Q3 2021 Thermo Fisher Scientific Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Thermo Fisher scientific 2021 third quarter conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
Like to introduce our moderator for the call Mr. Rafael Johanna Vice President Investor Relations. Mr. <unk>, you may begin the call.
Good morning, and thank you for joining us on the call with me today.
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.
Fisher Dot com under the heading news and events until November 12 2021.
Copy of the press release of our third quarter 2021 earnings is available in the investors section of our website.
Under the heading financials. So before we begin let me briefly cover our safe Harbor statement.
Various remarks that we may make about the company's future expectations plans and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Securities Litigation Reform Act of 1995.
<unk> results may differ materially from those indicated by these forward looking statements as a result of various important factors, including doses cause 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 financial SEC.
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.
You should not rely on these forward looking statements as representing our views.
So if any date subsequent to today.
Also during this call we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP.
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our third quarter 2021 earnings and also India investors section of our website under the heading financials. So with that I'll now turn the call over to Mark.
Thanks, Ralph Good morning, everyone and thanks for joining us today for our third quarter call.
We delivered another outstanding quarter, achieving exceptional financial performance, while continually continuing to effectively execute our growth strategy to make thermo Fisher scientific and even stronger partner for our customers.
As I reflect on the year, so far three things send out to me.
Our proven growth strategy powered by our PPI business system is driving outstanding financial performance.
Our base business is performing very well and we are playing a leading role in our industry's response to COVID-19.
And we continue to build on our trusted partner status with innovative new products and expanded capabilities to further enhance our unique customer value proposition.
All of this gives me great confidence and a very bright future as we.
Continue to create sustainable value for all of our stakeholders I will get into more detail on these in my remarks later, but first let me recap the financials.
Our revenue in Q3 increased to $9 $33 billion.
Growing 9% year over year.
Our adjusted operating income for the third quarter was $2 78 billion.
Our adjusted operating margin was 29, 8% for the quarter. Finally, we increased adjusted EPS by 2% to $5 76 per share so another outstanding quarter.
Turning to our end markets in Q3 market conditions were strong and our team executed well to deliver another fantastic quarter.
Including our significant role supporting COVID-19, vaccines and therapies, our trusted partner status earned over many years with these customers continues to drive robust growth in this end market, we saw broad based strength, including in our bio production pharma services Biosciences chromatography and mass.
<unk> businesses as well as in the research and safety market channel.
In academic and government we grew in the mid single digits in the quarter with very good growth in Biosciences, and the research and safety market channel.
Turning to industrial and applied we grew in the mid teens in Q3, we had particularly strong growth in our electron microscopy business and in the research and safety market channel.
Finally in diagnostics and healthcare, we declined 11% performance of our base business were strong driven by immuno diagnostics clinical diagnostics and transplant diagnostics. The team also executed very well to support customers COVID-19 testing needs delivering one $5 5 billion of revenue.
This quarter versus $1 8 billion in Q3 last year.
Before I move on to our growth strategy, Let me provide a few comments on our industry leading role in the pandemic response in the quarter, we generated $2 5 billion and COVID-19 response related revenue.
With the surge in the Delta variant, we saw strong testing demand around the world. In Q3, we also play a very meaningful role in vaccines and therapies for COVID-19, generating just over $500 million in the quarter from these activities.
Underlying demand for our product and service offerings used in the production and development of vaccines is very robust and overtime. We expect this demand to transition to non corporate revenue.
Our industry, leading response to the pandemic has enabled us to accelerate our growth strategy strengthen customer relationships and accelerate investments, which contributed to our ability to raise our long term core organic growth guidance to 7% to 9% as we communicated at our recent Investor day.
Let me now give you an update on our growth strategy, which consists of three elements continuously developing high impact innovative new products leveraging our scale in the high growth and emerging markets and delivering a unique value proposition to our customers. Let me provide a few examples of how we're delivering on our growth strategy.
Starting with innovation, we launched a number of new products across our businesses to further strengthen our industry leadership and enabling our customers to accelerate scientific breakthroughs and make the world a better place in our genetic sciences business. We lost the applied Biosystems Quant studio absolute Q digital PCR system. This is the first <unk>.
The integrated digital PCR system, featuring simplified workflows and designed to provide highly accurate results.
The minutes this system will help advance our customers' innovation efforts in areas like oncology and cell and gene therapy.
And from a geography in mass spectrometry, we launched three new thermo scientific <unk>, plus triple quadrupole mass spectrometers to address the growing need for faster throughput and increased sensitivity across a range of applications in biopharma and applied settings, including clinical researcher largest small molecules toxicology food safety and environmental analysis.
We also launched the thermo scientific vanquish Neo <unk> plc system and the Thermo scientific Tech map, Neil you HPLC columns designed for use in proteomics precision medicine and translational research.
Turning to the second pillar of our growth strategy, we continue to leverage our scale to create an outstanding experience for customers in high growth and emerging markets. This has contributed to the excellent performance, we are delivering across Asia Pacific, where we delivered growth in the low double digits during the quarter.
We continue to build on our presence and capabilities in the region. During the quarter, We opened a bioprocess design center in South Korea.
