Q3 2021 Danaher Corp Earnings Call
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Good day, everyone. My name is Emma and I will be.
Operator today.
At this time I would like to welcome everyone to the Danaher Corporation third quarter 2021 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question answer session. If you'd like to ask a question during that time simply press the star.
And the number one on your telephone keypad.
If you'd like to reach all of your question. Please press the pound key on your telephone keypad.
I would now like to turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Dino. Please go ahead.
Thank you Emma.
Good morning, everyone and thanks.
On the call with.
With us today are Robert Blair, our President and Chief Executive Officer.
Mcgrew, our executive Vice President and Chief Financial Officer, and John Bedford, Our director of Investor Relations.
I'd like to point out that our earnings release, the slide presentation supplementing today's call.
And the reconciliations and other information required by SEC regulation G relating to any non-GAAP financial measures provided during the call are all available on the investors section of our website www Dot Danaher dot com under the heading quarterly earnings.
The audio portion of this call will be.
We are joined on the investors section of our website later today under the Hood.
Adding events and presentations and will remain archived until our next quarterly call.
A replay of this call will also be available until November 4th 2021.
During the presentation, we will describe certain of the more significant factors that impacted year over year performance.
The supplemental materials describe additional factors that impacted year over year performance.
Unless otherwise noted all references in these remarks and supplemental materials to company specific financial metrics refer to results from continuing operations and relate to the third quarter of 2021, and all references to period to period increases or decreases.
In financial metrics are year over year.
We also may describe certain products and devices, which have applications submitted and pending for certain regulatory approvals or are available only in certain markets.
During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments.
He says that we believe or anticipate will or may occur in the 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 might differ materially from any forward looking statements that we make today.
These forward looking statements speak only as of the date they are made and we do not assume.
Assume any obligation to update any forward looking statements, except as required by law.
As a result of the size of the <unk> acquisition and its impact on Danaher overall core revenue growth profile, we're presenting core revenue on a basis that includes the sativa sales references to core revenue growth, including site sales.
And the calculation of period to period sales growth.
With that I'd like to turn the call over to Rainer.
Matt. Thank you and good morning, everyone and we really appreciate you joining us on the call today.
Our team delivered another outstanding results in our third quarter with over.
80% core revenue growth nearly 40% adjusted earnings per share growth and strong free cash flow generation.
This well rounded performance is a testament to the unique positioning of our portfolio and our exceptional team who are committed to leading and executing with the danaher.
Over 2000 system every day.
I'd like to thank all of you who joined US last month for our virtual Investor Day, where we had the opportunity to showcase the strong foundation, we built for generating sustainable long term outperformance.
We highlighted our fantastic portfolio of marketing.
Her building franchises in highly attractive end market. The exceptional team we have out on the field every day and how we differentiate with the Danaher business system.
And we certainly saw this powerful combination in action during the third quarter as a result of the test.
Now we also talked.
About our sustainability efforts and just last week, we published our 2021 sustainability report.
This year's report reflects the measurable progress we've made across the three pillars of our sustainability program, which are innovation people and the environment and how.
How we use the danaher business system to execute on this increasingly important strategic priority.
Now I hope you all get a chance to read through the report and learn more about the important work that we're doing across danaher to positively impact the world around us for generations to come.
So with that let's turn.
Turn to our third quarter results.
Our sales were $7 $2 billion, and we delivered 25% core revenue growth with portfolio wide strength led by diagnostics and life Sciences.
Geographically high growth markets grew approximately 20.
5% in developed markets were up nearly 20%.
In fact revenue in each of our three largest markets North America, Western Europe, and China was up approximately 20% or more in the quarter.
Our gross profit margin increased by 500.
50 basis points to 63%, primarily due to higher sales volume the favorable impact of higher margin product mix and the impact of prior year purchase accounting adjustments related to the <unk> acquisition that did not repeat in 2021.
Now adjusted dilutive.
<unk> net earnings per common share were $2 39, and were up 39% compared to 2020, and we generated $1 $7 billion of free cash flow in the quarter, bringing our year to date total to $5 2 billion, which is up 46, 5% year.
Year over year.
We continue to accelerate organic growth investments across the entire portfolio and increased our research and development spend by approximately 30% year over year.
At our Investor Day recently, we highlighted how we.
UBS growth tools and processes to accelerate innovation and bring more impactful solutions to our customers faster.
