Thermo Fisher Scientific Inc. (TMO) on Q3 2021 Results - Earnings Call Transcript

Operator: Good morning, ladies and gentlemen and welcome to the Thermo Fisher Scientific 2021 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the Please be advised that today's conference is being recorded. I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President 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 until November 12th, 2021. A copy of the press release of our third quarter 2021 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 investor 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 date 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 measures is available in the press release of our Third Quarter, 2021 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: Thanks, Raf. Good morning everyone, and thanks for joining us today for our Third Quarter call. We delivered another outstanding quarter, achieving exceptional financial performance while continuing to effectively execute our growth strategy to make Thermo Fisher Scientific an even stronger partner for our customers. As I reflect on the year so far, three things stand out to me. Our proven growth strategy powered by our PPI Business System is driving outstanding financial performance. Our base business is performing very well and we're playing a leading role in our industry's response to COVID-19. And we continue to build on our trusted partner status with innovative new products and expanded capabilities to further enhance our unique customer value proposition. All of this gives me great confidence and a very bright future as we continue to create sustainable value for all of our stakeholders, I will get into more detail on these in my remarks later. But first, let me recap the financials. Our revenue in Q3 increased to $9.33 billion, growing 9% year-over-year. Our adjusted operating income for the third quarter was $2.78 billion and our adjusted operating margin was 29.8% for the quarter. Finally, we increased adjusted EPS by 2% - $5.76 per share. So another outstanding quarter. Turning to our end markets in Q3, market conditions were strong and our team executed well to deliver another fantastic quarter. Starting with Pharma and Biotech, we continue to have outstanding performance in this end market with growth of just over 20% driven once again by strong market dynamics, our unique customer value proposition, and our leading role in supporting our customers across a wide range of exciting therapeutic areas including our significant role in supporting COVID-19 vaccines and therapies. Our trusted partner status earned over many years with these customers continues to drive robust growth. In this end market, we saw a broad-based strength, including in our bioproduction, pharma services, Biosciences, chromatography, and mass spectrometry businesses, as well as in the Research and Safety market channel. In academic and government we grew in the mid-single-digits in the quarter with very good growth in Biosciences, and the Research and Safety market channel. Turning to industrial and applied, we grew in the mid-teens. In Q3, we had particularly strong growth in our electron microscopy business and in the Research and Safety market channel. Finally, in diagnostics and healthcare, we declined 11%. Performance in our base business was strong, driven by immunodiagnostics, clinical diagnostics, and transplant diagnostics. The team also executed very well to support customers COVID-19 testing needs, delivering $1.55 billion of revenue this quarter versus $1.8 billion in Q3 last year. Before I move on to our growth strategy, let me provide a few comments on our industry-leading role in the pandemic response. In the quarter, we generated $2.05 billion in COVID-19 response-related revenue. With the surge in the Delta variant, we saw a strong testing demand around the world in Q3. We also played a very meaningful role in vaccines and therapies for COVID-19 generating just over $500 million in the quarter from these activities. The underlying demand for our product and service offerings used in the production and development of vaccines is very robust and over time, we expect this demand to transition to non-COVID revenue. Our industry-leading response to the pandemic has enabled us to accelerate our growth strategy, strengthen customer relationships, and accelerate investments, which contributed to our ability to raise our long-term core organic growth guidance to 7% to 9% as we communicated at our recent Investor Day. Let me now give you an update on our growth strategy, which consists of three elements. Continuously developing high-impact innovative new products, leveraging our scale on the high-growth in emerging markets and delivering unique value proposition to our customers. Let me provide a few examples of how we're delivering on our growth strategy. Starting with innovation, we launched a number of new products across our businesses to further strengthen our industry leadership and enable our customers to accelerate scientific breakthroughs and make the world a better place. In our genetic sciences business, we launched the Applied Biosystems Quantz Studio Absolute Q Digital PCR system. This is the first fully integrated Digital PCR system featuring simplified workflows and designed to provide highly accurate results in only 90 minutes. This system will help events our customers innovation efforts in areas like oncology and cell and gene therapy. And chromatography and mass spectrometry, we launched three new Thermo Fisher Scientific TSQ plus triple quadruple mass spectrometers to address the growing need for faster throughput and increased sensitivity across a range of applications in Biopharma and applied science, including clinical research for large and small molecules, toxicology from Safety and environmental analysis. We also launched the Thermal Scientific Vanquish NEO UHPLC system and the Thermo Scientific Tech map Neo, UHPLC columns designed for use in proteomics precision medicine, and translational research. Turning to the second pillar of our growth strategy, we continue to leverage our scale to create an outstanding experience for customers and high-growth in emerging markets. This has contributed to the excellent performance we are delivering across Asia-Pacific, where we delivered growth in the low double-digits during the quarter. We continue to build our presence and capabilities in the region. During the quarter, we opened a bioprocess design center in South Korea. This facility features laboratory and educational space and more than 100 instruments that support pharmaceutical research and manufacturing processes. This center will help our pharm and biotech customers advance their important work. Our performance across the region demonstrates that we're creating a differentiated experience for our customers, and the significant investments we've made