Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2017 Fourth Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would like to introduce our moderator for the call, Mr. Kenneth Apicerno, Vice President, Investor Relations. Mr. Apicerno, you may begin you call.

Good morning and thank you for joining us. On the call with me today is Marc Casper, our 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 Webcasts & Presentations, until February 16, 2018. A copy of the press release of our fourth quarter 2017 earnings and future expectations is available in the Investors section of our website under the heading Financial Results. 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 quarterly report on Form 10-Q for the quarter ended September 30, 2017 under the caption Risk Factors, which is on file with the Securities and Exchange Commission and then also available in the Investors section of our website under the heading 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’ll 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 2017 earnings and future expectations and also in the Investors section of our website under the heading Financial Information. So, with that, I’ll now turn the call over to Marc.

Thank you, Ken. Good morning, everyone. Thanks for joining us today for our 2017 Q4 call. As you saw in our press release, we delivered an outstanding year. We achieved strong growth in revenues and earnings; we executed well to take advantage of good conditions across our end-markets; and we became a stronger partner for our customers by successfully executing our growth strategy and completing strategic M&A. The excellent progress we made in 2017 has significantly strengthened our leadership position and sets up very well for the year ahead. We have a lot to cover this morning. So, I will hit just some of the highlights from the quarter and the year. Let me begin with our financial performance, starting with the quarter. We delivered very strong adjusted earnings per share growth in Q4 with a 16% increase to $2.79 per share. Our revenue in the quarter increased 22% year-over-year to $6.05 billion. Adjusted operating income increased 18% to $1.45 billion and our adjusted operating margin in Q4 was 24%. Turing to our result for the full year. We extended our long track record of consistently delivering strong earnings performance in 2017 with a 15% increase in adjusted earnings per share to $9.49 per share. We increased revenues by 14% for the full year to $20.92 billion. Adjusted operating income increased 15% to $4.86 billion with adjusted operating margin of 23.2%. So, it was a great year. Our team did an excellent job of driving our growth initiatives forward and successfully completing and integrating new acquisitions. As a result of their efforts, we’re in a stronger position to serve our customers, provide opportunities for our collogues and create value for our shareholders. Turning to our performance by end market. Conditions were strong and we executed very well to take advantage…

Thanks, Marc, and good morning, everyone. I’ll take you through our fourth quarter and full year results of the total Company, then, I’ll provide some color on our four segments, and conclude with a detailed review of our 2018 guidance. Before I get into the details of our financial performance, I thought it would be helpful to provide a high level view of how the fourth quarter played out versus our expectations at the time of our last earnings call. As you saw in our press release, we had a strong finish to the year and delivered 8% organic growth in Q4. This was driven by good market conditions and great operational execution. From an earning stand point, we delivered adjusted earnings per share that was $0.15 higher than the midpoint of our previous guidance. This was driven by pull-through on our organic growth and more favorable FX environment, and good performance from the Patheon acquisition, partially offset by the $34 million onetime bonus for our non-executive collogues across the Company that Marc highlighted. So, for the year as a whole, we delivered 5% organic growth, 15% growth in adjusted earnings per share and $3.5 billion of free cash flow. So, overall, excellent financial results in 2017. So, now, let me give you more color on our performance. Starting with adjusted earnings per share. As you saw in our press release, we grew adjusted EPS in Q4 by 16% to $2.79. For the full year, adjusted EPS was $9.49, up 15% versus 2016. As you know, U.S. tax reform legislation was enacted during the quarter. And as we expected, it will have a positive impact on the Company. I will cover the 2018 impact in detail in the guidance section of my comments later on. The impact of the legislation…

Thanks, Stephen. Operator, we are ready to open it up for questions.

[Operator Instructions] Our first question comes from Tycho Peterson from JP Morgan. Please go ahead. Your line is open.

Marc, I wanted to start off with biopharma, obviously great growth there, 10%. Just wondering if you can provide a little bit more color, any budget flush dynamic? Can you comment on January trends? And then, as we think about bioprocess, any commentary there? We’ve seen some good results out from your peers. So, can you guide us through kind of the inventory destock noise that we heard earlier last year?