In fact recently launched products like the <unk> Vino top 7600, and the Triple Quad 7500, and Beckman life Sciences side effect SRT.
<unk> bench top cell sorter are just a few great. Examples of how we're driving market share gains through proprietary innovation and enhancing our growth trajectory going forward.
We're also making substantial investments to expand production capacity across our bio processing businesses and.
At Cepheid.
Near term these investments are supporting existing customer demand and driving meaningful share gains.
But they're equally important to support the long term growth of these businesses, where we see significant runway ahead, given the underlying structural growth drivers in the sectors. They serve.
And.
Our total capital expenditures across danaher to be approximately $1 $5 billion in 2021, as we continue to invest in support of our customers' needs today and well into the future.
So now let's go into more detail on our quarterly results across the segment.
Life Sciences reported revenue increased 24, 5% with core revenue up 20%.
This growth was broad based across the segment with most major operating companies achieving high teens or better core growth.
Now these strong results were led by continued demand for our Biopharma.
Processing solutions.
His insight of bio processing and Pall biotech both grew more than 30% in the quarter, including low double digit non COVID-19 related core growth.
Covid related vaccine and therapeutic revenue contributed continued to be strong and now exceed one.
$6 million year to date.
That's a tivo we passed an important milestone last month, when we exited the last of our transition services agreement with GE.
We successfully completed this process ahead of schedule, which is a testament to the entire site and integration teams.
<unk> and their collective commitment to the Danaher business system.
<unk> also added more than 1500, new associates to the global team since joining danaher to help ensure that we're supporting our customers today and continue meeting their needs well into the future.
Now in August we successfully.
We closed our acquisition of <unk> and we're thrilled to officially welcome the team to Danaher.
<unk> is a leading producer of high quality plasma DNA mrna and protein and provides a fantastic beachhead for us in our genomic medicine enterprise.
We're seeing the rapid development.
<unk> of gene and cell therapies, DNA, and RNA vaccines, and gene editing technology, and they will develop and expand our capabilities in these areas to ultimately help our customers bring more lifesaving therapies and vaccines to market faster.
So we're really excited about the quality the scale of the turnaround.
<unk> and the reputation that <unk> brings to the danaher portfolio.
Non diagnostic diagnostics reported revenue was up 29, 5% and core revenue grew 28, 5% led by more than 60% growth at Cepheid.
Each of our other major.
Diagnostic businesses, Beckman, Coulter radiometer, and Leica Biosystems grew low to mid teens in the quarter as clinical diagnostic activity and patient volumes around the world largely returned to pre pandemic levels.
In respiratory testing at Cepheid, we firm.
Major expanded manufacturing capacity, which enabled the team to produce and ship approximately 16 million cartridges during the quarter.
Covid only test accounted for approximately 80% of those shipments.
Our 401 combination tests for Covid, 19, flu, a and B and RSV represent.
Representing approximately 20%.
Now non respiratory core growth at Cepheid was up double digits as well led by demand for hospital acquired infections sexual health Andrology testing.
We also saw strong growth in our installed base at system placements continue to exceed prepayment.
Further demick rate and we believe the team thoughtful placement of the gene expert and Infinity system over the last 18 months is setting up cepheid very well for future growth opportunities.
First move to our environmental and applied solutions segment.
Reported revenue was up seven.
With core revenue up seven 5%.
Water quality grew mid single digits, and our product identification platform was up low double digits.
Across our water quality businesses, we saw good underlying market strength, particularly in food and beverage and various industries.
Percent of applications.
Activity return to more normal level.
Municipal project picked up given the improving funding environment and as more customers return to in person work.
Non product identification, both video jet and our packaging and color management businesses were up low double.
Digits in the quarter.
Comparable strength across consumables service and installed base growth was driven by more normalized levels of customer activity and investments, we believe that our ability to meet our customers' needs, particularly on the equipment side at video jet enabled us to gain market share and expand on the industry.
<unk>, leading installed base of printers.
So with that as a backdrop for what we saw this quarter, let's spend some time going through regional and end market trends.
Most major regions and countries around the world are largely back to pre pandemic activity.
Yes.
Customers have adapted to the current operating environment and protocols.
And broadly resumed in person commercial activities and site access.
This is reflected in the strong results, we've seen across the us Europe and China and this momentum is also reflected in our strong.
Order book growth, which is trending above revenue growth.
Now we are mindful of potential COVID-19, 19, variance or outbreaks and selective lockdown, but we're not currently see any material negative impact from these scenarios.
