Q1 2025 Thermo Fisher Scientific Inc Earnings Call
Speaker Change: Good morning ladies and gentlemen and welcome to the Thermo Fisher Scientific 2025 First Quarter Conference School.
Speaker Change: If you would like to ask a question during today's call, you may do so at any time by pressing start 5x1 on your telephone keypad. I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call.
Speaker Change: 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.
Speaker Change: Please note this call is being webcast live and will be archived on the investor section of our website Thermo Fisher dot com under the heading news events and presentations until July 22, 2025.
Speaker Change: A copy of the press release of our first-order earnings is available in the investor section of our website under the heading financials.
Speaker Change: So, before we begin, let me briefly cover our save part of our statement.
Speaker Change: Various remarks that we may make about the company's future expectations.
Speaker Change: Plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the private security litigation reform act of 1995.
Actual results made bid for materially.
from those indicated by these former looking statements.
as a result of various important factors.
Speaker Change: including those discussed in the company's most recent annual report on form 10K.
Speaker Change: which is on file with the SEC and available in the investor section of our website under the
Speaker Change: 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.
Speaker Change: Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.
Speaker Change: Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted county principles or gap.
Speaker Change: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our first quarter 2025 earnings and also in the investor section of our website under the heading financials.
Marc Casper: So with that, I'll now turn the call over to Marc [inaudible]
Marc Casper: Thank you, Raf. Good morning, everyone, and thanks for joining us today for our first quote of call.
Marc Casper: As you saw on a press release, we delivered very strong performance in the quarter, and proud of our team's ongoing focus to enable the success of our customers, while demonstrating incredibly strong commercial execution and operational discipline.
Marc Casper: Our continued success as a result of our growth strategy, our PPI business system, and our proven capital deployment approach.
Marc Casper: And of course, all of this is against the backdrop of a more uncertain macro environment. So big thanks to the team for their efforts.
Marc Casper: In my remarks today, I'll first cover Q1, which was a strong quarter with clean execution across all dimensions.
Marc Casper: In the second part of my remarks, I will cover the expected impact of the uncertainty in the macro environment.
Marc Casper: and I'll provide a high-level view of our updated guidance for the year that incorporate the expected net impact of current tariffs and the changes driven by the current policy focus of the U.S. administration.
Marc Casper: So to turn into Q1, let me recap the financials. Our revenue in the quarter was $10.36 billion, our adjusted operating income was $2.27 billion, Q1 adjusted operating margin was 21.9% and we grew with just an EPS by 1% to $5.15 per share.
Marc Casper: Our team's excellent execution and strong focus on our customer success and able to us to deliver revenue performance ahead of our expectations. And then we translated that revenue performance into earnings that were also ahead of expectations.
Marc Casper: Turning to our performance by end-market. As a reminder, there were two less days in the quarter than the same period last year.
Marc Casper: Informa and biotech, we delivered low single digit growth during the quarter, which included a two-point headwind from the runoff of vaccine and therapy related revenue.
Marc Casper: Performance in this quarter was led by our bio-production and farmer services businesses as well as our research and safety market channel.
Marc Casper: In academic and government, revenue declined, low single digits in the quarter driven by the macro conditions in the US and China for this end market.
Marc Casper: In industrial and applied, we grew low single digits store in the quarter highlighted by strong growth in our electron microscopy business.
Marc Casper: Finally, in diagnostics and healthcare, we include low single-digital store in the quarter, reflecting strong performance in our healthcare market channel, and in our transplant diagnostics and immunodagnostics businesses.
Marc Casper: Rapping up on our end markets, while there was more uncertainty than originally expected, our team delivered on our financial commitments for the quarter.
Marc Casper: In terms of our growth strategy, we made terrific progress in the quarter, as a reminder our strategy consists of the repellers. I impact innovation, our trusted partner status with customers, and our unparalleled commercial engine.
Marc Casper: So, starting with the first pillar of our growth strategy, high impact innovation. We have an excellent start to the year, launching several outstanding new products that are strengthening our industry leadership by enabling customers to advance their important work.
Marc Casper: Let me first highlight a couple of new products and analytical instruments that demonstrate a continued market leadership.
Marc Casper: In electron microscopy, we introduced the Thermo Scientific Vulcan Automated Lab, a fully integrated AI-enabled solution that combines robotics and electron microscopy, helping to advance process development and control, and so we could doctromanufacturing.
Marc Casper: The Vulkan System speeds up transmission electron microscopy workflows, reduces labor and delivers consistent high-quality data. This innovation improves manufacturing yields, enhances productivity and seamlessly connects lab and fabrication operations, a major step forward for our semiconductor customers.
Marc Casper: In chromatography and mass spectrometry, we introduced the next generation, Thermo Scientific Transcend, the new Holt Ultra High Performance liquid chromatography platform,
Marc Casper: Helping high-volume laboratories simplify sample preparation and increase efficiency in clinical research, forensic toxicology, food safety, and environmental testing applications, including for PFAS.
Marc Casper: Current towards genetic science and business we introduce O-Link reveal proteomics kits that enable the identification of proteins related to inflammation and immune response, helping to advance precision medicine.
Marc Casper: It was a terrific court for innovation, and we're excited about the strong pipeline of launches slated for Q2, including those that will debut at ASMS.
Marc Casper: or High Impact Innovation is enabling an even brighter future for our company.
Marc Casper: During the quarter we also continue to strengthen our industry meeting commercial engine and deepen our trusted partner status with our customers to accelerate their innovation and enhance their productivity.
Marc Casper: In our clinical research business, we continue to strengthen our leadership and real world evidence.
Marc Casper: To help our customers get insights about the safety and effectiveness of current and future treatments. We launched new core-evitas patient registries in Alopecia and Lupus to enhance our customer's ability to inform treatment decisions and ultimately improve patient outcomes.
