Thermo Fisher Scientific Inc

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2026 First Quarter Conference Call. To ask a question on today's call, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President of Investor Relations. Mr. Tejada, you may begin.

Good morning, and thank you for joining us. On the call with me today is Mark Casper, our chairman and chief executive officer, and Jim Meyer, 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 July 22, 2026. A copy of the press release of our first 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 within the meaning of applicable securities laws. 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 under the heading Risk Factors. These forward-looking statements are based on our current expectations and speak only as of the date they are made. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even in the event of new information, future developments, or otherwise. 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-gap financial measures to the most directly comparable gap measures is available in the press release of our first quarter 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 first quarter call. As you saw in our press release, we delivered a strong start to the year. Our end markets are progressing in line with our expectations. We continue to strengthen and add to our capabilities by executing our proven growth strategy and completing the acquisition of Clario. Our progress in the quarter further advances our leadership position as the trusted partner to our customers. And as you know, we're actively managing the company, leveraging our global scale and the strength of our PPI business system to create value for our stakeholders and position our company for a very bright future. To start, let me recap the first quarter financial results. Our revenue grew 6% to $11.01 billion. Adjusted operating income grew 6% to $2.4 billion. Q1 adjusted operating margin was 21.8%, and we grew adjusted EPS by 6% to $5.44 per share. Turning to our end markets, performance played out as we expected. I'll briefly cover each end market, starting with pharma and biotech. We delivered mid-single digit growth during the quarter. Performance was driven by strength in our bioproduction business, our clinical research business, and our research and safety market channel. In academic and government, revenue declined low single digits, driven by muted macro conditions in the US and China. In industrial and applied, growth was flat during the quarter. Growth was led by our chromatography and mass spectrometry business, as well as the research and safety market channel. Finally, in diagnostics and healthcare, revenue declined in the mid single digits. we delivered another quarter of strong growth in our transplant diagnostics business. As I look ahead, we see our end markets progressing as expected in our original guidance. When I think about the broader macroeconomic environment, there is added complexity, of course, given the conflict in the Middle East, and we expect this to create some modest level of inflationary pressure. Our customers remain focused on advancing their priorities and we expect our end markets to prove resilient. We're well positioned to navigate through this period, leveraging our experience management team, global scale, and the strength of our PPI business system. Let me now provide some highlights from our growth strategy this quarter. As a reminder, 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 of our growth strategy, high-impact innovation. We had an excellent start to the year. Our innovation enables customers to advance science and improve lives around the world. During the quarter, we launched a number of new technologies across our business that strengthen our industry leadership and help customers break new ground in their important work. In our analytical instruments business, we introduced the thermoscientific Glacios III CryoTEM, a next-generation cryotransmission electron microscope that features AI-enabled workflows. What's really exciting about this launch is that it further democratizes access to cryo-EM through the robustness of the instrument that allows its installation in a broader range of lab spaces, bringing high-end structural biology capabilities to more customers. In mass spectrometry, we introduced the thermoscientific TSQ-CIRTIS triple-quad mass spectrometer. This advanced platform delivers faster, high-quality results helping customers enhance productivity and reliability in pharmaceutical and applied markets. We also launched a thermoscientific niton XL5e handheld XRF analyzer, which is a great addition to our handheld portfolio. This new instrument enables industrial and applied customers to identify materials in the field, helping them drive productivity and speed decision-making. In life science solutions, we launched the Gibco CTS COPLIO, fill and finish system. This automated system helps address manual fill and finish challenges in cell therapy manufacturing, enhancing productivity and reliability while enabling scalable manufacturing. In laboratory products, we introduced the FluidEase Pro ClipTip electronic pipette, which improves precision and efficiency in everyday lab work, helping customers generate more reliable results. Let me now cover the remaining pillars of our strategy. Our trusted partner status provides us with unique insights that guide our strategy and continually strengthen our capabilities for our customers. At the same time, our industry-leading