Thermo Fisher Scientific Inc. Price & Performance (TMO)

Good morning, and thank you for joining us. On the call with me today is Mark Casper, our Chairman, President and Chief Executive Officer and Steven 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 07/22/2025. A copy of the press release of our first quarter 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 which is on file with the SEC, and available in the Investors section of our website under the heading Financials SEC Filings. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so.

Even if our estimates change. Therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our first quarter twenty twenty five earnings and also in the Investors 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 very strong performance in the quarter. I'm proud of our team's ongoing focus to enable the success of our customers, while demonstrating incredibly strong commercial execution and operational discipline.

Our continued success is a result of our growth strategy, our PPI business system and our proven capital deployment approach. And of course, all of this is against the backdrop of a more uncertain macro environment. So big thanks to the team. Their efforts. In my remarks today, I'll first cover Q1. Was a strong quarter with clean execution across all dimensions. The second part of my remarks, I will cover the expected impact of the uncertainty in the macro environment. And I'll provide a high level view of our updated guidance for the year that incorporates the expected net impact of current tariffs and the changes driven by the current policy focus of the U. S. Administration. So to turn into Q1, let me recap the financials. Our revenue in the quarter was $10,360,000,000 Our adjusted operating income was $2,270,000,000 Q1 adjusted operating margin was 21.9%, and we grew adjusted EPS by 1% to $5.15 per share. Our team's excellent execution and strong focus on our customer success enabled us to deliver revenue performance ahead of our expectations and then we translated that revenue performance into earnings that were also ahead of expectation. Turning to our performance by end market.

As a reminder, there were two less days in the quarter than the same period last year. In pharma and biotech, we delivered low single digit growth during the quarter, which included a two point headwind from the run off of vaccine and therapy related revenue. Performance in this quarter was led by our bioproduction, and pharma services businesses as well as our research and safety market channel. In academic and government, revenue declined low single digits in the quarter, driven by the macro conditions in The U. S. And China for this end market. In industrial and applied, we grew low single digits during the quarter, highlighted by strong growth in our electron microscopy business. Finally, in Diagnostics and Healthcare, we grew low single digits during the quarter. Reflecting strong performance in our healthcare market channel and in our transplant diagnostics and immunodiagnostics businesses. Wrapping up on our end markets, while there were more in was more uncertainty than originally expected, our team delivered on our financial commitments for the quarter. In terms of our growth strategy, we made terrific progress in the quarter. As a reminder, our strategy consists of three pillars. High impact innovation, our trusted partner status with customers and our unparalleled commercial engine.

So starting with the first pillar of our growth strategy, high impact innovation. We had an excellent start to the year, launching several outstanding new products that are strengthening our industry leadership, by enabling customers to advance their important work. Let me first highlight a couple of new products and analytical instruments that demonstrate our continued market leadership. In electron microscopy, we introduced the Thermo Scientific Vulcan automated lab. A fully integrated AI enabled solution that combines robotics and electron microscopy, helping to advance process development and control in semiconductor manufacturing. The Vulcan system speeds up transmission electron microscopy workflows reduces labor, and delivers consistent high quality data. This innovation improves manufacturing yields, and enhances productivity and seamlessly connects lab and fabrication operations, a major step forward for our semiconductor customers. In chromatography and mass spectrometry, we introduced excuse me, sorry, we introduced the next generation Thermo Scientific Transcend. A new ultra high performance liquid chromatography platform helping high volume laboratories simplify sample preparation increase efficiency in clinical research, for enzotoxicology, food safety environmental testing applications, including for PFAS. Turning to our genetic sciences business, we introduced OLINK Reveal proteomics kits, that enable the identification of proteins related to inflammation and immune response helping to advance precision medicine.

It was a terrific quarter for innovation, we're excited about the strong pipeline of launches slated for Q2 including those that will debut at ASMS. Our high impact innovation is enabling an even brighter future for our company. During the quarter, we also continued strengthen our industry leading commercial engine and deepen our trusted partner status with our customers, accelerate their innovation and enhance their productivity. In our clinical research business, we continue to strengthen our leadership real world evidence, to help our customers gain insights about the safety and effectiveness of current and future treatments. We launched new CoreVitas patient registries alopecia and lupus to enhance our customers' ability to inform treatment decisions and ultimately improve patient outcomes. And in electron microscopy, we announced a new collaboration with the Chan Zuckerberg Institute for Advanced Biological Imaging. To advance the understanding of human cells by leveraging cutting edge cryo electron tomography technologies. This effort supports the development of the Open Cell Atlas, a groundbreaking initiative aimed at creating high resolution three d maps of human cells to drive biological discovery. It's another example of how Thermo Fisher is enabling large scale collaborative research efforts to push the boundary of science forward.

