Good morning. My name is Todd, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's Second Quarter 2024 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. 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 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, 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 & Presentations and will remain archived until our next quarterly call. A replay of this call will also be available until August 6, 2024. 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 second quarter of 2024 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 Rainer.

Thank you, John, and good morning, everyone. We really appreciate you joining us on the call today. Our team executed well during the second quarter, delivering better than expected revenue, earnings, and cash flow. We were particularly pleased with the sustained positive momentum in our bioprocessing business, and with the strong performance of Cepheid, which we believe gained market share in molecular testing again this quarter. Now across the portfolio, market conditions were largely as we anticipated. In our bioprocessing business, conditions in the U.S. and Europe continued to improve, and we were encouraged to see orders increase high single digits sequentially this quarter. In China, bioprocessing demand and underlying activity levels were stable sequentially but remained weak as customers continued to manage liquidity. In Life Sciences, capital equipment investments remained constrained while recurring revenue was relatively stable. And in Diagnostics, we saw healthy demand globally across our businesses. As we move through this transitional period, we believe Danaher is well positioned for sustainable long-term value creation. Our strong positioning and attractive end markets coupled with durable, high-recurring revenue business models, and the power of the Danaher business system supports our long-term expectations of high single-digit core revenue growth with a differentiated margin and cash flow profile. So with that, let's take a closer look at our second quarter 2024 results. Sales were $5.7 billion in the second quarter and core revenue declined 3.5%. Geographically, core revenues in developed markets were down low single digits with strength across Diagnostics offset by declines in Biotechnology and Life Sciences. High growth markets declined high single digits, including a high-teens decline in China. Our growth profit margin for the second quarter was 59.7% and our adjusted operating profit margin of 27.3% was up 60 basis points as the favorable impact of cost savings initiatives more than offset lower volume. Adjusted diluted net earnings per common share of $1.72 were essentially flat year-over-year. We generated $1.1 billion of free cash flow in the quarter and $2.6 billion year-to-date, resulting in a year-to-date free cash flow to net income conversion ratio of 129%. Now additionally, through the second quarter and into July, we repurchased approximately 19 million shares. While M&A remains our bias for capital deployment, we believe these repurchases will provide an attractive return given the strength of our long-term organic growth, earnings, and cash flow outlook. Now let's take a closer look at our results across the portfolio and give you some color on what we're seeing in our end markets today. Core revenue in our biotechnology segment declined 7% with the bioprocessing business down high single digits and the discovery and medical business down mid-single digits. In our bioprocessing business, revenue declines moderated from the first quarter as we believe our larger customers in the U.S. and Europe have worked through the majority of their excess inventories and are returning to normal ordering patterns. Many of these customers are also seeing strong momentum for therapeutics in their late-stage pipelines, which is promising for our future growth. Our emerging biotech customers continue to prioritize projects, particularly for cell and gene therapies in an effort to manage liquidity. However, we are encouraged by the improvement in the overall funding environment, which is a positive leading indicator for these customers. So based on the trends we saw through the first half of the year, we continue to expect a low single-digit core revenue decline in our bioprocessing business for the full year of 2024. There is also no change to our assumption of a bioprocessing core revenue growth rate of high single digits or better as we exit the year. The biologics market remains very healthy as evidenced by the increasing number of treatments both in development and production. Notably, the number of new FDA approvals for biologic and genomic medicines in the first half of this year nearly doubled compared to the first half of 2023, and the full year 2024 is on track to set a new record. Underlying demand for biologic medicines also remains on track to grow at a high single digit or better rate again for the full year 2024. So given this substantial and sustained increase in approvals and production volumes, we expect the growth rate in bioprocessing to remain very robust for many years to come. We continue to make substantial investments in innovation to support our customers as they pursue these life-changing therapeutics. To support monoclonal antibody production, which comprises the majority of our bioprocessing revenues, Cytiva expanded its comprehensive filtration portfolio with the launch of Supor Prime. Now Supor Prime filters are specifically designed to address key challenges associated with high concentration biologic drugs whose complex formulations and high particle loads make them prone to premature filter blockage and costly drug product losses. We're also developing innovative solutions for emerging modalities. In May, Cytiva introduced the Cepheid Cell Therapy manufacturing platform, which is helping to address critical cost and capacity constraints associated with CAR-T Cell Therapy manufacturing. The Cepheid platform's fully automated manufacturing process can increase productivity by up to 50% per year compared to the industry standard, reducing our customers' costs and increasing throughput. Addressing these key manufacturing challenges will help improve patient access and facilitate wider adoption of these important therapeutics. Now, turning to our Life Sciences segment, core revenue decreased by 5.5%. Core revenue in our Life Sciences Instrument businesses collectively declined high single digits as expected, with trends in the second quarter largely consistent with what we saw in the first quarter. Global pharma and biotech demand remained weak, academic