Q3 2024 Danaher Corp Earnings Call
Core earnings results Conference call.
Speaker Change: Lines have been placed on mute to prevent any background noise. After the speakers' 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 draw. Your question. Please press Star then the number two on your telephone keypad I will now turn the call over to Mr. John Bedford Vice.
Speaker Change: President of Investor Relations. Mr. Bedford, you May begin your conference.
and a lot of people are here to help us to find out what we're going to do.
John Bedford: Good morning, everyone and thanks for joining us on the call.
John Bedford: With us today are Rainer Blair, our president and Chief Executive Officer, and Matt Mcgrew, Our executive Vice President and Chief Financial Officer.
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John Bedford: I'd like to point out that our earnings release Form 10-Q.
John Bedford: The slide presentation supplementing today's call the.
John Bedford: The reconciliations and other information required by SEC regulation G.
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John Bedford: Relating to the non-GAAP financial measures, we will be discussing during the call.
John Bedford: And of note containing details of historical and anticipated future financial performance.
John Bedford: Are all available on the investors section of our website www Dot Danaher Dot com.
John Bedford: Under the heading quarterly earnings.
John Bedford: The audio portion of this call will be archived on the investors section of our website later today.
John Bedford: Under the heading events and presentations.
John Bedford: And will remain archived until our next quarterly call.
John Bedford: A replay of this call will also be available until November five 2024.
John Bedford: During the presentation, we will describe certain of the more significant factors that impacted year over year performance.
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John Bedford: The supplemental materials describe additional factors that impacted year over year performance.
John Bedford: Unless otherwise noted all references in these remarks and supplemental materials to.
John Bedford: To company specific financial metrics relate to results from continuing operations.
John Bedford: And relate to the third quarter of 2024.
John Bedford: All references to period to period increases or decreases in financial metrics are year over year.
John Bedford: We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals.
John Bedford: Or are available only in certain markets.
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John Bedford: During the call we will make forward looking statements within the meaning of the federal Securities laws.
John Bedford: Including statements regarding events or developments that we believe or anticipate will or may occur in the future.
John Bedford: 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.
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John Bedford: These forward looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward looking statements, except as required by law.
Speaker Change: With that I'd like to turn the call over to Rainer.
Rainer Blair: Well, thank you John and good morning, everyone. We appreciate you joining us on the call today.
Rainer Blair: Our team delivered strong third quarter results with revenue adjusted net earnings per share and cash flow all coming in ahead of our expectations.
Rainer Blair: We were especially pleased with the continued positive momentum in bio processing and another exceptional quarter at Cepheid and we enhanced our long term competitive advantage with the release of several impactful new innovations across our businesses.
Rainer Blair: Now, we see a bright future ahead for Danaher.
Rainer Blair: <unk> formation in our portfolio over the last several years has created a focused life sciences and diagnostics leader positioned for higher long term growth expanded margins and stronger cash flow.
Rainer Blair: Danaher is purpose built to help customers solve some of the most important health challenges impacting patients around the world.
Rainer Blair: Our proven ability to innovate is enabling faster more accurate diagnoses and helping customers reduce the time and cost needed to sustainably develop and deliver life changing therapies.
Rainer Blair: Now the unique combination of our talented team, our differentiated science and technology portfolio and the power of the Danaher business system positions us well as we seek to maximize value for our customers our associates and our shareholders.
Rainer Blair: So with that let's take a closer look at our third quarter 2024 results.
Rainer Blair: Sales were $5 $8 billion in the third quarter, and we delivered 0.5% core revenue growth.
Rainer Blair: Geographically core revenues in developed markets increased low single digits with low single digit growth in North America, and mid single digit growth in Western Europe.
Speaker Change: and a lot of people are here to help us to get to know what we're going to do.
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Rainer Blair: High growth markets were down mid single digits, including a high single digit decline in China.
Rainer Blair: Our gross profit margin for the second quarter was 58, 7% and.
Rainer Blair: And our adjusted operating profit margin of 27, 5% was down 10 basis points as accelerated investments in innovation offset the favorable impact of cost savings initiatives.
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Ashley: My name is Ashley and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Dana Hercoporation 3rd quarter, 2024, earnings results conference call. Online to have been placed on mute of event in the background noise.
Rainer Blair: Adjusted diluted net earnings per common share of $1 71.
We're essentially flat year over year.
Rainer Blair: And we generated $1 $2 billion of free cash flow in the quarter and $3 $8 billion year to date, resulting in a year to date free cash flow to net income conversion ratio of 135%.
Ashley: 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 stars in the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question, please rest hours and the number two on your telephone keypad. I will now turn the call over to Mr. John Bedford, Vice President of Investor Relations, Mr. Bedford, you may begin your conference.
Rainer Blair: 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.
John Bedford: Good morning everyone and thanks for joining us on the call with us today, our Rainer Blair, our President and Chief Executive Officer and Matt McGrew, our Executive Vice President and Chief Financial Officer.
Rainer Blair: Core revenue in our biotechnology segment was flat year over year with our bio processing business up low single digits and.
Rainer Blair: And our discovery and medical business down high single digits.
John Bedford: I'd like to point out that our earnings release, Form 10Q.
Rainer Blair: And bio processing, we were encouraged with the continued positive momentum we saw in the quarter.
John Bedford: This White presentation supplementing today's call.
Rainer Blair: Notably orders increased high single digits sequentially, which is the fifth consecutive quarter of sequential order improvement and our book to Bill ratio improved to approximately 1.0.
John Bedford: The Reconciliation and other information required by SEC Regulation G relating to the non-gap financial measures will be discussing during the call.
John Bedford: and a note containing details of historical and anticipated future financial performance are all available on the investor section of our website www.dannerher.com.
Rainer Blair: Now geographically, we saw improving order trends in developed markets as large customers are returning to more normal ordering patterns.
Rainer Blair: And China orders and underlying activity levels remain weak, particularly for equipment as customers continue to conserve their capital.
John Bedford: Under the heading for early earnings.
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 we'll remain archived until our next quarterly call.
Rainer Blair: Revenue growth in the quarter was driven by our larger pharma biopharma and CMO customers.
Rainer Blair: Production volumes at these customers, who are primarily manufacturing monoclonal antibody therapies has continued to grow in line with historical averages.
John Bedford: A replay of this call will also be available until November 5, 2024.
John Bedford: During the presentation, we will describe certain of the more significant factors that impacted the year over year performance.
Rainer Blair: Now we've seen demand at these customers steadily improved throughout the year as Theyre moving past inventory Destocking and anticipate this gradual recovery will continue over the coming quarters.
John Bedford: The Supplemental Materials describe additional factors that impacted the year over year performance.
John Bedford: and last otherwise noted all references in these remarks and supplement on materials to company specific financial metrics related to results from continuing operations.
Rainer Blair: In contrast, we're not seeing the same level of improvement in underlying performance from our smaller customers. Despite a modest improvement in the funding environment. They continue to rationalize their therapeutic programs and remain cautious with their investments.
John Bedford: and relate to the 34th of 2024, and all references to period, period, increases or decreases in financial metrics are year over year.
Rainer Blair: Now putting this all together we continue to expect low single digit core revenue decline in our bio processing business for the full year 2024, and this includes an assumption of high single digit core revenue growth in the fourth quarter.
John Bedford: We may also describe certain products and devices which have applications submitted and pending for certain regulatory approvals.
John Bedford: or are available only in certain markets.
Rainer Blair: Now as Destocking moves behind US we're increasingly excited about the long term opportunities ahead for <unk>, leading bio processing franchise monoclonal antibodies, which comprise the majority of our revenues remain the largest investment area for our customers.
John Bedford: 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.
John Bedford: These four looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC violence. And actual results might differ materially from any four looking statements that we make today.
Rainer Blair: We're also seeing accelerated adoption of these therapies and six of the top 10 highest revenue generating drugs today are monoclonal antibodies.
Rainer Blair: With our comprehensive portfolio, our best in class scientific services, and innovation focused on increasing yields and enhancing manufacturing efficiencies.
John Bedford: These four looking statements speak only as of the day that they are made, and we do not assume any obligation to update any four looking statements except as required by law.
Rainer Blair: We believe we're very well positioned to support our customers today and well into the future.
Speaker Change: With that, I'd like to turn the call over to Rainer.
Rainer Blair: Thank you John and good morning everyone. We appreciate you joining us on the call today.
Now turning to our life Sciences segment core revenue decreased by 2% in line with our expectations.
Rainer Blair: Our team delivered strong third quarter results with revenue, adjusted net earnings per share, and cash flow all coming in ahead of our expectations.
Rainer Blair: Core revenue in our life Sciences instrument businesses collectively declined mid single digits with market conditions in the third quarter largely consistent with what we saw in the first half of the year.
Rainer Blair: We were especially pleased with the continued positive momentum in bioprocessing and another exceptional quarter at SESHID. And we enhanced our long term competitive advantage with the release of several impactful new innovations across our businesses.
