Thermo Fisher Scientific Inc. (NYSE:TMO) Q3 2023 Earnings Call Transcript

Thermo Fisher Scientific Inc. (NYSE:TMO) Q3 2023 Earnings Call Transcript October 25, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2023 Third Quarter Conference Call. My name is Ellen and I’ll be the operator for today’s call. During the presentation, all lines will be on mute. However, there will be an opportunity for a question-and-answer session at the end. [Operator Instructions] I’d now like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President of Investor Relations. Mr. Tejada, you may begin the call.

Rafael Tejada: Good morning, and thank you for joining us. On the call with me today is, Marc Casper, our Chairman, President and Chief Executive Officer, and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website thermofisher.com, under the heading News Events and Presentations until November 10, 2023. A copy of the press release of our third quarter 2023 earnings is available in the Investors section of our website under the heading Financials. So before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company’s future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any dates subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is available in the press release of our third quarter 2023 earnings and also in the Investors section of our website under the heading Financials. So with that, I’ll now turn the call over to Marc.

Marc Casper: Thank you, Raf. Good morning, everyone, and thanks for joining us today for our third quarter call. Let me recap our financial performance for the quarter and then I’ll provide additional context on what we’re seeing play out in the macro-economy and the implications for our guidance. In the third quarter, our revenue was $10.57 billion. Our adjusted operating income grew 8% to $2.56 billion, and we expanded our adjusted operating margin 200 basis points to 24.2% — 24.2%, and we delivered excellent growth in adjusted EPS, achieving a 12% increase to $5.69 per share. We delivered a very strong third quarter. In the quarter, the market environment continued to get more challenging. So I thought that it would be best to update you on what we’re seeing and the implications on our guidance for the full year.

As a reminder, coming out of the second quarter, we assumed core market growth to be in the zero to 2% range for the year, driven by two factors, cautious customer spending and low economic activity in China. As we indicated in September, those same two factors increased in impact and we now expect core market growth to be slightly negative for the year. Our team did a good job capitalizing on the available opportunities in the quarter and we continue to expect to grow faster than the market for the full year and to once again deliver share gain in 2023. Factoring in the current macroeconomic conditions that I discussed, as well as the related increase in FX headwinds, we’re revising our revenue and adjusted EPS guidance for 2023. We now expect revenue to be $42.7 billion and adjusted EPS to be $21.50 per share.

Stephen will outline the underlying assumptions later in the call, along with some thoughts to help frame 2024. So as I look ahead, the combination of our proven growth strategy and PPI Business System will enable us to successfully navigate dynamic times, positioning us to deliver differentiated short-term performance and simultaneously strengthening our long-term competitive position and outlook. The long-term prospect for our industry remain as bright as ever. Science continues to advance at a rapid pace and our tools are used by scientists for the most important work that they do, providing the foundation for the scientific breakthroughs they enable. And our capabilities enable the pharma and biotech industry, which is addressing so many unmet healthcare needs.

Let me now turn to our Q3 revenue performance in the context of our end markets. Starting with pharma and biotech, growth declined 1% for the quarter. The COVID-19 vaccine and therapy revenue runoff performed as expected during the quarter, resulting in a headwind in this customer segment. In Q3, performance in this end-market was led by our pharma services business. In academic and government, we grew in the high single-digits in the quarter. We delivered very strong growth in our electron microscopy and chromatography and mass spectrometry businesses. In industrial and applied, growth was flat for the third quarter. Performance in this end-market was led by our electron microscopy business. And finally, diagnostics and healthcare, in Q3 revenue was approximately 20% lower than the prior-year quarter.

In this end-market, the team delivered good core business growth highlighted by our immunodiagnostics, microbiology, and transplant diagnostics businesses. We made strong progress on our growth strategy in Q3. As a reminder, our strategy consists of three pillars, high-impact innovation, our trusted partner status with customers, and our unparalleled commercial engine. Starting with innovation, it was another great quarter for the company. We launched a number of high-impact new products across our businesses that are further strengthening our industry leadership and providing our customers with new technologies to enable breakthroughs in their work. Let me start with a brief update on the groundbreaking Thermo Scientific Astral, which we launched at the American Society of Mass Spectrometry in June.