Our trusted partner status and industry leading commercial capabilities enabled our enable our customers' success. They also provide us a unique opportunity for us to engage with our customers helping them solve current challenges and plan for the future. As always, our PPI business system played a significant role in our enabling outstanding execution during the quarter. PPI engages and empowers all of our colleagues to find a better way every day. PPI is helping us to drive share gain, and improve quality, productivity and customer allegiance. It's a significant competitive advantage for Thermo Fisher as we navigate through the current macroeconomic uncertainty. Let me now turn to capital deployment. We continue to successfully execute our proven capital deployment strategy which is a combination of strategic M and A and returning capital to our shareholders. In February, we announced that we entered into a definitive agreement to acquire Sorbentum's purification and filtration business for $4,100,000,000 The business is a leading provider of purification, filtration technologies used in the production of biologics, as well as in medical technologies and industrial applications. Solventum's innovative products are highly complementary to our leading cell culture media and single use technologies. Broadening our bioproduction capabilities to better serve the high growth bioprocess market.

The transaction is expected to be completed by the end of twenty twenty five and is subject to customary closing conditions and regulatory approvals. We look forward to welcoming our new colleagues to Thermo Fisher. In terms of return of capital, during the quarter, we repurchased $2,000,000,000 of shares increased our dividend by 10%. Let me now turn to our guidance. We've all seen a tremendous pace of change in the world since we provided our guidance on January 30. The two main elements of the macro changes since then are tariffs and the changes driven by the current policy focus of the U. S. Administration. As you would expect, we've been operating with agility to assess the changes as they come, and we're actively managing our business to mitigate the impact and capitalize on new opportunities. As a result, we're able to offset a large amount of the impact of the macro changes in 2025. And more fully offset them when the full impact of our mitigation actions is realized next year. While these recent macro changes are causing uncertainty and remain fluid, we thought it would be most helpful to the investment community to offer our best estimate of the impact of unknown changes as of today and embed them in our guidance.

Our updated guidance range for the year is revenue in the range of $43,300,000,000 to $44,200,000,000 and adjusted EPS in the range of $21.76 to $22.84 Steven will take you through the details in his remarks. While the guidance has changed for the expected impact of the macro factors and the mitigating actions, it's important to note that the rest of the guidance remains fully on track relative to what we shared on our last earnings call. As you know, during periods of change, we define a clear set of guiding principles on how to successfully manage the company. These principles have three elements. First, everything we do starts with our customers and ensuring that we're enabling their success. Second, we inspire our colleagues to bring their best every day to fulfill our mission. And third, you know we hold ourselves to an incredibly high standard to deliver differentiated short term performance all while identifying opportunities enhance our long term competitive position, which creates an even brighter future for our company. To enable that differentiated short- and long term performance in this environment, we're leveraging our PPI business system to aggressively manage our supply chain to counteract tariffs and to appropriately manage our cost base.

You've heard us talk about our commercial intensity, and we're pivoting our commercial teams to the areas with the best opportunities to accelerate our share gain momentum. [indiscernible] We're ensuring that our trusted partner status is driving tangible benefits for our customers. And one way we're doing this is by continuing to invest further to strengthen our capabilities for our customers. This includes increasing our investment U. S. Manufacturing, R and D, is in the range of about $2,000,000,000 As the largest domestic life sciences player in every major market around the world, we're uniquely positioned to help customers navigate this environment. I'm encouraged by the fact that both our colleagues and our customers have never been more enthusiastic about our company. Our customer allegiance score is at an all time high and colleague engagement and retention is incredibly strong. So to summarize our key takeaways from quarter. We delivered a very strong quarter driven by our proven growth strategy and PPI business system. Our trusted partner status and proven ability to enable our customer success, is a significant competitive advantage. Looking ahead, we're acting with speed and agility to navigate the current environment, and we're incredibly well positioned to minimize the impact and maximize new opportunities, creating an even brighter future for our company.

With that, I'll now hand the call over to our CFO, Steven Williamson. Steven?

Thanks, Mark, and good morning, everyone. I'll take you through an overview of our first quarter results for the total company then provide color on our four business segments and I'll conclude by providing our updated 2025 guidance. I get into the details of our financial performance, let me provide you with a high level view of how that first quarter played out versus our expectations at the time of our last earnings call. In Q1, we had another quarter of excellent execution, and this enabled us to deliver Q1 financials ahead of what we'd assumed in our prior guidance. Organic revenue growth was approximately $100,000,000 or 1% ahead and adjusted EPS was $04 ahead. This is driven by $09 of very strong operational performance partially offset by $05 of higher FX headwind largely due to noncash transactional FX. So a clean beat for the quarter. The team's execution was excellent, and we delivered a strong start to the year. I will now provide you some additional details on our performance, starting with earnings per share. In the quarter, adjusted EPS grew 1% to $5.15 GAAP EPS in the quarter was $3.98 up 15% from Q1 last year. On the top line, Q1 reported revenue was flat year over year.

The components of our reported revenue included 1% organic revenue growth, a slight contribution from acquisitions, and a 1% headwind from foreign exchange. For context, within our revenue growth for the quarter, had a headwind of approximately 3% from the combined impact of two less selling days and the runoff of the pandemic related revenue. Turning to our organic revenue performance by geography. In Q1, North America was flat year over year. Europe grew low single digits. And Asia Pacific also grew low single digits. With China declining mid single digits. With respect to our operational performance, we delivered $2,270,000,000 of adjusted operating income in the quarter, and adjusted operating margin was 21.9%. 10 basis points lower than Q1 last year. 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 a headwind from foreign exchange.

