Good morning, ladies and gentlemen and welcome to the Thermo Fisher Scientific 2022 Third Quarter Conference Call. [Operator Instructions] I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the 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 website, thermofisher.com, under the heading News and Events until November 11, 2022. A copy of the press release of our third quarter 2022 earnings is available in the Investors section of our website under the heading Financials.

So before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may make about the company’s future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials SEC filings.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Also, during this call, we will be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles, or GAAP.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our third quarter 2022 earnings and also in the Investors section of our website under the heading Financials. So with that, I will now turn over the call to Marc..

developing high-impact innovative new products, leveraging our scale in the high-growth and emerging markets, and delivering a unique value proposition to our customers. Let me start with innovation. Our focus on high-impact innovation enables our customers to address some of the world’s greatest challenges.

We further strengthened our position in Q3 and I’d like to give you just a few highlights. During the quarter, we advanced our industry-leading Thermo Scientific Orbitrap portfolio, launching the Orbitrap Ascend Tribrid mass spectrometer during the International Mass Spectrometry Conference.

This instrument provides faster, more sensitive sample analysis for proteomics and metabolomics research and insights into clinically relevant biomarkers implicated in cancer. In electron microscopy, we introduced the Thermo Scientific Arctis Cryo-Plasma Focused Ion Beam, an automated microscope that streamlines cryoelectron tomography.

This instrument will help provide more insights into how proteins and other molecules operate within cells, enabling breakthroughs in treatments for infectious diseases and neurogenerative disorders. We also continue to advance our clinical next-gen sequencing portfolio to help our customers better understand, diagnose and treat cancer.

We recently launched the Oncomine Dx Express Test and Oncomine Reporter Dx software, a precision medicine offering which detects genomic abnormalities in tumor samples and helps match cancer patients with approved therapies and clinical trials.

These products recently received CE-IVD certification and are designed to run on our Ion Torrent Genexus next-generation sequencing system, allowing doctors to use NGS technology to improve care by bringing the power of precision medicine closer to patients. Another key pillar of our growth strategy is our customer value proposition.

It’s all about leveraging the incredible capabilities we have across our company and delivering them in a way that enables our customers to achieve their own goals for innovation and productivity and that makes it rational for them to do more business with us. The accelerated investments we have made over the past couple of years are driving growth.

This is particularly true for our pharma and biotech customers, where we continue to build on our trusted partner status as we bring our new capacity and capabilities online to meet the strong demand for our products and services. Let me share a couple of examples.

During the quarter, we opened a purification technologies facility in Chelmsford, Massachusetts. This site will manufacture resin beads used in the production of biologics. As you know, we have a rapidly growing purification business, which is highly valued by our customers. This new facility will ensure we can meet their increasing demand.

We also continue to strengthen our global pharma services network, adding viral vector manufacturing capabilities in Plainville, Massachusetts. I joined the opening of this facility and it was a terrific event.

We had significant attendance from our customers and we were able to showcase the various ways in which our team can support their cell and gene therapy programs.

The facility also utilizes and showcases our industry-leading single-use bioprocessing technologies and analytical instruments, which demonstrates to our pharma and biotech customers the uniqueness of our capabilities and how they can best utilize in bringing new medicines to market.

So, these are just a couple of examples that demonstrate how we are continuing to build our trusted partner status and further strengthen our unique customer value proposition. Our pharma biotech customers are capitalizing on this, which also includes PPD, our clinical research business. I will cover that later in my remarks.

Before turning to an update on capital deployment, I thought I’d briefly reflect on the impact of our growth strategy in 2022. As you know, the actions we have taken over the last 2 years have allowed us to meaningfully accelerate our organic growth and position us to continue our long-term industry leading performance.

The product launches this year have been truly outstanding and the pipeline, it looks fantastic. The new capabilities that we have invested in have meaningfully strengthened our unique customer value proposition and our customers are continuing to expand their relationship with us. All of this is enabling us to deliver industry leading core growth.

Let me give you a brief update on capital deployment. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders. The acquisition of PPD is a great example of how our capital deployment strategy is creating customer and shareholder value.

