Q3 2024 Thermo Fisher Scientific Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2024 third quarter Conference call. My name is as Rob and I will be your coordinator today. If you would like to ask a question. Please press star followed by one on your telephone keypad now.
Speaker Change: If you change your mind. Please press star followed by two I would like to introduce our moderator for the cool Mr. Raphael <unk>, Vice President Investor Relations. Mr. Todd that you may begin to cool.
Raphael: Good morning, and thank you for joining us on the call with me today is Marc Casper, Our chairman, President and Chief Executive Officer, and Stephen Williamson Senior Vice President and Chief Financial Officer.
Raphael: Please note this call is being webcast live and will be archived on the investors section of our website Thermo Fisher dot com under the heading news events and presentations until November six 2024.
Raphael: A copy of the press release of our third quarter 2024 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.
Raphael: Various remarks that we may make about the company's future expectations.
Raphael: <unk> prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.
Raphael: Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K, and subsequent quarterly report on Form 10-Q, which are on file.
<unk> with the SEC and available on the investors section of our website under the heading financials SEC filings.
Raphael: While we made elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today.
Raphael: So during this call we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP.
Raphael: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our third quarter 2020 for 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.
Mark: Thank you Ralph good morning, everyone and thanks for joining us today for our third quarter call.
Mark: As you saw in our press release, we delivered another quarter of strong financial performance.
Mark: We're seeing the benefit of our trusted partner status, which is resonating strongly with our customers.
Mark: And we're continuing to deliver differentiated performance in the short term, while further strengthening our long term competitive position.
Mark: So first let me recap the financials our revenue in the quarter was $10 $6 billion. Our adjusted operating income was $2 three 6 billion adjusted.
Mark: Adjusted operating margin was 22, 3% and we delivered another quarter of strong adjusted EPS performance, achieving $5 28 per share.
Mark: Our performance for the third quarter is allowing us to raise our adjusted EPS guidance. Once again and continues our track record of delivering differentiated results.
Mark: Turning to our performance by end market in the third quarter underlying market conditions played out as we'd expected and we delivered another quarter of sequential improvement in growth.
Mark: Let me provide you with some additional context, starting with pharma and biotech we declined in the low single digits in Q3, including a five point headwind from the run off of vaccine and therapy revenue.
Mark: This marks the third quarter in a row of sequential improvement in growth for this customer segment.
Mark: Performance in the quarter was led by our research and safety market channel and our clinical research business.
Mark: In academic and government we grew in the low single digits during the quarter, we delivered strong growth in our electron microscopy business and in our research and safety market channel.
Mark: In industrial and applied we grew in the low single digits during the quarter.
Mark: Get it by strong growth in our electron microscopy business.
Mark: Finally in diagnostics and health care growth was flat for the quarter. As a reminder, the reported growth in this end market is impacted by the run off of COVID-19 testing related revenue during the quarter. The team delivered good revenue growth in our transplant diagnostics and immuno diagnostics businesses as well as the health care market Chad.
Mark: Oh.
Chad: As I reflect on the end markets underlying conditions have modestly improved each quarter as the year has progressed. This is in line with the framing we provided as part of the guidance at the beginning of the year.
Chad: Let me now turn to an update on our growth strategy. As a reminder, our strategy consists of three pillars high impact innovation, our trusted partner status with customers and our unparalleled commercial engine.
Starting with the first pillar it was another great quarter of innovation first we continue to see the impact of our innovations launched over the past couple of years.
Chad: It's gratifying that our innovations continue to receive industry recognition.
Chad: This is a true testament to our teams most recently the R&D 100 awards, which recognizes the most revolutionary products in science and technology under two of our products are good.
Chad: Our gift Cts detachable dining beads, which launched last year as well as our thermo scientific or be trapped Astro mass spectrometer, which one KOL in the market Disruptors special recognition category is one of the most significant advancements in mass spectrometry in 15 years.
Chad: Adoption of the orbit Asheville continues to be incredibly strong.
My customer interactions I've had the opportunity of direct feedback on how significant our continued innovation is in helping our customers move science forward and advance their important work.
Chad: The second point on innovation as we also had the benefit of a number of.
Chad: Number of high impact new products this quarter that we launched.
Chad: To enable the development of advanced matures, we launched the thermo scientific Iliad scanning transmission electron microscope, which integrates a number of our advanced analytical technologies into a seamless and user friendly workflow. This offers researchers deeper insights into the chemical nature of the most sophisticated advanced materials down to the atomic level.
Chad: The Iliad incorporates our most innovative high resolution spectrometer to accurately determine the composition of materials as well as our proprietary energy filter for detailed imaging and chemical analysis of samples. We recently unveiled Iliad at the European Microscopy conference in Copenhagen, Denmark, and the feedback has been incredibly positive.
Chad: Turning to innovations in life Sciences within our Biosciences business, we launched the applied Biosystems Magnox sequential DNA, RNA kit, which maximizes the isolation of DNA and RNA from blood cancer samples, helping researchers identify unique insights of cancer, causing genetic alterations.
And we also launched the in vitro in vivo effect to meet delivery solutions novel method for delivering nucleic acids into multiple targets with therapeutic effect paving the way for groundbreaking new medicines.
Let me give you a quick update on our progress in building on the trusted partner status that we've earned with our customers.
Chad: Last month at our Investor Day, you heard US highlight this element of our growth strategy and I'd like to bring some additional context to bring it to life.
Chad: During the quarter I had the opportunity to meet with many of our customers. As you know we have an unparalleled customer access and this helps us understand their near and long term priorities are scale depth of capabilities and accumulated experience is truly resonating with customers as they rely on us to accelerate their innovation enhance their productivity.
Chad: <unk> and advance our important work.
Chad: This translated into meaningful commercial wins with customers during the quarter, which speaks to the ongoing strength of our growth strategy and our ability to gain share now and in the future.
Chad: I also visited China in August and spent time meeting with government officials and customers. We have strong relationships there based on our track record of positive impact.
Chad: Long history in the country are conversations we're focused on how we can cook.
Chad: Collaborate to enable our customer success.
Chad: I came away from the visit seeing firsthand, how well positioned we are to capitalize on the market opportunities when the economy picks up in China.
Chad: Let me now give you an example from the third quarter and how we advanced customer partnerships and collaborations.
Chad: Clinical next Gen sequencing business, we announced our partnership with the National Cancer Institute, our Milo match precision medicine umbrella trial.
Chad: That's going to leverage our next generation sequencing technology to test patients for specific biomarkers. So they can be matched more quickly with optimal treatments based on their unique cancer profiles.
Chad: We also continue to expand our capabilities to meet our customers' current and future needs to enhance our all solid dose formulation capabilities for our pharma and biotech customers, we expanded our pharma services manufacturing footprint in Cincinnati, Ohio in Bend, Oregon.
Chad: And our clinical research business, we announced the expansion of our Global Laboratory services network with a new bio analytical lab in Gothenburg, Sweden.
Chad: Which will support pharmaceutical and biotech customers with advanced laboratory services to support all phases of development.
Chad: So it was an excellent quarter of advancing our growth strategy let.
Chad: Let me give you a quick update on the impact of our PPI business system in Q3.
Chad: PPI is embedded in our culture and there are many examples that I could share for the quarter.
Chad: As always our PPI business system, and our mission driven culture enabled our success during the quarter PPI engages empowers all of our colleagues to find a better way every day to enable outstanding execution.
Ultimately you see the positive impact of PPI reflected in the strong profitability and cash flow that we delivered in the quarter.
