Danaher Corporation

Good morning. My name is Maria and I will be your conference facilitator today. At this time, I would like to welcome everyone to Danaher Corporation's fourth quarter 2020 earnings results conference call. All lines have been placed on mute to prevent any background noise. 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 the pound key on your telephone keypad. I will now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.

Thanks, Maria. Good morning, everyone, and thanks for joining us on the call. With us today are Reiner 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, and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the investor section of our website, www.danaher.com, under the heading quarterly earnings. The audio portion of this call will be archived on the investor section of our website later today. under the heading Events and Presentations and remain archived until our next quarterly call. A replay of this call will also be available until February 11, 2021. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials The company-specific financial metrics refer to results from continuing operations and relate to the fourth quarter of 2020, 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. 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 filings, and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements except as required by law. As a result of the size of the CITIVA acquisition and its impact on Danaher's overall core revenue growth profile, we are presenting core revenue on a basis that includes CITIVA sales. References to core revenue growth include CITIVA sales and a calculation of period-to-period sales growth comparing the current period CITIVA sales to the historical period CITIVA sales prior to the acquisition. With that, I'd like to turn the call over to Ryan.

Well, thanks, Matt, and good morning, everyone. Before we go through our fourth quarter and 2020 financial results, I wanted to take a moment and reflect back on the past year. As we all know, 2020 was a year that brought many unforeseen challenges as a result of the COVID-19 pandemic. While our contributions in testing, treatment, and vaccination have helped with the global effort to combat COVID-19, there is still much more progress to be made to overcome the pandemic. It's also not lost on us that part of our financial performance in 2020 was driven by the work we're doing to tackle a health crisis, which has had such a devastating impact on so many around the world. That being said, we're also very proud of our contributions to fight the pandemic and we'll continue to work tirelessly to support these global efforts in 2021 and beyond as necessary. So as I look back on 2020, I'm most struck by our associates' teamwork, dedication, and invaluable contributions during these difficult times. They are truly making a difference in the world. And since the onset of the pandemic, our team has met the challenges presented and turned them into impactful opportunities to help our customers, patients, and the global community. Their efforts have been both humbling and inspiring. I'd also like to recognize and thank our customers, suppliers, and business partners, many of whom we called upon for additional support to continue meeting demand throughout this pandemic. We're incredibly grateful and won't forget their collective efforts over the past year. One of our five core values at Danaher is the best team wins. And I believe we truly saw that in action in 2020. So with that, let's turn to our 2020 financial results. For the full year, we delivered nearly 10% core revenue growth, 170 basis points of core operating margin expansion, 43% earnings per share growth, and over $5 billion of free cash flow. We also closed the largest acquisition in our history, welcoming the Cytiva team to Danaher in March of last year. Cytiva is a global leader in bioprocessing and has played a major role in supporting the development and production of COVID-19 vaccine and therapeutics. In 2020, the business generated more than 25% core revenue growth and over $4 billion of revenue. We couldn't be more pleased with Cytiva's early results, all driven by a highly talented, engaged, and innovative team that has embraced the Danaher business system. So now let's take a closer look at the fourth quarter results. We generated $6.8 billion of sales with 15.5% core revenue growth and believe we continued to capture market share across many of our businesses through accelerated investment in new product innovation, enhanced commercial execution, and by deploying new customer engagement techniques during the pandemic. COVID-related revenue tailwinds contributed approximately 1,200 basis points to core revenue growth, while our underlying base business was up approximately 3.5%. Geographically, we saw broad-based and consistent revenue growth during the quarter. Developed markets were up mid-teens, with similar growth in both the U.S. and Western Europe. High growth markets were up low double digits, driven by another excellent quarter in China. Our gross profit margin was 58.5%, and