Rainer Blair: Ongoing research and lab activity is driving growth in consumables and service, which was more than offset by a decline in capital equipment, particularly in China.
Rainer Blair: Now we see a bright future ahead for Dan and her, a transformation in our portfolio over the last several years has created a focused, less sciences and diagnostics leader positioned for higher long-term growth, expanded margins and stronger cash flow.
Rainer Blair: Announced stimulus measures in China and have not yet translated into meaningful order activity as customers are still awaiting details on the implementation of these programs now.
Rainer Blair: Now in the meantime, many customers are delaying purchasing decisions.
Rainer Blair: Outside of China, our end markets are relatively stable and we were encouraged to see early signs of improvement in demand among our pharma and biopharma customers, particularly in North America.
Rainer Blair: The Annerver is purpose-built to help customers solve some of the most important health challenges impacting patients around the world.
Rainer Blair: Our proven ability to innovate is enabling faster, more accurate diagnoses and helping customers reduce the time and cost needed to sustainably develop and deliver life-changing therapies.
Rainer Blair: Now during the quarter Beckman Coulter life Sciences introduced the Sytem VT.
Rainer Blair: <unk> is a fully automated high throughput cell culture system designed to simplify and accelerate the complex and lengthy process of <unk> screening and cell line development.
Rainer Blair: Now, the unique combination of our talented team, our differentiated science and technology portfolio and the power of the Dan and her business system, positions as well as we seek to maximize value for our customers, our associates and our shareholders.
Rainer Blair: Now by harnessing the power of the sign in BT, researchers can optimize workflows and reduce hands on time by up to 90%, enabling them to efficiently identify the most promising clones and improve the success rate of their cell line development projects.
Rainer Blair: So with that, let's take a closer look at our third quarter 2024 results.
Rainer Blair: Bales were $5.8 billion in the third quarter, and we delivered 0.5% core revenue growth.
Speaker Change: In July we completed the acquisition of gene data, a leading provider of enterprise and workflow software used in drug discovery and development.
Rainer Blair: geographically core revenues in developed markets increased low-single digits with low-single digit growth in North America and mid-single digit growth in Western Europe.
Speaker Change: Gene data as advanced software solutions automate complex R&D processes, enabling biopharma researchers to analyze and interpret samples more quickly.
Rainer Blair: High Growth Markets were down mid-Single Digits, including a high-Single Digits, declined in China.
Speaker Change: So we're really excited to welcome this innovative team to our life Science segment.
Speaker Change: Now Beckman Sytem VT and the acquisition of gene data are both great. Examples of how we're strengthening our long term competitive advantage, while helping our customers accelerate their drug discovery process.
Rainer Blair: Our gross profit margin for the second quarter was 58.7%.
Rainer Blair: and our adjusted operating profit margin of 27.5% was down 10 basis points, as accelerated investments in innovation offset the favorable impact of cost saving initiatives.
Speaker Change: And our genomics consumables business core revenue declined low single digits.
Rainer Blair: A just-addeluted net earnings per common share of $1.71, we're essentially flat year over year.
Speaker Change: <unk> the trends we saw in the second quarter.
Speaker Change: In August IDT expanded its synthetic biology portfolio with the launch of rapid genes. These.
Rainer Blair: and we generated $1.2 billion of free cash flow in the quarter and $3.8 billion a year today. Resulting in a year-to-date free cash flow to net income conversion ratio of 135%.
Speaker Change: These ready to use mgs verified clonal genes are cost effective and offer fast turnaround, allowing pharmaceutical researchers to quickly pursue high throughput experiments such as antibody development.
Rainer Blair: 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: Itt's long history of innovation is one of the key reasons. The research community turns the ITT to help advanced drug discovery and accelerate the pace of genomic medicine development.
Rainer Blair: Corps revenue in our biotechnology segment was flat year over year, with our bioprocessing business up low single digits, and our discovery and medical business down high single digits.
Speaker Change: Now moving to our diagnostics segment.
Speaker Change: Core revenue increased 5%.
Rainer Blair: In bioprocessing, we were encouraged with the continued positive momentum we saw in the quarter.
Our clinical diagnostics businesses collectively delivered low single digit core revenue growth.
Rainer Blair: Notably, orders increased high-single digits sequentially, which is the fifth consecutive quarter of sequential order improvement, and our book to Bill Ratio improved to approximately 1.0.
Speaker Change: Beckman Coulter diagnostics was up low single digits with strong global demand, partially offset by the impact of volume based procurement in China.
Outside of China recurring revenue was up high single digits, driven by recent new product introductions and installed base expansion.
Rainer Blair: Now geographically, we saw improving order trends in developed markets as large customers are returning to more normal ordering patterns.
Speaker Change: The Beckman team continued their accelerated cadence of new product innovation this quarter with the release of the <unk> 500, <unk> integrated chemistry and immunoassay analyzer.
Rainer Blair: In China, orders and underlying activity levels remain weak, particularly for equipment, as customers continue to conserve their capital.
Speaker Change: Now the <unk> 500, <unk> is specifically designed to improve efficiency and meet the unique workflow needs of low volume laboratory customers such as community hospitals.
Rainer Blair: Revenue growth in the quarter was driven by our larger pharma, biopharma and CDMO customers.
Rainer Blair: Production volumes that these customers who are primarily manufacturing monoclonal antibody therapies have continued to grow in line with historical averages.
Speaker Change: This highlight segments commitment to serving the entire healthcare network by providing a comprehensive portfolio of solutions for low mid and high throughput core labs.
Rainer Blair: Now, we've seen demand that these customers steadily improve throughout the year as they're moving past inventory destocking and anticipate this gradual recovery will continue over the coming quarters.
In molecular diagnostics Cepheid core revenue increased double digits with broad based strength across respiratory and non respiratory assays.
Rainer Blair: In contrast, we're not seeing the same level of improvement and underlying performance from our smaller customers. Despite a modest improvement in the funding environment, they continue to rationalize their therapeutic programs and remain cautious with their investments.
Speaker Change: <unk> respiratory revenue of approximately $425 million in the quarter exceeded our expectation of $200 million.
Speaker Change: As we saw both higher volumes and a favorable mix of our foreign one test for COVID-19, true a flu and RSV.
Rainer Blair: Now putting this all together, we continue to expect low single-digit core revenue decline in our bioprocessing business for the full year 2024. And this includes an assumption of high single-digit core revenue growth in the fourth quarter.
Speaker Change: While volume was driven in part by customers purchasing in preparation for the upcoming respiratory season.
Speaker Change: Now based on activity in the third quarter and our expectation of a respiratory season with normal severity. We expect respiratory revenue of approximately $1 7 billion for the full year of 2024.
Rainer Blair: Now, as these stockings moves behind us, we are increasingly excited about the long-term opportunities ahead for Citeva's leading by a processing franchise. Monoclonal antibodies, which comprise the majority of our revenues, remain the largest investment area for our customers.
Outside of respiratory increasing menu adoption in system utilization helped drive another quarter of mid teens growth in cepheid core non respiratory reagent portfolio, including more than 20% growth in group, a strep sexual health and virology assays.
Rainer Blair: We're also seeing accelerated adoption of these therapies and six of the top 10 highest revenue generating drugs today are monoclonal antibodies.
Rainer Blair: With our comprehensive portfolio, our best-in-class scientific services, and innovation focused on increasing yields and enhancing manufacturing efficiencies, we believe we're very well positioned to support our customers today and well into the future.
Speaker Change: We also saw strong installed base growth, particularly for our lower throughput systems as customers continued to add gene expert instruments in their clinics and alternate care sites.
Speaker Change: So this expansion out of the hospital allows our customers to improve financial and clinical outcome by standardizing care across their networks.
Rainer Blair: Now turning to our life science this segment, core revenue decreased by 2% in line with our expectations.
Speaker Change: I'd like to thank all of you who joined US last month.
Rainer Blair: Poor revenue in our life science is instrument businesses, collectively declined mid-single digits. With market conditions in the third quarter largely consistent with what we saw in the first half of the year.
Speaker Change: For our Investor day, where we had the opportunity to showcase our differentiated diagnostics portfolio.
Speaker Change: During the event, we highlighted how DBS driven innovation and commercial execution have meaningfully improved the growth and margin profile of our diagnostics franchise over the last several years.
Rainer Blair: On going research and lab activity is driving roads and consumables and service, which was more than offset by a decline in capital equipment, particularly in China.
Speaker Change: We also talked about how we are uniquely positioned for long term growth opportunities in high value high need areas, such as neuro degenerative diseases infectious diseases and oncology.
Rainer Blair: Announce stimulus measures in China have not yet translated into meaningful order activity as customers are still awaiting details on the implementation of these programs.
Speaker Change: And if you haven't had the chance to see the replay I'd encourage you to watch it on our Investor Relations website.
Rainer Blair: Now in the meantime, many customers are delaying purchasing decisions.
Rainer Blair: Outside of China, our end markets are relatively stable and we were encouraged to see early signs of improvement in demand among our pharma and biofarmic customers, particularly in North America.