Yes. We had a very good year in pharmaceutical and biotech with high single-digit growth for the year, and in the fourth quarter was 10%. So, when I think about the fourth quarter, we really had strong quarter across the board, biosciences, analytical instruments, our research channel all did very well; bioproduction was very strong; clinical trials business, logistics business also grew, so really very positive. The way I see, the customers really understand the value we bring and we continue to gain share there. From a bioproduction standpoint, it was a good year for bioproduction, grew above the Company average. And as you know, we’re very bullish about the mid and long term prospects for that business; it’s got great tailwinds from a macro perspective. And we like the way we finished the year with a quarter of very strong growth.

And then, for the follow-up the Lab Products and Services had a big step up sequentially here. Can you maybe just comment on what drove that? And I think you called that academic being up high single digits, just curious what the driver there was.

The Lab Products and Services, really a very strong performance across all of the businesses. Our channel business had a very good end to the year. And sequentially, really one of the big drivers was our clinical trials logistic businesses returned to nice growth, right. As we mentioned a year plus ago, we’re going to have a difficult first three quarters just based on a large study cancelation late in 2016. So, once we anniversaried that, you saw that business, which was great tailwind, returned to nice growth. So that’s probably the biggest sequential change in that business.

Okay. And then, can you just comment on the academic high single digit growth? And I’ll leave it there.

Yes. So, academic and government was very strong in the quarter. We saw a good growth across all of the key geographies and we saw really good growth in our analytical instruments, particularly mass spectrometry and electron microscopy in that segment.

Your next question comes from Ross Muken from Evercore ISI. Please go ahead. Your line is open.

Good morning guys and I appreciate the whole organization welcoming back with such a good quarter. So, Marc, obviously, the macro backdrop is pretty good and the end markets you serve are quite healthy. But, it still feels like last 12 to 24 months incrementally your business is sort of doing better than peers. And it feels like whether it’s mix or share or new technologies, you guys have been kind of gaining momentum on the top line. And so, how, when you think about sort of the more recent performance, are you kind of teasing out? How much of this is sort of the macro and some of the markets or some of the acquisitions versus some of the hard work the organization’s doing to really have better results on the organic line?

So, Ross, thanks for the question. And obviously, the end markets are good. And the biggest change really in 2017 was that industrial and applied turned back to mid single digit growth. So, that helps the industry, and obviously we benefited from it. But, we are performing much stronger over the last couple of years, as you highlighted, based on the success of the growth strategy. And when I think about last year, we delivered 5% organic growth and we would have delivered 5% organic growth even if you took out the contribution from FEI in the organic growth. So, we had a really strong year across the business. And it was really good execution. Our channel business had another really good year, when you look at our analytical instruments business, strength across the portfolio, and it was a good year on spend. So, all of those factors contributed to a very strong 2017, and it’s another step up in performance in terms of our strategy.

That’s helpful. And may be just on China, I mean, lot of attention being focused there. You guys had another fantastic year. In terms of sort of differentiating between both the industrial and biopharma side there, how are you seeing sort of trends and how are you thinking about comps in that region as we enter next year and what’s kind of the assumption baked into the 2018 guide.

We continue to expect that China is going to be our fastest growing major geography within the Company. Our book to bill was above 1 in China and momentum is strong. There is a tremendous amount of interest in the diagnostics area, expanding healthcare and the applied markets, food safety, environmental protection. We’re obviously benefiting a little bit from the industrial recovery as well, but it’s really the alignment with the five-year plan that’s driving the strong growth. And while we obviously will have a challenging comparison in 2018 in China, the team is off to a good start.

Your next question comes from Derik de Bruin from Bank of America Merrill Lynch. Please go ahead. Your line is open.

So, just one cleanup question and one other one. So, on Q4, can you sort of break out -- you can do this as an aggregate; they don’t have to be individual. But, sort of like what you thought the contributions were from the flu season being stronger, hurricane catch-up, any sort of budget flushes? I’m basically just trying to figure it out to like model Q4 2018 better.

Yes. So, I guess, the way I characterized the quarter, no real hurricane catch-up; we didn’t see a significant impact in Q3 and it might be a small amount but really nothing creating the noise. The seasonal products were very strong. So, that’s probably about half a percentage point in the quarter and then it’s really about year-over-year spending at the end of the year by our customers, was slightly weaker last year, saw a good strength this year. So, maybe, in total a couple of points.

