA and cell and gene therapy markets. The R&D team also delivered on an exciting and first to market downstream system, which we launched into the market in Q4.
The KrosFlo KR2i RPM System where RPM stands for real-time process management gives customers the ability to measure, monitor and control drug concentration not only in real time, but also in a fully automated way. We also leveraged our Avitide acquisition and developed and launched four affinity ligands and resins in 2022; three focused on AAV viral vector purification and one focused on monoclonal antibody fragment purification. Finally, we completed the technical launch of our next generation large scale GMP ATF controllers, providing our customers with a more automated solution for ATF applications. New products continue to have a very positive impact on our business. Products launched in 2021 and 2022 generated 7% of our revenues last year.
We expect this number to jump to 14% here in 2023 for products launched since 2021. Our second priority was to build out our market presence in cell and gene therapy and mRNA. 2022 was a stellar year for us in cell and gene therapy. The business grew over 50% as our top accounts scaled and implemented Repligen technologies. We finished the year with well over 20 accounts generating greater than $1 million in revenues and over 350 active cell and gene therapy accounts. We also made inroads in the mRNA market building off the success we had in mRNA COVID vaccine manufacturing. Our portfolio is well positioned to capture share, as this market grows and expands. And you can expect to see additional Repligen products hitting the market here in 2023 and overall growth in cell and gene therapy of 15% to 20% coming off very tough comps in 2022.
Our third priority was to integrate and support our fluid management acquisitions. The fluid management acquisitions that we made in 2020 and 2021 are now fully integrated with support coming from the build out in 2022 of our assembly center in Hopkinton, Mass on the build out of our Waterford, Ireland site here in 2023. We now have a dedicated management and commercial team, a growing portfolio of fluid management products that are synergistic with our systems strategy, and increasing awareness in the bioprocess community of our capabilities. We expect to build off the 30% organic growth we saw in the fourth quarter for fluid management and the 17% organic growth we saw for full year 2022, which was hampered by the destocking on the component side.
We expect to deliver 20% plus growth in 2023. This revenue will continue to be recognized in our filtration franchise. A fourth priority in 2022 was to pursue M&A opportunities and strategic partnerships to expand our portfolios and markets. Following on the string of fluid management acquisitions, we signed two important strategic partnerships with DRS Daylight Solutions and Purolite, which is now an Ecolab company last year. The DRS Daylight deal gives us another real-time in-line PAT technology that complements FlowVPX and puts Repligen in a leading position for advanced analytics and bioprocessing. The Purolite deal both extends our current partnership out through 2032 and expands our relationship to include new ligands developed by Avitide for mAb and mAb fragment markets.
The resin products that combine our NGL ligands with the Purolite Jetted B technology continued to do well in the marketplace. The combination of our partnership with Purolite and the content generated through Avitide and Navigo has helped us to transform our ligand strategy over the last five years. This puts us in a much stronger position to drive consistent high single digit growth in this portfolio once we get through the final phase of Cytiva reductions here in 2023. And finally, our fifth priority in 2022 was to complete capacity expansion at three key facilities. Our assembly center in Hopkinton was completed in June and fully qualified in September. This gives us an important foundation to support increased demand for our flow paths and assemblies in the market, ultimately supporting our system strategy with recurring consumable sales.
We also expanded capacity for ATF, flat sheet cassettes, hollow fibers and systems at our Marlborough, Mass and Rancho, California sites. It’s been a key part of our business plan over the last three years to build out dual manufacturing capabilities that provide our customers with a robust business continuity plan. Over the last two years, we’ve increased our manufacturing capacity between three and nine-fold. We now have ample capacity for the next three to five years across the majority of our product lines. Here in 2023, we plan to complete the expansion of our customer application center in Waltham and to bring our Waterford assembly center online, further extending our dual manufacturing capabilities in fluid management. In addition, we’re in the process of bringing additional ligand capacity online in Hopkinton and opening up a new facility in Estonia for our rapidly growing systems business.
While our capacity investments will continue to impact our gross margins here in 2023 by 250 basis points, we believe it’s important to have the business continuity foundation in place as we pursue expanding our market share in bioprocessing. Shifting now from our 2022 priorities and moving to our Q4 and full year business performance. As reported today, we had another strong quarter with base organic business up 35% and overall growth of 4% despite the $38 million COVID charge in the quarter. Within our franchises, our large scale OPUS chromatography columns, our filtration systems, our XCell ATF line and our fluid management products were the major drivers of growth in base business performance for the quarter. From a market perspective, sales into gene therapy accounts were up over 35% in the quarter and over 50% for the full year, reinforcing our position in this market.
