Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2022 First Quarter Conference Call. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by the number one 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.

Good morning, and thank you for joining us. On the call with me today is Mark Casper, our chairman, president, and chief executive officer, and Steven Williamson, senior vice president and chief financial officer. 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 May 13, 2022. A copy of the press release of our first quarter 2022 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 which is on file with the SEC and available in the investor section of our website under the heading Financials, SEC Finals. 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 first quarter and full year 2022 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.

Thank you, Ralph. Good morning, everyone, and thanks for joining us today for our first quarter call. As you saw in our press release, we had a very strong start to the year. We delivered another quarter of excellent financial performance. Our core business is performing very well. That strength is broad-based, including PPD, our clinical research business, where the integration is going smoothly and we're even more excited about the opportunities we have to further enable the success of our pharma and biotech customers. As I reflect on the quarter, I'm very pleased with the team's great execution and the share gain we saw across our business. Our continued success is the result of our proven growth strategy and our PPI business system, which continues to be a differentiator for us. It enables our team to further strengthen our company by finding a better way every day. When I think about the macro events, much has changed since the start of the year. The war in Ukraine, rising inflation, COVID lockdowns in China. What hasn't changed is our ability to navigate a dynamic landscape and deliver exceptional performance. You'll see that in our first quarter results and outlook for the year. So let me recap the financials. Our revenue in the quarter grew 19% year over year to $11.82 billion. Our adjusted operating income was $3.45 billion. Our adjusted operating margin in the first quarter was 29.2%. And we delivered another quarter of strong adjusted EPS performance, achieving $7.25 per share. Let me now give you the color on the performance by our end markets. Building on the momentum from 2021, we delivered excellent performance to start the year. Our outstanding results this quarter were due to our team's strong execution, good market conditions, and share gains. We also had meaningful contribution from COVID-19 testing as we continue to support our customers' needs. Starting with pharma and biotech, we had another outstanding quarter of performance delivering growth in the mid-teens. We saw broad-based strength in this end market as our customers value our trusted partner status. In academic and government, we grew in the mid single digits during the quarter, with good growth in biosciences, electron microscopy, and our research and safety market channel. Turning to industrial and applied, we grew in the mid teens during the quarter. We saw strong growth in all of our analytical instrument businesses, electron microscopy, chromatography, mass spectrometry, and chemical analysis, as well as in the research and safety market channel. And finally, in diagnostics and healthcare, Q1 revenue declined in the mid-teens. In the core business, we saw strong growth in clinical diagnostics, transplant diagnostics, and the healthcare market channel. During the quarter, the team executed really well to support COVID-19 testing needs. Let me now provide an update on the progress we made in Q1, executing our proven growth strategy, which consists of three elements. A commitment to high impact innovation, scale in the high growth in emerging markets, and a unique value proposition to our customers. We made great progress in the first quarter, and I'll share just a few of the highlights. Starting with the first pillar, it was a fantastic quarter for high impact innovation, as we launched a number of new products that will help our customers break new ground in their important work. A few of the highlights. In our genetic sciences business, we launched our Applied Biosystems SeqStudio Flex series genetic analyzer to improve clinical research and advance scientific discovery. In analytical instruments, we launched four new gas chromatography and GCMS instruments to advance analytical testing for food, environmental, industrial, and pharmaceutical applications. This includes the thermoscientific TRACE 1600 series gas chromatograph, which incorporates enhanced automation for instrument health monitoring, and offers flexibility for customers to optimize their workflow. In bioproduction, we launched the GITCO CTS Xenon Electroporation System for the efficient delivery of genetic material into cells as part of cell therapy manufacturing. In addition, we signed an agreement with precision diagnostic company Oncocyte to develop two new assays for our IonTorrent GeneXus system to improve cancer tumor profiling and advance precision medicine. This is just a small sampling of the outstanding innovation going on across our company, enabling our customer success and strengthening our position as the world leader in serving clients. The second pillar of our growth strategy is leveraging our scale and high growth in emerging markets to create a differentiated experience for our customers. We had strong performance in these markets, including China, which grew double digits in the quarter. Our analytical insurance business are being used around the world to advance scientific research, including in the high growth and emerging markets. For example, in Beijing, the National Institute of Biological Sciences is using our mass spectrometers to accelerate their research in structural biology. And in Korea, our electron microscopes are enabling researchers at Busan National University to establish