And while we are seeing some global supply chain constraints, we're leveraging.
Lal Danaher business system tools like daily management, and actively working with our customers and suppliers to help mitigate any impact.
Across life Sciences.
We're seeing robust customer activity and demand across all major end markets.
Lab and other site access is largely.
<unk> pre COVID-19 levels, and we're seeing that through more normalized productivity levels installations and project initiations, driven by a strong funding environment.
Now Biopharma continues to lead the way as the number of life saving biologic and genomic based therapies in development and production.
Back to <unk> to rise and is augmented by the ongoing work around COVID-19 vaccines and therapeutics.
And at our recent Investor Day, we spent time covering how well positioned we are to support this complex life changing work that our customers are pursuing.
Our combined bio processing poor.
<unk> can be a cross over and Pall biotech is the broadest offering in the industry with leading position in upstream and downstream applications.
And we further support our customers with best in class scientific services partnering to solve their most challenging problems as they move from the lab.
Production scale.
And our global reach enables us to reliably and consistently meet our customers' needs.
Now in addition to the industry wide opportunities in biologics and genomic based medicine, we continue to see significant demand related to the development and production of COVID-19 vaccine.
And therapeutics.
Our customers are working to address emerging variance and increased global supply and given that only about a third of the global population have been vaccinated. We believe we will see durable growth in the Biopharma segment.
For the foreseeable future.
We continue to expect.
<unk> about $2 billion of Covid related vaccine and therapeutic revenue in 2021 and.
And since we spoke at our Investor Day, we now expect to enter 2022 was approximately $2 billion and COVID-19 related backlog versus our previous expectation of $1 $5 billion of back.
This increase was driven by the recent enhanced visibility for booster shot and the likelihood of vaccine availability for children under 12 years old in the U S.
And moving to the clinical diagnostic market non COVID-19 testing volumes are essentially back to pre pandemic levels.
In most major regions as patients are returning for wellness check routine screening and other elective procedures.
In molecular diagnostics strong global demand persists for Cepheid point of care PCR respiratory testing as a result of the Delta variant and outbreak.
Along with lower back vaccination rates in many regions.
As I mentioned earlier, we shipped approximately $16 million of respiratory tests during the third quarter and we now expect to ship approximately 55 million tests in 2021 versus our prior expectation of $50 million.
As we head into the traditional respiratory virus season, we're hearing from customers that they expect this to be a much more active season than last year's.
Preparation their preferences for our 401 combination test.
So we're seeing an uptick in demand for those cartridges, particularly given the recent outbreaks of RSV.
Across the U S.
Stephanie it's for an <unk> test was also recently approved with a third gene target for Sars Covid two detection, ensuring it can continue to accurately detect future COVID-19, viral mutations and reinforcing <unk> competitive advantage in the respiratory testing.
Testing market.
Now moving to the applied markets.
Customer activity has largely rebounded to pre pandemic levels, which we see in robust order rates across both consumables and equipment.
And the global municipal market consumables demand remains solid and the pace of instrument Orient.
Project activity continues to pick up with the improving funding environment and broad.
Turn to work.
So now, let's look ahead to our expectations for the fourth quarter and the full year.
We expect to deliver fourth quarter core.
Our revenue growth in the low to mid teens range with high single digit core revenue growth in our base business in the mid to high single digit core growth contribution from Covid related revenue tailwind.
Additionally, we expect to generate operating profit fall through of approximately 40% in the fourth quarter.
Similar.
Oriental hold to what we achieved in the third quarter.
Now for the full year 2021, we now expect to deliver more than 20% core tailwind and our base business will each contribute more than 10% to our 2021 core revenue growth rate.
Low to wrap up.
We're proud to deliver another terrific results here in the third quarter. Our performance is a testament to the power of our unique portfolio the strength of our end markets and our teams commitment to leading and executing with the danaher business system and this unique content.
Combination differentiates danaher today and it reinforces our opportunities ahead.
Ahead for sustainable long term outperformance.
So with that back over to you Matt.
Thanks Ryder.
That concludes our formal comments.
Emma we're now ready to take questions.
At this time, if you'd like to ask a question. Please press star one on your Touchtone phone.
Maybe yourself in the queue at anytime they question. The turnkey once again that is star and wanted to ask a question. We will take our first question from Tycho Peterson with J P. Morgan.
