Q3 2020 Thermo Fisher Scientific Inc Earnings Call
The conference call.
Time, all participants are in listen only mode.
After the speaker's presentation that will be a question and answer session ask a question. During the session you need to press star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the conference over to your moderator today Mr. candidates at the Stearns <unk>.
Vice President Investor Relations.
Mr. Apicerno you may begin your call.
Good morning, and thank you for joining us on the call with me today is more Casper, our chairman President and Chief Executive Officer, and Stephen Williamson Senior Vice President and Chief Financial Officer. Please.
Please note this call is being webcast live and will be archived on the investors section of our website Thermo Fisher dot com under the heading Webcasts and presentations until November six 2020.
A copy of the press release of our third quarter 2020 earnings is available in the investors section of our website under the heading financial results show.
So before we begin let me briefly cover our safe Harbor statement very.
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 995.
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 quarterly report on form 10-Q for the quarter ended June 27, 2020 under the caption risk factors, which is on file with the Securities and Exchange Commission and is.
Also available in the investors section of our web site under the heading FCC filings while we.
While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do show 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'll 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 2020 earnings and also in the investors section of our website.
Under the heading financial information.
So with that I'll now turn the call over to Mark. Thanks.
Thanks, Ken and good morning, everyone. Thank you for joining us today for 2023rd quarter call.
As you saw in our press release, we delivered exceptional performance again in Q3 as we continue to build on the significant progress we made last quarter.
I continue to be humbled by the incredible efforts of our team as they answer the call to help our customers and society manage through this unprecedented time.
Not only did they expand our leading role in supporting the global Koeppen 18 response, but they also effectively managed through this environment to return our base business to grow.
The work we're doing today is clearly having a profound impact on the world and for that we can be very proud.
But it's important to note that our efforts are also strengthening thermo Fisher for the future and making us a more valuable partner for our customers.
I see many positive trends from this period that will increase our contributions to health care a few.
A few examples that I referenced during our recent analyst meeting are worth repeating we are.
We're seeing much greater collaboration among industry and governments globally.
Funding for research diagnostics and development of therapies, and vaccines will increase to prepare for future health threats well.
Well see more focus on supply chain security and the building of national stockpiles as well.
And all of this has put a significant spotlight on the need for a stronger commitment to improving health care systems globally.
We're already seeing the impact of these trends our business and I'll give you a number of examples later in my remarks, but first I'll review, our financial performance and give you some color on what we're seeing in our end markets.
From a financial perspective in Q3, we continue to work with the speed at scale to support our customers generating approximately $2 billion, a COVID-19 related revenue in the quarter.
At the same time, our teams did excellent work to grow our base business.
This led to exceptional performance across all of our key financial metrics.
Our reported revenue increased 36% in Q3 year over year to $8.52 billion.
Adjusted operating income grew 97% to $2.80 billion or.
Our adjusted operating margin increased to 32.9%.
We grew our adjusted EPS by 91% to $5.63 per share in the quarter.
We're continuing to manage the company appropriately in a very fluid environment exercising the cost discipline that you'd expect from us while investing significantly in new products services and capabilities that will create value over the longer term.
Turning to our end markets. Our performance was a combination of our significant pandemic response and the return to growth in our base business.
Starting with pharma and biotech the largest of our four end markets. We delivered an excellent Q3 growing 20%.
We performed very well in this end market for many years and we further accelerated our growth by helping these customers to ramp up development of COVID-19 therapies and vaccines.
The combination of strong market fundamentals and pandemic related activities, but the strength across all the businesses serving this end market, particularly Bioproduction pharma services Bio sciences in our research and safety market channel.
In academic and government we grew in the low single digits in Q3, we captured opportunities as more of these customers return to work and their research activities increased.
Turning to a doctor in applied while we declined in the low single digits during the quarter, we saw meaningful sequential improvement from Q2.
Last in diagnostics and healthcare, we had an incredible quarter delivering 130% growth why.
While we continue to see the impact of a lower level of routine doctor visits and really the testing demand did improve from Q2 levels and our cobot related testing revenue grew significantly during the quarter we source.
We saw the benefits of these dynamics across our life science solutions and specialty diagnostics businesses.
As you know our involvement here includes providing both proprietary COVID-19 diagnostic test kits as was reagents used for laboratory developed tests, along with sample collection products and instrumentation.
So in summary, our teams put forth an amazing effort in Q3, not only increasing our response to the pandemic, but also returning our base business to grow the combination resulted in performance that positions us to deliver our best year yet.
Turning to our business highlights for the quarter as you know we continue increase our capabilities. So we can be the best partner for our customers and strengthen our competitive position.
In Q3, we worked with speed at scale to address the critical needs brought on by the pandemic well, making great progress in executing our growth strategy across our businesses.
Let me cover a few of the highlights.
In terms of epidemic response, we continue to expand our role as a trusted partner for industry and governments around the world. It's a.
It's important to note that while this is clearly driven exceptional growth for us so far this year.
Much of what we're putting in place now will create sustainable value longer term.
First as you know we have a leading position in providing COVID-19 diagnostic test kits, given our gold standard PCR based tests and our industry, leading installed base of instruments and we continue to expand our presence by bringing new solutions to the market that help the medical community ramp up testing compare.