markets were weaker sequentially, and applied markets performed comparatively better, particularly for our advanced solutions which provide critical capabilities needed by our customers. In China, we're seeing improving sales models and coding activity driven by the recently announced stimulus measures. However, we don't anticipate this to convert to orders until 2025, as these programs are in the early stages of implementation. So in the meantime, many customers are delaying purchasing decisions as they await funding. Now, last month at the American Society of Mass Spectrometry Meeting, SCIEX reinforced their market leadership in Quantitative Mass Spectrometry with the release of the 7,500-plus triple-quad mass spectrometer. The 7,500-plus pairs the ultra-high sensitivity of the 7,500 with faster acquisition speeds and the ability to maintain the highest sensitivity quantitation for up to twice as many sample runs. This makes the 7,500-plus particularly well-suited for complex applications such as PFAS analysis where customers need to test more samples across diverse sample types with high precision to meet challenging new regulations. In our genomics consumables business, core revenue declined mid-single digits in the quarter. High-single digit growth in gene writing and editing solutions was more than offset by declines in next-generation sequencing and the impact of project timing in our plasmids business. During the quarter, IDT opened a new manufacturing facility at their Coreville, Iowa campus which enabled the team to manufacture differentiated new offerings such as rapid gene synthesis. This is the second facility expansion for IDT within the last 12 months and provides the capacity needed to support the rapidly expanding global DNA synthesis market and related drug development activities. Now moving over to our Diagnostic segment, core revenue increased 3%. Our Clinical Diagnostics businesses collectively delivered mid-single digit core revenue growth led by high-single digit growth at Radiometer. Leica Biosystems was up mid-single digits with notable strengths in digital pathology driven by the Aperio GT 450 diagnostics digital pathology slide scanner which recently received its FDA 510K clearance. Beckman Colter Diagnostics was up low single digits with balanced strengths across both developed and high growth markets. Now in May, Beckman received FDA 510K clearance of its Access NT ProBNP on the DxI 9000 immunoassay analyzer. This important expansion of Beckman's cardiac testing menu allows clinicians to quickly and accurately diagnose and assess the condition severity of patients suspected of having acute heart failure. Now this clearance is just the latest confirmation of the DxI 9000 platform’s capability to develop increasingly more sensitive and clinically relevant diagnostics. In molecular diagnostics, Cepheid’s respiratory revenue of approximately $300 million in the quarter exceeded our expectation of $200 million driven by both higher volumes and a favorable mix of our 4-in-1 tests for COVID-19, Flu A and B, and RSV. So we continue to expect respiratory revenue of approximately $1.6 billion for the full year 2024. Now as I mentioned earlier, we believe the Cepheid team continued to gain market share during the quarter. Increasing menu adoption and system utilization helped drive mid-teens growth in our core non-respiratory reagent portfolio, including more than 20% growth in sexual health and virology assays. We also continued to expand our nearly 60,000 system installed base as many existing healthcare systems and integrated delivery network customers are adding new instruments at sites further out in their networks and closer to patients. In June, the FDA granted Cepheid marketing authorization for its Hepatitis C RNA test. Hepatitis C diagnosis has traditionally been a multi-step process requiring follow-up appointments and leading to treatment delays. With Cepheid's test, which is the first molecular-based point of care test for Hepatitis C, patients can be tested and receive treatment during the same healthcare visit. So this is a great example of how bringing accurate, easy to use molecular testing closer to patients is improving treatment outcomes and driving long-term growth at Cepheid. Now before we move on to our expectations for the remainder of the year, I'd like to highlight our recently released 2024 Sustainability Report, which detailed several important milestones across the three pillars of our sustainability program. Starting with building the best team, innovating products that improve lives and our planet, and protecting our environment. Notably, we have committed to setting science-based greenhouse gas emission reduction targets in line with the science-based target initiative, including reaching net zero value chain emissions by 2050. So I encourage you all to read through the report to learn more about the depth and scope of Danaher’s commitment to sustainability and the important work we're doing to make a positive, holistic impact on the world around us. So now let's briefly look ahead at expectations for the third quarter and the full year 2024. In the third quarter, we expect core revenue to decline in the low single-digit percent range. Additionally, we expect a third-quarter adjusted operating profit margin of approximately 26%. For the full year 2024, there is no change to our previous guidance. As a reminder, we anticipate a core revenue decline in the low single-digit percent range and a full-year adjusted operating profit margin of approximately 29%. So, to wrap up, we're pleased with our better-than-expected second quarter results and are encouraged by the continued momentum in our bioprocessing business. Our strong performance is a testament to our team and their commitment to innovating and executing with the Danaher business system. And they have done a tremendous job navigating the current environment to support our customers' life-changing work today, while also delivering breakthrough innovation that is reinforcing our long-term competitive advantage. The transformation in our portfolio over the last several years has created a focused Life Sciences and Diagnostic leader positioned for higher long-term growth, expanded margins, and stronger cash flow. And our recent share repurchases reflect our conviction in a bright future ahead for Danaher. So looking ahead, the unique combination of our incredibly talented team, the strength and differentiation of our portfolio, and a leading financial profile provides us with a strong foundation to create sustainable, long-term shareholder value. And with that, I'll turn the call back to John.

