Good day, everyone. My name is Emma and I will be your operator today. I would like to welcome everyone to the Danaher Corporation Third Quarter 2021 Earnings Results Conference Call. All lines have been muted to prevent background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, please go ahead.

Thank you, Emma. Good morning, everyone. And thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer; Matt McGrew, our Executive Vice President and Chief Financial Officer, and John Bedford, our Director of Investor Relations. 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 and Presentations and will remain archived until our next quarterly call. A replay of this call will also be available until November 4th, 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 referred to results from continuing operations and relate to the third quarter of 2021. And all references to period-to-period increases or decreases in financial metrics are year-over-year. We also may describe certain products and devices that 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 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. With that, I'd like to turn the call over to Rainer.

Matt, thank you and good morning everyone. We really appreciate you joining us on the call today. Our team delivered another outstanding result in our third quarter with over 20% core revenue growth, nearly 40% adjusted earnings per share growth, and strong free cash flow generation. This well-rounded performance is a testament to the unique positioning of our portfolio and our exceptional team who are committed to leading and executing with the Danaher Business System every day. I'd like to thank all of you who joined us last month for our Virtual Investor Day, where we had the opportunity to showcase the strong foundation we’ve built for generating sustainable, long-term outperformance. We highlighted our fantastic portfolio of market-leading franchises in highly attractive end markets, the exceptional team we have out on the field every day, and how we differentiate with the Danaher Business System. And we certainly saw this powerful combination in action during the third quarter as our results attest. Now we also talked about our sustainability efforts. And just last week, we published our 2021 sustainability report. This year's report reflects the measurable progress we've made across the three pillars of our sustainability program, which are innovation, people, and the environment, and how we use the Danaher Business System to execute on this increasingly important strategic priority. Now, I hope you all get a chance to read through the report and learn more about the important work that we're doing across Danaher, to positively impact the world around us for generations to come. With that, let's turn to our third quarter results. Our sales were $7.2 billion and we delivered 20.5% core revenue growth with portfolio-wide strength led by Diagnostics and Life Sciences. Geographically, high-growth markets grew approximately 25% and developed markets were up nearly 20%. In fact, revenue in each of our three largest markets; North America, Western Europe, and China, was up approximately 20% or more in the quarter. Our gross profit margin increased by 550 basis points to 60.3% primarily due to higher sales volumes, the favorable impact of higher margin product mix, and the impact of prior-year purchase accounting adjustments related to the Cytiva acquisition that did not repeat in 2021. Now, adjusted diluted net earnings per common share were $2.39 and were up 39% compared to 2020, and we generated $1.7 billion of free cash flow in the quarter, bringing our year-to-date total to $5.2 billion, which is up 46.5% year-over-year. We continue to accelerate organic growth investments across the entire portfolio, and increased our research and development spend by approximately 30% year-over-year. At our Investor Day recently, we highlighted how we use DBS growth tools and processes to accelerate innovation and bring more impactful solutions to our customers faster. In fact, recently launched products like the SCIEX ZenoTOF 7600 and the Triple Quad 7500 and Beckman Life Sciences, CytoFLEX SRT Benchtop Cell Sorter are just a few great examples of how we're driving market share gains through proprietary innovation and enhancing our growth trajectory going forward. We're also making substantial investments to expand production capacity across our bio-processing businesses and at Cepheid. Near-term these investments are supporting existing customer demand and driving meaningful share gains. But they're equally important to support the long-term growth of these businesses where we see significant runway ahead given the underlying structural growth drivers in the sectors they serve. And we expect our total capital expenditures across Danaher to be approximately $1.5 billion in 2021 as