City and enable societies return to work and school.
In September we launched a new highly automated solution called amplitude that helps laboratories quickly scale up to meet testing volumes. This plan.
This platform is based on our tech Pep combo kit and the Quantstudio seven PCR instruments and has the highest sample throughput in the industry.
We're seeing strong demand for this innovative solution and Weve already completed installation at several customer sites.
We also recently introduced two new thermo scientific antibody tests or omni path lies attached received emergency use authorization from F.D.A. for the qualitative detection of total antibodies and our new Elisa test is now available to run on our bodies to 50 instrument so customers can tap into the Ics.
So stop install base worldwide both.
Both tests can be used in the U.S. as well as Europe and other countries accepting the CE Mark.
As I reflect on the long term, we now recognized by our customers as a scale player and infectious disease testing, we've significantly increased our installed base a sample preparation and PCR instruments over the last nine months and that will create new opportunities for us going forward.
Another example of sustainable value is that we continue to ramp up production of supplies that are central to the testing process, such as liquid handling plastics and the specialized viral transport media Usten sample collection.
We highlighted the opening of our new viral transport medium facility in Kansas last quarter and in Q3, we announced plans to further expand our global capacity by building a new facility in Scotland to support the European market.
Were also significantly expanding capacity for a lab plastics to meet surging demand, which will put us in a great position long term as well.
An important point that I want to make here is that our PPI business system is a key advantage in our ability to scale, our operations quickly and cost effectively to meet our customers' needs and drive growth.
One more example of sustainable value creation is our support of new therapies and vaccines were significantly adding capacity across our bio sciences, Bioproduction and pharma services businesses, creating an infrastructure that will position us incredibly well for the future.
And our bio sciences business were significantly investing in our global capacity to increase the manufacturing of enzymes and nucleotides use in vaccines.
[noise] in pharma services last week, we announced our partnership with the economic development Board of Singapore to expand our sterile full finished capacity by building. Our first facility. There once operational in 2022. The facility will include the only high speed filling line for lie viruses in Singapore.
To help make the math and help meet the demand across the Asia Pacific region.
This is another great example of how we're working with speed with governments to help them respond effectively to health emergencies in the future.
In addition to government funded projects, including our border project to increase capacity in the U.S.. So we highlighted last quarter, we've committed more than $700 million in capex to add global capacity to meet colgan related demand.
In summary, all of this work is clearly essential to helping our customers navigate dependent and it's also good.
And it's also giving us new capabilities and capacity that will be re purpose to meet future demand for vaccines and therapies.
Well, a cold and my T. response contributed significantly to our performance. We're also continuing to make great progress in executing our growth strategy across the business I'll give you just a few highlights from the quarter.
In terms of innovation, we launched a number of significant new products in Q3.
Let me pick a couple of to highlight one from our electro mccroskey business and one from Bioproduction.
Our new Thermo scientific select Chris imaging filters or break through advances in criteria for structural biology applications.
These new filters allow scientists to view protein structures in unprecedented detail and in less time than what was previously possible. This will.
This will not only accelerate research, but also accelerate the adoption of cry, we and.
And another new product is our thermo scientific pools, oligo resin, which is used to purify and isolate marinade for the development of vaccines and therapies as more in a production accelerates the needs for a highly scalable purification technology will be critical.
In emerging markets, our leading scale continues to be an advantage for us and we're expanding our presence to meet customer demand during the quarter. We celebrated the grand opening of a new factory in Suzhou, China for single use Bioproduction technologies as you know we already have a well established led products operation in Suzhou.
This expansion is our first bar production facility in the Asia Pacific region, which will help meet increasing demand there for biologics or.
Our teams in China have effectively managed through the pandemic.
While positioning the business for growth [laughter].
And we were pleased to deliver 18% growth in China in Q3.
The last point I want to highlight around the progress, we're making across our business is tied to our unique customer value proposition.
Our customers recognize that we've stepped up in a major way to help them navigate the challenging environment and that is creating new opportunities to build on our already strong relationships. This is very evident in pharma and biotech as you know and now increasingly so with healthcare and diagnostic customers as well.
During these times the advantages of our leading scale and depth of capabilities have never been more evident and this will lead to share gain opportunities longer term.
Before I turn to our guidance I'll make a quick comment on capital deployment as you know our capital deployment strategy combination of returning capital through buybacks and dividends and strategic M&A.
In terms of your view on M&A, we continue to have an active deal pipeline, we have a very strong balance sheet and as always we will apply our disciplined approach to opportunities that meet our criteria for creating shareholder value.
Turning to our guidance.
Obviously been a tremendous effort and supporting the COVID-19 response this year and we also executed well to grow our base business. This combination led to extraordinary growth and performance in Q3, and we expect that to continue in Q4 with.
With that context, we expect to grow full year 2020 revenue by 20% to approximately $30.5 billion and we expect to grow our full year 2020, adjusted EPS by 48% to $18.27 per share.
Stephen will give you more of the details, but clearly we're on track to achieve a truly spectacular year.
Before I turn the call over to Steven Let me leave you with a couple of takeaways we.
