Q2 2020 Danaher Corp Earnings Call

At this time I would like to welcome everyone to Danaher Corporation second quarter 2020 earnings results Conference call.

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I'll now turn the call over to Mr. back the Gino Vice President of Investor Relations Mr. could you know you may begin your conference.

Thanks, Maria Good morning, everyone and thanks for joining us on the call with US today, Okay enjoys the president Chief Executive Officer, Matt grew our executive Vice President and Chief Financial Officer.

I'd like to point out that our earnings release, the slide presentation supplementing today's call our second quarter 2020 form 10-Q, and a reconciliations and other information required by actually see regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investor section of our website.

BW Danaher dotcom part of the heading quarterly earnings.

The audio portion of this call will be archived on the Investor section of our website later today under the heading investor presentation, and one main archived into our to our next quarterly call.

A replay of this call will also be available until August six 2020.

During the presentation, we will describe certain into more significant factors that impacted year over year performance supplemental materials describe additional factors that impacted year over year performance.

Unless otherwise noted all references in these remarks in something like materials company specific financial metrics refer to results from continuing operations and relate to the second quarter 2020, and all references to period to period increases or decreases in finance two metrics our year over here.

When they also describes certain products and devices, which had application submitted and pending for certain regulatory approvals or only that only available in certain markets.

During the call where make forward looking statements within the media the federal securities laws, including statements regarding events or developments that we believe or anticipate will occur in future.

These forward looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings and actual results may differ materially from any forward looking statements that we make today.

These forward looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward looking statements, except as required by law.

As a result in besides insights you the acquisition and its impact on Danahers overall core revenue growth profile were presenting core revenue on a basis that includes 30, the sales references to core revenue growth in Queens Becky the sales in that calculation period to period sales growth compared to current period sites yourself to the historical periods of T. The sales price the acquisition.

With that I'd like to turn the call over to Tom.

Thanks, Matt.

Good morning, everyone.

We're very pleased with our second quarter results.

Actually such challenging environment.

Our solid core revenue growth strong cash flow generation.

And more than 30% S. Great Alright Testament to our team's commitment to the Danaher business system.

Andy outstanding portfolio businesses that comprise danaher today.

We're tackling the challenges and opportunities presented by the Cobot 19 pandemic head on.

And our fortunate to do so from a position of strength.

These circumstances of showcased the resilience of our portfolio.

A unique collection market, leading franchises and technology.

The high level of recurring revenue.

From Daishin of continuous improvement.

We believe this powerful combination differentiate danaher.

We will enable us to continue generating sustainable long term value for shareholders.

Many years to come.

Before we run through our second quarter results I'd like to provide an update on a few of the ways. We are directly contributing to the fight against Kobin 19 today.

And well into the future.

Diagnostic testing, it's been a critical component of the global communities attempts to better understand and ultimately curb the spread of cobot 19.

And selfie it has been a leader in this effort.

In March Cephea launched the first rapid molecular tests for Cobot 19.

Provides highly accurate results within 45 minutes.

Multiple independent studies indicate itself has performance is best in class versus other point of care platforms on the market today.

Providing superior virus detection.

One of the faster time to results.

The team has meaningfully increase production capacity since the test was launched shipping more than 6 million tests cartridges in the second quarter.

As a testament Giuseppe its commitment to tackle this global health crisis.

The team recently announced the development of a rapid four in one combination test for Cobot 19.

Flew a blue B and RSV from a single patient sample.

The symptoms for each of these viruses are very similar.

But the treatments are very different so the test is being designed to provide critical answers within 35 minutes.

Sure Yeah patient outcome.

Before and one test is expected to launch in the third quarter ahead of the upcoming flu season.

In addition to ramping test production Steffi. It also delivered a record record number of new instruments to customers in the second quarter.

The installed base grew double digits.

And the number of new instrument placements was more than four times that have a typical for it.

This significantly increases cephea install base, which now totals more than 26000 instruments globally.

<unk> essential diagnostic information closer to more patients in communities around the world.

Another addition to our diagnostic testing capabilities with the launch of Beckman Coulter diagnostics Surajit tests in June.

It's highly sensitive and specific assay can identify I Gigi anti bodies to the virus, which typically begins to develop within the first 14 days of infection.

Anybody athletes could potentially play an important role understanding immunity.

And in turn improving the world's ability to manage cobot 19 going forward.

As we look beyond testing.

A global race designed to find effective treatments for called go Cobot 19.

We're proud to support the scientific community in their pursuit of new vaccines and therapies there beauty.

<unk>.

Paul inside <unk> products and solutions are involved in the majority of the more than 200 vaccine and therapeutic projects currently underway around the world.

Including participation on every cobot 19 vaccine that has been human clinical trials today.

Our unique offering across the bioprocessing workflow positions us exceptionally well help bring vaccines and therapies and market faster.

In addition to our market, leading filtration chromatography and single use technologies.

Paul inside <unk> innovative teams provide customers with extensive technical expertise to enable breakthrough development.

