Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2019 First Quarter Conference Call. My name is Krista, and I'll be your conference operator today. [Operator Instructions]. Thank you. I would like to introduce our moderator for the call, Mr. Ken Apicerno, Vice President, Investor Relations. Mr.

Apicerno, you may begin the 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 that this call is being webcast live and will be archived on the Investors section of our website, thermofisher.com, under the heading Webcasts and Presentations until May 10, 2019.

A copy of the press release of our first quarter 2019 earnings and future expectations is available on 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 annual report on Form 10-K for the year ended December 31, 2018, under the caption risk factors, which is on file with the Securities and Exchange Commission and also available on 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 on the press release of our first quarter 2019 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..

our customer value proposition. We continue to increase our capabilities and leverage them across the company to help our customers meet their goals. A great example is pharma and biotech, which as you know, is our largest and fastest-growing end market. We have industry-leading scale, depth and access that differentiates us in serving these customers.

Importantly, we continue to build on our position to be an even stronger partner for them at every stage, from research to drug development to commercial manufacturing. One of the more significant highlights in the quarter was our agreement to acquire Brammer Bio for $1.7 billion.

Brammer Bio is a leader in viral vector manufacturing, helping pharma and biotech customers provide breakthrough gene and cell therapies to patients with rare diseases. As you know, these novel therapies involve altering the genes inside a patient's cells to treat or cure disease.

Modified genes usually have to be delivered using a viral vector because they can effectively carry the genetic material into the cell. Brammer Bio has a unique position supporting gene cell therapies because it has expertise in a number of different virus types.

Their capabilities cover viral vectors used in a majority of gene therapy clinical trials. These therapies hold great promise for patients who are battling diseases like hemophilia, ALS and Parkinson's. This is why the market is so exciting and growing at a rate of better than 25% annually.

Brammer Bio expands our CDMO capabilities and will be part of our pharma services business after the close. It also complements our leading biosciences and bioproduction portfolios serving the gene therapy market.

Given our scale, depth of capabilities and customer reach, we believe we can meaningfully contribute to helping our customers launch new breakthrough therapies. For example, we provide regulatory expertise to accelerate bringing these drugs to markets and experience in building and expanding capacity with world-class quality systems.

This gives our customers the confidence to outsource their critical development and manufacturing activities to Thermo Fisher. We're excited about the opportunities this combination represents for our company, our customers and, of course, the patients who benefit.

It's another example of our disciplined M&A strategy at work, and we look forward to closing the transaction this quarter. One final comment regarding pharma services. Last month, we announced a $150 million investment to build additional capacity and capabilities at our sites in Monza and Ferentino, Italy and Greenville, North Carolina.

This investment will further expand our global sterile manufacturing network. These projects are part of our strategy of deploying CapEx in this business to meet increasing demand from our customers who rely on our biologics, development and manufacturing expertise.

In summary, we're very pleased with these -- with the progress we're making in building our pharma services capabilities. The integration work is essentially behind us. The business is benefiting tremendously from our PPI Business System, and we're hearing incredibly positive feedback from our customers.

We're building on our strong foundation by expanding capacity and capabilities through a combination of capital investments and M&A. And finally, most importantly, the business is performing very well. On that note, let me give you a quick summary of our capital deployment activities so far this year.

As I just mentioned, we announced our acquisition of Brammer Bio for $1.7 billion in cash. We also returned significant capital to our shareholders during the quarter. We repurchased $750 million of our stock in January and also increased our dividend by 12%.

So an active start to the year on the capital deployment front, and our M&A pipeline remains very robust. Let me now turn to our guidance for 2019. As you saw in our press release, we are raising both our revenue and earnings guidance for the full year.

This primarily reflects our strong operational performance in Q1 and the acquisition of Brammer Bio, which as I mentioned, we expect to close in Q2. Stephen will get into the assumptions behind our guidance, but let me cover the highlights.

We're raising our revenue guidance to a new range of $25.17 billion to $25.47 billion, which will represent 3% to 5% growth over 2018. In terms of our adjusted EPS, we're raising our guidance to a new range of $12.08 to $12.22 per share, which will lead to 9% to 10% growth year-over-year.

