Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2023 fourth quarter conference call. My name is Bailey, and I'll be your moderator for today's call. All lines will be muted during the presentation portion with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I'd now like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President of Investor Relations. Mr. Tejada, you may begin your 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, Events, and Presentation. until February 16, 2024. A copy of the press release of our fourth quarter and full year 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 reports 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 Finance. 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 fresh release of our fourth quarter and full year 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, Raf. Good morning, everyone. And thanks for joining us today for our fourth quarter call. As you saw in our press release, our fourth quarter results were ahead of the guidance we provided on our call in October and demonstrates strong execution. As I reflect on our performance for the full year, I'm very proud of our team as they operated with speed at scale to enable the success of our customers while demonstrating incredibly strong operational discipline and commercial execution. In 2023, we delivered differentiated short-term performance while at the same time strengthening our long-term competitive position. I'll get into more detail in my remarks later, but first, let me recap the financials. Starting with the quarter, our revenue was $10.89 billion. Our adjusted operating income was $2.55 billion. We expanded our adjusted operating margin by 100 basis points to 23.4%. And we delivered another quarter of strong adjusted EPS performance, growing adjusted EPS 5% to $5.67 per share. Then, in terms of our full year results, our revenue was $42.9 billion in 2023. Adjusted operating income was $9.81 billion, and adjusted EPS was $21.55 per share. Last year, we once again delivered meaningful share gain with our industry-leading products, services, and expertise. We leveraged our PPI business system to enable outstanding execution. including aggressively addressing our cost base to effectively navigate a challenging macroeconomic environment. At the same time, we strengthened our long-term competitive position with high impact innovation, exciting and complimentary acquisitions, additional investments in our capabilities, and further strengthening our trusted partner status with our customers. Turning to our performance by end market, in the fourth quarter, underlying market conditions largely played out in line with our expectations. Our continued strong execution resulted in revenue performance that was slightly ahead of our expectations. Now let me provide you some color on our performance in the context of each of our end markets. Starting with pharma and biotech, as expected, growth declined in the high single digits for the quarter and approximately 1% for the full year. In 2023, vaccine and therapy runoff resulted in a seven point headwind in this customer segment, which was effectively offset through share gains as a result of our trusted partner status. We've made strong progress in transitioning COVID related capacity to other therapies, and that's very exciting for the future. In academic and government, we grew in the mid single digits for the quarter. and in high single digits for the full year. In 2023, we delivered strong growth across a range of our businesses, including electron microscopy, chromatography, and mass spectrometry, as well as the research and safety market channel. In industrial and applied, we grew in the low single digits for both the quarter and for the full year. During the year, we delivered very strong growth in our electron microscopy business. And finally, in diagnostics and healthcare, in Q4, Revenue declined in the high teens and was 30% lower for the full year. In 2023, we delivered good core business growth in this end market, highlighted by our immunodiagnostics, microbiology, and transplant diagnostic businesses. I'll now turn to an update on our growth strategy. As a reminder, our strategy consists of three pillars, high-impact innovation, our trusted partner status with customers, and our unparalleled commercial engine. Starting with the first pillar, it was another terrific year of high-impact innovation. Throughout the year, we launched outstanding new products across our businesses that strengthened our industry leadership by enabling our customers to advance their important work. In chromatography and mass spectrometry, the year was highlighted by the launch of the groundbreaking thermoscientific Orbitrap Astral Mass Spectrometer, which is helping our customers uncover proteins that were previously undetectable. The scientific breakthrough is enabling customers to advance precision medicine, including the identification of new clinical biomarkers. In the six months since launch, the scientific community's adoption of the product has exceeded our high expectations, and the momentum is continuing to build as we enter 2024. In electromicroscopy, we launched the thermoscientific METRIO6 STEM. a fully automated system that enables our customers to rapidly obtain large-volume, high-quality data from increasingly complex semiconductors to advance development. In specialty diagnostics, we launched the first FDA-cleared assays for the risk assessment and clinical management of preeclampsia. This first-of-a-kind diagnostic has received significant attention and adoption as it has significantly raised the standard of care for pregnant women, helping physicians to better manage care by predicting who is most at risk for this condition. In life sciences solution, we introduced the Gibco CTS detachable DynaBeads, our next generation DynaBeads platform to accelerate manufacturing of life-changing cell therapies. We continued this great innovation momentum in the fourth quarter. In electromicroscopy, we launched the thermoscientific Meridian EX system for precise defect localization in advanced logic semiconductors. And in laboratory products, we launched the thermoscientific Aquanex ultra-pure water purification system for reliable water purity and operational enhancement in laboratories. So, another spectacular year of innovation and an exciting pipeline for the future. In 2023, we also continue to strengthen our industry-leading commercial engine and the trusted partner status we have earned with our customers. This included the opening of a state-of-the-art customer center of excellence in Milan to showcase our industry-leading product services and expertise. And during the fourth quarter, we further strengthened our position in advanced materials by opening a customer experience center