Thermo Fisher Scientific Inc

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 October 21st, 2025. A copy of the press release of our second quarter 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 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 gap. 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 2025 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, Raf. Good morning, everyone, and thanks for joining us today for our second quarter call. As you saw in our press release, we delivered excellent operational performance in the quarter, reflecting active management of our company and the strength of our proven growth strategy and PPI business system. Our trusted partner status is more relevant than ever and is resonating strongly with our customers. This is allowing us to continue to drive market share gains and highlight our unique ability to enable their success in all market environments. So turning to the details of Q2, let me first recap the financials. Our revenue in the quarter grew 3% to $10.85 billion. Our adjusted operating income grew 1% to $2.38 billion. Q2 adjusted operating margin was 21.9%. And adjusted EPS was $5.36 per share. These results were ahead of our guidance. During the quarter, our team aggressively mobilized to take the actions to navigate the policy environment and minimize the impact of tariffs for 2025 and beyond. Stephen will provide some more details on our progress. I'll now cover our performance by end market. In pharma and biotech, we delivered mid single digit growth this quarter, representing a nice sequential step up. Performance in the quarter was led by our bio production, and pharma services businesses, as well as our research and safety market channel. It was also good to realize a sequential improvement in our clinical research business, which delivered slightly positive growth in the quarter. Turning to academic and government, revenue declined mid-single digits in the quarter, reflecting some customer hesitancy in a more uncertain environment, resulting in muted demand for equipment and instruments. In industrial and applied, performance played out as we expected, with growth declining in the low single digits during the quarter. In Q2, we delivered good growth in our research and safety market channel. And finally, in diagnostics and healthcare, revenue declined in the low single digits during the quarter as we navigated headwinds in China. A highlight of the quarter was strong growth in our transplant diagnostic business. Wrapping up on the end markets, our team managed the current environment well. helping us deliver on our financial commitments for the quarter. I'm going to keep my comments a little shorter today, so I can leave time to discuss a couple topics that seem to be of mind in the investment community. So let me give you an update on how we executed our growth strategy in Q2, which drives value creation for our investors. As a reminder, our strategy consists of three pillars, high-impact innovation, our trusted partner status with customers, and our unparalleled commercial engines. As you all have heard me share before, we consistently deliver really outstanding innovation. We have some great launches this quarter. We launched several state-of-the-art solutions at this year's ASMS conference, highlighted by two next-generation thermoscientific orbit mass spectrometers, the AstroZoom and the Excedian Pro. As you know, we're an industry leader in the space, and these cutting-edge analytical instruments will enable researchers to further advance precision medicine, and drive significant insights to help pioneer new therapies for complex diseases like Alzheimer's and cancer. Customer feedback has been incredibly positive, with one calling the AstroZoom a paradigm shift for proteomic technology, and noting that the Excedium Pro provides immediate value to their biotechnology work and will serve as their next generation platform. Also during the quarter, we launched the thermoscientific Cryos 5 cryotransmission electron microscope, which further enhances our leadership in electron microscopy and empowers researchers to uncover critical biological insights and to support the development of new therapeutics. Additionally, we expanded our Dynadrive single-use bioreactor portfolio for bioproduction with the first of its kind bench scale system, helping biopharma customers increase workflow efficiencies and seamlessly scale up manufacturing of new therapies. Our trusted partner status, which we built over many years is another example of why our growth strategy is working and why we're so well positioned for the future. You can clearly see this momentum in our performance with pharma and biotech. Our accelerated drug development solution is a terrific example of how we're delivering great value to our customers. Accelerated drug development is the integration of our pharma services and clinical research capabilities with the ultimate goal of taking time and cost out of the drug development process. During the quarter, it was great to see the Tufts Center for the Study of Drug Development validate the power and benefit of our unique capabilities. And I'm pleased to state that the customer uptake is very strong, with clinical research authorizations growing strongly in the quarter. Because of the unique relationship we have with our customers, we are partnering with them to tailor how we help them navigate and thrive in the current environment. For some customers, this means expanding U.S. capacity for drug production and