Danaher Corporation

Please stand by. Your meeting is about to begin. Good day, everyone. My name is Nikki, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's Fourth Quarter 2025 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 star, then 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.

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, the reconciliations and other information required by SEC Regulation G, and a note containing details of historical and anticipated future financial performance are all available on the investor section of our website, www.danahert.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 will remain archived until our next quarterly call. A dial-in replay of this call will also be available until February 11, 2026. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials to company-specific financial metrics relate to results from continuing operations, and relate to the fourth quarter of 2025. 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 that they are made, and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I'd like to turn the call over to Reiner.

All right, John, thank you. And good morning, everyone. We appreciate you joining us on the call today. We delivered a strong finish to the year with better than expected performance across the portfolio. We were particularly encouraged by continued strength in our bioprocessing business, along with improving momentum in diagnostics and life sciences. Our team's disciplined execution also enabled us to exceed our fourth quarter margin, earnings, and cash flow expectations. Now, during the quarter, end market trends across our businesses were broadly consistent with what we saw through the first three quarters of the year. In pharma, global monoclonal antibody production remained robust. and we were encouraged to see a modestly more favorable capital spending environment. We also continued to see a recovery in pharma R&D spending, while biotech demand remained stable. Academic and government demand remained muted, but was stable sequentially, while clinical and applied end markets continued to perform well. Now, I'd like to take a moment to thank our associates for their efforts in 2025. They did a tremendous job leveraging the Danaher business system to navigate a dynamic geopolitical and policy environment while continuing to deliver for our customers and drive productivity gains across our businesses. Their dedication and passion for serving our customers enabled the launch of innovative therapies and diagnostic solutions, drove share gains in many of our businesses, and reinforced Danaher's reputation as a trusted leader in life sciences and diagnostics. Now, looking ahead, we expect the gradual end market improvements we saw through 2025 to continue, and we believe the combination of our differentiated portfolio, the power of the Danaher business system, and the strength of our balance sheet positions Danaher for long-term value creation as we move into 2026 and beyond. So with that, let's take a closer look at our full year 2025 financial results. Sales were $24.6 billion and core revenue increased 2%. Our adjusted operating profit margin was 28.2% and adjusted diluted net earnings per common share of $7.80 were up 4.5%. We also generated $5.3 billion of free cash flow, resulting in a free cash flow to net income conversion ratio of approximately 145%. Strong free cash flow generation is one of the most important metrics at Danaher, and 2025 marks the 34th consecutive year our free cash flow to net income conversion ratio exceeded 100%. Our earnings growth and strong free cash flow generation in the face of tariff-related cost pressures and significant productivity investments underscore the differentiated quality of our earnings and business models. Now, our continued investments in innovation drove an accelerated cadence of new product introductions across Danaher in 2025. These new technologies are helping customers develop and manufacture therapies and diagnostic tests faster and more efficiently, ultimately helping to improve healthcare outcomes. In biotechnology, Cytiva launched more than 20 new products across the biologics workflow. Upstream, new 500- and 2,000-liter formats of the Xcelerex X-Platform Bioreactor are helping drive higher yields while reducing the time and cost of biologic drug manufacturing for our customers. Downstream, Cytiva strengthened its purification portfolio with the launch of two new Protein A resins, MabSelect Sure 70 and MabSelect Prisma X. delivering cost-effective solutions for preclinical and clinical production without compromising quality. Now, these launches reinforce Cytiva's commitment to helping customers improve yields and lower manufacturing costs while maintaining high performance across the drug development lifecycle. In life sciences, CyEx reinforced their leadership in mass spectrometry with the introduction of the Xenotos 8600. The 8600 delivers up to 30 times increased sensitivity versus previous platforms, accelerating