Thermo Fisher Scientific Inc (TMO) — Q4 2024 Earnings Call Transcript

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 & Presentations until February 13, 2025. A copy of the press release of our fourth quarter and full year 2024 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 report on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles, or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth quarter and full year 2024 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 Marc.

Thank you, Raf. Good morning, everyone, and thank you for joining us for our fourth-quarter call. As noted in our press release, we concluded 2024 on a strong note with impressive revenue and earnings growth. Our fourth-quarter results highlight the effectiveness of our operational and commercial strategies. Reflecting on our full-year performance, I am proud of our team, who have contributed to our customers' success, resulting in significant market share gains and reinforcing our status as a trusted partner. We are in a strong position for future growth. I will provide more details later, but first, here are the financial highlights. In Q4, our revenue increased by 5% year-over-year to $11.4 billion. Our adjusted operating income rose 7% to $2.72 billion, and we enhanced our adjusted operating margins by 50 basis points to 23.9%. Our adjusted EPS performance was robust, growing 8% to $6.10 per share in the quarter. For the full year, our revenue was $42.9 billion in 2024, with adjusted operating income at $9.71 billion and adjusted EPS at $21.86 per share. Looking at our performance by end market, fourth-quarter conditions evolved as we anticipated and showed continued improvement. Our team's execution exceeded expectations, resulting in positive revenue growth across all end markets. To provide additional context, in pharma and biotech, we grew in the mid-single digits in Q4, marking the fourth consecutive quarter of improvement. This growth was led by our research and safety market channel, pharma services, and bioproduction businesses. For the year, pharma and biotech experienced a low single-digit decline, driven by a mid-single-digit headwind from declining vaccine and therapy-related revenue. In academic and government, we saw growth in the high-single digits for the quarter and low-single digits for the year, led by strong performance in chromatography, mass spectrometry, and our research and safety market channel. In industrial and applied markets, we also experienced high-single-digit growth in the quarter and low-single-digit growth for the full year, thanks to our electron microscopy business and the research and safety market channel. Finally, in diagnostics and healthcare, we grew in the low single-digits for the quarter and saw a low single-digit decline for the year, weighed down by the decrease in COVID-19 testing-related revenue. Nonetheless, we achieved solid core revenue growth in transplant diagnostics, immunodiagnostics, and our healthcare market channel. Our team's superior execution, backed by our growth strategy, has enabled us to finish the year strongly across all markets and gain significant market share. Our strategy focuses on three pillars: high-impact innovation, maintaining trusted partnerships with our customers, and leveraging our powerful commercial engine. This strategy clearly resonates with our customers, and we have continued to make our company more relevant for the future. In 2024, we witnessed remarkable high-impact innovation across our business lines. We launched several outstanding products that reinforced our industry leadership and supported our customers' critical work. In chromatography and mass spectrometry, we introduced the Thermo Scientific Stellar mass spectrometer, complementing the Thermo Scientific Orbitrap Astral launched last year by validating biomarker candidates for clinical research. The impact of these mass spectrometers on advancing scientific endeavors has been significant. We also rolled out the Thermo Scientific Dionex Inuvion ion chromatography system, which enhances environmental testing in industrial settings by streamlining contaminant identification. In electron microscopy, the Thermo Scientific Iliad scanning from transmission electron microscope was launched, combining advanced analytical technologies into a user-friendly workflow to foster the development of advanced materials. In biosciences, we introduced the Applied Biosystems MagMAX sequential DNA, RNA kit, which optimizes the isolation of DNA and RNA from cancer blood samples, aiding