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 time for questions at the end. I would 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 Marc 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 Investors section of our website thermofisher.com, under the heading News Events and Presentations until February 16, 2024. A copy of the press release of our fourth quarter and full year 2023 earnings is available in the Investors 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 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 dates 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 measure is available in the press release of our fourth quarter 2023 earnings and also available in the Investors section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

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 demonstrate 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 disciplines 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 complementary 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 Thermo Scientific 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 momentum is continuing to build as we enter 2024. In electron microscopy, we launched the Thermo Scientific Metrios 6 S/TEM, a fully automated system that enables our customers to rapidly obtain large volume, high-quality data from increasingly complex semiconductors to advanced 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 Solutions, 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 electron microscopy, we launched the Thermo Scientific Meridian EX System for precise defect localization in advanced logic semiconductors. And in low laboratory products, we launched the Thermo Scientific Aquanex Ultrapure 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 continued 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 the 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 longstanding 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 continued 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 cost base, 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 disciplined 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 the EXENT instrument solution represents a significant breakthrough in terms of 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 benefits 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 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 on-site 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 HOPE 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 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're enthusiastic about 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. 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.

Thanks, Marc, and good morning, everyone. As stated in our press release, we had an excellent execution in Q4. Market conditions unfolded as we anticipated, and through our strong execution, we achieved 1% more core organic revenue growth than we previously guided. Regarding adjusted EPS, we exceeded our prior guidance by $0.05, which accounted for an additional $0.08 of FX headwind, indicating strong operational performance this quarter. We also finished the year with impressive free cash flow of $7 billion in 2023. Throughout the year, we adeptly navigated the changing macro environment. Our established growth strategy and PPI business system allowed us to provide a unique experience for our customers and deliver notable financial results for our shareholders while continuing to invest in the business and enhance our strategic position as a leader in serving science. Now, let me share more details about our performance. Starting with our earnings results, we achieved $5.67 of adjusted EPS in Q4 and $21.55 for the entire year. GAAP EPS for the quarter was $4.20 and $15.45 for the full year. On the revenue side, we reported a 5% decline year-over-year in Q4. The components of our reported revenue change for Q4 included a 7% decrease in organic revenue, a 1% gain from acquisitions, and a 1% negative impact from foreign exchange. Core organic revenue fell 4% in Q4. For the full year 2023, reported and organic revenue both decreased by 5%, while core organic revenue growth for the year was 1%. In 2023, we generated $1.73 billion from pandemic-related revenue, comprised of $330 million from testing and $1.4 billion from vaccines and therapies. Turning to our organic revenue performance by geography, the organic growth rates by region were affected by pandemic-related revenue. In Q4, North America experienced a low double-digit decline, Europe saw a low single-digit decline, while Asia Pacific had low single-digit growth, with China declining in the mid-single digits. For the entire year, North America declined in the high single digits, Europe was down low single digits, and Asia Pacific also saw a low single-digit decline with China down in the high single digits. Regarding our operational performance, we delivered $2.55 billion in adjusted operating income for the quarter, with an adjusted operating margin