Before I turn the call over to Stephen, let me summarize our key takeaways from Q1. We delivered another excellent quarter of financial performance on both the top and bottom line. We continue to execute our proven growth strategy to be an even stronger partner for our customers and gain share.

We effectively deployed our capital to create significant value for our customers and our shareholders. With that, I'll turn the call over to our CFO, Stephen Williamson.

Stephen?.

a $0.04 increase to reflect our strong Q1 operational performance, a $0.04 increased to reflect the addition of Brammer Bio, and a $0.03 reduction to account for more adverse FX environment versus our previous guidance.

To sum this up, our 2019 revenue guidance is now a range of $25.17 billion to $25.47 billion, which would represent 3% to 5% growth versus 2018. And our updated adjusted EPS guidance for 2019 is now a range of $12.08 to $12.22, which would represent growth of 9% to 10% versus 2018.

A few other details behind the revised 2019 guidance, starting with FX. Currency rates continue to change in Q1. The mix of the FX rate changes have no net impact on revenue, so we continue to assume that FX will be a headwind on the full year revenue of approximately $400 million, or 1.6%.

However, the mix of FX rate changes did impact the pull-through, and we now expect FX to be a headwind to adjusted EPS of $0.24 or 2.2% for the full year. The guidance continues to incorporate $0.10 of net dilution for the pending divestiture of the Anatomical Pathology business, which we announced in January.

I want to note that with the exception of the Anatomical Pathology business divestiture and the Brammer Bio acquisition, both of which are expected to close in Q2, our guidance does not include any future acquisitions or divestitures. We're assuming there's no change in the trade tariff environment in 2019 versus our previous guidance.

As I mentioned last quarter, our guidance includes a year-over-year headwind from tariffs of about $30 million or approximately $0.07 to adjusted EPS to reflect the full annualized growth impact of the tariffs that are currently in place.

Adjusted operating margin is now expected to be between 23.6% and 23.7%, which would result in margin expansion of 50 to 60 basis points for the year. Moving below the line. We're continuing to assume $1.25 billion of debt repayments in 2019, and we expect net interest expense to be about $470 million.

This is approximately $10 million lower than our previous guidance. Presuming that other net income will be about $25 million, which is $5 million higher than our previous guidance, we continue to expect the 2019 adjusted tax rate to be 11%.

As I mentioned earlier, due to the timing of discrete tax planning items within the year, we had a lowered rate in Q1 at 10.1%, and we expect the rate in the remaining quarters to be closer to 11.3% and no change to the full year. We're now assuming net capital expenditures to be between $925 million and $975 million for the year.

This is $125 million higher than our previous guidance to factor in the expected facility expansion investments that will be made in Brammer Bio. We expect to offset the Brammer CapEx investment with strong operational cash flow performance. And as a result, our free cash flow estimate for the full year continues to be approximately $4.1 billion.

We assume we'll return approximately $300 million of capital to shareholders this year through dividends, no change from previous guidance. And we estimate that the full year average diluted shares will be approximately 404 million, an increase of 1 million from our prior guidance. And finally, a few comments on quarterly phasing for the year.

Our expectation for the level of organic revenue growth in Q2, Q3 and Q4 is unchanged from our prior guidance. In terms of adjusted EPS, for the remaining 9 months of the year, we expect that it'll be phased across those 9 months in a similar way to the same period in 2018.

So in summary, we started the year with an excellent Q1, and we're in a great position to achieve our goals for the year. With that, I'll turn the call back over to Ken..

Thanks, Stephen. Operator, we're now ready to take questions..

[Operator Instructions]. Your first question comes from the line of Ross Muken from Evercore ISI..

Congrats. So coming off of some peer commentary yesterday, to see your China business up, obviously, a pretty remarkable sort of print. I guess, as you think about sort of the moving parts in China, obviously, we know about the huge push right now on the innovative biotech side.