Production capabilities.

One such example is Paul process development services team, which is helping customers scale up their vaccine production processes significantly faster.

And in one instance.

Accomplishing in just a few weeks, what typically take months or even years.

These innovative bio processing solutions are just a few examples of how we're helping to accelerate the pursuit of cobot 19 prevention and ultimately a cure.

Now, let's look at our second quarter results.

We generated $5.3 billion sales.

With 3.5% core revenue growth.

The impact of foreign currency translation decreased revenues by 2%.

We also saw strong order growth in the quarter.

Just under 10%.

Led by our life Sciences and diagnostic platforms.

Geographically revenue in the developed markets.

Up mid single digits led by North America, and Western Europe.

Hi growth markets were up slightly driven by a meaningful sequential improvement in China, which was up low single digits year over year.

Hi.

EBIT margin of 53.8% and operating profit margin of 15.9%.

Were both down primarily as a result of fair value adjustments related to the sites either acquisition.

Excluding these adjustments both gross and operating profit margin increased by more than 150 basis points year over year.

Core operating profit margin was down 80 basis points, driven by slightly lower volume excluding sites, Eva foreign exchange rate movements and higher corporate expense.

Adjusted diluted net earnings per common share of $1.44 cents.

32% versus last year.

We generated $1.3 billion, a free cash flow in the quarter.

And $2 billion year to date, both approximately 35% for more year over year.

Our outstanding free cash flow combined with a strong balance sheet positions us well to actively pursue strategic M&A opportunities in this environment.

We're also accelerating growth investments across Danaher, most notably itself did and many of our life science businesses, where we are expanding production capacity to support the fight against Koby 19.

Now, let's take a more detailed look at results across the portfolio.

Life Sciences core revenue was up 8% led by high teens or better core growth, it's like Eva.

<unk> biotech and diabetes.

More specifically like TV achieved more than 20% core revenue growth in its first full quarter as part of danaher exceeding our expectations.

Demand for our bio processing genome and automation solutions was driven by ongoing global efforts to develop cobot, 19th testing and treatment.

This was partially offset by decline in our more instrument oriented businesses science and like a micro systems.

Academic and research lab closures delayed installations of existing instrument orders and new capital purchases, particularly across developed markets.

Despite this difficult environment Cyacq successfully launched multiple new products earlier, this month, including the Triple Quad 7500 mass spectrometer.

The news 7500, Mark side, the most significant launch of the last five years and reinforces their market leadership in quantitative mass spectrometry.

This is another great example of how we're continuing to invest for growth across danaher and enhancing our competitive advantage through innovation.

Moving to diagnostics.

40 revenue was up 2.5%.

With 5% core revenue growth led by continued strength that our point of care businesses Cephea and radiometer.

Global demand for Cephea, Cobot, 19 test and gene expert instruments helped drive more than 100% core revenue growth itself be it in the quarter.

Radiometer delivered double digit core revenue growth at elevated levels of Kobin 19, hospitalizations drove demand for blood gas testing.

A record number of new ABL blood gas analyzers were delivered during the quarter further expanding radiometer is market leading global installed base.

This strong performance was partially offset by declines at Beckman Coulter diagnostics and like the bio system, our core laboratory and pathology businesses.

Patient volumes were down meaningfully as elective procedures and wellness business visits resume slowly throughout the quarter, particularly across the U.S. in Europe.

This was partially offset by improvements in China, where hospital visits began to approach pre pandemic levels.

Moving to our environmental and applied solutions segment.

Reported revenue was down 10.5% and core revenue declined 8.5%.

By geography declines in North America in Western Europe were partially offset by double digit growth in China.

And our water quality platform mid single digit core revenue declines were driven by industrial end market softness while municipalities remained stable.

Steady demand for our consumables and Chemistries globally was offset by delayed equipment purchases, particularly in the developed markets.

However, we were encouraged by strong results in China during the quarter as activity return to more normalized levels across the region.

Core revenue at our product identification platform was down double digits, largely due to equipment revenue declines as mission critical operating expenses were prioritize over larger capital investment.

At Videojet positive consumables growth was led by demand across the consumer package goods and food end markets.

Service performed well.

As well.

As we continued to support customers throughout the pandemic, helping to keep their essential business operations up and running.

So with that as a context for what we saw by segment Oh, let's take a closer look at recent trends across our end markets.

Encouragingly the dynamics of the quarter were largely a continuation of what we outlined in early may.

April appeared to be the trough with modest improvement as we move you may and June.

Geographically, we continued to see improving activity in China.

With Europe following suit, albeit at a slower pace.

Resumption of activity in the U.S. is mix.

Many states only recently, beginning phase three openings and others experiencing setbacks in the process.

Within life Sciences, we continue to see a bifurcation across our end markets.

A recent surgeon cobot 19 related research and development among our biotech and pharmaceutical customers is generating strong demand for our bioprocess things you know, making automation solutions.