of 23.4%, which is 100 basis points higher than Q4 last year. During the quarter, we maintained strong productivity and achieved good price realization, although this was partially offset by lower pandemic-related revenue, strategic investments, and foreign exchange impacts. The strength in productivity reflects the effectiveness of our PPI business system, allowing us to manage our cost base suitably given the macro conditions. For the full year, adjusted operating income fell by 11% and adjusted operating margin was 22.9%, in line with our previous guidance. Our company's total adjusted gross margin for the quarter was 41.5%, a slight increase of 10 basis points compared to Q4 last year. This change in gross margin was influenced by the same factors affecting our adjusted operating margin. For the entire year, the adjusted gross margin stood at 41.2%. Moving on to the P&L details, adjusted SG&A for the quarter was 15.1% of revenue, marking an improvement of 50 basis points compared to Q4 last year. For the full year, adjusted SG&A was 15.2% of revenue, showing a 60 basis point improvement over 2022. Total R&D expense for Q4 amounted to $328 million, with a full year expense of $1.35 billion, reflecting our ongoing commitment to high-impact innovation. R&D accounted for 6.8% of our manufacturing revenue in 2023. In terms of below-the-line results, our Q4 net interest expense was $81 million, which is $38 million lower than Q4 2022. For the full year, net interest expense was $495 million, up by $41 million compared to the previous year. Adjusted other income and expense was a net expense of $19 million for the quarter, increasing by $9 million from Q4 2022, primarily due to fluctuations in non-operating foreign exchange. For the year, adjusted other income and expense was a net expense of $16 million, contrasting with a net income of $14 million in 2022. Our adjusted tax rate for both the quarter and the full year was 10%, which is 280 basis points lower than Q4 last year and 300 basis points lower for the full year, reflecting our tax planning efforts. The average diluted shares were 388 million in Q4, about 5 million lower year-over-year due to share repurchases net of options. Shortly after the year-end in January 2024, we repurchased $3 billion in shares. In terms of cash flow and balance sheet, our cash flow from operations for the full year was $8.4 billion, and free cash flow was $7 billion after net capital expenditures of $1.4 billion. We returned $136 million to shareholders through dividends in Q4 and $523 million for the full year. During the year, we invested $3.7 billion in completed acquisitions and committed $3.1 billion to acquire Olink, which we expect to finalize by mid-2024. We ended the quarter with $8.1 billion in cash and $34.9 billion in total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.5 times on a net debt basis. To conclude my comments on our total company performance, our adjusted ROIC was 12%, highlighting the strong returns on investment across the company. Now, let’s discuss the performance of our four business segments. To provide context, the scale and margin profile of our pandemic-related revenue differs by segment, with higher revenue in the previous year skewing reported segment growth rates and margins. In 2023, we continued to effectively implement strong pricing across all segments to combat inflation. Starting with the Life Sciences Solutions segment, Q4 reported revenue declined 19%, with organic revenue down 20% compared to the prior year quarter, driven by the decline of pandemic-related revenue and lower bioproduction activity than a year ago. For the full year, both reported and organic revenue fell 26%. Q4 adjusted operating income for Life Science Solutions decreased by 14%, with an adjusted operating margin of 36.2%, up 210 basis points from the prior year quarter. Despite unfavorable volume, our team managed costs effectively amid the pandemic's impact. For the full year, adjusted operating income declined by 39%, and adjusted operating margin was 34.3%. In the Analytical Instruments segment, Q4 reported revenue rose by 8%, with organic growth also at 8%. This strong growth was driven by our electron microscopy business. For the full year, both reported and organic revenue were 10% higher than in 2022. Q4 adjusted operating income increased by 23%, with an adjusted operating margin of 28.8%, reflecting a 340 basis point improvement year-over-year. We achieved strong productivity and volume, partially offset by foreign exchange and strategic investments. Full year adjusted operating income rose by 27% with an adjusted operating margin of 26.3%, marking a 350 basis point increase compared to the prior year. Moving to Specialty Diagnostics, Q4 reported revenue saw a 1% decline, and organic revenue was 7% lower than the same quarter last year. Strong underlying growth in the core, especially in transplant diagnostics, microbiology, and immunodiagnostics, was present but offset by decreased pandemic-related revenue. For the