Q1 2024 Danaher Corporation Earnings Call
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Todd: Hello, my name is Todd, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's first quarter 2024 Earnings Results conference call. All lines have been placed on mute to prevent any background noise.
Todd: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star 2. I will now turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford, you may begin your conference.
John Bedford: Good morning, everyone. And thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer, and Matt McGrew, 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, the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call, and a note containing details of historical and anticipated future financial performance are all available on the investor section of our website, www.danaher.com, under the heading Quarterly Earnings.
Todd: Hello, My name is Todd and I will be your conference facilitator. This morning.
Todd: At this time I would like to welcome everyone to Danaher Corporation's first quarter 2024 earnings results Conference call.
Todd: All lines have been placed on mute to prevent any background noise.
Todd: After the Speakers' remarks, there will be a question and answer session.
Todd: If you would like to ask a question during that time simply press Star then the number one on your telephone keypad.
Todd: If you would like to withdraw your question. Please press star two.
John Bedford: The audio portion of this call will be archived on the investor section of our website later today under the heading Events and Presentations and will remain archived until our next quarterly call. A replay of this call will also be available until May 7th, 2024.
Todd: I will now turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford May begin your conference.
John Bedford: Good morning, everyone and thanks for joining us on the call with US today are Rainer Blair, our President and Chief Executive Officer, and Matt Mcgrew, Our executive Vice President and Chief Financial Officer.
John Bedford: 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 relate to results from continuing operations and relate to the first quarter of 2024. Additionally, all references to period-to-period increases or decreases in financial metrics are year-over
Like to point out that our earnings release, the slide presentation supplementing today's call.
Speaker Change: And the reconciliations and other information required by SEC regulation G.
Speaker Change: Waiting to any non-GAAP financial measures provided during the call and no containing details of historical and anticipated future financial performance are all available on the investors section of our website www Dot Danaher dot com under.
Speaker Change: Under the heading quarterly earnings.
Speaker Change: The audio portion of this call will be archived on the investors section of our website later today under the heading events and presentations.
John Bedford: We may also describe certain products and devices that 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 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 filing.
Speaker Change: And will remain archived until our next quarterly call.
A replay of this call will also be available until May seven 2024.
Speaker Change: During the presentation, we will describe certain of the more significant factors that impacted year over year performance.
Speaker Change: Well that all materials describe additional factors that impacted year over year performance.
Speaker Change: Unless otherwise noted all references in these remarks and supplemental materials to company specific financial metrics relate to results from continuing operations.
Speaker Change: And related to the first quarter of 'twenty 'twenty four.
Speaker Change: And all references to period to period increases or decreases in financial metrics are year over year.
We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals or are available only in certain markets.
John Bedford: And actual results might differ materially from any forward-looking statements that we make today. These four 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. With that, I'd like to turn the call over to Rainer.
Speaker Change: During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.
Speaker Change: These forward looking statements are subject to a number of risks and uncertainties.
Speaker Change: Putting those set forth in our SEC filings and.
Rainer Blair: Thanks very much, John. And good morning, everyone.
Speaker Change: And actual results might differ materially from any forward looking statements that we make today.
Rainer Blair: We appreciate you joining us on the call today. We're off to a good start in 2024 with our team delivering better than expected revenue, earnings, and cash flow. We were especially pleased to see improving order trends in our bioprocessing business and believe we continued to gain market share at Cepheid in the quarter. Now this better than expected start to the year, paired with improving funnel and order trends, further supports our full year outlook, which is unchanged from our previous guidance.
Speaker Change: These forward looking statements speak only as of the date that they are made.
Speaker Change: And we do not assume any obligation to update any forward looking statements, except as required by law.
Speaker Change: With that I'd like to turn the call over to Rainer.
Rainer Blair: Thanks, very much John and good morning, everyone. We appreciate you joining us on the call today.
Rainer Blair: Okay.
Rainer Blair: We're off to a good start in 2024 with our team delivering better than expected revenue.
Earnings and cash flow.
Rainer Blair: We were especially pleased to see improving order trends in our bio processing business.
Rainer Blair: We believe we continued to gain market share at Cepheid in the quarter.
Rainer Blair: Our first quarter results also reflect the unique positioning of Danaher's portfolio today. Our businesses are well-positioned in attractive end markets, all underpinned by long-term secular growth drivers with high-margin, high-recurring revenue business models. Our strong free cash flow generation also positions us well to further enhance our portfolio going forward. Now, it's not just the portfolio that differentiates Danaher; it's how we run the business using the Danaher Business System, or DBS. Our team's commitment to executing with DBS enables us to deliver impactful new innovations to our customers and drive meaningful process improvements in our business, both of which are helping position Danaher for sustainable long-term performance. Now, a prime example of the power of DBS is the CEO Kaizen we kicked off just two weeks ago.
Rainer Blair: Now this is better than expected start to the year paired with improving funnel and order trends further supports our full year outlook, which is unchanged from our previous guidance.
Rainer Blair: Our first quarter results also reflect the unique positioning of danaher portfolio today.
Our businesses pause.
Rainer Blair: In attractive end markets, all underpinned by long term secular growth drivers with high margin high recurring revenue business models.
Rainer Blair: Our strong free cash flow generation also positions us well to further enhance our portfolio going forward.
Rainer Blair: Now, it's not just the portfolio that differentiate danaher, it's how we run the business using the danaher business system or DBS, our team's commitment to executing with Bbs enables us to deliver impactful new innovation to our customers and drive meaningful process improvements in.
Rainer Blair: Our businesses, both of which are helping position danaher for sustainable long term performance.
Rainer Blair: During this pivotal annual event, our most senior leaders, operating company presidents, and thousands of associates come together to address some of our most significant opportunities for material and sustained improvement in our businesses. In fact, just last week, I rolled up my sleeves at one of our filtration manufacturing facilities in Pensacola, Florida, to focus on increasing manufacturing throughput and reducing lead time. DBS is our culture, and this year's CEO Kaizen highlights how our commitment to continuous improvement at all levels of the organization can contribute to a better customer experience and a lasting competitive advantage across our business. So with that, let's take a closer look at our first quarter 2024 results. Sales were $5.8 billion in the first quarter, and core revenue declined 4%.
Rainer Blair: Now a prime example of the power of DBS is the CEO Kaizen, we kicked off just two weeks ago.
Rainer Blair: During this pivotal annual event, our most senior leaders operating company President and thousands of associates come together to address some of our most significant opportunities for our material and sustained improvement in our businesses.
Rainer Blair: In fact, just last week I rolled up my sleeves at one of our filtration manufacturing facility in Pensacola, Florida.
Rainer Blair: An increasing manufacturing throughput and reducing lead times.
Rainer Blair: CBS is our culture and this year's CEO kaizen underscores how our commitment to continuous improvement in all levels of the organization can contribute to a better customer experience and lasting competitive advantage across our businesses.
Rainer Blair: So with that let's take a closer look at our first quarter 2024 results.
Rainer Blair: Sales were $5 $8 billion in the first quarter and core revenue declined 4%.
Rainer Blair: Geographically core revenues in developed markets were down slightly with broad based strength across diagnostics offset by declines in biotechnology.
Rainer Blair: Geographically, core revenues and developed markets were down slightly, with broad-based strength across diagnostics offset by declines in biotechnology. However, high growth markets declined by low double digits, including a high teens decline in China, where the economic landscape remains challenging. Our gross profit margin for the first quarter was 60%. However, our adjusted operating profit margin of 30.1% was down 170 basis points as the favorable impact of cost savings initiatives was more than offset by lower volume. Adjusted diluted net earnings per common share were $1.92.
Rainer Blair: High growth market declined low double digits <unk>.
Rainer Blair: Including a high teens decline in China, where the economic landscape remains challenging.
Our gross profit margin for the first quarter was 60%.
Rainer Blair: Our adjusted operating profit margin of 31% was down 170 basis point.
Rainer Blair: The favorable impact of cost savings initiatives was more than offset by lower volume.
Rainer Blair: Adjusted diluted net earnings per common share were $1 92.
Rainer Blair: We generated $1 $4 billion of free cash flow in the quarter.
Rainer Blair: We generated $1.4 billion of free cash flow in the quarter, resulting in a free cash flow to net income conversion ratio of more than 130%. So now, let's take a closer look at our results across the portfolio and give you some color on what we're seeing in our end markets today. Revenue in our biotechnology segment declined 17%, with bioprocessing down high teens and discovery and medical down approximately 20%. In bioprocessing, we had a modestly better-than-expected start to the year.