Chad: During the quarter, we further enhanced our supply chain in Asia Pacific by optimizing inventory across our network while in Europe, we further streamlined and automated manufacturing processes. The high end analytical instruments to meet strong demand.
Chad: Now, let me turn to corporate social responsibility, we have a CSR strategy that delivers a competitive advantage as a mission driven company, we help to make the world a better place by enabling the work of our customers. We also create a positive impact by the environment, we create for our colleagues, how we support our communities and being a good steward of our plan.
Speaker Change: Got it.
Speaker Change: I just want to spend a moment on our colleagues because none of our success is possible without the work of our amazing team around the world.
Speaker Change: Our colleagues' safety is always our top priority.
Speaker Change: The impact of Hurricane Hilli was especially concerning to me as we have about 1000 colleagues in Asheville, North Carolina, one of the hardest hit areas in.
Speaker Change: In Asheville, we manufacturer lab equipment and have a customer service center I'm. So grateful our colleagues there are safe I'm also thankful for the support of our extended teams who have provided assistance to those colleagues impacted it's truly heartwarming heartwarming to see how our team comes together to support each other.
Speaker Change: Turning now to capital deployment, we continue to successfully execute our disciplined capital deployment strategy to create tremendous value. We do this through a combination of strategic M&A and returning capital to our shareholders. Let me update you on our recent acquisitions the binding site now our protein diagnostics business continues to perform.
Speaker Change: Exceptionally well in the quarter, we achieved an IBD or claim extension in the European Union for our optimized free light Amex catheter kit until now these kids have been solely used in multiple myeloma diagnostics and monitoring the extension now allows for the product to aid in the diagnosis of illogical diseases, such as multiple sclerosis.
This is an excellent example of our M&A approach they bring a great business to be even better under our ownership creating value for all stakeholders.
Speaker Change: As a reminder, we closed the acquisition of OLED <unk> at the beginning of the quarter. The integration is progressing smoothly. The business is well positioned for a bright future as you heard at our Investor Day, we're excited by the role we're playing in advancing proteomics research.
Speaker Change: As I reflect on the quarter I'm proud of what our teams accomplished and grateful for their contributions to our success. Let me now turn to our guidance given our strong performance in the third quarter, we're raising our adjusted EPS guidance, which we now expect to be in the range of $21 35 to $22 seven.
Speaker Change: And we continue to expect revenue to be in the range of $42 4 billion to $43 3 billion.
Speaker Change: Stephen I'll take you through the details in his remarks.
Speaker Change: To summarize our key takeaways from Q3, we delivered another strong quarter of financial results driven by our proven growth strategy, our PPI business system.
Speaker Change: We continue to enable our customers' success and this reinforces our trusted partner status and industry leadership.
Speaker Change: Our growth has been steadily increasing as we've gone through 2024, and we once again have raised our adjusted EPS guidance for the year.
Speaker Change: We're well positioned to deliver differentiated performance in 2024, as we continue to create value for all of our stakeholders to build an even brighter future for our company.
Speaker Change: With that I'll now hand, the call over to our CFO Stephen Williamson Stephen.
Stephen Williamson: Thanks, Mark and good morning, everyone I'll take you through an overview of our third quarter results for the total company then provide color on our four business segments and I'll conclude by providing our updated 2020 for guidance.
Stephen Williamson: Before I get into the details of our financial performance. Let me provide you with a high level view on how the third quarter played out versus what we've assumed for Q3 and the midpoint of our prior guidance.
Stephen Williamson: On the top line, both organic revenue growth and core organic revenue growth increased sequentially for the third consecutive quarter revenue was largely in line with what we'd assumed for Q3 and the midpoint about prior guide.
Stephen Williamson: Turning to the bottom line adjusted EPS was <unk> <unk> ahead of what we'd assumed in the prior guide for Q3 that was a net impact of the following <unk> a strong operational performance of.
Stephen Williamson: <unk> of lower net interest cost due to favorable timing of cash flow generation and more favorable rates than being assumed.
Stephen Williamson: These are partially offset by an additional <unk> <unk> of FX headwind versus the assumption for the quarter.
Stephen Williamson: We're also executing well on free cash flow generation year to date free cash flow is 22% higher than the same period last year.
Stephen Williamson: So we had another strong quarter and are well positioned to deliver differentiated differentiated financial performance in 2024.
Stephen Williamson: I'll provide you with some additional details on Q3.
Beginning with earnings per share and in the quarter adjusted EPS was $5 28.
Stephen Williamson: GAAP EPS in the quarter with $4 25.
Stephen Williamson: On the top line Q3 reported revenue organic revenue and core organic revenue were all flat on a year over year basis in the quarter pandemic related revenue was approximately $100 million. This was largely from vaccines and therapies. This represents a 3% headwind to organic revenue growth.
Stephen Williamson: Turning to our organic revenue performance by geography in Q3, North America declined low single digits.
Stephen Williamson: And Europe Asia Pacific and China within Asia Pacific were all flat year over year.
Stephen Williamson: With respect to our operational performance, we delivered $2 36 billion.
Stephen Williamson: Adjusted operating income in the quarter and adjusted operating margin was 22, 3%, a 190 basis points lower than Q3 last year slightly ahead of our expectations for the quarter.
Stephen Williamson: Total company adjusted gross margin in the quarter came in at 41, 8% 20 basis points lower than Q3 last year in.
Stephen Williamson: In the quarter, we continued to deliver strong productivity, reflecting our continued focus on cost management has enabled us to fund strategic investments to further advance our industry leadership and partially offset the expected impact of unfavorable mix this quarter.
Stephen Williamson: Moving onto the details of the P&L adjusted SG&A in the quarter was 16, 2% of revenue.
Stephen Williamson: R&D expense was $346 million in Q3, reflecting our ongoing investments in high impact innovation.
Stephen Williamson: And R&D as a percent of manufacturing revenue was seven 3% in the quarter.
Stephen Williamson: Looking at our results below the line. Our Q3 net interest expense was $80 million, which is $33 million lower than Q3, 2023, due to higher cash balances and short term investments.
Stephen Williamson: Our adjusted tax rate in the quarter was 10, 5%.
Stephen Williamson: And average diluted shares were $384 million in Q3, approximately $4 million lower year over year, driven by share repurchases net of option dilution.
Stephen Williamson: Turning to free cash flow and the balance sheet year to date free cash flow from operations was $5 4 billion.
Stephen Williamson: Year to date free cash flow was $4 $5 billion and after investing $880 million of net capital expenditures.
Stephen Williamson: During the quarter, we deployed $3 1 billion of capital through the acquisition of <unk>.
Stephen Williamson: And we ended the quarter with $6 $6 billion in cash and short term investments.
Stephen Williamson: $35 3 billion of total debt.
Stephen Williamson: Our leverage ratio at the end of the quarter was three three times debt to adjusted EBITDA and two seven times on a net debt basis.
Stephen Williamson: <unk> My comments on our total company performance adjusted ROIC was 11, 4%, reflecting the strong returns on investment that we're generating across the company.
Stephen Williamson: I'll provide some color on our performance of our four business segments, starting with life Sciences solutions Q3 reported revenue in this segment declined 2% and organic revenue was 4% lower than the prior year quarter.
Stephen Williamson: Growth in this segment was driven by the impact of the pandemic.
Stephen Williamson: Q3, adjusted operating income for life Sciences solutions decreased 3% and adjusted operating margin was 35, 4% down 50 basis points versus the prior year quarter.
Stephen Williamson: During Q3, we delivered strong productivity, which was more than offset by unfavorable volume mix retention costs related to the <unk> acquisition and strategic invest.