proteomic research and enabling faster identification of disease pathways to help accelerate drug development timelines. Meanwhile, Beckman Coulter Life Sciences expanded its flow cytometry portfolio with the Mosaic Spectral Detection Module. bringing spectral capabilities to the CytoFlex platform that enable flexible, high-precision, multi-parameter characterization for pharmaceutical researchers. In diagnostics, Beckman-Coulter Diagnostics expanded the DXI 9000 assay menu, highlighted by progress in neurodegenerative disease, including the first-to-market automated, high-throughput, BD-Tau research-use-only immunoassay. while continuing to expand cardiac and blood virus menus. These advances, combined with sensitivity up to 100 times greater than traditional immunoassay systems, enable faster, more accurate patient diagnoses and help pave the way for precision diagnostics. Finally, last week, Cepheid received FDA clearance for its expert GI panel, a multiplex PCR test that quickly detects 11 common gastrointestinal pathogens from a single patient sample. Leveraging Cepheid's advanced 10-color multiplexing technology on its gene expert and cell base, this test simplifies GI testing workflows, helps guide appropriate treatment for high-risk patients, and can aid in reducing the risk of outbreaks in healthcare and community settings. This panel marks another step forward in Cepheid's multiplex testing strategy, building on momentum from the 4-in-1 respiratory panel, the MVP panel in women's health, with further multiplex introductions planned over time. So these are just a few of the innovations from across Banner that are delivering meaningful customer impact while also driving clear financial results, including approximately 25% year-over-year growth and new product revenue. So with that, let's turn to our fourth quarter 2025 results in more detail. Sales were $6.8 billion in the fourth quarter, and we delivered 2.5% core revenue growth. Geographically, core revenues in developed markets increased low single digits, with North America essentially flat and Western Europe up mid-single digits. High growth markets were up mid-single digits, with solid growth outside of China more than offsetting a low single-digit decline in China. Our fourth quarter adjusted gross profit margin of 58.2% and our adjusted operating profit margin of 28.3%. We're both down 130 basis points as the impact of cost savings initiatives more than offset the positive impact of volume leverage. Adjusted diluted net earnings per common share of $2.23 were up 4% year over year, and we generated $1.8 billion of free cash flow in the quarter. So now let's take a closer look at our fourth quarter results across the portfolio and give you some color on our end markets today. Poor revenue in our biotechnology segment increased 6%. Poor revenue in discovery and medical declined at a high single-digit rate in the quarter, driven by a difficult prior year comparison in our medical filtration business, and by declines in protein research instrumentation as academic research customers continued to face funding constraints. Poor revenue in bioprocessing grew high single digits, with high single-digit growth in consumables and mid-single-digit growth in equipment. Consumables growth was supported by continued robust demand for commercialized therapies, particularly monoclonal antibodies. And we were also encouraged by the return to equipment revenue growth in the quarter and by a third consecutive quarter of sequential equipment order growth. The orders remain below historical levels. Current momentum in our equipment order book and funnels is concentrated around shorter cycle projects, such as line additions and brownfield expansions, with U.S. reshoring-related greenfield investments expected to provide incremental upside over time. Now, given the sustained and substantial activity levels at our customers over the last year, we anticipate high single-digit core revenue growth in bioprocessing for the full year 2026. Growth is expected to be led by consumables, with our current backlog and order trajectory supporting equipment revenue improving to approximately flat for the year. So we see a bright future ahead for Cytiva. Underlying biologic demand, which is the primary growth driver of our business, has grown at double-digit rates annually for more than a decade, and we expect strong demand growth to continue into 2026 and beyond. This outlook is supported by another year of robust FDA approvals for biologic medicines in 2025 and increased uptake of existing therapies during this year, which taken together drove global biologic revenues to surpass small molecule drugs for the first time. The development pipeline also remains strong with biologics expected to represent more than two-thirds of the top 100 drugs by 2030. So these positive trends reinforce our confidence in the durability of long-term growth in the bioprocessing market and for Cytiva's leading franchise. Turning to our life sciences segment, core revenue