Total company gross margin in the quarter was 41.7%. Moving on to the details of the P and L, adjusted S and A in the quarter was 16.5% of revenue.

Total R and D expense was $342,000,000 in Q1 reflecting our ongoing investments in high impact innovation. R and D as a percent of manufacturing revenue was 7.5% in the quarter.

Looking at our results below the line, our Q1 net interest expense was approximately $100,000,000 The adjusted tax rate was 10%. And average diluted shares were $384,000,000 lower year over year driven by share repurchases net of option dilution. Turning to free cash flow and the balance sheet. Q1 cash flow from operations was $720,000,000 and free cash flow was $370,000,000 after investing $350,000,000 of net capital expenditures. During Q1, we deployed $2,100,000,000 of capital to shareholders through $2,000,000,000 of share buybacks, which were completed in January, and approximately $150,000,000 of dividends. Also during the quarter, as Mark mentioned, we announced the definitive agreement to acquire Sorventum's purification and filtration business approximately $4,100,000,000 in cash. We expect the transaction to be completed by the end of twenty twenty five and the business will become part of our Life Science Solutions segment upon close. Ended the quarter with $5,900,000,000 in cash and short term investments, and $34,200,000,000 of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted [indiscernible] and 2.6 times on a net debt basis. 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 I'll provide some color on the performance of our four business segments. As a reminder, in Q1, we had two less selling days than the prior year quarter, This impacted revenue growth in each segment by approximately one to two percentage points. Life Science Solutions, Q1 reported revenue in this segment increased 2% versus the prior year quarter, and organic revenue growth was also 2%. Growth in this segment was driven by our bioproduction business. Q1 adjusted operating income for Life Science Solutions decreased 1% and adjusted operating margin was 35.6%, 120 basis points versus the prior year quarter. During Q1, we delivered very strong productivity, which is more than offset by the expected impact of the OLink acquisition unfavorable mix and strategic investments. The Analystical Instruments segment, reported revenue grew 2% year over year and organic revenue growth was 3%.

The growth in the quarter was led by electron microscopy business. In this segment, Q1 adjusted operating income was flat year over year and adjusted operating margin was 23.2%, down 50 basis points versus the year ago quarter. In Q1, delivered strong productivity and volume pull through, which is more than offset by strategic investments foreign exchange headwinds, and unfavorable mix. Turning to Specialty Diagnostics.

In Q1, reported revenue grew 3% year over year, organic revenue increased 4%. In Q1, growth in this segment was led by a healthcare market channel, and our immunodiagnostics and transplant diagnostics businesses. Q1 adjusted operating income for Specialty Diagnostics increased 3% and adjusted operating margin was 26.5% flat year over year. During the quarter, we delivered good productivity and volume pull through, which was offset by foreign exchange headwinds and unfavorable mix. Finally, in Laboratory Products and Biopharma Services segment, both reported revenue and organic revenue decreased 1% versus the prior year quarter. The run off of pandemic related revenue had about a 2% impact on revenue growth in this segment in Q1, This was largely offset by good growth in our pharma services business, and our research and safety market channel. In this segment, Q1 adjusted operating income decreased 2% and adjusted operating margin was 13%. Which is flat to Q1 twenty twenty four.

The quarter, we delivered very strong productivity, which is offset by unfavorable mix and strategic investments. So turning to guidance. As Mark outlined, we're updating our 2025 full year guide to reflect the continued strength of the business, including the very strong start to the year in Q1, and to reflect the expected impact of recent changes in the macroeconomic environment. While these recent macro changes are causing uncertainty and remain fluid, we thought it would be most helpful to the investment community to offer our best estimate of the impact of the known changes as of today and embed them in our guide. Let me start with a high level summary of the change to the midpoint of the guide. I'll then provide more detail around each one of the changes so that you have the right context.

Adjusted EPS is $1 lower at the midpoint than our previous guidance. Dollars $0.07 0 is driven by the tariffs between U. S. And China, expect this impact will reduce very rapidly next year when the full benefits of our mitigation actions are realized. Non China related tariffs are assumed to have no net impact to the adjusted EPS for the full year 2025. Our mitigation actions offset the gross impact of the new costs within the year.

And finally, impact of changes driven by the current policy focus of the US administration has a $0.30 impact 2025. Revenue dollars are unchanged at the midpoint. The volume related impacts are offset by our mitigating price actions and more favorable FX. And we now expect organic revenue growth to be 2% at the midpoint of the range for the year.

The guidance is prepared using tariff rates that are in place today. And assumes no change in the current U. S. Policy focus. So we're updating the guide to reflect the change in the macro environment, and our highly impactful mitigation actions. It's important to note that all the rest of our guidance remains on track, for the year. Let me now give you the detailed context behind each of these macro change factors. Starting with The US China tariffs. The tariff rates here are so substantial that they're likely to significantly reduce the volume of trade between the two countries. We expect this will impact the sales of our product in China that are produced by our facilities in The U. S. In our guidance, we're assuming this is a $400,000,000 revenue headwind for the year, These tariffs are also expected to increase the cost of China sourced parts and subassemblies. The pull through on the lower volumes and higher costs net of the aggressive mitigation actions, is assumed to be a headwind of adjusted operating income in 2025 of $375,000,000 versus that prior guide. The mitigation actions take time to complete, so we don't get all the benefit from them in 2025, Once they are complete, we expect them to fully mitigate the impact of these tariffs.

