Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2020 Third Quarter Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your moderator today, Mr. Kenneth Apicerno, Vice President, Investor Relations. Mr. Apicerno, you may begin your call.

Good morning and thank you for joining us. On the call with me today is Marc Casper, our Chairman, President, and Chief Executive Officer; and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note, this call is being webcast live and will be archived on the Investors Section of our Web site thermofisher.com, under the heading Webcasts and Presentations until November 6, 2020. A copy of the press release of our third quarter 2020 earnings is available in the Investors Section of our Web site 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 June 27, 2020, under the caption Risk Factors, which is also on file with the Securities and Exchange Commission, and is also available in the Investors section of our Web site 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 third quarter 2020 earnings, and also in the Investors section of our Web site under the heading Financial Information. So, with that, I'll turn the call over to Marc.

Thanks, Ken, and good morning everyone. Thank you for joining us today for our 2020 third quarter call. As you saw in our press release, we delivered exceptional performance again in Q3 as we continue to build on the significant progress we made last quarter. I continue to be humbled by the incredible efforts of our team as they answer the call to help our customers and society manage through this unprecedented time. Not only did they expand our leading role in supporting the Global COVID-19 response, but they also effectively managed through this environment to return our base business to growth. The work we're doing today is clearly having a profound impact on the world, and for that we can be very proud. But it's important to note that our efforts are also strengthening Thermo Fisher for the future, and making us a more valuable partner for our customers. I see many positive trends from this period that will increase our contributions to healthcare. A few examples that I referenced during our recent analyst meeting are worth repeating. We're seeing much greater collaboration among industry and governments globally. Funding for research diagnostics and development of therapies and vaccines will increase to prepare for future health threats. We'll see more focus on supply chain security and the building of national stockpiles as well, and all of this has put a significant spotlight on the need for a stronger commitment to improving healthcare systems globally. We're already seeing the impact of these trends on our business, and I'll give you a number of examples later in my remarks, but first, I'll review our financial performance and give you some color on what we're seeing in our end markets. From a financial perspective, in Q3, we continue to work with speed at…

Thanks, Marc, and good morning everyone. I'll begin with a high level summary of our Q3 performance. As Marc mentioned, we have another exceptional quarter and grew organically 34%. I'll break this down into two elements. The first is the scale of our COVID-19 response revenue that we generated during the quarter, and the second is the performance of the base business. Our COVID-19 response revenue in the third quarter was $2 billion and contributed 31% to growth; largely driven by testing related products and instruments. Our base business excluding the COVID-19 revenue grew organically 3%. We are very pleased to deliver a 13-point improvement from Q2 driven by a higher customer activity levels and great commercial execution. The 34% organic growth for the quarter was higher than the updated our recent analyst meeting, as we continue to have robust demand for testing, and the potential risks around the level of customer activity did not materialize. Our PPI business system enabled excellent pull through on the 34% organic growth, a combination of fixed cost leverage and operating with speed at scale enabled us to deliver 91% growth in adjusted earnings per share on the quarter, a truly exceptional result. I'll now provide more details on our third quarter results then provide some color on our four segments and conclude with some comments around guidance. Starting with our Q3 earnings results, as I mentioned we grew adjusted EPS by 91% to $5.63. GAAP EPS in the quarter was $4.84 up 157% from Q3 last year. On the top line, our Q3 reported revenue grew 36% year-over-year. The components of our Q3 reported revenue increased included 34% organic growth, a foreign exchange tailwind of 1% and 1% growth from acquisitions. Turning to our growth by geography during the quarter, North America grew…

Thanks, Stephen. Operator, we're ready to open it up for Q&A.

[Operator Instructions] Your first question comes from the line of Tycho Peterson from J.P. Morgan.

Hi, good morning. Congrats on the quarter, certainly impressive. Marc, I want to start with the LPS strength, 16% organic. I'm just wondering if you could provide a little bit of color on how much of this is vaccine ramp versus recovery and non-COVID-related trial work, was there any kind of catch-up benefit here in the quarter from stuff in 2Q, and how do you think about sustaining this level and ramping on the LPS side and into 4Q and 2021?