we continue to invest to support our customers' needs today and well into the future. So, now let's go into more detail on our quarterly results across the segments. Life Sciences reported revenue increased 24.5% with core revenue up 20%. This growth was broad-based across the segment with most major operating companies achieving high teens or better core growth. Now these strong results were led by continued demand for our bioprocessing solutions as in Cytiva bioprocessing and Pall Biotech, both grew more than 30% in the quarter, including low double-digit, non-COVID related core growth. COVID-related vaccine and therapeutic revenue continued to be strong and now exceeds $1.5 billion year-to-date. At Cytiva, we passed an important milestone last month when we exited the last of our transition services agreement with GE. We successfully completed this process ahead of schedule, which is a testament to the entire Cytiva and integration team and their collective commitment to the Danaher Business System. Cytiva also added more than 1,500 new associates to the global team since joining Danaher to help ensure that we are supporting our customers today and continue meeting their needs well into the future. Now, in August, we successfully closed our acquisition of Aldevron, and we're thrilled to officially welcome the team to Danaher. Aldevron is a leading producer of high-quality plasmid DNA, mRNA, and proteins, and provides a fantastic beachhead for us in our genomic medicine enterprise. We're seeing the rapid development of gene and cell therapies, DNA, and RNA vaccines, and gene editing technologies, and Aldevron expands our capabilities in these areas to ultimately help our customers bring more life-saving therapies and vaccines to market faster. We're really excited about the quality, the scale, the turnaround time, and the reputation that Aldevron brings to the Danaher portfolio. Now in Diagnostics, reported revenue was up 29.5% and core revenue grew 28.5% led by more than 60% growth at Cepheid. Each of our other major diagnostic businesses, Beckman Coulter, Radiometer, and Leica Biosystems, grew low-to-mid teens in the quarter as clinical diagnostic activity and patient volumes around the world largely returned to pre-pandemic levels. In respiratory testing at Cepheid, we further expanded manufacturing capacity, which enabled the team to produce and ship approximately 16 million cartridges during the quarter. COVID-only tests accounted for approximately 80% of those shipments, and our 4-in-1 combination tests for COVID-19, Flu-A and B, and RSV represented approximately 20%. In non-respiratory core growth, Cepheid was up double-digits as well, led by demand for hospital-acquired infections, sexual health, and urology testing. We also saw strong growth in our installed base, as system placements continue to exceed pre-pandemic rates. And we believe the team's thoughtful placement of the GeneXpert and Infinity systems over the last 18 months is setting up Cepheid very well for future growth opportunities. First move to our Environmental and Applied Solutions segment. Reported revenue was up 7% with core revenue up 7.5%. Water quality grew mid-single digits, and our Product Identification platform was up low double digits. Across our water quality businesses, we saw good underlying market strength, particularly in food and beverage and various industrial applications as activity returned to more normal levels. Municipal projects picked up given the improving funding environment and as more customers return to in-person work. Now on product identification, both VIDEOJET and our packaging and color management businesses were up low double digits in the quarter. Comparable stirrings across consumables, service, and installed base growth was driven by more normalized levels of customer activity and investments. We believe that our ability to meet our customers' needs, particularly on the equipment side at VIDEOJET, enabled us to gain market share and expand our industry-leading installed base printers. So with that as a backdrop for what we saw this quarter, let's spend some time going through regional and end-market trends. Most major regions and countries around the world are largely back to pre-pandemic activity levels. Customers have adapted to the current operating environment and protocols and broadly resumed in-person commercial activities and site access. Now this is reflected in the strong results we've seen across the U.S., Europe, and China. And this momentum is also reflected in our strong order book growth, which is trending above revenue growth. Now we're mindful of potential COVID-19 variants or outbreaks and selective lockdown. But we're not currently seeing any material negative impact from these scenarios. And while we are seeing some global supply chain constraints, we're leveraging the Danaher Business System tools like