Speaker Change: Now, let's briefly look ahead expectations for the fourth quarter and full year 2024.
Speaker Change: For the full year 2024, there is no change to our previous guidance and as a reminder, we anticipate a core revenue decline in low single digit percent range and a full year adjusted operating profit margin of approximately 29%.
Rainer Blair: Now during the quarter, Beckman Culture Life Sciences introduced the Side MVT.
Rainer Blair: Cyanom VT is a fully automated, high-true-put cell culture system designed to simplify and accelerate the complex and lengthy process of clone screening in cell-line development.
Speaker Change: Okay.
Speaker Change: In the fourth quarter, we expect core revenue to decline in the low single digit percent range.
Rainer Blair: Now, by harnessing the power of the side of BT, researchers can optimize workflows and reduce hands-on time by up to 90 percent, enabling them to efficiently identify the most promising clones and improve the success rate of their cell line development projects.
Speaker Change: Additionally, we expect our fourth quarter adjusted operating profit margin of approximately 30%.
Speaker Change: So to wrap up we're pleased with our better than expected third quarter performance and expect the trends we're seeing today to continue into Q4.
Speaker Change: Our team's commitment to executing and innovating with the Danaher business system enabled us to deliver strong results, while continuing to accelerate growth initiatives across the portfolio.
Speaker Change: In July, we completed the acquisition of Gene Data, a leading provider of enterprise and workflow software used in drug discovery and development.
Speaker Change: Gene Data's Advanced Software Solutions Automate Complex R&D processes, enabling biofarmament researchers to analyze and interpret samples more quickly.
Speaker Change: Our third quarter results also reflect the unique positioning of Danaher today, we have an outstanding group of businesses that serve attractive end markets with favorable long term secular growth drivers.
Speaker Change: So we're really excited to welcome this innovative team to our life science segment.
We're further enhancing our portfolio and competitive advantage with innovation that is helping customers solve some of the most important health challenges impacting patients around the world.
Speaker Change: Now, Beckman's side on VT and the acquisition of Jean Data are both great examples of how we're strengthening our long-term competitive advantage while helping our customers accelerate the drug discovery process.
Speaker Change: So looking ahead, we believe this powerful combination of our leading portfolio.
Speaker Change: <unk> ability to innovate and our team's commitment to executing with the Danaher business system provides a solid foundation for delivering differentiated long term financial performance.
Speaker Change: In our genomics consumables business, core revenue declined, low-single digits, continuing the trends we saw in the second quarter.
Speaker Change: In August, IDT expanded its synthetic biology portfolio with the launch of rapid genes.
John Bedford: And so with that I'll turn the call back over to John.
John Bedford: Thanks Ryder that concludes our formal comments operator, we're now ready for questions.
Speaker Change: These ready-to-use NGS verified clone genes are cost-effective and offer fast turnaround, allowing pharmaceutical researchers to quickly pursue high-through-put experiments, such as antibody development.
Speaker Change: Certainly at this time, if you would like to ask a question. Please press star one on your telephone keypad you may withdraw your questions at any time by pressing star to again that is star one we'll take our first question from Tycho Peterson with Jefferies. Please go ahead.
Speaker Change: IITEE's long history of innovation is one of the key reasons the research community turns the IITEE to help advance drug discovery and accelerate the pace of genomic medicine development.
Speaker Change: Hey, thanks.
Tycho Peterson: I want to probe into the instrument numbers a little bit wondering if you can give us instrument growth ex China and then just maybe talk a little bit about where it's worse than where it is getting better whether it's slow mass back lab automation microscopy, and any leading indicators of funnel dynamics that make you feel better coming out of the quarter on the instrument side.
Speaker Change: Now moving to our diagnostic segment.
Speaker Change: Corps Revenue Increased 5%.
Speaker Change: Our clinical diagnostic businesses collectively delivered low-single-digit core revenue grossed.
Speaker Change: We've got a lot to do with this. The department culture diagnostics was up to low-single digits with strong global demand partially offset by the impact of volume-based procurement in China.
Tycho Peterson: Yes, Heiko, it's Matt I'll give you the kind of a number on what it is it's probably low low to mid single digit ex China.
Tycho Peterson: And then.
Speaker Change: And then Ryan are you wanted to give color on the.
Speaker Change: Outside of China, recurring revenue was up high single digits, driven by recent new product introductions and installed basic expansion.
Ryan: What we're seeing in instruments sure no absolutely.
Speaker Change: So and then of course in China, we would say that.
Speaker Change: It's down.
Speaker Change: The Beckman team continued their accelerated cadence of new product innovation this quarter with the release of the DXC 500i integrated chemistry and immunoscianalyzer.
Speaker Change: High single digits.
Speaker Change: But if you look at the developed markets, let's start with the end markets were relatively stable sequentially.
Speaker Change: But we haven't seen an inflection there yet although in pharma and biotech.
Speaker Change: Now the BXC 500i is specifically designed to improve efficiency and meet the unique work flow needs of low volume laboratory customers such as community hospitals.
Speaker Change: Ill remain soft we're starting to see some early signs of improvement, especially in North America.
Speaker Change: On the academic research side.
Speaker Change: We see it stable in North America with Europe modestly weaker.
Speaker Change: So this highlights Beckman's commitment to serving the entire healthcare network by providing a comprehensive portfolio of solutions for low, mid and high throughput core labs.
Speaker Change: But coming back to China.
Speaker Change: We're all aware of course of the announced stimulus, but that really hasnt translated into meaningful orders for us as customers continue to wait for those details so and while they're waiting for those details. They tend to also delay perhaps the normal purchasing habits that they might have had so the stimulus funding has yet.
Speaker Change: In molecular diagnostics, Cecilia's core revenue increased double digits with broad-based strength across respiratory and non-respiratory assays.
Speaker Change: Sessia's respiratory revenue of approximately $425 million in a quarter exceeded our expectation of $200 million.
Speaker Change: To pick up here in the third quarter.
Speaker Change: Okay, and then a follow up I know you don't want to talk about 'twenty five yet, but if we look at kind of a run rate for guidance on life Sciences that youre, giving us for the fourth quarter. The street is at 6% next year on life Sciences is that realistic kind of given the run rate youre laying out for the fourth quarter and then.
Speaker Change: As we saw both higher volumes and a favorable mix of our four-and-one test for COVID-19, flu A, flu B, and RSV.
Speaker Change: Favourwell volume was driven in part by customers purchasing in preparation for the upcoming respiratory season.
Speaker Change: Anything you can say on China.
China Bioprocess for next year, we've seen some of your peers talked down numbers as well.
Speaker Change: Now based on activity in the third quarter and our expectation of a respiratory season with normal severity, we expect respiratory revenue of approximately $1.7 billion for the full year of 2024.
Speaker Change: We're still looking here to see how the fourth quarter plays out and see whether we can.
Speaker Change: See a pickup in the stimulus, particularly in China, while we do expect fee.
Speaker Change: Outside of respiratory.
<unk> markets to be stable.
Speaker Change: Increasing menu adoption and system utilization help drive another quarter of mid-teens growth and Sethi's core non-respiratory reagent portfolio, including more than 20% growth and group-based strep, sexual health, and neurology assays.
Speaker Change: Along the lines that I just discussed for Q3, so we're looking to see how China stimulus plays out here in Q4 before we can get to 2025 numbers.
Speaker Change: Now as it relates to bio processing.
Speaker Change: We continue to see there a low activity level, albeit stable, but at a lower level and we expect that to take more time to play out here in the near term.
Speaker Change: We also saw strong and solid-based growth, particularly for our lower throughput systems, as customers continue to add gene expert instruments in their clinics and alternate care sites.
Yes, maybe just to kind of follow up I think the comment on the China stimulus is for tools Tycho.
Speaker Change: So this expansion out of the hospital allows our customers to improve financial and clinical outcomes by standardizing care across their networks.
Tycho Peterson: Just kind of what we're seeing there for 25 overall, so that's kind of a 25 overall for danaher for tools, but for bio processing for 25, I think we've kind of talked about a gradual recovery here in 'twenty four.
Speaker Change: I'd like to thank all of you who joined us last month for our investor day where we had the opportunity to showcase our differentiated diagnostics portfolio.
Speaker Change: And that's that's pretty well played out like we thought.
Speaker Change: Like Brian said, we do need to see sort of how Q4 plays out but.
Speaker Change: During the event we highlighted how DBS driven innovation and commercial execution have meaningfully improved the growth and margin profile of our diagnostics franchise over the last several years.
Before we kind of give anything for more than 25.
Speaker Change: But the Q4 exit rate of high single digits, an important building block for us as we built backlog and visibility heading into 2025, but.
Speaker Change: We also talked about how we are uniquely positioned for long-term growth opportunities in high value, high-mead areas such as neurodegenerative diseases, infectious diseases, and oncology.
Given what we've seen here through Q3, I think we're going to see a gradual recovery continue into 'twenty five.