Thanks, Rainer. That concludes our formal comments. We're now ready for questions.

Our first question will come from Jack Meehan with Nephron Research. Please go ahead.

Thank you. Good morning. And Rainer I appreciate all the color on Bioprocessing. Two follow-ups. First is on the consumables. Can you elaborate on what's giving you the confidence that the stock is drawing to a conclusion here? And then on the capital equipment side, just thoughts on how long this will remain depressed, and when you might start to see some improvement there?

So Jack, on the consumable side, we've really seen ordering patterns back to normal with very, very few exceptions and with pretty clear visibility through the measures that we put in place to stay close to our customers here during the destocking period. We feel that we're very close to normal order patterns. And keep in mind, we actively monitor our customers on a customer-by-customer basis. In addition to that, we really took active measures here to ensure that inventories were normalized. And you'll recall that we took decisions to ensure that we took the dysfunction in the supply chain out to ensure that we had a true demand signal. And we think that's paid off here, and we know where our customers sit in terms of their stock levels on consumables. Now equipment is a slightly different picture. We're seeing good activity there at some of our larger customers, and that played out here in the second quarter as well, with the sequential order growth being high single digits and being positive for both equipment and consumables. And so, those larger customers really do have a higher activity level, whereas the smaller customers probably remain a little bit more constrained.

Awesome. And then, we're just trying to piece together the mosaic here. So your bioprocessing orders increased high single digits when your peers declined sequentially. I think there's a lot of plausible explanations being thrown around for why the results in the quarter diverged. I was just curious if you could weigh in on what you think is the right signal, what's the noise?

Well, from a competitive perspective, Jack, everyone has slightly different positioning, whether it's by product category or geography or even customer type. Now, if you look at us, we're probably the broadest and the deepest in terms of our portfolio, both upstream and downstream, while some others are perhaps a little bit more concentrated. So, given that, it's always going to be hard to really line up the various players in the industry to have a perfect read-across. But again, the good news here is that this is a great business, and it's recovering as we expected, and we're confident about the future.

Excellent. Thank you.