We continue to expand our leading role responded to the pandemic and we're having a profound impact on society, we're actually.
We're executing very well to capture new opportunities to gain market share and drive growth across our businesses. Our efforts. This year are significantly strengthening our company and positioning us very well for the long term with that I'll now.
Ill now hand, the call over to our CFO Stephen Williamson Stephen.
Thanks, Mark and good morning, everyone I'll begin with a high level summary of our Q3 performance as Mark mentioned, we haven't had another exceptional quarter and grew organically study 4%.
I'll break this down into two elements. The first is the scaling back COVID-19 response revenue that we generated during the quarter and the second is the performance of the base business. A COVID-19 response revenue in the third quarter was $2 billion and contributed 31% to growth largely driven by testing related products and instruments.
Our base business, excluding the COVID-19 revenue grew organically 3%.
We're very pleased to deliver a 13 point improvement from Q2, driven by a higher customer activity levels and great commercial execution.
The study, 4% organic growth for the quarter was higher than the update at our recent analyst meeting as we continue to have robust demand for testing and the potential risks around the level of customer activity did not materialize.
Our PPI business system enabled excellent pull through on the 34% organic growth a combination of fixed cost leverage and operating with speed at scale enabled us to deliver a 91% growth in adjusted earnings per share in the quarter a truly exceptional result.
I'll now provide more details on our third quarter results and provide some color on our four segments and conclude with some comments around guidance.
Starting with our Q3 earnings results as I mentioned, we grew adjusted EPS by 91% to $5.63.
GAAP EPS in the quarter was $4.84, a 157% from Q3 last year.
On the top line, our Q3 reported revenue grew 36% year over year.
The components of our Q3 reported revenue increase include a 34% organic growth foreign.
Foreign exchange tailwind of 1% and 1% growth from acquisitions.
Turning to our growth by geography during the quarter.
North America grew 40% Europe grew 25% Asia Pacific grew just under 20% as to China I'm.
I'm rest of the World grew 65% looking.
Looking at our operational performance Q3, adjusted operating income increased 97% and adjusted operating margin was 32.9% 10 percentage points higher than Q3 last year.
In the quarter, our PPI business system enabled us to drive exceptional volume leverage and strong productivity and we had favorable business mix at the same time, we continue to make significant strategic investments across the businesses.
Moving on to the details of the piano total company adjusted gross margin in the quarter came in at 52.3% up 620 basis points from Q3 of the prior year. The increase in gross margin had similar drivers. So that was I just mentioned for our adjusted operating margin.
Adjusted EPS DNA in the quarter was 16% of revenue a decrease of 350 basis points versus Q3, 2019, reflecting the very strong volume leverage.
Total R&D expense was $296 million, 20% higher than Q3, 2019 and RF.
An R&D as a percent of our manufacturing revenue in Q3 was 5.2%.
Looking at results below the line for the quarter net interest expense was $135 million $24 million higher than Q3 last year, primarily due to increased debt levels.
Adjusted other income and expense was a net income in the quarter of approximately $2 million $24 million lower than Q3, 2019, mainly due to changes in non operating foreign exchange.
Our adjusted tax rate in the quarter was 15.7%. This is up 450 basis points versus Q3 last year due to the substantial increase in pre tax profit year over year coming in at a marginal tax rate.
Average diluted shares were 399 million in Q3 about 5 million lower year over year, driven by the net impact of share repurchases and option dilution.
Turning to cash flow and the balance sheet cash flow was another great highlight for the quarter. Our PPI business system is enabling us to drive deliver great cash pull through on the very strong top line performance for the third.
For the first nine months cash flow from continuing operations was $5 billion and free cash flow was $4.1 billion. After deducting net capital expenditures of approximately $900 million.
We returned approximately $90 million to shareholders through dividends in the quarter.
We ended Q3 with approximately $7.5 billion in cash and $21.1 billion of total debt.
Our leverage ratio at the end of the quarter was 2.5 times gross debt to adjusted EBITDA and 1.6 times on a net debt basis.
Concluding my comments not total company performance adjusted ROI see with 14.9% up 330 basis points from Q3 last year as we continue to generate very strong returns.
Now I'll provide some color on the performance of our four business segments.
Similar to last quarter I'll start with some framing thoughts around the impact.
But our COVID-19 response had on the segment results from.
From a revenue standpoint in Q3, the majority of the COVID-19 response revenue is reflected in life Science solutions. This is revenue from testing kits instruments sample preparation and reagent for lab developed tests recognized in the genetic sciences and bio Sciences businesses. It also includes revenue.
Therapy in a vaccine production supplies recognizing the bioproduction business.
Especially diagnostics segment includes revenue and the clinical diagnostics business from the molecular controls that go into testing kits. We also recognize revenue to viral transport media and the microbiology business and potassium and pp in eight.
In the healthcare market channel.
No the BACE products and services segment includes revenue for therapy and vaccine support from our pharma services business. This.
The segment also includes revenue for TV.
And the recession safety market channel as well as plastics used in testing workflows and cold storage equipment manufactured by a lab products business.
A lot of detail to take in but I think it really demonstrates the breadth of our society will respond to the pandemic.