in these markets are fueling growth. The third pillar of our growth strategy is our customer value proposition. And we continue to increase our capabilities and capacity to be an even better partner for our customers and help them achieve their goals faster and more efficiently. As I mentioned last quarter, we're executing on over $2.5 billion in Capex this year. Let me give you a brief update on our progress. Building our pharma services capabilities in Q3, we brought on additional capacity online to support vaccine and therapy production. As part of the previously announced strategic partnership with CSL limited, we assumed operating responsibility for our new state-of-the-art biologics site and like now in The site will feature highly flexible bioproduction technologies, including single-use and stainless steel to provide a pathway from development to large-scale production as customers needs evolve. To support growing demand in the biopharmaceutical industry, we announced plans to open a new bioproduction facility in Nashville, Tennessee to manufacturer single-use technologies. The facility will be one of our largest SUT sites in the world. In addition to support disease research and diagnostic testing, we announced our commitment to co-invest with the U.S. government in building a state-of-the-art facility to manufacturer pipette tips. The new facility will be located in North Carolina and designed in line with Thermo Fisher Scientific's carbon neutrality goals. These investments are value proposition, demonstrate our commitment to our customers who rely on us as an essential partner in . Now, let me give you a brief update on capital deployment. We continue to successfully execute our disciplined strategy for capital deployment, which is a combination of strategic M&A and returning capital to our shareholders. In terms of M&A, we are super excited for acquisition of PPD. The business is performing well. The regulatory process is on track, and we expect to close by year-end. As a reminder, PPD will establish Thermo Fisher as a leader in the attractive and high-growth clinical research services industry and yet highly complementary services for our fastest-growing end market. Integration planning is going very well. Financing is largely complete, and we're looking forward to welcoming our PPD colleagues to Thermo Fisher later this year. Before turning to our guidance, let me update you on our progress we're making on our ESG initiatives. As the world leader in science, we know we have a responsibility to use our industry leadership position to make the world a better place. And to that end, we continue to advance our sustainability and social impact initiatives. During the quarter we committed to expand our use of ACT product labeling to include our entire cold storage portfolio by the end of the year. ACT labeling clearly details environmental impact of the product, empowering our customers to make sustainable choices and ultimately helping them achieve their own goals for environmental stewardship. Our 90,000 colleagues are also passionate about the difference they can make. And our local site-based community action counsels support a number of charitable and stem education activities throughout the year. We have amplified our -- supporting these efforts by investing in additional $15 million in our foundation for science. And we continue to support the historically black colleges and universities to deliver accurate COVID-19 testing to students and staff, helping to ensure campus safety and the ability to confidently deliver in-person learning. With that, I'd like to review our guidance at a high level, and then Stephen will take you through the details. As you saw on our press release, we're raising both our revenue and earnings guidance for the full year. This increase is a result of our strong Q3 operational performance in our base business. And the continued strength of our COVID-19 response revenue. We're raising our revenue guidance by $1.2 billion to $37.1 billion, which would result in 15% revenue growth over 2020. In terms of adjusted EPS, we're raising our guidance by a $1.30 to $23.37 per share, which represents 20% growth year-over-year. The 2022 guidance raise reflects the increased Outlook for the core business and adds to the very strong Outlook that we shared with you at our Investor Day. We're raising our 2022 full-year revenue guidance by $200 million to $40.5 billion, and increasing our 2022 adjusted EPS guidance by $0.20 to $21.36. To summarize our key takeaways from Q3, we executed very well to continue our growth momentum, and deliver excellent revenue in earnings performance. Our business is performing very well and we continue to play a leading role in the pandemic response. We continue to expand our trusted partner status with innovative new products and expanding capabilities to further enhance our customer value proposition. And our exceptional performance through the third quarter enabled us to raise our outlook for the year and sets us up for an even brighter future. With that, I will now hand the call over to our CFO, Stephen Williamson. Stephen. Stephen Williamson: Thanks, Marc. And good morning everyone. Before we get into the details of the quarter, I'd like to begin with a quick reminder about the definition of core business. This is a term we introduced at our recent Investor Day. Core includes our base business and the vaccines and therapies response revenue, and of course core will also include the PPD acquisition. So moving on to the details in Q3, it was another excellent quarter. Let me provide a high-level view of how the quarter played out versus our expectations at the time of our last earnings call in July. Yet the broad-based beat versus the prior guide. Revenue was $1.2 billion higher, driven by $900 million higher testing response revenue, $250 million higher core business revenue, and $50 million more favorable core-FX. On our last earnings call, our guidance de-risk testing response revenue and we said that if there were any additional opportunities to support customer's testing needs, we'd be ready to do so and flow the benefits through our P&L. That's exactly what we did in Q3, in total delivering $1.55 billion of testing response revenue in the quarter. We also had a great strength in the core business. In Q3, the base business organic growth was 10%, which is 3%, or $190 million higher than included in our prior guide. Also in the core, vaccines and therapies response revenue was $60 million higher than in that prior guide, and worth $510 million for the quarter. So excellent momentum on the top-line. Our PPI Business System enabled us to generate excellent pull-through on the very strong top-line performance. And at the same time, execute really well on that significant growth investments. And as a result, adjusted BPS in Q3 was a $1.30 higher than included in our prior guide. And the