daily management and actively working with our customers and suppliers to help mitigate any impact. Across Life Sciences, we're seeing robust customer activity and demand across all major end markets. Lab and other site access is largely back to pre-COVID levels, and we're seeing this through more normalized productivity levels, installations, and project initiations driven by a strong funding environment. Now, Biopharma continues to lead the way as the number of life-saving biologic and genomic-based therapies and development and production continues to rise and it's augmented by the ongoing work around COVID-19 vaccines and therapeutics. And at our recent Investor Day, we spent time covering how well-positioned we are to support this complex life-changing work that our customers are pursuing. Our combined bio-processing portfolio across Cytiva and Pall Biotech is the broadest offering in the industry with leading positions in upstream and downstream applications. And we further support our customers with best-in-class scientific services, partnering to solve their most challenging problems as they move from the lab to production scale. And our global reach enabled us to reliably and consistently meet our customers' needs. Now, in addition to the industry-wide opportunities in biologics and genomic-based medicine, we continue to see significant demand related to the development and production of COVID-19 vaccines and therapeutics. Our customers are working to address emerging variants and increased global supply. And given that only about a third of the global population has been vaccinated, we believe we'll see durable growth in this Biopharma segment for the foreseeable future. We continue to expect about $2 billion of COVID-related vaccine and therapeutic revenue in 2021. And since we spoke at our Investor Day, we now expect to enter 2022 with approximately $2 billion in COVID-related backlog versus our previous expectation of $1.5 billion of backlog. This increase is driven by the recent enhanced visibility for booster shots and the likelihood of vaccine availability for children under 12 years old in the U.S. Moving to the clinical diagnostic market, non-COVID testing volumes are essentially back to pre-pandemic levels in most major regions as patients are returning for wellness checks, routine screening, and other elective procedures. In Molecular Diagnostics, strong global demand persists for Cepheid point-of-care PCR respiratory testing, as a result of the Delta variant and outbreak, along with lower vaccination rates in many regions. As I mentioned earlier, we shipped approximately 16 million respiratory tests during the third quarter, and we now expect to ship approximately 55 million tests in 2021 versus our prior expectation of 50 million. As we head into the traditional respiratory virus season, we're hearing from customers that they expect this to be a much more active season than last year's, in preparation for their preferences for our four-in-one combination tests. So we're seeing an uptick in demand for those cartridges, particularly given the recent outbreak of RSV across the U.S. Cepheid's 4-in-1 test was also recently approved with a third gene target for SARS-CoV-2 detection, ensuring it can continue to accurately detect future COVID-19 viral mutations and reinforcing Cepheid's competitive advantage in the respiratory testing market. Now moving to the applied market. Customer activity has largely rebounded to pre-pandemic levels, which we see in robust order rates across both consumables and equipment. In the global municipal market, consumables demand remained solid and the pace of instrument-oriented project activity continues to pick up with the improving funding environment and broad return to work. Now, let's look ahead to our expectations for the fourth quarter and the full year. We expect to deliver fourth quarter core revenue growth in the low to mid-teens range with high single-digit core revenue growth in our base business, and a mid-to-high single-digit core growth contribution from COVID-related revenue tailwind. Additionally, we expect to generate operating profit fall-through of approximately 40% in the fourth quarter, a similar level to what we achieved in the third quarter. Now for the full year of 2021, we now expect to deliver more than 20% core tailwind and our base business will each contribute more than 10% to our 2021 core revenue growth rate. So to wrap up, we're proud to deliver another terrific result here in the third quarter. Our performance is a testament to the power of our unique portfolio, the strength of our end markets, and our team's commitment to leading and executing with the Danaher Business System. And this unique combination differentiates Danaher today, and it reinforces our opportunities ahead for sustainable, long-term outperformance. So with that, back over to you, Matt.