Moving on now to non China related tariffs. These recently raised tariffs are increasing our costs, where we directly import items into The U. S. They'll also likely increase the cost of many items that we buy in The U. S. That have an overseas content. A partial offset to the impact of these tariffs is foreign exchange. The increase in tariffs have caused a significant weakening of the U. S. Dollar. And at current rates, this increases our revenue guide for the year, by $600,000,000 The bottom line benefit of the FX change is more muted, given the mix of currencies, and onetime transactional FX caused by the recent rapid change in the rates. We're driving offsetting mitigation actions here as well. Combination of supply chain changes, actively managing our cost base, and appropriate pricing actions. As a result, as I mentioned earlier, there's no net adjusted EPS impact for 2025 from the non China related tariffs. Then in terms of the changes in U. S. Policy focus, the largest impact is likely to be on our U. S. Academic and government customers. We now expect that purchases to be more muted in 2025 as especially for instruments and equipment, as we evaluate the impact of potential changes to government funding and work out how to access new funding sources to continue their critical work.

We're baking into our guidance a lower level of clinical trials work also related to vaccine studies. Net of appropriate cost management, these changes to U. S. Policy focus reduced our guidance midpoint by $500,000,000 of revenue dollars 150,000,000 of operating income and $0.30 of adjusted EPS.

The tariffs and policy changes are also creating some very relevant medium and long term opportunities. We're working to maximize these upsides. Including leveraging our extensive U. S. Manufacturing capabilities to help our customers navigate their own potential tariff impact. This will have minimal impact in 2025, but it's expected to be an important contributor going forward. So bringing all this together, our updated guidance range for the year now reflects revenue in the range of $43,300,000,000 to $44,200,000,000 Organic growth in the range of 1% to 3%, and adjusted operating income margins in the range of 2222.6%. It's worth noting that the tariff related changes to the guide reduced our adjusted operating income margin by 120 basis points. This is driven by FX, and also the tariff costs partially offset by incremental pricing actions.

We're taking the right actions in protecting the profit dollars, but it has an impact on our reported margins. And then finally, adjusted EPS in the range of $21.7 to $22.84 This reflects excellent performance in the current conditions. From a range standpoint, we've assumed a plus or minus 1% organic revenue growth range around the midpoint. This range is provided to give you a view on the potential outcomes based on the world as it is today. And the current tariff levels and the current policy focus areas being unchanged. There are scenarios for 2025 that could be low in this guidance range if the macro macroeconomic outlook meaningfully dampens? And there are scenarios that could play out above this range that would be largely in line with our original guidance. As we think about the implications for beyond 2025, given the robust mitigation actions we're putting in place, I see the financial impact of these macro driven changes to our guide reducing fairly rapid rapidly. Quickly realize the full benefit of our supply chain actions our academic customers will adapt their funding sources, and we'll capitalize on the new opportunities that the macro changes are creating. So now I'll move on to an update of some of the modeling elements for the full year.

So given the recent changes in rates, we now expect FX to be a year over year headwind to revenue of $50,000,000 and $90,000,000 headwind to adjusted operating income. This includes an estimated $60,000,000 of onetime transactional FX. In terms of adjusted EPS, we now expect FX to be a headwind of $0.19 for the year. Below the line, we now expect approximately $330,000,000 of net interest expense in 2025, The adjusted tax rate assumption for the year is expected to be 10.5% versus our prior guide of 11.5%, reflecting the changes to our earnings guidance. We continue to expect between $1,400,000,000 and $17,000,000,000 of net capital expenditures in 2025 and free cash flow in the range of $7,000,000,000 to $7,400,000,000 for the year. In terms of capital deployment, we're assuming $2,000,000,000 share buybacks, which were already completed in January. We continue to estimate that full year average diluted share count will be between $378,000,000 and three seventy nine million shares, and we'll return approximately $600,000,000 of capital to shareholders this year through dividends. And our guidance does not include any future acquisitions or divestitures, so it does not include any impact from the pending acquisition of Sorbentum's purification and filtration business.

Finally, I wanted to touch on phasing for Q2.

We expect organic growth in Q2 to be similar to Q1. And adjusted EPS in Q2 to be approximately point five dollars to $0.10 higher than Q1. So to conclude, in a more uncertain world, we delivered on our commitments in Q1. And while the world is more uncertain, what unchanged is our approach. We're acting with agility, and navigating appropriately. Enabling the success of our customers our colleagues and our shareholders.

With that, I'll turn the call back over to Raf. Thank you, Stephen. Operator, we're ready for the Q and A portion of the call.

Thank you. We will now begin today's question and answer session. In order to allow everyone in the queue an opportunity to address the follow-up. If you have additional questions, please return to the queue. Our first question today comes from the line of Michael Ryskin with Bank of America. Please go ahead, Michael.