the components that's over achievement or a dollar from testing response revenue, $0.20 from the core business, and $0.10 from FX on the base business. Overall, another excellent quarter. Let me now provide some color on the Q3 performance. Beginning with our Q3 earnings results, as you saw on our press release, we grew adjusted EPS by 2% to GAAP EPS in the quarter with $4.79 down 1% from Q3 last year. On the top-line our Q3, reported revenue grew 9% year-over-year. The components of our Q3 reported revenue increased included 7% organic growth, a tailwind of 1% from foreign exchange, and 1% contribution from acquisitions. As I mentioned, the base business organic growth in the quarter was 10%. Change by our performance by geography during the quarter, North America was flat. Europe grew over 20% Asia-Pacific grew low double-digits. China grew in the low single-digits and rest of the world decline in the high single-digits. The organic growth rate by geo are skewed by the response revenue in the current and prior quarters, as well as the scale of the impact of the pandemic on the base business in the prior year. Since our operational performance, Q3 adjusted operating income decreased 1% and adjusted operating margin was 29.8%, 310 basis points lower than Q3 last year. In the quarter, our PPI Business System enabled us to deliver strong productivity, which has more than offset by unfavorable business mix, and the ongoing strategic investments across that businesses. Including investments in our colleagues, all of these are being made to support our near and long-term growth. Moving on to the details of the P&L, total Company adjusted gross margin in the quarter came in at 51.4%, 90 basis points lower than Q3 last year. The decrease in gross margin had similar drivers to those I've just mentioned for adjusted operating margin in the quarter. Adjusted SG&A in the quarter was 17.9% of revenue, an increase of 190 basis points versus Q3 of 2020. Total R&D expense was approximately $350 million representing growth of 19% versus Q3 2020. It reflects our ongoing investments in high-impact innovation to fuel future growth. Looking at our results below the line for the quarter and net interest expense with a $190 million $17 million lower than Q3 last year, largely due to lower average interest rate on our debt. Adjusted other income expense with net income in the quarter of $9 million, $7 million pile in Q3 2020, mainly due to changes in non-operating effect. But the tax rate in the quarter was 14.2%. Down a 150 basis points versus Q3 last year due to the benefits of our tax planning initiatives. Average diluted shares were 397 million in Q3, 2 million lower year-over-year, driven by the share repurchases net of option dilution. Turning to cash flow on the balance sheet, cash flow performance enabled by our PPI Business System continued to be very strong. Year-to-date cash flow from continuing operations was $6.9 billion, up 38% from the same period last year. Year-to-date free cash flow was $5.2 billion, up 27% from the same period last year. And that's after investing $1.7 billion of net capital expenditure. This reflects the strong returns we're generating in the short-term and investments we're making for the long-term. We returned over $100 million to shareholders through dividends in the quarter. This reflects some 18% dividend increase announced in February. And during the quarter we issued $3.1 billion in new debt as part of the prefinancing for the PPD acquisition. We ended Q3 with $12 billion in cash and $21.7 billion was the total debt. And leverage ratio at the end the quarter with 1.6 times gross debt to adjusted EBITDA and 0.7 times on a Net debt basis. Concluding my comments on total Company performance adjusted ROIC was 22.3%, up 740 basis points from Q3 last year, as we continue to generate exceptional returns. Now provide some color on the performance for that full business segments. Similar to last quarter's, I'll start with some spring thoughts on the impact of COVID-19 response in that segments. From a revenue standpoint, as was the case in the past quarters, the majority of our COVID-19 response revenue was recognized in life sciences solutions. With the remainder recognizing the public products and services, especially diagnostics. From a margin standpoint, the impact of COVID-19 differed across the segments based on the scale of the response revenue, and the different levels of profitability on that revenue. In addition, during the quarter, we continue to make strategic investments across all of our businesses. Besides, those investments does not necessarily align with the COVID-19 response revenue in these segments. That does skew some of the reported in the segment margin. Moving on to the segment details, starting with Life Sciences Solutions, Q3 reported revenue in this segment increased 9%, an organic growth was 4%. In the quarter, we delivered very strong growth in our bioproduction and biosciences businesses. Q3 adjusted operating income in Life Science Solutions decreased 3% and adjusted operating margin was 48.9%, down 600 basis points year-over-year. In the quarter, we saw a positive volume leverage, which is more than offset by strategic investments and unfavorable business mix. In the analytical instruments segment, reported revenue increased 11% in Q3, and organic growth with 9%. Growth in the segment this quarter was driven by the electromicroscopy and chromatography and mass spectrometry businesses. Q3 adjusted operating income in analytical instruments increased 54%, and adjusted margin was 17.8%, up 500 basis points year-over-year. During the quarter, we delivered very strong volume pull-through and productivity, which is partially offset by the strategic investments we're making across those segments. In respect to the diagnostics in Q3, reported revenue decreased by 5% and the segment declined organically by 5%. In the quarter, we saw a strong growth in our immunodiagnostics, clinical diagnostics, and transplant diagnostic businesses, which was offset by lower COVID-19 testing revenue versus the year-ago quarter. Adjusted operating income decreased 22% in the quarter and adjusted operating margin was 22.7%, down 520 basis points from the prior year. In Q3, in drug positive productivity enabled by our PPI Business System, this was more than offset by unfavorable volume mix and strategic investments in the quarter. Finally, in the products and services segment, Q3 reported revenue increased 12%, organic growth was 10%. In the quarter, we saw very strong growth in all of our businesses in this segment. Adjusted operating income in the segment increased 8% and adjusted operating margin was 11%, which is 40 basis points lower than the prior year. In the quarter, we drove good volume pull-through, and productivity by our PPI Business System, which was more than offset by strategic investments. With that, let me now turn