This facility features laboratory and educational space and more than 100 instruments that support pharmaceutical research and manufacturing processes. This center will help our pharma and biotech customers advance their important work.
Our performance across the region demonstrates that we're creating a differentiated experience for our customers and the significant investments. We've made in these markets are fueling growth.
The third pillar of our growth strategy is our customer value proposition and we continue to increase our capabilities and capacity to be an even better partner for our customers and help them achieve their goals faster and more efficiently.
As I mentioned last quarter, we're executing on over $2 5 billion in Capex This year let.
Let me give you a brief update on our progress.
Building on our pharma services capabilities in Q3, we brought additional capacity online to support vaccine and therapy production and as part of the previously announced strategic partnership with CSL Limited, we assumed operating responsibility for a new state of the art biologics site in laying out Switzerland.
The site will feature highly flexible bio production technologies, including single use in stainless steel to provide a pathway from development to large scale production as customers' needs evolve.
To support growing demand in the biopharmaceutical industry, we announced plans to open a new bar production facility in Nashville, Tennessee to manufacturer single use technologies. The facility will be one of our largest <unk> sites in the world.
In addition to support disease research and diagnostic testing, we announced our commitment to co invest with the U S government and building a state of the art facility to manufacture pipette tips.
The new facility will be located in North Carolina and designed in lined with thermal science Thermo Fisher scientific's carbon neutrality goals.
These investments are value proposition demonstrate our commitment to our customers who rely on us as an essential partner network.
Now let me give you a brief update on capital deployment, we continue to successfully execute our disciplined strategy for capital deployment, which is a combination of strategic M&A and returning capital to our shareholders in.
In terms of M&A, we are super excited for acquisition of PPD.
<unk> is performing well the regulatory process is on track and we expect to close by year end.
As a reminder, PPD will establish thermo Fisher as a leader in the attractive and high growth clinical research services industry.
Highly complementary services for our fastest growing end market <unk>.
Integration planning is going very well financing is largely complete and we're looking forward to welcoming our PPD colleagues to thermo Fisher later this year.
Before turning to our guidance, let me update you on our progress we're making on our ESG initiatives as the World leader in serving science. We know we have a responsibility to use our industry leadership position to make the world a better place and to that end, we continue to advance our sustainability and social impact initiatives.
During the quarter, we committed to expand our use of act product labeling to include our entire cold storage portfolio by the end of the year Act labeling clearly details the environmental impact of the product empowering our customers to make sustainable choices and ultimately helping them achieve their own goals for environmental stewardship.
Our 90000 colleagues are also passionate about.
About the different they can make and our local site based community action Council supported a number of charitable and stem education activities throughout the year.
We have amplified our supported these efforts by investing an additional $15 million and our foundation for science and we continue to support the historically black colleges and universities to deliver accurate COVID-19 testing to students and staff, helping to ensure campus safety and the ability to confidently deliver in person.
<unk>.
With that I'd like to review our guidance at a high level and then Stephen will take you through the details as you saw on our press release, we're raising both our revenue and earnings guidance for the full year.
This increase is a result of our strong Q3 operational performance in our base business and the continued strength of our COVID-19 response revenue.
We're raising our revenue guidance by $1 2 billion to $37 1 billion, which would.
<unk> to 15% revenue growth over 2020.
In terms of adjusted EPS, we're raising our guidance by $1 30 to $23 37 per share, which represents a 20% growth year over year.
The 2022 guidance raise reflects the increased outlook for the core business and add to the very strong outlook that we shared with you at our Investor day.
We're raising our 2022 full year revenue guidance by $200 million to $40 5 billion and increasing our 2022 adjusted EPS guidance by 20 to $21 36.
So to summarize our key takeaways from Q3, we executed very well to continue our growth momentum and deliver excellent revenue and earnings performance. Our business is performing very well and we continue to play a leading role in the pandemic response.
We continue to expand our trusted partner status with innovative new products and expanded capabilities to further enhance our customer value proposition.
And our exceptional performance for the third quarter enabled us to raise our outlook for the year and sets us up for an even brighter future with that I'll now hand, the call over to our CFO Stephen Williamson Stephen.
Mark and good morning, everyone before we get into the details of the quarter I'd like to begin with a quick reminder, about the definition of core business. This is the time, we introduced at our recent Investor Day core includes our base business and the vaccines and therapies response revenue and post close. It will also include the PPD acquisition.
So moving on to the details of Q3 it was another excellent quarter let.
Let me provide a high level view of how the quarter played out versus our expectations at the time of our last earnings call in July.
We had a broad based beat versus the prior guide revenue was $1 $2 billion higher driven by $900 million higher testing response revenue $250 million higher core business revenue and $50 million more favorable core FX.
On our last earnings call our guidance Derisked testing response revenue and we said that if there were any additional opportunities to support customers' testing needs will be ready to do so and flow the benefits through our P&L and that's exactly what we did in Q3 in total delivering $155 billion of testing response revenue in the quarter.
You also had a great strength in the core business in Q3, the base business organic growth was 10%, which is 3% or $119 million higher than included in that product guide.