Stephen Williamson: In the analytical instruments segment, both reported revenue and organic revenue grew 3% versus the prior year quarter. We continued to deliver very strong growth in our electron microscopy business.
Stephen Williamson: In this segment Q3, adjusted operating income decreased 4% and adjusted operating margin was 24, 9% to 180 basis points lower year over year.
Stephen Williamson: In the quarter, we delivered strong productivity, which was more than offset by unfavorable mix and strategic investors.
Stephen Williamson: Suntrust Specialty diagnostics segment in Q3, both reported revenue and organic revenue grew 4% versus the prior year quarter.
Stephen Williamson: In Q3, we delivered strong growth led by our healthcare market channel and our immuno diagnostics and transplant diagnostics businesses.
Stephen Williamson: Q3, adjusted operating income for specialty diagnostics increased 3% and adjusted operating margin was 25, 9% 20 basis points lower than Q3 2023.
During the quarter, we delivered good productivity, which was more than offset by strategic investments.
Stephen Williamson: And finally on the biopsy products to Biopharma services segment, both reported revenue and organic revenue was flat versus the prior year quarter.
Stephen Williamson: Ganic growth in this segment was led by our research and safety market channel.
Stephen Williamson: The runoff of vaccines and therapies revenue had a mid single digit impact on the growth in this segment in Q3, and this was offset by very good underlying growth in our clinical research and pharma services businesses.
And as expected Q3, adjusted operating income declined 18% and adjusted operating margin was 13, 5%, which is 290 basis points lower than Q3 2023 in the quarter, we delivered strong productivity, which more than offset by the expected unfavorable mix and strategic investments.
Stephen Williamson: Turning now to guidance as Mark outlined our strong performance in Q3, where we're raising our 2020 for full year adjusted EPS guidance.
Stephen Williamson: We now expect adjusted EPS to be in the range of $21 35 to $22 seven which is a <unk> <unk> increase at the mid points.
Stephen Williamson: As we've done in the past two quarters at the midpoint, we think half of the Q3 beat and maintained the remainder as additional cushion for Q4.
Stephen Williamson: Revenue guidance continues to be in the range of $42 4 billion to $43 3 billion.
Stephen Williamson: And we continue to assume the core organic revenue growth will be in the range of minus 1% to positive 1% for 2024.
Stephen Williamson: We also continued to see what the market declined low single digits. This year, a proven growth strategy and PPI business system execution is once again, enabling us to take share.
Stephen Williamson: Our updated 2024 guidance continues to assume an adjusted operating income margin between 22, 5% and 22, 8%.
Stephen Williamson: We now expect net interest cost to be in the range of $340 million.
Stephen Williamson: The $380 million for the year.
Stephen Williamson: So another strong quarter of enabling an increase in the guidance outlook for the year, we remain well positioned to continue to deliver differentiated performance.
Stephen Williamson: So it'd be helpful to remind you of some of the key underlying assumptions behind the guidance remained unchanged from the previous guidance in 2020 forward, assuming just under $100 million of testing revenue and between $300 million to $400 million of vaccines and therapies related revenue in.
Stephen Williamson: In total this represents a year over year headwind of $1 3 billion to $1 $4 billion.
Stephen Williamson: Or 3% of revenue.
Stephen Williamson: We continue to expect the adjusted income tax rate will be 10, 5% in 2024.
Stephen Williamson: For the year were assuming between $1 3 billion and $1 $5 billion of net capital expenditures and free cash flow.
Stephen Williamson: In the range of six 5% to $7 billion.
Stephen Williamson: In terms of capital deployment, we're assuming $3 billion of share buybacks, which were already completed in January.
Stephen Williamson: We returned $600 million of capital to shareholders. This year through dividends and in Q3, we deployed $3 1 billion to acquire link.
Stephen Williamson: Full year average diluted share count is assumed to be approximately 383 million shares.
Stephen Williamson: And finally as you think about the outlook for the year you should consider the midpoint of our guidance range at the current view the most likely outcome for the year implied.
Implied in that mid point is Q4 revenue of $11 3 billion and adjusted EPS of $5 96.
Stephen Williamson: That would reflect two 5% organic revenue growth for the full fourth quarter, which is unchanged from the previous guidance.
Stephen Williamson: And as a continuation of a sequential increase in growth that we delivered each quarter throughout the year.
Stephen Williamson: And as a reminder, Q4 organic revenue growth has the benefit of two extra selling days, which equates to approximately 1% and a headwind from vaccines and therapies.
Speaker Change: Two 5%.
Speaker Change: So to conclude we had another strong quarter and we're well positioned to deliver differentiated performance for all of our stakeholders in 2024 with that I'll turn the call back over to Ralph.
Ralph: Thank you Stephen operator, we're ready for the Q&A portion of the call.
Thank you very much if you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind piece Press Star followed by two in order to allow everyone an opportunity to address the fair enough.
Speaker Change: Your management team. Please limit your time on the call to one question and only one part of what if you have <unk>.
Ralph: Additional questions. Please return to the queue.
Speaker Change: Our first question comes from Michael Riskin with Bank of America.
Speaker Change: Michael Your line is now open. Please go ahead.
Michael Riskin: Great. Thank you and thanks for taking the question.
Mark maybe kick things off with you.
Michael Riskin: You talked a number of times during the prepared remarks about some sequential improvement as the year has gone on.
Speaker Change: The view is that will continue into <unk> and into 2025. It looks like this continues to be a very gradual recovery just a very slight step up in market conditions as we go through the year no major changes no step function change do you expect that pace of recovery to continue into the into the next quarter and into 2025 or do you think there could be an inflection.
Speaker Change: At some point over the next two.
Speaker Change: Two to four quarters, where things accelerate a little bit.
Speaker Change: Put another way sort of what's holding them back from a faster snapback.
Speaker Change: Yes, Mike Thanks for the question good morning so.
Speaker Change: What I talked to you just may be actually put some framing comments overall, then I'll get to your 2025 question.
As well so.
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Speaker Change: The Q&A session today as I think about the third quarter as we sit here in October.
Speaker Change: How the year has progressed so first one was a good quarter.
Speaker Change: And the market conditions, there have been in line with our expectations.
Speaker Change: And they've been modestly improving as we progress through the year, which is what we expect it to happen. So it's good that.
Speaker Change: That's playing out that way in Q3 for us organic growth was flat.
Speaker Change: We were able to offset a three point headwind from the runoff of COVID-19 related revenues. So it puts it in context of how we're performing.
Speaker Change: Each quarter, our organic growth has improved as the year has progressed and I'm really quite excited by the fact that we're expecting in the fourth quarter to return to growth organically, which is a good thing.
Speaker Change: Operationally, we're executing a proven growth strategy, we have strong financial management.
Speaker Change: And that's been able to allow us to increase our adjusted EPS guidance, each quarter and kind of make all of this amount event in terms of performance. So so all of that is kind of the framing for the discussion today. So when I think about 2025, and I'll kind of just kind of boil. It all together into sort of how do I think about the year.
Speaker Change: The first thing is from our perspective.
Speaker Change: The best time to provide guidance on our Q4 2024 call which is in January.
Speaker Change: At that point, we're going to have the latest view of the market and the macro conditions and how ultimately we finished the year.
Speaker Change: And what we're going to approach it as the same as we did in 2024, we're going to give you our best thinking for the year ahead.
Speaker Change: And then execute against it.
Speaker Change: From my own perspective, and personally I am excited for 2025, right and as I think about it in October the end markets are modestly improving throughout the year.
Speaker Change: We're excited that in the fourth quarter, we're going to return to growth organically.
Speaker Change: For us in 2025.