Marc Casper: And in Electron Microscopy, we announce a new collaboration with the Chan Zuckerberg Institute for Vance Biological Imaging to advance the understanding of human cells by leveraging cutting-edge cryo-electron tomography technologies.
Marc Casper: This effort supports the development of the Open Cell Atlas, a groundbreaking initiative aimed at creating high resolution 3D maps of human cells to drive biological discovery.
Marc Casper: It's another example of how Thermo Fisher is enabling large-scale collaborative research efforts to push the boundary of science forward.
Marc Casper: Our trust and partner status and industry-leading commercial capabilities enabled our customers' success. They also provide us a unique opportunity for us to engage with our customers, helping them solve current challenges and plan for the future.
Marc Casper: As always, our PPI Business System played a significant role in our success, enabling outstanding execution during the quarter.
Marc Casper: PPI engages and empowers all of our colleagues to find a better way every day. PPI is helping us to drive share game and improve quality, productivity, and customer legions. It's a significant competitive advantage for Thermo Fisher as we navigate through the current macroeconomic uncertainty.
Let me now turn to capital deployment. [inaudible]
Marc Casper: We continue to successfully execute our proven capital deployment strategy which is a combination of strategic M&A and returning capital to our shareholders.
Marc Casper: In February , we announced that we entered into a definitive agreement to acquire Sylvettum's purification and filtration business for $4.1 billion. The business is a leading provider of purification and filtration technologies used in the production of biologics, as well as in medical technologies and industrial applications.
Marc Casper: So Bentham's Innovator Products are highly complimentary to our leading cell coach from media and single-use technologies.
Marc Casper: Broadening our bioproduction capabilities to better serve a high growth bioprocessing market. The transaction is expected to be completed by the end of 2025 in the subject to customary closing conditions and regulatory approvals.
Marc Casper: We look forward to welcoming our new colleagues to Thermo Fisher.
Marc Casper: In terms of return of capital, during the quarter we repurchased $2 billion of shares and increased our dividend by 10%.
Let me now turn toward guidance.
Marc Casper: We've all seen a tremendous pace of change in the world since we provided our guidance on January 30th.
Marc Casper: The two main elements of the macro changes since then are tariffs and the changes driven by the current policy focus of the U.S. administration.
Marc Casper: As you would expect, we've been operating with agility to assess the changes as they come and we're actively manager on business to mitigate the impact and capitalize on new opportunities.
Marc Casper: As a result, we're able to offset a large amount of the impact of the macro changes in 2025 and more fully offset them when the full impact of our mitigation actions is realized next year.
Marc Casper: While these recent macrochanges are causing uncertainty and remain fluid, we thought it would be most helpful to the investment community to offer our best estimate of the impact of unknown changes as of today and embed them in our guidance.
Marc Casper: Our updated guidance range for the year is revenue in the range of $43.3 billion to $44.2 billion and adjusted EPS in the range of $21.76 to $22.84.
Stephen will take you through the details and here's remarks.
Marc Casper: While the guidance has changed for the expected impact of the macro factors and the mitigating actions, it's important to note that the rest of the guidance remains fully on track relative to what we shared on our last earnings call.
Marc Casper: As you know, during periods of change, we define a clear set of guiding principles on how to successfully manage the company.
Marc Casper: These principles have three elements. First, everything we do starts with our customers and ensuring that we are enabling their success.
Marc Casper: And third, you know we hold ourselves to an incredibly high standard to deliver differentiated, short-term performance.
Marc Casper: All while identifying opportunities to enhance our long-term competitive position, which creates an even brighter future for our company.
Marc Casper: To enable that differentiated short and long-term performance in this environment, we're leveraging our PPI business system to aggressively manage our supply chain to counteract tariffs and to appropriately manage our cost-base.
Marc Casper: You've heard us talk about our commercial intensity and we're pivoting our commercial teams to the areas with the best opportunities to accelerate our shared game momentum.
Marc Casper: We're ensuring that our trusted partner status is driving tangible benefits for our customers.
Marc Casper: And one way we're doing this is by continuing to best further the strength and our capabilities for our customers. This includes increasing our investment in U.S. manufacturing, R&D, in the range of about two billion dollars.
Marc Casper: As the largest domestic life sciences player in every major market around the world, we uniquely positioned to help customers navigate this environment.
Marc Casper: I'm encouraged by the fact that both our colleagues and our customers have never been more enthusiastic about our company Our customer leads a score is at an all-time high and colleague engagement and retention is incredibly strong [inaudible]
Marc Casper: So to summarize our tea takeaways from the quarter, we delivered a very strong quarter driven by our proven growth strategy and PPI business system.
Marc Casper: Our trusted partner status and proven ability to enable our customer success is a significant competitive advantage.
Marc Casper: Looking ahead, we're acting with speed and agility to navigate the current environment and we're incredibly well positioned to minimize the impact and maximize new opportunities, creating an even brighter future for our company.
Marc Casper: With that, I'm now hand the call over to our CFL, Stephen Williamson, Stephen. Thanks, Marc, and good morning, everyone. I'll take you through an overview of our first court results for the total company, then provide color on our full business segments, and I'll conclude by providing our updated 2025 guidance.
Marc Casper: Before I get into the details about financial performance, let me provide you with a high level view of how the first quarter played out versus our expectations at the time of our last earnings call.
Marc Casper: In Q1, we had another quarter of excellent execution and this enabled us to deliver Q1 financials ahead of what we'd assumed in our prior guidance.
Marc Casper: Organic Revenue Growth was approximately $100 million or 1% ahead and adjusted ETS with 4% ahead.
Marc Casper: This is driven by 9 cents, a very strong operational performance, partially offset by 5 cents of higher FX headwind, largely due to non-cash transactional FX.
Marc Casper: So a clean beast for the quarter. The team's execution was excellent and we delivered a strong start to the year.