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

We will take our first question from Tycho Peterson with J.P. Morgan.

Hey, good morning, Tycho.

Hey. Rainer, I'm wondering if you could talk a little bit more on China. There seems to be growing noise on pressure, local competition. It seems to particularly be impacting some of the Diagnostics tenders with that process getting pushed out from the provinces. Are you seeing anything there for Beckman or Cepheid? I know China was up 20% overall, but I'm just curious if there's any pressure on the Diagnostics business based on what you're seeing?

Sure. Let me start by saying we are not experiencing any significant impact from the tenders or other developments in China. The Anhui Province tender is an exception in the diagnostics field and is more typical in other industries. We anticipate this kind of situation occasionally, but it is neither surprising nor consequential. Generally, what we're observing in China aligns well with trends we've seen in the past several years. China has been proactive with its Made in China 2025 Initiative and similar strategies, which align closely with our own goals. Our portfolio is designed to support the Healthy China 2030 agenda, addressing the need for better diagnostics solutions, life sciences research, bioprocessing, environmental protection with a focus on water quality, and enhancing food safety, where we see significant opportunities. We believe we are well positioned to meet China's evolving needs. Additionally, we have been investing in China for years, scaling our business and localizing production, which has put us in a strong position there and will continue to do so as we grow.

Okay. That's helpful. Supply chain, you flagged some constraints, obviously, you guys are generally very good at kind of mitigating any impact here. But I'm curious as you look out over the next couple of quarters, are there areas where maybe you are more or less concerned around supply chain that you might flag?

We haven't really seen a material impact on our ability to meet our customers' demand, but we are seeing some modest inflationary and supply chain pressures in certain areas just to name a couple, of course, electronic components, freight, and logistics and some labor shortages. But really this is where the Danaher Business System is a differentiator for us in this environment. In fact, despite the additional work that ensues, we see this really as an opportunity for ourselves to differentiate with our DBS toolset, for instance with daily management, which brings our cross-functional teams together on a daily basis, drive disciplined execution and accountability, as well as the sense of urgency in real-time problem solving. And at the same time, of course, we're qualifying additional suppliers and building safety stocks. So, this is how we make sure that Danaher continues to not only meet its customer expectations, but also has the opportunity to gain share. Now at the same time, of course, we see some inflationary pressures and we're offsetting those with a more active cadence of price increases, and those would also be incrementally larger than in the past, as well as freight and fuel surcharges. So, on the one hand, we're driving as always to reduce our cost of goods sold. At the same time, we take additional offsets with moving on some of these surcharges and price increases I mentioned. I think also importantly, to note here that this is not a top-down process. The Danaher operating companies have this process muscle and are able to execute effectively whether that's ensuring the security of the supply chain or whether that's ensuring that we can offset cost increases via price and other methods. And ultimately, we think that differentiates us and we think we are gaining share as a result of that in PID water quality, Cytiva and Pall, Radiometer and elsewhere.

Okay. That's great. And then before I hop off, just one on Cepheid, you're exceeding your targets here in the near term. Should we assume your estimates for 2022 are still intact? I think you talked about 45 million tests before or have you kind of revisited those as well?

That's correct, Tycho. We're really pleased that the team was able to ship more again here in the third quarter with the capacity increases, and demand still exceeds our ability to supply. But for today's view, 45 million cartridges for 2022 is our point of view. Thanks, Tycho.

We'll go next to Vijay Kumar with Evercore ISI.

Good morning, Vijay.

Good morning, Rainer. Congratulations on another impressive report. I have a question regarding testing. I believe I heard that there were 55 million tests conducted in 2021. The expected number for Q4 seems to be around 15 million, which is a decrease from Q3. Could you clarify whether this decrease aligns with the testing trends, and is there any update to your previous estimate of 45 million tests for fiscal 2022? Is that still valid given the current run-rate?

Sure. Thanks, Vijay. So, the way to think about the fourth quarter here in terms of testing, is we would expect also 16 million cartridges in the fourth quarter similar to what we saw in Q3. While we're always working to increase capacity, we think 16 million cartridges is the right way to think about it. And of course, if you add up the quarters, let's call it about 55 million, I wouldn't want you thinking about a step down here in Q4 for Cepheid. That's not the case. Now as you look forward to 2022, we still think that 45 million cartridges where we sit today, is the right way to think about it. And as we come to our fourth-quarter earnings call in January, we'll revisit the topic then.