From a margin standpoint, the impact of COVID-19 was varied across the segments based on the scale of the response revenue on the different levels of profitability on that revenue and.
In addition, during the quarter, we continued to make strategic investments in our businesses even in those two but not benefiting from COVID-19 response revenue.
This included investments in our colleagues in terms of the incentive compensation, a recognition as well as commercial R&D and production capability investments.
We're able to do this given the strength of the company's overall performance. The size of these investments does not necessary to align with the COVID-19 response revenue in each segment. So that does skew some of the reported segment margins.
So a lot of moving parts from a segment margin standpoint. It reflects the very active management of the company successfully navigating the current environment and positioning the company for an even brighter future.
Moving on to the segment details starting that life Sciences solutions in Q3 reported revenue increased 101% and organic revenue growth was 100%.
So were exceptionally strong growth in our genetic sciences, and bio sciences businesses as well as very strong growth in our Bioproduction business.
Q3, adjusted operating income in life Science solutions increased 221%.
And adjusted operating margin was 54.9% up.
Up 20 percentage points year over year and.
In the quarter, we drove very strong volume pull through at positive business mix and continued to make strategic investments across the businesses in the segment.
The analytical instruments segment reported a revenue decrease of 2% in Q3, and an organic revenue decline of 3%.
An increased level of customer activity and good commercial execution led to a 20 percentage point sequential improvement in the business performance from Q2.
Chromatography and mass spectrometry business returned to growth in the quarter.
Q3, adjusted operating income in analytical instruments decreased 45% and adjusted operating margin was 12.8% down 10 percentage points year over year eight.
Eight percentage points to this change was due to a 100 million dollar onetime accounting charge that we took in Q3 for a loss on a supply contract in our electron microscopy business.
This was triggered by the very successful launch of our new semi scientific Selectra imaging filter.
The remainder of the margin reduction in the quarter was driven by business mix lower volumes and strategic investments, partially offset by strong productivity.
Turning to the specialty diagnostics segment in Q3 reported revenue increased by 63% organic revenue growth was 62%.
Our COVID-19 response revenue was significant in the quarter, enabling us to deliver very strong growth in our microbiology healthcare market channel and clinical diagnostics businesses.
Pandemic continues to impact routine diagnostic testing activity and this is most pronounced in our immunodiagnostics and transplant diagnostics business businesses in the quarter.
However, it was encouraging to see a substantial pickup in activity from Q2.
Adjusted operating income increased 79% and adjusted operating margin was 27.9% up 260 basis points from the prior year.
In the quarter, we still have very strong volume leverage partially offset by negative business mix and strategic investments.
Finally in the Archie products and services segment Q3 reported revenue increased 19% organic revenue growth was 16% in the quarter. We saw strong growth in our research and safety market channel pharma services and Liberty products businesses.
Adjusted operating income in the segment for Q3 increased 17% and adjusted operating margin was 11.4% 20 basis points lower than prior year.
In the quarter the segment drove strong productivity and volume leverage, but this was more than offset by unfavorable business mix and strategic investments that I mentioned earlier.
So with that now let me turn to guidance I'll pass.
Ill provide you our current view for both organic revenue growth and adjusted EPS for the fourth quarter and for the full year Twentytwenty Hello.
I'll also provide an update on set in full year 2020 assumptions to help you with your modeling.
I'll start with organic growth our current estimate for Q4 organic growth is 29% that's driven by an expected $1.75 billion of COVID-19 response revenue I know.
No organic growth from the base business of low to mid single digits.
The impact of the pandemic continues to evolve and as a result, there are potential outcomes, both above and below the 29% the could play out in Q4.
From a capacity standpoint should that be customer demand above the 29% level, we're well positioned to be able to support our customers as we did in Q3.
In terms of adjusted earnings per share, we expect considerable volume leverage from the 29% organic growth in Q4.
At that level of growth, we expect to deliver approximately 60% year over year growth in adjusted earnings per share in Q4.
A few additional points of color on this outlook Sim.
Similar to prior quarters, the volume of testing undertaken by our customers will be the most significant factor determining the extent of our COVID-19 response revenue in Q4.
The outlook also includes the continued ramp in the supportive therapies and vaccines.
Regarding the base business growth. This assumes similar levels of activity to Q3, and the benefit of the two extra days being offset by slightly weaker year end spend than in Q4 2019.
Given the current environment that seems like a reasonable assumption to start the quarter with and we're well positioned to assist our customers should funding availability be higher.
The outlook does not anticipate to return to the lockdown seen at the height of the pandemic earlier in the year.
So putting all of this and a full year context, our current estimate for Twentytwenty revenue is $30.52 billion, which would represent 20% growth over 2019, including 19% organic growth.
In terms of adjusted earnings per share our current estimate for the full year 2020 is $18 from 27 cents, which represent 48% growth over 2019, we're on track for a truly spectacular yet.
I'll now move on to an update of some an additional modeling elements for the full year.
With regards to FX and Twentytwenty, we're now assuming that we'll have a negligible impact on revenue based on current FX rates.
We expect net interest cost for the year to be approximately $490 million.
We're assuming that adjusted other net income will be about $50 million for the year.