Rainer Blair: <unk> and our free cash flow to net income conversion ratio of more than 130%.
Speaker Change: So now let's take a closer look at our results across the portfolio and give you some color on what we're seeing in our end markets today.
Speaker Change: Core revenue in our biotechnology segment declined 17% with bio processing down high teens, and discovery and medical down approximately 20%.
Speaker Change: And bio processing, we had a modestly better than expected start to the year orders increased mid single digits sequentially from the fourth quarter of 2023, and our book to Bill ratio increased to approximately <unk> 95.
Rainer Blair: Orders increased mid-single digits sequentially from the fourth quarter of 2023, and our book-to-bill ratio increased to approximately 0.95. This is particularly encouraging as we typically see a seasonal order decline between the fourth quarter and the first quarter. In North America and Europe, our larger customers are making steady progress working through their excess inventory, with many returning to their regular order pattern. We expect inventory levels to have largely normalized by the end of the second quarter.
Speaker Change: And this is particularly encouraging as we typically see a seasonal order decline between the fourth quarter and the first quarter.
Speaker Change: In North America, and Europe are larger customers are making steady progress working through their excess inventory with many returning to their regular order patterns.
We expect inventory levels that these customers have largely normalized exiting the second quarter.
Rainer Blair: We're also encouraged by improvements in the overall funding environment. While we don't expect these improvements to impact order activity in the near term, it is a positive indicator for the long-term health of the bioprocessing market. However, in China, demand and underlying activity levels remain weak as customers are continuing to conserve capital and prioritize programs.
Speaker Change: We're also encouraged with improvement in the overall funding environment, while we don't expect these improvements to impact order activity in the near term. It is a positive indicator for the long term health of the bio processing market.
Speaker Change: Now in China demand and underlying activity levels remain weak as customers are continuing to conserve capital and prioritized programs.
Speaker Change: Now for the full year 2024, there is no change to our expectation of a low single digit core revenue decline in our bio processing business.
Rainer Blair: Now for the full year 2024, there is no change to our expectation of a low single-digit core revenue decline in our bioprocessing business. And there's also no change to our assumption of a gradual improvement through the year to a core revenue growth rate of high single digits or better as we exit 2024. Despite near-term headwinds, robust underlying market trends reinforce our confidence in the health and long-term growth profile of the biologics market.
Speaker Change: And there is also no change to our assumption of a gradual improvement through the year to a core revenue growth rate of high single digit or better as we exit 2024.
Speaker Change: Despite near term headwinds robust underlying market trends reinforce our confidence in the health and long term growth profile of the biologics market.
Rainer Blair: Underlying Demand for Biologic Medicine is projected to grow at a high single-digit or better rate again for the full year 2024. There is also an increasing number of therapies advancing through the development pipeline and reaching the market. In fact, the number of new FDA approvals for biologic and genomic medicines grew more than 50% last year.
Speaker Change: Underlying demand for biologic medicine is projected to grow at a high single digit or better rate again for the full year 2024.
There's also an increasing number of therapies advancing through the development pipeline and reaching the market.
Speaker Change: The number of new FDA approvals for biologic in genomic medicine grew more than 50% last year. These.
Rainer Blair: These positive trends reinforce our conviction in a significant opportunity ahead in the high single-digit long-term revenue growth trajectory for our leading bioprocessing franchise. We now continue to make substantial investments in innovation geared towards helping our customers reduce the time and cost of biologic drug production. Sativa's recently released Accelerix Magnetic Mixing System is a great example of how we are improving productivity and reducing risk in biologic drug manufacturing. This innovative single-use cell culture media mixer enables faster and more consistent mixing and is specifically designed to prevent leaks common with other large-scale mixing systems that can lead to complete batch loss.
Speaker Change: These positive trends reinforce our conviction and a significant opportunity ahead in the high single digit long term or revenue growth trajectory for our leading bio processing franchise.
Speaker Change: Now we continue to make substantial investments in innovation geared towards helping our customers reduce the time and cost of biologic drug production.
Speaker Change: <unk> recently released accelerate magnetic mixing system is a great example of how we are improving productivity and reducing risk in biologic drug manufacturing.
Speaker Change: This innovative single use cell culture media mixer enables faster and more consistent mixing and it's specifically designed to prevent leaks common with other large scale mixing system that can lead to complete batch loss.
Speaker Change: This also marks another significant milestone for <unk> as the first new product release to be developed leveraging the capabilities of our recently combined Pall life Sciences, and <unk> R&D team.
Rainer Blair: This also marks another significant milestone for Cytiva as the first new product release to be developed, leveraging the capabilities of our recently combined Paul Life Sciences and Cytiva R&D teams. Now, let's turn to our life science segment, where core revenue decreased by 3%. Core revenue in our life sciences instruments businesses collectively declined mid-single digits, with trends in the first quarter largely consistent with what we saw in the second half of 2023. In developed markets, pharma and biotech activity remain stable, despite lower levels of demand.
Speaker Change: Yes.
Speaker Change: Now, let's turn to our life Science segment, where our core revenue decreased.
Speaker Change: At 3%.
Speaker Change: Core revenue in our life Sciences instrument businesses collectively declined mid single digits with trends in the first quarter largely consistent with what we saw in the second half of 2023.
Speaker Change: In developed markets pharma and biotech activity remained stable.
Speaker Change: Lower levels of demand.
Rainer Blair: We did see improving funnel activity as the quarter progressed, but this increased activity is not yet translated to orders. Academic and applied markets perform comparatively better, particularly for our more advanced instrumentation. In China, declines were driven by difficult comparisons as a result of the prior year stimulus programs and lower demand as a result of weaker underlying activity levels.
Speaker Change: Did see improving funnel activity as the quarter progressed at this increased activity is not yet translated to orders.
Speaker Change: Academic and applied markets perform comparatively better, particularly for our more advanced instrumentation.
Speaker Change: In China, the confines were driven by difficult comparisons as a result of the prior year stimulus programs and lower demand as a result of weaker underlying activity levels.
Speaker Change: Our genomics consumables business delivered low single digit core revenue growth in the quarter.
Rainer Blair: Our genomics consumables business delivered low single-digit core revenue growth in the quarter. Double-digit growth across plasmids and proteins was partially offset by declines in next-generation sequencing and gene writing and editing solutions. While current end market conditions remain challenging, our life sciences businesses are well positioned for the long term. A combination of investments and innovation and strategic acquisitions over the last several years has increased our exposure to attractive end markets and life sciences and accelerated our growth trajectory.
Speaker Change: Double digit growth across plasmids in protein was partially offset by declines in next generation sequencing and gene writing and editing solution.
Speaker Change: While current end market conditions remain challenging our life sciences businesses are well positioned for the long term.
Speaker Change: A combination of investments in innovation and strategic acquisitions over the last several years has increased our exposure to attractive end markets and life Sciences and accelerated our growth trajectory.
Rainer Blair: Additionally, with high-margin recurring revenue now comprising more than 60 percent of the segment, we see opportunities for future margin improvement. Let's move to our diagnostics segment, where core revenue increased by 7.5%, and clinical diagnostics businesses collectively delivered mid-single-digit core revenue growth. Beckman Coulter Diagnostics was up mid-single digits for the fifth consecutive quarter with solid growth in both instruments and consumables. Beckman's recent strong performance is a direct result of leveraging the Danaher business system to improve both innovation and commercial execution.
Speaker Change: Additionally, with high margin recurring revenue now comprising more than 60% of the segment, we see opportunities for future margin improvement.
Speaker Change: Let's move to our diagnostics segment, where core revenue increased by seven 5%.
Speaker Change: Our clinical diagnostics businesses collectively delivered mid single digit core revenue growth.
Speaker Change: Beckman Coulter diagnostics was up mid single digits for the fifth consecutive quarter with solid growth in both instruments and consumables.
Speaker Change: Secondly, the recent strong performance is a direct result of leveraging the danaher business system to improve both innovation and commercial execution.
Rainer Blair: New product introductions over the last few years, including the DXI-9000 Immunoassay Analyzer, the DXC-500 Chemistry Analyzer, and the DXAA-5000 FIT Automation System, have expanded our offerings and improved Beckman's competitive positioning. We're also seeing better win and retention rates across the portfolio. At Leica Biosystems, the Perio GT450DX digital pathology slide scanner recently received FDA 510K clearance. Now, with this significant milestone, the GT450 can now be more widely used in pathology labs, moving digital pathology one step closer to becoming the standard of care for clinicians. Digital pathology provides many benefits to clinicians, including improving analytical capabilities through predictive algorithms, enhancing slide imaging, and increasing productivity, all of which help provide a more accurate and timely diagnosis to patients.