Demand has been very strong and it’s great to see these instruments being so quickly adopted by our customers for their protein discovery research. In the quarter, we launched the EXENT Solution in Europe after receiving IVDR certification. It’s the latest innovation from our protein diagnostics business, which as you know became part of Thermo Fisher with the acquisition of The Binding Site at the beginning of the year. EXENT complements our leading portfolio of assays that help to diagnose and monitor blood protein abnormalities related to multiple myeloma and other disorders. In our bioproduction business, we introduced the Gibco CTS Detachable Dynabeads, our next-generation Dynabeads platform to accelerate manufacturing of life-changing cell therapies.

And in our electron microscopy business, we launched the Thermo Scientific Hydro Bio Plasma focused ion beam, providing high-resolution imaging along with a simplified workflow for cell biologists. And earlier this week, Time Magazine selected Thermo Fisher’s preeclampsia test as one of Time’s 2023 best innovation — best inventions. As you may recall, this is the first and only immunoassay to aid in the risk assessment and clinical management of preeclampsia and it received FDA breakthrough designation and clearance earlier in the year. Now turning to the trusted partner status we’ve earned with our customers. This unique relationship gives us early insights into our customers’ unmet needs and enables us to bring our industry-leading products, services and expertise together in ways that no one else can.

We continue to strengthen our capabilities to be an even stronger partner for our customers. As you know, we’ve had strong demand for our biologics drug substance manufacturing capabilities. And during the quarter, we completed an expansion of our site in St. Louis, Missouri. This facility supports therapies for a wide range of diseases, including cancer, autoimmune conditions and rare genetic disorders. It features our new Thermo Scientific high-performer DynaDrive 5,000-liter single-use bioreactor, which is a significant advancement in single-use technology. The DynaDrive offers better performance and is scalable to much larger volumes than previous generation bioreactors. We also further strengthened our clinical research offering by opening a facility in Ohio to produce sample collection kits for clinical trials.

This enables us to deliver customized kits to our clients and provide greater supply-chain stability to support their trucks. As always, our PPI Business System in our mission-driven culture enabled our success during the quarter. PPI engages and powers all of our colleagues to find a better way every day and it enables us to improve quality, productivity and customer regions while also helping us to navigate a dynamic environment. I am proud of our team’s efforts, which resulted in strong operating margin expansion in the quarter. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of strategic M&A and returning capital to shareholders. It’s been a very active year. As I mentioned earlier, we closed the Binding Site in January.

The business is performing exceedingly well. During the quarter, we completed our acquisition of CorEvitas, a leading provider of regulatory-grade real-world evidence for approved medical treatments and therapies. As a reminder, real-world evidence is the collection and use of data from patient health outcomes gathered through routine clinical care. This is a high-growth market segment as pharmaceutical and biotechnology customers, as well as regulating bodies, are increasingly looking to monitor and evaluate the safety of approved medicines and examine their effectiveness and value in the post-approval setting. The business is now part of our clinical research business and it’s off to a great start. Shortly after the close of the quarter, we announced the agreement to acquire Olink, a company that is accelerating proteomics.

Olink’s products enable leading academic researchers and the biopharmaceutical companies to gain an understanding of disease at the protein level rapidly and efficiently. Its proprietary technology Proximity Extension Assay provides high-throughput protein analysis. The acquisition of Olink underscores the profound impact that proteomics is having as our customers continue to advance life science research and precision medicine. This technology is highly complementary to our leading mass spectrometry and life sciences platforms, and we’re uniquely positioned to rapidly bring this technology to customers. We expect to deliver $125 million in adjusted operating income synergies in year five, driven by revenue synergies and cost efficiencies. We expect this business to be a mid-teens revenue growth business for us well into the future.

The transaction is targeted to be closed by mid-2024, subject to customary closing conditions including regulatory approvals. So, 2023 has been an active year of M&A that further strengthened Thermo Fisher Scientific for the future. During the quarter, we continued to advance our environmental, social and governance priorities. This included launching a collaboration with the National Minority Quality Forum, a not-for-profit research and education organization to help bring clinical research to historically underserved patient populations through their alliance or representative clinical trials. The collaboration supports pharma and biotech customers in meeting regulatory expectations to enroll and retain patients in clinical trials, who more fully reflect real-world populations experiencing the disease or health condition being studied.

And it also helps to enable our customers to meet US Food and Drug Administration requirements around diversity action plans. In terms of our environmental sustainability efforts, we’ve officially surpassed our original goal to reduce greenhouse gas emissions by 30% by 2030. As we previously announced, we’ve increased our target to a 50% reduction by 2030, and we’re well on our way to achieving that goal. I’m very proud of the way we’re making a difference, not only by enabling our customer success but also by creating a greater work environment for our colleagues and making a positive impact for society. So to summarize our key takeaways from the third quarter. We delivered a strong operating performance in Q3, driven by our team’s execution and the power of our PPI Business System.

