Kenneth J. Apicerno - Thermo Fisher Scientific, Inc.

Marc N. Casper - Thermo Fisher Scientific, Inc.

Stephen Williamson - Thermo Fisher Scientific, Inc.

Derik de Bruin - Bank of America Merrill Lynch Ross Muken - Evercore ISI Jack Meehan - Barclays Capital, Inc. Tycho W.

Peterson - JPMorgan Securities LLC Jonathan Groberg - UBS Securities LLC Chris Lin - Cowen & Co. LLC Steve C.

Beuchaw - Morgan Stanley & Co. LLC Isaac Ro - Goldman Sachs & Co.

Daniel Arias - Citigroup Global Markets, Inc. (Broker)

Good morning and thank you for joining us. On the call with me today is Marc Casper, our President and Chief Executive Officer, and Stephen Williamson, Senior Vice President and Chief Financial Officer.

Please note this call is being webcast live and will be archived on the Investors section of our website, thermofisher.com, under the heading Webcasts and Presentations, until February 17, 2017. A copy of the press release of our fourth quarter 2016 earnings and future expectations is available in the Investors section of the website under the heading Financial Results.

So before we begin, let me cover our Safe Harbor statement. Various remarks we that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions of 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 Quarterly Report on Form 10-Q for the quarter ended October 1, 2016 under the caption Risk Factors, which is on file with the Securities and Exchange Commission and also available in the Investors section of our website under the heading SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also during this call, we'll be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles, or GAAP.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth quarter 2016 earnings and future expectations and also in the Investors section of our website under the heading Financial Information. So with that, I will now turn the call to Marc.

Thank you, Ken. Good morning, everyone.

Thank you for joining us today for our Q4 and year-end call. I'm pleased to report that we delivered an excellent 2016 and we had many significant accomplishments that strengthened our industry leadership.

At a high level, we leveraged our unique scale and depth of capabilities to gain market share. We continued to execute our growth strategy to strengthen our competitive position.

We deployed significant capital to enhance our value proposition for our customers and create value for our shareholders. And we delivered another very strong year of financial performance.

I'll cover each of these highlights of my remarks, starting with our fourth quarter financial results. We delivered very strong adjusted EPS growth in Q4, with a 14% increase to $2.41.

Our revenue in Q4 grew 6% year-over-year. Our adjusted operating income increased 14% and we expanded our adjusted operating margin by 160 basis points to 24.8%.

Turning to the full year. Our strong adjusted EPS performance all year led to excellent growth of 12% in 2016 to $8.27 a share.

We grew revenues by 8% for the full year to a record $18.27 billion. Adjusted operating income grew 10% and we expanded our adjusted operating margin by 60 basis points to 23.1%.

We've steadily and significantly increased our profitability, and this is a tribute to the power of our PPI business system. PPI has allowed us to continuously expand our margins over the past 10 years, which positions us for a very strong future.

In summary, our team achieved a great year, and that positions us very well going into 2017. Turning to our performance by end market, starting with pharma and biotech.

We delivered a strong Q4 to cap off another excellent year serving this customer base. We grew 10% in this end market for the full year, with strong performance in our Bioproduction business, BioPharma services as well as our Chromatography and Mass Spectrometry businesses.

We've taken advantage of the underlying strength in the pharma and biotech market and our excellent relationships with these customers to leverage our unique value proposition and continue to gain share. In health care and diagnostics, conditions were similar throughout the year and we grew just below the company average in 2016.

Our clinical next-gen sequencing business performed very well and delivered strong growth for the year. Our performance in academic and government end markets in Q4 was similar to what we saw all year and we grew in the low-single digits in 2016.

Last, in industrial and applied, we grew in the low-single digits for the full year. Our businesses serving in the applied markets grew well all year long, as we benefited from our strength in serving food safety and environmental applications.

In Q4, we were encouraged by early signs of an improvement in our core industrial markets, which was reflected in stronger bookings. Now let me shift gears to talk about our growth strategy and highlight a few examples from the year and the quarter that show how we're successfully executing our strategy to position Thermo Fisher for a bright future.

As you know, we have a proven strategy that's based on three pillars: developing high-impact, innovative new products; leveraging our scale in Asia-Pacific and emerging markets; and delivering our unique customer value proposition. So let me start with innovation.

The key takeaway here is that we spent $750 million in R&D in 2016 and we continue to benefit from our industry-leading investment. We are putting that money to good use, and as you can see that by our track record of meaningfully great product launches year-in and year-out.

And 2016 was no exception. I covered these in detail during the year, so I'll just hit some of the highlights this morning.

We continue to strengthen our industry leadership in analytical instruments. We extended the capabilities of our flagship Orbitrap Mass Spec platform by launching new Q Exactive instruments for BioPharma and applied markets.

We also raised the performance bar in Chromatography, with our new Integrion HPIC system. To refresh our leading installed base of lab equipment, we introduced our TSX high-performance refrigerators and freezers.