researchers in identifying cancer-causing genetic alterations. Furthermore, we launched a pioneering bio-based film for our single-use technologies, developed from plant-based materials rather than fossil fuels, providing lower carbon solutions for biologics production. Our innovation momentum continued in Q4, including the launch of the Thermo Scientific iCAP MX Series ICP-MS platform for trace elemental analysis, and new additions to the Gibco CTS Detachable Dynabeads platform, further enhancing life-changing cell therapies development and manufacturing. In 2024, we also strengthened our industry-leading commercial engine and deepened relationships with customers to enhance their innovation and productivity. We expanded our pharma services and clinical research capabilities in the US and Europe and introduced our Accelerator Drug Development solution in Q4, combining our CDMO and CRO capabilities to expedite drug development for our customers, improving their R&D returns. Feedback has been overwhelmingly positive, and we have secured new business as a result. We fostered significant partnerships throughout the year, including our collaboration with the National Cancer Institute on the myeloMATCH precision medicine trial, and the FDA approval for our Ion Torrent Oncomine Dx Target Test used as a companion diagnostic for glioma treatment. Additionally, we established a partnership with the University of Arkansas for Medical Sciences to create a Thermo Fisher Scientific Center of Excellence for Proteomics. Our PPI Business System has consistently facilitated outstanding execution, empowering our colleagues to find better solutions daily, driving share gain, improving quality, productivity, and customer allegiance. Generative AI applications within our PPI Business System have allowed our teams to enhance the customer experience and streamline operations, paving the way for continued customer success and a bright future for our company. Regarding capital deployment, we effectively executed our disciplined strategy to create substantial value through a mix of strategic acquisitions and capital returns. In 2024, we returned $4.6 billion to our shareholders through stock buybacks and dividends, including $1 billion in share repurchases during Q4. We successfully acquired Olink, enhancing our Proteomic Science business, and integration is progressing well. The approval of Olink technology in the UK Biobank Pharma Proteomics Project represents the value of our capabilities in the market. Celebrating the two-year anniversary of our Binding Site acquisition, now our Protein Diagnostics business, we're witnessing its excellent performance and continued growth. This showcases the efficacy of our capital deployment strategy. On the corporate social responsibility front, we have made strides towards making a positive impact through initiatives that support our communities and promote environmental stewardship. Our Net Zero roadmap has successfully progressed with reduced emissions and more Zero Waste Certified sites, alongside new greener offerings. We have launched collaborations to improve health outcomes globally and have been recognized as one of the world's most innovative companies for our contributions to advancing health equity in diagnostics. Our STEM education programs have also reached over 180,000 students worldwide, engaging future scientists. As I review the year, I take pride in our accomplishments. With over 120,000 dedicated colleagues committed to enabling customer success and advancing science, we are building a bright future. Turning to guidance, Stephen will discuss the specifics, but here are the key highlights. In 2025, we anticipate strong share gains, exceptional execution from our PPI Business System, and robust earnings growth. We are initiating our 2025 revenue guidance between $43.5 billion and $44 billion, reflecting 3% to 4% organic growth, and an adjusted EPS guidance range of $23.10 to $23.50, indicating 6% to 8% growth. We are well positioned as we approach 2025, and I am optimistic about our customer opportunities to create value for all stakeholders. To summarize the key takeaways for 2024, our proven growth strategy has led to significant share gains and deeper customer relationships, alongside the power of our PPI Business System. This has facilitated an outstanding finish to 2024 with strong performance. As we move into 2025 with great momentum, we are set to deliver excellent financial results and strengthen our competitive stance. Now, I'll hand the call over to our CFO, Stephen Williamson.