Understood. And now my second question, Rainer. This is maybe a bigger picture question. I think at your Analyst Day, you updated Cytiva outlook as high singles. Now, when you look at your peers in the Biopharma space, most of them are in the double-digit range. Is there anything different about your Cytiva business mix versus your peers and correct me if I'm wrong, but isn't Cytiva gaining share versus peers?

So to start with, the Cytiva and the Pall Biotech businesses together are by far the most complete portfolio in the marketplace. And we continue to see pockets where we're taking share because we've been able to invest not only in capacity, but our customers really appreciate the scientific capability and the help that they get from Cytiva and Pall in solving the challenges that are associated with making biologics of high-quality with high yields at the targeted costs. So we really see ourselves in an advantage position here and believe that we continue to take share whether that's on a quarterly or on an annual basis, that's for sure the case. Now, as we think about the long-term growth, and perhaps our timelines needs to be aligned here. As we think of long-term growth, you might recall, when we acquired Cytiva, we thought this was more of a fixed percent type of growth business. And what we've seen here is that certainly the growth of this business is rerated higher. And certainly in the pandemic, it's quite a bit higher. Once again, as we think about the long term, we think it's prudent to think about a business at that scale in a high single-digit. And we think that will compare very favorably with any other business out there in the short, medium, and long term.

That's helpful, Rainer. And just to summarize that, there's no reason to think Cytiva growth should be below market. Is that a fair summary?

We continue to believe that we'll take share now and in the future.

Thank you, guys.

Thanks, Vijay.

We'll go next to Derik De Bruin with Bank of America.

Derrick, good morning.

Hey. Good morning. Thanks for taking the question. So I have a couple of ones. Can we talk a little bit about operating leverage as we go into '22 and '23? You guys are investing really heavily in R&D. You're doing a lot to drive innovation in the business. How can we think about OP leverage as we go into there and then, just to get a sense of where the margins are going to come on?

Sure. Derrick, as you know, we have been and as you just mentioned, investing very significantly in the business. This is not only the case in capital expenditures, where we're investing in our manufacturing network throughout the world. But we've also been investing significantly in research and development in feet on the street to drive proprietary innovation in the short and long-term, as well as to ensure that we can continue to drive share gains with our direct business model. Now as we think about the operating leverage, you know that our fall-through here had been in the 40% range. And we think that's a good way to think about the quarter here as well. In the long term, historically, our fall-through has been more in the 35% range. And we think that's probably the better way to think about fall-through for the long term, just because we want to find that balance of reinvesting in the business, as well as driving profitability expansion. And we think that Flywheel works for us. Mid-single-digit plus growth on the one hand; on the other hand, 50 to 75 basis points of operating margin expansion, free cash flow conversion over net income over 100%. All of that then to drive double-digit plus EPS growth. And when you couple that with our current balance sheet positioning with our bias to deploy capital towards M&A, we think that sets us up very nicely here, both from an operating leverage perspective, as well as driving our growth franchise forward.

Can we discuss the sales of analytical instrumentation? I'm interested in how SCIEX is performing compared to 2019 and with respect to other instruments. Specifically, I'd like to understand the differences between developed markets and China and how this relates to the overall demand for analytical instruments from 2019 to now.

We are experiencing increased demand for analytical instruments compared to last year. This trend is evident across all our instrument-focused businesses, including SCIEX. The current funding environment and the opening of new labs have contributed to this growth in demand for instruments. SCIEX has performed well, achieving significant core growth during the quarter, which is also reflected in our performance in China. Furthermore, SCIEX has been consistently innovating with the launch of products like the ZenoTOF 7600, the 7500 Triple Quad, and Echo MS. This innovation, combined with a favorable funding environment we are observing this year and especially in the second half of 2021, is enabling our scientists to tackle new challenges, which is leading to an increase in market share.