Thank you. Our next question is from Rachel Vatnsdal with J.P. Morgan. Please go ahead.

Perfect. Hey, good morning, you guys, and thanks for taking the questions. So another one here just on bioprocessing. So on the 3Q guidance, can you just walk us through what's contemplated in the 3Q guide? We've seen a few quarters of sequential progression on orders during the last three quarters in a row sequentially. So walk us through how much of this is just seasonality on the step down into 3Q versus is there some conservatism in there? And then also on orders, should we expect seasonality to also impact on the order book for bioprocessing in 3Q as well?

Yeah. No, I think that's in bioprocessing in particular. We probably should talk about bioprocessing and respiratory for Q3. So if you think about sort of revenue, we've got bioprocessing is going to be down low single digits, which is again kind of a continued improvement versus what we saw in Q1 and Q2. We were down kind of high teens in Q1, high single digits in Q2, and we think that goes to kind of low single digits here in Q3. Given like Rainer just said, I think we're largely through the destocking sort of on the consumable side. A little bit easier comps in China as well, so that probably helps a little. But if you think about sort of the two big drivers of Q3, outside of even Bioprocessing, when you think about sort of the guide in totality, you have two issues or two things to think about. We've got lower volume in Biotechnology, like I just talked about, and in respiratory as well. So Biotechnology, prior to the pandemic, we sort of had a step down between Q2 and Q3 seasonally. That was always the case for the business, and we're kind of monitoring -– we're putting that in sequentially again here in our guide. We were about down mid-single digits prior to the pandemic from a revenue perspective. And so, that's kind of what we assumed in the guide, that we would have that sort of step down that we normally have seen. Given the fact that we're back at normal order patterns, we sort of believe that we're going to have a normal seasonality as well. So, you kind of factor that in for bioprocessing. And then on respiratory, we're assuming $200 million of revenue versus $300 million here in the quarter. So, the two of those kind of combined are the reason that you've got the Q3 revenue where it is. And I might also add, just to kind of get out in front of them, maybe the next question on margins, that's a big reason why we're kind of guiding to approximately 26% adjusted operating margin in the quarter. Those two businesses sort of being a little bit lower sequentially here, given their margin profile, that's the big driver, if not the full driver of what's happening on the margin perspective as well.

Great, thanks. And then my follow-up here, just on 2025, there's been a lot of noise across the industry on 2025 and where we'll be at from an underlying market growth standpoint as well. So, you reiterated exiting this year in bioprocessing at high single digits or above, but could you just walk us through how are you thinking about the total business in terms of 2025 in relation to that underlying market? And then you've also talked a lot about the incremental margins on bioprocessing and some of that durability on the margin expansion and diagnostics as well. So, Street's currently at $8.70 or so in EPS $1.25, how are you feeling about that number, any early takes there would be helpful? Thanks.

We have just completed the second quarter of 2024, and there's still much work to be done this year before we start considering 2025. Our guidance from January still stands, and we have significant tasks ahead from a revenue standpoint, but we are observing positive developments. Bioprocessing is evolving as we anticipated regarding revenue. Let's focus on finishing Q3 before we discuss Q4 and 2025. Historically, we have mentioned that Q4 and Q1 usually yield better margins for us due to the operating leverage from bioprocessing and respiratory segments, and I expect this year to be no different. Looking at the long-term margin outlook for next year, we've indicated that this business can achieve a 35% to 40% incremental fall-through rate. I see no reason to doubt that, especially as we return to growth in bioprocessing. Even during our contraction, we've been close to those levels, and I believe that over time, we will consistently achieve a 35% to 40% fall-through rate with our adjusted operating margin typically in the low 30s during normal conditions.

Thank you. Our next question will come from Scott Davis with Melius Research. Please go ahead.

Good morning, Rainer, Matt, and John. Regarding the buyback, I don't recall seeing one of this magnitude before. Could you provide some insight on whether this indicates that mergers and acquisitions are slowing down, or should we view it more as a housekeeping measure? I'd appreciate any additional thoughts on the reasoning behind the buyback. Thanks.

