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 Investor section of our website thermofisher.com, under the heading News, Events, and Presentations until August 7, 2024. A copy of the press release of our second quarter 2024 earnings is available in the investor 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 and Livigation 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 report on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any 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 second quarter 2024 earnings and also in the investor section of our website under the heading financials. So with that I'll now turn the call over to Marc.

Stephen Williamson:

Thanks, Mark and good morning, everyone. I'll take you through an overview of our second quarter results for the total company, then provide color on our four business segments. And I'll conclude by providing our updated 2024 guidance. Before I get into the details of our financial performance, let me provide you with a high level view on how the second quarter played out versus our expectations at the time of our last earnings call. As Mark mentioned in the quarter, market conditions were as we'd expected, yet another quarter of excellent execution, and this enabled us to deliver Q2 financials ahead of what we'd assumed in our prior guidance. Starting with the top line, core organic revenue growth was a little over 0.5 percentage point ahead of what we'd assumed in the prior guide for Q2. That translates to approximately $60 million of revenue, which is partially offset by slightly higher FX revenue headwind. Turning to the bottom line, adjusted EPS was $0.25 ahead of what we'd assumed in the prior guide for Q2. $0.08 was from strong operational performance; $0.06 cents was from favorable effects and timing of discrete tax planning benefits within the year; and $0.11 was from the beat -- was from lower net interest expense. In my prior guidance I took a prudent approach to the Olink transaction from a financing cost standpoint. We're also executing well on free cash flow generation. The year-to-date free cash flow is 68% higher than the same period last year. So we're continuing to deliver strong performance and we're well positioned at the halfway point of the year. Let me now provide you with some additional details on Q2. Beginning with the earnings per share. In the quarter adjusted EPS grew by 4% to $5.37. GAAP EPS in the quarter was $4.04, up 15% from Q2 last year. On the top line, in Q2 reported revenue was 1% lower year-over-year. The components of our Q2 report of revenue change included 1% lower organic revenue, a 1% headwind from foreign exchange, and a slight contribution from acquisitions. We delivered another strong sequential improvement in core organic revenue growth this quarter. And in Q2, core organic revenue growth rounded up to flat on a year-over-year basis. In the quarter, pandemic-related revenue was approximately $115 million, this was mainly from vaccines and therapies. This represents a 3% headwind to organic revenue growth. Turning to our organic revenue performance by geography, in Q2 North America declined mid-single-digits, Europe grew low-single-digits, and Asia Pacific grew mid-single-digits, which includes China, which also grew mid-single-digits. With respect to our operational performance, we delivered $2.3 billion of adjusted operating income in the quarter, and adjusted operating margin was 22.3%, 10 basis points higher than Q2 last year and 30 basis points higher than Q1 2024. Total company adjusted gross margin in the quarter came in at 42.1%, 110 basis points higher than Q2 last year. In the quarter, we continue to deliver very strong productivity, reflecting our continued focus on cost management, as well as the carryover benefit from the cost actions put in place last year. This enabled us to more than offset the impact of low volumes, while appropriately funding investments to further advance our industry leadership. Moving on to the details of P&L, adjusted SG&A in the quarter was 16.6% of revenue. Total R&D expense was $340 million in Q2, reflecting our ongoing investments in high impact innovation. R&D as a percent of our manufacturing revenue was 7.1% in the quarter. Looking at results below the line, our Q2 net interest expense was $59 million, which is $89 million lower than Q2 2023, due to higher cash and investment balances. Our adjusted tax rate in the quarter was 10%. And average diluted shares were 383 million in Q2, approximately 5 million lower year-over-year, driven by share repurchases net of option dilution. Turning to free cash flow and the balance sheet, year-to-date cash flow from operations was $3.2 billion. Year-to-date free cash flow was $2.6 billion after investing $630 million of net capital expenditures. We enter the quarter with $8.8 billion in cash and short-term investments and $35.4 billion of total debt. Our leverage ratio at the end of the quarter was 3.3 times gross debt to adjusted EBITDA and 2.5 times on a net debt basis. Including my comments on our total company performance suggested ROIC was 11.8%, reflecting the strong returns on investment that we're generating across the company. Now provide some color on our performance of our four business segments, starting with life sciences solutions. Q2 reported revenue in the segment declined 4% and organic revenue was 3% lower than the prior year quarter. Growth in this segment was led by a biosciences business that was more than offset by the impact of the pandemic. Q2 adjusted operating income for life science solutions increased 6% and adjusted operating margin was 36.7%, up 350 basis points versus the prior year quarter. During Q2, we delivered exceptionally strong productivity, which was partially upset by unfavorable volume pull through. The team continued to do an excellent job to appropriately manage the cost base and deal with the unwind of the pandemic. In the analytical instrument segment, reported revenue grew 2% and organic growth was 3% higher than the prior year quarter. We continue to deliver a very strong growth in our electron microscopy business. In this segment, Q2 adjusted operating income increased 1% and adjusted operating margin was 24.6%, 10 basis points lower year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable mix and strategic investments. Turning to specialty diagnostics, in Q2 both reported and organic revenue were 1% higher than the prior year quarter. In Q2, we continued to see strong underlying growth in the core, led by our transplant diagnostics and immunodiagnostic businesses, as well as in our healthcare market channel. Q2 adjusted operating income for specialty diagnostics increased 1% and adjusted operating margin was 26.7%, which was flat, compared to Q2 2023. During the quarter, we delivered good productivity, which was offset by strategic investment. And finally, in the Laboratory Products and Biopharma Services segment, both reported revenue and organic growth decreased 1% in Q2 versus the prior year quarter. This is driven by the runoff of vaccines and therapies revenue. Growth in this segment in Q2 was led by a clinical research business. Q2 adjusted operating income declined 10% and adjusted operating margin was 12.9%, which is 120 basis points lower than Q2 2023, flat sequentially to Q1 2024. In the quarter, we delivered strong productivity, which is more than offset by unfavorable volume mix and strategic investments. Turning now to guidance, as Mark outlined, given our strong performance in Q2, we're raising our 2024 full-year guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion, and adjusted EPS to be in the range of $21.29 to $22.07. The improved revenue guidance does not change the core organic revenue growth rounding for the year, so we still continue to assume core organic revenue growth will be in the range of minus 1% to positive 1% for 2024. And we continue to assume that the market declines low-single-digits this year. Our proven growth strategy and PPI business system execution will enable us to continue to take share once again. Our 2024 updated guidance range assumes an adjusted operating income margin between 22.5% and 22.8%, slightly higher than the prior guide. Our PPI business system is continuing to enable excellent execution, manage costs appropriately and fund the right long-term investments to enable us to further advance our industry leadership. We now expect net interest costs to be in the range of $380 million to $400 million for the year. And the raise to our adjusted EPS guidance range reflects a $0.15 increase on the low end and a $0.05 increase on the high end, which results in an increase in the midpoint by $0.10. So another strong quarter of execution, enabling an increase in the guidance outlook for the year, we remain really well positioned to continue to deliver differentiated performance. I thought it would be helpful to remind you of some of the key underlying assumptions behind the guide that remain unchanged from the previous guidance. In 2024, we're assuming just under $100 million of testing revenue and $300 million to $400 million of vaccines and therapies related revenues. In total, this represents a year-over-year headwind of $1.3 billion to $1.4 billion, or 3% of revenue. We assume that FX would be roughly neutral year-over-year to both revenue and adjusted EPS, and we're assuming that the $0.03 FX adjusted EPS beat that we saw in Q2 is offset for the remainder of the year, leading to no change for the year as a whole for FX versus the prior guidance. We continue to expect adjusted income tax rate will be 10.5% in 2024, and for the year we're assuming between $1.3 billion and $1.5 billion in net capital expenditures and free cash flow in the range of $6.5 billion to $7 billion. In terms of capital deployment, we're assuming $3 billion of share buybacks, which were already completed in January. Expect to return approximately $600 million of capital to shareholders this year through dividends and we deployed $3.1 billion to acquire Olink shortly after the Q2 close. Full-year average diluted share count is assumed to be approximately 383 million shares. Finally, I wanted to touch on quarterly phasing to help you with your modeling. Relative to the midpoint of the guide, I recommend modeling Q3 organic revenue growth 1% higher than we delivered in Q2. Also good to model core organic revenue growth in Q3 1% higher than we delivered in Q2. And in terms of adjusted EPS in Q3, I recommend modeling it to be just over 24% of the full-year. So to conclude, we continue to deliver on our commitments. And at the halfway point, we're in a great position to deliver differentiated performance for all our stakeholders in 2024. With that I'll turn the call back over to Raf.

Operator:

Thank you. [Operator Instructions] Our first question is from Michael Ryskin with Bank of America. Michael, your line is now open. Please go ahead.

Marc Casper:

Mike, thanks for the question. It was a pleasure to be in with you earlier in the quarter. So let me start actually one level off. Just kind of frame a few of my general thoughts and I'll talk about 2025. So when I think about Q2, team executed really well, really good financial performance. It was ahead of our expectations. It allowed us to raise our guidance. The other aspect of the performance is the actual performance as opposed to relative to expectations. Clearly very differentiated and very strong. It was good to see that core has now elevated to it's now flat, which is great. 4% adjusted EPS growth and expansion of margins. So I feel very good about the performance and when I think about the market they were in line with our expectations, so it's good to see the visibility that we've enjoyed for decades, as returned in terms of how the market's playing out. And when I think about our own performance within the markets, it was good to see that all four of our markets, we had sequential improvement in our growth across all four. So really very positive development. PPI business system is really delivering outstanding impact and ultimately feel good about the performance. Capital deployment has been active and good. We've deployed over $6 billion of capital through the first-half of the year, half of it on return of capital and half of it on a very exciting acquisition of Olink, and we're very well positioned at this point to deliver strong results. When I think about 2025, I think the way I would just think about it is we're going give you that in January of 2025. When we have the benefit of the year behind us and we're focused on delivering a great year, we'll be able to give you a view of not only our performance, but how we saw the underlying market conditions. The year is progressing as we expected, so we expect that the market will continue to improve modestly in the back half of the year, each quarter being a little better than the quarter before and that our performance will also continue to step up and that will give us momentum going at ‘25 in the details. We'll give you back -- we'll give you in a few months’ time.

Marc Casper:

Yes, your hearing is excellent. So yes, we delivered mid-single-digit growth in the quarter. Team did a nice job, really good execution. Comparison was relatively easy in the quarter, so and I would still characterize the conditions as muted in terms of the environment, but a nice job by the team to deliver a very solid Q2 result. Thanks, Mike.

Jack Meehan:

Thanks. Thanks. Good morning, guys. Wanted to start by asking about LSS, so this had some nice sequential improvement in the growth rate. I heard biosciences led to growth. Can you talk about the relative improvement you're seeing there, or also genetic sciences and bioprocessing? And any updates on where you think your customers stand in terms of e-stock?

Jack Meehan:

Excellent okay and then one to rotate to AI, so this also came in a bit better than I was expecting. Can you talk about how the book-to-bill was in the segment in the quarter? And just update some customer spending patterns? Thanks.

Operator:

Our next question is from Rachel Vatnsdal with JPMorgan. Rachel, your line is now open. Please go ahead.

Marc Casper:

Rachel, thanks for the question. It's an important question. So let me start at the sort of high level and then get down to the stimulus and then try to as much transparency as I possibly can. First of all, I think the world was surprised at how weak China was economically as this year unfolded. The stimulus programs announced early in the year was a sign that the government wanted to get the economy going, which is a good thing, right, in terms of sort of what is the macro backdrop in terms of a tough economic environment. When I think about stimulus in our industry and what we're seeing, tremendous amount of activity with our customers actually to help them with figuring out what to apply for. And so we know there's quite a bit of interest in our products from a stimulus perspective, and we're helping our customers in that process. When I think about how do I expect it to play out, my expectation is that it's largely going to show up in revenue in 2025 and likely to have some small effect in the fourth quarter of 2024 as well. I did ask the question about air pocket to the team, and I'm actually heading off to China in a couple of weeks' time, so I'm looking forward to that. Our team didn't highlight any air pocket or anything like that. So it's kind of muted conditions, and customers are working on looking at the investments associated with the additional government funding. So we didn't see any pauses in the activity, and I'm proud of the team's mid-single-digit growth in the quarter.

Marc Casper:

Yes. So Rachel, team has done a really nice job executing very well in our clinical research business. And when I think about our performance, we delivered positive organic revenue growth despite a really substantial headwind from the runoff of vaccines and therapies in that activity. So team is doing a nice job. Commercial execution was very strong in the quarter, right? And customers value our capabilities. And when I sort of went under the details of the commercial performance and looked at some of the underlying trends, it was very clear that in Q2, we really did see some of the biotech funding activity that we talked about is a green shoot in Q1 that would give us confidence that the year in aggregate across our business would be improving from a market perspective. We saw that in Q2 actually translate into an acceleration of authorizations in our biotech customer base. And that really does bode well for that. And as you know well this business, that really translates more into revenue in ‘25 and ‘26 in terms of how long it takes to get the clinical trials up and going, but the authorization momentum very encouraging in the quarter. Thank you, Rachel.

Doug Schenkel:

Okay, thank you and good morning everybody. Marc, when we look at two-year stacks and calculate CAGRs going back pre-pandemic, it seems like most business lines within Thermo continue to trend positively. I think your commentary is consistent with that on the call this morning. With that in mind, I think one of the key questions is, what's going to be the pace of improvement from here? So with that in mind, two questions. First, where is the recovery occurring more quickly than you may have expected? Where are things lagging? And I'm kind of thinking about this both in terms of how you guided for the year, but also just based on what you've seen through previous cycles. So that's one question. And then the second would be just keeping in mind your assumption that this market grows 4% to 6% on a normalized basis, is it fair to assume that recognizing you're making progress here, but just seeing what the pacing is, is it fair to assume that the move back into that range is going to be gradual versus a snapback? And essentially that this move into the 4% to 6% range, it's going to take several quarters?

Douglas Schenkel:

Okay. And Marc, if I can ask one more high-level follow-up. Over the years and in working with you and following Thermo, one of the neat things has been in these tougher periods in the market, Thermo and you specifically have -- you've played offense when others have played defense. Recognizing every cycle is difficult and different, I would say the last 1.5 years has been maybe tougher than normal even for Thermo. As things start to improve a little bit, but again, it's gradual, do you feel you're in a position now to maybe get even more aggressive like you have in previous cycles when it comes to capital deployment, evolving the business and other initiatives? Are you feeling more comfortable, more confident in making those moves that we've seen in prior cycles? Thank you.

Operator:

Thank you very much. Our next question is from Tycho Peterson. Tyco, your line is now open. Please go ahead.

Stephen Williamson:

Tycho, thanks for the question, and good to hear from you again. So in terms of the margin profile in the quarter, we're going through largely the impact of the transition of the vaccine-related capacity in sterile fill finish and translating into other modalities. So that's probably the biggest factor that you see there. And I think about the margin profile for our businesses, I feel good about the ability to drive strong margin expansion as we -- the top line growth comes back in certain parts of the business where we've appropriately adjusted the cost base down and where volumes have come down. And as those volumes come back, we're going to get some good pull-through that comes from that. So look forward to giving the details on '25 when we get to the January call. But yes, in terms of the margin profile and kind of the mix of business, I feel good about the ability to expand our margins.

Marc Casper:

Yes. So Tycho, when I think about our pharma services business and our capacity, where we play, I feel very good about our position. We've had very strong demand for our sterile fill finish abilities, which is our largest activity, and we're doing well there. We've been expanding the number of lines we have at our sites, and demand has been strong for that. So I feel good about that outlook. In the clinical trials, supplies, which is the other really large portion of our business and where we really have an unparalleled position, I highlighted a couple of examples of capabilities we're expanding. Effectively, we make sure that our capacity lines up with our forecasted demand. So it's not really an overcapacity viewpoint. And then on the other parts of the business, I feel okay about our position and nothing of note there. So that's pretty positive. And what we're going through right now, as a reminder, is we're transitioning a lot of the COVID-related activities to the normal therapies. And the team is doing a good job. It certainly impacts our growth in terms of headwind in 2024, but it becomes better in '25 and '26 as the new therapies and the tech transfers are complete and new lines come on place. So pretty good times ahead.

Marc Casper:

Thanks, Tyco.

Puneet Souda:

Yes. Hi, thanks Marc and Stephen. Thanks for taking the question. So Marc, a higher-level question for you, maybe with your -- when you have conversations, the C-suite conversation with therapeutics teams out there, what are you seeing and hearing from your larger biopharma customers, and maybe to some extent, these mid-cap ones as well versus the smaller and earlier-stage customers? How much of a divergence are you seeing within these groups? And when can that divergence narrow?

Puneet Souda:

Okay. Great. And just a follow-up for Stephen. On the EPS beat, it was about $0.25 at the midpoint and -- but you raised the guide only by $0.10. So just wondering how much of that is a reflection of the end market versus what's within your control in terms of cost management? Or is there anything specific that you would point out to?

Puneet Souda:

Got it. Okay, thank you.

Operator:

Yes, Our next question is from Dan Arias with Stifel. Dan, your line is now open. Please go ahead.

Marc Casper:

Yes. I was encouraged by what I saw in academic and government in Q2. We had low single-digit growth, a relatively challenging comparison. So the team did a good job. What I'm seeing is on the high-end differentiated products, customers are getting money. I mean if I think through, consumers get money for the really great innovation. And given our track record on innovation, we're seeing strong demand for the Orbitrap Astral. And I know that there's a lot of excitement around the Thermo Scientific Stellar mass spectrometer and the eclipse series. These are really -- or series. These are really, really positive developments. And so I think it's good. I always think long-term academic and government globally, it was kind of a low-single-digit growth market, sometimes a little better than that. And for -- our performance is playing out in line with that right now.

Marc Casper:

I mean the process is they have to apply, and there's a central government funding and matched by their other funding sources, usually provincial or it could be local depending on the institution. So they're going through that process. As it gets approved, they then have the ability to go out and place the order, so that's the view. I think because these institutions are funded by the government in all times, whether it's stimulus or not, I think they have a mechanism to understand what's likely to happen. So this is not giant mystery to them. I think they're working through it and is kind of normal from that perspective. And what we're doing is reminding them of the importance of the important instrumentation that we've launched and the relevance of it. So that they prioritize their funding request to support our instrumentation. Dan, thanks for the question, and I'll turn to just wrapping up. So thanks, everyone, for joining us on the call today. Pleased to deliver another strong quarter, well positioned to deliver differentiated performance as we continue to create value for all of our stakeholders, and we'll build an even brighter future for our company. We're looking forward to talking about that bright future at our upcoming Investor Day on September 19 in New York and updating you on our third quarter performance in October. As always, thank you for your support of Thermo Fisher Scientific.

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.

Marc Casper:

Thank you, Raf. Good morning, everyone, and thanks for joining us today for our first quarter call. As you saw in our press release, we had a great start to the year. We delivered another quarter of strong financial performance. I'm proud of our team's ongoing focus on enabling the success of our customers while demonstrating incredibly strong commercial execution and operational discipline and our continued success as a result of our proven growth strategy and our PPI Business System.

I'll now turn to an update on our growth strategy. As a reminder, our strategy consists of 3 pillars:

high-impact innovation, our trusted partner status with customers and our unparalleled commercial engine. Starting with the first pillar, high-impact innovation. We had an excellent start to the year, launching a number of new products across our businesses during the first quarter. Let me first highlight a number of products in analytical instruments that demonstrate our continued market leadership.

Stephen Williamson:

Thanks, Marc, and good morning, everyone. I'll take you through an overview of our first quarter results for the total company then provide color on our 4 business segments, and I'll conclude by providing our updated 2024 guidance.

Operator:

[Operator Instructions] We have the first question from Doug Schenkel with Wolfe Research.

Marc Casper:

Doug, thanks. So I thought just in the spirit of continuous improvement in PPI that I would frame a few of the key points for the Q&A session and then get to your questions. So indulge me for a second. So when I think about the key points. One, I will start with the long term. We serve an awesome industry that has a bright future, right? And when you think about what drives the bright future, very durable growth driven by the great science, the strong pipelines and the unmet medical needs.

Stephen Williamson:

Doug, I'll tee up kind of the view versus the consensus first, and I'm not going to talk about the kind of business dynamics. So we don't guide by segment in terms of our organic growth. And for us, it came in -- as Marc said, the markets came in as we had expected in aggregate. And that's the same thing for the segment, and we executed well. So it wasn't a huge outperformance part of the beat that was kind of pretty much across the board for the company.

Michael Ryskin:

Great. Congrats on the quarter. Marc, I want to pick up on something you just mentioned. You called out continued improvement in biotech funding environment. And earlier, you talked about the stimulus in China, 2 positive developments on the end market in 1Q. But I think you also acknowledged it's still relatively early going for those. And there have been a few false starts in end markets, of course, of 2023.

Marc Casper:

Yes. So Mike, I think it's a great question, I liked the way you framed it as well. So we're not -- nothing about false starts. The way that I think about it is and super clear on the word choice. What was assumed in our original guidance was a modest pickup.

Marc Casper:

Yes. So Mike, when I think about Analytical Instruments, we had a really good quarter. And it's against a very, very strong comparison, which is why I called it out because compared to the high teens growth last year, it's important to flag it.

Operator:

The next question is from Jack Meehan with Nephron Research.

Marc Casper:

Yes. There's no adjustments on any of that. It's just business just grew through that. And when I think about the year, when I think about the guidance that some busy assumptions are better than the guidance. We reminded our investors that we had the largest role in clinical research on supporting the pandemic response. We also had, in parallel, incredible growth in the business, and really just an excellent start and excellent execution to deliver strong growth in the quarter.

Jack Meehan:

Awesome. And then on the pharma services side, there's been a little bit of a competitive shake up with Novo's proposed acquisition of Catalent. Can you just talk about your win rates at Patheon and how you feel about the runway for future tech transfers?

Operator:

The next question is from Rachel Vatnsdal with JPMorgan.

Marc Casper:

So Rachel, thanks for the question. I share the enthusiasm about the government's efforts to stimulate the economy, get things going. So it's an interesting time in that respect. So...

Marc Casper:

Yes, yes. So when I think about actually the way things play out, and a lot of this is about signaling as far as I can tell from my own experience of work in China for many years. It's a multiyear program as opposed to the last one, which was shorter term.

Marc Casper:

So the way that I think about Biosecure is I kind of put it into the context of there's a level of geopolitical tensions that exist around the world, including between the U.S. and China. It's never exactly clear whether these things become enacted or not. It's our job to help our customers navigate those shifting landscapes. I think at the highest level, actually relations are falling between the countries a bit. There will always be challenges.

Daniel Brennan:

Marc and Stephen, maybe just on China. I know some -- there's already been some discussion points here, Marc. But could you just give us a sense how the low single-digit decline in the quarter kind of compared to expectations? And just remind us what to assume for the full year? And kind of any color you can share about just demand trends across your business segments in China.

Daniel Brennan:

Got it. And then maybe just on bioprocessing. I know the consumable portion of your business, Marc is, call it, 10% of our revenues, but there's obviously a tremendous focus there right now. Could you give any color on how that business performed in the quarter? And any color you can provide on like this ongoing destock issue. Whether or not you've seen orders start to grow again sequentially.

Operator:

The next question is from Matt Sykes with Goldman Sachs.

Marc Casper:

Sure. So when I think about the business, one of the things, Matt, is we really don't manage it by end segment because effectively, you produce a certain amount of products, and then you ship them to specific customers. So you can have quarters where you ship more to an industrial customer, the exact same product as a biopharma customer. And therefore, it kind of skews things. So that's my caveat of that.

Matthew Sykes:

Got it. And then just for my follow-up. Just on LPS and the margins, I know when you had acquired PPD, you talked about potential for long-term margin expansion in that business. Could you just maybe talk about some of the levers you've got within LPS. Understanding that revenue improvement would help a lot, but just any levers to get that margin within LPS to expand that over time.

Stephen Williamson:

I think on the pharma services side, it's the capacity coming online and switching over. There's cost to do that as you're ramping up the facility, bringing on the colleagues to be able to operate that facility. Those are all factors that come into that, but those are the right drivers. Thanks, Matt.

Luke Sergott:

So I want to dig back in into the Biosecure Act, a follow-up on what Rachel was asking about. But I wanted to know, Marc, what you guys are hearing from your customers and multinationals that operate over there and what they're saying to you regarding their assumptions on China retaliating and maybe excluding them from the region. I know it seems pretty unlikely, and it's probably going to be limited, but is this something that is on their radar or some of those conversations that you're having?

Luke Sergott:

Yes. Okay. And then, Stephen, for you on the life science margins. So very, very strong here from Life Science Solutions. I understand that the destocking is less of an issue, but how much of the step-up in the quarter was from the restocking? Just kind of walk through it and double-click on the drivers there. And should we consider this as kind of the jump-off point? Or it will be around this range for the rest of the year? Anything from a modeling perspective?

Marc Casper:

So thank you, Luke, and thanks, everyone, for the questions. So let me wrap up. Very pleased to deliver a very strong quarter. Incredibly well positioned to deliver differentiated performance as we continue to create value for all of our stakeholders, build an even brighter future for our company. I look forward to updating you on our second quarter results in July and discussing our very bright future as well as outlook at our upcoming Investor Day on September 19.

Operator:

Thank you. This concludes today's call. Thank you all for joining. You may now disconnect your lines.