Thanks, Marc, and good morning, everyone. As you saw in our press release, we had an excellent Q4. The team executed well in the quarter and we delivered Q4 financials significantly ahead of what was assumed in the midpoint of our prior guidance. We beat Q4 organic growth by just under 2 points, adjusted EPS by $0.14, and we ended the year with very strong free cash flow, delivering $7.3 billion for the year. Looking back on 2024, we had a very successful year. The markets played out as we outlined at the beginning of the year, with growth steadily improving each quarter. Our proven growth strategy drove consistent share gain and the PPI Business System enabled great execution. All of this enabled us to consistently deliver differentiated financial performance throughout the year, further strengthening our industry leadership. This puts us in a great position to deliver an excellent 2025. Let me now provide you with some additional details on our Q4 and full year 2024 performance. Starting with earnings per share. In the quarter, adjusted EPS grew 8% to $6.10. For the full year, we delivered adjusted EPS of $21.86. GAAP EPS in the quarter was $4.78 and for the full year, it was $16.53. On the top line, Q4 reported revenue grew 5% year-over-year. The components of our reported revenue change included 4% organic growth, a 1% contribution from acquisitions, and a slight headwind from foreign exchange. In Q4, core organic revenue increased 5%. For the full year 2024, reported organic and core organic revenue were all flat year-over-year. In 2024, we delivered $520 million of pandemic-related revenue comprised of approximately $100 million of testing and $420 million from vaccines and therapies. Turning to our organic revenue performance by geography. In Q4, North America grew mid-single digits, Europe grew low single digits, and Asia Pacific grew high single digits, with China growing mid-single digits. For the full year, North America declined low single digits, Europe was flat year-over-year, and Asia Pacific and China within Asia Pacific grew low single digits. With respect to our operational performance, we delivered $2.72 billion of adjusted operating income in the quarter, an increase of 7% year-over-year, and adjusted operating margin was 23.9%, 50 basis points higher than Q4 last year. In the quarter, we delivered strong productivity, reflecting the continued execution of our cost management initiatives, and we drove good volume pull-through. This enabled us to fund strategic investments to further advance our industry leadership and offset the expected impact of unfavorable mix this quarter. For the full year, we delivered $9.71 billion of adjusted operating income and adjusted operating margin was 22.6%. Total company gross margin in the quarter was 43.2%, 170 basis points higher than Q4 last year. For the full year, adjusted gross margin was 42.2%, an increase of 100 basis points compared to 2023. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 16.1% of revenue. For the full year, adjusted SG&A was 16.3% of revenue. Total R&D expense was $374 million in Q4. For the full year, R&D expense was $1.39 billion, up 4% year-over-year, reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue for the full year was 7.2%. Looking at our results below the line. Our Q4 net interest expense was $89 million, slightly higher than Q4 2023. Net interest expense for the full year was $312 million, a decrease of $183 million year-over-year, driven by effective management of our debt portfolio and our strong cash flow. The adjusted tax rate was 10.9% in Q4 and 10.5% for the full year, in line with our expectations. Average diluted shares were 383 million in Q4, 5 million lower year-over-year, driven by share repurchases net of option dilution. In Q4, we repurchased $1 billion of shares, bringing our total repurchases for 2024 to $4 billion. Turning to free cash flow and the balance sheet. Full year cash flow from operations was $8.7 billion and free cash flow was $7.3 billion, after investing $1.3 billion of net capital expenditures. During 2024, we deployed $7.7 billion of capital, $3.1 billion through M&A with the acquisition of Olink and $4.6 billion through the return of capital to shareholders in the form of $4 billion of buybacks and approximately $600 million of dividends. We ended the quarter with $5.6 billion in cash and short-term investments and $31.3 billion of total debt. Our leverage ratio at the end of the quarter was 2.9 times gross debt to adjusted EBITDA and 2.4 times on a net debt basis. In concluding my comments on our total company performance, adjusted ROIC was 11.6%, reflecting the strong returns on investment that we're generating across the company. Now provide some color on the performance of our four business segments, starting with Life Sciences Solutions. Q4 reported revenue in this segment grew 5% and organic revenue growth was 3%. Growth in this segment was driven by our bioproduction and biosciences businesses. For the full year, reported revenue declined 3% and organic revenue was 4% lower versus 2023. Q4 adjusted operating income for Life Sciences Solutions increased 6%, and adjusted operating margin was 36.6%, up 40 basis points versus the prior year quarter. During Q4, we delivered strong productivity and good volume pull-through, which was partially offset by unfavorable mix and strategic investments. For the full year, adjusted operating income increased 2%, and adjusted operating margin was 36.4%, an increase of 210 basis points versus 2023. In the Analytical Instruments segment, reported revenue grew 7% and organic revenue growth was 8%. The strong growth in the quarter was led by electron microscopy and chromatography and mass spectrometry businesses. For the full year, both reported revenue and organic revenue grew by 3%. In this segment, Q4 adjusted operating income increased 13%, and