supporting their reshoring efforts. For others, it's about accelerating clinical research timelines by aggressively adopting AI into our processes. And then there are customers where it's all about identifying ways to help them drive productivity. Wrapping up, my comments on the growth strategy were uniquely positioned to win in this environment. Let me provide a few comments on capital deployment. We continue to successfully execute our proven capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders. As you recall, in February, we announced that we had entered into a definitive agreement to acquire Soventum's purification and filtration business. Last month, we amended our agreement to remove Soventum's drinking water filtration business from the transaction. which allowed us to both accelerate the regulatory clearance process and narrow the scope of the acquisition to the business lines most synergistic with Thermo Fisher. We have received all regulatory clearances and we're on track to close the transaction before year end. We're excited to welcome our new colleagues to the company and bring the benefits of Sylventa purification and filtration technologies to our customers. And then shortly after the quarter closed, We announced an expansion of our strategic partnership with Sanofi to enable additional U.S. drug product manufacturing. Under the agreement, we will acquire Sanofi's sterile fill finish site in Ridgefield, New Jersey, and continue to manufacture a portfolio of therapies for Sanofi. We will also invest in expanding production at the site to meet the growing demand for U.S. manufacturing capacity from our pharma and biotech customers. This is a great example of the power of our trusted partner status and capital deployment strategy at work. As always, our PPI business system was a key enabler of our strong execution in the quarter and drives competitive advantage for Thermo Fisher. We're leveraging PPI to adjust our supply chains in the tariff environment and to aggressively manage our cost base. And we continue to further strengthen the PPI business system by incorporating AI to enhance how we serve customers, streamline internal processes, and reduce costs. PPI is enabling excellent execution today and will continue to do so in the future. So let me now turn to our guidance. We're increasing our guidance for the full year on the top and bottom line. We now expect revenue in the range of $43.6 billion to $44.2 billion. and adjusted EPS in the range of $22.22 to $22.84 per share, a 23 cents increase at the midpoint. This reflects continued active management of the business. Stephen will take you through the details in his remarks. Let me now turn to a couple of questions that seem to be top of mind for investors. The first is, What is our early thinking on the potential impacts of the U.S. policy focus and tariffs on the near-term growth outlook for Thermo Fisher? And second, in that scenario, how are we managing the company to create meaningful shareholder value? Given our strong conviction of the long-term growth drivers of our industry, we thought it'd be most helpful to you if we zoomed in on the nearer term. Say the 2026-2027 timeframe to focus these questions. We believe that a reasonable assumption is that our end markets will gradually build from the lower growth environment that we're currently navigating. This would lead to a 2026 and 2027 scenario where we will deliver 3% to 6% organic revenue growth. Today, we're currently at the low end of this range, and we believe that our growth will accelerate over the next two years. Given that top-line scenario, here is how we're focused on driving shareholder value creation. First, we'll collaborate even more closely with our customers. As you've heard me say before, our trusted partner status is a meaningful differentiator for us with our customers. They're relying on us to enable their success as they adapt to the environment. Second, we're actively managing the company. You see that in our results and the 2025 financial outlook. Strong cost management was a focus at the beginning of the year, embedded in our original guidance. And we've meaningfully stepped up the action as the year has progressed, adding an additional $300 million of cost reduction since the initial guide. And we will continue that intense focus in 2026 and 2027. This will result in us delivering strong adjusted operating income growth of mid to high single digits. And when you factor in our disciplined capital deployment strategy, we have the opportunity to further compound our returns. The final point I want to make is that the long-term drivers of the industry remain very compelling. We expect the environment to improve over the next couple of years, and during that time will deliver very strong earnings growth. When I look to the future, once this near-term scenario plays out, we expect to deliver 7% plus organic revenue growth. So to summarize our key takeaways from the quarter, we delivered excellent operational performance driven by our proven growth strategy and PPI business system, beating our guidance and raising our outlook for 2025. Our trusted partner status and proven ability to enable our customer success is a significant competitive advantage. We're actively managing the company in this environment. We're gaining share and driving greater productivity and cost reduction. And I remain incredibly confident in the near and long-term outlook for the company. With that, I'll now hand the call over to our CFO, Steven Williamson. Steven?