Rafael Tejada:

Good morning, and thank you for joining us. On the call with me today is, Marc Casper, our Chairman, President and Chief Executive Officer; and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website thermofisher.com, under the heading News Events and Presentations until February 16, 2024. A copy of the press release of our fourth quarter and full year 2023 earnings is available in the Investors section of our website under the heading Financials. So before we begin, let me briefly cover our Safe Harbor Statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any dates subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is available in the press release of our fourth quarter 2023 earnings and also available in the Investors section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

Stephen Williamson:

Thanks, Marc and good morning, everyone. As you saw in our press release we executed really well in Q4. Market conditions played out largely as we had expected in the quarter, and through the great execution, we delivered 1% more core organic revenue growth than our prior guide. In terms of adjusted EPS, we beat our prior guide by $0.05 and that included offsetting $0.08 of additional FX headwind, so really strong operational execution in the quarter. We also capped off the year with very strong free cash flow delivering $7 billion in 2023. Throughout the year we navigated the changing macro environment very effectively. Our proven growth strategy and PPI business system enabled us to deliver a differentiated experience for our customers and differentiated financial results for our shareholders, all the while continuing to invest in the business and advance our strategic position as the world leader in serving science. Let me now provide you some additional details in our performance. Beginning with our earnings results, we delivered $5.67 of adjusted EPS in Q4 and $21.55 for the full year. GAAP EPS in the quarter was $4.20 and $15.45 for the full year. On the top line, reported revenue was 5% lower year-over-year in Q4. The components of our Q4 reported revenue change included 7% lower organic revenue, a 1% contribution from acquisitions, and a tail end of 1% from foreign exchange. Q4 core organic revenue decreased 4%. For the full year 2023 reported and organic revenue decreased 5% and core organic revenue growth for the year was 1%. In 2023, we delivered $1.73 billion of pandemic related revenue, $330 million of testing and $1.4 billion of vaccines and therapies revenue. Turning to our organic revenue performance by geography, the organic growth rates by region are skewed by the pandemic-related revenue in the quarter -- in the current year and prior year. In Q4, North America declined low double digits, Europe declined low single digits, Asia Pacific grew low single digits with China declining in the mid-single digits. For the full year, North America declined high single digits, Europe declined low single digits, and Asia-Pacific declined low single digits with China declining high single digits. With respect to our operational performance, we delivered $2.55 billion of adjusted operating income in the quarter, and adjusted operating margin was 23.4%, 100 basis points higher than Q4 last year. In the quarter, we continued to deliver exceptionally strong productivity and achieved good price realization, this is partially offset by lower pandemic-related revenue, strategic investments, and FX. The strength of our productivity reflects the impact of our PPI business system. It's enabling us to manage our cost base appropriately given the macro conditions. For the full year, adjusted operating income decreased 11% and adjusted operating margin was 22.9% in line with our prior guide. Total company adjusted gross margin in the quarter came in at 41.5%, 10 basis points higher than Q4 last year. The change in gross margin was due to the same drivers as those of our adjusted operating margin. For the full year, adjusted gross margin was 41.2%. Moving on to the details of the P&L, adjusted SG&A in the quarter was 15.1% of revenue, an improvement of 50 basis points over Q4 last year. For the full year, adjusted SG&A was 15.2% of revenue, an improvement of 60 basis points compared to 2022. Total R&D expense was $328 million in Q4. For the full year, R&D expense was $1.35 billion, reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue was 6.8% in 2023. Looking at our results below the line, our Q4 net interest expense was $81 million, which is $38 million lower than Q4 2022. Net interest expense for the full year was $495 million, an increase of $41 million year-over-year. Adjusted other income and expense was a net expense in the quarter of $19 million, $9 million higher than Q4 2022. This is primarily due to changes in non-operating FX. For the full year, adjusted other income and expense was a net expense of $16 million compared to a net income of $14 million in 2022. Our adjusted tax rate in the quarter and for the full year was 10%. This was 280 basis points lower than Q4 last year and 300 basis points lower for the full year, reflecting the results of our tax planning activities. Average diluted shares were 388 million in Q4, approximately 5 million lower year-over-year driven by share repurchases net of options. And shortly after the year-end in January 2024, we repurchased $3 billion of shares. Turning to cash flow and the balance sheet, full year cash flow from operations was $8.4 billion and as I mentioned earlier, free cash flow was $7 billion after investing $1.4 billion of net capital expenditures. We returned $136 million of capital to shareholders through dividends in Q4 and $523 million for the full year. During the year, we invested $3.7 billion on completed acquisitions and committed $3.1 billion to the acquisition of Olink, which we expect to close by mid-2024. We ended the quarter with $8.1 billion in cash and $34.9 billion of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.5 times on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 12%, reflecting the strong return on investment that we're generating across the company. Now provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our pandemic-related revenue varies by segment, and that revenue was higher in the prior year so that does skew some of the reported segment growth rates and margins. In 2023, we continue to execute strong pricing realization across all segments to address inflation. Moving on to the segment details, starting with Life Sciences Solutions, Q4 reported revenue in this segment declined 19%, and organic revenue was 20% lower than the prior year quarter. This was driven by the runoff of our pandemic-related revenue in this segment as well as lower levels of activity in our bioproduction business versus the year ago quarter. For the full year, reported and organic revenue was 26% lower than 2022. Q4 adjusted operating income for Life Science Solutions decreased 14% and adjusted operating margin was 36.2%, up 210 basis points versus the prior year quarter. During the quarter, we delivered exceptionally strong productivity, which was partially offset by unfavorable volume pull-through. The team has done an excellent job of appropriately managing the cost base and dealing with the unwind of the pandemic. For the full year, adjusted operating income declined 39% and adjusted operating margin was 34.3%. In the Analytical Instruments segments, reported revenue increased 8% in Q4 and organic growth was also 8%. The strong growth in this segment this quarter was led by the electron microscopy business. For the full year, both reported and organic revenue were 10% higher than 2022. In this segment, Q4 adjusted operating income increased 23% and adjusted operating margin was 28.8%, up 340 basis points year-over-year. In the quarter, we delivered strong productivity and volume pull-through, which is partially offset by FX and strategic investments. For the full year, adjusted operating income increased 27% and adjusted operating margin was 26.3%, an increase of 350 basis points versus the prior year. Turning to Specialty Diagnostics, in Q4, reported revenue declined 1% and organic revenue was 7% lower than the prior year quarter. In Q4, we continued to see strong underlying growth in the core led by transplant diagnostics, microbiology and immunodiagnostics businesses. This was offset by lower pandemic-related revenue versus the year ago quarter. For the full year, reported revenue declined 8% and organic revenue was down 13%. Q4 adjusted operating income for Specialty Diagnostics increased 27% in the quarter and adjusted operating margin was 23.9%, which is 530 basis points higher than Q4 of 2022. In Q4, we delivered strong productivity and favorable business mix, which was partially offset by the lower -- the impact of lower COVID-19 testing volume and strategic investments. For the full year, adjusted operating income was 10% higher than 2022 and adjusted operating margin was 25.5%, an increase of 400 basis points versus 2022. Finally, in the Laboratory Products and Biopharma Services segment, Q4 reported revenue decreased 4% and organic revenue was 5% lower than the prior year quarter. This was driven by the runoff of vaccines and therapies revenue and the phasing of revenue in our Pharma Services business within 2023 as had been expected. For the full year, both reported and organic revenue were 2% higher than 2022. In this segment, Q4 adjusted operating income declined 4% and adjusted operating margin was 14%, which is 10 basis points lower than Q4 2022. In the quarter, we delivered strong productivity, which is more than offset by unfavorable volume mix. For the full year, adjusted operating income was 17% higher than the prior year and adjusted operating margin was 14.6%, an increase of 180 basis points versus 2022. Let me now turn to guidance, and as Marc outlined, we're initiating a 2024 revenue guidance range of $42.1 billion to $43.3 billion and adjusted EPS guidance range of $20.95 to $22. Our guidance assumes core organic revenue growth in the range of minus 1% to positive 1% for 2024. Our view on the expected market conditions in 2024 has not changed significantly from our initial framing for the year shared on the last earnings call. We're assuming that the market declines in the low single digits this year, our growth strategy and PPI Business System execution will enable us to continue to take share once again this year. Our current estimate of pandemic-related revenue in 2024 is just under $100 million of testing revenue and $300 million to $400 million of vaccines and therapies-related revenue. In total, this represents a year-over-year headwind of $1.3 billion to $1.4 billion or 3% of revenue. M&A is expected to increase revenue by $175 million year-over-year, the combination of six months of Olink revenue and the inorganic portion of CorEvitas revenue in 2024. At current rates, we expect FX to be neutral year-over-year to both revenue and adjusted EPS. From a phasing standpoint, FX is expected to be a slight headwind in Q1 and an offsetting tailwind in the second half. Turning to margins, our 2024 guidance range assumes adjusted operating income margins between 22.3% and 22.8%. We continue to aggressively manage our cost base, and that's reflected in this margin outlook. In terms of the range for the margins, that's driven by the revenue range that I provided. We'll continue to use the PPI Business System to not only manage costs very carefully, but also continue to make the right long-term investments to enable us to further advance our industry leadership. Strong underlying productivity and cost controls, including the carryover benefit from the cost actions put in place last year, are expected to largely offset the runoff in the remaining pandemic-related revenue inflation and a normalization of incentive compensation across the company to appropriately invest in our colleagues. Below the line, we expect approximately $430 million of net interest expense in 2024 and expect adjusted other income and expense to net close to zero. We assume that adjusted income tax rate will be 10.5% in 2024 and below the tax line, you should factor in $20 million of profit elimination related to minority interests. We're expecting between $1.3 billion and $1.5 billion of net capital expenditures in 2024, and we're assuming free cash flow is in the range of $6.5 billion and $7 billion for the year. In terms of capital deployment, our guidance assumes $3 billion of share buybacks, which, as I mentioned earlier, were already completed in January and we estimate the full year average diluted share count will be approximately 383 million shares. We're assuming that we'll return approximately $600 million of capital to shareholders this year through dividends, and we're assuming that we closed the acquisition of Olink by midyear. And finally, I wanted to touch on quarterly phasing for the year as there are a few things to consider. First, in terms of organic revenue growth we expect Q1 to be better sequentially than Q4 2023 by 1 to 2 points and then improve each quarter during the year. Implied in that is core organic revenue growth in Q1 similar to Q4 2023. And core organic revenue growth is also expected to improve each quarter during the year, leading to moderate growth in the second half of the year. From a margin standpoint, we expect Q1 to be just under 21% and increase each quarter throughout the year from that level. And we expect Q1 adjusted earnings per share to be approximately 22% of the full year. So in conclusion, we navigated the challenging environment in 2023 very successfully. We stepped up for our customers and delivered differentiated financial performance for our shareholders. We continue to manage the company with agility, and we're really well positioned for the year ahead. I look forward to updating you on our progress as we go through the year. With that, I'll turn the call back over to Raf.

Operator:

Thank you. [Operator Instructions]. Our first question today comes from the line of Jack Meehan from Nephron Research.

Marc N. Casper:

Yes. So Jack, when I think about last year and you've heard us say delivering differentiated short-term performance, strengthen the company for the long term kind of simultaneously, we had the opportunity to look at, obviously, for the first nine months of how others have done, and we looked at those companies that preannounced or reported so far. And we had a really strong year in terms of delivering above-market growth, which means share gain, right. And that share gain actually was broad-based in terms of the performance. You look at things like Analytical Instruments, very strong; clinical research, pharma services. These businesses did well. And by the absence of some, I'm not implying anything in the others. This is a very strong year relative to a challenged set of market conditions. As I think to the future, we're well positioned in those businesses to continue our share gain momentum. We made an assumption for this year, which is pretty much the same as what we said back in late October, is that we're assuming that for the full year, it's going to be pretty similar to 2023 and a mirror image, meaning that we start to lap comps as the year unfolds and we wind up with the market being down slightly in the low single digits and us performing better than that level. So I'm excited about what the year unfolds and our position to deliver differentiated performance. And we're certainly going to capitalize on any improvements in the market and hold ourselves to a very high standard of what good looks like.

Marc N. Casper:

Yes. So when I think about the year, we basically use a range of outcomes for each of our businesses in terms of how they perform. I believe that the second half of the year based on lapping the comps as well as we're expecting that the market conditions improve slightly as the year unfolds. And that helps with demand for the industry and for us is how I would think about the business in aggregate is the way that we manage the company. So thank you, Jack.

Operator:

The next question today comes from the line of Dan Arias from Stifel. Please go ahead. Your line is now open.

Marc N. Casper:

Yes. So Dan, I guess, let me start with sort of bioproduction, which I think is the essence of the question, and then maybe I'll step one level above that. In terms of bioproduction, it is an incredibly good long-term market. Historically, it's been an incredibly good market. Sort of a taboo name these days, right, in terms of bioproduction, caused a lot of volatility during certainly 2023 in the industry. For us, a couple of facts, it's a little bit under 10% of our revenue, and we have best-in-class bioprocessing products with an incredible global footprint. We have leading positions in cell culture media, single-use technologies, and increasingly important purification business as we grow our share position there. When I think about the fourth quarter, we did see a sequential pickup in orders in Q4 versus Q3. But the underlying activity is still muted, right, in the market. So we didn't see an inflection. We weren't expecting one and we didn't see one in the fourth quarter. Our view is that it will normalize as the year unfolds and as I've said in an investor conference earlier in the year, no one is going to get rewarded for calling the moment of when that inflection happens. So it will play out during the course of the year, and the long-term fundamentals here are very strong. When I think about our businesses in general coming into the year, I think the things that are very exciting is the trusted partner status that we have earned with our customers over many, many years. We're in the room with the decision-makers. We understand what's on their mind. We're incredibly well positioned. And if I think about the midterm outlook for clinical research, for Pharma Services, for bioproduction, for our channel business, it's incredibly well positioned, right, in terms of we're part of helping our customers bring the breakthroughs to their pipeline, we're part of helping them navigate whatever the environment is. So hopefully, that's helpful. And then maybe the last comment that I would make is one of my takeaways from the many, many customer interactions that I had in the first month of the year was that in the biotech community, and what I mean by biotech, as I'll call it, the smaller companies, the capital market-dependent companies in the pharmaceutical segment, they were much more positive, right. They're seeing green shoots. They love the M&A activity that was happening at the end of the year that gets investors excited about new company formation, new rounds of capital. And while it's early and it will take some time, it's certainly the most optimistic that I've seen in the last five quarters in terms of what the tone was on their view. And I think that bodes very well for the coming few years. Thank you.

Marc N. Casper:

Yes. So when I think about the performance of our Analytical Instruments business with double-digit growth for the full year, it's awesome. Really a tremendous year. It was across all three businesses. The backlog that we carried into the beginning of 2023, those things largely cleared in the first half of 2023. So we're at -- we've been normal lead times, normal shipping times really for about six months now in terms of that already. So we're kind of in a normal spot. And yeah, there won't be the repeat of the unwind of the pandemic impacts on the supply chain. The business is positioned for a good year and there's a high demand for the breakthrough technologies, whether it's in electron microscopy, or semiconductor, material science, life sciences or the Astral, right, [indiscernible] just incredible demand for those technologies. So we're excited for the upcoming year and the future of that business.

Derik De Bruin:

Hi, good morning everyone.

Derik De Bruin:

So Marc, I'm just sort of curious, last quarter you were talking about 1% core growth when you were sort of looking at your initial framework for 2024. If I heard you correctly, now it's plus or minus 1%. It didn't seem like Q4 got a lot worse in anything. So what -- sort of what's changed, are you more conservative on the PPD in these businesses, are you more conservative on just tough comps, I'm just sort of curious, what's embedded now in this like more conservative outlook?

Stephen Williamson:

Yes. Let me provide some context on the guidance, kind of step back on that and then -- and hopefully help frame your question. So we provided an early framing for 2024 on our last call, and we had the insight on how Q4 played out and have completed our detailed planning work with our businesses. Through that process, our view on the market outlook has not changed significant. The guidance is not significantly different from the initial framing that we provided. It includes the latest view on FX, both rates and expected mix of revenue and cost by currency. That increased revenue from our initial framing, but no impact on operating income, which reduces our margins by 20 basis points from that initial framing. And then from an operational standpoint, I think the only item of note that's changed in the past three months is a discrete item in our Pharma Services business. We're transitioning some of our sterile fill finish capacity from COVID vaccine support to GLP-1 support. Would have been expecting to recognize an upfront fee in Q1 2024. Now the accounting is finalized, we expect to recognize that benefit in line with production, which actually starts in 2025. So it shifted approximately $0.20 out of Q1 2024, and that's had some impact on -- in terms of the reported core growth. And then one other comment on the guidance is that we thought it best to provide a range, not a point estimate. So things are more helpful for our investors and the range of outcomes for the year. Now the range doesn't encapsulate every possible scenario for the year, but it does capture the reasonably likely scenarios of how the year can play out as we see it today. And the range is about $1 billion to a revenue and $1.05 of adjusted EPS, which I think is appropriate given the scale of the company. But hopefully, it kind of tees up kind of the framing for the guide.

Stephen Williamson:

In terms of the margin profile for the -- we finished the year at exactly where we guided to for the full year for our margin profile for the company. And I think some of the changes in terms of Q4 versus between the segments, I don't think everyone quite understood the phasing of our revenue within lab products and biopharma services. So when I see some of the pre-call notes, this is, I think, a little bit different in terms of what some expectations. But from our expectations internally, Q4 played out as we'd expected. And then from margins going forward, I think the margin profile that we have today, I'm not calling a significant difference in margin profile going forward into next year. And I think where we are on landing point on margins for the segments is probably a good starting point for the -- to think about for the year ahead.

Operator:

The next question today comes from the line of Doug Schenkel from Wolfe Research. Please go ahead. Your line is now open.

Marc N. Casper:

Good morning Doug, welcome back.

Marc N. Casper:

Sure. So Doug, thanks for the question. In terms of the long-range outlook, right, we raised our outlook in late in 2021. And what that -- at that moment, we can't remember exactly what that moment was, but we were growing 25%, right. We were growing at an extraordinary organic rate. And what we wanted to do was give our investors a very long-term view of what is the market and what is our position in the market, right. And in terms of our ability to gain share, three points, I think -- two, three, I use three for simplicity. Three points faster than the market is kind of the standard we hold ourselves to. And we've been delivering that for a while, and we've been growing share for a really long while for many, many, many years. And so nothing has changed there. In terms of the market growth, where the market was extraordinary when we set it, we said 4% to 6% was going to be our underlying market growth, and that was higher than 3% to 5%. And the change was actually just that we had a larger exposure to pharma and biotech as we built our business capability there. When I look to the future and I think about what's going on in the drivers of the long term in our industry, I feel incredibly confident that this is a 4% to 6% growth industry and that we're well positioned to grow, for simplicity, three points faster than that, so 7% to 9%. So while I get the question a lot and obviously, in a period where we delivered 1% core growth in 2023, that's a long way from 7% to 9%. But our view on the market declining low single digits last year reflects at least a share gain component. And when I look to the future, I continue to remain very confident in the long-term health of the industry. I've had some really interesting discussions with investors and basically went through the logic saying, if you're bullish on life science tools, diagnostics, pharma services, you're probably at 6% long-term growth. And if you're bearish on the life science tools, diagnostics and pharma services, you're probably at 4% industry growth. But you have to be incredibly bearish on the world to actually get to less than 4% industry growth for the long term in our segment because this -- we really are a GDP-plus-type business in terms of the markets that we serve. So hopefully, that gives you at least a sense of how we think about it and while I appreciate the offer to change our outlook, I couldn't be more confident in the future of our industry and our competitive position. In terms of the below the line, the very high-level concept, I do believe that as you see volumes grow at more normalized rate, you'll see a very strong flow-through on the margins. And part of what's going on with the margins for this year is we reset our incentive compensation for our colleagues back to normalized levels after a year of below that. So just the math as you have some level of headwind embedded in the easier numbers, nothing different than we expected in October. But that's part of why you don't see as much of the margin step-up that one would expect to have.

Stephen Williamson:

Yes. Doug, I think the example that I gave on the GLP-1 contract is we're basically standing up a facility for a customer. We're getting paid a fee to do that. We get to recognize that fee over the production volumes, and we're incurring substantial costs in the interim in 2024, which will create good accretive growth going forward. That's one good example. And we're continuing to invest in innovation across the company. And we're not lessening our drive here to really drive great long-term growth. So we're appropriately managing our cost, top line environment, but we're making sure that we're actually putting the right investments in place and to make sure that, that top line environment stays and the outlook stays as good as we -- as much as articulated.

Operator:

The next question today comes from the line of Vijay Kumar from Evercore ISI. Please go ahead. Your line is now open.

Marc N. Casper:

So Vijay, thanks for the question. So when I think about the performance of our businesses, certainly last year and certainly as we look to the future, last year, just spectacular performance in our clinical research business. Really, the team, unbelievably good job in terms of the results. I think that in a way, we probably undersold the details, not the numbers as much as what actually was going on because there's so many different things we were communicating. But if I think about clinical research, it's a little over two years after the acquisition, phenomenal acquisition. Customers love the business performing well, colleagues doing a great job. And it's been a big success. The business in the pandemic played the largest role in supporting the clinical trials on vaccines, and at the same time, delivered by far the fastest, I'll call it, underlying growth, excluding all of the COVID activity, just crushed it. And that means for this year, we have both a roll-off, which we've given transparency to on a big chunk of the vaccine revenue, which is fine. And we have generated a really substantial comparison, which is cool. Like we -- that's a good challenge to have in terms of the great performance. So we would expect that the business' growth would be much more moderate this year just based on the comparisons. But the future, meaning looking out into 2025 and beyond, this is a really strong business, long-term, high single-digit growth business plus the synergies it's driving. So I feel really great about that. And then a quick comment just on China and which is unrelated to clinical research but sort of the other element of your question. China, market conditions were challenged in 2023. First quarter was really strong, lots of stimulus, all of those good things. But then -- so that was China effectively. We're not calling for a meaningful improvement in China this year. Rather, we lap the comparisons as the year unfolds. So it becomes a little bit less of a headwind. We all know that at some point, the Chinese government will create some mechanism of stimulus. Whether that's direct or confidence or whatever it does, we don't know when that will happen. But at some point, it will improve the market conditions because the needs for what we do is very high. So I'm bullish on the long term being better in China than what we've been experiencing currently, and it will take some time to get there. Thanks, Vijay. Go ahead.

Stephen Williamson:

Yes. So when I think about the margin in Q1, that's definitely an element when you look at it year-over-year and kind of sequentially as well. So when I think about it year-over-year -- so there's -- obviously, we have a significant drag from the lower pandemic revenue and the reset of the incentive comp. That's just under 200 basis points in total and then about 100 basis points contribution from the core business despite the lower dollars of revenue. And the key driver there being the impact of the cost actions that we've taken over the past year. So to give you a way to frame the margin in Q1. And then yes, the margin profile grows each quarter as the revenue dollars grow during the year in terms of the profile for the year ahead. Thanks Vijay.

Rafael Tejada:

Operator we have time for one more question.

Tejas Savant:

Hey guys, good morning. And thanks for the time here. Marc, just a follow-up on your China commentary there, more in terms of the long-term opportunity. You've talked in the past about that being an important market for you growing at the higher end of your outlook for the company. Recently, there's been a thawing in relations over the last month or so. I think you've kind of alluded to that as well and some high-level government engagement. But then a little while ago, we got word of this Biosecure Act legislation. Can you just help us think through sort of what that entails for you, perhaps an opportunity to be more front footed and gain share in the near-term on the services side versus kind of the long-term risk of a potential blowback from the Chinese side in terms of U.S. MNCs operating in that market? That would be super helpful. Thank you.

Operator:

This concludes today's conference call. Thank you all for your participation. You may now disconnect.

