Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2019 fourth quarter conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's call is being recorded. If you require any further assistance, please press star 0. I would like to introduce our moderator for the call, Mr. Kenneth Apicerno, Vice President, Investor Relations. Mr. Apicerno, please begin the call.

Good morning, and thank you for joining us. On the call with me today is Mark Casper, our President and Chief Executive Officer, and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live. It will be archived on the investor section of our website, thermofisher.com, under the heading webcasts and presentations until February 7, 2020. A copy of the press release of our fourth quarter 2019 earnings and future expectations is available in the investor section of our website under the heading financial results. Before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these indicated on these forward-looking statements as a result of various important factors, including those discussed in the company's quarterly report on Form 10-Q for the quarter ended September 28, 2019, under the caption Risk Factors, which is on file with the Securities and Exchange Commission and is also available in the Investor section of our website under the heading SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also during this call, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth quarter 2019 earnings and future expectations, and also in the investor section of our website under the heading financial information. So with that, now I'll turn the call over to Mark.

Thank you, Ken. Good morning, everyone. Thank you for joining us today for our 2019 Q4 and year-end call. I'm pleased to report that we finished the year strong and exceeded our goals for 2019. From a financial perspective, as you saw in our press release, we delivered excellent revenue and earnings growth. From a customer lens, we launched many exciting new products and added new capabilities to strengthen our unique value proposition. And for our shareholders, we continue to be good stewards of capital, making strategic acquisitions and returning capital to create significant value. All in all, it was an excellent year when we positioned Thermo Fisher very well to begin this new decade as an even stronger company. I'll cover some of the highlights later in my remarks, but first I'll hit the financials from the quarter and the year at a high level. Starting with the quarter, our revenue increased 5% in Q4 year over year, to $6.83 billion. Organic growth was also 5 percent in the quarter. Adjusted operating income increased 5 percent to $1.70 billion, and our adjusted operating margin expanded 10 basis points in Q4 to 24.9 percent. Finally, we achieved strong adjusted EPS growth in the quarter with a 9 percent increase to $3.55 per share. Turn to our results for the full year. We increased revenue by 5% to $25.54 billion in 2019. Organic revenue growth was 6% for the year. Adjusted operating income increased 6% to $5.97 billion. We expanded our adjusted operating margin by 30 basis points to 23.4%. And we delivered another excellent year of earnings performance in 2019 with an 11% increase in adjusted EPS to $12.35 per share. As you know, our strong performance is fueled by the power of our PPI business system. Our colleagues use it across the company to improve all aspects of how we work. This not only leads to strong earnings growth, but also helps us continuously make our company even better, and that creates a great experience for our customers and our 75,000 colleagues around the world. Let me now give you some color on our performance by end market for the quarter and the year. Starting with pharma and biotech, we had excellent performance again in this end market, delivering 10% growth during Q4. We saw broad-based strength across our businesses serving these customers. Our unique depth of capabilities gives us a clear competitive advantage, and we continue to strengthen our offering to gain share, which I'll cover later in my remarks. Our leading position in serving pharma and biotech customers led to double-digit growth in this end market for the year. In diagnostics and healthcare, we saw strong growth in our immunodiagnostics, clinical diagnostics, and healthcare market channel businesses in Q4. And we grew in this end market in the mid-single digits for both the quarter and the full year. Turning to industrial and applied, growth in this end market declined in the mid-single digits in Q4 compared with the double-digit growth we delivered in Q4 last year. This is predominantly driven by our electron microscopy business. a dynamic consistent with what we saw in Q3. For the full year, industrial and applied grew in the low single digits. In academic and government, we grew in the low single digits during the quarter and for the full year. Finally, let me comment briefly on our performance from a geographic lens. In Q4, we grew in China in the low single digits. This was driven by very strong comparisons in the year-ago quarter, coupled with a slower release of funds for capital purchases by some of our customers. Our performance in North America and Europe was very strong, driving excellent revenue growth for the total company. That speaks to the strength of our portfolio and our global competitive position. To sum up our performance, market conditions continued to be good overall, and our teams executed well to achieve another excellent year. We continue to effectively leverage our unique customer value proposition to deliver very strong growth. That's a good transition to our growth strategy, and I'll use it as a framework to recap some of the highlights for the quarter and the year. We continued our strong momentum across all three elements of our strategy to put Thermo Fisher in the best position to win with our customers and gain market share. Starting with the first pillar of our strategy, it was an exceptional year for high-impact innovation. We launched exciting new products every quarter and across all of our technology-focused businesses. I'll highlight just a few this morning. In analytical instruments, you'll recall it was a big year for us at ASMS with the introduction of our new generation of thermoscientific Orbitrap instruments. We strengthened our mass spec leadership with the new Explorers 480 and Eclipse private systems, which significantly raised the bar in protein analysis. We're pleased to see very strong customer demand for these products. In our electron microscopy business, we launched our new generation Cryo-C4 instrument structural biology during the year. And in Q4, we introduced the METRIOS-AX for industrial applications. This new system uses machine learning to automate the collection and measurement of critical data, ensuring quality and efficiency for our customers. In our specialty diagnostics segment, we added a number of new assays during the year, particularly in our immunodiagnostics business, where we continue to expand our menu of immunocat allergy tests. In transplant diagnostics, we extended our family of lab screen reagents in Q4. Our new single antigen X-Plex reagents greatly expand the number of HLA antibodies that lab directors can characterize to help identify the risk of organ rejection in transplant patients. Turning to our life science solution segment, we launched a range of new products to strengthen our bioproduction, biosciences, and genetic sciences offering, highlighted by the new QuantStudio 6 and 