Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Fermo Fisher Scientific 2023 First Quarter Conference Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I would like to introduce our moderator for today's call, Mr. Rafael Tejada, Vice President of 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 May 12, 2023. A copy of the press release of our first quarter 2023 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 Investors 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 first quarter 2023 earnings and also available 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, Raph. 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 very strong financial performance. Our core business is performing very well. I'm pleased with the team's great execution and the share gain we saw across our company, especially within the context of a slightly more challenging macro environment. Our continued success is the result of our proven growth strategy, the trusted partner status that we've earned with our customers, and our PPI business system, which is a differentiator for us and enables operational excellence within the company. So let me first recap the financials. Our revenue in the quarter was $10.71 billion. Our adjusted operating income was $2.33 billion, and we delivered another quarter of strong adjusted EPS performance, achieving $5.03 per share. At the beginning of the year, We set out appropriately ambitious guidance for 2023, and Q1 demonstrates that we're delivering against that. Let me turn to our end markets. We delivered very strong performance at Q1, driven by outstanding execution from our team, resulting in meaningful share gain. Pandemic-related activity performed as we had expected during the quarter. As a reminder, the impact of a headwind from the revenue runoff can be seen in pharma and biotech due to vaccines and therapies and in diagnostics and healthcare due to COVID-19 testing. Let me give you some color on our end markets. Starting with pharma and biotech, we delivered growth in the mid single digits for the quarter. During the quarter, we had very strong performance in our pharma services, clinical research, and chromatography and mass spectrometry businesses. In academic and government, we grew in the high single digits in the quarter. We delivered strong growth across a range of our businesses, including chromatography and mass spectrometry, electron microscopy, as well as the research and safety market channel. Academic and government demand was strong in all regions. In industrial and applied, we grew in the high single digits for the quarter. We saw strong growth in all of our analytical instrument businesses, including electron microscopy, chemical analysis, and chromatography and mass spectrometry. Finally, in diagnostics and healthcare, in Q1, revenue was approximately 45% lower than the prior year quarter. The team delivered very good core business growth during the quarter, led by our immunodiagnostics, microbiology, and transplant diagnostic businesses. I'll now turn to our proven growth strategy, which enables us to continue to deliver differentiated performance and setting us up for an even brighter future. As a reminder, Our growth strategy consists of three pillars, developing high-impact innovative new products, leveraging our scale in the high growth and emerging markets, and delivering a unique value proposition to our customers. Starting with the first pillar, innovation, we had an excellent start to the year as we launched a number of high-impact new products across our businesses during the first quarter. These technologies are further strengthening our industry leadership by enabling our customers to break new ground their important work in elemental analysis we launched the thermoscientific icap rq plus icp ms analyzer this icp mass spectrometry system simplifies analysis of trace elements in complicated samples including the identification of heavy metals and soil and water as well as toxic elements in food and beverage in genetic sciences we launched the applied biosystems quant studio absolute q auto-run DPCR suite, an automated digital PCR solution to increase productivity for molecular research, including cell and gene therapy and cancer research. In our biosciences business, we launched the Invitrogen Dynagreen microplastic-free magnetic beads for protein purification. This new product will help our customers to reduce the environmental impact of life science research and builds on our long history of innovation and market leadership in bioscience reagents. And in our clinical diagnostics business, we launched the thermoscientific DRI tramadol assay, which broadens our extensive toxicology portfolio with a new drug of abuse assay to help fight the opioid crisis. These are just a few examples of the innovation going on across our company, and I'm excited about the robust pipeline of products that will be launched throughout the year. We also recently learned that Thermo Fisher was ranked number 22 on Fortune's most innovative companies list. This is a new award launched in 2023 based on product and process innovation and the company's culture. A really nice recognition of our team and their track record. The second pillar of our growth strategy is leveraging our scale and the high growth in emerging markets to create a differentiated experience for our customers. We continue to strengthen our capabilities serving these markets by opening a new GIPCO cell culture rapid prototyping facility at our existing site in Suzhou, China. This facility will help regional customers accelerate the transition of their cell culture media production into current good manufacturing practices. It will also ensure patients receive therapies manufactured at the highest level of safety, effectiveness, quality, and purity. Turning to the third pillar