Rafael Tejada:

Good morning, and thank you for joining us. On the call with me today is, Marc Casper, our Chairman, President and Chief Executive Officer, and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website thermofisher.com, under the heading News Events and Presentations until November 10, 2023. A copy of the press release of our third quarter 2023 earnings is available in the Investors section of our website under the heading Financials. So before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any dates subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is available in the press release of our third quarter 2023 earnings and also in the Investors section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

Stephen Williamson:

Thanks, Marc, and good morning, everyone. As you saw in our press release and as Marc just outlined, while the macroeconomic environment became more challenging in the third quarter, we continued to deliver differentiated performance. In Q3, we delivered $10.6 billion of revenue, which included 1% core organic revenue growth. Our PPI Business System enabled us to generate 200 basis points of adjusted operating margin expansion and we delivered $5.69 of adjusted EPS, a 12% increase over Q3 last year. We're continuing to successfully navigate the current environment. Let me now provide you with some additional details on our performance, beginning with our earnings results. As I mentioned, we delivered $5.69 of adjusted EPS in Q3. GAAP EPS in the quarter was $4.42. On the top line, reported revenue was 1% lower year-over-year. The components of our Q3 reported revenue included 3% lower organic revenue, 1% contribution from acquisitions and a tailwind of 1% from foreign exchange. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the pandemic-related revenue in the current and prior year. In Q3, North America declined mid-single digits, Europe grew in the low single-digits, Asia-Pacific declined in the low single-digits with China declining in the high single-digits. With respect to our operational performance, adjusted operating income in the quarter increased 8% and adjusted operating margin was 24.2%, 200 basis points higher than Q3 last year. In the quarter, we delivered exceptionally strong productivity and achieved good price realization. This is partially offset by lower pandemic-related revenue, continued strategic investments and FX. The strength of our productivity reflects the impact of our PPI Business System. It's enabling us to manage our cost base appropriately given the macro conditions. Total Company adjusted gross margin in the quarter came in at 42%, 30 basis points higher than Q3 last year. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 14.8% of revenue, an improvement of 140 basis points over Q3 last year. Total R&D expense was $320 million in Q3, reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue was 6.7% in the quarter. Looking at our results below the line for the quarter, our net interest expense was $113 million, which is similar to Q3 last year. Our adjusted tax rate in the quarter was 10%, which is 180 basis points lower than Q3 last year, reflecting results of our tax planning activities. Average diluted shares were 388 million in Q3, approximately 7 million lower year-over-year, driven by share repurchases, net of option dilution. Turning to cash flow and the balance sheet. Year-to-date cash flow from operations was $4.7 billion. Year-to-date free cash flow was $3.7 billion, after investing $1 billion of net capital expenditures. During the quarter, we returned $136 million of capital to shareholders through dividends and we deployed just over $900 million of capital for the acquisition of CorEvitas. We ended the quarter with $6.2 billion in cash and $35.3 billion of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt-to-adjusted EBITDA and 2.7 times on a net-debt basis. In concluding my comments on our total company performance, adjusted ROIC was 12%, reflecting the strong returns on investment that we're generating across the company. I'll now provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our pandemic-related revenue varies by segments and that revenue was higher in the prior year. So that does skew some of the reported segment growth rates and margins. Let me continue to execute strong pricing realization across all segments to address inflation. Moving on to the segment details, starting with Life Sciences Solutions. Q3 reported revenue in this segment declined 18% and organic revenue was 19% lower than the prior year quarter. This is driven predominantly by the run-off of our pandemic-related revenue in the segment versus the year-ago quarter. Q3 adjusted operating income for Life Sciences Solutions decreased 16% and adjusted operating margin was 35.9%, up 80 basis points versus the prior-year quarter. During the quarter, we delivered exceptionally strong productivity and had favorable FX, which was partially offset by unfavorable volume mix. In the Analytical Instruments segment, reported revenue increased 8% in Q3 and organic growth was also 8%. The strong growth in this segment this quarter was led by our electron microscopy business. In this segment, Q3 adjusted operating income increased 21% and adjusted operating margin was 26.7%, up 290 basis points year-over-year. In the quarter, we delivered very strong productivity and had strong volume pull-through, which is partially offset by FX and strategic investments. Turing to Specialty Diagnostics, in Q3 reported revenue increased 2% and organic revenue was 6% lower than the prior-year quarter. In Q3, we continued to see strong underlying growth in the core, led by our immunodiagnostics, microbiology and transplant diagnostics businesses. This was offset by lower pandemic-related revenue versus the year-ago quarter. Q3 adjusted operating income for Specialty Diagnostics increased 29% in the quarter and adjusted operating margin was 26.1%, which is 550 basis points higher than Q3 2022. During the quarter, we delivered a favorable volume mix and very strong productivity. That was partially offset by the impact of lower COVID-19 testing volume and strategic investments. Finally, in Laboratory Products and Biopharma Services segment, Q3 reported revenue increased 3% and organic growth was 1%. During Q3, organic revenue growth in this segment was led by the pharma services business. In this segment, Q3 adjusted operating income increased 29% and adjusted operating margin was 16.4%, which is 340 basis points higher than Q3 2022. During the quarter, we delivered exceptionally strong productivity and a favorable mix, which is partially offset by FX. Let me now turn to guidance. As Marc outlined, we're revising our full-year 2023 guidance to reflect the more challenging macroeconomic environment. Our revised estimate for 2023 is revenue of $42.7 billion with core organic revenue growth of just under 1%, and $21.50 of adjusted EPS. Let me now provide you with some details behind the changing guidance versus the estimate we provided on our last earnings call. Starting with revenue, our revised guidance is $850 million lower than the prior outlook. $200 million of this is driven by an increased headwind from FX. We've increased our guide by $45 million to reflect the acquisition of CorEvitas, and the rest of the change is due to our lower core revenue assumption. We now see core organic growth for the year of just under 1%, which is a little less than 2% lower than the prior guide. This is driven by the same factors that we've seen throughout the year, the weak economic conditions in China and cautious spending in general across our customer base. And as we indicated during Q3, these factors increased in impact during the quarter and our assumption is that the conditions we saw at the end of Q3 will continue throughout the remainder of the year, and as a result, we now expect core market growth for our industry to be slightly negative for the year. However, we continue to effectively navigate the macro-dynamics and expect to continue to deliver differentiated core organic revenue growth for the year despite the more challenging conditions. Moving on to profitability. The revised guidance assumes a pull-through on the lower revenue of just over 40%, and we now expect our adjusted operating margin to be 22.9% for the year. We continue to use the PPI Business System to manage our costs appropriately given the market conditions. From an adjusted EPS standpoint, the revised guidance is $0.17 lower due to FX and $0.69 related to the change in core revenue. So we now expect to deliver $21.50 of adjusted EPS in 2023, a strong result given the challenging macro-environment. Let me now provide you with some additional details of the updated 2023 guidance. We continue to assume that we'll deliver $300 million of testing revenue in 2023. We expect the total vaccines and therapies-related revenue will be $1.6 billion less than the prior year, an impact of over 4% on our core organic revenue growth. This assumes we recognized $1.3 billion of vaccine therapies revenue in 2023, $600 million of which is in our clinical research business. Moving on to FX. Given recent rate changes, we're now assuming that FX will be a year-over-year headwind to revenue of approximately $100 million. And in terms of adjusted EPS, we now expect FX to be a year-over-year headwind of $0.28 which is $0.17 more of a headwind than our previous guidance. The Binding Site and CorEvitas acquisitions are performing well, and we now assume that they'll contribute approximately $300 million to our reported revenue growth for the year. Below the line, we now expect just under $500 million of net interest expense in 2023, a slight increase reflecting the acquisition of CorEvitas. We continue to assume that the adjusted tax rate for the -- 2023 will be 10%, and we're now expecting net capital expenditures will be between $1.3 billion and $1.5 billion. And we now expect the free cash flow will be between $6.7 billion and $6.9 billion for the year. In terms of capital deployment, our guidance includes $3 billion of share buybacks, which were already completed in January, $3.7 billion in acquisitions completed this year, and $3.1 billion committed to the acquisition of Olink, which we expect to close in 2024. We continue to assume that full-year average diluted share count will be approximately 388 million shares, and then we'll return approximately $540 million of capital to shareholders this year through dividends, a 17% increase over 2022. So before I conclude my prepared remarks, I thought it'd be helpful to share some more detailed thoughts around how to frame 2024. At this point in time, a good starting assumption is that our core organic revenue growth in 2024 is similar to 2023, approximately 1% growth. With our proven growth strategy, we expect to continue to take share and that would mean market growth in 2024 will be similar to 2023 with the market declining 1 to 2 points. In terms of phasing of our core organic revenue growth, it's best to assume a more challenging first half and then moderate growth in the second half. The pandemic-related revenues both testing and total vaccines and therapies are likely to be around $300 million in 2024. This is a headwind of approximately $1.3 billion, or 3% of revenue. M&A is expected to increase revenue $175 million year-over-year. That's a combination of six months of Olink, and the inorganic portion of the CorEvitas revenue in 2024. And based on current rates, we would expect FX to be a headwind to revenue in 2024 of approximately $375 million, just under 1%. So wrapping all this together, 2024 revenue dollars will be very similar to 2023. In terms of adjusted operating income dollars, with this top-line setup, we would expect to deliver similar adjusted operating income dollars through 2023. We'll continue to use the PPI Business System to manage costs very carefully but also continue to make the right long-term investments to enable us to continue to strengthen our industry leadership. Strong underlying productivity and cost controls are expected to offset the run-off in the remaining pandemic revenue, inflation and the normalization of incentive compensation across the company and appropriate investments in our colleagues. Below-the-line and the interest income benefit from our cash generation and an assumption of $3 billion of buybacks in 2024 would more than offset the impact of a slight increase in our tax rate to 10.5%. All of this would enable us to deliver around $21.75 of adjusted EPS for the year. So the high-level summary is that with these assumptions, we'd expect 2024 core organic revenue growth to be similar to 2023. And then our proven growth strategy in PPI Business System would enable us to continue to manage the macro conditions and the run-off in pandemic revenue very effectively, so we can deliver revenue and profitability similar to 2023 and a slight increase in adjusted EPS. Now, should the market conditions be better than I just outlined, our growth strategy and proven execution capabilities will enable us to deliver the upside benefit. I look forward to providing you a formal guidance for 2024 on our next earnings call along with our usual supporting details for the year ahead. At that point, we'll have the insight from a full year of 2023, we'll have a better view on the macro conditions entering 2024. So in conclusion, we continue to navigate the environment really well, delivering differentiated financials and further strengthening our industry leadership. We remain really well-positioned to capitalize on additional opportunities as market growth normalizes over time. And as we think about our cost base, we're really well-positioned to drive strongly accretive growth going forward. Now let me turn the call-back over to, Raf.

Operator:

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

Marc Casper:

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

Marc Casper:

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

Rafael Tejada:

Thanks, Jack.

Operator:

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

Marc Casper:

Yeah. So, Dan, thanks for the question. I think the way that Stephen and I thought about giving an early view to 2024 is not based on us having finished our operating plan process which we do in December, and then when we actually lay out guidance, we do it based on how did the year finish, all of the details by business, by geography and then we figure out the details. We took the benefit of each of us having 20-plus years of experience in the industry, looking at the market conditions that we see today, and basically went through the assumptions of how could 2024 play out based on what we know today, right? So this is not a bottoms-up view by country, by geography and by business unit, but rather based on experience and based on what we're seeing. So when I think about for us next year, all right, we try to give you incredible clarity about what's COVID in our numbers, right? So we're expecting a run-off of $1.3 billion of COVID-related revenue in 2024, that would leave $300 million of revenue in 2024, of which we have a pretty good line-of-sight to what those activity is, right? So that's the first assumption. And then the second assumption is effectively what's going on in the base business, meaning, excluding the COVID-related business, and that should be a little bit over 3% growth, right? So if you think of those two factors, that's how you get to a core number of one. Remember that testing is part of the decline. So that's the set of assumptions. So then there is another lens to think about it, which is comparisons, right, or the -- we're going to lap the customer caution, different businesses at different points in time, but the first half will have more difficult comparisons, haven't fully seen the effect of caution. The second half, you actually get to more --you're back to kind of moderate growth in that period of time just based on that factor. And then we look at some of our businesses like our insurance business, which had the benefit this year of the disruptions from supply-chain in 2021 and 2022, and we're able to catch-up on orders that needed to be shipped and that gave us a little bit of a benefit of growth this year, of which, that obviously doesn't repeat next year. We factored all that in and we said, core is pretty similar to what it is next year. We look forward to actually doing the detailed guidance at the end of January, early February when we have our earnings call, and we'll have all of our puts and takes and be a lot smarter. But we wanted our analyst community to be aligned with what we're seeing today because there's quite a big disconnect in the numbers that are out there for 2024 relative to the numbers that we articulated today.

Marc Casper:

Thanks, Dan.

Marc Casper:

Dan, I think your fellow analysts are throwing tomatoes at your building today. You're asking 19 questions in that one, but I'll start at a high level and leave some of this for others. Let me break the pharma -- biopharma into what revenue was in Q3 and then a little bit of -- some of the underlying dynamics. Actually, the revenue in the quarter was incredibly similar to the prior quarter, right, in terms of how we actually performed. We declined 1%. And looking at that, the long-term outlook here is strong. We talked about that in an earlier question. Effectively, customer caution increased a bit. You'll see that more pronounced in biotech and pharma, but you see it across the customer set. That's more of a forward-looking look. I think the thing that probably is most relevant and why we think about our fourth quarter the way we do, one of the things that we assumed in our previous guidance was that in our bioprocessing business, that orders would stabilize, start to normalize in the third quarter. We did not see that, right? Obviously, what's the single biggest driver of the same factors in Q4 versus what we talked about really is bioproduction. We didn't see that normalization of orders. In general, that business operates on a roughly 13-week lead time. So if you don't see the orders in Q3, you're not going to see the revenue step-up in Q4. So hopefully that's helpful in terms of framing. I’m sure I’ll get some of the other ones in future questions.

Derik de Bruin:

Hi. Thank you, and good morning. Thanks for taking the question. Hey, Marc, you just typically haven't called out COVID impact to PPD -- the biopharma services business in the past. Can you just sort of clarify what that was in '22 and '23 overall so we can get the number? And also staying on that segment, Pfizer and Moderna are big customers of yours. They both sort of announced some R&D cuts. How should we sort of think about how that flows through the business? And I guess is there any sort of like vaccine revenues that in that business, were there any sort like take or pays that are sort of in there? So I know it's a lot on that, but just start there.

Derik de Bruin:

Right. So if we just think about underlying growth of the core PPD business, just sort of like, what's your embedded number for this year, and sort of like the working assumption for next year? Just, as I said, there's just a lot of variables. I think just some clarity would help.

Derik de Bruin:

Yeah.

Derik de Bruin:

Then just one more if I can. Thanks.

Rachel Vatnsdal:

Hey, good morning, and thanks for taking the questions. So appreciate all the color that you've given us today on 2024, but for two areas that I wanted to follow up on. First, how do you see China playing out next year? At this point, is growth in the region going to be reasonable in 2024? Are we going to be looking at declines? And now you've noted that 2024 is also going to be more of a back-half weighted story given those market dynamics. So could you walk us through the magnitude of the step-up that you're expecting between the first half and second half? And how much of that is really going to be driven by easier comps in the back half versus an expected rebound in the market?

Stephen Williamson:

Yeah. But, Rachel, that kind of set up what I put in the prepared remarks, is kind of a mirror image of this year as a starting point, kind of more challenging in the first half and then modest growth in the second half. Thanks, Rachel.

Marc Casper:

So I'll probably keep it at a pretty high level. Awesome quarter in Analytical Instruments, 8% growth. Team is doing a good job. Our electron microscopy business, really performing extremely well. And great to see the uptake on Astral, which is our breakthrough mass spectrometer, which we launched in June. So those are the highlights. Our guidance for this year and our framing for next year reflects the customer caution and the non-repeat of some of the -- working through the disruptions of the pandemic on supply chain. So that's embedded in the outlook for the year.

Rafael Tejada:

Thanks, Rachel.

Puneet Souda:

Yeah. Thanks, Marc, Stephen. Thanks for taking the questions. I'll wrap two of my questions into one. First, largely on M&A. Given the environment right now, the type of deals that you're doing, the type of valuations you're doing at, could you maybe just give us a sense of what you're seeing out there? Obviously, Olink, prior to that Binding Site and CorEvitas. Is that the type of sort of midsized deals that we should continue to expect here and the opportunity base that you are seeing in M&A? And within the proteomics franchise, now with successful Orbitrap franchise of last 15-plus years, combining that with Olink, Marc, maybe at a high level, could you provide us your, not for lack of better word, vision on proteomics despite being a sort of a tough market this year and next year?

Puneet Souda:

Great. Thank you.

Operator:

Thank you. Our next question comes from Eve Burstein from Bernstein. Eve, your line is now open. Please proceed.

Stephen Williamson:

So, it’s Steve. Thanks for the question. So when I think about the margin dynamic in that segment, yeah, mix is -- when you think about where the more challenging environment is in terms of customer caution and China, that impacts the lab products business and then the wider customer caution also impacts our channel business, so relative to the other business in that segment, where the mix profile comes from. In terms of productivity, it's about -- we've been rightsizing the cost base within our lab products business and given the volume change. So that's where the majority of that is. And then just good spending wisely across the whole business, but those are probably the two main factors to call out. Thanks, Eve.

Operator:

Thank you.

Operator:

Perfect. We will take our last question today from Dan Leonard from [UBS] (ph). Dan, your line is now open. Please go ahead.

Marc Casper:

So good question. When I think about the -- it's primarily a bioproduction story. And I don't think anyone is smart enough to know exactly which quarter. But during 2024, do I think that we will get back to orders matching revenue at some point during the year? Yeah. So I think that we'll be smarter with the benefit of another three months of time to see what our view is on 2024. But I don't think we'll be talking throughout the year about inventory reduction in the customer side because there's activity that's going on currently that's consuming the inventory that's out there. Great. So let me bring to just a quick wrap up for the call. Thank you for joining us today. We're very well positioned to continue to deliver differentiated performance. And as always, thank you for your support of Thermo Fisher Scientific. We look forward to updating you in the new year.

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 Investor section of our website thermofisher.com under the heading News & Events until August 11th, 2023. A copy of the press release of our second quarter 2023 earnings is available in the investor 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 report on Form 10-Q, which is 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 second quarter 2023 earnings and also in the Investor section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

Stephen Williamson:

Thanks, Marc, and good morning, everyone. As you saw in our press release and as Marc just lines, the macroeconomic environment became more challenging in the second quarter. We're leveraging our PPI Business System to effectively manage these conditions. In the quarter, we delivered $10.7 billion of revenue, which included just over 2% core organic revenue growth and we delivered $5.15 of adjusted EPS. Revenue in the quarter was $300 million lower than we'd incorporated in our previous 2023 guidance. $280 million of this was related to the core business and $20 million related to testing. Approximately one-third of the change in core revenue was driven by lower economic activity in China and the remainder was driven by more cautious spending across our customer base globally, particularly in biotech. Adjusted EPS in the quarter was $0.28 lower than when incorporated in our previous 2023 guidance, $0.07 of this was driven by FX and $0.21 by the lower revenue. Given the lower core revenue both in the quarter and assumed in our full-year outlook, we're using the PPI Business System to aggressively manage our cost base. In Q2, this enable us to offset $75 million of the profit impact of the lower-than-expected revenue, this highlights that we're actively managing the business. Let me now provide you with some more details on our performance. Beginning with our earnings results, as I mentioned, we delivered $5.15 of adjusted EPS in Q2, GAAP EPS in the quarter was $3.51. On the top line, reported revenue was 3% points lower year-over-year. The components of our Q2 reported revenue included 3% lower organic revenue, a 1% contribution from acquisitions and a slight headwind from foreign exchange. As I mentioned earlier, core organic revenue growth in the quarter was just over 2 percentage points. For context, core organic revenue growth includes the runoff in our COVID-19 vaccines and therapies revenue. Without that runoff impact, growth would have been 5% in the quarter. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the pandemic-related revenue in the current and prior year. In Q2, North America declined mid-single-digits. Europe grew in the low-single-digits and Asia Pacific declined in the mid-single-digits with China declining in the low-teens. With respect to our operational performance, adjusted operating income in the quarter decreased 9% and adjusted operating margin was 22.2%, a 150 basis points lower than Q2 last year. In the quarter, we delivered very strong productivity and achieved strong price realization, this was more than offset by lower pandemic-related revenue, continued strategic investments and FX. Given the change in the macro environment, we're using the PPI Business System to drive significantly more productivity this year than initially planned. We've initiated $450 million of additional cost actions. And as I mentioned earlier, we already began to see this benefit in Q2. Total company adjusted gross margin in the quarter came in at 41%, 220 basis points lower than Q2 last year. For the quarter, the change in gross margin was due to the same drivers as those for adjusted operating margin. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 15.6 of revenue, an improvement of 50 basis points over Q2 last year. Total R&D expense was $345 million in Q2, reflecting our ongoing investments in high impact innovation. R&D as a percent of our manufacturing revenue was 7.1% in the quarter. Looking at our results below the line for the quarter, our net interest was $148 million, which is $36 million higher than Q2 last year, mainly due to capital deployment. Our adjusted tax rate in the quarter was 10%, this was 300 basis points lower than Q2 last year, reflecting the results of our tax planning activities. Average diluted shares were $388 million in Q2, approximately $6 million lower year-over-year, driven by share repurchases net of option dilution. Turning to cash flow and the balance sheet. Year-to-date cash flow from operations was $2.3 billion. Year-to-date free cash flow was $1.5 billion after investing $730 million of net capital expenditures. During the quarter, we repaid $1 billion of senior notes and returned $135 million of capital through dividends. Shortly after the quarter end, we announced the definitive agreement to acquire core EBITDA for approximately $900 million. We ended the quarter with $3.1 billion in cash and $34 billion of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.9 times on a net debt basis. Including my comments on our total company performance, adjusted ROIC was 11.9%, reflecting the strong returns on investment that we're generating across the company. Now provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our pandemic-related revenue varies by segment and that revenue was higher in the prior year. So that does skew some of the reported segment growth rates and margins. We continue to execute strong pricing realization across all segments to address higher inflation. Moving on to the segment details, starting with Life Science solutions, Q2 reported revenue in this segment declined 25%, and organic revenue was also 25% lower than the prior year quarter. This was driven by the moderation in pandemic-related revenue in the segment versus the year ago quarter and to a lesser extent, the macro factors that I described earlier. Q2 adjusted operating income in Life Science solutions decreased 38% and adjusted operating margin was 33.2%, down 710 basis points versus the prior year quarter. During the quarter, we delivered very strong productivity, which is more than offset by unfavorable volume mix. In the Analytical Instruments segment, reported revenue increased 9% in Q2 and organic growth was 10%. The strong growth in the segment this quarter by the electron microscopy business. Q2 adjusted operating income in this segment increased 26% and adjusted operating margin was 24.7%, up 130 basis points year-over-year. In the quarter, we delivered very strong productivity and had strong volume and mix, that was partially offset by strategic investments and FX. Turning to Specialty Diagnostics. In Q2 revenue increased 1% and organic revenue was 5% lower than the prior year quarter. In Q2, we continue to see strong underlying growth in the Core led by our microbiology immunodiagnostics and transplant diagnostics businesses. This is offset by lower pandemic-related revenue versus the year ago quarter. Q2 adjusted operating income increased 22% in the quarter and adjusted operating margin was 26.7%, which is a 460 basis points higher than Q2 2022. During the quarter, we delivered very strong productivity and favorable business mix, which is partially offset by the impact of lower COVID-19 testing volume and strategic investments. And finally, in laboratory products and biopharma services segment, Q2 reported revenue increased 5% and organic growth was also 5%. During Q2, organic revenue growth in this segment was led by the Pharma Services and Clinical Research Businesses. Q2 adjusted operating income in the segment increased 19% and adjusted operating margin was 14.1% which is 160 basis points higher than Q2 2022. We delivered very strong productivity in the quarter, partially offset by FX and strategic investments. Let me now turn to guidance. And as Marc outlined, we're revising our full-year 2023 guidance to reflect both the more challenging macroeconomic environment and the offsetting actions that we're taking to navigate these conditions. Revenue for 2023 is now expected to be in the range of $43.4 billion to $44 billion with Core organic revenue growth in the range of 2% to 4%. Adjusted EPS is now expected to be in the range of $22.28 and $22.72. For modeling purposes, our current estimate of where we're likely to end up for the year within that range is $43.5 billion of revenue rounding up to 3% Core organic revenue growth and adjusted EPS of $22.36. Let me provide you some additional details behind the changing guidance. Starting with revenue. Our revised guidance reflects the change in the assumption for Core organic revenue growth from 7% to a range of 2% to 4%. And it also assumes a $100 million lower testing revenue. Our Core organic revenue change is driven by two factors

Operator:

Thank you. We’ll now enter the Q&A session. [Operator Instructions] Our first question comes from Matt Sykes from Goldman Sachs. Matt, your line is now open. Please proceed with your question.

Marc Casper:

Yes. So Matt, thanks for the question. In terms of the guidance change, the way that I think about let's start from the beginning of the year. I think it's the easiest place to start and we can talk about the Investor Day, right? So, you know, in terms of the market growth and the conditions there, right? Or what we're seeing is that China really slowed quite meaningfully in Q2, right? And that's actually somewhat surprising given the first quarter really started to rebound off of the zero COVID policies and there was government stimulus and all of a sudden Q2 really slowed down significantly and, you know, when I think about that. And then we're assuming that for the full-year, right, in terms that it's going to continue. We've seen customer caution, I mean, I think every business, when I say this is about life science tools and diagnostics. Businesses have been cautious this year on spend and it certainly manifested itself more meaningfully in Q2, particularly in biotech. And so when I think about it, about a point of our change in the growth outlook comes from China, about 3 points of it comes from customer caution. And within it, bioproduction is about a point or a third of the customer caution, passed back two-thirds across the rest of the business. You know, versus sort of what the analyst day and sort of, you know, the view in May, you know, we saw China certainly soft throughout the quarter. And in our business, the final month of a quarter is actually quite meaningful across all of our businesses. So while we certainly saw some customer caution in the beginning of the second quarter, June saw no bounce at all, right? So it just, you know, it's kind of flat through the -- you know, kind of flat through the quarter. So therefore, we just didn't see that view, which is why we've adjusted the outlook at this point in time.

Marc Casper:

Yes, Matt. Thanks for the question. So when I think about instruments, we obviously entered the year with a strong backlog and we entered the quarter with a strong backlog. And the 10% growth is very strong performance. Orders were definitely softer than we expected in Q2 primarily driven by China, which is a large component of the business there. And therefore, I would say we would expect that the growth rate would become more muted as the year unfolds in the analytical instruments business as we continue to work down the backlog. Thank you, Matt.

Operator:

Thank you. Our next question comes from Dan Arias from Stifel. Dan, your line is now open. Please go ahead.

Stephen Williamson:

Yes. So, Dan, I'll explain on the PPI side and then I'll get onto the, kind of, EPS for you. So it's on PPI that what we do it's how we run the company. So this is about the first thing you do when you think about economic conditions being different and activity levels being different with our customers is prioritization in terms of what we're working on and deprioritize areas, which may be less important, push things out as appropriately and then make sure that we're investing in the right areas that we should be investing in and not titrating back any spending where that really matters. So it's about prioritizing where we're spending our time and what we're working on. And part of that Dan is then reduction in discretionary spending, reduction in activity levels in certain areas. And use PPI to be able to help us do that and put that into operation. We use the company scale in terms of the levers and sourcing, particularly in in-directs. You can lean on those levers when economic conditions aren't too strong and that's definitely a way of getting some of the benefits. And then when we think about the expected slightly lower volumes and we're optimizing our manufacturing operations appropriately and generally across our businesses. We're appropriately reducing headcount where that makes sense across the business. And so all of that wraps up into $450 million of benefit this year. And those actions have pretty much all been actioned right now in terms of the -- there's nothing significant to come. It's more they've taken the appropriate actions given the environment that we see. Then in terms of the back half of the year, so was your question around the phasing of EPS or the range of EPS, could you just clarify?

Stephen Williamson:

Yes. So we provided a range of outcomes and what you thought about what the market conditions could be and when we think about what the pull through would be on the revenue and that range of outcomes, plus the activities we're working on the cost side. I think that's an appropriate range for EPS. And then the phasing first-half, second-half, clearly, a higher adjusted operating income margin in the second-half of the year and that's really largely driven by the impact of the cost actions. So of the $450 million, $75 million impacted the first-half and you'll have $375 million of benefit in the second-half. And then revenue is a little bit more weighted and look at the year as a whole to the second-half versus the first-half. That's the other piece that drives the profitability in EPS difference. Thanks, Dan.

Operator:

Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Vijay, your line is now open. Please proceed with your question.

Marc Casper:

Yes. So Vijay, in terms of the phasing of the quarter, I think really what was -- different was June saw none of the normal quarter-end pattern. So it was very similar to April and May. That -- in my many years of doing this, that's unusual, actually, where the last month isn't a big step-up in activity. That's just the sort of the pattern of the industry a bit. So our assumption for the year is effectively that the market conditions that we saw in Q2 -- in aggregate, for Q2 continues to play out for the balance of the year. And you have all sorts of different comparisons within the different businesses versus the prior year and so forth. But we felt that the 0% to 2% market growth and for us, for the full-year, the 2% to 4% core growth would be an appropriate performance. I think maybe the best color that I can give you is sort of how we think about it, right? Our best view on what happened in the market is informed by looking at all of the competitors, peers that reported in Q1. Obviously, that goes well into May. All of our internal data about what's going on in the market, our extensive dialogue with customers and the few companies that reported so far, right? So that informs the 0% to 2%. The way we think about this and the standard is -- it's our job to gain market share. We put in 2 points of growth faster than that assumption. We're going to hold ourselves to that standard, meaning if we're too conservative on the market outlook, then we will have higher expectations of what good looks like in terms of the year, but that's our best view. When you look at the script and the comments that Stephen and I made, we made no comments about share gain in Q2, because when you deliver 2% growth, we're not going to pat ourselves on the back. At least looking at the first few companies that have reported, it appears that our performance is actually quite good and that we're growing faster. There's a lot of companies yet to report, but it actually looks like on a relative basis, we actually had a solid quarter of growth. So hopefully, that gives you some context of where things are, but we're going to keep studying it and make sure we got a good handle on our performance. And when we end ‘23, that we will be proud that we navigated the environment extremely well, deliver differentiated performance and set the company up for long-term success.