adjusted operating margin was 30.5%, up 170 basis points year-over-year. In the quarter, we delivered strong productivity and good volume pull-through, and had favorable FX. This was partially offset by unfavorable mix and strategic investments. For the full year, adjusted operating income increased 2% and adjusted operating margin was 26.2%, 10 basis points lower than 2023. Turning to Specialty Diagnostics, in Q4, both reported revenue and organic revenue grew 5%. In Q4, growth in this segment was led by transplant diagnostics and immunodiagnostics businesses as well as our healthcare market channel. For the full year, reported revenue increased 2% and organic revenue growth was 3%. Q4 adjusted operating income for Specialty Diagnostics increased 3%, and adjusted operating margin was 23.6%, 30 basis points lower than Q4 2023. During the quarter, we delivered good productivity, which is more than offset by strategic investments. For the full year, adjusted operating income was 3% higher than 2023 and adjusted operating margin was 25.7%, an increase of 20 basis points versus the prior year. Finally, in Laboratory Products and Biopharma Services segment, both reported revenue and organic revenue grew 4% versus the prior year quarter. The runoff of vaccines and therapies revenue had a mid-single-digit impact on the growth in this segment in Q4. This was offset by very good growth in our pharma services business and research and safety market channel. For the full year, reported revenue grew 1% and organic revenue was flat. In this segment, Q4 adjusted operating income increased 3%, and adjusted operating margin was 14%, which is flat to Q4 2023. In the quarter, we delivered strong productivity, which was offset by strategic investments and unfavorable mix. For the full year, adjusted operating income declined 8% and adjusted operating margin was 13.3%, which is 130 basis points lower versus 2023. Turning now to guidance. As Marc outlined, we're initiating a 2025 revenue guidance range of $43.5 billion to $44 billion, and an adjusted EPS guidance range of $23.10 to $23.50. This guidance assumes 3% to 4% organic revenue growth, a 1% headwind from the remaining runoff of the pandemic-related revenue, a 1.5% revenue headwind from foreign exchange, and approximately 90 basis points of adjusted operating margin expansion. All of this will enable a really strong 6% to 8% growth in adjusted EPS. The strength of the guidance reflects our industry-leading position, our proven growth strategy, and the power of our PPI Business System. Let me now provide some more detailed context behind the guide, starting with the market growth framing. In 2024, we estimate the industry market growth was down low single digits. In 2025, we expect the market growth will be better than 2024. We expect market growth to be slightly positive for the year, improving as the year progresses. With this market context and strong share gain, we expect organic growth for 2025 to be in the range of 3% to 4%. Now, as I commented earlier, this includes a 1% headwind from the remainder of the pandemic runoff, largely in our clinical research business. So the underlying total company growth is strong. Turning to foreign exchange. Given recent changes in rates, we're assuming there will be a headwind from revenue from foreign exchange in 2025 of approximately $650 million or 1.5 points. Putting all this together, our top line guidance assumes a 1.5% to 2.5% increase in reported revenue dollars and a 3% to 4% increase in organic revenue. This is a strong step-up from 2024. Moving on to the bottom line. We expect to deliver a very strong year of adjusted EPS growth in 2025. The cost actions we took over the past couple of years are enabling very accretive pull-through on the incremental dollars of revenue growth, and we will continue to use the PPI Business System to drive productivity and actively manage our cost base. This will enable very strong adjusted operating margin expansion of approximately 90 basis points. Below the line, we're effectively managing our debt and cash positions and taking advantage of great interest rates from cash deposits. All of this will enable us to deliver adjusted EPS in the range of $23.10 to $23.50, which is a very strong 6% to 8% growth for the year. In terms of potential changes in the macro environment, our guidance assumes to cover the impact of modest policy changes. And then to help you with your modeling, here are a few additional assumptions behind the guide. We expect approximately $350 million of net interest expense in 2025. We assume that the adjusted income tax rate will be 11.5% in 2025, largely driven by the increased earnings. We're expecting between $1.4 billion and $1.7 billion of net capital expenditures in 2025. And we're assuming free cash flow is in the range of $7 billion to $7.4 billion for the year. In terms of capital deployment, we're assuming $2 billion of share buybacks, which were already completed in January. And we estimate the full year average diluted share count will be between 378 million and 379 million shares. And we're assuming to return approximately $600 million of capital to shareholders this year through dividends. Finally, I wanted to touch on phasing for Q1. Embedded in the guidance for the year is an assumption that organic growth is flat in Q1, as is adjusted EPS growth in Q1. This is largely driven by Q1 having two fewer selling days than the prior year quarter and also phasing of our services revenue within the year. So in conclusion, Q4 capped off a very successful 2024. We expect to continue to manage the company and the opportunities really well in 2025 and a focus on delivering very strong share gains and adjusted EPS growth enabling excellent financial performance. I look forward to updating you on our progress as we go through the year. With that, I'll turn the call back over to Raf.