These new products complement our very successful TSX ultra-low temperature freezers launched about a year ago, which are helping customers to meet their goals for both sustainability and performance. In the clinical space, we continue to introduce new research and diagnostic tools to improve patient care while lowering the cost of care.

We launched new targeted assays for cancer research that run on our Ion Torrent Next-Generation Sequencing instruments. We also received FDA clearance to broaden the use of our sepsis test in the U.S., and we introduced new tests for autoimmune disease and drugs of abuse.

To cap off a great year, we launched a number of products in Q4 as well. Let me give you a few examples.

We launched the new Clariom Pico assays for more effective biomarker discovery, which are based on the new microarray technologies we gained through the acquisition of Affymetrix. We also introduced Heratherm Refrigerated Incubators that don't use traditional refrigerants and consume less energy.

And last, we developed a new RadEye handheld instrument designed to locate a wide range of radioactive materials using a single device. We were also proud to be recognized externally during the quarter for our contributions to the scientific community.

Two of our CRISPR genome editing tools were selected by Scientist Magazine to be among the top 10 innovations in 2016. And R&D Magazine named our Vanquish Flex UHPLC system as one of the top 100 innovations for the year.

So, clearly, another very strong year for innovation, all the way to the end. Turning to the second pillar of our growth strategy, we continue to expand our capabilities in Asia-Pacific and emerging markets, and we achieved very strong performance here in 2016.

China led the way with growth in the high-teens, and it was also a very good year for India and South Korea. We have great momentum in the region and we've continued to build on that with particular focus on investing to support key customer applications.

You may recall that we opened a new BioPharma Services facility in South Korea in Q3 to help meet increasing demand for clinical trials in that country. In Q4, we added a new Bioproduction development lab to our China Innovation Center in Shanghai.

The goal is to introduce customers to an array of advanced technologies and provide localized R&D for media and cell culture applications to meet the specific needs of the local biopharma and vaccine industry. We're also helping them to meet the increasingly stringent production approval criteria in China's rapidly growing market.

Our scale and depth of capabilities in the region, and especially in China, is clearly a competitive advantage for us. We've established an industry-leading presence and we continue to build on that to serve our customers in this large and growing market.

Based on our 2016 results, emerging markets now account for 20% of our total revenue, up a percentage point from the previous year. The third pillar of our growth strategy is our unique customer value proposition.

As you know, we have a strong track record in the biopharma end market. We've continued to gain share with these customers by leveraging our value proposition to help them accelerate innovation and improve productivity.

Our scale and depth are clear differentiators. And what sets us further apart is that we continue to enhance our offering to help our customers meet new challenges.

Let me give you two recent examples. A key area of focus today is on advancing precision medicine.

We have multiple technology platforms necessary to make progress here, from mass spectrometry to targeted gene sequencing, as well as our cloud capabilities for data sharing. In Q4 we announced that were joining the Cancer Moonshot Initiative.

As you probably know, the goal here is to improve cancer detection at early stages and ultimately prevent the disease. It's an all-hands effort between the government and private sector to make these diagnostics and treatments more accessible to patients.

Our broad range of technologies positions us to play a key role in supporting this important effort as well as other efforts around the globe. Looking ahead, we see breakthroughs in structural biology as another exciting new opportunity for us as well.

Our complementary capabilities from FEI and our leadership in life sciences gives us a key competitive advantage here. As we continue to enhance our customer value proposition, both organically and through acquisition, we'll be ready to help our customers address their most pressing needs, which will fuel our growth.

Last, I'll turn to capital deployment, and we had a very successful year on that front as well. We continued to execute our strategy, which is a combination of returning capital to shareholders and investing in acquisitions that strengthen our position as the industry leader.

In terms of returning capital, we bought back $1.25 billion of shares and that includes $250 million that we deployed in December. And we also returned approximately $240 million in dividends through the year.

Turning to M&A. It was a very active year and we deployed about $5.5 billion on strategic acquisitions.

Affymetrix strengthened our leadership in biosciences and added new complementary capabilities to our leading genetic sciences offering. And our acquisition of FEI, which was the third largest in our history, brought industry-leading electron microscopy technologies to Thermo Fisher.

The combination of FEI with our existing portfolio creates exciting opportunities, both in material science as well as in the extremely high-growth field of structural biology. We closed this transaction in late September.

The integration is right on track and the business is performing very well. So in total, we deployed approximately $7 billion of our capital in 2016 to strengthen our strategic position and create shareholder value.

Let me now turn to our guidance for 2017. Stephen will cover the details and outline all the assumptions for our revenue and earnings guidance.

As you'd expect, we're planning to extend our long track record of consistent and strong financial performance in 2017. In terms of our revenue, we expect to deliver between $19.38 billion and $19.62 billion in 2017, which would result in 6% to 7% growth over 2016.

We're initiating adjusted EPS guidance in the range of $9.06 to $9.24. This would lead to 10% to 12% growth over the very strong $8.27 we delivered this past year.

So before I turn the call over to Stephen, let me reiterate our takeaways from the year. We executed well to deliver excellent financial performance.