Great. Thanks for taking the question and thanks for the detailed comments Mark Steven. That was really helpful. I want to start on, something you both touched on sort of the approach to the guide methodology going forward given all the uncertainty in the broader market and especially on the policy side. Just trying to think about obviously things have changed a lot in the last three months. It feels like they're changing every day, every week. We noticed that for the guide, both for revenues and EPS, you're giving a wider range than you have in the past. But just you talk a little bit about upside downside sort of what the world looks like for the lower end versus what the world looks for the higher end? And just if things keep changing as they have been, you know, levers you have to to offset things if if things deteriorate further or maybe just sort your actions would be if things improve a little bit? Just think about various scenarios going forward.

Thanks. Mike, thanks for the question. Super, super helpful question. So maybe I'll start with a little bit of framing and then think about some scenarios. Right? So I think that you start with we had a really good quarter to start the year. Right? And And it was clean across all dimensions. Top line, bottom line, execution of the growth strategy. Actually really excited about customer leads and things that we don't talk as much as the best ever Turnover rates of colleagues, the lowest that we've recorded. So things are good. Right, from that perspective. Right? And the margin majority of our businesses actually are right on track in terms of what I would expect. The macro is, as you said, is is quite changing and dynamic. And you know, if I think about how challenging it was to just go through and assess what would be the impact of us. So just what we have at this moment, we made the view that it is better to actually articulate that. So that, you know, people can model it. Right? And we think that's gonna be exactly right? Of course not. But do we think it's directionally correct?

Yeah. We do. And what's hard to visualize is we are fully mobilized on mitigation actions. Navigating the environment that we see right now. And if you think about, really, most of these changes started around April 10. And we sit here, you know, less than two weeks later, and we're in full mobilization mode. If things change, we're gonna capitalize on opportunities that we never saw coming. We will navigate risks effectively. We'll roll back actions that are if some of these things don't happen. So we'll be very agile. And I feel good about our ability to do that. Actually, I think we're incredibly differentiated based on our ability to do that. So what are the what are the broad scenarios? So the upside scenario is changes in the policies between US and China. That you don't have sort of this dramatic reduction of demand. Based in China for US made products. It's a small minority of what we produce for China is actually made in The US, but our assumption is effectively it goes to zero until we can mitigate supply chains, which we can do quite aggressively. This takes some time to move production to other sites.

So that's the that's the most obvious scenario. That would drive short term actions. It was actually a good set of commentary from the FDA Commissioner about what he's trying to do. And I know the biotech community has all good about those changes. So you put envision a more robust biotech environment. Those are kind of both scenarios. There's probably some other ones I'm not thinking about. The the negative is know, if tariff rates or other things like that or the macro gets affected by these things, that'd the negative scenario. And many levers that we can pull but it's hard to know exactly what the impact would be because we don't know the magnitude of the challenge that we've So, hopefully, that helps you think about it. And the important reminder, a period of volatility, there's no place that's better to be than life science tools, right, in terms of you think about this level of change and in the scheme of things, very small changes to our outlook. We're still growing nice nicely, and our plan is to grow EPS. So it's a nice haven in a little bit challenging environment.

Thank you, Mike. Sure. Thanks so much, Mark. That's really helpful. And then for my follow-up, I want to touch a little bit sort of the long term beyond 2025. I think you guys addressed the tariff situation really well, saying that you'll be able to mitigate things and it's really not going be an issue next year. But thinking about NIH, U. S. Government funding, policy there, obviously, that's an important market. So any thoughts? I know it's really early, but any thoughts on what your view is of the underlying tools market growth rate that 4% to 6%? Is that still viable going forward in the future? Do you think that there will be enough offsets and ability to find new funding sources? Or does this sort of dampen that longer term outlook for the market?

Thanks.

Yeah. So Mike, I think right now we're focused on the super short term, right? Because obviously, we're addressing that. I'm super optimistic about the long term health of our industry because if you go about what driving it, right? What's driving it is we're getting older, There's big demand for health care. And the scientific breakthroughs, they're awesome. Right? The pipelines in the pharmaceutical and biotech industry are compelling, right? And those things generate the fundamental underlying growth. When I think about the long term, I feel very good about the long term growth. Right? What underlies that is obviously GDP growth. So GDP growth in the world is better, that actually puts an upward pressure on growth in the long term. If GDP growth is depressed, that puts a downward pressure. That would affect every part of the but that's always a driver that we don't talk so much about. On the academic funding, when I think about sort of US NIH, when you're thinking about a few points of our total revenue, you have a one time reset if this never changes in policy. But, ultimately, it grows from there. When I actually think about what is the practical aspects of the government, you know, environment or the academic environment, I should say, The next step actually is what does the appropriations happen in the budget?

Congress has historically been strong supporters of NIH. We'll see how that plays out. And then from there, it'll go going forward. So hopefully, that's helpful. I'm excited for what the future holds. And right now, just gonna navigate the environment that we're in.

Thank you. The next question comes from Matt Sykes with Goldman Sachs. Please go ahead, Matt.

Good morning. Thanks for taking my questions. And really do appreciate all the detail you've given so far. I guess for my first question, just given how close you are to your customers, as we think about the large biopharma end market, could you maybe talk about any changes in order behavior or patterns where there's been a pull forward of inventories just to get ahead of tariffs? And if you haven't seen that yet, do you expect that to happen? And how do you work with your customers to ensure not a significant amount of supply chain disruption in that event?