our operating profit margin of 23.7% was up 390 basis points, including 360 basis points of core margin expansion. Our outstanding margin performance was driven by a combination of higher core revenue growth and the impact of the Danaher business system on productivity and operations across all of our platforms. Adjusted diluted net earnings per common share of $2.08 was up 63% versus last year. We generated $1.9 billion of free cash flow in the quarter and $5.4 billion for the full year. up 134% and 79% respectively. Our free cash flow to net income conversion was 149% for the full year and marks the 29th consecutive year this figure has exceeded 100% for Danaher. The combination of our cash flow generation and strong balance sheet gives us more degrees of freedom earlier than anticipated after the CITIVA closing and positions as well to actively pursue strategic M&A opportunities. Given our strong margin and cash flow performance, we took the opportunity to accelerate investments in high-impact growth initiatives across Danaher, including innovation and collaboration projects. We're also expanding production capacity at Cepheid, Cytiva, and Paul Biotech to support increasing demand for COVID-related testing and treatment while positioning the businesses for continued long-term growth. So now let's take a more detailed look at our results across the portfolio. Life Sciences reported revenue increased as a result of the Cytiva acquisition, with core revenue up 18.5%, led by core growth rates of 30% or more at Cytiva, Paul Biotech, Beckman Life Sciences, and IDT. We continued to see strong demand from our biopharma customers during the quarter, and our non-COVID related biopharma business was up double digits. And we also saw an acceleration in activity focused on COVID-19 vaccines and therapeutics. We also saw customers building out their genomics and automation capabilities to support the development and production of COVID related tests and treatments. In our more instrument oriented life science businesses, Order trends and installations improved as academic and research labs continued to reopen. SCI-X benefited from this uptake in activity and delivered mid-single-digit core revenue growth in the quarter, fueled by demand for new products such as the 7500 Triple Quad and the Echo MS. Moving over to diagnostics, reported revenue was up 23.5%. with core revenue up 21.5%, led by more than 100% core growth at Cepheid, driven by elevated COVID-19 testing demand and gene expert systems placement. Cepheid achieved a significant milestone in December, surpassing $2 billion in annual revenue just one year after hitting the $1 billion mark. It's a tremendous accomplishment by a fantastic team. Radiometer and Leica Biosystems, our acute care and pathology businesses, both delivered high single-digit core revenue growth. Declines at Beckman Coulter Diagnostics moderated as elective procedures and wellness checks steadily resumed through the quarter. Moving to our environmental and applied solution segment, reported revenue was up 2% and core revenue was up 1%. our water quality platform delivered low single-digit core revenue growth and product identification was down slightly. Across our water quality businesses, we saw solid demand for our consumables and chemistries as we continued to support customers' day-to-day mission-critical water operations. Equipment declines moderated as more customer facilities got back up and running, and by end market, municipal activity and projects continued to resume and industrial decline moderated. Chemtreat delivered its 52nd consecutive year of core revenue growth in 2020, an impressive accomplishment in any year, but even more so given the unprecedented challenges presented by the pandemic. Across our water quality platform, the team's focused execution combined with our innovative offering and the positioning of our portfolio enabled the water quality platform to achieve positive core revenue growth for the full year. At our product identification platform, positive results in our marking and coding businesses were offset by moderating declines in packaging and color management. Consumables and services held up well globally as we continued to help customers keep their essential businesses operating through the pandemic. So with that as context for what we saw by segment during the quarter, let me give you some color on the trends we're seeing across our end markets and geographies. Customer activity around the world remains broadly consistent with what we saw back in October and through the fourth quarter, and we expect this relative stability to persist near term. Despite rising COVID infection rates and new targeted lockdowns in certain regions, Customers are adapting to working in this new pandemic environment, and we have not yet seen a material impact on demand. Within life sciences, COVID-19 vaccine and therapeutic activity continues to drive record bioprocessing demand. Cytiva and Paul Biotech comprise most of our bioprocessing exposure, and their combined order growth in the quarter was up more than 50%. As a market leader across