Non co bid related Bioprocessing activity also remains very healthy contributing to demand for filtration chromatography single use in cell and gene therapy products.

It's like Kiva and Paul biotech.

Comprised the majority of our exposure to the Bioprocessing end market and collectively these two businesses had more than 40% growth in their order book in the quarter.

Strong indication of the longer term opportunities we're seeing here.

Meanwhile, widespread shutdowns continue to impact non kobin related research lab activity.

Labs in the U.S. recently started to reopen but are operating at limited capacity.

Distinct variations by region.

The story in Europe, it's similar to the U.S., while China is further along and activity appears to be approaching pre pandemic levels.

We estimate that approximately 50% to 60% of academic research labs in developed markets are now opened in some capacity.

That number is closer to 90% in China, where installations have resumed an instrument order books are building.

Looking across clinical diagnostics, we continue to see very strong demand for molecular point of care.

And acute care testing, which is also driving a significant increase in instrument placements globally.

Across hospital labs, and reference labs, we were encouraged to see patient volumes ramp up as we move through the quarter.

With elective procedures and wellness checks resuming across much of the developed markets.

Today, we estimate the patient volumes in North America are approximately 85% to 90% of historical levels with Europe slightly ahead, and China, even further along given their earlier reopening.

In the applied markets, the divergence of demand between consumables and equipment appears to be lessening.

Consumables remains solid as customer sustain a central business operations like testing and treating water.

Safely packaging consumer product, good food and medicine.

Equipments declines are starting to moderate and we're encouraged by recent order book trends.

In light of these recent dynamics, we expect to deliver mid to high single digit core revenue growth in the third quarter.

We anticipate cobot 19 related revenue tailwind will be similar to what we saw in the second quarter.

By segment, we expect core revenue growth at life sciences to be up double digit low double digits.

Diagnostics up high single digits, and environmental applied solutions to be approximately flat.

So to wrap up.

Proud of our results this quarter. Our teams stayed focused on executing and continue to find innovative ways to tackle the challenges and opportunities presented by this pandemic.

We're excited about the portfolio that we have today, how it will continue to differentiate us going forward.

And we're fortunate.

Navigate through this environment from a position of strength.

With our solid balance sheet and outstanding cash flow generation.

Enabling us to be nimble and opportunistic.

We believe that the combination of our talented team DBS driven execution.

And resilient portfolio uniquely position Danahers outperform 2020.

Well into the future.

With that.

I'll turn the call back over to you. So that we can start taking questions.

Thanks, Tom that concludes our formal comments Maria we're now ready for questions.

Thank you the floor is now open for questions.

If he wants to ask a question at this time. Please press star one on your Touchtone phone.

Again, if your question has been answered and you wish to remove yourself from the Q press the pound cake.

Our first question comes from minus Derik de Bruin of Bank of America.

Hi, good morning, Thanks for taking my question.

Good morning, Eric.

I got a couple I got a couple of to start with I think the first one is can you you were getting a number of questions on the margin math for the second quarter and the inventory step ups can you talk about the dynamics of that and the better the more important questions like how does how did the gross and operating margins for.

Dress now that.

Psyche, but is fully into the numbers and how should we think about the rest of the year.

Yeah sure Derek I'll take it so the gross margin. We saw we saw kind of a decline of 200 basis points sort of year over year.

Like Tom said in the prepared remarks that is.

Hi, early driven by inventory step ups related to the psyche of acquisition in the quarter. So if you exclude that impact our gross margins are I call it closer to 58%, which would've been up a couple of hundred basis points year over year.

And again, I think largely driven by say cheaper.

And that should be sort of onetime here in the quarter Derek that we get by as we start to move you know that's a onetime thing here in the quarter. So going forward you shouldn't see them.

Okay. That's yeah, I, just want to clarify that and how should we sort of it how should we think about the.

The you know the S today and the R&D.

The Opex line.

I don't know that we had a tremendous amount of.

Step up issues in either of those two line side I think I think about the R&D line I think while while I do think we will continue kind of investing in accelerate some spend here in the second half I think more or less the R&D line should stay pretty constant again outside of the investments that we're going to make here.

In the second half largely around breakeven I think we'll probably a little heavier investing there, but generally speaking I think were biased here.

This environment to continue to to try and spend to make sure that we position ourselves not only for a you know for where we are in the short term hearing 20, but to make sure that as we head into 2021 that we're really the best position possible so might be how I think about it going forward.

Yeah, I would I would I would add to that Derek just echoing matts comments.

We're we're obviously very fortunate to have a portfolio that now includes businesses like psych t., but Paul biotech RBC Steffi, a driving outside performance and without standing operating margins. It is and I think you know our crack record historically is.

We we like to take advantage of.

Situations like this on to continue to invest for the future and some of that investment shows up in that in the sales line. Some in the marketing line and certainly some in the R&D line and and I think you'll see us continue to try to do that because we feel well positioned in our markets and we think that their selective opportunities.

