Q4 2021 Thermo Fisher Scientific Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the thought my Fisher scientific 2021 fourth quarter conference call.
Speaker 1: Good morning ladies and gentlemen and welcome to the Tharnmouth Fisher Scientific 2021 4th Quarter Conference Call. My name is Katie and I'll be coordinating your call today. If you'd like to ask a question during the presentation you made Duceau by pressing star 1 on your telephone t-pad.
My name is Katie and I'll be coordinating your call today, if you'd like to ask a question. During the presentation. You may do so by pressing star one on your telephone keypad.
Speaker 1: I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President Investor Relations. Mr. Tejada, you may begin the call.
I would like to injury introduced a moderator for the call Mr. Rafael Tata Vice President Investor Relations. Mr. Taught out you may begin to cool.
Good morning, and thank you for joining us on the call with me today, It's 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.
Speaker 2: Good morning and thank you for joining us on the call. With me today is Mark Casper, our Chairman, President and Chief Executive Officer, and Steven Williamson, Senior Vice President and Chief Financial Officer.
Speaker 2: Please note this cause be in Webcast Live and will be archived on the Investor section of our website, thermalfisher.com under the heading News and Events until February 11, 2022.
Thermo Fisher Dot com under the heading news and events until February 11 2022.
Speaker 2: A copy of the press release of our fourth quarter 2021 earnings is available in the Investors section of our website under the heading financial
A copy of the press release of our fourth quarter 2021 earnings it's available in the investors section of our website under the heading financials. So before we begin let me briefly cover our safe Harbor statement.
Speaker 2: So, before we begin, let me briefly cover safe harbor safe.
Various remarks that we may make about the company's future expectations plans and prospects constitute state.
Speaker 2: various remarks that we may make about the company's future expectations.
Speaker 2: Plans and prospects constitute statements for purposes of the safe harbor provisions under the private security securities litigation reform act of 1995.
Statements for purposes of the Safe Harbor provisions under the private Securities Securities Litigation Reform Act of $19 95.
Actual 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 S. E C.
Speaker 2: 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 companies most recent annual report on form 10K and subsequent quarterly reports on form 10Q, which are on file with the SEC and available in the investor section of our website under the heading financials SEC finance.
<unk> and available in the investors section of our website under the heading financials SEC filings.
While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward looking statements as representing our views as of any subsequent to.
Speaker 2: While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any subsequent to today.
Today.
Also during this call we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP.
Speaker 2: Also during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or gaps.
Speaker 2: Reconciliation of these non- GAAP financial measures to the most directly comfortable GAAP measures is available in the press release of our fourth quarter and four year 2021 earnings and also in the investors section of our website under the heading financials. So with that, I'll now turn to...
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth quarter and full year 2021 earnings and also in the investors section of our website under the heading financials. So with that I'll now turn the call over to Mark.
Speaker 3: Thank you, Raf. Good morning, everyone, and thanks for joining us today for our fourth quarter call and a wrap-up of a truly exceptional year for Thermo Fisher Scientific.
Thank you Ralph good morning, everyone and thanks for joining us today for our fourth quarter call. It a wrap up of a truly exceptional year for thermo Fisher scientific we.
Speaker 3: We delivered another quarter of very strong results. And as I reflect on the year, three things stand out.
We delivered another quarter of very strong results and as I reflect on the year three things stand out to me.
Our proven growth strategy powered by our PPI business system continues to drive outstanding financial performance.
Speaker 3: Our Proof and Growth Strategy, powered by our PPI business system, continues to drive outstanding financial performance.
Customer demand is strong our core business is performing very well, we're gaining market share and we continue to play a leading role in the societal response to COVID-19.
Speaker 3: Customer demand is strong. Our core business is performing very well. We're gaining market share, and we continue to play a leading role in the societal response to COVID-19. And finally, we continue to build on our trusted partner status with our customers.
And finally, we continue to build on our trusted partner status with our customers.
All of this gives me great confidence and a very bright future as we continue to create sustainable value for all of our stakeholders.
Speaker 3: All of this gives me great confidence in a very bright future as we continue to create sustainable value for all of our stakeholders. I'll get into more detail in my remarks later, but first let me recap the financial.
I'll get into more detail in my remarks later, but first let me recap the financials.
Starting with the quarter, our revenue was $10 7 billion.
Speaker 3: Starting with the quarter, our revenue was $10.7 billion. Adjusted operating income was $3.16 billion, and our adjusted operating margin was 29.5%. Adjusted EPS was $6.54 per share.
<unk> operating income was $3, one $6 billion and our adjusted operating margin was 29, 5% adjusted EPS was $6 54 per share.
Speaker 3: Turning to our results for the full year, we grew revenue by 22% to $39.21 billion in 2021. Adjusted operating income increased 27% to $12.14 billion.
Turning to our results for the full year, we grew revenue by 22% to $39 to $1 billion in 2021 <unk>.
Adjusted operating income increased 27% to $12 one $4 billion.
Speaker 3: We expanded our adjusted operating margin by 130 basis points to 31%. And we delivered a 28% increase in adjusted EPS to $25.13 per share.
We expanded our adjusted operating margin by 130 basis points to 31% and we delivered a 28% increase in adjusted EPS to $25 13 per share.
Building on the tremendous success that we had in 2020 I'm incredibly proud of our team's stellar performance in 2021, it's really a testament to the strength of our global team and our proven growth strategy, resulting in another year of exceptional financial results and share gain.
Speaker 3: Building on the tremendous success that we had in 2020, I'm incredibly proud of our team's stellar performance in 2021. It's really a testament to the strength of our global team and our proven growth strategy, resulting in another year of exceptional financial results and share games.
Let me now give you a color on the results for the quarter and the year.
Speaker 3: Let me now give you a color on the results for the quarter and the year.
Speaker 3: starting with pharma and biotech. We had outstanding performance delivering growth over 20% in the fourth quarter and over 25% for the full year. In addition to strong market dynamics, these results were driven by a unique customer value proposition and our leading role in supporting our customers across a wide range of exciting therapeutic areas, including our role in supporting COVID-19 vaccines and therapies.
Starting with pharma and biotech with outstanding performance delivering growth over 20% in the fourth quarter and over 25% for the full year.
In addition to strong market dynamics. These results were driven by our unique customer value proposition and our leading role in supporting our customers across a wide range of exciting therapeutic areas, including our role in supporting COVID-19 vaccines and therapies.
Speaker 3: During the year, we saw broad-based strength across our businesses in the spend market, including our bio-production, farmer services, biosciences, chromatography, mass spectrometry businesses, as well as in the Research and Safety Market channel.
During the year, we saw broad based strength across our businesses in this end market, including our bio production farmer services Biosciences chromatography, and mass spectrometry businesses as well as in the research and safety market channel.
Speaker 3: In academic and government, we declined in the low single ditch store in the quarter, again strong demand in the yearical period, and grew in the low double digits for the full year. During the year, we saw very good growth across a range of our businesses, particularly biosciences, electron microscopy, and our research and safety market channel.
In academic and government, we declined in the low single digits during the quarter against strong demand in the year ago period and grew in the low double digits for the full year.
During the year, we saw very good growth across a range of our businesses, particularly biosciences electron microscopy, and our research and safety market channel.
Turning to industrial and applied we grew in the low teens during the quarter and we grew in the high teens for the full year.
