Danaher Corporation

My name is Chelsea and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's first quarter 2026 earning 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 remove yourself from the queue, please press star two on your telephone keypad. I will now turn the call over to Ms. Rachel Vattenstall, Vice President of Investor Relations. Ms. Vattenstall, 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 Pagino, our Executive Vice President and Chief Financial Officer. I'd like to point out that our earnings release, quarterly report on Form 10-Q, the slide presentation supplementing today's call, the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call, and a note containing details of historical and anticipated future financial performance are all available on the Investors section of our website, www.danaher.com, under the heading Quarterly Earnings. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations and will remain archived until our next quarterly call. A replay of this call will be available until May 5th, 2026. During the presentation, we will describe certain of the more significant factors that impacted year-on-year performance. Our Form 10-Q and the supplemental materials I referenced 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 the first quarter of 2026, and all references to period-to-period increases or decreases in the 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 meeting of the Federal Securities Law 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 may 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.

Thank you, Rachel, and good morning, everyone. We appreciate you joining us on the call today. We're off to a solid start to the year. Our team executed well in a dynamic environment, leveraging the Danaher business system to accelerate innovation, drive productivity gains, and deliver better than expected adjusted EPS growth. On the top line, continued strength in bioprocessing and better than expected performance in life sciences largely offset the impact of a lighter than normal Q1 respiratory season at Cepheid. Now, looking across the portfolio, trends in many of our end markets were modestly better than our expectations entering the year. In large pharma and biopharma, commercial monoclonal antibody production remained robust, and we continued to see gradual improvement in R&D spending. Trends at smaller biotech and academic and government customers were stable sequentially with some pockets of improved order and funnel activity. Meanwhile, clinical and applied end markets performed well, consistent with recent quarters. Geographically, we saw an acceleration in our life sciences and biotechnology businesses in China. Now, the global environment has become more dynamic since the start of the year, including the ongoing conflict in the Middle East. And while we have limited direct revenue or supply chain exposure to the region, we're mindful of potential pressures from a sustained conflict. That said, we remain focused on controlling what we can control, including leveraging the Danaher business system to proactively manage our supply chain and mitigate inflationary pressures while continuing to invest for the long term. At the same time, we're enhancing our portfolio through strategic M&A, including the pending acquisition of Massimo, where we believe there are significant opportunities to improve performance over time through DBS and our global scale. With the strength of our balance sheet and robust free cash flow generation, we're well positioned for further capital deployment going forward. So with that let's take a closer look at our first quarter 2026 results. sales were $6 billion in the first quarter and core revenue was up 0.5% year over year with a 2.5% headwind from respiratory revenue partially offsetting 3% core revenue growth in the rest of the business. Despite a lighter than typical Q1 respiratory season, underlying momentum across the portfolio improved as many end-market headwinds began to moderate. Geographically, core revenue in developed markets were down slightly with a mid-single-digit decline in North America and a mid-single-digit increase in Western Europe. High-growth markets were up low single digits with solid performance across most regions including mid single-digit growth in China. In China, better than expected growth in biotechnology and life sciences more than offset the expected high single-digit decline in diagnostics, which continued to be impacted by volume-based procurement and reimbursement policy changes. Our gross profit margin for the first quarter was 60.3%, And our adjusted operating profit margin of 30.2% was up 60 basis points, reflecting the benefit of year-over-year cost savings more than offsetting the negative impact from lower respiratory revenue year-over-year. Adjusted diluted net earnings for common share of $2.06 were up 9.5% year-over-year. We generated $1.1 billion of free cash flow in the quarter, resulting in a free cash flow to net income conversion ratio of 105%. Turning to capital deployment, in February, we announced our intention to acquire Massimo, a leading provider of mission-critical pulse oximetry and patient monitoring solutions in acute care settings. We've followed Massimo for over a decade and believe the company is well positioned with its trusted brand, differentiated technology, and attractive financial profile. Looking ahead, we believe there are clear opportunities to run the same playbook that has driven value creation across our portfolio for many years, leveraging DBS to drive growth and expand margins while further strengthening our value proposition with customers. We expect Massimo to be accretive to adjusted diluted net earnings for common share in the first full year post acquisition and to deliver high single digit return on invested capital by the fifth full year of our ownership. The transaction remains subject to customary closing conditions, including regulatory approvals, and we look forward to welcoming the talented Massimo team to Danaher later this year. Now, alongside M&A, we made significant progress on organic growth initiatives across Danaher, including new product introductions and strategic partnerships. These efforts are strengthening our competitive positioning while helping customers improve quality and yield, reduce costs, and accelerate the delivery of life-changing therapies and diagnostics. So let me highlight a few examples. In biotechnology, Cytiva launched FibroDT, a next-generation mRNA purification platform that improves manufacturing speed and efficiency. By eliminating diffusion limitations associated with traditional purification methods, FibroDT reduces processing time, increases yield, and lowers material usage, enabling more cost-effective, higher throughput production. of mRNA-based therapies. Additionally, Cytiva will showcase its next generation automated perfusion system, or APS, at the Interfx trade show this week. APS is a cutting edge tangential flow filtration platform designed to address key challenges of currently available process intensification systems, including product loss, filter clogging, and scalability. And like sciences, Beckman Coulter Life Sciences announced a strategic partnership with Automata, combining its liquid handling genomic and cell analysis technologies with Automata's AI ready automation platform. This partnership is positioned to empower scientists with AI driven tools and automated