Speaker Change: New product introductions over the last few years, including the Dx 9000 immunoassay analyzer.
Speaker Change: <unk> 500, chemistry analyzer, and the <unk> 5000 fit automation system have expanded our offerings and improve <unk> competitive positioning.
Speaker Change: We're also seeing better win and retention rates across the portfolio.
Speaker Change: I'd like a biosystems with <unk>.
Speaker Change: <unk> $4 50, Dx digital pathology slide scanner recently received FDA five 10-K clearance.
Speaker Change: Now with this significant milestone the GTE 450 can now be more widely used in pathology labs, moving digital pathology and be one step closer to becoming the standard of care for clinician Digi.
Speaker Change: Digital pathology provides many benefits the clinicians, including improving analytical capabilities through predictive algorithms enhancing slide imaging and increasing productivity all of which helped provide a more accurate and timely diagnosis.
Speaker Change: Yes.
Speaker Change: So this clearance also highlights how proprietary innovation is driving long term core growth that leica.
Rainer Blair: So this clearance also highlights how proprietary innovation is driving long-term core growth at Leica. In molecular diagnostics, Cepheid's core revenue increased double digits. And as I mentioned earlier, we believe the team continued to gain market share during the quarter. Cepheid's respiratory revenue of approximately $675 million in the quarter exceeded our expectation of $575 million, driven by both higher volumes and a favorable mix of our 4-in-1 tests for COVID-19, Flu A, Flu B, and RSV.
Speaker Change: In molecular diagnostics Cepheid core revenue increased double digits and as I mentioned earlier, we believe the team continued to gain market share during the quarter.
Speaker Change: Decades, respiratory revenue of approximately $675 million in the quarter.
Speaker Change: Seeded our expectation of $575 million driven by both higher volumes and a favorable mix of our foreign one test for COVID-19 flu, a flu b and RSV.
Speaker Change: Now based on current global trends and respiratory infection rates, we continue to expect respiratory revenue of approximately $1 $6 billion.
Rainer Blair: Now, based on current global trends and respiratory infection rates, we continue to expect respiratory revenue of approximately $1.6 billion for the full year of 2024. Cepheid's installed base continued to grow in the quarter to over 55,000 systems globally, a more than threefold increase since 2019.
Speaker Change: Full year of 2024.
Speaker Change: Cepheid installed base continued to grow in the quarter to over 55000 systems globally and more than three fold increase since 2019.
Rainer Blair: The team's thoughtful approach to placing systems at customers with clinical use cases beyond the pandemic has continued to drive increased menu adoption and utilization. We're seeing this today through growth rates in assays such as group A stress and sexual health, which were each up more than 40% in the first quarter. We're also seeing customers return to testing protocols that were suspended during the pandemic, which helped drive mid-teens' growth in hospital-acquired infection assays.
Speaker Change: The team's thoughtful approach to placing systems at customers with clinical use cases beyond the pandemic has continued to drive increased menu adoption and utilization.
Speaker Change: Seeing that today through growth rates and assays, such as group, a strep and sexual health, which were each up more than 40% and the <unk>.
Speaker Change: First quarter.
Speaker Change: We're also seeing customers returned to testing protocols that were suspended during the pandemic, which helped drive mid teens growth in hospital acquired infection assay.
Speaker Change: Now in January Cepheid received expanded FDA clearance with a CLIA waiver for the expert expressed MBT test, which is the latest addition to our growing women's health portfolio.
Rainer Blair: Now, in January, Cepheid received expanded FDA clearance with a CLIA waiver for the Expert Express MVP test, which is the latest addition to our growing women's health portfolio. With the addition of the CLIA waiver, Cepheid's customers can now provide critical testing in care settings that are more easily accessible to patients, like a physician's office or local clinic, reducing the need for multiple office visits and significantly narrowing the test-to-treatment gaps often associated with therapeutic failure.
Speaker Change: With the addition of the CLIA waiver Cepheid customers can now provide critical testing and care settings that are more easily accessible to patients like a physician's office.
Speaker Change: Clinic, reducing the need for multiple office visits and significantly narrowing the test the treatment gaps often associated with therapeutic failure.
Rainer Blair: This is a great example of how bringing accurate, easy-to-use molecular testing closer to patients is improving treatment outcomes and driving long-term growth at CESIA. Now, let's briefly look ahead at expectations for the second quarter and the full year 2024. In the second quarter, we expect core revenue to decline in the mid-single-digit percent range. Additionally, we expect a second quarter adjusted operating profit margin of approximately 26%. For the full year 2024, there will be no change to our previous guidance.
Speaker Change: This is a great example of how bringing accurate easy to use molecular testing closer to patients is improving treatment outcomes and driving long term growth at cepheid.
Speaker Change: So now let's briefly look ahead that expectations for the second quarter and the full year 2024.
Speaker Change: In the second quarter, we expect core revenue to decline in the mid single digit percent range.
Speaker Change: Additionally, we expect our second quarter adjusted operating profit margin of approximately 26%.
For the full year 2024, there is no change to our previous guidance.
Rainer Blair: As a reminder, we anticipate a core revenue decline in the low single-digit percent range and a full year adjusted operating profit margin of approximately 29%. So to wrap up... We're pleased to deliver first quarter results ahead of our expectations and look forward to building on this momentum as we move through the year. Our team's commitment to innovating and executing with DVS is driving meaningful improvements in our businesses and enabling us to deliver more breakthrough solutions to our customers.
Speaker Change: As a reminder, we anticipate a core revenue decline in the low single digit percent range and our full year adjusted operating profit margin of approximately 29%.
Speaker Change: So to wrap up.
Speaker Change: We're pleased to deliver first quarter results ahead of our expectations and look forward to building on this momentum as we move through the year.
Speaker Change: Our team's commitment to innovating executing with DBS is driving meaningful improvements in our businesses and enabling us to deliver more breakthrough solutions to our customers.
So there is a bright future ahead for danaher the transformation in our portfolio.
Rainer Blair: So, there's a bright future ahead for Danaher. The transformation in our portfolio, paired with our organic growth investments, has created a lineup of outstanding franchises that are all well positioned in highly attractive end markets. We're a focused life science and diagnostics leader positioned for higher long-term growth, expanded margins, and stronger cash flow. So we believe this unique combination of our incredibly talented team, the strength and differentiation of our portfolio, and our leading financial profile provides us with a strong foundation to create sustainable long-term shareholder value. And so with that, I'll turn the call back over to John.
Speaker Change: Third with our organic growth investments has created a lineup of outstanding franchises that are all well positioned and highly attractive end markets.
Speaker Change: We are a focused life science and diagnostics leader positioned for higher long term growth <unk>.
Speaker Change: Expanded margins.
Speaker Change: And stronger cash flow.
Speaker Change: So we believe this unique combination of our incredibly talented team the strength and differentiation of our portfolio and leading financial profile provides us with a strong foundation to create sustainable long term shareholder value.
Speaker Change: So with that I'll turn the call back over to you John.
John Bedford: Thank you Reiner that concludes our formal comments operator, we're now ready for questions.
John Bedford: Thank you, Rainer. That concludes our formal comments. Operator, we're now ready for questions.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Operator: Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.
Speaker Change: You may remove yourself from the queue at any time by pressing star two.
Operator: Once again, if you would like to ask a question at this time, please press star 1. Our first question will come from Jack Meehan with Nefron Research. Please go ahead.
Speaker Change: Once again, if you would like to ask a question at this time, Please press star one.
Our first question will come from Jack Meehan with Nephron Research. Please go ahead.
Jack Meehan: Thank you good morning.
Jack Meehan: I wanted to focus on the bioprocessing business here, so orders to start the year bucking the seasonal trend in a positive way. Rainer, can you unpack for us?
Jack Meehan: One <unk>.
Jack Meehan: Focus on the bio processing business here, so orders to start to you're bucking seasonal trend in a positive way Reiner can you unpack for US what do you think is driving that commentary across customer types like pharma versus <unk>.
Rainer Blair: What do you think is driving that? Any commentary across customer types like pharma versus CDMO? Any comments on cancellation trends would be great.
Speaker Change: Comments on cancellation trends would be great.
Reiner: Good morning, Jack and thanks for the question.
