Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2024 Third Quarter Conference Call. My name is Ezra and I will be your coordinator today. I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the 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 Investor section of our website thermofisher.com, under the heading News, Events, and Presentations until November 6, 2024. A copy of the press release of our third quarter 2024 earnings is available in the investor section of our website under the heading financials. So, before we begin, let me briefly cover our Safe Harbor Statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities and Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may choose to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures that are not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our third quarter 2024 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 Marc.

Thank you, Raf. Good morning, everyone, and thanks for joining us today for our third-quarter call. As you saw in our press release, we delivered another quarter of strong financial performance. We're seeing the benefit of our trusted partner status, which is resonating strongly with our customers, and we're continuing to deliver differentiated performance in the short-term while further strengthening our long-term competitive position. So first, let me recap the financials. Our revenue in the quarter was $10.6 billion. Our adjusted operating income was $2.36 billion, adjusted operating margin was 22.3%, and we delivered another quarter of strong adjusted EPS performance, achieving $5.28 per share. Our performance in the third quarter is allowing us to raise our adjusted EPS guidance once again and continues our track record of delivering differentiated results. Turning to our performance by end market. In the third quarter, underlying market conditions played out as we expected and we delivered another quarter of sequential improvement in growth. Let me provide you with some additional context. Starting with pharma and biotech, we declined in the low-single-digits in Q3, including a five-point headwind from the runoff of vaccines and therapy revenue. This marks the third quarter in a row of sequential improvement in growth for this customer segment. Performance in the quarter was led by our research and safety market channel and our clinical research business... ...In industrial and applied, we grew in the low-single-digits during the quarter, highlighted by strong growth in our electron microscopy business. Finally, in diagnostics and healthcare, growth was flat for the quarter. As a reminder, the reported growth in this end market is impacted by the runoff of COVID-19 testing-related revenue. During the quarter, the team delivered good revenue growth in our transplant diagnostics and immunodiagnostics businesses, as well as the healthcare market channel. As I reflect on the end markets, underlying conditions have modestly improved each quarter as the year has progressed. This is in line with the framing we provided as part of the guidance at the beginning of the year. Let me 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 great quarter of innovation. First, we continue to see the impact of our innovations launched over the past couple of years. It's gratifying that our innovations continue to receive industry recognition. This is a true testament to our teams. Most recently, the R&D 100 Awards, which recognizes the most revolutionary products in science and technology, honored two of our products: our Gibco CTS Detachable Dynabeads, which launched last year, as well as our Thermo Scientific Orbitrap Astral Mass spectrometer, which won gold in the market disruptors special recognition category as one of the most significant advancements in mass spectrometry in 15 years. Adoption of the Orbitrap Astral continues to be incredibly strong. During my customer interactions, I've had the opportunity to hear direct feedback on how significant our continued innovation is in helping our customers move science forward and advance their important work... ...The second part of innovation is we also had the benefit of a number of high-impact new products this quarter that we launched. To enable the development of advanced materials, we launched the Thermo Scientific Iliad scanning transmission electron microscope, which integrates a number of our advanced analytical technologies into a seamless and user-friendly workflow. This offers researchers deeper insights into the chemical nature of the most sophisticated advanced materials down to the atomic level. The Iliad incorporates our most innovative high-resolution spectrometer to accurately determine the composition of materials, as well as our proprietary energy filter for detailed imaging and chemical analysis of samples. We recently unveiled Iliad at the European Microscopy Conference in Copenhagen, Denmark. The feedback has been incredibly positive. Turning to innovations in life sciences within our biosciences business, we launched the Applied Biosystems MagMAX Sequential DNA/RNA kit, which maximizes the isolation of DNA and RNA from blood cancer samples, helping researchers identify unique insights of cancer-causing genetic alterations. And we also launched the Invitrogen Vivofectamine Delivery Solutions, a novel method for delivering nucleic acids into multiple targets with therapeutic effect, paving the way for groundbreaking new medicines. Let me give you a quick update on our progress in building on the trusted partner status that we've earned with our customers. ...Last month at our Investor Day, you heard us highlight this element of our growth strategy and I'd like to bring some additional context to bring it to life. During the quarter, I had the opportunity to meet with many of our customers. As you know, we have unparalleled customer access, and this helps us understand their near and long-term priorities. Our scale, depth of capabilities, and accumulated experience is truly resonating with customers as they rely on us to accelerate their innovation, enhance their productivity, and advance their important work. This translated into meaningful commercial wins with customers during the quarter, which speaks to the ongoing strength of our growth strategy and our ability to gain share now and in the future. I also visited China in August and spent time meeting with government officials and customers. We have strong relationships there based on our track record of positive impact and our long history in the country. Our conversations were focused on how we can collaborate to enable our customer success. I came away from the visit, seeing firsthand how well-positioned we are to capitalize on the market opportunities when the economy picks up in China. Let me now give you an example from the third quarter and how we advanced customer partnerships and collaborations. In our clinical next-gen sequencing business, we announced our partnership with the National Cancer Institute, myeloMATCH precision medicine umbrella trial. That's going to leverage our next-generation sequencing technology to test patients for specific biomarkers, so they can be matched more quickly with optimal treatments based on their unique cancer profiles...