We strengthened our competitive position by continuing to execute our proven growth strategy. And we deployed significant capital to create value for our customers and our shareholders.

With that, I'll now hand the call over to our CFO, Stephen Williamson. Stephen?

Thanks, Marc, and good morning, everyone. I'll take you through our fourth quarter and full-year results for the total company, then I'll provide some color on our four segments and conclude with a detailed review of our 2017 guidance.

Before I get into the details of our financial performance, I thought it'd be helpful to provide a high-level view of how the year played out versus our expectations at the time of our last earnings call. Organic growth was in line with our previous guidance range and we delivered just under 4.5% organic growth for the full year.

From an earnings standpoint, we finished $0.03 higher than our previous guidance midpoint. This was driven by good performance from the FEI acquisition as well as FX, tax rate and share count being slightly more favorable than we'd previously estimated.

For the full year 2016, we delivered $8.27 of adjusted EPS, 12% growth year-over-year despite a 1% headwind from foreign exchange. Free cash flow was $2.74 billion for the year, slightly higher than our guidance.

So, overall, another year of excellent financial performance. Now let me give you more color on the quarter and the full year.

Starting with adjusted earnings per share, as you saw in our press release, we grew adjusted EPS in Q4 by 14% to $2.41. For the full year, as I just mentioned, adjusted EPS was $8.27, up 12% versus 2015.

GAAP EPS in the quarter was $1.59, up 6% from Q4 last year, and $5.09 for full year 2016, up 3% versus 2015. On the top line, in Q4 our reported revenue grew 6% year-over-year.

This included 8% growth from acquisitions and a 1% headwind from foreign exchange. Normalizing Q4 for fewer days, we estimate that organic growth was approximately 4% during the quarter.

As you're aware, the way our fiscal calendar fell in 2016, we had four extra billing days in Q1 and four fewer billing days in Q4, but there was no impact on the year as a whole. So for the full year, reported revenue grew 8% year-over-year.

The 2016 reported revenue includes just under 4.5% organic growth, 4% growth from acquisitions and a 1% negative impact from foreign exchange. Moving to our growth by geography in Q4, I'll provide you detail normalizing for the four fewer days in the quarter to provide a better understanding of relative performance by region.

Within the quarter, North America grew low-single digits. Europe grew mid-single digits.

Asia-Pacific grew low-double digits, with another strong contribution from China. And Rest of the World declined in the low-single digits.

Turning to our operational performance. Q4 adjusted operating income increased 14% and adjusted operating margin was 24.8%, up 160 basis points from Q4 of last year.

As expected, the fewer number of days in Q4 versus the same period last year had a 40 basis point positive impact on operating margins. The remainder of the strong margin expansion during the quarter was driven by positive mix and the continued gains from our PPI business system.

This is partially offset by strategic investments and the dilutive impact of acquisitions. For the full year, adjusted operating income increased 10% and the adjusted operating margin was 23.1%, up 60 basis points from 2015.

Moving on to the details of the P&L, total company adjusted gross margin came in at 49.4% in the quarter, up 170 basis points from the prior year. For the full year, adjusted gross margin was 48.8%, up 50 basis points from 2015.

For both the quarter and full year, gross margin expansion was driven by very strong productivity, good contribution from acquisitions and modest tailwind from FX. Additionally, within the quarter, we saw the impact of favorable business mix.

Adjusted SG&A in the quarter was 20.3% of revenue, which was down 30 basis points versus Q4 2015, and R&D expense came in at 4.3% of revenue, up 40 basis points versus Q4 last year. For the full year, adjusted SG&A was 21.6%, down 10 basis points compared to full-year 2015, and R&D expense is 4.1% of sales, flat to prior year.

R&D as a percent of our manufacturing revenue for the year was 6.3%. Looking at our results below the line, net interest expense was $117 million, which is $23 million higher compared to Q4 last year, driven mainly by increased debt levels related to our acquisitions.

Net interest expense for the full year was $421 million, an increase of $37 million from 2015. Adjusted other income in Q4 was $11 million.

This was $17 million higher than Q4 last year, mainly due to non-operational foreign exchange. Our Q4 adjusted tax rate was 14.6%, which is 160 basis points higher than last year due to the timing of discrete tax planning items, and was in line with our expectations.

Our full-year adjusted tax rate was 13.8%, similar to 2015. Q4 average diluted shares were 397 million, down 5.4 million year-over-year as a result of $1 billion of share buybacks completed in Q1 and an additional $250 million completed in Q4, partially offset by option dilution.

For the full year, average diluted shares were 397.4 million, down 4.5 million from 2015. For the full year, foreign exchange was a year-over-year headwind of $145 million of revenue, $40 million headwind on adjusted operating income, $10 million tailwind on other income and a $0.07 headwind overall on adjusted earnings per share.

Turning to cash flow on the balance sheet for the full year. Cash flow from continuing operations was $3.16 billion and free cash flow was $2.74 billion after deducting net capital expenditures of approximately $420 million.