Continue to to invest for growth and that will set us up exceptionally well not only for the rest of this year, but but most importantly, I think for for next year.

As we see the environment improve.

Great if I can squeeze in one diagnostics question you mentioned before in one tests coming out it's like how are you pricing that multiplex test and and also just talk about stuff did capacity expansions I mean, you've obviously picked it up since you since March but how should we think about where your cartridge.

Element you can go or your production can go over the next couple of quarters.

Sure well, we're not yet at a point, where we are in a position to talk about pricing on the four in one task, but you know certainly this is a task that is going to be incredibly important in the market I'm, we're going to continue to produce standalone 10.

As well, but there's no question our customers have expressed a very strong interest in a targeted respiratory panel that that brings together cobot flew a flu be and RSV. So will be sizing up the opportunities relative to pricing over the next step several weeks and it'd be coming back.

That so we think there's a tremendous opportunity there relative to two step you had capacity we continue to build on our output capabilities, you'll recall in the first quarter I think we were at about.

2 million passed and we were just ramping we ramped well throughout the course of the quarter to 6 billion tests and we're gonna. We've we've released a significant amount of capital to continue to build that capacity some of that capacity capital that we release is going to take a little bit a time to come online.

And we'll see some modest growth in the <unk> in the third quarter here and even more significant growth as we go into the fourth quarter and then that certainly throughout 2021 I think he did this Derek is our view that there's a tremendous amount of durability and sustainability to the testing benefits itself you deliver system.

Market.

There's a lot of variables, there's plenty of competition, but when would you look at that speed in the accuracy that we deliver and the value that we deliver a associated with the diagnose it.

There's no doubt that that demand is going to be sustained over time. So we're going to continue to ramp that capacity and.

Sustain our strong positions in the market.

Great. Thank you.

Thanks, Eric.

Our next question comes from a lot of Tyco Peterson of JP Morgan.

Good morning, Thanks, good morning.

On the code. The Tailwinds you know you've noted three key similar coupon.

[laughter] hooked up to your first happiness everything works a lot less important cherry picking peak.

Hello.

So how much of the volume do you expect to go forward one versus Standalone covert testing going forward.

Tyco I'm, assuming you can hear me clearly we couldn't hear anything on your question. Unfortunately, Jeff.

Except for the very last part of the question around four and ones I'm going to try to pour in one answer and then we'll see if you come through clearer a captive units. So on I think your question with how much volume is going to move to the four in one we do not know the answer to that it at this point its we believe it.

We will be significant and material, but in terms of putting a number on a quite yet we just don't have enough voice of customer yet obviously, we out we haven't developed the pricing model yet I mean, we're building capacity. So we'll have to come back to you.

You know probably in the next couple of months with a better sense of how we see that volume ramping again, we'll continue to produce the standalone cast so there'll be a balance there but.

Time will tell on the overall volume so let let's try the earlier part of your question again.

Yeah, It's just last week.

Sure.

[laughter].

[laughter].

I've seen a therapy work why shouldn't you see a much more material koby tailwind in threeq.

Okay. We we only caught we're really apologize only caught the tail end to that I'm looking at my team on video and they can't they couldn't hear that either but.

Let me just try to let me try to hit it a bit because I think you asked about about vaccines.

And your tailwind I went to Threeq, you can't wouldn't be more material into Q for coverage.

Well I, let me see if I got that you were asking about the Q3 tailwind [laughter] for coated why isn't that dynamic here given how much you've grown Dick you know separate installed base and you've got sex, either and Paul why wouldn't it be more material in threeq versus twoq.

Sure sure absolutely sorry, I apologize, but the transmission was so poor, but I think we got it now you know we're going to we're going to see that volumes continue to to to track I think there was that there was an outsize impact certainly it's Jeff you during the course of the second quarter with that instrument.

Volume boosting at the rate that is good we.

We don't expect that that necessarily will continue to grow quite at that rate. So I think that's one mitigating factor and I think as it relates to both sides, Paul biotech and sites Hiva.

I think we'll see continued traction there, but at the moment, we we think that what we're seeing from customers is the demand that is again given the quick ramp that was associated with the 200 or so vaccine and therapeutic related efforts that are going on that those are likely to be more consistent.

In the third quarter, rather than a differentially higher so.

Those are just some of the factors, perhaps that's a little bit conservative if so we'll take that like job in line, that's our best estimate at the moment.

And the time like Randy.

Yeah, I, just I just wanted to kind of.

You know kind of get out that we are expecting a from a from a tailwind perspective, we are expecting a modestly higher benefit here in the quarter for everything Tom talked about you know sort of more or less than same volumes, you know accepted, but but with a bit of a tailwind or headwind here on the on the instrument side, but I mean I think if you you know you think about what we're gonna be doing here in the fourth quarter ended.

21, particularly around the build out on on sites, Eva and if you think about our tailwinds that build on sativa, sorry build on SAP your capacity that that's coming on line and then probably as importantly.

