36th annual j.p. morgan healthcare...
TRANSCRIPT
The world leader in serving science
Marc N. CasperPresident and Chief Executive Officer
January 9, 2018
36th Annual J.P. Morgan Healthcare Conference
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Various remarks that we may make in the following presentation 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 our Form 10-Q for the quarter ended September 30, 2017, under the caption “Risk Factors,” which is on file with the Securities and Exchange Commission and available in the “Investors” section of our website under the heading “SEC Filings.” Important factors that could cause actual results to differ materially from those indicated by forward-looking statements include risks and uncertainties relating to: the need to develop new products and adapt to significant technological change; implementation of strategies for improving internal growth; general economic conditions and related uncertainties; dependence on customers' capital spending policies and government funding policies; the effect of exchange rate fluctuations on international operations; use and protection of intellectual property; the effect of changes in governmental regulations; and the effect of laws and regulations governing government contracts, as well as the possibility that expected benefits related to recent or pending acquisitions may not materialize as expected. 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 estimates change, therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.
During this presentation, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP, including adjusted EPS and adjusted operating margin. The non-GAAP financial measures of Thermo Fisher’s results of operations and cash flows included in this presentation are not meant to be considered superior to or a substitute for Thermo Fisher’s results of operations prepared in accordance with GAAP. Definitions of these non-GAAP financial measures and, for historical periods, a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available under the heading “GAAP/Non-GAAP Reconciliation & Financial Package” in the “Investors” section of our website, www.thermofisher.com.
Safe Harbor / Non-GAAP Measures
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Unmatched Depth• Leading innovative technologies
• Deep applications expertise
• Premier laboratory productivity partner
• Leading pharma services provider
Our Mission: To enable our customers to make the world healthier, cleaner and safer
We Are The World Leader in Serving Science
Global Scale • Approximately 65,000 employees globally
• $20 billion in annual revenue
• Unparalleled commercial reach
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Attractive Revenue Profile Positions Us for Growth
Balanced and DiverseCustomer Base
Growing Presence in Emerging Markets
Strong RecurringRevenue Mix
NOTE: Pro forma revenue and percentages based on LTM through Q3 2017.
Total Pro Forma Revenue Including Patheon: ~$22B
Industrial& Applied
20%
Diagnostics& Healthcare
21%Pharma
& Biotech
36%
Academic &Government
23%
Consumables
53%
Services
22%
Instruments
25% Europe
24%
Asia-Pacific
21%
ROW
3%
52%
North America
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Complementary Segments Create Competitive AdvantageAnalytical Instruments
Revenue: $4.6B Adj. Operating Income: 21.2%Life Sciences Solutions
Revenue: $5.6B Adj. Operating Income: 32.4%
Laboratory Products and ServicesPro Forma Revenue: $8.8B Pro Forma Adj. Operating Income: 12.5%
Specialty DiagnosticsRevenue: $3.4B Adj. Operating Income: 26.9%
Microbiology
Antimicrobial SusceptibilityTesting Solutions
QuantStudioDx R qPCR
Genetic Sciences
Laboratory Chemicals
Bioproduction
Cell Culture Reagents
Biosciences
Life Science Reagents
MassSpectrometry
Fusion Lumos MS
Chromatography
VanquishUHPLC
Electron Microscopy
Titan Krios TEM
