Please ensure Javascript is enabled for purposes of website accessibility

Thermo Fisher Scientific inc (TMO) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Oct 30, 2021 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

TMO earnings call for the period ending October 28, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Thermo Fisher Scientific inc (TMO 1.21%)
Q3 2021 Earnings Call
Oct 29, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2021 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.

10 stocks we like better than Thermo Fisher Scientific
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Thermo Fisher Scientific wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2021

Rafael Tejada -- Vice President

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 12, 2021. A copy of the press release of our third quarter 2021 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 event 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 has caused 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 2021 earnings and also in the Investors section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

Marc Casper -- Chairman, President, and Chief Executive Officer

Thanks, Rafael. Good morning everyone and thanks for joining us today for our third quarter call. We delivered another outstanding quarter, achieving exceptional financial performance while continuing to effectively execute our growth strategy to make Thermo Fisher Scientific an even stronger partner for our customers. As I reflect on the year so far three things stand out to me. Our proven growth strategy powered by our PPI Business System is driving outstanding financial performance. Our base business is performing very well and we are playing a leading role in our industry's response to COVID 19. And we continue to build on our trusted partner status with innovative new products and expanded capabilities to further enhance our unique customer value proposition. All of this gives me great confidence and a very bright future as we continue to create sustainable value for all of our stakeholders. I will get into more detail on these in my remarks later. But first, let me recap the financials.

Our revenue in Q3 increased to $9.33 billion growing 9% year-over-year. Our adjusted operating income for the third quarter was $2.78 billion and our adjusted operating margin was 29.8% for the quarter. Finally, we increased adjusted EPS by 2% to $5.76 per share. So another outstanding quarter. Turning to our end markets. In Q3, market conditions were strong and our team executed well to deliver another fantastic quarter. Starting with pharma and biotech, we continue to have outstanding performance in this end market with growth of just over 20%, driven once again by strong market dynamics, our unique customer value proposition, and our leading role in supporting our customers across a wide range of exciting therapeutic areas, including our significant role in supporting COVID 19 vaccines and therapies. Our trusted partner status earned over many years with these customers continues to drive robust growth.

In this end market, we saw a broad-based strength, including in our bioproduction, pharma services, biosciences, chromatography, and mass spectrometry businesses as well as in the research and safety market channel. And academic in government, we grew in the mid-single digits in the quarter with very good growth in biosciences and the research and safety market channel. Turning to industrial and applied, we grew in the mid-teens. In Q3, we had particularly strong growth in our electron microscopy business and in the research and safety market channel. Finally, in diagnostics and healthcare, we declined 11%. Performance in our base business was strong. Driven by immunodiagnostics, clinical diagnostics, and transplant diagnostics. The team also executed very well to support customers' COVID 19 testing needs, delivering $1.55 billion of revenue this quarter versus $1.8 billion in Q3 last year.

Before I move on to our growth strategy, let me provide a few comments on our industry-leading role in the pandemic response. In the quarter, we generated $2.05 billion in COVID 19 response-related revenue. With the surge in the Delta variant, We saw strong testing demand around the world in Q3. We also played a very meaningful role in vaccines and therapies for COVID 19 generating just over $500 million in the quarter from these activities. The underlying demand for our product and service offerings used in the production and development of vaccines is very robust and over time we expect this demand to transition to non-COVID revenue. Our industry-leading response to the pandemic has enabled us to accelerate our growth strategy, strengthening customer relationships, and accelerate investments which contributed to our ability to raise our long-term core organic growth guidance to 7 to 9% as we communicated at our recent Investor Day.

Let me now give you an update on our growth strategy, which consists of 3 elements. Continuously 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 provide a few examples of how we're delivering on our growth strategy. Starting with innovation, we launched a number of new products across our businesses to further strengthen our industry leadership and enable our customers to accelerate scientific breakthroughs and make the world a better place. In our genetic sciences, business, we launched the Applied Biosystems QuantStudio Absolute Q Digital PCR System. This is the first fully integrated digital PCR system featuring simplified workflows and designed to provide highly accurate results in only 90 minutes. This system will help advance our customers' innovation efforts in areas like oncology and cell and gene therapy. In chromatography and mass spectrometry, we launched 3 new Thermo Scientific TSP plus triple, quadruple mass spectrometers to address the growing need for faster throughput and increased sensitivity across a range of applications in biopharma and applied settings including clinical research for largest molecules toxicology and safety, environmental analysis.

We also have lots of Thermo Scientific Vanquish Neo UHPLC system and the Thermo Scientific PepMap Neo UHPLC Columns designed for use in proteomics, precision medicine, and translational research. Turning to the second pillar of our growth strategy, we continue to leverage our scale to create an outstanding experience for customers in high growth and emerging markets. This has contributed to the excellent performance, we are delivering across Asia Pacific where we delivered growth in the low double digits during the quarter. We continue to build our presence and capabilities in the region. During the quarter, we opened a bioprocesses design center in South Korea. This facility features laboratory and educational space and more than 100 instruments that support pharmaceutical research and manufacturing processes. This center will help our pharma and biotech customers advance their important work. Our performance across the region demonstrates that we're creating a differentiated experience for our customers and the significant investments we've made in these markets are few in growth.