Given the more challenging macroeconomic environment, we’re taking the right actions and appropriately managing the company, and we’re incredibly focused on delivering differentiated short-term performance while simultaneously strengthening our long-term competitive position and outlook. The attractive long-term outlook for the life sciences industry remains unchanged and we’re uniquely positioned to help our customers navigate the current environment, capture incremental opportunities and exit this period an even stronger industry leader with a very bright future. With that, I’ll now hand the call over to our CFO, Stephen Williamson. Stephen?

Stephen Williamson: Thanks, Marc, and good morning, everyone. As you saw in our press release and as Marc just outlined, while the macroeconomic environment became more challenging in the third quarter, we continued to deliver differentiated performance. In Q3, we delivered $10.6 billion of revenue, which included 1% core organic revenue growth. Our PPI Business System enabled us to generate 200 basis points of adjusted operating margin expansion and we delivered $5.69 of adjusted EPS, a 12% increase over Q3 last year. We’re continuing to successfully navigate the current environment. Let me now provide you with some additional details on our performance, beginning with our earnings results. As I mentioned, we delivered $5.69 of adjusted EPS in Q3.

GAAP EPS in the quarter was $4.42. On the top line, reported revenue was 1% lower year-over-year. The components of our Q3 reported revenue included 3% lower organic revenue, 1% contribution from acquisitions and a tailwind of 1% from foreign exchange. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the pandemic-related revenue in the current and prior year. In Q3, North America declined mid-single digits, Europe grew in the low single-digits, Asia-Pacific declined in the low single-digits with China declining in the high single-digits. With respect to our operational performance, adjusted operating income in the quarter increased 8% and adjusted operating margin was 24.2%, 200 basis points higher than Q3 last year.

In the quarter, we delivered exceptionally strong productivity and achieved good price realization. This is partially offset by lower pandemic-related revenue, continued strategic investments and FX. The strength of our productivity reflects the impact of our PPI Business System. It’s enabling us to manage our cost base appropriately given the macro conditions. Total Company adjusted gross margin in the quarter came in at 42%, 30 basis points higher than Q3 last year. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 14.8% of revenue, an improvement of 140 basis points over Q3 last year. Total R&D expense was $320 million in Q3, reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue was 6.7% in the quarter.

Looking at our results below the line for the quarter, our net interest expense was $113 million, which is similar to Q3 last year. Our adjusted tax rate in the quarter was 10%, which is 180 basis points lower than Q3 last year, reflecting results of our tax planning activities. Average diluted shares were 388 million in Q3, approximately 7 million lower year-over-year, driven by share repurchases, net of option dilution. Turning to cash flow and the balance sheet. Year-to-date cash flow from operations was $4.7 billion. Year-to-date free cash flow was $3.7 billion, after investing $1 billion of net capital expenditures. During the quarter, we returned $136 million of capital to shareholders through dividends and we deployed just over $900 million of capital for the acquisition of CorEvitas.

We ended the quarter with $6.2 billion in cash and $35.3 billion of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt-to-adjusted EBITDA and 2.7 times on a net-debt basis. In concluding my comments on our total company performance, adjusted ROIC was 12%, reflecting the strong returns on investment that we’re generating across the company. I’ll now provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our pandemic-related revenue varies by segments and that revenue was higher in the prior year. So that does skew some of the reported segment growth rates and margins. Let me continue to execute strong pricing realization across all segments to address inflation.

Moving on to the segment details, starting with Life Sciences Solutions. Q3 reported revenue in this segment declined 18% and organic revenue was 19% lower than the prior year quarter. This is driven predominantly by the run-off of our pandemic-related revenue in the segment versus the year-ago quarter. Q3 adjusted operating income for Life Sciences Solutions decreased 16% and adjusted operating margin was 35.9%, up 80 basis points versus the prior-year quarter. During the quarter, we delivered exceptionally strong productivity and had favorable FX, which was partially offset by unfavorable volume mix. In the Analytical Instruments segment, reported revenue increased 8% in Q3 and organic growth was also 8%. The strong growth in this segment this quarter was led by our electron microscopy business.

