Thermo Fisher Scientific Inc. — Q2 2022 Form 10-Q
Business context and period: The unaudited quarter and six months ended July 2, 2022. Thermo Fisher serves life sciences, analytical instruments, diagnostics, laboratory products and biopharma services markets. Comparisons are with the periods ended July 3, 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First six months 2022 | First six months 2021 |
|---|---|---|---|---|
| Revenue | $10.970B (+18%) | $9.273B | $22.788B (+19%) | $19.179B |
| GAAP operating income | $2.001B (-7%); 18.2% margin | $2.163B; 23.3% margin | $4.822B (-7%); 21.2% margin | $5.212B; 27.2% margin |
| Adjusted operating income and margin | $2.605B; 23.7% | $2.689B; 29.0% | $6.055B; 26.6% | $6.199B; 32.3% |
| Net income attributable to Thermo Fisher | $1.664B | $1.828B | $3.879B | $4.165B |
| GAAP diluted EPS | $4.22 (-8%) | $4.61 | $9.83 (-6%) | $10.50 |
| Adjusted diluted EPS | $5.51 (-2%) | $5.60 | $12.76 (approximately flat) | $12.81 |
| Operating cash flow | $1.528B | $2.227B | $3.730B | $4.205B |
| Free cash flow | $1.034B | $1.687B | $2.598B | $3.042B |
Revenue drivers and material changes
- Reported revenue growth substantially reflected acquisitions: acquisitions contributed 19 percentage points in the first half, while organic revenue growth was 3%; currency translation reduced growth by 3 percentage points.
- Laboratory Products and Biopharma Services revenue rose 55% in Q2, including $1.72B from PPD; first-half revenue rose 53%, including $3.38B from PPD. Organic growth in the segment was 10% for Q2 and 8% for the first half.
- Life Sciences Solutions revenue declined 7% in Q2, primarily from lower COVID-19 testing-related genetic sciences sales. Analytical Instruments revenue increased 9%, led by electron microscopy and chromatography and mass spectrometry. Specialty Diagnostics revenue declined 11%, mainly due to lower COVID-19 testing demand.
- COVID-19 testing product sales were $0.63B in Q2 2022 versus $1.42B a year earlier, and $2.31B in the first half versus $3.87B.
- Management cited strong pharma and biotech demand, growth in academic and government markets, and robust industrial demand, including from semiconductor and materials sciences customers. North America and Asia-Pacific were strong; Europe declined, partly due to lower COVID-19 testing demand.
Cash, debt and liquidity
- Cash and cash equivalents were $1.888B at July 2, 2022, down from $4.477B at year-end 2021. Total debt was $30.260B, down from $34.870B; long-term obligations were $29.250B and short-term obligations/current maturities were $1.010B.
- Cash and restricted cash decreased $2.586B during the first half. Investing used $1.089B, including $1.146B for capital expenditures; financing used $5.050B, including $2.000B of share repurchases and $220M of dividends.
- Working capital changes used $1.724B of operating cash; inventory growth used $870M. Management said existing cash, operating cash flow and borrowing capacity should cover requirements for at least the next 24 months. The $5.0B revolving facility had no borrowings outstanding.
- The company expects 2022 capital expenditures, net of disposals, of $2.5B–$2.7B. Approximately 58% of the $27.70B in remaining performance obligations was expected to be recognized within 12 months.
Outlook, risks and unusual items
- No overall revenue or earnings forecast is provided in the supplied filing text. Management expected the positive effects of COVID-related products and services to continue through 2022, but said their duration and scale were uncertain and dependent on testing, therapy and vaccine demand.
- Management expected a 2022 GAAP tax rate of 10%–12%, an adjusted tax rate of 13%–13.5%, and approximately $1.35B in cash income tax payments.
- Margin pressure reflected acquisition effects and mix, lower COVID-19 testing volumes, strategic growth investment and higher acquisition-related amortization; strong pricing and productivity improvements partly offset inflation and other pressures.
- First-half GAAP other expense included $123M of net investment losses and $26M of debt-extinguishment loss. The company redeemed its 3.65% notes due 2025 in Q1. Tax valuation-allowance releases reduced tax expense by $175M in the first half.
- Risks identified include uncertainty around the pandemic, inflation and supply-chain disruptions, customer capital spending and government funding, foreign exchange and political conditions, regulation, technology and intellectual property, catastrophic events, and whether acquisition benefits materialize. Environmental remediation and litigation outcomes are uncertain; management reported no material new accruals for the matters discussed.
- Restructuring charges were $26M in the first half; the company identified approximately $20M of additional charges, primarily in 2022. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported growth and segment performance depends on PPD and other acquisitions versus underlying organic demand.
- The pace of declining COVID-19-related sales and its effect on Life Sciences Solutions, Specialty Diagnostics and margins.
- Cash conversion and working-capital trends, especially inventory levels, alongside planned capital spending and debt maturities.
- The assumptions behind tax-rate expectations, cash tax payments and the benefit from valuation-allowance releases.
- Potential exposure from environmental matters, litigation, foreign exchange and acquisition-related commitments; the filing says some possible losses cannot be meaningfully estimated.