Thanks, Marc, and good morning, everyone. I'll take you through an overview of our third quarter results for the total company and provide color on our four business segments. And I'll conclude by providing our updated 2024 guidance. Before I get into the details of our financial performance, let me provide you with a high-level view on how the third quarter played out versus what we'd assumed for Q3 in the midpoint of our prior guide. On the top line, both organic revenue growth and core organic revenue growth increased sequentially for the third consecutive quarter. Revenue was largely in line with what we'd assumed for Q3 in the midpoint of our prior guide. Turning to the bottom line, adjusted EPS was $0.06 ahead of what we'd assumed in the prior guide for Q3. That was a net impact of the following: $0.02 of strong operational performance, $0.06 of lower net interest cost due to favorable timing of cash flow generation and more favorable rates than have been assumed. These are partially offset by an additional $0.02 of FX headwind versus the assumption for the quarter. We're also executing well on free cash flow generation. Year-to-date free cash flow is 22% higher than the same period last year. So we had another strong quarter and are well-positioned to deliver differentiated financial performance in 2024... Let me now provide you with some additional details on Q3. Beginning with earnings per share, and in the quarter, adjusted EPS was $5.28, GAAP EPS in the quarter was $4.25. On the top line, Q3 reported revenue, organic revenue, and core organic revenue were all flat on a year-over-year basis. In the quarter, pandemic-related revenue was approximately $100 million. This was largely from vaccines and therapies. This represents a 3% headwind to organic revenue growth. Turning to our organic revenue performance by geography. In Q3, North America declined low-single-digits and Europe, Asia-Pacific, and China within Asia-Pacific were all flat year-over-year. With respect to our operational performance, we delivered $2.36 billion of adjusted operating income in the quarter and adjusted operating margin was 22.3%, 190 basis points lower than Q3 last year, slightly ahead of our expectations for the quarter. Total company adjusted gross margin in the quarter came in at 41.8%, 20 basis points lower than Q3 last year. In the quarter, we continued to deliver strong productivity, reflecting our continued focus on cost management; this enabled us to fund strategic investments to further advance our industry leadership and partially offset the expected impact of unfavorable mix this quarter. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 16.2% of revenue. Total R&D expense was $346 million in Q3, reflecting our ongoing investments in high-impact innovation and R&D as a percent of manufacturing revenue was 7.3% in the quarter. Looking at our results below the line, our Q3 net interest expense was $80 million, which is $33 million lower than Q3 2023 due to higher cash balances and short-term investments. Our adjusted tax rate in the quarter was 10.5% and average diluted shares were $384 million in Q3, approximately $4 million lower year-over-year, driven by share repurchases net of option dilution. Turning to free cash flow and the balance sheet. Year-to-date free cash flow from operations was $5.4 billion. Year-to-date free cash flow was $4.5 billion and after investing $880 million of net capital expenditures... During the quarter, we deployed $3.1 billion of capital through the acquisition of Olink. And we ended the quarter with $6.6 billion in cash and short-term investments and $35.3 billion of total debt. Our leverage ratio at the end of the quarter was 3.3 times debt-to-adjusted EBITDA and 2.7 times on a net debt basis. In concluding my comments on our total company performance, adjusted ROIC was 11.4%, reflecting the strong returns on investment that we're generating across the company. Now provide some color on our performance of our four business segments, starting with Life Sciences Solutions. Q3 reported revenue in this segment declined 2% and organic revenue was 4% lower than the prior year quarter. Growth in this segment was driven by the impact of the pandemic. Q3 adjusted operating income for Life Sciences Solutions decreased 3% and adjusted operating margin was 35.4%, down 50 basis points versus the prior year quarter. During Q3, we delivered strong productivity, which was more than offset by unfavorable volume mix, retention costs related to the Olink acquisition and strategic investments. In the Analytical Instruments segment, both reported revenue and organic revenue grew 3% versus the prior year quarter. We continue to deliver very strong growth in our electron microscopy business. In this segment, Q3 adjusted operating income decreased 4% and adjusted operating margin was 24.9%, 180 basis points lower year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable mix and strategic investments. Turning to our Specialty Diagnostics segment, in Q3, both reported revenue and organic revenue grew 4% versus the prior year quarter. In Q3, we delivered strong growth and are led by our healthcare market channel and our immunodiagnostics and transplant diagnostics businesses. Q3 adjusted operating income for Specialty Diagnostics increased 3% and adjusted operating margin was 25.9%, 20 basis points lower than Q3 2023... Finally, in the Laboratory Products and Biopharma Services segment, both reported revenue and organic revenue were flat versus the prior year quarter. Organic growth in this segment was led by our research and safety market channel. The runoff of vaccines and therapies revenue had a mid-single-digit impact on the growth in this segment in Q3 and this was offset by very good underlying growth in our clinical research and pharma services businesses. And as expected, Q3 adjusted operating income declined 18% and adjusted operating margin was 13.5%, which is 290 basis points lower than Q3 2023. In the quarter, we delivered strong productivity, which is more than offset by the expected unfavorable mix and strategic investments. Turning now to guidance, as Marc outlined, our strong performance in Q3, we're raising our 2024 full-year adjusted EPS guidance. We now expect adjusted EPS to be in the range of $21.35 to $22.07, which is a $0.03 increase at the midpoint. As we've done in the past two quarters, at the midpoint, we banked half of the Q3 beat and maintained the remainder as additional cushions for Q4. Revenue guidance continues to be in the range of $42.4 billion to $43.3 billion and we continue to assume the core organic revenue growth will be in the range of minus 1% to positive 1% for 2024.