to our updated guidance. As Marc mentioned, we're increasing full-year guidance for both 2021 and 2021. For 2021, we're banking the Q3 beat and maintaining our prior guidance assumptions for Q4. Then for 2022, we're carrying over the base business and vaccines and therapies beat from Q3 '21 into the 2022 full-year numbers. This is enabling a strong beat and raise for both years reflecting the continued excellent strength of the business. I will now provide you with more detailed starting with 2021. In terms of revenue, we're raising our full-year 21 guidance by $1.2 billion to $37.1 billion, an d increasing our full-year organic growth outlook from 9% to 12%. That includes an increase in the base business organic growth outlook for the full-year from 12% to 13% and an increase in the COVID-19 response revenue for the year from $6.7 billion to $7.7 billion, which represents $5.8 billion of testing response revenue, and $1.9 billion of vaccines and therapies response revenue. As I mentioned previously, there are no changes in the revenue assumptions in Q4 and our revised 2021 guidance. We're continuing the same de-risked approach to guidance for COVID-19 testing response revenue, and continue to assume $450 million of testing-related revenue in Q4. There continue to be a range of outcomes we're tapping in the fourth quarter and for 2022. There's scenarios where testing demand could be higher than that included in our guidance. Should that be the case, we will be well-positioned to support customer needs. And as we did in Q3, we will flow the benefits of that through our P&L. But for now, we thought it was prudent to continue to take a direct approach to the Outlook. And as a reminder, there are four fewer selling days in Q4 '21, compared to the same period last year. Incorporating our very strong Q3 performance into the revised '21 guidance, we now expect that adjusted operating margins for the full-year will be approximately 30.4%, 70 basis points higher than both our prior guide, and 2020. Then same to the adjusted EPS, by banking the Q3 beat, we are raising our full-year '21 adjusted EPS guidance by $1.30 to $23.37, which would result in 20% growth over 2020. The revised guidance seems an adjusted income tax rate of 14.3% in 2021, slightly higher than the prior guide to reflect the marginal tax rate on our increased profitability. The rest of the assumptions underlying that 2021 guidance remains the same. And to call out a few of those, we've not included any operational benefit in 2021 for the acquisition of PPD, which is assumed to close at the end of the year. We expect full-year net interest costs to be approximately $510 million. We're assuming net capital expenditures were approximately $2.5 to $2.7 billion and free cash flow of approximately $7 billion in 2021. Our guidance still includes $3.8 billion of capital deployment, which is $2 billion a share buybacks, $1.4 billion per completed M&A, and $400 million of the capital return to shareholders through dividends. Let me estimate the full-year average diluted share count will be 397 million shares. Now, moving on to the 2020 guidance rates. As I mentioned, we're carrying over the base business and vaccines and therapies peak from Q3 '21 into the 2022 full-year numbers. In terms of revenue, we're raising our full-year 2022 guidance by $200 million to $40.5 billion. That reflects a $250 million increase in core revenue, offset positive by $50 million less FX tailwind for the year. The guidance for 2022 continues to see in core organic growth of 8% and $750 million of testing response revenue for the year. In terms of the adjusted EPS, we're raising our full-year 2022 guidance by $0.20 to $21.36. As Marc mentioned, the 2022 guidance increase reflects the increased strength of our core business, adding to the already very strong outlook for 2022. As I shared with you at the recent Investor Day. So to conclude, we're delivering another ex -- we delivered another excellent quarter and are in great position to achieve both our '21 and 2022 goals. With that, I'll turn the call back over to Raf. Rafael Tejada: Thank you, Stephen. Operator, we're ready to take questions. Operator: Please stand by while we compile the Q& A roster. In order to allow everyone in queue an opportunity to address the Thermo Fisher management team, please limit your time on the call to one question and one follow-up. If you have additional questions, please return to the queue. Our first question comes from the line of Patrick Donnelly of Citi. Patrick Donnelly: Great. Thanks for taking the question, guys. Marc maybe one for you just on the guidance. Obviously encouraging to see you raise the '22 guidance going to flow-through the beat so soon after providing at the Analyst Day. Can you just talk about not bumping the 4Q number? Obviously, again, the core seemed a bit stronger in 3Q, the end-market recovery seems well on its way. I certainly understand keeping the testing conservative. But maybe just on the core business, what kept you guys from flowing through a bit of that strength into 4Q? Marc Casper: Patrick, thanks for the question. Good morning. Obviously, really outstanding Q3. When I think about the momentum in the core business in the fourth quarter, we obviously enter the fourth quarter with very strong performance. As I look at the outlook for Q4, first, we felt it was prudent to keep it at the same that we did last quarter. There's nothing particularly deep about that. We have -- or less selling days. So when you look at the base business results, it's very similar. It implies about 9% growth, about 5% reported, and about 4 points for the day. You see here about 9% growth. So very similar to what you saw in Q3. And when you look at the other part of core, which is the vaccine and therapy numbers, similar levels of revenue to what you saw in Q3 there. So we felt that was a prudent view. On the testing response, we kept the de-risk number. We're obviously going to shift whatever our customers need and if you think about how short the true visibility is for testing response, which is we de-risk ed at the end of July. And by the time we got into August, the Delta variant had creating huge demand for testing. So we feel that the 450 number is one that we have incredibly high likelihood of achieving and we'll obviously shift, meaning it could work. And that other customers need it. So that's how we've thought about. And for -- as we talked about 2022, we carried forward the core revenue beat into the year. And as we sit here at the end of January, when we give our full year, our final guidance for the year we'll look at what is the right level of assumptions and make adjustments as appropriate. Patrick Donnelly: That's helpful. Makes sense. And then maybe just a quick follow-up on China. Low single-digit growth that you got a lot of noise in the region there between the tender process, general macro headlines. Can