Reproductive Health
Microarrays
iCAP Triple Quad MS
ClinicalDiagnostics
PCT Biomarkers
Lab Equipment & Consumables
TSX ULT Freezers
ImmunoDiagnosticsImmunoCAP Allergy andEliA Autoimmunity Tests
NOTE: Revenue and Adjusted Operating Income Margins are based on LTM through Q3 2017. Revenue and Adjusted Operating Income Margin for Laboratory Products and Services are calculated on a Pro Forma basis which includes the pre-acquisition results of Patheon for the entire period
SeqStudioCE System
E1 ClipTipPipette System
Clinical Oncology
Next-Gen Sequencing
TransplantDiagnostics
NXType High-Resolution Genotyping
Chemical AnalysisGemini Handheld Analyzer
Channel
BioPharmaServices
Cryostar Tissue Sectioning
Pathology
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Consistently Delivering Excellent Financial Performance
2012 2016 2012 2016
9% CAGR 14% CAGR
Adjusted EPSRevenue
Leveraging our industry leadership to achieve outstanding results
12% CAGR
Free Cash Flow
2011 Q3 2017 LTM 2011 2011Q3 2017 LTM Q3 2017 LTM
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2017 Goals (as communicated at JPM Conference on January 10, 2017)
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
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2017 Goals (as communicated at JPM Conference on January 10, 2017)
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
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2017: Another Excellent Year of High Impact Innovation
• Greater understanding of protein structure and function
• Leading cryo-electron microscopy and high-resolution mass spectrometry platforms
• Applying precision medicine approach in the real world
• Unique portfolio spanning genetic and protein analysis, biobanking, informatics and diagnostics
• Sample-to-answer solutions• Integrated chromatography and mass
spectrometry workflows combining instruments, software and consumables
• More accurate and cost-effective diagnostics
• Developing mass spectrometry-based patient sample-to-answer clinical analyzer
• Effective data management and analytics • Comprehensive digital science capabilities
Industry-leading R&D Investment Customer Needs Our Solutions
Innovation investments put us at the forefront of scientific advances
6.6% of Total Manufacturing
Revenue
$0.9B
NOTE: R&D and revenue based on LTM through Q3 2017.
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• Greater understanding of protein structure and function
• Leading cryo-electron microscopy and high-resolution mass spectrometry platforms
• Applying precision medicine approach in the real world
• Unique portfolio spanning genetic and protein analysis, biobanking, informatics and diagnostics
• Sample-to-answer solutions• Integrated chromatography and mass
spectrometry workflows combining instruments, software and consumables
• More accurate and cost-effective diagnostics
• Developing mass spectrometry-based patient sample-to-answer clinical analyzer
• Effective data management and analytics • Comprehensive digital science capabilities
Industry-leading R&D Investment Customer Needs Our Solutions
Innovation investments put us at the forefront of scientific advances
6.6% of Total Manufacturing
Revenue
$0.9B
NOTE: R&D and revenue based on LTM through Q3 2017.
SeqStudioGenetic Analyzer
Oncomine Dx Target Test
Q Exactive HF-X Quadrupole-Orbitrapmass spectrometer
ClipTip cloud-connectedelectronic pipette system
2017 Product Introduction Highlights
2017: Another Excellent Year of High Impact Innovation
Krios G3i Cryo-TEM
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China Market Dynamics
$19.8B Revenue
China10%
Developed Markets79%
Emerging Markets account for 21% of revenue
Capitalizing on attractive fundamentals and continuing to gain share
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NOTE: Revenue and geographic percentages in pie chart based on LTM through Q3 2017.