This is Matt. Just to put some numbers to what Rainer said. I mean, if you look at SCIEX in particular, on a two-year stack, you're talking about high single digits here in '20 and '21, which is that's actually better than where they were in '18 and '19 on a two-year stack. So I think, like Rainer said, we're seeing some pretty nice acceleration, really new product-driven as well, but it's been a really good story here for the last couple of years.

Great. And if I can sneak in one more question. Regarding the COVID vaccine backlog for '22, is there potential for additional growth? Are those orders already confirmed, or are they more related to your instrumentation?

We are close to those $2 billion of backlog and for the bio-process business for 2022 today and certainly expect to be there by the end of the year. We think that sets us up pretty well. We will see what 2022 brings and we'll talk more about that in January. But the fact that we've up that backlog by $500 million here going into 2022, we think is a good sign for things to come.

Derik, those are definitely committed orders.

Great, Jack. Thank you. That's what we're working. Thanks.

We'll go next to Scott Davis with Melius Research.

Good morning, Scott.

Good morning, Rainer and Matt and Matt and John. Thanks for taking my question. I am kind of curious. I mean, logistics, prices, and labor cost, inflation or challenges and all the stuff doesn't seem to really have impacted you guys much. Maybe a little bit at ENAS. And you've made a comment, Rainer on capturing price, but it looks like price was sequentially flat. Is that something that you would expect price to be a little bit more dynamic going forward or is it just kind of a mix impact to some products where priced just doesn't need to go up?

We're about a 150 basis points up year-over-year and we continue to move price increases through the system. So I think you're going to continue to see that filtering through here going forward, Scott. So mix plays a role as you suggest; timing is another one, but all of these actions are in the works and it takes some time to get through the system.

Okay. That's helpful. Regarding R&D, with spending increasing by 30%, is the headcount also up by 30%, or are higher costs per person contributing to this? How do you view this, and how do you plan to ensure productivity from that spending, focusing on making sure projects are targeted and that there is a return on the investment?

Scott, that's a great question. And the 30% increase is primarily related to a number of points. One, of course, you have more people working on more projects. But in terms of the productivity, the way to think about that is any project that we do has its business case and we ensure that that productivity to the delivery of that business case makes sense for us. So we view this, of course, as an investment in the future that ultimately drives defensible proprietary share gain through research and development. And the increased comes in terms of people that comes in terms of additional equipment, testing equipment that's required. It comes in terms of additional alpha and beta systems that are out in the field with our customers. So myriad ways that we invest that in order to drive innovation.

Okay. Good luck, Rainer. Thank you and congratulations on a great year so far, everyone. Thanks.

Thanks, Scott.

We'll go next to Dan Brennan with Cowen.

Morning, Dan.

Thanks for your question. Good morning. I wanted to follow up on the discussion regarding the bio process. You've maintained your forecast for vaccine therapeutic contributions this year. I'm curious if there's potential to exceed that, considering demand or if your capacity is limited for 2021. Additionally, as we look ahead to 2022, you mentioned a $2 billion firm order book. How should we view the contributions from boosters and pediatric vaccinations within that forecast? I believe boosters were included in your previous assessments. Thank you.

Very good. Well, let's start with the topic of the contribution that's in the $2 billion. In fact, we did not include the kids 12 and below into our $1.5 billion original backlog estimate for 2022. That and, of course, now the approval of boosters for various groups of the population is really what is driving that increase from $1.5 to $2 billion of backlog for 2022. What it doesn't include is the approval of these vaccines for kids 12 and younger, for example, outside of the U.S. That's something that is still in the future, and there's not sufficient clarity for us to start thinking about that in quantitative terms, but that's something that would be excluded in that. Now coming back to your capacity question, as you likely are aware and as we talked about also in our Analyst Day, we have been investing in capacity expansions in the biotech business now, for some time. In fact, we ensured that the investment continued even prior to the closing of the acquisition from GE and we have continued with those investments that have come online here, nearly in a continuous fashion through the second half of 2020 and 2021. And we expect those capacities to continue to increase here going into 2022. So we feel very comfortable that we're able to meet our customers' requirements here now and going forward, and we think that differentiates us in the marketplace. And why, among other reasons, we are confident that we are taking share.