Also in the core vaccines and therapies response revenue was $60 million higher than in that product guide.
$510 million for the quarter.
So excellent momentum on the top line.
Our PPI business system enabled us to generate excellent pull through on the very strong topline performance and at the same time execute really well and our significant growth investments.
As a result suggested EPS in Q3 with a $1 30 higher than included in our prior guide on the components. This over achievements are a dollar from testing response revenue <unk> from the core business.
And 10 from FX on the base.
Overall, another excellent quarter.
Let me now provide some color on our Q3 performance beginning with our Q3 earnings results as you saw in our press release, we grew adjusted EPS by 2% to $5 76.
GAAP EPS in the quarter was $4 79 down 1% from Q3 last year.
On the top line, our Q3 reported revenue grew 9% year over year. The components of our Q3 reported revenue increase included 7% organic growth.
<unk> to 1% from foreign exchange and 1% contribution from acquisitions.
As I mentioned in the base business organic growth in the quarter with 10%.
Turning to our performance by geography during the quarter North America was flat Europe grew over 20%.
The Pacific grew low double digits.
China grew in the low single digits and rest of the world declined in the high single digits.
The organic growth rates by Geo are skewed by the response revenue in the current and prior quarters.
Well as the scanned at the impact of the pandemic on the base business in the prior year.
Since our operational performance Q3, adjusted operating income decreased 1% and adjusted operating margin was 20 983.
310 basis points lower than Q3 last year.
In the quarter, our PPI business system enabled us to deliver strong productivity, which was more than offset by unfavorable business mix and the ongoing strategic investments across our businesses, including investments in our colleagues.
These are being made to support our near and long term growth.
Moving onto the details of the P&L total company adjusted gross margin in the quarter came in at 51, 4% 90 basis points lower than Q3 last year.
The decrease in gross margin had similar drivers to those I just mentioned for our adjusted operating margin in the quarter.
Adjusted SG&A in the quarter was 17, 9% of revenue an increase of 190 basis points versus Q3 2020.
Total R&D expense was approximately $350 million representing growth of 19% versus Q3, 2020 and reflects our ongoing investment in high impact innovation to fuel future growth.
Looking at our results below the line for the quarter. Our net interest expense was $119 million $17 million lower than Q3 last year, largely due to lower average interest rates on our debt.
Adjusted other income and expense was net income in the quarter of $9 million $7 million higher than Q3, 2020, mainly due to changes in non operating FX.
Our adjusted tax rate in the quarter was 14, 2% down 150 basis points versus Q3 last year due to the benefits of our tax planning initiatives.
Average diluted shares were $397 million in Q3, 2 million lower year over year, driven by the share repurchases net of option dilution.
Turning to cash flow and the balance sheet cash flow performance enabled by our PPI business system continues to be very strong.
Year to date cash flow from continuing operations was $6 9 billion up 38% from the same period last year, yes.
Year to date free cash flow was $5 2 billion.
Up 27% from the same period last year and that's after investing $1 7 billion of net.
Net capital expenditure.
This reflects the strong returns we're generating in the short term and the investments we're making for the long term.
We returned over $100 million to shareholders through dividends in the quarter. This reflects the 18% dividend increase we announced in February.
And during the quarter, we issued $3 $1 billion of new debt as part of the pre financing for the PPD acquisition.
We ended Q3 with $12 billion in cash and $21 7 billion of total debt Unlevered.
Our leverage ratio at the end of the quarter with $1 six times gross debt to adjusted EBITDA and <unk> seven times on a net debt basis.
Concluding my comments on our total company performance adjusted ROIC.
With 22, 3% up 740 basis points from Q3 last year as we continued to generate exceptional returns.
Now I'll provide some color on the performance of our four business segments similar to last quarters I'll start with some framing thoughts on the impact of COVID-19 response in that segment.
From a revenue standpoint.
As was the case in the past quarters. The majority of our COVID-19 response revenue was recognized in the life Sciences solutions.
With the remainder recognized in laboratory products and services and specialty diagnostics.
From a margin standpoint, the impact of COVID-19 different across the segments based on the scale of the response revenue on the different levels of profitability on that revenue.
In addition, during the quarter, we continued to make strategic investments across all of our businesses.
Those investments does not necessary to align with the COVID-19 response revenue in each segment.
That does skew some of the reported segment margin.
Moving on to the segment details starting with life Sciences solutions Q3 reported revenue in this segment increased 9% and organic growth was 4% in the quarter, we delivered very strong growth in our bio production and biosciences businesses Q.
Q3, adjusted operating income in life Science solutions decreased 3%.
And operating margin was 48, 9% down 600 basis points year over year.
In the quarter, we saw positive volume leverage which is more than offset by strategic investments and unfavorable business mix.
In the analytical instruments segment reported revenue increased 11% in Q3 and organic growth was 9%.
Growth in the segment this quarter was driven by the electron microscopy and chromatography and mass spectrometry businesses.
Q3, adjusted operating income in analytical instruments increased 54% and adjusted margin was 17, 8% up 500 basis points year over year.
During the quarter, we delivered very strong volume pull through and productivity, which was partially offset by the strategic investments, we're making across the segments.