Scale in Emerging Markets: China Example
Other Emerging Markets
11%
2011 2016 LTM Q3 2017
$0.6B
$1.7B
$2.0B
Thermo Fisher China Revenue
• Attractive fundamentals
• $9B market growing at 9% CAGR
• 13th 5-Year Plan focused on innovation, healthcare and precision medicine, environment and food safety
• 2017 progress:
• Opened Precision Medicine Customer Experience Center in Guangzhou, China
• Increased manufacturing revenue by over 10% to support growing local and global demand
• Grew e-business sales by over 50%
16% Average organic growth
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2017 Goals (as communicated at JPM Conference on January 10, 2017)
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
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Quality
Productivity
CustomerAllegiance
Consistently deliver world-class products and services
Exceed expectations to maximize customer success
Improve operating and process efficiency
to strengthen our competitive
advantage
• Accelerate organic growth
• Expand margins
• Enhance cash flow
Impact of PPI:
Practical Process Improvement (PPI) Business System Drives Operational Excellence
Adjusted Operating Margin %
2011 Q3 2017 LTM
23.4%
18.4%
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2017 Goals (as communicated at JPM Conference on January 10, 2017)
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
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Affymetrix & FEI: On Track to Meet or Exceed Deal Expectations
FEI(acquired September 2016)
• Organic growth accelerated from low single-digits
to strong double-digits
• On track to exceed total synergy target of $80M by
Year 3 (2019):• PPI Business System has dramatically increased
manufacturing capacity which has helped capture
incremental growth
• ROIC hurdle expected one year earlier
versus original deal model
Affymetrix(acquired March 2016)
• Good growth in 2017 driven by new product
introductions and leveraging our commercial reach
• On track to exceed total synergy target of $70M by
Year 3 (2019):• Strong contribution from PPI Business System
• Consolidate business infrastructure into our organization
• On track to achieve deal model
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2017 Goals (as communicated at JPM Conference on January 10, 2017)
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
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2017 Capital Deployment Summary
• $750M in Share Buybacks
• $240M in Dividends
• $7.8B in M&A• $7.4B for Patheon ($5.7 Debt/ $1.7B Equity)• $0.4B for Finesse Solutions, Core Informatics, Linkage Biosciences and Phenom World
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Patheon Overview
St. Louis, MO
Manati, Puerto Rico
Florence, SC
Greenville, NC
Linz, Austria
Ferentino and Monza, Italy
Locations
Drug Substance Services - BiologicsDrug Substance Services - API
Drug Product ServicesPharma Development Services
4%
28%68%
EuropeNorth
America
ROW
Revenue by Geography
12%
27%Revenue by Business / Capability
61%
Pharmaceutical Development Services
• Leading global provider of CDMO services• Revenue: $1.9B• Adjusted operating margin of 17%• ~9,000 employees globally • 26 manufacturing and development locations
Drug Substance Services
Serves API Manufacturing Segment
Drug Product Services
Serves Finished Dosage Form
Manufacturing Segment
Note: Financials reflect LTM as of Jan 31, 2017
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2017 Goals (as communicated at JPM Conference on January 10, 2017)
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
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Improving Adjusted ROIC
Note: Adjusted return on invested capital is annual adjusted net income excluding net interest expense, net of tax benefit therefrom, divided by trailing five quarters average invested capital.
Adjusted ROIC10.7%
(w/o M&A)
9.8%9.8%
Q3 2017Q3 2016
• Expanding adjusted ROIC by 90-120 bps annually on an operational basis
Capital Deployed on M&A:
• FY 2016: $5.5B (e.g., FEI and Affymetrix)
• FY 2017: $7.8B (e.g., Patheon)
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2017 Goals (as communicated at JPM Conference on January 10, 2017)• Revenue
• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach• Leverage our expansive commercial capabilities to capture the most significant opportunities within our key end-markets
• Margin• Drive cost management initiatives through global sourcing programs, low-cost region expansion, footprint optimization, and our
PPI business system • Take actions to reduce the adverse impact of FX and higher interest rates on variable rate debt
• Capture Synergies from Affymetrix and FEI Acquisitions
• Capital Deployment• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, dividends, and debt repayment
• ROIC• Keep momentum on driving returns from our acquisitions and other investments
Successfully achieved key business goals & delivered solid returns
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2018 Goals
• Revenue• Continue to launch high-impact new products• Leverage our unique customer value proposition by cross selling our total portfolio• Capture further share gain opportunities in emerging markets by continuing to leverage our commercial reach
• Margins/Below the Line• Leverage PPI business system throughout organization to reduce cost and enhance productivity• Take full advantage of U.S. tax reform to reduce total company tax rate
• Patheon: Successfully integrate, drive growth and capture synergies
• Capital Deployment• Keep momentum on driving returns from our acquisitions and other investments• Continue shareholder friendly capital deployment through strategic M&A, share buybacks, and dividends,
while continuing debt repayment