commercial engine enables us to deliver those at scale. During the quarter, we continue to strengthen our leading position in both of these areas. Earlier in the year, we announced a strategic collaboration with NVIDIA, combining our leadership and laboratory technologies with Navidius advanced AI capabilities. The team is making great progress working together towards the commercialization of new workflow solutions that will enhance scientific instrumentation and help customers work faster, improve accuracy, and get more value out of each experiment. To further strengthen our U.S. drug product manufacturing capabilities for our pharma and biotech customers, we formed a strategic collaboration with SHL Medical, a leading provider of advanced drug delivery systems. We will be leveraging our recently acquired Richfield, New Jersey, sterile fill finish site to offer fully integrated sterile fill finish and device assembly solutions for our customers. Another great example of our trusted partner status is the continued adoption of our unique accelerated drug development offering, which combines our leading capabilities in pharma services and clinical research. This competitive differentiator is translating into strong performance and share gains in our clinical research business, which delivered strong revenue and authorizations growth once again in the quarter. We also continue to invest in our commercial engine to ensure we're meeting the current and future needs of our customers. Let me share an example. We opened a new Cryo-EM drug discovery center in San Francisco. It provides pharma and biotech customers with hands-on access to further accelerate adoption of our advanced Cryo-EM technologies to advance drug development. So wrapping up on our growth strategy, we made great progress during the quarter, and we're continuing to advance our leadership position. Let me now turn to capital deployment. We continue to successfully execute our disciplined approach to capital deployment, which is a combination of strategic M&A and returning capital to our shareholders. In late March, we completed the acquisition of Clario and had a terrific kickoff with our new colleague. Clario is a market leader in digital endpoint data solutions. This technology business is an outstanding strategic fit and highly complimentary to our clinical research capabilities. It enhances our ability to serve pharma and biotech customers by enabling deeper clinical insights and helping improve the productivity of the drug development process. This acquisition is a great example of the value that our proven M&A strategy creates for the company. Clario further strengthens Thermo Fisher's position as the trusted partner to pharma and biotech customers, delivering important benefits to enable their success. And the acquisition has very attractive return profile for our shareholders. We're also very pleased with the progress we're making with our filtration and separation business, which we acquired from Soventa. I had the chance to visit the team in Germany recently. The business is performing very well. The integration is going smoothly. customer enthusiasm for these capabilities is very high. Finally, in terms of return of capital during the quarter, we repurchased 3 billion of shares and increased our dividend by 10%. Let me now give you a brief update on our PPI business system because of its relevance to our success. PPI is deeply embedded in our culture and empowers colleagues across the company to operate with agility. The mindset of finding a better way every day is a core part of our culture and gives me great confidence in our ability to manage through the current environment. We have a proven track record of actively managing the company and consistently delivering strong operational performance. As a reminder, a few areas of focus for the PPI business system in 2026 are driving an accelerated level of cost productivity, deploying AI at scale to run the company better, and the continued mitigation of tariffs. Our teams are proactively working to mitigate any potential impacts from higher inflation given the current macro environment. Now I'd like to review our 2026 guidance at a high level. We are raising our guidance for the full year on the top and bottom line, incorporating the positive impact of Clario and the strong first quarter earnings performance. We're raising revenue guidance from a range of $46.3 billion to $47.2 billion to a new range of $47.3 billion to $48.1 billion, which represents 6% to 8% reported revenue growth over 2025, and continues to assume 3% to 4% organic revenue growth for the year. And we expect adjusted earnings per share to be in the range of $24.64 to $25.12, which represents 8% to 10% growth over 2025, an increase from our original guidance of $24.22 to $24.80. Jim will take you through the details in his remarks. So to summarize our key takeaways, we delivered a strong start to the year. We're raising our full year revenue and adjusted EPS guidance. Our end markets and our business are progressing in line with our expectations, and we're on track to deliver a strong year. We've advanced our long-term competitive position in the quarter with high-impact innovation and important strategic collaborations. We're incredibly excited about the addition of Clario to our capabilities, and we'll continue to leverage the strength of our PPI business system to create value for our stakeholders while building an even brighter future for our company. With that, I'll turn the call over to Jim.