Hey, good morning Tycho.
Right now I'm wondering if you could talk a little bit more on China, there seems to be growing noise on pressure local competition. It seems to particularly be impacting some of the diagnostic tenders with that process getting pushed out to the provinces are you seeing anything there for beckman or Cepheid I know China was up 20.
Percent overall, but I'm just curious if there's any pressure on the diagnostic business based on what you're seeing.
Sure. So let me start with we are we are not seeing any material impact related to some of the tenders or some of the other.
Things that we hear out of China.
In fact.
The highway Anhui Province tender.
Is.
Really an exception in diagnostics and actually more common in other industries and we will see this kind of thing from.
From time to time, but it's neither.
Unexpected nor do we see it.
As material, but what we're seeing generally in China is really very consistent with what we've seen over the past several years, China has been very forthcoming with its made in China 2025.
Initiative as well as several others.
All of which we see quite aligned with our strategy.
<unk>, starting with our portfolio, which is clearly aligned with the.
Healthy China, 2030 agenda, where you see the need for both improved diagnostic solution as well as life Science research in bio processing as well as the desire to protect the environment environment, where water quality.
Do you really plays big.
As well as the desire to improve and protect the food supply, where we see a PID playing large as well. So we think we're really ideally positioned here to meet the needs of where China is growing.
At the same time for years, we have been investing in China.
As our business gains.
<unk> to ultimately localize our production and that's been the case here.
For some time.
Listening us very well in China and that will continue to be the case going forward as our businesses continued to gain.
Scale there.
Okay. That's.
Helpful.
Supply chain you flagged some constraints. Obviously you know you guys are generally very good at kind of mitigating any impacts here, but I'm curious as you kind of look out over the next couple of quarters are there areas, where maybe you are more or less concerned around supply chain that you might like.
So we haven't really seen a material impact.
Impact on our ability to meet them.
Our customers demand, but we are seeing some modest inflationary and supply chain pressures in certain areas just to name a couple of course electronic components.
And in logistics and some labor shortages.
But really this is where the danaher business system is a differentiator.
<unk> for us in this environment in fact.
Despite the additional work that into as we see this really as an opportunity for ourselves.
To differentiate with our DVS tool set for instance, with daily management, which brings our cross functional teams together on a daily basis drive disciplined execution.
Houston and accountability as well as the.
Our sense of urgency and real time problem solving and at the same time of course, we're qualifying additional suppliers and building safety stock.
So this is how we make sure that.
<unk> continues to not only meet its customer expectations, but also has opportunity.
<unk> gained share at.
At the same time of course, we see some inflationary pressures.
Pressures and we're offsetting though of course with more active cadence of <unk>.
This increases and those would also be incrementally larger than in the past as well as freight and fuel surcharges.
On the one.
One hand, we're driving as always.
Reduce our cost of goods sold at the same time, we take additional offsets with moving on some of these surcharges and price increases I mentioned I think also importantly to note here that this is not a top down process the danaher operating companies.
Have this process muscle and are able to execute effectively whether that ensuring the security of the supply chain or where that is ensuring that we can offset.
Cost increases via.
Be a price and other methods.
And ultimately we think that differentiates us and we think we're gaining share as a result.
All of that and in PID water quality.
Even pall radiometer and elsewhere.
Okay, that's great and then before I hop off just wanted to <unk>, you're exceeding your targets here in the near term should we assume your estimates for 2022 are still intact. I think you talked about 45 million tests before or.
Or have you kind of revisit it does as well.
No that's correct Tycho, we're really pleased that the team was able to ship.
Ship more again here in the us.
In the third quarter with the capacity increases and demand still exceeds our ability to supply.
For today's view.
45 million cartridges for 2022 is our point of view.
Perfect. Thank you.
Thanks Tycho.
Well go next to Vijay Kumar with Evercore ISI.
Good morning Vijay.
Good morning, Brian Congrats on another.
Impressed about frontier.
Just one on testing here I think I heard the number 55 million tests for 'twenty one.
The implied Q4 number I think is about $15 million, that's a sequential step down from that.
<unk> I'm curious just given the testing trends.
Whether that step down makes sense in any change to your <unk>.
Your prior.
Spectation was 45 million tests for fiscal 'twenty, two is that still relevant given the current run rate.
Sure J&J.
So the way to think about.
The fourth quarter here.
Here in terms of testing as we would expect also 16 million.
Cartridges in.