But obviously, we're seeing some peers call out generics and food and some of the other areas. It seemed like based on your mix, much of your end markets, maybe ex academic, were strong. And I don't know if that holds true for China.

So maybe a little bit of sector commentary on China would be helpful to start, because obviously, this has been a -- just a remarkable run you had, where that business has put up 20% now for quite some time..

Ross, thank you for the question. So I was in China in early April. I spent some time with our team, government and customers. We had a very good quarter. We had bookings that were stronger than revenue, and it was broad-based in terms of the momentum. So we really didn't see any headwinds in the Chinese end markets.

So we had a good quarter in the academic and government sector. Industrial was fine. Pharma and biotech was fine, and we had smaller exposure in that market, to diagnostics and health care, but that was also okay, too. So we didn't see any challenges, and the teams got a lot of momentum and super excited for the future.

I have to say, spending some time with some of the biotech customers in the market, the growth there looks like it's going to have very long -- a long cycle ahead of us, a very positive environment..

Helpful. And maybe quickly on Brammer. Obviously, not a huge revenue base comparative to your overall, but a super exciting business. You sort of bring unique capabilities to that market. Maybe just give us a bit of a feel in general about how you think sort of the gene therapy and sort of the bioproduction side of that is going to evolve.

And how you guys could theoretically, over time, kind of help with some of the logistical and manufacturing challenges that, that market currently faces?.

Ross, the gene therapy area is one that our customers broadly are very excited about, investing significantly and have been asking us for help. We already have a reasonable exposure with our biosciences and bioproduction business in serving that customer base.

And one of the things that we consistently heard was the need to have the right development partners. And we looked at the landscape and Brammer as the industry leader and the very broad set of capabilities they have in viral vectors gave us the confidence and that's the right platform to build off of.

The interesting thing is, the big opportunity in gene therapy is actually going through the whole ramping-up process, where regulatory expertise and scaling the production is new to that segment and something we have quite a bit of experience base across our pharma services business. So we're going to use our regulatory expertise.

We're very excited about serving the industry with an exquisite set of capabilities. So we look forward to closing that acquisition this quarter..

And your next question comes from the line of Tycho Peterson from JPMorgan..

Marc, I apologize. I'm going to ask another question on Brammer. You've got a couple of early customers here with Sarepta, Voyager and Sangamo. Just curious as we think about customer diversification over time, how you think about the pipeline.

If you're willing to comment on how much the $250 million in revenue this year is already contracted? And then we've heard from some of your peers in that space that you can actually charge fees on capacity that's reserved but not used.

So I'm curious about whether pricing opportunities in that space may be a little bit different than we see with some of the other manufacturing businesses. And then lastly, if you could just talk about the EBITDA margin potential for that business? I know it's low 20s. I think some of the pure businesses are kind of high 20s with mid-30s target.

So just curious how you think about the margin opportunity to come..

Yes. So Tycho, in terms of the customer mix, there's a number of customers, a few have been publicly announced by Brammer over the years and others are confidential. So that's a good mix of customers. And even within the customers, there's a good mix of programs. So you have diversification.

Because not every program is going to be successful, ultimately, so it has a nice mix. The interesting thing is because of the capacity expansion that we're excited about and the customer relationships we have, that's going to diversify that base of customers further over time. So that's very good.

Yes, because there is pricing -- the pricing in the short term in this market is attractive because there's a real shortage of capacity. So there are -- many contracts have reservation fees associated with it, and that helps with the industry economics. But as the industry scales, you get the economic benefits from the scale leverage.

And therefore, as capacity comes online, the economics improve further because of scale. And then finally, in terms of our outlook. For this, margins are a little below the company average right now and where we see significant opportunity to be accretive to our margins over time..

Okay. And then maybe just as a follow up. Sticking with the biomanufacturing piece, obviously, you announced the Patheon capacity expansion there as well.

Has your view on Patheon revenue synergies changed at all? And how is the Advanced Bioprocessing acquisition kind of fitting into that part of the equation?.