Turning to specialty diagnostics and Q3 reported revenue decreased by 5% in the segment declined organically by 5%.
In the quarter, we saw strong growth in our immuno diagnostics clinical diagnostics and transplant diagnostics businesses, which was offset by lower COVID-19 testing revenue versus the year ago quarter.
Adjusted operating income decreased 22% in the quarter and adjusted operating margin was 22, 7% down 520 basis points from the prior year in Q3 with drug positive productivity enabled by our PPI business system. This was more than offset by unfavorable volume mix and strategic investments in the quarter.
Okay.
Finally in the <unk> products and services segment Q3 reported revenue increased 12% organic growth was 10% in the quarter. We saw a very strong growth in all of our businesses in this segment.
Adjusted operating income in the segment increased 8% and adjusted operating margin was 11%, which is 40 basis points lower than the prior year in.
In the quarter, we drove good volume pull through and productivity by our PPI business system, which is more than offset by strategic investments.
With that let me now turn to our updated guidance and as Mark mentioned, we're increasing full year guidance for both 2021 and 2022.
For 2021 with banking, the Q3 beat and maintaining our prior guidance assumptions for Q4.
Then for 2022, we're carrying over the base business in vaccines and therapies beat from Q3, 'twenty one into the 2022 full year numbers.
This is enabling a strong beat and raise the both years, reflecting the continued excellent strength of the business.
Let me now provide you with more details starting with 2021.
In terms of revenue, we are raising our full year 'twenty, one guidance by $1 2 billion.
To $37 1 billion in.
And increasing our full year organic growth outlook from 9% to 12% on.
That includes an increase in the base business organic growth outlook for the full year from 12% to 13% and an increase in the COVID-19 response revenue for the year from $6 7 billion to $7 7 billion.
Which represents $5 $8 billion of testing response revenue and $1 $9 billion of vaccines and therapies response revenue.
As I mentioned previously there are no changes in the revenue assumptions for Q4, and our revised 2021 guidance.
We're continuing the same derisked approach to guidance for COVID-19 testing response revenue.
That continues to be a range of outcomes, what's happening in the fourth quarter and for 2022, there are scenarios, where testing demand could be higher than that included in our guidance should that be the case will be well positioned to support customer needs and as we did in Q3, we will flow the benefits of that through our P&L.
But for now we thought it was prudent to continue to take a derisked approach to the outlook.
And as a reminder, there are four fewer selling days in Q4, 'twenty one but at the same period last year.
Incorporating our very strong Q3 performance into the revised 'twenty one guidance. We now expect that adjusted operating margin for the full year will be approximately 34% 70 basis points higher than our prior guide and 2020.
But in terms of adjusted EPS by banking the Q3 beat we're raising our full year 'twenty, one adjusted EPS guidance by <unk> 30 to $23 37.
Which would result in 20% growth over 2020.
The revised guidance assumes an adjusted income tax rate of 14, 3% in 2021 slightly higher than the prior guide to reflect the marginal tax rate on our increased profitability.
The rest of the assumptions underlying the 2021 guidance remained the same and to call out a few of those.
Not included any operational benefit in 2021 for the acquisition of PPD, which is assumed to close at the end of the year.
Expects full year net interest cost to be approximately $510 million.
We're assuming net capital expenditures of approximately $2 5 million to $2 7 billion.
Our free cash flow of approximately $7 billion in 2021.
Our guidance still includes $3 $8 billion of capital deployment, which is $2 billion of share buybacks.
$4 billion of completed M&A and $400 million of capital returned to shareholders through dividends.
And we estimate the full year average diluted share count will be 397 million shares.
Now moving onto the 2022 guidance rate as I mentioned, we are carrying over the base business in vaccines and therapies beat from Q3 21 into 2022 full year numbers.
Times of revenue, we're raising our full year 2022 guidance by $200 million $45 billion that reflects the $250 million increase in core revenue.
Offset partially by $50 million less FX tailwind for the year.
The guidance for 2022 continues to seem core organic growth of 8% and $750 million of testing response revenue for the year.
In terms of adjusted EPS, we're raising our full year 2022 guidance by 20 to $21 36.
As Mark mentioned, the 2022 guidance increase reflects the increased strength of our core business, adding to the already very strong outlook for 2022 that I shared with you at the recent Investor day.
So to conclude we're delivering another X we delivered another excellent quarter and were in great position to achieve both at 21 2022 goals with that I'll turn the call back over to Rod.
Thank you Stephen operator, we're ready to take questions.
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Please standby, while we compile the Q&A roster.
In order to allow everyone in queue and opportunity to address to Thermo Fisher management team. Please limit your time on the call to one question and one follow up if you have additional questions. Please return to the queue.
Yeah.
Our first question comes from the line of Patrick Donnelly of Citi.
Great. Thanks for taking the questions guys.
Mark maybe one for you just on the guidance, obviously encouraging to see you raised the 'twenty two guidance can flow through to be so soon enough.
After providing you at the analyst day can you just talk about not pumping. The <unk> number obviously you got the core seemed a bit stronger in <unk>. The end market recovery seems well on its way I certainly understand keeping the testing conservative, but maybe just on the core business. You know what kept you guys from flowing through a bit of that strength into <unk>.