a bioimaging center to accelerate virus research. Now turning to the third pillar of our growth strategy, our unique customer value proposition. We continue to enhance our capabilities so we can be an even stronger partner and industry leader. To help our customers advance cell and gene therapies, we opened a new biorepository in Vacaville, California. This facility will provide specialized biological sample storage and cell therapy logistics. In bioproduction, our network expansion is going well. During the quarter, we brought on additional capacity online for single-use bioprocess containers and cell culture media. Reflecting our trusted partner status with pharma and biotech customers, we entered a 15-year strategic collaboration agreement with Moderna to establish large-scale U.S. manufacturing of mRNA-based vaccine and therapies. Under this agreement, we'll provide dedicated capacity for a range of aseptic fill finish services, along with inspection, labeling, and final packaging. During the quarter, I had the chance to visit our Greenville, North Carolina campus. where we've invested significantly over the past couple of years to expand our capacity and capabilities. And the new building that will support Moderna's pipeline, it's truly impressive. Now, turning to capital deployment. I'd like to share some of the other steps we've taken to further strengthen our customer value proposition and build our future. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders. Given this was the first full quarter of contribution from PPD, our new clinical research business, I'd like to update you on our progress. The business is performing very well and running ahead of the deal model. The strong start and outlook for the year is allowing us to increase our expectations for the business. Stephen will cover these details in his remarks. In terms of the integration, it's going very smoothly. Our customers are seeing the value of the combination, and we have realized our first commercial synergies, securing new authorizations from pharma and biotech customers who value the combination of our capabilities. This bodes well for our long-term revenue synergies. To further fuel growth and support increasing demand from our biopharma customers, we've also invested to expand our clinical research operations in Richmond, Virginia. Finally, I've been super impressed with the team as I've visited different sites. And together, we're taking the business to the next level as part of Thermo Fisher to become an even stronger partner for our customers. As I mentioned on our last call, we closed on PepperTech, a leading provider of bioscience reagents late last year. I'm pleased to note that that business is off to a great start and the integration is going incredibly well. During Q1, we completed a small bolt-on deal in analytical instruments to enhance our materials and structural analysis offering for our customers. And during the quarter, we also returned significant capital to our shareholders, repurchasing $2 billion of our shares and increasing our dividend by 15%. Turning now to a brief update on our ESG initiatives. We marked a significant milestone during the first quarter, exceeding 1 million readily recyclable paper coolers shipped to transport cold chain products without the use of traditional polystyrene foam coolers. This builds on our commitment to environmental stewardship and enabling broad adoption of sustainable solutions. In addition, we recently announced our partnership with the University of California in San Diego to advance innovation, sustainability, and talent development. This 10-year partnership will establish a network of technology centers focused on accelerating collaborative research and advancing innovations in a range of scientific fields. It will also accelerate educational opportunities, especially for under-resourced students by engaging in joint STEM and community outreach programs and supporting curriculum development, scholarships, fellowships, career mentoring, and recruitment. Before covering guidance, I'd like to end my comments with a reflection on the events that are impacting our colleagues and the world at large. As always, our top priority is the health and safety of our colleagues. We're supporting our colleagues displaced from Ukraine with a variety of needs. And together with our colleagues globally, we've made substantial donations to relief organizations responding in Ukraine and in neighboring safe haven countries. In China, where many of our colleagues are facing lengthy lockdowns and disruption in daily life, due to the pandemic, we're providing care packages to residents in Shanghai who have faced limited food supplies. We also recognize that inflation is challenging for our team, and we're going to provide a special payment this summer to our colleagues. Now, I'd like to review our 2022 guidance at a high level, and then Steven will take you through the details. We're meaningfully raising our full-year guidance. We're increasing our revenue guidance by $450 million to $42.45 billion, which would result in 8% reported revenue growth over 2021. And we're raising our 2022 adjusted EPS guidance by 22 cents to $22.65 per share. This guidance factors in our excellent Q1, includes a very strong core business outlook for the remainder of the year, and it incorporates the expected impact of the recent macroeconomic dynamics. Our Q1 results and our increased guide for the year reflects how well the team is navigating these dynamic times. So to summarize our key takeaways from the first quarter, our outstanding results in Q1 were driven by our proven growth strategy and PPI business system. Our business is performing very well, and we're gaining market share. The PPD acquisition is generating strong returns, and we're really well positioned to continue to differentiate ourselves for all of our stakeholders. All of this has enabled us to raise our outlook for 2022 and further solidify our incredibly bright future. With that, I'll now hand the call over to our CFO, Steven Williamson. Steven?