No we had 40% growth in orders at both sites, Eva and Paul biotech here in the quarter and while we don't expect all of that to show up here in Q3 does portends well for what we think the second half will sort of look like and as we head into 21.

It was you know not just on vaccines, but that was sort of kind of evenly split between vaccines and the therapeutics, which you know are a big part too. So while we may have a more modest expectation for the third quarter I think that there's a ramp as we had through the second happening, particularly the 21.

And then lastly is there any color you can put on the vaccine is therapy work for Poland psyche, though I mean, you're not doing fill finish work. So there's no kind of per dose calculation, but can you just help us think about the magnitude of that work.

You know there arts gosh, I mean, we're certainly working on that and given our exposure across the broad range of human clinical trials that are going on right now we're starting to get a handle on those opportunities, but they're still so many unknowns.

That makes sizing it top I mean, it's it's been number and different types of winning vaccines in therapeutics.

Questions about production volumes number of steps in each process. So I mean, there's no question that it's going to be a large and sustained opportunity, but you know it's just it's up it's just become with its very hard number for us to the wrap our minds around today, but I'm sure we'll get to handle on it as it becomes clearer.

Who the winners are and how that production volume will ramp within any individual winter. We're not gonna have you know dozens and dozens of winners here I think we'll have you know several winners and once we are more line of sight to where the winners side. Then obviously, we got a better said.

It's up.

They're dosage production volumes, our position there and what that means when you translate that into sales volume.

Alright, thanks, guys, sorry about the quality issues for us.

Yeah, sorry, Tyco, thanks, though.

Our next question comes from one of these checkmark Evercore ISI.

25 gig.

Morning Com. Thanks for taking my question and not a congrats on the solid execution too.

Maybe I'll start with <unk>, 40% order growth.

Implications that as I mean, if that business is contributing about 400 basis points of growth right now.

In the order book is running on two X that aside the growth rates right now the implication is Uh huh.

The business should contribute got 400 to 500 basis points with growth in Memphis by 21, if assuming assuming all of the orders that were seeing flow to get recognized as revenues in fiscal coming month. It does it make sense.

Yeah, I mean, I think it's this is Matt I mean, I think the issue without the math can make sense, but it's the assumption around the timing I think that we just are still kind of TBD on VJ or whether that starts to flow real hard here in the third or fourth quarter or if it starts in the first half of 21 I think that's the only.

We feel like questions really around the timing, but like I said earlier with my comments I mean, I think we're pretty encouraged.

By the start upside people, both on the topline core business outside of cold.

And the cobot opportunity, that's starting to emerge that you sell at that level of orders growth.

And just on not the margins itself Mac I mean, if you look at I think got the deal models had psyche love running at a mid thirtys. It looks like it came in well above 40% is that is there any timing element on those margins were up in how sustainable. This yeah, that's like Mark on the margin side.

Yeah sure no such even margins did come in north of 40 in Q2, which is obviously like you said better than sort of.

The recent performance that we had seen out of them I think there's three things to think about.

On the reason for that one we had higher volume here north of 20% core growth does give you lots of opportunities from a fall through perspective from a VCM perspective, So we did have higher volumes.

The other thing the second thing is there's probably.

Very favorable mix element here, we had sort of the higher margin business is like process chromatography grew double digits well you know more of the equipment heavy businesses, we'll call. It low single digits, which was you know kind of a very favorable mix impact in the quarter and the third thing isn't I think you've seen it places.

You know, we just had a lot lower opex spend given the state homeowners right traveled tracers et cetera was was sort of much lower so I think if you add it all up.

That's how we sort of went from where we thought it would be to sort of north of 40, but I would sort of.

Temper some some expectations here as we head into margin think about the margins in Q3.

I've said Q2 was sort of a perfect storm with everything going the right way, where there's two things that I think to think about as we as we had forward into Q3 in the second half. One is this is the vis a business that we are going to.

Accelerate the growth investments in not unlike we have done as our other businesses, we alluded to that earlier in the call but in particular this business one given the the plethora of growth opportunities that are out there and across all of their business is not Justin.

Bile bio processing and frankly.

Business, we've got to invest as much as it would have liked maybe in the past and we're very eager to make sure that they have every opportunity afforded to so that's one and then too.

No were 90 days into this.

From a kind of standing it up on its own if you will and so our stand up costs. The number of people. We've hired the cost we put into the business. So far to get it stood up in off of sort of the you know the the GE a kind of apparatus that is going to ramp as we go through the second out and that will have an impact here on the margin profile as well. So good good good start for sure little bit better when we.

Thought on a perfect storm, but but I do think there's some moderation coming.

That's helpful not to now one not big picture for comic Con you look at the balance sheet five plus fill in the ER and the cash on hand.

Cash looks like how we run rating well above 5 billion I'm just curious I think at the time of secondly, you guys made comments about the delays being opportunistic I'm just curious.

Hi, good thoughts uncapped deployment or evolving in the current environment. Thanks, guys.