In the fourth quarter similar to what we saw in Q3, while we're always working to increase capacity.
We paid 16 million cartridges is the right way to think about it and of course, if you add up the quarters.
Call it about $55 million I wouldn't want you thinking about a step down here in Q4.
That's not the case.
Now as you look forward to 2022.
You know, we we still think that 45 million cartridges, where we sit today is the right way to think about it.
And as we come to our fourth quarter earnings call in January we'll revisit the topic then.
Understood.
My second question, but I know this is maybe a bigger picture question.
I think at your analyst day.
You updated outlook is high singles.
No.
When you look at your peers in the Biopharma space most of them are in the double digit range is there anything different about your site.
Business mix versus your peers.
Correct me, if I'm wrong, but isn't site you are gaining share versus peers.
So to start.
The Eva in the Pall biotech businesses together are.
By far the most complete portfolio in the marketplace and we continue to see.
Pockets, where we're taking share because we've been able to invest not only capacity, but our customers really appreciate.
Start with scientific capability and the help that they get from Citibank Pall and solving.
The challenges that are associated with making biologics of high quality with high yield.
At the targeted cost so we really see ourselves in an advantaged position here and believe.
So we continue to take share whether that's on a quarterly or on an annual basis. That's for sure. The case now as we think about the long term growth and perhaps our timelines I need to be aligned here as we think of long term growth.
You might recall, when we acquired <unk> tea, but we thought this was more of.
<unk> that was fixed.
<unk> type of growth business and what we've seen here is that certainly.
The growth of this business is re rated higher and certainly in the pandemic it quite a bit higher but once again as we think about the long term, we think it's prudent to two.
To think about our business at that scale.
And a high single digit.
And we think that will compare very favorably with any other business out there in the short medium and long term.
Yeah, that's helpful rather than just too.
Summarize that Theres no reason to think <unk> growth should be below market is that a fair summary.
We continue to believe that we will take share now and in the future.
Thank you guys.
Thanks Vijay.
Well go next to Dan <unk> with Bank of America.
Derek.
Hey, good morning, Thanks for taking the question so I have a couple.
One can you talk a little bit about operating leverage as we go into 'twenty, two and 'twenty. Three I mean, you guys are investing really heavily in R&D.
Youre doing a lot to sort of like drive innovation in the business.
So how can we think about op leverage as we go in there and just just to get a sense of sort of like where the margins are going to come on.
Sure. So so derik, we as you know we have been and as you just mentioned investing very significantly in the business. This is not only the case in capital expenditures or we're investing in our manufacturing network throughout the world, but we've also been investing significantly.
In research and development.
In feet on the street to drive proprietary innovation in the short and long term as well as to ensure that we can continue to drive share gains with our direct business model as we think about the operating leverage you know that our fall through here.
Ben.
Ben.
In the 40% range and we think that's a good way to think about the quarter here.
Well in the long term you know historically, our our fall through has been more in the 35% range and we think that's probably the better way to think about fault.
Fall through.
For the long term, just because we want to find that balance.
Reinvesting in the business as well as driving profitability expansion.
Expansion and we think that flywheel works for US right mid single digit plus growth on the one hand on the other hand 50 to 75.
Basis points of operating margin expansion.
Free cash flow conversion over net income over 100%.
All of that then to drive double digit plus EPS growth and when you couple that with our current balance sheet positioning.
With.
Our bias to deploy capital towards M&A.
We think that sets us up very nicely here, both from an operating leverage perspective, as well as driving our growth franchise forward.
Great.
So can we talk a little bit about the.
The.
Analytical instrumentation sales I'm sort of curious just on how Si is comparing to 2019.
And so there wasn't any other instrumentation as well as some of the other implementation and specifically I'd like to know no developed world versus China sort of like what is sort of that is I'm just trying to gauge overall.
Are we seeing accelerating or getting analytic once demand from 2019 versus where we are today.
Well, let me start with that we are seeing accelerated analytical demand versus.
Prior year today, that's the case in all of our more instrument.
Bias.
Businesses and that is certainly the case for science as well. So we do see that the funding environment labs opening up.
Helpful Here and have accelerated instrument instrument demand going forward in <unk>.
Very nice to be here with over mid teens.
Core grew.
In the quarter and that also read through to China as well so sites in particular as you know has been.
On a great streak of and continuous streak of innovation launching the zena top 7600, as well as the 7500 Triple Quad and.