The business is performing incredibly well, delivering high-teens core revenue growth in the quarter. The combination of a great business and a smooth integration is driving excellent financial performance.

In addition, our customers are excited by the capabilities we have to support their clinical trial needs and that is translating into meaningful revenue synergies for an even brighter future. All of this is enabling us to drive short and long-term returns on the acquisition that are well ahead of the deal model.

Let me spend a moment on our PPI Business System, which helps us continually improve the customer experience, quality, productivity in our company overall. The goal of PPI is to find a better way everyday. This is an essential element of our company culture. In dynamic times, we really see the strength of our PPI Business System.

As you know, it was applied with incredible impact to allow us to lead the response to the pandemic. And today, it’s applied to solve supply chain challenges, increase efficiency and helps our teams find better ways to offset inflation. It also enhances our ability to unlock the value creation in our acquisitions.

Our experienced management team, along with the benefit of our scale and our PPI Business System, uniquely position the company to successfully navigate through whatever macroeconomic conditions come our way.

So overall, it was another fantastic quarter, thanks to great execution by our teams, the strength of our proven growth strategy and the power of our PPI Business System. Turning to our progress on our environmental, social and governance priorities.

During the quarter, we continued to make great progress on our goal to reduce our carbon footprint, announcing an agreement with Enel North America to purchase wind power renewable electricity equal to half of our U.S. electricity needs. This agreement will significantly advance our ambitious emissions reduction strategy.

I am also very pleased that we have achieved our 2020 commitment to hire 500 graduates from the historically black colleges and universities, supporting our commitment to diversity and inclusion and increasing our positive social impact, so another strong quarter in progressing our ESG priorities.

Now, I’d like to review our updated 2022 guidance at a high level and then Steve will take you through the details. We are raising our full year guidance. We are increasing our revenue guidance by $650 million to $43.8 billion, which would result in 12% reported revenue growth over 2021.

And we are raising our 2022 adjusted EPS guidance by $0.08 to $23.01 per share. The higher outlook primarily reflects the strength of our core business and a modest impact of additional COVID-19 testing.

These are more than offsetting the increased foreign exchange headwinds and demonstrate how well we are operating with speed at scale to enable our customer success. In addition, our guidance reflects the decision to help our colleagues with the temporary impact of inflation.

We will be making a one-time payment of approximately one week’s additional salary to non-executive colleagues. So to summarize our key takeaways in the third quarter, our outstanding results in Q3 and year-to-date reflect our team’s excellent execution, the benefits of our proven growth strategy and the positive impact of our PPI Business System.

Our business is performing very well and markets continue to be strong. We are gaining market share. We are seeing the benefits of our accelerated investments in innovative new products and enhanced capabilities and capacity.

In addition, our clinical research business has delivered excellent results and customers are valuing the benefit of our expanded offering. And our experienced management team, the benefits of our scale and our PPI Business System uniquely position us to continue to navigate the dynamic times we are living in.

All of this has enabled us to raise our outlook for 2022 again and further solidify our incredibly bright future. With that, I will now hand the call over to our CFO, Stephen Williamson.

Stephen?.

an increase of just over $600 million in the outlook for the core business, an increase of just over $200 million for COVID-19 testing revenue and a $200 million decrease to reflect the recent changes in FX rates.

From a core organic revenue perspective, the strength of our performance is enabling us to raise our full year core organic revenue growth outlook from 11% to 12%, and there is no change in the assumptions for core organic revenue growth in the fourth quarter. Turning to COVID-19 testing revenue.

We now expect $2.8 billion of testing revenue for the year, which includes the assumption of an endemic run rate level of $100 million per quarter in Q4. Our Q4 testing assumption has not changed from our previous guidance.

In terms of adjusted EPS, the $0.08 raise for the year consists of $0.54 of operational beat in Q3, partially offset by the decision to pay $180 million or $0.36 of additional one-time colleague compensation. And half of this is accrued in Q3, and the remainder will be in Q4.