Speaker 3: Turning to industrial and applied, we grew in the low teens during the quarter and we grew in the high teens for the full year. During the year we saw strong growth in our electro microscopy and chromatography of mass spectrometry businesses, as well as in the Research and Safety Market Channel.
During the year, we saw strong growth in our electron microscopy in chromatography and mass spectrometry businesses as well as in our research and safety market channel.
Speaker 3: Finally, in diagnostics and healthcare, Q4 revenue was 30% lower than the prior year quarter, and revenue grew in the high single digits for the full year. Throughout the year, the team executed really well to support customer's testing needs. And in the base business, we had strong growth in our immunodagnostics and transplant diagnostic business.
Finally in diagnostics and health care Q4 revenue was 30% lower than the prior year quarter and revenue grew in the high single digits for the full year.
Throughout the year the team executed really well to support customers' testing needs and then the base business, we had strong growth in our immuno diagnostics and transplant diagnostics businesses.
Speaker 3: Before I move to our growth strategy, let me provide a few comments on our role in the pandemic response. In the quarter, we generated $2.45 billion in COVID-19 response related revenue.
Before I move to our growth strategy, let me provide a few comments on our role in the pandemic response.
In the quarter, we generated $2 $45 billion and COVID-19 response related revenue.
Speaker 3: This was driven by the emergence of the Omicron variant, which led to strong testing demand, as well as our significant role in enabling vaccine and therapy products.
This was driven by the emergence of the omicron variant, which led to strong testing demand as well as our significant role in enabling vaccine and therapy production.
Speaker 3: Throughout 2021, we continue to operate with speed at scale to meet our customers' needs related to COVID-19 and generate a total response revenue of over $9 billion, of which 2 billion was from vaccines and therapy.
Throughout 2021, we continue to operate with speed at scale to meet our customers' needs related to COVID-19, and generated total response revenue of over $9 billion of.
Of which 2 billion was from vaccines and therapies.
I'm very proud of the role that we continue to play around the world to enable our customers and governments to fight the pandemic.
Speaker 3: I'm very proud of the role that we continue to play around the world to enable our customers and governments to fight the pandemic.
Speaker 3: At the same time, we're executing our core business strategy incredibly well. Let me provide an update on the progress we made in 2021, executing our proven growth strategy, which consists of three elements as you know. Developing high impact innovative new products, leveraging our scale and the high growth in emerging markets, and delivering a unique value proposition to our customers.
At the same time, we're executing our core business strategy incredibly well, let me provide an update on the progress we made in 2021 executing our proven growth strategy, which consists of three elements as you know <unk>.
Developing high impact innovative new products, leveraging our scale in the high growth and emerging markets and delivering our unique value proposition to our customers. We made outstanding progress in 2021, let me share a few of the highlights.
Speaker 3: We made outstanding progress in 2021. Let me share a few of the highlights.
Speaker 3: Starting with the first pillar, it was a fantastic year of high impact innovation. In 2021, we launched a number of new products across our businesses. Straightening our industry leadership and enabling our customers to advance their important work.
Starting with the first pillar it was a fantastic year of high impact innovation in 2020 , one we launched a number of new products across our businesses strengthening our industry leadership and enabling our customers to advance their important work.
In our bio production business, we launched a high performer diner drive single use bioreactor.
Speaker 3: In our production business, we launched the high-performance Dynadrive single use by React.
Available in sizes up to 5000 leaders this latest advancement in our diner drive single use bioreactor technology. It brings the benefits of single use technologies to unprecedented volumes and performance.
Speaker 3: Available in sizes up to 5,000 liters. This latest advancement in our Dyna Drive single-use bioreactor technology brings the benefits of single-use technologies to unprecedented volumes and performance.
Speaker 3: and ensures consistent scalability from pilot scale studies through commercial production.
And ensures consistent scalability from pilot scale studies through commercial production.
In chromatography and mass spectrometry, we continue to innovate across life Sciences research and biopharmaceutical development during the year, we extended the impact of our industry, leading <unk> platform to bring high resolution analysis to a range of applications, including toxicology and metabolomics and during the fourth quarter, we launched the thermal side.
Speaker 3: In chromatography and mass spectrometry, we continue to innovate across life sciences research and biopharmaceutical development. During the year, we extended the impact of our industry leading orbitrap platform to bring high-resolution analysis to a range of applications, including toxicology and metabolomics. And during the fourth quarter, we launched the thermoscientific orbitrap Explorers MX, mass detector, providing high-fupert analysis to improve the development and production of biopharmaceuticals.
Typical arbitrage explore is M X mass detector, providing high throughput analysis to improve the development and production of biopharmaceutical.
And electron microscopy, we introduced the thermo scientific Helios five EXL wafer dual beam scanning electron microscope to support the development of increasingly smaller and more complex semiconductors and in genetic sciences, our new applied Biosystems Quant studio seven pro D. Actual real time PCR system launched.
Speaker 3: In electro microscopy, we introduced the thermoscientific helios 5V XL, wafer dual beam scanning electron microscope to support the development of increasingly smaller and more complex semiconductor.
Speaker 3: And in genetic sciences, our new applied bio systems Qantzudeos7 ProDX real-time PCR system, launch during Q4, enables clinical testing laboratories to accelerate molecular diagnosis.
In Q4 enables clinical testing laboratories to accelerate molecular diagnostics.
The second pillar of our growth strategy is leveraging our scale in the high growth and emerging markets to create a differentiated experience for our customers.
Speaker 3: The second pillar of our growth strategy is leveraging our scale in the high growth in emerging markets to create a differentiated experience for our customers.
Speaker 3: We continue to strengthen our capabilities serving these markets. It'll highlight a few examples.
We continue to strengthen our capabilities, serving these markets and I'll highlight a few examples.
To increase our capacity for single use technology, we opened new manufacturing sites in China in Singapore to serve both local and global demand from Biopharma customers in South Korea, we continue to enhance our local capabilities with customer focused innovation centers for both the semiconductor industry and our biopharma customers.
Speaker 3: To increase our capacity for single-use technology, we open new manufacturing sites in China and Singapore to serve both local and global demand from Bioformer Customs.
Speaker 3: In South Korea, we continue to enhance our local capabilities with customer-focused innovation centers for both the semiconductor industry and our biopharmacus.
Speaker 3: These additional capabilities positions us really well to support our customers' needs.
These additional capabilities positions us really well to support our customers' needs.
The third pillar of our growth strategy is our unique customer value proposition.
Speaker 3: The third pillar of our growth strategy is our unique customer value proposition. We've continued to significantly accelerate organic investments in our capabilities and added capacity to be an even better partner for our customers.
We've continued to significantly accelerate organic investments in our capabilities and added capacity to be an even better partner for our customers.
Speaker 3: In 2021, we invested $2.5 billion in capital to meet short and long-term customer demand. Highlights included expansion of our sterile fuel finish network, bio production, enzymes, nucleotides, plasmids, and lab products capacity.
'twenty, one we invested $2 5 billion in capital to meet short and long term customer demand highlights included expansion of our sterile fill finish network bio production enzymes nucleotide plasmids and lab products capacity.
Speaker 3: As always, our PPI business system and our mission-driven culture were major factors in our success during the year. They enabled the rapid execution of our capital investments and helped us find a better way every day so we can continue to bring innovative new solutions to our customers, work more efficiently and effectively, and operate with speed of scale to create even greater value for all of our stakeholders.