Marc Casper: On the top line, Q1 reported revenue with flat year of a year. The components of our reported revenue include 1% organic revenue growth, a slight contribution from acquisitions and a 1% headwind from foreign exchange.
Marc Casper: For context, within our revenue growth for the quarter, we had a headwind of approximately 3% from the combined impact of two life-selling days and the runoff of the pandemic-related revenues.
Marc Casper: Sunnysware Organic Revenue Performance Biography in Q1 North America with flat year of a year, Europe grew low single digits, and Asia Pacific also grew low single digits, with China declining mid-single digits.
Marc Casper: With respect to our operational performance, we delivered $2.27 billion with just the operating income in the quarter, and a just the operating margin was 21.9%.
10 basis points lower than Q1 last year.
Marc Casper: In the quarter, we'd live at very strong productivity. This enables us to fund strategic investments to further advance our industry leadership and largely offset the impact of unfavorable next and ahead win from foreign exchange.
Total company gross margin in the quarter was 41.7% Dr. Prima, Dr. Prima, Dr. Prima, Dr. Prima,
Marc Casper: Moving on to the details of the P&L, adjusted SNA in the quarter with 16.5% of revenue.
Marc Casper: Total R&D expense was $342 million in Q1, reflecting our ongoing investments in high impact innovation.
Marc Casper: R&D as a percent of manufacturing revenue with 7.5% in the quarter.
Marc Casper: Looking at our results below the line, a Q1 Ned Interest expense was approximately $100 million. It just a tax rate was 10%.
Marc Casper: An average eluded shares with 379 million five million lower year of a year driven by Sherry purchaser's net of option dilution.
Marc Casper: Turning to free cash flow in the balance sheet, Q1 cash flow from operations with $720 million and free cash flow with $370 million after investing $350 million of net capital expenditures.
Marc Casper: During Q1, we deployed $2.1 million for capital to shareholders through $2 billion to share buybacks which were completed in January and approximately $150 million of dividends.
Marc Casper: Also, during the quarter, as Marc mentioned, we announced the definitive agreement to acquire Sylvenson's purification and filtration business for approximately 4.1 billion dollars in cash.
Marc Casper: We expect the transactions to be completed by the end of 2025, and the business will become part of our lifestyle and solution segments upon close.
Marc Casper: We enter the quarter with $5.9 billion in cash and short term investments, and $34.2 billion of total debt.
Marc Casper: A leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.6 times on a net debt basis.
Marc Casper: Concluding my comments on our total company performance suggested ROIC with 11.4% reflecting the strong returns on investment that were generating across the company.
Marc Casper: Now provide some color on the performance of our four business segments. As a reminder, in Q1, we had two less selling days than the prior year quarter. This impacted revenue growth in each segment by approximately one to two percentage points.
Marc Casper: In lifetime solutions, Q1 reported revenue in the segment increased 2% versus the prior year quarter, and organic revenue growth was also 2%.
Grossness segment was driven by a high production business [inaudible]
Marc Casper: Q-on-adjusted operating income for life science solutions decreased 1% and adjusted operating margin with 35.6%
Marc Casper: Down 120 bass points versus the prior year quarter. During Q1 we delivered very strong productivity, which is more than offset by the expected impact of the old ink acquisition, unfavorable mix and strategic investment.
Marc Casper: In the analytical instrument segment reported revenue growth 2% year over year and organic revenue growth was 3%
Marc Casper: The Grote in the Court, who was led by a electron microscopy business
Marc Casper: In the segment, Q1 Adjusted Operating Income was flat year over year and adjusted operating margin was 23.2% down 50 basis points versus the year ago quarter.
Marc Casper: In Q-R, we'd love a strong productivity and volume pull through, which is more than offset by strategic investments for an exchange headwind and unfavorable mix.
Marc Casper: Telling Specialty Diagnostics in Q1 reported revenue through 3% year of a year, an organic revenue increased 4%.
Marc Casper: In Q1, growth in the segment was led by a healthcare market channel and are immunodagnostics and transplant
Marc Casper: Q-on-adjusted operating income for specially diagnostics increased 3% and adjusted operating margin with 26.5% flat year of a year.
Marc Casper: During the quarter we delivered good productivity and volume pull through, which was offset by foreign exchange headwind and unfavorable next.
Marc Casper: And finally, in the biology products and biopharmus services segment, post-reported revenue and organic revenue decreased 1% versus the prior year quarter.
Marc Casper: The runoff of pandemic-related revenue had about a 2% impact on revenue growth in this segment in Q1. This was largely upset by good growth in that farmer's services business and our research and safety market channel.
Marc Casper: In the second Q1, adjusted operating income decreased 2%, and adjusted operating margin with 13%, which is flat to Q1 2024.
Marc Casper: In the quarter, we delivered very strong productivity, which is offset by unfavorable mix and strategic investment.
Marc Casper: So, turning to guidance as Marc outlined, we're updating our 2025 Folia Guide to reflect the continued strengths of the business, including the very strong start to the year in Q1.
Marc Casper: Answer, reflect the expected impact of recent changes in the macroeconomic environment.
Marc Casper: While these recent macro changes are causing uncertainty and remain fluid, we thought it would be most helpful to the investment community to offer our best estimates of the impact of the known changes as of today and embed them in our guide.
Marc Casper: Let me start with a high level summary of the change to the midpoint of the guide. I'll then provide more detail around each one of the changes so they have the right context.
Marc Casper: Adjust the DPS is a dollar lower at the midpoint than our previous guidance.
Marc Casper: 70 cents is driven by the tariffs between US and China. We expect this impact will reduce very rapidly next year when the full benefits of our mitigation actions are realized.
Marc Casper: Non-China related tariffs are assumed to have no net impact to the adjusted EPS for the year 2025.
Marc Casper: and mitigation actions are set the growth impacts of the new costs within the year.
Marc Casper: And finally, the impact of changes driven by the current policy focus of the US administration as a 30 cent impact in 2025.