Speaker Change: What I would say is that it's the final year of the run off of the pandemic related activity and while that will still be a headwind to growth, it's going to be less than it was in 2024.
Speaker Change: And then I always think about how we're performing right in as a company, we're executing well our growth strategy is driving share gain our PPI business system enables outstanding execution, we have a disciplined capital deployment strategy that generate returns our acquisitions are performing well and we're going to be well positioned to deliver differentiated performance once again in 2025.
Speaker Change: We'll look forward to updating you on that.
Speaker Change: In January as we have the best view of what the environment is.
Speaker Change: Okay, alright, thanks, I appreciate that.
I guess for my follow up maybe it will I wanted to dig a little into pharma and biotech as a customer group you talked about.
Speaker Change: Low single digit decline and obviously there is a headwind there from from the COVID-19 runoff as well.
Speaker Change: But any additional color you can give on how that segments performing whether between larger pharma or smaller biotech whether it's between some of the reagent businesses in biosciences.
Speaker Change: Versus the.
Speaker Change: Clinical trial business, so the pharma services business.
Speaker Change: That's been a focus point for investors and we'd love to get some color on that.
Speaker Change: So youre going to get a lot of fan mail from your peers on this call sort of asking each of all the questions.
Speaker Change: Within pharma biotech I'll take.
Speaker Change: A high level a shot at it.
Speaker Change: So first.
Speaker Change: When I think about the third quarter and how things progressed.
Speaker Change: Seeing the sequential improvement which is good.
Speaker Change: And when I think about underlying performance right, we obviously had.
Speaker Change: Our mid single digit headwind from the pandemic runoff, so youre seeing that.
Speaker Change: The conditions continue to improve.
Speaker Change: In aggregate, obviously, they are somewhat muted because they are below the long term expectations for the market growth. So.
Speaker Change: That's nothing surprising.
Speaker Change: The positives are sort of the data points as we sit here confidence in biotech is improving funding in biotech and the industry has been modestly improving as the year progresses.
Speaker Change: It's definitely meaningfully better than it was in 2023.
Speaker Change: And when I think about large pharma in a way I think there's kind of a normal distribution amongst the different companies, so I'm doing extraordinarily well others.
Speaker Change: Adjusting to how their pipelines are performing.
Speaker Change: And.
Speaker Change: <unk> customers have been adjusting to the IRR array.
Speaker Change: And you see that in a more muted growth environment, but we're obviously incredibly well positioned with this customer base.
Speaker Change: Fully delivering differentiated performance relative to others. So.
Speaker Change: Trusted partner status, our unique value proposition these things resonate so well.
Speaker Change: We feel good about the long term health of pharma biotech and how we're performing this year. Thanks, Mike.
Speaker Change: Thank you thank.
Okay.
Speaker Change: Our next question is from Rachel.
Speaker Change: <unk> with J P Morgan Rachel.
Speaker Change: Your line is now open. Please go ahead.
Rachel: Thank you. Thanks for taking my questions guys first off maybe following up on some of your comments there about pharma versus biotech, but really specifically looking at PPD here could you give us an update on how much of PPD is indexed to large pharma customers versus biotech and did you see any differences in China profit two cuts.
Rachel: This quarter, we came in PPD and then as a follow up on some of your peers in the Prs sector is starting to create some noise around their outlook on 2025, and what that recovery looks like so for Fairmount TBD as more Alaska. Upon a mid single digit business. This year normalized 8%. It's for PPE. How are you thinking about the pace of recovery for PPD.
Rachel: For 2025.
Speaker Change: So Rachel thanks for the question good morning.
Speaker Change: When I think about our clinical research business.
Speaker Change: Italy is performing well.
Speaker Change: When I think about the business delivered growth in the.
Speaker Change: Quarter.
Speaker Change: It obviously has a meaningful.
Speaker Change: Headwinds from the run off of vaccines and therapies.
Speaker Change:
Speaker Change: Our oil related activity so.
Speaker Change: From that perspective, I feel good about how we're doing.
Speaker Change: Next quarter I'm going to really spend some time talking about the.
Speaker Change: The magic that we're unlocking on the combination between our pharma services and clinical research business and how that really adds.
Speaker Change: <unk> value for our customers in terms of performance. So I want to focus on that one we just announced.
Speaker Change: We talk about that to our customers who've been doing this for quite some time and it's really been quite spectacular so our momentum with the customer base is quite good.
Speaker Change: And we're executing well when I think about.
Speaker Change: The.
Speaker Change: Our position.
Speaker Change: We have a slightly larger position serving biotech more broadly than we do serving pharma within clinical research.
Speaker Change: In terms of the mix of the business, but both customer sets are very important.
Speaker Change: And when I think about.
Speaker Change: Some of the highlights.
Speaker Change: The biotech customers more quickly adopt that unified set of cases.
Speaker Change: It is because it's easier for them just organizationally to leverage all of pulling everything together, one so youre seeing that.
Speaker Change: And authorizations and momentum in biotech is particularly.
Speaker Change: Moving in the right direction so.
Speaker Change: That's how we see it.
Speaker Change: Terms of the 25 and long term, 8% all of these things.
Speaker Change: We don't as you know we're going to give our views on 25 next year and we don't we don't guide down to the business unit performance within the company, but we will give the puts and takes of what's going faster on what's.
Speaker Change: What's growing at the average and what's growing more slowly than the average when we get to the guidance next year.
Speaker Change: Understood and then on my second question just around lifestyle installation congratulate the whole software and then want to straight line looking for this quarter for that segment.
Speaker Change: Heard from a few of your bioprocess and carriers are pointed towards solid trends in <unk>. So can you unpack for us the performance and within that life Science solutions segment, how did <unk> biosciences, and genetic sciences, China in a corner and what if anything fell below your expectations back.
Speaker Change: Yes, Rachel Thanks for the question and thank you for the framing of the question because.
Speaker Change: Actually the numbers are different than what seems to have been modeled in the analyst models, but actually the business performed in line with our expectations of the quarter. So when I think about.
Speaker Change: What happened in the quarter.
Speaker Change: In the third quarter, we had our largest impact of the COVID-19 roll off.
Speaker Change: In this segment, that's something we knew something and Thats why it came in line with our expectations where relative to other quarters Q3 was the most difficult comparison and the COVID-19 related activities for us so that probably explains a little bit of a modeling difference in terms of how our business is performing.
Speaker Change: <unk> production is certainly the one that.
Speaker Change: That's the most.
Speaker Change: Interest because there are a number of comps.
Speaker Change: Companies that are just by our production companies out of stocks out there.
Speaker Change: Actually the quarter played out as we expected it was nice to see.
Speaker Change: Strong momentum in orders, both sequentially and year over year revenue continues to progress.
Speaker Change: In the right direction sequentially in terms of growth.
Speaker Change: And that obviously is going to be.
Speaker Change: <unk>.
Speaker Change: Less of a headwind going forward and ultimately going to be a tailwind.
Speaker Change: And in our distant future in terms of bio production thats good the only other <unk>.
Speaker Change: Commentary I would make.
Speaker Change: On the Oss segment.
Speaker Change: An enormous business, but our clinical sequencing business is doing really well you see the announcements I talked about one of them with the National Cancer Institute you saw for the quarter and an announcement from one of our customers in terms of companion diagnostic approved using our sequencing for brain cancer. These are really positive.
Terms of customers applying our technology to make a huge difference on patient lives.
Speaker Change: And of course of treatment. So so that business is doing quite well.
Speaker Change: Thank you Richard.
Speaker Change: Our next question is from Jack Meehan with Nephron Research. Your line is now open. Please go ahead.
