The paragraph is an introduction to the Thermo Fisher Scientific Third Quarter 2024 Conference Call. The call is being coordinated by Ezra and moderated by Rafael Tejada, Vice President of Investor Relations, with participants including Marc Casper, Chairman, President, and CEO, and Stephen Williamson, Senior VP and CFO. The call is webcast live and accessible on the Thermo Fisher website until November 6, 2024. A press release containing the third-quarter earnings is also available online. The introduction includes a Safe Harbor Statement, noting that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, with details available in the company's SEC filings. There is no obligation to update these statements in the future.

In the third quarter, the company reported strong financial performance with revenue of $10.6 billion and an adjusted operating income of $2.36 billion, equating to an adjusted operating margin of 22.3%. The adjusted earnings per share (EPS) was $5.28, leading the company to raise its EPS guidance. Despite a low-single-digit decline in the pharma and biotech sectors, primarily due to a reduction in vaccine and therapy revenue, there was a sequential improvement in growth for the third consecutive quarter. The performance was driven by the research and safety market channel and the clinical research business. Non-GAAP financial measures are reconciled to GAAP measures in the company's earnings release and on their website.

During the quarter, the company experienced low-single-digit growth in both the academic and government sectors, as well as the industrial and applied markets, driven by strong performance in the electron microscopy business. In diagnostics and healthcare, growth was flat due to the decline in COVID-19 testing-related revenue, but there was good growth in transplant diagnostics, immunodiagnostics, and healthcare channels. Underlying market conditions have been improving throughout the year. The company's growth strategy is built on high-impact innovation, customer trust, and a strong commercial engine. Notably, two innovative products, the Gibco CTS Detachable Dynabeads and the Thermo Scientific Orbitrap Astral Mass spectrometer, were recently recognized by the R&D 100 Awards for their significant advancements.

During recent customer interactions, feedback highlighted the importance of the company's ongoing innovation in advancing scientific research. This quarter, several high-impact products were launched, including the Thermo Scientific Iliad scanning transmission electron microscope and the Applied Biosystems MagMAX Sequential DNA/RNA kit. The Iliad microscope offers advanced material analysis down to the atomic level, featuring high-resolution spectroscopy and energy filtering, and received positive feedback at the European Microscopy Conference. The MagMAX kit enhances DNA/RNA isolation from blood cancer samples, aiding in cancer research, while the Invitrogen Vivofectamine Delivery Solutions facilitates nucleic acid delivery for developing new medicines. Additionally, updates were provided on the company's efforts to strengthen its trusted partner status with customers, as outlined during a recent Investor Day.

The paragraph highlights the company's strong customer relationships and successful growth strategy, which have led to significant commercial achievements. The author visited China to explore collaboration opportunities, emphasizing the company's readiness to seize market opportunities once the Chinese economy recovers. An example of advancing customer partnerships is the collaboration with the National Cancer Institute on a precision medicine trial using next-generation sequencing technology. Additionally, the company is broadening its capabilities to support current and future customer needs by expanding its pharmaceutical manufacturing facilities in Cincinnati and Bend.

The paragraph discusses the company's advancements and achievements in the recent quarter. It highlights the expansion of their global laboratory services network with a new lab in Sweden and the positive impact of their PPI business system on profitability and cash flow. Enhancements made in supply chain optimization in Asia-Pacific and manufacturing processes in Europe are noted. The company emphasizes its commitment to corporate social responsibility (CSR), focusing on creating a positive environment for employees and supporting communities. The safety of employees, especially those affected by Hurricane Helene in Asheville, North Carolina, is emphasized as a top priority.

The paragraph expresses gratitude for team support during a crisis and highlights the company's successful capital deployment strategy through strategic acquisitions and shareholder returns. It discusses the strong performance of their protein diagnostics business, emphasizing an important European regulatory extension for their product, allowing use in diagnosing neurological diseases. The integration of Olink is progressing well, contributing to the company's promising future in proteomics research. Due to strong third-quarter results, the company is raising its adjusted EPS guidance and maintains revenue expectations.