This is approximately $320 million higher than 2016 and slightly ahead of our guidance. During 2016, we continued returning capital to shareholders, with $1.25 billion of share buybacks and $240 million in dividends.

We successfully deployed capital to strengthen our customer value proposition through strategic acquisitions, including the acquisitions of Affymetrix and FEI. All told, our total capital deployment in 2016 was approximately $7 billion.

We ended the quarter with about $790 million in cash and investments. And we finished the year with total debt of $16.6 billion, down $2.3 billion from the end of Q3, driven by strong debt pay down during the quarter.

Our leverage ratio at the end of the year was 3.6 times total debt to adjusted EBITDA, which is down from 4.2 times at the end of Q3 and in line with our guidance. Wrapping up my comments on the total company performance, we continued to improve ROIC through the year, even in light of the significant acquisition activity in 2016.

Adjusted ROIC in 2016 was 9.9%, a 40 basis point increase over 2015. So with that, I'll now provide you some color on the performance of our four business segments.

As I highlighted previously, for the total company, foreign exchange continued to be a headwind for the top line of our segments and impacted their year-over-year revenue growth and adjusted operating margins to varying degrees. The four fewer calendar days impacted segment revenue and margins to varying degrees as well.

So starting with Life Sciences Solutions segment, which includes the Affymetrix acquisition, reported revenue increased 10% in Q4. Normalizing for the days impact, we estimate organic revenue growth was approximately 9% in Q4.

Similar to last quarter, we saw strong growth across the segment, including our Bioproduction, Next-Generation Sequencing and Biosciences businesses. For the full year, reported revenue grew 12% and organic growth of 7%.

Q4 adjusted operating income in Life Sciences Solutions increased 16% and adjusted operating margin was 33.3%, which is 170 basis points higher than the year-ago quarter. Adjusted operating margin expansion was driven by strong organic contributions from volume growth, as well as business mix and strong productivity.

This was partially offset by headwinds from FX, the days impact, strategic investments and the expected dilutive impact from acquisitions. For the full year 2016, adjusted operating margin was 30.4%, an increase of 30 basis points over 2015.

In the Analytical Instrument segment, which, as a reminder, includes the FEI acquisition, reported revenue increased 32% in Q4. Normalizing for the days impact, we estimate that organic revenue growth was approximately 3% in Q4.

In the quarter, we benefited from strong growth contributions from both our Chromatography and Mass Spec businesses. And the FEI acquisition, now our Electron Microscopy business, also had a strong quarter.

For the full year, reported revenue in the segment grew 14% and organic growth was 3%. Q4 adjusted operating income in Analytical Instruments increased 46% and adjusted operating margin was 24.5%, up 240 basis points year-over-year.

In the quarter, we saw very strong productivity, a positive contribution from the four fewer days and favorable foreign exchange. This was partially offset by unfavorable volume pull-through and business mix as well as the expected dilutive impact of acquisitions and strategic investments.

For the full year 2016, adjusted operating income increased 22% and adjusted operating margin was 20.3%, 120 basis points higher than 2015. Turning to the Specialty Diagnostics segment in Q4, reported revenue decreased 4%.

Normalizing for the days impact, we estimate that organic revenue growth was approximately 3% positive and was consistent across the businesses. For the full year, reported revenue grew 3% and organic growth was 4%.

Adjusted operating income was flat in Q4 compared to 2015, and adjusted operating margin was 27.2%, up 100 basis points from the prior year. Adjusted operating margin within the quarter benefited from positive contributions from our PPI business system and business mix, along with a tailwind from foreign exchange offset by the days impact and strategic investments.

For the full year 2016, adjusted operating income increased 4% and adjusted operating margin was 27.2%, up 30 basis points from 2015. And finally, in Lab Products and Services segment, Q4 reported revenue decreased 3%.

Normalizing for the days impact, we estimate that organic growth in Q4 was approximately 3% positive. For the full year, reported revenue grew 6% and organic growth was 5%.

In Q4, adjusted operating income in the segment declined 4% and adjusted operating margin was 14.6%, down 10 basis points from the prior year. Adjusted operating margin benefited from good productivity and four fewer days of cost.

However, this was more than offset by negative business mix in the quarter. For the full year 2016, adjusted operating income increased 5% and adjusted operating margin was 15%, flat to the prior year.

So with that, I'd like to review the details of our 2017 guidance, which represents another year of excellent operational performance. As Marc mentioned, we're initiating a 2017 adjusted EPS guidance range of $9.06 to $9.24, which is 10% to 12% growth over 2016.

In terms of revenue, our guidance range is $19.38 billion to $19.62 billion, which is growth of 6% to 7% over 2016. And we're expecting to deliver 4% of organic revenue growth in 2017.

Now I'll outline the assumptions that we factored into our guidance. We're assuming that foreign exchange is a $300 million revenue headwind for 2017, now an impact of just over 1.5%.

This reflects the average rates over the course of January. We assume that this pulls through at approximately 27% due to the mix of currencies and the addition of FEI.