Stephen Williamson:

So Vijay, the decline will lessen on a reported basis because of the run-up in testing factor therapy is a little bit there in terms of the support of the pandemic that we did in the back half of the year last year. So we're assuming basically the same market conditions, not just China, but for the rest of the world, as well as we saw in Q2 for the remainder of the year.

Vijay Kumar:

Fantastic. Thank you, guys.

Operator:

Thank you. Our next question comes from Dan Brennan from TD Cowen. Dan, your line is now open. Please proceed with your question.

Marc Casper:

Yes. So in terms of China, when I think about it, we had a decline on an organic basis a little over 10%. Core was about flat in terms of it, and I'm just trying to give some flavor. So you, obviously, have the COVID testing. What we saw in China -- and it was very different than what our team expected, what we expected. And if I think about that, that's an unusual comment coming from us. Actually, our leadership team from China came to the U.S. and the opportunity to sit down and chat with what are they seeing? So -- and I'm heading over to China in a few weeks as well for a week. So it's an important market. It really does feel like it is broad economic based. And -- so we saw that across our different businesses, not limited to one. Clearly, bioproduction was soft in China. So consistent with some of the other comments that you've heard from others. But we saw the slowdown really cut across the portfolio, if you will, and it seems to be economic activity. We always assume, hey, are we doing something wrong? Are we losing share? All of those things, because I think that's sort of the PPI discipline, which is fact-based, hold yourself accountable to a high standard, at least on what we're seeing, it just feels like customers got extraordinarily cautious in China, activity slowed and it showed up across the portfolio. And while I haven't had a moment to distract myself on some fun activities, I look forward to, at some point, some football and seeing if the Jets actually make an improvement.

Dan Brennan:

And then maybe just on the end market, 4% to 6%, which you took down to 0% to 2% right now under your planning for 2023, kind of from what you see today? Is that 0% to 2% the best starting point as we think about modeling out Thermo's top line for 2024?

Stephen Williamson:

Yes. So just broadly on 2024, when I think about what you need to do to model the company going forward, there's two factors. One is the jumping off point for the 2023 margins and then what's the macro conditions assumption you used for 2024. So obviously, on the macro, we're assuming that the near-term conditions stay the same throughout the remainder of the year. You will need to make your own assumption around what that market growth is for next year. We'll have more clarity on that when we get towards the end of this year and know what the macro conditions are like. So it's not macro within our industry, it's the macro in terms of the overall economic situation across the globe. So we'll have a clearer view on that towards the end of this year. As Marc said earlier, we'll hold ourselves to the standard of delivering a couple of points higher than what the market growth is when we think about that. So as you leave in what assumption you have, I think the assumption is we'll be driving a couple of points of share gain above that. And then from a margin standpoint, a normal assumption for the year, we start with 50 basis points of expansion on top of what we just ended the year. And then when you think about my guide for this year, will be some small benefit of the carryover of the cost actions into 2023 as well. So that will help you think about the margin profile for ‘24 at this point and provide you a more refined view on that when we give the guidance for ‘24 in more detail. Thanks, Dan.

Derik De Bruin:

Hi, thank you and good morning. So Dan sort of asked so the question I wanted to talk to you about on ‘24. I guess, Marc, what's your view that we're not entering a more prolonged downturn in the life sciences tools market? And I'm just sort of thinking about this from a historical perspective when we've, sort of, seen some resets in the market, and it's taken a while for this to sort of like wash through the system. So it's like what's your confidence that we're not in a situation where we've got a couple -- we've got a period where the growth is going to be sort of back in that lower range?

Derik De Bruin:

Yes, it is. It is. So just a follow-up on this is, like how much of the pharma and biotech slowdown is just this digestion of the excess COVID spending? And clearly, there was frothy biotech markets and people worry about supply chain. So there was -- a lot of money that went into the system as people did this? How much is this just digesting that extra spend versus -- are you seeing new concerns? Are these customers seeing new concerns of a regulatory environment, drug pricing, patent expirations? Are you seeing any signs of slowing clinical trial activity or higher cancellations rates? Just some sort of thought on what's just a hangover period from COVID versus new trepidation in the space?

Derik De Bruin:

Great. Thanks, Marc.

Operator:

Thank you. Our next question comes from Rachel Vatnsdal from JPMorgan. Rachel, your line is now open. Please go ahead.

Marc Casper:

Yes. So when I think about customer caution, sort of, a macroeconomic view, you see that across all types of customers. So it's not limited to one segment. It's more pronounced than biotech, but we saw it in some industrial customers and certainly, we saw in some of the other customers that we serve, academic and government so forth. So it's not limited to one view. In terms of the growth where the impact and the change of growth is in the other segments, clearly, with -- our view is that the instruments business will slow in the second-half of the year. So that's probably one of the changes. And then some of the run rate activity that you would see in things like bioscience reagents or customer channels, which actually -- those are great businesses. We think customers will be a little bit more muted in spending. So it's really not pin to one area, but just a spread across the portfolio, probably with instruments feeling most of the impact.

Operator:

Okay, thank you. Our next question comes from Jack Meehan from Nephron Research. Jack, your line is now open. Please proceed.

Marc Casper:

Yes. Jack, thanks for the question. So in terms of capital deployment and M&A, we've been active on return of capital, both through the increase in the dividend and the share buybacks earlier in the year. We've also been active on M&A, with closing the Binding Site to start the year. We're excited about CorEvitas. And we have a lot of firepower, and we're very active, right? I do agree with your sentiment that, in these periods, there are opportunities. So we're actively looking at a number of things. And we're only going to do transactions that fit our criteria, which is, ultimately, going to strengthen our offering from a customer perspective. It's going to clearly add shareholder value in terms of the returns that we generate from the transaction. So you'll see us be active. And whether that happens in terms of the second half of the year or into ‘24, we're certainly busy is the way I would think about it.

Marc Casper:

Yes. So Pharma Services, really strong performance, in terms of growth and the way you'd characterize it as accurate. So very strong growth in that business. When I think about new wins and some of the things that we're securing for the future, the team is doing a nice job of building out a strong backlog for the future. So that business is in a good spot. When I think about the Tornado that hit in North Carolina, the good news is that nobody was injured at least in our discussions with the customer and they're assessing the issues from a market perspective. And we stand ready to help our customers as we do in any situation, and we never view that as a business opportunity. We always view it as we have very material relationships with our customers. And our colleagues are there to support them, and we will support in any way that is helpful as they work through the natural disaster. So thank you, Jack, for the question. And thanks, everyone, for the questions today. Let me wrap up with -- thanks for joining us. We're very well positioned to deliver and continue to deliver differentiated performance, which we'll do. And as always, thank you for your support of Thermo Fisher Scientific, and we'll keep you updated on our progress. Thanks, everyone.

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 Investor section of our website thermofisher.com under the heading News & Events until May 12th, 2023. A copy of the press release of our first quarter 2023 earnings is available in the investor 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, which is 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 first quarter 2023 earnings and also available in the Investor section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

Stephen Williamson:

Thanks, Marc, and good morning, everyone. As you saw in our press release, we started the year with a very strong Q1. Our growth strategy powered by our PPI Business System is enabling us to continue to very effectively navigate the company through a dynamic macro environment, manage the runoff in pandemic related revenue and drive excellent core organic revenue growth and share gains. In the quarter, we delivered $10.7 billion of revenue, which included 6% core organic revenue growth. We delivered $5.03 of adjusted EPS. Our core organic revenue growth was 1% higher than we had incorporated in our previous 2023 guidance, and adjusted EPS was $0.02 ahead. So a very strong start to the year. Let me now provide you with some more details on our performance. So beginning with our earnings results, as I mentioned, we delivered $5.03 of adjusted EPS in Q1. GAAP EPS in the quarter was $3.32. On the top line reported revenue was 9% lower year-over-year. The components of our Q1 reported revenue included 8% lower organic revenue, a 1% contribution from acquisitions and a headwind of 2% from foreign exchange. Pandemic related revenue came in as we expected in Q1. This is comprised of $140 million of testing revenue and $180 million of vaccines and therapies revenue. As I mentioned earlier, core organic revenue growth in the quarter was 6%. And as a reminder, core organic revenue growth continues to include the change in our COVID-19 vaccines and therapies revenue, which was a headwind of approximately 3% in the quarter. So very strong core performance showing the continued strength of our business. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the pandemic related revenue in the current and prior year. In Q1, North America declined high-single digits. Europe declined in the low-double digits. Asia Pacific grew in the low-single digits, with China declining slightly and Rest of World declined high-single digits. With respect to our operational performance, adjusted operating income in the quarter decreased 32% and adjusted operating margin was 21.8%, 740 basis points lower than Q1 last year. In the quarter, we achieved strong price realization to effectively address inflation while also driving strong productivity. This was more than offset by lower pandemic related revenue and continued strategic investments. Total company adjusted gross margin in the quarter came in at 40.3%, 720 basis points lower than Q1 last year. For the first quarter, the change in gross margin was due to the same drivers as those for our adjusted operating margin. Moving on to the details of P&L. Adjusted SG&A in the quarter was 15.3% of revenue. Total R&D expense was $350 million in Q1, reflecting our ongoing investments in high impact innovation. R&D as a percent of manufacturing revenue was 6.9% in the quarter. Looking at our results below the line for the quarter and net interest expense was $154 million, which is $36 million higher than Q1 last year, mainly due to capital deployment. Our adjusted tax rate in the quarter was 10%. This is 410 basis points lower than Q1 last year, reflecting the results of our tax planning activities. Average diluted shares were $388 million in Q1, approximately $6 million lower year-over-year, driven by share repurchases, net of option dilution. Turning to cash flow on the balance sheet. Cash flow from operations was $730 million. Free cash flow for Q1 was $280 million after investing $450 million in net capital expenditures. During the quarter, we deployed $5.8 billion of capital. This included $2.7 billion for the acquisition of The Binding Site and $3.1 billion of capital to return to shareholders through buybacks and dividends. We ended the quarter with $3.5 billion in cash and $35.3 billion of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.9 times on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 12.2%, reflecting the strong returns on investment that were generating across the company. Now provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our pandemic related revenue varies by segment, and that revenue was significantly higher in the prior year. So that does skew some of the reported segment growth rates and margins. We continue to execute strong pricing realization across all segments to address higher inflation. Moving on to the segment details starting with Life Science Solutions. Q1 reported revenue in the segment declined 38% and organic revenue was 37% lower than the prior year quarter. This was driven by the moderation in pandemic related revenue in the segment versus the year ago quarter. Q1 adjusted operating income in Life Science Solutions decreased 62% and adjusted operating margin was 32%, down 19 percentage points versus the prior year quarter. In the quarter, we delivered good productivity, which was more than offset by unfavorable volume mix due to the significantly higher pandemic related revenue in Q1 2022. In the Analytical Instruments segment, reported revenue increased 14% in Q1 and organic growth was 17%. The strong growth was broad based in the segment this quarter led by chromatography and mass spectrometry and the electron microscopy businesses. Q1 adjusted operating income in the segment increased 40% and adjusted operating margin was 24.4%, up 460 basis points year-over-year. In the quarter, we delivered strong volume pull-through, strong productivity and favourable business mix. This was partially offset by strategic investments. Turning to Specialty Diagnostics. In Q1, reported revenue declined 25% and organic revenue was 28% lower than the prior year quarter. In Q1, we continued to see strong underlying growth in the core led by our immunodiagnostics, microbiology and transplant diagnostics businesses. This was offset by lower pandemic related revenue versus the year ago quarter. Q1 adjusted operating income decreased 21% in the quarter and adjusted operating margin was 25.3%, which is 140 basis points higher than Q1 2022. During the quarter, we delivered favourable business mix and strong productivity, which is partially offset by the impact of lower COVID-19 testing volumes. Finally, in Laboratory Products and Biopharma Services segment. Q1 reported revenue increased 6% and organic growth was 7%. During Q1, organic revenue growth in this segment was led by the pharma services and clinical research businesses. Q1 adjusted operating income in the segment increased 28% and adjusted operating margin was 13.8%, which is 240 basis points higher than Q1 2022. In the quarter, we delivered strong productivity and volume pull-through. This was partially offset by strategic investments. Let me now turn to guidance. And as Marc outlined, we're maintaining our guidance for full year 2023, consisting of revenue guidance of $45.3 billion, including 7% core organic revenue growth and adjusted EPS guidance of $23.70. There's no net change overall in our guidance, but how we expect to achieve this guidance is different from the way we planned at the start of the year, and it demonstrates our ability to effectively navigate the dynamic macro environment and maintain a very strong financial outlook. Since our initial guide, we see $0.25 of additional headwinds to adjusted EPS, $0.15 from business mix and $0.10 from FX. We're actively offsetting all of this headwind about $0.20 through cost management and $0.05 through actions below the line. So no net change overall. The PPI Business System is enabling us to navigate the company very effectively through a dynamic macro environment. As I mentioned, the 2023 guidance reflects a very strong financial outlook. Let me remind you of some of the key underlying assumptions that remain unchanged from the previous guidance. We continue to assume 7% core organic revenue growth from market growth of 4% to 6%. Within that core revenue, we expect $500 million of vaccines and therapies revenue in 2023. This is $1.2 billion less than the prior year, a 3% impact on core organic revenue growth. It's worth noting that the majority of our vaccine and therapy revenue in 2023 is expected to be in our pharma services business. With regards to testing revenue, we continue to assume $400 million for 2023. We're assuming The Binding Site acquisition will contribute approximately $250 million to our reported revenue growth this year. Below the line, we expect net interest expense in 2023 to be approximately $480 million. We continue to assume that net capital expenditures will be approximately $2 billion in 2023 and free cash flow is assumed to be $6.9 billion for the year. Our guidance includes $3 billion of share buybacks, which were already completed in January. We estimate the full year average diluted share count will be approximately 388 million shares. And we're assuming we return approximately $540 million of capital to shareholders this year through dividends, a 17% increase over 2022. So turning now to the assumptions that have changed. As I mentioned earlier, our FX assumption for the year has changed. We still expect FX to be a tailwind to revenue of approximately $100 million or 0.2%. However, we now expect it to be a headwind to adjusted EPS of $0.06. That's $0.10 more of a headwind than the previous guidance due to changes in rates and the expected mix of our currencies. Guidance assumes adjusted operating margins for 2023 to be in the range of 23.8% to 23.9% for the year. The adjusted tax rate assumption has improved slightly from our initial guide. We now expect it to be 10.8% for the full year. And finally, I wanted to touch on quarterly phasing for the year. Compared to our initial phasing assumptions, we now expect a slightly higher weighting of revenue and adjusted EPS in the second half of the year. We're currently assuming that the first half of the year represents approximately 48% of our full year revenue dollars and 44% of our full year adjusted EPS dollars. Q2 core organic growth is expected to be mid-single digits, probably best to model at a slightly lower than Q1. To conclude, we delivered a very strong start to the year and we're in great position to deliver differentiated performance for all our stakeholders in 2023. With that, I'll turn the call back over to Raf.

Operator:

Thank you. [Operator Instructions] Our first question comes from Jack Meehan of Nephron Research. Jack, your line is open. Please go ahead.

Marc Casper:

Yes. So Jack thanks for the question. Good morning. Our clinical research business, PPD had a very strong start to the year. The growth continues to be in the mid-teens. And it's doing really well. We had strong backlog. We had good level of authorization. So that business is continuing to benefit from the revenue synergies. You've seen that start to come into the numbers this year and I'm very excited about the prospect. Team is doing a really good job of executing. Environment is definitely a little bit more challenging, but the team is doing a good job to go out and capture the business.

Marc Casper:

Our channel business, Fisher Scientific channel has done really well actually consistently for quite a number of years. It plays an amazing role in enabling our customers to do the research that they're doing and make sure they do that in an effective and efficient way. And the business is off to a good start. It has had good growth. And our best sense on share dynamics as it continues to win customers. So it's a well-performing business.

Marc Casper:

Thanks, Jack.

Operator:

Thank you. Our next question comes from Rachel Vatnsdal of JPMorgan. Rachel, your line is open. Please go ahead.

Marc Casper:

Sure. So, Rachel, good morning. Thanks for the question. Maybe I'll step up a level first, and then I'll talk about the specifics of the question because as I look and read some of the other industry participants reports so far. Clearly, a noisy quarter in the industry. And when I frame that, as a reminder, when we started the year, we set out ambitious goals for 2023, right? And we do that every year. For us, a 7% core growth from an organic perspective against a 14% comparison and also have very strong earnings. So that's sort of as we came into the year. So what's different in late April versus February 1st when we set out our guidance. Well, the first thing is, we delivered a great chart to the year, right? Great Q1. Second, the macroeconomic environment is more challenging, right? And that leads to a slightly more cautious spend in all sectors of the economy, nothing to do with life science tools and pharma services. But we also see that in some of our customers as well in terms of the caution. Within our own company, a couple of our businesses are performing slightly better than our original guidance, and that's our analytical instruments business which had an excellent Q1 and we now have more visibility into Q3 for that business and that looks encouraging. The second business is doing a little bit better than our original guidance with Specialty Diagnostics is also a strong start. Bioproduction, which is where your question is really focused, we're going to see in the first half more headwinds than our original expectation. It's driven really by the customers are benefiting from the improved lead times that we're delivering against because we brought our -- completed our network expansion, right? So customers can get products more quickly. And our view is this is a temporal phenomenon, and we feel good about what the long-term prospects here. In terms of the specifics in terms of visibility and by customer sets and those things. I think the way that I think about it is, long-term, this is an incredible market with great growth. It's grown very high for many years in the past and has incredible tailwinds. It has a reasonably good visibility because it's related to customer production. And our expectation is that the second half of the year is better than the first half of the year in terms of the view. As a reminder, Rachel, it represents 10% of our revenue. So I think it's important to keep that in the context as well.

Marc Casper:

Yes. So in terms of our instruments business, we really are benefiting from very strong adoption of our innovation, right? We just continue to bring out great products. As a reminder, during the pandemic, we continue to fuel and accelerate our R&D pipeline, and you're seeing the benefit of it. We are capitalizing on the semiconductor desire to move to the next generation of nodes, which uses our electromicroscopy. We're a key enabler for battery technology with our microscopes and our chromatography and mass spectrometry business doing incredibly well. So the strength here is broad based. Obviously, the 17% growth in the quarter, very strong. We would expect a good level of growth in Q2. And what we had said at the beginning of the year is that, that would moderate in the second half, and we think that moderation will be less than we originally expected in Q3. So we expect it to be a solid Q3, and we'll obviously have more visibility to Q4 when we report in July. So we're assuming that Q3 is little better than we expected and Q4 as we expected at this point because that's what we have visibility to. Thanks, Rachel.

Derik De Bruin:

Hi. Good morning. So I'm curious you've talked about ambitious guide and the markets being a little bit tougher. Yes, you're maintaining guidance because you're offsetting some things right now. I guess, is there additional little room to do further offsets if the market curates further there. Basically, it's a question about your confidence in that guide and how much sort of like leeway is built into it? Thanks.

Derik De Bruin:

Got it. And going back, I mean, because we're obviously getting a lot of questions on the whole bioprocessing and inventory issues. I know your business is more upstream focused on downstream and it looks like you're maintaining the expectations you have for the COVID vaccine element. But can you just talk a little bit more about some of the dynamics in that space? And why your business is a little bit different than some other ones? And also just you talked about some moderating in bioproduction. Just a little bit more clarity on that. Thanks.

Stephen Williamson:

Just can I level set for a second on the actual revenue for 2023, the $500 million of vaccines and therapies. That's pretty much all in our pharma Services business, it's not in the bioproduction business.

Marc Casper:

Yes. So when I think about the dynamics here, on the COVID vaccine, as Stephen said, my take is, it's played out almost exactly. I mean Q1 is exactly where we anticipated when we look at our visibility to the $500 million, I feel very good about that in terms of it because we know the contracts that we have and what activity has been booked there. So that's pretty straightforward. When I think about the bioproduction more generally, what I would say is in the very practical dynamics to go back to the pandemic, right? Huge demand, right, for these products. Those companies that were successful and unsuccessful and trying to bring out therapies and vaccines for response to the pandemic. That stressed lead times for everybody. Obviously, it varies differently by how much capacity, how well companies are on all those different dynamics, but lead times got super extended, right? For us and the nature of our products, our leadership in cell culture media and single use. Customers don't really order extra. It's not one of these things where you want to be stockpiling this stuff because they're very specific to the campaigns that you're running, right? So the dynamic becomes very simple. If we have a 30-week lead time, which was extended during the pandemic, you order 30 weeks -- with 30 weeks visibility. When we bring that lead time back into normal to say 15 weeks for simplicity, customers will work through what they ordered because they don't have to order as quickly because they know we're going to give them the product, right? And one of the themes that we said throughout the pandemic was we work super closely with our customers like incredible around the dialogue. So they trust that we're going to deliver when we say. So they didn't over order in the time when lead times got extended and they're ordering appropriately now. So can you call that to the month? No, of course, not. But we have a reasonable view that the first half is going to be a little bit softer than we originally had put in our expectations that the second half starts to pick up. And the good news is between instruments, especially diagnostics, it's offsetting at this point. So hopefully that's helpful.

Marc Casper:

You're welcome.

Daniel Brennan:

Great. Thank you. Thanks for the questions. Marc, while we had to wait for the conference call to get the core organic guide reiteration for Thermo. The Jets went up to you by giving us Aaron Rodgers trade before the draft. Fans have to be excited for the year. I hope you are. So maybe just on bioproduction, a question there. Would you be willing to share with us just some color within the context of your biopharma outlook for 2023. How you're thinking about the growth rates for your consumables business the CDMO and PPD. I know on the last call, you gave us PPD, but just trying to get a breakdown or a sense of the different components for your biopharma outlook for the year?

Daniel Brennan:

Great. Thank you for that, Marc. And then maybe as a follow-up on earlier question on instruments. You talked about better visibility. So what is -- you talked a lot about share gains as well. So maybe could you give us a sense of how you're somewhat bucking the trend that the other peers are seeing after a strong couple of years. You're still seeing above corporate average growth, others are kind of citing more comps. So what's driving between FEIC, LC-MS and any geographies or anything you want to share with us about the strength in your AI business for 2023?

Daniel Brennan:

Great. Thank you, Marc.

Operator:

Thank you. Our next question comes from Matt Sykes of Goldman Sachs. Matt, your line is open. Please proceed.

Marc Casper:

Yes. So, Matt, thanks for the question. China actually played out pretty much as we expected in the quarter, right? So our expectation for Q1 was it was going to be slightly better than Q4 that you'd still see some of the impact of the unwind of the Zero COVID policy. And that as the year progresses, it will continue to strengthen from there. When I look at the first quarter in China, the business was down slightly. The core growth actually was high-single digits in the quarter. So that felt good. What I would say is, we expected stimulus to happen in the first quarter. It did happen in the first quarter. So that played out. It was good to see the Chinese government released money to the academic institutions. You see that in our instrument business. And so that played out well. And so I feel good about the outlook. Obviously, the geopolitical tensions are real, and that's an environment that is going to be around, I would suspect for a while. And we'll navigate through it, but China should be a good market for us this year and it has been historically. Stephen, anything on the --

Matthew Sykes:

Got it. And then just maybe one high level on PPD. You talked about the growth there. And obviously, it's been outgrowing peers. Can we attribute any of that outsized growth to sort of the value proposition that being a part of Thermo might represent for your customer base? Or is it still too early to kind of see that potential growth impact come in and this is just PPD executing as it has been.

Matthew Sykes:

Thank you.

Operator:

Thank you. Our next question comes from Vijay Kumar of Evercore. Vijay, your line is open. Please go ahead.

Marc Casper:

Yes. So Vijay, we gave like 80,000 foot directional views on the markets at the end of the -- at the beginning of the year to set the guidance context. And when I think about the additional color that Steve and I have provided today, it really says that it's more business focused, which is actually how we manage our company. Instrument specialty diagnostics a little bit stronger bioproduction a little bit softer primarily in the first half. So that translates probably into a tiny little changes within the end markets, but nothing that really jumps out as something meaningfully different. What I would say is in terms of the early biotech, those are a great customer set that we have done a fantastic job serving. Yesterday, I was actually talking to roughly 400 members of that community at a customer event here in the Greater Boston area. And like the room was buzzing, not because I was speaking, but rather just like me walking in and this is such energy and excitement. So why is that? Because they're bringing through cures that are going to exception an enormous difference. The science is phenomenal. So there's clearly going to be more caution in that segment, depending on the funding environment, but the science is great. The passion is extraordinary. And we are the company that people come to advance the molecule from a scientific idea to an improved medicine. So it's customers that we love, we're going to do well. And we obviously generate the vast majority of our revenue from the large pharma and biotech customers, and they're doing well, and we've got a strong position there. So hopefully that at least gives you the qualitative context of how to think about it.

Stephen Williamson:

Really, the main piece is just the timing on the bioproduction and instrumentation being stronger in Q3, as Marc outlined in terms of change our guide assumptions.

Marc Casper:

Thanks, Vijay.

Operator:

Our next question comes from Dan Arias of Stifel. Dan, your line is open. Please go ahead.

Marc Casper:

Yes. So, Dan, thanks for the question. When I think about our instrument and equipment services business, what that business is, as a reminder for our investors is, we service our fleets of instruments. We also work at pharmaceutical and biotech campuses for our customers to manage their inventory, do those activities, help them with some of the things that they need done to run their labs as well as service other people's equipment and instrumentation. So that's what we do. In general, that is a steady, nicely growing business because we've had very significant growth in the volume of our instruments over the last couple of years that becomes a trailing tailwind for the business because you have a year or so of warranty, so you don't get any additional revenue effectively. But as the warranty rolls off, that does actually drive incremental demand. So your hypothesis there is correct, but that's one that continues to strengthen at this part of the cycle.