COVID-related revenues contributed approximately 13% overall revenues in the quarter. COVID revenues were down approximately 20% sequentially from Q3 2022 and down 60% versus Q4 2021, as our main COVID vaccine customers lowered their demand. This ramp down in COVID demand in Q4 plus the increase in material costs and change in product mix where we had a lower contribution from proteins and filtration products and a much higher contribution from chromatography and fluid management products accounted for 450 basis points of the total decline in our gross margin, both sequentially and versus Q4 2021. For the year, COVID revenues were approximately 141 million or 18% of our overall revenues. We expect COVID revenues to continue to ramp down in 2023 to a range of 30 million to 40 million.
The majority of COVID revenues are expected to be divided between the first and fourth quarters of 2023. Based on the anticipated drop of greater than 100 million in COVID revenues in 2023 along with the material cost inflation in manufacturing and the depreciation and occupancy costs associated with our new facilities, we will continue to see pressure on our gross margins. We do expect gross margins to recover somewhat from where we were in Q4 last year, and are guiding now to a 53% midpoint for 2023. As our volumes increase and product mix shift to higher margin products, we will expect gross margins to improve in the second half of 2023 and expand by 100 to 200 basis points in 2024. On the orders front, in the fourth quarter, total orders were down 15% and non-COVID business orders were up slightly versus Q4 2021.
Sequentially, in Q4 versus Q3, base business orders were also up slightly. However, we were very encouraged by some positive signs in the quarter. We had our strongest quarter for pharma in 2022 in Q4, as customers specified our products into late-stage commercial processes. We also saw a 25% step up in orders at our gene therapy accounts versus Q3. For the full year, total orders were down about 10% with base business orders up 15%. The areas where we continue to see order weakness is at the CDMOs and OEM customers. We saw some pickup in demand at CDMOs in Q4, but this was offset by a weaker Q4 for ligands as Cytiva continues to ramp down their demand as anticipated and the component side of fluid management business continues to work through elevated inventory levels that were built up during the pandemic.
We believe that the order challenge is confined to CDMOs and OEMs, and that this will continue through the first half of 2023 with the expectation that we will move back to a growth mode in the second half of 2023. So moving now to franchise level performance. Our chromatography business delivered outstanding growth, up over 75% for the quarter and 45% for the full year. Growth was driven by increased demand for OPUS pre-packed columns as resin availability improved, especially in the second half of 2022. We also saw OPUS revenues and orders pick up significantly at cell and gene therapy accounts. Large scale OPUS sales into these accounts were up more than 80% in the fourth quarter versus the prior year period. Orders were also strong with OPUS demand more than doubling versus Q4 of 2021.
Although we saw a significant pickup in resin deliveries in the second half of 2022, the resin supply has softened here again in Q1 and remains tight. While resin lead times have come down versus 12 months ago, they are still elevated which we expect will limit OPUS growth in the first half of 2023. We expect supply to open up in the second half of the year, as more capacity comes online. Overall, we expect growth for our chromatography business in 2023 of approximately 10%. Our proteins franchise had a lighter quarter in Q4, driven by decreased demand from Cytiva. The lower Cytiva volumes were partially offset by a strong demand for NGL ligands which we supply to Purolite. Overall, our proteins business was down 8% for the year, very much in line with our guidance to 2022.
In 2023, we expect Cytiva demand to be down another 50% which is in line with the contract we signed two years ago. We expect the lower revenues will be offset by strength in NGL ligand demand, growth factors and our Avitide family of AAV resins. Overall, we expect proteins growth in 2023 to be flat. Our filtration franchise was down 10% for the quarter as this franchise absorbed $34 million of the $38 million drop in COVID revenues year-on-year. However, base filtration business was up 38% for the quarter, driven by strength in systems, ATF and hollow fiber consumables. ATF had a stellar quarter and year, driven by success in commercial processes and the continued focus on new account development. Our filtration systems business also had a strong quarter and year as we are seeing traction with the new ARTeSYN kits developed and launched in 2022.
Other key highlights in the quarter included the launch of our KrosFlo RS 20 filtration system for gene therapy, along with the launch of our GMP large-scale controllers for ATF. With an additional $100 million COVID challenge in 2023, we expect the filtration franchise to be down 4% to 12% overall, but up in the range of 10% to 20% for our base filtration business. Finally, our process analytics franchise had a softer quarter and relatively light year in 2022. In the quarter, we saw fewer year-end dollars for capital equipment versus prior years. Revenues for the year were up 11%. The pipeline of opportunities expanded in the fourth quarter and based on funnel strength, we expect 2023 growth to be in the range of 15% to 20% as we gain traction with our RPM platform and new products hit the market.