Foreign currency is reducing adjusted EPS growth by $0.20, or just under 2.5%. If you'd look at our 2017 guidance on an FX-neutral basis, the adjusted EPS growth range would be 12% to 14%.

Given the adverse FX environment, we've implemented actions that will offset about a quarter of the $0.20 FX headwind on adjusted EPS. These offsets are included in our operational guidance.

We expect acquisitions completed in 2016 will contribute just over 4% to our reported revenue growth in 2017 and $0.30 of adjusted EPS increase year-over-year. This puts us well on track to achieve the three-year synergy targets for the acquisitions.

Turning to adjusted operating margin. We're expecting 40 basis points to 60 basis points of expansion year-over-year.

To give you some color on the 50 basis points mid-point of guidance, from an operational standpoint, a combination of our proven productivity levers in our PPI business system and the FX offset actions are expected to deliver 55 basis points of margin expansion. Acquisitions are expected to be neutral to margins and foreign exchange is expected to be slightly dilutive.

Moving below the line, we expect net interest expense to be in the range of $440 million to $450 million, about $30 million higher than 2016, primarily as the result of the debt we took on for acquisitions in 2016 and expected increases in interest rates in 2017. Other income is expected to be approximately $15 million lower than 2016.

The non-operating foreign exchange benefits experienced in 2016 are not expected to repeat and we expect to realize lower joint venture income year-over-year following the sale of our glass manufacturing JV in Q4 2016. We're assuming an adjusted income tax rate of 13.3% versus 13.8% in 2016.

The decrease is primarily attributable to the adoption of the new FASB rules on the accounting treatment of excess tax benefits on stock compensation. We assume this will reduce our tax rate by approximately 75 basis points.

Our guidance does not include the benefit of any potential tax reform that may occur in the U.S. We're assuming net capital expenditures to be approximately $500 million.

Free cash flow is expected to be $3.15 billion in 2017, up $410 million year-over-year, mainly due to higher earnings and lower cash taxes. In terms of capital deployment, we're assuming that we'll return approximately $240 million of capital to shareholders through dividends.

Our guidance also assumes a total of $750 million of share buybacks in 2017, $500 million of which we have already completed in January and another $250 million that we assume we will undertake later in the year. We estimate that full-year average diluted shares will be in the range of 393 million to 394 million, down approximately 4 million from 2016, and the impact of these buybacks more than offsetting option dilution.

Our guidance assumes that we use excess cash to repay outstanding short-term debt and, as always, does not assume any future acquisitions or divestitures. Finally, I wanted to touch on quarterly phasing for the year.

As you think about modeling our organic growth calendarization, due to one less selling day in Q1, you should expect slightly lower than average growth in the first quarter. And in terms of adjusted EPS, we're expecting the same phasing as 2016 when you look at each quarter as a percentage of the total year.

As always, in interpreting our revenue and adjusted EPS guidance ranges, you should focus on the midpoint as the most likely view on how we see the year playing out. So in summary, in 2016 we had another year of very strong tactical and strategic execution.

This enabled us to deliver excellent financial results and execute really well on our capital deployment strategy to further enhance our strategic position over the long term. We look forward to delivering another strong year in 2017.

With that, I will turn the call back over to Ken.

Thanks, Stephen. Operator, we're ready to open it up for Q&A.

Hi. Good morning.

Good morning, Derik.

Good morning, Derik.

9% organic revenue growth in Life Sciences Solutions, that's a bigly number, to quote somebody. Can you give us a little bit more color on what's driving that?

So, Derik, the business had a very strong year. And when I look at the combination between the Life Sciences Solutions business kind of year three into the integration, you're seeing the full potential of our company in terms of just great performance.

We saw strength in our Biosciences business. We saw excellent strength in our Bioproduction business and excellent strength in our Clinical Next-Gen Sequencing.

So that combination was common through the year and continued into the fourth quarter.

Great. And just a little bit of a follow up.

Are you getting any sense, given the amount of uncertainty that's out there with the new administration, that there's going to be any hesitation at all in spending in Q1? Basically, your expectations are you have a day headwind, but you're expecting a little bit softer organic revenue growth, more so than normal seasonality in Q1 because of some potential hesitation in spending in pharma or academia until they figure out what's going on?

I think the way we think about the phasing is with the 4% organic growth in the guidance, we're just assuming a difference based on the calendar days. So a little bit below the 4% in Q1, and then obviously mathematically slightly above the 4% average over the balance of three quarters.

So that's the phasing. In terms of the views on certainty or uncertainty, I've had the opportunity actually in the month of January to see a very significant number of customers, interacting with probably about 25 CEOs or head of major academic institutions around the world.

My take is that there is optimism based on a more business-friendly environment in the U.S., but that optimism will start to pan out into good news over time because none of the policies are really in effect. So there's a bit of let's figure out what's going to happen.

But I would say versus a year ago, actually I thought the tone was more positive as I did my kind of year-end reviews and catch-up with our customers.

Great. Thank you very much.

Good morning, guys.

Good morning, Ross.