Yes. So Advanced Bioprocessing, we closed in October. That was a bolt-on acquisition within our bioproduction business on the product side. This is off to a really good start. Revenue's been good. Earnings are good. And Stephen, I'd say, I think in January, it's $0.04 to $0.05 of accretion this year. So that's really going quite well.

In terms of the -- within our own network within bioproduction -- the biologics portion, we continue to expand the network because the demand is very, very strong. The Celltrion capacity expansions that we just announced is based on the fact that we have customers that have expressed interest for utilizing that capacity as it comes on line.

So we're off to a good start. And from a revenue synergy perspective, it's going well. And ultimately, we see the business, which historically was kind of a mid- to high single-digit growth business, we'll transition into that business..

Your next question comes from the line of Doug Schenkel from Cowen..

So Marc, just a quick follow-up on China. You entered the year assuming China would grow mid-teens. I think that was the assumption embedded into guidance. You grew north of 20% in the first quarter.

Should we now expect better than mid-teens growth for China for the full year? Or should we still be maintaining the same assumption given comps do get a bit more difficult over the balance of the year?.

Yes. So the way we did the outlook for the year as a whole, Doug, is we banked the operational performance in Q1 over -- that was higher than the guidance, both on revenue and operationally. And assumed that the remaining 3 quarters were as we had guided originally back in January.

So actually, haven't done the math on the -- China in my head, but we assumed mid-teens-type growth for the year. We, obviously, did over 20% in Q1. So that's going to take it to probably strong mid-teens to low high teens. I haven't done the math, but we haven't change the outlook for the next three quarters relative to our January guidance..

Okay, that's helpful. On the capital deployment side, by our estimates, you still have more than $10 billion of M&A capacity over the next year, and that's factoring in Brammer and that's just with cash. If you take in the possibility of using equity, your capacity likely doubles by our math.

How are you thinking about the M&A criteria today given where valuations are? And given most of your recent acquisitions, including Patheon, Brammer and Advanced Bioprocessing were all in the CDMO or bioprocessing market, I'm just wondering whether that means it's more likely you're going to do more of these, especially given the fragmentation and rapid growth of the CDMO market.

Or if there's actually a prioritization to look in some other areas?.

Yes. So we have substantial capacity. The first thing is our #1 priority is to run the business we have and do a great job with it, right? And that's what we do everyday we wake up.

And then we have used the same M&A criteria for the last 17, 18 years, which is, will the transaction strengthen the company strategically? Will it be valued by our customers? And ultimately, will it create shareholder value as measured by the returns on invested capital that we have, right? So when I look at the environment, we are an incredibly fragmented industry.

Our pipeline is very robust. So we're very active and looking. But we only do the transactions that we feel are really going to be great transactions, right? And so it's very hard to predict which ones will go through, and we're looking across all portfolios. So I wouldn't over read that it's all biologics or bioproduction based.

I think part of it is, we took advantage of the opportunity as BD was selling a noncore asset and Brammer, really, was looking for a real boost in expansion capital. So situations led to those transactions, but you'll see us look across the portfolio. And those that are good, we'll do..

Your next question comes from the line of Jack Meehan from Barclays..

I was hoping we could turn to the Analytical Instruments Segment.

And could you please give us an update on the growth of FEI and just have backlog shaping up across life sciences versus material sciences and semi?.

Yes. So in terms of the Analytical Instruments business, all 3 of our businesses had good quarters with strong growth. Material sciences, which includes the electron microscopy and our molecular spectroscopy, had good growth in the quarter.

In terms of the segments you have -- the material science segment, which includes semiconductor, batteries, advanced materials and academic research, you also have the life sciences sector, primarily structural biology. Revenue growth was good in both of those sectors.

As you know, we are expecting slower growth in the second half because we have more challenging comparisons in the materials science sector -- portion of that product portfolio going forward. So we're expecting, as we originally guided, that the second half will be slower than the growth that we delivered in the first quarter..

Great. And then, I guess, looking at Europe, you called out some more muted conditions on the academic side there. I was curious regionally what you were seeing. And then I know industrial and applied overall grew high single digits.

But was there any change regionally in Europe in those end markets that you saw?.