Sure VJ. Thank you, yes, we are we're in a very strong and fortunate position relative to our balance sheet in that position continues to be reinforced by a really exceptional free cash flow you know at 2 billion dollar cash flow number on a year to date basis.

I'm really continues to put us in in a great spot you know when I talk about opportunistic.

That's a term that we would typically use associated with you know a very uncertain sorted disrupted environment like we would coming through.

In the first quarter and continued to see in the second quarter and you know that sometimes creates opportunities that for whatever reason, we may not have seen coming businesses. They did get into a spot where all the sudden they have they have a change of heart about their future and were able to take advantage of that but.

You know with me the strength of the balance sheet that we have now that onto the back of the I'd be equity offering that we did.

The strength of the free cash flow here in the second quarter and what we see is continuing strength net free cash flow in the third and fourth quarter's you know that that positions us to really continue to to work hard on the strategic opportunities that we focus on consistently through.

The course of the year and that goes across each one of our platforms life Sciences diagnostics water quality P.I.D. each of them continuing to focus on key market segments, where their unique opportunities key product and technology opportunities, where we can complement the strength of our existing portfolio.

And in some cases bring on a unique and differentiating leg of the portfolio that allows us they had greater value to customers everyday and so I think we're in a great position, we're starting to see some improvement in the environment in the second quarter. One example of that yeah.

The deal that we did for our water quality platform informatics in the second quarter that was the deal that was essentially put on old earlier in the in the first quarter as things tightened up Ah, but as I as things started to improve we were able to reengage and that we're able to two.

Consummate that acquisition in the second quarter, and that's a tremendous ads of a key data management and software capability for our water quality platform and and we're looking forward do that said that team playing a.

Well, that's just one example, but I would say were generally seeing and improving environment. One that we can not only be opportunistic, but I think continue to.

Right to our strategic objectives at the same time.

Thanks, guys.

Our next question comes from a lot of Scott Davis millions research.

Hi, Good morning, guys. It does this is it the author just asking me [laughter] well [laughter] no comment I should've done it under a suit and am I guess [laughter] anonymous <unk>.

I'd get less he got email I I've gotten through the I've gotten through the introduction I didn't give directly to the Danaher chapter, but thank you welcome Scott well each morning.

Well, thanks, Tom It's it's very confident but oh for the book helps to sleep at night it out for a couple of pages in your out like a light but [laughter].

[laughter] anyway, I Uh huh.

Quite a good detail already and you just talked a little bit about M&A and what do you envision Tom in the next.

<unk> lots finished sort of strange environment is it a better environment for bolt ons as or better environment to take take take bigger bigger bets like a decisive is it I mean, just little bit of color around that just just given how strange things are right now.

Yeah, I well first of all Scott I think over the next 12 months I think we'll see.

Without any question, Adam and improving environment from an M&A and capital deployment perspective, I mean, we all know that you know March March April part I mean things were essentially locked down two great extent people for frozen in place.

In many different ways and so there's no doubt that you come off but situation like that and I think we'll see improvement. We are we're already seeing a little bit of that Oh already you know I would say normally what happens, particularly on the back of a very large.

Acquisition like say Kiva that we've done on you have historically seen us do a more Bolton you know small midsize bolt on acquisitions to our platforms and I know the teams are working actively on those some of those smaller situations and get.

You know a little lot unhinged here in an uncertain environment and that tends to serve.

Well, but also in terms of just the way we manage our resources internally.

On the back of the Big deal we tend to do a few smaller deal now all that being said when the balance sheet is that.

Reinforced as it is right now you know we're in much better shape than we might have been had we not.

On the equity offering and had the tremendous advantage of the of the current free cash flow certainly that's aktiv as hell, but so you know in general I think we can be pretty balanced in our approach I mean, obviously say people with outside outside but I think we'd be pretty balanced some terms to take advantage of an improving environment.

And Scott, it's about maybe put some numbers to the to the context of what Tom just talked about no. We've got pro forma EBITDA. This year, that's going to be close to 6 billion.

And as of right now were less than three times net debt EBITDA. So to Tom's point, we've got some flexibility to be aggressive with larger or smaller so.

Yeah for sure.

So natural follow on just again in the context of this is kind of a strange environment and you've got to amazing growth rates and so many are businesses.

How do you and how do you integrate hi T. The for the long term I mean.

In this environment, I mean, really specifically, bringing in DBS tools and really culturally.

I mean thing, bringing the best of the Danner culture kind of into that organization even.

Obviously talk about standing at opposite.

It's kind of.

Decentralized business, but how do you do it and as it at all to lay it at all and you know you don't want to kinda disruptive business flow right now given how high the growth rates are or or is it already be gone and you're really you know it's similar playbook is.

Your your past acquisitions.

Yeah.

Scott we have had to we would certainly had to be creative in this environment on and I think we've been able to do that I'll I'll describe what I mean by that here in a minute, but obviously with the restrictions on travel and being.

And what would normally be very much a face to face environment with a newly acquired business, particularly new one we've had to come up with new and different approaches to achieve.