Thank you, Mark, and good morning, everyone. I'll start by thanking Mark and Steven for their support during my transition into the role. I've appreciated meeting many of you on the call over the past few months and look forward to continued engagement with the investor community. In my remarks today, I'll take you through an overview of our first quarter results for the total company, and then provide color on our four business segments. And finally, I'll share details on our updated guidance for the year. Before I get into the specifics of our financial performance, I'll provide a high-level view on how the first quarter played out versus our expectations at the time of our last earnings call. As you saw in our press release, we have a strong start to the year. We advanced our proven growth strategy, closed the acquisition of Clario, and delivered strong earnings growth. Let me begin with Clario. which was not included in our previous guidance. We were excited to complete the acquisition in late March and the business added $30 million of revenue and one cent of adjusted EPS to our first quarter results. The business is on track and the integration is progressing well. Turning back to the total company, both revenue and organic revenue growth were in line with our previous guidance for the quarter. On the bottom line, we delivered adjusted EPS in the quarter that was 14 cents ahead of our previous guidance. This included the one cent from Clario and 13 cents from strong operational performance, demonstrating our continued active management of the company and the power of the PPI business system. So a strong quarter with excellent execution by the team, which enabled us to deliver Q1 financial performance ahead of what we'd assumed in our prior guidance. I'll now provide you some additional details on our performance. Starting with earnings per share, in the quarter, adjusted EPS grew by 6% to $5.44. Gap EPS in the quarter was $4.43, up 11% from Q1 last year. On the top line, Q1 reported revenue grew 6% year over year. The components of our reported revenue change included 1% organic growth, 3% contribution from acquisitions and a 2% tailwind from foreign exchange. As a reminder, in Q1, we had one less selling day than the prior year quarter. This impacted organic revenue growth by approximately one percentage point. Turning to organic revenue performance by geography, in Q1, North America grew low single digits, Europe was flat, and Asia Pacific was flat, with China declining low single digits. With respect to our operational performance, we delivered 2.4 billion of adjusted operating income in the quarter, an increase of 6% year-over-year, and adjusted operating margin was 21.8%, 10 basis points lower than Q1 last year. This includes approximately 80 basis points of headwind from tariffs and related FX versus the prior year. In the quarter, we delivered very strong productivity. This enabled us to fund strategic investments to further advance our industry leadership and largely offset the impact of unfavorable mix and the headwind from tariffs and related effects. Total company adjusted gross margin in the quarter was 40.8%. The drivers of adjusted gross margin are similar to those of adjusted operating margin. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 16% of revenue. Total R&D expense was $340 million in Q1, reflecting our ongoing investments in high impact innovation. R&D as a percentage of our manufacturing revenue for the quarter was 6.9%. Looking at our results below the line, Q1 net interest expense was $120 million. The adjusted tax rate in Q1 was 10.5%. And average diluted shares were $373 million in Q1, $6 million lower year over year, driven by share repurchases, net of auction dilution. Turning to free cash flow and the balance sheet, Q1 cash flow from operations was $1.2 billion, and free cash flow was $830 million after investing $370 million of net capital expenditures. During the quarter, we completed the acquisition of Clario for approximately $9 billion plus potential future performance-based payments, The business is now part of our laboratory products and biopharma services segment. In Q1, we also deployed $3.2 billion of capital to shareholders through $3 billion of share buybacks and approximately $160 million of dividends. We ended the quarter with $3.3 billion of cash and equivalents and $43.2 billion total debt. Our leverage ratio at the end of the quarter was 3.8 times gross debt to adjusted EBITDA, and 3.5 times on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 11%. Now I'll provide some color on the performance of our four business segments. In Life Sciences Solutions, Q1 reported revenue increased 13% versus the prior year quarter, and organic revenue growth was 1%. Growth in this segment was led by our bioproduction business, which had another quarter excellent organic growth. Q1 adjusted operating income for Life Sciences Solutions increased 14%, and adjusted operating margin was 36.2%, up 60 basis points versus the prior year quarter. During Q1, we delivered very strong productivity, which was partially offset by unfavorable mix and the expected impact from the acquisition of our filtration and separation business. In the analytical instruments segment Q1 reported revenue was flat and organic revenue decreased 2% year over year. Performance reflects muted demand for instruments from academic and government customers in the US and China. In this segment Q1 adjusted operating income decreased 11% and adjusted operating margin was 20.7% down 250 basis points versus the year ago quarter. The majority of the margin change was driven by the expected impacts of tariffs and related effects. Beyond that, we delivered good productivity. It was more than offset by lower volume and unfavorable mix in the quarter. Turning to specialty diagnostics. In Q1, reported revenue declined 1% year-over-year and organic revenue declined 3%. Performance in the segment reflects the impact of one less selling day in the quarter and a strong year-over-year comparable. In Q1, growth in this segment was led by our transplant diagnostics business. Q1 adjusted operating income for specialty diagnostics increased 3%, and adjusted operating margin was 27.4%, 90 basis points higher than Q1 2025. During the quarter, strong productivity and favorable mix were partially offset by lower volume. Finally, in the laboratory products and biopharma services segment, reported revenue increased 7%, and organic growth was 4%. In Q1, growth in this segment was led by our clinical research business and our research and safety market channel. Q1 adjusted operating income in this segment increased 6%, and adjusted operating margin was 12.9%, 10 basis points lower than the prior year quarter. In the quarter, we delivered very strong productivity, which was more than offset by unfavorable mix, strategic investments, and expected headwinds from foreign exchange. Turning to guidance, as Mark outlined, we're raising our 2026 full-year guide to reflect a strong start to the year in the acquisition of Clario. We now expect revenue to be in the range of $47.3 to $48.1 billion, and adjusted EPS to be in the range of $24.64 to $25.12, representing 8% to 10% adjusted EPS growth. Our updated guidance for the year continues to assume 3% to 4% organic revenue growth. The midpoint of our organic growth guidance continues to be slightly above 3%, and we continue to assume a $300 million tailwind to revenue from foreign exchange for the year. At the midpoint, the guidance includes $900 million higher revenue, 20 basis points of additional margin expansion, and 37 cents higher adjusted EPS compared to our previous guidance. This incorporates the acquisition of Clario, which increased our 2026 revenue guidance by $900 million and added 32 cents of adjusted EPS net of financing costs. At the midpoint, the increase in adjusted EPS reflects the contribution from Clario and the strong operational performance in Q1, partially offset by an assumption for higher inflation in future quarters that we are actively working to mitigate. In terms of adjusted operating margins, our guide has increased to 70 basis points of expansion for the year, including the addition of Clario and the strong performance we delivered in Q1. We are continuing to actively manage the company and drive excellent operational performance, enabling us to increase our guidance for the year while navigating a complex macro environment. Let me provide you some of the modeling elements for the full year. We expect approximately $660 million of net interest expense, which now includes financing for the Clario acquisition. We continue to assume that the adjusted income tax rate will be 11.5%. We expect between $1.9 and $2.1 billion of net capital expenditures and free cash flow in the range of $6.9 to $7.4 billion for the year, both reflecting the addition of Clario. In terms of capital deployment, we're assuming $3 billion of share buybacks, which were already completed in January, and that will return approximately $700 million of capital to shareholders this year in dividends. We estimate the full year average diluted share count will be between 370 and 375 million shares. Now, let me provide some color on phasing for Q2. Aligned with the quarterly progression in our original guidance, we are assuming organic revenue growth of about 3% for the second quarter. We expect Q2 adjusted EPS to be between 25 and 30 cents higher than Q1. So to conclude, we had a strong quarter. We executed very well to deliver on our commitments. We are thrilled to have welcomed Clario to the company, and we are raising our adjusted EPS guidance for the year. With that, I'll turn the call back over to Raf.