7, Pro real-time PCR systems. In Q4, we introduced the Qubit Flex Fluorometer, which is designed to measure up to eight samples simultaneously and with highly accurate and reproducible results. And to cap off an excellent year in Q4, we launched the GeneXus system to extend our IonTorrent next-generation sequencing platform. This fully automated system is a real game changer, delivering results in a single day and requiring minimal amounts of sample for analysis. We continue to make great progress with our oncology-focused NGS strategy, and GeneXus is a significant milestone in our goal to ultimately bring NGS to local hospital settings. I'm proud of the passion our teams have for innovation, and that makes a real difference for our customers. This has always been a key element of our culture. So clearly, another fantastic year in that regard, and we look forward to continuing our momentum in 2020. Turning to the second pillar of our growth strategy, leveraging our scale in high growth and emerging markets, we had strong performance across these key regions in 2019, and that included another great year in China with 13% growth. Looking forward, the government priorities in China are aligned with the technologies we provide to meet customer demands for biologic drugs, a cleaner environment, and safer food supplies. And we continue to build on our industry-leading scale to help them solve these challenges. You will recall that we highlighted many new developments during the year, including the expansion of our clinical trials operations in China to meet growing demands. During the quarter, we opened a new pharma and biotech customer solutions center in Shanghai. The center showcases our expertise in critical analytical processes and specialized workflows to help our customers accelerate their development of novel therapeutics. I came away from my visit to China in Q4 with incredible excitement for how rapidly the biotechnology market is expanding there and how well positioned we are to support that growth. To sum it up, Thermo Fisher has a distinct advantage in China and that we've created by leveraging our unique industry-leading scale, and that allows us to deliver an exceptional experience for our customers there. This is a strategy that plays out across our high growth and emerging markets around the world. As you heard during the year, we also continue to build on our capabilities in South Korea, India, and Singapore to help our customers advance their work in life sciences, biopharma, and food safety applications. The third pillar of our growth strategy is our customer value proposition, and we continue to enhance it to help our customers meet their goals for innovation and productivity. We've been talking a lot about our offering for pharma and biotech because it's a great example of how we're bringing together our existing capabilities and adding new ones to be the strongest partner for these customers. We have a proven formula for serving these customers, and it resonates from large pharma to small and emerging biotech. We can support them from the discovery of a molecule all the way to making it a commercial medicine. And we do this through a combination of continuing to strengthen our product offering by introducing relevant new technologies, leveraging our scale and the extensive customer access we have, to our research and safety market channel, and continuing to expand our CDMO service capabilities, which also drives revenue synergies across our portfolio. This is a formula that's working very well, and in 2019, we once again delivered double-digit growth with our pharma and biotech customers. It's been over two years since we acquired Pathion, and we've successfully completed the integration. We were able to turn a business that was growing in the mid-single digits into a high single-digit grower with a bright outlook. We've already covered a lot of our pharma services development during the year, but at a high level, our approach has been a combination of organic investments and strategic bulk on acquisitions. Organically, we've continued to expand our global network to meet customer demand, including our capacity for biologics production and sterile fill finish services. We've also acquired new capabilities to strengthen our position. We added the new API manufacturing facility in Ireland that we acquired from GSK, and we significantly increased our capabilities in the high-growth gene therapy market with the acquisition of GrammarBio. In early December, I attended the grand opening of our new viral vector facility in Lexington, Massachusetts. Our team there is super excited about the opportunities we now have to help our customers bring innovative new therapies to patients with rare diseases. The integration of Renro Bio has gone extremely well. Business performance is strong, and I'm really excited about its potential. So, excellent momentum in serving our farm and biotech customers. It's clear that our value proposition is a key competitive advantage for us, and we continue to gain share. Turning now to capital deployment, as you know, we have a great track record here in creating value for our shareholders by being good stewards of capital, and we continue to successfully execute our strategy in 2019. First, we deployed $1.8 billion on strategic bolt-on acquisitions. Second, we continued to return capital to our shareholders for a total of $1.8 billion in share buybacks and dividends. Last, you will recall that we announced in Q3 that we refinanced $5.6 billion of our debt, and that will generate $80 million in savings annually for us. So it was a great year from a capital deployment and balance sheet perspective as well. Let me cover one last highlight from the year before I turn to our guidance, and that relates to our commitment to environmental, social, and governance priorities. We've always been a company that's focused on doing business the right way, and that's embodied in our mission, which is to enable our customers to make the world healthier, cleaner, and safer. We not only bring our mission to life every day, but we also have robust programs that connect our customers, colleagues, and communities so we can make a direct impact. This happens in a number of ways, including through our STEM education and environmental sustainability initiatives. Still, much more to be done here, but I'm proud of the work our teams are doing to raise our ESG profile and continue to make our company even better. Stephen will outline the assumptions that factor into our revenue and earnings guidance, but let me quickly cover the highlights. In terms of our revenue guidance, we expect to deliver between 26.61 and $27.01 billion in 2020, which would result in reported revenue growth of 4% to 6%. We're initiating adjusted EPS guidance for 2020 in the range of $13.49 to $13.67. This would lead to 9% to 11% growth year over year. Before I hand the call over to Steven, I'll leave you with my key takeaways for the year. We've consistently achieved excellent revenue and earnings growth and extended our track record with another year of strong performance in 2019. We're delivering an exceptional experience for our customers by continuing to enhance our unique value proposition and using our PPI business system to make our company even stronger. And we've continued to create significant value for our customers and our shareholders, which puts us in a very strong position as we begin the decade. With that, I'll now hand the call over to our CFO, Steven Williamson. Steven?