And we expect the full year adjusted income tax rate to be 14.2%.
Net capital expenditures are now expected to be approximately $1.5 billion. This includes $400 million of Capex to support our COVID-19 response in Twentytwenty.
We continue to execute well on growth related capex opportunities, particularly in our pharmacy services and Bioproduction businesses. These of short and long term benefits and provide very strong returns on investment.
In terms of capital deployments, we completed the $1.5 billion a share buybacks in Q1 under assuming no further buybacks in the remainder of 2020.
We're also continuing to assume that works had approximately $350 million of capital to shareholders. This year through dividends and we.
We estimate that the full year average diluted share count will be between 398 and 400 million shares.
So to wrap up as you can see from our exceptional performance in Q3, we continued to manage the company extremely effectively strengthen our leadership.
Responding to the global pandemic and position ourselves to deliver a spectacular year with that I'll turn the call back over to Ken.
Thanks, Stephen operator, we're ready to open it up for QNX.
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Your first question comes from the line.
Michael Peterson of JP Morgan.
Hey, good morning, congrats on the quarter, So certainly impressive mark I want to start with the Lps strengths, 60% organic I'm. Just wondering if you could provide a little bit of color on how much of this vaccine ramp versus recovery and Noncovered related trial work was there any kind of catch up benefit here in the quarter from stuff into Q1, and how do you think about sustaining this level.
And ramping on the Lps side.
Q1 2021.
Thanks, Todd Good morning, So in terms of our lab products and services businesses. All three of the businesses performed well in the quarter. So thats pharma services or CDMO activities, that's our customer channels group and Thats, our lab products business and we saw activity you know.
Ramp up low as we did for the whole company on the sort of normal business activity in the quarter and at the same point you're seeing.
Two different types or three different types of cold and related response embedded in those numbers clearly the vaccine in therapy ramp up is happening and you see that certainly in our pharma services business.
We're also seeing very significant demand in our customer channels business for things like pp.
As well as all the supplies you would use for.
Coal that response, and then in our lab products business.
We have very strong demand for our lab plastics as well as our cold storage equipment. As you know, we're a market leader in providing cold storage for laboratory use and AFFO.
Effectively when you read about some of the vaccines needing cold storage, where we're.
Across the supply chain, we're getting very very significant demand for those products. The basis is very good right. So thats gone well and then obviously on top of that you are seeing the benefits of those types of activity.
Great and then follow up just on the testing side.
Curious on your views on the durability of kind of.
Non automated.
Which is kind of a lot of strength in the first half of the year and then.
Amplitude I'm just wondering if you could talk a little bit about positioning there obviously got the high throughput as you noted is the traction youre seeing now from academic labs are you seeing interest from reference labs are hospitals can you just talk about how do you think about both the durability of non amplified testing and then amplitude as well thanks.
Yeah, so take though in terms of.
The demand for our PCR testing it continues to be very strong right and if you think about it going.
Gold standard performance in terms of accuracy largest installed base of instruments around the world and we have supplied our customers on ramped up and we have been the supplier that there has been no headaches really from a customer perspective throughout the pandemic. We have built our capacity ahead of demand consistently and they.
Therefore customers have been happy no. They can rely on us amplitude is a ultra high throughput system. You know over 6000 tests per day, and we're seeing very large demand we've seen that demand from governments, we've seen that.
Demand from reference Labs and hospital systems right. So is a.
Nichey application, but drives enormous volume right because you know ultra high throughput funds. So those labs those governments that are you know.
Really providing the support for high volume given our supply reliability the quality of our tests and you know and that.
And the dedication that we've had throughout the pandemic that product.
We will be a good growth driver in terms of your ability. We believe the PCR testing is going to continue to be very.
Very relevant to our customers because it gives you the most accurate information and therefore.
We are comfortable with continuing with a strong level of demand in the fourth quarter and we expect that those products are going to be revenue relevant and 2021, because unfortunately, the pandemic is still with us.
Thanks take okay. Thank you.
CJ come from Evercore. Your line is open.
Thank you guys and congrats mark.
You guys are setting a new bar.
Kind of beat up the announced revenue so really impressive.
Maybe on on the Q4 guidance there I guess as you know we were looking at 2 billion.
I guess 1.6, if not cold elements, what CQ, that's coming in north of 2 billion here for Q1.
And if you look at the guidance for Q4, one one sound I'm just curious if.
If they werent was there any timing element to adopt some of the tailwinds that will fall into three Q and you know when you look at the base guidance of low to mid single digits, maybe it looks like a lot of it is being driven by Biopharma, maybe comment on industrial and academic environment heading into Q4.
Yeah. So vijay thanks for the question and it's exciting to be able to set a new bar on performance right. So it's been an interesting time for sure.
You know in terms of our guidance you know the way that we think about the fourth quarter is base business similar to what we saw in Q3, two a little bit better and what's assumed in there and it's an assumption is not based on customer feedback is that year end spend is so.
Softer than it was last year, and we're well positioned to meet it if you know higher demand of customers have the funding in our logic to that was it's a little bit early to know.
It's a conservative assumption and we don't want to disappoint. So if the funding a strong you know that like we did in these last few quarters over many years actually if the money is out there we're going to go out and get it right. So that's the view on the base business.