workflows to improve throughput, workflow reliability, and data integrity in increasingly autonomous research environments. Lastly, Beckman-Coulter Diagnostics continued to make progress on menu expansion for the high-resolution DXi9000 immunoassay analyzer with FDA clearance of the HBC IgM assay for acute hepatitis B. With this clearance, nearly all core blood virus assays for the DXi9000 are now cleared in both the U.S. and the European Union. This closes a historical gap in Beckman's immunoassay test menu and positions Beckman to accelerate new placements, customer wins, and growth as the DXI 9000 rollout continues. So now let's take a closer look at our results across the portfolio and give you some color on what we saw in our end markets. Poor revenue in our biotechnology segment increased 7%. Poor revenue in discovery and medical declined low single digits. Growth in medical filtration and research consumables was more than offset by declines in protein research instrumentation as academic customers continued to face funding constraints. Poor revenue in bioprocessing grew high single digits in the first quarter. High single digit growth in consumables was driven by robust demand for commercialized therapies globally, with notable strength in China. Equipment declined modestly in Q1, but we were encouraged to see orders growth of more than 30%, marking the first quarter of year-over-year equipment order growth in nearly two years. Stepping back on bio-processing, monoclonal antibody production remains robust and is expected to continue growing at historical or better rates, driven by new molecules, biosimilars, and increased utilization of existing therapies. In fact, we saw a sustained pace of new biologic drug approvals in the first quarter of 2026, building on a robust level of approvals in 2025. At the same time, equipment investment has been relatively muted, which we believe creates a growing need for incremental capacity in the coming years. We're encouraged by improved trends in bioprocessing equipment and believe we're in the early stages of a multi-year investment cycle. We see activity in brownfield projects today with larger greenfield investments expected to follow. Given Cytiva's expansive global footprint, broad portfolio, and depth of technical expertise, we're well positioned to benefit from this capacity expansion across biologic drug production. Turning to our life sciences segment, core revenues increased by 0.5%. Core revenue in our life sciences instruments businesses declined low single digits, primarily driven by weakness in North America academic research customers, as we expected. While demand at academic research customers remained muted in the quarter, we saw early signs of momentum building in our order book. We continue to see a gradual improvement in large pharma and biopharma investments. Instrumentation demand at biotech customers remain muted but stable, though we were encouraged to see recovery in the funding environment drive improved funnel activity. Poor revenue in our life sciences consumables businesses collectively grew low single digits. Aldebaran grew in the quarter, driven by solid commercial execution and an improved biotech funding environment. And we also saw early pockets of improvement in academic customers and research consumables contributing to growth at ABCAM. We're particularly pleased by ABCAM's recent performance as DBS-driven commercial execution has gained traction and cost structure initiatives have driven meaningful margin expansion since acquisition. As end markets improve, we expect continued progress on both growth and margins at ABCAM. Moving to our diagnostic segment, core revenue declined 4%. Core revenue in our clinical diagnostics businesses grew low single digits with mid-single digit growth outside of China. In China, pricing headwinds in the quarter from volume-based procurement and reimbursement policies were consistent with our expectations, and the anticipated impact from remaining policy changes remains consistent with our expectations from the start of the year. At the same time, volume growth in China was slightly better than our expectations, an encouraging indicator for future demand and growth as we move past the most significant year-over-year impacts from current policy headwinds. Beckman-Coulter Diagnostics delivered another strong quarter with mid-single-digit growth outside of China led by amino assay reagents and instrumentation. In molecular diagnostics, Cepheid's revenue declined in the quarter as respiratory revenue was down approximately 25% year over year, given lower than typical seasonal respiratory infection rates. Cepheid's core non-respiratory test menu was up mid-teens, led by our 20% growth in sexual health and hospital-acquired infection assays. Now, we've seen strong early demand and several notable customer wins for Cepheid's recently cleared Expert GI Panel, a multiplex PCR test that quickly detects 11 common gastrointestinal pathogens from a single patient sample. This strong momentum supports Cepheid's broader multiplexing strategy, and we believe it provides a long runway for continued installed base growth and increased utilization. Now let's briefly frame how we're thinking about the second quarter and the full year 2026. For the full year 2026, there is no change to our expectation of core revenue growth in the 3% to 6% range. This includes an assumption that a slightly lower respiratory revenue outlook of approximately $1.6 to $1.7 billion will be offset by modestly better core growth in the rest of the business. Additionally, given our strong Q1 performance, we're raising our full-year adjusted diluted net EPS guidance to a range of $8.35 to $8.55 versus our previous range of $8.35 to $8.50. In the second quarter, we expect core revenue to be up low single digits, Additionally, we expect the second quarter adjusted operating profit margin of approximately 26.5%. So to wrap up, we're encouraged by the first quarter momentum across our portfolio and expect growth to accelerate throughout the year as we continue on the path towards consistent higher core revenue growth. Cost and productivity execution translated into strong Q1 earnings growth. enabling us to raise our 2026 adjusted EPS expectations. During the quarter, we also announced the pending acquisition of Massimo, and with the strength of our balance sheet and more than $5 billion of expected 2026 free cash flow, we're well positioned for further capital deployment going forward. Now, we see a bright future ahead for Danner. Across the portfolio, we're helping customers solve some of the world's most important healthcare challenges, from enabling faster, more accurate diagnoses to accelerating the discovery, development, and manufacture of therapies. Over time, we also believe the emerging opportunity in AI will further accelerate the pharma development and commercialization flywheel, improving success rates, lowering development costs, and driving increased demand. This in turn is expected to drive incremental demand for our life science solutions as well as in bioprocessing as commercial drug production expands. So with the combination of our differentiated portfolio, our talented team, and balance sheet optionality all powered by DBS, we're positioned to drive long-term shareholder value while making significant strides in applying science and technology to advance human health. So with that, I'll turn the call back over to Rachel.