Rainer Blair: Good morning, Jack, and thanks for the question. Maybe we should start off with Q1 and what we're seeing today. So as we talked about from a revenue perspective, we had a modestly better than expected start to the year. And looking at orders, the group is mid-single digits sequentially, and typically orders decline from Q4 to Q1, so that's encouraging. And our book-to-bill increased to approximately 0.95, which was right in the middle of our expected range, Jack. We've also gotten some questions here regarding recurring versus equipment orders and sales. I thought I'd talk about that for a minute.
Reiner: Maybe we start off with.
Reiner: Q1, and what we're seeing today.
Reiner: So as we talked about from a revenue perspective, we had a modestly better than expected start to the year.
Reiner: And looking at orders grew mid single digits sequentially.
Reiner: And typically order decline from Q4 to Q1, so that's encouraging.
Reiner: And our book to Bill increased to approximately $2 95, which was right in the middle of our expected range Jack So.
Reiner: Yes.
Reiner: We've also gotten some questions here regarding recurring versus equipment orders and sales I thought I would talk about that for a minute.
Rainer Blair: And I characterize both our equipment and recurring orders and revenues as in line with our expectations. Now, our recurring business was better than equipment growth in both orders and revenue and grew sequentially versus the fourth quarter. And while we saw some modest headwinds, those were as we expected. So there's really no new news here.
Reiner: And I would characterize both our equipment and recurring orders and revenues as in line with our expectations.
Reiner: Now our recurring business was better than equipment growth in both orders and revenue and grew sequentially.
Reiner: First is the fourth quarter.
Reiner: And our equipment was down sequentially versus the fourth quarter.
Reiner: And while we saw some modest headwinds those were as we expected. So there's really no new news here.
Reiner: Geographically.
Rainer Blair: Geographically, larger customers in North America and Western Europe are increasingly returning to the pre-pandemic ordering pattern, so we continue to expect destocking to be largely behind us as we enter the second half of the year. Now, while the emerging biotech funding environment is improving, we're not yet seeing it translate into orders. So early days, but helpful. Moving on to China, demand and underlying activity levels remain weak.
Reiner: Our larger customers in North America Western Europe.
<unk> are increasingly returning to pre pandemic ordering patterns.
Reiner: So we continue to expect destocking to be largely behind us as we enter the second half of the year.
Reiner: While the emerging biotech funding environment is improving we're not yet seeing it translate into orders so early days, but helpful.
Reiner: Moving on to China demand and underlying activity levels remain weak. So if you put it all together.
Rainer Blair: So if you put it all together, the first quarter was an encouraging start to the year. As we look ahead to the second quarter and the rest of the year, there's really no change to how we're thinking about the full year. Expect the first half to be down mid-teens. As we talked about in January, we continue to believe we'll exit the year with high single digits or better core revenue growth.
Reiner: The first quarter was an encouraging start to the year as we look ahead to the second quarter and the rest of the year, there's really no change to how we're thinking about the full year.
Reiner: We expect the first half to be down mid teens as we talked about in January we continue to believe we will exit the year with high single digits or better core revenue growth.
Rainer Blair: And Jack, as far as cancellations go, I know you brought that up. So I would say that, you know, during the quarter, like Rainer said, the book-to-bill was kind of 0.95-ish or right around there. It wouldn't have been much different. Cancellations really were pretty minimal here this quarter, which I think is another, you know, sort of positive sign. I mean, I think we saw in the last several quarters that they were much, much bigger than they were here in the quarter. So a little bit of a tailwind there as well.
Jack as far as cancellations goes I know you brought that up so I would say that during the quarter like Brian said the book to Bill was kind of <unk> 95 ish or right around there. It wouldn't have been much different cancellations really were pretty minimal here this quarter, which I think is another.
Reiner: Sort of positive sign maybe I think we saw the last several quarters. They were much much bigger than they were here in the quarter, So a little bit.
Reiner: A little bit of a tailwind there as well.
Reiner: Excellent.
Unknown Executive: Excellent. And another bioprocessing question, you know, as we get back to the new normal, or I guess what the new normal here is. Everybody's trying to compare and contrast your commentary versus others. I was curious how you see competitive dynamics in the industry now. Just, you know, if you think back over the last couple years, there was this narrative that second-tier players were picking up some share when Fightiva and others were out of stock. I'm curious if there was anything you would call out in that regard that you're seeing.
Reiner: And another bio processing question.
Reiner: Get back to the new normal or I guess, what is the new normal here.
Speaker Change: Everybody is trying to compare and contrast, your commentary versus others. I was curious how you see competitive dynamics shifting at all in the industry. Just if you think back over the last couple of years. There's this narrative that second tier players were picking up some share when sites, even and others were out of stock.
Speaker Change: I'm curious if there was anything you would call out in that regard that youre seeing.
Speaker Change: Jack.
Rainer Blair: Jack, I really wouldn't. I would tell you that, you know, through the acquisition of the GE Biopharma business and now bringing Paul Life Sciences and that business together in Cytiva, we really feel like we have a very strong bioprocessing franchise. And, you know, we continue with the Kaizen mantra, the continuous improvement mantra, to improve what we do every day. And so we believe that we have a highly competitive franchise, and that will not only continue to be the case, but increasingly so as we move through the year and the near future.
Jack Meehan: Really wouldn't I would tell you that now through the acquisition of GE, Biopharma and pharma business and now, bringing Pall life Sciences.
Jack Meehan: And that business together insight Eva.
Jack Meehan: We really feel like we have a very strong bio processing franchise.
Jack Meehan: We continue with the.
Jack Meehan: Hi, Dan mantra of continuous improvement non tracked to improve what we do every day and so we believe that that.
Jack Meehan: We have a highly competitive franchise and that we will.
Jack Meehan: Not only continued to be the case, but increasingly so as we move through the year end and the near future.
Speaker Change: I appreciate it thank you.
Michael Ryskin: Thank you. Our next question comes from Michael Ryskin with Bank of America. Please go ahead.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Michael Riskin with Bank of America. Please go ahead.
Speaker Change: Okay.
Michael Ryskin: Hey, thanks for taking the question guys and congrats on the strong print. I'm going to ask one follow-up question on bioprocess, and then I'll move on from that topic. So just to start, I mean Rainer, as you were saying, you're surprised that orders improved 4Q into 1Q and seems like you have some positive commentary on inventories exiting the second quarter. So why aren't you raising the bioprocess guide for the year, just, you know, given where you are sitting at the end of 1Q?
Michael Riskin: Thanks for taking the question guys and congrats on the strong trends.
Michael Riskin: Can I ask one follow up on Bioprocess, and then I'll move on from that topic.
Michael Riskin: So just to start I mean, Ryan or as you were saying.
Michael Riskin: Youre surprised that orders improved four.
Michael Riskin: <unk>. It seems like you had some positive commentary on the inventories exited the second quarter.
Michael Riskin: Why aren't you raising the bioprocess guide for the year.
Michael Riskin: Just given where you are sitting at the end of <unk>.
Michael Riskin: Is there any additional conservatism you're putting in or just what are you waiting to see from the market to feel more confident than you did three months ago, just given the progress you're seeing so far.
Michael Ryskin: Is there any additional conservatism you're putting in, or just like what are you waiting to see from the market to feel more confident than you did three months ago, just given the progress you've seen so far?
Speaker Change: Thanks, Michael and good morning.
Rainer Blair: Thanks, Michael. Good morning.
Michael Ryskin: Well I mean, like we said we had an encouraging start to the year, but it's still early.
Rainer Blair: Well, I mean, like we said, we had an encouraging start to the year, but it's still early. There's really no change, as you said, to our full-year core revenue growth of down low single digits. And what we're really looking for here is the order momentum to continue to build through the second quarter, and some continued stability in the run rate consumables. And, of course, the longer term, with a lot of you looking towards the longer term, we'd like to see equipment demand improve.
Speaker Change: There is there's really no change as you said to our full year core revenue growth.
Speaker Change: Down low single digits, and what we're really looking for here is.
Michael: The order momentum to continue to build through the second quarter.
Michael: And some continued stability in the run rate consumables.
Michael: And of course, a long trip longer term with a view towards the longer term, we'd like to see equipment demand improve.
Michael: That's a small part of the business only about 15% of course, it's important for the long term.
Michael: And it's good to see then the emerging biotech funding is solidify stabilize.
Rainer Blair: While that's a small part of the business, only about 15%. Of course, it's important for the long term. And it's good to see the emerging biotech funding solidify, stabilize, but we don't see that materializing in orders yet. So there's a little bit more to go here. And we think we're properly positioned with the guide.