Great, thanks, Rainer. As a follow-up, I know Matt previously discussed stack growth, particularly concerning Cytiva. I wanted to gain some clarity on the overall stack-free business. The commentary during our conversation indicated that business is largely back to normal, which is positive. However, when we examine the base growth excluding COVID, the two-year average in Q3 was around 4, possibly slightly lower. In Q4, the high single-digit base guidance suggests a two-year stack closer to 3. This is in contrast to our view of Danaher’s underlying growth rate, which is likely around 6% to 8% when conditions return to normal. I’m trying to understand some of these underlying stack figures and whether this reflects a more conservative approach at the moment.

Yes.

Is it normal, or is it just too imprecise to conduct this analysis with COVID? Thank you.

Yes, Dan, let me provide you with the numbers to clarify any potential confusion. For Q4, our expectations have increased from low double-digits to low to mid-teens. As you mentioned, we are seeing growth in the base business, which we anticipate will be in the high-single-digits for Q4. This is likely around 10% for Q3. The difference between high-single-digits and 10% is mainly due to careful planning in response to the current operating environment and the challenges we’ve discussed, particularly regarding logistics in Q4. We are attempting to plan conservatively, aiming for high-single-digits instead of the 10% we have experienced, but there has not been a significant change in the overall environment.

Okay. Great, thanks, guys.

We'll go next to Jack Meehan with Nephron.

Morning, Jack.

Thank you. Good morning. Just wanted a little bit more color on the funding environment, was curious as you look into the fourth quarter, what customers might be telling you around the potential for a budget flush and what is the guidance assume versus historical patterns?

So Jack, first of all, we see the funding environment across the board improving. So if we start with yes, we do see customer activity increasing, we do see more work occurring at the workplace, and with that, more projects being tackled both in the capital as well as operating investment categories. And we would expect that to continue to improve here going forward as the economy continues to pick up speed and return to normality. As we think about Life Sciences, research funding is up, whether that's government funding, whether that's venture capital funding, or whether that is Biopharma funding from the pharmaceutical companies. We've seen a step-up here in an effort to take advantage of the opportunities that new breakthroughs and technologies that you're all aware of, as a result of COVID, all creating a great deal more awareness of the possibilities here in therapeutics. We see, generally speaking, a great environment in the Life Science area. Bioprocess, we talked about with continued capacity increases to meet the needs of the very fast-growing therapeutic pipeline. We talked about the fact that monoclonal antibody pipeline is up 50% in terms of the number of projects over the last five years. Genomic gene-cell therapy pipeline is up an order of magnitude to 10x versus 5 years ago. That's creating very healthy drive here whether that's in the research side of Life Sciences or in the bioprocessing. And then when you come back to diagnostics, patient volumes are nearly at full rate pre-pandemic rates, if you will, in nearly every geography. And we continue to, of course, the COVID driving additional diagnostic demand and so across the board, a very positive funding environment. And we would expect that the one of the other budget is going to be taken advantage of here in the fourth quarter. We'll see. There are a number of different perspectives there but the environment is generally very positive.

That's great. And then as a follow-up, just curious on Aldevron on how the early integration feedback's going. And as I look at the fourth quarter, you've given us the core guidance. What do you have M&A contributing? 2.5 points or so? Does that sound right?

Yeah, that would be probably. Go ahead, Rainer.

No, go ahead. Go ahead, Matt, please.

The M&A contribution is likely to be around 40 million, similar to what it was in Q3.