As always our PPI business system, and our mission driven culture were major factors in our success during the year. They enabled the rapid execution of our capital investments and help us find a better way every day. So we can continue to bring innovative new solutions to our customers work more efficiently and effectively and operate with speed and scale to create even greater value for all of.
Of our stakeholders.
Turning to capital deployment, we were very active again this year, which further strengthened our customer value proposition. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders.
Speaker 3: Turn to the capital deployment. We were very active again this year, which further strengthened our customer value proposition. We continue to successfully execute our discipline capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders.
Speaker 3: In 2021, we were very active in investing $24 billion in M&A and completing 10 transactions to further strengthen our customer value proposition. This was highlighted by the addition of PPT, which we closed in December . We're super excited to have our PPT colleagues as part of the company and share their expertise as we work together to enhance innovation and productivity for our farmer and biotech customers.
In 2020 , one we were very active investing $24 billion in M&A and completing 10 transactions to further strengthen our customer value proposition.
This was highlighted by the addition of PPD, which we closed in December we're super excited to have our PPD colleagues as part of the company and share their expertise as we work together to enhance innovation and productivity for our pharma and biotech customers P.
Speaker 3: PPD is performing at a very high level. The business delivered great results in 2021 and is entry 2022 without standing momentum, significantly had of original expectations at the time of the deal announced.
PPD is performing at a very high level the business delivered great results in 2021 and is entering 2022 with outstanding momentum significantly ahead of our original expectations at the time of the deal announcement.
Speaker 3: that customer feedback has been extremely positive and we're excited by the pipeline of opportunities that we're building. We're executing our proven integration methodology, which is a key element of our PPI business system to create value for all of our stakeholders.
Customer feedback has been extremely positive and we're excited by the pipeline of opportunities that we're building.
We're executing our proven integration methodology, which is a key element of our PPI business system to create value for all of our stakeholders.
Speaker 3: We're well positioned to deliver year three cost energies of $75 million and $50 million in operating income from revenue synergies. And we're on track to deliver $40 million in cost synergies in 2022.
We're well positioned to deliver year, three cost synergies of $75 million and $50 million in operating income from revenue synergies and we're on track to deliver $40 million in cost synergies in 2022.
At the end of the year, we completed the acquisition of Pepper Tech a leading provider of recombinant proteins, which is an excellent complement to our industry, leading biosciences business.
Speaker 3: At the end of the year, we completed the acquisition of PepperTech, a leading provider of recombinant proteins, which is an excellent complement to our industry-leading biosciences business.
Speaker 3: In 2021, we also returned $2.4 billion of capital to our shareholders through stock buybacks and dividends.
In 2021, we also returned $2 $4 billion of capital to our shareholders through stock buybacks and dividends.
Turning to a brief update on the progress of our ESG priorities I'm very proud that over the past year, we significantly advance our environmental social and governance initiatives, our mission to enable our customers to make the world healthier cleaner and safer has never been more relevant highly.
Speaker 3: Turn it to a brief update on the progress of our ESG priorities. I'm very proud that over the past year we significantly advance our environmental, social, and governance issues.
Speaker 3: our mission to enable our customers to make the world healthier, cleaner and safer, has never been more relevant.
Speaker 3: highlights this year include our commitment to achieve carbon neutrality by 2050. This builds on our earlier goal to reduce greenhouse gas emissions by 30% across our operations by 2030.
Highlights. This year include our commitment to achieve carbon neutrality by 2050. This builds on our earlier goal to reduce greenhouse gas emissions by 30% across our operations by 2030.
Enhancing the reporting and transparency to our expanded corporate social responsibility report and alignment of multiple ESG reporting frameworks.
Speaker 3: enhancing the reporting and transparency to our expanded corporate social responsibility report and alignment of multiple ESG reporting framework.
Speaker 3: and we're actively engaging in our community. Our foundation for science reached more than 100,000 students globally to our STEM education program.
And we're actively engaging in our community our foundation for science reached more than 100000 students globally through our stem education programs. Our goal is to make a very positive impact in the communities.
Speaker 3: Our goal is to make a very positive impact in the communities in which we live and work.
We live and work.
With that I'd like to now review, our 'twenty to 'twenty two guidance at a high level and then Steven will take you through the details we're significantly raising both our revenue and earnings guidance. This increase is a result of both the strong performance of our core business and an increase in the assumption for COVID-19 testing related revenue.
Speaker 3: With that, I'd like to now review our 2212 guidance at a high level, and then Stephen will take you through the detail.
Speaker 3: We're significantly raising both our revenue and earnings guidance. This increase is a result of both the strong performance of our core business and an increase in the assumption for COVID-19 testing related revenue.
Yeah.
Speaker 3: We're raising our 2022 full year revenue guidance by $1.5 billion to $42 billion, which would result in 7% revenue growth over 2021. And we're increasing our 2022 adjusted EPS guidance by $1.7 to $22.43 per share.
We're raising our 2022 full year revenue guidance by $1.5 billion to $42 billion, which would result in 7% revenue growth over 2021.
And we're increasing our 2022 adjusted EPS guidance by $1 seven to 22 to $22 43.
Sure sure.
Speaker 3: So to summarize our key takeaways from 2021, we executed very well to continue our growth momentum and deliver outstanding financial performance. Our business is performing very well and we're gaining market share. Our exceptional performance in 2021 and momentum in 2020 too, enables us to raise our outlook for 2022.
To summarize our key takeaways from 2021, we.
We executed very well to continue our growth momentum and deliver outstanding financial performance.
Our business is performing very well and we're gaining market share our exceptional performance in 2021 and momentum entering 2022 enables us to raise our outlook for 2022.
Speaker 3: and we're incredibly well positioned for the future. Our proven growth strategy positions us to deliver long-term core organic revenue growth of seven to nine percent.
And we're incredibly well positioned for the future our proven growth strategy positions us to deliver long term core organic revenue growth of 7% to 9%.
With that I'll now hand, the call over to our CFO Stephen Williamson Stephen.
Thanks, Mark and good morning, everyone.
Speaker 4: Thanks Mark and good morning everyone. As you saw on our press release in Q4, we delivered an excellent quarter capping off another outstanding year.
As you saw in our press release in Q4, we delivered an excellent quarter capping off another outstanding year.
For the full year 2021, we delivered 17% organic growth that included 14% organic base business growth of $9 $2 billion of COVID-19 response revenue.
Speaker 4: We delivered 28% growth in adjusted earnings for share in 2021, and over $7 billion of free cash flow, all while significantly investing in our company to enable a really bright future. I'm very proud of what the team accomplished this year.
We delivered 28% growth in adjusted earnings per share in 2021 and over $7 billion of free cash flow all while significantly investing in our company to enable a really bright future.
I'm very proud of what the team accomplished this year.
Speaker 4: These results are significantly ahead of our prior guidance. So let me walk you through the key elements of the beat.
These results are significantly ahead of our prior guidance. So let me walk you through the key elements of the beat.
Speaker 4: We delivered $2.1 billion more revenue than included in our prior guide. This included $1.5 billion higher COVID-19 response revenue, $375 million of revenue from the PPD acquisition, and $200 million higher base business revenue.
We delivered $2 $1 billion more revenue than included in our prior guide. This included $1 5 billion higher COVID-19 response revenue $375 million of revenue from the PPD acquisition and $200 million higher base business revenue.