you just expand a bit on what you guys are seeing there? Again, it's always hard to remove a little bit of the comp noise and COVID noise. So would love just your thoughts on China and what you're expecting on the go forward. Marc Casper: I think given the way your offset by over their questions for us explains what's going on, which is we had low single-digit growth. In the year-ago period, we had an incredibly strong COVID response revenue in China. So that drives there. When I look at bookings which gives you a sense of new orders, that grew about 10% in the quarter. So that activity was good. We have a strong backlog there and reviewing what's going on with our local team. No. Conditions actually continue to be good and the government's focused on some of the initiatives that will drive strong long-term growth. Focus on Biotech industry and food safety, those kinds of things. So I think China ultimately continues to be a nice, strong growth market for the Company going forward. Patrick Donnelly: Great. Thank you, Marc. Operator: Your next question comes from the line of Tycho Peterson of JPMorgan. Tycho Peterson: Hey, good morning. Marc, first question on supply-chain. I don't think anybody can -- it's a huge risk for you guys. You obviously can handle these things well, but maybe just give us some color on what's going on in the ground, like are you able to pass on higher resin costs? Are there component shortages in do you have to work down inventory? Just curious on some of the gives and takes around supply chain for you that's right now. Marc Casper: Tycho, good morning and thanks for the question. Yes, so supply chain, as you step back and almost start a level above. Thermo Fisher, then get to Thermo Fisher. Now the world is clearly experiencing supply chain disruptions. And it really as the pandemic is unwinding, we're all seeing that and the duration and the impact of that still to be determined, all right? And as I think about our Company, it's really the scale of advantages we have and the incredibly strong execution capabilities we have because of our PPI Business System, it's a real competitive advantage. All right, and we're well-positioned to navigate these environments better than the smaller or less capable companies. So that's how I think about it. As I think about Q3 there was no material impact in our results based on supply chain challenges. The areas that you see them, they're being managed with things like freight and logistics. Delivery times are a little bit slower. So you have things like that, that you have to manage through and electronic components, things of that sort. And we're managing through those things effectively. And I have high confidence in our team's ability to navigate it in a very well -- in a very strong way. And I think we will be talking about this in some fashion across the world and across specifically in diagnostics, probably into 2022. Tycho Peterson: Okay, that's helpful. And then a follow up on PPD. Last quarter, you talked about the second request from the FTC, and then you cut every CMA developments. I know you reiterated the timelines to close by year-end, but can you maybe just update us on how that process is going and was the CMA development expected in your view? Marc Casper: Yes. Tycho, in terms of PPD, it's going well and on track, so we're largely complete with the U.S. FTC process and we -- there's no surprises on the remaining couple of filings, including working with the UK government. So those are all we anticipated when we announced the transaction. So that's all progressing well, and we feel confident our ability to have the opportunity to welcome our new colleagues during the fourth quarter to Thermo Fisher Scientific. Tycho Peterson: Okay. Thank you. Marc Casper: You're welcome. Operator: The next question comes from the line of Jack Meehan of Nephron Research. Jack Meehan: Thank you. Good morning. Marc, give us an update on the durability of the investments that you've been making in testing. I want to stay conservative around the outlook for COVID, but just how are you feeling about the durability on the PCR side? Any updates you can provide around uptake at Mesa. And just a clarification. The M&A in the quarter, was that the contingent payment for Mesa? Stephen Williamson: Certainly M&A in the quarter. That's just continued revenue from Mesa. That business is performing well. Marc Casper: Yes. So in terms of the durability, embedded in our outlook, from a de-risked perspective for next year is $750 million of COVID testing related revenue, and we'll obviously refine that when we give our original we started, start the year and see what the world looks like. There's obviously certain aspects of our response on the testing side that will have some level of durability, but it's a relatively modest number compared to the billions of dollars of COVID-19, the PCR tests and sample prep that we provided. The areas that you would expect to have is going to be the increased installed base of QPCR instruments in sample prep instruments, which will get repurpose for other testing. We've obviously developed respiratory panels as well. So likely for the future you're going to see some level of people presenting with an upper respiratory infection and doctors will want to know whether it's COVID or flu or RSV. So you'll have some of that . And customer feedback on the Mesa Biotech technology. It's super positive. It's turned to a large customer, couple of days ago and they did a head-to-head versus some other technologies and basically said the users just love it and are excited about working on developing a broader menu overtime as well. So those are some of the things that will increase our share of business post COVID, or more endemic COVID phase. And that's business that we really didn't have pre -pandemic. So I think that's pretty cold, but relative to the billions of dollars of revenue it will be more modest number. Jack Meehan: Great. And then my second question is on Analytical instruments site, hate to nitpick small numbers as the compounded growth by my math step-down from like 4.5%, maybe 3% in the quarter. Just curious how the order book there is shaping up and can you give any color on what the guidance implies for the fourth quarter for that segment? Marc Casper: Yes. So Jack Kevin, you can nitpick anything you want. It's good to focus on the areas that aren't clear. So I actually want to step back and look at analytical instruments. Actually a very solid quarter, very strong performance in electron microscopy expected very well. We're super excited about ASMS, which is just upon us and exciting product launches are highlighted a few of them on the call with the TSQ quadrupole mass spectrometer. When we updated all 3 on our new UHPLC system. When you actually look and say you look at the details on the numbers, we saw softness in parts of chemical analysis, that's really