Patrick Thanks for the question good morning, So obviously really outstanding Q3.
When I think about the momentum in the.
The core business in the fourth quarter, we obviously entering the fourth quarter.
With very strong performance.
As I look at the.
Look at the outlook for Q4.
First of all we felt it was prudent to.
Keep it are the same that we did last quarter.
Nothing, particularly deep about that we have four less selling days. So when you look at the base business results.
It's very similar.
<unk> is about 9% growth of about 5% reported and about four points for the day. So here about 9% growth so very similar to what.
You saw in Q3, and when you look at the.
The other part of core which is the vaccine and therapy numbers.
Similar levels of revenue to what you saw.
In Q3 there.
There. So we felt that was a prudent view on the testing response, we kept the day to.
Good day risk number, we're obviously going to ship wherever our customers need and.
If you think about how short the true.
True visibility that's for testing response rate, which is we derisked.
At the end of July and by the time, we got into August the Delta Varian has created huge demand for testing. So we feel like the $4 50 number is one that we have incredibly high likelihood of achieving and we'll obviously ship meaningful work and data customers needed alright.
So that's how we thought about and as.
As we've talked about 2022, we carried forward the core revenue b into the year and as we sit here at the end of January when we give our full year.
Final guidance for the year will look at what is the right level of assumptions and make adjustments as appropriate.
Okay, well that's helpful makes sense.
And then maybe just a quick follow up on China, you know low single digit growth that you guys are a lot of noise in the region between the tender process general macro headlines can you just expand a bit on what you guys are seeing there again, it's always hard to remove a little bit of a comp noise in COVID-19 noise. So would love just your thoughts on China, and what you're expecting on a go forward.
Yes, I think given the way you framed the second wherever that question sort of for US explains what's going on right, which is we had low single digit growth.
In the year ago period, we had an incredibly strong COVID-19 response revenue in.
In China so.
What drives that when I look at bookings, which gives you a sense of kind of new orders.
That grew about 10% in the quarter so that activity was good.
<unk> backlog there.
In reviewing what's going on with our local team conditions actually continue to be good.
Governments focused on some of the initiatives that will drive strong long term growth the focus on biotech industry.
Food safety those kinds of things. So so I think China ultimately continues to be a nice strong growth market for the company going forward.
Great. Thank you Mark.
Yeah.
Your next question comes from the line of Tycho Peterson.
J P Morgan.
Hey, good morning.
Mark first question.
On supply chain I don't think anybody you know.
It's a huge risk for you guys. Obviously, you can handle these things well, but can you maybe just give us some color on what's going on in the ground like are you able to pass on higher resin costs are there component shortages and do you have to kind of work down inventory just kind of curious on some of the gives and takes around supply chain that is right now.
Tycho good morning, and thanks for the question, yes, so supply chain as you step back and I will now start our level of bulk Thermo Fisher and then get to Thermo Fisher right now the world is clearly experiencing supply chain disruptions right and.
It really is the pandemic is unwinding.
We're all seeing that in.
The duration of the impact of that is still to be determined.
As I think about our company, it's really the scale advantages, we have and the incredibly strong execution capabilities, we have because of our PPI business system.
It's a real competitive advantage and we're well positioned to navigate these environments.
Better than the smaller less capable company. So that's how I think about it.
As I think about Q3, there was no material impact in our results based on supply chain.
Challenges.
The areas that you see them that are being managed for things like freight and logistics.
Delivery times are a little bit slower. So you. So you have things like that that you have to manage through and.
Electronic components things of that sort and we're managing through those things effectively.
And I have high confidence our team's ability to navigate it.
And in very well in a very strong way and I think we'll be talking about this in some fashion across the world and across specifically with life science tools and diagnostics probably into 2022.
Okay. That's helpful and then follow up on PPD last.
Last quarter, you talked about the second request from the FTC.
CMA developments I know you reiterated the timelines to close by year end, but can you maybe just.
Any thoughts on how that process is going and whats the CMA development as expected.
Yeah, So tycho in terms of PPD.
It's going it's going well and on track. So we're largely complete with the U S FTC processing.
We there's no surprises on the remaining couple of filings including.
Working with with the UK government. So those are all.
We anticipated when we announced the transaction. So that's all progressing well and we feel confident of our ability to.
Have the opportunity to welcome our new colleagues.
During the fourth quarter to Thermo Fisher scientific.
Okay. Thank you.
No.
Your next question comes from the line of Jack Meehan.
Okay.
<unk>.
Thank you good morning.
Mark you could give us an update on the durability of the investments that you've been making in testing I know want to stay conservative around the outlook for Covid, but just.
How are you feeling about the durability on the PCR side any updates you can provide around uptake at Mesa and just a clarification the M&A in the quarter was that.
Tien tsin payment from Asa.
Certainly M&A in the quarter Thats continued revenue from from Macy's.
Meanwhile.
Yes, so in terms of the durability.
Embedded in our outlook.
From a derisked perspective for next year is $750 million.
Covid.
Testing related revenue and will obviously.
