Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2021 Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call.

Good morning, and thank you for joining us. On the call with me today is Mark Casper, our Chairman, President, and Chief Executive Officer, and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the investor section of our website, thermofisher.com, under the heading News and Events until August 13, 2021. A copy of the press release of our second quarter 2021 earnings is available in the investor section of our website under the heading Financials. So, before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. 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 with the SEC and available in the investor section of our website. under the heading Financials SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our second quarter 2021 earnings and also in the investor section of our website under the heading financials. So with that, I'll now turn the call over to Mark.

Thanks, Raf, and good morning, everyone. Thank you for joining us today for our second quarter call. As you saw in our press release, we executed on our growth strategy to deliver another fantastic quarter in Q2, with excellent growth on both the top and bottom line. As I reflect on the first half of the year, three things stand out to me. First, our team's exceptional execution, operating with speed and scale to deliver on our growth strategy and gain share. Second, we're already seeing the benefit of the accelerated investments we initiated in 2020. And third, the power of our PPI business system, which enables our performance. These three factors position us exceptionally well to deliver a fantastic 2021 and provide terrific momentum as we enter 2022. I'll cover each of these topics in more depth in my remarks, but first, let me recap the financials. Our revenue in Q2 grew 34% year-over-year to $9.27 billion. Our adjusted operating income for the second quarter increased 44% to $2.69 billion. And our adjusted operating margin expanded 200 basis points to 29% for the quarter. Finally, we delivered another quarter of exceptional adjusted EPS performance, achieving a 44% increase to $5.60 per share. Turning to our end markets, we continue to see excellent conditions driven by three factors. Robust fundamentals in the life sciences, strong economic activity globally, and the role our industry is playing in the pandemic response. Our unique competitive position and excellent execution by our team have allowed us to gain share and deliver another outstanding quarter. Starting with pharma and biotech, with outstanding performance with growth of over 30%, driven by strong underlying market conditions, the benefit of our unique customer value proposition, and our leading role in supporting our customers across a wide range of exciting therapeutic areas, including our significant role in COVID-19 vaccines and therapies. We saw excellent growth across all businesses serving these customers, including bioproduction, pharma services, biosciences, chromatography and mass spectrometry, and in our research and safety market channel. We're clearly benefiting from our trusted partner status that we've earned over many years with these customers. In academic and government, we grew 35% this quarter. We saw very strong growth across our businesses supporting this customer base, especially in biosciences, electron microscopy, and the research and safety market channel. Turning to industrial and applied, we grew approximately 30% during the quarter, as the team continues to execute at a high level to capture opportunities. In Q2, we had particularly strong growth in our electron microscopy and chromatography and mass spectrometry business. Finally, in diagnostics and healthcare, we grew in the high teens during the quarter, and we're seeing customer demand in our base business approach pre-pandemic levels. Our immunodiagnostics and transplant diagnostics businesses delivered outstanding growth, Also in diagnostics and healthcare, demand for COVID-19 testing-related products grew to approximately $1.4 billion. Let me wrap up the end market recap with a quick comment on our role in the pandemic response. Since the beginning of the pandemic, we have played the largest role in the life science tools and diagnostics industry in supporting the societal response and delivering critical solutions for our customers in governments around the world. In the second quarter, we generated a total of $1.9 billion, bringing our first half COVID-19 response revenue to $4.7 billion. One of the benefits of our response activity is the ability it gives us to accelerate investments and position the company for a phenomenal future. You know about the additions to capacity, capabilities, and new products that we are making, and we are also continuing to invest in our colleagues. Building on our investments last year, we are again providing all non-executive colleagues with a special recognition payment of two weeks' additional pay to reflect the incredible contributions to our success. This is just one of the many measures we are taking to ensure we remain the employer of choice across the life sciences industry. Let me turn to the great progress we made in Q2 on our growth strategy, which is based on three pillars – Launching high-impact innovative new products, leveraging our scale and high growth in emerging markets, and delivering a unique value proposition to our customers. Let me give you a few examples. I'll start with innovation. We launched a number of new products across our businesses to further strengthen our industry leadership and enable our customers to accelerate scientific breakthroughs. Let me highlight a few. In chromatography and mass spectrometry, we launched the new thermoscientific Orbitrap IQX tri-bit mass spectrometer, which further extends the impact of our industry-leading Orbitrap platform to accelerate small molecule analysis for metabolites and other complex compounds. In our electron microscopy business, we introduced the thermoscientific Helios 5EXL wafer dual-beam scanning electron microscope. a very important tool to help semiconductor customers more efficiently ramp up production of new, smaller, and more complex microprocessors and memory devices. In our biosciences business, we launch several