Great. Thank you, and thanks for taking the question. Marc, maybe kick things off with you. You talked a number of times during the prepared remarks about some sequential improvement as the year has gone on. And I think the view is that will continue into 4Q and into 2025? It looks like this continues to be a very gradual recovery, just a very slight step up in market conditions as we go through the year. No major changes, no step function change. Do you expect that pace of recovery to continue into the next quarter and into 2025, or do you think there could be an inflection at some point over the next two to four quarters where things accelerate a little bit? I guess, put another way, sort of what's holding the market back from a faster snapback?

Yes, Mike, thanks for the question. Good morning. So what I thought to do is maybe actually put some framing comments overall, then I'll get to your 2025 question as well. So for the Q&A session today, as I think about the third quarter as we sit here in October and how the year has progressed: first, it was a good quarter. And the market conditions, they've been in line with our expectations and they've been modestly improving as we progress through the year, which is what we expected to happen, so it's good that that's playing out that way. In Q3 for us, organic growth was flat. We were able to offset a three-point headwind from the runoff of COVID-19-related revenues. So it puts it in context of how we're performing. Each quarter, our organic growth has improved as the year has progressed. And I'm really quite excited by the fact that we're expecting the fourth quarter to return to growth organically, which is a good thing. Operationally, we're executing our proven growth strategy. We have strong financial management that's been able to allow us to increase our adjusted EPS guidance each quarter and kind of make all of this a non-event in terms of performance.

Thank you for the insights. For my follow-up, I would like to explore the pharma and biotech sector further. You mentioned a low-single-digit decline in this customer group, partly due to the reduction in COVID-19 related activities. Could you provide more details on the performance of this segment? Specifically, I'm interested in the differences between larger pharmaceutical companies and smaller biotech firms, as well as how the reagent and biosciences businesses compare to the clinical trial and pharma services sectors. This has been a key area of interest for investors, and I would appreciate more context on it.