Yeah. So so, Matt, it's a it's a great question. And thanks for it. Given how short the announcement implementation of the tariffs, don't really believe customers had any opportunity to pull forward, right? It would have been we didn't see something like funky in the in the first quarter in terms of some bolus of things happening later in the quarter. We sort of go ahead with the normal process. And the tariffs are in effect. So I don't see really any meaningful changes in in the patterns that we're expecting. And so, that's helpful.

Great. And then just for my follow-up, when you talk about manufacturing flexibility and the ability to mitigate could you maybe at a high level just kind of talk about how flexible different types of products and are. Meaning, like, is it easier to flex an instrument manufacturing facility versus, say, consumables or reagents? And And how do you think about sort of the order of priorities in terms flexing that manufacturing? I just think we all want to get a sense for timing of truly how flexible you can be given the diverse set of products that you offer.

Yes, Matt. When you think about what we've said in our guide and how fast we're able to mobilize you can see the short time duration it takes to actually get the full impact of that. And complex. It takes a lot of hard work. The team's doing an awesome job of of, a, thinking about the implications and then, b, putting the right action in place.

Times in place, then, c, at the executing. So we're on whether they were at the c stage and executing. And it's different by different businesses, by different product types. And we have flexibility in our system, that you see the net impact is there. So I think that's the best way to put it. The team is just working with the benefit of PPI business [indiscernible] execute on that. So the other thing that one thing that will be challenging, I think, for the analysis of the industry is scale is just an enormous advantage here. Right? Because if you're narrow, and you ship from the world from a single site for your products, you might be massively disadvantaged. You might be advantaged. You may change. Your ability to be flexible, incredibly hard. We have scale facilities in every major geography. They don't do everything that we do, but the capabilities are robust. We have a lot of twin factories where the factories do the same thing in different geographies. So our ability to move with speeds here, enormous. That actually is a great share gain opportunity for us as well. Right? So I feel very good about our competitive position, especially how strong the PPI business system is on our operational execution.

And I hope that's helpful. Great. Thanks, Matt.

Our next question comes from the line of Jack Meehan with Nephron Research. Please go ahead Jack. Your line is now open.

Thank you. Good morning. And first, appreciate the very comprehensive guidance update that you guys provided.

Mark, one follow-up, one to ask on the policy side is related to pharmaceutical tariffs.

Curious what you're hearing from customers and then just talk about the risks and opportunities there for Thermo Fisher I'll leave it open ended, then I have a follow-up.

Jack, thanks for the question. So we interact, obviously, with our pharmaceutical and biotech customers. And continually. Obviously, there's nothing been formalized on the tariffs at this point. And I think there's both advocacy that those customers are doing and planning as well. One of the things that we're doing is we're seeing a lot of interest. In leveraging our scale US manufacturing capabilities within our pharma services business. So there's quite a bit of demand for our footprint here. Part of the reason that I talked about the investment is a $2,000,000,000 investment over the four year period ahead of us, is really to actually have added capacity for pharma services, for analytical services or laboratories and additional r and d done in The US. And I think it's we just believe that there's going to be more activity here whether there's tariffs or not, and that's the direction of travel. And going to enable our customer success. And once again, we'll be able to capitalize on that opportunity to help our customers be extraordinarily successful.

Great. And you kinda walked me to where I wanted to go, which is on the pharma services business. So that got a few callouts in the script. We just like to get your thoughts on what inning you think this business is now in, kinda in the post COVID recovery. Confidence that continues. And when you have these discussions with customers, any is it more API related or fill finish just like where you're seeing the demand for help?

Yeah. So so it's it's the the biggest area It's across the board, but the biggest area is really is infill finish. Right? As well as interestingly enough, drug product on on the tableting side of the things as well because there's an interest in having more done in The U. S. So if I say front product is seeing the fastest thing because it takes a long time to move drugs drug substance, actually, in terms of you know, that happening. So I think you know, that's where we'll see it first. And in terms of the COVID thoughts, we've won significant business. To backfill the old COVID related capacity. So that's pretty much all that is actually all signed up. And then we're just ramping up production. Right? And we have new lines coming in. Going to have even more lines being added with the additional investments in coming years. So from that perspective, the COVID's in the rearview mirror, and now you're starting to see the ramp of the activity. On what we backfilled with. So it's a pretty exciting time in pharma services. Great. Thanks, Jack. Thanks, Jack.

Thank you.

The next question comes from the line of Rachel Vontenstahl with JPMorgan. Rachel, please go ahead. Thank you, operator. Good morning, and thanks so much for taking the question.

So I wanted to dig into the policy changes that drove a portion of the updated guide.

You highlighted that $500,000,000 of that guidance reduction was related to those policy changes. You specifically called out the weakness in academic and government, but then you also highlighted some of the clinical trial weakness in light of lower expectations related to vaccines. So could you break down for us what percent of that 500,000,000 update was related to a and g versus the CRO? And then alongside the academics and government, what are your updated expectations for how that market should perform for the full year? [indiscernible] Which market should perform? For academic and government.