new products, including two instruments to advance cell analysis. The Invitrogen Bigfoot Spectral Sorter is a powerful cell sorting tool based on the technology we acquired from Propel Labs in Q1. and the InvitroGit Attune SitePix flow cytometer, which offers enhanced imaging capability to enable researchers and cell therapy developers to better understand cell biology. Turning to the second pillar of our growth strategy, we continue to leverage our scale to create an outstanding experience for customers in the high growth and emerging markets. This has contributed to excellent growth and share gain we are delivering across Asia Pacific. Let me cover a couple of the highlights. In China, we delivered strong growth of just under 30% in the quarter. The team is ramping up our new single-use technology facility in Suzhou. In India, we demonstrated speed and scale at our genetic sciences facility in Bengaluru, which shipped millions of COVID-19 PCR tests to support the country's response to the pandemic. We also contributed $10 million in urgently needed products and donations to help India bring the crisis under control. Our performance across the region demonstrates that we're creating a differentiated experience for our customers, and the significant investments that we've made in these markets are fueling growth. The third pillar of our growth strategy is our customer value proposition. and we continue to increase our capabilities and capacity to be an even better partner for our customers and help them achieve their goals. Building on our significant investments last year, in 2021, we're executing on over $2.5 billion in CapEx to further expand our capacity and capabilities. It's exciting to see the continued progress of these investments. For example, during the quarter, We brought additional capacity online around the world to support customer production of vaccines and therapies. These include sterile-fill finish lines in Italy and Greenville, North Carolina, expanding our single-use technology capacity in our facility in Logan, Utah, and adding to our Lithuania site for the production of essential raw materials used in making mRNA vaccines. These investments in our value proposition demonstrate our commitment to our customers, which rely on us as an essential partner in their work. During the quarter, we announced a number of collaborations with leading academic medical centers. The combination of our innovation and our unique customer value proposition positioned us to move science forward. For example, we're collaborating with the Mayo Clinic to develop more precise and personalized diagnostics for blood-based cancers, allergy, autoimmunity, and therapeutic drug monitoring. This work will leverage our insight and technology in clinical action sequencing, immunology, and clinical mass spectrometry. In addition, we announced that we'll build and operate a state-of-the-art cell therapy development, manufacturing, and collaboration center at the University of California, San Francisco. to advance innovation in cell and gene therapy. These partnerships will lead to new capabilities for our customers and ultimately better outcomes for patients. As always, our PPI business system was a major factor in our success during Q2. This discipline and our mission-driven culture helps us to find a better way every day so we can continue to bring more innovative new solutions to our customers. work more efficiently and effectively, operate with speed and scale, and create even greater value for all of our stakeholders. Turning to capital deployment, we announced the acquisition of PPD at the beginning of the quarter. This acquisition will establish Thermal Fisher as a leader in the attractive and high-growth critical research services industry, and add highly complementary services for our fastest-growing end market. The integration planning is going extremely well. I've been very impressed with the world-class talent I've met during the integration planning process. We're looking forward to welcoming our PPD colleagues to Thermo Fisher upon closing of the transaction. Before turning to guidance, let me update you on our progress from our ESG initiatives. As the world leader in serving science, we know that our role goes beyond the work we do to enable our customers and the value we create for our shareholders. It extends to our responsibility to make the world a better place. To that end, we continue to advance our sustainability initiatives. Yesterday, we announced our commitment to achieve carbon neutrality by 2050. This builds on our existing goal to reduce greenhouse gas emissions across our operations by 2030. We're moving forward on this front by making our facilities more energy efficient, increasing our use of renewable energy, and reducing waste in our operations. while also innovating across our portfolio to enable customers to meet their sustainability needs. This is aligned with our commitment to doing business the right way and to fulfilling our mission to enable our customers to make the world healthier, cleaner, and safer. Now let me turn to our guidance for 2021. Driven by our very strong start to the first half of the year and our confidence in the full year outlook, we're raising both our revenue and earnings guidance for the full year. Stephen will outline the assumptions behind our guidance. I'll cover the highlights. We're raising our revenue guidance by $300 million to $35.9 billion, which represents 11% reported growth over 2020. In terms of adjusted EPS, we're raising our guidance by $0.10 to $22.07, which will represent 13% growth over 2020. Before I turn the call over to Stephen, let me summarize our key takeaways from Q2. Our team is doing an outstanding job of executing our proven growth strategy to strengthen our competitive position. Our PPI business system is enabling our ability to operate with speed and scale. Our business is performing extremely well and gaining share. All of this enabled us to deliver excellent first half results and position us to deliver a fantastic 2021 and provides terrific momentum as we enter 2022. Finally, I'd like to thank my 80,000 colleagues for their dedication to our company, our customers, and for once again delivering another excellent quarter. And now I'll turn the call over to our CFO, Stephen Williamson. Stephen.