The third pillar of our growth strategy is our customer value proposition, and we continue to increase our capabilities and capacity to be an even better partner for our customers to help them achieve their goals faster and more efficiently. As I mentioned last quarter, we're executing on over $2.5 billion in CapEx this year. Let me give you a brief update on our progress. Building our pharma services capabilities in Q3, we brought additional capacity online to support vaccine and therapy production. And as part of the previously announced strategic partnership with CSL Limited, we assumed operating responsibility for our new state-of-the-art biologics site in Lengnau, Switzerland. The site will feature highly flexible bioproduction technologies, including single-use and stainless steel to provide a pathway from development to large-scale production as customers' needs evolve. To support growing demand in the biopharmaceutical industry, we announced plans to open a new bar production facility in Nashville, Tennessee to manufacture single-use technologies. The facility will be one of our largest SUT sites in the world. In addition, to support disease research and diagnostic testing, we announced our commitment to co-invest with the US government in building a state-of-the-art facility to manufacture pipette tips.

The new facility will be looking in North Carolina and designed in line with Thermo Fisher Scientific's carbon neutrality goals. These investments in our value proposition demonstrate our commitment to our customers who rely on us as an essential partner in our work. Now, let me give you a brief update on capital deployment. We continue to successfully execute our disciplined strategy for capital deployment, which is a combination of strategic M&A and return capital to our shareholders. In terms of M&A, we are super excited for acquisition of PPD. The business is performing well. The regulatory process is on track and we expect to close by year-end. As a reminder, PPD will establish Thermo Fisher as a leader in the attractive and high-growth clinical research services industry and add highly complementary services for our fastest-growing end market. Integration planning is going very well. Financing is largely complete, and we're looking forward to welcoming our PPD colleagues to Thermo Fisher later this year.

Before turning to our guidance, we update you on our progress we're making on our ESG initiatives. As the world leader in serving science, we know we have a responsibility to use our industry leadership position to make the world a better place and to that end, we continue to advance our sustainability and social impact initiatives. During the quarter, we committed to expand our use of ACT product labeling to include our entire cold storage portfolio by the end of the year. ACT labeling clearly details environmental impact of the product, empowering our customers to make sustainable choices and ultimately helping them achieve their own goals from environmental stewardship. Our 90,000 colleagues are also passionate about the difference they can make and our local site-based community action councils support a number of charitable and STEM education activities throughout the year. We have amplified our support of these efforts by investing an additional $15 million in our foundation for Science and we continue to support the historically black colleges and universities, to deliver accurate COVID-19 testing to students and staff helping to ensure Campus Safety and ability to confidently deliver in-person learning. With that, I'd like to review our guidance at a high level and then Stephen will take you through the details.

As you saw in our press release, we are raising both our revenue and earnings guidance for the full year. This increase is a result of our strong Q3 operational performance in our base business and the continued strength of our COVID-19 response revenue. We're raising our revenue guidance by $1.2 billion to $37.1 billion, which would result in 15% revenue growth over 2020. In terms of adjusted EPS, we're raising our guidance by $1.30 to $23.37 per share, which represents 20% growth year-over-year. The 2022 guidance raise reflects the increased outlook for the core business and adds to the very strong outlook that we shared with you at our Investor Day. We're raising our 2022 full-year revenue guidance by $200 million to $40.5 billion and increasing our 2022 adjusted EPS guidance by $0.20 to $21.36. So to summarize our key takeaways from Q3, we executed very well to continue our growth momentum and delivered excellent revenue and earnings performance. Our business is performing very well and we continue to play a leading role in the pandemic response.

We continue to expand our trusted partner status with innovative new products and expanded capabilities to further enhance our customer value proposition. And our exceptional performance in the third quarter enabled us to raise our outlook for the year and set us up for an even brighter future. With that, I'll now hand the call over to our Chief Financial Officer, Stephen Williamson. Stephen.

Stephen Williamson -- Senior Vice President and Chief Financial Officer

Thanks, Mark, and good morning everyone. Before we get into the details of the quarter, I'd like to begin with a quick reminder about the definition of core business. This is a term we introduced at our recent Investor Day. Core includes our base business in the vaccines and therapies response revenue and post-close will also include the PPD acquisition. So moving on to the details of the Q3, it was another excellent quarter. Let me provide a high-level view of how the quarter played out versus our expectations at the time of our last earnings call in July. We had a broad-based speed versus the prior guide. Revenue was $1.2 billion higher, driven by $900 million higher testing response revenue, $250 million higher core business revenue, and $50 million more favorable core FX. On our last earnings call, our guidance derisk testing response revenue and we said that if there were any additional opportunities to support customers' testing needs, we will be ready to do so and flow the benefits through our P&L. That's exactly what we did in Q3.

In total delivering $1.55 billion of testing response revenue in the quarter. It was a great strength in the core business. In Q3, the Base Business Organic Growth was 10%, which is 3% or $190 million higher than included in our prior guide. Also in the core vaccines and therapies response revenue was $60 million higher than in that prior guide. It was $510 million for the quarter. So actual momentum on the top line. Our PPI Business System enabled us to generate excellent pull-through on the very strong top-line performance and at the same time execute really well on our significant growth investments and as a result, adjusted EPS in Q3 was $1.30 higher than included in that prior guide and the components this over achievements or $1 from testing response revenue, $0.20 from the core business and $0.10 from FX on the base business.