Operator, we're ready for the Q&A portion of the call.

Thank you. To ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. In order to allow everyone in the queue an opportunity to address the Thermo Fisher Management Team, please limit your time to on the call to one question and only one follow-up. If you have any additional questions, please return to the queue. Our first question comes from Michael Riskin from Bank of America. Your line is now open. Please go ahead.

Great. Thanks for taking the question. Mark, let me start with sort of a high-level one. A lot of questions from investors both this morning and just over the last couple weeks has been, you know, the acceleration as you go through the year. You know, investors are increasingly worried about the ramp, given some of the end market concerns, you know, lingering macro pressures. You touched on a couple of those when you were talking about the first quarter. So what would you say to sort of assuage some of those fears about the ramp needed to hit the full year guide? You know, you talked about, you know, you did one in the first quarter. As Jim just called out, 3% for the second quarter. I think a lot of people are assuming sort of like three in the third quarter and then five in the fourth. You've got days impact in there, but beyond that, just to talk about the confidence of the improvement in performance as you go through the year.

Yeah. So Mike, thanks for the question. Um, you know, when I step back and look at the quarter, I had the opportunity to see many customers during the quarter. And of course the macro is challenging with the war in the middle East and so forth, but it's actually not actually even in the customer's thinking. in a good way. They're focused on their pipelines. They're focused on the scientific advances. I mean, it's an incredibly exciting time about what's going on in our industry. The markets played out as we expected in the first quarter. We understand the ramp, but the ramp is not really assuming a change in the underlying market conditions. This happens to do with comparable days, things of that sort. So it's nice to have a good quarter behind us and And then we step up in a logical way from there. But Jim, maybe you want to talk a little bit about the phasing.

Yeah, when you think about the phasing from Q1 to Q2, you have the impact of the headwind from days in Q1 that doesn't exist in Q2. And you also have a significant comparable change in analytical instruments. So that's really the step up, those two drivers, Q1 to Q2. And then if you think about the first half to the second half, you obviously have the impact of days, the headwind in Q1, the tailwind in Q4. And you have a meaningfully different revenue phasing profile in pharma services that impacts both this year and last year. So our pharma services business delivers much stronger growth in the second half of the year, aligned with kind of how we modeled the year to start it.

Okay, okay. And then follow up if I could. I mean, it sounds like you had another good strong quarter in pharma and biotech. You know, you called up bioproduction, called out. clinical research continue to do well. Is there anything in particular that kind of offset that? I think you touched on weaker US A&G and in China, maybe a little bit softness in diagnostics. Was just there any moving pieces in terms of what came out worse than expected to offset some of the strength in pharma and biotech?

Thanks.

