Patrick Donnelly: Okay, that’s helpful. And then maybe one for Stephen on the margins. Gross margins seem to have rebased. I would love just your perspective of what those look like in 2023, first off. And then maybe just the additional areas of leverage kind of down the P&L coming out of COVID, you mentioned maybe some elevated strategic investments in 2022. Obviously, we saw some things like one-time bonuses that are pretty clear. But would be helpful if you could just talk through the moving pieces, what areas of additional leverage you do have coming out of 2022. Because again, the mix, obviously as LPS becomes bigger, the margins should going to be lower, but you guys are putting up a pretty good number. So just trying to figure out, again, a little bit of the moving pieces and areas of leverage you have when you think about that 23.9% for 2023.
Stephen Williamson: Yes. So it’s €“ Patrick, thanks for the question. So when I think about the margin profile going forward, that 7% to 9% core organic growth driving 40 to 50 basis points is the right way to think about that company. And the margin opportunity there, you got a little bit of €“ that just seems a little bit of price benefit, good volume leverage that comes with that and still investing in the business to maintain that top line growth. And then a continuation of using PPIs, that kind of decomplex the company, but I think that €“ that margin profile still holds in terms of going from the 23.9% going forward, post 2023, I think about the levers that we have. As you saw in this past year, we had a slightly different mix like higher growth in certain parts of our business.
And certainly, margins were slightly different in Q4 than we had in the prior guide. But the revenue is significantly higher. And what really matters is operating income dollars that we’re driving, and that’s incredibly strong and I think that margin profile and then the mix then holds into 2023. And then therefore that kind of 7% to 9% driving that 40 to 50 is a good way to model the company.
Patrick Donnelly: And then just gross margins for 2023, if you have it?
Stephen Williamson: I don’t really want to give guidance to every single element of the P&L. It’s €“ we’re trying to manage a complex company, but a similar margin profile to where we are right now is probably a good starting point. But it really depends on the mix and also changes in currency, and our job is to manage the whole thing and deliver great results.
Patrick Donnelly: Thanks, very helpful. Thank you guys.
Operator: Thank you. Our next question comes from Rachel Vatnsdal of J.P. Morgan. Please go ahead when you are ready.
Rachel Vatnsdal: Okay, thanks, operator. So first up, just on China. China declined mid-single digits during 4Q, and you say that some of that was testing roll-off. You also talked about how China is part of the reason that that core €“ core growth is going to ramp throughout the year. So can you just walk us through what are you embedding for China growth for 1Q and then for total 2023? And then can you also just spend a minute talking about the underlying demand trends for China and how you plan into the reopening trade?
Marc Casper: Rachel, thanks for the question. So if I step at the highest level with China, right, historically, been our fastest growing end market. We have a very strong position. Our enabling technologies are important to life sciences and food safety and the biologics industry in China, et cetera. So good demand drivers long-term, long historical perspective. When I think about last year, team delivered high single-digit growth for the year. When I think about the fourth quarter, you had very, very significant disruptions from the end of the COVID, zero COVID policies, right? So you went from this period where I think at least we had no problem in navigating through the challenges of the lockdown policies. But when you have 50%, 60%, 70% of colleagues with COVID, that’s obviously highly disruptive.
And so you saw the first half of the quarter was strong. The second half of the quarter was weak. Our assumption for this year is that the zero COVID, opening up the economy leads to a weaker first quarter, a strong rebound in the balance of the year. China will grow on our expectations in our guidance a little bit faster for the full year than our core growth. So that’s how I would think about it. So a really strong end market, including the disruption from Q1. I think the team has done actually €“ I’m very impressed with how they’ve dealt with all of the complexities and keeping our colleagues safe. It’s been a challenging period of time.
Rachel Vatnsdal: Great. And then maybe just kind of digging deeper on Patrick’s question around margins. So you did 22.4% adjusted op ms for 4Q. You guided to a step down on that operating margin line during 1Q, but then hitting that 23.9%-ish for the year for 2023. So can you just kind of bridge us through the math there on margins and how that gives you confidence in the back half of the year to be able to round out at just shy of 24%?
Stephen Williamson: Yes. So, Rachel, thanks for the question. So when I think about the margin progression through the year, Q1, we got a very significant roll-off in highly profitable testing revenue. And the cost actions against that to enable a 40% pull-through for the year, it’s a combination of cost actions and then a non-repeat of the cost €“ of certain one-time things that we were doing on compensation in the prior year. Those things spread over the whole year. So you get a little bit of benefit in Q1 to offset part of that profitability, but more of that offset really coming in the following three quarters. So that’s really the largest piece to it. Now FX is a headwind to margins in Q1, so that’s a slight aspect to it. And then the phasing of the China activity is another aspect of that kind of lower level of activity in Q1 and then ramping up to a higher level of revenue in Q4.
Rachel Vatnsdal: Helpful. And then maybe just squeezing one more in here on industrial and applied, you grew low teens in 4Q. So can you just give us a little bit more granularity on that performance during the quarter, if there is any pockets of outpaced strength or softness relative to your expectations? And then how are you thinking about that industrial and applied market for 2023, given the macro backdrop, and is there any conservatism there in the assumed guidance? Thanks.
Marc Casper: Yes, so industrial and applied was very strong in the quarter. Low teens growth in the quarter. Really strong demand and shipments for our chromatography, mass spectrometry and electron microscopy business. So we didn’t see any concerns. Our assumption for the year is that just going to grow at about the average rate growth for the full year. So that’s what we’re assuming in the guidance.
Rachel Vatnsdal: Great. Thank you.
MarcCasper: Thanks, Rachel.
Operator: Thank you. We now have Derik de Bruin of Bank of America. Please go ahead when you are ready.
Derik de Bruin: Hello, and good morning. So
Marc Casper: Good morning, Derik.