Daniel Arias:

Yes. Okay. Helpful. And then, Stephen, while I have you, just on the variables of the equation that have changed slightly underneath an unchanged guide overall, is there anything in terms of the evolving expectations for the business units themselves. Marc may have mention of some things, some businesses that are doing better than others. So I just sort of wanted to sum that up when we think about segment trajectory and just modeling those going forward. Thanks.

Rafael Tejada:

Operator, we have time for one more question, please.

Puneet Souda:

Hi, Marc. Good morning and congrats here. Just I'll stick to one maybe sort of 1.5 question. Capital deployment, 2022, you did two deals, PeproTech earlier in there and then Binding Site. Wondering how the outlook is looking for capital deployment this year. Maybe talk a little bit about your expectations for what you're seeing from market participants in both public and private markets. And then just briefly on the Inflation Reduction Act. Could you outline what you're hearing from your larger pharma customers? I'm wondering if they're changing how they're allocating their R&D going forward? Thank you.

Marc Casper:

So thanks for the questions. I think at this point I'll do a quick wrap up. So, thanks, everyone, for joining us on the call today. We're very pleased to deliver a strong quarter. We're incredibly well positioned to continue to deliver differentiated performance as we continue to create value for all of our stakeholders and build an even brighter future for our company. I'm looking forward to updating you on our upcoming Investor Day on May 24th. See you in New York City or virtually. And as always thank you for your support at Thermo Fisher Scientific.

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 February 17, 2023. A copy of the press release of our fourth quarter and full year 2022 earnings is available in the Investors section of our website under the heading Financials. So before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any 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 fourth quarter and full year 2022 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.

Stephen Williamson:

Thanks, Marc, and good morning, everyone. As you saw in our press release, in Q4, we delivered an outstanding quarter, capping off another excellent year. For the quarter and the full year, we delivered 14% core organic revenue growth. This differentiated level of performance demonstrates the power of our growth strategy and the trusted partner status that we've earned with our customers. In addition, in Q4, we generated $370 million of COVID-19 testing revenue, $3.1 billion for the full year. Taking a step back and thinking about the top line performance for the year, I'm really proud of what the team delivered. We offset $4.2 billion less testing revenue, which was a headwind of over 10%, and still delivered slightly positive organic growth for the year. That's a great accomplishment. Then using the power of the PPI Business System, we were able to translate the top line strength to excellent adjusted EPS and cash flow results. In Q4, we delivered $0.23 more adjusted EPS than our prior guide, ending the year at $23.24 and delivered $6.94 billion of free cash flow, all while continuing to invest in the business to enable an even brighter future. So 2022 was another excellent year. Let me now provide you with some details on our performance. Beginning with the earnings results. As I mentioned, we delivered $5.40 of adjusted EPS in Q4 and $23.24 for the full year. GAAP EPS in the quarter was $4.01 and $17.63 for the full year. On the top line as I mentioned in Q4, we delivered 14% core organic revenue growth and $370 million of testing revenue. Reported revenue grew 7% year-over-year. The components of our Q4 reported revenue increased included 3% lower organic revenue, a 14% contribution from acquisitions and a headwind of 4% from foreign exchange. The full year core organic revenue growth was 14% and we delivered $3.1 billion in testing revenue. For the full year 2022, reported revenue increased 15%. This includes slightly positive organic growth and 18% contribution from acquisitions and a 3% headwind from foreign exchange. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the COVID-19 testing revenue in 2022 and the prior year. In Q4, North America grew in the low single digits. Europe declined in the low teens. Asia-Pacific in the mid-single digits with China declining in the mid-single digits and rest of the world declined high single digits. For the full year, North America grew in the low single digits. Europe declined high single digits. Asia Pacific grew high single digits, including China, which also grew high single digits for the year, and the rest of the world declined high single digits. On a core organic growth basis, all regions had strong growth in 2022. With respect to our operational performance, adjusted operating income in the quarter decreased 19% and adjusted operating margin was 22.4%, 710 basis points lower than Q4 last year. For the full year, adjusted operating income decreased 9% and adjusted operating margin was 24.5%, which is 650 basis points lower than 2021. For both the fourth quarter and full year, we achieved strong price realization to effectively address inflation, while also delivering strong productivity. This is more than offset by lower testing volumes, continued strategic investments and the expected impact of incorporating PPD into our financials. For 2022, full year adjusted operating margin was 40 basis points lower than assumed in the prior guidance. Two-thirds of this was due to business and currency mix and a third due to one-time costs related to the runoff of testing revenue. Total company adjusted gross margin in the quarter came in at 41.4%, 910 basis points lower than Q4 last year. For the full year, adjusted gross margin was 43.5%, down 810 basis points versus the prior year. For both the fourth quarter and the full year, the changing gross margin was due to the same drivers as those of our adjusted operating margin. Moving on the details of the P&L. Adjusted SG&A in the quarter was 15.6% of revenue, an improvement of 170 basis points versus Q4 2021. For the full year, adjusted SG&A was 15.8% of revenue, an improvement of 130 basis points compared to 2021. Total R&D expense was $390 million in Q4. For the full year R&D expense was $1.5 billion, representing 5% growth over the prior year, reflecting our ongoing investments in high impact innovation. R&D as percent of our manufacturing revenue was 7% in Q4, 6.4% for the full year. Looking at results below the line for the quarter and net interest expense was $119 million, which is $31 million favorable to Q4 last year. Net interest expense for the full year was $454 million, a decrease of $39 million from 2021. Adjusted other income/expense was a net expense in the quarter of $10 million compared to net income of $7 million in Q4 2021. The year-over-year variance is primarily due to changes in non-operating FX. For the full year, adjusted other income and expense of the net income of $14 million, which is $24 million lower than the prior year. Our adjusted tax rate in the quarter was 12.8%, which is a 100 basis points lower than Q4 last year, reflecting the results of our tax planning activities. For the full year, the adjusted tax rate was 13% or 160 basis points lower than 2021. We repurchase $1 billion of shares in Q4, bringing our total repurchases for 2022 to $3 billion. Average diluted shares were $393 million in Q4, approximately 4 million lower year-over-year driven by share repurchases net of option dilution. Turning to cash flow on the balance sheet. Full year cash flow from continuing operations was $9.15 billion. Free cash flow for the year was $6.94 billion after investing $2.2 billion of net capital expenditures. We returned $118 million to shareholders through dividends in the quarter and $455 million for the full year. We ended the quarter with $8.5 billion in cash and $34.5 billion of total debt. Our leverage ratio at the end of the quarter was 2.9 times gross debt to adjusted EBITDA and 2.2 times on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 13.5%, reflecting the strong returns on investment that we’re generating across the company. Now I will provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our COVID-19 testing revenue varies by segment. And the testing revenue was significantly higher in the prior year. That does skew some of the reported segment margins. We’re executing strong pricing realization across all segments to address higher inflation. And we’re referring to the acquired PPD business as our Clinical Research business, and that resides in the Laboratory Products and Biopharma Services segment. The anniversary date of the acquisition was December 8. Moving on to the segment details, starting with Life Sciences Solutions, Q4 reported revenue in this segment declined 27%, and organic revenue was 24% lower than the prior year quarter. In Q4, we delivered very strong growth in our bioproduction business. This was more than offset by the moderation and testing revenue in the segment versus the prior year quarter. For the full year, reported revenue in the segment declined 13% and organic revenue declined 12%. Q4 adjusted operating income in Life Sciences Solutions decreased 48% and adjusted operating margin was 34.1%, down 14 percentage points versus the prior year quarter. In Q4 we had unfavorable volume mix due to the significantly higher testing revenue in the prior year quarter. And for the full year, adjusted operating income decreased 29% and adjusted operating margin was 41.2%, a decrease of 880 basis points versus 2021. In the Analytical Instruments segment, reported revenue increased 9% in Q4 and organic growth was 14%. A strong growth in the segment this quarter was led by electron microscopy and the chromatography and mass spectrometry businesses. For the full year, reported revenue in the segment increased 9% and organic revenue increased 14%. Q4 adjusted operating income in the segment increased 25% and adjusted operating margin was 25.4%, up 330 basis points year-over-year. In the quarter, we delivered strong volume pull through and productivity. This was partially offset by strategic investments. For the full year, adjusted operating income increased 26% and adjusted operating margin was 22.8%, up 310 basis points versus 2021. Turning to our Specialty Diagnostics segment. In Q4, reported revenue declined 23% and organic revenue was 20% lower than the prior year quarter. In Q4, we continue to see strong underlying growth in the core led by a healthcare market channel and our transplant diagnostics and microbiology businesses. This was offset by lower COVID-19 testing revenue versus the year ago quarter. For the full year, reported revenue in the segment decreased 16% and organic revenue was 13% lower than 2021. Q4 adjusted operating income decreased 30% in the quarter and adjusted operating margin was 18.6%, down 190 basis points versus Q4 2021. During the quarter, we delivered strong productivity, which is more than offset by the impact of lower testing volume. For the full year, adjusted operating income decreased 20% and adjusted operating margin was 21.5%, down 110 basis points versus 2021. Finally, in the Laboratory Products and Biopharma Services segment, Q4 reported revenue increased 42%. Organic growth was 11% and the impact of acquisitions was 35%. During Q4, organic revenue growth in this segment was led by the Pharma Services business. PPD at Clinical Research business continued to perform very well, and during the quarter it delivered over 20% core organic revenue growth and contributed $1.9 billion of revenue to the segment. For the full year, reported revenue in the segment increased 51% and organic revenue increased 10%. Q4 adjusted operating income in the segment increased 73% and adjusted operating margin was 14.1%, which is 260 basis points higher than Q4 2021. In the quarter, we drove favorable business mix and delivered strong productivity and volume pull through that was partially offset by strategic investments. For the full year, adjusted operating income increased 56% and adjusted operating margin was 12.8%, up 40 basis points versus 2021. Let me turn to our 2023 guidance. As Marc outlined, we’re starting the year with a very strong financial outlook consisting of revenue guidance of $45.3 billion and adjusted EPS guidance of $23.70. Let me provide some details to the underlying assumptions starting with revenue. Our initial guidance for 2023 assumes 7% core organic revenue growth, $400 million in testing revenue, $250 million of revenue from acquisitions and a tailwind of $100 million from FX. This all assumes a return to more normal market growth conditions in 2023 in the range of 4% to 6%. Within our core revenue, we expect $500 million of vaccines and therapies revenue in 2023. This is $1.2 billion less than 2022, a 3% impact on core organic growth. Even with this headwind, we’re expecting to deliver 7% core organic revenue growth in 2023, demonstrating the strength of our initial outlook, the agility with which we’re managing the business and the ongoing benefits of our growth strategy. Turning to profitability, in 2023, we’re assuming an adjusted operating margin of 23.9%. This is 60 basis points lower than 2022, driven by two elements, a 40 basis points of core margin expansion and a 100 basis point headwind from the runoff of testing revenue. The year-over-year margin change is consistent with the comments I have made on the last earnings call were not [ph] described have to model a margin impact to the different elements of the year-over-year change in revenue. In 2023 with a pandemic related testing revenue behind us, I thought this would be a good opportunity to take a step back and take a multi-year view on our meaningful margin expansion progression. Starting in 2019, pre pandemic, excluding the impact of PPD, we’re on track to expand operating margins, 60 basis points a year on average through 2023 and 250 basis point improvement over the full year period. It’s a great progress on margin expansion. Turning to adjusted EPS. We expect to deliver $23.70 in 2023. This is a 2% year-over-year increase consisting of a 10% headwind from testing more than offset by a 12% increase driven by the core business. We’re actively managing the whole P&L to effectively deal with material runoff in testing and vaccines and therapies revenue, and still grow our adjusted earnings per share for the year. This shows the strength of our growth strategy and the power of our PPI business system. Moving on to some more detailed assumptions behind the guide. With regards to FX in 2023, we’re assuming it’s a year-over-year tailwind of approximately a $100 million of revenue or 0.2% and $0.04 to adjusted EPS also 0.2%. We’re assuming that The Binding Site acquisition will contribute approximately $250 million to our reported revenue growth and $0.07 to adjusted EPS in 2023. Below the line, we expect net interest expense in 2023 to be approximately $480 million. This approximately $25 million higher than 2022 and includes the funding for the Binding Site acquisition. We assume that the adjusted income tax rate will be 11% in 2023. The improvement from 2022 is driven by a tax planning initiative. We’re expecting net capital expenditures will be approximately $2 billion in 2023 and free cash flow is assumed to be $6.9 billion for the year. In terms of capital deployment, our guidance assumes $3 billion for share buybacks, which were already completed in January. We estimate the full year average diluted share count were approximately 388 million shares. We’re assuming that we’re return approximately $540 million of capital to shareholders this year through dividends. And as is our normal convention, our guidance does not assume any future acquisitions or divestitures. And finally, I wanted to touch on quarterly phasing for the year. Revenue adjusted operating margin and adjusted EPS are all expected to ramp up as we go through the year. This is due to several factors. Core organic revenue growth is expected increase as we go through the year, largely due to the comps related to vaccines and therapies as well as the expected phasing of economic activity in China. The impact of the runoff in testing revenue is most pronounced in Q1 and the benefits of the offsetting cost actions are spread over the year. From a foreign exchange standpoint while a slight tailwind for the year as a whole in Q1, FX is expected to be a year-over-year headwind of approximately $200 million of revenue and $80 million of adjusted operating income. Below the line, net interest expense is expected to decrease during the year as we generate free cash flow and interest on that cash build. Putting all this together for Q1, we expect core organic revenue growth to be in the mid-single digits. Adjusted operating margin to be slightly lower than Q4 2022 and adjusted EPS to be just over 20% of the full year total. So to wrap up, we had an excellent 2022 and we’re really well positioned to continue to deliver differentiated performance for all our stakeholders in 2023. I look forward to updating you on our progress as we go through the year. With that, I'll turn the call back over to Raf.

Operator:

Thank you. [Operator Instructions] The first question we have from the phone lines comes from Jack Meehan of Nephron Research. Your line is now open.

Marc Casper:

Sure. So Jack thanks for the question. Our clinical research group has performed incredibly well, a great first year as part of the company, exceeding our own high level of ambition for the business. Integration has gone smoothly. Customers really see the obvious fit with the company, and it really has driven very strong momentum. And our colleagues are very excited about the combination. So as I think about the different elements of performance, the book-to-bill was very positive. Authorizations were very strong in the quarter and the year. So we entered the year with very strong momentum in terms of the backlog that we have in the business and the authorizations. The revenue synergies, the way I would think about it is in two phases because of the long-cycle nature from a win to revenue. We've won extremely substantial revenue synergies that will show up in the financials in 2023 and beyond. We had a small amount of revenue that came into the numbers last year, but we're talking in the hundreds of millions of dollars of wins that we've achieved from an authorization standpoint, so extremely positive. And in terms of our thoughts about 2023, it will grow above of the company's average of the 7% growth that we outlined in the course. So a nice contributor to the success. And really, it's been a seamless integration for the team. We're very grateful for that.

Marc Casper:

Yes. So, Jack, thanks for the question. But when I think about the $500 million, right, and when I look at that, that number is primarily related to our pharma services activity. It's around actually producing the active pharmaceutical ingredients for the therapies. It's for the sterile fill finish primarily for the vaccines and some of the therapies. So we have pretty good visibility to that number. So I feel good about that. We decided back, I guess, 1.5 years ago or whatever the exact timeframe we did, the definition of core was we invested in capacity. And if you think about a sterile fill finish line, as an example, can be used for a COVID vaccine. It can also be used for pretty much any other biologic and even some of the small molecules, right? And therefore, our view was we would transition that capacity over time and we have been and we will. The other aspect of core is that if you think about how strong our growth was last year, well above our own ambitions. Even the 12% we had laid out at the end of the third quarter, we've already transitioned a meaningful amount of that revenue in terms of other activities. So we didn't contemplate at all about changing the definition of what success is. We think 7% is the right number for us. The core is the right definition for us. We'll provide transparency during the year about the different components as we always do, so that investors can understand how we're getting there. But I feel great about the outlook, and I'm very proud of what the team delivered last year. Thanks, Jack.

Operator:

Thank you. We have the next question from Patrick Donnelly of Citi. Your line is now open.

Marc Casper:

Yes. Patrick, thanks for the question. So when I think about the Analytical Instruments business, a really strong year, excellent execution. There's nothing different in Q4 than in Q3. So I wouldn't read anything into that. When I look at what's driving it, last year, you saw good market conditions. Funding was clearly strong. I don't know if there was a little bit of pent-up demand from 2020, I don't know. But the funding was clearly available. We did very well with our innovation, right? We stayed committed to innovation throughout the early phase of the pandemic, making sure we have robust pipelines. You saw that in the stream of launches in our chromatography, mass spectrometry and electron microscopy businesses, those products have been well adopted. We're clearly growing very well. And as you know, we've also built out a very strong presence in enabling the next generation of semiconductors, battery applications. The most advanced aspects of material science is a different market position than really anybody else has in the industry and that's driving great growth, right? And you can see it in our electron microscopy numbers. I'm very proud of how the team has executed. So, that's kind of the context of why the elevated growth. So as I think about bookings demand, very strong throughout the year. So we have good visibility to the first half. It's when those – most of those orders will ship. We would expect that the Analytical Instruments business will be a really nice contributor to our growth for the year. And I think it's reasonable to assume that the growth normalizes more in the second half as an assumption. It's not that I see something different or something happening in the market conditions, but our visibility is typically six months. So at the end of the first quarter, we'll have good visibility into the third quarter, and we'll keep you posted. But I think for modeling purpose, I think, normalization in the second half is a good assumption.

Stephen Williamson:

Yes. So Patrick, thanks for the question. So when I think about the margin profile going forward, that 7% to 9% core organic growth driving 40 to 50 basis points is the right way to think about that company. And the margin opportunity there, you got a little bit of – that just seems a little bit of price benefit, good volume leverage that comes with that and still investing in the business to maintain that top line growth. And then a continuation of using PPIs, that kind of decomplex the company, but I think that – that margin profile still holds in terms of going from the 23.9% going forward, post 2023, I think about the levers that we have. As you saw in this past year, we had a slightly different mix like higher growth in certain parts of our business. And certainly, margins were slightly different in Q4 than we had in the prior guide. But the revenue is significantly higher. And what really matters is operating income dollars that we're driving, and that's incredibly strong and I think that margin profile and then the mix then holds into 2023. And then therefore that kind of 7% to 9% driving that 40 to 50 is a good way to model the company.

Stephen Williamson:

I don't really want to give guidance to every single element of the P&L. It's – we're trying to manage a complex company, but a similar margin profile to where we are right now is probably a good starting point. But it really depends on the mix and also changes in currency, and our job is to manage the whole thing and deliver great results.

Operator:

Thank you. Our next question comes from Rachel Vatnsdal of J.P. Morgan. Please go ahead when you are ready.

Marc Casper:

Rachel, thanks for the question. So if I step at the highest level with China, right, historically, been our fastest growing end market. We have a very strong position. Our enabling technologies are important to life sciences and food safety and the biologics industry in China, et cetera. So good demand drivers long-term, long historical perspective. When I think about last year, team delivered high single-digit growth for the year. When I think about the fourth quarter, you had very, very significant disruptions from the end of the COVID, zero COVID policies, right? So you went from this period where I think at least we had no problem in navigating through the challenges of the lockdown policies. But when you have 50%, 60%, 70% of colleagues with COVID, that's obviously highly disruptive. And so you saw the first half of the quarter was strong. The second half of the quarter was weak. Our assumption for this year is that the zero COVID, opening up the economy leads to a weaker first quarter, a strong rebound in the balance of the year. China will grow on our expectations in our guidance a little bit faster for the full year than our core growth. So that's how I would think about it. So a really strong end market, including the disruption from Q1. I think the team has done actually – I'm very impressed with how they've dealt with all of the complexities and keeping our colleagues safe. It's been a challenging period of time.

Stephen Williamson:

Yes. So, Rachel, thanks for the question. So when I think about the margin progression through the year, Q1, we got a very significant roll-off in highly profitable testing revenue. And the cost actions against that to enable a 40% pull-through for the year, it's a combination of cost actions and then a non-repeat of the cost – of certain one-time things that we were doing on compensation in the prior year. Those things spread over the whole year. So you get a little bit of benefit in Q1 to offset part of that profitability, but more of that offset really coming in the following three quarters. So that's really the largest piece to it. Now FX is a headwind to margins in Q1, so that's a slight aspect to it. And then the phasing of the China activity is another aspect of that kind of lower level of activity in Q1 and then ramping up to a higher level of revenue in Q4.

Marc Casper:

Yes, so industrial and applied was very strong in the quarter. Low teens growth in the quarter. Really strong demand and shipments for our chromatography, mass spectrometry and electron microscopy business. So we didn’t see any concerns. Our assumption for the year is that just going to grow at about the average rate growth for the full year. So that’s what we’re assuming in the guidance.

MarcCasper:

Thanks, Rachel.

Derik de Bruin:

Hello, and good morning. So…

Derik de Bruin:

Stephen not – is not to pick on the margin point, but I do want to sort of clarify something. I mean, I – looking at the 40 basis points to 50 basis points of expansion. So let’s say you do a 100 next couple of years. I mean, at your Analyst Day in May, you talked about a 26 percent-ish adjusted operating margin, excluding the impact of capital deployment. Or I mean, can you sort of just walk us through sort of like how you’re thinking about the 2025 outlook that you provided and sort of like general thoughts around that and then there? Thanks.

Stephen Williamson:

Yes, when I think about margin profile, it’s in combination with revenue dollars. So our revenue dollars are materially higher than we then incorporated into my long-term model. And a combination of that plus the margin gets you to a very strong operating income dollars, and that’s what’s driving EPS. So I’m – we’re well positioned with the long-term model.

Marc Casper:

Yes, there’s some activity of studies that will roll off over multiple years in terms of required follow on studies and activity there that the team as those studies come off, they just have moved to other areas of the therapeutic range. So that really has been done quite seamlessly. And as you know, with the business scaling the way it is having a large capable team is a great way to be able to be ready to serve the next set of customer work. So pretty straightforward.

Marc Casper:

So 2023, Stephen said it’s a couple billion dollars and we’ll continue to – it will kind of go down to a glide path back to that 3.5% – 3% to 3.5% from over time. So nothing’s changed in that assumption.

Marc Casper:

Thanks, Derik.

Dan Brennan:

Great, thank you. Maybe Marc to kick it off, just I’m all in on Aaron Rodgers if the Jets can get him. That’d be like a struggling company getting – that’d be like a struggling company getting you as a CEO would be a great deal I think so. So that’s one of my questions here. Maybe the first one, just obviously, there’s a lot of concerns in the industry broadly on the near-term drag on revenue growth for biologic drug products. Given the inventory, depletion that’s ongoing in the industry, you’ve been pretty confident that for various reasons, Thermo is really not seeing this. Just would be interesting to get an update on kind of just on your thinking there and kind of what you’re assuming in your outlook for 7% growth for your businesses both on the consumable side and on the Patheon services side?

Dan Brennan:

Got it. And then – and maybe this is a follow-up. Obviously, your business mix is a lot less cyclical today than it was back in the prior downturn. I’m just wondering implicit in the seven, and Rachel asked the question on industrial business. But just to what extent does your guide bacon some cushion for potential slowdown that could unfold given weaker macro?

Dan Brennan:

Great. Thank you.

Vijay Kumar:

Hey guys. Congrats on a really strong finish with the year and thanks for taking my question. I had two parts. Maybe I’ll ask them both upfront. Marc, the first part for you on when I look at this guidance and base organic excluding vaccine, I think the business did – the business is assuming perhaps low double-digit organic here in fiscal 2023 in that coming off of perhaps a mid-teens comp. One is that math correct that base business excluding vaccine double digit? And what is it assuming? I’m assuming – I’m thinking biopharma has to grow at least mid-teens to get to the 9% to 10%. And it seems pretty strong. Do those numbers make sense? And Stephen, the second part for you on margins here, what are you assuming for decremental margins on COVID and margins in FX? And did I hear you correctly on Q1 is starting at 22%, just wanted to make sure I heard the numbers right.

Stephen Williamson:

Yes, Vijay in terms of the pull through on the lower testing revenue, as I outlined in the last quarter, the assumptions are approximately 40% in aggregate for the whole year. But that doesn’t all – that’s not the same in every single quarter. Like the offsetting cost actions against a very significant profitability pull through, which is higher than that on a contribution margin basis that’s spread across each of the quarters. But the revenue drop is largely just in Q1. So that’s why you have the margin profile that I outlined for Q1. And the indication I gave for Q1 margin profile at this point is slightly below what has the margin in Q4. So the largest driver there is that a large drop in very profitable testing, and then the offset on the costs to get it to the 40% pull through spread throughout the year. Thanks, Vijay.

Operator:

Thank you. Our final question comes from the line of Dan Arias of Stifel. Please go ahead when you’re ready.

Marc Casper:

Yes, that’s sort of along the line [indiscernible] question, really not much to add, right, which is phenomenal 2022. We created a really challenging and exciting comparison. We get paid to create those comparisons and I would expect that would show up in a more normalized growth in the first half and a little bit stronger than that in the second half. And I think there’s much color between the different customer types or that would provide much more insight on it.

Marc Casper:

Welcome. So let me wrap it up here. Thanks everyone for participating in the call. With another strong year behind us, we’re in a great position to achieve another excellent year in 2023. And as always, thank you for support of Thermo Fisher Scientific. And we look forward to updating you during the course of the year as it progresses. Thanks, everyone.

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 and Events until November 11, 2022. A copy of the press release of our third quarter 2022 earnings is available in the Investors section of our website under the heading Financials. So before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may make about the company’s future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials SEC filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any 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 2022 earnings and also in the Investors section of our website under the heading Financials. So with that, I will now turn over the call to Marc.