Jack Meehan: Thank you good morning.
Jack Meehan: Mark I hate to ask a question about month by month dynamics, but could you just talk a little bit more about how the quarter played out the reason I ask is core organic growth was flat.
Jack Meehan: The Street was looking for 1% so technically missed that.
Jack Meehan: I always assume theres some conservatism embedded so we.
Jack Meehan: I was just curious like September fall short for some reason if so why I know you talked about the hurricane, but just any color on kind of how the quarter played out would be great.
Yeah. So Jack in terms of the growth was largely in line with what we expected to happen for the quarter.
So from that perspective.
Jack Meehan: Versus the external models I always think.
Jack Meehan: There is.
Jack Meehan: Degree of accuracy between the street and what we say we try to give you as clear as we can on these calls about what our expectations are for the for the year in the upcoming quarter and I think Stephen.
Jack Meehan: Stephen gave some very clear.
Jack Meehan: Again this quarter about the next one so.
Jack Meehan: From our perspective kind of played out as.
Jack Meehan: We thought in terms of the pacing through the quarter.
Jack Meehan: Largely as we had expected I would say.
At the very very end of the quarter academic and government wasn't quite as strong as you normally would see but like in the scale of our company and a 10.
Jack Meehan: That $5 billion, plus a quarter, that's a $10 million to $20 million a month.
Jack Meehan: Not a big number, but so I didn't really jump on lending patterns.
Jack Meehan: Any significance in terms of how the month played out during the quarter.
Jack Meehan: Got it okay.
Speaker Change: And then for Steven on guidance, you still have a $900 million range from the bottom the top end.
Jack Meehan: Okay.
Jack Meehan: Is there any consideration of narrowing spreads.
Jack Meehan: The real level of variability.
Stephen Williamson: Yes, Jackson so for simplicity, we kept the range in our guidance from last time round.
Speaker Change: As you said I encourage you to not just focus on the midpoint and that's the kind of current view of what we most likely outcome for the quarter as we see it right now other than macro events of the largest swing factor for Q4 is likely to be that the level of year end spend by our customers.
Jack Meehan: Thanks, Jack Thank you.
Jack Meehan: Thanks.
Speaker Change: Our next question is from Doug Schenkel with Wolfe Research. Your line is now open. Please go ahead.
Alright, Thank you and good morning, Mark and Steven.
Doug Schenkel: As we sit here nine months.
Doug Schenkel: 10 months into the year with nine months of financials.
Books, the portfolio does seem to be tracking to plan.
Doug Schenkel: That said there are always puts and takes on what's working better or worse that original target.
Doug Schenkel: We sit here today, what what geographies customer groups product categories. However, you want to frame it.
Speaker Change: Whats tracking ahead of expectation what's below expectation.
Speaker Change: And as you think about the next few quarters would you expect things to normalize back to what you were targeting at the beginning of the year or.
Are there seemingly some more durable changes to how things are coming together I ask you know not just to look back but also just as kind of we're thinking about.
Speaker Change: Exit rates looking ahead to 2020 clock.
So Doug Thanks for the question.
Speaker Change: So if we go back to January.
Speaker Change: And we say.
Speaker Change: We had a set of expectations for the year.
Speaker Change: And those expectations.
Speaker Change: Have really played out with an incredible degree of precision.
Speaker Change: So far through the first nine months.
First quarter revenue was a little bit.
Speaker Change: Higher the next few quarters were super tight around what we expected.
Speaker Change: We're looking forward to the fourth quarter, where we returned to growth.
Speaker Change: And when you unpack the different businesses, there's actually not a lot there in terms of them also performing.
Speaker Change: Differently than what we expected and I'll come back to that.
Speaker Change: Couple of other things, but so there was not like something is meaningfully different than what we thought in January better or worse. The two things. We did talk about about what we could change the range for this year was powered biotech perform in terms of funding and what would happen in China.
Speaker Change: Alright, and biotech is progressing in the right direction.
Speaker Change: Funding is improving confidence is improving as you know there is a lag between funding and ultimately how that flows into our industry. So that's encouraging.
Speaker Change: Relative to what we saw certainly in the previous couple of years in that dimension. So that kind of helps you think a little bit about market conditions.
Speaker Change: Forward the second was China.
Speaker Change: China has not progressed right in terms of economic activity, it's been incredibly muted in terms of the environment. The government data announced two different types of stimulus programs actually interesting enough first that affect our industry in a positive way, which is around the equipment stimulus in the loan program that they have for.
Speaker Change: They are their customers or their institutions and we expect that's largely a 2025.
Speaker Change: Impact and beyond so that's encouraging and more recently, they actually announced stimulus programs to spur economic growth of business confidence and consumer confidence that actually would also be helpful. For the longer term. There. So that one is more on the comm right because it hasnt the words of sad, but in terms of the impact to the economy. It hasnt been seen so.
Speaker Change: That'll be a swing factor.
Speaker Change: Going forward and on how that plays out and then it turns within our businesses.
Speaker Change: Probably the only thing that I would really call out is it really is awesome to see the adoption of our high end technologies and analytical insurance right. It just is.
Speaker Change: It's amazing how.
Speaker Change: Customers, even though.
Speaker Change: Obviously as a muted environment in total right.
Speaker Change: The industry is declining this year and thats nothing of a surprise.
Speaker Change: That business is just getting great adoption for our technologies and it was one of the cool things. We said during the pandemic. When we were just really driving great growth because of our response, we reinvest in R&D and that reinvestment is really led to differential performance in terms of our technology.
Speaker Change: So I'd call that out is that massively different than what we expected in January no.
Speaker Change: But it's great to see and it's a little bit better than what we expected.
Speaker Change: The offsets to that are immaterial across the rest of the company.
Speaker Change: Thanks for all that Mark.
Unknown Executive: I think my follow-up is probably a Steven question, but obviously, welcome, you know, either of you, as always, to chime in. You know, as I look at our model, I'm reminded that, you know, from 2022 to 2024, your core growth will have been, you know, about 0%, down about 5%, than, you know, about flat again this year, you know, year by year. So, in a period where revenue growth has been challenging, you know, you've actually maintained operating margin at similar levels for, you know, 2 years in a row, assuming you meet guidance this year.
Speaker Change: I think my my follow up is probably a Stephen question, but obviously welcome.
Speaker Change: Either view is always to chime in.
Speaker Change:
Speaker Change: I look at our model I'm reminded that from 2022 to 2020 for your core growth would've been.
Speaker Change: Zero percent down about 5% and about flat again this year year by year.
Speaker Change: Period, where revenue growth has been challenging.
Speaker Change: Actually maintained operating margin at similar levels for two years in a row, assuming you give me guidance this year.
Unknown Executive: So, as growth starts to improve slowly but surely into next year, is it fair to assume that there could be outside margin improvement and incremental margin generation, you know, essentially the benefit of strong operating discipline through a challenging period. I guess I'm just wondering if margin expansion gets back into the LRP range before revenue does.
Speaker Change: So as growth starts to improve slowly but surely into next year is it fair to assume that there could be outsized margin improvement and incremental margin generation essentially the benefit of a strong operating discipline through a challenging period I guess I'm just wondering if margin expansion gets back into the ERP range before revenue does.
Douglas Schenkel: Yeah, so that's thanks for the question.
Speaker Change: Yes.
Speaker Change: Thanks for the question so.
Douglas Schenkel: So, just to frame up how we think about the long-term financial, so for us long-term 7th and 9th of then, help line growth and it was 40 to 50 basis points of expansion. So that's kind of how we think about the future, and then you get down to the near term and could it be slightly higher?