Overall, another excellent quarter. Let me now provide some color on the Q3 performance. Beginning with our Q3 earnings results, as you saw in our press release, we grew adjusted EPS by 2% to $5.76. GAAP EPS in the quarter was $4.79, down 1% from Q3 last year. On the top line, our Q3 reported revenues were 9% year-over-year. The components of our Q3 reported revenue increase included 7% organic growth, a tailwind to 1% from foreign exchange, and 1% contribution from acquisition. As I mentioned, the Base Business Organic Growth in the quarter with 10%. Turning to our performance by geography during the quarter, North America was flat, Europe grew over 20%, Asia Pacific grew low double digits, China grew in the low single digits, and the rest of the world declined in the high single digits. The organic growth rates by geo skewed by the response revenue in the current and prior quarters as well as the scale of the impact of the pandemic on the base business in the prior year. Since our operational performance, Q3 adjusted operating income decreased 1%, and adjusted operating margin was 29.8%, 310 basis points lower than Q3 last year.

In the quarter, our PPI Business System enabled us to deliver strong productivity, which is more than offset by unfavorable business mix and the ongoing strategic investments across our businesses, including investments in our colleagues all of these are being made to support our near and long term growth. Looking at the details of the P&L, total company adjusted gross margin in the quarter came in at 51.4%, 90 basis points lower than Q3 last year. The decrease in gross margin had similar drivers to those I just mentioned for our adjusted operating margin in the quarter. Adjusted SG&A in the quarter was 17.9% of revenue, an increase of 190 basis points for Q3 2020. Total R&D expense was approximately $350 million, representing growth of 19% versus Q3 2020 and reflects our ongoing investments in high-impact innovation to fuel future growth. Looking at our results below the line for the quarter and net interest expense was $119 million, $17 million lower than Q3 last year, largely due to lower average interest rates on our debt. Adjusted EBITDA income and expense was net income in the quarter of $9 million, $7 million higher than Q3 2020 mainly due to changes in nonoperating FX.

Adjusted tax rate in the quarter was 14.2%, down 150 basis points versus Q3 last year due to the benefits of our tax planning initiatives. Average diluted shares were $397 million in Q3, $2 million lower year-over-year, driven by the share repurchases, net of option dilution. Turning to cash flow on the balance sheet, the cash flow performance enabled by our PPI Business System, continue to be very strong. Year-to-date cash flow from continuing operations was $6.9 billion, up 38% from the same period last year. Year-to-date free cash flow was $5.2 billion, up 27% from the same period last year and that's after investing $1.7 billion of net capital expenditure. This reflects the strong returns we're generating in the short term and investments we're making for the long term. We returned over $100 million to shareholders through dividends in the quarter. This reflects the 18% dividend increase we announced in February. And during the quarter we issued $1 billion in new debt as part of the pre-financing for the PPD acquisition. We ended Q3 with $12 billion in cash and $21.7 billion of the total debt. Our leverage ratio at the end of the quarter with 1.6 times, Gross debt to adjusted EBITDA, and 0.7 times on a net debt basis.

Concluding my comments on total company performance, adjusted ROIC was 22.3%, up 740 basis points from Q3 last year as we continue to generate exceptional returns. Now provide some color on the performance of our four business segments. Similar to last quarters, I'll start with some framing thoughts on the impact of COVID-19 response in our segments. From a revenue standpoint, as was the case in the past quarters, the majority of our COVID-19 response revenue was recognized in Life Sciences Solutions with the remainder recognized in the party Products and Services and Specialty Diagnostics. From a margin standpoint, the impact of COVID-19 differed across the segments based on the scale of the response revenue and the different levels of profitability on that revenue. In addition, during the quarter, we continued to make strategic investments across all of our businesses. The size of those investments does not necessarily align with the COVID-19 response revenue in each segment that's but does skew some of the reported in the segment margin.

Moving on to the segment details, starting with Life Sciences Solutions, Q3 reported revenue in this segment increased 9% and organic growth was 4%. In the quarter, we delivered very strong growth in our bioproduction and biosciences businesses. Q3 adjusted operating income in Life Science Solutions decreased 3% and adjusted operating margin was 48.9%, down 600 basis points year-over-year. In the quarter, we saw positive volume leverage, which is more than offset by strategic investments and unfavorable business mix. In the Analytical Instruments segment, reported revenue increased 11% in Q3, and organic growth was 9%. Growth in the segment this quarter was driven by the electron microscopy and chromatography and mass spectrometry businesses. Q3 adjusted operating income in Analytical Instruments increased 54% and adjusted margin was 17.8%, 500 basis points year-over-year.

During the quarter, we delivered very strong volume pull-through and productivity, which is partially offset by the strategic investments we're making across this segments. Turning to Specialty Diagnostics. In Q3, reported revenue decreased by 5% and the segment declined organically by 5%. In the quarter, we saw a strong growth in our immunodiagnostics, clinical diagnostics, and transplant diagnostics businesses which is offset by lower COVID-19 testing revenue versus the year-ago quarter. Adjusted operating income decreased 22% in the quarter and adjusted operating margin was 22.7%, down 520 basis points from the prior year. In Q3, we drove positive productivity enabled by our PPI Business System. This is more than offset by unfavorable volume mix and strategic investments in the quarter. Finally, in the margin Products and Services segment, Q3 reported revenue increased 12%, organic growth with 10%.