In this segment, Q3 adjusted operating income increased 21% and adjusted operating margin was 26.7%, up 290 basis points year-over-year. In the quarter, we delivered very strong productivity and had strong volume pull-through, which is partially offset by FX and strategic investments. Turing to Specialty Diagnostics, in Q3 reported revenue increased 2% and organic revenue was 6% lower than the prior-year quarter. In Q3, we continued to see strong underlying growth in the core, led by our immunodiagnostics, microbiology and transplant diagnostics businesses. This was offset by lower pandemic-related revenue versus the year-ago quarter. Q3 adjusted operating income for Specialty Diagnostics increased 29% in the quarter and adjusted operating margin was 26.1%, which is 550 basis points higher than Q3 2022.

During the quarter, we delivered a favorable volume mix and very strong productivity. That was partially offset by the impact of lower COVID-19 testing volume and strategic investments. Finally, in Laboratory Products and Biopharma Services segment, Q3 reported revenue increased 3% and organic growth was 1%. During Q3, organic revenue growth in this segment was led by the pharma services business. In this segment, Q3 adjusted operating income increased 29% and adjusted operating margin was 16.4%, which is 340 basis points higher than Q3 2022. During the quarter, we delivered exceptionally strong productivity and a favorable mix, which is partially offset by FX. Let me now turn to guidance. As Marc outlined, we’re revising our full-year 2023 guidance to reflect the more challenging macroeconomic environment.

Our revised estimate for 2023 is revenue of $42.7 billion with core organic revenue growth of just under 1%, and $21.50 of adjusted EPS. Let me now provide you with some details behind the changing guidance versus the estimate we provided on our last earnings call. Starting with revenue, our revised guidance is $850 million lower than the prior outlook. $200 million of this is driven by an increased headwind from FX. We’ve increased our guide by $45 million to reflect the acquisition of CorEvitas, and the rest of the change is due to our lower core revenue assumption. We now see core organic growth for the year of just under 1%, which is a little less than 2% lower than the prior guide. This is driven by the same factors that we’ve seen throughout the year, the weak economic conditions in China and cautious spending in general across our customer base.

And as we indicated during Q3, these factors increased in impact during the quarter and our assumption is that the conditions we saw at the end of Q3 will continue throughout the remainder of the year, and as a result, we now expect core market growth for our industry to be slightly negative for the year. However, we continue to effectively navigate the macro-dynamics and expect to continue to deliver differentiated core organic revenue growth for the year despite the more challenging conditions. Moving on to profitability. The revised guidance assumes a pull-through on the lower revenue of just over 40%, and we now expect our adjusted operating margin to be 22.9% for the year. We continue to use the PPI Business System to manage our costs appropriately given the market conditions.

From an adjusted EPS standpoint, the revised guidance is $0.17 lower due to FX and $0.69 related to the change in core revenue. So we now expect to deliver $21.50 of adjusted EPS in 2023, a strong result given the challenging macro-environment. Let me now provide you with some additional details of the updated 2023 guidance. We continue to assume that we’ll deliver $300 million of testing revenue in 2023. We expect the total vaccines and therapies-related revenue will be $1.6 billion less than the prior year, an impact of over 4% on our core organic revenue growth. This assumes we recognized $1.3 billion of vaccine therapies revenue in 2023, $600 million of which is in our clinical research business. Moving on to FX. Given recent rate changes, we’re now assuming that FX will be a year-over-year headwind to revenue of approximately $100 million.

And in terms of adjusted EPS, we now expect FX to be a year-over-year headwind of $0.28 which is $0.17 more of a headwind than our previous guidance. The Binding Site and CorEvitas acquisitions are performing well, and we now assume that they’ll contribute approximately $300 million to our reported revenue growth for the year. Below the line, we now expect just under $500 million of net interest expense in 2023, a slight increase reflecting the acquisition of CorEvitas. We continue to assume that the adjusted tax rate for the — 2023 will be 10%, and we’re now expecting net capital expenditures will be between $1.3 billion and $1.5 billion. And we now expect the free cash flow will be between $6.7 billion and $6.9 billion for the year. In terms of capital deployment, our guidance includes $3 billion of share buybacks, which were already completed in January, $3.7 billion in acquisitions completed this year, and $3.1 billion committed to the acquisition of Olink, which we expect to close in 2024.

We continue to assume that full-year average diluted share count will be approximately 388 million shares, and then we’ll return approximately $540 million of capital to shareholders this year through dividends, a 17% increase over 2022. So before I conclude my prepared remarks, I thought it’d be helpful to share some more detailed thoughts around how to frame 2024. At this point in time, a good starting assumption is that our core organic revenue growth in 2024 is similar to 2023, approximately 1% growth. With our proven growth strategy, we expect to continue to take share and that would mean market growth in 2024 will be similar to 2023 with the market declining 1 to 2 points. In terms of phasing of our core organic revenue growth, it’s best to assume a more challenging first half and then moderate growth in the second half.