In summary, we expect 2023 will be a challenging year for our industry as we all work through COVID headwinds and destocking challenges. Despite these challenges, I remain very optimistic about the bioprocessing industry and our position in the marketplace. Our investments support our commitment to stay ahead of demand and position ourselves to win share in new markets, including opportunities in mRNA, cell and gene therapy, biosimilars and the mAbs market. Our customers are also optimistic and we believe that the level of investment in drug development and scale out is high. I spent a significant amount of time in Q4 and here again in Q1 visiting accounts. Our customers are scaling, they’re investing on multiple fronts and is confirming the overall robustness of the markets.
As we look ahead, we expect our base business to deliver organic growth in the range of 12% to 16% in 2023, coming off 39% base organic business growth in 2022. As we move through 2023, our strategic priorities will center on the following. Launching new products with a focus on advanced analytics systems and filtration, completing the build out of our assembly center in Waterford and our application center in Waltham, making further inroads into mRNA and cell and gene therapy markets and finally, strategically managing key accounts so we can accelerate adoption of our technologies, especially in large pharma. We continue to be well positioned in bioprocessing and expect a turnaround as we progress through the second half of 2023 with a much more robust year for our industry in 2024.
I believe we have the right mix of differentiated products, the right business plan and team in place to continue to win share and disrupt this industry. Now I’d like to turn the call over to Jon for a report on our financial performance.
Jon Snodgres: Thank you, Tony, and good day, everyone. Today, we are reporting our financial results for the fourth quarter 2022 as well as providing our financial guidance for the year 2023. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we delivered revenue of 186.8 million in the quarter and 801.5 million for the full year. The highlight once again was the continued strength of our base business which grew by 35% organically in the fourth quarter and 39% organically for the full year. Within our base business, we saw continued strength in our gene and cell therapy business, which grew at 36% and 52% as reported for the fourth quarter and full year, respectively, and represented between 14% and 15% of total revenue for the year.
For the total business in the fourth quarter, organic revenue growth was 4% and constant currency growth was 5% while overall reported revenue was flat year-over-year. For the full year, organic growth was 22%, constant currency growth was 25% and reported revenue growth was 20%. FX headwinds for the quarter and full year were slightly greater than 9 million and 33 million, respectively, reflecting a 5 point headwind on reported growth for both periods. We expect these headwinds to remain through the first half of 2023 and overall, we expect foreign exchange to be a 1 point headwind for the full year. Inorganic M&A had approximately 1 point of positive impact on reported growth for the fourth quarter and nearly 3 points of favorable impact for the full year.
Digging deeper into our overall revenue performance, our 35% base business organic growth in the fourth quarter was essentially offset by reductions in COVID-related revenue of 38 million. For the full year period, the overall increase in base revenue of greater than 160 million more than offset the decline in COVID-related revenues of 49 million. As it relates to 2022 regional revenue growth, we had a strong overall growth year in Asia, North America and Europe. For the full year, overall increases from Asia/rest of the world increased by 29%, North America grew by 25% and Europe grew by 10% despite the significant COVID headwind in the region. Regarding overall revenue distribution by region for the full year of 2022, Asia represented 20%, Europe represented 37% and North America represented 43% of our global business.
Now moving down our income statement. Adjusted gross profit in the fourth quarter of 2022 was 96.1 million, a reduction of 9.2 million or 9% compared to the same period in 2021. Adjusted gross margin of 51.5% in the quarter was down from 56.4% in the prior year fourth quarter. Gross profit and gross margin levels were impacted by multiple factors in the quarter, including lighter volume leverage on our factories, weakening foreign currencies, less favorable product mix, material cost inflation and the impact of facilities and depreciation related to capacity expansions going live during the quarter. Of these multiple factors, the largest driver of the decline in gross margins was the change in product mix where we saw a significant drop-off in hollow fiber filtration revenue directly related to COVID demand and a decrease in Protein A ligand sales due to lower Cytiva demand.