Growth of MFS.
And is not only benefiting from the tailwind.
<unk>.
<unk> funding environment.
Which we see here in this year and certainly in the second half of <unk>.
2021, but there are also benefiting through this innovation that is really allowing.
In eco into.
To answer new question and that is resulting in share gains.
And Derek maybe just loosens magic to put some numbers to what Reiner said I mean, if you look at <unk> in particular.
Two year stack, you're talking about high single digits here in 2020 one.
Which is you know that's actually better than where they were.
In 18, and 19 on a two year stack. So I think I think like Brian said, we're seeing some pretty nice acceleration really new product driven.
Well, but it's up it's been a really good story here for the last couple of years.
Great and if I can sneak in one more.
The <unk>.
Covid vaccine backlog for 'twenty two is there even some additional upside there is that already committed orders or is that more tied to your expectations on boosters et cetera.
So we are we are close to those $2 billion of.
Backlog and for the Bioprocess.
<unk> business for 2022.
Today.
And certainly expect to be there by the end of the year, we think that sets us up pretty well.
We will see what 2022 brings and we'll talk more about that in January.
But the fact that we've up that backlog by 500 million.
We are going into 2022, we think is a good sign for things to come.
Hey, Derik.
Definitely those are committed orders that is not up.
Great. Thank you best of luck. Thanks.
Yes.
Well go next to Scott Davis.
With Melius research.
Good morning.
Morning.
Brian and Matt and Matt and John.
Thanks for taking my question.
Yes.
I'm, just kind of curious I mean logistics prices and labor cost inflation or challenges and all this stuff doesn't seem to really have impacted you guys much maybe a little bit.
Yes.
And you made a comment Brian on kind of capturing price, but it looks like price was sequentially flat is that something that.
You would expect price to be a little bit more dynamic going forward or is it just kind of a mix impact to some products where price just doesn't need to go up.
We're about 150 basis points up year over year, and we continue to.
Move price increases increases through the system. So I think youre going to continue to see that filtering through here going forward Scott. So mixes it plays a role as you suggest.
The timing is another one.
But all of these actions are in the works.
Take some time to get through to through the system.
Okay, that's helpful and.
The R&D spend up 30% does that.
Is it head count up 30% to or people, who are costing you more how do you.
Think about that and how do you think about kind of getting productivity on that spend is.
Making sure projects, our focus and there's some sort of return on that investment.
Scott that's a great question and the 30% increase is primarily related to a number of points one of course.
You have more people working on more projects.
But in terms of the productivity the way to think about that as any project that we do.
The business case, and we ensure that productivity through the delivery of that business case. It makes sense for us. So we view. This of course is an investment.
In the future.
At ultimately drive defensible proprietary share gain through research and development and the increase comes in terms of people. It comes in terms of additional equipment testing equipment. That's required. It comes in terms of additional alpha and beta system that.
That are out in the field with our customers so myriad.
Waves that we invest that in order to drive innovation.
Okay. Good luck, Roger Thank you and congrats on a great year, so far guys. Thanks, that's it thanks Scott.
Well go next to Dan Brennan with Cowen.
Good morning, Dan Thanks for taking the first good morning. Good morning. Thank you for taking the questions here I wanted to ask a follow up the first question on bioprocess.
You maintained the outlook for our vaccine and therapeutic contribution. This year. Just wondering is there capacity for you to exceed that in terms.
Their demand for that or you're capacity constrained for 2021 and then.
<unk> to that as we think about 2022, you've already discuss the 2 billion firm order book, but how do we think about the contribution within that from boosters and from kids because I I forget who previously you had boosters included in that so maybe that's the first question. Thank you.
Very good well, let's start with the topic of.
The contribution that's into 2 billion so and in fact, we did not include the kids 12.
12, and below in two or a $1 5 billion dollar original.
Backlog estimate for 2022.
That and of course now the approval of <unk> boosters for various groups of the population is really what is driving that increase from one $5 billion to $2 billion of backlog.
For two.
2022, what it doesn't include is the approval.
These vaccine.
Sure.
Kids 12, and younger for example outside of the U S. So that's something that as you know.
In the future and there is not sufficient clarity for us to start thinking about that in quantitative terms, but thats something that would be excluded in that.
And back to your capacity question as you likely are aware and as we've talked about also in our analyst day, we have been investing in capacity expansions in the biotech business now for some time in fact, we ensured that the investment continued even prior to the closing of.