Speaker Change: So just to frame up how we think about the long term financials. So.
Speaker Change: For us long term, 7% to 9% topline growth with Naples, 40% to 50 basis points of expansion. So that's kind of how we think about the future and then you get down to the near term and could it be slightly higher than I think I've said in the past that certain aspects of our business where volumes have been more challenged and we've appropriately address the cost base.
Douglas Schenkel: I think I've said in the past that certain aspects of our business where volumes have been more challenged, and we've appropriately addressed the cost-based, that there's some incremental benefit that can come from the returns of volumes in those businesses.
Speaker Change: Some incremental benefit that can come from from the returns of volumes in those businesses. So there is an aspect of this that could be slightly higher and as.
Douglas Schenkel: So, there's an aspect of this that could be slightly higher, and as we get into the next year and get guidance in January, we'll be able to frame up kind of, hopefully think about the world, what the level of that top line growth is, and then what's an appropriate level of margin expansion, which is always a trade-off between making sure we get good profitability for our shareholders and then appropriately investing in the businesses we think about going forward. So, that kind of frames it up and look forward to getting into details on the next call.
Speaker Change: As we get into the next year and give guidance in January.
Speaker Change: Frame up kind of how can we think about the world what level of that.
Speaker Change: Topline growth and then whats an appropriate level of margin expansion, which is always a tradeoff between making sure we get good profitability for our shareholders and then appropriately investing in the business as we think about going forward. So I kind of frame that up and look forward to getting into the details on the next call.
Unknown Executive: Thanks, Doug. All right, thanks, Doug.
Speaker Change: Alright, thanks, guys.
Tycho Peterson: Our next question is from Tycoe Peterson with Jeffries.
Our next question is from Tycho Peterson with Jefferies <unk> co. Your line is now open. Please go ahead.
Tycho Peterson: Tycoe, your line is now open. Please go ahead.
Tycho Peterson: Jay, thanks.
Tycho Peterson: Hey, Thanks, Mark I'm wondering if you can just touch a little bit more on some of the drivers in Lps you talked about obviously the channel the safety and the market channel, but I'm curious.
Mark Casper: Mark, one of you can just touch a little bit more on some of the drivers and LPS. You know, you talked about obviously the channel, the safety and the market channel, but curious, you know, we've heard more about ShareGains for Fisher, some seriousness. You can kind of comment on that dynamic. And then you didn't call out PPD and Patreon, you know, within your comments specifically on that. I'm just wondering if they were actually up in the quarter.
Tycho Peterson: Heard more about share gains for Fisher. So I'm curious if you can kind of comment on that dynamic and then.
Tycho Peterson: You didn't call out PPD and <unk> within your comments specifically on that I'm, just wondering if they were actually up.
Tycho Peterson: In the quarter.
Mark Casper: Yeah, I think it's through my provider Mark that did talk about the dynamic where we think about the underlying growth in both pharmaceutical research that upset the significant pandemic headwind. So, from an organic growth standpoint, you know, that's kind of a net, that neutral, but when I think about what the underlying growth is, that strong. You know, the channel is really well; actually, both the healthcare market channel and the research and safety market channel. Continue to do well, the delivering nice growth and actually winning some really nice customers, which both will for the future.
Speaker Change: Who wants to take it through my.
Speaker Change: Prepared remarks, I did talk about the dynamic where when you think about the underlying growth in both pharma services and clinical research.
Speaker Change: Set the significant pandemic headwinds so.
Organic growth standpoint, that's kind of a net net neutral, but when I think about what the underlying growth is that strong.
Speaker Change: Mark in terms of the channel is doing really well actually both the health care market channel.
Speaker Change: And the research and safety market channel.
Speaker Change: Continue to do well.
Speaker Change: Delivering nice growth and actually winning some really nice customers.
Speaker Change: Which bodes well for the future so that part of the commentary that I've talked about customer wins and those things in my remarks really no.
Mark Casper: So, part of the commentary that I talked about customer wins and those things in my remarks really, you know, a number of our businesses, but in those comments really around large wins in the channel, we have some nice ones during the quarter, which doesn't show up at all in revenue in the quarter that you win them, but over the coming quarters that have it really is quite a positive.
Speaker Change: Number of our businesses, but.
Speaker Change: Those comments are really around large wins and channel clearly you have some nice wins during the quarter.
Speaker Change: Which doesn't show up at all in revenue in the quarter that you win them, but over the coming quarters ahead. It really is quite positive.
Marc N. Casper: Okay, and then I guess the follow-up just on the margins for the lab products and services. Obviously, you had the vaccine in therapy run off.
Speaker Change: Okay, and then I guess the follow up just on the margins for the lab products and services, obviously, you had the vaccine and therapy runoff.
Mark Casper: You know, is there anything you're willing to comment around price in this environment, you know, the ability to potentially take more or you giving more you, you know, try to grab more, more shadow and CDMO work, and then how are you also thinking about capacity expansion for Patreon. I received we saw Noble offload one of the cattle and facilities in Europe.
Is there anything youre willing to comment around price in this environment.
Speaker Change: <unk> to potentially take more or are you, giving more.
Speaker Change: Try to grab more more CFO and CMO work and then how are you also thinking about capacity expansion for <unk>. Obviously, we saw novo offload one of the Catlin facilities in Europe I'm, just curious how youre thinking about it as more capacity comes to market both from.
Mark Casper: I'm just curious how you're thinking about, you know, as more capacity comes to market, both, you know, from Noble and Cadlin, but also Bouchy Optek, how interesting that might be for you. What's a little price in aggregate?
Novo Catlin, but also wuxi uptick how how long do you think that might be for you.
Speaker Change: So it's a low price in aggregate, yes price in aggregate for the company were just over 1% of price for the quarter. So well ahead of that kind of a normal run rate that we see as kind of.
Mark Casper: Yeah, price in aggregate for the company. We're just over 1% of price for the quarters. So all ahead of the kind of the normal run rate that we see is kind of 0.5% to 1% price. That basis across the whole company. So a trend similar to what we've seen for the first week was the year in consistent. Yeah, I said probably the pricing environment is back to normal. It's a good industry. You know, price goes up modestly each year.
Speaker Change: 5% to 1% price.
Speaker Change: Basis across the whole company so.
Speaker Change: Similar to what we've seen in the further west.
Speaker Change: Cause the inconsistent, yes, I'd say, probably the pricing environment is back to normal or it's a good industry price goes up modestly each year you had the dynamic inflation with price went up certainly more than what is usual.
Mark Casper: You had the dynamic inflation where price went up certainly more than what is you through all and we're kind of back to the normal dynamic in terms of our farmer services business capacity expansions.
Speaker Change: We're kind of back to the normal dynamic in terms of our pharma services business capacity expansions.
Mark Casper: You know, as everyone knows, we've expanded our investments in style of full finish capacity and have, you know, have a number of lines that are coming online, if you will, during the course of 2025 and 2026 to support customer demand. So that's a positive that does put pressure on margins in the short term because there's costs in training and getting the kind of the qualification process for the facilities, but certainly as we get through 2025, you know, you'll see higher levels of utilization and my capacity. To support the strong growth in several finishes, so that's the dynamic there.
Yeah.
Speaker Change: As everyone knows we've expanded our investments in sterile flow finish capacity.
Speaker Change: And the.
Speaker Change: The number of lines that are coming online. If you will during the course of 2025 and 2026 to support customer demand.
Speaker Change: So that's a positive that does put pressure on margins in the short term because as costs and training and getting the kind of the qualification process for the facilities, but.