for battery manufacturing in Seoul to accelerate the development of next generation of environmentally friendly energy solutions. We also made significant advancements in the partnerships and collaborations with our customers throughout the year. Building on our long-standing relationship with Boehringer Ingelheim, A great example in the fourth quarter was an exciting opportunity to develop a genomic testing-based companion diagnostic for non-small cell lung cancer patients in Japan and the United States, where lung cancer is a leading cause of cancer death. Now, let me turn to our PPI business system and our mission-driven culture, which continue to enable successful execution during the year. PPI engages and empowers all of our colleagues to find a better way every day. It's helping us to drive share gain, improve quality, productivity, and customer allegiance. I'm proud of the way our team leveraged PPI to step up in an agile way to navigate the dynamic environment last year, driving higher commercial intensity, actively managing our call space, and optimizing sourcing. We're also leveraging generative AI as part of our PPI business system toolkit to increase productivity, further optimize our commercial effectiveness, and improve the customer experience. A quick recap on capital deployment last year. We continued to successfully execute our discipline capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders. In terms of M&A, we completed our acquisition of the binding site, our protein diagnostics business, which enhances our specialty diagnostics offering by advancing the diagnosis and management of patients with multiple myeloma and other immune disorders. The integration has gone smoothly, and the business is performing extremely well and tracking ahead of the deal model. As we look to the future of the protein diagnostics business, our launch of XENT instrument solution represents a significant breakthrough given its enhanced sensitivity, specificity, and ease of use when compared to conventional methods. This is a great complement to our Freelite assays and there's strong interest from the medical community due to the positive impact on diagnosing multiple myeloma patients. In the third quarter, we added Corevitas, a leading provider of regulatory-grade real-world evidence for approved medicines and therapies. Corevitas is now integrated into our clinical research business, and customers are seeing the benefit of these additional capabilities. The business is off to a great start and performing very well. During the fourth quarter, we announced our intent to acquire Olink, a provider of advanced proteomic solutions that help researchers to gain an understanding of disease at the protein level rapidly and efficiently. As a reminder, Olink's technology complements our leading mass spectrometry and life science platforms, and we are uniquely positioned to rapidly bring this technology to customers. The transaction is on track to be completed by mid-2024. subject to customary closing additions, including regulatory approvals. In 2023, we also returned $3.5 billion of capital to shareholders through stock buybacks and dividends. Let me now give you a brief update on our corporate social responsibility initiatives. As a mission-driven company, we help to make the world a better place by enabling the important work of our customers. We also have a positive impact by supporting our communities and being a good steward of our planet. And I'm proud of the actions we took in 2023 in this regard. Building on the environmental sustainability initiatives, we continue to accelerate our transition to renewable energy with onsite solar projects and power purchase agreements around the world. This progress will help us achieve our recently established target of utilizing 80% renewable electricity globally by 2030. To advance global health equity in the fourth quarter, we announced a partnership with Project Hold to improve the well-being and treatment outcomes for young people living with HIV in Nigeria, the country with the second largest HIV epidemic worldwide. Throughout the year, Thermo Fisher Scientific was once again recognized for our industry leadership and inclusive culture where colleagues can have a mission-driven career. To list just a few of the recognitions, we were once again included on Fortune's list of the world's most admired companies, as well as Fortune's inaugural list of most innovative companies. Newsweek named us as one of America's most responsible companies. Forbes included us on its list of the world's top companies for women and named us as one of the best employers for veterans. As I reflect on the year, I'm very proud of what our team accomplished. Thanks to our incredible colleagues, we successfully navigated the environment, continued to build a bright future for our company. I'm very excited about 2024 and beyond. So let me now turn to guidance. Stephen will outline the assumptions that factor into our 2024 revenue and earnings guidance, but let me quickly cover the highlights. We're initiating a 2024 revenue guidance range of $42.1 billion to $43.3 billion and an adjusted EPS range, guidance range of $20.95 to $22 per share. This outlook reflects a continuation of us demonstrating incredibly strong commercial execution and operational discipline and enabling the success of our customers. I've had the opportunity to connect with many of our customers in January to understand what's on their minds. Based on our longstanding relationships, we have terrific access to the senior executive teams of our customers. From these conversations, it's clear to me that our customers value our partnership and see us as essential to enabling their success. They are enthusiastic for the future because of the progress and pipelines to treat disease, and there's also great enthusiasm with material science customers for the important advances made in those fields. All of this will create strong long-term demand for our capabilities as we enable customer scientific breakthroughs, and we continue to be incredibly well positioned to enable our customers to make the world healthier, cleaner, and safer. So to summarize our key takeaways for 2023, our proven growth strategy continues to drive significant share gain. We continue to elevate our trusted partner status and deepen the relationship with many customers last year. And this, in combination with the power of our PPI business system, delivered differentiated performance for the quarter and the full year, helping us to effectively navigate a challenging macroeconomic environment. We're well positioned in 2024 to once again deliver differentiated short-term performance and further strengthen our long-term competitive position. With that, I'll now turn the call over to our CFO, Stephen Williamson. Stephen?