The paragraph highlights the company's strong performance and growth in 2024, including increasing adjusted EPS guidance. Stephen Williamson, the CFO, reviews the third quarter results, noting both organic and core organic revenue growth for the third consecutive quarter. The company's revenue met expectations, and adjusted EPS exceeded previous guidance by $0.06 due to strong operational performance and favorable interest costs, despite some FX headwinds. Free cash flow generation is up 22% year-to-date compared to the previous year. Overall, the company is well-positioned for differentiated financial performance in 2024.

In the reported quarter, adjusted earnings per share (EPS) were $5.28, while GAAP EPS stood at $4.25. Revenue remained flat compared to the previous year, with $100 million from pandemic-related sources, creating a 3% headwind to organic revenue growth. Geographically, North America saw a slight decline, and other regions remained flat. The company achieved $2.36 billion in adjusted operating income with a 22.3% operating margin, slightly below the previous year's figure. The adjusted gross margin was 41.8%, slightly down from last year. Adjusted SG&A expenses accounted for 16.2% of revenue, and R&D expenses were $346 million, or 7.3% of manufacturing revenue. Net interest expense was $80 million, reduced by $33 million from the previous year due to increased cash and investments. The adjusted tax rate was 10.5%, and average diluted shares decreased by $4 million year-over-year. Year-to-date free cash flow from operations was $5.4 billion.

In the reported period, the company generated $4.5 billion in year-to-date free cash flow, investing $880 million in net capital expenditures and $3.1 billion in acquiring Olink. The quarter ended with $6.6 billion in cash and short-term investments against $35.3 billion in total debt, reflecting a leverage ratio of 3.3 times debt-to-adjusted EBITDA. The adjusted ROIC was 11.4%. The Life Sciences Solutions segment saw a 2% drop in reported revenue and a 4% drop in organic revenue due to pandemic impacts, and a 3% decrease in adjusted operating income with a margin of 35.4%. The Analytical Instruments segment reported a 3% increase in revenue, but a 4% decrease in adjusted operating income and a margin decline to 24.9%. Specialty Diagnostics experienced a 4% growth in both reported and organic revenue, driven by the healthcare, immunodiagnostics, and transplant diagnostics sectors.

In Q3, the Specialty Diagnostics segment saw a 3% increase in adjusted operating income, with an adjusted operating margin slightly lower than the previous year. The Laboratory Products and Biopharma Services segment experienced flat revenue, with growth driven by the research and safety market channel, though vaccine and therapies revenue decline impacted growth. Strong productivity was reported, but strategic investments offset gains. Despite an 18% decline in adjusted operating income for this segment, financial guidance for 2024 has been raised, expecting adjusted EPS between $21.35 and $22.07, with revenue guidance remaining between $42.4 billion and $43.3 billion. The company anticipates low single-digit market declines but is leveraging its growth strategy to gain market share. Adjusted operating income margin is expected to be between 22.5% and 22.8%, with net interest costs projected at $340 million to $380 million.

The company experienced a strong quarter, leading to an increased annual guidance outlook. For 2024, they're maintaining their previous assumptions, expecting nearly $100 million in testing revenue and $300-$400 million in vaccines and therapies revenue. This signifies a year-over-year revenue decline of $1.3-$1.4 billion, or 3%. They project a 10.5% adjusted income tax rate, with $1.3-$1.5 billion in net capital expenditures and $6.5-$7 billion in free cash flow. They completed $3 billion in share buybacks and spent $600 million on dividends. They also acquired Olink for $3.1 billion. The average diluted share count is about 383 million. For the year, they anticipate a Q4 revenue of $11.3 billion, with a 2.5% organic revenue growth, unchanged from prior guidance. Q4 benefits from two extra selling days (adding 1% growth) and faces a 2.5% revenue headwind from vaccines and therapies. Overall, the company is set to deliver strong performance into 2024.

In the Q&A session, Michael Ryskin from Bank of America asked Marc Casper about the market's gradual recovery and its future trajectory. Marc acknowledged the slow but steady improvement in market conditions throughout the year and indicated that this trend is expected to continue into the next quarter and into 2025. He emphasized that the third quarter met expectations with organic growth stabilizing, despite a three-point downturn due to declining COVID-19-related revenues. Overall, Marc noted that organic growth has improved each quarter as anticipated.