full year, reported revenue declined 8%, and organic revenue decreased 13%. Q4 adjusted operating income for Specialty Diagnostics rose by 27%, with an adjusted operating margin of 23.9%, which is 530 basis points higher than Q4 2022. In Q4, strong productivity and favorable mix helped offset lower COVID-19 testing volumes and strategic investments. Full year adjusted operating income was up 10% compared to 2022, with an adjusted operating margin of 25.5%, increasing by 400 basis points versus 2022. Lastly, in the Laboratory Products and Biopharma Services segment, Q4 reported revenue fell by 4%, and organic revenue was down 5% from the prior year quarter. This decline stemmed from the reduction of vaccines and therapies revenue and the anticipated timing of revenue in our Pharma Services business during 2023. For the full year, both reported and organic revenue were 2% higher than 2022. In this segment, Q4 adjusted operating income decreased by 4%, and the adjusted operating margin was 14%, a slight decline of 10 basis points from Q4 2022. We delivered strong productivity in the quarter, which was more than offset by an unfavorable volume mix. For the full year, adjusted operating income increased by 17% from the previous year, and the adjusted operating margin was 14.6%, representing an increase of 180 basis points compared to 2022. Now, turning to guidance, as Marc mentioned, we are initiating a 2024 revenue guidance range of $42.1 billion to $43.3 billion and adjusted EPS guidance of $20.95 to $22. Our guidance anticipates core organic revenue growth between minus 1% and positive 1% for 2024. Our outlook for market conditions in 2024 is consistent with our earlier assessment shared during the last earnings call. We expect market declines in the low single digits this year, and believe our growth strategy and PPI business system will enable us to regain market share again this year. Our current forecast for pandemic-related revenue in 2024 includes nearly $100 million from testing revenue and between $300 million and $400 million from vaccines and therapies revenue, representing a year-over-year revenue headwind of $1.3 billion to $1.4 billion or 3% of total revenue. We anticipate that M&A will boost revenue by $175 million year-over-year, combining six months of Olink revenue and the inorganic portion of CorEvitas revenue in 2024. At current exchange rates, we expect foreign exchange impacts to be neutral year-over-year for both revenue and adjusted EPS. From a phasing perspective, we expect foreign exchange to pose a slight headwind in Q1, balanced by a tailwind in the second half. Regarding margins, our 2024 guidance range indicates adjusted operating income margins between 22.3% and 22.8%. We are actively managing our cost base, which is reflected in this margin outlook. The margin range is influenced by the revenue range I provided. We will continue leveraging the PPI business system to carefully manage costs while making strategic long-term investments to maintain our industry leadership. Strong underlying productivity and cost controls, along with benefits from past cost actions, are expected to generally counterbalance the decline in remaining pandemic-related revenue inflations and normalize employee compensation across the company. Below the line, we anticipate around $430 million in net interest expense for 2024 and expect adjusted other income and expense to net close to zero. We assume a 10.5% adjusted income tax rate for 2024 and should factor in $20 million in profit elimination related to minority interests. We're projecting between $1.3 billion and $1.5 billion in net capital expenditures for 2024 and expect free cash flow to fall between $6.5 billion and $7 billion for the year. For capital deployment, our guidance includes $3 billion allocated for share buybacks, which were completed in January, and we estimate that the full year average diluted share count will be around 383 million shares. We're planning to return about $600 million to shareholders through dividends this year and expect to finalize the acquisition of Olink by midyear. Finally, I want to address quarterly phasing for the year. We expect Q1 to show sequential improvement over Q4 2023 by 1 to 2 points in organic revenue growth, which is expected to continue improving each quarter throughout the year. Core organic revenue growth in Q1 should resemble that of Q4 2023, with improvement anticipated each quarter, leading to moderate growth in the second half of the year. In terms of margins, we expect Q1 to be just under 21%, gradually increasing each quarter through the year. We also project Q1 adjusted earnings per share to account for approximately 22% of the full year. In summary, we successfully navigated a challenging environment in 2023. We supported our customers and delivered distinct financial performance for our shareholders. We will continue to operate with agility, positioning ourselves well for the upcoming year. I look forward to updating you on our progress throughout the year.