The acquisition from GE, and we've continued with those investments that have come online here nearly in a continuous fashion.
Through the second half of 2020 and.
In 2021.
And we expect those capacity to continue to increase here going into 2022.
So we feel very comfortable that we're able to meet our customers' requirements here now and going forward and we think that differentiates us in the marketplace and why among other reasons. We are confident that we are taking share.
Great. Thanks.
And then as a follow up.
Matt discussed previously kind of a stack growth.
I believe we are gonna say Teva.
Wanted to understand a little bit in terms of factory overall business I know the commentary throughout the conversation reflected business largely back to normal which is great.
But when we look at like the base growth ex Covid and we consider like a stack and this is clearly very imprecise, but in Q3 that base growth on a two year average basis was around four maybe a little bit below that.
And I believe in Q4, the high single digit base guidance implies.
Onto your stack that might be closer to three.
And this is compared against what we consider danaher underlying growth rate probably somewhere in the six to eight.
That range when things get back to normal so just trying to reconcile.
Underlying stack and is it just conservatism right now are things back to normal or maybe it's just too imprecise.
But that's why I do this analysis with Covid. Thank you Yeah, Dan Let me just give you the numbers because I think.
Maybe a disconnect here. So I think the simple frame for Q4 is like we we started talking about we kind of increased our expectations for low double digits to low to mid teens.
And like you said, we were up in.
<unk> business, we think the base business is going to kind of be high single digits in Q4.
Which as you said it was probably a little closer to 10% here in Q3, and I would look at that delta between kind of high single digits and 10.
And say that that's really just more a function of what kind of prudent planning given.
In the current operating environment and some of the things we've talked about in particular.
You think about Q4, and logistic challenges et cetera that might be there. So I think we're just trying to give a little bit of a from a planning perspective high single digits from about 10%, we've seen but really not much of a change here.
In the environment.
Got it okay, great. Thanks, guys.
Yeah.
Well go next to Jack Meehan with Nephron.
Good morning. Thank you good morning, good morning.
Just wanted a little bit more color I guess on the funding environment.
I was curious as you look into the fourth quarter or what.
Customers might be telling you around the potential for a budget flush and what does the guidance assume kind of versus historical patterns.
Yeah.
So Jack first of all the we see the funding environment across the board are improving so if we start with Eas, we do see customer activity.
Increasing we do see more work occurring at the workplace and with that more project.
Being tackled both in capital as well as operating investment.
<unk> and we would expect that to continue to improve here.
Going forward.
Forward as the economy continues to pick up speed and returned to normality as we think about life Sciences research funding is up whether that's government funding, whether that's venture capital funding or whether that is biopharma funding from the pharmaceutical companies, we see a seen a step up here.
In an effort to take advantage of the opportunities that are new.
New breakthroughs in technology that you're all aware of.
As a result of Covid.
Covid at all.
Creating a great deal more awareness of the possibilities here in therapeutics. So we see generally speaking a great environment and our lives.
Since area Bioprocess, we talked about with continued capacity increases to meet the needs of the.
The very.
Fast growing therapeutic pipeline, we talked about the fact that monoclonal antibody pipeline is up 50% in terms of the number of projects over the last five.
Five years genomic.
Gene and cell therapy pipeline is up and order of magnitude 10 X.
Versus five years ago, so that that's creating very healthy drive here, whether that's in the research side of life sciences or in the bio processing and then when you come back to diagnostics patient volumes are.
There are nearly.
Got.
At full rates pre pandemic rates, if you will in nearly every geography and we continue to of course see.
Covid driving additional diagnostic demand.
And so across the board are very positive.
The funding environment, and we would expect that the one of the other budget is going to be taken advantage of here in the fourth quarter. We will see there are a number of different perspectives there.
But the environment.
It generally very positive.
That's great and then as a follow up.
Just curious on how Dev Ron how the early integration feedbacks going and as I look at the fourth quarter, you have given us the core guidance.
What do you have M&A contributing two and a half points or so does that sound right.
Yes, so it would be probably Oh, sorry go ahead no go ahead.
Go ahead, Matt.
No the M&A.
Contribution is probably going to be about.
It was 40 here in Q3, so I think you're probably pretty close with what you've got.
$40 million.
Okay.
So we we actually you know coming back to the front end of your question. There I mean, we couldnt be happier.