The paragraph expresses optimism about returning to organic growth in the fourth quarter and confidence in the company's growth strategy and financial management. The speaker is looking forward to 2025 and plans to provide guidance during the Q4 2024 call in January, using the latest market and macroeconomic insights. While pandemic-related challenges will persist into 2025, their impact is expected to diminish. The speaker highlights the company's strong execution, disciplined capital deployment, and successful acquisitions, positioning it for differentiated performance in 2025. An update will be provided in January once there's a clearer view of the business environment.

The paragraph discusses the performance of the pharma and biotech customer segment, highlighting a low-single-digit decline influenced by the COVID-19 runoff. Marc Casper notes a sequential improvement in the third quarter, despite a mid-single-digit headwind from the pandemic. Confidence and funding in biotech have been modestly increasing, making conditions better than in 2023. Large pharma companies are experiencing varied performance, with some doing well and others adjusting to pipeline challenges and the IRA impacts. Overall, the growth environment is muted, but the company remains well-positioned and continues to deliver differentiated performance.

The paragraph is part of a discussion in a conference call where Rachel Vatnsdal from JPMorgan asks about the performance of PPD, a Contract Research Organization (CRO) under Thermo, specifically in terms of its business divided between large pharma customers versus biotech, and the sector's recovery outlook for 2025. Marc Casper from Thermo responds by expressing confidence in their clinical research business despite challenges from declining vaccine and therapy-related activities. He mentions the positive growth in the recent quarter and plans to highlight the added value from the integration of their pharma services and clinical research business to customers in the upcoming quarter.

In the article's paragraph 17, the speaker discusses the company's momentum with its customer base, emphasizing a stronger position in serving biotech companies compared to pharma in clinical research. Biotech clients are adopting integrated capabilities more readily due to organizational efficiencies. The speaker addresses future growth rates, indicating that specific business unit performance won't be detailed until guidance is provided next year. Rachel Vatnsdal inquires about a slower than expected growth in the Life Sciences Solutions segment, despite peers reporting solid trends. Marc Casper responds, clarifying that the business's performance aligned with company expectations, although it may differ from analyst projections.

In the third quarter, the company faced its largest impact from the COVID roll-off, which was anticipated and aligned with expectations. This quarter was the most challenging for COVID-related activities, affecting modeling differences. However, the bioproduction segment performed as expected, with strong order momentum both sequentially and year-over-year, and revenue growth progressing positively. This improvement indicates that bioproduction will face fewer challenges going forward. The Life Sciences Solutions (LSS) segment, though smaller, is performing well, particularly in clinical sequencing, which has seen positive developments like collaborations with the National Cancer Institute and a companion diagnostic approval for brain cancer. The company's technology is significantly impacting patient treatment. The paragraph concludes with a transition to Jack Meehan from Nephron Research asking about the details of the quarter's month-by-month dynamics as core organic growth was flat.

The paragraph discusses a financial performance review, where the company’s growth for the quarter largely met expectations, despite the Street anticipating a slightly higher growth of 1%. There was some underperformance in the academic and government sectors towards the end of the quarter, though not significantly affecting the overall results. Stephen Williamson mentions that the guidance range remains broad, advising to focus on the midpoint for predictions. The major variability factor for the next quarter is expected to be the level of year-end spending by customers.

In the paragraph, Doug Schenkel from Wolfe Research asks Marc Casper about the performance of their portfolio nine months into the year, seeking insight into which areas are performing above or below expectations and whether any trends might persist into 2025. Marc Casper responds that the year has unfolded as anticipated, with revenue for the first quarter slightly exceeding expectations and the next two quarters closely aligning with projections. He mentions two areas of potential variability discussed earlier in the year: biotech funding and the situation in China, but overall, there are no major deviations from their original expectations.

The biotech industry is showing positive signs of progress with improved funding and confidence. Although there's a delay in seeing the full impact of this funding, market conditions appear promising compared to previous years. In contrast, China's economic activity remains subdued, but recent government stimulus programs targeting equipment and loans are expected to benefit the industry from 2025 onward. Additional measures to enhance economic and consumer confidence have been announced but have yet to show a significant impact. Within the business, there is strong adoption of high-end technologies and analytics despite the overall industry's decline this year, attributed to strategic R&D reinvestment during the pandemic.