the bioprocessing workflow, our teams are playing a significant role in the development and production of COVID-19 vaccines and treatments, while working to ramp up manufacturing capabilities on a massive and very compressed timeline. We are involved in the majority of more than 400 vaccine and therapeutic projects underway globally, including all of the vaccines in the US that have recently received FDA emergency use authorization or are in late stage clinical trials. We're very proud of our team's tireless efforts, which will directly impact the lives of so many people around the world. From where we stand today, We estimate that 2021 revenue opportunity associated with COVID-related vaccine and therapeutics at Cytiva and Paul Biotech will be approximately $1.3 billion, roughly twice the amount we recognized in 2020. Non-COVID-related bioprocessing activity remains strong and in line with what we saw over the last several quarters. Turning to our other life sciences, and market. And as I mentioned earlier, academic and research labs are continuing to reopen, albeit at reduced capacity as social distancing measures limit the number of people in the lab at any one time. In clinical diagnostics, heightened demand continues for molecular testing in both hospital lab and point of care settings. Since launching the first rapid molecular test for COVID-19 in March, Cepheid has meaningfully increased production capacity and shipped approximately 9 million test cartridges in the fourth quarter. As anticipated, approximately 60% of the respiratory tests shipped in the fourth quarter were COVID-only tests, and 40% were four-in-one combination tests for COVID-19, Flu A, Flu B, and RSV. The team also placed a record number of new systems in 2020, increasing Cepheid's installed base by more than 35% year-over-year to over 30,000 instruments globally, and reinforcing its market-leading position in molecular diagnostics. Cepheid's differentiated offering and leading presence at the point of care positioned the business to help meet customers' testing needs in 2021 and beyond. As a result of this strong positioning and the elevated COVID-19 infection and hospitalization rate we are still seeing today, we expect to ship at least 9 million tests per quarter for the duration of 2021. Across hospital and reference labs, patient volumes remain steady as elective procedures and wellness checks continue at a similar pace as we saw through Q4. We're closely monitoring patient activity in areas that have recently implemented new lockdowns, but we've not seen any material impact at this point. During the quarter, Beckman Coulter Diagnostics expanded its COVID-related test menu with the addition of a high-volume antigen test. This automated test is designed to run on Beckman's immunoassay analyzers and can help address the challenges associated with scaling up antigen testing to make higher volume mass testing possible. Beckman's automated antigen test is another important addition to our COVID diagnostics offering and a testament to the Beckman team's strong cadence of innovation, having launched six new COVID-related tests in as many months. Finally, in the applied markets, consumables remain solid as customers sustain essential business operations like testing, and treating water and safely packaging food and medicine. And we're encouraged to see sequential improvements on the equipment side as customers initiate new projects and capital investments. Looking ahead now to the first quarter and full year 2021, we expect to deliver mid to high teams core revenue growth in the first quarter. We anticipate that COVID-related revenue tailwinds will contribute approximately 1,300 basis points to core revenue growth with mid-single-digit core revenue growth in our non-COVID-related businesses. For the full year 2021, we expect to deliver low double-digit core revenue growth with growth moderating sequentially in the second half of the year as a result of tougher prior year comparisons. We anticipate that COVID related revenue tailwinds will contribute approximately 500 basis points to core revenue growth for the full year with mid to high single digit core revenue growth in our non-COVID related businesses. So to wrap up, 2020 was an exceptional year for Danaher. Our team took the challenges presented by the pandemic and turned them into opportunities to support customers across all of our businesses and also directly contribute to the fight against COVID-19. We're all humbled by our associates' efforts and believe that Danaher's future is bright thanks to their dedication. 2020 was also a transformative year for Danaher with the addition of Cytiva. This was one of several strategic portfolio moves we have made over the last few years to build a better, stronger company and establish Danaher as a global science and technology leader. Looking ahead, we believe the combination of our talented team, excellent portfolio of businesses, and strong balance sheet, all powered by the Danaher business system, positioned Danaher to outperform in 2021 and beyond. So with that, I'll turn the call back over to Matt.