Speaker Change: Okay, and then on the life science, the guidance fourth quarter download single digit, but the street next year is up six I was trying to also reconcile whether that step up as is reasonable.
Speaker Change: and if you haven't had the chance to see the replay, I'd encourage you to watch it on our investor relations website.
Speaker Change: Yes, I mean, I think the biggest the biggest factor there for as we look to next year will be what happens with China stimulus for life Sciences.
Speaker Change: Now let's briefly look ahead at expectations for the fourth quarter and the full year 2024.
Speaker Change: Okay understood. Thank you.
Speaker Change: For the full year 2024, there is no change to our previous guidance. And as a reminder, we anticipate a core revenue decline in low-single-digit percent range and a full-year adjusted operating profit margin of approximately 29%.
Speaker Change: Thank you we'll take our next question from Michael <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, thanks.
Speaker Change: I want to just follow up on exactly your last point there on bioprocess sort of exit rate on how to think about 2025 and just how are you feeling about that market developing and the gradual recovery.
Speaker Change: In the fourth quarter, we expect Corre revenue to decline in the low single digit percent range.
Speaker Change: You talked about I think five consecutive quarters of order growth there in the last couple quarters, you've had high single digit order growth.
Speaker Change: Additionally, we expect a fourth quarter adjusted operating profit margin of approximately 30%.
Speaker Change: Revenues for bioprocess have done well this year as well, but they've lagged.
Speaker Change: So to wrap up, we're pleased with our better than expected third quarter performance and expect the trends we're seeing today to continue into Q4.
Speaker Change: The gross level so.
Speaker Change: There is a little bit of a lag in terms of the orders translate to revenue, which you would expect obviously.
Speaker Change: Our team's commitment to executing and innovating with the Dan and her business system and able less to deliver strong results while continuing to accelerate growth initiatives across the portfolio.
Speaker Change: Do you think that that lag is closing do you think we're getting closer as we hit <unk> you talked about high single digit by process, where youre going to start to see some of that order growth. We've seen over the last quarters couple of quarters start to translate and translate into next year.
Speaker Change: A third quarter results also reflect the unique positioning of Danaher today. We have an outstanding group of businesses that serve attractive and markets with favorable long-term secular growth drivers.
Speaker Change: Yes, I think it would be.
Speaker Change: Perfect frame I mean, you think about exiting the year at high single digits, but you kind of take a step back and you look at from a core growth perspective in 2024, we're going to be down low single digits and so as you sort of think about where we kind of exit the totality of 24 with a gradual sort of kind of recovery in mind.
Speaker Change: We're further enhancing our portfolio and competitive advantage with innovation that is helping customer solve some of the most important health challenges impacting patients around the world.
Speaker Change: So looking ahead, we believe this powerful combination of our leading portfolio through an ability to innovate and our team's commitment to executing with the Danahar Business System provides a solid foundation for delivering differentiated long-term financial performance.
Speaker Change: As we head to 225, I think that's kind of the way that we're thinking about it.
Speaker Change: From a perspective of what revenue will do.
Speaker Change: Next year based on the fact that the order trajectory has gotten better.
Speaker Change: Five quarters, but like I said, I mean, it would be great for us to see Q4 here before we go but but I do think going down low single digits. This year in revenue.
Speaker Change: and so with that, I'll turn the call back over to John.
John Bedford: Thanks, Rainer. That concludes our formal comments. Operator, we're now ready for questions.
Speaker Change: The positive next year, we believe but it looks let's see where the trajectory goes here given the fact that I do believe this is going to kind of be a continuation of what we saw 24 inches.
Speaker Change: Certainly, at this time, if you would like to ask a question, please press star one on your telephone keypad. You may withdraw your questions at any time by pressing star two. Again, that is star and one. We'll take our first question from Tycho Peterson with Jeffries, please go ahead and...
Speaker Change: Pretty gradually recovered very very encouraging so we're very happy with where we are.
Speaker Change: Okay, Alright, and then.
Speaker Change: Hey, thanks. I want to probe into the instrument numbers a little bit. I wonder if you can give us instrument growth X China. And then just maybe talk a little bit about where it's, you know, worse and where it's getting better, whether it's flow, mass spec, lab automation, microscopy, and, you know, any leading indicators of funnel dynamics that make you feel better coming out of the quarter on the instrument side. Thank you.
Speaker Change: A follow up I wanted to ask on Cepheid. A couple quick questions. One is you talked about timing of some purchasing of the kits.
Kits in the quarter any chance you could quantify that.
Speaker Change: <unk> hundred 25 in respiratory versus the 200 guide do you think that 225 was timing or maybe with some of that organic feed and some of it was timing just trying to get a sense of how much pull forward there was from the fourth quarter.
Speaker Change: Yes, that goes mad. I'll give you that kind of a number on what it is. It's probably low, low to mid-single digit, X China.
Speaker Change: And then the press release, you also specifically called out Cepheid gaining market share in molecular testing.
Speaker Change: and then...
Speaker Change: and then Rainer, you want to get the color on what we're seeing in these ones? Sure, no, absolutely. So, and then, of course, in China, we would say that it's down high single digits. But if you look at the developed markets, let's start with those. The end markets were relatively stable sequentially, but we haven't seen an inflection area yet, although in Pharma and in Biotech, while it remains soft, we're starting to see some early signs of improvement, especially in North America. On the academic research side, there, we see a stable in North America with Europe modestly weaker, but coming back to China.
Speaker Change: Expand on that where you're gaining share in terms of customer or.
Speaker Change: Geographically any specifics there thanks.
Speaker Change: Yes, I mean, mark it's a little hard to parse out to $1 how much of the beat was related to pull forward versus.
Speaker Change: Thought I think probably anecdotally from what we heard from customers I would say that we do believe that there was.
Speaker Change: A good portion of that was probably due to wanting to make sure that they had kind of a security of supply heading into.
Speaker Change: The fourth quarter, which is not a huge surprise I guess, but.
Speaker Change: Browl aware, of course, of the announced stimulus, but that really hasn't translated into meaningful orders for us as customers continue to wait for those details. And while they're waiting for those details, they tend to also delay perhaps the normal purchasing habits that they might have had. So the stimulus funding has yet to pick up here in the third quarter.
As we sort of look forward to the fourth quarter than we did take that into account as we thought about what we might see here in the fourth quarter. So.
Speaker Change: I'd say our cigna.
Speaker Change: A significant portion of the beat was probably related to that as far as market shares go I think.
Speaker Change: I'd, probably put it in two categories I'd, probably say one.
It's largely in the U S. So that's not a.
Speaker Change: Okay, and then follow up. I know you don't want to talk about 25 yet, but if we look at kind of the run rate for guidance on life sciences that you're giving us for the fourth quarter, you know, the street is at 6% next year on life sciences, is that realistic kind of given the run rate you're laying out for the fourth quarter? And then, you know, anything you can say on China bio process for next year, we've seen some of your peers talk down numbers as well. Thank you very much.
Speaker Change: Absolute statement I would say largely in the U S. As you know we are we are entirely in sort of hospitals as well as near point of care.
Speaker Change: We've been doing very very well with ibms as we've expanded beyond their core hospitals into other point of care settings closer to the patient that has continued here in the quarter and I expect that that would continue as well again again with this the installed base that we've been able to to drop.
Speaker Change: Tycho, we're still looking here to see how the fourth quarter plays out and see whether we can see a pickup in a stimulus particularly in China while we do expect the the development markets to be stable along the lines that I just discussed for Q3. So we're looking to see how China's stimulus plays out here in Q4 before we can get to 25 numbers. Now as it relates to bioprocessing, we continue to see there a low activity level albeit stable, but at a lower level and we expect that to take more time to play out here in the near term.
Speaker Change: Thanks, a lot guys.
Speaker Change: Thank you we'll move next to.
Speaker Change: Doug <unk> with Wolfe research.
Speaker Change: Yes.
Hey, good morning, guys.
Doug <unk>: I guess a couple of quick follow ups. There has been a lot of questions that kind of dance around the 2025 questions as I'm sure you appreciate.
Doug <unk>: When I look at the numbers the streets looking for 8% core growth with bioprocess and growing double digits in life Sciences growing 7%.
Doug <unk>: You haven't said anything about anything resembling a snapback respiratory comps are going to be tough.
Doug <unk>: <unk> seems to be picking up in China stimulus activity fall off or it seems unclear.
Tycho: Yeah, maybe just to kind of follow up. I think the comment on the China stimulus is for tools, Tycho. Red just kind of overseeing there. For 25 overall, so that's kind of 25 overall for Danaher for tools. But for bioprocessing for 25, I think, you know, we've kind of talked about a gradual recovery here in 24. And that's pretty well played out like we thought. You know, like, like Rainer said, we do need to see sort of how Q4 plays out, but [inaudible]
Doug <unk>: Just knowing you guys do tend to be conservative so cutting to the chase if I'm missing anything and should the street be modeling things at these levels recognizing you still want to see another quarter, but as we sit here today the <unk>.