The full year guidance change also incorporates $0.10 lower EPS in Q4 for the additional FX headwind in the quarter and the revised phasing of our tax rate. All of this is enabling us to raise the 2022 adjusted EPS guidance by $0.08 from $22.93 to $23.01, further improving a very strong outlook for the year.

From a margin standpoint, we now expect the full year 2022 adjusted operating margin to be 24.9%. To help you with your modeling, I think it’s worth spending a moment on the impact of the inflationary environment on the company’s financial profile.

During the year, we’ve been very effective in passing on higher price to offset higher-than-normal inflation. This results in no net impact on our adjusted operating income dollars as we’re effectively offsetting the added inflation, but it does affect the calculation of margins because of the revenue base being higher.

The impact on margins for the full year from this dynamic is about 60 basis points, but again, no net impact on adjusted operating income or adjusted EPS. So now let me provide you with some additional details on the updated 2022 guidance.

PPD, our clinical research business, is expected to deliver $6.8 billion of revenue in 2022, which represents 14% core organic revenue growth on a full year basis for this business. We now expect the business to contribute $2.03 to adjusted EPS in the year, up $0.03 from our prior guidance.

In terms of FX, we’ve incorporated current rates into our guidance, and we now expect FX to be a year-over-year headwind of $1.46 billion on revenue or 3.7%. The FX headwind on adjusted EPS in 2022 is now expected to be $0.77 for the full year or 3.1%.

Should FX rates stay the same as they are right now, we estimate the impact on FX in 2023 would be a year-over-year headwind of approximately $1 billion on revenue and $0.75 on adjusted EPS. Our guidance now assumes net interest expense of approximately $440 million in 2022.

We continue to assume an adjusted income tax rate of 13.2% in 2022, which includes a 13.6% tax rate in Q4. We now expect net capital expenditures of approximately $2.3 billion to $2.5 billion. For free cash flow, we see $7 billion at the high end of the range of outcomes for the year.

The actual free cash flow will depend on the year-end level of working capital. Our guidance still assumes $2.5 billion of capital deployment, which is the $2 billion of share buybacks that we completed in January and $475 million of capital returned to shareholders through dividends.

Our guidance also continues to assume the full year average diluted share count will be between 394 million and 395 million shares. And to conclude, we delivered another excellent quarter in Q3. We’re in a great position to achieve our 2022 goals. With that, I’ll turn the call back over to Raf..

Thank you, Stephen. Operator, we’re ready for the Q&A portion of the call..

Thank you. [Operator Instructions] Our first question today comes from Jack Meehan with Nephron Research. Jack, please go ahead..

Thank you. Good morning. So the big debate of the last week has been bioprocessing ordering and stocking trends. Marc, I was curious if you’ve seen any normalization of ordering patterns from your customers.

The quarterly growth, obviously strong, but how do you handicap the risk we could have an air pocket as COVID gets handed off to the quarter?.

Jack, thanks for the question. So probably best to start one level up, and then I’ll get to the details of it, right? When I think about pharma and biotech more broadly, right, it’s our largest end market, represents about 60% of our business performing incredibly well, right? Mid-teens growth this quarter, mid-teens growth year-to-date.

And that growth number actually doesn’t include PPD, right, which is actually growing in the quarter, grew faster, right? So very strong, it’s broad-based. Customer demand continues to be strong across the portfolio. All our businesses are performing very nicely. The long-term trends look very positive.

And when I think back and I think because we live in a moment, if you go back the last 5 years, it actually averaged for this whole segment mid-teens growth, right? So it’s not this year or this quarter. It’s really been a long-term trend long before COVID, right? So very, very strong.

Now so what’s going on in bioproduction, right? There is obviously been a lot of commentary over the last week on the topic. And as a reminder, we have a leading presence to cell culture media, single-use technologies and actually quite a rapidly growing purification business. In aggregate, it’s less than 10% of our total revenue.

It’s an awesome business, right? They performed very well in the quarter. It grew faster than the pharma and biotech average. The dynamics are very good, and we’re very well positioned to deliver great growth going forward in serving our customer base..