Revenue Dollars are unchanged at the midpoint. [inaudible]
Marc Casper: The volume-related impacts are offset by mitigating price actions and more favorable effects.
Marc Casper: And we now expect organic revenue growth to be 2% of the midpoint of the range for the year.
Marc Casper: The guidance is prepared using tariff rates that are in place today and assumes no change in the current US policy focus.
Marc Casper: So we're updating the guide to reflect the change in the macro environment and a highly impactful mitigation action.
Marc Casper: It's important to note that all the rest of our guidance remains on track for the year.
Marc Casper: Let me now give you the detailed context behind each of these macro-change factors starting with the US-China tariff.
Marc Casper: The tariff rates here are so substantial that they're likely to significantly reduce the volume of trade between the two countries.
Marc Casper: Expectable impact the sales of our products in China that are produced by our facilities in the US.
Marc Casper: In our guidance we're assuming this is a $400 million revenue headwind for the year.
Marc Casper: The tariffs are also expected to increase the cost of China's source parts and subassemblies.
Marc Casper: The poll through on the lower volumes and higher costs, net of the aggressive mitigation actions, is assumed to be a headwind of a just operating income in 2025 of $375 million versus that prior guide.
Marc Casper: The mitigation actions take time to complete, so we don't get all the benefit from them in 2025. Once they are complete, we expect them to fully mitigate the impact of these tariffs.
Moving on now to non-China related tariff [inaudible]
Marc Casper: We recently raised tariffs or increasing our costs and where we directly import items into the U.S., but also likely increase the cost of many items that we buy in the U.S. that have an overseas content.
Marc Casper: A partial offset to the impact of these terraces for an exchange.
Marc Casper: The increase in tariff of course is a significant weakening of the US dollar and a current rate that increases our revenue guide for the year by $600 million.
Marc Casper: The bottom line benefit of the FX change is more muted, given the mix of currencies and one time transactional FX caused by the recent rapid change in the rate.
Marc Casper: We're driving off-setting mitigation actions here as well, accommodating supply chain changes, actively managing our cost-base and appropriate pricing actions.
Marc Casper: As a result, as I mentioned earlier, there's no net adjusted DPS impact for 2025 from the non-China related tariff.
Marc Casper: In terms of the changes in U.S. policy-focused, the largest impact is likely to be on our U.S. academic and government customers.
Marc Casper: We now expect our purchases to be more muted in 2025, especially for instruments and equipment as they evaluate the impact of potential changes to government funding and work out how to access new funding sources to continue their critical work.
Marc Casper: We're baking into our guidance a lower level of clinical trial work also related to vaccine study.
Marc Casper: Net of appropriate cost management, these changes to U.S. policy focus reduce our guidance midpoint by $500 million of revenue, $150 million of operating income and 30 cents of adjusted EPS.
Marc Casper: The tariffs and policy changes are also creating some very relevant medium and long term opportunities and we're working to maximize these upsides, including leveraging our extensive U.S. manufacturing capabilities to help our customers navigate their own potential tariff impact.
Marc Casper: This will have minimal impact in 2025, but it's expected to be an important contributor going forward.
Marc Casper: So bringing all this together, our updated guidance range for the year now reflects revenue and the range of $43.3 billion to $44.2 billion. Again, it grows in the range of 1 to 3%.
Marc Casper: and adjusted operating income margins in the range of 22% to 22.6%.
Marc Casper: It's worth noting that the tariff-related changes to the guide reduce our adjusted operating income margin by 120 basis points.
Marc Casper: This is driven by FX and also the tariff costs partially offset by incremental pricing action.
Marc Casper: We're taking the right actions and protecting the profit dollars, but it has an impact on our reported margin.
Marc Casper: And then finally adjusted EPS in the range of $21.76 to $22.84.
This reflects excellent performance in the current conditions.
Marc Casper: From a range standpoint, we've assumed that plus or minus 1% will gun at revenue growth range around the midpoint
Marc Casper: This range is provided to give you a view on the potential outcomes based on the world as it is today and the current tariff levels and the current policy focus areas being unchanged.
Marc Casper: There are scenarios for 2025 that could be low in this guidance range at the macroeconomic outlook, meaningfully dampens, and there are scenarios that could plan above this range that would be largely in line with our original guidance.
Marc Casper: As I think about the implications for the on 2025, given the robust mitigation actions are putting in place, I see the financial impact of these macro driven changes through our guides reducing failure rapidly.
Marc Casper: We'll quickly realize the full benefit of our supply chain actions, our academic customers will adapt their funding sources and what capitalized on the new opportunities that the macro changes are creating.
Marc Casper: So now we'll move on to an update of some of the modeling elements for the full year. So given the recent changes in rates, we now expect FX to be a year of year, headwind to revenue of $50 million and $90 million headwind to adjust the operating income.
This includes an estimated $60 million of one-time transactional effects.
Marc Casper: In terms of just the PS, we now expect FX to be a headwind of 19 cents for the year.
Marc Casper: They just attacked rate assumption for the year. It's expected to be 10.5% versus a prior guide of 11.5% reflecting the changes to our earnings guidance.
Marc Casper: We continue to expect between $1.4 billion and $1.7 billion of net capital expenditures in 2025 and free cash low and range of $7 billion to $7.4 billion for the year.
Marc Casper: In terms of capital employment, we're receiving $2 billion a share buybacks which were already completed in January .
Marc Casper: We continue to estimate that full year average diluted share count will be between 378 and 379 million shares or return approximately 600 million dollars of capital to share hold of this year through dividend
Marc Casper: and a guidance does not include any future acquisitions or the messages.
Marc Casper: So it does not include any impact from the pending acquisition of preventance, purification and filtration business.
Marc Casper: And finally I wanted to touch on phasing for Q2. We expect organic growth in Q2 to be similar to Q1.