The same objectives in the early going.

Around DBS orientation, and not getting a business off to a great start. So I think that's all starts with the fact that these sites have a business brings with it to danaher really an exceptional team of people, we got to know them unbelievably well during diligence certainly we had a whole year through regulatory approvals to get to know.

One another we've gotten a sense of their command of the business that business their ability to drive performance their focus on continuous improvement the level of humility. They bring all of which set up for a team and a business that adapt very rapidly to at danaher environment, because they are so culture.

Really like.

Right at the outset.

Add to that the fact that the team reports indirectly to Reiner Reiner will continue to have that team report directly into him.

And he's maintain that relationship and continued to build those relationships and bring yeah. The tools and cross. These two that team on a virtual basis. So we've we've gone through what we called E. C. O you've heard that for executive champion orientation, a lot of that very familiar to that that team because they are.

Well down field in a norm and a number of the tools and processes of a Bbs. So yeah. We also have some of our teammates going into that that business and not that obviously further accelerate the DBS orientation. So net net the combination of using a virtual.

Our electronic and digital tools.

To conduct DBS training and orientation and communication along with having an outstanding team already plus some folks from danaher going into that business. We can safely say right now we're very much on track to where we would like to have been if we were in a face to face environment.

Okay. Good thanks, Congrats Tom Congrats Matt Matt.

Good luck for the rest of the year. Thanks Scott.

Okay [noise].

Our next question comes from what I stuck cycle of Cowen.

Good morning Duncan.

Good morning, Thank you for taking my questions I'm, starting with another one I'm sorry, if it.

Gross even excluding covert 19 was definitely a bit above your your deal model assumptions.

Of course, the roles you're playing in advance encoded solutions helps the growth profile as well, it's early but I'm I'm. How these trends impact your view on site T. The accretion and returns longer term, especially given the early on pronounced non cobot strength.

Well, Doug I'll start with the topline then Matt I'll jump in with how we see that that flowing through mean, you're accurate. It. They are they're off to a start that is better than what we anticipated in the growth model.

You are you heard us talk to numbers that were in that in the 10% range and that that that core growth. In 2019. If you go back that was was about in that range and died and yet as we came into this year. They came in with a strong order book good backlog.

And then you had the cobot impact on top of that and so when you then kind of separate that you see there what you might say, they're non co bid a base business growth.

Being in the shot in the mid teens and the cobot volume, obviously, taking that volume growth over 20%. So.

I think the key message. There is this is the this is a business as a as a base business put kogut aside for a second that is off to a phenomenal start it continues to lead and its market and is continuing to build the order book day in a day out.

That's helpful. Yeah, that's a good.

Second question in.

Remarks, you commented on site Kiva and the Paul Biotech order book.

But your order book looks like for capital equipment. It it's like a recent <unk>.

Airtime in the Q when I today, but you know was clearly better than expected and do that.

And market you know some some momentum building an academic research, but in both categories. It seems like the consumable and service for <unk>.

The reason I'm asking about the broader order book and answered. However, you want to of course, but I'm I'm. Just wondering if you think there's pent up capital demand heading into the second half and if there is evidence that that's could start to turn into revenue over the course of a year.

So Doug there was a part of that question.

Early on that we Didnt catch a it broke up but I think I would definitely caught the back end to your question. So I'm going to how many hit that assuming we didn't miss anything at the front end, which is really around you Hot you were talking about consumables and service versus equipment. My prepared remarks, and you were asking about pent up capital demand and I think the Sim.

I will answer to that question is yes, there will absolutely be some pent up capital demand.

In a number of different areas I buy site. One example, if I turn to our environmental applied solution business segment and I look at a at Videojet in P.I.D. you know why you have our consumables business tracking really well.

You seen we've seen much more weakness in our equipment side of Videojet, but we know over a long period of time that the that equipment has a lifecycle inquires replacement. It requires a certain level of maintenance you certainly had and expanded utilization.

Much of that equipment as consumer package goods volumes have grown and so I would I would very much expect to see that she is one example that videojet equipment.

Start to track back in short order I think ditto on as labs reopened in the life science.

Market, we're going to see some improvement there and in fact, we've we've got some of that improvement in even in the third quarter. As we started to see labs reopening we're going to see some of those orders that would have normally flowed through in the first and second quarter come through in the third.

Yeah, Doug that again, Doug, it's Matt again, sorry, just kind of get put some maybe some numbers in context to to the overview. Tom gave I mean, no you start here in Q2, our order book grew nearly 10% from an order perspective so.

That's a it's an encouraging sign to what Tom just talk to and you know we've got I'm going to be <unk> core business. If you will without the site teed up or sorry, without the coated tailwinds was down kind of 3% here in the quarter and as Tom just mentioned at the end, we're sort of anticipating because of that you know nearly 10% order growth I think you will see.

And improvement of that minus three sort of go into flat here in the quarter.

Okay, that's super helpful.