Great. And then if you’ll humor me, it’s that time of year, everyone is thinking about 2023. So you sound very confident about your ability to outperform the market. But of course, the question is, how do you feel like the market is going to grow? So if you could just talk about how you’re feeling about the healthy end markets.

And any color you care to share around where you think you could land versus the 7% to 9% CAGR you’ve laid out through 2025?.

What I would say is if I think about where we are and think about the third quarter, right, it was a terrific quarter. If you look at the strength, right, that we had in terms of our core growth it’s really broad-based, right? And you look at it and you say, alright, pharma and biotech that grew in the mid-teens.

Industrial and applied, that grew in the high teens. Academic and government grew in the mid-single digits. And the core in healthcare and diagnostics, which is the indicator of what’s going on in that end market, that actually was a mid-single-digit growth as well. So it’s really very strong. So I like where we are at the 9 months.

And in terms of exactly how we will be in ‘23, we will obviously talk about that in January in terms of what the outlook is. But certainly, at this point in the year, our end markets are strong, and our company’s performance has been exceptional..

Appreciate it. Thank you..

Thank you for your question. Our next question comes from Derik De Bruin with Bank of America. Derik, please go ahead..

Hi, good morning..

Good morning, Derik..

So to follow-up on Jack’s question just because I’m getting yelled at by investors. Can you talk a little bit more about the – just some of the impressions on ‘23? I think particularly, they just focus on margins, given how – sort of given how FX trends are going.

I mean, it looks like, what, about a 4% FX to the top line next year and $0.75 on the bottom line.

So is that – sort of should we think about if you’re thinking about that 7% to 9%, maybe sort of in the 3%, 4% organic range all in next year, given the FX headwinds? And then just sort of talk a little bit more about like the margin setup for next year?.

So I’ll start, and I’m sure Stephen will chime in as well.

So obviously, at a high level, we will get into this in January, right? Why do we do January is we will have the benefit of two things, which is where was the exact finish to the year, what’s our jumping-off point? And second, what is the most close in view of the macro environment, right? So we will see how that plays out in January.

But – excuse me. So if I go through the components, right? Obviously, the company is performing at an incredibly strong level. So that was very encouraging. As Stephen outlined, it will be a headwind that could change, obviously. But right now, we gave you that number so that you can at least update the models to reflect what current FX range rates are.

And that’s about $1 billion of revenue headwind and about $0.75 of adjusted EPS. The second one that I think is important, and it’s an assumption, which is we’re assuming in the fourth quarter that we’re at an endemic level of COVID-19 testing. So that’s $100 million of revenue in the quarter.

And if that plays out in that way, then I think that’s a reasonable assumption per quarter for next year. So you’re going to have the view on the COVID runoff down to the endemic rate on testing. And from the rest of the perspective, the business is in really good shape.

And Stephen, you can comment on margins or anything else that I might have missed..

Yes. So Derik, we look forward to giving you full details in 3 months’ time in terms of the Q4 call. But think about the margin profile, there are different elements of the revenue, and think about how we model it in the long-term model for the company.

50 basis points of expansion on core essentially equates to about 30% pull-through on the margin profile and the revenue dollars increasing from a core standpoint. The FX headwind that we outlined on the call, that’s also roughly a 30% margin pull-through. And on testing, it’s a very profitable element of our business.

And we factor in appropriately addressing the variable costs and the non-repeat of some of the colleague compensation one-time that we did this year. That pull-through on testing is – no, just 10% margin higher than the core. So, that will help you with modeling in terms around your own assumptions around the organic growth and testing and FX.

And as I said, that’s all incorporated in the long-term model.

And then on the call, I called out that 60 basis points impact from the – added impact of added inflation and what we’re doing on pricing and managing the company well to offset the impacts of the added inflation as more revenue to the company and negate the impact of the additional inflation. So, no net impact on operating income dollars.

So when I think about all of that wrapped up for our long-term financial model we gave you back in May, we’re on track to achieve or exceed the adjusted EPS target we put at that. We’re managing very well through the dynamic times. Look forward to giving more details in ‘23 on the next call..