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

Thank you. Our first question today comes from Jack Meehan from Nephron Research.

Thank you. Good morning. Marc, looking at the business, I believe the question is whether we are starting to see some recovery. Could you discuss which areas you think might grow more or less than the market and what that could mean for our revenue and earnings?

Yes. So Jack, when I think about last year and you've heard us say delivering differentiated short-term performance, strengthen the company for the long term kind of simultaneously, we had the opportunity to look at, obviously, for the first nine months of how others have done, and we looked at those companies that preannounced or reported so far. And we had a really strong year in terms of delivering above-market growth, which means share gain, right. And that share gain actually was broad-based in terms of the performance. You look at things like Analytical Instruments, very strong; clinical research, pharma services. These businesses did well. And by the absence of some, I'm not implying anything in the others. This is a very strong year relative to a challenged set of market conditions. As I think to the future, we're well positioned in those businesses to continue our share gain momentum. We made an assumption for this year, which is pretty much the same as what we said back in late October, is that we're assuming that for the full year, it's going to be pretty similar to 2023 and a mirror image, meaning that we start to lap comps as the year unfolds and we wind up with the market being down slightly in the low single digits and us performing better than that level. So I'm excited about what the year unfolds and our position to deliver differentiated performance. And we're certainly going to capitalize on any improvements in the market and hold ourselves to a very high standard of what good looks like.

Okay. Are there specific businesses you can discuss? For example, in the script, you mentioned transitioning capacity and new therapies. In the context of a potential recovery, could you elaborate on how you anticipate the phasing for Patheon and the bioprocessing business?

Yes. So when I think about the year, we basically use a range of outcomes for each of our businesses in terms of how they perform. I believe that the second half of the year based on lapping the comps as well as we're expecting that the market conditions improve slightly as the year unfolds. And that helps with demand for the industry and for us is how I would think about the business in aggregate is the way that we manage the company. So thank you, Jack.

The next question today comes from the line of Dan Arias from Stifel. Please go ahead. Your line is now open.

Good morning guys, thanks for the questions. Marc, obviously, a lot of discussion on destocking across the industry. Can you just maybe add some color to where you think you are with that process and maybe draw a distinction for us between the inventory work-down that's taking place on the bioprocess side specifically versus more routine consumables, if you split it that way, are the drawdowns kind of happening at a similar pace and ending in a similar time or do you think we should sort of keep those two buckets separately or think of them differently?

Yes. So Dan, I guess, let me start with sort of bioproduction, which I think is the essence of the question, and then maybe I'll step one level above that. In terms of bioproduction, it is an incredibly good long-term market. Historically, it's been an incredibly good market. Sort of a taboo name these days, right, in terms of bioproduction, caused a lot of volatility during certainly 2023 in the industry. For us, a couple of facts, it's a little bit under 10% of our revenue, and we have best-in-class bioprocessing products with an incredible global footprint. We have leading positions in cell culture media, single-use technologies, and increasingly important purification business as we grow our share position there. When I think about the fourth quarter, we did see a sequential pickup in orders in Q4 versus Q3. But the underlying activity is still muted, right, in the market. So we didn't see an inflection. We weren't expecting one and we didn't see one in the fourth quarter. Our view is that it will normalize as the year unfolds and as I've said in an investor conference earlier in the year, no one is going to get rewarded for calling the moment of when that inflection happens. So it will play out during the course of the year, and the long-term fundamentals here are very strong. When I think about our businesses in general coming into the year, I think the things that are very exciting is the trusted partner status that we have earned with our customers over many, many years. We're in the room with the decision-makers. We understand what's on their mind. We're incredibly well positioned. And if I think about the midterm outlook for clinical research, for Pharma Services, for bioproduction, for our channel business, it's incredibly well positioned, right, in terms of we're part of helping our customers bring the breakthroughs to their pipeline, we're part of helping them navigate whatever the environment is. So hopefully, that's helpful. And then maybe the last comment that I would make is one of my takeaways from the many, many customer interactions that I had in the first month of the year was that in the biotech community, and what I mean by biotech, as I'll call it, the smaller companies, the capital market-dependent companies in the pharmaceutical segment, they were much more positive, right. They're seeing green shoots. They love the M&A activity that was happening at the end of the year that gets investors excited about new company formation, new rounds of capital. And while it's early and it will take some time, it's certainly the most optimistic that I've seen in the last five quarters in terms of what the tone was on their view. And I think that bodes very well for the coming few years. Thank you.

