Good morning. My name is Maria and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation's Fourth Quarter 2020 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I will now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference. Matthew Gugino Thanks, Maria. Good morning, everyone, and thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer, and Matt McGrew, our Executive Vice President and Chief Financial Officer. I'd like to point out that our earnings release, the slide presentation supplementing today's call 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 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 & 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 to 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 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. As a result of the size of the Cytiva acquisition and its impact on Danaher's overall core revenue growth profile, we are presenting core revenue on a basis that includes Cytiva sales, references to core revenue growth, including Cytiva sales and the calculation of period-to-period sales growth comparing to current period Cytiva sales to the historical period Cytiva sales prior to the acquisition. With that, I would like to turn the call over to Rainer.

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 the year that brought many unforeseen challenges as a result of the COVID-19 pandemic. While our contributions and 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…

Thanks, Rainer. That concludes our formal comments. Maria, we're now ready to take questions.

[Operator Instructions] Our first question comes from the line of Tycho Peterson of J.P. Morgan.

Nice quarter. Rainer, I'm curious if you could talk about the sustainability of the Pall, Cytiva order book as you lap tougher comps. I know you talked about the $1.3 billion in revenues tied to COVID vaccines, but question is more on kind of the order book and then timelines for the manufacturing capacity expansion you alluded to.

In terms of the sustainability of the order book, the way we're thinking about this, and we've mentioned this at J.P. Morgan as well, is about – we're looking at a backlog here of about $1 billion coming into the first quarter and we expect the total year to have COVID-related sales of about $1.3 billion. And that's really based on the approved vaccines that we see out there in the marketplace, as well as the volumes that we see related to clinical trials as it relates to other vaccines. So, we think that we have good sustainability and strong backlog here to be able to make sure that we cover that $1.3 billion. Additionally, and coming back to your capacity point, we have been expanding capacity continuously, even prior to the close of the transaction we had agreed with GE to continue capacity expansion. We had then, after the close, continued to invest whether that with Cytiva, Pall Biotech or elsewhere in order to make sure that we are able to meet our customers' demand, and that will continue to occur here through the year 2021 and beyond.

For McGrew, one on just the margin dynamics here. As we think about Cepheid, 9 million tests a quarter and then Cytiva, Pall continued to kind of trend at these levels, what were the margin implications between these two tailwinds in your view for the year?

Tycho, maybe the way to think about it is that it helps to kind of sustain a similar margin profile to what we've seen before. So, maybe if you think about from a fall through perspective on the core growth here for 2021, and frankly for Q1 as well, we are sort of assuming we are going to see about a 40% or so fall through, like I said, for both Q1 and 2021. Now, that's down slightly from what we've been seeing in the last couple of quarters. But I think we want to stay aggressive in what we've been doing on the growth investment side, one. And two, we are starting to see a little bit of inflationary pressure, particularly around freight and a little bit in the supply chain as well. And then, China also is – we've got some targeted lockdowns, as you know now. But in the fourth quarter, we really saw China sort of having inter-country, if you will, travel be pretty significant. They're moving – they're moving around quite a bit and getting back at it. So, I think we're sort of thinking instead of maybe the levels of fall through we've seen, it might be more like 40%. But again, I think we will be able to hopefully sustain something like that, given what you talked about, which is pretty good margin profile, both those businesses that will continue to be pretty strong here next year.

If I could ask one more before I hop off just on M&A. Rainer, it seems like you're telegraphing a desire to do something more meaningful. Any incremental color you could provide on willingness to do a larger transaction and any framework you can talk about?

It's great to be able to talk about M&A here in January of 2021 having just closed the Cytiva deal. And no question, between the better performance that we've seen out of Cepheid – I'm sorry Cytiva, as well as the equity raise that we've done and the free cash flow that we've seen, we definitely see more degrees of freedom here earlier than we've had. But we still have work to do here with Cytiva, standing them up as an operating company, and we'll always be in the game, but likely more focused on smaller to mid-size deals here for now.

Our next question comes from the line of Derik De Bruin of Bank of America.

I guess just following up on Tycho's question on the margins and just sort of thinking about the bottom line. You didn't give an EPS guidance for 2021, but is there any reason to think that something in that $1.90 to $2 range on a quarterly basis isn't sustainable for the rest of the year?