Stephen Williamson:

Thanks, Marc and good morning everyone. We delivered another excellent quarter in Q3. This includes 14% core organic revenue growth from $5.08 of adjusted earnings per share. Revenue in Q3 was approximately $800 million higher than we had incorporated in our previous 2022 guidance with just over $600 million driven by another quarter of extremely strong core organic growth, just over $200 million from additional COVID-19 testing revenue, partially offset by a small additional headwind from FX. So continue strengthening the core once again broad-based across businesses and end markets. In terms of adjusted EPS, our PPI Business System enabled us to generate very strong pull-through on the revenue beat. And after accruing $0.18 of additional compensation in the quarter to help our colleagues with the temporary impacts of inflation, we delivered $0.36 of adjusted EPS higher than included in our previous guidance. So Q3 was another quarter of excellent financial performance. Let me now provide you with some more details. Beginning with our earnings results and as I mentioned, we delivered $5.08 of adjusted EPS in Q3. GAAP EPS in the quarter was $3.79. On the top line in Q3, we delivered 14% core organic revenue growth and $440 million of testing revenue. Reported revenue grew 14% year-over-year. The components of our Q3 reported revenue increase included 1% lower organic revenue, a 20% contribution from acquisitions and a headwind of 5% from foreign exchange. Turning to our organic revenue performance by geography, the organic growth rates by region are skewed by the COVID-19 testing revenue in the current and prior year. In Q3, North America grew in the low single-digits. Europe declined 10%. Asia-Pacific grew in the low single-digits with China growing high single-digits and rest of the world declined high single-digits. With respect to our operational performance, adjusted operating income in the quarter decreased 15% and adjusted operating margin was 22.2%, 760 basis points lower than Q3 last year. In the quarter, we achieved strong price realization to effectively address inflation while also driving strong productivity. This is more than offset by lower testing volumes, continued strategic investments and the expected impact of incorporating PPD into our financials. The company’s adjusted gross margin in the quarter came in at 41.7%, 970 basis points lower than Q3 last year. For the third quarter, the change in gross margin was due to the same drivers as those for our adjusted operating margin. After factoring in the decision we took to accrue the additional colleague compensation that I mentioned earlier, both adjusted operating margin and adjusted gross margin came in as we had anticipated in our prior guidance. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 16.2% of revenue, a decrease of 170 basis points versus Q3 2021. Total R&D expense was approximately $350 million in Q3, and R&D as a percent of our manufacturing revenue in Q3 was 6.7%. Looking at results below the line for the quarter, our net interest expense was $106 million. Our adjusted tax rate in the quarter was 11.8%. This was 240 basis points lower than Q3 last year. The Q3 rate was 75 basis points lower than we assumed in the quarter in the prior guide due to the timing of discrete tax planning items between Q3 and Q4 with no net change for the year overall. Average diluted shares were 395 million in Q3, approximately 2 million lower year-over-year driven by share repurchases and option dilution. Turning to cash flow on the balance sheet. Year-to-date cash flow from continuing operations was $5.7 billion, and free cash flow was $4 billion. Our capacity and capability investments continue to progress well and the year-to-date net capital expenditures were $1.7 billion. We returned $118 million to shareholders through dividends in the quarter. This reflects the 15% dividend increase we announced in February. We ended the quarter with approximately $2.9 billion in cash and $29.2 billion of total debt. Our leverage ratio at the end of the quarter was 2.3x gross debt to adjusted EBITDA and 2.1x on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 15.2%, reflecting the strong returns on investment that we are generating across the company. Now I will provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our COVID-19 testing revenue varies by segment. And the testing revenue was significantly higher than the prior year quarter but does skew some of the reported segment margins. As I mentioned earlier, we’re executing strong pricing realization across all segments to address higher inflation. And we outlined at the beginning of the year, we’re referring to the acquired PPD business as our clinical research business, and that resides in the laboratory products and biopharma services segment. So moving on to the segment details, starting with Life Sciences Solutions. Q3 reported revenue in this segment declined 20%, and organic revenue was 17% lower than the prior year quarter. In Q3, we delivered very strong growth in our bioproduction business. This was more than offset by the moderation in testing revenue in the segment versus the prior year quarter. Q3 adjusted operating income in Life Sciences Solutions decreased 43%. And adjusted operating margin was 35.1%, down 14 percentage points year-over-year. In the quarter, we delivered good productivity, which was more than offset by unfavorable volume mix and the strategic investments that we’re making across the segment. In the Analytical Instruments segment, reported revenue increased 10% in Q3, and organic growth was 16%. The strong growth in this segment this quarter was broad-based led by chromatography and mass spectrometry and electron microscopy businesses. Q3 adjusted operating income in this segment increased 47%, and adjusted operating margin was 23.8%, up 600 basis points year-over-year. During the quarter, we delivered strong volume pull-through, favorable business mix and strong productivity. This was partially offset by strategic investments. Turning to Specialty Diagnostics. In Q3, reported revenue declined 22%, and organic revenue was 19% lower than the prior year quarter. In Q3, we saw a strong underlying growth in our transplant diagnostics and microbiology businesses. This is offset by lower COVID-19 testing revenue versus the year-ago quarter. Q3 adjusted operating income decreased 29% in the quarter, and adjusted operating margin was 21%, down 210 basis points year-over-year. During the quarter, we delivered positive business mix and good productivity, which is more than offset by the impact of lower testing volumes. Finally, in the Laboratory Products and Biopharma Services segment. In Q3, reported revenue increased 60%. Organic growth was 12%, and the impact of acquisitions was 53%. During Q3, we had strong growth in the Pharma Services business as well as the research and safety market channel. PPD, our clinical research business, is performing very well. And during the quarter, we delivered high teens core organic growth and contributed $1.82 billion of revenue to the segment. Q3 adjusted operating income in the segment increased 89%, and adjusted operating margin was 13%, which is 200 basis points higher than Q3 2021. In the quarter, we drove favorable business mix, good productivity and also saw the benefit from acquisitions. This was partially offset by strategic investments. Let me now turn to our updated 2022 guidance. As Marc outlined, we’re raising our full year revenue guidance by $650 million to $43.8 billion. This includes a raise in the core organic growth outlook for the year from 11% to 12%. And on the bottom line, we’re raising our adjusted EPS guidance for 2022 by $0.08 to $23.01 per share. The increase in the revenue guidance is driven by three elements

Operator:

Thank you. [Operator Instructions] Our first question today comes from Jack Meehan with Nephron Research. Jack, please go ahead.

Marc Casper:

Jack, thanks for the question. So probably best to start one level up, and then I’ll get to the details of it, right? When I think about pharma and biotech more broadly, right, it’s our largest end market, represents about 60% of our business performing incredibly well, right? Mid-teens growth this quarter, mid-teens growth year-to-date. And that growth number actually doesn’t include PPD, right, which is actually growing in the quarter, grew faster, right? So very strong, it’s broad-based. Customer demand continues to be strong across the portfolio. All our businesses are performing very nicely. The long-term trends look very positive. And when I think back and I think because we live in a moment, if you go back the last 5 years, it actually averaged for this whole segment mid-teens growth, right? So it’s not this year or this quarter. It’s really been a long-term trend long before COVID, right? So very, very strong. Now so what’s going on in bioproduction, right? There is obviously been a lot of commentary over the last week on the topic. And as a reminder, we have a leading presence to cell culture media, single-use technologies and actually quite a rapidly growing purification business. In aggregate, it’s less than 10% of our total revenue. It’s an awesome business, right? They performed very well in the quarter. It grew faster than the pharma and biotech average. The dynamics are very good, and we’re very well positioned to deliver great growth going forward in serving our customer base.

Marc Casper:

What I would say is if I think about where we are and think about the third quarter, right, it was a terrific quarter. If you look at the strength, right, that we had in terms of our core growth it’s really broad-based, right? And you look at it and you say, alright, pharma and biotech that grew in the mid-teens. Industrial and applied, that grew in the high teens. Academic and government grew in the mid-single digits. And the core in healthcare and diagnostics, which is the indicator of what’s going on in that end market, that actually was a mid-single-digit growth as well. So it’s really very strong. So I like where we are at the 9 months. And in terms of exactly how we will be in ‘23, we will obviously talk about that in January in terms of what the outlook is. But certainly, at this point in the year, our end markets are strong, and our company’s performance has been exceptional.

Operator:

Thank you for your question. Our next question comes from Derik De Bruin with Bank of America. Derik, please go ahead.

Marc Casper:

Good morning, Derik.

Marc Casper:

So I’ll start, and I’m sure Stephen will chime in as well. So obviously, at a high level, we will get into this in January, right? Why do we do January is we will have the benefit of two things, which is where was the exact finish to the year, what’s our jumping-off point? And second, what is the most close in view of the macro environment, right? So we will see how that plays out in January. But – excuse me. So if I go through the components, right? Obviously, the company is performing at an incredibly strong level. So that was very encouraging. As Stephen outlined, it will be a headwind that could change, obviously. But right now, we gave you that number so that you can at least update the models to reflect what current FX range rates are. And that’s about $1 billion of revenue headwind and about $0.75 of adjusted EPS. The second one that I think is important, and it’s an assumption, which is we’re assuming in the fourth quarter that we’re at an endemic level of COVID-19 testing. So that’s $100 million of revenue in the quarter. And if that plays out in that way, then I think that’s a reasonable assumption per quarter for next year. So you’re going to have the view on the COVID runoff down to the endemic rate on testing. And from the rest of the perspective, the business is in really good shape. And Stephen, you can comment on margins or anything else that I might have missed.

Derik De Bruin:

Got it. Okay. I’m still getting a bunch of questions from investors, but we will follow-up with it. But two other questions, just on this one. I guess are you still seeing like for like the $1.5 billion in COVID vaccines for this year? And just obviously some of the semiconductor companies have been hitting their CapEx numbers or cutting their CapEx numbers. Does that have any sort of like impact on sort of like your view on FEI and the instrument outlook? Thank you.

Operator:

Our next question comes from Patrick Donnelly with Citi. Please go ahead. Your line is open.

Marc Casper:

Yes. So Patrick, thanks for the question and a follow-up on that. So if I think about inventory, right, and I read some of the Q&A that happened last week. And somehow that translated into our own share price, which is a little bit of a head scratcher to me. If you think about inventory levels, right, I guess I always start at the high level. Three of our businesses, which are a large portion of the company, literally have nothing to do with inventory at all, right, which is pharma services, our clinical research business and our analytical instrument business has nothing to do with inventory. So I think it’s important to remember that. The second, when you get down to the businesses that do have inventory levels, some of which we hold, some of which our customers hold, we do have really good visibility into it. And we help our customers appropriately manage those levels of inventory. I feel good about the position that we’re in, alright? And for the couple of customers that might have COVID-related things, I’m sure that they purchased a bit more because they had a high range of demand volatility that they were managing. But in terms of our bioproduction business, it grew well faster than pharma and biotech. The outlook is really strong, and I feel very well positioned going forward.

Stephen Williamson:

Yes. So, have a better view on inflation three months’ time, but we are effectively managing the dynamics now and expect to effectively manage them going forward. And this has been about pricing just if you can in an inflation environment. It’s pricing appropriately, given the inflation dynamics and then bringing our customers along with us on that journey. So, I feel good about our ability to manage the dynamic going forward should the inflation levels remain at the elevated level.

Patrick Donnelly:

Great. Thank you, guys.

Vijay Kumar:

Hey guys. Thanks for taking my question and congrats on solid top line this morning. Marc, one on fiscal ‘23 again, I know the guidance, the formal guidance is in January. But I guess the question is, the 7% to 9% LRP that Thermo issued at the Analyst Day, that’s a CAGR. But there has been some nervousness that perhaps ‘23 could be below that range. I mean the macro is the macro. But ex macro in industrial, is there any sensitivity around these major drivers that would cause big deviation from the LRP range for ‘23 that we should be thinking about? Again, I am not asking for formal guidance, but any variables, qualitative comments we should be looking at?

Vijay Kumar:

That’s helpful, Marc. Maybe one for Stephen here, on the impact from additional comp, and I understand there is some flow-through in Q4. Stephen, when you think about ‘23, are you planning for any comp, incremental comp expenses to offset inflation for employees? Is that something that we should be considering?

Vijay Kumar:

Thanks guys.

Dan Brennan:

Great. Thank you and thanks for taking the questions. Marc, I don’t want to jinx for jet, so I am going to refrain from making any comments or claims here. Maybe Marc and Steve, could you just walk us around the globe and your key end markets? I mean just speak to what extent you are seeing any impacts from the weakening global economy. And if nothing really manifest in Q3, which doesn’t look like it has, are there any lead indicators like orders funnels, anything of that nature that might reflect some softening? Just – and then kind of connected to that, the fourth quarter guide does reflect a notable slowing on a stack comp basis. And so I am wondering if that’s just conservatism or if that does incorporate some maybe risk from global macro?

Dan Brennan:

Great. Thanks for that. And then maybe just as a follow-up, just on instruments. Instrument demand at Thermo across the group has been kind of very strong for a period of time. AI had another good quarter. Just wondering kind of what you are seeing on that front, and kind of what do you think about as you look ahead. While I am not guiding for ‘23, kind of is the instrument underlying strength sustainable? Just any color macro-wise and company-specific initiatives. Thanks.

Operator:

Our next question comes from Rachel Vatnsdal with JPMorgan. Please go ahead, Rachel.

Marc Casper:

So, Rachel, thanks for the question. When I think about our pharma services business, it was one of the highlights for performance in the quarter. It’s been a good growth driver for the company. Customers are driving towards more outsourcing. The smaller companies have less manufacturing and development capabilities in-house. So, the secular trends here are fantastic. We have an industry-leading position. We have been investing in new capabilities, strengthening quality systems, capacity, infrastructure, all of those things to position it well. And it’s our job to do great work every day for our customers and focused on doing that really well. And that’s what we are focused on, and it’s important that we do it. And we want to grow at a reasonable rate and just make sure that we are doing great work every day for our customers.

Stephen Williamson:

Yes. So, in terms of the core growth in Europe, it’s about 10%, excluding FX, excluding the testing side of things as well. So, good strong growth across the region. And as Marc said, it’s a good concentration in pharma and biotech in the region, which is a strong growth business for us. So, yes, around about 10% in Europe. Great. Thanks Rachel.

Dan Arias:

Good morning guys. Thanks. Marc, on the bioproduction capacity expansion that you have been working on, the $600 million plus that you outlined there as a build out, I am just wondering, as we head towards December if you might be able to sort of give a refreshed view on just how much of that will be – or do you think will be open to start the year versus what might be slated for ‘23? And then how you are feeling about filling out that capacity, just given what we are seeing in terms of end market demand and activity there?

Dan Arias:

Okay. Helpful. And then just maybe on PPD, it sounds like things continue to go well there. And to the point of a couple of guys here, there is naturally a focus on 2023. You will have a tough comp there, actually like 2 years of tough comps there. So, anything that you might be able to add on just how you see PPD growth tracking going forward?

Rafael Tejada:

Operator, we have time for one more question.

Tejas Savant:

Thank you. Marc and Stephen, good morning. One follow-up for me on Europe, Marc. I mean energy costs are clearly in focus you are heading into the winter. Can you just help us dimension your cost on the energy side as a percent of your regional sales? And any kind of like resiliency plans that you have put in place? And then as a quick follow-up there, any color on research funding trends in Europe, particularly as government priorities might be shifting here a little bit?

Stephen Williamson:

Yes. In terms of the energy cost, this is not material. What’s material is make sure you are managing the ability to stay open the supply chain and looking into your customers. So, that’s where we are spending our time and effort. And we switch the energy type. And it’s about staying open and meeting that to our customers to support them through this.

Marc Casper:

Business performed great. We obviously had 18% growth in the quarter, 14% growth outlook for the year. The way wage inflation works in that business is it gets passed through in the normal course pricing in the contract, so that you could have a quarter or something lag. But effectively, if there is unusual wage inflation that this gets passed through to the customer base. So, I don’t see any particular significant challenge there. So, let me wrap it up here. As you heard this morning, another excellent quarter, we are on track to deliver an outstanding year, and that’s going to set us up for a very bright future. And as always, thanks for your ongoing support of Thermo Fisher Scientific. We look forward to updating you on our progress as we turn into 2023. Thanks everyone.

Operator:

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

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 and Events until August 12, 2022. A copy of the press release of our second quarter 2022 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 report on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC filings. While we may like 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 second quarter 2022 earnings and also in the Investors section of our website under the heading Financials. So with that, I will now turn the call over to Marc.

Stephen Williamson:

Thanks, Marc and good morning, everyone. We delivered another excellent quarter in Q2. This included 13% core organic revenue growth, $630 million of COVID-19 testing revenue, $5.51 of adjusted earnings per share, and over $1 billion of free cash flow. Revenue in Q2 was $930 million higher than we had incorporated in our previous 2022 guidance, with $640 million driven by ongoing strength in the core business and $400 million from testing, partially offset by $110 million due to higher headwind from foreign exchange. Similar to last quarter, the strength in the core was broad-based across businesses and end markets. From a geographic lens, $200 million of the beat was from China. In our previous guidance, we had assumed a $200 million headwind from the lockdowns in China and we offset all of that, half from strong local core growth and half from local testing support, a great achievement by our China team. Our PPI business system enabled us to generate very strong pull-through on the revenue beat and adjusted EPS for Q2 was $0.52 higher than included in our previous guidance. So Q2 was a continuation of our excellent financial performance track record. Let me now provide you with some more details. Beginning with our earnings results, as I mentioned, we delivered $5.51 of adjusted EPS in Q2 and GAAP EPS in the quarter was $4.22. On the top line, our Q2 reported revenue grew 18% year-over-year. The components of our Q2 reported revenue increase included 3% organic revenue growth, a 19% contribution from acquisitions, and a headwind of 4% from foreign exchange. Turning to our organic revenue performance by geography, the organic growth rates by region are skewed by the COVID-19 testing revenue in the current and prior year. In Q2, North America grew in the high single-digits, Europe declined in the low double-digits, Asia-Pacific grew in the low double-digits, with China growing over 20% and rest of world declined low double-digits. With respect to our operational performance, adjusted operating income in the quarter decreased 3% and adjusted operating margin was 23.7%, 530 basis points lower than Q2 last year. Adjusted operating margin was slightly higher than we had anticipated in our prior guidance for Q2, reflecting how our growth strategy and PPI business system enabled us to continue to manage dynamic times. In the quarter, we achieved strong price realization to effectively address inflation while also driving strong productivity and positive volume leverage in the core business. This was more than offset by the expected impact of incorporating PPD into our financials, lower testing volumes and continued strategic investments, including investments in our colleagues. Moving on to the details of the P&L. Total company adjusted gross margin in the quarter came in at 43.2%, 740 basis points lower than Q2 last year. For the second quarter, the change in gross margin was due to the same drivers as those for our adjusted operating margin. Adjusted SG&A in the quarter was 16.1% of revenue, a decrease of 180 basis points versus Q2 2021. The R&D expense was approximately $360 million in Q2, representing growth of 6% over the prior year quarter. You can see the benefits of our prior R&D investments in our differentiated core organic growth rate and the exciting new products that Marc outlined. Moreover, the continued investments we are making in R&D are helping to fuel an even brighter future. Looking at our results below the line for the quarter, our net interest expense was $112 million, approximately flat to Q2 last year. Our adjusted tax rate in the quarter was 13%. This was 100 basis points lower than Q2 last year, driven by our tax planning initiatives. Average diluted shares were $394 million in Q2, approximately $2 million lower year-over-year, driven by share repurchases net of option dilution. Turning to cash flow and the balance sheet, year-to-date cash flow from continuing operations was $3.7 billion and free cash flow was $2.6 billion. Our capacity and capability investments continue to progress well and our year-to-date net capital expenditures were $1.1 billion. We returned over $115 million to shareholders through dividends in the quarter and this reflects the 15% dividend increase we announced in February. We paid down $1.85 billion of commercial paper in Q2 and ended the quarter with approximately $1.9 billion in cash and $30.3 billion of total debt. Our leverage ratio at the end of the quarter was 2.3x gross debt to adjusted EBITDA and 2.2x on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 16.6%, reflecting the strong returns on investment that we are generating across the company. Now I will provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our COVID-19 testing revenue varies by segment and the testing revenue was significantly higher in the prior year quarter that does skew some of the reported segment margins. And as I mentioned earlier, we are executing strong pricing realization across all segments to address higher inflation. And as we outlined at the beginning of the year, we are referring to our acquired PPD business as our clinical research business and that resides in laboratory products in Biopharma Services segment. So, moving on to the segment details, starting with Life Science Solutions, Q2 reported revenue in this segment declined 7% and organic revenue was 5% lower than the prior year quarter. In Q2, we delivered very strong growth in our bioproduction business. This is offset by lower revenue in the genetic sciences business driven by the moderation in testing revenue versus the year ago quarter. Q2 adjusted operating income in Life Science Solutions decreased 23% and adjusted operating margin was 40.3%, down 800 basis points year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable business mix and the strategic investments we are making across the segment. In the Analytical Instruments segment, reported revenue increased 9% in Q2, and the organic growth was 13%. The strong growth in this segment this quarter was led by electron microscopy and the chromatography and mass spectrometry businesses. Q2 adjusted operating income in this segment increased 23% and adjusted operating margin was 21.4%, up 250 basis points year-over-year. During the quarter, we delivered strong volume flow-through and productivity that was partially offset by strategic investments. Turning to Specialty Diagnostics, in Q2, reported revenue declined 11% and organic revenue was 8% lower than the prior year quarter. In Q2, we saw strong underlying growth in our immunodiagnostics and microbiology businesses, as well as our healthcare market channel. This is offset by lower COVD-19 testing revenue versus the year ago quarter. While Q2 adjusted operating income decreased 1% in the quarter, adjusted operating margin was 22.1%, up 220 basis points from the prior year quarter. In Q2, the impact of lower testing volume was more than offset by strong productivity enabled by our PPI Business System and positive business mix. And finally, in Laboratory Products & Biopharma Services segment. Q2 reported revenue increased 55%. Organic growth was 10% and the impact of acquisitions was 48%. During Q2, we had strong growth in the research and safety market channel and in the Pharma Services and Laboratory Products businesses. PPD, our clinical research business, is performing very well and continues to exceed our expectations. During the quarter, it grew slightly higher than the rest of the segment, contributing $1.72 billion of revenue. Q2 adjusted operating income in the segment increased 55% and adjusted operating margin was 12.5%, which is 10 basis points higher than the prior year quarter. In the quarter, we drove strong productivity and also still the benefit from acquisitions. This was partially offset by strategic investments and unfavorable business mix. Let me now turn to our updated 2022 guidance. And as Marc outlined, we’re raising our full year revenue guidance by $700 million to $43.15 billion. We’re also raising our core organic revenue growth outlook from 9% to 11%. And on the bottom line, we’re raising our adjusted EPS guidance for 2022 by $0.28 to $22.93. The increase in revenue guidance is driven by three elements

Operator:

[Operator Instructions] The first question comes from the line of Jack Meehan with Nephron Research. You may proceed.

Marc Casper:

Hi, Jack. Good morning.

Marc Casper:

Yes. So Jack, I guess the first thing is business performing extraordinarily well, right? We have broad-based strength. As I look at the companies that have reported, we’ve done very well from a top line perspective. So I feel good about how we’re performing. Bookings performance was very good. So if I think about what are we seeing in our business, we’re seeing very strong strength, right? In terms of the macro, obviously, when you read the papers or wherever information source, lots and lots of challenges in the world. And in the last quarter, we articulated some of them and how we factored some of that into the thinking for our outlook. And so what do we think about sensitivity? This company is incredibly well positioned to navigate whatever the world throws at us, right? And the industry in and of itself is attractive as well as sensitive economically than many. We are very well positioned within it, and we have tremendous momentum. When I think about – if we see a downturn, and we’re not seeing the signs of one, but it doesn’t mean that there won’t be one. We have the benefit of a track record of dynamic of navigating dynamic times and exiting those periods really an incredibly strong industry leader. We benefit from an experienced management team, an incredible team around the world, a proven growth strategy in a PPI business system, which gives us great operational discipline. As you know, we’ve taken a number of actions over the last few years to strengthen our position in the end markets we serve. And today, relative to the recession and the great financial crisis, we have less industrial exposure. As a reminder, about 30% of our revenue going into the last recession was industrial. Today, it’s about 13%. And Pharma and Biotech is much larger, and that has been the least economically sensitive of the end markets, and that represents just under 60% of our revenue. And when I think about our mix, we’re more service and consumables oriented than we were then. Then, it was 65% of our revenue. Today, it’s 82% of our revenue. So the company is performing well. Our end markets are good, and we will manage through whatever the world throws at us. And you see that in the results, right? You see that in the – FX got meaningfully more challenging for all global companies, and we’re able to power through that and deliver an increase in our guidance.

Marc Casper:

Yes. So from a capital deployment perspective, I really wanted to do the deeper dive on the progress of PPD, and we did a large acquisition in December, right? And the first thing we have to demonstrate is that we’re great owners and operators of the businesses that are part of the family, and that’s always our number one priority, and that business has performed great. And we have an active pipeline. And when I think about how valuations have come in many sectors that creates opportunities, right? So we’re actively engaged as we always are and we’re well positioned to capitalize on the M&A opportunities that will be out there in the landscape. So thank you, Jack.

Operator:

Thank you. The next question comes from the line of Patrick Donnelly with Citi. You may proceed.

Marc Casper:

Patrick, good morning, thanks for the questions. So, when I think about bioprocessing, I always like to frame it in the context of how we serve former biotech, right? The market will level up, it’s very attractive. We have a leading presence, and we’re really well positioned to serve those customer base. And you’ve seen us deliver really strong growth. When I think about production, right, or bioproduction, as a reminder, we have two major activities that we have within our company. We have our bioproduction business, which is the leading presence in cell culture media, single-use technologies and a rapidly growing purification resins business as well as our pharma services business, which is both drug substance and drug product for biologics. And you see us play with the monoclonal antibodies, viral vectors, cell therapy, plasmid, sterile fill, finish all part of that. So it’s a large portion of our total presence in serving pharma biotech. Outstanding quarter, right, when I look at – and that was both across the services business and bioproduction. When I look at how others have done and reported, I feel very, very good about our performance. And the outlook here is really positive. When I think about your question on the COVID vaccine therapies, our outlook for the year is $1.5 billion. That’s the same as it was in Q1. We did just over $400 million of revenue in Q2, which was right in line with our expectations. It brings us to a little bit over $900 million at the halfway point of the year. So we feel good about our role in supporting our customers’ activities in vaccines and therapies. That’s part of our core revenue growth. So over time, when there is less demand for those capabilities, we will transition that well to other applications, which we do all the time.

Marc Casper:

I’ll start with the customer comments, and Stephen will go through his thoughts. We’re incredibly transparent with our customers and a partner to enable their success. So we’ve had very constructive discussions, and we’ve operated with transparency and has allowed us to get an appropriate level of pricing.

Patrick Donnelly:

Helpful.