Okay. That's encouraging. Maybe just a follow-up on the AI piece, consistently solid growth there. I'm curious if you're just still carrying a backlog in microscopy. And can you maybe just talk a little bit about lead times and order conversion this year, is the assumption that those might get extended as we move through the year or do you think maybe you can be stable relative to where we are today? Thanks.

Yes. When I consider the performance of our Analytical Instruments business with double-digit growth for the full year, it's impressive. We had a fantastic year across all three sectors. The backlog we had at the start of 2023 has largely been resolved in the first half of the year. We have been experiencing normal lead and shipping times for about six months now, so we are in a standard position. The effects of the pandemic on the supply chain are no longer a concern. The business is well-positioned for a successful year, and there is strong demand for our innovative technologies, whether in electron microscopy, semiconductor, material science, life sciences, or the Astral. There is remarkable demand for those technologies. We are optimistic about the upcoming year and the future of this business.

Thank you. The next question today comes from the line of Derik De Bruin from Bank of America. Please go ahead. Your line is now open.

Hi, good morning everyone.

Good morning, Derik.

So Marc, I'm curious about the shift from your previous projection of 1% core growth for 2024 to the current estimate of plus or minus 1%. It didn't seem like Q4 got significantly worse. What has led to this change? Are you being more cautious about the PPD in these businesses or facing tougher comparisons? I'm interested in understanding the factors contributing to this more conservative outlook.

Stephen, why don't you...

Let me provide some context on the guidance. We offered an early preview for 2024 in our last call, and after reviewing how Q4 unfolded and completing our detailed planning, our perspective on the market outlook remains mostly unchanged. The guidance we provided is similar to the initial outlook, incorporating the latest insights on foreign exchange rates and the expected revenue and cost distribution by currency. This has resulted in increased revenue compared to our initial projection, though it does not impact operating income, which leads to a 20 basis point reduction in margins. The only significant change in the past three months relates to a specific item in our Pharma Services division, where we are shifting some of our sterile fill-finish capacity from COVID vaccine support to GLP-1 support. We initially expected to recognize an upfront fee in Q1 2024, but now that the accounting is finalized, we anticipate recognizing that benefit in line with production, which will begin in 2025. This move shifts about $0.20 out of Q1 2024 and affects the reported core growth. We also decided that providing a range rather than a specific point estimate for guidance is more beneficial for our investors. While this range doesn’t cover every possible outcome for the year, it does reflect the reasonably likely scenarios as we see them today. The range is approximately $1 billion in revenue and $1.05 in adjusted EPS, which seems fitting given the size of the company. I hope this helps set the stage for our guidance.

Okay. How should we think about the segment margins moving forward? I've noticed good progress in LSS and an expansion of margins across the board. However, I'm curious about LPS and whether the 14% margin range we expect for the full year is sustainable. Will it decrease next year? I'm trying to understand the potential impact on margins compared to our expectations.

In terms of the margin profile, we finished the year exactly where we anticipated for our company's margins. I think some of the variations in Q4 across the segments might not have been fully understood, particularly regarding the timing of our revenue in lab products and biopharma services. Based on the pre-call notes, there seems to be a discrepancy in expectations. However, from our internal perspective, Q4 unfolded as we had expected. Looking ahead, I don't foresee a significant change in the margin profile next year. The current margin levels for our segments provide a solid foundation for considering the upcoming year.

Okay, thank you.

The next question today comes from the line of Doug Schenkel from Wolfe Research. Please go ahead. Your line is now open.

Alright, good morning everybody. Thanks for taking the questions.

Good morning Doug, welcome back.