I think I'd kind of go back to take your 40% VCM and the fall through and whatever revenue assumptions you sort of put in, I think the math would kind of take care itself.

One big question that's coming up from investors is thinking about instrument placements in the diagnostics area. Obviously, not only has Cepheid placed a ton of instruments, but a lot of your competitors, all your other companies selling molecular diagnostic tools have placed enormous numbers of instruments. Are you worried that there is going to be a glut of machines out there that don't get used, or are you being very selective in sort of like where you're placing it? The question is like, what's going to be the follow-on demand once we're sort of past COVID for your installed base?

Our instrument placements as we think about Cepheid, we have placed now and have an installed base of over 30,000 instruments, growing that over 35% here in the year 2020. And we've been very thoughtful about the placement of those instruments. First of all, and helping here during the pandemic and making sure we have those at the point of care where diagnostic decisions are being made and the answer has to be fast, and it has to be right, and the Cepheid GeneXpert is just a perfect solution for that. At the same time, we've been thinking about those placements for the long-term. You may be aware that Cepheid has the largest molecular diagnostic menu in US with over 20 tests and outside of the US with over 30 tests. And so, we've placed those instruments primarily there, where we see that even in a post-COVID world, they would find great utilization based on the full testing menu.

Just one cleanup question or just one follow-up question. How should we think about the EAS segment in 2021?

The EAS segment has been improving sequentially here throughout 2020. And we're really pleased with the fact that water quality in particular has had positive growth, but also PID was essentially flat here in 2020 as well. And so, we see that recovery, and we will continue to see that recovery here as we go through 2021 and expect them to be in the mid-single digit range, not only as the consumables remain solid as they have been, but as those instrument placements which have been in moderating decline start picking up, as we've seen these customer projects in our funnel.

Our next question comes from the line of Vijay Kumar of Evercore ISI.

Congrats on a solid print here. Rainer, maybe I'll start with some of the base business here, right? The assumptions here for the guide in a base business at mid-singles and obviously the comps were pretty easy in 2020 given the disruptions. And I look at the Q1 guide here, mid-to-high teens, you guys just at mid-teens inclusive of days impact. Correct me if I'm wrong. It feels like the base business is accelerating here in the Life Science, particularly it seems to be growing double-digits in the back half of 2020. I'm curious what's driving that acceleration in base Life Sciences in the back half of 2020 and why is the guide assuming mid-singles for 2021?

Vijay, that's right. We have seen a sequential acceleration of our more instrument-related life science businesses as labs have continued to open. They've been able to work out their social distancing protocols. They are not up to full capacity yet, but they certainly have been improving and that's given us more lab access to continue installations and of course bring the service business back online. So, that's been continuously improving and we would expect that trend to continue here in 2021. Now, as we think about the guide here, mid-to-high teens, look, we have our base business there at mid-single digits, which is 100, 150 basis points acceleration as well as the COVID tailwind accelerating here to 1,300 basis points. So, we think we're well placed there. And just as a reminder, we've got a couple of working days less also in the first quarter of 2021. And then lastly, as it relates to the COVID tailwinds, keep in mind that Cepheid already last year in the first quarter had a very strong quarter as physicians were trying to rule out flu, if you will, with more flu testing in the absence of an actual COVID test.

One for Matt. Matt, I know you said the 40% incrementals, we can do the math, but I just want to clarify, I'm getting to north of 28% operating margins for fiscal 2021. Does that seem ballpark – in the right zip code for you guys?

Yeah. Again, if you think about the fall through at kind of 40%, there are some moving pieces here below the line, but they largely offset each other. So, I think it is pretty straightforward that whatever your revenue assumptions are going to be that that should be a pretty good way to think about. Where we land on that I think will dictate where you come out on the bottom for sure.

Rainer, one last quick one for you, please, on the high volume antigen test. I know you sort of mentioned in your press release about screening opportunity. Is that an upside in the model here for the guide or how should we think about up high volume antigen tests?

The high volume antigen tests, you're right, we just launched that here in December. And in fact, that will be available on our installed base of about 16,000 instruments. So it is a broadly applicable test for us here in our installed base at Beckman. Having said that, we've been very moderate in our planning assumptions here as it relates to including higher volumes of antigen test until it becomes much clear on how those will be applied here, not just under the Biden administration in the US, but throughout the world as people start setting standards as to what the test results for antigens mean from a diagnostics perspective, but also in terms of how you might think of large volume serial testing for schools opening up and other institutions.