In the quarter, we saw very strong growth in all of our businesses in this segment. Adjusted operating income in the segment increased 8% and adjusted operating margin was 11%, which is 40 basis points lower than the prior year. In the quarter, we drove good volume pull through and productivity by our PPI Business System, which is more than offset by strategic investments. With that, let me now turn to our updated guidance and as Marc mentioned, we're increasing full-year guidance for both 2021 and 2022. For 2021, we're banking the Q3 beat and maintaining our prior guidance assumptions for Q4. Then for 2022, we're carrying over the base business and vaccines and therapies from Q3 2021 into the 2022 full-year numbers. This is making a strong beaten raised for both years, reflecting the continued excellent strength of the business. Let me now provide you with more details starting with 2021.

In terms of revenue, we're raising our full-year 21 guidance by $1.2 billion to $37.1 billion and increasing our full-year organic growth outlook from 9% to 12%, an increase in the base business organic growth outlook for the full year from 12% to 13% and an increase in the COVID-19 response revenue for the year from $6.7 billion to $7.7 billion, which represents $5.8 billion of testing response revenue and $1.9 billion of vaccines and therapies response revenue. As I mentioned previously, there are no changes in the revenue assumptions for Q4 and our revised 2021 guidance. We're continuing to the same derisked approach to guidance for COVID-19 testing response revenue and continue to assume $450 million of testing-related revenue in Q4. And continue to be a range of outcomes for testing in the fourth quarter and for 2022, there are scenarios where testing demand could be higher than that included in our guidance. Should that be the case? We'll be well-positioned to support customer needs. And as we did in Q3 we'll flow the benefits of that through our P&L. But for now, we thought it was prudent to continue to take a derisked approach to the outlook. And as a reminder, there are four fewer selling days in Q4 21, but at the same period last year.

Incorporating a very strong Q3 performance into the revised 21 guidance, we now expect adjusted operating margin for the full year will be approximately 30.4%, 70 basis points higher than both our prior guide and 2020. In terms of adjusted EPS by banking the Q3 beat, we're raising our full-year 21 adjusted EPS guidance by a $1.30 to $23.37 which would result in 20% growth over 2020. The revised guidance range and adjusted income tax rate of 14.3% in 2021, slightly higher than the prior guide to reflect the marginal tax rate on our increased profitability. The rest of the assumptions underlying the 2021 guidance remain the same and to call out a few of those, we've not included any operational benefits in 2021 for the acquisition of PPD which is assumed to close at the end of the year.We expect full-year net interest cost to be approximately $510 million. We're assuming net capital expenditures of approximately $2.5 to $2.7 billion and free cash flow of approximately $7 billion in 2021. Our guidance still includes $3.8 billion of capital deployment, which is $2 billion of share buybacks, $1.4 billion completed M&A and $400 million of capital returned to shareholders through dividends.

I mean you have to make the full-year average diluted share count will be 397 million shares. Now moving on to the 22 guidance rates. As I mentioned, we're carrying over the base business and vaccines and therapies from Q3 21 into the 2022 full-year numbers. In terms of revenue, we're raising our full year 2022 guidance by $200 million to $40.5 billion. That reflects a $250 million increase in core revenue, offset partially by $50 million less FX tailwind for the year. The guidance for 2022 continues to see in core organic growth of 8% and $750 million of testing response revenue for the year. In terms of adjusted EPS, we're raising our full-year 2022 guidance by $0.20 to $21.36. As Marc mentioned, the 2022 guidance increase reflects the increased strength of our core business adding to the already very strong outlook for 2022 I shared with you at the recent Investor Day. So to conclude, we are delivering another excellent quarter. I mean, great position to achieve both at 21 and 22 goals. With that, I'll turn the call back over to Raf.

Rafael Tejada -- Vice President

Thank you, Stephen. Operator, we're ready to take questions.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from the line of Patrick Donnelly of Citi.

Patrick Donnelly -- Citi -- Analyst

Great, thanks for taking the questions, guys. Marc, maybe one for you just on the guidance, obviously encouraging to see you raised the 22 guidance going to flow through the beat. You are so soon after providing at the Analyst Day. Can you just talk about not pumping the 4Q number obviously, again, the core seemed a bit stronger in 3Q, the end market recovery seems well on its way? I certainly understand keeping the testing conservative, but maybe just on the core business. What kept you guys from flowing through a bit of that strength into 4Q?

Marc Casper -- Chairman, President, and Chief Executive Officer

Patrick, thanks for the question, good morning. So, obviously, really outstanding Q3. Like, think about the momentum in the core business in the fourth quarter, we obviously enter the fourth quarter with very strong performance. As I look at the outlook for Q4, first of all, we felt it was prudent to keep it at the same that we did last quarter. There is nothing particularly deep about that. We have four less selling days. So when you look at the base business results, it's very similar. Right? It implies about 9% growth with our 5% reported and had about four points for the day. So you have 9% growth, very similar to what you saw in Q3. And when you look at the other part of core, which is a vaccine and therapy numbers, similar levels of our revenue to what you saw in Q3 there. So we thought that was a prudent view. On the testing response, we kept the de-risked number, we're obviously going to ship wherever our customers need. And if you think about how short true visibility is for testing response right now, which is we derisked at the end of July. And by the time we got into August, the Delta variant had created huge demand for testing.