So you're going to get a lot of fan mail from your peers on your call, sort of asking each of all the questions within pharma and biotech. I'll take a high-level shot at it. So first, when I think about the third quarter and how things progressed, you're seeing a sequential improvement, which is good. And when I think about underlying performance, right? We obviously had a mid-single-digit headwind from the pandemic runoff. So you're seeing that the conditions continue to improve. In aggregate, obviously, they're somewhat muted because they're below the long-term expectations for the market growth, right? So that's nothing surprising where the positives are sort of the data points as we sit here, confidence in biotech is improving, funding in biotech in the industry has been modestly improving as the year progresses. So, it's definitely meaningfully better than it was in 2023. And when I think about the large pharma, in a way, I think it's kind of normal distribution amongst the different companies, some doing extraordinarily well, others adjusting to how their pipelines are performing. And customers have been adjusting to the IRA, and you see that in a more muted growth environment, but we're obviously incredibly well positioned with this customer base and we're clearly delivering differentiated performance relative to others. So the trusted partner status, our unique value proposition, these things resonate. So we feel good about the long-term health of pharma and biotech and how we're performing this year...

Great. Thank you. Thanks for taking the questions, you guys. First up on the CRO, maybe following up on some of your comments there about pharma versus biotech, but really specifically looking at PPD here. Could you give us an update on how much of PPD is indexed to large pharma customers versus biotech? And did you see any differences in trends across the two customer types this quarter within PPD? And then as a follow-up, some of your peers in the CRO sector have started to create some noise around their outlooks on 2025 and what that recovery looks like. So for Thermo, if PPD is more or less, let's call it a mid-single-digit business this year and normal is 8% for PPD, how are you thinking about the pace of recovery for PPD into 2025?

Thank you for the question, Rachel. Good morning. Our clinical research business is actually performing well. It delivered growth this quarter despite facing challenges from the decline in vaccines and therapies linked to CRO-related activities. I feel positive about our progress. In the next quarter, I plan to discuss the synergy we are creating between our pharma services and clinical research business, which provides unique value to our customers regarding performance. We recently communicated this to our customers, and the results have been impressive. Our customer momentum is strong, and we are executing effectively. Currently, we have a slightly larger focus on biotech clients compared to pharma in our clinical research division, but both segments are vital. Notably, biotech customers tend to adopt our integrated capabilities more quickly due to their organizational structure, which has resulted in increased authorizations and positive trends in that area.

Great. Thanks. Thanks for the questions. Great. Maybe, Marc, just on pharma R&D, headlines have been mixed, but we just looked at a global analysis of R&D trends. And then actually they look pretty good for large pharma, up nearly 8%, and kind of global pharma, up like mid-5s? So I'm just wondering, like trying to square the circle with kind of the weaker end market growth that you're kind of base your guide on and maybe why we're not seeing what appears to be a decent level of R&D growth, you're not translating into better revenues. Like has anything changed? Maybe is there more dollars going to service, inflation? Or just in terms of the traditional amount of dollars that your business would see from R&D, is anything kind of different this time?

Yes. So Dan, probably when we think about pharma and biotech, right, it covers the full spectrum of activity. And one of the things that's within that is on production, you have the headwinds across the industry of bioproduction, right? So there's not like an R&D specific call out that you can derive from the numbers. We all understand the runoff on the pandemic is largely in the clinical research side and largely in the bioproduction and pharma services side. So that's a little bit of what's muting the growth in total for our industry. In terms of the dialogue that I've had with customers and sort of what's the tone? People are super excited about the pipeline, right? Whether it's the fact of the GLP-1s and the scale of high-impact medicine that just really is getting people excited. But there's really interesting work going on, on Alzheimer's, which is fantastic. And you've seen some interesting approvals in other neurological diseases that there's just a lot of excitement about pipelines and opportunities. And so I believe that the data you're quoting about the R&D investment is looking good, it reflects that customers have optimism for the future. And ultimately, that's going to translate into our space. So which is why we're so confident about the long-term prospects for our industry.

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

Thank you very much. Our first question comes from Michael Ryskin with Bank of America. Michael, your line is now open. Please go ahead.