Marc Casper: and adjusted EPS in Q2 to approximately 5 to 10 cents higher than Q1.
Marc Casper: To conclude, in a more uncertain world, we delivered on our commitments in Q1.
Marc Casper: And one of the world is more uncertain. What is unchanged is our approach. We're acting with agility and navigating appropriately, enabling the success of our customers, our colleagues and our shareholders.
With that, I'll turn the call back over to Ralph.
Raph: Thank you, Stephen. Operator, we're ready for the Q&A portion of the poll.
Speaker Change: Thank you. We will now begin today's question and answer session. As a reminder, if you would like to ask a question today, please do so by pressing start followed by the number one on your telephone keypad.
Speaker Change: In order to allow everyone in the queue an opportunity to address the Thermo Fisher Management team, please limit your time on the call to one question and only one follow-up. If you have additional questions, please return to the queue.
Speaker Change: Our first question today comes from the line of Michael Ryskin with Bank of America. Please go ahead, Michael.
Speaker Change: Great, thanks for taking the question, and thanks for the detailed comments, Marc and Stephen, that was really helpful. I want to start on, you both touched on the approach to the guide methodology going forward given all the uncertainty in the broader market. Thank you very much.
especially on the policy side.
Speaker Change: I'm just trying to think about obviously things have changed a lot in the last three months. You look at the changing every day every week. We notice that for the guy, both for revenues and EPS, you're given a wider range than you have in the past.
Speaker Change: But just could you talk a little bit about, you know, upside-down side sort of what the world looks like for the lower end versus what the world looks like for the higher end?
and just give things. [inaudible]
Think about various scenarios going forward. Thanks.
Mike, thanks for the question. Super, super helpful question. So
Speaker Change: Baby I'll start with a little bit of framing and then think about some scenarios . . .
Speaker Change: Right, so I think that you stole it, we had a really good quarter to start the year, right, and it was green across all dimensions, top line, bottom line, execution of the gross strategy. It's actually really excited about customer leads and things that we don't talk as much as the best ever.
Speaker Change: Journal of Eraser Colleys, the lowest that we recorded. Things are good, right? And from that perspective.
Speaker Change: and the majority of our business actually are right on track in terms of what I would expect.
Speaker Change: You know, if I think about how challenging it was to just go through and assess what would be the impact of us, just what we have at this moment
Speaker Change: What's hard to visualize is we are fully mobilized on mitigation actions, navigating the environment that we see right now.
Speaker Change: And if you think about really most of these changes started around April 10th
Speaker Change: And we sit here, you know, less than two weeks later, and we're in full mobilization motor, please change.
Speaker Change: We're gonna capitalize on opportunities that we never saw coming.
Speaker Change: We will navigate risks effectively. We'll roll back actions that are unnecessary of some of these things.
Speaker Change: Don't Happen, so we'll be very agile and I feel good about our ability to do that. Actually I think we're incredibly different shade based on our ability to do that.
So.
Speaker Change: What are the broad scenarios? So the upside scenario is changes in the policies between US and China so that you don't have sort of this.
Speaker Change: Dramatic Reduction of Demand, based in China for U.S. made products.
Speaker Change: It's a small minority of what we produced for China has actually made in the U.S. sports.
Speaker Change: Our assumption is effectively it goes to zero until we can mitigate supply chains which we can do quite aggressively but this takes a time to move production to other sides so.
Speaker Change: Conversion, a more robust biotech environment. Those are kind of some both scenarios are probably some other ones I'm not thinking about.
Speaker Change: The negative is, you know, if paraphrase for other things like that, or the macro gets affected by these things, that'd be the negative scenario. And the many levers that we can pull.
Speaker Change: But it's hard to know exactly what the impact would be because we don't know the magnitude of the challenge that we've faced. So hopefully that...
Helps you think about it. [inaudible]
Speaker Change: and the important reminder and a period of volatility, there's no place that's better to be than life science tools, right in terms of...
Speaker Change: You think about this level of change and in the scheme of things, very small changes to our outlook, we're still growing nicely and you know, a plan has to grow EPS so it's a nice haven in a little bit of challenging environment.
Thank you, Mike.
Joe.
Joe: Thanks so much, Marc. That's really helpful. And then for my follow-up, I want to show it a bit on...
Joe: sort of the long-term beyond 2025. I think you guys address the tariff situation really well saying that you'll be able to mitigate things and it's really not going to be an issue next year. But thinking about NIH, US government funding, policies there, obviously that's an important market. [inaudible]
Joe: So, any thoughts? I know it's really early, any thoughts on? [inaudible]
Speaker Change: What your view is of the underlying tools market growth rate, that you know 46% is that still viable?
Speaker Change: Going forward in the future, do you think that there'll be enough offsets and ability to find new funding sources or does this sort of dampen that that longer term outlook for the market?
Thanks.
Speaker Change: Yeah, so Micah, I think right now we're focused on the super short-term, right? Because obviously, you know, we're addressing that.
I'm super optimistic about the long-term [inaudible]
Speaker Change: Health of our industry because if you go about what's driving it, right? What's driving it is we're getting older, there's big demand for healthcare and the scientific breakthroughs, they're awesome.
Speaker Change: Right? The pipelines in the pharmaceutical biotech industry are compelling, right? And those things generate the fundamental underlying growth. So when I think about the long term, I feel very good about the long term growth.
Speaker Change: What underlies that is obviously GDP growth. So the GDP growth in the world is better. That actually puts an upward pressure on growth in the long term of GDP growth is depressed. That puts it downward pressure. That would affect every part of the economy, but that's always a driver that we don't talk so much about.
Speaker Change: On the academic funding, when I think about US NIH, when you're thinking about a few points of our total revenue, you have a one-time reset if this never changes in policy, but ultimately it grows from there.
Speaker Change: When I actually think about what is the practical aspects of the government, you know, environment of the academic environment I should say, the next step actually is what does the appropriations happen in the budget?