Got it. Okay. I’m still getting a bunch of questions from investors, but we will follow-up with it. But two other questions, just on this one.

I guess are you still seeing like for like the $1.5 billion in COVID vaccines for this year? And just obviously some of the semiconductor companies have been hitting their CapEx numbers or cutting their CapEx numbers. Does that have any sort of like impact on sort of like your view on FEI and the instrument outlook? Thank you..

Yes. So Derik, in terms of vaccines and therapies, as a reminder, we said we would expect to do in our core revenue about $1.5 billion this year. We did just under $400 million in Q3. That brings the year-to-date to $1.3 billion and on track to achieve or exceed the $1.5 billion. So I feel good about that.

Our – as a reminder, on electron microscopy, it’s not correlated to the CapEx spend. It’s correlated to R&D and new nodes and that business is performing incredibly well in terms of growth, with bookings all of the different metrics really doing incredibly well. Thank you, Derik..

Our next question comes from Patrick Donnelly with Citi. Please go ahead. Your line is open..

Hey, guys. Thanks for the questions. Marc, maybe one just kind of following up on that stocking piece, I know you’ve previously talked about Thermo, you guys are involved in a lot of the purchasing decisions of customers, have employees in the room. And you had previously seen some repurposing of the vaccine orders for other trial work as expected.

So just, I guess, wondering specifically on the bioprocessing side kind of what your visibility is there? What you are seeing on stocking, and at times you said, if anything, maybe the inventory is actually running lean because you guys were capacity constrained.

So I’m just wondering kind of an update on that front?.

Yes. So Patrick, thanks for the question and a follow-up on that. So if I think about inventory, right, and I read some of the Q&A that happened last week. And somehow that translated into our own share price, which is a little bit of a head scratcher to me. If you think about inventory levels, right, I guess I always start at the high level.

Three of our businesses, which are a large portion of the company, literally have nothing to do with inventory at all, right, which is pharma services, our clinical research business and our analytical instrument business has nothing to do with inventory. So I think it’s important to remember that.

The second, when you get down to the businesses that do have inventory levels, some of which we hold, some of which our customers hold, we do have really good visibility into it. And we help our customers appropriately manage those levels of inventory.

I feel good about the position that we’re in, alright? And for the couple of customers that might have COVID-related things, I’m sure that they purchased a bit more because they had a high range of demand volatility that they were managing. But in terms of our bioproduction business, it grew well faster than pharma and biotech.

The outlook is really strong, and I feel very well positioned going forward..

Okay. That’s helpful. And then, Stephen, I know you talked a little bit about the pricing dynamic kind of offsetting the inflation this year. It’s obviously been a higher number, as you all know.

How are you thinking about the ‘23 piece on pricing? Again, what’s the expectation internally from Thermo on the inflation side? How are you going to kind of play the pricing side? Are you going to continue to raise as much? Is there a level where you kind of pull back a little bit and kind of value the customer relationships more? Maybe just talk through again the pricing piece.

I know it’s a little bit delicate with how high the inflation side is. So, be curious how you guys are thinking about that into next year. Thank you..

Yes. So, have a better view on inflation three months’ time, but we are effectively managing the dynamics now and expect to effectively manage them going forward. And this has been about pricing just if you can in an inflation environment.

It’s pricing appropriately, given the inflation dynamics and then bringing our customers along with us on that journey. So, I feel good about our ability to manage the dynamic going forward should the inflation levels remain at the elevated level..

And Patrick, the only thing I would add to that is when you think about how we describe the approach, right, we are not marking it up, right. We are driving substantial productivity. We are passing through an appropriate level of pricing to reflect real cost increase, and we are helping our customers through this period of time.

And that’s how we thought about it. And we think that’s the right thing, given the importance of Thermo Fisher to our customers. And we will do an appropriate level of pricing based on the environment in ‘23 as we get into..

Great. Thank you, guys..

Our next question comes from Vijay Kumar with Evercore ISI. Please go ahead, Vijay..