what's in there. And you haven't seen the full recovery in some of the industrial end markets. You see great strength in things that are semiconductor materials, financial ladens that shows through across our businesses. But in some of the what I'll call historically core industry. You haven't seen a full recovery over the last couple of years. So that's what is kind of embedded in the numbers. Jack Meehan: Got it. Stephen, any color on 4Q for the segment? Stephen Williamson: Nice we've continued good performance at business and bookings growth strong in the quarter and outlook for Q4 and '22 look very positive. Jack Meehan: Thank you. Marc Casper: Thanks Jack. Operator: Your next question comes from the line of Derik De Bruin of Bank of America. Marc Casper: Hi Derik? Derik De Bruin: Hi, good morning. A couple of questions, so just taken a little bit follow up on Jack's question there. Any issues in shipping analytical instruments in the quarter and getting things installed means just getting into labs or logistics and remain around. I'm just wondering if 3Q is always a little bit with squarely quarter anyway, given seasonality. I just was wondering if the results with something compounded just in terms of not being able to ship some products, you get some things out the door, get some revenues recognized because of the current situations? Marc Casper: Nothing that jumps out at me is being significant, Derik. When I think about bookings were stronger and maybe shipping took a day or two longer or so, it could be some math in that but none of our teams talked about lab not ready shipping delays. No, nobody -- nobody used this is a discussion topic in our deeper reviews with the business. So is possibly, but nothing that jumped out as being material from that perspective. Bookings were strong, so I think that's -- that's encouraging for the upcoming few quarters. Derik De Bruin: Okay. And Marc, how are you thinking about wage inflation and -- and retention? And particularly this is relates to, as you think about PPD, I mean, obviously there's a big war for talent in the clinical research associate population, transitions between -- acquisitions of CRO's tend to create some volatility in terms of headcount. And I'm just thinking about you and your Biopharma services segment, how you're dealing with potential disruptions or trying to stem off some of the headwinds you could see there? Marc Casper: So when I think about our team, let's start with the Thermo Fisher Scientific team and make a brief comment about PPD. We have a terrific team. They have delivered these spectacular results for year-in-year-out, quarter-on-quarter out, including in very trying times of the pandemic and they make a difference. And we have done a really -- we've been really focused on ensuring that this is the best place to work. And we we've rewarded our teams. We talked last quarter about some of the additional compensation actions we've taken. We continue to do that. Recognize the strong performance. We've invested in our facilities, training, we are recognized for world-class development training. It's just things that we continue to focus on. And that really has allowed us to have very, very strong retention of our teams. PPD is a very well-run business with a great leadership team that's navigating the environment while the business is performing very well. There is no disruption to the integration. We're literally is lifting it as it is and running it as it is going forward. And over time, we're going to come up with some great new solutions that'll make a difference for customers, but this is a growth-oriented, customer-oriented, patients-benefit acquisition. The feedback that the PPD team that's getting on their colleagues is super positive and super excited and we're looking forward to the transition to our Company on the -- in the Fourth Quarter. Derik De Bruin: If I can squeeze one more in on China. How much of your portfolio is manufactured in China that would not be subjected to the buy -- or would be the sort of -- would be part of the buy-local sort of like push there. Just some idea on your manufacturing footprint there, and what we consider as being outside versus inside China? Marc Casper: We have very scale manufacturing facilities in China for China. And we also import a number of products into the market. And the way you can almost think about it is, if there is no local alternative for the products, you often see them imported into the country. If there is local alternatives, they often come from either our Chinese operations or other low cost regions around the world. That's the way to think about. It's a 100% accurate as I'm sure there's some things that have low for competition that could shift into the country, but that's the strategy at a high level and that is the . We're well-positioned to support our Chinese customers. And in areas where the Chinese customers really want high degree of supply chain assuredness, things like single-use technologies. We built a very scale facility in Suzhou to be able to meet those needs. Derik De Bruin: Thank you. Marc Casper: You're welcome. Operator: The next question comes from the line of Dan Arias of Stifel. Dan Arias: Morning, guys. Thanks for the questions. Marc, 2 questions for you, 1 on BioPharma and 1 on if I can, On BioPharma, I'm just curious what your expected for flash spending at the end of the year here. Obviously, plenty of nuances in that segment. So do you feel like it's more or less likely to be just sort of similar to what we've seen in non-pandemic years? Marc Casper: Yes.So Dan, good morning. In terms of pharma biotech, business performed really well. In terms of the growth that we are delivering with a 20% -- better than 20% growth in the quarter. What we're assuming -- this is the convention we use every year. We're assuming an average year-end spend across our customer base and we really don't get visibility until right after the thanksgiving holiday. So we use that convention and that's served us well. I think most years has been average or above average. There's 1 year that it was below average from our collection over the last number. That's how we think about it. Dan Arias: And then maybe on the NIH funding dynamic, which you've usually got a pretty decent line of sight into. As we head into next year, I'm just curious if you have a view on the budget and the way that it looks like it might be allocated just given that you have that core budget and that RPA age component, are you hearing anything about the RPA age funding and whether it would sort of just be accessible on the basic researchers. I mean, I don't want -- I don't feel -- I don't want to come out of left field with that one if that's what sounds like but it seems like that is a question in the academic world, and there really aren't too many people to ask about that so I'd figured, I'd throw it out there. Marc Casper: So, Dan, it's not clear yet and I think that ARFA (ph) age concept is a really important concept for the U.S., right? The way to think about it is you have defense spending, right? And defense spending prepares for all of the what could happen invest in different technologies to defend the country -H is the healthcare equivalent. It's investments and things to anticipate future challenges, as opposed to typically our researchers solving clearly known challenges that you have now. And so I think that the fact that we're going to longer-term funding that will prepare for the next pandemic or other future challenges. I think it's fantastic and will spurt great research. How that exactly it's going to be allocated, I haven't seen any available come out, but I haven't seen the details of how that's going to be done, and I know that the U.S. is not the only country that's talking about using vehicles like this. So I think this is one of the reasons that we're so excited about what the Scientific funding is going to be like going forward in our industry and we're incredibly well-positioned to serve that. Dan Arias: Okay, I appreciate that. Thanks, Marc. Marc Casper: You're welcome. Operator: Your next question comes from the line of Vijay Kumar for Evercore. Vijay Kumar: Hey guys, congrats on a nice and thanks for taking my question. Marc, maybe one on fiscal guidance rates here by a couple of 100 million, looks like the base came up by 250. I'm curious where the strength is coming from. Would you say that's coming from BioPharma across-the-board? Or what is driving that base improvement? Marc Casper: So, Vijay, good morning. Thanks for the question. As I thought about the 2022, we obviously saw strength across our Company in Q3 and -- in the core and we flowed that entirely into the next year. And obviously, very strong performance in pharmabiotech, so that's very encouraging and it is obviously a large driver of that, but we saw, we could -- still could perform actually across the different parts of our business. So I don't want to say it reflects the portfolio of activities that we have is the way you think about the strength with core. Vijay Kumar: And then just, I think to clarify that more, in the base now includes vaccine contribution, but this is -- I guess what you're saying is this across the board. This is not just vaccine outlook improvement, correct? Stephen Williamson: Just to clarify, so within the guidance rate for next year, it's basically up $250 million, which includes 190 from the base plus $60 million more vaccine therapies. The combination of all of that is 250 for the core and then slightly decreased because of FX, less tailwind. The strength of the base business and back-end therapy that's being carried forward into '22. Vijay Kumar: That's helpful, Steve, and then just one quick one on -- on the tax side. How should we think about any potential tax reform changes in impact to Thermo? Marc Casper: So the guidance we've given here, it doesn't assume any significant U.S tax reform or other tax reform across the world. And we continue to monitor the changing dynamics closely in DC and advocate for changing needs to happen with the right change happens with -- with but have unintended consequences for the aggression. Revenue raise is being paid for but let's make sure if that's being done in a logical way. Company have a competitive advantage in that tax position versus other well-run companies and we expect that competitive advantage to be continued forward through whatever changes potentially can happen. So that's the best way to think about tax for the Company. Vijay Kumar: Thank you, guys. Marc Casper: Thanks, Vijay. Operator: Your next question comes from the line of Dan Brennan of Dan Brennan: Great. Thanks for -- Thanks for taking the question, Marc. It's hard to find anything positive to shout out for the adjusted basis point. So the first question is just on bio -- is on bioproduction. So maybe I missed it in the prepared remarks. Can you just discuss what the base growth did this quarter. So x the COVID contribution and kind of what's implied in 4Q and 22 and any color on trends there. Marc Casper: Yeah. So Dan, thanks for the question. And in terms of the is painful for sure. In terms of bioproduction, exactly the opposite of that which is things that are extremely robust and doing very well. So when I think about the -- I'll give it at this the Biotech and pharmaceutical level. With a little bit over 20% growth in the quarter, you had a $510 million of vaccine and therapy revenue. We saw very strong growth, excluding the contribution from vaccines and therapies as well. When you look to the Outlook, while we don't guide obviously by segment, we would expect that from a Biotech that continues to be very strong and we're expecting a meaningful level of growth coming from that in 2022 as well. The end-market looks very robust. Scientific discoveries are very strong. Customer demand is good, and we're seeing strong interest in our clinical trials. Packaging and logistics capabilities, that bodes well. Especially, the cycle is very good and we're well-positioned to capitalize on. I think one of the things that maybe investors don't have a 100% understanding of, if you think about what the Company looks like upon close of PPD, we have about $20 billion of revenue serving pharmaceutical and biotech. But half of that is actually serving production. And when you think about that, that's the largest position serving the production market by far. And we obviously have very attractive positions in serving both clinical trials and the research activities as well. So we're well-positioned to deliver great growth into the future. Dan Brennan: Great thank you for that and then maybe just a high-level follow-up on at the Analyst Day. Obviously, the 7% - 9% growth outlook was stronger than expected. And I know at the time you discussed execution in LPN markets to support that outlook. We certainly feel the question from investors regarding Thermo typically has set a reasonably conservative bar and executed well against that. So just -- maybe just wondering is 7 - 9%, should we think about that similarly having any conservative advice and so can you help us think through any of the drivers or details of that guidance? Thanks Marc. Marc Casper: You made me smile, which is good. We haven't even gotten into the period yet, which we'll get there right in terms, we're still working on 2021 right now. But when I think about the philosophy around the 7 to 9 is the exact same philosophy that we had when we had the continued increase in growth over time at the Company. Which is you sign up for targets when you are able to do and you demonstrated you're delivering it and you have confidence in your ability to do that. And we have great confidence in our ability to deliver the 7% to 9% growth. We're not going to cap ourselves at the 7 to 9, right? So