So we feel the 450 numbers is one that we have incredibly high likelihood of achieving and we'll obviously ship meaningfully more than that a customer need it, right. So that's how we thought about it. So as we talk about 2022, we carried forward the core revenue be into the year, and as we sit here at the end of January when we give our full-year, our final guidance for the year will look at what is the right level of assumptions and make adjustments as appropriate.

Patrick Donnelly -- Citi -- Analyst

Okay, that's helpful. Makes sense. And then maybe just a quick follow-up on China. Low single-digit growth you guys are a lot of noise in the region of between the tender process, general macro headlines. Can you just expand a bit on what you guys are seeing there? Again it's always hard to remove a little bit of the comp noise and COVID noise. So would love just your thoughts on China and what you're expecting on the go forward?

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah, I think you really frame the second by over the question for us explains what's going on, right, which is with low-single digit growth. In the year-ago period, we had an incredibly strong COVID response revenue in China, so that drives that when I look at bookings, which gives you a sense of kind of new orders that grew about 10% of the quarter. So that activity was good. We are not a strong backlog there and in reviewing what's going on with our local team. Conditions actually continue to be good and the government is focused on some of the initiatives that will drive strong work long-term growth. The focus on the biotech industry and food safety, those kinds of things. So, I think China ultimately continues to be a nice strong growth market for the company going forward.

Patrick Donnelly -- Citi -- Analyst

Great, thank you, Marc.

Operator

Your next question comes from the line of Tycho Peterson of JPMorgan.

Tycho Peterson -- JPMorgan -- Analyst

Hey, good morning. Marc, first question on supply chain. I don't think anybody. You know it's a huge risk for you guys. You obviously can handle these things well, but can maybe just give us some color on what's going on in the ground like are you able to pass on higher resin costs, component shortages and do you have to kind of work down inventory? Just kind of curious on some of the gives and takes around supply chain. That's right now.

Marc Casper -- Chairman, President, and Chief Executive Officer

Tycho, good morning and thanks for the question. Yeah, so supply chain as you step back and another store-level of both our Fisher and then get to Thermo Fisher, right. Then the world is clearly experiencing supply chain disruptions. Right. And it really as the pandemic is unwinding. We're all seeing that and the duration of the impact of that still to be determined. And as I think though we have because of our PPI competitive advantage. Alright. And we're well-positioned to navigate these environments, better than the smaller, less capable companies. So that's what I think about it. As I think about Q3, there was no material impact in our results based on supply chain challenges. The areas that you see them there'll be managing things like freight and logistics, delivery times a little bit slower. So you have things like that that you have to manage through and electronic things effectively. And I have high confidence in our team's ability to navigate it and a very well in a very strong way and I think we'll be talking about this in some fashion across the world and across Pacific with our science tools and diagnostics probably into 2022.

Patrick Donnelly -- Citi -- Analyst

Okay, that's helpful and then follow-up on PPD. Last quarter, you talked about the second request from the FTC since then you cut the recent developments. I know you reiterated the timelines to close by year-end. But can you maybe just update us on how that process is going and what the CMA development expected in your view?

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah, so, Tycho. In terms of PPD, it's going well on track. So we are largely complete with the US FTC process and there is no surprises on the remaining couple of filings, including working with the UK government, so those are all anticipated when we announced the transaction side. That's all progress. Well, we feel confident, our ability to have the opportunity to welcome our new colleagues during the fourth quarter to some Fisher Scientific.

Patrick Donnelly -- Citi -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Jack Meehan of Nephron Research.

Jack Meehan -- Nephron Research -- Analyst

Thank you. Good morning. Marc, I think you could give us an update on the durability of the investments that you've been making and testing and I know if you can provide around uptake at me and just a clarification, the M&A, in the quarter was that the contingent payment for Mesa?

Marc Casper -- Chairman, President, and Chief Executive Officer

So we have in the quarter just continued revenue from mix of businesses. Yeah, so in terms of the durability embedded in our outlook from a derisk perspective for next year is $750 million COVID testing-related revenue and will obviously refine that when we start the structure year with world, it looks like. There's obviously certain aspects of our response on the testing side, that will have some level of durability, but it's a relatively modest number compared to the billions of dollars of COVID-19 qPCR test and sample prep that we provided. The areas that you would expect long Gevity is going to be increased installed base of qPCR instruments from sample prep instruments, which will get repurposed for other testing. We've obviously developed respiratory panels as well so likely for the future you will see some level of people presenting with an upper respiratory infection and doctors will want to know whether it's COVID or flu or RSV.

So you have some of that duration and customer feedback on the Mesa biotech technology super positive as terms, a large customer a couple of days ago and they did a head to head versus some other technologies and basically said, the users just love it and are excited about working on developing a broader menu over time as well. So those are some of the things that will increase our that's business that we really didn't have pre-pandemic. So I think that's pretty cool. But, relative to the $1 billion of revenue to be more modest.

Jack Meehan -- Nephron Research -- Analyst

Great. And then my second question is on analytical industry site hate to nitpick small numbers be compounded growth by my math stepped down from like 4.5% maybe 3% in the quarter. Just curious how the order book. There is shaping up. And can you give any color on what the guidance implies for the 4th quarter for that segment?