Europe, actually, in aggregate was a good. We had good growth in the quarter. And that really ran across 3 of the 4 end markets, industrial and applied, health care and diagnostics and pharma and biotech. We saw more muted conditions in Europe.

So -- and geographically, probably Germany was an area where -- a little bit more muted on the release of funds, but other than that....

On the academic and government....

On academic and government. So Europe, as a whole was fine, right? It was actually -- it was very solid growth, but I called it out just because academic and government in that region was a little bit softer than we had seen recently..

And your next question comes from the line of Dan Leonard from Deutsche Bank..

So first off, appreciate the commentary on margins in the LPS segment.

How do you view the trajectory there? And what would put that business back on a margin expansion trajectory? Is that primarily the contract manufacturing business?.

So Dan, this is Stephen. I'll take that one. So when I think about margins for LPS, yes, expansion in that segment is -- long term, it's going to be driven by the pharma services business. As we outlined in the original guide, we're investing in that businesses where we're preparing for the ramp in growth.

It's been driving revenue synergies and putting investments in place on sterile on the biologics side. So more muted this year, but good long-term growth prospects in terms of margin expansion going forward there..

Okay. And then my follow-up. Marc, there was a bioprocessing product acquisition that traded away from you this quarter.

Can you remind us how you're viewing the opportunities to incrementally expand your offering on the bioprocessing product front? And do you feel yourself -- do you see opportunities in areas where there's reasonable concentration amongst only a few players? Is there an opportunity for Thermo to participate?.

Yes, Dan. We have been building our position methodically in the bioproduction business over time. It actually started with the acquisition of Life Technologies, where we went from being a strong player in single-use technologies to becoming a leader in cell culture media.

We then have done a series of transactions to strengthen our offering, whether it was ASI, adding the controller technologies from Finesse, acquiring BD's business. So we look on the parts of our portfolio where we can build on our strengths and generate strong returns. We're very disciplined about the return profiles on M&A.

So you have to think about that in terms of which opportunities make sense. And we'll continue to look at things, and if we see the right opportunities, you'll see us do more..

Your next question comes from the line of Patrick Donnelly from Goldman Sachs..

Great. Maybe, Marc, just on the industrial, applied market, nice to see you guys be able to put up high single-digit growth against a pretty tough high single-digit comp.

Can you just talk about the strength there and the durability going forward? Which pockets you're really seeing some strength?.

Yes. So we were expecting a strong start to the year in industrial and applied, because, obviously, there's some visibility from how the year ended within our bookings. So we grew high single-digit growth in the quarter. And that strength, we saw it in chromatography and mass spectrometry.

We saw it in chemical analysis, and we saw it in electron microscopy. And what we're assuming is that going in the second half of the year is going to be a little bit softer given the more challenging comparisons. So that's kind of the view on that market..

Okay, and then as we approach the Analyst Day next month, you guys are coming off an 8% growth year, 7% growth quarter here. You have that 4% to 6% long-term guide out there.

Can you just help us put that perspective as you kind of plan ahead of the Analyst Day? What your thoughts are in terms of where we are currently versus that long-term growth rate?.

Yes. As I was looking at the calendar, and the best day of the year is coming up. It's May 22 in New York City as my team there always smiles. So I can't wait to get in front of each of you and the investment community. And I know that Stephen will be talking about the three year model and our long-term outlook as part of that.

So we'll clearly be a good topic of discussion back at that point in time..

And your next question comes from the line of Dan Brennan from UBS..

Great. Congrats on the quarter. I just wanted to start with biopharma. Obviously, another really robust quarter.

Marc, can you just point to whether regionally, were there any big deviations there? And can you maybe point out where the strength came from within your businesses? And then related to that, you cited share gains, so would be interested in some color on kind of where you're seeing the most share gains and the opportunity..

Yes, Dan. Thanks for the question. When I look at the pharma biotech end market, the market is very strong. We grew in the double digits. And when I think about the business lines, we saw strength across really the portfolio.

Bioproduction, chroma mass spec, our research and safety channel and our pharma services business all had excellent quarters in terms of growth. So broad-based strength as we have been seeing for quite some time. Geographically, it was good across the markets.