Hey guys. Thanks for taking my question and congrats on solid top line this morning. Marc, one on fiscal ‘23 again, I know the guidance, the formal guidance is in January. But I guess the question is, the 7% to 9% LRP that Thermo issued at the Analyst Day, that’s a CAGR. But there has been some nervousness that perhaps ‘23 could be below that range.

I mean the macro is the macro.

But ex macro in industrial, is there any sensitivity around these major drivers that would cause big deviation from the LRP range for ‘23 that we should be thinking about? Again, I am not asking for formal guidance, but any variables, qualitative comments we should be looking at?.

So, Vijay, thanks for the question. So, when I think about how do we think about growth, right, is 7% to 9%. And if you take the long-term model, right. So, I am not commenting on ‘23. I don’t make a comment there. But that’s industry-leading, right. I think folks forget that.

That’s – that number is higher than anybody else has committed to in the industry. So, I feel great about that. And of course, we are the biggest company, so which makes it super cool, right, in terms of what that says about share gain, right. So, I think that sometimes is forgotten. We are not constraining ourselves to 7% to 9%, right.

We are growing 12% this year, right. And the measure that we actually use is, are we doing a good job, right. I mean the 7% to 9% is assuming 4% to 6% market growth over the long period. The market growth is a little better than that. I feel great about our 12% performance.

When we sit here at the end of 2022, what we do know is that our business will have been larger as a starting off point than what we assumed in the long-term model. So, right there, we have had more core growth that will offset some of the transition from vaccines and therapies that move into the other parts of core. So, we are super well positioned.

And we will figure out is 7% to 9% the right number. That’s kind of our default unless something is radically different as a starting point to a year. And obviously, if the conditions are super robust, it could be higher than that. If we are in a gale-force recession, it could be lower than that, right.

But I think at this point in the year, the long-term is we are doing better on the top line. We are right on track on EPS and we are incredibly well positioned into 2023, and we will figure it out. And I don’t think we are going to surprise anybody, right.

We will all look at the macro and say, yes, those numbers make a ton of sense based on what the environment is as we sit here in January. And once again, we will be ambitious, and we will deliver great performance..

That’s helpful, Marc. Maybe one for Stephen here, on the impact from additional comp, and I understand there is some flow-through in Q4.

Stephen, when you think about ‘23, are you planning for any comp, incremental comp expenses to offset inflation for employees? Is that something that we should be considering?.

No, I think the dynamics that I outlined earlier on is going to pull through. The assumption there is that don’t repeat. We will figure out what the current situation is during the year and make the right calls and manage the company appropriately.

But when I think about that pull-through on the testing, that includes the non-repeat on those actions as well..

Thanks guys..

Our next question comes from Dan Brennan with Cowen. Please go ahead. Dan, your line is open..

Great. Thank you and thanks for taking the questions. Marc, I don’t want to jinx for jet, so I am going to refrain from making any comments or claims here. Maybe Marc and Steve, could you just walk us around the globe and your key end markets? I mean just speak to what extent you are seeing any impacts from the weakening global economy.

And if nothing really manifest in Q3, which doesn’t look like it has, are there any lead indicators like orders funnels, anything of that nature that might reflect some softening? Just – and then kind of connected to that, the fourth quarter guide does reflect a notable slowing on a stack comp basis.

And so I am wondering if that’s just conservatism or if that does incorporate some maybe risk from global macro?.

So, in terms of the macroeconomic environment, beyond the inflationary impacts, which we had explained, actually, our end markets have been very strong. As you know, I gave you the cut by the four kind of customer sets, actually geographically, no particular pattern that jumps out as a concern.

When you look at Europe, the core growth actually was 10% growth. So, Europe was actually strong. And it makes sense because you have a large pharma and biotech proportion of that. So, that was good. And our assumption is that in China, which will have a very good year and a good quarter, it’s probably slightly lower than the long-term historical view.

And that’s mostly the COVID policies there. So, we are always looking for is there something lurking, but right now, things remain strong. Fourth quarter, it’s the same assumptions that we have been using all year, which is we haven’t been adjusting our forward-looking quarters. We basically took the original quarters.