In the paragraph, Doug Schenkel and Stephen Williamson discuss the financial outlook of their company. Despite challenging revenue growth from 2022 to 2024, the company has maintained stable operating margins. As growth is expected to improve, Schenkel wonders if there will be significant margin expansion due to strong operating discipline. Williamson responds by outlining their long-term financial goals of 7% to 9% top-line growth and 40 to 50 basis points of margin expansion. He suggests that with cost control and potential volume recovery in certain business areas, there might be incremental benefits and possibly higher margins in the near term. Williamson mentions that the company's detailed guidance for the upcoming year will be provided in January.

The paragraph features a discussion between Tycho Peterson and company executives Marc Casper and Stephen Williamson regarding business performance. Tycho Peterson inquires about drivers in their LPS (laboratory products and services) sector, mentioning market channels and share gains for Fisher. Stephen Williamson responds, explaining that the underlying growth in pharma services and clinical research offsets pandemic-related challenges, resulting in neutral organic growth but with a strong underlying performance. Marc Casper adds that both the healthcare and research and safety market channels are performing well and acquiring new customers, suggesting positive prospects for the future. Overall, their businesses are experiencing good growth and customer wins.

In the paragraph, Tycho Peterson and Marc Casper discuss the company's financial performance and strategic decisions. Despite large wins in the channel, the immediate quarter's revenue didn't reflect these, but they anticipate positive impacts in future quarters. Stephen Williamson comments on the company's pricing strategy, noting that prices increased by just over 1% in the current quarter, which is above their usual 0.5% to 1% range, indicating a return to normal pricing dynamics after previous inflation-driven increases. Marc Casper mentions that the company is expanding its pharma services business, especially in sterile fill/finish capacity, with new lines expected to launch in 2025 and 2026 to meet customer demand. They also consider the potential impact of capacity expansions by competitors like Catalent, Novo, and Wuxi on their operations.

The paragraph discusses the short-term pressure on margins due to costs associated with training and qualifying facilities, but predicts increased capacity utilization by 2025, particularly in sterile fill/finish operations. It mentions capacity expansions in Bend, Oregon, and Cincinnati, Ohio, to meet demand in oral solid dose drug development. The conversation shifts to the analytical instruments segment, where despite challenging conditions, there has been consistent growth, driven by innovations like Iliad, Astral, and electron microscopy. Marc Casper highlights a 3% organic growth in the quarter, emphasizing the importance of innovation in sustaining momentum.

The paragraph discusses the recent launch of Stellar and Innuvion, highlighting strong early interest and demand, particularly in chromatography technology. Despite this innovation success, the overall market for routine capital equipment in instruments remains subdued, with a key challenge being the demand from China. Stephen Williamson addresses a question about the expected increase in operating margins for Q4, explaining it as a result of revenue growth and seasonal revenue patterns, with an anticipated 50 basis points increase year-over-year.

The paragraph is a portion of a Q&A session in which Dan Brennan from TD Cowen asks about the discrepancy between the positive R&D growth trends in the pharma sector and the weaker revenue growth seen by the company. Stephen Williamson mentions significant customer investments in AI, particularly in technology rather than medical instruments, as a factor. Marc Casper adds that while there's excitement about the pipeline, challenges like headwinds in bioproduction and the pandemic's impact on clinical research and pharma services are affecting overall industry growth.

The paragraph discusses the excitement in the medical field, particularly regarding developments in GLP-1s and neurological diseases, and how this optimism is reflected in increased R&D investment, signaling promising long-term prospects for the industry. Dan Brennan inquires about the impact of potential Chinese stimulus on instrument spending, noting a current slowdown. Marc Casper responds that while there's significant interest in applying for funding and optimism about future investments, he anticipates that any significant impact from Chinese stimulus will primarily occur in 2025, with possible minor effects in Q4.

The paragraph discusses the positive outcomes of a trip to China, highlighting Thermo Fisher Scientific's strong position in the country due to long-standing relationships with customers and the government. The company has a 40-year presence in China, aiding past crises and the pandemic, and is well-placed to help improve public health with its technology as the economy recovers. The statement concludes by expressing satisfaction with a strong financial quarter and optimism about delivering value in 2024. The company looks forward to sharing further performance updates in an upcoming call.

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