No, I mean, as I think about the end markets and the growth that we delivered, even by the various four end markets, they pretty much were what we expected to happen during the quarter. So we knew that pharma and biotech would be the strongest growth of that end market. That was our expectation. The strength actually was broad-based in terms of the momentum there. So I don't think there was really anything that was materially different, I'd say, in the tiny categories. You had a weaker respiratory season, but it's really in the irrelevance in terms of the scale of it. You know that probably shows up in the all positive to that that shows up elsewhere in some minor numbers, but pretty much a very predictable core that team did a nice job executing against. Thanks Mike. Thank you, thanks.

Thank you. Our next question comes from Tycho Peterson from Jefferies. Your line is now open. Please go ahead.

Hey, good morning. Mark, just maybe picking up on that biopharma thread, curious if you could talk on PPD. I think, you know, one of your peers had light bookings last night. You obviously are coming off a very strong fourth quarter, so curious what you saw in the quarter, you know, on PPD, and then, you know, is the biotech funding, which, you know, has been, you know, okay here, is that starting to translate into spending? And then just early feedback on Clario, too, from customers and how we think about the combination there.

Yeah, Tycho, thanks for the question. clinical research just had an excellent quarter. And whether you're starting to say sequentially, how's the business progressing? Nice step up in organic growth. But then when you look at it year over year, really nice, you know, growth organically, both in revenue and authorizations. You know, the customers really value our capabilities. So early read is we're continuing our share gain momentum and The conditions are actually improving. It's not a surprise, but you're seeing, you know, biotech environment is improving from a funding perspective. That's a good thing from our perspective. And I'd say the sentiment continues to get stronger from that perspective. And there's lots of, you know, good opportunities that we've been able to close, but also a nice funnel of activities as well. When I think about our accelerated drug development capabilities, Where we simplify the process we reduce complexity take time out that's highly valued by our customers it's unique to us because we're able to leverage the insights of our. Development and manufacturing organization as well, so so that's going very well, and you know we're embedding Ai into our capabilities. For that collaboration, we had announced some time ago with open Ai and you know customers value that and that position is very well, so you know business is quite healthy and. Our trusted partner status is really progressing. If I think about just the amount of dialogue I've had with our biotech customers and our pharma customers recently, they're really excited about what we're doing together. Clario is exciting. We just closed it. I think it was March 24th when I was there for day one. The early feedback from customers, even from announcement to close, is they're very excited about the technology that Clario has. and how we think about bringing the major endpoints together in an easier way for them to execute their clinical trials. So I actually am very excited about the acquisition and looking forward to the value unlock that it's going to bring for the company and for our customers.

James Rattling Leafs. Great and then maybe just a quick follow up on analytical instruments, you know, obviously everybody's kind of been dealing with the academic government headwinds I guess as we kind of think about you know that business for the remainder of the year, you know how you feeling about a recovery on the instrument side.

James Rattling Leafs. yeah so when I think about the instruments business. James Rattling Leafs. As you said, the market conditions are you know kind of below the normalized levels really driven by the academic and government environment in the US and China. Our innovation is super strong, so I actually feel very good about what's ahead. But just think about how much time I spent in my script just on product innovation out of the instrument business, whether it's the next Cryo-EM, whether it's our new mass spectrometer, new handheld, just a small sampling of what we launched. And ASMS is going to be awesome for us in June. So really, that's going to be exciting in terms of what's ahead. You know, the comparisons are a little odd this year. We know them, so there's nothing new. But the comparison for analytical instruments, as Jim said, is much easier in Q2 because it was affected by the implementation of tariffs. So you'll see the growth normalize in the first half in a certain respect in the business.

Great. Thank you. Thank you, Taika.

Thank you. Our next question comes from Jack Meehan from Nefron Research. Your line is now open. Please go ahead.

Thank you. Good morning, guys. Mark, I wanted to get your thoughts around AI. This is obviously a huge topic for the market. As you look across the business segments, can you talk about how adoption might be influencing your customer spending behavior? And I'm not sure if you're planning an analyst day or not, but any color you can share on new offerings you might be able to highlight that leverage your data and Clario?

