The operator introduces the Thermo Fisher Scientific 2023 Third Quarter Conference Call and introduces the moderator, Rafael Tejada. The call will be webcast and archived, and a copy of the press release is available on the company's website. The safe harbor statement is briefly covered, and it is stated that actual results may differ from forward-looking statements. The company's most recent annual report and subsequent quarterly reports are available on the website, and the company may update forward-looking statements in the future.

The speaker, Marc Casper, is recapping the company's financial performance for the third quarter and providing context on the current market environment. The company's revenue was $10.57 billion, with an 8% increase in adjusted operating income and a 200 basis point expansion in adjusted operating margin. However, the market environment has become more challenging, with cautious customer spending and low economic activity in China leading to a slightly negative core market growth for the year. Despite this, the company expects to continue growing faster than the market and gaining share in 2023.

In light of current economic conditions and increased FX headwinds, the company has adjusted its revenue and EPS guidance for 2023. The long-term outlook for the industry remains positive, with the company's growth strategy and PPI Business System helping to navigate dynamic times and strengthen their competitive position. Q3 revenue performance was impacted by the expected decline in COVID-19 vaccine and therapy revenue, but growth was still seen in the pharma services and academic and government segments. Industrial and applied saw flat growth, while diagnostics and healthcare revenue was lower than the previous year.

The company saw good growth in its immunodiagnostics, microbiology, and transplant diagnostics businesses. They have a three-pillar strategy consisting of high-impact innovation, trusted partner status with customers, and a strong commercial engine. They launched several new products in the quarter, including the Thermo Scientific Astral, EXENT Solution, Gibco CTS Detachable Dynabeads, and Thermo Scientific Hydro Bio Plasma focused ion beam. Time Magazine also recognized their preeclampsia test as one of the best inventions of 2023.

The company has developed an immunoassay to aid in the management of preeclampsia and has received FDA breakthrough designation and clearance. They have a strong relationship with their customers and have expanded their capabilities in biologics drug substance manufacturing and clinical research. The company's PPI Business System and mission-driven culture have led to strong operating margin expansion in the quarter.

The company has successfully executed their capital deployment strategy through strategic acquisitions and returning capital to shareholders. They have recently acquired CorEvitas, a provider of real-world evidence for medical treatments, and Olink, a company specializing in proteomics. These acquisitions are expected to bring significant revenue synergies and cost efficiencies for the company and drive mid-teens revenue growth in the future.

Thermo Fisher Scientific has had an active year of M&A in 2023, with plans to close a major transaction in mid-2024. The company has also made progress in their environmental, social, and governance initiatives, including a collaboration to improve diversity in clinical trials and surpassing their goal to reduce greenhouse gas emissions by 2030. Overall, the company has delivered a strong operating performance in the third quarter and is focused on maintaining short-term success while strengthening their long-term competitive position.

In the third quarter, the life sciences industry showed promising long-term potential despite current challenges. The company delivered $10.6 billion in revenue, with 1% organic growth and 200 basis points of operating margin expansion. Adjusted EPS was $5.69, a 12% increase from the previous year. North America declined mid-single digits, Europe and Asia-Pacific showed low single-digit growth, and China declined in the high single-digits. Adjusted operating income increased 8% and operating margin was 24.2%, 200 basis points higher than the previous year.

In the quarter, the company had strong productivity and good price realization, but also faced lower pandemic-related revenue, strategic investments, and FX. The productivity was attributed to the PPI Business System, which helped manage costs. Gross margin and adjusted SG&A improved, while R&D expenses remained high. Net interest expense and adjusted tax rate were similar to last year, and average diluted shares were lower due to share repurchases. Cash flow and free cash flow were strong, and the company made a significant acquisition. The company ended the quarter with a healthy balance of cash and debt, and had a strong adjusted ROIC of 12%.

The performance of the four business segments was affected by the pandemic-related revenue, which was higher in the previous year. Despite this, the company was able to maintain strong pricing and address inflation. In the Life Sciences Solutions segment, there was a decline in reported and organic revenue, but the adjusted operating margin increased due to productivity and favorable FX. The Analytical Instruments segment saw strong growth, particularly in the electron microscopy business, and the Specialty Diagnostics segment had a slight increase in reported revenue but a decrease in organic revenue due to lower pandemic-related revenue.

In the third quarter, Specialty Diagnostics saw a 29% increase in adjusted operating income and a 26.1% adjusted operating margin, driven by favorable volume mix and productivity. Laboratory Products and Biopharma Services also saw growth, with a 3% increase in reported revenue and a 1% increase in organic growth. However, the overall macroeconomic environment has led to a revision of full-year guidance, with an estimated revenue of $42.7 billion and core organic growth of just under 1%. This is $850 million lower than the previous outlook, with factors such as increased FX headwinds and weaker economic conditions in China contributing to the change.

The company expects a slightly negative growth for the year due to challenging market conditions, but is confident in their ability to deliver differentiated core organic revenue growth. They also expect a lower adjusted operating margin and adjusted EPS due to factors such as FX and changes in core revenue. The company also provides details on their 2023 guidance, including assumptions for testing revenue, vaccines and therapies-related revenue, and FX impact. The recent acquisitions are expected to contribute to reported revenue growth for the year.

In 2023, the company expects a slight increase in net interest expense due to the acquisition of CorEvitas. The adjusted tax rate is expected to be 10% and net capital expenditures are estimated to be between $1.3 billion and $1.5 billion. Free cash flow is projected to be between $6.7 billion and $6.9 billion. The company plans to return $540 million of capital to shareholders through dividends. In 2024, the company expects similar core organic revenue growth as in 2023, with a more challenging first half and moderate growth in the second half. The pandemic-related revenues are expected to be around $300 million, which will be a headwind of 3% of revenue. M&A is expected to increase revenue by $175 million, including the acquisition of Olink and CorEvitas.