Congrats again guys on the impressive print here. Thanks.

Our next question comes from the line of Scott Davis of Melius Research.

Just one nitpicky question. On E&AS, is there a meaningful difference between the incremental leverage on the recovery in water versus product ID?

Not really, Scott. Those businesses are pretty similar from a fall through perspective.

Like 35% to 40% ballpark?

I think that's a great place to be.

Okay. And then when you guys were thinking in terms of like the four-in-one versus – the four-in-one take rates, the 40% number, is that kind of uniform around different geographies or is there a particular higher take rates in different geographies around the world?

Scott, so it actually does differ by geography. Let me see if I can do something about the echo here. Can you hear me okay now?

I can you hear you fine.

Okay. So, that differs by geographies, particularly in the US, you are looking at 60% COVID-only and 40% of the four-in-one. In Asia, in fact, there is a real pressure for the COVID-only test as the flu is not as prevalent there and as seasonal. As you go to Europe, here we increased adoption of the four-in-one, but that's a little staggered as the improvement by country roll in.

Our next question comes from the line of Doug Schenkel with Cowen.

Maybe just a quick follow-up on an earlier guidance question. It looks like you're assuming a two-year stack base business growth of around 5%. That doesn't seem to imply a full recovery as we think about the steady state for your portfolio. So, just to be clear – and I think we know the answer to this, but I just want to confirm it, seems like the philosophy for this year embed some assumption for continued recovery in line with recent trend that's based on backlog, but not a full reopening over the course of the year.

Doug, that's exactly how we're thinking about it. We are still in the middle of the pandemic, as we all know. And while we're hopeful that things get better as the vaccines rollout and the adoption there improves, we are not expecting 2021 to be a year that is, if you will, a post-COVID herd immunity year. This is going to continue to be a transition year and probably not quite back to the pre-COVID rate.

Pivoting quickly back over to Cepheid, I believe, Rainer, that you said that the guidance assumes Cepheid should continue to sell around 9 million assays per quarter in 2021. It doesn't seem like that's reflecting any potential capacity increases. I just want to make sure that's the case. And if so, why? And then kind of building off of that, is the expectation that the mix of kind of COVID only and four-in-one test will remain kind of in that 60/40 ratio?

Let's start with the first one. And as you may know, we in Q2 of last year shipped 6 million, 7 million in Q3. We were planning to ship 8 million cartridges here in Q4 and we were able to exceed that by shipping 9 million. So, as we think about our capacity improvements, which we continue to work on, we do not yet have those in place. And in view of the pretty dynamic situation, also as it relates to the actual pandemic, we think it's a good planning number to take the 9 million cartridges here per quarter for the full year. And of course, as we continue to work on, and we are working on and investing in capacity increases, we'll provide further updates. Now in terms of the mix, I think that is a good planning assumption, the way you're thinking about that, with 60% COVID-only tests and about 40% of the four-in-one test. That's how we're thinking about it as well.

Just one last one. I just want to dig in on your comments regarding capacity expansion within bio-processing. Presumably, at some point, you're going to be well positioned to transition-out the building COVID-19 capacity over to other large molecules. You were building that out even in advance of the pandemic, as you've mentioned in your prepared remarks. So, do you think that bio-processing revenue can be sustained at 2021 levels even when we look forward to the day where vaccine and therapeutic tailwinds related to COVID-19 abate? Do you think there is an air pocket or a sustainable demand that trends enough to support revenue at least at 2021 levels?

Well, when we look at that pipeline of drugs and vaccines, so therapeutics and vaccines, that are not COVID-related as well and it's chockfull, it continues to grow and that business has been very, very solid. So, there's a couple of things here, Doug. One we expect that pipeline to be very relevant to the capacity that's being traded today. In fact many of our investments are nearly pulling forward things that we had planned for several years down the road. That's kind of one point. But the second point is that, it also looks as though vaccine manufacturing will be with us for some time, not only as it relates to COVID, but as you think about the bolus of investment that is now gone into biotech companies that are looking at new vaccine technologies to get at diseases where we've yet to develop vaccines. We do see increasing number of projects there as well. So, as it relates to this incremental capacity, we feel really good about where we're positioned, got the right portfolio and we think our utilization is going to be very strong.