Revenue declines in these product lines were partially offset by revenue gains from lower margin product lines like OPUS pre-packed columns, fluid management assemblies and systems. Adjusted gross profit for the full year 2022 finished at 456.9 million, an increase of 62.1 million or 16%, and adjusted gross margin was 57% representing a decrease of 190 basis points year-over-year. The factors that highlighted the drivers for the fourth quarter performance are consistent for the full year. Now transitioning down the P&L to adjusted operating expenses. Adjusted research and development expenses for the fourth quarter and full year 2022 were 5.9% and 5.4% of total revenue, respectively. In 2022, we launched 10 new products and we continue to differentiate our products with best-in-class technologies across our franchises.
Adjusted SG&A expenses for the fourth quarter and full year 2022 were 23.5% and 22.6% of total revenue, respectively, compared to the 22% level in the same 2021 periods. Year-over-year dollar increases are related to continued investments in their commercial team and expenses being realized from facilities and depreciation as our capacity expansions are going live to support our business for long-term growth. Now moving to adjusted earnings and EPS. Adjusted operating income for the fourth quarter of 2022 was 41.1 million compared to 55.9 million in the fourth quarter of 2021. And adjusted operating margin in the fourth quarter of 2022 was 22% compared to 30% in the fourth quarter of 2021. The reduced levels of operating income and margin are also related to the aforementioned product mix and inflation in the quarter.
Adjusted operating income for the full year of 2022 was 232.2 million, an increase of 17 million or 8% compared to 2021. Adjusted operating margin for the full year 2022 finished at 29% compared to 32.1% in 2021. Factors highlighted in our gross margin commentary were partially offset by lighter operating expenses as we finished the year. Here in 2023, we plan to continue to invest in important product development programs and in commercial resources to support revenue growth, which has been paramount to our success over the last several years. At the same time, we are actively managing our operating expenses so that we can continue to deliver improving financial returns with operating margin gains as we progress through the year. Fourth quarter of 2022 adjusted net income was 39.1 million, a decrease of 7.8 million or 17% compared to the 2021 quarter.
Adjusted net income for full year 2022 was 188.6 million, an increase of 13.3 million or 8% compared to 2021. Adjusted EPS for the fourth quarter of 2022 was $0.68 per fully diluted share, a decrease of $0.13 or 16% compared to $0.81 in the 2021 period. Adjusted fully diluted EPS for the full year of 2022 finished at $3.28, an increase of $0.22 or 7% compared to $3.06 for the 2021 full year period. As it relates to capital expenditures, the company invested 88 million in 2022, most significantly related to capacity expansion projects to provide business continuity and address our expectations for increasing demand. More specifically, 2022 included expansions of our hollow fiber, flat sheet and systems manufacturing sites in Rancho, California and Marlborough, Massachusetts.
We also completed the build-out and validation of our fluid management assembly facility in Hopkinton, Massachusetts. Other important capacity investments were related to our proteins business and continued investments in our SAP platform. Our cash and cash equivalents and short-term investments, which are GAAP metrics, totaled 623.8 million at December 31, 2022. We’ll now transition to our 2023 full year guidance. Our GAAP to non-GAAP reconciliations for our 2023 financial guidance are included in the reconciliation tables in today’s earnings press release. As previously mentioned, unless otherwise noted, all 2023 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2023 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 1% headwind on full year sales and does not include the potential impact of any future acquisitions that the company may pursue.
We are setting our 2023 full year revenue guidance, a GAAP metric, at 760 million to 800 million, representing reported growth in the range of minus 5% to flat and organic growth of minus 4% to plus 1%. This revenue guidance includes base business revenue of 730 million to 760 million, growing at 11% to 15% as reported and 12% to 16% organically. Our guidance also includes COVID-related revenues of 30 million to 40 million, a year-over-year reduction of 106 million at midpoint. We are guiding our 2023 adjusted gross margin to the range of 52.5% to 53.5% showing improvement from the Q4 2022 low of 51.5% and down 400 basis points at midpoint versus 2022. The gross margin headwinds that we experienced in Q4 will continue to impact us here in 2023.
We have optimized our manufacturing expenses, which we expect will offset approximately 50% or 150 basis points of the product mix implications, leaving facility and depreciation costs as the major headwinds on margins in 2023 at approximately 250 basis points. We expect margins to improve with higher volumes as we move through the second half of 2023, and we expect to deliver further margin expansion of 100 to 200 basis points in 2024. We are setting adjusted operating income guidance in the range of 176 million to 182 million. We are guiding adjusted operating margins in the range of 22.5% to 23.5% of sales. We expect the impact of product mix, material cost inflation and facilities and depreciation to drive an approximate 600 basis point decline versus 2022.