Low to low to mid single digit growth when you look at the $1.75 billion.
We see very strong demand right now for our Cobot response, we're seeing a continued build in our vaccine in therapy, you know role and we are also seeing.
Seeing very strong demand for our testing solutions as well.
You have less visibility into the month of December so we have much better visibility obviously in talked over in November and we just made an assumption that levels, we're going to be pretty similar to what we saw in the in the third quarter and we came in at $1.75 billion I Wouldnt over read into.
Why 175 versus two it's just that we have visibility for a couple of months and in December we have less visibility, but nonetheless, you know it seems like demand should be strong.
That's extremely helpful. Mark and just one follow up on I guess at the analyst day.
You made a comment about the contractor orders on the vaccine side.
Worth about a billion any update on that number.
Yes, so in terms of our role for vaccines and Therapeutics, we said over the balance of this year 21, and 22, it's about a $1 billion and that number continues to grow so I'd call. It a billion plus at this point, we're active in a significant number of projects something in the range of over 250 projects on therapies and vaccines and.
Our role is quite broad, it's not just pharma services as Bioproduction Bio sciences.
So that will be.
Is contributing to our revenue, but will contribute more.
More certainly as the fourth quarter and into the next year progresses.
Thank you guys. Thanks BJ.
Steve Bruce Shaw from Wolfe Research your line is open.
Hi, good morning, and thanks for the time here.
I'll ask one on academic just looking to unpack a little bit of the commentary in the prepared remarks, and then one just very quick follow up on amplitude and the broader testing landscape My question on.
Academic is a two parter I guess one is we all watch all the headlines about what's going on in the University backdrop I Wonder if you could give your perspective on the research labs within universities and broader research sort of opening up here as we progress through the back half of the year, you know to what extent is that Rio.
Turning necessarily contingent upon a broader university reopening and then to your point on funding Mark.
Certainly makes a lot of sense, but to what extent is that a medium term versus a near term perspective on funding just given all the the unknowns right now not necessarily in the U.S., but in China and Europe as it relates to how they're going about funding in research.
Yeah, So Steve Thanks for the questions. So in terms of the academic and government <unk> good to see the return to growth.
Clearly more customers came back to we're ramping up research activities and that actually was a global phenomenon, we saw that across all all three.
All three of the of the regions and they all happened at different paces, but it's good to see that when I made the comment to the very beginning of my remarks really the funding environment I'm thinking about is the mid term right. It's you know what I mean by that is this such interest now in infectious disease.
Pandemic the importance like in the U.S. of how NIH has played a huge role here those things are going to really for the mid term b very positive on a funding environment. Even short term, we're seeing quite a bit of interest from governments and then obviously academic institutions their own situation is probably much more impacted by.
Their own economics, so that's going to be somewhat of a headwind, but you know that historically has been a a low to mid single digit growth market and it's good to see where already back to low single digit growth there.
Super clear follow.
Follow up.
Building on some of the commentary around Amp.
Oh looks like.
Approach that makes a lot of sense not just for higher acuity are symptomatic spot for screening, which would be interesting to hear how you think the market for testing PCR and more broadly evolves towards screening over.
Over the next year and beyond given that you have unique perspective on all sides of the market. Thanks again.
So Steve in terms of the role of testing.
Obviously, managing an appeal.
Managing in a pandemic is around social distancing mass wearing good hygiene.
And all of those things and testing is a valuable supplemental tool to that and we're seeing more and more demand for testing in those applications as well for kind of return to life was what we call. It which has really worked in school and things like the amplitude is.
Going to be able to support both medical.
Applications as well as screening you get a very high throughput, it's very economic and therefore customers can get results quite quite rapidly and therefore it plays a role in what you're what you're getting with PCR as extreme levels of accuracy versus some of the other technologies out there, which also will play a role.
But you are trading accuracy and depending on what the application is that something that theres certain applications doesn't make a lot of sense for.
Operator, we'll take the next.
From Bank of America.
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Hey, great. Thank you and good morning, So a little.
A little bit can you give us a little bit more color.
Split in the quarter on testing.
Production, just just how that.
That that $2 billion.
Down on that and then I've got a follow up.
Yes, Derek good morning, so in terms of the $2 billion. The majority is the testing relate.
Related.
Portion of that and when you think about the testing portion, it's actually quite expansive right. So the single largest piece of that is going to be our proprietary co.
COVID-19, Teck path kits PCR kits, but we also have significant revenue from instrumentation and lab developed test. So that's kind of the PCR.
You know ecosystem with all of the very substantial sample prep that we provide across the industry as well, we really have built tremendous momentum there on top of that or viral transport media business has grown very rapidly so Q3.
It was a nice step up from Q2, and we expect that to continue to grow and that is a key part of the specimen collection sample collection and transport to a lab and so that that will continue to build and we announced that we're opening up a new facility in Scotland, we broke ground on that.
To be able to start producing bio transport media.
At the end of the year to sort of the European market beyond the two facilities in the Europe in Europe that already do that so so that continues to be important.
The next aspect, which.
Which is probably the smallest aspect at this point, which is p. as.