Michael: But we don't see that materializing in orders yet so there's a little bit more to go here and we think we're properly positioned with the guide.
Speaker Change: Okay. I appreciate that's helpful and then switching over to the margin side of things again really really solid quarter.
Speaker Change: When we think about how you came in ahead in <unk> versus expectations seems like combination of just overall volume, but then also mix from Cepheid in bioprocess I'm sure contribute.
Michael Ryskin: Okay. I appreciate that. It's helpful.
Speaker Change: Anything we should think about as you go through the rest of the year youre pointing to 26% margins in the second quarter, and then 29 for the year unchanged.
Michael Ryskin: And then switching over to the margin side of things, again, a really, really solid quarter. When we think about how you came in ahead in 1Q versus expectations, it seems like a combination of just overall volume but then also mix from SAFUD and bioprocess, I'm sure, contributed. Anything we should think about as you go through the rest of the year? You're pointing to 26% margins in the second quarter and then 29% for the year unchanged. I mean, anything in terms of mix that's leading to that, or just, you know, how do we think the key piece is there?
Speaker Change: In terms of mix that steps, leading to that or just how do we think the key pieces there.
Speaker Change: Yeah, Mike So for Q2, I think that's definitely right you talked about approximately 26% adjusted operating margins that is a sequential decline versus Q1 that was about.
About 30% and that is all due to lower respiratory volumes at Cepheid.
Speaker Change: The Q2 respiratory revenue was six or sorry, Q1 was $675 million, we're thinking more like 200 million for Q2, so a pretty big drop off and given that the margin profile of that business and the operating leverage we get it's pretty meaningful declines. So I would say the <unk> decline is all related.
Speaker Change: Two respiratory volume Cepheid and maybe some some FX as well.
Speaker Change: But you bring up a good point as we sort of think about the way that youre likely to see.
Speaker Change: Sort of maybe different season.
Unknown Executive: Yeah, Mike, so for Q2, I think that's definitely right. You talked about approximately 26% of just operating margins. That is a sequential decline versus Q1 that was about 30%, and that is all due to lower respiratory volumes at SEPI.
Speaker Change: Seasonality out of our margin progression than you have in the past.
Speaker Change: Given that we're sort of in an endemic state now versus where we were in COVID-19.
Speaker Change: Let's come back to that respiratory season. So if you think about the respiratory season, which is both Q1 and Q4 those are the highest volume quarters at Cepheid Biologics right Q1, and Q4 are going to be quarters that we anticipate being north of $500 million. Each you saw that we did 675% in Q1, and Q2 and Q3 as we sort of guided to.
Unknown Executive: It's, you know, the Q2 respiratory revenue was six, or sorry, Q1 was $675 million. We're thinking more like $200 million for Q2. So a pretty big drop off. And given that, you know, the margin profile of that business and the operating leverage we get, it's pretty meaningful when that declines.
Speaker Change: We're talking about revenue of only a couple of hundred million dollars.
Speaker Change: So the margin profile operating leverage I think youre going to see Q4, and Q1 be danaher is higher volume higher volume end up and margin quarters going forward and Thats, a little different than maybe what we saw in the past pre pandemic and thats largely because respiratory was a much smaller business only 250.
Speaker Change: Pre pandemic 2019, and now it's 1 billion six so hopefully it gives a little bit of color and help people modeling as we go forward because I do think we have a little bit of a different dynamic.
Unknown Executive: So I would say the 2Q decline is all related to respiratory volume at SEPI and maybe some FX as well. But you bring up a good point, as we sort of think about the way that you're likely to see maybe different seasonality out of our margin progression than you have in the past, given that we're sort of in an endemic state now versus where we were in COVID. And it really does come back to that respiratory season.
Speaker Change: Probably is just showing itself a little bit now here as we get through some of this stuff.
Speaker Change: Alright, Thanks, a lot very helpful.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Scott Davis with Melius Research. Please go ahead.
Scott Reed Davis: Hey, good morning, Brian Erinn.
Scott Reed Davis: John It's Scott Good morning, Scott.
Scott Reed Davis: Okay. So im looking at the life Sciences margins.
Scott Reed Davis: See the breakdown of why Theyre down it came down a little bit more than I would've thought on a.
Scott Reed Davis: Minus 3% core.
Scott Reed Davis: Can you give us a little bit more detail on <unk>.
Scott Reed Davis: Some of the ebb and flow there and mix issue.
Speaker Change: Yes, Scott I thought the margins in Q2 actually came in probably a little bit above where we thought at 23%.
Unknown Executive: So if you think about the respiratory season, which is both Q1 and Q4, those are the highest volume quarters at CEPI by a lot, right? Q1 and Q4 are going to be quarters that we anticipate being north of $500 million each. You saw that we did 675 in Q1. And Q2 and Q3, as we sort of guided to, you know, talking about revenue of only a couple hundred million dollars. So, you know, the margin profile operating leverage, you know, I think you're going to see Q4 and Q1 be Danaher's higher volume and margin quarters going forward.
Speaker Change: I mean, I think if you look at it.
Speaker Change: Kind of the volume there being down and also you've got <unk> that has come in here and we've got some transition costs.
Speaker Change: Related to <unk> that are either in that number as well.
Speaker Change: Operating leverage with core growth down low single digits as expected kind of had some of the dilutive impact of <unk> is probably the big thing here in the quarter, but I still think it came in around where we thought.
Speaker Change: Okay.
Speaker Change: Fair enough so got it.
Speaker Change: Going back to <unk> I mean, you didn't talk about in your prepared remarks, but you've had a little bit of time with with the business. Now can you talk us through perhaps some of the early reads of positives and negatives.
Unknown Executive: And that's a little different than maybe what we saw in the past pre-pandemic, and that's largely because respiratory was a much smaller business, only $250 million in pre-pandemic 2019, and now it's $1.6 billion. So hopefully, it gives a little bit of color and helps people model as we go forward, because I do think we have a little bit of a different dynamic that, you know, probably is just showing itself a little bit now here as we get through some of this stuff. Great
Speaker Change: Sure.
Speaker Change: Scott as you know we closed in December on the business and now have the first full quarter behind us.
Speaker Change: And we've put a new danaher, president and CFO in place and they are really focused on the transition into Danaher and then implementing the danaher business system.
Speaker Change: So we're going to continue to work through it and we're going to need a little time to get after some of the growth and cost opportunities we spoke about.
Speaker Change: And long term of course, we continue to believe this is a great high single digit grower in a fantastic market, Yeah, and Scott we've seen this before I mean, you've followed us long enough that sometimes these.
Speaker Change: As you put in a new team you've got a business that had some had some.
Michael Ryskin: Great. Thanks a lot. Very helpful.
Scott Reed Davis: Thank you. Our next question comes from Scott Davis with Milius Research. Please go ahead.
Speaker Change: Some challenges on the cost side as we introduce DBS, we've sort of seen maybe slow starts before like this and as we get going IDT was very very similar so it's sort of it is.
Scott Reed Davis: Hey, good morning Rainer and Matt and John. Good morning Scott. Guys, I'm looking at the life sciences margins and I see the breakdown of why they're down. They seem down a little bit more than I would have thought on a minus 3% core. Can you give us a little bit more detail on perhaps some of the ebb and flow there and mix issue?
Speaker Change: Not really surprising, but I do like Ryan said, I like where we're at in the long term and I think we're going to get after some of the costs here pretty quickly as well. So I think that will cost some money to do that but we're getting after it and I think you should expect us to do that here for the balance of the year as well.
Speaker Change: Okay. It sounds good best of luck guys I appreciate it all right. Thanks, Scott Thanks, Scott.
Unknown Executive: Yeah, Scott, I thought the margins in Q2 actually came in probably a little bit above where we thought, at 23%. I mean, I think if you look at, you know, kind of the volume there being down, and also you've got ABCAM that has come in here, and we've got some transition costs, you know, related to ABCAM that are either in that number as well. And so, you know, operating leverage with core growth down low single digits and, as expected, kind of had some of the dilutive impact of ABCAM is probably the big thing here in the quarter. But I still think it came in around where we thought.
Speaker Change: Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Muniyappa Kumar: Hi, Brian Good morning, and thanks for taking my question.
Vijay Muniyappa Kumar: Yes.
Vijay Muniyappa Kumar: For my first one.
Vijay Muniyappa Kumar: On bio processing.
Vijay Muniyappa Kumar: Those comments were helpful.