increased 0.5%. Core revenue in our life sciences instrument businesses was essentially flat in the quarter. Looking across end markets, we continue to see a modest recovery in pharma, particularly in Europe, while biotech demand remained stable. Academic and research demand was muted, especially in the U.S. and China, but was generally stable on a sequential basis. And clinical and applied markets remained healthy. Poor revenue in our life sciences consumables businesses declined in the quarter, primarily due to lower demand for plasmids and mRNA from two of our larger customers, as well as continued funding pressure across early stage biotech and academic research. We were encouraged to see another quarter of sequential improvement at AFCAM as key commercial initiatives in pharma and recombinant proteins delivered solid growth, partially offsetting ongoing softness in academic research. Moving to our diagnostic sector, core revenue increased 2%. Core revenue in our clinical diagnostics businesses grew mid-single digits with high single-digit growth outside of China. Notably, Leica Biosystems and Radiometer were each up nearly 10%, with broad-based strength across both instruments and consumables. Beckman-Coulter Diagnostics also delivered another strong quarter, with mid-single-digit growth globally, led by high single-digit growth in immunoassay. This is Beckman's sixth consecutive quarter of mid-single-digit or better core growth outside of China, and caps off a year of sustained momentum across its innovation and commercial engines. In molecular diagnostics, respiratory revenue of approximately $500 million exceeded our expectation as customers purchased in anticipation of an active respiratory season, given the high prevalence of currently circulating respiratory viruses. Over the past several weeks, we've worked closely with the team to better understand seasonal trends and revisit our assumption for respiratory revenue in a typical year. And as a result, we expect respiratory revenue of approximately $1.8 billion for the full year 2026. This assumes a normal respiratory season and that testing protocols that our customers remain broadly consistent with what we've seen the last few years. Low double-digit growth across Cepheid's core non-respiratory test menu was highlighted by nearly 30% growth in sexual health and mid-teens growth in hospital-acquired infection assays. This strong performance reflects continued traction in Cepheid's growth strategy, including new menu additions such as the MVP panel in women's health, enabling entry into new care settings, and existing customers continuing to add both menu and instruments across their healthcare networks. So, looking ahead, we're excited about the long runway for durable growth at Cepheid, supported by a robust pipeline for future menu additions and anticipated continued expansion of our leading global installed base. Now, let's briefly look ahead at expectations for the first quarter and the full year 2026. Looking across the portfolio, we're assuming bioprocessing growth will be similar to 2025, including continued strength in consumables, driven by healthy growth in monoclonal antibody demand, and our strong positioning across the biologics workflow. In life sciences, we're assuming a modest improvement in end markets, but assume growth will remain below historical levels, given the current macro environment. And in diagnostics, we're assuming higher growth in 2026 due to moving past the peak of headwinds from policy changes in China and our expectation that we will continue to execute well globally. For the full year 2026, we anticipate core revenue growth in the 3% to 6% range. Additionally, we are initiating full year adjusted diluted EPS guidance in the range of $8.35 to $8.50. In the first quarter, we expect core revenue to be up low single digits. And additionally, we expect the first quarter adjusted operating profit margin of approximately 28.5%. So to wrap up, we're pleased with our solid finish to the year and proud of the work our teams did in 2025 to reliably support our customers through a dynamic macro environment. They did a tremendous job staying focused on what we can control. running the Danaher Business System Playbook to offset cost pressures and deliver productivity gains while continuing to invest in innovation for the long term. So looking ahead, we're encouraged by the momentum building across our portfolio and expect growth to accelerate as end markets continue to improve. Our strong positioning and attractive end markets and high recurring revenue business models support our long-term expectation for high single-digit core growth. with a differentiated margin and cash flow profile. So with the powerful combination of our differentiated portfolio, talented team and strong balance sheet, all powered by the Danaher business system, we feel well positioned to create long-term shareholder value while making a meaningful positive impact on human health. So with that, I'll turn the call back over to John.