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

Thank you for taking my question. I want to start with something you briefly mentioned in your closing remarks, Stephen. You noted modest policy changes included in the guidance. Could you elaborate on that and discuss the guidance methodology as we move into 2025? There seems to be increased uncertainty compared to the last couple of years, particularly regarding policy and government changes, such as tariffs and recently announced NIH export controls on specific product lines. It's challenging to predict how these will impact us. I'm curious about the level of conservatism integrated into the guidance and your assumptions regarding these factors. Any additional insights you could share would be helpful.

Thank you for the question, Mike. I'll begin with a summary of the key points and then discuss the current policy landscape and what we’ve included in our guidance. When I look at 2024, I see that the team performed excellently, achieving noteworthy financial results and gaining significant momentum with our customers. Our status as a trusted partner continues to grow, setting us up for a promising future. The fourth quarter was strong, with 4% organic growth and an 8% increase in adjusted EPS. Market conditions improved throughout the year as expected, with positive growth aligning with our initial estimates for the fourth quarter. This brings predictability back to our industry, which is encouraging. Moving into 2025, we anticipate that market conditions will strengthen as the year advances. We're starting the year with good momentum, and despite ongoing uncertainty, our goal is to deliver exceptional EPS growth this year, targeting 6% to 8% adjusted EPS growth, with our best estimate for the market seeing positive organic growth of 3% to 4%. We're actively managing the business and are excited about the upcoming year. Regarding policy changes, our approach has always been to adapt to changes and seize opportunities. We’ll navigate unexpected changes unless they are significant enough to warrant discussion. Currently, many ideas are under consideration but have yet to become concrete policies. I am optimistic that the business environment in the US will become more favorable for economic growth. Additionally, from an M&A standpoint, we expect a more reasonable regulatory environment. Considering what our company and our customers do, the importance of science and medicine cannot be understated, and they are essential, not discretionary. We’re looking forward to navigating whatever challenges the environment presents.

Okay. That's helpful, Marc. Thank you. And then for a quick follow-up. In terms of the EPS guide, you're right, better earnings power than we had anticipated, I think most had anticipated. Stephen, I think you said 90 basis points operating margin expansion. That's very strong, especially given the subdued top line environment. So if you could expand on that. And you mentioned some of the cost actions you've taken in the past. But are there incremental cost actions throughout 2025? Sort of what's the contribution from return to volume growth or maybe mix shift? Just any color on that 90 basis points. Thanks.

Yes. So Mike, yes, that's the right number. And yes, so really good volume pull-through. So when I think about the cost actions we've taken over the past couple of years as we've kind of wound down from the impact of pandemic, certain areas of our business have had lower volumes than normal, like they're coming back to more normal volumes, and we're ensuring that the incremental revenue is pulling through at a really high clip. So great to see that, and that's embedded in the numbers. And then it's not just kind of huge cost initiatives; it's about just managing our P&L appropriately and using the PPI Business System to be able to do that. So driving very strong productivity and good cost management in the top line environment we're in for the year. So to bring that all together, that's what's driving the 90 basis points.

Thanks, Mike.

Thank you so much. Thanks.

Perfect. Good morning and thank you so much for taking the question. So I wanted to follow up on your answer to Mike's first question around some of the policy changes that we've seen, but specifically to NIH funding. Obviously, we've seen some of the reports in the last few weeks around federal funding potentially getting frozen in light of the new administration. So I appreciate that it's early days and we don't know what some of these policies could ultimately look like. But at the same time, you would have to imagine that some of these headlines are driving disruption at your customers. So can you walk us through what you have seen since the new administration turnover in terms of customers' behavior, especially within that academic and government market? And how are you actually expecting NIH funding to play out this year?

Yes. So Rachel, it's been nine days, so in terms of the environment. So I don't think there's any real insight into what's going on. And obviously, there are actually no policies yet, right? There are different things being explored. And our job is to work collaboratively with the administration, and we have a good working relationship certainly with the President's first administration and educate on the importance of our industry and our customers' work, and help our customers navigate the environment as well. So from my perspective, look at will help our customers navigate whatever it is. When I think about what's embedded in our guidance, I would say for academic and government globally, would be around the company average in terms of what's assumed there, and maybe slightly below that because I think pharma and biotech ultimately will be a little bit better than the company average this year in terms of the end-markets. And when you think about that, about half of our academic and government end-market is in the US and half is in markets around the world. Interestingly enough, we obviously had an incredibly strong finish in academic and government in the fourth quarter. And it was globally strong, right? Every market had really a very strong end to the year. So hopefully, that's helpful.