Doug <unk>: Look it's a bit high to me am I missing anything.
Speaker Change: Well I don't think Youre missing much here, if we just take a look real quick on how we're thinking about 2025.
Speaker Change: It's important to know that we need to see how Q4 plays out here I'll come back to that in a minute but.
Tycho: Before we kind of give anything formal on 25, but that said the two four eggs are rate of high single digits and important kind of building block for us as we build back long and visibility heading into 2025, but you know, given what we're seeing here through Q3, I think we're going to see a gradual recovery continue into 25.
Speaker Change: There's still there's still a couple of important variables in Q4, that's going to shape. The next year and those relate to really the trajectory of the order book and bio processing. So important so certainly the high single digit core growth that we expected by a processing for the fourth quarter is fully supported by backlog and what we expect in orders.
Speaker Change: Okay, and then on the light science, the guidance, you know, fourth quarter down low single digit, but the street next year is up six. I was trying to also reconcile, you know, whether that step up is reasonable.
Speaker Change: But we also wanted to see more deeply into 2025 by seeing that orders momentum here continue into Q4, so that's going to be key here for understanding how.
Speaker Change: I think the biggest factor there for as we look to next year will be what happens with the Chinese stimulus for life sciences.
Speaker Change: In the second half of 2025 plays out in bio processing.
Speaker Change: Okay, I understand. Thank you.
Speaker Change: Thank you, we'll take our next question from Michael Ricekin with Think of America, please go ahead
Speaker Change: As it relates to respiratory for Cepheid Cepheid and other key variable here as we just talked about.
Speaker Change: Hey, thanks. I actually want to just follow up on exactly your last point there on bioprocess sort of exiterate and how to think about 2025 and just how you feeling about that market developing the gradual recovery. You talked about I think five consecutive quarters of order growth there and the last couple quarters you've had high single digit order growth revenues for bioprocess have done well this year as well, but they've led the growth level so [inaudible] We're going to do that in the future.
Speaker Change: Theres been some purchasing ahead here in Q3 and.
Speaker Change: Based on what we saw in the southern Hemisphere, we do expect the northern hemisphere to have a more normal.
Speaker Change: Respiratory season, and as you know that straddles.
Speaker Change: First.
Speaker Change: Respiratory season of the year straddles Q4 and Q1.
Speaker Change: And then lastly, and this is important for life Sciences, but also more generally we need to see how this China stimulus. It plays out in 2025, and we'd like to see some indicators of that accelerating here in Q4 to date, we have not really seen anything.
Speaker Change: Seems like there's a little bit of a lag in terms of the orders translating through Avenue which you would expect obviously. Do you think that lag is closing? Do you think that we're getting closer as we hit 4Q? You talked about high single digit by process where you're going to start to see some of that order growth. We've seen over the last couple of quarters start to translate. We're going to put it in a little bit. We're going to put it in a little bit.
Speaker Change: Meaningful in that regard so we're going to put numbers all around us here and then update you in January.
Speaker Change: You can translate into next year.
Speaker Change: Okay Super helpful around year end.
Speaker Change: Yeah, I think if you don't think it's perfect frame, I mean, you think about exiting the year at high single digits, but you kind of take a step back and you look at, you know, from a core growth perspective in 2024, we're going to be down those single digits.
Speaker Change: I guess another follow up on just.
Speaker Change: I mean, essentially trying to get at the question of the utility of the book to Bill metric.
Speaker Change: Yeah like if we look at book to Bill from Q3 of last year, and this year and assume that bio processing accounts for roughly 85% of biotech sales. It seems like orders were up over 20% year over year. So.
Speaker Change: So as you sort of think about where we kind of exit the totality of 24 with that gradual sort of, you know, kind of recovery in mind as we head to 25. I think, you know, that's kind of the way that we're thinking about it, you know, from a perspective of what revenue will do, you know, next year based on the fact that the order trajectory has gotten better over the last five orders, but like I said, I mean, it would be great for us to see Q4 here before we go. But I do think, you know, going down low single digits this year in revenue, you know, be positive next year, we believe, but let's let's see where the trajectory goes here, given the fact that I do believe this is going to kind of be a continuation of what we saw in 24, which is.
Speaker Change: Im not sure if that math is right that would be one question, but if it is.
Speaker Change: Just wondering how important is that as we think about the outlook for a return to robust bioprocess and growth because.
Speaker Change: I think there are some that are concluding that it's taking longer to convert I think there's others that are assuming it's <unk>.
Speaker Change: Converting much more quickly than it used to.
Speaker Change: I guess, we're just trying to get at how useful this metric is especially keeping in mind. This is largely a consumables business at this point.
Speaker Change: Yes, I mean, I think we've talked in the past about book to Bill being it's an interesting.
Speaker Change: Now pretty gradual recovery. Very encouraging though. So we're very happy for we are.
Speaker Change: Number and can be helpful in certain businesses, but traditionally or historically, we have not really used book to bill to kind of run this business for the exact reason that you said, whilst the consumables and the timing of when the when the shipments hit so I think from our perspective book to Bill is not something we spend a lot of time thinking about but we do think.
Speaker Change: Okay. All right. And then follow up. I want to ask on Seth. We had a couple quick questions if I can. One is, you know, you talked about timing of some purchasing of the of the kids in the quarter. Any chance you could quantify that. I know you did, you know, 425 and respiratory versus the 200 guy. Do you think that 225 was timing or maybe was some of that organic beat and some of it was timing? You just trying to get a sense of how much pull forward there was from the fourth quarter. And then the press release. You also specifically called out Cepheid gaining market share and molecular testing. You could expand on that. You know, where are you gaining share to the customer or geographically any specifics there. Thanks.
Speaker Change: About the orders and as you said the orders here in the quarter were north of 20% now that is off of a very easy comp. So I think we need to have a little bit of restraint on what that means but.
Speaker Change: Five quarters of sequential order growth is important I think it's also.
Speaker Change: What gave me a lot of encouragement in this quarter was typically we do see some seasonality where we go down from Q2 to Q3, we did not see that in this environment I was encouraged by that that we actually went up again sequentially and so I sort of look at everything and think about my order growth rate percentages, even though they are off low number.
Speaker Change: Yeah, I mean, Mike, it's a little hard to parse out to the dollar how much of the, you know, the beat was was related to pull forward versus just sort of better than the thought. I think, you know, probably anecdotally from what we heard from customers, I would say that we do believe that there was, you know, a good portion of that was probably due to wanting to make sure that they had kind of a security supply heading into [inaudible]
Speaker Change: That's important in fact, we've had five sequential quarters in a row coming off of where we've been on the Destocking I think thats an important factor.
Speaker Change: So yes to your point I am not sure book to Bill is.
Speaker Change: Supercritical for us, but maybe triangulating that with those other two factors I really do think.
Speaker Change: the Fourth Order, which is not a huge surprise, I guess, but, you know, as we sort of look forward to the Fourth Order, then, you know, we did take that into account as we thought about what we might see here in the Fourth Order. So, you know, I'd say a significant portion of the B was probably related to that.
Speaker Change: We're really happy with the trajectory of what we've seen in 2024.
Speaker Change: That means heading into 2020 to 25, but again I think we've seen a pretty gradual buildup here in revenue and in orders and I suspect that that continues.
Super helpful. Alright, Thanks, guys.
Speaker Change: Okay.
Speaker Change: Thank you we will take our next question from Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar: Hi, Ryan good morning, and thanks for taking my question.
Vijay Kumar: I guess.
Speaker Change: One.
Vijay Kumar: I wanted to ask on the genomics share.
Vijay Kumar: Low singles in the past you've spoken about sequencing versus.
Vijay Kumar: And gene editing, writing what were trends between those two segments.
Speaker Change: and Farkos.
Vijay Kumar: And I think this rapid gene that you mentioned maybe.
Speaker Change: B.O.S.
Speaker Change: Take you home with me next to...
Vijay Kumar: And talk about what rapid genus and we do expect some share gains here.
Speaker Change: Doug Snackle with Wolf's research plan.
Vijay Kumar: Due to launch of this product.
Speaker Change: Hey, good morning guys. I guess a couple quick follow-ups. There's been a lot of questions that kind of dance around the 2025 question, I'm sure you appreciate. When I look at numbers, the streets are looking for 8% core growth with bioprocessing growing double digits and life sciences growing 7. You haven't said anything about anything resembling a snapback. Respiratory comps are going to be tough. VBT seems to be picking up in China. Stimulus activity follow-through seems unclear and then
Speaker Change: Sure Vijay.
Vijay Kumar: On the gene reading side of the house, we do still see the markets softer adds particularly in the smaller customer emerging biotech segment, we see less activity and while the fundings improved.
Vijay Kumar: Those customers are still prioritizing their project quite a bit and so we're seeing a bit less consumption in that area.
Vijay Kumar: Now in gene editing of course, Thats, a different story, where we see.