When I last earnings call, we Derisk testing response revenue in our guidance and we said that if for any additional opportunities to support customers' testing needs, we'd be ready to do so and flow the benefit through our P&L and that's exactly what we did in Q4.
Speaker 4: On our last earnings call, we de-risked testing response revenue in our guidance. And we said that if for any additional opportunities to support customers' testing needs, we'd be ready to do so and flow the benefits through our P&L. And that's exactly what we did in Q4.
Speaker 4: Then in terms of the base business, in Q4 we delivered 8% base business organic growth, which was 3 percentage points higher than assumed in the prior guide. This is very good performance, particularly given the 4 fewer selling days in the quarter.
Then in terms of the base business in Q4, we delivered 8% base business organic growth, which was three percentage points higher than assumed in the prior guide. This is very good performance, particularly given the four fewer selling days in the quarter.
Speaker 4: So excellent momentum on the top line. Our core business is on a great growth trajectory and we continue to step up and meet our customers testing these.
So excellent momentum on the top line.
Core business is on a great growth trajectory and we continue to step up and meet our customers' testing needs.
Our PPI business system enabled us to generate great pull through on the very strong revenue performance in Q4, leading to excellent adjusted EPS performance.
Speaker 4: Our PPI Business System enables us to generate great pull-through on the very strong revenue performance in Q4, leading to excellent adjusted EPS performance.
Speaker 4: We delivered $6.54 of adjusted EPS in the quarter and $25.13 for the full year. This is $1.76 ahead of our prior guide. So a broad-based beat to round out an outstanding year. Let me now provide you with some more details on our performance.
We delivered $6 54 of adjusted EPS in the quarter and $25 13 for the full year.
This is a $1 76 ahead of our prior guide to a broad base beat to round out an outstanding year. Let me now provide you with some more details on our performance.
Beginning with our earnings results as I mentioned, we delivered $6, 54% of adjusted EPS in the quarter and for the full year. Adjusted EPS was $25 13 up 28% compared to last year GAAP EPS in the quarter was $4 17 and for the full year 2021 GAAP EPS.
Speaker 4: Beginning with our earnings results, and as I mentioned, we'd live at $6.54 for just the EPS in the quarter, and for the full year, just the EPS was $25.13, up 28% compared to last year, GAPIPS in the quarter was $4.17, and for the full year 2021, GAPIPS
Speaker 4: was $19.46 up 22% versus the prior year.
It was $19 46 up 22% versus the prior year.
On the top line, our Q4 reported revenue grew 1% year over year. The components of our Q4 revenue increase included a 4% organic revenue decrease of 6% contribution from acquisitions and a headwind of 1% from foreign exchange.
Speaker 4: On the top line, our Q4 reported revenue grew 1% year over year. The components of our Q4 revenue increase included a 4% organic revenue decrease, a 6% contribution from acquisitions, and a headwind of 1% from foreign exchange. And as I mentioned, the base business organic revenue growth in the quarter was 8%.
As I mentioned the base business organic revenue growth in the quarter was 8%.
For the full year 2021 reported revenue increased 22%. This includes 17% organic growth of 3% contribution from acquisitions and a 2% tailwind from foreign exchange.
Speaker 4: For the 40th 2021, reported revenue increased 22%. This includes 17% organic growth, a 3% contribution from acquisitions, and a 2% tailwind from foreign exchange.
Speaker 4: The full year-based business organic growth was 14%. And in 2021, we delivered $9.23 billion of COVID-19 response revenue, which includes $2 billion of vaccines and therapy support revenue.
The full year base business organic growth was 14% and in 2021, we delivered $9 to $3 billion of COVID-19 response revenue, which includes $2 billion of vaccines and therapies support revenue.
Turning to our performance by geography, the organic growth rates by region are skewed by the response revenue in the current and prior year as well as four fewer selling days in Q4, 'twenty one versus the prior year quarter for.
Speaker 4: Ten to a performance by geography, organic growth rates by region are skewed by the response revenue in the current from prior year, as well as four fewer selling days in Q4, 21 versus the prior year quarter. So Q4, North America declined in the low teens, Europe grew high single digits, Asia Pacific and China grew in the high single digits, and rest of the world grew mid single digits.
For Q4, North America declined in the low teens Europe grew high single digits Asia Pacific and China grew in the high single digits and rest of the world grew mid single digits.
For the full year North America grew low double digits Europe grew over 25%.
Speaker 4: For the full year North America grew low double digits, Europe grew over 25%.
Speaker 4: Asia Pacific grew over 20% including just under 20% growth in China and rest of the world grew mid-teens.
Asia Pacific grew over 20%, including just under 20% growth in China and rest of the world grew mid teens.
Turning to our operational performance Q4, adjusted operating income decreased 10% and adjusted operating margin was 29, 5% 380 basis points lower than Q4 last year for.
Speaker 4: Tent to our operational performance, Q4 adjusted operating income decreased 10% and adjusted operating margin was 29.5%, 380 basis points lower than Q4 last year. For the full year, adjusted operating income increased 27%, and adjusted operating margin was 31%, which is 130 basis points higher than 2020.
For the full year adjusted operating income increased 27% and adjusted operating margin was 31%, which is 130 basis points higher than 2020.
Speaker 4: In the quarter, our PPI business system enables to live a strong volume leverage on the base business and strong productivity. This is more than offset by the impact of lower testing response revenue and the ongoing strategic investment across our business to support our near and long-term growth.
In the quarter, our PPI business system enables deliver strong volume leverage on the base business and strong productivity. This was more than offset by the impact of lower testing response revenue and our ongoing strategic investments across our business to support our near and long term growth for.
Speaker 4: For the full year, we drove positive volume leverage and productivity. We also had favorable business mix. This was partially upset by our strategic invest.
For the full year, we drove positive volume leverage and productivity. We also had favorable business mix. This was partially offset by our strategic investments.
Speaker 4: Moving on to the details of the P&L, total company adjusted gross margin in the quarter. It came in at 50.5%. 340 basis points lower than Q4 last year. And for the full year, it just a gross margin was 51.6% up 40 basis points versus the prior year. For both the fourth quarter and full year, the changing gross margin was due to the same drivers as those for our adjusted operating margin.
Moving on to the details of the P&L total company adjusted gross margin in the quarter came in at 55% 340 basis points lower than Q4 last year and for the full year. Adjusted gross margin was 51, 6% up 40 basis points versus the prior year.
The fourth quarter and full year the change in gross margin was due to the same drivers as those for our adjusted operating margin.
Adjusted SG&A in Q4 was 17, 3% of revenue and for the full year. Adjusted SG&A was 17, 1% of revenue an improvement of 80 basis points compared to 2020.
Speaker 4: I just had SGNA in Q4 with 17.3% of revenues. And for the full year, I just had SGNA with 17.1% of revenues. An improvement of 80 basis points compared to 2020.
Total R&D expense was approximately $390 million in Q4 and for the full year R&D expenses $1 $4 billion, representing growth of 19% over the prior year, reflecting our ongoing investments in high impact innovation to fuel future growth.
Speaker 4: Total R&D expense was approximately $390 million in Q4, and for the full year R&D expense is $1.4 billion, representing growth of 19% over the prior year, reflecting our ongoing investments in high impact innovation to fuel future growth.