And as we delivered a strong quarter, we raised the full year based on what we delivered and have kept the convention for the upcoming quarters the same as what we had done in the past. That implies growth in line with the long-term organic outlook for the business. And obviously, we will deliver the strongest possible growth that we can.

We will just see how the quarter plays out..

Great. Thanks for that. And then maybe just as a follow-up, just on instruments. Instrument demand at Thermo across the group has been kind of very strong for a period of time. AI had another good quarter. Just wondering kind of what you are seeing on that front, and kind of what do you think about as you look ahead.

While I am not guiding for ‘23, kind of is the instrument underlying strength sustainable? Just any color macro-wise and company-specific initiatives. Thanks..

Yes. Thanks for the question. And the instruments business is performing really well, continuing the trend. It’s great to have the growth rates that we delivered in terms of mid-teens organic growth in the quarter and which is terrific. Bookings were very strong. So, the outlook remains very good.

Very impressed with how our chromatography and mass spectrometry business did. It’s our fastest-growing business in the quarter and great growth in our electron microscopy and really good performance in chemical analysis. So, actually, the business strength is widespread and broad-based. So, it looks very good as we are finishing up the year..

Our next question comes from Rachel Vatnsdal with JPMorgan. Please go ahead, Rachel..

Great. Thanks for taking the question. And so first up, on the manufacturing side, you have had a few peers that have had some quality concerns in recent quarters around that sterile fill and finish market.

So, can you just walk us through how that business performed for you in 3Q? And then do you think this really opens up any opportunity for share gains moving forward?.

So, Rachel, thanks for the question. When I think about our pharma services business, it was one of the highlights for performance in the quarter. It’s been a good growth driver for the company. Customers are driving towards more outsourcing. The smaller companies have less manufacturing and development capabilities in-house.

So, the secular trends here are fantastic. We have an industry-leading position. We have been investing in new capabilities, strengthening quality systems, capacity, infrastructure, all of those things to position it well. And it’s our job to do great work every day for our customers and focused on doing that really well.

And that’s what we are focused on, and it’s important that we do it. And we want to grow at a reasonable rate and just make sure that we are doing great work every day for our customers..

Thanks. And then as a follow-up to Dan’s question, just wanted to dig a little bit deeper into Europe. So, you mentioned that, that region was down 10% in the quarter, but you flagged that it was also impacted by that COVID testing comp.

So, can you walk us through how much of that 10% decline was due to FX and COVID roll off? And then are you seeing any shift in demand within that region just given the macro uncertainty there? Thanks..

Yes. So, in terms of the core growth in Europe, it’s about 10%, excluding FX, excluding the testing side of things as well. So, good strong growth across the region. And as Marc said, it’s a good concentration in pharma and biotech in the region, which is a strong growth business for us. So, yes, around about 10% in Europe. Great. Thanks Rachel..

Our next question comes from Dan Arias with Stifel. Please go ahead, Dan..

Good morning guys. Thanks.

Marc, on the bioproduction capacity expansion that you have been working on, the $600 million plus that you outlined there as a build out, I am just wondering, as we head towards December if you might be able to sort of give a refreshed view on just how much of that will be – or do you think will be open to start the year versus what might be slated for ‘23? And then how you are feeling about filling out that capacity, just given what we are seeing in terms of end market demand and activity there?.

Yes. So, Dan, thanks for the question. So, as a reminder, back in early 2021, we outlined our goals for expanding our capacity to meet the really strong long-term growth trends in our pharma services and our bioproduction businesses.

And really, what we did is we looked at our 5-year roadmap of what we were planning to bring forward, and we pulled some of those things forward. In bioproduction, we made three specific investment decisions, some expansion of our single-use technology network. We opened a facility, a second facility in Utah. We opened up a facility in Tennessee.

Both of those are operational. We expanded our Grand Island, New York cell culture media facility, that’s also largely complete. And we just opened our purification facility in Massachusetts, which is our second purification facility. So, we are largely complete with the investments in bioproduction. But we are not operating at full capacity of that.