Thanks, Mark, and good morning, everyone. I'll take you through an overview of our second quarter results for the total company, then provide cover on our four business segments, and I'll conclude by providing our updated 2025 guidance. Before I get into the details of our financial performance, let me provide you with a high-level view of how the second quarter played out versus our expectations at the time of the last earnings call. In Q2, our team executed really well, and we delivered ahead of what we'd assumed in the midpoint of our prior guidance on both the top and bottom line. This performance reflects very active management of the company, both to minimize the tariff and broader policy impacts and enable the success of our customers. On the top line, Q2 organic revenue growth was approximately $75 million ahead of what we'd included in the prior guidance, driven by sales in China being less impacted by tariffs than had been assumed. In aggregate, the rest of the business performed in line with our expectations, which is an excellent outcome given the macro environment. Then on the bottom line, we delivered 13 cents of adjusted EPS ahead of what was included in the prior guide for Q2, reflecting excellent operational execution. Eight cents of the beat was from lower impact to tariffs than had been assumed in the prior guide, and five cents of the beat was from strong cost management enabled by the PPI business system. So excellent operational performance in Q2. Let me now provide you with some additional details on the quarter, starting with earnings per share. In the quarter, adjusted EPS was $5.36. GAAP EPS in the quarter was $4.28, up 6% in Q2 last year. On the top line, Q2 reported revenue grew 3% year over year. The components of our reported revenue growth included 2% organic revenue growth, a slight contribution from acquisitions, and a 1% tailwind from foreign exchange. Within our revenue growth for the quarter, we had a 1% headwind from the runoff of the pandemic-related revenue. Turning to our organic revenue performance by geography, in Q2, North America and Europe both grew low single digits, and Asia Pacific declined low single digits, with China declining high single digits. With respect to our operational performance, we delivered $2.38 billion of adjusted operating income in the quarter, an increase of 1% year-over-year, an adjusted operating margin with 21.9%, 40 basis points lower than Q2 last year, and flat sequentially to Q1 2025. In Q2, the year-over-year impact of tariffs and related effects was a 5% headwind to adjusted operating income dollars, and a headwind to reported margins in the quarter of 140 basis points. This was partially offset by the rest of the business, which drove 100 basis points of margin improvement in the quarter, demonstrating our ability to drive strong earnings growth in a more muted top-line environment. We delivered very strong productivity, which enabled us to fund strategic investments to further advance our industry leadership and offset the impact of unfavorable mix. Total company adjusted gross margin in the quarter was 41.3%. which is 80 basis points lower than Q2 last year. Tariffs and related FX reduced adjusted gross margins by approximately 150 basis points. This was partially offset by 70 basis points of improvement across the rest of the business. Moving on to the details of the P&L, adjusted SG&A in the quarter was 16.2% of revenue. R&D expense was $352 million in Q2, reflecting our ongoing investments in high-impact innovation. An R&D as a percent of our manufacturing revenue was 7.4% in the quarter. Looking at our results below the line, our Q2 net interest expense was $107 million. As expected, the adjusted tax rate in Q2 was 10%. An average diluted shares were 378 million, 5 million lower year over year driven by share repurchases, net of option dilution. Turning to free cash flow on the balance sheet, year-to-date cash flow from operations was $2.1 billion and free cash flow was $1.5 billion after investing $645 million of net capital expenditures. During the quarter, we repaid approximately $700 million of senior notes and returned $160 million of capital through dividends. We ended the quarter with $6.4 billion in cash and short-term investments and $35.2 billion of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.7 times on a net debt basis. And concluding my comments on our total company performance, adjusted ROIC was 11.3%, reflecting the strong returns on investment that we're generating across the company. Now I'll provide some color on the performance of our four business segments. In life science solutions, Q2 reported revenue in this segment increased 6% versus the prior year quarter, and organic revenue growth was 4%. Growth in this segment was led by a bioproduction business, which had another quarter of excellent growth. Q2 adjusted operating income for life science solutions increased 6%, and adjusted operating margin was 36.8%, up 10 basis points versus the prior year quarter. During Q2, we delivered very strong productivity, which was partially upset by the expected impact of the O-Link acquisition, unfavorable mix, and strategic investments. In the analytical instrument segment, reported revenue declined 3% and organic growth was 4% lower versus the year-ago quarter. This was driven by the impact of tariffs and the policy focus of the US administration, which is leading to a more muted demand for equipment and instrumentation. In this segment, Q2 adjusted operating income, decreased 26% and adjusted operating margin was 18.8%, down 580 basis points versus the year-ago quarter. The majority of the margin change was driven by the impact of tariffs and related effects. Outside of that impact, strong productivity was more than offset by lower volumes and strategic investments. Turning to specialty diagnostics, in Q2, reported revenue grew 2% year-over-year, and organic revenue was flat compared to the year-ago quarter. In Q2, growth in this segment was led by a transplant diagnostics business. Q2 adjusted operating income for specialty