Looking at results below the line for the quarter, our net interest expense was $150 million $16 million higher than Q4 last year, largely due to the PPD financing activities.
Speaker 4: Looking at results below the line for the quarter and net interest expense with $150 million, $16 million higher than Q4 last year, largely due to the PPD financing activities.
Net interest expense for the full year was $493 million, an increase of $5 million from 2020.
Speaker 4: That interest expense for the full year was $493 million, an increase of $5 million from 2020.
Speaker 4: Adjusted other income and expense with a net income in the quarter of $7 million. Eight million dollars higher than Q4 2020, mainly due to changes in non-operating effects. For the full year, adjusted other income and expense with a net income of $38 million, which is $8 million lower than the prior year.
Adjusted other income and expense was a net income in the quarter of $7 million $8 million higher than Q4, 2020, mainly due to changes in non operating FX for the full year. Adjusted other income and expense was a net income of $38 million, which is $8 million lower than the prior year.
Our adjusted tax rate in the quarter was 13, 8%. This was 220 basis points lower than Q4 last year, mainly due to the different levels of pretax profitability year over year for.
Speaker 4: are just a tax rate in the quarter with 13.8%. This was 220 basis points lower than Q4 last year, mainly due to the different levels of pre-tax profitability year over year. So the full year they're just a tax rate with 14.6% or 30 basis points higher than 2020.
For the full year, the adjusted tax rate was 14, 6% or 30 basis points higher than 2020.
Average diluted shares were $398 million in Q4, approximately 2 million lower year over year, driven by share repurchases net of option dilution and for the full year. The average diluted shares were $397 million.
Turning to cash flow and the balance sheet cash flow was another great highlight for the year cash.
Cash flow from operating activities in 2021 was $9 5 billion up 15% over the prior year and free cash flow for the year was $7 billion after investing $2 $5 billion of net capital expenditure.
This reflects strong returns we're generating in the short term and the investments that we're making for the long term.
During the year, we returned approximately $2 $4 billion of capital to shareholders through stock buybacks and dividends and we ended Q4 with $4 $5 billion in cash.
Our total debt at the end of Q4 was $34 9 billion up $13 $2 billion sequentially from Q3, largely as a result of the financing activities related to the PPD acquisition.
Our leverage ratio at the end of the quarter was two seven times gross debt to adjusted EBITDA and two three times on a net debt basis.
And completing my comments on total company performance suggested ROIC was 19, 8% up 180 basis points from Q4 last year as he continues to generate exceptional returns.
So now provide some color on the performance of our four business segments, and let me start with a few framing comments.
Scale and margin profile of our COVID-19 response revenue varies by segment.
But it's been consistent throughout the year.
We continue to make strategic investments across all of our businesses. The size of those investments does not necessarily align with the response revenue in each segment that does skew some of the reported segment margins and.
During Q4, we had four fewer selling days than the year ago quarter.
And finally, we recently renamed Laboratory products segment to reflect the inclusion of the PPD acquisition is now the Barclay products and Biopharma services segments and.
And also going forward, we will refer to PPD as a clinical research business within this segment.
Moving on to the segment details starting with life Sciences solutions Q4 reported revenue in this segment decreased 5% and organic revenue was 8% lower than the prior year quarter.
In the quarter, we delivered very strong growth in our bio production and Biosciences businesses. This was offset by lower revenue in the genetic sciences business, driven by lower testing revenue versus the year ago quarter.
For the full year reported revenue in this segment increased 28% and organic revenue increased 23%.
Q4, adjusted operating income in life Science solutions decreased 14% and adjusted operating margin was 48, 2% down 490 basis points year over year.
In the quarter, we delivered strong productivity, which was more than offset by unfavorable business mix and strategic investments.
For the full year adjusted operating income increased 28% and adjusted operating margin was 50% a decrease of 20 basis points versus 2020.
In the analytical instruments segment reported revenue increased 5% in Q4 and organic growth was 6%.
Growth in this segment this quarter was driven by an electron microscopy in chromatography and mass spectrometry businesses for.
For the full year reported revenue in this segment increased 18% on organic revenue increased 17%.
Q4, adjusted operating income in the segment increased 15% and adjusted operating margin was 22, 1% up 190 basis points year over year.
During the quarter, we saw a favorable business mix and Levered strong volume pull through and productivity enabled by our PPI business system that was partially offset by the strategic investments, we're making across the segment.
For the full year adjusted operating income increased 48% and adjusted operating margin was 19, 7% an increase of 390 basis points versus 2020.
Turning to specialty diagnostics in Q4 reported revenue and organic revenue were both 26% lower than the year ago quarter.
In the quarter, we saw a strong growth in our transplant diagnostics and immuno diagnostics businesses, which was offset by lower COVID-19 testing revenue versus the year ago quarter.
For the full year reported revenue in this segment increased 6% and organic revenue increased 5%.
Q4, adjusted operating income decreased 43% in the quarter and adjusted operating margin was 25% down 590 basis points from the prior year in.
In Q4, we drove positive productivity enabled by our PPI business system. This was more than offset by unfavorable volume mix and strategic investments in this segment.
For the full year adjusted operating income decreased 6% and adjusted operating margin was 22, 6% a decrease of 300 basis points versus 2020.
Then finally laboratory products and Biopharma services segment in Q4 reported revenue in this segment increased 16% and organic revenue growth was 5%.
During Q4, we saw strong growth in the pharma services and laboratory products businesses, Let me recognize $375 million of revenue for PPD clinical research business for.
For the full year reported revenue in this segment increased 21% and organic revenue increased 15%.
Q4, adjusted operating income in the segment increased 42% adjusted operating margin was 11, 5%, which is 210 basis points higher than the prior year in.
In the quarter, we drove strong productivity by our PPI business system, and so a favorable business mix, partially offset by strategic investments for.
For the full year adjusted operating income increased 45% and adjusted operating margin was 12, 4% an increase of 200 basis points versus 2020.
Let me now turn to our updated 2022 guidance.
Before I get into the details I'd like to begin with a quick reminder, about our definition of core business, which we introduced at our Investor day last year, and notably transition to it in 2022.
Core includes our base business, the vaccines and therapies response revenue and the PPD acquisition, given the scale of the PPD acquisition at core organic growth calculation will include PPD on a full year basis, because we think that gives you the best view of how to how to look at the total company business and how it's performing.
For full transparency will also continue to provide total company organic growth when reporting our actual performance in 'twenty two.
So moving on to our guidance as Mark mentioned, we're significantly increasing our full year 2022 revenue and adjusted EPS outlook, we're raising our full year 'twenty two revenue guidance by $1 5 billion to 42 billion.
And we are raising our adjusted EPS guidance by a dollar $1 seven to $22 43.
This very strong raise reflects the excellent strength of the business and we continue to expect 8% core organic revenue growth in 2022.
Let me now provide you with additional details on the updated guidance starting with with revenue whether four elements driving the one $5 billion raise.
Billion dollar increase in the COVID-19 testing assumption and.
$900 million increase for the core business.
$500 million decreased due to the change in FX rates and a $100 million increased to reflect the <unk> acquisition, which closed just before the year end.
In terms of our COVID-19 testing revenue assumption, we're continuing the same derisked approach to guidance as a range of outcomes for the year.
Our guidance now assumes $175 billion of testing revenue in 2022.
There are scenarios, where testing demand could be higher than this level and should that be the case, we're well positioned to support customer needs and as we did in 2021 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.