Okay. Thank you. Alright. So terms of the policy yeah. No. So thank you. I just wanna make sure I I answered the right question. So So thanks for the question. So the split is is really quite straightforward. On the policy changes. Within the clinical research business, we've seen $200,000,000 of studies canceled or put on hold, specifically vaccine About half of that is directly funded. By the government through innovators, and about half of it is just from the innovators themselves. Every other aspect of clinical trial related activity seems to be normal. So that's been fine. Actually, there's a lot of interesting strength in the biotech authorization. There's lot of good things going on there. But we have seen very specific actions, and suspect that others that do that, particular activity in the short term, we'll figure that out. I also believe that ultimately, as the policy people get in place, it's actually good medicine that's actually on some of those studies. So it's just a question of know, do they come back? And if so, when? So that's how I think about that. It's kind of a one off In terms of the academic and government be the balance of that, In terms of the phasing, obviously, we don't guide by end market or that.

The way I would just think about it is you know, are putting in their mitigation actions would expect that US academic would be you know, relatively soft the balance of the year. That's what we embedded in our guidance. Going forward. And that it could improve based on the appropriations dynamics this summer. We haven't assumed that that creates a tailwind. But I would say we just put it in effect right throughout the balance of the year pretty much pro rata in terms of the impact.

Great. And then for my follow-up, I just wanted to push on pricing assumptions. So you called out just in light of tariffs that you can see some potential pricing offsets there. So can you walk us through your broad pricing assumptions, expectations for this year? How much do you really think you will be able to mitigate? How conservative are you being on those assumptions as well? And then what businesses are you expecting more pricing power and ability to pass that on through tariffs versus other areas where you maybe take less price in this environment?

Yeah. I think it's important to note that we're we're taking a appropriate pricing actions. We're not trying to take advantage of a situation, and this is exactly what we've done in prior times. And appropriately passing price on. And when I think about for the year, we were assuming this year we've had over a percentage point of price. This is a kinda getting to that to close to 2%. So it's not a significant price change. It's just appropriate given we're in an inflationary environment, by the happening in the change of the world in terms of tariffs. That's the approach we're taking. We'll do that appropriately across the portfolio. So there's no area of concentration when I think about that then.

Pricing implication. Thank you, Rachel.

Thank you.

The next question comes from the line of Doug Schenkel with Wolfe Research. Please go ahead, Doug.

Hi. Good morning. Mark, I appreciate your answers to Mike's questions and a few others. Along the way earlier on, you know, essentially the LRP And know, listen, I I think a lot of us on the line know, know the history here of you know, bio innovation and steady academic funding. You know, that said, this this seems different. Thus far, assuming that the White House doesn't really mean it, you know, has not been a good policy. It's clearly not a business friendly environment right now. Major pharmaceutical companies such as Lilly are you know, publicly talking about reducing the trajectory of r and d and CapEx investment. And then even beyond these recent developments, yeah, the reality is is it's it's been a tough five years for the group. You know? You you and I have been doing this for a long time, Mark, and, you know, I I think we believe in the greatness of this industry and the greatness of Thermo. But yeah, I'll tell you, a lot of the investors I speak with you know, if if you're newer to the industry but I don't mean just last year. I mean, over the last five years, you've never seen tools be a good group.

So with all that in mind, I I would think you have to at least contemplate a scenario where the growth rate is structurally lower. And while what we're doing now is normal, it it may be normal ish. In that scenario, what do you change? You know, if growth rate's lower, do you actually pick up more share? Than three points? Do you think about altering the portfolio? And and how does that impact m and a? So I I wanna start there and then I actually wanna come back to maybe a more positive question in my follow-up.

So, Doug, I'm smiling. What I would what I would say is if I look at the last five years, there have been aspects of the greatest that this industry has ever been. In terms of enabling a global response to the most challenging pandemic that any of us have lived through and certainly since 1918. And that was only really regional between US and Europe in terms of the impact. This industry enabled amazing things. So are some great things that have happened. And in the five years, there's been some of the greatest innovations that have come out of our industry, let alone. So [indiscernible] there's been an incredible overhang from the pandemic that has been extraordinarily painful. Right? So I'm very realistic about the ups and downs. But if I look back at the last five years, it basically says the relevance of this industry to have a very bright future and have really quite small movements up or down on the volumes. Right? And I think that shouldn't be lost. And when you think about in a period of really since January 30, lots of new uncertainty, And in the scheme of life, very small changes to the top line, It talks about the resiliency of our company actually the attractiveness of the industry.

Right? And and I think that gets lost when know, there's not been a lot of headlines that are positive right now on some of these dimensions. But as the largest US player and the largest player in the field, with a policy set of actions that wanna make The US stronger, we're gonna benefit from that disproportionately, and that's a good thing. Right? And so so I I see all of that. When I think about the long term, I know what the drivers are.