If we think about underlying trends from an end market standpoint, obviously a lot of noise in Q4 because of the days impact. But if you can think about versus plan maybe where things came in potentially ahead and then where maybe you saw order trends, if at all, maybe not hit what you were looking for as we enter the first part of the year, what were the end markets you would sort of highlight for us to watch in the first part of the year that are probably most important relative to whether there's upside or maybe a bit of pressure on the organic line?

So, Ross, if I think about the fourth quarter, the one thing that was different was really the industrial portion of our industrial and applied, as bookings after really four very difficult and consistently difficult years clearly picked up. It's longer lead time items, so that really probably doesn't show up in the numbers until Q2 and Q3.

But the thing we're really looking at is that bookings trend continue, because that was encouraging. We're assuming this year that last year we had low-single digit growth in the industrial and applied markets, and we are assuming in our guidance that we will be at or around the company average, a little bit of a pick up in that market.

That really is the only significant thing that I'd say that we really saw from an overall end market perspective.

What do you make of all the probably more investor concern in pharma and more on the CapEx side where folks are looking at all of the noise coming on drug pricing and the like and are worried about that market decelerating. It certainly doesn't feel like that's the case.

And I guess from your standpoint, you've been pretty consistent with your messaging. But as you spend a lot of time with customers, maybe give us a little bit of feel or color how they're kind of interpreting the opportunity set on the pipeline versus maybe some of the risks they see to their business on the policy side and how they're kind of calibrating those two things from a purchasing standpoint.

Yeah. So as you know, we're very well positioned serving this customer set and have delivered very strong growth for quite a number of years.

And that's been in environments that were very good and environments that were actually quite challenging, right? So our value proposition of helping our customers be more innovative and productive has helped us gain share through the different parts of the cycle.

As we discussed with our customers, generally they feel good about the science that they're doing and they feel good about what the prospects are for their investments. So what I would say is that we haven't seen a significant change in tone.

Obviously, they'll navigate the various dialogues as will every industry will have their own nuances that they have to address in the current state. But I didn't see a change really in tone.

What we're assuming, Ross, in our guidance is that we will grow mid to high-single digits serving this end market versus our 10% comparison for the year. And that's the same posture that we've taken the last few years of using BioPharma as – or believing that our growth will be strongest in that end market and giving a little bit of a broader range because we obviously have a good comparison in terms of performing well last year.

But we feel good about the outlook in the market.

Very helpful. Thanks, Marc.

You're welcome, Ross.

Hi. Thanks.

Good morning, guys. I wanted to start with the Lab Products and Services segment.

I think even after adjusting for the workdays, it was a little bit softer than we were looking for. Can you walk through some of the products?

You mentioned clinical trial logistics, again, good growth. What was moving the other way in the quarter?

So, if I think about the year-end in the segment that probably saw the most effect in terms of the year-end pattern, it probably sits in that segment, less so a specific business, than the following dynamic. The last three years, kind of the 2013, 2014, 2015 type timeframe, we had very robust year-end spending.

When we look at the year-end spend we saw in 2016, it was kind of more of a normal level of spend and that would be what would be most reflected in our Lab Products and Services business. So that's where we saw it, from that perspective, being a little bit softer.

When you look at things like stack comparisons and things of that sort, actually the trends are identical throughout the year. So when we look at the underlying health, it's pretty much identical through the four quarters.

Great. That's helpful.

And then as a follow-up, Stephen, you mentioned the guide does not include potential net benefit from tax reform. Could you just give the latest thoughts on policy and how the moving parts impact Thermo?

Thanks.

Sure. So, obviously, it's a very fluid situation in terms of U.S.

tax reform and a lot of press, but not many details. As we assess the various logical options that are being discussed, we're confident we'll see a net benefit to our current tax rate.

The benefit has the potential to be significant because there are really two key factors. First, we're a net exporter, which is a positive should a border adjustment provision be part of the plan.

And secondly, the majority of the taxes we pay today are actually in the U.S. So even with the potential limitation on interest deductibility, the rate coming down would certainly be beneficial to us.

And in terms of repatriation, we already have a very efficient structure that has substantial capacity on a go-forward basis.

Excellent. Thank you.

Thanks, Jack.

Hey. Thanks.

Maybe I'll just start out with some rounding out the end market discussion questions. Marc, can you tell us what's embedded for academic growth for the year?

And then it also seems like you saw a little bit of a pick up in Europe. We've heard about that from other peers.

So I'm wondering if you can you talk a little bit more about what you're seeing there.

Yeah. So, Tycho, thanks for the question.

In terms of academic and government, we had low-single digit growth for the full year. And in the quarter when you normalize for days, it was pretty much the same conditions we saw as the full year.

Geographically, the U.S. and China have stronger growth.

And other parts of the world were not strong. From a guidance perspective in 2017, we're looking at similar conditions to 2016.

So, low-single digit growth.

And the thing across Europe, in Q4 just where certain projects landed in terms of Bioproduction and our BioPharma Services business with more weighted toward Europe than U.S. And those things shift over time, so nothing to read into the performance in Europe in Q4.