In terms of the core revenue raise $600 million relates to PPD and reflects the excellent strength of that business and to a lesser extent the recent gap changes around deferred revenue measurement for acquisitions.
We now expect PPD, a new clinical research business to deliver six $5 billion in revenue in fully for full year 2022. This represents 8% organic growth on a full year basis on top of 30% growth it delivered in 2021.
And the remaining $300 million of the core revenue raise is to reflect the strong finish to 2021 by the rest of the core business.
Our core business is in great shape. It ended 2021 with even more scale and as I mentioned earlier, we continue to expect that it will grow 8% organically in 2022.
So a very strong raise overall for our revenue guidance and we will use our PPI business system to generate strong pull through on that revenue and we now expect adjusted operating margin to be 25, 4% in 2022 or 20 basis points higher than what we assumed in our prior guidance.
In terms of adjusted EPS, a stronger business outlook is enabling us to raise the 2022 adjusted EPS guidance from $21 36.
The $22 43.
Further building on an already very strong outlook for the year.
Let me now provide you with a couple of other details on the 2022 helped.
To help you with your models.
PPD is expected to deliver six $5 billion of revenue and a $1 billion of adjusted operating income in 2022. This.
This acquisition is now expected to contribute $1 90 to adjusted EPS in the year.
<unk> is expected to deliver revenue of just over $100 million in 2022 and five of adjusted EPS.
FX is now expected to be a year over year headwind of $500 million in revenue of one 3%.
And 31% from adjusted EPS.
We continue to assume an adjusted income tax rate of 13% in 2022.
We now expect full year net interest cost to be approximately $490 million.
And other income to be $10 million.
We continue to assume net capital expenditures of approximately $2 five to $2 7 billion and free cash flow of approximately $7 billion.
Our guidance still assumes $2 $5 billion of capital deployment, which is $2 billion of share buybacks that we already completed in January and $475 million of capital returned to shareholders through dividends.
We now estimate that our full year average diluted share count will be between 395 mm 396 million shares.
And finally, a couple of comments on phasing to help you with your modeling.
In terms of revenue dollars the assumption in the guide is the revenue dollars are fairly linear for the year with Q1, and Q4 being slightly higher than Q2 and Q3.
The Derisked assumption for COVID-19 testing used in this guidance assumes that this revenue is very front end loaded in the first half of the year.
And then as an assumed endemic run rate level of $100 million of revenue per quarter in the second half of the year.
Organic growth of the core business is expected to be fairly consistent throughout the year.
And then in terms of adjusted EPS phasing this guidance assumes slightly more weighting towards the first half of the year than the phasing we had last year.
With Q1 being about the same percentage of the full year as we had in 2021.
To conclude we delivered another outstanding year, and we're in great position to achieve our 2020 goal 2022 goals with that I'll turn the call back over to Russ.
Thank you Stephen operator, we're ready to take questions.
Yes.
Thank you.
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We take our first question from Jack Meehan from that from research Jack. Please go ahead.
Thank you and good morning.
Wanted to start morning, J P D and hired more than Mark I.
Wanted to start with PPD and the higher 2022 growth trajectory here can you provide some more color around just your confidence in the handoff from the Covid related work last year to other projects.
PPD he's been one of the leaders in biotech. So was curious to get your thought if some of that confidence is driven by some of the large phase III mrna studies, which are getting kicked off.
So Jack Thanks for the question you know the our clinical research business PPD is really had a really excellent 2021.
With 30% growth and it was broad based strength.
Across biotech and Biopharma.
All of that very important.
Therapy areas that they're focused on including work in support of COVID-19, vaccines and therapies as we look at the authorizations. We were very strong last year, which gives the business great momentum coming into 2022, and 2023, and we feel good to be able to to grow that business in line with.
Our core average of about 8%. This year. So we feel very good about about the outlook for the business.
Great and then you know for both you and Steve and a big area of focus has been inflation in the market. So I was wondering you know what your assumption is for pricing for 2022, where you were able to capture that across the portfolio and how is that translating to revenue and earnings growth for the year.
Sure.
Yes, so jack but so we've been very active on using the pricing lever, it's part of our PPI business system.
Great team that helped.
It helps that businesses do that in a very appropriate way and.
We've seen basically in the second half of 2021 and as we project forward to 'twenty two pricing at around about two times the normal level given the inflationary environment are facing so that's an aggregate across the whole portfolio, it's different by different areas of the business.
The aggregate result, and we're offsetting the impact of inflation through that pricing activity.
Thank you Beth.
Thanks Sharon.
We take our next question from Patrick Donnelly from Citi. Please go ahead.
Great. Thanks for taking the questions guys.
Mark maybe just on the on the guidance range.
Or $400 million raise or so can you just talk through I guess, the end markets that you're seeing where you're feeling incrementally better going into 'twenty two versus you know a few months ago at the analyst day, and then obviously the shriek you update as well just kind of curious.
Confidence level going into 'twenty, two you guys, obviously sound quite bullish for the year, but maybe if you could just talk through some of the upside levers as we go into this year.
Yeah, So Patrick.
You know, we really ended the year with really.
Really strong performance and you see that in the 17% organic growth that we delivered for the full year you see that in the very strong base business growth of 14% and bookings.
In the fourth quarter was once again ahead of revenues. So so we enter the year with very strong momentum as we thought about the outlook for the year. Obviously, we were quite bullish with the 8% back in September with the analyst day, and the way that we've thought about it was all of the additional.
And you in the core we basically you're going to grow that we're going to keep that and then grow that by 8% as well and that's sort of what's implied in the guidance. So so we feel very well positioned given what our outlook was in September how the business finished the fourth quarter the strength of the bookings and therefore once you.
There should be another great year for the company.
I am Patrick.
The extra reps eighth was pretty broad across the business.
When I think about the impact in Q4.
Understood. Okay, and then maybe just one on the capital deployment side. Obviously, you guys have been very active another $2 billion to start the year here on the share repo you kind of talked about the $7 billion free.
Free cash flow for the year can you just talk about the pipeline of opportunities on the deal side again, <unk> seems like a nice fit.
How active we should expect you to be again leverage seems manageable at two three coming out. So maybe just talk about the pipeline and the expectations for the year there.
Yeah. So if you if you reflect back on last year right very active year with 10 transactions.
And the bolt ons about $4 billion worth of transactions $20 billion roughly for PPD. So actually a really nice year of bolt on activity and if this was any other quarter in the fourth quarter. We actually were talking about pepper talked quite a bad right in terms of a classic bolt on great growth prospects good technology that.
Is already performing well and will flourish under our ownership and the strength of our biosciences business. So that's kind of the look back right and it gives you a sense of there's plenty of opportunity. Our pipeline is busy right. We have plenty of financial capacity will be incredibly disciplined to make sure that it fits our strict criteria creates shareholder value and.
That it really is additive to the portfolio, but you know where we're actively looking at a number of transactions that we will see how they play out no return of capital is also an important part of our strategy and as you noted we deploy already $2 billion on buybacks in the beginning of the year and.
We're excited to be able to do that for our shareholders as well.
Great. Thanks, Mark.
Youre welcome.
Our next question comes from John <unk> from Stifel. Please go ahead.
Good morning, guys. Thanks for the questions Marc maybe just following up on Patrick's question there.