Vijay Kumar: A great deal of CRISPR and guide RNA and other types of solutions doing very well.
Vijay Kumar: You said that and coming back to our new product launch here with rapid genes, we're very excited about that.
Speaker Change: Well, I don't think you're missing much here. If we just take a look real quick on how we're thinking about 2025.
Vijay Kumar: This will offer a whole genes to our customers at a quality and a turnaround time, which is highly differentiated in the market and we expect that over time here to provide us.
Speaker Change: You know, it's important to know that we need to see how Q4 plays out here. I'll come back to that in a minute that but.
Speaker Change: There's still a couple of important variables in Q4 that's going to shape the next year. And those relate to really the trajectory of the order book in bioprocessing. It's so important, so certainly the high single digit core growth that we expect in bioprocessing for the fourth quarter is fully supported by backlog and what we expect in orders.
Vijay Kumar: Some tailwind so we're very pleased here with how <unk> is performing in this environment.
Vijay Kumar: Understood.
Speaker Change: Maybe one for you Q4 operating margin assumption.
Speaker Change: It came down versus the prior I think we're looking at low thirties.
Speaker Change: Exit rate.
Speaker Change: But we also want to see more deeply into 2025 by seeing that orders momentum here continue in the Q4. So that's going to be key here for understanding how, you know, the second half of 2025 plays out in bio processing.
Speaker Change: Is there some timing of expenses or anything change on the margin assumption in.
Speaker Change: If it is any any change in investments and implications here as we look at incremental margins for <unk>.
Speaker Change: Fiscal 'twenty five.
Speaker Change: As it relates to respiratory for seffyid and other key variable here as we just talked about.
Speaker Change: Yes.
Speaker Change: Our full year margin didn't change approximately 29% in Q4 will be approximately 30.
Speaker Change: There's been some purchasing ahead here in Q3 and based on what we saw in the southern hemisphere we do expect the northern hemisphere to have a more normal. Thank you for your time.
Speaker Change: I mean, I think it's probably a function of.
Speaker Change: A couple of things one we're going to have we anticipate at least.
Speaker Change: Respiratory season and as you know that straddles the first Respiratory season of the year straddles Q4 and Q1.
Speaker Change: Lower revenue in respiratory in Q4, obviously that has some margin implications to it.
Speaker Change: We did have a little bit of sort of timing a little bit better bio processing in Q3 than we thought and probably some of that might be a little bit of timing related as well sort of impacting Q4 margins and as you said.
Speaker Change: And then lastly, and this is important for light sciences, but also more generally, we need to see how this China stimulus plays out in 2025 and we'd like to see some indicators of that accelerating here.
Speaker Change: We've got a pretty good year here and as we as we head into the fourth quarter, we're thinking about the cost structure of thinking about the investments that we want to make in the business and we're picking an opportunity to make sure that we do some of those smartly here in the quarter and I think you sort of add it all up and you kind of come up with that adjusted operating margin in the thirties sort of holding the full year.
Speaker Change: and Q4 to date. We've not really seen anything meaningful in that regard. So we're going to put numbers all around us here and then update you in January.
Speaker Change: and I guess another follow-up on just...
Speaker Change: As we as we head into this year.
Speaker Change: I mean, essentially trying to get at the question of the utility of the book to Bill metric, you know, like if we look at book to bill from Q3 of last year and this year, and assume that bio processing accounts for roughly 85% of biotech sales, you know, it seems like orders were up over 20% year to year. So I'm not sure if that math is right, that would be one question, but if it is, I'm just wondering how important is that as we think about the outlook for a return to robust bio processing growth because, you know, I think there's some that are concluding that it's taking longer to convert, I think there's others that are assuming it's.
Speaker Change: And so the incremental margin implications for fiscal 'twenty, five should defaults would be in the 35% to 40% range.
Speaker Change: Well I mean, it's going to depend on volume I think Vijay, but we've kind of talked about from a margin perspective that this is this business. When it is operating sort of in a normal environment. The low thirties are or where it should be so I mean 25, we'll sort of update you that in January we will get there, but that will be a function of volume and mix.
Speaker Change: Depending on where it comes from it'll it'll it'll be different so we'll have to we'll have to wait until we get well.
Speaker Change: But further to give you that but.
Speaker Change: Converting much more quickly than it used to, you know, I guess we're just trying to get at, you know, how useful this metric is, especially keeping in mind, this is largely a considerable business at this point.
Speaker Change: Thats, how im thinking about 'twenty.
Vijay Kumar: Understood. Thank you guys.
Speaker Change: Thanks Vijay.
Vijay Kumar: Okay.
Speaker Change: We'll take our next question from Scott Davis with Melius Research. Please go ahead.
Speaker Change: Yeah, I mean, I think we've talked in the past about book to fill being, you know, it's an interesting
Scott Davis: Hey, good morning Fellows.
Speaker Change: Good morning, Scott.
Scott Davis: You guys mentioned again this quarter, the smaller customers in bioprocess, saying not coming back.
Speaker Change: yeah
Speaker Change: You know, number one can be helpful, you know, in certain businesses, but traditionally, historically, we have not really used book to build to kind of run this business for the exact reason you said lots of consumables and the timing of when the when the shipment's hit. So I think from our perspective, book to bill is. [inaudible]
Scott Davis: As fast at what point does it become such a small piece of the business that maybe we stop having that color or it's less material or maybe a different way to ask the question is what percent of Rev.
Scott Davis: Revenues is it now.
Speaker Change: is not something we spend a lot of time thinking about, but we do think about the orders. And as you said, you know, the orders here in the quarter were north to 20%. Now that is off of a very easy comp. So I think we need to have, you know, a little bit of restraint on what that means. But, you know, five quarters of sequential order growth is important. I think it's also, you know, what gave me a lot of encouragement in this quarter was, you know, typically we do see some seasonality where we go down from Q2 to Q3 and we did not see that. In this environment, I was encouraged by that that we actually went up again sequentially. And so I sort of look at everything and think about, you know, my order growth rate percentages, even though they're off low numbers. That's important. The fact that we've had five sequential quarters in a row coming on.
Scott Davis: Whereas kind of large or small customers.
Speaker Change: Yes, I mean, the larger versus small roughly Scott is kind of 75% of our larger than 25% are smaller.
Speaker Change: Think we give the color primarily because those smaller customers have a little bit of a different dynamic than the larger customers larger customers typically have one market.
Speaker Change: Or later phase phase III trial kind of.
Speaker Change: Exposures, whereas the smaller customers tend to be <unk>.
Speaker Change: Earlier stage, probably a little bit more related to in some instances the cell and gene therapies of the world. So a little bit different they act differently in the funding environment as well. So I think it's we're just trying to kind of give color as to what we're seeing there where we are seeing an improvement in the funding environment its not necessarily working its way through into orders and revenue.
Speaker Change: of where we've been on the destocking. I think that's an important factor. So yeah, dear point, I'm not sure book to build is super critical for us, but maybe triangulating that with those other two factors. I really do think we're really happy with the trajectory of what we've seen in 2024, and what that means heading into 2025. But again, I think we've seen a pretty gradual build up here in revenue and in orders. And I suspect that that continues.
Speaker Change: At this point.
Speaker Change: And so just kind of give a little bit of color but.
Speaker Change: To your point I think as you know.
Speaker Change: Most of our customers are the larger customers with stuff that is on market. When I look back at what has caused all the pain over the last kind of two years in this business. It was destocking at those customers and I believe that is largely behind us and so that's why I think it's really encouraging as we stand here and look forward.
Speaker Change: Duper helpful. Alright, thanks, guys.
Speaker Change: The recovery has been gradual it has happened has happened at the largest customers.
Speaker Change: Good evening.
Speaker Change: Thank you. We will take our next question from VA Kumar with EverCore ISI. Please go ahead.
Speaker Change: Faith that the long term outlook of this business still is the high single digits. When we get there kind of a bit of a TBD, but I think thats. The reason, we sort of want to give a little bit of color on both of them.
Speaker Change: Hi, Reiner. Good morning, and thanks for taking my question. I guess one, you know, I want to ask on the genomics here, those signals maybe in the past you spoke about sequencing versus gene editing writing, what were trends between those two segments? And I think this rapid gene that you mentioned maybe talk about what rapid gene is, and would you expect some shared in here, you know, due to launch of this product?
Speaker Change: Okay that makes sense Matt.
Speaker Change: And guys, we didn't talk about that.
Buy back or M&A or kind of your funnel or nothing mentioned in prepared remarks any update there.
Speaker Change: As it relates to your confidence or size or.
Speaker Change: Any any metrics around the funnel would be helpful.
Yes, I'll just touch real quick on the buyback and maybe Roger can give some color on the funnel the M&A funnel, but I mean the buyback.
Speaker Change: If you see we did completed technically that buyback with straddled both Q2 and Q3. So if you see something in the Q. That's what it was related to just so everybody is kind of clear it was not a new.