Yeah. So, Jack, thanks for the question. I was going to have in my closing remarks that we're going to have our analyst day the morning of May 20th. So we will do that. And we're quite excited to see our analysts in New York that day. In terms of artificial intelligence, super exciting, actually. And when I think about the role that AI is playing with our customers, it's accelerating scientific discovery. It's deepening understanding. And it's ultimately going to accelerate bringing new medicines to patients faster to address significant unmet medical needs. And when I think about what it means is, you know, we believe that AI is going to improve the returns on investment for the drug development industry. That means that there'll be more products that will be coming through the pipeline and ultimately will create an enhancement of funding interest in the biotech community. So we actually think it's a meaningful positive. And for our company, Obviously, the good end market matters, and that will help us, but we see it as a significant positive for Thermo Fisher Scientific as we're exceptionally positioned to shape it and benefit from it, both in our clinical research business. We talked about that in the past with the OpenAI. NVIDIA is really across our technology businesses, our instrument businesses, parts of life science solutions, and it's going to make our portfolio of capabilities stronger. and really amplifies what differentiates us, our scale, our portfolio breadth, our trusted partner status, and obviously great execution. We believe that AI is going to accelerate and enhance our durable competitive advantage that we've had. So it's an exciting time, and we're looking forward to continue to drive the adoption that makes a huge difference for our customers.

Cool. Yeah, I'm looking forward to May 20th. Jim, one follow-up. You called out higher inflation a few times in the script. I was wondering if you could just elaborate what areas you might be seeing that in and what the strategy is around offsets and productivity. Thank you.

Yeah, Jack, thanks. Given the daily variability in oil prices, we felt it appropriate to put a placeholder in the guide for future quarters.

for the risk of inflation that we aren't fully able to mitigate within a year.

The team's activated to offset it and mitigate it, and we expect to be able to do that, but just a wide range of outcomes. I thought it was prudent to put something in there. The area you see at first is in the shorter term kind of supply chain logistics and transportation, and we started to see some of that, and the team's actively executing against that, but right now it's just a placeholder given the variability.

Got it. Thank you, guys. Thanks, Shaq.

Thank you. Our next question comes from Dan Arias from Stackful. Your line is now open. Please go ahead.

Hey, good morning, guys. Thanks for the questions. Mark, last quarter, the way that you and Stephen framed the year was to sort of say that you're looking to retire risk as you go along here. When you're answering Mike's question, you talk to some of the moving parts on the macro that have sort of cropped up as new, but I'm curious if you think there's anything that's sort of an offset there that maybe 90 days later you're feeling a little bit better about and would sort of consider being retired at this point? Excuse me.

You know, every year we have expectations of how things are going to play out based on, you know, our experience and our deep, knowledge of working with our customers. When it goes exactly as we thought, which is what Q1 was, that retires risk in terms of the world was as we thought it would be. Our operating discipline was even stronger than what we embedded in our guidance, which is allowing us to raise our earnings outlook. And customer sentiment is actually quite strong. If I think about you know, what pharma customers and what biotech customers are, you know, interacting with us on. They are excited about their pipelines, excited about the improving environment from their own end markets, the fact that they've reached agreements with the U.S. government. You know, things are good in that industry and getting better, and that bodes well. So I feel, you know, from that perspective, retire risk, you know, and one of our normal conventions, you know, if I think about the earning side of the equation, normally we would have beat by the You know, 13 cents operationally, we largely just flow it through the P&L. The only reason we didn't do 100% of that is there's volatility, as Jim said, in inflation. Nobody has a crystal ball exactly how it is. What I do know is our team is fully focused on offsetting it with all the levers. I believe that if, you know, if it's relatively modest, we will offset it all and that will all flow through the bottom line, you know, what we held back. But if the world gets really challenging from an inflation perspective, then we've given ourselves a little bit of a cushion to deal with it. So, you know, I feel good as we sit here in late April about what the year is. We obviously raised our outlook and excited to deliver a great year.

Okay, helpful. And then, Jim, for the quarter, you had this selling days issue that was mentioned, but I think that there might have been also some phasing in pharma services that was material. Is that a quantifiable amount? And I think you characterized the combination of those two as a couple of points. So it's a normalized number for 1Q is more like 3%. And you're pointing to 3% or so for 2Q. You know, is the general assumption that it's kind of status quo across the board when it comes to end market conditions? Or is it more puts and takes, some improvement, one place, maybe a step back? and other places. And so, you know, that's kind of where you met out. I guess I'm just kind of curious about how you see 1Q to 2Q in the context of where a more normalized 1Q number might be. Thanks.

Yeah, thanks. Your characterization is correct. So the 1% growth in Q1 was impacted by about a point from the impact of selling days and about a point by the impact of the timing of revenue phasing in the pharma services business.

Q2, there's puts and takes, but in the aggregate, your summarization is correct. Thanks, Tim.

Thank you. Our next question comes from Matt LaRue from William Blair. Your line is open. Please go ahead.