I'm, just curious about whether or not you're actually seeing assets become more attractive. These days given the market moves I mean, we've all seen valuations in the public markets come in.
So it feels tempting to say, yes, but I imagine that the management teams of these companies remember their stocks being a lot higher and not too long ago and on the private side, maybe sort of a similar thing.
Relative to the last raise or something so I guess the question is our assets any more approachable than they used to be in reality or not really.
Yeah, you know I think it's early to.
See that that changes.
The increases the pool, if you will of potential actionable transactions right and because you know it takes a while for valuation.
Expectations to really settle down and obviously the stock market.
It has bounced around a bunch. So it's you know I think it will take a while for expectations to change our pipelines busy alright, and we are extremely disciplined and you've heard me say in the past.
When valuations are more elevated youre going to think about businesses that have a very favorable risk reward profile. So you don't have scenarios, where the businesses that you acquire.
And creating shareholder value and obviously, if you get in a period, where valuations are more favorable from an M&A perspective, and that's going to open up the pool right, but I don't think that happens you know in the first month or two of the year I think it's more of a we will see how the year plays out.
Yeah, Okay that makes sense.
And then maybe on the clinical channel how would you describe the spending environment in the hospital landscape right now and it just comes to sort of non COVID-19 related items as we start off the year. It seemed like things were normalizing, but then.
We did get some hospital capacity constraints as omicron Serge So just curious how you're how you're seeing things trends and how spending priorities are looking in demand overall in our clinical segment.
Yeah, So when I think about the.
The core health care and diagnostics portion of the business.
I look back at last year, we had solid growth in the in that routine activity our specialty diagnostics. What I would say is you know it's better than you know its growing you know again, but there's still some level of noise in terms of volume disrupt.
Right. So it's not at the <unk>.
Consistent growth that you would have seen in 2018 2019, it's.
You lose two or three weeks because of omicron that that has some some minor effect, it's fully baked into our numbers and.
It would be truly in the noise level for us in terms of what our outlook is but.
But you are not yet at sort of maximum diagnostic.
Diagnostic growth outside of Covid testing until you really have no capacity utilization in our in the hospitals.
Got it okay. Thanks Mark.
Yeah.
The next question comes from Derik de Bruin from Bank of America. Please go ahead.
Hey, good morning.
Good morning.
Hey, so mark.
You can do this the question we're getting from investors, but if you look you look at that 25, 4% operating margin guide for 'twenty two.
What should I do.
Yes, you do can you talk to the pushes and takes on.
Contributions are.
What's the FX headwind, what's the decrease from PPD.
And basically and Covid and sort of walked through basis on what sort of like the underlying margin I think we're getting a lot of we're getting a lot of questions on that as people sort of think about it.
Sort of like the future trajectory.
Yes.
The 80000, putting I will not I will not bridge, yet and Stephen will.
We increased our operating margin.
Outlook from the Investor day, actually I forgot the Investor Day, we did a really nice job of explaining you bring PPD in at a at a lower margin year, one and margins expand we talked a little bit about what the how the COVID-19 would unwind, but also actually the longer term views, we're kind of in a way. So let's go to the end point in the next three year model for your mom.
And so as you can take all of the cold it out and you see the growth in margins off of that level. So so actually I'm Super excited because we've come here and actually we've been able to increase that with Steven maybe you might want to add a little bit more.
Yeah. So.
Some of the long term model, we said margins.
Greater than 26% in.
That's all incorporated in this guidance as we think about 'twenty two is the year in that three year long term model so that.
We raised our guidance for for revenue.
<unk> is part of that which is that kind of mid teens margin.
<unk> is slightly.
More of a hurt in terms of the change versus the prior guide and then the the Hyatt testing and the higher core business growth is coming through at a decent margin. So that's the kind of puts and takes that gets you to the 20 basis point increase in drilled in lines like it's actually slightly higher than what included in in that three a model that we gave out at the Investor day.
Great and.
Mark you had.
You ended your APAC and China business actually ended the year quite strong he sort of like give us your current thoughts on sort of like how you see China moving forward in 'twenty, two and 'twenty three and just just.
Your high growth markets in general just how things are things are tracking there. Thank you.
Yeah. So derik. Thanks for the question. So we had very strong growth.
In APAC.
You know about 20% for the year and in China, just just below 19%. So it's kind of in the same range when I look at the outlook, China being the largest of the countries in that region represents about 8% of our total revenue despite context.
We expect it to be and continue to be one of our fastest growing end markets you know significant investment in pharma and biotech biotech in particular in the country. We are well positioned to continue to serve that very well.
So the team in China is bullish about the outlook there are clearly geopolitical tensions and will navigate those appropriately and so that's part of it and so we feel good about what the outlook is there.
And then we've had really good strength.
Beyond China, right, South Korea continues to perform at a really good level we played.
Strong role in India, and that's expanding nicely so.
It's you know the region has been good for us and I'm very proud of how the team has performed in Asia Pacific and obviously around the world.
Right and if I can sneak one more in.
The academic and government number in Q4 was that.
Four less selling days and people not being back in the lab. Some COVID-19 lockdown headwinds just sort of talking about Keith you were talking about that number.
Yeah. So obviously for the year with a low double digit growth very strong we had low single digit decline as you said in the fourth quarter really the it's a combination of as you said four selling days lost are we also had a very strong comparison in academic and government in the prior year period. So this problem.
The other factor beyond any.
Omicron type disruption so.
As I thought about it there wasn't much to read into it in terms of what the activity level was what customers are talking about our pipeline of salvage seem fairly normal.
And then Derek just reflecting on the margin drag just reflecting on your margin question.
And I think about the the additional guide in terms of the revenue for testing Thats assumed to come through at the average for the pull through the rest of the company as well so.
Not not a significantly higher margin profiles that gets you to the 25 four.
Thanks to our great helpful.
We take our next question from Lisa got from Barclays. Please go ahead.
Hey, guys good morning.
I think everybody right now is trying to figure out the industry's capacity to absorb the COVID-19 vaccine roll off.
And given you guys supply also manufacturer and then do the clinical side. Your thoughts here would be really helpful. But really just trying to figure out what indications or technologies are really are you guys are looking at that can replace any of that roll off.
Well thanks for the question so.
When I think about the demand profile.
And capacity expansions obviously.
There's been very significant demand across the industry for supporting all of the Colgate therapy and vaccine.
Typically.
And the industry.
Obviously.
Utilization went up hugely probably unsustainably high so some of the investments youre seeing.
Within our own company and sure across all of those is to to bring utilization rates back to normal right. So that's the first thing to remind.
Within our own business, if I think about the investments I think about the nature of the customer contracts I think about who the customers are what else they have in their pipelines.
Our ability to transition.
The COVID-19 related activity to other therapeutic areas is something that we have a high degree of confidence and the ability to do that you don't do initially in one quarter right. It takes it takes a few quarters to get all of that smooths out, but we have good line of sight in terms of how to backfill when COVID-19 demand.
As you know God willing less needed.
You know around the world right as we all hope that.
It's something that at some point waned. So we're certainly certain extend so you know.
Our ability to do that and you could think about you can visualize the right sterile fill finish activities really all of the biologics that are used for any indication run through that capacity right. So we've added capacity.
And we're running flat out and you know if theres less of a need longer term for vaccines. Then you would see that capacity you know go to other critical areas certainly that would be you can visualize it that way.