Well Scott, first, it's important to note that this is not a change on our view on capital allocation. So we maintain a strong bias towards M&A, and we're going to continue to be active on the M&A front. Now having said that, as always, we evaluate capital allocation using the same ROIC lens, whether it's M&A, buyback, R&D projects, CAPEX and so forth. We evaluate all of these investment options based on the expected returns. And specifically in today's environment, the relative value of a buyback generates attractive financial returns. So we're buying a great business, one we know very well. We have strong conviction about its future while maintaining a meaningful M&A envelope. And I put out there this, it's important that our free cash flow is nearly $6 billion and our net leverage is about two turns. So we feel well positioned here with various alternatives.

Makes sense, Rainer. Guys, well the book-to-bill in Cytiva, will that cross 1 in 3Q or maybe said a different way, has it already crossed 1 since we're already a month into the quarter?

Well, our book-to-bill is 0.9, Scott. And as we've said, in order to make our full year guide here of bioprocessing being down low single digits we have to maintain the 0.9. And that's certainly how the first half has played out here, and we're confident that that will continue to be the case. As you know, we don't guide to book-to-bills or orders, but basically the guide is built on the assumption that as we have 0.9 here for the year, we'll exit our year with high single-digit or better growth.

Thanks a lot Rainer, thank you guys. Appreciate it.

Thank you. Our next question will come from Vijay Kumar with Evercore ISI. Please go ahead.

Hi Rainer. Good morning to you and congratulations on a strong finish. Could you provide a high-level overview of the competitive pricing environment? Specifically, considering the message it conveys from various players, there seems to be some concern about whether the competitive pricing landscape could be beneficial. Could you share your observations in the market?

Vijay, look for the second quarter, all up for Danaher, our pricing was up 100 basis points right around there. And for 2024 as a whole, we think we will likely be a little above our historical average of 75 to 100 basis points. So we feel good about our positioning, the leverage in our portfolio, and how we've positioned here price-wise.

I believe you are asking about the bioprocessing price, Vijay. We saw an increase of about 2.5% this quarter, which is likely a good benchmark for the entire year. In recent years, we were achieving higher price increases of around 4% to 5%, but that was during a time when we faced supply chain issues and inflation that required us to raise prices to compensate. As those concerns diminish, prices may decrease. However, from a competitive standpoint, I don't observe significant pricing pressures. It feels more like a return to our previous pricing levels in bioprocessing, which is around 100 to 200 basis points.

Okay. That's helpful, Matt. Rainer, one more and a bigger picture on China. What's been the historical relationship between code activity and when that translates to orders and revenues, is there any way to quantify when you say China code activity has picked up, is that above trend versus historical averages above trend, any framework would be helpful?

Sure. Well, in China, what we're seeing is increased activity levels in our funnel. So the volumes that we see in our funnel have been growing and that's all related to people in the market getting ready for this stimulus funding, if you will, with sort of shovel-ready projects. But what we're also seeing is a decrease in the funnel velocity as naturally market players are looking to see what the financing terms and conditions for the stimulus are. So we have watched this development. This is expected for us. This is not new news. We expected that the market would hold up to see what the funding alternatives would be. And we don't expect to see the funnel convert into orders in any meaningful way here in 2024. We view that more as a 2025 event that people are waiting for their shovel-ready projects to receive funding.

Understood, thanks guys.

Thank you. Our next question will come from Michael Ryskin with Bank of America. Please go ahead.

Great, thanks for taking the questions. I want to ask on the Life Sciences segment. I think you flagged instruments still down high single digits. And that's a small part of the business, but it still seems like Life Sciences as a whole isn't seeing a lot of improvement yet. You also called out NGS, I think being a little bit weaker. So some parts of consumables are impacted. So just as a whole for Life Sciences, both instruments and consumables, can you dive a little bit more in terms of what you're seeing in the end market, any improvement in order trends there, just how should we expect the second half to play out?