I was looking at that and, we didn't see any anomalies in any of the regions, so very strong geographically. And I think part of it is that science is good, funding is good, but we're clearly gaining share. Our value proposition is truly unique in terms of how we help our customers be more innovative and productive.

And we have very incredibly strong commercial reach that gives us access to those customers. And the scale of the relationship gives us unique access to each of the customers as well. So that combination has sustained very strong performance for quite some time..

Great. And then may be related to that, Marc, you highlighted in China the excitement over kind of future biotech growth there.

Can you just elaborate on that a bit? Is that the push for China to be more therapeutically-oriented or can be branded-oriented? So maybe just some color between what your business looks like today in biopharma in China and what it can look like going forward?.

Yes. So five years ago, roughly, when we were thinking about the industry in China from a biotech and pharmaceutical perspective, it was a blend of generic manufacturing on the pharma side and traditional Chinese medicine.

Over the last 5 years, there really has been an explosion of growth, interest and new company formation on the biotech side in addition to the small molecule and traditional Chinese medicine, and that continues to look very bright in terms of the outlook.

And because many of the customers have worked outside of China, they're very familiar with our capabilities. And the companies that are setting up, they are standardizing on our technologies. It's really an exciting opportunity, and we're doing very well..

Your next question comes from the line of Derik De Bruin from Bank of America Merrill Lynch..

This is Mike Ryskin on for Derik actually. You touched on Europe previously, but I want to follow up a little bit specifically on Brexit. It doesn't sound like you've seen any impact in the U.K. or in Northern Europe as the negotiations are ongoing.

But I just want to see what your thoughts are and what's embedded in the guidance as we move through the year. That's been an area kind of focus recently as a potential cause of concern. So I want to see how you're thinking about that..

Yes. In terms of Brexit, U.K. continues to be -- it's a small market, but the conditions were fine. We did a lot of preparation work really effectively last week. And obviously, that's been kicked down the can for a while.

So we're prepared should that happen but it doesn't seem to be flowing in any material way, positively or negatively, towards our business in terms of market conditions..

All right. And then a quick follow-up. Could you give us an update on some of the other capital deployment events that are expected in 2Q? The divestment of Anatomical Pathology in terms of timing and then also an update on Gatan..

Sure. So we expect in Q2 to close the divestiture of the Anatomical Pathology business. We did clear all of the regulatory events that we need to clear, and now we're just working with the acquirer on all the closing conditions on that contract. We also expect, as Stephen said, to close the Brammer acquisition in Q2.

In terms of Gatan, we are, as well as Roper Technologies, have been working with the U.K. Competition and Markets Authority to come to a reasonable resolution, and it's been challenging. We expect to get their final decision by the end of Q2. So that's where we are with Gatan..

Your next question comes from the line of Steve Willoughby from Cleveland Research..

A couple of guidance questions for you. First, Stephen, I believe you said that you beat your first quarter expectations at the midpoint by $0.08, but then in the earnings bridge for the full year, you're only attributing $0.04, really to the first quarter beat, so just wondering on that.

And then secondly, operating margin were up 40 bps here in the first quarter. You're going against more difficult organic growth comps in the remainder of the year. So we'd expect organic growth to slow.

Just wondering, in terms of margin expansion, what gets margin expansion greater with what's believed to be slower organic growth the rest of the year..

Yes. So Steve, in terms of the $0.08 in Q1, $0.03 of that was timing of tax, which kind of unwinds each quarter as you go out in Q2 to Q4. That's $0.03 of the difference, and then $0.01 was FX. And the way that rates changed, we actually had a below-the-line FX benefit versus the original guide, which was a positive $0.01 in Q1.

And then as we look at the rest of the year, Q3 and 4, it's $0.04 more adverse FX pull-through on the revenue. The net for the year is a $0.03 change for FX. So -- but the $0.04 operational carries forward to the full year. So that's kind of bridges you the $0.08 to the $0.04.