Speaker Change: Congress has a store clip in strong supporters of NIH. We'll see how that plays out and then from there you'll go going forward. So hopefully that's helpful. I'm excited for what the future holds and right now we're just going to navigate the environment that we're in.
Speaker Change: Thank you. The next question comes from Matt Sykes with Goldman Sachs. Please go ahead Matt.
Matt Sykes: Good morning, thanks for taking my questions and really do appreciate all the detail you've given so far. I guess for my first question...
Matt Sykes: Just given how close you are to your customers as we think about the large biopharma and market, do you maybe talk about...
Matt Sykes: Any changes in order behavior or patterns where there has been a pull forward of inventory is just to get ahead of tariffs. And if you haven't seen that yet, do you expect that to happen? And how do you work with your customers to ensure not a significant amount of supply chain disruption in that event? Thank you very much.
Matt Sykes: Yeah, so it's a great question and thanks for it. Given how short the announcement to implementation of the terrorist.
I don't really believe customers at any opportunity.
Matt Sykes: To pull forward. We didn't see something funky in the first quarter in terms of some boldness of things happening later in the quarter. We sort of got out of the normal process. The tariffs are in effect. So...
Matt Sykes: I don't see really any meaningful changes in the patterns that we're expecting and so hopefully it's helpful.
Speaker Change: She may be at a high level, just kind of talk about how flexible different types of products and
Speaker Change: R, meaning like, is it easier to flex an instrument manufacturing? [inaudible]
Speaker Change: Facility, Versus A Consumbles and Reagents, and how do you think about sort of the order of priorities in terms of flex and manufacturing? I just think we all want to get a sense for timing of truly how flexible you can be given the diverse set of products that you offer. Thank you very much.
Speaker Change: When you think about what we said in our guide and how fast we're able to mobilize...
Speaker Change: You can see this short time duration it takes, but you get the full impact of that and it is...
Speaker Change: It's complex, it takes a lot of hard work, the team's doing an awesome job of...
Speaker Change: of thinking about the implications and then be putting the right action place plans in place and see if they execute.
It's different, I think. [inaudible]
Speaker Change: Businesses by different product types and we have flexibility in our system that you see the net impact is that. So, I know the best way to put it in the team is just working with the benefit of the PTI Businesses industry to execute on that.
So the other thing that will...
Speaker Change: One thing that will be challenging, I think, for the analysis of the industry is scale is just an enormous advantage here, right? Because if you're narrow and you ship from the world from a single site for your products,
Speaker Change: You might be massively disadvantaged, you might be advanced, you may change your ability to be flexible, incredibly hard.
Speaker Change: We have scale facilities in every major geography. They don't do everything that we do, but the capabilities are robust. We have a lot of twin factories where the factories do the same thing in different geography, so our ability to move with speed here in warmest.
Speaker Change: And that actually is a great share of gain opportunity for us as well, right? So I feel very good about our competitive position, especially how strong the PPI business system is on our operational execution, so I hope that that's helpful. Thanks, Matt.
Thank you for watching!
Speaker Change: Thank you. Our next question comes from the line of Jack Meehan with Neffron Research. Please go ahead, Jack, your line is now open.
Thank you. Good morning.
Jack Meehan: and first appreciate the very comprehensive guidance update that you guys provided. Marc, one follow-up, one to ask on the policy side is related to pharmaceutical tariffs.
Speaker Change: We're curious what you're hearing from customers, and then just talk about the risks and opportunities there for Thermo Fisher. I'll leave it open-ended but then I'll have a follow-up.
Marc Casper: Jack, thanks for the question. So, we interact obviously with our pharmaceutical and biotech
Speaker Change: Continually. Obviously, there's nothing been formalized on the tariffs at this point. I think there's both advocacy that those customers are doing and planning as well. One of the things that we're doing is we're seeing a lot of interest.
Speaker Change: in leveraging our scale U.S. manufacturing capabilities within our pharmaceutical services business. So it was quite a bit of demand for our footprint here. And part of the reason that I talked about the investment.
Speaker Change: which is a $2 billion investment over the four-year period ahead of us, is really to actually have added capacity for former services.
Speaker Change: for analytical services or laboratories and additional R&D done in the U.S. And I think it's...
Speaker Change: We just believe that there's going to be more activity here whether there's tariffs or not and that's the direction of travel and we're going to enable our customer success and once again we'll be able to capitalize on that opportunity to help our customers be extraordinarily successful.
Speaker Change: Great, and kind of walked me to where I wanted to go, which is on the firm of services business, so that got a few. [inaudible]
Speaker Change: Callouts in the script would just like to get your thoughts on what and anything this business is now in, kind of in the post-COVID recovery confidence that continues and when you have these discussions with customers, any more API related or full finish, just like where you're seeing the demand for help. Thank you very much.
Yeah, so it's the biggest area.
Speaker Change: It's across the board, but the biggest area is really in fill finish, right? As well as interesting enough drug product on the tablet side of the things as well because there's an interest in having more done in the U.S. So they say, drug product is seen the fastest thing because it takes a long time to move drug substance action.
Speaker Change: You know, we've won significant business to backfill the old cold related capacity so that's pretty much all that is actually all signed up
Speaker Change: And it was ramping up production, right? And we have new lines coming in. We're going to have even more lines being added with the additional investments in the coming years.
Speaker Change: So, from that perspective, the COVID's in the rear view mirror, and now you're starting to see the ramp of the activity on what we're back further with. So, it's a pretty exciting time and promise services.
Great. Thanks, Jack. Thanks, Jack.
Speaker Change: Thank you. The next question comes from the line of Rachel Vontenstahl with J.P. Morgan. Rachel, please go ahead.
Rachel Vontenstall: To put you break down for us, what percent of that 500 million update was related to ANG versus the CRO? And then alongside the academic and government, what are your updated expectations for how that market should perform for the full year?