Hi. Good morning. I wanted to follow up on Jack's question on AI, but also the insurance innovation highlights you shared. It seems like there's going to be an enhanced emphasis on scale, automation, connectivity, and auditability or proof of work, you know, both for large-scale generation of biological data and in autonomous labs you know I think the breadth of your portfolio alone may be an advantage but as you think about the way your instruments exist today and what kind of enhancements or changes you might make in the future yeah how does how customers might shift the way they are using your instruments affect the way that you're thinking about developing them yeah so Matt you know excellent question so if I think about you know

one of the real interesting aspects, and I like the way you characterize it, of the adoption of AI, you know, in the research aspects of the lab work, you're seeing experimentation scale up and will scale up in areas that it would never have happened in the past, right, which is just large-scale generation of biologic information to effectively create biology models. right? So as opposed to what people normally do, which is they're looking at their particular area of interest, you're not seeing very wide scale, large volume labs that are just trying to build biology models, if you will. And so when you think about what those customers need, they want the instruments to be more automated or more automated ready. And they want it to be easy to, you know, effectively have the data be able to you know, populate their own models, right? Those are a couple of the trends. It's not a, it's a trend that we've been aware of for actually a number of years, long before generative AI, right? In terms of, you know, the customers would have in the past called it the lab of the future or lab in the loop. That's not a new thing, but you're seeing very scale facilities coming online and our technologies are being adopted. So again, part of our R&D roadmaps about how do we create better connectivity, and we feel good about what we're doing there.

Okay, great. And then, you know, on reshoring, I think that was probably a 2027 and beyond item. I think, you know, at an industry conference this week, heard that, you know, us people are seeing RFPs. Would you just be curious, you know, your level of confidence that that will remain a tailwind, and what sort of the activity level has been like for Thermal?

Yeah, so when I think about the reshoring, you know, activity, it's actually a nice tailwind, right? In the 27, 28 timeframe, you know, what we've, you know, been able to, you know, already secure, start first with our CDMO business, right? You know, a number of customers have decided that leveraging our capabilities is the best way to meet their production requirements in the US. So you've seen the, you know, some announcements and some topics that we've talked about there. And in fact, President Trump visited our drug product site in Cincinnati, Ohio, you know, as part of, you know, when he was talking about healthcare, which was really about reshoring in a way in terms of what we're doing. And that's a site That would benefit from those you know growth and jobs and so forth, so you know there's real momentum and contracts signed in bio production. We expect that the revenue is largely a 27 and 28 activity we've won some business already in terms of. In kind of industry parlance, you know brownfield facilities that are scaling up so you see some of that so that increases the confidence that. You know, you'll see even more revenue in 27 and 28. So, you know, really a nice positive. And then what I would say is a bioproduction business had a phenomenal quarter, like phenomenal in terms of just, you know, very strong growth, you know, from what we've seen of what others have reported far in excess of that. So the team's doing a great job in terms of delivering on our customers' needs. And we feel very good about the prospects of our business and view reshoring as a incremental tailwind that will develop over the next couple of years. So thank you for the question.

Thank you. Our next question comes from Dan Brennan from TD Cowan. Your line is now open. Please go ahead.

Great. Thank you. Thanks for the questions. Congrats on the quarter. Maybe just on pharma, you know, nice quarter again. I'm just wondering, on the preclinical side, Mark, it's hard to Hard for us to track, but I know it's a big part of the business, and I think maybe that's been an area that was not invested in as much with MSN and IRA. Can you speak to a little bit what you're seeing in that part of the business? Has it been a bit of a drag on your business, and is that something that we could see get better this year?

Yeah, so, Dan, thanks for the question. So when I think about the business serving, I'll call it the lab-based portions of pharma and biotech, And it's a little bit hard for us that we don't discern in our own data whether it's going to a QAQC lab or it's going to a research lab because customers don't manage that segregation so much. But I think it's a rough proxy. We're seeing good momentum in the channel business there in what I call the higher tech portfolio of the life science reagents, a little bit softer but still progressing in the right direction. So I would say that, you know, of the businesses, that's one that, you know, we're seeing the signs of a pickup. And I feel okay about how that's progressing going forward. So hopefully that's helpful.

No, it is, Mark. Thank you. And then just on U.S. academic and government, just wondering if you can elaborate a little bit on how that's been progressing. Obviously, I think there's hopes that things hopefully are bottoming out and starting in a little bit better. So I'm just wondering if you are, are you seeing any signs of that? Just remind us how you think about what you're assuming for the rest of the year in your second, I'm bringing government. Thank you.

Yeah. So, so Dan, in terms of, you know, the conditions in the, in the U S um, you know, when I think about the quarter, um, played out as expected muted conditions for sure. Um, the passage of the budget in late January. is good in terms of being a positive. We saw funding flow start to improve in the quarter. That's also a positive. Our assumption is that, you know, for the year, you know, we would see, you know, greater stability and the U.S. end market improving, you know, modestly over time, but not back to normal is what we've assumed, kind of an aggregate similar to what we saw last year. Thanks, Dan.