Refine that.
Give our when we start to start the year see what the world looks like.
Theres, obviously certain aspects of our response on the testing side that will have some level of durability, but it's a relatively modest number compared to the billions of dollars of.
COVID-19, PCR tests and sample prep that we provided the areas that you would expect.
<unk> is going to be the increased installed base of <unk> instruments, and sample prep instruments, which will get repurposed for other testing.
We've obviously developed respiratory panels as well so so likely for the future you'll even see some level of people presenting with an upper respiratory infection.
Doctors will want to know, whether it's cold or flu or RSV. So youll have some of that.
Duration.
Customer feedback on the.
It makes a biotech technologies.
Technology Super positive as far as talking to a large customer.
A couple of days ago, and they did a head to head versus some other technologies and basically said you know the users just loving and.
Are excited about working on developing a broader menu over time as well. So those are some of the things that we will.
<unk> increased our share of business post COVID-19 or more endemic Colgate to phase and that's business that we really didn't have pre pandemic. So I think thats pretty cool, but but relative to the $1 billion of revenue it'll be it'll be a more modest number.
Great and then my second question is on analytical instruments I hate to nitpick small numbers.
The compounded growth by my math stepped down from like four 5%, maybe 3% in the quarter.
Just curious how the order book there is shaping up and can you give any color on what the guidance implies for the fourth quarter for that segment.
Yes, so Jack Kevin you can nitpick anything you want it's good to focus on the areas that are unclear. So actually when I step back and look at the analytical instruments actually have a very solid quarter.
Strong performance in electron microscopy chromium expected very well, we're super excited about SMS, which is just upon us.
Exciting product launches are highlighting a few of them on the call with the Tia SKU quad.
Quadrupole mass spectrometers updated all three are new Uhm plc system. So when you actually look and say when you look at the details of the numbers we saw softness in parts of chemical analysis, that's really what's in there and you havent seen a full recovery in some of the industrial end markets, you see great strength and things that are semiconductor.
Curious financial items that shows through.
Across our businesses, but in some of the what I'll call historically core industrial you Havent seen a full recovery.
Over the last couple of years. So that's what is kind of embedded in the numbers.
Got it Steve and any color on <unk> for the segment.
With continued good performance in that business and with bookings grow strong in the quarter and outlook for Q4 and 22.
It's very positive.
Thanks Shannon.
Your next question comes from the line of Derek Brown.
<unk> of America.
Hi, Derik.
Hi, good morning.
A couple of questions.
So just to.
Just to take it a little bit follow up on Jack's question there.
Yeah.
Any sort of issues in shipping analytical instruments in the quarter and getting things installed I mean, just getting into labs or logistics of moving around just wondering if you know <unk>, though.
Quarterly quarter anyway, given seasonality I just was wondering if you know.
There was also something compounded just in terms of not being able to ship some products, we get some things out the door get some revenues recognized because of the current situations.
Yeah, nothing that jumped out of me as being significant Derrick.
When I think about.
Bookings were stronger.
And.
Maybe shipping took a day or two longer so I guess it could be some math on that but none of our teams talked about lab not ready shipping delays.
Nobody nobody used this is a discussion topic in our deep reviews with the business. So.
Is it possible, yes, but nothing that jumped out as being material from that perspective bookings.
Bookings were strong so I think that's.
That's encouraging for them for the upcoming few quarters.
Okay.
And Mark how are you thinking about.
Wage inflation in retention and particularly as it relates to <unk>.
Think about PPD I mean, obviously there is a big war for talent.
Clinical research associate population.
Transitions between.
Yeah.
Positioned to see our roads tend to create some volatility in terms of head count.
And I'm sort of just sort of thinking about your on your Biopharma services segment.
And sort of dealing with potential disruptions or.
I'm trying to stem off some of the.
Yeah headwinds you could see there.
Yes, so when I think about.
Our team, let's start with the Thermo Fisher scientific team and I'll make a brief comment about PPD.
We have a terrific team.
They have delivered.
These spectacular results for year end year out quarter in quarter out including.
Very trying times of the pandemic.
And.
They make a difference and we have.
Really we've been really focused on ensuring that this is the best place to work and we rewarded our teams we talked last quarter about some of the additional compensation actions. We've taken we we continue to do that to recognize the strong performance. We've invested in our facilities training we have recognized.
For World Class development training, there is things that.
We continue to focus on and that really has allowed us to have very very strong retention of our teams.
<unk> is a very well run business with.
With a great leadership team that's navigating the environment, while the business is performing very well there is no disruption to the integration. We're literally is lifting it as it is and running it as it is going forward and over time, we're going to come up with some great New solutions that will make a difference for customers, but this is a growth.
Oriented customer oriented patient benefit acquisition so.
The feedback that the PPD team that's getting on their colleagues is super positive and Super excited and we're looking forward to the transition.
Our company owned in the fourth quarter.
And if I can squeeze one more in on China.
How much of your portfolio.
Is manufactured in China that would not be subject to.
Or would it be.
Sure.
B part of the buy local sort of might push there.
The idea on your manufacturing footprint there in what we consider as being outside versus inside China.