I'll try to sneak in one last one just to clean up question hopefully you can hear me okay now.

In the second quarter, you delivered adjusted earnings growth that was 70% or so higher then.

Reported revenue growth is it fair to think that it's going to be lower than that in Q3 as the mix starts to evolve a bit more towards capital and as you're ramping some of the opportunistic investment you described earlier in this call.

Yeah, I mean, maybe the way to think about kind of the third quarter and VCM et cetera, I mean, there's a little tricky I think you do need to sort of look at the core business that is.

Dan or her excise kiva, maybe the way that I'd think about it is that from a fall through perspective that the into her nonstop T. The piece, it's probably going to have a 30% to 35% variable margin on it fall through if you will as we do make some of the investments we've talked about its like Kiva and elsewhere.

I think if he does that include the assumptions around psyche. The put those in I think that's sort of gets you from an EPS perspective, you know sort of south of where we were here in Q2, but probably closer to what what I think we're we're gonna Douglas.

Okay. Thank you again.

Thanks, Doug.

Our next question comes from a lot of cease to town of Wolfe Research.

Hi, good morning, Thanks for the time here good morning.

Things, hoping you could just put a little bit of perspective on in in terms of the recovery trajectory and then I had one less exciting model question.

There are two things that we've focused on the call here, where we have good reason to be at least directionally optimistic about how things evolve.

One is vaccines in the vaccine space, while it certainly tough to know exactly how it's going to look at how big it is gonna be.

I'd be really helpful. If he could just give us a little perspective on what the slope of the curve looks like if we're at X today, which is a sort of preliminary investment in scaling up in anticipation of vaccines. When we get up to 21 is it still X or is it extends to Rex times three what does that look like and then the other.

Ramp related question I was going to ask actually relates to healthcare utilization. So Tom you keeps it really helpful.

Commentary on how people are getting back to getting health care in to some extent and takaful settings to some extent in hospitals. That's encouraging there should we take this to mean you feel good about this sort of tough tails off the doug's question, but.

The ramp for for hardware spend on some of the back Dx and unlike a products that might have been under a little bit of pressure into Q do we get that back starting in Threeq, you or given everything is going on the hospitals it took a little bit longer. Thank so much.

Yeah, you bet. So your your broader question started out with recovery trajectory and I want to just hit one quick the theme and then I'm going to get to your question about vaccines.

One of the key things, we haven't really touched on just on this call even though I mentioned in my prepared remarks on the recovery trajectory was China.

You know we saw a significant improvement in our in our China business over the course of the second quarter on and if you looked at that the breadth of that improvement that span not just across life Sciences and diagnostics.

And not just across.

But even call, but ARCEP, yet, but what are other businesses like back out last and LM that are eas businesses like Hakan Videojet, all performed extremely well in China benefited from the kind of.

Trajectory of recovery that we are at we're seeing broadly there and a and across the board delivered positive low single digit growth in China in the second quarter. So that's I think that's an important dynamic of this recovery trajectory that we haven't really touched on today, but let me get to the core your question.

In terms of the vaccine multiples.

Yeah again, yes, you're right. It is as I said earlier very hard to gauge, but at this point I mean, you're talking about a really high multiple of.

Volume versus today, let me give you. An example, I mean today all of these all of our revenues associated with this are in the early stages of you know phase one phase two.

Early stage human trials small volumes et cetera, I mean, we're we're we're nowhere near the stage of I'm talking about tens of let alone hundreds of millions of doses of either a vaccine or a therapy and so.

Again hard to put a number on it but I can only say, it's it's certainly a high multiple of where we are today, but with a lot of variables attached to how high that number is.

Relative to your question about healthcare utilization I think the simple answer is yes, we will be seeing an improvement in our in the hardware equipment side of the house and yes. It is associated with Beckman diagnostics and like a bias.

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Brief musical inner loop.

If you go live live maybe that was associated with recovery in healthcare utilization.

But.

You know the issue with Ben I'm, not just around healthcare utilization relative to equipment, but it's really been about the fact that in a coping 19 environment.

Access to hospitals in any area, whether it's the reference lab area anatomical pathology microbiology access to those labs for hardware installations has been limited if not in certain cases zero and so I just as we're seeing academic and research labs opening up on that.

Science side.

As we've started to see hospital opening up a bit relative to elective procedures and overall utilization. We are now starting to see our ability to get in and install a equipment. That's in the order book come along so we will see some improvement there it'll take some time for that to happen because hospitals are still highly your.

Strict it in their access but as we go into late this year in early next year, we'll start to see that return to a more normal growth rate.

Okay. That's incredibly helpful. I know were top of the out here. So I'll take my financial question offline really appreciate all that okay. Thanks, so much types the.

And ladies and gentlemen, Weve reached the allotted time for questions I'd now like to turn the floor back over not cateno for any additional for closing remarks.

Thanks, everyone for joining us today on our call around all day for questions.

Thank you ladies and gentlemen, this does conclude today's conference call. You may now disconnect have a wonderful day.

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