Sure, Mike. Let's start with the quarter. Overall, the second quarter was down by high single digits, as we anticipated, and market conditions were largely similar to the first quarter. Capital equipment remained constrained, especially in China, while consumables and services performed relatively better. In developed markets, the pharmaceutical and biotech sectors remained soft but stable sequentially, while academic markets were slightly weaker. However, applied markets continued to perform well, particularly for advanced instrumentation needed for complex applications like PFAS and clinical testing. Regarding China, to build on my earlier comments, the recent stimulus measures are boosting improved sales funnels and coding activity, but we do not expect these to translate into orders until 2025. Consequently, we are seeing customers in China beginning to delay their purchasing decisions as they await the stimulus funding. Looking ahead to the second half, we expect the comparisons to ease somewhat, which will contribute to stabilization. However, we anticipate that the normalization process for Life Science tools and consumables will carry on through 2024.

Okay. 2025 is it?

Through 2024.

The end of 2024, okay, alright, thank you. And then on Cepheid on the Diagnostics side. I mean you talked about respiratory coming in a little bit stronger at $300 million. But the rest of Diagnostics and the rest of major diagnostics specifically, still seem a little bit choppy in the Q you called out a decline in core sales. So could you talk about what you're seeing in Diagnostics outside of respiratory business?

Sure. We saw mid-single-digit growth in our non-respiratory businesses with good customer activity around the world. And in particular, if you think about Cepheid, both respiratory and non-respiratory reagents were up. So non-respiratory was actually up mid-teens. And here you see the Cepheid strategy playing out, increasing that installed base, increasing menu adoption and utilization; virology, a relatively new assay, up 20% in the second quarter. And we're, of course, benefiting from recent menu expansion such as in sexual health, which is also up 20%. And then you heard us launch the new assay and receive approvals for Hepatitis C, and we look forward to seeing its growth journey going forward. So as you look at Cepheid, that strategy plays out. We continue to take share and grew both in respiratory and non-respiratory testing. We have there a little bit of a year-over-year with equipment being a little bit down and that nudged it just into a small negative growth here for the second quarter. Now as you look at the remaining businesses, Beckman grew low single digits. But really, the Beckman Diagnostics continues with this momentum with recurring revenue growing at mid-single digits again this quarter, and the overall moderation there for Beckman is really related to some challenging equipment comps. We had a lot of backlog that we needed to ship out last year, and that's affecting the compare here a little bit. But Beckman Diagnostics really is a mid-single-digit long-term grower. It's got a full innovation pipeline. The commercial execution is outstanding. We've got great instrument placement. And we've done a lot on the innovation front. We just talked about the Access NT ProBNP, which has expanded our cardiac menu in the second quarter. And we've done a full refresh of our product line with the immunoassay DxI 9000; on chemistry, the DxC 500 and in automation, the DxA 5000. So coupled with our execution, we see our diagnostics businesses poised and positioned very well here, both competitively and for the long term.

Great, thanks.

Thank you. Our next question will come from Dan Brennan with TD Cowen. Please go ahead.

Hey, great, thanks. Good morning Rainer, how are you doing. And Matt thanks for the questions here. Maybe just going back to Scott's question on the buyback. The Danaher stock has been one of the best performers over the past 5 and 10-year period. So arguably, you could say the ROIC on buybacks was consistently attractive during the period of time. And as mentioned, you guys historically don't really buy back stock and your business model is really predicated on M&A and deploying DBS. So could you just elaborate a bit on the M&A environment today, maybe what's holding things back, and what's your confidence in employing meaningful capital for M&A as we look out over the next few years?

Yes, Dan, let me begin. We are pleased with our portfolio and our future positioning. We believe in the growth potential ahead of us. The changes in our portfolio over the last five years, especially amidst the challenges of COVID, have obscured our view of the business's potential. We've mentioned in past discussions that this is a high single-digit growth business, with 60% gross margins and 30% operating profits, accompanied by free cash flow conversion exceeding 100%. We feel confident in our business. Currently, when I evaluate our trading position and compare it to the existing M&A multiples, I see that the returns from our buyback strategy are quite comparable, if not superior, to what we might achieve through acquisitions at these levels. Given this context, we believe the buyback is a sensible choice for now. However, our preference remains oriented towards M&A, despite the apparent disconnect in the current environment. We are essentially making a strategic bet on a business we thoroughly understand and believe holds significant upside.