we're going to focus on delivering as much as we can and deliver great performance. And we'll look at the strength of our end-markets and what's our share gains look like and set the appropriate annual targets. But we felt that 7 to 9 was an appropriate number. One that we have a high degree of confidence in the ability to deliver and with the goal to work to the biggest possible number we can overtime. Dan Brennan: Thank you. Marc Casper: Welcome, Dan. Operator: Your next question comes from the line of Puneet Souda of Leerink. Puneet Souda: Thanks, Marc. Thanks for taking the question. First one, just a clarification. I know 5 to 11 year - olds vaccinations were voted positively by the panel yesterday. So just wondering if that's already contemplated into this guidance. I know that was a little bit later in the day, so likely not, but I just wanted to confirm. And also on the boosters what I wanted to confirm if that is also contemplated in the fourth quarter and increased for vaccines in 2022. Marc Casper: So, Puneet, when I think about how we've done our outlook on vaccine and therapy, it really is based on dialogue with our customers and orders that they have given us. Some of -- some 100% on work, and some are going to say we are going to give you the work on the paperwork and some of it is in the orders. So it's less about children or boosters are those things and actually what our customer you are saying, the activity that they want. But obviously things like vaccine mandates and booster shots and children adds to the durability of the demand for vaccines and therapies. We're largely operating with our capacity so you don't get short-term swings in the volumes based on new pronouncements or you get them over time. So that's how we thought about it. Puneet Souda: Great. Thanks. And the last question for me, is this some capacity expansion. Could you provide a view into the need for further capacity expansion in bioproduction at this point? You open the Switzerland site for biologics production, larger vessels, pipette tube production as well that's coming onboard, Keep facility expansions that have happened. So overall just wondering what you're hearing from the biotherapeutics customers overall. And from the C-suites there, in terms of the demand and your need to further expanded capacity at this point in the cycle of post-COVID. Marc Casper: In general, Puneet, we have, in-flight. The activities that we need to meet the anticipated demand. Obviously, we're going to complete a lot of these projects during the course of 2022. A little bit goes into 2023. But it's largely what we have started already. If there are specific opportunities that are part of our longer-term roadmap that makes a difference. You may see us evaluate them, but there's not a long list of those. We've been very aggressive to position ourselves to meet our customers future needs. And the commitments we've gotten and that puts us in a great spot. So, that's how we thought about. So let me -- Puneet Souda: Great thank you. Marc Casper: Wrap it up here and I want to thank everybody for participating and with a strong nine months behind us, we're in a great position to achieve another excellent year. As always, thank you for your support of Thermo Fisher Scientific and we look forward to updating you early in 2022. Thanks everyone. Operator: This concludes today's conference call. You may now disconnect.
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Thermo Fisher Scientific Inc. (NYSE:TMO) Reports Mixed Q3 Earnings

  • Thermo Fisher's EPS of $5.28 exceeded estimates but showed a year-over-year decline.
  • Revenue reached $10.6 billion, slightly missing the consensus estimate.
  • The company raised its annual profit forecast, indicating strong demand for its products and services.

Thermo Fisher Scientific Inc. (NYSE:TMO) is a prominent player in the medical instruments industry, known for its innovative tools and services in drug development. The company competes with other industry giants like Danaher. On October 23, 2024, Thermo Fisher reported its third-quarter earnings, showcasing a mixed financial performance.

Thermo Fisher's earnings per share (EPS) for the quarter were $5.28, exceeding the Zacks Consensus Estimate of $5.24 by 0.6%. However, this represents a 7.2% decline from the previous year. The adjusted EPS, which excludes expenses like asset amortization and restructuring costs, was higher than the GAAP EPS of $4.25, which saw a 3.8% year-over-year decrease.

The company's revenue for the quarter was $10.6 billion, slightly below the estimated $10.63 billion. This revenue figure marked a 0.2% increase from the previous year but fell short of the Zacks Consensus Estimate by 0.4%. Despite this, Thermo Fisher has a history of exceeding consensus revenue estimates in three of the past four quarters.

Following the earnings announcement, Thermo Fisher's stock saw a nearly 2% decline in pre-market trading. Despite this, the company remains optimistic, raising the lower end of its annual profit forecast for the third time this year. The new forecast ranges from $21.35 to $22.07 per share, reflecting strong demand for its products and services.

Thermo Fisher's financial metrics reveal a price-to-earnings (P/E) ratio of 35.45 and a price-to-sales ratio of 5.13. The company's enterprise value to sales ratio is 5.86, and its enterprise value to operating cash flow ratio is 27.28. With a debt-to-equity ratio of 0.72 and a current ratio of 1.63, Thermo Fisher demonstrates a balanced financial position.

Thermo Fisher Scientific Reports Better Than Expected Q1 Results

Thermo Fisher Scientific (NYSE:TMO) announced its first-quarter earnings and revenue that topped Wall Street forecasts. The company reported an adjusted earnings per share (EPS) of $5.11, which exceeded analyst expectations of $4.71. Its quarterly revenue also surpassed expectations, amounting to $10.34 billion compared to the projected $10.16 billion.

Although revenue saw a slight decline of 3% from the previous year's $10.71 billion, the adjusted EPS reflected a 2% increase from $5.03 reported in the first quarter of 2023. The company's GAAP diluted EPS also grew by 4% to $3.46 from $3.32.

CEO Marc N. Casper praised the strong financial results, crediting the success to the company's effective growth strategy and the PPI Business System. He emphasized Thermo Fisher's focus on customer success, robust commercial execution, and stringent operational discipline as crucial for its standout performance in 2024.

Thermo Fisher updated its full-year 2024 guidance, now expecting revenues to range between $42.3 billion and $43.3 billion, and adjusted EPS to be between $21.14 and $22.02. The projected midpoint for adjusted EPS, at $21.58, slightly surpasses the analyst consensus of $21.53, while the revenue guidance midpoint of $42.8 billion is marginally below the consensus estimate of $42.83 billion.