diagnostics increased 3%, and adjusted operating margin was 27%, 30 basis points higher than Q2 2024. During the quarter, we delivered good productivity, which was partially offset by unfavorable mix and strategic investments. Finally, in the laboratory products and biopharma services segment, Reported revenue increased 4%, and organic revenue grew 3% versus the prior year quarter. In Q2, growth in the segment was led by a pharma services business and a research and safety market channel. The runoff of pandemic-related revenue had over a 1% impact on the revenue growth in the segment in Q2. Q2 adjusted operating income in the segment increased 11%, and adjusted operating margin was 13.8%, 90 basis points higher than Q2 2024. In the quarter, we delivered very strong productivity, which is partially upset by unfavorable mix and strategic investments. So turning to guidance, as Mark outlined, we're increasing our 2025 full-year guide to reflect the Q2 beat and our continued active management to the company. Let me provide you with the details. We're raising our revenue guidance to an expected range of $43.6 to $44.2 billion. Organic revenue growth is still expected to be in the range of 1% to 3%. We're increasing our outlook for adjusted operating margin in 2025 to a new range of 22.5% to 22.7%. And we're raising our adjusted EPS guidance to a new range of $22.22 to $22.84. The increase of the midpoint of the guidance range reflects $120 million higher revenue than the prior guide, 30 basis points of improved adjusted operating margin, and 23 cents of higher adjusted EPS. This incorporates the Q2 BEAT, as well as an additional 10 cents of adjusted EPS in the second half of the year to reflect additional cost actions we're taking to continue to actively manage that cost base. And it's important to note that our organic outlook for the second half of the year remains on track to the prior guidance. The US-China tariff situation has improved significantly versus our prior guidance assumptions. We reflected the Q2 benefit of that in our revised guidance. Given the fluidity of the tariff and trade policy environment, we thought it was appropriate to keep the tariff impact outlook for the second half unchanged at this point. Should global tariffs remain as they are today, we'll likely have upsides to the new guidance. We're actively managing the company to appropriately navigate the macro environment. Our growth strategy is enabling customer success and driving share gain, and we're using the PPI business system to effectively address tariffs and aggressively manage our cost base. Our initial guide for the year included very strong earnings growth enabled by aggressive cost management, and since then, we've added an additional $300 million of cost actions for 2025. Through PPI, we're constantly finding ways to be more productive and to leverage the scale of the company. This includes increasing the utilization of our shared services and our functional centers of excellence. PPI drives strong earnings growth and also creates room in the P&L to continue to invest for the future. And I'll move on to an update of some of the modeling elements for the full year. FX rates continue to fluctuate in the quarter, driven by changes in tariffs and trade policy. In Q2, the year-over-year FX impact on revenue improved $60 million versus our prior guide, but the adjusted EPS impact worsened by 8 cents, largely due to one-time transactional FX caused by intra-quarter volatility in rates, which, if FX rates stay as they are today, will not reoccur in 2026. So for the full year, we now expect FX to be a year-over-year tailwind to revenue of $10 million and a headwind to adjusted operating income and adjusted EPS of $80 million and 27 cents respectively. Below the line, we now expect net interest expense to be between $360 and $370 million in 2025, and we continue to expect an adjusted tax rate of 10.5% for the full year. We continue to expect between $1.4 and $1.7 billion of net capital expenditures in 2025, and free cash flow in the range of $7 to $7.4 billion for the year. In terms of capital employment, we're assuming $2 billion of share buybacks, which were already completed in January. We continue to estimate the full-year average diluted share count will be between 378 and 379 million shares, and we'll return approximately $600 million of capital to shareholders this year through dividends. Our guidance does not include any future acquisitions or divestitures. So it does not include any impact from the pending acquisitions of Silventum's purification and filtration business and the sterile fill finish site from Sanofi. In terms of phasing for Q3, we expect organic growth in Q3 to be about a point higher than Q2 and adjusted EPS to be approximately 10 to 15 cents higher than Q2. And then finally, I wanted to touch on the financial scenario for the next couple of years that Mark outlined earlier. We're managing the company under the assumption that we'll deliver between 3% and 6% organic revenue growth in that period. That includes a continuation of the strong share gains that we've been delivering. In that top line environment, using the proven levers of the PPI business system, we expect to generate approximately 50 to 70 basis points of adjusted operating margin expansion and mid to high single digit adjusted operating income growth. And we have a number of exciting opportunities to supplement this organic performance with effective capital deployment. We're very well positioned to continue to drive very strong earnings performance under this level of assumed top line growth. And there are scenarios where we can be above this assumed level of growth, and should this occur, we'll be in a great position to drive even better performance. So to conclude, we continue to actively manage the company and are effectively navigating the macro environment. Our customers are working on incredibly relevant science to address huge unmet needs in the world, and we're uniquely positioned to enable their success. With that, I'll turn the call back over to Mark.