Operator:

Thank you. The next question comes from the line of Derik De Bruin with Bank of America. Derik, you may proceed.

Marc Casper:

Sure, Mike. Thanks for the question. So when I think about the 13% core growth – the 14% core growth for the first half, really strong momentum in the business and very broad-based, right? So that’s exciting. And when I look at how the industry is reporting, we’re faring very well. So I’m proud of the team’s efforts. So some of the highlights, geographically, the team is doing incredibly good job in China. So that’s one lens. End market lens, pharma biotech going incredibly quickly, right, with mid-teens growth. So that’s another of lens. And then the way you framed it, from the businesses perspective, analytical instruments is doing very well. It’s going to see the 13% growth in the segment, great performance in electron microscopy and chromatography and mass spectrometry. Our channel is performing well, pharma services. And then while it doesn’t it’s in the core. Our PPD acquisition has performed very well. We’ve obviously had the benefit of seeing a couple of industry participants report and that business is going well. And to be candid, it’s pretty much broad-based cost business. I haven’t mentioned either. It’s not the – I didn’t say something to us not doing well. The team is really humming right now.

Marc Casper:

So, Mike, I guess a few thoughts on 2023, right. And obviously, I am looking forward – I am actually doing it every day, it’s not that. But when we get to January, I will be looking forward to giving you the – give you the update on sort of what we think for the year, right, so in the details. What we don’t know now, right. And it’s just nobody knows is what’s the macro environment, right. Is it – was it like the first half of this year, well, phenomenal, right, or is it different, and so we will appropriately set the context for 2023, when we get there. But I think there are a couple of things that are worth saying at this point in time to at least help you think about it. One is the core business, right. It’s going to be large, right. We are growing the business faster this year than we had outlined in the long-term model. So, I mean the jumping off point in 2023 is we are going to have a bigger business. And that’s core that drives earnings power and all of those things. We will have an appropriate growth range based on how we see the world at that point in time. We will figure that out as it gets closer. And then Stephen might – do you want to comment on FX and because I know that the movements have been enormous, and you might want to frame how to think about that for next year. But I feel great about how the core business performed.

Marc Casper:

Yes. And Mike, when I think about the 7% to 9% growth, that’s the long-term sort of average we worked through. So, it can vary in a given year, as this year, obviously, is above that, it can be within and it can be different, just depends on the measure we use is, are we delivering really good performance, right. And it’s going to be in the context of what’s the environment. So, that’s going to wait until January. Thanks for the questions.

Operator:

Thank you. The next question comes from the line of Rachel Vatnsdal with JPMorgan. You may proceed.

Marc Casper:

Yes. So – when I think about the business in China, the team really did an excellent job I think really difficult circumstances. They basically had a month in the Shanghai region to basically get the business to really incredible performance in June. So, I am very proud of that. We had good growth in the core business, much better than we expected. And a nice chunk of the overdrive in COVID testing was in supporting the local activities. So, we did a really good job there. We don’t sell our assays there, but we do sell our instruments and in our reagents to support local demand. So, we had strong core growth and a meaningful response in China, actually larger than we typically have in China for COVID testing. The way I think about the outlook is it should be a good market in the second half of the year. I have no doubt there will be some level of COVID disruption. What that will be, when it will be, where it will be, hard to know. But just given the zero COVID policies, there will be bumps on the road. But the team knows how to navigate that, and I feel like we will get through that period effectively. And there could be some headwinds here or there, but nothing that we see at this point in time in China. It looks very strong.

Marc Casper:

Yes. So Rachel, thanks for the question. Pharma market has been very strong. One of the questions because as our investors and analysts ask the question. I asked the team about are there patterns, trends, anything that is jumping out. And it’s actually been broad-based strength, right. We are seeing good growth in the various sub-segments within the customer base. So, I feel like the momentum is strong. Orders were strong. There is always company-specific challenges right. There will be companies that have bad data, bad report out or a company that’s going to a cat and whatever [ph]. And we help those companies navigate those times. We help them drive productivity and accelerate innovation, and those things. But we continue to see strong momentum in pharma and biotech. Thanks for the questions.

Matt Sykes:

Thanks for taking my questions and congrats on the quarter Marc and Steve. Just my first question, Marc, when you announced the PPD acquisition last year, you said that part of the rationale was due to your large pharma customers wanting to reduce the number of trusted partnerships they had. And given that we are more than half a year on from the close of the deal and we are potentially facing a tougher economic environment where cost savings might become more important. Have you been able to capitalize on expanding these relationships? And could you share any specific examples of partnership expansions with large pharma as a result of the addition of the PPD business?

Matt Sykes:

Great. That’s great to hear. Thanks. And then just one last question. Just any commentary on demand in the European region? Just give us some of the challenges your customers may be facing there. Have you seen any change in demand from customers across your business within Europe?

Matt Sykes:

Great. Thank you very much.

Dan Arias:

Good morning guys. Thank you. Stephen, maybe just back on the pricing topic.

Dan Arias:

Hey guys. How much of the pricing plan that you have for the year has been implemented at this point? Can we think about sort of a percentage of the portfolio where you have successfully pushed an increase through versus what might be left for the back half?

Dan Arias:

Okay. I appreciate that. Just as a follow-up, maybe, Marc, on your follow-up to Jack’s question on sort of the end market pie chart. How does the – I am curious how the Applied Science business looks for you at this point? And would you draw any distinction between the growth that you are seeing or that you think you will see for industrial versus Applied, just knowing that those two tend to get lumped together a lot. I mean do you think decoupling those do is a useful thing in all to do?

Dan Arias:

Yes. Okay.

Operator:

Thank you. The next question comes from the line of Puneet Souda with SVB Securities. You may proceed.

Puneet Souda:

Hi Stephen and Marc. Thanks Marc and congrats on the quarter. Just two brief questions for me. First one on analytical technologies, that was obviously very strong in the quarter, 13% growth. I think in last quarter, you did 12%. You pointed to a strong backlog going into the quarter as well. So, just wondering sort of how sustainable is that into the second half, given that these are instruments and not sort of consumables and services that you have highlighted as being a larger part of the business. But – and anything on the analytical instruments you could share on this strength of maybe potentially continuing into 2023, given the backlog or not would be really helpful.

Puneet Souda:

Got it. Okay. And then, Marc, a high-level question for you, a bigger important question we get from sort of investors around capacity expansion. I mean Thermo has expanded capacity across multiple business lines and across PPD as well as single-use sites and agreement with Moderna and such. Are these sites in production capacity sort of fully operational sort of in 2022 timeframe and delivering to the level that you expect them to deliver, or this is more of a 2023 or 2024 timeframe when you see them coming fully online, because obviously it requires hiring of folks and getting the full facility fully ramped up. So, asking that because we get questions around capacity expansion and lower capacity. But on the flip side, when I look at it, I mean this will generate meaningfully higher revenue for you when the capacity comes online fully. So, just wondering how to think about that in like the 11% guide that you have today and the 7% to 9% longer term? Thank you.

Rafael Tejada:

Great. Thanks Puneet. Operator, we will take one more question.

Tejas Savant:

Hi guys. Thanks for the time. Maybe I will sneak in a two-parter here at the end. Beyond just the translational headwind from FX, Marc, do you see any signs that the strength of the dollar is beginning to weigh on customer minds, specifically in Europe and Japan? And then, Stephen, on the quarter-over-quarter sort of dip in gross margins roughly about 430 bps or so. Can you just help parse out what that bridge looks like between the COVID wind down versus FX versus other dynamics? Thank you.

Stephen Williamson:

Yes. So, on the gross margin, the gross margin came in exactly where I thought it would, so kind of in line with our expectations. I think that on a year-over-year basis, I think a lot of people are missing the impact of PPD. It’s just under a 400 basis point impact on margin profile. And the rest really since the change both quarter-over-quarter and year-over-year related to the mix in business in terms of testing versus other core and an element of pricing to offset inflation that also puts a little bit of pressure on margins so the other piece to it.

Tejas Savant:

Thanks Steve.

Operator:

That concludes the conference call. You may now disconnect your lines.

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 Investor Section of our website thermofisher.com under the heading news and events until May 13, 2022. A copy of the press release of our first quarter 2022 earnings is available in the investor 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 premium statements for purposes of the safe harbor provisions under the Private Security 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 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 first quarter and full-year 2022 earnings and also in the investor section of our website under the heading financials. So, with that, I'll now turn the call over to Marc.

Stephen Williamson:

Thanks Marc, and good morning, everyone. As you saw in our press release, we started the year with an excellent Q1. In the quarter, we delivered 16% core organic growth, $1.68 billion of COVID-19 testing revenue, $7.25 for adjusted earnings per share, and $1.6 billion of free cash flow. Revenue in Q1 was just over $1 billion higher than we'd incorporated in our previous 2022 guidance, with $700 million driven by a very strong start of the year for the core business and just under $400 million from testing. The strength of the core was brought-based across businesses and markets and geographies. Our PPI business system enabled us to generate very strong pull through on this revenue and adjusted EPS for Q1 was $0.84 higher than included in our previous guidance. So broad-based beat to start the year. Let me now provide you with some more details on our performance. Beginning with our earnings results, and as I mentioned we delivered $7.25 of adjusted EPS in Q1, up 1% versus the prior year. GAAP EPS in the quarter was $5.61 down 5% versus the prior year. On the top line, a Q1 reported revenue grew 19% year-over-year. The components of our Q1 reported revenue increase included 3% organic revenue growth and 18% contribution from acquisitions and a headwind of 2% from foreign exchange. Core organic revenue growth in the quarter was 16% and as I mentioned, we delivered $1.68 billion of COVID-19 testing revenue. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the COVID-19 testing revenue in the current and prior year. In Q1, North America grew in the low-single digits. Europe was flat. Asia Pacific grew in the mid-teens, with China growing in the low-double digits. And rest of the world declined in low-single digits. With respect to our operational performance, adjusted operating income in the quarter decreased 2% and adjusted operating margin was 29.2%, 620 basis points lower than Q1 last year. Adjusted operating margins came in slightly higher than we'd have anticipated in our prior guidance for Q1 reflecting how well our growth strategy and PPI business system enables us to manage dynamic times. We executed strong pricing realization, productivity and volume leveraging the core business enabling us to appropriately address higher inflation, and this was more than offset by the expected impacts of incorporating PPD into our financials, lower testing volumes and the impact of strategic investments including continued investments in our colleagues. Moving on to the details of the P&L, total company adjusted gross margin in the quarter came in at 47.5%, 660 basis points lower than Q1 last year. For the first quarter, the change in gross margin was due to the same drivers as those of our adjusted operating margin. Adjusted SG&A in the quarter was 15.2% of revenue, a decrease of 20 basis points versus Q1 2021. Total R&D expense was approximately $360 million in Q1 representing growth of 14% over the prior year, reflecting our ongoing investments in high impact innovation to fuel future growth. Looking at results below the lines of the quarter, our net interest expense was $118 million, $5 million higher than Q1 last year largely due to acquisition financing activities. Our adjusted tax rate in the quarter was 14.1%. This was a 190 basis points lower than Q1 last year, driven by a tax planning initiative. Average diluted shares with $395 million in Q1, approximately $3 million lower year-over-year driven by share purchases, net of option dilution. Turning to cash flow on the balance sheet. Cash flow was another strong highlight for the quarter. Our PPI business system enables to deliver significant cash flow from the very strong top line performance. Cash flow from operating activities in Q1 was $2.2 billion, and free cash flow for the quarter was $1.6 billion. Our capacity and capability investments are progressing well and this quarter's net capital expenditures with $640 million. In January we returned $2 billion of the capital to shareholders through buybacks. Also during the quarter we increased our dividend by 15%. We ended Q1 with approximately $2.8 billion in cash and $33.3 billion of total debt. Our leverage ratio at the end of the quarter was 2.6 times gross debt-to-adjusted EBITDA, and 2.4 times on net debt basis. And concluding my comments and our total company performance, adjusted ROIC with 18% reflecting the strong returns on investments that we're generating across the company. Now provide some color on the performance about four business segments. Let me start with a couple of framing comments. The scale and margin profile of our COVID-19 testing revenue varies by segment and testing revenue was significantly higher in the prior year quarter, so that does skew some of the reported segment margins. And as previously mentioned we're referring to the acquired PPD business as our clinical research business, and that resides in the laboratory products and biopharma services segment. So moving onto the segment details, starting with Life Sciences Solutions. Q1 reported revenue in this segment increased 1% and organic revenue was 1% lower than the prior year quarter. In Q1 we delivered very strong growth in our bioproduction and biosciences businesses. This was upset by lower revenue in the genetic sciences business driven by lower testing revenue versus the year ago quarter. Q1 adjusted operating income and Life Science Solutions decreased 5% and adjusted operating margin was 51.4% down to 280 basis points year-over-year. In the quarter, we delivered strong productivity that was more than offset by business mix and strategic investments. In the Analytical Instruments Segment reported revenue increased 9% in Q1 and organic growth was 12%. The strong growth in the segment this quarter was led by electron microscopy and chromatography and mass spectrometry businesses. Q1 adjusted operating income in a segment increased 10% and adjusted operating margin was 19.8% up 20 basis points year-over-year. During the quarter, we delivered strong volume pull through and productivity, that was offset by strategic investments we're making across this segment. Turning to Specialty Diagnostics. In Q1 reported revenue declined 8% and organic revenue declined 7%. In the quarter, we saw a strong underlying growth in our healthcare market channel, transplant diagnostics and clinical diagnostics businesses, which was offset by lower COVID-19 testing revenue versus the year ago quarter. Q1 adjusted operating income decreased 17% in the quarter and adjusted operating margin was 23.9% down 260 basis points from the prior year. In Q1, we drove strong productivity. This was more than offset by business mix and the strategic investments in the segment. And finally in the Laboratory Products and Biopharma Services segment, in Q1 reported revenue in the segment increased 51% and organic growth was 6%. During Q1, we had strong growth in the research and safety market channel and the laboratory products, businesses. PPD, our clinical research business is performing very well. And during the quarter, it grew a few points above the company average core organic growth rate. It contributed $1.66 billion of revenue to the segment in the quarter. Q1 adjusted operating income in the segment increased 17% and adjusted operating margin was 11.4%, which is 340 basis points lower than the prior year. In the quarter, we drove strong productivity, which is more than offset by strategic investments and business mix. Let me now turn to our updated 2022 guidance, as Marc outlined, we’re raising our full year revenue guidance by $450 million to $42.45 billion. We're also raising our core organic revenue growth outlook from 8% to 9% for the year. And on the bottom line, we're increasing our adjusted EPS guidance by $0.22 to $22.65 for the year. So very strong outlook, particularly as it also factors in the notable macro developments that occurred following our last earnings call in February. Our team continues to do an excellent job navigating through a fluid macroeconomic environment to help us deliver outstanding results, reflecting the strength of our proven growth strategy and the power of the PPI Business System to operate with speed at scale. So, let me get into the details of the guidance raise, in terms of revenue there are three elements driving the raising guidance, $350 million higher assumed COVID-19 testing revenue for the year, a $200 million decrease due to the change in FX rates and a $300 million increase in the outlook for the core business. The core revenue raise incorporates a $350 million headwinds from the conflict in Ukraine and the lockdowns in China. And we chose to de-risk $600 million of vaccines and therapies revenue in the outlook, offsetting it with other core revenue. Our guidance now assumes $1.5 billion of COVID-19 vaccines and therapies revenue in total for 2022. Incorporating both of these and still being able to raise the full year outlook for the core shows that the business is performing very well. And as I mentioned previously, we're increasing the core organic growth outlook from 8% to 9% for the year. In terms of like COVID-19 testing revenue assumption, continuing the same de-risk approach to guidance as there a range of outcomes for the year. Our guidance now assumes $2.1 billion of testing revenue in 2022, which represents the $1.68 billion delivered in Q1, $225 million in Q2. And then an assumed endemic run rate level of a $100 million of revenue per quarter in the second half of the year. There are scenarios where testing demand could be higher than this level. And should that be the case? We're well positioned to support customer needs as we did in Q1 and we'll flow these benefits through our P&L, but for now we thought it was prudent to continue to take a de-risk approach to the outlook. In terms of profitability, we expected to deliver $90 million more adjusted operating income up to $450 million raise in revenue guidance. This reflects strong pull through on the additional revenue, partially offset by a $150 million of additional compensation to our colleagues to help them with the temporary impacts of insulation. We continue to expect the adjusted operating margin to be 25.4% in 2022. In terms of adjusted EPS, our stronger business outlook is enabling us to raise the 2022 adjusted EPS guidance by $0.22 from $22.43 to $22.65 further building on an already very strong outlook for the year. Let me provide you with a couple of other details on the 2022 guidance to help you with your models. PPD our clinical research business is now expected to deliver $6.7 billion in 2022 in revenue, which represents 11% core organic growth on a full year basis for this business, up three percentage points from our previous guidance. We now expect the business to deliver just over a $1 billion of adjusted operating income in 2022 and contribute a $1.98 to adjusted EPS in the year up $0.08 from our prior guidance. FX is now expected to be a year-over-year headwind of $700 million on revenue, or 1.8% and $0.54 on adjusted EPS. We continue to expect net interest expense of approximately $490 million for the year. We now expect an adjusted income tax rate of 13.1% in 2022, slightly higher than the prior guide driven by the improved earnings outlook. We continue to assume net capital expenditures of approximately $2.5 billion to $2.7 billion and free cash flow of approximately $7 billion. A guidance still assumes $2.5 billion of capital deployment, which is the $2 billion of share buybacks that we completed in January and $475 million of capital to return to shareholders through dividends. And we now estimate that the full year average diluted share count will be between 394 million and 395 million shares. And finally, a couple of comments on phasing to help you with your modeling, revenue dollars for the remainder of the year they're expected to be fairly linear with Q4 being slightly higher than Q2 and Q3. Core organic growth for Q2 is expected to be lower than Q3 and Q4 due to an estimated 200 basis point impact of lockdowns in China. And in terms of adjusted EPS phasing, we expect Q2 as a percentage of the full year to be just slightly lower than the comparable periods last year. To conclude we'd live an excellent start to the year, and we're in a great position to achieve our 2022 goals. With that, I'll turn the call back over to Raf.

Operator:

Thank you. [Operator Instructions] And our first question today comes from Jack Meehan of Nephron Research. Jack, please go ahead. Your line is open.

Marc Casper:

Yes, Jack, thanks for the question. So our clinical research business, formally PPD off to a great start. As a reminder, the business had tremendous success in 2021 delivering great performance, great authorizations, even from especially after the announcement, just incredibly focused on great execution. Customers are excited about the potential and that momentum continued into Q1. Very strong performance on revenue and really good growth and authorizations. As I look at what's going on in the industry and look at some of the other companies that have reported, our results look favorable to the results that we saw. So we feel good about that, as an external reference point. And the switch strength within PPD was broad based across the different customer types, the funding environment, it was actually a great start to the year. Integration's gone really well. We feel good about that, and I'm really excited that commercial team has secured our first wins that are what I would call synergy related in the form of new authorization. So really a very cool start to the year, and we're excited about what the potential holds for our clinical research business.

Marc Casper:

Yes, so Jack thanks. It's a great question. We made a decision on the guidance on vaccines and therapies, actually just because the number of questions we were getting from investors relative to our enterprise value and the sort of net present value of the company was disproportionate, right? So, we just basically said, we had a really good start on vaccines and therapies for the year. We did just under $500 million of revenue, which was what we expected to do. The $2.1 billion that we put in the original guidance of vaccine therapy related revenue is actually still a number that can be achieved. I call it at the high end of the range. And as you know, we're involved in so many of the programs, we're involved in the vaccine programs and the therapy programs we're involved in the drug substance and the drug product. We're involved in the enabling technology. So it's across many of our different capabilities and we feel good about it. We chose to effectively reduce the number in the, sort of in the target because the core business is performing so well that we just wanted to take the dialogue really off the table, as you know the capacity that makes these products and provides the enabling technologies is truly repurposable to other customers and to other products within the biologic field. So, we're very encouraged by that. And then to your question, we are expecting very strong growth for our pharma services and our bioproduction business in 2022 and beyond. So Jack thanks for the questions.

Patrick Donnelly:

Hey guys, thanks for taking my questions. Marc, maybe on the China piece, I know Stephen touched on a 200 bit headwind for 2Q. Can you just talk about what you're seeing there, which businesses are being affected more than others? Obviously we're seeing Beijing entering the conversation this week, I guess, what have you guys assumed there in terms of escalations or what's going to happen. And then again are certain businesses poised to recover more quickly than others. Just curious your perspective there.

Patrick Donnelly:

Sure. That's helpful. Thanks Marc. And then maybe just another one on the bioprocessing vaccine piece, appreciate the transparency in terms of what that looks like this year? Obviously to your point, it's a big investor focus even into 2023, is there a way to think of that $1.5 billion as we get into next year? I know you guys have rolled it into core and kind of thought, the rest of the bioprocessing business will mostly offset it. It's going to be a gradual decline. Has that thinking changed at all? Just wondering on your high-level perspective, how to think about that piece as we move forward. Thank you.

Patrick Donnelly:

Very helpful. Thanks Marc.

Operator:

Thank you. And our next question comes from Derik De Bruin of Bank of America. Derik, please go ahead your line is open.

Marc Casper:

Good morning.

Stephen Williamson:

Yes, so Derik so let's think about the gross margins this quarter kind of another 47.5% level be slightly lower for the remainder of the year and still in the year in that kind of mid-40s. And I think what people are not fully baking in is the impact of PPD. That has sizeable change to the overall company's gross margin when you factor that in. And then FX is a little bit of negative in terms of the margin profile. But it's really the impact of testing coming down and then the benefit of having PPD in the business. I think that's probably the thing that's missing the most.

Marc Casper:

Yes, so, Derik, thanks for the question. So, as you know, we never really talk about specific customers unless a customer is announcing this on their own behalf, and then we're more than happy to make some high-level comments, right, because it's really, our job is to support our customers’ activity. I think that our take is that we did a really good job of supporting our clients during the course of the pandemic across all of the different activities. And that enhanced our reputation, our trusted partner status with our customers. And as in the case of Moderna they had the opportunity to work with us and decided to leverage our capabilities in Greenville, North Carolina, and our expertise to support their future pipeline from a sterile fill finish perspective. And it's super exciting in terms of the capabilities of the things that we will support longer term from them there. We have many different models of how we work with our clients in our pharma services business. And it's our job to support them in the best way that they want. We do have what we call condo models, where customers have some dedicated capacity. We have the traditional fee-for-service models. And then we have some other innovative ones. The other public one obviously was announced a couple years ago, which was CSL, right, which is, we took over one of their facilities, we're going to be manufacturing one of their new therapies and they are expanding the collaboration with us. So, it's a long menu of options and our job is to help our customers navigate their future and be really valuable to them.

Operator:

Thank you. And our next question comes from Tejas Savant of Morgan Stanley. Tejas please go ahead, your line is open.

Marc Casper:

Yes, it's a great question, right. So, when we think about living and navigating through an inflationary environment, our team is doing a good job of managing productivity and managing cost and mitigating what can be mitigated. So, I'm very pleased with that. Our expectation for pricing is – and in normally as you know, it's a half point to a point of price that we get within our business. And this year we would expect that price would be about double the high end of that range or about two points of price within our outlook for the year. So, it's our job to support our customers, to explain the inflations and where we can offset it and where we need customers to support us. And those dialogues have been constructive and positive.

Marc Casper:

Yes. So, when I look at the performance, I look at the pipeline, I look at the authorizations, which is the new wins. When I look at the revenue, when I cut it by the different types of customers, we had a really strong start to the year. When I look at, I read not all, but some of the different commentary, and the differing views out there my take is, is that there was nothing abnormal in cancellations in the quarter, there was no trend to any of that. And actually we are on track to deliver very strong results, but the 11% growth that we're looking at for this year is really impressive because last year we're spectacular, right? In terms of the growth that the business delivered. So against a challenging comp that's really, really encouraging, and authorization support that for this year, but also support the long-term expectations that this is a high single digit growth business. And when we drive, synergies, it can be better than that. So, super cool times, but obviously early.

Marc Casper:

You're welcome.

Vijay Kumar :

Hi guys. Thanks for taking my question and congratulations in a really strong Q1 start. Maybe one on guidance here, perhaps for Stephen. I think your prior guidance call for high singles and that high singles was consistent across base vaccine and PPD [ph] just given, given a vaccine outlook is now I think down 15%, 20% versus last year. How much is the core, base going up and how much is PPD going up under the new guidance assumptions?

Vijay Kumar :

That's helpful Stephen and Marc maybe one for you here. I know that the street is worried about the outlook just given the macro, the 16% core and Q1 versus a 13% comp. And we're looking at stock comp of close to 30%. I mean, these are really, really strong, and I understand pharma biotech, perhaps being strong but looks like all segments are on fire. Maybe just talk about end markets health of end markets, and when you think about the upcoming Analyst Day, what kind of approach should we expect from Thermo, will vaccines be get rest will it be the rest approach or any thoughts and what we can expect into the analyst? It will be helpful.

Vijay Kumar :

It's helpful perspective, Marc. Thank you.

Operator:

Thank you. And then next question comes from Rachel [indiscernible] of JPMorgan. Rachel, please go ahead. Your line is open.

Stephen Williamson:

Yes, so roughly, Rachel, roughly half of that is related to China. And as Marc said it earlier on that China bounced back from the original depth of the pandemic pretty fast, and it's pretty resilient economy. So, we've learned from that to help our customers get a pack up and running where they've been out of the out of the workplace. And we're very focused on enabling that success when they're able to get back to positions of work.

Unidentified Analyst:

Great. Thanks. And then could you spend a minute talking about what you're seeing in the clinical environment in terms of hospital capacity constraints and how funding is trending as well? Thanks.

Operator:

Thank you. And our next question comes from Puneet Souda of SVB Leerink Securities. Puneet, please go ahead. Your line is open.