As you would like.
Would expect there was clear.
There was clearly that's all through our channel business, there was very elevated prices in the beginning.
Beginning of the pandemic as there was massive supply constraints volume is still been high pricing has come down and so therefore, while it was a moderate level of activity a lot of volume at a lower price and and that's good from a societal standpoint, it's good to see supply is catching up with with demand and then from the probably the fastest growth.
Going and building is our broad role in bio and kind of Allstate vaccines and therapies and I'm going to find a broadly because I think that sometimes because we have the most comprehensive position in the industry that we don't get clearly compared to the REIT activity. So the way to think about it isn't and Stephen was articulating.
There's what we provide to the manufacturers.
The vaccine or therapy, and historically when you look at that as bio production and that would be our leading positions in cell culture media single use technology and a rapidly growing position in purification resins at the.
At the same point for bio Sciences business actually has a very meaningful role in that as well through the enzyme and nucleotide production and we were doing very substantial expansions of capacity to supply.
To support those needs as well so that's one set of activity. The second so the activity is obviously.
Around our pharma services business and you would see that in our sterile fill finish network, where you do the filling of the vaccine or.
Vaccine or a biologic, but you also see that in our drug substance or biologics plants and even with some of the antiviral that are small molecules, even see them in our epi facility. So we're incredibly well positioned.
In a very scale way to serve the vaccine therapy opportunities and you already starting to see that build and that will continue to build in Q4 and into next year.
Great and just one quick follow up so you.
Talked about your animal instrumentation business essentially.
Yes, centrally roughly flat are you dealing with back orders from the first half of the year or are you seeing new orders for LCD masks and then.
Appendix on that one is what's your PCR base instrument installed base up year over year.
So in terms of the revenue.
The really strong sequential improvement in revenue for Q3 versus Q2 the.
The answer there is our orders are growing much faster than the revenue. So we're actually building backlog. So I don't think is much of shifting from Q2 to Q3 is just customer activity is really been picking up you see that most quickly in our life science mass spec business and and chromatography business that business returned to growth.
The quarter from a revenue perspective, and bookings were stronger than that so that's very encouraging and as you would expect on the flip side. Those areas that are very economically sensitive like chemical analysis, that's lagging grade and improved substantially but lagging relative to to life sciences mass spec and and.
We have from a installed base of sample prep and and Q PCR we're shipping in the quarter, what we would normally ship in the year. So it doesn't give you the exact number but it gives you the sense of the magnitude of.
How big that spend.
Thank you.
Welcome.
Yes.
Your line is open.
Good morning, everybody. Thanks for taking our questions Mark during the analyst day last month.
Comment that I think in response to a question that corporate nice tailwind could be lower about the same or higher on a year over year basis and 2021.
Got any updated thoughts on on this at this point, particularly in light of higher than expected 19 contributions reincorporate and what you're seeing especially on the bio production side given the man.
Given demand there has materialized a bit more recently relative diagnostics.
And then kind of building off of that longer term you didn't really beyond 2021.
On the investment.
The investments you are making to support corporate 19th demand at each today and in 2021 will lead to at least stable levels of revenue in these product categories, even when depends on the debates.
Yeah, So Doug what I can say is that on the first one I I have to be 100% right on the answer right. If it's either up down or flat then yes.
As an actor as seen on no. So.
No. So let me those are two great questions right. So if I think about.
Things that are building clearly the broadly you know position and Bioproduction, our pharma services business, our bio sciences nucleotide.
Nucleotide aneurysm, that's all building right. So and that's you know that's better than three or four weeks ago. It doesn't as you know these things are very long cycle, we're moving at a much faster pace.
But it takes a while for these products to to get through the clinical process with approvals and.
Looking for efficacy so we see that building and that's good for us.
For us in terms of what the outlook is in turn.
In terms of you know.
Unfortunately every day and week that were still living with the pandemic means of things like testing are likely to be more durable right. So that you know even six weeks or so after the analyst meeting were really in the same boat with actually more more cases in Europe and a lot of a lot of.
Creases in the pandemic that usually adds to the view that there's going to be more durability to this going into 21, but we'll we'll know more as we get into the year. So in terms of the longer term investments a great question right is the way to think about it is.
We're investing significantly.
$7 million as you know is almost what we normally putting capital into year roughly right. So its additional.
We're doing it quickly right. If you think about the pace that we're actually bringing facilities online gives you a sense of the power of the PPI business system.
Pretty much everything that you are seeing you know we're going to re purpose longer term to other markets that are not pandemic related right and you know some of them are very easy to visualize right, which is think about sterile fill finish we have commitments for the expansions that we've done for vaccines and.
Therapies and we also are already getting commitments from customers large customers to basically say when that demand is freed up we want to put other products in that demand right. So so we have that in a number of our facility. So its you will see those sort of at some point the therapies in vaccines related to the pandemic will unwind and.
You will then see us able to backfill the capacity because as perfectly usable some of the stuff that might not be as intuitive. If you think about lab plastics, where we've been expanding our capacity not a category. We talk a lot about for simplicity say, we have 20% market share globally. The expansion in capacity is going to be able to.