Speaker Change: As we get through 2025.
Speaker Change: You'll see higher levels of utilization on that capacity.
Speaker Change: To support the strong growth in sterile fill finish and so that's the dynamic there.
Mark Casper: As I announced in my remarks, because of the specific capabilities of interest in all solid dose, which is not our biggest part of our offering and product products. We did do some capacity expansions in Bend, Oregon, and Cincinnati, Ohio, to meet the customer demand, which is good on the development side of the equation. So that's the dynamic there.
Speaker Change: As I announced in my remarks.
Speaker Change: Specific capabilities of interest in oral solid dose, which is not our biggest part of our offering and drug products.
Speaker Change: They do some capacity expansions in bend, Oregon in Cincinnati, Ohio.
Speaker Change: To meet the customer demand, which is good on the development side of the equation.
Speaker Change: So that's the dynamic there.
Unknown Executive: Okay, thank you. Thank you.
Okay. Thank you.
Speaker Change: Thanks Jacob.
Matthew Sykes: Our next question is from Matt Sykes with Goldman Sachs.
Speaker Change: Our next question is from Mac Sykes with Goldman Sachs.
Matthew Sykes: Your line is now open; please go ahead. An analytical instrument, a segment, you sound pretty consistent growth in what has been a call challenging environment. I know that astral and microscopy have been big drivers of that.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Analytical instrument segment, you Shouldnt pretty consistent growth in what has been done I am called challenging.
Speaker Change: Environment, and I know that Astral and microscopy have been big drivers of that.
Matthew Sykes: If you strip those two out and just look at the rest of your instrument categories, did you maybe talk about what demand looks like from them in those instrument categories from the bio farm aside, as well as other customers. And do you send any kind of replacement cycle kicking in for some of those for some of those instruments and move to 25? Just any thoughts on that would be great.
Mac Sykes: You strip those two out and just look at the rest of your instrument categories could you maybe talk about what demand looks like from them and those those instrument categories from the biopharma side as well as other customers and do you sense any kind of replacement cycle kicking in for some of those for some of those instruments is removed 25, just any thoughts on that would be great.
Matthew Sykes: Yeah, Matt, thanks for the question. So when I think about analytical influence. You know, we had 3% organic growth in the quarter. You know playing out as we expected. Obviously, innovation really matters. You know, for us, you know, we've been able to launch number products that have been adopted. Actually, you know, on the high end, we talk about early ad in this particular quarter that both well to continue to drive momentum electron microscopy. Obviously, Astro has done very well, as you noted stellar, which we launched last quarter. The early interest is quite, quite strong. And so those things are going well, a new beyond which is nine chromatography more of a big range technology, very important in that particular category of chromatography incredibly strong demand.
Speaker Change: Yes, Matt Thanks for the question, so when I think about analytical instruments.
Speaker Change: We had 3% organic growth in the quarter.
Speaker Change: Playing out as we expected, obviously innovation really matters.
Speaker Change: For us.
Speaker Change: We've been able to launch a number of products that have been adopted actually.
Speaker Change: The high end, we talk about Iliad in this particular quarter.
Speaker Change: That bodes well to continue to drive momentum in electron microscopy, obviously ash Grove.
Has done very well as you noted stellar which we launched.
Speaker Change: Last quarter. The early interest is quite quite strong and so those things are going well <unk>, which is nine chromatography more of a mid range technology very important in that particular category chromatography incredibly strong demand. So so our innovation has been well adopted.
Matthew Sykes: So, so our innovation has been well adopted.
Matthew Sykes: You know, when you take out all of those things, you just kind of say the routine capital equipment aspects of instruments. You know, actually, pretty much muted conditions right, nothing surprising. You know, when we talk about for the full year for the whole company to have market down, you know, in the low single digit, you would expect capital equipment to have muted conditions; they are. And a big driver of that, obviously, is China, which is in instrument businesses for the whole industry. It is a large portion of demand. And obviously, that market is most challenge.
Speaker Change: When you take out all of those things you just kind of say the routine capital equipment aspects of instruments.
Speaker Change: Pretty muted conditions right nothing surprising when we talk about for the full year for the whole company to have market down in the low single digits, you would expect capital equipment to have muted conditions. They are.
Speaker Change: And a big driver of that obviously is China, which is in instrument businesses for the whole industry is a large portion of demand and that obviously that end market is.
Matthew Sykes: So exactly where we are in the replacement cycle for those things, I think it really varies by, you know, by customer of our product type and all of that.
Most challenged so.
Speaker Change: Exactly where we are in the replacement cycle for those things I think it really varies by by customer by product type in all of that and.
Matthew Sykes: And we didn't see any particular pattern that jumped out to indicate any change in trajectory.
Speaker Change: We didn't see any particular pattern that jumped out.
To indicate any change in trajectory.
Matthew Sykes: 2003.
Stephen Williamson: Thanks, and then Stephen, just a modeling question for you. Just the implied Q4 operating margin looks like over a hundred basis points to step up to get to that full year guide. Understand there's a return to growth expectation on the top lines and probably some gross margin leverage.
Speaker Change: Got it thanks, and then Stephen just a modeling question for you just the implied Q4 operating margin looks like.
Speaker Change: Over 100 basis points step up to get to that full year guide I understand there is a return to growth expectation on the top line. Some probably some gross margin leverage was there anything on the cost saving sides or mix that we should be aware of driving that step up in margins for Q4.
Stephen Williamson: Is there anything on the cost-saving sides or mix that we should be aware of driving that step up in margins for the Q4? Yeah, so for Q4, the kind of midpoint of that guide is the 50 basis points increase year of a year for the quarter, and that that's in line with when I think about the margin profile. It's really the step up in the level of revenue and the kind of the seasonality to our revenue profile. So it's kind of logically makes sense. We look at it sequentially in terms of the change.
Speaker Change: Yes, so for Q4, the kind of the midpoint of that guide is the 50 basis points increase year over year for the quarter and.
Speaker Change: In line with when I think about the margin profile is really the step up in the level of revenue and kind of the seasonality to our revenue profile.
Speaker Change: And logically makes sense when you look at it sequentially in terms of the change.
Unknown Executive: Thank you. Great. Thanks, Madden.
Speaker Change: Okay. Thank you great. Thanks, Matt Operator, we will take one more question.
Daniel Brennan: Operator, we will take one more question. Yes, our next question is from Dan Brennan with PD Cohen. Dan, your line is now open. Please go ahead.
Speaker Change: Yes. Our next question is from Dan Brennan with TD Cohen, Dan. Your line is now open. Please go ahead.
Daniel Brennan: Great. Thanks. Thanks for the questions.
Dan Brennan: Great. Thanks, Thanks for the questions, maybe Mark just on pharma R&D.
Daniel Brennan: Maybe Mark just on a pharma R&D headline to be mixed, but we just looked at like a global analysis of R&D trends and actually they look pretty good for large pharma, up nearly 8%, and kind of global pharma up like mid five. So I'm just wondering like I'm going to square the circle with kind of the weaker end market growth that you've kind of based your guide on and maybe why we're not seeing what appears to be a decent level of R&D growth you're not translating into better revenues. Like if anything changed, maybe is there more dollars going to service inflation, or just in terms of the traditional amount of dollars that your business would see from R&D, is anything kind of different this time.
Dan Brennan: I'm honored to be mixed, but we just looked at like a global analysis of R&D trends and then actually they look pretty good for large pharma up nearly 8% in kind of global pharma up like mid five so I'm just wondering like kind of square the circle with kind of the weaker end market growth that youre kind of base. Your guide on and maybe why we're not seeing what appears to be a deal.