of our growth strategy, we continue to enhance our customer value proposition by strengthening our capabilities to enable our customers to make the world healthier, cleaner, and safer. I've had the opportunity to meet with dozens of our pharmaceutical and biotech customers since the beginning of the year, and our value proposition is clearly resonating. Our trusted partner status gives us an early understanding of customers' unmet needs and the ability to generate insights that allow for deep collaborations that continue to advance scientific breakthrough. During Q1, we achieved an exciting milestone in our strategic partnership with the University of California, San Francisco, with the opening of a new cell therapy CGMP manufacturing and collaboration center to accelerate the development of breakthrough therapies for glioblastoma, multiple myeloma, and other cancers. In this facility, we offer UCSF and other customers solutions for cell therapy development from discovery to clinical research through to commercial manufacturing. Partnerships like this have the potential to transform clinical care. Another example of our customer value proposition and the trusted partner status that we have established with our pharma and biotech customers can be seen in the excellent performance of our clinical research business, which drove very strong growth in the quarter. I'm very excited by the revenue synergies that will drive both short-term and longer-term growth in the business. The momentum is continuing to build and is benefiting both our clinical research business and other parts of the company. We're also working with very engaged customers on longer-term projects to explore ways to reduce the time and cost of bringing drugs to market. By bringing our capabilities and expertise within our pharma services and clinical research businesses together, we are working to improve the effectiveness of the drug development process, benefiting both our customers and their patients. We have an exciting pilot underway that is utilizing dedicated resources and best in class technologies and capabilities to provide enhanced visibility and real time data to the customer. This improves the speed of decision making and reduces potential delays from development to manufacturing to clinical trials. It can also help our customers take cost out of the process by reducing waste in the clinical supply process. This is really a nice example of why We are the trusted partner. As always, our PPI business system and our mission-driven culture enabled our success during the quarter. PPI engages and empowers all of our colleagues to find a better way every day, and it enables us to improve quality, productivity, and the customer experience, while also helping us to navigate a dynamic environment. You can see the positive impact of our PPI business system in our results in Q1. It has also allowed us to capitalize on the strong demand from customers for analytical instrumentation and has also helped us to effectively address the runoff and pandemic related activity and appropriately manage our costs. Moving to capital deployment, we've had an active start to the year, both in strategic M&A and returning capital to our shareholders. We closed the acquisition of the binding site at the beginning of the year. It's great to have this business now as part of the company. The business is a fantastic fit with our specialty diagnostics business, and we're leveraging our capabilities to take an excellent business and make it even better. The integration is going very smoothly, and the business is performing very well, tracking ahead of plan. Our team is focused on advancing the diagnosis and management of patients with multiple myeloma and immune disorders, and the innovation pipeline looks great. We're excited by the opportunity to further advance patient care in this area. In terms of return of capital during the quarter, we repurchased $3 billion of stock and increased our dividend by 17%. So overall, a great start to the year from capital deployment. During the quarter, we also advanced our environmental, social and governance priorities, including securing agreements to power all current U.S. sites with 100% renewable energy by 2026. This is a significant contribution to our 2030 commitment to a 50% reduction in Scope 1 and 2 greenhouse gas emissions. As we continue to transition away from fossil fuels and adopt renewable energy, we're also accelerating our progress towards our commitment to net zero carbon emissions by 2050. We'll be releasing our latest Corporate Social Responsibility Report later this quarter, and we'll give our stakeholders a really substantive view on our continuous improvement and the positive impact that we're having. Let me now turn to our guidance. Since the beginning of the year, the macro environment has become slightly more challenging. We're stepping up to that challenge, and our proven growth strategy powered by our PPI business system is enabling us to maintain our ambitious full-year outlook with revenues of $45.3 billion and adjusted EPS of $23.70. Stephen will take you through the details in his remarks. So to summarize our key takeaways from the first quarter. Our very strong results in Q1 were driven by our proven growth strategy and PPI business system. Our business is performing very well. Our unique customer value proposition is further elevating our trusted partner status and we're continuing to gain market share. We effectively deployed capital to create significant value for our customers and shareholders. And we're incredibly well positioned to deliver differentiated performance, and an excellent 2023 as we continue to create value for all of our stakeholders and build an even brighter future for our company. With that, I'll now hand the call over to our CFO, Stephen Williamson. Stephen.