Which market, Rachel Sanderson?
Wish Blockchain Performance for Academic and Government.
Speaker Change: Okay. Thank you. All right. So I'm looking for Michael's apology.
Speaker Change: Yeah, no, thank you. Let me show you against the right question. So thanks for the question. So the split is really quite straightforward on the policy changes within the clinical research business.
We've seen $200 million. $200 million.
Speaker Change: of studies canceled or put on hold, specifically vaccine, but half of that is directly funded.
Speaker Change: By the government through innovators and about half of it is just from the innovators themselves every other aspect of clinical trial related activity seems to be normal so that's been fine actually there's a lot of interesting strength in the biotech authorization there's a lot of good things going on there but we have seen [inaudible]
Speaker Change: very specific actions and I suspect that others that do that particular activity in the short term.
We'll figure that out, I also believe that...
ultimately as the policy people get in place.
You know
Speaker Change: You know, do they come back and if so when so that's I think what that's kind of a one off in terms of the academic and government be the balance of that in terms of the face and obviously we don't we don't guide by end market or that the way I would just think about it is.
Speaker Change: You know, customers are putting in their mitigation actions. We would expect that U.S.
Speaker Change: Academic would be relatively soft, the balance of the year, that's what we admitted in our guidance.
Speaker Change: going forward and that it could improve based on the appropriations dynamics this summer. We haven't assumed that that creates a tailwind, but I would say we just affect to put it in effect right throughout the balance of the year, pretty much polada in terms of the impact.
Speaker Change: Great. And then to my follow-up, I just wanted to push on pracing assumptions. So you called out just in late a terrorist that you can see some potential pracing offense there.
Speaker Change: So, can you walk us through your broad pricing assumptions, expectations for this year? How much do you really think you will be able to mitigate? How conservative are you being on those assumptions as well? And then what businesses are you expecting more pricing power and ability to pass that on through tariffs versus other areas where you maybe take less price in this environment? Let's go ahead and see what we're going to do. Let's go ahead and see what we're going to do.
Speaker Change: Yeah, I think it's important to note that we're taking appropriate pricing actions. We're not kind of to get back to the situation.
which is exactly what we've done in prior times.
Speaker Change: Property Passing Price on and we're thinking about that for the year we were assuming this year we've had just over a percentage point of price. This is kind of getting to that close to 2%. So it's not a significant price change. It's just an appropriate given, we're in an inflationary environment given by the what's happening in the change of the world in terms of tariffs. [inaudible]
Speaker Change: That's the approach we're taking. We'll do that, we'll do that appropriately across the portfolio. So there's no area of concentration when I think about that. We'll do that, we'll do that.
presentation. Thank you, Rachel.
Speaker Change: Thank you. The next question comes from the line of Doug Schenkel with Wolf Research. Please go ahead, Doug.
Doug Schenkel: Hi, good morning. Marc, I appreciate your answers to Mike's questions and a few others along the way earlier on, you know, essentially the LRP.
Doug Schenkel: And, you know, listen, I think a lot of us on the line, you know, know the history here of, you know, bio-parma innovation and study academic funding.
Doug Schenkel: You know, that said, this seems different, thus far assuming that the White House doesn't really mean it, you know, has not been a good policy. It's clearly not a business friendly environment right now. [inaudible]
Doug Schenkel: Major Pharmaceutical Company, such as Lillier, you know, publicly talking about reducing the trajectory of R&D and CAPEX investment, and then even, you know, beyond these recent developments.
Speaker Change: The reality is, it's been a tough five years for the group. You and I have been doing this for a long time, Marc, and I think we believe in the greatness of this industry and the greatness of Thermo, but...
Speaker Change: Yeah, I'll tell you, a lot of the investors I speak with, you know, if you're newer to the industry, but I don't mean just last year, I mean over the last five years, you've never seen tools be a good group.
So, with all that in mind...
Speaker Change: I would think you have to at least contemplate a scenario where the market growth rate is structurally lower and, you know, while what we're doing now is normal, it may be normalish.
Speaker Change: In that scenario, what do you change? You know, if the growth rate is lower, do you actually pick up more share?
Speaker Change: Do you think about altering the portfolio and how does that impact M&A? So I want to start there and then I actually want to come back to to be a more positive question in my follow-up.
Doug Schenkel: So Doug, I'm smiling. What I would say is, if I look at the last five years.
Doug Schenkel: There have been aspects of the greatest that this industry has ever been.
Doug Schenkel: in terms of enabling a global response to the most challenging pandemic.
Doug Schenkel: that any of us would live through, and certainly since 1918.
Doug Schenkel: And that was only really regional between US and Europe in terms of the impact and this industry enabled amazing things. So, there are some great things that have happened in the five years.
Doug Schenkel: There's been some of the greatest innovations that have come out of our industry, let alone so, and there's been incredible overhang from the pandemic that has been extraordinarily painful, right? So I'm very realistic about the ups and downs.
Doug Schenkel: But if I look back at the last five years, it basically says the relevance of this industry to have a very bright future and have really quite small movements.
Doug Schenkel: Up or down on the wallings, right? And I think that shouldn't be lost.
Doug Schenkel: And when you think about in a period of really since January 30th, lots of new uncertainty.
Doug Schenkel: And in the scheme of life, very small changes to the top line, it talks about the resiliency of our company and actually the attractiveness of the industry.
Doug Schenkel: And I think that gets lost when there's not been a lot of headlines that are positive right now on some of these dimensions. But as the largest US player and the largest player in the field
Doug Schenkel: with a policy set of actions that want to make the U.S. stronger, we're going to benefit from that disproportionately and that's a good thing. So I see all that. When I think about the long term.
I know what the drivers are.
Doug Schenkel: If GDP growth, sorry, if you take the views that you have or others are saying that the world's GDP growth is less.