Thanks, great to be back. And working with great focus like you and the team. So I want to start just with a high-level LRP question, and then my follow-up is really just a clarification on LPS. So on the LRP, Marc, you've been consistent in saying that Thermo is built to grow two to three points better than the peer group over the long term. That said, you did talk about 7% to 9% growth as recently as last year's Analyst Day. I'm sure the two to three points hasn't changed. But as we flip the calendar, is it fair to say that the 7% to 9% growth rate maybe is a little bit high, even in a more normalized environment, I just want to give you an opportunity to maybe just adjust that as we kind of flip the calendar and look ahead? And below the top line, you've done a fantastic job, as always, leaning operations in a more challenging period. Never let a good crisis go to waste. Your guidance suggests to me, at least on the surface, that you may be investing more in the near term. But as we think about a return to normal, I'm just wondering if you think we could get some outsized incremental margin flow-through for the business as the business normalizes? So let me leave it there, and then I'll ask a quick follow-up on LPS in a second.

Sure, Doug, thank you for the question. Regarding our long-range outlook, we updated it towards the end of 2021 when we were experiencing remarkable organic growth at 25%. Our goal was to provide investors with a long-term perspective on our market and our position within it. We aim to grow at a rate that is three percentage points faster than the market, which has been our standard and we have consistently achieved share growth. This remains unchanged. Initially, we forecasted the market growth to be between 4% and 6%, which was set higher than the previous estimate of 3% to 5%. The adjustment was due to our increased focus on pharma and biotech as we developed our capabilities in those areas. Looking ahead, I strongly believe that our industry will grow between 4% to 6%, and we are well-positioned to outpace that, aiming for 7% to 9%. While I understand that our core growth of 1% in 2023 seems far from that target, we are still gaining market share despite the industry experiencing a slight decline last year. I remain optimistic about the long-term prospects of our industry. Discussions with investors reinforce this; if you're optimistic about life science tools, diagnostics, and pharma services, a long-term growth rate of 6% seems plausible, while a pessimistic view may put it at 4%. It would take extreme bearishness to predict less than 4% growth in our segment, as our markets typically exceed GDP growth. I hope this clarifies our outlook, and while I appreciate suggestions to adjust it, I'm highly confident about the industry's future and our competitive standing. On the margins, I believe that as volumes return to more normal levels, we will see strong margin flow-through. Part of the current margin situation stems from resetting our incentive compensation to standard levels after a below-normal year. Thus, while we expected some headwinds, the impact aligns with our predictions from October, which explains why the margin increase is not as pronounced as one might anticipate.

Okay, I'll set aside the LPS question for now. Regarding my other question on margins, Marc, you have to compensate people and make adjustments. In times when growth is slower, Thermo has historically taken a proactive approach while others have been more cautious. I'm curious if you're advancing some investments early this year, which might lead to better-than-expected margin improvements in the coming quarters as the company returns to a more standard growth period.

Yes. Doug, the example I mentioned regarding the GLP-1 contract illustrates that we are essentially establishing a facility for a customer. We receive a fee for this, which we recognize according to the production volumes. We are incurring significant costs in 2024 during this period, but this will lead to positive growth in the future. This is one example. We are also committed to investing in innovation throughout the company and remain focused on long-term growth. We are effectively managing our costs and revenue environment while ensuring we are making the necessary investments to maintain a positive outlook.

Okay, I will leave it there. Thanks so much.

The next question today comes from the line of Vijay Kumar from Evercore ISI. Please go ahead. Your line is now open.

Hi Marc, good morning and thanks for taking my question. My first one Marc, when I look at the annual guidance here, the core is flattish at the midpoint. But excluding the vaccine headwinds, it's about three points. That's a pretty solid guide. The three things that have come up is China, the CRO business, and analytical tech. Can you just remind us what China and what PPD did in fiscal 2023 and is the guide assuming those three pieces, China, CRO and analytical tech, is that at 3%, about 3%, below 3%? Thank you.