With both aldebaran as an entity, but even more importantly, the team at Aldebaran that had embraced joining the danaher family are embracing and pulling hard on the Danaher business system.
We're really focused on.
Driving and growing their business there.
Plenty of opportunity.
Like we know are in the core businesses of Aldebaran, and we see that we see that in the order book, we see that.
And revenues.
We will see that also in their earnings contributions all of which is running as we expected.
Updated during the acquisition so we expect to see.
$400 million of revenue this.
This year.
Both right.
And 20% plus range.
And we expect to see <unk> of EPS in year, one growing to 30.
When we are in year, two so I'll defer on that.
Incredibly pleased with the.
The motivation and the engagement of the team and the important work that theyre doing and proud to have him as a part of the Danaher family.
We'll go next to Matt <unk> with Goldman Sachs.
Good morning, Hey, good morning.
Thanks for taking my question, maybe just to follow up on <unk> question on <unk> you.
You guys had mentioned when you made the acquisition that they were relatively underexposed to international and I know, you're you've got a lot of things going on with the integration but as.
About expanding out to everyone's footprint internationally, how are you thinking about that and is there any kind of timelines that you have for that.
So.
Very much a part of the investment hypothesis is to expand our bedrooms activities as you say internationally.
And we of course.
Our focusing first and foremost now on the transition into Danaher and are helping the team.
With their number one priority.
Which are to take care of the expansions that they are finalizing as we speak.
We're already in the process of the next set of those.
Expansions and so in terms of timeline.
Well, we'll talk about that when that becomes.
Something that.
On the top of the on the top of the agenda, but currently it's all about ensuring an effective transition taking care of our customers transitioning the team on to DBS.
We are incredibly excited about that and of course, a subsequent expansions as we go forward.
Great. Thanks, and just maybe just one follow up.
You're obviously generating a.
The amount of free cash flow and <unk> been very active in M&A, but what are your thoughts in terms of inorganic investments as you move forward looking at where you are in terms.
With leverage and what you want to accomplish.
We really like the way.
And the way we're positioned both in terms of the franchises and the platforms that we have as well.
How we're thinking about our earnings flywheel I talked about that earlier in the call.
Driving.
And that mid single digit plus growth to double digit EPS expansion and of course, then having a very strong balance sheet position in order to continue to prioritize capital allocation towards M&A and as we think about our our balance sheet position.
This year.
After the <unk> deal.
By the end of the year, we should probably be back to about two two times net debt.
Two turns of EBITDA over net debt.
And we think that puts us in great position in our funnels are active.
And we continue to work.
We always.
Abbott Danaher to ensure that.
We have the next next deal ahead of us.
And take advantage of of the balance sheet that we have so we're very well positioned there we feel good about where we sit.
Great. Thanks very much.
Thank you.
We will take our final question.
We passed yoga with Barclays.
Hey, Thanks, Good morning, Luke.
How are you. Thanks for squeezing me in so just quickly on the backlog and you think you're raising your guidance there of or our expectations of what you're expecting in 2000 to exit the year can you give us a sense of the mix between the vaccine and the therapeutic revenue.
No.
Or how that order book is shaping up.
Sure sure so yes.
Rough numbers here Luke.
About 85% vaccine, 15% therapeutics.
Those are the rough numbers there.
Okay. That's helpful and then.
We were expecting a little more balance between the four in one and just pure Covid tests. So can you give us a sense of the order there. The how the orders are starting to shape up ahead of the flu season. It makes sense that we haven't had flu season, yet but.
And then really how trying to figure out how to think about the first half of 'twenty one through that.
Winter season.
Sure. So in terms of the mix here in Q3, we saw 80% Covid only 20%.
Foreign one test.
And as you think about Q4 here, we see that heading towards the $50 50. So a good way to think about it is 50%.
The Covid only test in Q4 and 50%.
Of the 401.
And as we think about the first half of.
Next year, I think I think the best way to think about it right now.
The $45 million of tests that we've been talking about in.
<unk> speaking.
And flu season.
Probably around 50 50 is the best way to think about it 401 and Covid only and then if we're outside of the flu season, probably closer.
Closer to 80 20.
Got you.
Really helpful. Thank you.
Got it thank you.
I will now turn the program back over to Matt Gugino.
Thanks, Kevin. Thank you everyone for joining us today and we're around all day to take your questions.
Thank you everybody.
This does conclude today's program. Thank you for your participation you may disconnect at anytime.
Yeah.
Hum.
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