And we’re expecting kind of similar performance in the year ahead. And the way we’ve guided – way that gets reflected in our guidance, of course, is looking at kind of exit run rates at the end of ’23, flowing that through on a full year basis with modest benefit coming from pricing. The quarter numbers, while the absolute numbers are going to look pretty similar, on a rate basis, you will see a step down in Q1, just given the comparable of what we’re running into on a year-over-year basis. So Q1 is going to want to be down probably mid-teens, Vijay, but not because we see a difference in the revenue, just the year-over-year math that flows into that. So assuming a full year of down mid-single digits.
Vijay Kumar: Understood. And that would imply 2Q to 4Q sort of it improves maybe flattish. Is that what the guidance assume? And I think peers assuming a normalization that I’m curious as you’re guiding…
Michael Stubblefield: Yeah, not because of…
Vijay Kumar: The guidance assuming…
Michael Stubblefield: Yes, the guidance assumes similar absolute revenues throughout the year, Vijay, you might see a little bit based on a number of days in the quarter or how the pricing phases in. You might see some differences there. But nothing fundamentally different from an underlying demand perspective. Of course, the way we’ve guided it does imply that you’re going to be roughly flattish by the time you exit the year, but not because we’re forecasting an inflection in the order book.
Vijay Kumar: That’s helpful, Michael. And Brent, maybe one for you on the margins here. Are you assuming OpEx dollars to be flattish, up or down year-on-year? I’m trying to understand, is this margin mostly a function of gross margins and volume leverage or are you assuming operating expense on a dollar basis to go up?
Brent Jones: Well, definitely – I mean, implicit some of the other comments, we have real headwinds on the OpEx side year-over-year. I mean we are getting productivity to offset that, but will not be enough to fully offset that. So yes, there are meaningful year-over-year OpEx headwinds there.
Vijay Kumar: Got it. And so gross margin, I guess when you look at the 100 basis points margin step down year-on-year, how much of that is gross margin versus op margin?
Brent Jones: Well, we – I would say we have some – we have some opportunities in gross margin there and our productivity efforts. And then we’re going to keep going at our cost savings initiative here to try and blunt [ph] as much of the SG&A margin headwinds as we can. But that’s really the math of how it comes together. It’s very consistent with sort of the exit rate when you compare and you can say, because we exited higher in Q4 than we originally expected there. We had some goodness in mix. We had a lot of things run right in Q4 there. So – but on a rate basis, we expect this year to play out exactly as we had signaled earlier there on a margin basis.
Vijay Kumar: So gross margin similar to Q4, that’s what the guidance is assuming for fiscal ’24?
Brent Jones: I’m sure I said the EBITDA margin coming out very similar to the back half with those additional headwinds because we had somewhat better achievement in Q4. We believe there’s some upside in the year to gross margin.
Vijay Kumar: From the floor levels, correct? Or the fiscal sorry, I’m just asking, okay. Fantastic. Thanks, guys.
Brent Jones: Yeah.
Operator: The next question comes from Dan Brennan with TD Cowen. Please go ahead.
Dan Brennan: Hey, thanks for taking the questions. Maybe first one, Michael. In prior quarters, you talked about inventories getting close to normal in the 3 months. Just wondering if you can describe kind of what you’re seeing amongst your customers there? And if that’s the case, I appreciate the conservative guidance, but is something different with sell-through or your share such that if inventories are down at that level, I would assume we should see some kind of pickup here, whether it’s first half or certainly by midyear?
Michael Stubblefield: Yes. Thanks for the question. I think the trend has continued when we look at the input we’re getting from our customers, the inventory help, as I noted in my prepared remarks, does continue to improve. We haven’t yet seen an inflection or what would consider to be an inflection. We continue to see sequential improvement in the order book. But nothing that we would consider to be a step change. Relative to your last point around just performance of the business relative to the peer set, our 2023 performance, I think, speaks for itself, although we’re not jumping up and down with a business that’s down mid-single digits, I think you’ll find that as best-in-class relative to other players that are exposed to the space.