Vijay Muniyappa Kumar: But the point 95 acts in the order trends could you perhaps talk about.
Vijay Muniyappa Kumar: The progression in the quarter.
Vijay Muniyappa Kumar: And I know the guy didn't change, but given the <unk> 95 excellent customer activity levels.
The exit rate for fiscal 2014, I think the prior was exiting maybe one.
<unk> north of Onex and I'm wondering if.
Vijay Muniyappa Kumar: Those assumptions have changed.
Vijay Muniyappa Kumar: And maybe.
Speaker Change: I'll take that first and Ryan can add some color.
Unknown Executive: Okay, fair enough. So guys, just going back to Abcam, something you didn't talk about in your prepared remarks, but you've had a little bit of time with the business now. Can you talk us through perhaps some of the early reads of positives and negatives?
Ryan: I'd say that as far as the pacing through the quarters goes I would say that we saw a little bit better start in January and that really did can continue through the quarter. So I am not sure that it was a big inflection in any given month as.
Ryan: As far as the.
Ryan: The exit rate and I still think we're going to exit here high single digits. We've talked about that I don't think there's any change to that and I would not change anything from from our initial revenue guidance, where we sort of framed that as in order for us to deliver the download single digit revenue for the full year, we would need to see every quarter the book to bill in the <unk>.
Rainer Blair: Scott, as you know, we closed in December on the business and now have the first full quarter behind us. And we put a new Danaher president and CFO in place, and they're really focused on the transition into Danaher and implementing the Danaher business system. So we're going to continue to work through it, and we're going to need a little time to get after some of the growth and cost opportunities we spoke about. And long term, of course, we continue to believe this is a great high single-digit grower in a fantastic market.
Ryan: And so I think we were right in that range here in Q1, and I don't think that Theres any change for that and Thats reflective of why we have also not updated or change anything with the guide.
Speaker Change: Understood and maybe my follow up.
Brian Erinn: Perhaps Brian.
Speaker Change: China and IDP commentary.
Brian Erinn: China I know you mentioned comps, but there's been some noise around new loan program stimulus et cetera.
Brian Erinn: Does that change your view on.
Unknown Executive: We've seen this before. I mean, you've followed us long enough that sometimes these, you know, as you put in a new team, you've got a business that has some challenges on the cost side. You know, as we introduced DBS, we've sort of seen maybe slow starts before like this. And as we got going, you know, IDT was very, very similar. So it's sort of, it's not really
Brian Erinn: Is this incremental does matter and IDT getting.
Brian Erinn: Given some of the business have come up in the bio secure act.
Brian Erinn: You know what it's idt's exposure, if any to China and I think you mentioned IGT declined in the quarter was the China ex China whats the share loss or end market any comments would be helpful.
Brian Erinn: Sure.
Brian Erinn: So starting off with China, and we have not changed our perspective for the full year, which we expect to be down high single digits and certainly we are closely following these discussions around the stimulus that's in play that.
Unknown Executive: But I do, like Rainer said, I like where we're at in the long term. And I think we're going to get after some of the costs here pretty quickly as well. So I think it'll cost some money to do that, but we're going to do it. And I think you should expect us to do that here for the balance of the year as well.
Brian Erinn: No.
Brian Erinn: Broad based in terms of an equipment replacement program that ranges from agriculture to heavy industry and also includes health care markets like our own that's very early days and it's not clear yet how thats to be implemented.
Brian Erinn: Whether that's via the central government, rather whether it trickles through to the provinces. So a lot to be seen there.
Scott Reed Davis: Okay, sounds good. Best of luck, guys. Appreciate it. Thanks, Scott.
Brian Erinn: And at this point, we don't expect that to have.
Vijay Muniyappa Kumar: Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Brian Erinn: A large impact here.
Brian Erinn: In 2024, and that's why we stick with our perspective, the high single digits decline for the year.
Vijay Muniyappa Kumar: Hi Rainer, good morning and thanks for taking my question. For my first one, on bioprocessing, those comments were helpful, but the 0.95x and the order trends, could you perhaps talk about the progression in the quarter? And I know the guide didn't change. But given the 0.95x in customer activity levels, should the exit rates for fiscal 24 change? I think the prior was exiting maybe 1x or north of 1x. And I'm wondering if those assumptions have changed.
Brian Erinn: So of course, we'll keep moderating monitoring that now when it comes to IDT IDT is a very small exposure in China and that's.
Brian Erinn: That's really not the part of the IDT IDT playbook at this point IDT is doing well and we're actually very happy with Idt's performance.
Brian Erinn: Which has been growing mid teens since we've acquired the company and has operating margins over 30%.
Speaker Change: Fantastic Thanks, guys.
Unknown Executive: And maybe I'll take that first, and Rainer can add some color. I would say that as far as the pacing through the quarters goes, I would say that we, you know, we saw a little bit better start in January. And that really did continue through the quarter. But I'm not sure that it was, you know, a big inflection in any given month. As far as the exit rate, I still think we're going to exit here in the high single digits.
Speaker Change: Thanks, Vijay Thank you.
Speaker Change: Thank you. Our next question will come from Doug Schenkel with Wolfe Research. Please go ahead.
Doug Schenkel: Hey, good morning, guys welcome back.
Doug Schenkel: Thanks, Ryan or good to be here good morning, and thank you for taking my questions.
Doug Schenkel: So life Sciences.
Doug Schenkel: A segment that was better than you guided you talked about instruments declining mid singles you sounded.
Unknown Executive: We've talked about that. I don't think there's any change to that. And I would not change anything from, you know, from our initial revenue guidance, where we sort of framed that as in order for us to deliver download single-digit revenue for the full year, we would need to see every quarter of the booked bill in the 0.9. And so I think we were right in that range here in Q1. And I don't think that there's any change for that. And that's reflective of why we have also not updated or changed anything in the guide.
Doug Schenkel: Actually pretty good on what was going on with reagents.
Speaker Change: <unk> I guess, what I'm wondering is.
Speaker Change: We're instruments, a little weaker than you expected and then sort of by extension, we're reagents and activity stronger than expected I'm, just trying to think about the trends there and kind of what that could mean for the rest of the year.
Thanks, Doug well thinking about life science tools, which you know represents.
Doug Schenkel: Mr around 10% of our business.
Vijay Muniyappa Kumar: And maybe my follow-up, you know, perhaps, Rainer, on the China and IDT comments, right? China, I know you mentioned comps, but there's been some noise around new loan programs, stimulus, etc. Does that change your view of China? Is this incremental?
Doug Schenkel: What we saw in the first quarter is largely consistent with what we've seen through the second half of 'twenty three.
Doug Schenkel: Core growth in the first quarter down mid single digits and to give you a sense in developed markets pharma and biotech customers.
Doug Schenkel: Customers are stable, albeit at a lower level of demand.
Doug Schenkel: In academic and applied markets held up better comparatively particularly for our more advanced instrumentation.
Rainer Blair: Does it matter? And IDT, I think, you know, given some of these businesses have come up and the Biosecure Act, you know, what is IDT's exposure, if any, to China? And, you know, I think you mentioned IDT declined in the quarter. Was it China, ex-China? Was the share loss or in-market? Any comments would be helpful.
Doug Schenkel: So we're actually starting to see improved.
Doug Schenkel: Final activity for later in the year, but those haven't translated to orders yet so it's good to see more activity, but it's not it's not showing up in the order book, yet with the cycle times being what they are for that that those kind of deals.
Rainer Blair: So starting off with China, I mean, we have not changed our perspective for the full year, which we expect to be down high single digits. And certainly, we are closely following these discussions around the stimulus that's in play, which is very broad-based in terms of an equipment replacement program that ranges from agriculture to heavy industry and also includes healthcare markets like our own. It's very early days, and it's not clear yet how that's to be implemented, whether that's via the central government or whether it trickles through to the provinces. So a lot is to be seen there.
Doug Schenkel: Now if you think about China and Thats, an important part of this market.
Doug Schenkel: You last year, we're sort of at the peak of the execution of the stimulus plan in China last year. So.
Doug Schenkel: So the comps are tough year, both in Q1 and Q2.
Doug Schenkel: And in addition to that of course, you've got lower end market demand just due to the weak weaker macro there.
Doug Schenkel: And then lastly, and as I mentioned to Vijay.
Doug Schenkel: We're closely following those discussions around the stimulus.
Doug Schenkel: But it really is early days here.
Doug Schenkel: And we're not able to include that yet and any view towards the future. So we'll continue to monitor that as we go forward.