Okay, great. Thanks. That’s really helpful. And just I can’t believe I’m going to actually ask you a DNA sequencing question but I’m going to. You’ve made a lot of news -- there has been a lot of news following your sequencing business in 2017. And I’m just wondering it’s been a while since we sort of have an update on the overall size of that business and sort of like how the business has been growing. Can you guys provide us that? And then, I want to ask what sort of drove the decision to sort of do the relationship with Illumina for the AmpliSeq product?

Derik, in terms of next gen sequencing, represents just under 2% of our revenue in kind of order of magnitude. It’s a business that is growing reasonably well. We’ve had a lot of good product launches during the course of 2017. At the very beginning of this year, we announced a new line of sequencers, two new Oncomine panels, one focused on immuno-oncology, which is obviously very important; and one focused on liquid biopsy. The early feedback from customers on all of the new products is very positive. We’re also launching in chemistry for our sequencers. Terms of Illumina obviously they have a very large install base of instruments. And our amplification chemistry is very well regarded. And we made the decision to supply them with those chemistries so that they can mark it on their install base. And we felt like that’s a good growth opportunity. And given the fact that we continue to launch new products, we were comfortable with that combination of moves.

Your next question comes from Doug Schenkel from Cowen and Company. Please go ahead. Your line is open.

So, you closed out 2017 with your net debt to EBITDA ratio below 4 times, as currently built, we see that getting close to 3 times by the end of this year. Is it fair to say that you’re open for business for the right acquisition, based on where your balance sheet is today? And if so, I guess, a multiparter here, how should we think about your capacity, how do we think about the application of your typical ROI criteria in the continue high valuation environment, and how does certainty, on the tax law, impact the M&A environment?

Yes. We’re open for business and being here time, we’ve never been closed. But, we have a very active pipeline. And part of the reason the way we financed the Patheon acquisition was we issued some level -- modest level of equity as part of that, so that we would never take ourselves out of the market at this point in time, because the Patheon integration really is only one narrow part of the Company. So, we felt like we had the management bandwidth to push through good opportunities. And so, we’re in that mode. We really have a substantial amount of capacity. So, I don’t feel constrained financially in terms of deal size from that perspective. In terms of ROI on transactions, as you’ve heard me say in the past, when valuations are higher, we always have used the criteria that we don’t do bad transactions, meaning that we really focus on the downside scenario of the transaction and ensure that we’re going to drive good returns, even if something doesn’t work out. So, it does inform the kinds of transactions that we do in this type of market. And if you look at it, we avoided speculative transactions, we bought really great businesses. FEI is a good example where it’s a business that we spent years looking at and thinking about, understanding the business and bought it at a part of the cycle where it was growing around 3%, we were able to grow it in the first year of ownership in the strong double digits. And that’s kind of a nose we have for M&A. So, we’ll buy things that we feel we understand the downside scenario with and are going to make good returns for our shareholders on ROI under all the different scenarios that are possible.

And I just want to go back to two topics that came up earlier in the Q&A session but I don’t think were addressed completely clearly. First, just to be clear, based on what you’re seeing thus far in 2018, are you confident that there was no meaningful pull forward of revenue into Q4 at the expense of Q1? And on the question of bioproduction destocking, the dynamic that was out there across the industry earlier in 2017, are you confident that that’s largely abated?

So, I’ve never heard someone say to answer that question. So, that’s a first. So, Doug, I guess, the year’s off to a good start consistent with our guidance. When I look at how bookings were for the last year, they were above 1. So, we enter the year with a good backlog, and there’s nothing unusual about how the year started that would indicate some sort of customer pull forward or something that was meaningful. So, I think that’s the view. In terms of bioproduction, it’s a business we’ve been in for a very, very long time. We really don’t spend a lot of intellectual energy around quarter-to-quarter movements there because customers shouldn’t pull forward and push out orders all the time. What I would say is that the pipeline is strong, the business had a very good year and the customer activity is really positive. So, we feel good about the outlook for that business for 2018 and feel like the end was a good sign. But, we don’t get too hung up on as a quarter strong or weak. It’s business as lumpy and that’s why I said the mid-term and long-term look really excellent for us.

Your next question comes from Jack Meehan from Barclays. Please go ahead. Your line is open.

Thanks. Good morning, guys. I wanted to start with Patheon. Could you give us an update on the outsourcing discussions there with customers since the acquisition, just traction on revenue synergies? And then, has the dialogue changed at all since the beginning of the year with tax reform?