Be re purpose for the typical lab demand right. So we're going to have a stronger manufacturing footprint.
More cost effective more modern than we had going into it we will meet the surge from Covance and then we'll go out and will backfill that with other demand. So I think the actions. We're taking is setting us up for a bright future with growth.
Opportunities that really were more conceptual pre pandemic or now realities through the actions, we're taking and that's where we are so excited for the long term future that we have.
Okay, I will leave it there and let others ask other questions. Thanks. Thank you very much.
Thanks, Doug.
Steve Valiquette from Cleveland Research Your line is open.
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Hi, good morning.
Two questions for you Mark one just following up on some previous commentary if you don't mind.
You talked about how you're assuming a weaker end of your spending environment.
In the guidance that you provided today.
But I'm curious as to your comments you were talking about how you are seeing customer activity really picking up orders growing faster than revenue I'm just wondering if you could.
Just wondering if you could provide any color on how those two.
Different comments sort of drive with each other and then I have one follow up for you.
Steve Newlin talk a little bit about the nodes. So they see that coming about picking up with versus Q2, so that sequential improvement in performance in the assumption is it similar levels of aggregate customer level activity in Q4.
And yet we've made an assumption around year end spend but as Mike said, if it's going to be higher than our businesses are well positioned to help our customers satisfy that demand I mean, Steve another way, we obviously have lots and lots of discussions with our customers. It's a little tacky right now to say so what is your year end budget going to look like it's just not a topic that is where are you focused on.
Which is this metric, but how in helping you right. There is not a normal year. So I think thats a good a good place to start the guide for the quarter.
Very good Okay, and then I was just wonder if you could comment at all regarding the Bioprocessing business overall, and what you saw in terms of a level of growth there.
And maybe also maybe level of orders for the Bioprocessing business overall, thank you.
Growth was very strong stronger than the historically strong performance.
And orders were significantly stronger than the that strong growth. So.
Very very high level of order growth, which you would expect we play a major role and the therapies and vaccines broadly in all classes of disease, and we're playing a significant role in coal that so we're seeing very strong demand for our capabilities.
Thanks, Steve.
Your next question comes from the line of Gan area.
Your line is open.
Good morning, guys. Thank you Mark maybe just a follow up on some color on bio production can you.
Can you comment on the visibility in terms of products and services when it comes to non coal bid work I mean, obviously, it's all strong at a high level, but I guess I'm just trying to understand.
The extent to which there is maybe some incremental uncertainty when you look at companies that are balancing covered and non covered project load I mean other error bars around the timing of some of those noncore bid campaign work that might be wider than normal as they as they moved really fast year or does it sort of all looks steady from where you sit.
At this point.
Seems pretty steady I mean, if you think about.
Manufacturing across the industry not our customers has largely been smooth sailing through this period of time. The company has been able to produce their medicines and develop the products for for through the development process. So we haven't seen you know colvin related disruptions on.
The manufacturing side of biotech and pharmaceutical continues to grow very substantially. So obviously, there's some is going to be some diversion of short term resources. So maybe two or three years and others. There's some projects that will have been could theoretically less than what it would have been because of cold and work, but I think thats very much in the noise level because.
If I look at things like new quotations and new activity is extraordinarily high.
In our development work clinical trials work. So I think is very good.
Okay I appreciate that maybe Steven can I, just touch on pace for a second there and the margin mix within Lps I think pace was 17% or so at the op margin line. When you bought the company obviously the volume environment, there looks pretty good. So we were to look forward do you think that business over the next couple of years.
Increasingly sort of provide some loss to Lps segment profitability, if demand just shapes up here the way that it's looking like it could.
Yes, I think we've made great progress with the margins in that business and the future as you know as we drive more more capacity <unk> more utilization of capacity will be very strong for the margin profile.
Thanks, Dan Thanks, Stan operated we're going to take just one more.
Yes.
On research your line is open.
Thank you good morning.
Mark I was hoping you could comment a little bit more on the R&D investment was my.
This is my favorite data point in the press release, So just where you may be over indexing. Some of the incremental spend are you pulling forward projects are diving deeper down the list and is there a way to think about the payback.
Some of this incremental spend how long that should take.
Yes, So Jack you know thanks for the question.
R&D spend was up about 20% in the quarter. So so we're investing substantially.
It's really about adding more talent is though.
Is the is the step that we're doing and.
Then working on some key areas.
They were demand actually has been a little bit softer. So what we're doing is kind of doubling down the investment.
To position ourselves for strong growth for the long term very much the exact playbook, we did in the financial crisis, where we had a very high focus on investing in R&D. So that we would balance back out of the downturn quickly and we did and so we're doing that same playbook with you know in certain areas.
The returns you know will show up in the next the next couple of years is the way to think about it.
Thank you Jack for the question and let me wrap.
Let me wrap up with a couple of things first.
That we're certainly proud of our role in helping our customers in society. During this time.
We're going to continue to manage the company appropriately to come out of this period and even stronger industry leader.
We look forward to updating you on our progress at year end I hope that you see safe and as always thank you for your.
Thank you for your ongoing support of Thermo for Thermo Fisher scientific thanks, everyone.
This concludes today's conference call.
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