Doug Schenkel: Going forward on a structural basis because of the changes, then the market growth likely will be somewhat less. It will be much less affected than other parts of the economy but yeah, if you believe that the world is fundamentally. It will be less affected than other parts of the economy.
Doug Schenkel: I'm going to grow last, and you can see the last business policy, whatever it is. And yeah, there'll be some changes in growth rates.
Doug Schenkel: Then you could actually articulate that, it could actually get better over time. What I do know is, Stephen and I have lived our careers through transparency.
Doug Schenkel: If our views change on the long-term growth of the markets based on the facts as we see them, we will be the first to say it. We're not hanging on to a number. We're just literally putting the numbers that we think are best at this moment in time. We don't look at them every day in terms of long-term, but we look at them periodically in terms of our views change.
Doug Schenkel: Our investor will understand it because we're being candidates, so hopefully that help. I've spent 30 years in this industry, I've lived through every environment.
Doug Schenkel: I'm pumped for the future, knowing that a lot of the short-term is challenging and we'll get feedback just fine.
Speaker Change: All right, fantastic perspective, Marc, thank you for that. And maybe to kind of build into something that might be a little more positive relative to the question I asked.
Speaker Change: You know, some larger pharmaceutical companies and biotechs, you know, I think most recently this week, you know, Roche, but there have been others, they've started to talk about major build out of infrastructure in the US.
Speaker Change: You guys are as close as anybody to your customers. I'm curious what you're seeing in terms of movement towards reshoring in the U.S., and for that matter, elsewhere in the world.
Speaker Change: You know, what form do you think this takes for Thermo? If you're starting to hear more about this.
Speaker Change: Where do you think you're going to benefit most? How quickly can this happen? And, you know, is there any chance that you'd be willing to size up this opportunity for you? I know it doesn't happen tomorrow, but it could be a really important growth drive removing forward.
Speaker Change: The first question was an important question, the second one is as well. [inaudible]
Speaker Change: So, when I actually think of a new facility to get to now, let's forget about the last couple of months.
A new manufacturing facility gets announced.
Speaker Change: It is a meaningful revenue for us in terms of, you know, helping, you know, many, many, many millions of dollars of equipment, the lab infrastructure, the new consumable supplies, the inventories, but it is really as great I was thinking about a customer.
last year.
Speaker Change: Big New Facility came online, huge order, right, in terms of what they do, broad base across.
Higher production, bioscientry, agents, so on and so forth. So, really...
Speaker Change: Quite meaningful. In the dialogue we have with our customers about new facilities that are being discussed. That is really a nice tailwind.
We're in the conversation and we'll certainly help our customers
Speaker Change: Rampup, you know, their capacity. So I think it's a nice talent. We don't know how many plants are ultimately going to be built yet. So we'll kind of go one at a time and incorporate it into our guidance as we know it. You know, just give it how long it takes to break ground. It's really a 26 and beyond, but super exciting.
Operator, we have time for one more question please.
Speaker Change: Thank you. Our final question today comes from the line of Tycho Peterson with Jeffries. Tycho, please go ahead.
Tycho Peterson: Okay, thanks. Mark Wannaproban to, you know, farmer service is a little bit more, you know, setting aside the 200 million in vaccine cancellations you flagged for PPD. You talk about activity remaining normal good strengths and biotech authorizations. Can you maybe give a little bit more color there? I mean, anything around order growth, is this mostly share gains from your perspective? How much is this is bundling, you know, with pation and the combined offering? And then it sounds like you don't really have concerns over farm cuts and response to tariffs.
Tycho Peterson: and in particular, R&D. I just want to make sure that's the case, and then I have one follow-up for Stephen.
Tycho Peterson: You know, it started to really go and announce it late last year and into this year incredibly compelling and what does it really mean? I was thinking about trying to how do I visualize this, right?
Art Biotech customers.
Tycho Peterson: outsourced this work, right, because they are doing one or two studies, whatever it is, or one in one medicine, right, so you're working with CROs.
Tycho Peterson: The capability is an insight we get from our combined suite of capabilities is truly differentiated, which means that we can be faster and more cost effective.
Tycho Peterson: Whether that's letting a customer know that this trial is not going to work out.
Tycho Peterson: or letting the customer know more quickly. I'm just going to work out and maximizing.
Tycho Peterson: They're a length of exclusivity. These are super compelling things and the interest level and the wins here are meaningful and move very well positioned.
Tycho Peterson: in terms of the outlook on clinical research. I feel very good.
Tycho Peterson: about what the health book is there. And, you know, the vaccine one was just the kind of one off on the policy changes.
But I would also say is that
on some of the direction of travel. [inaudible]
Tycho Peterson: with the FDA on, you know, experimenting with less animal studies around monoclonal. That would be the, if you were, wanted to try that out, but the area where animal models are less relevant. [inaudible]
Tycho Peterson: They're trying to modernize and which means anything that the industry has less cost on low value added activity means that they'll put money where it's going to make a difference or where we play in the human part of the trials, I feel we're very well positioned.
Tycho Peterson: on pharmaceutical companies, how they'll respond to terrorists, their planning, but I don't know, ultimately, how they're ultimately going to respond, because they're not sure what is going to get implemented. So, as we know that, we're going to help them navigate it and we'll figure out, ultimately what does it mean for us. So thank you for. Thank you for your time, and I'll see you next time.
The questions, let me wrap up.
Tycho Peterson: with just a quick comment. First, thanks to everyone for joining us. We're pleased to deliver a strong first quarter and we're very well positioned to deliver different shaded performance.
Tycho Peterson: as we continue to create value for all of our stakeholders, build an even brighter future for our company, and I hope that you value the transparency that we invited into our guidance, and we'll look forward to updating you on our second quarter results in July . And as always, thank you for the support of Thermo Fisher Scientific. Thanks everyone.
Tycho Peterson: Thank you everyone for joining us today. This concludes today's call and you may now disconnect your lines.