Thanks, Tycho. Good morning. So, in terms of our Lab Products & Services businesses, all three of the businesses performed in the quarter. So that's pharma services, our CDMO activities, that's our customer channels group, and that's our lab products business, and we saw activity ramp up, as we did for the whole company, on the sort of normal business activity in the quarter, and at the same point, you're seeing two different types or three different types of COVID-related response embedded in those numbers. Clearly, the vaccine and therapy ramp up is happening, and you see that certainly in our pharma services business. You're also seeing very significant demand in our customer channels business for things like PPE as well as all the supplies you would use for COVID response. And then in our lab products business, we have very strong demand for our lab plastics as well as our cold storage equipment. As you know, we're a market leader in providing cold storage for laboratory use, and effectively, when you read about some of the vaccines needed cold storage across the supply chain we're getting very, very significant demand for those products. The basis is very good, right, so that's gone well, and then obviously on top of that you're seeing the benefits of those types of activity.

Great, and then a follow-up just on the plastic side, curious on your views on the durability of that non-automated PCR business which had driven a lot of strength in the first-half of the year, and then with Amplitude, I'm just wondering if you could talk a little bit about positioning there. Obviously it's got the highest throughput, as you noted. Is the traction you're seeing now from academic labs, are you seeing interest from reference labs or hospitals, can you just talk about how you think about both the durability of non-amplified testing, and then Amplitude as well. Thanks.

Yes, so, Tycho, in terms of the demand for our PCR testing, it continues to be very strong, right, and if you think about it, gold standard performance in terms of accuracy, largest install base of instruments around the world, and we have supplied our customers and ramped up, and we have been the supplier that there's been no headaches really from a customer perspective through the pandemic. We have built our capacity ahead of demand consistently, and therefore customers have been happy, and know they can rely on us. Amplitude is an ultra-high throughput system, over 6,000 tests per day, and we're seeing very large demand. We've seen that demand from governments, we've seen that demand from reference labs and hospital systems, right. So it is a niche application but drives enormous volumes, right, because ultra-high throughput, so those labs, those governments that are really providing the support for high volume, given our supply reliability, the quality of our tests, and the dedication that we've had throughout the pandemic, that product will be a good growth driver. In terms of durability, we believe that PCR testing is going to continue to be very relevant to our customers because it gives you the most accurate information, and therefore we're comfortable with continuing with a strong level of demand in the fourth quarter, and we expect that those products are going to be relevant in 2021 because, unfortunately, the pandemic is still with us. Thanks, Tycho.

Okay, thank you.

Vijay Kumar from Evercore, your line is open.

Thank you, guys, and congrats, Marc, you guys are setting a new bar trying to beat that pre-announced revenue, that's really impressive. Maybe on just the Q4 guidance there, I guess we were looking $2 billion of, I guess -- $1.6 billion of COVID tailwinds for 3Q that's coming in north of $2 billion here for 3Q, so one -- and if you look at the guidance for Q4 of $1.75 billion, I'm just curious if -- if was there any tiny element, did some of the tailwinds get pulled forward to 3Q, and when you look at the base guidance of low to mid single digits maybe it looks like a lot of it is being driven by biopharma. Maybe comment on industrial and academic environment heading into Q4.

Yes, so, Vijay, thanks for the question, and it's exciting to be able to set a new bar on performance, right. So that's been an interesting time for sure. In terms of our guidance, the way that we think about the fourth quarter is base business similar to what we saw in Q3 to a little bit better, and what's assumed in there, and it's an assumption, it's not based on customer feedback, is that year-end spend is softer than it was last year, and we're well positioned to meet it if higher demand, if customers have the funding, and our logic to that was it's a little bit early to know. It's a conservative assumption, and we don't want to disappoint. So if the funding is strong you know that, like we did in these last few quarters or many years actually, if the money is out there we're going to go out and get it, right. So that's the view on the base business, of low to mid single digit growth. When you look at the $1.75 billion, we see very strong demand right now for our COVID response. We're seeing a continued build in our vaccine and therapy role, and we are also seeing very strong demand for our testing solutions as well. You have less visibility into the month of December. So we have much better visibility, obviously, in October and November, and we just made an assumption that levels were going to be pretty similar to what we saw in the third quarter, and we came in at $1.75 billion. I wouldn't over-read into why $1.75 billion versus $2 billion, it's just that we have visibility for a couple of months, and December we have less visibility, but nonetheless it seems like demand should be strong.