The company expects FX rates to be a headwind to revenue in 2024, resulting in similar revenue and adjusted operating income compared to 2023. The company will use the PPI Business System to manage costs and make strategic investments to maintain industry leadership. Strong productivity and cost controls are expected to offset the impact of pandemic revenue, inflation, and incentive compensation. The company plans to continue its buyback program and expects a slight increase in the tax rate, resulting in an adjusted EPS of $21.75 for 2024. If market conditions improve, the company's growth strategy and execution capabilities could lead to upside benefits. Formal guidance for 2024 will be provided on the next earnings call, taking into account insights from 2023 and macro conditions.

The company has performed well and is in a strong position to take advantage of future opportunities in the market. They have raised their long-term target to 7% to 9% based on their consistent outperformance in the market. The underlying growth rate of 4% to 6% is not in question, and the company expects to continue delivering superior organic growth.

The speaker believes that the long-term market growth for the industry is 4% to 6%, despite recent challenges. They believe that the unmet healthcare needs and other drivers will continue to drive growth in the future. Customers are generally optimistic about the future, but there is some caution in the short term due to funding concerns. The speaker does not think the long-term interest rate will have a significant impact.

The speaker discusses the funding and return profiles for biotech investments and how they will moderate in the long term. They also address the end-market weakness in the biopharma industry, specifically in China, and the factors driving this weak growth, such as pre-commercial biotech. They mention that their outlook for 2024 is based on an early view and not their finalized operating plan.

The company utilized their extensive experience in the industry to predict the market conditions in 2024. They expect a decline in COVID-related revenue, leaving a base business growth of over 3%. They also considered factors such as customer caution and comparisons to previous years. Overall, they predict that their core number will be similar to the following year.

Marc Casper, CEO of Thermo Fisher Scientific, discussed the company's financial performance and outlook for 2024 in a recent analyst call. He mentioned that there is a disconnect between the numbers for 2024 that are currently being circulated and the company's own projections, and that more detailed guidance will be given in January or February. When asked about the biopharma segment, Casper stated that revenue in the third quarter was similar to the previous quarter, with a decline of 1%. He also noted that customer caution has increased, particularly in the biotech and pharma industries.

The speaker discusses the impact of COVID-19 on their bioprocessing and biopharma services business. They mention that orders did not stabilize in the third quarter as expected and that this will affect revenue in the fourth quarter. They also mention that Pfizer and Moderna, two of their big customers, have announced R&D cuts and question if there were any vaccine revenues or take or pays in the business. The speaker then gives an overview of the PPD acquisition, which has been successful and has a promising future.

PPD has been successful in growing its core business and supporting clinical trials for vaccines and therapies, making it a highly respected company in the industry. However, this portion of the business is expected to decline, which has been a headwind for core organic growth. This decline is factored into their guidance and is a result of customer caution in the pharmaceutical and biotech industry. The company expects a $600 million decline in revenue for vaccines and therapies in 2023, which will be offset by $300 million in pandemic-related revenue from clinical research, take or pay contracts, and testing.

Casper stated that the long-term growth expectation for the core PPD business is high-single-digits plus the benefit of synergies. He also mentioned that the growth rate may step down from 20% and then bounce back up due to the COVID-19 run-off. When asked about China, Casper stated that growth in the region may be reasonable in 2024, but the year will be more back-half weighted due to market dynamics. He did not provide specific numbers, but noted that the step-up in growth will be driven by both easier comps and an expected rebound in the market.

Marc Casper, CEO of Thermo Fisher Scientific, recently visited China and came away with a positive outlook for the long term. He met with senior members of the Chinese government and saw a focus on creating a better environment for foreign investment. However, the short-term economy is challenging and this has impacted the company's results. They expect the second half of the year to be more favorable as they lap some difficult comparables. The company will provide a more detailed outlook in early 2024.

Rachel Vatnsdal asks a question about instrumentation growth in China and the rest of the world, and how it will affect the company's outlook for next year. Marc Casper highlights the company's strong performance in Analytical Instruments, specifically in electron microscopy and the launch of their new mass spectrometer. He also mentions that the company's guidance for this year and next reflects customer caution and supply chain disruptions due to the pandemic. Stephen Williamson adds that the weakness in China seen in Q3 will have a larger impact on revenue in Q4 due to a lag in bookings. Puneet Souda then asks a question about M&A.

The speaker discusses the current M&A environment and the types of deals being pursued, including recent acquisitions of Olink, Binding Site, and CorEvitas. They mention the criteria used for M&A and the opportunities available in the market. They also highlight the potential of Olink, a leader in a well-adopted business with global commercialization potential.

The operating margin for the lab products and biopharma services business unit was at its highest point in the past, driven by productivity and mix. Sales of low margin consumables may have been down, but the company remains optimistic about the future.

In response to a question about the productivity gains and margin dynamics in a particular segment, Stephen Williamson explains that the mix of challenging environments and customer caution impacts the business. He also mentions that the company has been rightsizing the cost base and spending wisely. In regards to the 2024 outlook, Marc Casper addresses the potential impact of inventory burn-down in the bioproduction market, stating that it is difficult to predict when it will conclude.

The speaker believes that in 2024, orders will match revenue and there will be no need to talk about reducing inventory. They are confident in their company's performance and thank the listeners for their support. The conference call is now over.

This summary was generated with AI and may contain some inaccuracies.