Optimization of manufacturing and operating expenses will offset approximately 25% of the product mix implications, leaving facility and depreciation costs as a significant headwind on operating margin in 2023 at approximately 300 basis points. Adjusted other income is expected to be 10 million of income for the year, and we expect 2023 adjusted income tax to be approximately 20% of adjusted pre-tax income. We are guiding adjusted net income to the range of 149 million to 154 million, with adjusted EPS guidance in the range of $2.61 to $2.69 per fully diluted share. Our adjusted EPS guidance assumes 57.2 million weighted average fully diluted shares outstanding at year-end 2023. Adjusted EBITDA is expected in the range of 213 million to 219 million, with depreciation and intangible amortization expenses expected to be approximately 36 million and 29.4 million, respectively.
Adjusted EBITDA margins are expected to continue to be strong, and we are guiding to a range of 27% to 28% for the year. Now shifting to capital expenditure plans, where we expect to spend 60 million in 2023 with a focus on four primary expansions projects, which Tony covered earlier. We expect year-end cash and cash equivalents, a GAAP metric, to be in the range of 670 million to 680 million, with our CapEx investments again being funded by cash generation from our operations. This completes our financial report and guidance update, and I will now turn the call back to the operator to open the lines for questions.
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Q&A Session
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Operator: We will now begin the question-and-answer session. . And the first question will come from Jacob Johnson with Stephens. Please go ahead.
Jacob Johnson: Hi. Good morning. Maybe, Tony, just to start, on the third quarter call last year, you talked about 16% to 20% base business growth. You’re guiding to 12% to 16% this morning. Has anything kind of changed in terms of the demand you’re seeing or the end markets or is this just building in some conservatism and perhaps you could still end the year closer to that 16% to 20%?
Tony Hunt: Yes. I would say that where we were in — at our Q3 earnings call and where we were at the beginning of the year versus now, it’s changed a little bit. And I think the main area where it’s changed is in our chromatography business. So we were expecting much higher growth coming from chromatography in 2023 based on resin availability from the main players in our industry. That softened in Q1. It’s actually softened over the last six to eight weeks, and it really has slowed down what we can do in the first half of the year because it’s outside our control. We’ve had conversations. We know that capacity is coming on. Customers have to accept kind of manufacturing from the new facilities and that’s really probably the biggest driver in terms of the first half slower traction on resin availability. But I would say, Jacob, if I had to point to one thing, that’s the difference between where we were in November and where we were in January versus where we are today.
Jacob Johnson: Okay. Thanks for that, Tony. And then just maybe on the process analytics side, I think that was a key focus at your Investor Day. It seems integral to the system strategy you have. And it seems like that’s a real opportunity for you all over the next five years, but it does seem like it’s a bit softer this quarter. So could you maybe kind of square the near-term performance there versus the long-term opportunity?
Tony Hunt: Yes. I love this business. When you look at the funnel of opportunities that we have and the activity that we have in the marketplace, it’s really high. The need for at-line, in-line technologies couldn’t be any higher. So I just think that there’s some conservatism at the customer level in terms of the dollars they want to spend and the approval process of getting everything kind of pushed through for approval on these capital equipment purchases. We like what we launched with the RPM system in Q4. We got some orders in December, which was very encouraging. We’re doing a lot of demos of the technology. We think this is the foundation piece that allows our customers to go from benchtop KR2i all the way up to our ARTeSYN kit using the technology from our analytics business to be a major differentiator versus other products that are in the marketplace.
So while yes, last year was lower in terms of overall growth, I don’t think it’s that much different, Jacob, than a lot of other companies who have the analytical products, quality control products that are in the marketplace. And so I think it’s a function of that. The other thing I would say about our analytics business is we don’t — that is orders that come in, in the quarter or shipped in the quarter, so it’s not like any of the other franchises where you might be operating two, three, four months ahead with an order book.
Jacob Johnson: Got it. Thanks for taking the questions, Tony.
Tony Hunt: Thanks, Jacob.
Operator: The next question will come from Dan Arias with Stifel. Please go ahead.
Dan Arias: Good morning, guys. Thanks for the questions. Tony, I know parsing through the quarters on an outlook is difficult. But just on the first half of the year versus the second half of the year split that you see right now for ’23, does the base case sort of assume some improvement in 2Q that lends evidence to the idea that the destocking phenomenon is subsiding and that resin availability is maybe getting better again, or really should we just be thinking about 1Q and 2Q similar with 3Q being the improvement quarter?