That's extremely helpful, Marc, and just one follow-up on, I guess, at the analyst day you made a comment about contractors orders on the vaccine worked about a billion, any update on that number?

Yes, so in terms of our role for vaccines and therapeutics, we said over the balance of this year, '21, and '22 it's about $1 billion, and than number continues to grow, so I'd call it a $1 billion-plus at this point. We're active in a significant number of projects, something in the range of over 250 projects on therapies and vaccines, and our role is quite broad, it's not just pharma services, it's bioproduction, biosciences, and -- so that will be a -- is contributing to our revenue, but will contribute more certainly as the fourth quarter, and into the next year progresses.

Thank you, guys.

Thanks, Vijay.

Steve Beuchaw from Wolfe Research, your line is open.

Hi, good morning, and thanks for the time here. I wanted to ask one on academic, just looking to unpack a little bit of the commentary in the prepared remarks, and then one just very quick follow-up on Amplitude and the broader testing landscape. My question on academic is a two-parter. I guess one is, we all watch all the headlines about what's going on in the university backdrop. I wonder if you could give your perspective on research labs within universities and broader research sort of opening up here as we progress through the back-half of the year, to what extent is that reopening necessarily contingent upon a broader university reopening, and then to your point on funding, Marc, certainly makes a lot of sense, but to what extent is that a medium-term versus a near-term perspective on funding just given all the unknowns right now, not necessarily in the U.S., but in China and Europe as it relates to how they're going about funding in research.

Yes, so, Steve, thanks for the questions. So, in terms of the academic and government, good to see the return to growth, clearly more customers came back to work, ramping up research activities, and that actually was a global phenomenon; we saw that across all three of the regions, and they all happened at different paces, but it's good to see that. When I made the comments at the very beginning of my remarks, really the funding environment I'm thinking about is the midterm, right, it's [technical difficulty] -- what I mean by that is there's such interest now in infectious disease, the pandemic, the importance, like in the U.S., of how NIH has played a huge role here. Those things are going to really, for the midterm, be very positive on a funding environment. Even short-term we're seeing quite a bit of interest from governments, and then obviously academic institutions, their own situation is probably much more impacted by their own economics, so that's going to be somewhat of a headwind, but that historically has been a low to mid single-digit growth market, and it's good to see we're already back to low single-digit growth there.

Super clear. The follow-up, building on some of the commentary around Amplitude, looks like an approach that makes a lot of sense, not just for higher acuity or symptomatic, but for screening, which should be interesting to hear how you think the market for testing PCR and more broadly evolves towards screening over the next year and beyond, given that you have a unique perspective on all sides of the market? Thanks again.

Well, Steve, in terms of the role of testing, obviously managing in a pandemic is around social distancing, mask-wearing, good hygiene, and all of those things, and testing is a valuable supplemental tool to that, and we're seeing more and more demand for testing in those applications as well for kind of return-to-life is what we call it, which is really work in school, and things like the Amplitude is going to be able to support both medical applications as well as screening. You get a very high throughput, it's very economic, and therefore customers can get results quite rapidly, and therefore it plays a role, and what you're getting with PCR is extreme levels of accuracy versus some of the other technologies out there, which also will play a role, but you are trading accuracy, and depending on what the application is that's something that there certain applications doesn't make a lot of sense for. Operator, we'll take the next one.

Derik de Bruin from Bank of America, your line is open.

Hi, great. Thank you, and good morning. So a little bit of -- can you give us a little bit more color on the split in the quarter on testing PPE in bioproduction, just how that $2 billion broke down that, and then I've got a follow-up.

Yes, Derik, good morning. So in terms of the $2 billion, the majority is the testing related portion of that, and when you think about the testing portion it's actually quite expansive, right. So the single largest piece of that is going to be on our proprietary COVID-19 TaqPath kits, PCR kits, but we also have significant revenue from instrumentation and lab-developed tests. So that's kind of the PCR ecosystem with all of the very substantial sample prep that we provide across the industry as well. We really have built tremendous momentum there. On top of that, our viral transport media business has grown very rapidly, so Q3 was a nice step up from Q2, and we expect that to continue to grow, and that is a key part of the specimen collection, sample collection and transport to a lab, and so that we'll continue to build, and we announced that we're opening up a new facility in Scotland. We broke ground on that, be able to start producing viral transport media at the end of the year to start the European market, beyond the two facilities in Europe that already do that. So that continues to be important. From the next aspect, which is probably the smallest aspect at this point, which is PPE, as you would expect there was clearly -- that's all through our channel business. There was very elevated prices in the beginning of the pandemic as there was massive supply constraints. Volume has still be high, pricing has come down, and so, therefore while there's a moderate level of activity a lot of volume at a lower price, and that's good from a societal standpoint. It's good to see suppliers catching up with demand, and then from the -- probably the fastest-growing and building is…