Yeah, just to give you a little bit of color around kind of the capacity side and maybe tying that back to how we're thinking about the sustainability of what we're seeing today, I think as Rainer said, as everything he just kind of laid out, when you think about what we've seen in the core base biopharma business, we've seen last three or four quarters here where we've got a low double-digit kind of core growth, and that's even probably a little bit above where it was a couple of years ago, given everything Rainer just said. Now when you put on top of that what we've seen here on the vaccines and therapeutics, still lot of unknowns obviously going forward, but you're looking at, as we talked in Q2 and Q3, the order growth at Cytiva was well north of 50 and it was north of 50 again in Q4. So, I really think we've got good sustainability as we head into 2021, given the backlog, given what we saw in order growth in Cytiva in Q4 and given the base business, sort of going low-double digits.

Our next question comes from the line of Steve Beuchaw of Wolfe Research.

I actually wanted to rewind almost all the way back to the beginning of your prepared remarks, Rainer, and a point that you made about accelerating investments in innovation and collaboration. It's one of the sort of high-quality problems that has emerged for companies that are part of the solution around COVID. I wonder if you could talk us through how you've gone about identifying areas to make those investments. And if you could flag for us any particular areas of emphasis, I'd really appreciate it. And I do have one follow-up.

The way we've been thinking about these growth investments is very broad across our portfolio. We've always looked at this as an opportunity to strengthen our capabilities and exit the pandemic stronger than we entered, whether that's in businesses that are benefiting from COVID tailwinds or businesses that are not in that particular application. And so, what we do is we work together with our teams to identify where the most attractive projects are, not just on a return perspective here in the near-term, but also strategically positioning us for competitive advantage and then we will invest aggressively in those and that's been the case here for several quarters now. So, we'll continue to do that.

Look, a lot of good questions have been asked about margins, earnings and the businesses. I'll try to round it out a little bit and just ask about core Beck Dx. I wonder if you could give us a perspective on where you are with the DxA rollout in the replacement cycle and to what extent COVID has impacted that. I could see it having some puts and takes. So any perspective on how that's going and what you're thinking about for core Beckman – core Beck Dx, I should say, for 2021, would really appreciate it.

I was just going to say, we've just launched the DxA and we couldn't be more pleased with the initial interest in that. But if we back up to the Beckman Diagnostics business for a second and see how that's been performing, we've continued to see sequential improvements here quarter-over-quarter and practically every region and couldn't be more pleased with the way, in fact, that business has positioned. You were speaking earlier about these kinds of growth investments that we're making. Well, we've just launched the hematology analyzers along with the DxA for the DxH's 9000 and 5000, as well as just launched six new COVID-related tests. So, that's just an example of your first question also as it relates directly to Beckman Dx. So, we've been tracking exactly what we wanted to hear with the DxA and that's been really going well for us. Matt, did you want to add anything there?

Yeah, I just wanted to sort of address the question of what we thought they'd do from a growth perspective here in 2021. And I think we're sort of thinking that as the rebound continues a little bit with the patient volumes, we expect them to be up sort of high-single digits here for the year.

Our next question comes from the line of Jack Meehan at Nephron Research.

I was wondering if you could give a little bit more color on expectations around capital equipment. So, you obviously ended the year on a strong note, but just given some of the recent flare-ups, do you think that sustains as you go into the first half of the year?

Jack, you are right. We have seen the capital equipment purchases picking up here. As labs open up, that's increased. And then we close very strong here. We saw that in many of those instrument type businesses in the end of Q4, with some high-single digit performance there. In fact, we continue to see that. We've pulled our businesses and customers and they're learning to work around the pandemic with the necessary social distancing measures. And we continue to see that accelerating here going into 2021 and we see that also reflected in our guide here for both Q1 as well as at a low double digits for 2021.

I know you've given a lot of color already on bioprocessing, but one follow-up just on the expectations built into the guidance. So, you have it roughly doubling the $1.3 billion from COVID tailwinds in 2021, but that kind of looks like you're annualizing the benefit you saw in the second half. So, is there anything – maybe just talk about how you see the demand playing out throughout the year. And is there anything tailing off maybe on the therapeutic side? What are you assuming there?