Yes.
We have various scale manufacturing facilities in China for China.
And we also import.
A number of products into the market and the way you can almost think about it is if there is no local alternatives for the products you often see them imported into the country.
If there is local alternatives they have.
Income from either our Chinese operations or other low cost regions around the world.
That's the way to think about it is 100% accurate as I'm sure. There's some some things that have local competition that could shift into the country, but but thats the strategy at a high level and <unk>.
That has served us well.
We are well positioned to support.
Our Chinese customers and in areas, where the Chinese customers really want.
High degree of supply chain Assuredness things like single use technologies, we built a very scale facility in Suzhou.
To be able to meet those needs.
Thank you.
Cool.
Question comes from the line of Dan Arias.
Stifel.
Yes.
Good morning, guys. Thanks for the questions Mark <unk> two questions for you one on Biopharma and one on <unk> if I can.
On Biopharma I'm, just curious what your expectations are for what you're spending at the end of the year here.
Obviously plenty of nuances in that segment to do you feel like it's more or less likely to be.
Just sort of similar to what we've seen in non pandemic years.
Yeah, So Dan good morning in terms of <unk>.
Pharma and biotech business performed really well in terms of the growth that we are delivering with a 20% better than 20% growth in the quarter, what we're assuming.
Which is the convention we use every year, we're assuming an average year end spend.
Across our customer base, and we really don't get visibility until right. After the Thanksgiving holidays. So we use that convention.
And that's served US well I think most years, it's been average or above average was one area that it was below <unk>.
Average from recollection over the last number so that's how we think about it.
Okay, and then maybe on the NIH funding dynamic, which you've usually got a pretty decent line of sight into.
As we head into next year I'm, just curious if you have a view on the budget and the way that it looks like it might be allocated just given that you have that core budget in that.
Each component are you hearing anything about the.
ARPA, each funding and whether sort of.
Just be accessible the basic researchers.
One I don't feel.
Don't want to come out of less deal with that one if that's what it sounds like but it seems like that is sort of a question in the academic world and there really aren't too many people to ask about that something got thrown out there.
So Dan it's not clear yet and I think that offer age concept is a really important concept for the U S. Right. The way to think about it is you have defense spending right in defense spending prepares for all of the what could happen and you invest in different technologies to defend the country.
<unk>, the healthcare equivalent right its investments and things to anticipate future challenges right as opposed to typically our researches solving clearly known challenges that you have now right and so so I think that the fact that we're going to have longer term funding.
And that will prepare for the next pandemic or other future challenges I think it's fantastic and will spur great research how that exactly is going to be allocated I haven't seen anybody will come out, but I haven't seen the details of how thats going to be.
Dan and I know that the U S is not the only country that's talking about using vehicles like this so I think this is one of the reasons that we're so excited about what the scientific funding is going to be like going forward in our industry and we're incredibly well positioned to serve that.
Okay I appreciate that thanks Mark.
Yeah.
Your next question comes from the line of Vijay Kumar of Evercore.
Hey, guys congrats on a nice print and thanks for taking my question.
Mark maybe.
One on the fiscal 'twenty guidance raise here by a couple of hundred million.
It looks like the base came up by 250, I'm curious where the strength is coming from.
Would you say that's coming from Biopharma across the board.
Laura what is driving that improvement.
Yes, so vijay good morning, Thanks for the question as I thought about the.
2022.
We obviously saw strength across our company and in Q3 and in the core and we flowed that entirely into the.
The next year and.
Obviously very strong performance in pharma and biotech so that's that's.
That's very encouraging.
There's obviously a large driver of that but we thought we could circle performance function across the different parts of our business. Some of them. So I don't want to say that reflects the portfolio of activities that we have is the way to think about the strength of the quarter.
And then just to clarify that tomorrow.
Base now in foods.
Vaccine contribution, but this is I guess, what youre, saying is this is across the board. This is not just.
Vaccine opened up in Portland, correct, Yes, just to clarify.
We've got a core base.
Within the guidance range for next year.
Particularly up $250 million, which includes 190 from the base plus $60 million more vaccines and therapies. The combination of all of that is $2 50 for the cool and.
And then slightly decreased because of FX less tailwind.
So it's kind of strengthen the base business and the vacuum therapy thats being carried forward into 'twenty two.
That's helpful last even in just one quick one on the tax side.
How should we think about any potential tax reform changes and the impact to thermo.
Yes so.
The guidance, we've given here.
Doesn't assume any.
Significant U S tax reform or other tax reform across the world.
We continue to monitor.
The changing dynamics politically in D C and advocate for a change that needs to happen with the.
<unk> change happens.
Without unintended consequences to the grass you understand.
Revenue raised has been painful, but let's make sure that that's been done in a logical way.
The company has a competitive advantage in that tax position versus.
Other well run companies and we expect that that competitive advantage to be continued forward through whatever changes potentially can happen. So.
So that's the best way to think about tax rate for the company.
Thank you guys. Thanks.
Thanks Vijay.
Your next question comes from the line of Dan Brennan.
Okay.
Great. Thank correct.
Thanks for taking the question Mark it's hard to find anything positive to shout out to the Jeff at this point so.