Right, and just one quick follow-up, so you talked about your analytical instrumentation business, essentially back, you know, essentially roughly flat, are you dealing with back orders from the first-half of the year, or are you seeing new orders for LCMS, and then a appendix on that one is, what's your PCR base instrument install base up year-over-year, if you can get a sense?

So, in terms of the revenue, the really strong sequential improvement in revenue for Q3 versus Q2, the answer there is our orders are growing much faster than the revenue. So, we're actually building backlog. So, I don't think it is much of shifting from Q2 to Q3, just customer activity is really been picking up. You see that most quickly in our life science mass spec business and chromatography business. That business returned to growth in the quarter from a revenue perspective, and bookings were stronger than that. So, that's very encouraging, and then, as you would expect on the flip side, those areas that are very economically sensitive like chemical analysis, that's lagging, right, improved substantially, but lagging relative to the life sciences mass spec, and we have from a install base of sample prep and qPCR, we're shipping in a quarter what we would normally ship in a year. So, it doesn't give you the exact number, but it gives you the sense of the magnitude of how big that's been.

Thank you.

You are welcome.

Doug Schenkel from Cowen, your line is open.

Good morning, everybody. Thanks for taking our questions. Marc, during the Analyst Day last month, you commented I think in response to a question that COVID-19 tailwinds could be lower, about the same or higher on a year-over-year basis in 2021, do you have any updated thoughts on this, at this point, particularly in light of higher than expected COVID-19 contributions in Q3 and incorporating what you're seeing especially on the bioproduction side, given demand there has materialized a bit more recently, relative to diagnostics, and then, kind of building off of that longer-term meeting really beyond 2021. Do you think the investments you're making to support COVID-19 demand in each today and in 2021 will lead to at least stable levels of revenue in these product categories, even when the pandemic abates?

Yes. So, Doug, what I can say is that on the first one, I have to be 100%, right on the answer, right, if it's either up down or flat, then I…

Yes, yes.

[Multiple speakers] -- 100% accuracy on. So, those are two great questions, right? So, if I think about things that are building, clearly the broadly, you know, position and bioproduction, our pharma services business or biosciences nucleotide, that's all building, right? So, and then that's better than three or four weeks ago. It doesn't -- as you know, these things are very long cycle, they're moving at a much faster pace, but it takes a while for these products to get through the clinical process with approvals, and looking for efficacy. So, we see that building, and that's good for us in terms of what the outlook is. In terms of -- you know, unfortunately every day and week that we're still living with the pandemic means that things like testing are likely to be more durable, right? So that, you know, even six weeks or so after the analyst meeting, we're really in the same boat with actually more cases in Europe and a lot of increases in the pandemic. That usually adds to the view that there's going to be more durability to this going into '21, but we'll know more as we get into the year. So, in terms of the longer-term investments, a great question, right, the way to think about it is, we're investing significantly, you know $700 million is almost what we normally put in capital in the year roughly, right, so it's additional. We are it doing quickly, right. If you think about the pace that we are actually bringing facilities online gives you sense of the power of the PPI Business System. Pretty much everything that you are seeing we are going to repurpose longer term to other markets that are not pandemic-related, right, and some of them are very easy to visualize, right, which is think about start for finish, we have commitments for the expansions that we have done for vaccines and therapies, and we are also already getting commitments from customers -- large customers that basically say when that demand is freed up, we want to put other products in that demand, right. it's :

Okay, and I'll leave it there, and let others ask other questions. Thank you very much.

Thanks Doug.

Steve Willoughby from Cleveland Research, your line is open.

Hi, good morning. Two questions for you, Marc, one just following up on some previous commentary if you don't mind, you talked about how you are assuming a weaker end of your spending environment within the guidance that you provided today, but I am curious as to your comments talking about how you are seeing customer activity really picking up, orders growing faster than revenue. Just wondering if you could provide any color on how those two -- the different comments sort of jive with each other, and then I have on follow-up for you.