Yes, that is. Thanks for framing that up. To follow up then, I just wanted to ask on Analytical Instrumentation. Obviously, that was a really nice quarter in 4Q. So can you walk us through some of the drivers of that beat? Did you guys see any budget flush trends in the quarter? And was there any benefit from China stimulus in that number? And then when you look at Analytical Instrumentation performance for 2025, what are your assumptions regarding China stimulus contribution? Thank you.

Yes. So Rachel, thanks. Our instrument business once again had a really very positive year, capped off with 8% organic growth in the fourth quarter, 3% growth for the full year. And that's an environment where China was relatively muted for the full year. And as you know, China is a meaningful contributor to the instruments business across the industry. So the team really doing a great job. So what drives that? It's the steady drumbeat of innovation. That makes a huge difference. And if you think about even in my remarks, I had to really narrow it down, right, in terms of the number of products we launched. And you see on instrument after another, you see many other regions and other products. But we are just on a roll in terms of phenomenal new products, right? Whether it's in, whether it's in electron microscopy, whether it's in chromatography and mass spectrometry. And also in the environmental type applications with ion chromatography, with ICP-MS. Just really strong, and the adoption is great. And that's driving meaningful share gain. And the way that our business works is you have relevant innovations customers because of the importance of the work they're doing, they find the funding, and that's how it showed up. In terms of stimulus in China and how we thought about it, it was actually nice to see revenue. It wasn't huge, but it was nice to see revenue flow in the instruments business in the fourth quarter. Orders were actually stronger in terms of the orders that we received in China on our instruments, and that will obviously ship in 2025. So stimulus started to flow there as well. So hopefully, that gives you a good sense of the momentum in our instruments business.

Thank you and good morning. So Stephen, you talked about the phasing of...

Good morning.

I forget if it was Stephen or Marc, you talked about the phasing of services revenue during the year. So I'll bite, what does the guide assume for PPD clinical research? And can you give us an update, just color on what you're seeing in terms of new authorizations?

Yes. So I'll give the kind of the phasing aspect, and Marc will give you some more detail about the businesses, so which are both in great shape, by the way. So when I think about phasing within the year, I said that in Q1, there's some timing in the phasing. There’s largely the pandemic-related runoff is more pronounced in Q1, given comps from last year. So that's the largest piece of the phasing. There's a little bit of phasing quarter-to-quarter in terms of the overall phasing for our pharma services business, but that's kind of normal noise. But that's probably the largest driver that I talked about in Q1.

Yes. So Jack, when I think about the clinical research capabilities that we have, we're a leader and have an incredible reputation for innovation and quality and performance for our customers. And when you think about that, one of the things that we've been talking a little bit about, I'll try to highlight it more today, was the combination with our pharma services business. And as you know, in pharma services, we're a leading provider of contract development and manufacturing capabilities. We spent over three years looking at the added value of having both sets of capabilities, the insights you get, and the impact that you can have for the customers. When we launched Accelerator Drug Development, it really is compelling. That allows our customers to leverage our expertise and capabilities to improve the returns on their R&D investments, which is everything in the pharmaceutical and biotech industry. So we're excited. When I think about more of the details and I think about clinical research, we delivered low single-digit organic growth last year, right? The team did a good job, a really good job. And that was to basically grow the business despite the very meaningful headwind from the runoff of vaccines and therapies that was in that business. And when I think to the future about 2025, the business is behaving the way that I would think it should, which is a long-cycle business. You saw for the industry, even with us in low single-digit growth last year, that's below the trend line. The trend line for this business is a high single-digit growth business. It's the result of 2023's biotech environment and 2023 and 2024's pharmaceutical customers actually reprioritizing their portfolios for the IRA. When I look at authorizations, particularly in the back half of 2024, they were very strong for us. And when I look at the commercial pipeline that we have this year and the conversations that our executive team is having with our customers, the business actually has a lot of momentum underlying. And if I think about sort of the cycle time of the business, that bodes well towards the end of the year and then during 2026. It feels like the conditions will be more measured this year. That's what's embedded in our guidance, kind of similar to what we saw last year, and then it sets up for great success. So overall, super positive.