Great.

Thank you. Our next question comes from Casey Woodring from JP Morgan. Your line is now open. Please go ahead.

Great. Thank you for taking my questions. Maybe if you can just walk through the specialty diagnostics performance in the quarter and the mid-single-digit decline there. I think you called out strength in transplant and minimal impact from respiratory. But maybe just walk through, you know, where the softness occurred in the quarter. I think, you know, we've seen a couple reports of a weaker microbiology market in China. So just wondering if that contributed there. And then any color on pacing and specialty diagnostics for the rest of the year? I think you have an easier comp coming up in 2Q and tougher comps in the back half. So just how do we think about the growth cadence there?

Yeah, so Casey, probably stepping back on the business, where we play in specialty diagnostics, a highly differentiated, profitable business, really focus on high value clinical insights. And, you know, so the technology capabilities, you know, are very strong. And when you think about that, you know, we cover the range from immunodiagnostics, transplant diagnostics, biomarkers, you know, protein diagnostics for multiple myeloma. All of those things are, you know, incredibly important to the healthcare systems around the world. You know, when I think about the particulars of Q1 performance, this business is almost entirely consumable. So it has the more significant impact from the days it also had a tougher comparison um versus the prior year because of respiratory which obviously doesn't repeat in the second quarter so the phasing is that that business improves as the year progresses and um so it's performing in line with what we would expect so thank you got it that's helpful and maybe just a quick follow-up on china i'm just curious to hear how performance in the region

played out relative to your expectations across your different businesses. I think you called out a bit weaker academic in the region. So maybe just walk through this as a portfolio, particularly the pharma and market in China, and then curious if you'd expect China to return to growth at any point this year. Thank you.

Thanks. So, you know, as a reminder, China is about seven and a half percent of our revenue. We had low single digit decline in the quarter. Conditions are muted in aggregate. As you mentioned, academic and government, we are actually Farmer and Biotech performing well in the country. And we're well positioned to capture opportunities as the conditions improve. I was in China in March. I participated in the China Development Forum. Incredibly unproductive visit, right? And I had the opportunity to engage with a number of our customers, our team, with government stakeholders, I actually left China incrementally more positive, you know, coming out, particularly as what I did see is that China pharma and biotech customers, the innovators, see the value in doing more work with a company like us because when they're competing with another Chinese company, Actually, our technology and capabilities is a differential advantage for them. And they're trying to license some of these technologies to the West. And therefore, I actually think we're very well positioned to benefit from that trend. And so I came away a little bit incrementally positive on China. We're not assuming any meaningful growth coming out of China this year. And when I think about upsides over time, China would be an upside that we didn't embed even into our longer term growth. that if that returns to stronger growth, then obviously that will create an incremental tailwind.

Operator, we'll take one more question.

Thank you. Our final question comes from Justin Bowers from Deutsche Bank. Your line is now open. Please go ahead.

Thank you, and good morning. So, Mark, the research and safety market channel was a strong contributor to growth in 1Q. Can you help us understand how indicative of that is in recovery in the end market versus ongoing market share gains? And likewise, the clinical business is also recovering nicely. PPD is taking share. Can you help us understand the appetite for customers to reinvest in early stage and further upstream in R&D and what you're seeing there?

Justin, thanks for the questions. So on the first one, on our research and safety market channel, business is doing well. And it is actually a blend of both improving end market conditions as well as market share gains. There's both. And so I feel good about how that business has performed for quite some time and continues to progress in a very nice direction. So that one's well positioned and is benefiting from combination of market conditions and good execution. you know, in terms of clinical research. And, you know, we're seeing it in strong, you know, in terms of customer interest and reinvestment and those things. We had a strong quarter of authorizations growth, and we actually have a very strong pipeline as well, right? So authorizations of what you've signed up, pipeline is what's, you know, what you're working on that, you know, is not yet in the decision process. Both are, have moved nicely um in terms of how that business has been progressing and actually our business is progressing as we thought it would this year right in terms of you know stepping up in performance and it was good to see that not only that those wins that we've been talking about for a few quarters that actually translated into good growth um in terms of what we delivered as well so good news on both fronts so let me uh wrap um with a quick uh thank you so much justin So let me wrap up with a quick couple of comments. First, thank you to everyone for participating in our call. We're pleased to deliver a strong quarter and we're on track to deliver a strong year as we continue to create value for our stakeholders and build an even brighter future for our company. We look forward to updating you at our investor day, which we've scheduled for the morning of May 20th, as well as the year progresses. As always, thank you for your support of Fenwell Fisher Scientific. Have a good day, everyone.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.