So first question just on <unk>.
Is it bio production until May.
Maybe I missed it in the prepared remarks can you just discuss what the base growth did this quarter. So extra colby contribution kind of what's implied in <unk> and 'twenty, two and any any color on trends there.
Yes, so Dan thanks for the question.
In terms of the jets, yes painful for sure.
In terms of bio production exactly the.
The opposite of that which is things are extremely robust and doing very well some.
When I think about.
The.
I'll give it up as sort of the biotech and pharmaceutical level right with a little bit over 20%.
Growth in the quarter.
The $510 million of vaccine.
In therapy revenue. So you saw very strong growth.
Excluding the contribution from vaccines and therapies as well.
When you look to the outlook, while we don't guide obviously by segment, we would expect that pharma biotech continues to be very strong and we're expecting a meaningful level.
Growth.
Coming from them.
That 2020 to respond to the market looks very robust scientific discoveries are very strong cut.
Customer demand is good and we're seeing strong interest in our clinical trials packaging and logistics capabilities, so that bodes well so, especially in the cycle is very is very good and we're well positioned to capitalize on you know I think one of the things that.
Maybe investors don't don't have 100% understanding of if you think about what the company looks like upon close of PPD.
We have about $20 billion of revenue, serving pharmaceutical and biotech about half of that is actually serving production.
And when you think about that that is the largest position certainly the production market by far.
And then we obviously have very attractive positions in serving both the clinical trials and research activities as well. So so we're well positioned to deliver.
Rate growth into the future.
Great. Thank you for that and then maybe just a high level follow up.
You know at the analyst day, obviously, the 79% growth outlook with stronger than expected and I know at the time you discussed.
Execution and healthy end markets to support that outlook.
We certainly feel good questions from investors regarding Panama typically has.
At a reasonably conservative bar and executed well against that so just maybe just wondering the 7% to 9%.
Should we think about that Kimberly having any conservative biases. So can you just help us think through any of that the drivers are detailed.
That guidance thanks Mark.
So maybe smile, which is good.
We haven't even gotten into the period yet so.
We'll get there in terms of still working on 2021 right now but.
When I think about the philosophy around the seven to nine.
It's the exact same philosophy that we had when we had.
The continued increase in growth over time with the company, which is you sign up for targets. When you are able to do when you've demonstrated you're delivering it right and you have confidence in your ability to do that and we have great confidence in our ability to deliver the 7% to 9% growth, we're not going to cap ourselves at the 7% to <unk> right. So we're going to focus on.
Bring as much as we can and deliver great performance and we will look at the strength of our end markets and what's our share gains look like in and set the appropriate annual targets, but we felt that 7% to nine was an appropriate number one that we have a high degree of confidence in the ability to deliver on.
The goal to work to the biggest possible number we can over time.
Thank you.
Welcome to <unk>.
Your next question comes from the line of Puneet.
Of Leerink.
Good morning.
Yes, so thanks, Mark Thanks for taking the question first one just a clarification.
I know five to 11 year olds vaccinations were.
Voted positively by the panel yesterday, so I'm just wondering if that's already contemplated into this guidance I know that was a little bit later in the day, so likely not but I just wanted to confirm and also on the boosters wanted to confirm if that is also contemplated in the fourth quarter and.
Increase for vaccines in 'twenty.
2022.
Okay.
So when I think about how we've done.
Our outlook on vaccine and therapy.
It really is based on dialogue with our customers and orders that they have given us so some of the.
100% on orders, except to say, we're going to give you. The what is working on the paperwork and some of it is the <unk>.
So it's less about.
Children or boosters are those things that actually what our customers are seeing the activity that they want, but but obviously things like vaccine mandates and booster shots and.
Children adds to the durability of the demand for vaccines and therapies were largely operating with our capacity. So you don't get short term swings in the in the volumes based on new pronouncements right you get them over time so.
That's how we thought about.
Great Thanks, and the last.
Question for me is this.
On capacity expansion.
Could you provide a view into.
The need for further capacity expansion in bio production at this point you opened the central insight for biologics production larger vessels pipe production as well.
That's coming onboard.
Key facility expenses that have to happen to oral just just wondering what youre hearing from the biotherapeutic customers.
Overall.
And from the C suites, there in terms of the demand and your need to further expand the capacity at this point in the cycle.
Post COVID-19.
In general Puneet, we have in flight the activities that we need to meet the anticipated demand obviously, we're going to complete a lot of these projects. During the course of 2022, a little bit goes into 2023.
But it's largely what we have started already.
If there are specific opportunities that are part of our longer term roadmap that makes a difference you may see us evaluate them, but but theres not a long list of those and we've been very aggressive to position ourselves to meet our customers' future needs in the commitments, we've gotten and that puts us in a great spot.
We can talk about.
So let me thank.
Thank you Rob.
I put up here I want to thank everybody for participating.
The strong nine months behind us we're in a great position to achieve another excellent year as always thank you for your support of Thermo Fisher scientific and we look forward to updating you early in 2022, thanks, everyone.
This concludes today's conference call you may now disconnect.
Yeah.