She is truly generic to all of the indications out there.
Alright, Thats really helpful. And then lastly, as you guys look at that 1.75 billion on testing Mesa header appears to have had a really strong quarter can you just give us a sense of the number of customers. There I know, it's a such a small product line, but it's.
A key key new.
Platform for you. So as you think about number of customers placements and as that menu kind of expands there.
Yeah. So you have two different things going on with all rapid diagnostic systems and our PCR that we acquired early in 2021, you have the long term menu expansion beyond the respiratory panel and the COVID-19 tests. That's it that's a multi year investment that really leverages.
The technology for the long term and we're excited about that right. When I think about the second aspect of it is the role in Covid.
Response demand there has been very very high and you know why I can't tell you. The exact number of customers you would see it in the pharmacies as.
This is a natural application where its been used you see it in the doctor offices as well as in a number of back to life settings.
I've been to meetings, where that technology has been used to clear people.
To be able to attend the meeting.
Resulting in 30 minutes. So it's an exquisite technology to get a PCR result that quickly. So I feel good about the acquisition and how the technology roadmap is developing and how it's performing.
Great. Thanks.
The next question comes from Vijay Kumar from Evercore P. J. Your line is open.
Hey, guys. Thanks for taking my question.
Steve maybe one.
One on the guidance here and good morning to you on our guidance here.
Pushing core.
I guess I heard you say.
And the core revenues you know was.
With respect to 300 400 million mesh.
Should be a core be 19, 9% like it feels like it's improved versus your last guidance.
Is that the likelihood and think about.
You know your core accelerating.
So P. J good morning since of the raise is because of the scale of the business has gotten larger in 'twenty one.
And then we're growing that at 8% going forward in 'twenty two.
So the growth rate is still the same as our prior guidance of call. It which is a very strong 8%, but the base on which is growing is that the larger because of the way that we finished in the end of 'twenty 2021.
Understood and then one on.
Margins in Biopharma processing did euro.
Covid.
Testing margin assumptions change I'm curious are not mark.
This diner drive single use bio processing.
The Acura.
But do you expect any share shift in the industry. It looks like you.
You guys are quite optimistic about this products I'm curious.
If this is a share gain opportunity for thermo.
Yeah, So vijay in terms of.
The bio production.
Activity in that when we say the word bio production, where we're meeting here is our cell culture media our single use technologies, our purification resins, that's part of a much bigger set of production activities for pharma and biotech, which includes pharma services, our bioscience reagents normal activities.
I called out the diner drive specifically because today.
When you think about a customer choice.
For most you know probably 70% to 75% of medicines in indications that are biologics you can use single use technology. So it doesn't mean that that's the share of that is us, but you can economically and the alternative of stainless steel.
And that's a 2000 liter scale.
Our technology allows you to go to 5000 liter scale that effectively opens it up for almost all medicines.
Could be may not probably it's probably a couple of very high volume ones you'd still want to do in stainless steel now how fast customers will ultimately adopt it will take some time, we've obviously.
<unk> adopted in one of our biologics facilities and we're super excited about the capability because the economics and the quality is fantastic. So I think the technology is exquisite and it's unique to us and so yeah I think it allows us to grow our share over time.
Basically the expands that serve them bucket in effect.
Gotcha and steam sorry did your code.
In testing margin assumptions change versus soft the last guide.
In terms of the 22 version no. There's so there's an assumption that it is going to contribute to come and the contribution margin round about the company average.
Understood. Thank you guys.
Thanks P J.
The next question is from Dan Brennan from Cowen. Please go ahead.
Yeah.
Great. Thanks for thanks for taking the questions.
Mark just a quick comment just kick it off I'm still unsure Zach, but no I N. T is the last time I mean, it certainly gives me some hope.
I just wanted to ask a question on the base biologics business ex Covid I didn't hear it in the prepared remarks, but you may have discussed it.
How did that business grow in the quarter could you give some color on what the bookings trends were in the quarter and kind of what's assumed implied in the 'twenty two growth for that business.
Yeah.
Yeah. So so.
So Dan when I think about or biologics or production activities I think it's probably good to put it into a into the macro context, roughly $20 billion of our revenue today.
Including including PPD, Sharers pharma and biotech.
About half of it is in production.
Part of the business right and in general the production goes a little faster.
And then the other activities, we do in pharma and biotech.
And when you look at the company's long term, 7% to 9%.
Core organic growth outlook pharma biotech will be the fastest.
Of the growing end markets are growing faster than that on average.
Going forward so.
We enter the year, obviously with very strong momentum right with 25% growth in pharma and biotech for the full year.
Ari special year, and we're excited about the cross prospects, we have this year with 8% core growth.
Got it and then maybe as a follow up just on the.
Diagnostic testing side, you guys, obviously tremendously successful with Covid testing I'm just wondering if you can comment on you know all the PCR platform that you.
Expanded globally.
The strategy and what kind of the revenue contribution as koby close to kind of monetize maybe some content on those boxes is there something baked in Hubei business or just how do we think about that opportunity for thermal.
Yeah, So Dan one of the things that we get questions. Your question we get.
Periodically so we tried to at least frame it a bit in Stephen's remarks, where we expect in an endemic phase of Covid.
About $100 million a quarter or two.
$400 million a year of molecular diagnostics revenue.
Related to the increased installed base supporting Covid testing the increased sample prep install base. So that's a rough number we'll give it more precision when we're actually in the endemic phase but.
That's that's the view when that exactly happens, we just assume that that starts in Q3.
But thats an assumption just like all of our testing things it's.
We'll update that as we see how the pandemic plays out.
Operator, we have time for one more question.
Thanks, Tim.
Dan.
Thank you Sir our final question comes from Tejas Savant from Morgan Stanley . Please go ahead.
Hey, guys. Good morning, and thanks for squeezing me in here.
One question for you on on the M&A pipeline I know it came up earlier in the call as well, but just curious as to philosophically.
Get your view on how do you think about growth assets specifically.
If an asset is not sort of margin or EPS accretive near term is that still sort of something that you would.
Look at over here or would you sort of prefer kind of like the more PPD flavor of M&A.
Yeah. It's a great question the way, we think about acquisitions is really along our criteria right we start with.
Is it strengthen the company strategically what our customers value it and ultimately does it create shareholder value we start with the return on invested capital the internal rates of returns before we get into that the EPS or any of that stuff. We just say is this a good long term investment right and if it is then we'll look at the shortest term financials and say is that an acceptable risk.
Award to us to take the activity. So as you know if.
If you think about the many deals we've done we actually havent focused on is it accretive to our organic growth or actually is focused on is it a really strategic fit that strengthens the company that'll create shareholder value.
And we have an incredible track record of accelerating the growth of the businesses. We acquire right. So that's the cool thing and you've seen us show where over the years, we bought businesses like life technologies that was growing slower than the company average obviously, it's been unbelievable in terms of how fastest grown.
In terms of upscale and we're excited about pepper Tech, which is a higher growth business and we're excited about the prospects around PPD. So thank you for the.
Question.
So let me wrap up.
And thank everybody for participating we're obviously pleased with how we performed in 2021.
We're in a really great position to achieve another excellent year in 2022 and as always.
Thank you for your support of Thermo Fisher scientific and we look forward to updating you.
We are progressive thanks, everyone.
Yes.
Thank you all for joining today's call. This now concludes you may now disconnect your lines.
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