Doug Schenkel: And then I'll just conclude here on the life science tools market that what we're seeing is as expected this normalization trend coming off tough comps in the first half of <unk>.
Rainer Blair: And at this point, we don't expect that to have a large impact here in 2024. And that's why we stick with our perspective of a high single-digit decline for the year. So, of course, we'll keep moderating and monitoring that.
Doug Schenkel: Last year.
Doug Schenkel: We expect that to continue here in the second quarter.
Rainer Blair: Now, when it comes to IDT, IDT has a very small exposure in China, and that's, That's really not part of the IDT playbook at this point. IDT is doing well, and we're actually very happy with its performance, which has been growing mid-teens since we acquired the company and has operating margins over 30 percent.
Doug Schenkel: Then in the second half.
Doug Schenkel: Should see some improvement there.
Speaker Change: Super helpful. Reiner, one very quick unrelated follow up.
Reiner: I think as we sit here today Danaher, probably has 30 billion maybe as much as $40 billion. If you stretched for the right deal and M&A capacity.
Reiner: I'm, just wondering how you're feeling about the environment right now.
Rainer Blair: Fantastic
Douglas Anthony Schenkel: Thank you. Our next question will come from Doug Schinkel with Wolf Research. Please go ahead.
Reiner: Especially given where rates are and where funding is as we sit here today. Thank you.
Speaker Change: So again as you know.
Douglas Anthony Schenkel: Hey, good morning, guys. Welcome back, Doug. Thanks Rainer. Good to be here, good morning, and thank you for taking my questions.
Speaker Change: Our bias for capital allocations towards M&A, but theres no doubt that with higher interest rates the bar is higher.
Speaker Change: And as active as our funnel work is we're not going to compromise on.
Douglas Anthony Schenkel: So, life sciences, as a segment, was better than you guided. You talked about instruments declining mid-singles. You sounded, actually, pretty good about what was going on with re-aging. Consumables, I guess what I'm wondering is... You know, were instruments a little weaker than you expected? And then, you know, sort of by extension, were reagents and activities stronger than expected? I'm just trying to think about the trends there and kind of what that could mean for the rest of the year.
Speaker Change: On our earnings expectations here, a return on invested capital targets.
Speaker Change: That just means that we have to work all the harder here to meet those higher hurdle rates, but nonetheless, we're very active as we always are.
Speaker Change: And we will continue as.
Speaker Change: As we have with great discipline around M&A.
Speaker Change: Great. Thank you very much.
Speaker Change: Thanks, Doug.
Speaker Change: Thank you we'll take our next question from Dan Leonard with UBS. Please go ahead.
Rainer Blair: Thanks, Doug. Well, thinking about life science tools, which represent just around 10% of our businesses, what we saw in the first quarter is largely consistent with what we've seen through the second half of 23, with core growth in the first quarter down mid single digits. And to give you a sense, in developed markets, pharma and biotech, customers are stable, albeit at a lower level of demand, and academic and applied markets hold up better comparatively, particularly for our more advanced instrumentation.
Dan Leonard: Thank you Reiner you've mentioned a couple of times that the improvement in biotech funding hasn't benefited the business yet can you elaborate a bit on your thinking there.
Dan Leonard: Long of a lag do you think you'd see between improved funding and improved business activity and how does that differ across your different operating units.
Speaker Change: Thanks, Dan and good morning to you.
Reiner: So we have seen a stabilization and perhaps even the slightest improvement in biotech funding.
Speaker Change: But for that to be operationalized here will take some time in fact, we believe so much time that we have not.
Rainer Blair: So we're actually starting to see improved funnel activity for later in the year, but those haven't translated to orders yet. So it's good to see more activity, but it's not yet showing up in the order book with the cycle times being what they are for those kinds of deals. Now, if you think about China, and that's an important part of this market. Of course, you were sort of at the peak of the execution of the stimulus plan in China last year.
Speaker Change: Changed our perspective on our guide.
Any of the businesses as it as it relates to biotech funding. So it's early days.
It's positive to see and helpful to see the biotech funding are stabilized and even even showing the slightest of growth, but it's just too early and that that will take several quarters here to make any discernible difference across the business.
Speaker Change: Just to give you a sense of color on it we really haven't contemplated anything.
Speaker Change: From an order perspective until kind of next year.
Rainer Blair: So, the comps are tough here, both in Q1 and Q2. And in addition to that, of course, you've got lower end market demand just due to the weaker macro there. And then lastly, and as I mentioned to Vijay, we're closely following those discussions around the stimulus. But it really is early days here, and we're not able to include that yet in any view toward the future. So we'll continue to monitor that as we go forward.
Speaker Change: We've thought about our guidance.
Speaker Change: Got it I appreciate that and just a quick follow up on China, I know you've framed the high teens core decline is being in line with plan, but curious how different end markets within China progressed versus plan and also curious whether that comment you made on improving funnels in life sciences, whether that applies to China as.
Speaker Change: Well or are the trends in China different.
Speaker Change: So back to the first quarter in China, Our biotechnology segment was was down nearly 40%.
Rainer Blair: And then I'll just conclude here on the life science tools market that what we're seeing is, as expected, this normalization trend coming off tough comps in the first half of last year. And we expect that to continue here in the second quarter, but then in the second half, we should see some improvement there.
Speaker Change: Which is.
Speaker Change: In line with what we've seen.
Speaker Change: Over the last quarters here.
Speaker Change: In life Sciences, we were down.
Speaker Change: That gives you a sense of not only what's going on in the market, but the high comp of the prior first half.
Speaker Change: In 2023.
Speaker Change: And then in diagnostics, we were down low single digits to give you a sense of how thats developing as it relates to the biotech funding you are correct that we expect the biotech funding to be skewed more towards developed markets.
Douglas Anthony Schenkel: Super helpful, Rainer. One very quick, unrelated follow-up. You know, I think as we sit here today, Danaher probably has, you know, $30 billion, maybe as much as $40 billion, if you stretched for the right deal in M&A capacity. I'm just wondering how you feel about the environment right now, especially given where rates are and where funding is, as we sit here today. Thank you.
In China, and it remains to be seen when that returns so.
Speaker Change: While we're seeing a stabilization there.
Stabilization is at a very low level in contrast to what we've seen in the developed markets.
Speaker Change: Thanks for the color.
Speaker Change: Thanks, Dan.
Rachel Marie Vatnsdal Olson: Thank you our last question will come from Rachel vet install with J P. Morgan. Please go ahead.
Rachel Marie Vatnsdal Olson: Perfect. Thank you guys and congratulations on the quarter. So I just wanted to ask on bio secure act and how youre thinking about the potential impact in bioprocess thing. So we've already heard that some pharma and biotech companies.
Rainer Blair: Doug, as you know, our bias for capital allocation is towards M&A, but there's no doubt that with higher interest rates, the bar is higher. And as active as our funnel work is, we're not going to compromise on our earnings expectations here, our return on invested capital targets, and that just means that we have to work all the harder here to meet those higher hurdle rates. But nonetheless, we're very active, as we always are, and we'll continue as we have with great discipline around M&A. Thank you very much.
Rachel: Starting to look at their supply chain and working with some of these Chinese CDN given some of the headlines you've seen around <unk>.
Rachel: Can you just walk us through what are you hearing from customer conversations on your end with the Chinese CDN nodes, but also with pharma and biotech customers and their willingness to partner there and then Additionally, I guess, how should we think about this from a longer term implication standpoint could this shift growth to other geographies and if so could there be some type of tiny or.
Rachel: Air Pocket dynamic as you check manufacturing from China to other geographies.
Speaker Change: Thanks, Rachel good morning.
Daniel Louis Leonard: Thank you. I'll take our next question from Dan Leonard with UBS. Please go ahead.
Speaker Change: So the bio secure act.
Speaker Change: Is as you can imagine very difficult to say how this ultimately plays out.
Daniel Louis Leonard: Thank you. Rainer, you've mentioned a couple of times that the improvement in biotech funding hasn't benefited the business yet. Can you elaborate a bit on your thinking there? How long of a lag do you think you'd see between improved funding and improved business activity, and how does that differ across your different operating units?
Speaker Change: If we look at potential passage or not that sort of thing and of course. There are many details details are not known yet.
Speaker Change: I am having said that.
Speaker Change: And as you suggested cuts.
Speaker Change: Customers are starting to call this out.
Speaker Change: As a risk factor to their business and of course are starting to take measures to.
Speaker Change: <unk> de risk their business in terms of the molecules that they've developed.
