Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2023 Second Quarter Conference Call. My name is Ellen, and I'll be coordinating the call for today. During the presentation, if you'd like to ask a question, please press star followed by one on your telephone keypad to join the question queue. I would now like to introduce our moderator of the call, Mr. Rafael Tejada, Vice President of Investor Relations. Mr. Tejada, you may now 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, Events, and Presentations until August 11, 2023. A copy of the press release of our second 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 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 violence. 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 2023 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. Good morning, everyone, and thanks for joining us today for our second quarter call. Let me recap our financial performance for the quarter, then I'll provide additional context on what we're seeing playing out in the macro economy and the implications for our outlook. In the second quarter, our revenue was $10.69 billion. Our adjusted operating income was $2.37 billion, and we delivered adjusted EPS of $5.15 per share. As you saw in our press release, the macroeconomic environment became more challenging in the quarter. Economic activity in China slowed, and across the economy more broadly, businesses became more cautious in their spend. This impacted our Q2 results and informed a more moderated view for the full year. We're taking appropriate actions to successfully navigate these conditions. As a reminder, when we set out our guidance at the beginning of the year, we assumed core market growth would be in the normal range of 4% to 6% for 2023. Given the more challenging macroeconomic environment at this point, we think it is best to assume that these conditions will persist for the remainder of the year, and our current assumption is that core market growth will be in the 0% to 2% range this year. We're increasing our commercial intensity to help our customers through this environment, and capture even more opportunities. We're also leveraging the PPI business system to appropriately manage our costs. Given these changes, we're revising our revenue and adjusted EPS guidance for the full year. I'll cover some of the key points around the guidance, and Stephen will outline our underlying assumptions later in the call. For 2023, we now expect revenue to be in the range of $43.4 billion to $44.0 billion, and adjusted EPS to be in the range of $22.28 to $22.72. As you know, during periods of change, we have a very clear set of guiding principles on how we manage the company. These principles have three elements. First, everything we do starts with our customers and ensuring that we're enabling their success. Second, we inspire our colleagues to bring their best every day to fulfill our mission. And third, we hold ourselves to an incredibly high standard to deliver differentiated short-term performance, all while capitalizing on dynamic times to enhance our long-term competitive position, creating an even brighter future for our company. To enable the differentiated short and long-term performance in this environment, we're leveraging our PPI business system to deliver $450 million of additional cost actions in 2023. That's in addition to what was embedded in our previous guidance. We're ramping up our commercial intensity to drive our share gain momentum, and we continue to invest in our capabilities to be an even stronger partner for our customers. We're uniquely positioned to help them navigate their own challenges in this environment. When I think about our proven ability to navigate market dynamics, combined with the long-term market growth drivers for the life sciences industry, I'm incredibly confident for the future. As I look ahead, there is a clear need for new medicines, and the scientific advances in life sciences are leading to exciting and innovative therapies, which will make a profound positive impact on well-being and be one of the drivers creating the very strong and durable tailwind in our industry. Let me now turn to our quarterly performance and provide you with an update on our end markets. Starting with pharma and biotech, growth was flat for the second quarter. The COVID-19 vaccine and therapy revenue runoff performed as expected during the quarter, resulting in a five-point headwind within this market. From a segment perspective, that revenue runoff is essentially all in our life science solution segment. largely in our biosciences business related to nucleotides and enzymes, and to a lesser extent in bioproduction. The strongest growth in pharma and biotech end market this quarter was in our pharma services and clinical research businesses. In academic and government, we grew in high single digits in the quarter. We delivered very strong growth in our electron microscopy and chromatography and mass spectrometry businesses, as well as our research and safety market channel. In industrial and applied, we grew in the low single digits for the quarter. The strongest growth in this end market was in our analytical instruments businesses. And finally, in diagnostics and healthcare, revenue in Q2 was approximately 20% lower than the prior year quarter. The team delivered very good core business growth during the quarter, driven by our microbiology, immunodiagnostics, and transplant diagnostic businesses. Let me now turn to our growth strategy. We really made terrific progress in Q2 in this regard. Our growth strategy consists of three pillars. High-impact innovation, our trusted partner status with customers, and our unparalleled commercial engine. Starting with the first pillar, innovation. We had a really spectacular quarter. We launched high-impact new products that are further strengthening our industry leadership by enabling our customers to break new ground in their important work. We had a great showing at the American Society for Mass Spectrometry Conference, where we featured the groundbreaking thermoscientific Orbitrap Astral Mass Spectrometer, which is the most significant advancement in mass spectrometry in 15 years. The Orbitrap Astral combines speed, high sensitivity, and deep proteome coverage to enable researchers to uncover proteins that previously evaded detection. This will enable breakthroughs that could lead to the development of new targeted therapies for a range of diseases, from cardiovascular disease to cancer. We've already started to deliver the astral to our customers, and we're very pleased with the strong bookings performance to date. In our electron microscopy business, we launched