As we think about the bioprocess order book, recall that we had orders growth at Cytiva and Pall Biotech of over 50% here in Q4 and that was a further acceleration from what we had seen and we expect that acceleration here to continue. So, our backlog position is really strong. We entered the year with $1 billion and we are confident that that $1.3 billion of revenue are really solid. But that also had some assumptions behind it, which is, here we are supplying the approved vaccines, as well as those that are in clinical trials. And you know we're well positioned not just on the vaccines in Project Warp Speed, but the over 400 projects that you have both vaccines and therapeutics. So, as you think about 2021, while we do expect a moderation in the second half of the year, that's entirely related to more difficult comps as opposed to a trailing off of the actual absolute demand. So, we believe that that will continue.

To give you some sense, Jack, on how that order book is going to flow through, we saw at Cytiva and Pall Biotech, in the second half of the year, we grew, call it, north of 35%. We've got that backlog position now. Some of what you said, some of it came in during the year and booked and shipped in the year to give us 35%, but we're going to get off to a pretty good start here at Cytiva. Q1 core growth in Cytiva is going to be probably north of 50%. So, I think we'll have a good strong start. Let's see how that order book sort of develops through the year as more vaccines and therapeutics sort of make their way through the systems to the approvals. But that's sort of how we've framed it as we stand now with kind of the $1.3 billion opportunity.

Our final question comes from the line of Patrick Donnelly of Citi.

Maybe just a quick one, more high level on a geographic basis. China, I think was low double-digits in the quarter on a core growth basis. Can you just talk about the pace of the recovery there, which markets are growing strongly? And then also, just the expectations baked in for 2021 on that front?

As you say, we did see a very nice recovery in China here, both in Q4, as well as what we're planning here going forward. So, low double-digits in China in 2020 and that's really across the businesses. So, we saw that both in our Life Science and Diagnostics businesses as well as in EAS as China has really ramped here, not just in the healthcare sort of related businesses, but also in the applied markets. And as you look forward to 2021, starting with Q1, we expect our businesses to be over 50% in China in terms of the growth in Q1. So, really getting out of the gates there very strongly. Of course, they had a lower comparison there in Q1 of 2020. And as we think about the full year, we really see China in the mid-teens. So very solid performance, very strong recovery after a full year, which really came in at the low-single digit. So, 2020, China low-single digit; 2021, mid-teens, speaks to a strong recovery there.

Maybe just one more on Cepheid. I know it has been touched on a few times. But I guess as you think about kind of the sustainability of that $9 million a quarter, how are you thinking about the overall, I guess, COVID testing market in the back-half? Are you assuming that shrinks and Cepheid gets a bigger piece? And then, on the back of that, do you see point-of-care becoming more and more important as we go here and maybe this ends up being a positive inflection point for this as a piece of the market on the go mode? Thank you.

Looking to point-of-care here, and COVID testing in general to the second half, it's very hard to forecast right now how COVID testing will play out in the second half. Just because as we think about vaccines rolling out, we're already now talking about a variant, who knows how many more of those will occur. And of course, often the dialog tends to be about what's happening in the US, but, in fact, other places around the world are not vaccinating yet at that rate or even don't have vaccines yet. So, we think that that planning assumption of 9 million per quarter is a very solid planning assumption. And then, as it relates to Cepheid in particular, at the point-of-care, you may have heard this concentric circle metaphor, but point-of-care is really at the center of that in terms of the durability of that testing for the long-term because that's where the doctors need fast turnaround time, that's where they need an accurate result because they're going to make a therapeutic decision. They're going to make a decision as to what happens next. And the outer portions of those concentric circles are the ones that have increasingly less durability as the general public becomes vaccinated and, over time, although it's going to be interesting to see whether that's achieved in the second half of the year, whether herd immunity is even relevant. Keep in mind, herd immunity is not something that happens in a country. The whole world is a petri dish here. And if we continue to travel, interact with each other, there is a high likelihood that high testing volumes will continue for some time.

And that was our final question. I'd like to turn the floor back over to management for any additional or closing remarks.

Thanks, Rainer. Thanks, Matt. Thanks everyone for joining us here today. And we'll round our day for questions.

Thanks, everybody. Thanks, Maria.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.