Rainer Blair: Thanks, Dan, and good morning to you. So we have seen a stabilization, perhaps even the slightest improvement in biotech funding. But for that to be operationalized here will take some time. In fact, we believe it will take so much time that we have not changed our perspective on our guide in any of the businesses as it relates to biotech funding. So it's early days, but it's positive to see and helpful to see biotech funding stabilized and even showing the slightest of growth. But it's just too early, and it will take several quarters here to make any discernible difference across the business.
Speaker Change: And ultimately when a manufacturer so.
Speaker Change: If.
Speaker Change: Manufacturing and clinical trials should then shift to other locations.
Speaker Change: Our solutions follow the molecule.
Speaker Change: It's really important to note that with our global business and our capability, perhaps more so than anybody we can deliver our solutions anywhere around the globe with full support from a technology.
Speaker Change: And service perspective, so we have that ability to follow those solutions in terms of timing.
Speaker Change: Again this is a business.
Speaker Change: We're pharmaceutical companies need to minimize and mitigate mitigate risk so in terms of air pockets.
Unknown Executive: Just to give you a sense of color on it, we really haven't contemplated anything from an order perspective until kind of next year in how we've thought about our gut.
Speaker Change: That remains to be seen as pharmaceutical companies, perhaps search for.
Speaker Change: Other partners for their clinical trials and their manufacturing and of course, we're going to do.
Daniel Louis Leonard: Got it. Appreciate that. And just a quick follow-up on China. I know you framed the high teens core decline as being in line with plan, but I'm curious how different end markets within China progress versus plan, and also curious whether that comment you made on improving funnels in life sciences applies to China as well, or are the trends in China different?
Speaker Change: <unk> work, there shouldnt be necessary in terms of technology transfers and making sure that any transitions here from one service supplier to the next run as smoothly as possible.
Speaker Change: Perfect. Thank you and then just as a follow up on bioprocess. Thank you highlighted that equipment.
Rainer Blair: So back to the first quarter in China, our biotechnology segment was down nearly 40%, which is, you know, in line with what we've seen over the last couple of quarters here. In life sciences, we were down in the high teens. That gives you a sense of not only what's going on in the market but the high comp of the prior first half of 2023. And then in diagnostics, we were, you know, down low single digits.
Speaker Change: We're kind of where the strength was in <unk>.
Speaker Change: Walk us through on your assumptions for both of those trends for the rest of the year to get to the full year Guide and then specifically by year end you pointed towards high single digits growth in bio processing on a core basis, what's really assume to maximize recovery cycle standpoint on consumables versus equipment, and then it will geography trends as well.
Speaker Change: Okay. So we actually don't break it down in terms of how we guide for a quarter or full year between consumables and equipment, we stay at the top level.
Rainer Blair: As it relates to biotech funding, you are correct that we expect biotech funding to be skewed more towards developed markets than in China, and it remains to be seen when that returns. So while we're seeing stabilization there, that stabilization is at a very low level in contrast to what we see in developed markets.
Speaker Change: And as he pointed out we were.
Speaker Change: Happy to see.
Speaker Change: The sequential growth here in the first quarter.
Speaker Change: 5%.
Speaker Change: What I can say is that the recurring revenue.
Speaker Change: Ah represents about 85% of.
Rachel Marie Vatnsdal Olson: Thank you. Our last question will come from Rachel Vattenstahl with J.P. Morgan. Please go ahead.
Speaker Change: Bio processing and of course that was also the major driver of the improvement in orders that you saw in the book to Bill.
Rachel Marie Vatnsdal Olson: Perfect. Thank you guys, and congratulations on the quarter.
Speaker Change: In the quarter.
Speaker Change: Of course, that's where our focus was and Thats, where the Destocking was taking place here over the prior quarters. So if you think about our guide here for the full year for bio processing down low single digits, 85%.
Rainer Blair: So I just wanted to ask you about the Biosecure Act and how you're thinking about the potential impact on bioprocessing. So we've already heard that some pharma and biotech companies are starting to look at their supply chains and working with some of these Chinese CDMOs given some of the headlines we've seen around biosecure. So can you just walk us through what you are hearing from customer conversations on your end with the Chinese CDMOs but also with pharma and biotech customers and their willingness to partner there?
Speaker Change: The business is recurring and roughly 15% is equipment I think that's the best way to think about that in terms of our guide.
Speaker Change: And how that splits.
Speaker Change: Okay.
Speaker Change: Thank you at this time I would like to turn the call back over to John Bedford for any additional or closing remarks.
John Bedford: Thank you everyone for joining us today, we will be around all day and rest of the week for follow ups, if I could have a good day. Thanks, everyone.
Rainer Blair: And then additionally, I guess how should we think about this from a longer-term implications standpoint? Could this shift growth to other geographies, and if so, could there be some type of timing or air pocket dynamic as you shift manufacturing from China to other geographies?
Speaker Change: This does conclude <unk> first quarter.
Speaker Change: 2024 earnings Conference call you may disconnect. Your lines at this time and have a wonderful day.
Speaker Change: Okay.
Rachel Marie Vatnsdal Olson: Thanks, Rachel. Good morning.
Speaker Change: Okay.
Rainer Blair: So the Biosecure Act, it is, as you can imagine, very difficult to say how this ultimately plays out. If we look at potential passage or not, that sort of thing. And, of course, there's many details that are not known yet. I'm having said that.
Speaker Change: [music].
Speaker Change: Okay.
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Rainer Blair: And as you suggested... Customers are starting to call this out as a risk factor for their business and, of course, are starting to take measures to de-risk their business in terms of the molecules that they've developed and ultimately want to manufacture. So if manufacturing and clinical trials are done in other locations, should they shift to other locations? Of course, our solutions follow the molecule. That's why it's really important to note that with our global business and our capability, perhaps more so than anybody, we can deliver our solutions anywhere around the globe with full support from a technology and service perspective.
Speaker Change: Okay.
Rainer Blair: So we have that ability to follow those solutions. In terms of timing, again, this is a business where pharmaceutical companies need to minimize and mitigate risk. So in terms of air pockets, you know, that remains to be seen as pharmaceutical companies perhaps search for other partners for their clinical trials and their manufacturing. And, of course, we're going to do great work there. And should it be necessary in terms of technology transfers and making sure that any transitions here from one service supplier to the next run as smoothly as possible.
Speaker Change: Okay.
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Speaker Change: Hello, Matt.
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Speaker Change: Yes.
Okay.
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Rachel Marie Vatnsdal Olson: And then just as a follow-up on bioprocessing, you highlighted that equipment is weaker, and consumables, you know; we're kind of where the strength was in one queue. Can you just walk us through your assumptions for both of those trends for the rest of the year to get to the full year guide? And then specifically by year end, you pointed towards high single digits or above growth in bioprocessing on a core basis. What's really assumed from that from a recovery cycle standpoint on consumables versus equipment? And then any geography trends as well? Thanks.
Speaker Change: Yeah.
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Speaker Change: Yeah.
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Yes.
Speaker Change: Okay.
Rainer Blair: Rachel, we actually don't break it down in terms of how we manage for a quarter or full year between consumables and equipment. We stay at the top level.
Speaker Change: Yes.
Speaker Change: Okay.
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Rainer Blair: And as we pointed out, we were, you know, happy to see the sequential growth here in the first quarter of 5%. And, you know, what I can say is that recurring revenue represents about 85% of bioprocessing. And, of course, that was also the major driver of the improvement in orders that you saw and the book to bill in the quarter. And of course, that's where our focus was, because that was where the destocking was taking place here over the prior quarters.
Speaker Change: Okay.
Speaker Change: Mhm.
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Speaker Change: Okay.
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Hum.
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Rainer Blair: So, if you think about our guide here for the full year for bioprocessing, download the single digits, 85% of the business is recurring, and roughly 15% is equipment. I think that's the best way to think about that in terms of our guide and how that splits.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Okay.
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Speaker Change: Okay.
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John Bedford: Thank you. At this time, I would like to turn the call back over to John Bedford for any additional or closing remarks.
Speaker Change:
John Bedford: Thank you everyone for joining us today. We'll be around all day and the rest of the week for follow-ups. Have a good day. Thanks, everyone. This does conclude.
Speaker Change: Yes.
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Speaker Change: Okay.
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Operator: This does conclude Danaher's first quarter 2024 Earnings Conference Call. You may disconnect your line at this time and have a wonderful day.
Speaker Change: Sure.
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Speaker Change: Okay.