And then on the 40 basis points for the quarter, just as a reminder, that included the headwind from FX and from gross tariffs as well. It's about 20 basis points of headwind that we offset and still delivered the 40 basis points. The tariff headwind declines as we go into the second half of the year, which is -- so that headwind goes away.

And then from an FX standpoint, it also lessens from a basis points standpoint and then this really comes down to the scale of revenue in Q4 as sizable. The timing of certain of our projects in terms of spend, that's helps with markets as well. And that gives you an idea of the margin profile for the rest of the year..

Your next question comes from the line of Sung Ji Nam from BTIG..

Just a couple of quick ones. Marc, could you -- just going back to Gatan, how critical is the asset for your cryo-EM business overall? Is it a nice asset to have? If you could comment on that? And then also Stephen, you talked about some strategic investments for Specialty Diagnostics.

And I don't mean to be nitpicking at this point, but given that segment is kind of a laggard in terms of top line growth, was curious as to where there are opportunities to potentially further accelerate growth for that segment..

Yes. So thanks for the question. So first, in terms of Gatan, we think it's a nice fit with our electron microscopy business, and we'll see whether that gets closed or not. We did sign a new long-term supply relationship with Gatan. So if it doesn't close, it has no negative impact on the strategic outlook for the electron microscopy business.

So that's a nonfactor. In terms of Specialty Diagnostics, the business is performing well and when I think about the growth in the first quarter, that includes powering through a reasonable level of flu headwind and still delivering solid mid-single-digit growth in the quarter.

And we're making good progress on the product development programs that we have, and that should benefit growth in the midterm..

Your next question comes from the line of Paul Knight from Janney Capital Markets..

Marc, if you look and you see the customers tone and think about organic growth in the industry and the financing that's going on in the industry as well, what's your visibility on the current organic guidance? Do you think it's a multiyear look? Or is it this year's look? What are your thoughts on that?.

Yes. So when I look at the outlook for the market, absent a macro recession -- and if I'm looking to see the life science tools and diagnostics fundamentals, they look very strong. You're seeing excitement in pharma and biotech in terms of the science and the investments that support it.

You see it in funding going to biotech, you see that looking very good. If you look at the commitments around the world to academic and governments, especially on the academic side globally, there is a big commitments to NIH in the U.S., there's a real excitement in the U.K.

about kind of a post-Brexit world, a new Horizon program in Europe, and China continues to have a 5-year plan that gives the outlook there that looks robust.

So if you go there, diagnostics and health care continues to have a bright outlook because, really, the only way you can control medical costs is to get accurate diagnosis, so you're spending the right money on things that actually benefit patients. So when you look at the fundamentals, super positive in our industry.

And I saw when the recession came out, look at the -- what's going on in our business looks great. We don't see any recessionary factors. But at some point over the next, who knows, 5 years, you never can predict, there'll be some slowdown in economic growth.

And the great thing about life science tools and diagnostics is our industry performs great in a recession. It's incredibly low exposure to the volatility that other sectors have. So we're bullish about the outlook in our industry..

And then lastly, Marc, I know your IT infrastructure, your distribution channel of selling product has been one of your great advantages over the last several years.

Is your CapEx -- I mean, how do you maintain a barrier and keep that advantage in the market? And specifically, is it requiring more CapEx? Or is the pace of CapEx and investment there the same or not?.

Yes. So we create a fantastic e-commerce and e-business experience for our customers. And we have invested substantially historically to build a leading platform that created that advantage.

And that we continue to invest to maintain and build our lead, which we are investing at a lower rate than what we had historically because effectively, we have that leading platform. So yes, we continue to add new capabilities. And if you go to our Fisher site or thermofisher.com, you see how strong those experiences are.

And we'll continue to invest to make sure that we maintain our own..

Operator, we're going to end it right there. We're just about out of time..

So let me just wrap up by summarizing that we're off to a strong start. We're on track to deliver another outstanding year. And as always, thank you for your ongoing support of Thermo Fisher Scientific. Thanks, everyone..

This concludes today's conference call. Thank you for your participation and you may now disconnect. Have a great day..