Awesome. And you're leading me exactly where I want to go next, which is the guide for 2026. Mostly joking, but can you just talk about as you look at the phases of the guide in 2025, what does the exit rate look like in the fourth quarter? And just more broadly, just like confidence about your ability to get back to the LRP targets that you have?

Yes, Jack, I'd be thrilled to talk about 2026 on this call, in a year's time. But I understand that you think about that in how you're thinking about the trajectory of the company. Yes, first of all, we're highly confident we're going to get back to the industry long-term market growth rate of 4% to 6%. It's just a matter of what the timing you actually get to that point. And we've proven the ability to consistently drive share gain above that, so our organic growth will be stronger than markets. And it's great the markets are improving. When I think about what the guide setup this year going from market down a couple of points to being up slightly, that's a continued improvement. The trajectory we expect that, as I said in my prepared remarks, we expect that to continue to increase as we go through the year. The exact ending point of where market growth will be at the end of the year, we'll see that as we get close towards the end of the year. And as Marc said at the beginning, our job in this period is going through that transition back to normal is to drive really strong adjusted EPS growth. And that's exactly what we're setting out to do here for the year ahead.

Doug, you're on mute.

Good morning, guys. Sorry about that. Thanks for taking my questions. A couple of questions on guidance. So the first is on the top line. And I'm just sitting here playing with the model, thinking through the stacks, thinking through the comps, thinking about what you talked about for the first quarter starting rate. That leads me to a question of are you expecting to exit 2025 back in your targeted 7% to 9% organic growth range? I can see where you're at least close to the low end of that. So that's my first question. My second is back to the topic of the 90 basis points of targeted operating margin expansion that is embedded in your guidance. This would be particularly impressive in any period. It's especially notable right now, given your revenue growth rate for the year is below your long-term construct. And there has been speculation that you wouldn't be able to get anywhere close to that type of margin expansion with the lower level of growth. So obviously, you expect to do that. So the questions are: one, what's allowing you to do this in 2025? Is this a function of mix? Is it a function of basically the benefit of operating really tightly in a tough environment and starting to come out of it? Is it something else? And then I guess the other part of that is, are there reasons we shouldn't assume a continuation of this type of margin potential as we think about future years where you are getting back into your normalized growth construct? Thank you.

So thanks for the question. So let me start with context, right? So if I think about the many interactions that I have with investors over many years, but certainly over the last six, nine months, a lot of the investors have been focused on, and certainly the analyst community, what’s the momentary change in the trajectory growth rate of the industry, right? And we understand why, because it’s an amazing industry with an incredible future, and we’re in a recovering environment. One of the things as a management team, as you know, we’re very focused on great performance and great execution, is what’s going to be most helpful to our shareholders in creating value and creating a bright future. We’re in a recovering market, and we’re expecting a better year in terms of market environment, better year in organic growth this year. But the thing that we can control is how great is our earnings per share, driven by the power of our PPI Business System, strong execution, cost discipline. It’s not a mix driver or any of those things. As a leadership team, what we’re focused on is delivering another differentiated year and fully focused on the thing that we can control, which is how we drive our revenue down to the bottom line. It’s not the long-term new number, right, but it’s the right number for 2025. I think the 40 to 50 basis points of long-term expansion associated with 7% to 9% is an appropriate driver. But this year, that’s the way I would think about it. In terms of the 3% to 4%, one thing that we all should just remind ourselves is there’s a headwind in that number for the final runoff of the pandemic. So our assumption is effectively zero pandemic-related revenue this year. So you can say the normalized growth is getting back to stronger growth, but it’s not yet at 7% to 9% right? You can do the phasing if you're assuming, as Stephen has laid out, a flat start to the year, and we understand that's clearly why. It's not about a market thing, it's the phasing of days and how we see the service revenue specifically laying out. You're going to wind up with something in the strong mid-single digits at the end of the year for us, right? And you can say, well, there's a point of headwind, so you're not quite at the 7% to 9% but you're progressing in a direction that would be encouraging. We're excited for this year, like this is a big step-up in expectations, and we're going to deliver it versus last year. The quarter-after-quarter of just better market conditions sets us up for an incredible future.