If GDP growth right? If if you take the the views that you have or others are saying, that the world's GDP growth is less. Going forward on a structural basis because of the changes? Then the market growth likely will be somewhat less. It'll be much less effective than other parts of the economy. But, yeah, if you if you believe that the world is just fundamentally going to grow less, and you can say that's less business policies, whatever it is, then, yeah, there'll be some change in growth rates. But if you also say that The US economy is ultimately going to be better positioned, I have no idea whether it will or won't. You take the bull case, then you could actually articulate that it could actually get better over time. What I do know is Steven and I have lived our careers through transparency. If our views change on the long term growth of the markets based on the facts as we see them, we will be the first to say it. We're not hanging on to a number Right? We're not we're just literally putting the numbers that we think are best at the at this moment in time.

Don't look at them every day in terms of long term, but we look at them periodically. And if our views change, our investor will understand it because we're being candid. So, hopefully, that helpful. And I've spent, you know, thirty years in this industry. I've lived through every environment. I'm pumped for the future, knowing that a lot of the short term is challenging, and we'll get through that just fine.

Alright. Fantastic perspective. Mark. Thank you for that. And, maybe to to kinda build into something that might be a little more positive. Relative to the question I asked. Some larger pharmaceutical companies and biotechs, you know, I think most recently this week, you know, Roche, But there have been others. They've started to talk about major build out of infrastructure in The US. Yeah. You you guys are as close as anybody to your customers. I'm I'm curious what you're seeing in terms of movement towards reshoring in The US and and for that matter elsewhere. In the world. And know, what what form do you think this takes for Thermo? You know, if if you're starting to hear more about this, where do you think you're gonna benefit most How quickly can you can this happen? And, you know, is there any any chance that you'd be willing to size up this opportunity for you? I know it doesn't happen tomorrow, but it it could be a really important growth driver moving forward.

Doug, I think your first question was an important question. The second one is as well.

So when I actually think of a new facility gets announced, let's forget about the last couple of months. A new manufacturing facility gets announced. It is a meaningful revenue for us in terms of know, helping you know, many, many, many millions of dollars of equipment, the lab infrastructure, new consumable supplies, the inventories, but it it really is great. I was thinking about a customer last year big new facility came online, huge order, right, in terms of what they do broad based across bioproduction, bioscientry agents, so on and so forth. So really, quite meaningful. In the dialogue we've had with our customers about new facilities that are being discussed, that is really a nice tailwind We're in the conversation, and we'll certainly help our customers ramp up their, you know, their capacity. So I think it's a nice tailwind. Don't have any plans ultimately gonna be built yet, so we'll we'll kinda go one at time and incorporate it into our guidance as we know it. You know, just given how long it takes to break ground, it's really 26 and beyond, but but super exciting.

Operator, we have time for one more question, please.

Thank you.

Our final question today comes from the line of Tycho Peterson with Jefferies. Tycho, please go ahead.

Hey.

Thanks. Mark wanna probe into, you know, pharma services a little bit more, you know, setting us aside the 200,000,000 in vaccine cancellations you flagged for PPD. You talked about activity remaining normal, good strength in biotech authorizations. You maybe give a little bit more color there? I mean, around order growth? Is this mostly share gains from your perspective? Much of this is bundling, you know, with Paytheon and and the combined offering? And then it sounds like you don't really have concerns over pharma cuts in response to tariffs. And in particular around r and d. I just wanna make sure that's the case. Then I have one follow-up for Steven.

So, so, Tycho, given the hour, we'll probably just get to the first one today. But in terms of the what's going on in clinical research and sort of how it's performing, Actually, the biotech part of the business quite robust. Accelerated drug development, we announced started to really go announce it late last year and into this year. Incredibly compelling. And what does it really mean? I was thinking about trying to how do I visualize this?

Right?

Our biotech customers outsource this work, right, because, they doing one or two studies, whatever it is, or one in one medicine Right? So you're you're working with CROs. The capabilities and insights we get from our combined suite of capabilities truly differentiated, which means that we can be faster and more cost effective. Whether that's letting a customer know that this trial is not gonna work out or letting the customer know more quickly that it is gonna work out and maximizing their length of exclusivity. These are super compelling things, and the interest level and the wins here are meaningful, and we're very well positioned. In terms of the outlook on clinical research. So I feel very good about what the outlook is there. And the vaccine one was just the kind of one off on the policy changes. I would also say is that on some of the direction of travel, with the FDA on experimenting with less animal studies around monoclonals. That would be the if you were wanted to try that out. But the area where animal models are less relevant. They're trying to modernize, which means anything that the industry has less cost on low value added activity, means that they'll put money where it's gonna make a difference.

So where we play, in the human part of the trials I feel we're very well positioned. On pharmaceutical companies, how they'll respond to tariffs, they're planning, but I don't know ultimately how they're ultimately going to respond because they're not sure what is gonna get implemented. So as we know that, we're gonna help them navigate it, and we'll figure out ultimately what does it mean for us. So thank you for the question. Let me wrap up. With just a quick a quick comment. First, thanks to everyone for joining us. We're pleased to deliver a strong first quarter. And we're very well positioned to deliver differentiated performance. As we continue to create value for all of our stakeholders, build an even brighter future for our company. And I hope that you value the transparency that we embedded into our guidance. And we look forward to updating you on our second quarter results in July. And as always, thank you for the support of Thermo Fisher Scientific. Thanks, everyone.

Thank you everyone for joining us today. This concludes today's call and you may now disconnect your lines.