The pandemic-related revenues both testing and total vaccines and therapies are likely to be around $300 million in 2024. This is a headwind of approximately $1.3 billion, or 3% of revenue. M&A is expected to increase revenue $175 million year-over-year. That’s a combination of six months of Olink, and the inorganic portion of the CorEvitas revenue in 2024. And based on current rates, we would expect FX to be a headwind to revenue in 2024 of approximately $375 million, just under 1%. So wrapping all this together, 2024 revenue dollars will be very similar to 2023. In terms of adjusted operating income dollars, with this top-line setup, we would expect to deliver similar adjusted operating income dollars through 2023. We’ll continue to use the PPI Business System to manage costs very carefully but also continue to make the right long-term investments to enable us to continue to strengthen our industry leadership.

Strong underlying productivity and cost controls are expected to offset the run-off in the remaining pandemic revenue, inflation and the normalization of incentive compensation across the company and appropriate investments in our colleagues. Below-the-line and the interest income benefit from our cash generation and an assumption of $3 billion of buybacks in 2024 would more than offset the impact of a slight increase in our tax rate to 10.5%. All of this would enable us to deliver around $21.75 of adjusted EPS for the year. So the high-level summary is that with these assumptions, we’d expect 2024 core organic revenue growth to be similar to 2023. And then our proven growth strategy in PPI Business System would enable us to continue to manage the macro conditions and the run-off in pandemic revenue very effectively, so we can deliver revenue and profitability similar to 2023 and a slight increase in adjusted EPS.

Now, should the market conditions be better than I just outlined, our growth strategy and proven execution capabilities will enable us to deliver the upside benefit. I look forward to providing you a formal guidance for 2024 on our next earnings call along with our usual supporting details for the year ahead. At that point, we’ll have the insight from a full year of 2023, we’ll have a better view on the macro conditions entering 2024. So in conclusion, we continue to navigate the environment really well, delivering differentiated financials and further strengthening our industry leadership. We remain really well-positioned to capitalize on additional opportunities as market growth normalizes over time. And as we think about our cost base, we’re really well-positioned to drive strongly accretive growth going forward.

Now let me turn the call-back over to, Raf.

Rafael Tejada: Operator, we’re ready for the Q&A portion of the call.

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Q&A Session

Operator: Thank you. We will now enter our Q&A session. [Operator Instructions] Our first question today comes from Jack Meehan from Nephron Research. Jack, your line is now open. Please proceed.

Jack Meehan: Good morning, and thank you for all the color. Marc, a bigger-picture question. Upon greater reflection, how much of your decision to raise the long-term target to 7% to 9% do you think may have been based on the environment we’re in? And I was curious, do you think it’s prudent for investors to think of something lower than that in the medium term?

Marc Casper: Yeah. Jack, thanks for the question. When I think about the long-term guidance or our long-term targets, what’s underlying it is 4% to 6% growth, right? I don’t think there is any controversy — market growth — 4% to 6% market — I don’t think there is any controversy that we’re going to grow meaningfully faster because if you look at the last 10 or 15 years, we’ve delivered superior organic growth and it keeps getting better and better relative to the market, right. So, the spread of 2, 3 points better than that, that’s not in question, right, so at 4% to 6%, you get to the 7% to 9%. When I think about my 20-plus years in this industry, thinking about what the historical growth is, what the drivers are for the growth, I feel 4% to 6% long-term market growth is actually the appropriate number that the things that the industry are going through now do not change my view that the long-term health of this industry is exceptionally bright and that you will see that return.

And I can’t call when exactly that returns, but what I can say is that the unmet healthcare needs and all the drivers that we talked about at our Analyst Day remain extraordinarily bright for the future. So thank you, Jack.

Jack Meehan: Thanks. And then maybe as a follow-up. The deterioration, kind of, in the market we’ve seen since second quarter earnings or even early September, what are you hearing from customers, like, as you try and diagnose what’s happening here? And just what are your thoughts on kind of the recent increase in the 10-year — how does that impact kind of the pace of the recovery as you see it?