Speaker Change: [inaudible]
Speaker Change: Sure, Vijay. On the gene reading side of the house, we do still see the markets softer as particularly in the smaller customer emerging biotech segment. We see less activity. While the funding improves, those customers are still prioritizing their project quite a bit, and so we're seeing a bit less consumption in that area. Yeah.
Speaker Change: Issuance that was the final final pieces, if you will of the <unk>.
Speaker Change: Buybacks, we've talked about in Q2.
Speaker Change: Thanks, Matt and as it relates to M&A environment, Scott as we do every day, we were out there cultivating across all of our segments.
Speaker Change: We're fairly active there our funnels are are pretty dynamic.
Speaker Change: Now in gene editing, of course, that's a different story where we see a great deal of CRISPR and guide RNA and other types of solutions doing very well. I mean, said that and coming back to our new product launch here with rapid genes, we're very excited about that. This will offer whole genes to our customers at a quality and a turnaround time, which is highly differentiated in the market. We expect that over time here to provide us some tailwind. So we're very pleased here with how IDT is performing in this environment.
Speaker Change: It's fair to say that while the environment, though is improving valuations are still elevated.
Speaker Change: And so we feel great about our positioning both in terms of the assets that are attractive out there and of course, our balance sheet.
Speaker Change: But we're going to maintain our discipline with our deals needing to meet.
Speaker Change: <unk>.
Speaker Change: Attractive end market attractive company and then of course, the valuation framework. The model has to work as well so active.
Speaker Change: But we still see that.
Speaker Change: The valuations are elevated.
Scott Davis: Makes sense Reiner. Thank you I'll pass it on I appreciate it good luck guys. Thanks Scott.
Speaker Change: Understood. And maybe Matt, one for you, you're Q4 operating margin assumption.
Speaker Change: Yes.
Speaker Change: Thank you we'll take our next question from Puneet <unk> with Leerink partners. Please go ahead.
Speaker Change: It came down the tab versus a prior think we're looking at the low 30s exit rate. Is this some timing of expenses or anything change in margin assumption in if it is any change in investments and implications here as we look at the incremental margins for fiscal 25.
Speaker Change: Yes, Hi, Brian Thanks for taking my question.
Speaker Change: So.
puneet: Particularly on China just.
Speaker Change: Following up on two things.
Speaker Change: Whats the right sort of jump off point for China for <unk>.
Speaker Change: As we think about 2025, just given the uncertainties here in the market and the backdrop of the stimulus.
Speaker Change: Yeah, I mean, our full-year margin didn't change approximately 29% to 4% you know approximately 30. I mean, I think it's probably a function of a couple of things. One we're going to have we anticipate at least.
Speaker Change: And also wondering if you can elaborate a bit on the China value based pricing how much of an impact are you baking there and just lastly on China.
Speaker Change: How much is local bioprocess competition.
Speaker Change: Lower revenue in respiratory in Q4, obviously that has had some margin implications to it. I think, you know, we did have a little bit of sort of timing, you know, a little bit better bioprocessing in Q3 than we thought and probably some of that might be a little bit of timing related as well. Sort of impacting Q4 margins and as you said, you know, we we've had a pretty good year here and as we as we head into the fourth quarter, we're thinking about the cost structure, thinking about the investment that we want to make in the business. And we're taking an opportunity to make sure that we do some of those smartly here in the quarter. And I think you sort of, you know, added all up and you kind of come up with that adjusted operating margin in the 30s, sort of holding the full year here as we as we had in the end here.
Speaker Change: Important in this market and does that change your view for the long term growth of the worldwide bioprocess or biotech segment.
Speaker Change: Long term growth just now.
Speaker Change: Local competition has emerged and is being utilized more and some of those local maps.
Speaker Change: So maybe to start because I think your first question. Your third question sort of wrapped around China for next year in bioprocess, and maybe I'll, let Brian take that but just <unk> just to remind everybody. We we sort of assume that it was going to be kind of a $150 million impact over three years really starting this year.
Speaker Change: and sorry, the incremental margin implications for fiscal 25 should the fall be in the 35 to 40% range.
Speaker Change: As we as we ramp up.
Speaker Change: Assumptions, initially where sort of that that would be linear over the next three years.
Speaker Change: Well, I mean, it's going to depend on volume, I think, Vijay, but, you know, like we've kind of talked about from a margin perspective that, you know, this business when it is operating, sort of in a normal environment, the low 30s are where it should be. So, I mean, 25, you know, we'll sort of update you that in January when we get there, but, you know, that'll be a function of volume and mix, you know, depending on where it comes from, it'll be different. So we'll have to wait until we get a little bit further to give you that, but that's how I'm thinking about 25. Thank you, Patrick. Thank you.
Speaker Change: We are starting to see a little bit more activity in China around GBP here at the end of this year. So I think we'll have a better sense of what that linearity looks like after we get through the next couple of months, where it does look like the activity is sort of ramping up so I still think the numbers are good number, but how that rolls out and plays out in the sort of be determined in the next couple of weeks.
Speaker Change: As it relates to the <unk>.
Speaker Change: Really I think we need to view, China as stable and sort of bumping along the bottom and we don't expect a change in that in the short term.
Speaker Change: I'm sure thank you guys.
Speaker Change: Thanks for your time.
Speaker Change: Thank you. We'll take our next question from Scott Davis with Melia's research. Please go ahead.
Speaker Change: As we go through and think about 2025, unless we see a material change in the execution and rollout.
Speaker Change: Hey, good morning, Fels.
Speaker Change: Good morning, Scott.
Speaker Change: The stimulus program in China. So we expect China to continue to develop as it has been here for most of the year in 2024.
Scott Davis: You guess mentioned again this quarter that the smaller customers and bioprocessing not coming back.
Scott Davis: It's fast. At what point does it become such a small piece of the business that maybe we stop having that color or its less material or maybe a different way to ask the question is what percent of revenues is it now?
Speaker Change: Now as it relates to your question on local competition certainly there is local competition out there, but we have to be clear that particularly in <unk> and biotech. There are many companies simply struggling to survive and they are buying essentially the least expensive solution that they can to make it to the end of the month.
Scott Davis: where it's kind of large or small customers.
Speaker Change: Yeah, I mean, the larger versus small, roughly Scott is kind of 75% or larger and 25% are smaller and, you know, I think, you know, we give the color primarily because those smaller customers have a little bit of a different dynamic than the larger customers, larger customers typically have on market.
Speaker Change: And it's just going to have to be good enough.
Speaker Change: So that's sort of one section of the market than there is another segment that really is targeting the international sale of their therapeutic molecules and they tend to want to have solutions for multi notch national companies first and foremost from ourselves here in order to ensure that our regulators.
Speaker Change: You know, or later phase, you know, phase three trial, kind of, you know, exposures, whereas the smaller customers tend to be. Earlier stage, probably a little bit more related to in some instances, you know, the cell and gene therapies of the world. So a little bit different. They act differently in the funding environment as well. So I think it's, you know, we're just trying to kind of give color as to what we're seeing there, where we are seeing an improvement in the funding environment. It's not necessarily working its way through into orders and revenue at this point. And so just kind of give a little bit of color, but you know, to your to your point, I think is. Thank you.
Speaker Change: Around the world are comfortable with the input that are required to make these incredibly effective drug. So yes, there is local competition.
Speaker Change: Would see it more on the margin, especially as it relates to local molecules.
Speaker Change: Got it. Thank you very helpful I'll leave it there.
Speaker Change: Thanks, Tony.
Speaker Change: Thank you we'll take our next question from Dan Leonard with UBS. Please go ahead.
Speaker Change: You know, most of our customers are the larger customers with stuff that is on market. When I look back at what has caused all the pain of the last, you know, kind of two years in this business, it was destocking at those customers. And I believe that is largely behind us. And so that's why I think it's really encouraging as we stand here and look forward, though the recovery has been gradual. It has happened. It's happened at the largest customers. It's me a lot of faith that the long-term outlook of this business skill is the high single digits. When we get there, kind of a bit of a TBD, but I think that's the reason we sort of want to give a little bit of color on both of them.
Dan Leonard: Thank you I wanted to circle back to the trends in life science instruments and equipment, specifically because I think you do have some consumables in that instrument reporting can you elaborate a bit further on what's the equipment trends were in the quarter from a growth perspective.
Speaker Change: So just to talk about the quarter more generally the market conditions in the third quarter were essentially consistent with what we saw in the first half of 'twenty four.
Speaker Change: <unk> capital equipment spending continued to be constrained.
Speaker Change: Okay, that makes sense, Matt, and guys, we didn't talk about the buyback or M&A or kind of your funnel or nothing mentioned in prepare remarks. Any update there as it relates to your confidence or size or any metrics around the funnel will be helpful.
Speaker Change: And to the last question, particularly in China.
Speaker Change: Now in contrast to the equipment.
Speaker Change: Constrained environment consumables and service.
Speaker Change: Grew in the quarter.
Speaker Change: Lab and research facilities and institutions.