Thank you for the question, Vijay. When I reflect on our businesses' performance, particularly last year and looking ahead, our clinical research segment had remarkable results. The team did an outstanding job, and I feel we may not have communicated all the details effectively amidst the various updates we shared. It’s been just over two years since the acquisition, and it has proven to be an excellent decision. Our customers appreciate the service, and our colleagues are doing fantastic work, marking it as a significant success. During the pandemic, this business played a crucial role in facilitating vaccine clinical trials and exhibited impressive growth rates, even when excluding COVID-related activities. Looking to this year, we will see a decline due to the loss of some vaccine revenue, which we have been transparent about, but we also have a stronger comparison to build upon from last year, which presents a positive challenge. Therefore, while we anticipate more moderate growth this year due to these comparisons, I see a strong long-term trajectory for the business, with expectations of high single-digit growth moving into 2025 and beyond, along with additional synergies. Regarding China, while there were challenges in the market this year, the first quarter showed promise with various stimulus efforts. We don't foresee significant improvement in China this year, but as we move through the year, the difficult comparisons will ease. We believe that eventually, the Chinese government will implement some form of stimulus, which will enhance market conditions, as the demand for our services remains strong. I am optimistic about the long-term prospects in China, even though it may take some time to achieve that improvement. Thank you, Vijay. Please go ahead.

Stephen, just one quick one for you. On Q1, I think operating margin, slightly under 21%. I think the EPS is around $4.70-ish. Is that just the outsized impact from incentive comp reset, just want to understand the Q1 margin cadence?

Yes. When I consider the margin in Q1, it is certainly a factor when comparing it year-over-year and sequentially. Year-over-year, we clearly see a significant drag from reduced pandemic revenue and the reset of the incentive compensation, which accounts for nearly 200 basis points in total, along with about 100 basis points contribution from the core business despite lower revenue figures. The main factor there is the impact of the cost actions we've implemented over the past year. This helps to frame the margin for Q1. Additionally, the margin profile improves each quarter as revenue increases throughout the year. Thanks, Vijay.

Operator we have time for one more question.

Thank you. Our final question today comes from the line of Tejas Savant from Morgan Stanley. Please go ahead. Your line is now open.

Hey guys, good morning. And thanks for the time here. Marc, just a follow-up on your China commentary there, more in terms of the long-term opportunity. You've talked in the past about that being an important market for you growing at the higher end of your outlook for the company. Recently, there's been a thawing in relations over the last month or so. I think you've kind of alluded to that as well and some high-level government engagement. But then a little while ago, we got word of this Biosecure Act legislation. Can you just help us think through sort of what that entails for you, perhaps an opportunity to be more front-footed and gain share in the near-term on the services side versus kind of the long-term risk of a potential blowback from the Chinese side in terms of U.S. MNCs operating in that market? That would be super helpful. Thank you.

Sure. So thanks for the question. In terms of China, a market that we've been in for 40 years, a set of capabilities that we built over a long period of time that's helped Chinese society, right, and created American jobs as part of it. Better food supply, addressing air pollution, helping produce medicines for the local population, we have a great reputation. I've had the honor of being the Chair of the U.S.-China Business Council over the last couple of years and interacting both with the U.S. administration and the Chinese government. And while it's clear to me that the short-term GDP environment is challenged in China, that the needs for what our industry does and what Thermo Fisher does for the long term is good. It will be a solid growth market, certainly one of the faster-growing geographies in the long-term. In terms of the relations between the countries, yes, I agree with your sentiment, there is a thawing. And in terms of potential legislation, there are thousands of bills that are written that don't happen. So until something sort of matures through the process, it's hard to really know whether it comes to pass and what the exact implications. And my quick read of what they're working on in this particular one, it really is basically an opportunity for non-Chinese companies to have a stronger position in serving Federal Government-related entities. So that's sort of the essence of that. And obviously, as a non-Chinese company, we'd be well positioned to support the U.S. government. So thank you for the question. Let me just do a quick wrap on the call. So thanks everyone for participating in our call today. We entered this year with strong momentum. We're in a great position to deliver an excellent year in 2024. As always, thank you for your support of Thermo Fisher Scientific, and we look forward to updating you as the year progresses. Thanks, everyone.

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