the thermoscientific METRIO6 scanning transmission electron microscope, the latest innovation in our leading line of instruments designed for the semiconductor industry. This fully automated system enables our customers to rapidly obtain large volume, high quality data from increasingly complex semiconductors to accelerate development. In our biosciences business, we introduced the Gibco Oncopro Tumoroid Culture Media Kit. It accelerates development of novel cancer therapies. These kits support the culture of tumor cells derived from individual patients, providing a better disease model for research, and drug development that could potentially improve clinical trial success and help bring drug candidates to market faster and more cost-effectively. And in specialty diagnostics, we launched the first and only immunoassay to help doctors stratify a mother's risk of developing preeclampsia, a serious complication that can develop in pregnancy and the postpartum period, endangering both mother and baby. We received breakthrough designation and FDA clearance for assessing a patient's risk of developing severe preeclampsia, enabling doctors to better manage care. These are just a few examples of the exciting innovation going on across our company, which will make a significant difference for our customers and drive future growth. The second pillar of our growth strategy is the trusted partner status that we have built with our customers. This unique relationship gives us early insights into our customers' unmet needs and enables us to bring our industry-leading products, services, and expertise together in ways that no one else can. We continue to strengthen our capabilities to be an even stronger partner for our customers. For example, in our pharma services business, we added an early development hub at our site in Bourgogne, France, enabling early development in addition to commercial manufacturing. The third pillar of our growth strategy is our unparalleled commercial engine. we have a meaningful commercial advantage due to the deep engagement that we're able to have with our customers across the globe. A great example of our progress here is further strengthening our commercial capabilities with the opening of a state-of-the-art customer center of excellence in Milan. It features a customer application development lab to showcase our industry-leading products, services, and expertise. We continue to successfully execute our discipline capital deployment strategy which is a combination of strategic M&A and returning capital to shareholders. During the quarter, we completed a small bolt-on acquisition of Markmetrics, a developer of Raman-based spectroscopy solutions for in-line process analytics. This technology expands our capabilities to help our customers make precise and accurate measurements throughout their manufacturing processes in a wide range of applications, including BioPharma. This business is a nice complement to our analytical instruments business. Let me give you a quick update on the binding site acquisition, which we closed at the beginning of the year. Our protein diagnostics business has delivered outstanding growth and the integration is going incredibly well. Our team is progressing the innovation pipeline to advance the diagnosis and management of patients with multiple myeloma and immune disorders. And just after the close of the quarter, we announced an agreement to acquire Corevitas. a leading provider of regulatory-grade real-world evidence for approved medical treatments and therapies. Real-world evidence is the collection and use of data from patient health outcomes gathered through routine clinical care. This is a high-growth market segment as pharmaceutical and biotechnology customers, as well as regulating bodies, are increasingly looking to monitor and evaluate the safety of approved medicines and examine their effectiveness and value in the post-approval setting. Core Evitas will further strengthen our capabilities to serve our pharma and biotech customers. It's an excellent strategic fit for our company and highly complementary to our clinical research business. There is strong market demand for real-world evidence, which improves decision-making and reduces the time and costs associated with drug development. The acquisition is expected to be completed by the end of this year, and I'm very excited about what this will mean for our customers and the patients they serve. Financially, we expect the business to deliver low double-digit growth and be accretive to adjusted EPS by $0.03 in 2024. So overall, strong progress in the second quarter for capital deployment. During the quarter, we advanced our environmental, social, and governance priorities, including launching a partnership with Pfizer to increase local access to next-generation sequencing-based testing for lung and breast cancer patients in more than 30 countries across Latin America Africa, the Middle East, and Asia. These are areas where advanced genomic testing has previously been limited or unavailable. Access to local NGS testing can help to provide faster analysis of associated genes, empowering healthcare providers to select the right therapy for that individual patient. Through the partnership, we will work with local labs using our NGS technology to ensure they meet industry standards for NGS testing for breast and lung cancer. Pfizer will work to enable affordable patient access and to raise healthcare provider awareness regarding the benefits of advanced NGS testing. Together, we'll continue to evaluate additional geographic opportunities and to expand testing for other types of cancer. I'm very proud of the way we're making a difference, not only by enabling our customer success, but also by creating a great work environment for our colleagues and making a positive impact for society. So to summarize our key takeaways from the second quarter. While the macroeconomic environment has become more challenging, our team continues to leverage our PPI business system to deliver strong productivity. We're focused on driving market share gains and, at the same time, we're advancing our proven growth strategy to be an even stronger partner for our customers. We effectively deploy capital to create significant value for our customers and our shareholders. And the attractive long-term outlook for the life sciences industry and Thermo Fisher is unchanged. We're incredibly well positioned to help our customers navigate the current environment, capture incremental opportunities, and exit this period an even stronger industry leader with a very bright future. With that, I'll now hand the call over to our CFO, Stephen Williamson. Stephen.