Stephen Williamson -- Senior Vice President and Chief Financial Officer

Yes. So Jack year you can never guarantee one. It's good to focus on the areas that are unclear structure when I step back and look at Analytical Instruments actually a very solid quarter, very strong performance in electron my cross to be chroma mass spec very well. we're super excited about ASMs, which is just upon us and exciting product launches are highlighted a few of them. On the call with the TSQ System. So when you actually look and say, if you look at the details of the numbers we saw softness in parts of chemical analysis that's really what's in there and you haven't seen the full recovery in some of the industrial end markets you see great strength in things that our semiconductor material financial is that shows through across our businesses but in some of the I call historically core industrial you haven't seen the full recovery over the last couple of years. So that's what is kind of embedded in the numbers.

Jack Meehan -- Nephron Research -- Analyst

Got it. Stephen, any color on 4Q for the segment.

Stephen Williamson -- Senior Vice President and Chief Financial Officer

Now expect continued good performance that business and bookings were strong in the quarter and for Q4 22.

Jack Meehan -- Nephron Research -- Analyst

Thank you.

Stephen Williamson -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Derik Brown of Bank of America.

Unidentified Speaker

Hi Derrick.

Derrick Brown -- Bank of America.

Hi, Jerry. Hey. Hi, Good Morning HMH a couple of questions. So it's just to take it a little bit. Follow-up on Jack's question there and any sort of issues and shipping analytical instruments in the quarter and getting things installed. I mean just getting into labs or logistics of moving around. Just wondering if you know I mean 3Q is always a little bit squarely quarter anyway given seasonality. I just was wondering if there is also something compound is just in terms of not will being able to ship some products and get some things out the door, getting revenues recognized because of the current situation.

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah. And nothing that jumps out of me is being significant Derik. When I think about bookings were stronger and maybe shipping took a day or 2 longer. So I think there could be some math on that, but none of our team has talked about Lab, not ready shipping delays. No. Nobody to use. This is a discussion topic in our deep reviews with the business. So is it possible? Yeah but, not in the jump that has been material from that perspective. Bookings were strong. So I think that's encouraging for the. We have a few quarters.

Derrick Brown -- Bank of America.

Okay. And Marc, how are you thinking about wage inflation and retention and particularly this is it relates to as you think about PPD. I mean obviously, there is a big war for talent in the clinical research associate population transitions between acquisition to CROs tenant create some volatility in terms of headcount and I'm so just sort of thinking about on your biopharma services segment how you sort of dealing with potential disruptions or I'm trying to stem off some of the headwinds. You know you could see there.

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah. So when I think about our team. Let's start with the Thermo Fisher Scientific team and with a brief comment about PPD. We have a terrific team. Right. They have delivered these spectacular results for year-end, year out quarter-in quarter-out, including in very trying times of the pandemic and they make a difference. And we have done really we've been really focused on ensuring that this is the best place to work. And we will 3rd, our teams, we talked last quarter about some of the additional compensation actions we've taken. We continue to do that to recognize the strong performance, we've invested in our facilities training. We are recognized for world-class development training is things that we continue to focus on and that really has allowed us to have very, very strong retention of our teams. PPD is a very well-run business with a great leadership team that's navigating the environment while the business is performing very well. There is no disruption to the integration right. We're literally is lifting it as it is and running it as it is going forward. And over time, great new solutions. I'll make a difference for customers. But this is growth-oriented customer-oriented patients benefit acquisition. So the feedback that the PPD teams that's getting on their colleagues is super positive and super excited and we're looking forward to the transition to our company in the 4th quarter.

Derrick Brown -- Bank of America.

Okay. If I can squeeze one more in on China how much your portfolio is manufactured in China that would not be subject to the or will be sort of would be part of the, by local might push there to sort of some idea on your manufacturing footprint there and what we consider is being outside versus inside China.

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah, I mean, we have very scale manufacturing facilities in China, for China and we also import a number of products into the market in the way you can almost think about it is if there is no local alternative for the products you often see imported into the country. If there is local alternatives. They often come from either or Chinese operations or other low-cost regions around the world. Right. It's. So the way to think about as a 100% accurate ensure there's some things that have local competition that could shift into the country but, but that's the strategy at a high level and that served us well on we're well-positioned to support our Chinese customers and in areas where the Chinese customers really want high degree of supply chain assuredness things like single-use technologies, we build a very scale facility in Suzhou, to be able to meet those needs.

Derrick Brown -- Bank of America.

Thank you.

Marc Casper -- Chairman, President, and Chief Executive Officer

Welcome.

Operator

Question comes from the line of Dan Arias of Stifel.

Dan Arias -- Stifel Financial Corp -- Managing Director

Good morning, guys, thanks for the questions, Mark, 2 questions for you, one on biopharma and one on the NIH if I can. On biopharma, I'm just curious what your expectations are on for spending at the end of the year here obviously play nuances in that segment. So do you feel like it's more or less likely to be just sort of similar to what we've seen in non-pandemic years?

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah, So. Morning. In terms of foreign new business performed really well in terms of the growth that we are delivering with 20% percent than 20% percent growth in the quarter. What we're assuming, which is the convention, we use every year. We're assuming an average year-end spend across our customer base and we really don't get visibility until right after the Thanksgiving holidays. So we use that convention and that served us well. I think most years has been average or above average when you that was below on average from recollection over the last number. So. So that's how we think about.