Yes. Jack, thank you for the question, good morning. In terms of performance services business or Patheon, the customer feedback has been incredibly positive and we’re having meaningful dialogue with a number of customers. This is a business that doesn’t turn quickly in terms of there’s a long process of getting products, tech transfer and things of that sort. But nonetheless, the early feedback is very good and the revenue synergy work -- we already have achieved some revenue synergies between our clinical trials logistics business and our new pharma services capabilities. So, those are happening and they will ramp up over time. We have really interesting work going on with our bioproduction business and the biologics portion of that business as well. So, we’re very bullish about the revenue growth outlook in the midterm for that business. On the tax side of the equation, I think really the pharmaceutical customers have to think through how does the tax law change their manufacturing strategy because a lot of their older strategies were about putting plants in low tax jurisdictions of which some of the advantages to those are no longer as compelling. And therefore, it’s possible that opens up new opportunities over time. So, that’s something that we will continue to explore with our customers.

Great. That’s helpful. And just if I could step back, you have long term organic growth target of 4 to 6%, you ended 2017 with a lot of momentum and portfolio is moving in the faster growing areas with FEI and Patheon. Just how would you frame the guidance of 4 to 5% in that context and what are some of the puts and takes as you sit here today?

Yes. As we’ve thought about the outlook for the year, we felt good about the 4 to 5% initial guidance for organic growth. And the way we think about it is, as the year unfolds, obviously we adjust the guidance. We felt like -- we like the way the end markets are, we like the way the year ended, we obviously feel good about our orders as well. The things that we will pay attention to later in the year is we’re going to have a challenging fourth quarter comparison because of the year-end. So, we’re assuming in the guidance a normal year-end spend as opposed to the very strong year-end spend. So, that’s one we’re not going to know obviously until the fourth quarter, but that would be one of the factors. And then, obviously, if GDP growth continues to accelerate, which appears to be accelerating around the world that obviously could be a tailwind as well. And you could flip it the other way on what would be things that would be headwinds would be if it goes in the opposite direction.

Your next question comes from Steve Beuchaw from Morgan Stanley. Please go ahead. Your line is open.

First question is with regard to the analytical instruments business. You saw a nice pick-up there recently. It would be helpful, if you could sort of talk through what you saw second half of the year in a retrospective. How much of this is improvement in the end markets and how much of it is new product flow? And then, for 2018, any color you can give us on how you’re thinking about modeling the business would be really helpful, not only with regard to the sustainability of some of those divers but because we’re including FDI in the organic component, which can be a pretty significant benefit to the organic profile of that business. Thanks.

So, in terms of looking back, and then I will talk looking forward. Looking back in the second half, we obviously had good new products across the portfolio. So, that’s a contributor, mass spectrometry big beneficiary, electron microscopy as well. The other thing in second half is our chemical analysis business, particularly our handheld portable instruments, which kind of represents short cycle industrial recovery, was very good. So, it was very broad base in terms of the growth and the instruments business throughout the year and in the second half. As I think about 2018 and FEI and how to think about it. FEI had very strong growth; our electron microscopy had very strong growth in 2017. That makes for a challenging comparison this year. We anticipate that the business will be a contributor to our growth and grow above the Company average during the course of this year. So, it’s how we would think about it, based on a spectacular 2017, and we see momentum continuing into 2018, but obviously not as big of contributor because of the comparison.

And then, just a couple of housekeeping items, one is, I wonder if you could speak at all what fourth quarter underlying growth was in Patheon, how the impact of some of the Puerto Rico challenges impacted that and do we capture some of that back in the first quarter potentially? And then, Stephen, could you give us any sense for what the working capital outlook is year-on-year embedded in the guidance assumption for free cash flow?

In terms of Puerto Rico, we don’t believe that we will see a pickup in Q1 at normal rates. But, the customers effectively had big products they had to source, so likely bought the product form other source at that point. We may see a little bit of uptick during the course of the year, but I wouldn’t think that’s a particularly big factor. Underlying growth for the Patheon business for 2017, if you -- obviously not in our numbers but mid single digit year-over-year growth for that business. So, solid growth here and obviously they had headwind. So, I feel good about performance there.

In terms of working capital assumption for 2018, it is essentially kind of a normal year of need for working capital to grow the business organically at the 4% to 5% level, so not expecting a significant difference in the norm there.

Your next question comes from Patrick Donnelly from Goldman Sachs. Please go ahead. Your line is open.