Speaker Change: Yeah, I'll just touch real quick on the buyback and maybe Rainer can give some color on the funnel, the M&A funnel but I mean the buyback, I think if you see and we did complete it, technically that buyback was straddled both Q2 and Q3, so if you see something in the Q, that's what it was related to just sort of everybody's kind of clear, it was not a new issue and so it was the final, final pieces if you will of the buyback we talked about in Q2.
Activity has started to stabilize.
Speaker Change: So we do see equipment being constrained, but consumables are starting to move.
Speaker Change: And then a quick follow up Brian or could you comment on the performance at <unk>. It seems like versus our numbers. The run rate there is improving I'm not sure. If that's the correct read or if it's just rounding or if theres other M&A into that revenue mix.
Speaker Change: Thanks Matt.
Speaker Change: And as it relates to the M&A environment, Scott, as we do every day, we are out there cultivating across all of our segments. And we're fairly active there, our funnels are pretty dynamic. It's fair to say that while the environment, though, is improving, valuations are still all elevated.
Speaker Change: So there is no other M&A in that revenue mix, but of course, we are working very hard to drive our hypothesis around at Cam and right now the focus is on transitioning into danaher of horse and and the team is making great progress with that theyre implementing actually pulling on our DBS capabilities.
Speaker Change: and so we feel great about our positioning, both in terms of the assets that are attractive out there, of course, our balance sheet.
Speaker Change: To drive those growth accelerators and of course improve the cost positioning that we've talked about so.
We feel very good about where we are with AB Cam and long term, we absolutely believe that this meets our expectations both in terms of growth and the bottom line.
Speaker Change: But we're going to maintain our discipline with our deals needing to meet our trifecta of attractive end market, attractive company and then of course the valuation framework the model has to work as well. So active but we still see that the valuations are elevated. Thank you.
Speaker Change: Thank you.
Speaker Change: Thanks, Dan Thank you.
Speaker Change: We will take our final question from Jack Meehan with Nephron Research. Please go ahead.
Scott Davis: makes sense, Rainer. Thank you all, pass it on, appreciate it. Good luck, guys. Thanks, Scott.
Jack Meehan: Thank you good morning, guys.
Speaker Change: Thank you, we'll take our next question from Puneet Sanda with Leary Partners, please go ahead
Jack Meehan: Ask about.
Jack Meehan: I wanted to ask about diagnostics in the China region.
Speaker Change: Thanks for taking my question.
Jack Meehan: To start for Matt can you just check my math is can you remind me is this like 15% of diagnostic sales and.
Puneet Sanda: So, specifically on China, just falling up a few things. What's the right sort of general point for China for as we think about 2025, just given the uncertainties here in the market and the backdrop of the stimulus. Thank you very much.
Jack Meehan: I was trying to back into how Beckman might've done in the quarter in the region.
Jack Meehan: Could it have been to the tune of down 20% or so.
Jack Meehan: And then for Reiner will just be great to hear about your thoughts on a regional dynamics in diagnostics is this all kind of price impact or any change in kind of share shift. Thank you.
Puneet Sanda: and also wondering if you can elaborate a bit on the China Valley Biz pricing, how much of an impact are you baking there?
Puneet Sanda: and just lastly on China.
Speaker Change: Yes, so diagnostics the total revenue for China diagnostics, I think youre in the ballpark on that as far as what China was from China diagnostic perspective in the quarter.
Speaker Change: How much is local bioprocess competition important in this market? And does that change your view for the long-term growth of the worldwide bioprocess or biotech segment? Long-term growth just now that local competition is immersed in and is being utilized more in some of those local maps?
Jack Meehan: I think it would have been down down that hijacked probably was down.
Jack Meehan: They're all diagnostics, which is most of that is going to be beckman and it was kind of down low double digits. So I think that's probably a more.
Jack Meehan: A better place to anchor, but I think your total number is probably pretty close to right as far as percentage of sales.
Speaker Change: It may be the start because I think your first question, your third question sort of wrapped around China for next year in bioprocessing. Maybe I'll let Breiner take that, but just the EVP just to remind everybody we sort of assume that it was going to be kind of $150 million impact over three years really starting this year. [inaudible]
Jack Meehan: So we thought across the world here really with one exception strong performance in all of our clinical diagnostic businesses and of course, you heard from Matt around Cepheid.
Jack Meehan: That we believe to be taking share there at really at all levels, but coming back to our clinical diagnostic businesses. We saw a high single digit recurring revenue growth in North America.
Speaker Change: As we ramp up, our assumptions initially were sort of that that would be linear over the next three years, you know, we are starting to see a little bit more activity in China around the BP here at the end of this year. So I think we'll have a better sense of what that linear looks like after we get through next couple months where it does look like the activity is sort of ramping up. So I still think the number is a good number, but how that rolls out and plays out will sort of be determined in the next couple weeks. Thank you very much.
Then in Europe on the other hand, we come back to China.
Jack Meehan: In China, we see the impact of the volume based procurement.
Jack Meehan: <unk> is what brings US down we also had in Beckman Coulter in particular.
Jack Meehan: Hi, hardware sellout comp last year, as we were burning down some backlog, but we're very pleased with how our clinical diagnostics businesses continued to develop continue to take share and volume based procurement is sort of the topic right now for diagnostics in China.
Speaker Change: as it relates to the J.O.P. paneet. Really, I think we need to view China as stable and sort of dumping along the bottom and we don't expect to change in that in the short term as we go through and think about 2025 unless we see a material change in the execution and rollout of the stimulus program in China. So we expect China to continue to develop as it has been here for most of the year in 2024.
Speaker Change: Thank you and this will conclude our Q&A session I will turn the call for Joanne for closing remarks.
Joanne: Thank you everybody for joining us today will be around for <unk>.
Speaker Change: Now to release your question on local competition, certainly there's local competition out there, but we have to be clear that particularly in biotech, there are many companies simply struggling to survive and they're buying essentially the least expensive solution that they can to make it to the end of the month.
Speaker Change: Follow ups all day.
Joanne: Thank you.
Joanne: Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
Speaker Change: and it's just going to have to be good enough. So that's sort of one section of the market. Then there's another segment that really is targeting the international sale of their therapeutic molecules. And they tend to want to have solutions from multinational companies, first and foremost from ourselves here in Citeva in order to ensure that regulators around the world are comfortable with the input that are required to make these incredibly effective drugs. So yes, there's local competition. We would see it more on the margin, especially as it relates to local molecules.
Speaker Change: Got it. Thank you very, very helpful. I'll leave it there.
Speaker Change: Thanks for being.
Speaker Change: Thank you. We'll take our next question from Dan Leonard with EBS. Please go ahead.
Dan Leonard: Thank you. I wanted to circle back to the trends in life science instruments and in equipment specifically because I think you do have some consumables and that instrument reporting. Can you elaborate a bit further on what the equipment trends were in the quarter from a growth perspective?
Speaker Change: So, just to talk about the quarter more generally, the market conditions in third quarter were essentially consistent with what we saw in the first half of 24. And capital equipment spending continued to be constrained to the last question, particularly in China.
Speaker Change: Now, in contrast to the equipment constrained environment, consumables and service grew in the quarter as lab and research facilities and institutions activity has started to stabilize.
Speaker Change: So we do see equipment being constrained, but consumables are starting to move.
Speaker Change: And then a quick follow-up, Rainer, could you comment on the performance at Abcam? It seems like versus our numbers to run right there is improving. I'm unsure if that's the correct read or if it's just rounding, or if there's other, you know, M&A into that revenue mix.
Rainer Blair: There's no other M&A in that revenue mix, but of course we're working very hard to drive our hypothesis around AppCam. And right now the focus is on transitioning into Danaher of course. And the team is making great progress with that. They're implementing actually pulling on our DBS capabilities to drive those growth accelerators and of course improve the cost positioning that we've talked about. So we feel very good about where we are. We are with AppCam and long term we absolutely believe that this meets our expectations both in terms of growth and the bottom line.
Speaker Change: Thank you.
Speaker Change: Thanks for having me.
Speaker Change: and we will take our final question from Jack Meand with Nefron Research, please go ahead.
Jack Meand: Thank you. Good morning guys. I'm going to ask about
Jack Meand: When to ask about diagnostics in the China region to start for math, can you just check my math? Can you remind me is this like 15% of diagnostic sales and I was trying to back in the how Beckman might have done in the quarter in the region. It could have been to the tune of down 20% or so and then for Reiner would just be great to hear about your thoughts on regional dynamics and diagnostics. Is this all kind of price impact or any change? Change in kind of share shift. Thank you.
Speaker Change: Yeah, so Diagnostics, the total revenue for China Diagnostics, I think you're in the ballpark on that. As far as what China was from China Diagnostics perspective in the quarter, I don't think we would have been down, down that hijack probably was down, you know, overall diagnostics, which most of that's going to be Beckman. There was kind of down low double digits, so I think that's probably a more a better place to anchor, but I think your total number is probably pretty close to right. It's our percentage set.