Dan Arias -- Stifel Financial Corp -- Managing Director

Okay. And then maybe on the NIH funding dynamic which you've usually got a pretty decent line of sight into as we head into next year. I'm just curious if you have a view on the budget in the way that it looks like it might be allocated just given that you have that core budget and that Armitage component. Are you hearing anything about the Armitage funding and whether it will sort of just be accessible the basic researchers. I mean I don't want. I don't feel I want to come out of left field with that one of that should, it sounds like, but it seems like that is sort of a question in the academic world and they're really actually get people to ask about that side we got thrown out there.

Marc Casper -- Chairman, President, and Chief Executive Officer

So, Dan, it's not clear yet. And I think that for each concept is a really important concept for the US. Right. The way to think about it is, you have Defense spend right and defense spending prepares for all of what could happen finding invest in different technologies to defend the country Arpage is the healthcare equivalent right investments and things to anticipate future challenges. Right, as opposed to typically our research solving clearly known challenges that you have now. Right. And so I think the fact that we're going to have longer-term funding that will prepare for the next pandemic or other future challenges. I think it's fantastic and we'll great research. How that exactly is going to be allocated. I haven't seen it. I mean it will come out, but I haven't seen the details of how that's going to be done. I know that the U.S. is not the only country that's talking about using vehicles like this. So I think this is one of the reasons that we're so excited about what the Scientific funding is going to be like going forward in our industry and we're incredibly well-positioned to serve that.

Dan Arias -- Stifel Financial Corp -- Managing Director

Okay, I appreciate that. Thanks, Marc.

Marc Casper -- Chairman, President, and Chief Executive Officer

You're welcome.

Operator

Your next question comes from the line of Vijay Kumar for Evercore.

Vijay Kumar -- Evercore -- Senior Managing Director

Hey guys, congrats on a nice [Inaudible] and thanks for taking my question. Marc, maybe one on fiscal.... guidance rates here by a couple of 100 million, looks like the base came up by 250. I'm curious where the strength is coming from. Would you say that's coming from BioPharma across the board? Or what is driving that base improvement?

Marc Casper -- Chairman, President, and Chief Executive Officer

So, Vijay, good morning. Thanks for the question. As I thought about the 2022, we obviously saw strength across our Company in Q3 and in the core and we flowed that entirely into the next year. And obviously, very strong performance in pharma biotech, so that's very encouraging and it is obviously a large driver of that, but we saw, we could still could perform actually across the different parts of our business. So I don't want to say it reflects the portfolio of activities that we have is the way you think about the strength with core.

Vijay Kumar -- Evercore -- Senior Managing Director

And then just, I think to clarify that more, in the base now includes vaccine contribution, but this is.. I guess what you're saying is this across the board. This is not just vaccine outlook improvement, correct?

Stephen Williamson -- Senior Vice President and Chief Financial Officer

Just to clarify, so.. within the guidance rate for next year, it's basically up $250 million, which includes 190 from the base plus $60 million more vaccine therapies. The combination of all of that is 250 for the core and then slightly decreased because of FX, less tailwind. The strength of the base business and back-end therapy that's being carried forward into '22.

Vijay Kumar -- Evercore -- Senior Managing Director

That's helpful, Steve, and then just one quick one on the tax side. How should we think about any potential tax reform changes in impact to Thermo?

Marc Casper -- Chairman, President, and Chief Executive Officer

So the guidance we've given here, it doesn't assume any significant U.S tax reform or other tax reform across the world. And we continue to monitor the changing dynamics closely in DC and advocate for changing needs to happen with the right change happens with but have unintended consequences for the aggression. Revenue raise is being paid for but let's make sure if that's being done in a logical way. Company have a competitive advantage in that tax position versus other well-run companies and we expect that competitive advantage to be continued forward through whatever changes potentially can happen. So that's the best way to think about tax for the Company.

Vijay Kumar -- Evercore -- Senior Managing Director

Thank you, guys.

Marc Casper -- Chairman, President, and Chief Executive Officer

Thanks, Vijay.

Operator

Your next question comes from the line of Dan Brennan of.

Dan Brennan -- Cowen

Great. Thanks for taking the question, Marc. It's hard to find anything positive to shout out for the adjusted basis point. So the first question is just on bio -- is on bioproduction. So maybe I missed it in the prepared remarks. Can you just discuss what the base growth did this quarter. So the COVID contribution and kind of what's implied in 4Q and 22 and any color on trends there.

Marc Casper -- Chairman, President, and Chief Executive Officer

Yeah. So Dan, thanks for the question. And in terms of the [inaudible] is painful for sure. In terms of bioproduction, exactly the opposite of that which is things that are extremely robust and doing very well. So when I think about the... I'll give it at this the Biotech and pharmaceutical level. With a little bit over 20% growth in the quarter, you had a $510 million of vaccine and therapy revenue. We saw very strong growth, excluding the contribution from vaccines and therapies as well. When you look to the Outlook, while we don't guide obviously by segment, we would expect that from a Biotech that continues to be very strong and we're expecting a meaningful level of growth coming from that in 2022 as well. The end-market looks very robust. Scientific discoveries are very strong. Customer demand is good, and we're seeing strong interest in our clinical trials. Packaging and logistics capabilities, that bodes well. Especially, the cycle is very good and we're well-positioned to capitalize on.