Maybe just following up on Jack’s question about the long-term organic growth rate, 4 to 6. In the past, you’ve always talked about one end market has been a headwind, preventing you from getting towards the upper end. But, in the current setup, I know Marc you noted a few weeks ago, end markets are as healthy as they’ve been. Do you view 2018 as the best shot you can recall getting towards that 6% number, assuming the current macro backdrop holds up and you have full year of FEI contribution?

Every year we’re always working to maximize the performance of the Company and strengthen the strategic position. And as we go into the year, we feel good about the outlook. And historically, we’ve generally been around 4% as our opening view on organic growth; and this year, obviously, we did 4% to 5%. So, it reflects the momentum. And we’ll drive to the best possible performance. Patheon is not a big contributor to our organic growth this year; it doesn’t flow in until the final four months of the year. So, while it’ll contribute, it is not going to contribute meaningfully to organic growth this year. So, we’re going to deliver four really strong quarters, and we’ll see ultimately where that winds up in terms of organic growth.

And then, obviously, your LPS results speak for themselves to a degree but would appreciate if you could just maybe provide some color on the Amazon threat to your business. It seems like that’s got a little more air time this past quarter, in spite of their presence not being particularly new. So, have you seen any change in the market from them, are you expecting anything different? We would appreciate your thoughts?

In Amazon, we take it extraordinarily seriously, right? And we’ve taken it extraordinarily seriously over the last five years as they thought about and tried different things in this market, and they’ve largely been unsuccessful, and there’re reasons for that. And I think a lot of the reasons for that is that we’re relentlessly focused on doing a great job for our customers. And many of you have heard me say, we’re the Amazon of scientific supplies. We do a great job of aggregating a complex set of categories, providing a very cost effective way for our customers to drive productivity, world-class logistics, on-site personnel handling very technically difficult products, hazardous fluids, refrigeration, we have great supplier relationships. And at the end of the day, we’ve built an amazing web capability to make it very easy for our customers to transact with us. So, we’ll take it very seriously. We have seen momentum from Amazon. And we’ve had great performance in our channel business the last couple of years and ended on the strong note. So, we’ll continue to pay attention to it, but feel good about our competitive position.

Very helpful. Thanks.

Operator, we have time for just one more.

Okay. Your next question comes from Dan Arias from Citigroup. Please go ahead. Your line is open.

Marc, just following up on academic, what’s your assumption for NIH funding this year? Obviously some good legislation out there, but it kind of also feels like we could live in continuing resolution land for a while, so just wondering whether your base case, so to speak, as U.S. funding going up in fiscal 2018?

In terms of the outlook for academic and government for the year, we’re assuming in our guidance low to mid single digit growth. We’re assuming that we will get a budget at some point in the year and that in that there’d be a modest level of growth. And that’s why you have the range for the segment between low and mid single digits, just depends on when a budget gets passed. I did have a chance to meet with NIH leadership recently. And they’re operating under a stable environment and expect over time when the budget gets passed, it should get better. If I think about the other end markets, diagnostics and health care, we’re also assuming low to mid single digit growth for this year; pharma and biotech, we’re assuming mid to high single digit; in industrial, we’re assuming mid single digit. It kind of gives you a holistic view of the year.

Yes. That’s great. Thank you. And then maybe just one for Stephen. Stephen, what is necessary for LPS margin to be up in 2018? It looks like you’ll be up against a favorable comp obviously but just wondering more fundamentally what the key factors are to getting back to the mid teens.

So, I think the individual businesses are doing well; it’s really been around business mix has been driving the change; this year has been the principal driver. You’re going to see actually benefit from margins from Patheon through the anniversary date for the LPS side of the equation. So, I guess the underlying businesses are actually doing well.

So, let me wrap up the call with a couple of quick comments, the first of which is I’d like to thank Seth Hoogasian, our General Counsel who’s been our General Counsel for more than 20 years, retiring at the end of the quarter. He’s been the silent right hand of the management team for a long period of time. And we wish him a happy retirement and thank him for his service to the Company. And then for the reflection of the year, obviously, 2017 was an excellent year and has put us in a great position to achieve our growth goals for the year. And as always, thank you for the ongoing support of Thermo Fisher Scientific. And I look forward to interacting with you during the course of the year. Thanks, everyone.

This concludes today’s conference call. You may now disconnect.