Hey, thanks. Marc, I want to cover a little more on the accelerator program and really just trying to understand why now is the right time. Synergies for PPD have gone well. So any kind of bogey you can point to in the next couple of years in terms of how you're thinking about synergies? Is this more for small or large customers, more on the CDMO side or CRO side? And has this brought to light any additional kind of service offerings that you might need to bring to these customers?

Thank you for your question, Tycho. One important lesson I’ve learned is that you should never make promises unless you are completely confident in your ability to deliver. That’s what our customers expect from us. When we announced the acquisition of PPD, we discussed our strategy to improve the time and cost of medicine development. However, we haven't really addressed this topic in the past three years not because we haven't been working on it, but because we wanted to wait until we had tangible proof and examples of customers benefiting from our combined capabilities. Our customers now see strong momentum in our services. They have the option to select the insights and expertise they need from us, which helps them to save time and reduce costs. The level of interest and excitement is considerable. We have seen rapid growth in authorizations and orders, especially in biotech where decisions can be made quickly. Large pharmaceutical companies also show significant interest, typically focusing on specific molecules within their pipeline. These are promising times for us, and we're just beginning. Keep in mind, these businesses often have lengthy cycles; it takes time to convert authorizations and orders into revenue, but the prospects for growth in 2026 and beyond look very promising.

Great. And then follow-up on China. I didn't actually hear what you're assuming for China growth this year. Assuming your products come off the trade restrictions list, I think last time you were able to get them off, and then I know you don't have as much exposure to volume-based procurement, but how you're thinking about exposure there? And obviously, the headwinds have magnified.

Yes. So in terms of China, when I think about the year, first of all, 2024, and that's a reasonable framing for the next year, we really had a very strong year in a very challenged environment, right? The economy is challenging, and the end-market is challenged. Our business in the fourth quarter grew mid-single digits. We grew low single digits for the full year, and are clearly gaining market share. So the team has done a good job. Our expectation is that the environment is similar to what we saw last year. Stimulus will be a benefit. Just we're not assuming any recovery from an economic perspective. That may change; that may be a bad assumption, but we don't see any evidence yet of a real strengthening environment other than stimulus. So we just assume the conditions will continue to be somewhat muted and similar to last year. In terms of healthcare on value-based procurement and some of the reimbursement things that have been executed, your framing is exactly right, which is very small for us. Because our diagnostic business in China is very much in the specialty area, it's not a large business. While there's a little bit of a headwind, it's fully embedded in our guidance, and it's not a meaningful number. That’s how we looked at it.

Operator, we have time for one more question?

Hi, Marc. Thanks for taking my question. I'll wrap my question in one. On the biopharma side and the biotech side, could you elaborate on what you're hearing from your larger biopharma large cap customers versus the early emerging biotechs? And another brief question on the therapeutic side. Marc, about 75% of the IND filings to the FDA in 2024 are molecules from China or assets from China, and that number used to be very small in 2023 and practically nothing in 2019. So my question is if more of the drug discovery pivots to China, how do you think Thermo is positioned? What are the implications for Thermo and for the tools industry overall, if you could? Thank you.

Yes, thanks for the question, Puneet. What I appreciate about January is the opportunity to spend significant time with our customers, particularly on the West Coast and in Europe. I've had the chance to meet with many clients. Regarding the key themes, starting with larger biopharma customers, there is a notable increase in confidence as they enter the year, feeling that the actions taken over the past couple of years have positioned their companies well. Some companies are experiencing substantial benefits from GLP-1s, which creates optimism about their impact on human health and the rapid adoption of relevant medicines. It seems that large pharmaceutical companies are in a much improved mindset, which should contribute to budget growth over time. For emerging customers, the outlook is also positive, with reasonable confidence in funding and partnerships likely to improve as the year progresses. Although they are still in recovery mode, the situation is definitely better. In terms of innovation, a few years ago, it became challenging for China-based companies to compete in the global market, but we're now seeing an increase in licensing deals. A substantial amount of work continues in Western labs after licenses are issued. We are well positioned in China and have a strong global presence as well. So thank you for the question. Let me wrap up with just a couple of quick things. First of all, thanks, everyone, for participating in the call today. We entered this year with strong momentum, and we're in a great position to deliver an excellent 2025. As always, thank you for your support of Thermo Fisher Scientific. We look forward to updating you as the year progresses. Thanks, everyone.