Marc Casper:

Yes. So Puneet, what I would say is the end market, pharma biotech incredibly strong with the mid-teens growth organically and if you – because we do everything on an organic basis in our end market description as opposed to a core organic, as it gets too confusing to think about all the history, but if you included the PPD numbers in that end market, it would be better than the mid-teens. So very strong orders which is a good indication, now the future is really strong, right? So the activity level is very good and the outlook is very strong. And when we have our – we've completed all of our business reviews and we talk about what are they seeing within those different customer base? Actually, the outlook is good. So one way to think about is at a company level, you take a long-term perspective, right? We say our 7% to 9% core organic growth. Pharma biotech will be above that, but when you kind of work your way through the math around the assumptions, it doesn't nearly need to be the rate that is growing at to drive 7% to 9% growth, right? We had a 15% growth in pharma and biotech, and we grew 16% in the quarter, right? So when you have strong growth in that end market given that it's a little more than half our revenue, it really flows through hugely. And given the last 10-plus years, even longer than that of the growth we've been able to deliver in pharma and biotech, I'm super bullish about what our outlook is. And I can even remember I was here with the patent clips like years and years and years and years ago, and we actually grew well through those because we helped our customers navigate productivity challenges that they were facing. That was a large pharma dynamic and a long-time ago, but we're so attuned to our customer needs we helped them through it. So that's how I think about it, and I feel great about what the outlook is.

Stephen Williamson:

Yes. So Puneet a great question. So I think about Analytical Instruments is we've had great bookings for few quarters now for the business, and as Marc mentioned at the beginning that really strength across all three aspects of that segment. And then I highlighted the two that the most significant contributors electron microscopy is in great position in terms of serving life science customers, as well as material science applications including very strong growth in semiconductor applications for, for that customer set, and a great growth in Chromatography and Mass Spectrometry as well. So it's a really broad-based strength across there and funding environment is been good for the end market.

Puneet Souda:

Thanks guys.

Dan Arias:

Good morning guys. Thanks for the questions. Marc, on bio-production beyond COVID, are there any ships through noticeable trends that are taking place when it just comes to upstream versus downstream work in the portfolios that you have there? I mean, obviously the cell culture piece is driving a lot of what's going on, but just across the portfolio, I'm curious to whether there's any nuance to what you're seeing?

Dan Arias:

Yes. Okay. And then maybe just on the share that you mentioned. How does China stack up there in terms of the opportunity and what you've seen just with the thought being that sometimes these global disruptions tend to shake out some of the smaller or the less agile players? I'm wondering if regionally that's becoming more noticeable or whether it's just sort of the baseline operating scenario that you see.

Rafael Tejada:

Operator, we have time for one more question.

Matt Sykes:

Great. Thanks Marc and Stephen. Congrats on the quarter. I just wanted to drill down a little bit more on the industrial applied end market as it relates to instruments, yet another strong quarter. Are there some secular growth drivers that you think are being underappreciated by the market is driving this growth above and beyond maybe some of the pent-up demand we saw last year? And maybe just maybe talk about some of the secular growth drivers, if you can identify them?

Marc Casper:

Thanks for the question today. And let me do a quick wrap up. So thanks everyone for joining the call. We're very pleased with the strong start and we're in a very good position to achieve another excellent year. And I look forward to updating you at our upcoming Investor Day on May 18th, and as always, thank you for your support of Thermo Fisher Scientific. Thanks everyone.

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 and Events until February 11, 2022. A copy of the press release of our fourth 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 words that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials SEC filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any 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 fourth quarter and full year 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.

Stephen Williamson:

Thanks, Marc, and good morning, everyone. As you saw in our press release, in Q4, we delivered an excellent quarter, capping off another outstanding year. For the full year 2021, we delivered 17% organic growth that included 14% organic base business growth and $9.2 billion of COVID-19 response revenue. We delivered 28% growth in adjusted earnings per share in 2021 and over $7 billion of free cash flow, all while significantly investing in our company to enable a really bright future. I'm very proud of what the team accomplished this year. These results are significantly ahead of our prior guidance. So let me walk you through the key elements of the beat. We delivered $2.1 billion more revenue than included in our prior guide. This included $1.5 billion higher COVID-19 response revenue, $375 million of revenue from the PPD acquisition and $200 million higher base business revenue. On our last earnings call, we derisked testing response revenue in our guidance. And we said that if for any additional opportunities to support customers' testing needs, we'll be ready to do so and flow the benefits through our P&L, and that's exactly what we did in Q4. Let me turn to the base business. In Q4, we delivered 8% base business organic growth, which was 3 percentage points higher than assumed in the prior guide. This is very good performance, particularly given the four fewer selling days in the quarter. So excellent momentum on the top line. Our core business is on a great growth trajectory, and we continue to step up and meet our customers' testing needs. Our PPI Business System enabled us to generate great pull-through on the very strong revenue performance in Q4, leading to excellent adjusted EPS performance. We delivered $6.54 of adjusted EPS in the quarter and $25.13 for the full year; this was $1.76 ahead of our prior guide. So a broad-based beat to round out an outstanding year. Let me now provide you with some more details on our performance. Beginning with our earnings results, and as I mentioned we delivered $6.54 of adjusted EPS in the quarter. And for the full year, adjusted EPS was $25.13, up 28% compared to last year. GAAP EPS in the quarter was $4.17. And for the full year 2021, GAAP EPS was $19.46, up 22% versus the prior year. On the top line, our Q4 reported revenue grew 1% year-over-year. The components of our Q4 revenue increase included a 4% organic revenue decrease, a 6% contribution from acquisitions and a headwind of 1% from foreign exchange. And as I mentioned, the base business organic revenue growth in the quarter was 8%. For the full year 2021, reported revenue increased 22%, this includes 17% organic growth, a 3% contribution from acquisitions and a 2% tailwind from foreign exchange. The full year base business organic growth was 14%. And in 2021, we delivered $9.23 billion of COVID-19 response revenue, which includes $2 billion of vaccines and therapy support revenue. Turning to our performance by geography. The organic growth rates by region are skewed by the response revenue in the current and prior year as well as four fewer selling days in Q4 2021 versus the prior year quarter. For Q4, North America declined in the low teens. Europe grew high single digits. Asia Pacific and China grew in the high single digits. And rest of the world grew mid-single digits. For the full year, North America grew low double digits. Europe grew over 25%. Asia Pacific grew over 20%, including just under 20% growth in China. And rest of the world grew mid-teens. Turning to our operational performance. Q4 adjusted operating income decreased 10% and adjusted operating margin was 29.5%, 380 basis points lower than Q4 last year. For the full year, adjusted operating income increased 27% and adjusted operating margin was 31%, which is 130 basis points higher than 2020. In the quarter, our PPI Business System enables to deliver strong volume leverage on the base business, and strong productivity. This was more than offset by the impact of lower testing response revenue and our ongoing strategic investments across our business to support our near- and long-term growth. For the full year, we drove positive volume leverage and productivity. We also had favorable business mix. This was partially offset by our strategic investments. Moving on to the details of the P&L. Total Company adjusted gross margin in the quarter came in at 50.5%, 340 basis points lower than Q4 last year. And for the full year, adjusted gross margin was 51.6%, up 40 basis points versus the prior year. For both the fourth quarter and full year, the change in gross margin was due to the same drivers as those for our adjusted operating margin. Adjusted SG&A in Q4 was 17.3% of revenue. And for the full year, adjusted SG&A was 17.1% of revenue, an improvement of 80 basis points compared to 2020. Total R&D expense was approximately $390 million in Q4. And for the full year, R&D expense was $1.4 billion, representing growth of 19% over the prior year, reflecting 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 was $150 million, $16 million higher than Q4 last year, largely due to the PPD financing activities? Net interest expense for the full year was $493 million, an increase of $5 million from 2020. Adjusted other income and expense was a net income in the quarter of $7 million, $8 million higher than Q4 2020, mainly due to changes in non-operating FX. For the full year, adjusted other income and expense was a net income of $38 million, which is $8 million lower than the prior year. Our adjusted tax rate in the quarter was 13.8%. This was 220 basis points lower than Q4 last year, mainly due to the different levels of pretax profitability year-over-year. For the full year, the adjusted tax rate was 14.6% or 30 basis points higher than 2020. Average diluted shares were 398 million in Q4, approximately 2 million lower year-over-year driven by share repurchases, net of option dilution. And for the full year, the average diluted shares were 397 million. Turning to cash flow and the balance sheet. Cash flow was another great highlight for the year. Cash flow from operating activities in 2021 was $9.5 billion, up 15% over the prior year. And free cash flow for the year was $7 billion after investing $2.5 billion of net capital expenditure. This reflects strong returns we're generating in the short-term and the investments that we'll make for the long-term. During the year, we returned approximately $2.4 million of capital to shareholders through stock buybacks and dividends and we ended Q4 with $4.5 billion in cash. Our total debt at the end of Q4 was $34.9 billion, up $13.2 billion sequentially from Q3, largely as a result of the financing activities related to the PPD acquisition. Our leverage ratio at the end of the quarter was 2.7 times gross debt-to-adjusted EBITDA and 2.3 times on a net debt basis. And concluding my comments on our total company performance, adjusted ROIC was 19.8%, up 180 basis points from Q4 last year as we continue to generate exceptional returns. So I'll now provide some color on the performance of our four business segments, and let me start with a few framing comments. The scale and margin profile of our COVID-19 response revenue varies by segments that has been consistent throughout the year. We continue to make strategic investments across all of our businesses. The size of those investments does not necessarily align with the response revenue in each segment that does skew some of the reported segment margins. And during Q4, we had four fewer selling days than the year-ago quarter. And finally, we recently renamed Laboratory Products segment to reflect the inclusion of the PPD acquisition. It's now Laboratory Products in Biopharma Services segment. And also going forward, we'll refer to PPD as our clinical research business within this segment. Moving on to the segment details, starting with Life Sciences Solutions. Q4 reported revenue in the segment decreased 5% and organic revenue was 8% lower than the prior year quarter. In the quarter, we delivered very strong growth in our bioproduction and biosciences businesses. This was offset by lower revenue in the genetic sciences business driven by lower testing revenue versus the year-ago quarter For the full year, reported revenue in the segment increased 28% and organic revenue increased 23%. Q4 adjusted operating income in Life Science Solutions decreased 14%, and adjusted operating margin was 48.2%, down 490 basis points year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable business mix and strategic investments. And for the full year, adjusted operating income increased 28% and adjusted operating margin was 50%, a decrease of 20 basis points versus 2020. In the Analytical Instruments segment, reported revenue increased 5% in Q4 and organic growth was 6%. Growth in this segment this quarter was driven by electron microscopy and chromatography and mass spectrometry businesses. For the full year, reported revenue in this segment increased 18% and organic revenue increased 17%. Q4 adjusted operating income in the segment increased 15% and adjusted operating margin was 22.1%, up 190 basis points year-over-year. During the quarter, we saw favorable business mix and delivered strong volume pull-through and productivity enabled by our PPI Business System. That was partially offset by the strategic investments we're making across this segment. For the full year, adjusted operating income increased 48% and adjusted operating margin was 19.7%, an increase of 390 basis points versus 2020. Turning to Specialty Diagnostics. In Q4, reported revenue and organic revenue were both 26% lower than the year-ago quarter. In the quarter, we saw a strong growth in our transplant diagnostics and immunodiagnostics businesses, which was offset by lower COVID-19 testing revenue versus the year-ago quarter. For the full year, reported revenue in this segment increased 6% and organic revenue increased 5%. Q4 adjusted operating income decreased 43% in the quarter and adjusted operating margin was 20.5%, down 590 basis points from the prior year. In Q4, we drove positive productivity enabled by our PPI Business System. This is more than offset by unfavorable volume mix and strategic investments in the segment. For the full year, adjusted operating income decreased 6% and adjusted operating margin was 22.6%, a decrease of 300 basis points versus 2020. Then finally, Laboratory Products and Biopharma Services segment. In Q4, reported revenue in this segment increased 16% and organic revenue growth was 5%. During Q4, we saw strong growth in the Pharma Services and Laboratory Products businesses and we recognized $375 million of revenue for PPD to clinical research business. For the full year, reported revenue in this segment increased 21% and organic revenue increased 15%. Q4 adjusted operating income in the segment increased 42% and adjusted operating margin was 11.5%, which is 210 basis points higher than the prior year. In the quarter, we drove strong productivity by our PPI Business System and saw a favorable business mix, partially offset by strategic investments. For the full year, adjusted operating income increased 45%, and adjusted operating margin was 12.4%, an increase of 200 basis points versus 2020. Let me now turn to our updated 2022 guidance. Before I get into the details, I'd like to begin with a quick reminder about our definition of core business, which we introduced at our Investor Day last year and notably transitioned to it in 2022. Core includes our base business, the vaccines and therapies response revenue and the PPD acquisition. Given the scale of the PPD acquisition, our core organic growth calculation will include PPD on a full year basis, if we think that gives you the best view of how to look at the total company business and how it's performing. For full transparency, we'll also continue to provide total company organic growth when reporting our actual performance in 2022. So moving on to our guidance, as Marc mentioned we're significantly increasing our full year 2022 revenue and adjusted EPS outlook. We're raising our full year 2022 revenue guidance by $1.5 billion to $42 billion, and we're raising our adjusted EPS guidance by $1.07 to $22.43. This very strong raise reflects the excellent strength of the business and we continue to expect 8% core organic revenue growth in 2022. Let me now provide you with additional details on the updated guidance. Starting with revenue, where there are four elements driving the $1.5 billion raise. A $1 billion increase in the COVID-19 testing assumption, a $900 million increase for the core business, a $500 million decrease due to the change in FX rates, and $100 million increase to reflect the PeproTech acquisition, which closed just before the year-end. In terms of our COVID-19 testing revenue assumption, we're continuing the same derisked approach to guidance under a range of outcomes for the year. Our guidance now assumes $1.75 billion of testing revenue in 2022. There are scenarios where testing demand could be higher than this level and should that be the case, we're well positioned to support customer needs. And as we did in 2021, we'll flow the benefits of that through our P&L. But for now, we thought it was prudent to continue to take a derisked approach to the outlook. In terms of the core revenue raise, $600 million relates to PPD and reflects the excellent strength of that business and to a lesser extent the recent GAAP changes around deferred revenue measurement for acquisitions. We now expect PPD, our new clinical research business to deliver $6.5 billion in revenue in full year 2022. This represents 8% organic growth on a full year basis on top of 30% growth it delivered in 2021. And the remaining $300 million of the core revenue raise is to reflect the strong finish to 2021 by the rest of the core business. Our core business is in great shape. It ended 2021 with even more scale and as I mentioned earlier, we continue to expect that it will grow 8% organically in 2022. So a very strong raise overall for our revenue guidance. And we will use our PPI Business System to generate strong pull-through on that revenue. And we now expect adjusted operating margin to be 25.4% in 2022, that's a 20 basis points higher than what we assumed in our prior guidance. In terms of adjusted EPS. Our stronger business outlook is enabling us to raise the 2022 adjusted EPS guidance from $21.36 to $22.43, further building on an already very strong outlook for the year. Let me now provide you with a couple of other details on the 2022 guidance to help you with your models. As I mentioned PPD is expected to deliver $6.5 billion of revenue and $1 billion of adjusted operating income in 2022. This acquisition is now expected to contribute $1.90 to adjusted EPS in the year. PeproTech is expected to deliver revenue of just over $100 million in 2022 and $0.05 of adjusted EPS. FX is now expected to be a year-over-year headwind of $500 million in revenue or 1.3% and $0.31 from adjusted EPS. We continue to assume an adjusted income tax rate of 13% in 2022. We now expect full year net interest cost to be approximately $490 million and other income to be $10 million. We continue to assume net capital expenditures of approximately $2.5 billion to $2.7 billion and free cash flow of approximately $7 billion. Our guidance still assumes $2.5 billion of capital deployment, which is $2 billion of share buybacks to be already completed in January and $475 million of capital returned to shareholders through dividends. We now estimate that the full year average diluted share count will be between 395 million and 396 million shares. And finally, a couple of comments on phasing to help you with your modeling. In terms of revenue dollars, the assumption in the guide is the revenue dollars are fairly linear for the year, with Q1 and Q4 being slightly higher than Q2 and Q3. The derisked assumption for COVID-19 testing used in this guidance assumes that this revenue is very front-end loaded in the first half of the year, and then as an assumed endemic run rate level of $100 million of revenue per quarter in the second half of the year. Organic growth of the core business is expected to be fairly consistent throughout the year. And then in terms of adjusted EPS phasing, this guidance assumes slightly more weighting towards the first half of the year than the phasing we had last year, with Q1 being about the same percentage of the full year as we had in 2021. To conclude, we delivered another outstanding year, and we're in great position to achieve our 2022 goals. With that, I'll turn the call back over to Raf.

Operator:

Thank you. [Operator Instructions] We take our first question from Jack Meehan from Nephron Research. Jack, please go ahead.

Marc Casper:

Good morning, Jack.

Marc Casper:

So Jack thanks for the question. Our clinical research business, PPD has really had a really excellent 2021 with 30% growth. And it was broad-based strength across biotech, biopharma, all the very important therapy areas that they're focused on, including work in the support of COVID-19 vaccines and therapies. As we look at the authorizations, we're very strong last year, which gives the business great momentum coming into 2022 and 2023. And we feel good to be able to grow that business in line with our core average of about 8% this year. So we feel very good about the outlook for the business.

Stephen Williamson:

Yes. So Jack, so we have been very active on using the pricing lever as part of our PPI Business System, and we have a great team that helps our businesses do that in a very appropriate way. And we've seen basically in the second half of 2021, and as we project forward to 2022, pricing around about 2 times the normal level given the inflationary environment we're facing. So that's in aggregate across the whole portfolio. It's different by different areas of the business, but that's the aggregate result, and we're offsetting the impact of inflation through that pricing activity.

Marc Casper:

Thanks Jack.

Patrick Donnelly:

Great. Thanks for taking the question guys. Marc, maybe just on the guidance raise, that core $400 million raise or so. Can you just talk through; I guess the end markets that you're seeing where you're feeling incrementally better going into 2022 versus a few months ago at the Analyst Day and then obviously, the 3Q update as well? Just kind of curious the confidence level going into 2022, you guys obviously sound quite bullish for the year. But maybe if you can just talk through some of the upside levers as we go into this year?

Stephen Williamson:

Yes. And Patrick, that – the extra – days was pretty broad across the business when I think about the impact in Q4.

Marc Casper:

Yes. So if you reflect back on last year, right, very active year with 10 transactions, and the bolt-ons about $4 billion worth of transactions, $20 billion roughly for PPD. So actually a really nice year of bolt-on activity. And if this was any other quarter in the fourth quarter, we actually were talking about PeproTech quite a bit, right, in terms of classic bolt-on, great growth prospects, good technology that is already performing well and will flourish under our ownership and the strength of our Biosciences business. So that's kind of the look back, right? And it gives you a sense that there's plenty of opportunity. Our pipeline is busy, right? We have plenty of financial capacity. We'll be incredibly disciplined to make sure that it fits our strict criteria, it creates shareholder value and that it really is additive to the portfolio. But we're actively looking at a number of transactions, and we'll see how they play out. The return of capital is also an important part of our strategy. And as you noted, we deployed already $2 billion on buybacks in the beginning of the year and we're excited to be able to do that for our shareholders as well.

Marc Casper:

You are welcome.

Dan Arias:

Good morning, guys. Thanks for the question. Marc, maybe just following up on Patrick's M&A question there. I'm just curious about whether or not you're actually seeing assets become more attractive these days given the market moves? I mean, we've all seen valuations in the public markets come in. So it feels tempting to say, yes, but I imagine that the management teams of these companies remember their stocks being a lot higher, not too long ago. And on the private side maybe sort of a similar thing relative to the last raise or something. So I guess the question is, are assets any more approachable than they used to be in reality or not really?

Dan Arias:

Yes. Okay. That makes sense. And then maybe on the clinical channel, how would you describe the spending environment in the hospital landscape right now when it just comes to sort of non-COVID-related items as we start off the year? It seems like things were normalizing, but then we did get some hospital capacity constraints as Omicron surged. So just curious how you're seeing things trend and how spending priorities are looking in demand overall in the clinical segment?

Dan Arias:

Got it. Okay. Thanks Marc.

Derik De Bruin:

Hey good morning.

Derik De Bruin:

So, Marc I don't know if you can do this, but it's the question we're getting from investors. But if you look at that 25.4% operating margin guide for 2022, what's the – I guess, can you do – can you talk to the push and takes on contributions or – what's the FX headwind? What's the decrease from PPD? And just – and basically in COVID sort of walk through the basis on what's sort of like the underlying margin? I think we're getting a lot of questions on that as people sort of think about sort of like the future trajectory.

Stephen Williamson:

Yes. So, in terms of the long-term model, we said margins are greater than 26%. And that's all incorporated in this guidance as we think about 2022 as the year in that three-year long-term model. So, we raised our guidance for revenue. PPD is part of that, which is kind of mid-teens margin. FX is slightly more of a hurt in terms of the change versus the prior guide. And then the higher testing and the higher core business growth is coming through the decent margin. So that's the kind of puts and takes that gets you the 20 basis point increase. And it's all in line. It's actually slightly higher than what included in that full year model that we gave out at the Investor Day.

Marc Casper:

Yes. So, Derik thanks for the question. So, we had very strong growth in APAC, about 20% for the year and China just below, I think, 19%. So, it's kind of in the same range. When I look at the outlook, China being the largest of the countries in that region, it represents about 8% of our total revenue despite context. We expect it to be and continue to be one of our fastest-growing end markets. Significant investment in pharma and biotech, biotech in particular, in the country. We're well positioned to continue to serve that very well. So, the team in China is bullish about the outlook. There are clearly geopolitical tensions and we'll. Navigate those appropriately. And so that's part of it. And so, we feel good about what the outlook is there. And then we've had really good strength beyond China, right? South Korea continues to perform at a really good level. We played very strong role in India, and that's expanding nicely. The region has been good for us, and I'm very proud of how the team has performed in Asia-Pacific and obviously around the world.

Marc Casper:

Yes. So obviously, for the year, with the low double-digit growth, very strong. We had low single-digit decline, as you said, in the fourth quarter. Really, it's the combination, as you said, four selling days less. We also had a very strong comparison in academic and government in the prior year period. So that's probably the other factor beyond any Omicron-type disruption. So, as I thought about it, there was not much to read into it in terms of what the activity level was, what customers are talking about, pipeline stuff seems fairly normal.

Rafael Tejada:

Thanks, Derik.

Operator:

We take our next question from Luke Sergott from Barclays. Please go ahead.

Marc Casper:

Luke thanks for the question. So, when I think about the demand profile and capacity expansions, obviously, there has been very significant demand across the industry for supporting all of the COVID therapy and vaccine activity. And the industry, obviously, utilization went up hugely, probably unsustainably high. So, some of the investments you're seeing within our own company and sure, across others, is to bring utilization rates back to normal, right. So, that's the first thing to remind. Within our own business, if I think about the investments, I think about the nature of the customer contracts, I think about who the customers are, what else they have in their pipelines, our ability to transition the COVID-related activity to other therapeutic areas is something that we have a high degree of confidence in the ability to do that. You don't do it necessarily in one quarter, right. It takes a few quarters to get all of that smooth out. But we have good line of sight in terms of how to backfill when COVID demand is, God willing, less needed around the world, right, as we all hope that it's something that, at some point, wanes to a certain extent. So, our ability to do that, and you can think about a visualize right, sterile fill-finish activities, really all of the biologics that are used for any indication run through that capacity, right? So, we've added capacity and we're running flat out. And if there's less of a need longer term for vaccines, then you would see that capacity go to other critical areas. So that would be – you can visualize it that way. The capacity is truly generic to all of the indications out there.

Marc Casper:

Yes, so you have two different things going on with our rapid diagnostic systems, our PCR, that we acquired early in 2021. You have the long-term menu expenditure beyond the respiratory panel and the COVID-19 test. That's a multiyear investment that really leverages the technology for the long term. And we're excited about that, right? When I think about – the second aspect of it is the role in COVID response, demand there has been very, very high. And while I could say the exact number of customers, you would see it in the pharmacies, is a natural application where it's been used, you see it in the doctor offices, as well as in number of back-to-life settings. I've been to meetings where that technology has been used to clear people to be able to attend the meeting and you get a result in 30 minutes. So, it's an exclusive technology to get a PCR result that quickly. So, I feel good about the acquisition, how the technology road map is developing and how it's performing.

Operator:

The next question comes from Vijay Kumar from Evercore. Vijay your line is open.

Stephen Williamson:

So, Vijay, good morning. The raise is because of the scale of the business has gotten larger in 2021, and then we're growing that at 8% going forward in 2022. So, the growth rate is still the same as our prior guidance for core, which is a very strong 8%. But the base in which it's growing is actually larger because of the way that we finished in the end of 2021.

Marc Casper:

Yes. So, Vijay in terms of the bioproduction activity. So, in that we say the word bioproduction, what we're meaning here is our cell culture media, our single-use technologies, our purification resins. That's part of a much bigger set of production activities for pharma and biotech, which includes pharma services and our bioscience reagents, some of those activities. I called out the DynaDrive specifically because today, when you think about a customer choice for most probably 70% to 75% of medicines and indications that are biologics, you can use single-use technology. That doesn't mean that that's the share that is used, which you can economically and the alternative is stainless steel. And that's a 2,000-liter scale. Our technology allows you to go to 5,000-liter scale. That effectively opens it up for almost all medicines could be made. And it's probably a couple of very high-volume ones want to do a stainless steel. Now how fast customers will ultimately adopt it? Will take some time. We've obviously adopted it in one of our biologics facilities. And we're super excited about the capability because the economics and the quality is fantastic. So, I think the technology is exquisite, and it's unique to us. So yes, I think it allows us to grow our share over time.

Marc Casper:

Yes.

Stephen Williamson:

In terms of the 2022 version, no. There is an assumption that it's going to contribute – come in the contribution margin around about the company average.

Rafael Tejada:

Thanks, Vijay.

Dan Brennan:

Great, thanks for taking the questions. Marc, just a quick just comment, just kick it off. I'm still unsure on Zach, what knowing [indiscernible] the last five means certainly gives me some hope. I just wanted to ask a question on the base biologics business, ex-COVID. I didn't hear it in the prepared remarks, but you may have discussed it. So how did that business grow in the quarter? Could you give some color on what the bookings trends were in the quarter? And kind of what's assumed implied in the 2022 growth for that business?

Dan Brennan:

Got it. And then maybe as a follow-up, just on the diagnostic testing side, you guys are obviously tremendously successful with COVID testing. I'm just wondering if you can comment on all the PCR platforms that you've expanded globally. What's the strategy? And what's some of the revenue contribution as COVID flows to kind of monetize maybe some content on those boxes? Is there something baked in to the base business or just how do we think about that opportunity for Thermo?

Rafael Tejada:

Operator, we have time for one more question.