Dan Brennan: The level of R&D growth youre not translating into better revenues is like like has anything changed maybe it's more dollars going to service inflation or just in terms of the traditional amount of dollars that your business would see from R&D is anything kind of different this time.
Mark Casper: Yes, I think one element is significant investment by our customers in AI.
Speaker Change: Yes, I think one element is the significant investment by our customers in AI.
Mark Casper: I'm putting it on my personal instruments, but when I think about genitive AI and whether spending on technology is a significant piece to that, you need to factor that in.
Dan Brennan: Unfortunately analytical instruments.
Dan Brennan: When I think about generative AI and where they're spending on technology is a significant piece to that but you need to factor that in.
Mark Casper: Yeah, so Dan, probably when we think about pharma and biotech it covers the full spectrum of activity, and one of the things is within that is on production you have the headwinds across the bio production, right? So, you know that there's not this, there's not like an R&D specific call out that you can derive from the numbers. We all understand the, you know, the runoff on the pandemic is largely in the clinical research side and largely in the bio production and pharma services side. So that's a little bit of what's using the growth and total for our industry in terms of the dialogue that I have with customers and sort of what's the tone. People are super excited by the pipeline, like you know whether it's the fact of the GLP ones and the scale of a high impact medicine that it just really is getting people excited. But you know there's really interesting work going on on Alzheimer's, which is fantastic, and you've seen some interesting approvals in other neurological diseases that you know there's just a lot of excitement about pipelines and opportunities. And so I believe that you know the data you're quoting about the R&D investments looking good reflects that customers have optimism for the future and ultimately that's going to translate into our space. So we're so confident about the long-term prospects for any great.
Dan Brennan: Yes.
Dan Brennan: Dan probably when we think about pharma and biotech, but it covers the full spectrum of activity and one of the things is within that is on production you have the headwinds across the industry of bio production right. So.
Dan Brennan: This is not like an R&D.
Dan Brennan: Specific call out that you can derive from the numbers, we all understand the.
Dan Brennan: The run off on the pandemic is largely in the clinical research side and largely in the bio production in pharma services side, So that's a little bit of what's.
Dan Brennan: Muting the growth in total for our industry.
Dan Brennan: In terms of the.
Dan Brennan: Dialogue that I've had with customers and sort of what's the tone people are super excited by the pipeline.
Dan Brennan: Whether it's the <unk>.
Dan Brennan: Fact of the GOP ones and the scale of our high impact medicine that it just really is getting people excited but this.
Dan Brennan: Really interesting work going on on Alzheimer's, which is fantastic.
Dan Brennan: <unk> seen some interesting approvals in other neurological diseases that.
Dan Brennan: Theres, just a lot of excitement about pipelines and opportunities.
Dan Brennan: So I believe that.
Dan Brennan: The daily reporting about the R&D investments looking good reflects that customers have optimism for the future and ultimately that's going to translate into our space. So.
So which is why we're so confident about the long term prospects of our industry.
Daniel Brennan: Thanks for that.
Great. Thanks for that and then maybe just one follow up on China.
Daniel Brennan: And maybe just one follow-up on China. A few peers have discussed that they're seeing a pause and instrument spending ahead of the stimulus next year. I think you mentioned in a prior question how, like, China instrument demand is kind of a weaker spot. Any color there and you know, as this stimulus comes through, like is this going to be a meaningful list for you guys in 25, or you think it'll be more modest. Thanks a lot. Dan, thanks.
Speaker Change: <unk> peers have discussed that theyre seeing a pause in instrument spending ahead of the stimulus next year I think you mentioned <unk>.
Speaker Change: Your question, how like China instrument demand is kind of a weaker spot any any color there and as the stimulus comes through.
Speaker Change: Is this going to be a meaningful lift for you guys in 'twenty five or do you think it'll be more modest thanks a lot.
Dan Brennan: Dan Thanks, So when I think about China.
Mark Casper: So when I think about China and I think about stimulus, certainly a discussion I had when I was meeting with government officials and certainly with customers as well, really activity has been around, you know, applying for the funding, right, and going through that process. So it's been quite a bit of that activity. So I'm not sure that that traded something else off, but it might have. Like I don't know, like none of the customers specifically mentioned it, but I didn't ask the question that way. I was much more interested about how are they tapping into the available new funds and how are they thinking about it, and, you know, there seem to be, you know, optimism and enthusiasm for the upcoming investment.
Dan Brennan: Think about stimulus.
Dan Brennan: Certainly a discussion I had when I was meeting with government officials and certainly with customers as well.
Dan Brennan: <unk>.
Dan Brennan: Really activity has been around.
Dan Brennan: Applying for the funding.
Dan Brennan: And going through that process. So it's been quite a bit of that activity. So I'm not sure that that trade is something else off but it might I think I don't know none of the customers specifically mentioned it but I didn't ask the question that way. It was much more interested about how are they tapping into the available new funds and how are they thinking about it.
Dan Brennan: There seem to be optimism and enthusiasm for the upcoming investments. So I think stimulus will be a 2025 activity, maybe a little bit in Q4, probably not all that significant but.
Mark Casper: So I think stimulus will be a 2025 activity, you know, maybe a little bit in Q4. I'm probably not all that significant, but so that's how I think about what's going on in China.
Dan Brennan: So that's how I think about what's going on in China, The only thing from the China trip.
Mark Casper: The other thing from the China trip that I came away with and obviously I knew it going in, but, you know, we are incredibly well positioned in the country. I mean, we have deep relationships with our customers, very strong, earned relationships with government, you know, being a scale player for 40 years in the country and supporting, you know, their response to the pandemic. Various, you know, crises in the past is just a good local participant to help society out there. We benefit from that, and we're well positioned to help our customers, and we have great discussions about customer dialogue with where can we collaborate and how can we help them, you know, have the Chinese population be healthier through our technologies.
Dan Brennan: I came away with and obviously I knew it going in but.
Dan Brennan: We are incredibly well positioned in the country and we have.
Dan Brennan: Deep relationships with our customers very strong earned relationships with government.
Dan Brennan: On a scale player for 40 years in the country and supporting their response to the pandemic various crises in the past is just a good local participants to help society out there.
Dan Brennan: We benefit from that and we're well positioned to help our customers and we have great discussions about customer dialogue with where can we collaborate and how can we help them.
Dan Brennan: Have the Chinese population be healthier through our technology units.
Mark Casper: So I think as the economy improves there, we're going to be well positioned to capitalize on that.
Dan Brennan: So I think as the economy improves there, we're going to be well positioned to capitalize on that so thank you for the questions. Today, Let me just make a quick closing comment.
Mark Casper: So thank you for the questions today. Let me just make a quick closing comment, and, you know, it's good to have another strong quarter behind us, and we're very well positioned to deliver differentiated performance in 2024. You know, as we continue to create iPhone, our stakeholders and build an even brighter future for our company. We look forward to updating you on our fourth quarter and fully of performance in our January Call, and as always, thank you for your support at some official scientific. Thanks, everyone. Thank you very much, everyone, for joining today's call. You may now disconnect your lines.
Dan Brennan: Good to have another strong quarter behind us and we're very well positioned to deliver differentiated performance into 2024.
Dan Brennan: As we continue to create value for all of our stakeholders and to build an even brighter future of our company.
Dan Brennan: We look forward to updating you on our fourth quarter and full year performance.
Dan Brennan: January call and as always thank you for your support of Thermo Fisher scientific thanks, everyone.
Dan Brennan: Yeah.
Speaker Change: Thank you very much everyone for joining today's call you may now disconnect your lines.
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