Great, thanks Matt for that. And maybe just one, if I could just go back to the Q3 guide for Bioprocess and the normal seasonality. Q2 did come in ahead of expectations and you're maintaining the full year guide. So is there anything in Q2 in terms of a pull forward or timing or is there any change to your view that as inventories normalize, which I think you've said in the past, you would see a real nice recovery as I think you guys have talked about the math of seeing like a nice kind of growth rate as things normalize?

Yes. No, nothing, I would say, for bioprocessing and the same for respiratory. I would say there's nothing that we saw in Q2 that is causing us consternation about the normal seasonality. I think this is really about returning to a normal seasonal pattern, where typically in bioprocessing, we are seeing mid-single-digit decline sequentially from Q2 to Q3. And for planning purposes, because we are largely past destocking and because we see the customer order patterns sort of coming back to normal, for planning purposes we are going to plan on that same mid-single-digit decline from a revenue perspective sequentially, but that does not change anything in the underlying what we've seen in the business. So I wouldn't read too much into it other than this is a sequential normal historical revenue pattern, and we are assuming that in the guidance.

Great, thanks Matt.

Thank you. Our next question will come from Doug Schenkel with Wolfe Research. Please go ahead.

Good morning everyone, I appreciate you taking my questions. First, I have a two-part question regarding bioprocessing, and then I'll shift my focus back to China. Concerning bioprocessing, it looks like you need ongoing improvement in the end market to finish the year with high single-digit growth, indicating that this goes beyond just year-over-year comparisons. It seems you are anticipating further growth in that area. Given the trends we've seen in the market over the past couple of years, even with the positive signs you've mentioned, I'm curious about how confident you are regarding any potential risks to that expectation. That’s my first question. Now, for the second part about new modalities—how has your business in this area been performing lately, and what is your outlook for the mix of contributions from new modalities versus monoclonal antibodies as the market evolves? This could potentially boost growth in the upcoming quarters. Lastly, regarding China, I'm interested in the slowdown in purchasing related to pending stimulus. Can you elaborate on how widespread this issue is and where you are observing the most challenges as companies seek clarity on stimulus allocation? Thank you.

Sure. Let's start with how we get comfortable with our view on bioprocessing and its future. And I think it's important to level set one more time on the performance that we've seen here in the first half. Starting with the second quarter which, again, it has played out as we thought. We saw improvement in revenue and orders, second quarter in a row in both consumables and equipment. And you'll recall from our commentary in the last quarter's comments that we wanted to see that improvement in equipment, and we did. And our core revenue improved nearly 1,000 basis points from down high teens, Matt talked about this, to down high single digits. And again, orders grew high single digits sequentially from Q1, which is an acceleration from the mid-single digit. So we do see strength there. And that's because destocking is largely behind us, and there are very few exceptions, and those order patterns are more and more similar to the pre-pandemic levels, which is also why in our guide here for Q3, we've talked about seasonality again, something that we haven't seen and we'll consider the anomalous last eight quarters or so. So those ordering patterns are returning to what we saw in the pre-pandemic level. And again, important to note here, large customers with on-market drugs continue to grow because that underlying large molecule demand remains at historical growth rates, and we talked about that high single digits maybe even low double digits, but certainly at the historical rates, which continues to provide that demand signal through the entire value chain. At the same time, development pipelines remain very solid across the board. But if we look at Phase III, that's particularly strong. In fact, we would say it is stronger than it had been prior to the pandemic, and that further underwrites our long-term growth expectations. Now we talked about some of the smaller biotech customers, and that's where you tend to see some of these advanced modalities. Let's just call them for the sake of argument right now nucleic acid-based therapies, and perhaps a couple of other type bispecifics ADCs. And what we see there is that they have been over proportionately impacted by some of the funding contraction that we saw in the venture capital market, but that's improved, which is encouraging. But again, those smaller players really do need to focus on their most promising projects to play that. And that's going to have an effect on how much capital they spend on equipment. So if a particular player is positioned and their portfolio is skewed more towards these advanced therapies and the smaller customers where cash remains fairly tight, then that's going to impact the order book. With our broader portfolio, particularly with our skew towards commercialized drugs and those in late phases, we see that strength, and that's another reason why we feel good about exiting 2024 at high single digits or better. Now coming back to your question here on new modalities. New modalities are exciting. They're a small part of our business, and they're a small part of the overall market. Keep in mind, our business is driven by protein therapies in their various forms. And of course, we also are a leading player for the advanced therapies. But if you calibrate, this is a much smaller part of both our business and the market, and it's going to have a fair amount of variability, both in success rates in terms of the approvals that these advanced therapies received, but also in terms of the uptake and the reimbursement dynamics associated with those. So I think we're just at the very beginning of that trend to these advanced modalities going on. Lastly, China. The slowdown that we're seeing is really fairly broad-based. As you look at our portfolio, Life Science Equipment, in particular, has a research and more academic focus, and that's where you see a lot of waiting for the stimulus funds to be dispersed. And that segment is ready. The applications are filed. They're in the funnel, so to speak, but we need to see the disbursement of that. And we're not counting on that happening in any material form here in 2024.