I think one of the things that maybe investors don't have a 100% understanding of, if you think about what the Company looks like upon close of PPD, we have about $20 billion of revenue serving pharmaceutical and biotech. But half of that is actually serving production. And when you think about that, that's the largest position serving the production market by far. And we obviously have very attractive positions in serving both clinical trials and the research activities as well. So we're well-positioned to deliver great growth into the future.

Dan Brennan -- Cowen

Great thank you for that and then maybe just a high-level follow-up on at the Analyst Day. Obviously, the 7%-9% growth outlook was stronger than expected. And I know at the time you discussed execution in LPN markets to support that outlook. We certainly feel the question from investors regarding Thermo typically has set a reasonably conservative bar and executed well against that. So just maybe just wondering is 7-9%, should we think about that similarly having any conservative advice and so can you help us think through any of the drivers or details of that guidance? Thanks Marc.

Marc Casper -- Chairman, President, and Chief Executive Officer

You made me smile, which is good. We haven't even gotten into the period yet, which we'll get there right in terms, we're still working on 2021 right now. But when I think about the philosophy around the 7 to 9 is the exact same philosophy that we had when we had the continued increase in growth overtime at the Company. Which is you sign up for targets when you are able to do and you demonstrated you're delivering it and you have confidence in your ability to do that. And we have great confidence in our ability to deliver the 7% to 9% growth.

We're not going to cap ourselves at the 7 to 9, right? So we're going to focus on delivering as much as we can and deliver great performance. And we'll look at the strength of our end-markets and what's our share gains look like and set the appropriate annual targets. But we felt that 7 to 9 was an appropriate number. One that we have a high degree of confidence in the ability to deliver and with the goal to work to the biggest possible number we can over time.

Dan Brennan -- Cowen

Thank you.

Marc Casper -- Chairman, President, and Chief Executive Officer

Welcome, Dan.

Operator

Your next question comes from the line of Puneet Souda of Leerink.

Puneet Souda -- SVB Leerink covering Life Science Tools and Diagnostics -- Senior Research Analyst

Thanks, Marc. Thanks for taking the question. First one, just a clarification. I know 5 to 11 year-olds vaccinations were voted positively by the panel yesterday. So just wondering if that's already contemplated into this guidance. I know that was a little bit later in the day, so likely not, but I just wanted to confirm. And also on the boosters what I wanted to confirm if that is also contemplated in the fourth quarter and increased for vaccines in 2022.

Marc Casper -- Chairman, President, and Chief Executive Officer

So, Puneet, when I think about how we've done our outlook on vaccine and therapy, it really is based on dialogue with our customers and orders that they have given us. Some 100% on work, and some are going to say we are going to give you the work on the paperwork and some of it is in the orders. So it's less about children or boosters are those things and actually what our customer you are saying, the activity that they want. But obviously things like vaccine mandates and booster shots and children adds to the durability of the demand for vaccines and therapies. We're largely operating with our capacity so you don't get short-term swings in the volumes based on new pronouncements or you get them over time. So that's how we thought about it.

Puneet Souda -- SVB Leerink covering Life Science Tools and Diagnostics -- Senior Research Analyst

Great. Thanks. And the last question for me, is this some capacity expansion. Could you provide a view into the need for further capacity expansion in bioproduction at this point? You open the Switzerland site for biologics production, larger vessels, pipette tube production as well that's coming onboard, Keep facility expansions that have happened. So overall just wondering what you're hearing from the biotherapeutics customers overall. And from the C-suites there, in terms of the demand and your need to further expanded capacity at this point in the cycle of post-COVID.

Marc Casper -- Chairman, President, and Chief Executive Officer

In general, Puneet, we have, in-flight. The activities that we need to meet the anticipated demand. Obviously, we're going to complete a lot of these projects during the course of 2022. A little bit goes into 2023. But it's largely what we have started already. If there are specific opportunities that are part of our longer-term roadmap that makes a difference. You may see us evaluate them, but there's not a long list of those. We've been very aggressive to position ourselves to meet our customers future needs. And the commitments we've gotten and that puts us in a great spot. So, that's how we thought about it. So let me...

Puneet Souda -- SVB Leerink covering Life Science Tools and Diagnostics -- Senior Research Analyst

Great thank you.

Marc Casper -- Chairman, President, and Chief Executive Officer

Wrap it up here and I want to thank everybody for participating and with a strong nine months behind us, we're in a great position to achieve another excellent year. As always, thank you for your support of Thermo Fisher Scientific and we look forward to updating you early in 2022. Thanks, everyone.

Operator

This concludes today's conference call. [operator closing remarks]

Duration: 59 minutes

Call participants:

Rafael Tejada -- Vice President

Marc Casper -- Chairman, President, and Chief Executive Officer

Stephen Williamson -- Senior Vice President and Chief Financial Officer

Unidentified Speaker

Patrick Donnelly -- Citi -- Analyst

Tycho Peterson -- JPMorgan -- Analyst

Jack Meehan -- Nephron Research -- Analyst

Derrick Brown -- Bank of America.

Dan Arias -- Stifel Financial Corp -- Managing Director

Vijay Kumar -- Evercore -- Senior Managing Director

Dan Brennan -- Cowen

Puneet Souda -- SVB Leerink covering Life Science Tools and Diagnostics -- Senior Research Analyst

More TMO analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.