We are not operating full shift seven days a week in the new facilities. We are rather going through the thoughtful ramp up. And that will continue to ramp up through 2023 and even into 2024 to bring it to kind of more of the full utilization. We feel very good about the demand environment.

So, that capacity is bringing lead times back to more normal pre-pandemic levels, which is terrific. And that will position us really well for share gain. When I think about purification, which I think is worth a moment on, we were literally capacity constrained.

We had demand that was so strong that we weren’t able to bring on a lot of new business over the last few months. And it’s great to have Johnsonville [ph] online because that allow us to continue to support the growth of new molecules and our customers. So, that’s a quick recap on that..

Okay. Helpful. And then just maybe on PPD, it sounds like things continue to go well there. And to the point of a couple of guys here, there is naturally a focus on 2023. You will have a tough comp there, actually like 2 years of tough comps there.

So, anything that you might be able to add on just how you see PPD growth tracking going forward?.

Yes. So, our clinical research business, right, it serves an attractive end market within pharma and biotech, again, similar in a way to our pharma services business, more the innovations coming from the smaller companies. That really lends well to partnering with a clinical research organization. Our business is growing at a very high level.

As Stephen highlighted, we are expecting 14% growth assumed in our guidance for the year, which is very strong. And what I am really excited about is the reaction from customers. I have seen quite a few customers in the third quarter and really had the opportunity to discuss what we are doing in clinical research services. And feedback is exciting.

Our revenue synergies are very strong. They don’t show up in the revenue to-date. They show up in the authorization for the future. And which is why I was able to really highlight that the business is not only ahead of the short-term deal model, but the projection is it will be well ahead over the long-term deal model.

And we are excited about the momentum we will carry with that business going into 2023..

Operator, we have time for one more question..

Thank you. Our final question today comes from Tejas Savant with Morgan Stanley. Please go ahead, Tejas. Your line is open..

Thank you. Marc and Stephen, good morning. One follow-up for me on Europe, Marc. I mean energy costs are clearly in focus you are heading into the winter.

Can you just help us dimension your cost on the energy side as a percent of your regional sales? And any kind of like resiliency plans that you have put in place? And then as a quick follow-up there, any color on research funding trends in Europe, particularly as government priorities might be shifting here a little bit?.

Yes. So, one of the powers of our PPI Business System and the benefits of our scale is to be able navigate the supply chain challenges that have existed in the world. And I would put energy availability as a potential challenge in Europe as we get into the winter.

So, we went site-by-site and looked at what is the source of energy and made appropriate adjustments. So, a number of sites, we moved off of natural gas or there was a situation where the government said that we are going to be supplied. It’s different scenarios depending on which country, what site, what purpose.

So, I feel like we are well positioned to navigate that environment. In terms of research funding, it seems good. I mean obviously, the next level of European funding is being considered this month and at least what the public discussion is positive about the funding environment there. In terms of energy costs….

Yes. In terms of the energy cost, this is not material. What’s material is make sure you are managing the ability to stay open the supply chain and looking into your customers. So, that’s where we are spending our time and effort. And we switch the energy type. And it’s about staying open and meeting that to our customers to support them through this..

Got it. And just one quick follow-up on PPD, if I may. One of your CRO peers, Marc, just mentioned investigator staff shortages at some sites, causing trial delays, not broad-based, but in some cases.

Just curious what you are seeing in terms of labor market tightness there? And do you expect sort of wage inflation in specific to PPD to be a factor we should be thinking about into next year as well?.

Business performed great. We obviously had 18% growth in the quarter, 14% growth outlook for the year. The way wage inflation works in that business is it gets passed through in the normal course pricing in the contract, so that you could have a quarter or something lag.

But effectively, if there is unusual wage inflation that this gets passed through to the customer base. So, I don’t see any particular significant challenge there. So, let me wrap it up here. As you heard this morning, another excellent quarter, we are on track to deliver an outstanding year, and that’s going to set us up for a very bright future.

And as always, thanks for your ongoing support of Thermo Fisher Scientific. We look forward to updating you on our progress as we turn into 2023. Thanks everyone..

End of Q&A:.

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