Thank you. Our last question will come from Tycho Peterson with Jefferies. Please go ahead.

Thank you, thank you. Rainer, I want to go back to instruments for just a minute and kind of your background, obviously, in SCIEX back in the day. Just thinking about the replacement cycle, we get a lot of questions on that for mass spec. How do you think about that potentially kicking in over the next couple of years? Because I think there's some debate that some of that got pulled forward during COVID and maybe it's going to be more muted this cycle when you do start to see the replacement cycle from that aspect?

So I think we would support that hypothesis that the additional funding and the various market subsidies pulled forward demand and replaced a lot of equipment out there during the pandemic and immediately following that. And that's why we've talked about the need, and we're experiencing that normalization period right now. And that replacement cycle is going to remain intact. And that's why we would say we're probably sort of in the early innings, mid-innings here of that recovery, the first step that we're probably going to see here are the lower comps in the second half. And it's probably going to take 2025 to start approaching that normal replacement cycle again, Tycho.

Okay. And then on bioprocess, I appreciate all the color. We started to get more questions on yield improvements. I'm wondering how you think about that, just your customers getting more efficient and then how do you think about capacity kind of freeing up in the industry, whether it's Novo selling off some of the talent capacity or Wushi having to get rid of some capacity in the U.S. Just curious how you think about that playing into kind of the equipment side of things? And then maybe the last part, just what's your view on kind of doing more on the services side, CDMO type work and adding your own capacity?

So starting with yields and improving customer yields, that's what we do. Our focus in bioprocessing is to help our customers improve the yields and there's plenty of opportunity for that to ultimately lower the total cost of manufacturing of these life-saving certainly quality of life improving drugs and to improve accessibility to these drugs around the world. So that's what we do. And we don't view that as an inhibitor to growth. On the contrary, through creating more value for our customers, we see more opportunity for growth there and differentiation and believe that we're very well positioned. Now as we think about capacity here in the marketplace, we actually believe that capacity certainly for commercial production and what is in Phase III needs to increase. We don't believe that in the large manufacturers, pharma or CDMO, that ultimately there is sufficient capacity for the long term, and we would expect that capacity to continue to increase, and there's moves in the marketplace that demonstrate that. And that underwrites also our perspective on equipment orders growth. Now as it relates to services, we've talked about that at length. We're very focused on the scope of the businesses that we have. We're excited about investing in those businesses and helping our customers do what they do. We do provide services in order to help them with some of their most complex and new therapies and then ultimately the tech transfers to either the pharma company itself or its CDMO partner.

Thank you. At this time, I would like to turn the call back to John Bedford for any additional or closing remarks.

Thank you everybody for joining. We'll be around all day and rest of the week for questions. Have a good day.

Thank you. This does conclude Danaher Corporation's second quarter 2024 earnings results conference call. You may disconnect your line at this time, and have a wonderful day.