We are very pleased with Aldevron as a company and, even more so, with the team that has joined the Danaher family. They are fully adopting the Danaher Business System and are dedicated to growing their business. Aldevron has significant opportunities in its core business, which is reflected in the order book and revenue. We expect them to contribute to earnings as projected during the acquisition. This year, we anticipate $400 million in revenue with a growth rate exceeding 20%, as well as $0.20 in earnings per share in the first year, increasing to $0.30 in the second year. We are incredibly satisfied with the team's motivation and engagement, and we are proud to have them as part of Danaher.

We'll go next to Matt Sykes with Goldman Sachs.

Good morning. Thank you for taking my question. I wanted to follow up on Jack's question about Aldevron. You mentioned when you made the acquisition that Aldevron was relatively underexposed to international markets. I know you have a lot going on with the integration, but how do you plan to expand Aldevron's footprint internationally, and do you have any timelines for that?

Very much a part of the investment hypothesis is to expand Aldevron's activities, as you say, internationally. And we, of course, are focusing first and foremost now on the transition into Danaher and are helping the team with their number one priority which are to take care of the expansion that they are finalizing as we speak. And we're already in the process of the next set of those expansions. And so in terms of timeline, we'll talk about that when that becomes something that's on the top of the agenda. But currently it's all about ensuring an effective transition, taking care of our customers, transitioning the team on to DBS and they're incredibly excited about that. And of course, subsequent expansions as we go forward.

Great, thanks and just maybe just one follow-up. You're obviously generating an impressive amount of free cash flow and even very active in M&A, but what are your thoughts in terms of inorganic investments as you move forward, looking at where you are in terms of leverage and what you want to accomplish?

We are quite pleased with our current positioning regarding our franchises, platforms, and our approach to earnings growth. I mentioned earlier our focus on achieving mid-single-digit growth, double-digit EPS expansion, and maintaining a strong balance sheet to prioritize capital allocation for mergers and acquisitions. After the Aldevron acquisition, we expect to return to about two times net debt to EBITDA by year-end. This puts us in an excellent position, and our pipelines remain active. We are diligently preparing for our next deal and fully leveraging our balance sheet. Overall, we are confident in our standing.

Great. Thanks very much.

Thank you.

We will take our final question from Luke Sergott with Barclays.

Good morning, Luke.

Good morning, how are you? Thank you for fitting me in. Regarding the backlog, are you planning to raise your guidance or the expectations for what you expect by the end of the year? Can you provide some insight into the mix between vaccine and therapeutic revenue, or how the order book is developing?

Sure. So rough numbers here, thinking about 85% vaccine and 15% therapeutics. Those are the rough numbers.

It's helpful to know that. We were anticipating a bit more balance between the 4-in-1 tests and the standalone COVID tests. Can you provide some insight into the orders, particularly how they are starting to come together as we approach flu season? It’s understandable that we haven't experienced a flu season yet, but I am trying to figure out how to consider the first half of 2021 in relation to that winter season.

In terms of the mix here in Q3, we saw 80% COVID only 20% 4-in-1 test. And as you think about Q4 here, we see that heading towards the 50-50. A good way to think about it as 50% of the COVID-only test in Q4 and 50% of the 4-in-1. Now as we think about the first half of next year, I think the best way to think about it right now is the 45 million tests that we've been talking about. And generally speaking, the same kind of mix ratios that we have within flu seasons and outside of flu season. So within flu season, probably around 50/50 is the best way to think about it: 4-in-1 and COVID only. And then if we're outside of the flu season, probably closer to 80-20.

Got you. That's really helpful. Thank you.

Got it. Thank you.

I will now turn the program back over to Matt Gugino.

Thanks, Emma. Thank you, everyone for joining us today, and we are around all day to get your questions.

Thank you, everybody.

This does conclude today's program. Thank you for your participation. You may disconnect at this time.