Yeah, I would agree. I would say from an outlook perspective, we would assume that over time the U.S.

is going to get a little bit stronger and Europe is probably going to be slightly more muted in terms of our outlook for the year.

And then I think one of the things you touched on at our conference in January was taking more price actions this year. Can you maybe just talk about how you're thinking about pricing?

Yeah. So with the strengthening of the dollar, certainly in markets where there's not strong local competition, we've been taking actions.

We had done that in Japan a couple years ago. Benefited from that and we're doing that in additional markets where we have the opportunity to do so.

We took some of those actions in the UK and continue to do so just given how the pound has been. So those are some of the things.

And then I guess last one on capital deployment. Just wondering if you can characterize the M&A funnel.

You did talk a lot about the buyback that you did in December and the ones you have planned for this year. But wondering on the M&A front what you're seeing out there and if there's still interesting assets you're looking at?

Well, there are. I mean, the funnel is busy and pretty full.

We continue to look at a variety of opportunities. As you know, the industry is incredibly fragmented.

So we follow our strategy of looking at things that will strengthen the company strategically, clearly be understood and valued by our customers and create shareholder value, with the primary metric being return on invested capital. While we don't assume any in our guidance because you never know what will ultimately get over the finish line, we feel good about what the pipeline looks like.

Okay. Thanks.

Thanks, Tycho.

Hey. Thanks a million.

And congratulations on a solid end of the year. So, Marc, maybe – you guys are very diversified across kind of all metrics.

Your target range is 4% to 6%. You're saying industrial is getting a little bit better.

I guess as you think about it big picture, to get you up to that 5% to 6%, what would you need to see in 2017?

So in terms of the drivers in the end markets to get to higher organic growth, I would say obviously Industrial and Applied would be one. Obviously, coming in at the higher end of the range in the BioPharma, given the range we've assumed there, would ultimately do that.

And then the other area is going to be academic and government. It has really been very low-single digits for several years, and that's probably 1 point below the long-term historical trend line.

So there's some growth embedded there as well. And the 4% to 6%, as we mentioned, is the long-term outlook.

So any particular year, Jon, it's going to vary, but we've been solidly in that range for a number of years.

Okay. Thanks.

And then I guess bigger picture, Marc, one of the things that seems pretty obvious is that the new administration in the U.S., and who knows what happens in some of the other regions, there's just a lot of change that's coming. Maybe it's difficult to predict what that change is.

I know your philosophy and your track record is it's your job to manage through all that change. Is there anything that you see on the horizon that you're particularly focused on that you think might impact your own strategy through all of this?

I'm just trying to get an understanding of how you're thinking about everything that's going on.

So we read every change through the lens of our customers and how we're going to help our customers navigate the new opportunities and any challenges that they may face. And when there's periods of any type of inflection point, we've done a good job of strengthening our relationships with our customers and growing our share.

And when I think about the specific things for us, obviously tax policy, as Stephen mentioned, should be a nice benefit for us as that gets enacted. So we're paying attention to that as probably the one that's most immediate and affects us.

Okay. Thanks.

You're welcome.

Thanks, Jon.

Hi. Good morning.

This is Chris on for Doug today. Thanks for taking my question.

Sure.

Marc, I was curious if you could provide some more commentary on innovation. I think you have some commentary on new product contributions in your Annual Proxy Statement.

But ahead of that, I was curious if you could just help quantify the new product impact in 2016 and how you would think about contributions in 2017?

Yeah. So, Chris, thanks for the question.

So innovation has been a good year. We finished ahead of our internal goals in terms of the impact for innovation in the year 2016.

We use a variety of metrics to measure that, but felt like performance was good. We have some big areas of investment that we're focused on that will drive really good growth into the future.

I would categorize them in the areas of Mass spectrometry and broadening the application of that technology. The expansion of our next-gen sequencing further and further into the clinical space, we've had good momentum there.

And we're extremely excited about the structural biology applications that FEI brings us and the combination with our leading position in mass spec, So those are some of the things that when I look at what are likely to be continuous good growth drivers for us going forward based on innovation, that's some of the highlights.

Actually, I just have a related question, and I think you've noted (48:55) both of them. We have been curious about the potential impact of new products, such as NGS assays and mass spec, specifically in Specialty Diagnostics and how that can improve the growth rate in that segment going forward.

So I was wondering if you could provide any commentary there on improving the Specialty Diagnostics growth outlook?

Sure. So in terms of the growth in Specialty Diagnostics, it's been operating just below the company average for a period of time.

We have a fairly large program in clinical mass spectrometry and that's something that we are targeting to have an impact in 2018. And that, obviously, when we launch and when it drives adoption, should be a nice tailwind for that part of our business.

Thanks, Chris.

Steve, are you there?

Hi. Good morning.

Can you hear me now?

Yep.

Okay. Sorry about that.

Just looking to fill in the picture here a bit on two things. One, Marc, in genetics and genomics, your tone there has been really positive for some time.

And, of course, now with Affymetrix, you have a fuller toolkit, if you will. I wonder if you could just level set us a little bit to help us from a modeling perspective.