Stephen, you want to talk a little bit about that?

No, so the comment about picking up versus Q2 so that sequential improvement in performance, and the assumption is similar levels of aggregate customer level activity in Q4, and yes, we have made an assumption around yearend spend, but as Marc said, if it's going to be higher, then our business is well-positioned to help our customers satisfy that demand.

And Steve, another way we have a say lots of discussions with our customers. It's a little tacky right now to say, so what is your yearend budget going to look like. It's just not a topic that is where you are focused on which is -- so not helping you, right, and this is not a normal year. So, I think that's a good place to start again for the quarter.

Very good, okay, and then I was just wondering if you could comment at all regarding the bioprocessing business overall, and what you saw in terms of level of growth there and maybe also maybe a level of orders for the bioprocessing business overall? Thank you.

Growth is very strong, stronger than the historically strong performance, and orders were significantly stronger than that strong growth, so very, very high level of order growth which you would expect, right. We play a major role in the therapies and vaccines broadly in all classes of disease, and we are playing a significant role in COVID. So, we are seeing very strong demand for our capabilities. Thanks Steve.

Your next question comes from the line of Dan Arias from Stifel. Your line is open.

Good morning, guys. Thank you. Marc, maybe just a follow-up on some color on bioproduction, can you comment on the visibility in terms of products and services when it comes to non-COVID work? I mean obviously it's all strong at a high level, but I guess I am just trying to understand the extent to which there is maybe from incremental uncertainty when you look at companies that are balancing COVID and non-COVID project loads. I mean are there error bars around the timing in some of this non-COVID campaign work that might be wider than normal as they move real fast here? Or, does it sort of all looks steady from where you sit at this point?

It seems pretty steady. I mean if think about manufacturing across the industry not our customers, has been smooth sailing through this period of time, right. Companies have been able to produce their medicines and develop their products for -- through the development process. So, we haven't seen COVID-related disruptions on the manufacturing side of biotech and pharmaceutical. It continues to grow very substantially. So, obviously there is going to be some diversion of short-term resources. So, maybe two or three years from now there is some project that has been theoretically less than what it could have been because of COVID work, but I think that's very much in the noise level, because if I look at things like new quotations and new activities, it's extraordinary high and our development work, clinical trials work. So, I think it's very good.

Okay, appreciate that. Maybe Stephen, can I just touch on Patheon for second there, and the margin mix within LPS? I think this Patheon was 17% or so at the up margin line when you bought the company. Obviously, the volume environment there looks pretty good. So, if we were to look forward, do you that business over the next couple of years can increasingly sort of provide some loss to LPS segment profitability if demand just shapes up here the way that it's look like it could?

Yes. So, I think we've made great progress with the margins in that business, and future as we drive more utilization of capacity will be very strong for the margin profile. Thanks, Dan.

Thanks Dan. Operator, we are going to take just one more.

Jack Meehan from Nephron Research, your line is open.

Thank you. Good morning.

Hi, Jack.

Marc, I was hoping you could comment a little bit more on the R&D investment. It's my favorite data point in the press release. So, just where are you maybe over-indexing some of the incremental spend? Are you pulling forward projects or diving deeper down the list, and is there a way to think about the payback on some this incremental spend? How long that should take?

Yes. So, Jack, thanks for the question. R&D spend was up about 20% in the quarter. So, we're investing substantially. It's really about adding more talent is the step that we are doing, and then working on some key areas that -- where demand actually has been a little bit softer. So, what we are doing is kind of doubling down the investment to position ourselves for strong growth for the long term. Very much the exact playbook we did in the financial crisis where we had a very high focus on investing in R&D so that we would bounce back out of the downturn quickly, and we did, and so we are doing that same playbook in certain areas and returns will show up in the next couple of years is the way to think about it. Thank you, Jack, for the question, and let me wrap up with a couple of things, first that we are certainly proud of our role in helping our customers and society during this time. We are going to continue to manage the company appropriately to come out of this period and even stronger industry leader. We look forward to updating you on our progress at yearend. I hope that you stay safe, and as always, thank you for your ongoing support of Thermo Fisher Scientific. Thanks, everyone.

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