Marc Casper: Yeah. So I’ve been out with customers. As you know, I do that a lot. I’ve been out on a definitely out there with our customer tour, both in Europe and the US, and earlier in the quarter, I was in China. So when I think about what our customers are saying, they are actually very bullish on the mid to long term, right? So there’s quite a lot of opportunities for us. What I would say is short term, if you’re visiting a smaller biotech customer, what you’re seeing is concerns about when the funding environment is going to improve. So there’s a level of caution. And I think that’s generally across the customer base as customers are being cautious after a very robust pandemic period. But long term and the excitement and customers looking forward to the future with us, it’s extremely positive. Anything on the non-term interest rate?

Stephen Williamson: No, I wouldn’t think about the long-term interest rate. I think from a funding standpoint, I think there’s a spread between interest rates and then what the kind of return we people are going to get on an investment. And as the valuation expectations moderate for our customers, that, I think the funding will start flowing better going forward. The timing of that will still be played out, but the return profile and the successful investment in biotech is still incredibly compelling. So long term, that will moderate appropriately.

Rafael Tejada: Thanks, Jack.

Jack Meehan: Thank you.

Operator: Thank you, Jack. Our next question comes from Dan Brennan from TD Cowen. Dan, your line is now open. Please go ahead.

Dan Brennan: Thank you. Thanks for the questions, guys. Maybe, Marc and Steve — Stephen, excuse me, it’s somewhat hard to reconcile just the magnitude of this end-market weakness just given the view towards the structural attractiveness of the — kind of the customer drivers. So maybe could you just give us a lens on this outlook for ’24, maybe first from like a geographic perspective China, how much of is that a driver towards like other reasons? And then B, it would be great to just learn about like within biopharma, your largest customer base, maybe some of the underlying factors that kind of pointed as very weak growth in bioprocess, pharma R&D. Marc, you just mentioned pre-commercial biotech. Just give us a little more color on what’s driving you know the real, kind of, contracted growth outlook.

Marc Casper: Yeah. So, Dan, thanks for the question. I think the way that Stephen and I thought about giving an early view to 2024 is not based on us having finished our operating plan process which we do in December, and then when we actually lay out guidance, we do it based on how did the year finish, all of the details by business, by geography and then we figure out the details. We took the benefit of each of us having 20-plus years of experience in the industry, looking at the market conditions that we see today, and basically went through the assumptions of how could 2024 play out based on what we know today, right? So this is not a bottoms-up view by country, by geography and by business unit, but rather based on experience and based on what we’re seeing.

So when I think about for us next year, all right, we try to give you incredible clarity about what’s COVID in our numbers, right? So we’re expecting a run-off of $1.3 billion of COVID-related revenue in 2024, that would leave $300 million of revenue in 2024, of which we have a pretty good line-of-sight to what those activity is, right? So that’s the first assumption. And then the second assumption is effectively what’s going on in the base business, meaning, excluding the COVID-related business, and that should be a little bit over 3% growth, right? So if you think of those two factors, that’s how you get to a core number of one. Remember that testing is part of the decline. So that’s the set of assumptions. So then there is another lens to think about it, which is comparisons, right, or the — we’re going to lap the customer caution, different businesses at different points in time, but the first half will have more difficult comparisons, haven’t fully seen the effect of caution.

The second half, you actually get to more –you’re back to kind of moderate growth in that period of time just based on that factor. And then we look at some of our businesses like our insurance business, which had the benefit this year of the disruptions from supply-chain in 2021 and 2022, and we’re able to catch-up on orders that needed to be shipped and that gave us a little bit of a benefit of growth this year, of which, that obviously doesn’t repeat next year. We factored all that in and we said, core is pretty similar to what it is next year. We look forward to actually doing the detailed guidance at the end of January, early February when we have our earnings call, and we’ll have all of our puts and takes and be a lot smarter. But we wanted our analyst community to be aligned with what we’re seeing today because there’s quite a big disconnect in the numbers that are out there for 2024 relative to the numbers that we articulated today.

Dan Brennan: Great. Thanks, Marc. Maybe just a follow-up on biopharma since it’s…

Marc Casper: Thanks, Dan.

Dan Brennan: I’m sorry about that. Maybe just a follow-up on biopharma since it is your biggest customer base and such a key driver. Could you just give us a little bit of a window, just maybe what you’re seeing in Q3, kind of how you’re thinking about Q4 is maybe a jumping-off point for ’24, large pharma R&D spending, bioprocess, PPD? Can you give us some flavor on your key customer segments and kind of what the trends look like right now, and that will give us some vantage point for how we think about ’24 there as well? Thank you.