In the clinical sequencing business, any way you'd be able to size that for us, given where we are here? And you mentioned really strong growth there.

How strong is the growth, what are we talking about? And then on the Affymetrix side, how have you seen the growth at Affymetrix, or the legacy Affymetrix business progress since the completion of the deal?

And how are you thinking about those businesses for 2017? Thanks.

So, Steve, thanks for the questions. So we obviously have a strong competitive position in our genomics offering from the only company having Sanger sequencing, qPCR, Next-Gen Sequencing and Microarrays within the portfolio.

So let's start with the clinical Next-Gen Sequencing. That's a business that has grown in the teens for us and continues to progress very well, so at least gives you a sense.

From the Affymetrix integration, let me give you an update there. The integration has gone very smoothly.

The eBioscience's business portion, which is complementary to our Biosciences position, is growing very well. And it was encouraging to see in the fourth quarter some stabilization of the Microarray business.

Still below our expectations from the beginning of the year, but clearly a nice set of momentum from the actions we put in place during the course of the year. So I feel better about that.

And we're looking forward to a strengthening year in the Affymetrix business in 2017.

I really appreciate all the color. Thanks, Marc.

You're welcome, Steve.

Good morning, guys. Thank you.

Wanted to spend a little bit more time on the BioPharma outlook for this year. Obviously a lot of concern out there, just given how strong those market have been for everybody last couple of years.

And you covered some of that in the prepared comments. But I was hoping maybe you could speak a little bit about how you think about visibility between the R&D side of BioPharma versus Bioproduction.

Obviously, you got good exposure in both halves. But if you could talk a little bit about the process you went through when you set your 2017 guidance and handicapping the R&D versus production outlook, that be helpful.

Sure. So, Isaac, in our mix, we have roughly a $1 billion Bioproduction business.

Been a very strong grower. It's a bit lumpy.

But the growth is very strong. And when we look at the outlook for this full year, it continues to be very robust.

The reason for that is as you move through the R&D process into production to the ramp of production, those products are very life science tools – consumption is very intensive. So as volume grows, you really do consume a lot of product relative to a small molecule, which is once you get it into production, really you're just down to the Chromatography for QA/QC.

So that's a tailwind that should be with us for the long term in terms of the growth in that part of the business. In terms of the research and development portions of the business and visibility, you never have perfect visibility.

But generally, based on the strength of the customer relationships that we have and the access that we have to the customer base, our takeaway is that this is an end market where we're very well positioned to continue to drive meaningful growth.

Great. And then just a follow up on a couple product specifics.

One is on FEI. Obviously that's been a nice acquisition from a technology standpoint.

And then I think at the same time, the end markets, as you mentioned, in structural biology have started to pick up. So can you talk little bit about where we are in terms of recognizing the orders that you have in structural biology?

Is that an uptick that we should expect to continue throughout the course of 2017, or is it really going to be more about the first half of the year? And then second to that would be Affymetrix.

If you could help us level set how growth in that business settled out for 2016 and what your expectation is for this year. Thank you.

Yeah. So in terms of FEI, it is an incredibly strong fit with our company and probably one of the most under-appreciated things if I think about in terms of what we did last year and in terms of how that will create a very bright future for the company.

When I look at the momentum in structural biology and the orders and the shipments, the business should grow well this year. Obviously, most of the year does not count in our organic growth calculation just because we don't do it until the anniversary.

But the business in aggregate should grow above the company average and, last year, certainly had bookings well in excess of their revenue. So a very strong outlook from that perspective.

In terms of Affymetrix, we're expecting the business to grow around the company average, maybe slightly better in 2017. So thank you, Isaac.

Operator, we have time for just one more.

Hi. Good morning, thanks.

Just wanted to follow up on the Specialty Diagnostics growth drivers there with two quick ones. First is just on contributions from the collaborations such as what you are doing with Siemens.

What should we expect out of those? And then the second is whether you feel like some of the things that could maybe give the portfolio a deeper reach will be meaningful to growth this year?

I think your PCP assay got cleared for broader use. I think you've signed some licensing deals there.

So how might those contribute? Thanks very much.

Yeah. Thanks for the question.

So in terms of our position in Specialty Diagnostics, we really have a unique position because we are large partner to each of the OEM companies in the field. So customers like Siemens and Roche are important customers and collaborators with us.

One of the interesting areas of growth for us has really been in the sepsis biomarker, PCT. The additional clearances in the U.S.

should be a nice tailwind for that business, as not only did we get the clearance on our platform as did a number of our partners. So that should drive further adoption in the U.S., where originally it was usually for a single test and now it's used for monitoring a patient with sepsis, which allows for a larger recurring revenue stream.

So we're excited about those opportunities. So thank you for the question.

Let me just conclude with a quick comment. As a company and as a team, we're very pleased to delivered strong 2016.

We're very well positioned to achieve our growth goals for the years ahead. And certainly I want to thank each of you for your support for Thermo Fisher Scientific.

Thanks, everyone.