And even if you account for maybe more limited exposure to China, I still think that, that statement holds up. So we’ve had a long-standing track record here, at least over the last decade of outgrowing the broader bioprocessing end market by 300 to 400 basis points. And I think that’s reflected again in the 2023 numbers. I can’t speak to the ins and outs of how others have guided the year ahead, but I’m confident that our business will hold up as well as anybody’s here and likely outperform as we have done in previous years.
Dan Brennan: Great. Thank you for that. And we don’t have the quarterly dollar numbers yet for Bioprocess. I don’t think we have, we just have the growth numbers going back historically. So I’m just wondering, can you just comment – I know you said bookings grew modestly. Was that the first quarter bookings room, honestly? And any color on like book-to-bill? And does your guidance anticipate like when would that book-to-book above one for your guidance in the core bioprocess? Thank you.
Michael Stubblefield: Yes. So a couple of time periods that we’ve talked about in terms of sequential improvement in order book. Firstly, from a Q4 to – relative to Q3, we definitely did see a modest improvement in the rate of order intake, and we’ve seen that trend of sequential improvement continue into Q1, albeit at a slower rate of improvement than what we would hope for that would ultimately enable us to call for a full recovery here. But we’re encouraged. I think the activity levels remain strong. Customer sentiment remains quite positive. And we’re certainly – our teams are certainly busy working with our customers on supporting their new innovations. From a book-to-bill perspective, I don’t think that’s something that we’ve typically or historically quoted. So I don’t have a number to give you on that. But we do continue to see modest improvements in the rate of order intake.
Dan Brennan: Great. Thank you.
Operator: Next question comes from Patrick Donnelly with Citi. Please go ahead.
Patrick Donnelly: Hey, guys, good morning. Thanks for taking the questions. Michael, maybe another one just on the recovery path. At the Analyst Day, you talked about kind of the time frame to get there in that 20% kind of margin exit rate. Any more clarity as to the time frame, how you’re seeing that play out? Obviously, it seems like things are stabilizing a bit, but not yet calling that inflection. Just trying to get a sense for as we go through the year, how to think about approaching that margin rate and again, the recovery path on the bioprocessing side?
Michael Stubblefield: Yes. Thanks for the question, Patrick. My conviction on what I’ve said before about where we see things exiting 2025 is unchanged. We would see us in that time period performing at or better than kind of where we were at in 2021 on both top line and margins, which does set us up for a year in 2026 with adjusted EBITDA margin performance above 20%. The end market fundamentals remain robust, which is something I certainly look at to support our view that a recovery is coming. Again, record levels of new drug approvals, really robust pipelines, positive customer sentiments. When we look at funding environment, I think, has stabilized some pockets, including some of the biotech capital market funding levels improving.
I think there’s a lot of encouraging leading indicators here, and we’ve taken an approach here to guide the year not trying to call the timing of recovery and would consider that upside when it happens. But as we think about over the course of the next couple of years, we are optimistic about the recovery and when you look at the margin rate that we’ve guided to for 2026, we can largely get there just with the self-help measures that we’ve talked about at Investor Day, and we spend a little bit more time on here today. So we remain quite optimistic about what we’ve said about this recovery period.
Patrick Donnelly: Okay. No, that’s helpful. And maybe a quick non-bioprocessing question. Just in terms of semi industrial demand, maybe just give a little more color on what you’re seeing there and the expectations as we work our way through ’24 here? Thank you, guys.
Michael Stubblefield: All right. As we’ve said before, semis is a relatively small portion of our business, although it did take up a disproportionate amount of the airtime in 2023, just given how aggressively that end market took out their excess inventories. Similar dynamics is what we see in the life sciences space. They just moved a bit more aggressively to reset the inventories on the back end of the supply chain reset. As we noted, as we move kind of through the back half of the year and certainly in Q4, we have seen the business improve, and we expect a return to modest growth in 2024, which as we realize that certainly is factored into our guidance just given the trending that we saw at the end of the year. And hopefully, it’s a platform that we don’t need to spend a whole lot of time talking about in the year ahead.
